SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File No. 1-11402
____________
HFS Incorporated
(Exact name of Registrant as specified in its charter)
Delaware 22-3059335
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
339 Jefferson Road
Parsippany, New Jersey 07054
(Address of principal executive office) (Zip Code)
(201) 428-9700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if applicable)
____________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and 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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the Registrant's classes of common
stock was 123,245,314 shares of Common Stock outstanding as at August 6, 1996.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
ASSETS 1996 1995
- --------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 387,837 $ 16,109
Royalty accounts and notes receivable, net of
allowance for doubtful accounts 82,765 37,326
Marketing and reservation receivables, net of
allowance for doubtful accounts 43,351 22,297
Relocation receivables 113,075 51,180
Other current assets 32,337 21,304
Deferred income taxes 36,456 20,200
Total current assets 695,821 168,416
Property and equipment, net 99,411 67,892
Franchise agreements, net 599,631 517,218
Excess of cost over fair value of net assets
acquired, net 1,316,146 356,754
Other assets 78,609 55,528
TOTAL ASSETS $2,789,618 $1,165,808
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and other $ 172,064 $ 73,724
Income taxes payable 62,421 38,640
Accrued acquisition obligations 32,002 10,276
Current portion of long-term debt 29,562 2,249
Total current liabilities 296,049 124,889
Long-term debt 540,530 300,778
Other liabilities 30,894 17,150
Deferred income taxes 85,400 82,800
Commitments and contingencies
Series A Adjustable Rate Preferred Stock of Century 21 -- 80,000
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 1,232 1,025
Additional paid-in capital 1,690,347 475,562
Retained earnings 145,166 83,604
Total stockholders' equity 1,836,745 560,191
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,789,618 $1,165,808
-See notes to consolidated financial statements-
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
REVENUE:
Franchise $145,134 $ 85,634 $240,135 $151,789
Other 34,531 10,695 64,075 18,693
------ ------ ------ ------
Total revenue 179,665 96,329 304,210 170,482
------- ------ ------- -------
EXPENSES:
Marketing and reservation 43,873 37,325 75,491 66,682
Selling, general and administrative 33,957 6,881 60,311 14,967
Ramada license fee 5,156 4,770 10,045 9,283
Depreciation and amortization 13,219 6,776 23,405 13,332
Interest 7,783 5,156 14,574 10,255
Other 11,193 1,117 17,076 1,219
------ ----- ------ -----
Total expenses 115,181 62,025 200,902 115,738
------- ------ ------- -------
Income before income taxes 64,484 34,304 103,308 54,744
Provision for income taxes 25,740 14,121 41,746 22,499
------ ------ ------ ------
Net income $ 38,744 $ 20,183 $ 61,562 $ 32,245
======== ======== ======== ========
SHARE INFORMATION (fully diluted):
Net income per share $ .31 $ .19 $ .51 $ .31
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding 130,159 112,942 126,275 112,276
======= ======= ======= =======
-See notes to consolidated financial statements-
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Retained
Shares Amount Capital Earnings Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 102,539 $ 1,025 $ 475,562 $ 83,604 $ 560,191
Issuance of common stock 20,278 203 1,205,917 -- 1,206,120
Exercise of stock options 351 4 3,748 -- 3,752
Tax benefit from exercise
of stock options -- -- 5,028 -- 5,028
Conversion of 4 1/2% Notes 5 -- 92 -- 92
Net income -- -- -- 61,562 61,562
------- ---------- ---------- ------ ------
Balance, June 30, 1996 123,173 $ 1,232 $1,690,347 $ 145,166 $1,836,745
======= ========== ========== ========== ==========
</TABLE>
-See notes to consolidated financial statements-
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
1996 1995
Operating Activities:
Net income $ 61,562 $32,245
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization, including
amortization of deferred financing costs 24,232 13,960
Changes in operating assets and liabilities
and other (23,597) (15,397)
Net cash provided by operating activities 62,197 30,808
Investing Activities:
Property and equipment additions (13,109) (4,074)
Loans and investments (10,000) (13,000)
Net assets acquired, exclusive of cash acquired (992,163) (6,782)
Net cash used in investing activities (1,015,272) (23,856)
Financing Activities:
Issuance of common stock, net 1,163,872 2,005
Proceeds from borrowings, net 241,999 -
Redemption of Series A Preferred Stock (80,000) -
Principal payments - long-term debt (1,068) (10,810)
Net cash provided by (used in)
financing activities 1,324,803 (8,805)
Net increase (decrease) in cash and cash equivalents 371,728 (1,853)
Cash and cash equivalents, beginning of period 16,109 5,956
Cash and cash equivalents, end of period $387,837 $ 4,103
-See notes to consolidated financial statements-
<PAGE>
HFS Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated balance sheet of HFS Incorporated (the "Company") as of
June 30, 1996, the consolidated statements of income for the three and six
months ended June 30, 1996 and 1995, the consolidated statements of cash flows
for the six months ended June 30, 1996 and 1995 and the consolidated statement
of stockholders' equity for the six months ended June 30, 1996 are unaudited and
reflect all adjustments of a normal recurring nature which are, in the opinion
of management, necessary for a fair presentation. There were no adjustments of
an unusual nature recorded during the three and six months ended June 30, 1996
and 1995 except that in June 1996, the Company recorded a $7.0 million pre- tax
restructuring charge, related primarily to the contribution of owned Coldwell
Banker brokerage offices to a newly created independent entity, the National
Realty Trust (the "Trust") (See Note 2). The Company engages in the business of
franchising guest lodging facilities (lodging segment) and real estate brokerage
offices (real estate segment). The principal sources of lodging segment revenue
are based upon the annual gross room revenue of franchised properties. The
principal sources of real estate segment revenue are based upon franchisee gross
commission revenue from real estate sales and may include monthly franchisee
membership fees. As a result, the Company experiences seasonal revenue patterns
similar to those of the hotel and real estate industries wherein the summer
months produce higher revenue than other periods of the year. Accordingly, the
first and fourth quarters are traditionally weaker than the second and third
quarters and interim results are not necessarily indicative of results for a
full year.
The consolidated financial statements include the accounts and transactions
of all wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation. The consolidated financial
statements of the Company include the assets and liabilities of Ramada Franchise
Systems, Inc., an entity controlled by the Company by virtue of its ownership of
100% of the common stock of such entity. The assets of Ramada Franchise Systems,
Inc. are not available to satisfy the claims of any creditors of the Company or
any of its other affiliates, except as otherwise specifically agreed by Ramada
Franchise Systems, Inc.
The consolidated financial statements and notes are presented as required
by Form 10-Q and do not contain certain information included in the Company's
annual consolidated financial statements. The December 31, 1995 consolidated
balance sheet was derived from the Company's audited financial statements. This
Form 10-Q should be read in conjunction with the Company's consolidated
financial statements and notes thereto, incorporated by reference in the 1995
Annual Report on Form 10-K.
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with classifications used in 1996.
2. Acquisitions
The following acquisitions were accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed were recorded
at their estimated fair values. The results of operations of acquisitions
completed during the six months ended June 30, 1996 have been included in the
Company's consolidated results since the respective dates of acquisition.
<PAGE>
A. TRAVELODGE: In January 1996, the Company purchased the assets comprising
the Travelodge hotel franchise system ("Travelodge") in North America ,
including the Travelodge(R) and Thriftlodge(R) service marks and the franchise
agreements from Forte Hotels, Inc. ("FHI") for $39.3 million.
Concurrent with the Company's acquisition of the Travelodge franchise
system, Motels of America, Inc., through a wholly owned subsidiary,
(collectively "MOA"), purchased 19 Travelodge motels from FHI for $32.3 million.
MOA, a significant Company franchisee, entered into twenty year Travelodge
franchise agreements. The Company financed $10 million of MOA's purchase price
under a $10 million revolving credit facility, bearing interest at 14% per
annum. The loan is guaranteed by a parent company of MOA and secured by
approximately 80% of MOA's outstanding common stock.
In addition, National Lodging Corp. ("NLC"), a former wholly owned Company
subsidiary which was distributed to the Company shareholders on November 22,
1994 (the "Distribution Date"), purchased all of the common stock of FHI for
$98.4 million. FHI owned or had an interest in 112 hotel and motel properties at
the acquisition date. In connection with NLC's acquisition, the Company
guaranteed $75 million of NLC borrowings under a $125 million revolving credit
facility entered into by NLC with certain banks. The Company is paid a guarantee
fee of 2% per annum of the outstanding guarantee commitment by the Company
pursuant to a financing agreement entered into between NLC and the Company at
the Distribution Date (the "Financing Agreement"). The Financing Agreement was
modified to provide expressly for the guaranty of such NLC borrowings. The
Company and NLC terminated or modified other agreements entered into with NLC at
the Distribution Date, including a gaming related marketing services agreement
and an advisory agreement. NLC paid the Company an advisory fee approximating $2
million in January 1996 in connection with NLC's acquisition of FHI.
B. ERA: In February 1996, the Company purchased the assets comprising the
Electronic Realty Associates ("ERA") residential real estate brokerage franchise
system and in June 1996, the Company purchased certain ERA affiliates which
conduct the ERA home warranty business in eight states. The aggregate purchase
price for ERA and ERA affiliates was approximately $40.5 million.
C. CENTURY 21 NON-OWNED REGIONS: During the second quarter of 1996, the
Company purchased from four independent master licensees, the six U.S. non-owned
Century 21 regions ("Century 21 NORS") consisting of more than 1,000 franchised
real estate offices. The $147 million aggregate purchase price consisted of
approximately $96 million in cash, $5 million in notes and $46 million
(approximately 0.9 million shares) in Company common stock.
D. COLDWELL BANKER: On May 31, 1996, the Company acquired by merger (the
"Merger") Coldwell Banker Corporation ("Coldwell Banker"), the largest gross
revenue producing residential real estate company in North America and a leading
provider of corporate relocation services. The Company paid $640 million in cash
for all of the outstanding capital stock of Coldwell Banker and repaid
approximately $105 million of Coldwell Banker indebtedness. The aggregate
purchase price for the transaction was financed through the sale of Company
common stock (see Note 5).
Immediately following the closing of the Merger, the Company conveyed
Coldwell Banker's 318 owned real estate brokerage offices (the "Owned Brokerage
Business") to the Trust, an independent entity governed by independent trustees.
The Company recorded a pre-tax restructuring charge of $7 million (approximately
$4.3 million, net of tax or $0.03 per share) related primarily to the
contribution of net assets to the Trust.
<PAGE>
Pro Forma Information:
The following information reflects the comparative pro forma statements of
operations of the Company for the six months ended June 30, 1996 and 1995
assuming the following transactions occurred on January 1, 1995: (i) the August
1, 1995 acquisition of Century 21 Real Estate Corporation ("Century 21"); (ii)
the acquisition by merger in May 1995 of Casino & Credit Services, Inc.'s
gambling patron credit information business, Central Credit Inc. ("CCI"); (iii)
the 1996 acquisitions of Travelodge, ERA and the Century 21 NORS; (iv) the
Merger; (v) the contribution of Coldwell Banker's owned real estate brokerage
offices to the Trust; (vi) proceeds from an offering of the Company's common
stock (See Note 5) to the extent necessary to fund the Merger and the related
repayment of indebtedness and acquisition expenses; and (vii) the issuance of
$240 million of 4 3/4% convertible senior notes due 2003 (the "4 3/4% Notes",
see Note 6) to the extent such proceeds were used to finance acquisitions. The
acquisitions have been accounted for using the purchase method of accounting.
Accordingly, assets acquired and liabilities assumed will be recorded at their
estimated fair values, which are subject to further refinement, based upon
appraisals and other analyses with appropriate recognition given to the effect
of current interest rates and income taxes. The pro forma results are not
necessarily indicative of the results of operations that would have occurred had
the transactions been consummated as indicated nor are they intended to indicate
results that may occur in the future. The underlying pro forma information
includes the amortization expense associated with the assets acquired, the
reflection of the Company's financing arrangements, the elimination of redundant
costs and the related income tax effects. Certain other Company acquisitions
were not material and therefore were not reflected in the pro forma statements
of operations.
June 30,
(000's, except net income per share) 1996 1995
Revenue $391,966 $342,313
Income before income taxes 131,445 99,701
Net income 78,416 57,719
Net income per share (fully diluted) $ .59 $ .45
Weighted average common and common equivalent
shares outstanding (fully diluted) 137,485 131,841
3. Income Taxes
The effective income tax rate is based on estimated annual taxable income
and other factors.
4. Earnings per Share
Earnings per share for the six months ended June 30, 1996 and 1995 are
based upon the weighted average number of common and common equivalent shares
outstanding during the respective periods. The 4 3/4% Notes are antidilutive for
the six months ended June 30, 1996 and, accordingly, are not included in the
computation of earnings per share for 1996. For purposes of calculating earnings
per share, the $150 million 4 1/2% convertible senior notes are assumed to be
converted and, accordingly, interest expense, including amortization of deferred
financing costs (net of taxes) has been added back to net income.
<PAGE>
5. Stockholders' Equity
A. Authorized Shares - On January 22, 1996, the Company's shareholders
approved an amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of common stock to 300 million.
B. Public Offering - On May 9, 1996, the Company sold an aggregate 19.4
million shares of Company common stock pursuant to a public offering (the
"Offering"). Net proceeds from the Offering of $1.2 billion financed the
acquisition of Coldwell Banker and the balance is available for general
corporate purposes, including acquisitions.
6. Long-Term Debt
On February 22, 1996, the Company completed the public offering of the 4
3/4% Notes, which are convertible at the option of the holder at any time prior
to maturity into 14.993 shares of the Company's common stock per $1,000
principal amount of the 4 3/4% Notes, representing a conversion price of $66.70
per share. The 4 3/4% Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after March 3, 1998 at redemption prices
decreasing from 103.393% of principal at March 3, 1998 to 100% of principal at
March 3, 2003. However, on or after March 3, 1998 and prior to March 3, 2000,
the 4 3/4% Notes will not be redeemable at the option of the Company unless the
closing price of the Company's common stock shall have exceeded $93.38 per share
(subject to adjustment upon the occurrence of certain events) for 20 trading
days within a period of 30 consecutive trading days ending within five days
prior to redemption. Interest on the 4 3/4% Notes is payable semi-annually
commencing September 1, 1996.
7. Recent Event - Pending Acquisition of Avis, Inc.
On July 1, 1996, the Company entered into an agreement in principle to
acquire Avis, Inc., the second largest rental car system in the world, from its
shareholders. The Company agreed to pay approximately $800 million for all of
the outstanding capital stock of Avis, Inc., consisting of approximately $500
million in cash and $300 million in Company common stock. While completion of
this transaction is not assured, the Company expects that the transaction will
be completed in the fourth quarter of 1996. The acquisition of Avis, Inc., if
consummated, will be accounted for under the purchase method of accounting.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL REVIEW
HFS Incorporated (the "Company") began 1996 as the world's largest
franchisor of lodging facilities and real estate brokerage offices. In 1996, the
Company continued to pursue its strategy of adding franchise brands to its
existing franchise infrastructure with several acquisitions, including the
acquisition of Coldwell Banker Corporation ("Coldwell Banker"), the largest
gross revenue producing residential real estate company in North America and a
leading provider of relocation services.
The Company continues to pursue acquisitions and other strategic
transactions in its two primary industries and other franchise or franchisable
businesses. On July 1, 1996, the Company entered into an agreement in principle
to acquire Avis, Inc., the second largest rental car system in the world, from
its shareholders. The Company agreed to pay approximately $800 million for all
of the outstanding capital stock of Avis, Inc., consisting of approximately $500
million in cash and $300 million in Company common stock. While completion of
this transaction is not assured, the Company expects that the transaction will
be completed in the fourth quarter of 1996.
RESULTS OF OPERATIONS -- REVENUE OVERVIEW
Company revenue increased 87% ($83.3 million) to $179.7 million in the
second quarter of 1996 compared to $96.3 million in the second quarter of 1995.
Approximately $62.9 million of the increase represented incremental revenue from
the Company's real estate segment including revenue generated from the CENTURY
21(R), Electronic Realty Associates(R) (ERA(R)) and Coldwell Banker(R) franchise
systems which were acquired in August 1995, February 1996 and May 1996,
respectively. Preferred vendor revenue also increased $6.8 million representing
a 158% increase.
Company revenue increased 78% ($133.7 million) to $304.2 million during the
six months ended June 30, 1996 compared to the same period in 1995. The lodging
and real estate segments each contributed to revenue increases; the real estate
segment, which was not established until the third quarter of 1995, generated
$85.7 million of revenue for the six months ended June 30, 1996.
2Q96 vs. 2Q95
Lodging Franchise Fees
The royalty portion of lodging franchise fees increased $6.0 million (15%),
in the second quarter of 1996 compared to the same period in 1995. Room growth
through the sale of franchise agreements and the acquisitions of the Knights
Inn(R) and Travelodge(R) franchise systems in August 1995 and January 1996,
respectively, contributed to the increase. Excluding these acquisitions, the
Company added 24,712 rooms, net of terminations, during the twelve months ended
June 30, 1996, representing a 13% increase in the total number of rooms from
June 30, 1995. In the second quarter of 1996 total system revenue per available
room ("REVPAR") increased 3% driven by both increases in total system average
daily rate and occupancy percentages from the second quarter 1995 compared to
1996.
<PAGE>
Real Estate Franchise Fees
The real estate segment contributed $50.7 million of franchise fees for the
second quarter of 1996 including $34.0 million from the CENTURY 21 franchise
system acquired in August 1995, $5.3 million from the ERA franchise system
acquired on February 12, 1996 and $11.4 million from the Coldwell Banker
franchise system acquired on May 31, 1996. Pro forma franchise fees for acquired
franchise systems increased 23% ($13.9 million) for the quarter ended June 30,
1996 compared to the same period in 1995 under predecessor company ownership.
Other
Other revenue is substantially comprised of relocation service revenue and
revenue from preferred vendor arrangements. Preferred vendor fees consist of
revenue generated from vendors seeking access to the Company's franchisees and
franchisees' customers. Preferred vendor revenue increased $6.8 million (158%)
from the second quarter of 1995 to the second quarter of 1996. The Company
acquired relocation service businesses in connection with the acquisitions of
the CENTURY 21, ERA and Coldwell Banker franchise systems. Relocation service
fees approximated $12.2 million in the second quarter of 1996, including $7.7
million from Coldwell Banker Relocation Services, Inc., the second largest
relocation business in the United States.
Year-to-date 1996 vs. 1995
Lodging Franchise Fees
Lodging segment franchise fees and the royalty portion of franchise fees
increased $14.3 million (10%) and $12.0 million (17%), respectively, in the
first six months of 1996 compared to the same period in 1995, for primarily the
same reasons as indicated for the increases in second quarter 1996 results.
Real Estate Franchise Fees
The real estate segment contributed $70.5 million of franchise fees for the
six months ended June 30, 1996 including approximately $51.8 million from the
CENTURY 21 franchise system acquired on August 1, 1995, approximately $7.3
million from the ERA franchise system acquired on February 12, 1996 and $11.4
million from the Coldwell Banker franchise system, acquired on May 31, 1996. Pro
forma franchise fees for those franchise systems increased 19% ($19.7 million)
for the six months ended June 30, 1996 compared to the same period in 1995 under
predecessor company ownership.
Other
Other revenue was substantially comprised of fees from preferred vendor
arrangements, which increased $16.1 million (181%) from the first six months of
1995 compared to the same period in 1996. Other revenue also includes $15.2
million of relocation services fees from businesses acquired in connection with
the Company's real estate segment acquisitions including $7.7 million from
Coldwell Banker Relocation Services, Inc., acquired on May 31, 1996.
<PAGE>
RESULTS OF OPERATIONS -- EXPENSES AND INCOME
2Q96 vs 2Q95
Income before income taxes increased $30.2 million (88%) resulting from a
$83.3 million increase in revenue net of a $53.1 million (86%) increase in
expenses.
Selling, general and administrative expenses ('SG&A') increased $27.1
million for the second quarter of 1996 over the comparable period in 1995,
primarily as a result of $25.1 million of incremental expenses attributable to
the recently acquired real estate segment operations including CENTURY 21, ERA
and Coldwell Banker franchise systems following their respective August 1995,
February 1996 and May 1996 acquisitions. Included in real estate segment SG&A
expenses is a $7.0 million pre-tax restructuring charge related primarily to the
contribution of Coldwell Banker's owned brokerage business to National Realty
Trust (the "Trust"), an independent entity governed by an independent Board of
Trustees. The $6.5 million increase in marketing and reservation expenses
includes a $3.2 million increase in marketing fees from franchised lodging
properties and a $3.3 million contribution by the Company to the CENTURY 21
National Advertising Fund ("NAF"), a dedicated advertising fund for national and
local marketing. Century 21 Real Estate Corporation ("Century 21") is
contractually obligated to contribute 10% of net service fees received to the
NAF.
Depreciation and amortization for the second quarter of 1996 increased $6.4
million when compared to the same period in 1995 which is primarily attributable
to amortization of fixed assets, franchise agreements and excess of cost over
fair value of net assets acquired ("goodwill") in connection with the
acquisitions of the CENTURY 21, Coldwell Banker, ERA, Knights Inn(R) and
Travelodge(R) franchise systems, the Century 21 non-owned regions and CCI and
the issuance of Company common stock in September 1995, pursuant to an earnout
agreement (the "Earnout Agreement") entered into with Bryanston Group, Inc.
("Bryanston"), an affiliate of the sellers of the Days Inn(R) franchise system.
The issuance of common stock to Bryanston resulted in additional goodwill and
related amortization, commencing in September 1995.
Interest expense for the second quarter of 1996 increased $2.6 million as a
result of the issuance of $240 million 4 3/4% Convertible Senior Notes ("4 3/4%
Notes") in February 1996. The increase in interest expense was offset in part by
the Company's lower average borrowing rate for comparative periods. The
Company's weighted average effective interest rate decreased from 6.0% in the
second quarter 1995 to 5.6% in the second quarter of 1996 as a result of the
issuance of the 4 3/4% Notes. Outstanding borrowings at June 30, 1996 were
substantially comprised of fixed rate debt securities.
Other expenses increased $10.1 million in the second quarter of 1996
compared to the same quarter of 1995, corresponding to a $23.8 million increase
in related revenue. Other expenses include $7.9 million of relocation services
expense businesses associated with the Company's 1995 and 1996 real estate
franchise system acquisitions.
Year-To-Date 1996 vs. 1995
Income before income taxes increased $48.6 million (89%) resulting from a
$133.7 million increase in revenue net of a $85.1 million (74%) increase in
expenses.
Selling, general and administrative expenses ("SG&A") increased $45.3
million for the six months ended June 30, 1996 over the comparable period in
1995, primarily as a result of $40.3 million of incremental expenses
attributable to real estate segment operations including the CENTURY 21, ERA and
<PAGE>
Coldwell Banker franchise systems following their respective August 1995,
February 1996 and May 1996 acquisitions. Included in real estate segment SG&A
expenses is the $7.0 million pre-tax restructuring charge related primarily to
the contribution to the Trust. The $8.8 million increase in marketing and
reservation expenses includes a $1.9 million increase in marketing fees from
franchised lodging properties and a $4.9 million contractual contribution by
Century 21 to the NAF.
Depreciation and amortization for the six months ended June 30, 1996
increased $10.1 million when compared to the same period in 1995 which is
primarily attributable to amortization of fixed assets, franchise agreements and
goodwill in connection with the acquisitions of the CENTURY 21, Coldwell Banker,
ERA, Knights Inn(R) and Travelodge(R) franchise systems, the Century 21
non-owned regions and CCI and the issuance of Company common stock in September
1995, pursuant to the Earnout Agreement.
Interest expense for the six months ended June 30, 1996 increased $4.3
million due to the issuance of the 4 3/4% Notes in February 1996. Interest
expense was offset in part by the Company's lower average borrowing rate for
comparative periods. The Company's weighted average effective interest rate
decreased from 6.0% in the first six months of 1995 to 5.6% in the six months
ended June 30, 1996 as a result of the issuance of the 4 3/4% Notes.
The $15.9 million increase in other expenses for the six months ended June
30, 1996 compared to 1995, corresponds with a $45.4 million increase in related
revenue. The increase is primarily composed of relocation service expenses
associated with real estate franchise system acquisitions and includes $10.2
million of relocation expenses and $4.0 million of home warranty expenses.
Pro Forma Results of Operations
The 36% ($20.7 million) increase in pro forma net income from the six
months ended June 30, 1995 to the comparable period in 1996 primarily results
from a $49.7 million increase in revenue and only a $17.9 million increase in
total expenses. The revenue increase includes a $24.6 million (14%) increase in
the combined lodging and real estate royalty portion of franchise fees. The
increase in lodging segment franchise fees resulted substantially from system
growth during periods of Company ownership and the increase in real estate
segment franchise fees resulted from increases in gross commission revenue from
comparable franchised brokerage offices. The increase in pro forma other income
is primarily attributable to the $16.3 million increase in the Company's
reported preferred vendor revenue, which excludes the pro forma benefits that
may be contributed from preferred vendors seeking access to the Company's newly
acquired franchisees.
LIQUIDITY AND CAPITAL RESOURCES
Pending Acquisitions
On July 1, 1996, the Company entered into an agreement in principle to
acquire the common stock of Avis, Inc., for approximately $800 million
consisting of $500 million in cash and $300 million of Company common stock.
While completion of this transaction is not assured, the Company expects that
the transaction will be completed in the fourth quarter of 1996. The Company has
sufficient existing cash, short-term marketable securities and $300 million of
available borrowings under its current revolving credit facility to fund the
cash portion of the purchase price.
<PAGE>
Acquisitions
COLDWELL BANKER: On May 31, 1996, the Company acquired by merger Coldwell
Banker ("Merger") for $640 million of cash plus repayment of approximately $105
million of indebtedness. At the effective date of the Merger, Coldwell Banker
had 2,164 franchised brokerage offices and owned 318 residential real estate
brokerage offices ("Owned Brokerage Business") in the United States, Canada and
Puerto Rico, representing the third largest real estate brokerage system in the
United States.
The Company financed the Coldwell Banker transaction with approximately
$1.2 billion of proceeds from a public offering (the "Offering") of
approximately 19.4 million common shares in the second quarter of 1996.
Approximately $400 million of proceeds in excess of the purchase price and $300
million of borrowings available under the Company's revolving credit facility
may be used for general corporate purposes, future acquisitions and strategic
transactions in franchise or franchisable businesses. Immediately following the
closing of the Merger, the Company conveyed the Owned Brokerage Business to the
Trust, an independent entity governed by independent trustees. The Company
incurred a $7 million pre-tax restructuring expense primarily related to the
contribution of the Owned Brokerage Business to the Trust.
CENTURY 21 NON-OWNED REGIONS: During the second quarter of 1996, the
Company completed the acquisition of the six U.S. Century 21 regions which were
licensed to four independent master licensees. The aggregate purchase price
consisted of approximately $96 million of cash, $5 million of notes and $46
million (approximately 0.9 million shares) of the Company's common stock. These
regions represent more than 1,000 CENTURY 21 franchised real estate offices in
the United States and the acquisitions result in the Company receiving royalty
fees of up to 6% of franchisee gross commissions generated by such offices
compared to less than 1% previously received under the master licensing
agreements. The cash portion of the aggregate purchase price was financed with
proceeds from the issuance of the 4 3/4% Notes.
ERA: The Company purchased on February 12, 1996, the assets comprising the
ERA residential real estate brokerage franchise system and, in the second
quarter of 1996, the stock of certain ERA affiliates which conduct the ERA home
warranty business in eight states. The aggregate purchase price of $40.5 million
was financed by borrowings under the Company's revolving credit facility.
CENTURY 21: On August 1, 1995, a majority-owned Company subsidiary, C21
Holding Corp. ("Holding"), acquired Century 21 from Metropolitan Life Insurance
Company ("MetLife") for an aggregate purchase price of $245 million plus
expenses. In February 1996, the Company settled the $30 million contingent
portion of the purchase price of Century 21 and redeemed $80 million of Century
21 redeemable preferred stock issued to MetLife prior to the acquisition. The
Company financed these payments with proceeds from the 4 3/4% Notes.
TRAVELODGE: On January 23, 1996, the Company purchased the assets
comprising the Travelodge hotel franchise system in North America, including the
Travelodge and Thriftlodge(R) service marks and franchise agreements, from Forte
Hotels, Inc. ("FHI") for $39.3 million. The Company financed the acquisition
with borrowings under its revolving credit facility and repaid the borrowings
with proceeds from the 4 3/4% Notes.
Concurrent with the Company's acquisition of the Travelodge franchise
system, Motels of America, Inc., through a wholly owned subsidiary (collectively
"MOA"), purchased 20 Travelodge motels from FHI for $32.3 million. MOA, a
significant Company franchisee, entered into twenty year Travelodge franchise
agreements. The Company financed $10 million of MOA's purchase price under a $10
<PAGE>
million revolving credit facility, bearing interest at 14% per annum. The loan
is guaranteed by the parent company of MOA and secured by approximately 80% of
MOA's outstanding common stock. In addition, NLC purchased all of the common
stock of FHI for $98.4 million. FHI owned or had an interest in 112 hotel and
motel properties at the acquisition date. In connection with NLC's acquisition,
the Company guaranteed $75 million of NLC borrowings under a $125 million
revolving credit facility entered into by NLC with certain banks. The Company is
paid a guarantee fee of 2% per annum of outstanding guarantee commitment by the
Company pursuant to a Financing Agreement.
Concurrent with the acquisition of the Travelodge franchise system and
NLC's acquisition of FHI, the marketing and advisory agreements between the
Company and NLC were terminated. The corporate services agreement was modified
to provide that the Company is to provide financial and other corporate
administrative support and advisory services through September 1996 and
thereafter advisory services through January 2019 for a fee of $1.5 million per
year. NLC paid a $2.0 million advisory fee to the Company in connection with
NLC's acquisition of FHI.
Financing
The Company believes that it has excellent liquidity and access to
liquidity through various sources. The Company has generated significant
positive cash flow from operations in every quarter since its public offering in
December 1992. The Company has also demonstrated its ability to access equity
and public debt markets and financial institutions to generate capital for
strategic acquisitions. Indicative of the Company's creditworthiness, Standard &
Poors Corporation assigned an "A" credit rating to the Company's $540 million of
publicly issued debt.
The Company generated $62.2 million of cash flow from operations,
representing a $31.4 million (102%) increase from the six months ended June 30,
1995. Additional liquidity is available to the Company through a revolving
credit facility (the "Credit Facility"), which provides up to $300 million and
$200 million of unsecured borrowings through December 1996 and 1997,
respectively, at interest rates generally approximating LIBOR plus a margin not
to exceed 0.63% based on the Company's published credit rating and percentage of
facility utilized. The Company is currently arranging to replace the Credit
Facility with a revolving credit facility providing at least $500 million of
available liquidity to provide cash for acquisitions, strategic transactions and
general corporate purposes.
The Company completed an offering of 19.4 million shares of common stock in
the second quarter of 1996 which yielded net proceeds to the Company after
expenses of $1.2 billion. Approximately $ 755 million of the proceeds were used
to finance the acquisition of Coldwell Banker and repay $75 million of
outstanding borrowings under the Company's Credit Facility. The remaining $331
million of proceeds are available for general corporate purposes including
capital for acquisitions and strategic transactions.
Working capital at June 30, 1996 approximated $399.8 million including the
remaining $331 million of excess proceeds from the Offering. Excluding the
excess proceeds of the Offering, working capital increased $25.3 million at June
30, 1996 from December 31, 1995. The increase in working capital is attributable
to cash generated from operations and the seasonal increase in lodging segment
royalty receivables. Additionally, included in working capital at June 30, 1996
is $113.1 million in relocation receivables relating to the Company's relocation
services business acquired as part of the acquisitions of Century 21 and
Coldwell Banker. Outstanding relocation receivables are guaranteed by client
corporations and accordingly are, in the opinion of the Company, subject to
minimal risk.
<PAGE>
Long-term debt consists of $540 million of publicly issued debt including
the 4 3/4% Notes, $150 million of 4 1/2% convertible senior notes due 1999 and
$150 million of 5 7/8% senior notes due December 1998. Interest on the publicly
issued debt is paid semi-annually. Long-term debt increased from $300.1 million
at December 31, 1995 to $540 million at June 30, 1996, due to the issuance of
the 4 3/4% Notes. The weighted average stated interest rate on long-term debt at
June 30, 1996 was 4.9% compared to the weighted average stated interest rate of
5.2% at December 31, 1995. weighted average stated interest rate of 5.2% at
December 31, 1995.
Capital expenditures approximating $13.1 million during the six months
ended June 30, 1996 consisted of approximately $4.5 million of software
development and the acquisition of computer equipment associated with a new
transactional data base and reporting system for the real estate segment and
$5.5 million of additions and modifications to the hotel brands' central
reservation systems, which will be reimbursed by collections of reservation fees
from the Company's lodging franchisees. Also included in capital expenditures is
$3.1 million of leasehold improvements associated with the purchase in late
1995, of a building near the Company's current headquarters.
The Company believes that based upon its analysis of its financial
position, its cash flow during the past twelve months and the expected results
of operations in the future, operating cash flow, available funding under the
revolving credit facility and issuances of securities in the capital markets, if
appropriate, will be adequate to fund operations, investments and acquisitions
for the next twelve months.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1996 Annual Meeting of Stockholders of the Company was held on May 20,
1996, and in connection therewith proxies were solicited pursuant to Regulation
14 under the Securities Exchange Act of 1934. At the meeting the following were
voted upon and approved:
1. Election of Henry R. Silverman, James E. Buckman, Martin L. Edelman,
Stephen P. Holmes, Robert E. Nederlander, Robert W. Pittman, Leonard
Schutzman, Robert F. Smith, John D. Snodgrass and Roger J. Stone, Jr., as
directors for terms expiring in 1997 and until their successors are duly
elected and qualified;
2. Approval of certain amendments to the Company's Amended and Restated 1993
Stock Option Plan; and
3. Ratification of the appointment of Deloitte & Touche LLP as auditors of the
Company's financial statements for fiscal year 1996.
The results of the voting on each such matter were as follows:
1. Directors:
Henry R. Silverman: Leonard Schutzman:
FOR: 84,218,398 WITHHELD: 2,217,235 FOR: 84,432,478 WITHHELD: 2,003,155
James E. Buckman: Robert F. Smith:
FOR: 84,218,646 WITHHELD: 2,216,987 FOR: 84,432,558 WITHHELD: 2,003,075
Martin L. Edelman: John D. Snodgrass:
FOR: 84,102,096 WITHHELD: 2,333,537 FOR: 84,406,878 WITHHELD: 2,028,755
Stephen P. Holmes: Roger J. Stone, Jr.:
FOR: 84,224,568 WITHHELD: 2,211,065 FOR: 84,432,292 WITHHELD: 2,003,341
Robert E. Nederlander:
FOR: 84,114,753 WITHHELD: 2,320,880
Robert W. Pittman:
FOR: 84,207,748 WITHHELD: 2,277,885
2. Amendments to Amended and Restated 1993 Stock Option Plan:
FOR: 59,758,136 AGAINST: 21,473,354
ABSTAINED: 92,459 BROKER NON-VOTE: NONE
5. Deloitte & Touche LLP as auditors:
FOR: 86,392,335 AGAINST: 8,925
ABSTAINED: 34,373 BROKER NON-VOTE: NONE
<PAGE>
ITEM 5. OTHER INFORMATION
HFS Incorporated and Subsidiaries
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma statements of operations for the six months ended June 30,
1996 and 1995 are each presented as if the following transactions had occurred
on January 1, 1995: (i) the May 31, 1996 acquisition of the common stock of
Coldwell Banker (the "Merger") and the related contribution of Coldwell Banker's
owned real estate brokerage offices to an independent trust (the "Trust"); (ii)
the receipt of proceeds from an offering of the Company's common stock (the
"Offering") to the extent necessary to fund the acquisition of Coldwell Banker
and the related repayment of indebtedness and acquisition expenses; (iii) the
acquisitions of: the six non-owned Century 21 regions ("Century 21 NORS"), the
Travelodge franchise system on January 23, 1996 and the ERA franchise system on
February 12, 1996 (collectively, the "1996 Acquisitions"); and (iv) the February
22, 1996 issuance of $240 million of 4 3/4% convertible senior notes due 2003 to
the extent such proceeds were used to finance the 1996 Acquisitions. The pro
forma statement of operations for the six months ended June 30, 1995 is also
presented as if the August 1, 1995 acquisition of Century 21 and the acquisition
by merger (the "CCI Merger") in May 1995 of Casino & Credit Services, Inc's
gambling patron credit information business, Central Credit Inc. ("CCI"), had
occurred on January 1, 1995.
The acquisitions have been accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed have been
recorded at their estimated fair values which are subject to further refinement,
including appraisals and other analyses, with appropriate recognition given to
the effect of current interest rates and income taxes. Management does not
expect that the final allocation of the purchase price for the above
acquisitions will differ materially from the preliminary allocations. The
Company has entered into certain immaterial transactions which are not reflected
in the pro forma statements of operations.
The pro forma consolidated financial statements do not purport to present
the financial position or results of operations of the Company had the
transactions and events assumed therein occurred on the dates specified, nor are
they necessarily indicative of the results of operations that may be achieved in
the future. In addition to the cost savings reflected in the pro forma
consolidated statement of operations, the pro forma consolidated statement of
operations does not reflect certain additional cost savings and revenue
enhancements that management believes may be realized following the
acquisitions. These savings are expected to be realized primarily through the
restructuring of franchise services of the acquired companies as well as revenue
enhancements expected through leveraging of the Company's preferred vendor
programs. No assurances can be made as to the amount of cost savings or revenue
enhancements, if any, that actually will be realized.
The pro forma consolidated financial statements are based on certain
assumptions and adjustments described in the Notes to Pro Forma Consolidated
Balance Sheet and Statements of Operations and should be read in conjunction
therewith and with "Management's Discussions and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes thereto.
<PAGE>
HFS Incorporated and Subsidiaries
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 and 1995
(In thousands, except per share amounts)
1996 1995
Revenue
Franchise $ 287,295 $ 265,482
Owned brokerage - -
Relocation 50,057 40,470
Other 54,614 36,361
------ ------
Total revenue 391,966 342,313
------- -------
Expenses
Marketing and reservation 76,625 77,440
Selling, general and
administrative 75,201 61,434
Ramada license fee 10,045 9,283
Owned brokerage - -
Depreciation and amortization 36,192 34,731
Interest 15,935 18,825
Relocation 38,355 31,398
Other 8,168 9,501
----- -----
Total expenses 260,521 242,612
------- -------
Income before income taxes 131,445 99,701
Provision for income taxes 53,029 41,982
------ ------
Net income $ 78,416 $ 57,719
========= =========
Per Share Information (fully diluted)
Net income $ .59 $ .45
========= =========
Weighted average common
and common equivalent
shares outstanding 137,485 131,841
======= =======
_______________
Note: Certain reclassifications have been made to the historical results
of acquired companies to conform with the Company's classification
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996
(In thousands, except per share amounts)
Historical
-------------------------------
Coldwell 1996(1) Pro Forma
HFS Banker(1) Acquisitions Adjustments Pro Forma
-------------------------------------------------------
Revenue
Franchise $240,135 $ 25,694 $ 9,631 $11,835 (A) $287,295
Owned brokerage - 235,625 - (235,625) (B) -
Relocation 15,179 34,159 719 - 50,057
Other 48,896 4,067 1,651 - 54,614
------ ----- ----- ------
Total revenue 304,210 299,545 12,001 (223,790) 391,966
------- ------- ------ -------- -------
Expenses
Marketing and
reservation 75,491 - 1,134 - 76,625
Selling, general
& administrative 60,311 57,455 9,460 (52,025) (C) 75,201
Ramada license
fee 10,045 - - - 10,045
Owned brokerage - 227,363 - (227,363) (B) -
Depreciation and
amortization 23,405 9,021 421 3,345 (D) 36,192
Interest 14,574 3,155 1,493 (3,287) (E) 15,935
Relocation 10,184 27,530 641 - 38,355
Other 6,892 512 764 - 8,168
----- --- --- -------- -----
Total expenses 200,902 325,036 13,913 (279,330) 260,521
------- ------- ------ -------- -------
Income (loss) before
income taxes 103,308 (25,491) (1,912) 55,540 131,445
Provision (benefit)
for income taxes 41,746 (10,432) - 21,715 (G) 53,029
------ ------- ------- ------ ------
Net income (loss) $61,562 $(15,059) $(1,912) $33,825 $78,416
======= ======== ======= ======= =======
Per Share Information
(fully diluted)
Net income $ .51 $ .59
======= =======
Weighted average common
and common equivalent
shares outstanding 126,275 11,210 (H) 137,485
======= ====== =======
_______________
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) Reflects results of operations for the period from January 1, 1996 to the
respective dates of acquisition
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF 1996 ACQUISITIONS
For the Six Months Ended June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Century 21
NORS (1) Travelodge(1) ERA(1) Total
---------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Franchise $ 6,668 $ 688 $ 2,275 $ 9,631
Relocation -- -- 719 719
Other 449 -- 1,202 1,651
--- ------- ----- -----
Total revenue 7,117 688 4,196 12,001
----- --- ----- ------
Expenses:
Marketing and
reservation 681 453 -- 1,134
Selling, general and administrative 6,885 99 2,476 9,460
Depreciation and amortization 285 -- 136 421
Interest 2 -- 1,491 1,493
Relocation -- -- 641 641
Other -- -- 764 764
Total expenses 7,853 552 5,508 13,913
----- --- ----- ------
Income (loss) before
income taxes (736) 136 (1,312) (1,912)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net income (loss) $ (736) $ 136 $ (1,312) $ (1,912)
======== ======== ======== ========
</TABLE>
_______________
Note:Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) Reflects results of operations for the period from January 1, 1996 to the
respective dates of acquisition
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
---------------------------------
Other (1)
Coldwell Acquired Pro Forma
HFS Banker (1) Companies Adjustments Pro Forma
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue
Franchise $151,789 $ 26,980 $ 75,209 $ 11,504 (A) $265,482
Owned brokerage -- 247,331 -- (247,331) (B) --
Relocation -- 33,302 7,168 -- 40,470
Other 18,693 3,303 14,365 -- 36,361
------ ----- ------ ------- --------
Total revenue 170,482 310,916 96,742 (235,827) 342,313
------- ------- ------ -------- -------
Expenses
Marketing and
reservation 66,682 -- 10,758 -- 77,440
Selling, general and
administrative 14,967 17,750 62,301 (33,584) (C) 61,434
Ramada license fee 9,283 -- -- -- 9,283
Owned brokerage -- 247,129 -- (247,129) (B) --
Depreciation and
amortization 13,332 11,959 6,277 3,163 (D) 34,731
Interest 10,255 1,938 3,989 2,643 (E) 18,825
Relocation -- 26,543 4,855 -- 31,398
Other 1,219 1,029 7,652 (399) (F) 9,501
----- ----- ----- ---- -----
Total expenses 115,738 306,348 95,832 (275,306) 242,612
------- ------- ------ -------- -------
Income before
income taxes 54,744 4,568 910 39,479 99,701
Provision for
income taxes 22,499 2,004 1,519 15,960 (G) 41,982
------ ----- ----- ------ ------
Net income (loss) $32,245 $ 2,564 $ (609) $ 23,519 $ 57,719
======= ========= ========= ========= =========
Per Share Information
(fully diluted)
Net income $ .31 $ .45
======= =========
Weighted average common
and common equivalent
shares outstanding 112,276 19,565 (H) 131,841
======= ====== =======
</TABLE>
_________
Note:Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) Reflects results of operations for the period from January 1, 1995 to the
respective dates of acquisition.
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
OF OTHER ACQUIRED COMPANIES
For the Six Months Ended June 30, 1995
(In thousands, except per share amounts)
Century 21
CCI(1) Century 21 NORS Travelodge ERA Total
-------------------------------------------------------------
Revenue
Franchise $ - $45,190 $12,682 $ 7,715 $ 9,622 $75,209
Relocation - 5,503 - - 1,665 7,168
Other 3,326 1,920 176 40 8,903 14,365
----- ----- --- -- ----- ------
Total revenue 3,326 52,613 12,858 7,755 20,190 96,742
----- ------ ------ ----- ------ -------
Expenses
Marketing and
reservation - 4,013 1,273 5,472 - 10,758
Selling, general and
administrative - 36,603 9,986 1,118 14,594 62,301
Depreciation and
amortization 529 4,657 252 3 836 6,277
Interest - 2,786 23 - 1,180 3,989
Relocation - 4,122 - - 733 4,855
Other 1,917 - - - 5,735 7,652
----- ----- -----
Total expenses 2,446 52,181 11,534 6,593 23,078 95,832
----- ------ ------ ----- ------ ------
Income (loss) before
income taxes 880 432 1,324 1,162 (2,888) 910
Provision for
income taxes 313 728 - 478 - 1,519
--- --- --- -----
Net income (loss) $ 567 $ (296) $ 1,324 $ 684 $(2,888) $ (609)
======= ======= ======= ======== ======= =======
_______________
Note:Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification
(1) Reflects results of operations for the period from January 1, 1995 to the
respective date of acquisition.
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated
NOTES TO PRO FORMA CONSOLIDATED
BALANCE SHEET AND STATEMENTS OF OPERATIONS
A. Franchise revenue:
The pro forma adjustment reflects the elimination of franchise revenue
associated with discontinued Century 21 international based operations, the
elimination of franchise revenue paid by the Century 21 NORS to Century 21 under
sub-franchise agreements and the addition of franchise fees to be received under
franchise contracts to be executed with owned brokerage offices upon
contribution of the Owned Brokerage Business to the Trust. Pro forma adjustments
to franchise revenue consists of the following ($000's):
For the Six Months Ended
June 30
--------------------------
1996 1995
---- ----
Eliminate:
Discontinued operations $ - $ (34)
Century 21 revenue included as
Century 21 NORS
SG&A (1,003) (2,250)
Add :
Franchise fees from Owned Brokerage Business 12,838 13,788
------ ------
Total $11,835 $11,504
======= =======
B. Owned brokerage revenue and expenses:
The pro forma adjustments reflect the elimination of revenue and expenses
for Coldwell Banker's formerly owned 318 owned offices. The Company contributed
the net assets of the Owned Brokerage Business to the Trust upon consummation of
the Coldwell Banker acquisition. The free cash flow of the Trust will be
expended at the discretion of the trustees to enhance the growth of funds
available for advertising and promotion.
C. Selling, general and administrative expense:
The pro forma adjustments eliminate redundant costs associated with the
restructuring of franchise services and other businesses and the resulting
termination of certain functions and positions in connection with Company
acquisitions. Adjustments are comprised of the following ($000's):
For the six months ended June 30, 1996:
Coldwell Century 21
Banker NORS Travelodge ERA Total
------------------------------------------------
Payroll and related $ 4,451 $ 2,424 $ 25 $ 222 $ 7,122
Stock option expense 40,801 40,801
Professional 1,055 705 4 - 1,764
Occupancy - 603 4 102 709
Conventions and meetings - 472 - - 472
Franchise fees (Note A) - 1,003 - - 1,003
Other (604) 597 4 157 154
---- --- - --- ---
Total $45,703 $ 5,804 $ 37 $ 481 $52,025
====== ======= ======= ====== =======
<PAGE>
For the six months ended June 30, 1995:
Century Coldwell Century 21
21 Banker NORS Travelodge ERA Total
-------------------------------------------------------
Payroll & related $9,330 $5,341 $ 2,951 $ 287 $1,064 $18,973
Professional 2,308 1,073 649 40 - 4,070
Occupancy 3,110 - 1,159 48 444 4,761
Conventions and
meetings 1,116 - 179 - - 1,295
Franchise fees
(Note A) - - 2,250 - - 2,250
Other 1,561 (846) 748 43 729 2,235
----- ---- --- -- --- -----
Total $17,425 $5,568 $ 7,936 $ 418 $2,237 $33,584
======= ====== ======= ======= ====== =======
D. Depreciation and amortization:
The pro forma adjustment for depreciation and amortization is comprised of
($000's):
For the six months ended June 30, 1996:
Coldwell 1996
Banker Acquisitions Total
Elimination of historical expense $(9,021) $ (421) $(9,442)
Property, equipment & furniture & fixtures 540 - 540
Excess of cost over fair value
of net assets acquired - 974 974
Intangible assets - Coldwell Banker 10,775 - 10,775
Franchise agreements - 498 498
------- --- ---
Total $ 2,294 $ 1,051 $ 3,345
======= ======== =======
<TABLE>
<CAPTION>
For the six months ended June 30, 1995:
CCI Coldwell 1996
Merger Century 21 Banker Acquisitions Total
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Elimination of historical
expense $ (529) $ (4,657) $(11,959) $ (1,091) $(18,236)
Property, equipment and
furniture and fixtures 100 393 647 -- 1,140
Information data base 375 -- -- -- 375
Excess of cost over fair value
of net assets acquired 289 1,750 -- 2,053 4,092
Intangible assets - Coldwell Banker- -- 12,938 -- 12,938
Franchise agreements -- 1,396 -- 1,458 2,854
------- ----- ------- ----- -----
Total $ 235 $ (1,118) $ 1,626 $ 2,420 $ 3,163
======== ======== ======== ======== ========
</TABLE>
CCI Merger
The estimated fair values of CCI's information data base, property and
equipment and excess of cost over fair value of net assets acquired are $7.5
million, $1.0 million and $33.8 million, respectively, and are amortized on a
straight-line basis over the periods to be benefited which are ten, five and
forty years, respectively. The benefit periods associated with the excess cost
over fair value of net assets acquired were determined based on CCI's position
as the dominant provider of gambling patron credit information services since
1956, its ability to generate operating profits and expansion of its customer
base and the longevity of the casino gaming industry.
<PAGE>
Century 21
The estimated fair values of Century 21's property and equipment, franchise
agreements and excess of cost over fair value of net assets acquired are $5.5
million, $33.5 million and $140.0 million, respectively, and are amortized on a
straight-line basis over the periods to be benefited which are seven, twelve and
forty years, respectively. The benefit periods associated with the excess cost
over fair value of net assets acquired were determined based on Century 21's
position as the world's largest franchisor of residential real estate brokerage
offices, the most recognized brand name in the residential real estate brokerage
industry and the longevity of the residential real estate brokerage business.
Coldwell Banker
The estimated fair value of Coldwell Banker's property, plant and equipment
(excluding land) of $16.7 million, is amortized on a straight-line basis over
the estimated benefit periods ranging from five to twenty-five years. The
estimated fair value of Coldwell Banker's intangible assets, comprised of
franchise agreements and excess of cost over fair value of net assets acquired,
is $768.4 million and is amortized on a straight-line basis over the periods to
be benefited. Excess of cost over fair value of net assets acquired was
determined to have a benefit period of forty years, which was based on Coldwell
Banker's position as the largest gross revenue producing real estate company in
North America, the recognition of its brand name in the real estate brokerage
industry and the longevity of the real estate brokerage business.
1996 Acquisitions
The estimated fair values of 1996 Acquisitions franchise agreements
aggregate $61.0 million and are being amortized on a straight-line basis over
the periods to be benefited, which range from twelve to thirty years. The
estimated fair values of 1996 Acquisitions excess of cost over fair value of net
assets acquired aggregate $164.2 million and are each being amortized on a
straight-line basis over the periods to benefited which are forty years.
E. Interest expense:
The pro forma adjustment to interest expense is comprised of ($000's):
For the Six Months Ended
June 30,
1996 1995
------------------------
Elimination of historical interest expense
of 1996 Acquisitions & Century 21 $ (1,493) $(3,989)
Reversal of Coldwell Banker (3,155) (1,938)
Century 21 - 1,890
Minority interest-preferred dividends - 2,217
4 3/4% Notes 1,361 4,463
- ----- -----
Total $ (3,287) $ 2,643
======== =======
<PAGE>
Coldwell Banker
The pro forma adjustment reflects the reversal of interest expense relating
to the following ($000's):
For the Six Months Ended
June 30,
1996 1995
---- ----
Expense (income) associated with the Owned
Brokerage Business $ (179) $ 31
Expense associated with revolving credit
facility borrowings which will be repaid
with proceeds from offering 3,334 1,907
----- -----
Total $ 3,155 $ 1,938
======= =========
Century 21
The pro forma adjustment reflects the recording of interest expense on $60
million of borrowings under the Company's revolving credit facility at an
interest rate of 6.3%. Borrowings represent the amount necessary to finance the
initial cash purchase price net of $10.2 million of acquired cash.
Minority interest - preferred dividends
The pro forma adjustment reflects dividends on the redeemable Series A
Adjustable Rate Preferred Stock of Century 21. Preferred dividends are
calculated based on an $80 million face value and a 6.3% dividend rate.
4 3/4% Notes
The pro forma adjustment reflects interest expense and amortization of
deferred financing costs related to the February 22, 1996 issuance of the 4 3/4%
Notes to the extent that such proceeds were used to finance the 1996
Acquisitions.
F. Other expenses:
The pro forma adjustment eliminates $399,000 of accounting, legal and other
administrative expenses allocated to CCI which would not have been incurred by
the Company.
<PAGE>
G. Income Taxes:
The pro forma adjustment to income taxes is comprised of ($000's):
For the Six Months Ended
June 30,
1996 1995
---- ----
Reversal of historical (provision) benefit of:
Company $(41,746) $(22,499)
CCI - (313)
Century 21 - (728)
Coldwell Banker 10,432 (2,004)
Travelodge - (478)
Pro forma provision 53,029 41,982
------ ------
Total $21,715 $ 15,960
======= ========
The pro forma effective tax rates approximates the Company's historical
effective tax rates.
H. Weighted average common and common equivalent shares outstanding:
The pro forma adjustment to weighted average shares consists of the
following (000's):
For the Six Months Ended
June 30,
1996 1995
---- ----
CCI - 1,804
Century 21 - 4,000
Coldwell Banker 10,581 12,838
Century 21 NORS 629 923
------ ------
11,210 19,565
====== ======
The unaudited Pro Forma Consolidated Statement of Operations is presented
as if the acquisitions took place at the beginning of the period presented;
thus, the stock issuances referred to above are considered outstanding as of the
beginning of the period for purposes of per share calculations.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
10.1 Employment Agreement dated as of June 30, 1996 between the Company and
Henry R. Silverman.
10.2 Form of Second Amended and Restated Financing Agreement dated as of July
24, 1996 between the Company and National Lodging Corp.
10.3 Form of Amended and Restated Corporate Services Agreement dated as of
January 24, 1996 between the Company and National Lodging Corp.
11 Statement re: computation of per share earnings
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated April 5, 1996 for
purposes of incorporating by reference certain financial statements in the
Company's Registration Statements which were filed shortly after the filing of
such Current Report on Form 8-K. The financial statements filed included:
1. The unaudited interim financial statements of Century 21 of Southwest,
Inc., (an "S" corporation) as of December 31, 1995 and March 31, 1995 and
the related statements of income and cash flows for the nine months ended
December 31, 1995 and 1994.
2. The unaudited interim financial statements of Century 21 of Eastern
Pennsylvania, Inc., (an "S" corporation) as of January 31, 1996 and April
30, 1995 and the related statements of operations and cash flows for the
nine months ended January 31, 1996 and 1995.
3. The audited financial statements of Century 21 Real Estate of the
Mid-Atlantic States, Inc., as of December 31, 1995 and the related
statements of operations, retained earnings and cash flows for the year
then ended.
4. The unaudited consolidated interim financial statements of Century 21
Region V, Inc., as of January 31, 1996 and July 31, 1995 and the related
statements of operations and cash flows for the six months ended January
31, 1996 and 1995.
5. The audited consolidated financial statements of Electronic Realty
Associates, L.P. as of and for the years ended December 31, 1995 and 1994.
6. Pro forma financial information of HFS Incorporated.
The Company filed a Current Report on Form 8-K dated May 8, 1996 regarding
the proposed acquisition by merger of Coldwell Banker Corporation by the
Company, which acquisition was consummated on May 31, 1996. Such Current Report
on Form 8-K included as exhibits the audited, consolidated financial statements
of Coldwell Banker Corporation and subsidiaries as of and for the years ended
December 31, 1995 and 1994, the three months ended December 31, 1993 and the
nine months ended September 30, 1993, and pro forma financial information of the
Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HFS Incorporated
By: /s/ James E. Buckman
James E. Buckman
Executive Vice President
Date: August 13 1996 And General Counsel
By: /s/ Stephen P. Holmes
Stephen P. Holmes
Executive Vice President
Date: August 13 1996 And Chief Financial Officer
(Principal Financial Officer
And Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Page
Exhibit No. Description
10.1 Amended and Restated Employment Agreement dated as
of June 30, 1996 between the Company and Henry R. Silverman
10.2 Form of Second Amended and Restated Financing Agreement dated
as of July 24, 1996 between the Company and National Lodging Corp.
10.3 Form of Amended and Restated Corporate Services Agreement dated as
of January 24, 1996 between the Company and National Lodging Corp.
11 Statement re: computation of per share earnings
EXHIBIT 10.1
EMPLOYMENT AGREEMENT DATED AS OF
JUNE 10, 3996 BETWEEN THE COMPANY AND
HENRY R. SILVERMAN
Employment Agreement, dated as of September 30, 1991, between HFS
Incorporated (formerly Hospitality Franchise Systems, Inc.), a Delaware
corporation (the "Company"), and Henry R. Silverman (the "Execu tive"), as
amended April 20, 1992, March 1, 1993, June 25, 1993, November 22, 1994 and
October 11, 1995, and as amended and restated June , 1996 (the "Effective
Date").
The Executive is presently the Chairman of the Board and Chief Executive
Officer of the Company pursuant to the employment agreement described above (the
"Prior Agreement").
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to provide the Executive with employment arrange ments with the
Company which the Board has determined will reinforce and encourage the
increased attention and dedication to the Company by the Executive as a member
of the Company's management, in the best interests of the Company and its
stockholders. The Executive is willing to commit himself to serve the Company on
the terms and conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to
enter into an amended and restated employment agreement on the terms and
conditions set forth below. Accordingly, the parties hereto agree as follows:
1. Term of Employment. The employment of the Executive by the Company
pursuant to this Agreement will commence on the Effective Date and end on
December 31, 2000, unless sooner terminated as hereinafter provided.
2. Position and Duties. The Executive shall serve as Chairman of the Board
and Chief Executive Officer of the Company and shall have such commensurate
responsibilities, duties and authority as may from time to time be assigned to
the Executive by the Board. The Executive shall devote his full time and
attention to the affairs of the Company and its subsidiaries and his duties in
such positions.
3. Place of Performance. In connection with the Executive's employment, the
Company shall provide him an office, office furniture and a secretary of his
selection in midtown Manhattan of the New York City metropolitan area, which
shall be his base except for required travel on the Company's business. The
Company shall pay all the Executive's reasonable business expenses which relate
to the Company at such location.
<PAGE>
4. Compensation and Related Matters. (a) Salary. During the period of the
Executive's employment, the Company shall pay him an annual base salary at a
rate of $1,500,000 per year, such salary to be paid in substantially equal
semi-monthly or bi-weekly installments. Such annual salary shall be in creased
on each October 1, commencing October 1, 1996, during the term of this Agreement
(an "Adjust ment Date") as follows: if the "Consumer Price Index" for the
calendar month immediately preceding the applicable Adjustment Date shall exceed
the Consumer Price Index for the corresponding month during the prior year, then
such salary (as previously adjusted) shall be determined by multiplying the
amount of such salary (as previously adjusted) by a fraction, the numerator of
which shall be the Consumer Price Index for the calendar month immediately
preceding the applicable Adjustment Date, and the denominator of which shall be
the Consumer Price Index for the applicable month during the prior year. Each
adjustment shall be made as promptly as practicable after publication of the
Consumer Price Index for the month immediately preceding the applicable
Adjustment Date. Immediately after such publication, the Company shall pay to
the Executive such additional amount as shall be required to bring the aggregate
of the semimonthly installments of the then current annual salary paid to the
Executive on and after the applicable Adjustment Date up to the total dollar
amount required by reason of such adjustment; thereafter, all monthly
installments of the adjusted annual salary for the balance of the 12 months
shall be made at the newly adjusted rate. In no event shall such annual salary
(as previously adjusted) be decreased to reflect a decline in the Consumer Price
Index. As used in this Agreement, "Consumer Price Index" shall mean the Consumer
Price Index, Urban Wage Earners and Clerical Workers, U.S. City Average, All
Items (1982-4 = 100), published by the Bureau of Labor Statistics of the United
States Department of Labor. The applicable number in such Index, for purposes of
this Agreement, shall be the number for "All Items" (which number for the month
of July 1991 was 134.3). In the event a substantial change is made with respect
to the information used to determine the Consumer Price Index, or in the event
another publication is used because the Consumer Price Index is not published,
appropriate adjustment shall be made in the corresponding numbers for prior
periods so that after such adjustment the same result will be produced as would
have resulted had there been no such change in the Consumer Price Index or had
it continued to be published.
(ii) As used in this Agreement, "Change-of-Control Transaction" shall have
the meaning set forth in the Company's 1993 Stock Option Plan, as amended and
restated (the "Plan"), as in effect on the date hereof.
(c) Expenses. During the term of the Executive's employment hereunder, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
and customary expenses incurred by him in performing services hereunder,
including all travel expenses and living expenses while away from home on
business or at the request of and in the service of the Company; provided, that
such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company and approved by the Board. The Company
shall provide the Executive with a driver (but not a car) and the Executive
shall reimburse the Company (in accordance with policies and procedures
established by the Company and approved by the Board) for any use of the driver
not connected with the Executive's performance of services under this Agreement.
(d) Other Benefits. The Executive shall be entitled to participate in or
receive benefits under any employee benefit plan, arrangement or perquisite made
available by the Company now or in the future to its executives and key
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans, arrangements and
perquisites (other than any bonus plan). Nothing paid to the Executive under any
plan, arrangement or perquisite presently in effect or made available in the
future shall be deemed to be in lieu of the salary and other compensation
payable to the Executive pursuant to this Section 4. Any payments or benefits
payable to the Executive hereunder in respect of any year during which the
Executive is employed by the Company for less than the entire such year shall,
unless otherwise provided in the applicable plan or arrangement, be prorated in
accordance with the number of days in such year during which he is so employed.
<PAGE>
(e) Indemnification. In addition to any indemnification provided by the
Certificate of Incorporation or By-Laws of the Company or otherwise, the Company
shall indemnify and provide reason able advances for expenses to the Executive,
to the fullest extent permitted by the laws of the State of Delaware, if the
Executive is made a party, or threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that the Executive is or
was an officer, director or employee of the Company or any subsidiary or
affiliate thereof, in which capacity the Executive is or was serving at the
Company's request, against expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement incurred by him in
connection with such action, suit or proceeding.
(f) Bonus. In addition to the annual base salary provided for above in
Section 4(a), with respect to each fiscal year of the Company during the term of
the Executive's employment hereunder beginning with the Company's 1996 fiscal
year, the Company shall, as approved by the Company's stockholders in accordance
with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as
amended, pay to the Executive an annual bonus in an amount equal to .75% of the
Company's EBITDA, as defined below, for the applicable fiscal year; provided,
however, that such bonus payment shall in no event exceed 150% of the annual
base salary in effect on the first day of such fiscal year, and provided further
that any such bonus for any partial year shall be prorated based upon the number
of days in such year falling within the term of the Agreement (the "Bonus").
EBITDA shall mean the Company's earnings before interest, taxes, depreciation
and amortization, adjusted for any extraordinary gains or losses, as reflected
in the Company's audited Consolidated Statements of Income, and further adjusted
downward by the cost of capital related to acquisitions or mergers completed by
the Company. For purposes of determining such cost of capital, interest at a
rate of 12% per annum will be applied to the purchase price or merger
consideration incurred by the Company, including all capitalized related costs,
in connection with the applicable transaction. The Bonus, with respect to any
fiscal year of the Company, shall be paid to the Executive no later than 90 days
following the end of such year, or as soon as practicable thereafter if the
amount of such Bonus cannot be determined by such date. Notwithstanding the
foregoing, a prorated Bonus shall not be paid for a partial year if the
Executive's employment is terminated for Cause pursuant to Section 6(a)(iii) or
by a voluntary resignation pursuant to Section 6(b).
(g) Options. (i) The Company shall grant to the Executive on or before July
1 of each calendar on the date of grant and shall be exercisable at an exercise
price per share equal to the Fair Market Value (as defined in the Plan) of the
Company's common stock, par value $.01 per share (the "Stock"), on the date of
grant. The vesting of each stock option previously granted to the Executive
under the Plan is hereby accelerated and shall be exercisable in full as of the
date hereof.
(ii) The Executive may not sell more than two million (2,000,000) shares of
Stock in any calendar year; provided, however, that the foregoing limitation
shall apply only with respect to shares of Stock acquired by the Executive
pursuant to the exercise of options granted under any stock option or other plan
of the Company.
(iii) The number of shares of Stock granted under each option pursuant to
subsection (g)(i) above and the number of shares of Stock which the Executive
may sell in a calendar year pursuant to subsection (g)(ii) above shall be
adjusted to reflect any Change in Capitalization as such term is defined in the
Plan.g)(ii) above shall be adjusted to reflect any Change in Capitalization as
such term is defined in the Plan.
<PAGE>
(iv) Notwithstanding the foregoing (A) in the event that a
Change-of-Control Transaction shall occur pursuant to which the stockholders of
the Company receive consideration substantially in the form of stock or other
equity securities of the Successor or of any other entity (a "Stock
Transaction"), then the Executive shall be automatically granted, effective
immediately prior to the consummation of such Change-of-Control Transaction, all
of the options that would have been granted to the Executive under Section
4(g)(i) hereof if the Executive had remained employed with the Company until
December 31, 2000 (the "Remaining Options"), each at an exercise price equal to
the Fair Market Value of the Stock at the time of grant (i.e., the date of such
Change-of-Control Transaction) and otherwise in accordance with Section 4(g)(i)
and 4(g)(iii) hereof (which Remaining Options shall be fully vested and
exercisable upon the grant thereof), (B) in the event that a Change-of-Control
Transaction shall occur which does not consti tute a Stock Transaction, then the
Company (or a Successor, if applicable) shall pay the Executive a lump sum
amount equal to the value (the "Option Value") of the Remaining Options and (C)
Section 4(g)(ii) shall become inapplicable from and after the date of such
Change-of-Control Transaction. For purposes of this Section 4(g), the Option
Value of the Remaining Options (x) shall be determined by an independent
compensation consultant or investment banker, selected by the Executive and
reasonably acceptable to the Company and (y) shall appropriately reflect the
ten-year term of the Remaining Options, the volatility of the Stock, current
interest rates and such other factors as the independent compensation consultant
or investment banker deems relevant. The Company hereby agrees to take all
actions necessary and appropri ate to effectuate the grant, pursuant to clause
(A) above, of the Remaining Options, including, without limitation, amending
Company-sponsored option plans to reserve thereunder a sufficient number of
shares and obtaining the requisite approvals of the stockholders of the Company
at or prior to the consummation of the Change-of-Control Transaction.
5. Additional Potential Compensation. Nothing in this Agreement shall
prohibit the Compensation Committee of the Company's Board of Directors from
awarding additional compensation to the Executive if, in its sole
discretion, the Compensation Committee determines that such a payment is
warranted based upon the Executive's performance.
6. Termination. (a) The Executive's employment may be terminated by the
Company only under the following circumstances:
(i) Death. The Executive's employment shall terminate upon his death. If
the Executive's employment is terminated pursuant to this paragraph his estate
or legal representative shall receive his accrued annual base salary through the
date his employment is terminated and a Bonus prorated for the period ending on
the date his employment is terminated.
<PAGE>
(ii) Disability. If, in the written opinion of a qualified physician
selected by the Company and reasonably approved by the Executive, the Executive
shall become unable to perform his duties hereunder due to physical or mental
illness, and has failed, because of such illness, to render, for four and
one-half successive months or for six out of any nine successive months,
services of the character contemplated by this Agreement, the Company may
terminate the Executive's employment. If the Executive's employment is
terminated pursuant to this paragraph he shall receive his accrued annual base
salary through the date his employment is terminated and a Bonus prorated for
the period ending on the date his employment is terminated.
(ii) Cause. The Company may terminate the Executive's employment for Cause.
As used in this Agreement, "Cause" shall mean (I) the willful and continued
failure by the Executive substantially to perform his duties hereunder (other
than any such failure resulting from the Executive's incapacity due to physical
or mental illness); (II) any act of fraud, misappropriation, dishonesty,
embezzlement or similar conduct against the Company, as finally determined
through arbitration or final judgment of a court of competent jurisdiction
(which arbitration or judgment, due to the passage of time or otherwise, is not
subject to further appeal); or (III) conviction of a felony or any crime
involving moral turpitude (which conviction, due to the passage of time or
otherwise, is not subject to further appeal). The Executive's employment shall
not be deemed to have been terminated for Cause unless the Company shall have
given or delivered to the Executive (A) reasonable notice setting forth the
reasons for the Company's intention to terminate the Executive's employment for
Cause, (B) an opportunity for the Executive to cure any such breach during the
30-day period after the Executive's receipt of such notice, (C) a reasonable
opportunity, at any time during the 30-day period after the Executive's receipt
of such notice, for the Executive, together with his counsel, to be heard before
the Board, and (D) a Notice of Termination (as defined below) stating that, in
the good faith opinion of not less than a majority of the entire membership of
the Board, the Executive was guilty of the conduct set forth in clauses (I),
(II) or (III) of the preceding sentence. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (x) indicates the specific
termination provision of this Agreement relied upon, (y) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(z) specifies the termination date (which date shall be not less than 15 days
after the giving of such notice). On the termination date specified in a Notice
of Termination duly delivered pursuant to this paragraph, the Executive's
compensation and other benefits set forth in this Agreement (other than Section
4(a) and other than any compensation or benefit that shall have accrued but not
been paid as of such date) shall terminate.n any compensation or benefit that
shall have accrued but not been paid as of such date) shall terminate.
(iv) Other. If the Executive's employment is terminated by the Company for
any reason other than as set forth in paragraphs (i), (ii) or (iii) of this
Section 6(a), then the Company shall (I) pay to the Executive, on the date of
such termination, an amount equal to his aggregate annual base salary (as
adjusted pursuant to Section 4(a) through the date of such termination) through
December 31, 2000, (II) pay to the Executive, on the date of such termination,
an amount equal to .75% of EBITDA for the twelve (12) calendar months preceding
the date of termination multiplied by the number of years (including partial
years) remaining through December 31, 2000; provided, however, that such payment
shall in no event exceed 150% of the annual base salary in effect on the date of
termination multiplied by the number of years (including partial years)
remaining through December 31, 2000, and (III) continue to make available to the
Executive health and other welfare benefits set forth in this Agreement (but
only to the extent that the Executive is not receiving substantially the same
benefits from another employer) until December 31, 2000 unless the Executive
shall theretofore deliver a written notice to the Company to the effect that he
elects not to accept such other benefits. By way of example, if the Executive's
employment is terminated by the Company without Cause on June 30, 1999, and if
the Company's EBITDA for the period from July 1, 1998 through June 30, 1999 was
$100,000,000, then the payment to the Executive pursuant to clause (II) above
shall be $750,000 multiplied by 1.5 which equals $1,125,000.
(b) If the Executive voluntarily resigns his employment under this
Agreement (other than due to a breach of this Agreement by the Company), the
Executive's compensation and other benefits (other than those under Section 4(e)
and other than any compensation or benefit that shall have accrued but not been
paid as of the date of such resignation) set forth in this Agreement shall
thereupon terminate.
<PAGE>
(c) Notwithstanding anything in this Agreement to the contrary (including,
but not limited to, Section 6(b) above), in the event that a Change-of-Control
Transaction occurs and within one year of such event the Executive's employment
with the Company or a Successor, as the case may be, is termi nated pursuant to
clause (i), (ii), (iii) or (iv) of Section 6(a) above, the Remaining Options
shall be cancel led, at the election of the Executive, in exchange for a payment
by the Company (or such Successor) to the Executive of a cash lump sum amount
immediately payable to the Executive, equal to the Option Value of the Remaining
Options. The Option Value of the Remaining Options shall be determined by an
independent compensation consultant or investment banker, selected by the
Executive and reasonably acceptable to the Company. For purposes of this Section
6(c), the Option Value of the Remaining Options shall appropriately reflect the
remaining term of the Remaining Options, the volatility of the Stock, current
interest rates, the value of the stock relative to the exercise price of the
Remaining Options and such other factors as the independent compensation
consultant or investment banker deems relevant.
7. Other Covenants by the Executive. (a) During the Restricted Period (as
defined in Section 7(c)), neither the Executive nor any "Controlled Affiliate"
will, without the prior written consent of the Board, solicit for employment,
employ in any capacity or advise or recommend to any other person that it employ
or solicit for employment any person who is on the date hereof or who hereafter
becomes, prior to the termination of the Executive's employment with the
Company, an officer or executive or professional employee of the Company or any
of its subsidiaries or affiliates and who was employed by the Company within 12
months before the time of such solicitation, employment, advice or recommenda
tion (any such officer, executive or professional employee being a "Company
Professional"). During the Restricted Period, the Executive shall not initiate
or facilitate the employment of any Company Professional by any other person, it
being understood that this means that the Executive shall have no contact
regarding such employment with any Company Professional so employed prior to
such employment and that the Executive shall not suggest or otherwise indicate
to any other person that such person should approach or otherwise contact such
Company Professional. As used in this Agreement, "Controlled Affiliate" means
any company, partnership, firm or other entity as to which the Executive
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such entity, whether through the ownership of
voting securities, by contract or otherwise.
(b) The Executive acknowledges that, through his status as Chairman of the
Board and but not limited to, knowledge of marketing and operating strategies,
franchise agreements, financial results and projections, future plans, the
provisions of important contracts entered into by the Company and possible
acquisitions. The Executive agrees that such knowledge and information
constitute a vital part of the business of the Company and are by their nature
trade secrets and confidential information (collectively, "Confidential
Information"). The Executive agrees that he shall not, so long as the Company
remains in existence, divulge, communicate, furnish or make accessible (whether
orally or in writing or in books, articles or any other medium) to any
individual, firm, partnership or corporation any knowledge and information with
respect to Confidential Information directly or indirectly useful in any aspect
of the business of the Compa ny. As used in the preceding sentence,
"Confidential Information" shall not include any knowledge or information which
(i) is or becomes available to others, other than as a result of breach by the
Executive of this Section 7(b), (ii) was available to the Executive on a
nonconfidential basis prior to its disclosure to the Executive through his
status as an officer of the Company or (iii) becomes available to the Executive
on a nonconfidential basis from a third party (other than the Company or its
representatives) who is not bound by any confidentiality obligation to the
Company.
(c) During the Restricted Period, neither the Executive nor any of his
Controlled Affiliates will render any services, directly or indirectly, as an
employee, officer, consultant or in any other capacity, to any individual, firm,
corporation or partnership engaged in the franchising of hotels or motels or
similar activities competitive with any activities in which the Company or its
subsidiaries or affiliates are engaged at the time of such termination (such
businesses being herein called the "Company Business"). During the Restricted
Period, the Executive shall not, without the prior written consent of the
Company, hold an equity interest in any firm, partnership or corporation which
competes with the Company Business, except that beneficial ownership by the
Executive (together with any one or more members of his immediate family and
together with any entity under his direct or indirect control) of less than 1%
of the outstanding shares of capital stock of any corporation which may be
engaged in any of the same lines of business as the Company Business which stock
is listed on a national securities exchange or publicly traded in the
over-the-counter market shall not constitute a breach of the covenants in this
Section 7(c). As used in this Agreement, "Restricted Period" shall mean (i) if
<PAGE>
the Executive's employment with the Company shall be terminated for Cause or by
the Executive's voluntary resignation (except any such resignation arising from
a breach of this Agreement by the Company), the period beginning on the date of
such termination and ending on the second anniversary thereof and (ii) if the
Executive's employment with the Company shall be terminated under any
circumstances other than those to which clause (i) above applies, the period
beginning on the date of such termination and ending on the earliest of (x) the
date that the Company shall cease to pay or make available to the Executive the
compensation (unless such obligation shall have been satisfied by way of lump
sum payment pursuant to Section 6(a)(iv), in which case the time period
specified in clause (i) above shall apply) and other benefits set forth in
Section 4, (y) the date that the Executive shall deliver a written notice to the
Company to the effect that he elects not to accept such compensation and other
benefits and, accordingly, shall cease to be subject to Section 7(c) and (z) the
second anniversary of the date of such termination.y, shall cease to be subject
to Section 7(c) and (z) the second anniversary of the date of such termination.
(d) The Executive agrees that the provisions of Sections 7(a), (b) and (c)
may not be adequately enforced by an action for damages and that, in the event
of a breach thereof by the Executive or any such other entity, the Company shall
be entitled to apply for and obtain injunctive relief in any court of competent
jurisdiction to restrain the breach or threatened breach of such violation or
otherwise to enforce specifically such provisions against such violation.
8. Successors: Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place.
(b) This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, suc cessors, heirs, distributees,
devisees and legatees.
<PAGE>
9. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Henry R. Silverman
4 East 72nd Street
New York, New York 10021
If to the Company:
HFS Incorporated
339 Jefferson Road
P.O. Box 278
Parsippany, New Jersey 07054
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Miscellaneous. (a) No provisions of this Agreement may be amended,
supplemented, modified, cancelled or discharged unless such amendment,
supplement, modification, cancellation or discharge is agreed to in writing
signed by the Executive and a duly authorized officer of the Company (other than
the Executive); and no provisions hereof may be waived except in writing so
signed by or on behalf of the party granting such waiver. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement (other
than Section 4(e)) shall be governed by and interpreted in accordance with the
laws of the State of New York applicable to agreements made and to be performed
entirely within such State. The obligations of the Company, the Successor and
the Executive under this Agreement, which by their nature may require either
partial or total performance after the expiration of this Agreement or the
termination of the Executive's employment (including, without limitation, under
Sections 4 and 6 hereof) shall survive such expiration and termination.ing,
without limitation, under Sections 4 and 6 hereof) shall survive such expiration
and termination.
(b) The Company represents and warrants to the Executive that (i) the
Company has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby; (ii) the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby; and (iii) this Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable in accordance with its terms.
<PAGE>
11. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled conclusively by arbitration, conducted
before a panel of three arbitrators in New York, New York, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrators' award in any court having jurisdiction; provided,
however, that the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent any continuation of
any violation of the provisions of Section 7 and the Executive hereby consents
that such restraining order or injunction may be granted without the necessity
of the Company's posting any bond. The expense of such arbitration shall be
borne by the Company.
13. Entire Agreement. (a) This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written by any
officer, employee or representative of any party hereto, and any prior agreement
of the parties hereto in respect of the subject matter contained herein,
including the Prior Agreement.
(b) The Executive agrees to accept the payments to be made, and other
benefits to be accorded, to him under this Agreement as full and complete
compensation in lieu of severance, vacation, bonuses, other compensation or
other payments or benefits to which the Executive might otherwise be enti tled
from the Company or any of its subsidiaries or affiliates, unless otherwise
subsequently agreed to in writing.
14. Loan Guaranty. The Company shall guarantee a loan or loans which the
Executive receives from a financial institution reasonably acceptable to the
Company with an aggregate principal amount equal to the lesser of (i)
$100,000,000 and (ii) 25% of the excess of the aggregate Fair Market Value of
the Stock (determined as of the date of such loan or loans) subject to the
Executive's then outstanding options (whether or not then vested and
exercisable) granted under any stock option or other plan of the Company over
the aggregate exercise price of all such options (such excess being hereinafter
referred to as the "Value"). The Executive hereby agrees that if at any time the
outstanding principal amount of such loans exceeds 50% of the Value, the
Executive shall immediately repay an amount of such loans so that the
outstanding principal amount of such loans does not exceed 50% of the Value.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
HFS Incorporated
by /s/ John D. Snodgrass
John D. Snodgrass
President and COO
/s/ Henry R. Silverman
Henry R. Silverman
EXHIBIT 10.2
SECOND AMENDED AND RESTATED FINANCING AGREEMENT
Dated as of July 24, 1996
between
HFS INCORPORATED
and
NATIONAL LODGING CORP.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions............................................... 1
ARTICLE 2
GUARANTEES AND LOANS
Section 2.1 Guarantees................................................ 3
Section 2.2 Credit Exposure........................................... 4
ARTICLE 3
FEES; INDEMNIFICATION
Section 3.1 Fees...................................................... 5
Section 3.2 Indemnification........................................... 5
ARTICLE 4
TERM; TERMINATION
Section 4.1 Term of Agreement; Survival............................... 5
Section 4.2 Termination by HFS........................................ 6
ARTICLE 5
SPECIAL COVENANTS
Section 5.1 Information............................................... 6
ARTICLE 6
MISCELLANEOUS
Section 6.1 Complete Agreement........................................ 6
Section 6.2 Governing Law............................................. 6
Section 6.3 Notices................................................... 7
Section 6.4 Amendment and Modification................................ 7
Section 6.5 Successors and Assigns.................................... 7
Section 6.6 No Third Party Beneficiaries.............................. 8
Section 6.7 Counterparts.............................................. 8
Section 6.8 Interpretation............................................ 8
Section 6.9 Legal Enforceability...................................... 8
<PAGE>
SECOND AMENDED AND RESTATED FINANCING AGREEMENT
SECOND AMENDED AND RESTATED FINANCING AGREEMENT (this "Agreement"), dated
as of July 24, 1996, by and between HFS INCORPORATED, a Delaware corporation
("HFS"), and NATIONAL LODGING CORP., a Delaware corporation ("NLC").
WHEREAS, HFS and NLC have entered into the Amended and Restated Interim
Financing Agreement dated as of January 23, 1996 (the "Existing Agreement"),
pursuant to which HFS has gu aranteed a revolving credit facility provided to
NLC by Bankers Trust Company, Chemical Bank and certain other banks and
financial institutions (the "Existing Credit Facility"); and
WHEREAS, NLC has entered into an Amended and Restated Stock Purchase
Agreement dated as of March 14, 1996 (as the same may be further amended from
time to time, the "Stock Purchase Agreement") with Chartwell Leisure Associates
L.P. II, a Delaware limited partnership ("Chartwell") and FSNL LLC, a
Connecticut limited liability company ("FSNL" and, together with Chartwell, the
"Purchasers"), pursuant to which NLC has agreed to sell to the Purchasers shares
of the Common Stock of NLC, subject to all of the terms and conditions set forth
in the Stock Purchase Agreement (the "Stock Sale"); and
WHEREAS, NLC expects that it will refinance the Existing Credit Facility
prior to its maturity date; and
WHEREAS, HFS and NLC desire to amend the Agreement to provide that, if the
closing of the Stock Sale (the "Closing") occurs, then upon request by NLC HFS
will provide replacement credit enhancements to NLC in connection with the
refinancing of the Existing Credit Facility or other credit arrangements, upon
the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and intending to be legally bound hereby, HFS
and NLC hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, capitalized terms
defined immediately after their use shall have the respective meanings thereby
provided and the following terms shall have the meanings set forth below (in
each case, such meaning to be equally applicable to both the singular and plural
forms of the term defined).
Affiliate: shall mean, with respect to any specified person, a person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified person.
BT Bank Facility: shall mean the six-year revolving credit facility
provided to NLC by the BT Banks pursuant to the Credit Agreement dated as of
January 23, 1996 in the principal amount of up to $125,000,000.
BT Banks: shall mean the banks or other financial institutions providing
the BT Bank Facility.
<PAGE>
BT Guaranty: shall mean the guaranty given by HFS in favor of the BT Banks
pursuant to the BT Bank Facility.
Change in Control: during any period of not more than 24 months,
individuals who at the beginning of such period constituted NLC's Board of
Directors, together with any new directors (other than directors designated by
any third party (other than either of the Purchasers or their Affiliates) who
has entered into an agreement to effect a transaction of the type described in
clause (ii) or (iii) below) whose election by the Board of Directors or
nomination for such election was approved by a vote of at least a majority of
the directors then still in office who were directors at the beginning of such
period or whose election or nomination for election was previously so approved
(other than approval given in connection with an actual or threatened proxy or
election contest), cease for any reason to constitute at least a majority of
NLC's Board of Directors; beneficial ownership of 50% or more of NLC's common
stock (or other securities generally having the right to vote for the election
of directors of NLC) shall be acquired by, or sold, assigned or otherwise
transferred to, directly or indirectly (other than pursuant to a public
offering), any third party or Group (other than the Purchasers or their
Affiliates), whether by sale or issuance of common stock or otherwise; NLC or
any subsidiary of NLC shall sell, assign or otherwise transfer to any third
party or Group (other than the Purchasers or their Affiliates), directly or
indirectly, assets (including stock or other securities of subsidiaries) having
a fair market value, book value or earning power of 50% or more of the assets of
NLC and its subsidiaries taken as a whole.
Credit Exposure: shall mean at any time the sum of the then outstanding
Guaranty Exposure and the then outstanding amount of Unpaid Drawings.
Credit Facilities: shall mean the BT Bank Facility and any Future
Facilities in effect at any time.
Eligible Assignee: shall mean any bank or other financial institution whose
senior unsecured debt (or the senior unsecured debt of the parent company of
such bank or other financial institution) is rated by Standard & Poor's or
Moody's Investors Service at least as high as the senior unsecured debt of HFS.
Future Facility: shall mean any loan agreement, credit agreement or similar
credit facility, other than the BT Bank Facility, pursuant to which NLC has
incurred indebtedness for any reason and in any amount.
<PAGE>
Future Guaranty: shall mean any and all guarantees, security and other
credit enhancements advanced or provided by HFS to secure indebtedness incurred
by NLC pursuant to any Future Facility.
Group: two or more persons who agree to act together for purposes of
holding or acquiring securities, assets or control of NLC; provided, however,
that the shareholders of a publicly-held company that is merged with or into NLC
(or a subsidiary thereof) in a transaction approved by NLC's Board of Directors
shall not be a Group with respect to any NLC securities received by such
shareholders in connection with such transaction.
Guaranteed Amount: shall mean at any time the then aggregate outstanding
principal amount of indebtedness of NLC, together with interest and any other
amounts for which NLC is liable, under any Credit Facility to the extent
supported by one or more Guarantees.
Guaranty: shall mean the BT Guaranty or any Future Guarantee.
Guaranty Exposure: shall mean at any time the then maximum Guaranteed
Amount (assuming for this purpose that the NLC Bank Facility, if then in effect,
and any Future Facilities then in effect are fully utilized).
Guaranty Termination Date: shall mean December 31, 2001.
NLC Creditor: shall mean any creditor of NLC under a Credit Facility.
Unpaid Drawings: shall have the meaning provided in Section 2.1(c) hereof.
ARTICLE 2
GUARANTEES AND LOANS
Section 2.1 Guarantees.
(a) Effective upon the Closing, and subject to the terms and conditions of
this Agreement, HFS shall, upon the written request of NLC, issue one or more
Future Guarantees; provided, however, that the maximum Credit Exposure shall not
at any time exceed $75,000,000. The terms and conditions of each Future Facility
and each Future Guaranty shall be reasonably satisfactory to HFS. The terms of
each Future Guaranty shall be those typical and customary for similar
guarantees; provided, further, that in any event such terms and conditions shall
include: (i) that HFS shall have no liability for payment demands made on the
Future Guaranty after the Guaranty Termination Date, except with respect to (A)
interest on any amounts for which such a payment demand is made on or prior to
the Guaranty Termination Date, (B) costs and expenses in connection with the
<PAGE>
enforcement of the Future Guaranty and (C) amounts received by the beneficiary
of the Future Guaranty on or prior to the Guaranty Termination Date, but which
are required to be repaid by that beneficiary after the Guaranty Termination
Date; (ii) that HFS shall have reasonable rights to cure any defaults or events
of default under the Future Facilities on or prior to the Guaranty Termination
Date; and (iii) HFS shall have the right to approve any and all amendments,
modifications or supplements to the Future Facilities on or prior to the
Guaranty Termination Date. HFS shall not be required to issue any Future
Guarantees at any time if, at such time: (x) NLC is in material breach of its
obligations hereunder or under the Amended and Restated Corporate Services
Agreement dated as of January 24, 1996, as the same may be amended from time to
time, between HFS and NLC; (y) NLC, any of its subsidiaries or any joint venture
in which NLC is a participant is in material breach of any franchise or license
agreement with HFS or any of its subsidiaries; or (z) there shall have been any
material adverse change in the consolidated financial condition of NLC and its
subsidiaries from that reflected in NLC's audited financial statements as at
December 31, 1995 or any event which could reasonably be expected to result in
such a material adverse change.
(b) In the event that NLC wishes HFS to issue a Future Guaranty hereunder,
it shall provide HFS with 10 days' prior written notice thereof, which notice
shall: (i) specify the date of issuance of such Future Guaranty; (ii) include,
if available, copies of any and all documentation related to the Future Facility
and in any event a reasonably detailed description of the terms of such Future
Facility; and (iii) include a copy of the proposed form of Future Guaranty.
Prior to the issuance of such Future Guaranty and as a condition thereto, HFS
shall have approved the form and substance of the Future Facility and all
documentation relating thereto, including, without limitation, the applicable
Future Guaranty, which approval shall not unreasonably be withheld, and shall
have received an opinion of counsel to NLC reasonably acceptable to HFS with
respect to the authorization, execution and enforceability against NLC of the
documents evidencing the Future Facility. HFS agrees that the form of the BT
Guaranty is generally a reasonably acceptable form for Future Guarantees,
provided that if HFS is able to obtain more favorable terms under its principal
bank credit arrangements than those in effect at the time it gave the BT
Guaranty, the BT Guaranty would serve as a model of a reasonably acceptable form
for Future Guarantees only to the extent that the Future Guarantee reflected
those more favorable terms.
(c) NLC hereby agrees to reimburse HFS for any payment made by HFS under a
Guaranty (each such amount so paid by HFS until reimbursed an "Unpaid Drawing")
immediately after the making by HFS of such payment together with interest
thereon from and including the date paid by HFS (unless HFS is reimbursed on
such day) to but excluding the date HFS is reimbursed by NLC, at a rate per
annum equal to either: (i) 2.0% in excess of the prime or base rate of Chemical
Bank, or any successor to Chemical Bank, from time to time in effect at its
principal office in New York, New York; or (ii) if at any time during the term
hereof Chemical Bank or any of its successors is no longer HFS's principal bank
lender, then 2.0% in excess of the prime or base rate of the bank that is HFS's
principal bank lender at that time. The obligation of NLC to reimburse HFS with
respect to Unpaid Drawings (including, in each case, interest thereon) shall be
absolute and unconditional under any and all circumstances and irrespective of
any setoff, counterclaim or defense to payment which NLC may have or have had
against HFS or any NLC Creditor. Notwithstanding the foregoing provisions of
this Section 2.1(c), HFS acknowledges that the terms of the applicable Guaranty
may delay the obligation of NLC to reimburse HFS until all Guaranteed Amounts
relating to such Guaranty have been received by the NLC Creditors. In addition
to any right of HFS to be reimbursed by NLC for Unpaid Drawings, the parties
acknowledge and agree that HFS shall be subrogated to all rights of the NLC
Creditors with respect to any such Unpaid Drawings.
Section 2.2 Credit Exposure. Anything in this Agreement to the contrary
notwithstanding, the aggregate Credit Exposure shall not at any time exceed
$75,000,000. If at any time the Credit Exposure shall exceed $75,000,000 and
such excess shall be attributable to Unpaid Drawings, NLC shall immediately pay
such Unpaid Drawings in an amount at least equal to such excess. Upon any
termination of this Agreement pursuant to Section 4.2 hereof, NLC shall
immediately (x) pay all Unpaid Drawings and (y) provide cash collateral pursuant
to such arrangements as are satisfactory to HFS in an amount not less than the
Guaranty Exposure at such time.
<PAGE>
ARTICLE 3
FEES; INDEMNIFICATION
Section 3.1 Fees.
(a) NLC shall pay a Guaranty fee to HFS at a rate of $1,500,000 per annum,
such fee to be paid quarterly in arrears on the last day of March, June,
September and December of each year (each a "Payment Date").
(b) All fees payable hereunder shall be computed on the basis of a 360 day
year and the actual number of days elapsed.
(c) All payments hereunder shall be made prior to 12:00 noon (New York
time) on the Payment Date and shall be made in U.S. dollars and immediately
available funds by wire transfer to such account as HFS may from time to time
designate in writing to NLC.
Section 3.2 Indemnification. NLC agrees to: (i)whether or not the
transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of HFS in connection with the negotiation,
preparation, execution and delivery of any Future Guaranty and the documents and
instruments referred to herein and therein and any amendment, waiver or consent
relating thereto and in connection with the enforcement hereof or thereof
(including, without limitation, the reasonable fees and disbursements of
counsel); (ii) pay and hold HFS harmless from and against any and all present
and future stamp and other similar taxes with respect to the foregoing matters
and save HFS harmless from and against any and all liabilities with respect to
or resulting from any delay or omission to pay such taxes; and (iii) indemnify
HFS, its officers, directors, employees, representatives and agents from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses incurred by any of them as a result of, or arising out of,
or in any way related to, or by reason of, any investigation, litigation or
other proceeding (whether or not HFS is a party thereto) related to the entering
into and/or performance of this Agreement or any Guaranty or the consummation of
any transactions contemplated in this Agreement or any Guaranty, including,
without limitation, the reasonable fees and disbursements of counsel incurred in
<PAGE>
connection with any such investigation, litigation or other proceeds (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or wilful misconduct of the
person to be indemnified).
ARTICLE 4
TERM; TERMINATION
Section 4.1 Term of Agreement; Survival. Subject to earlier termination
pursuant to Section 4.2 below, this Agreement shall continue in full force and
effect until the Guaranty Termination Date, at which time HFS shall have no
further obligations hereunder. The provisions of Section 3.2 of this Agreement
shall survive the expiration or termination of this Agreement in perpetuity.
Section 4.2 Termination by HFS. HFS shall have the right to terminate this
Agreement at any time, without penalty or further obligation to NLC hereunder
and without prejudice to any accrued rights of HFS hereunder:
(a) immediately upon a Change in Control;
(b) immediately if an event of default shall have occurred under any Credit
Facility as a result of which any indebtedness under that Credit Facility shall
have become or shall be declared due and payable prior to its scheduled
maturity;
(c) immediately if NLC becomes bankrupt or insolvent or files a petition
concerning itself or seeks the protection of any bankruptcy, insolvency or
similar law or makes an assignment for the benefit of creditors, or if a
receiver is appointed to take charge of NLC's business; or
(d) immediately if NLC engages in any business, other than its gaming
related investments in effect on the date hereof and the ownership, operation
and development of hotels and motels and related activities.
(e) immediately, upon a breach by NLC of any of its obligations under this
Agreement.
ARTICLE 5
SPECIAL COVENANTS
Section 5.1 Information. NLC shall furnish HFS with such information,
financial or otherwise, as HFS shall reasonably request relating to NLC, any of
its Affiliates, or any Credit Facility. Such information shall include, in any
event, all notices received by NLC from the NLC Creditors or any agents therefor
under any Credit Facility. HFS agrees to preserve the confidentiality of any
such information provided by NLC, subject to any requirements of law applicable
to HFS.
<PAGE>
ARTICLE 6
MISCELLANEOUS
Section 6.1 Complete Agreement. This Agreement constitutes the entire
agreement between HFS and NLC with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments, writings and
understandings with respect thereto, including the Existing Agreement.
Section 6.2 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts law) as to all matters, including, without limitation, matters of
validity, construction, effect, performance and remedies.
Section 6.3 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and, unless otherwise
provided herein, shall be deemed to have been duly given (i) on the date of
service if served personally on the party to whom notice is given, (ii) on the
day of transmission if sent via facsimile transmission to the facsimile number
given below, provided telephonic confirmation of receipt is obtained promptly
after completion of transmission, (iii) on the business day after delivery to an
overnight courier service, provided that receipt of delivery to the party to
whom notice is to be given has been confirmed, or (iv) on the fifth day after
mailing, provided receipt of delivery is confirmed, if mailed to the party to
whom notice is to be given by first class mail, registered or certified, postage
prepaid, properly addressed and return-receipt requested, to HFS or NLC, as the
case may be, as follows:
If to HFS:
HFS Incorporated
339 Jefferson Road
Parsippany, NJ 07054
Attn: General Counsel
Fax No.: (201) 428-5269
If to NLC:
National Lodging Corp.
605 Third Avenue
23rd Floor
New York, NY 10158
Attn: General Counsel
Fax No.: (212) 867-4644
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attn: Martin L. Edelman, Esq.
Fax No.: (212) 856-7808
Any party may change its address or fax number by giving the other party
written notice of its new address in the manner set forth below.
<PAGE>
Section 6.4 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
Section 6.5 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns, provided, however, that
no party may assign its rights or obligations hereunder without the written
consent of the other party hereto, except that HFS may assign all or any part of
its rights hereunder, without obtaining such consent, to any direct or indirect
subsidiary of HFS or any Eligible Assignee.
Section 6.6 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and is not intended to confer any rights or
remedies upon any person other than the parties hereto.
Section 6.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.8 Interpretation. The Article and Section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, the term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
Section 6.9 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision or any other provision hereof in any other
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first written above.
HFS INCORPORATED
By: ___________________________________
Stephen P. Holmes
Executive Vice President
NATIONAL LODGING CORP.
By: ___________________________________
Richard L. Fisher
Chief Executive Officer
EXHIBIT 10.3
AMENDED AND RESTATED CORPORATE SERVICES AGREEMENT
THIS AMENDED AND RESTATED CORPORATE SERVICES AGREEMENT (the "Agreement"),
dated as of January 24, 1996, amends and restates the Corporate Services
Agreement, dated as of November 22, 1994 (the "Original Agreement"), by and
among HFS Incorporated, a Delaware corporation formerly known as Hospitality
Franchise Systems, Inc. ("HFS") and National Lodging Corp., a Delaware
corporation formerly known as National Gaming Corp. ("NALC").
WHEREAS, pursuant to the Original Agreement, HFS provides NALC with certain
corporate support services, including, without limitation, executive services,
accounting services, management information systems services and employee
benefits administration; and
WHEREAS, the board of directors of NALC has determined that NALC's best
interests would be served by pursuing investments in the lodging industry; and
WHEREAS, in accordance with NALC's new investment strategy, the Board of
Directors of NALC has appointed and hired officers and employees to provide
certain corporate services that have been provided by HFS to NALC under the
Original Agreement; and
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, capitalized terms
defined immediately after their use shall have the respective meanings thereby
provided and the following terms shall have the meanings set forth below (in
each case, such meaning to be equally applicable to both the singular and plural
forms of the term defined). In addition, capitalized terms that are not
otherwise defined in this Agreement shall have the meanings assigned to them in
the Transfer and Distribution Agreement, dated as of November 22, 1994, between
HFS and NALC (the "Distribution Agreement").
Accounting Services: general internal accounting services substantially of
the type provided by HFS to NALC immediately prior to the date of this
Agreement.
<PAGE>
Administrative Services: general corporate administrative services
substantially of the type provided by HFS to NALC immediately prior to the date
of this Agreement.
Advisory Services: general advisory services in connection with all
business acquisitions, financings and other transactions by NALC, including,
without limitation, corporate or other acquisitions, mergers, consolidations,
joint ventures and similar transactions considered by NALC, including assistance
in site identification and selection, contract negotiation and analyses of and
advice regarding the financing and structuring of proposed acquisitions,
mergers, consolidations, joint ventures and other transactions, securities
offerings, borrowings and recapitalizations.
Change in Control: (i) during any period of not more than 24 months,
individuals who at the beginning of such period constituted NALC's Board of
Directors, together with any new directors (other than directors designated by
any third party (other than either of Chartwell Leisure Associates L.P. II
("Chartwell") or FSNL LLC ("FSNL") or their Affiliates) who have entered into an
agreement to effect a transaction of the type described in clause (ii) or (iii)
below) whose election by the Board of Directors or nomination for such election
was approved by a vote of at least a majority of the directors then still in
office who were directors at the beginning of such period or whose election or
nomination for election was previously so approved (other than approval given in
connection with an actual or threatened proxy or election contest), cease for
any reason to constitute at least a majority of NALC's Board of Directors; (ii)
beneficial ownership of 50% or more of NALC's common stock (or other securities
generally having the right to vote for the election of directors of NALC) shall
be acquired by, or sold, assigned or otherwise transferred to, directly or
indirectly (other than pursuant to a public offering), any third party or Group
(other than Chartwell or FSNL or their Affiliates), whether by sale or issuance
of common stock or otherwise; or (iii) NALC or any subsidiary of NALC shall
sell, assign or otherwise transfer to any third party or Group (other than
Chartwell or FSNL or their Affiliates), directly or indirectly, assets
(including stock or other securities of subsidiaries) having a fair market
value, book value or earning power of 50% or more of the assets of NALC and its
subsidiaries taken as a whole.
Corporate Services: general corporate support services consisting of the
Accounting Services, Administrative Services, Employee Benefits Services,
Executive Services, Financial Reporting Services, MIS Services and Treasury
Services.
Employee Benefits Services: general administration services substantially
of the type provided by HFS to NALC immediately prior to the date of this
Agreement with respect to employee benefit and compensation plans, programs and
arrangements.
Executive Services: services to be provided by HFS's executive officers and
other senior employees in connection with the Corporate Services to be provided
to NALC hereunder.
<PAGE>
Financial Reporting Services: financial reporting services substantially of
the type provided by HFS to NALC immediately prior to the date of this
Agreement.
Group: two or more persons who agree to act together for purposes of
holding or acquiring securities, assets or control of NALC; provided, however,
that the shareholders of a publicly-held company that is merged with or into
NALC (or a subsidiary thereof) in a transaction approved by NALC's Board of
Directors shall not be a Group with respect to any NALC securities received by
such shareholders in connection with such transaction.
MIS Services: general management information processing services
substantially of the type provided by HFS with respect to the Transferred
Business prior to the Effective Date.
Treasury Services: general treasury and cashier services substantially of
the type provided by HFS to NALC immediately prior to the date of this
Agreement.
ARTICLE II
PROVISION OF ADVISORY SERVICES
Section 2.1 Engagement of HFS. Subject to the terms and conditions of this
Agreement, NALC hereby engages HFS to provide the Advisory Services during the
term of this Agreement and HFS hereby agrees to provide the Advisory Services
during the term of this Agreement.
Section 2.2 Cooperation. NALC shall at all times during the term of this
Agreement fully and actively cooperate with HFS in connection with HFS's
performance of the Advisory Services.
ARTICLE III
PROVISION OF CORPORATE SERVICES
Section 3.1 Corporate Services to be Provided. Through September 30, 1996,
HFS agrees to provide any or all of the Corporate Services that NALC reasonably
requests HFS to perform. All such requests to perform the Corporate Services
shall be made by NALC in writing.
Section 3.2 Limitations on Corporate Services to be Provided. In providing
Corporate Services hereunder, HFS and NALC agree that, except as otherwise
provided in Section 3.3 of this Agreement, HFS shall not be required to provide
Corporate Services to the extent that the nature or scope of such Corporate
<PAGE>
Services is greater than that which was provided by HFS to NALC immediately
prior to the date of this Agreement.
Section 3.3 Cooperation. NALC shall at all times during the term of this
Agreement fully and actively cooperate with HFS in connection with HFS's
performance of the Corporate Services.
ARTICLE IV
FEES AND PAYMENT
4.1 Corporate Services Fee; Payment. In consideration of the Advisory
Services and Corporate Services to be provided by HFS to NALC hereunder, NALC
shall pay to HFS an annual fee (the "Corporate Services Fee") in an amount equal
to $1,500,000. The Corporate Services Fee shall be payable in advance in equal
quarterly installments.
Section 4.2 Expense and Tax Reimbursement. NALC agrees to promptly
reimburse HFS for (i) all out-of-pocket costs and expenses (other than employee
compensation and benefits) incurred by HFS in connection with providing
Corporate Services hereunder and (ii) all federal, state and local taxes,
excises or other charges (other than income taxes) that HFS becomes obligated to
pay by reason of performing any Corporate Services hereunder. NALC's obligation
to reimburse HFS for such out-of-pocket costs and expenses and taxes shall be in
addition to its obligation to pay the Corporate Services Fee. NALC shall
reimburse HFS for such out-of- pocket costs and expenses and taxes promptly upon
receipt of HFS's invoice therefor.
ARTICLE V
TERM: TERMINATION
Section 5.1 Term of Agreement. Subject to earlier termination pursuant to
Section 5.2 or 5.3 below, this Agreement shall continue in full force and effect
until the twenty-fifth anniversary of the Effective Date. The provisions of
Sections 6.3, 6.4 and 6.5 of this Agreement shall survive the expiration or
termination of this Agreement in perpetuity.
Section 5.2 Termination by HFS. HFS shall have the right to terminate this
Agreement at any time, without penalty or further obligation of HFS to NALC
hereunder (other than any obligation arising out of a breach of this Agreement
by HFS) and without prejudice to any accrued rights of HFS hereunder (including,
without limitation, any right to damages arising out of a breach of this
<PAGE>
Agreement by NALC and any right to fees and/or expenses in respect of Advisory
Services and Corporate Services provided by HFS prior to such termination):
(a) upon ninety days' written notice to NALC;
(b) immediately upon a Change in Control;
(c) upon thirty days' written notice to NALC if NALC is in material breach
of any of its obligations hereunder, unless NALC remedies such breach within
such thirty-day period or, in the case of a breach that cannot reasonably be
remedied within a thirty-day period, NALC initiates and diligently pursues
action that can reasonably be expected to remedy such breach within a reasonable
period of time; or
(d) immediately if NALC becomes bankrupt or insolvent or makes an
assignment for the benefit of creditors, or if a receiver is appointed to take
charge of NALC's business.
Section 5.3 Termination by NALC. NALC shall have the right to terminate
this Agreement at any time, without penalty or further obligation of NALC to HFS
hereunder (other than any obligation arising out of a breach of this Agreement
by NALC or any obligation to pay fees and/or expenses to HFS with respect to
services provided by HFS prior to such termination) and without prejudice to any
accrued rights of NALC hereunder (including, without limitation, any right to
damages arising out of a breach of this Agreement by HFS):
(a) upon thirty days' written notice to HFS if HFS is in material breach of
any of its obligations, unless HFS remedies such breach within such thirty-day
period or, in the case of a breach that cannot reasonably be remedied within a
thirty-day period, HFS initiates and diligently pursues action that can
reasonably be expected to remedy such breach within a reasonable period of time;
or
(b) immediately if HFS becomes bankrupt or insolvent or makes an assignment
for the benefit of creditors, or if a receiver is appointed to take charge of
HFS's business.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
6.1 Standard of Performance.
(a) In all material respects, HFS will perform the Advisory Services and
the Corporate Services in a competent manner, in accordance with applicable
<PAGE>
statutes, rules and regulations of governmental and regulatory authorities
having jurisdiction. HFS shall be presumed to have met the standard of
performance required by this Section 6.1(a) if it performs such services in
accordance with its standard practices and procedures.
(b) The Advisory Services and the Corporate Services shall be provided at
HFS's offices in Parsippany, New Jersey or at such other location or locations
as HFS may from time to time deem appropriate.
(c) Performance of the Advisory Services and the Corporate Services shall
include the assignment on a full or part-time basis of such executive,
professional, managerial, administrative, technical and clerical employees of
HFS as shall reasonably be deemed necessary by HFS.
Section 6.2 Relationship of the Parties. In performing the Advisory
Services and the Corporate Services, HFS shall at all times be an independent
contractor, free to exercise its discretion and independent judgment as to the
methods and means of performance hereunder. Nothing herein is intended, nor
shall anything herein be construed or applied, to create a principal/agent or
employer/employee relationship between HFS and NALC.
Section 6.3 Confidentiality. HFS and NALC shall hold, and shall cause their
respective officers, employees, agents, consultants and advisors to hold, in
strict confidence unless compelled to disclose by judicial or administrative
process or, in the opinion of independent legal counsel, by other requirements
of law, all confidential or proprietary information concerning the other party
or any of its Affiliates and furnished by such other party, its Affiliates or
their respective representatives in connection with this Agreement (except to
the extent that such information can be shown to have been (a) in the public
domain through no fault of the party to whom such information was provided or
(b) later lawfully acquired from a third party not bound by an obligation or
duty of confidentiality to HFS (or any of its Affiliates) or NALC (or any of its
Affiliates), as the case may be). Each party shall be deemed to have satisfied
its obligations under this Section 6.3 if it exercises the same care with
respect to such confidential or proprietary information as it takes to preserve
the confidentiality of its own similar information.
Section 6.4 Indemnification.
(a) HFS shall indemnify NALC against any claim or liability for wages of
HFS personnel engaged in the performance of Advisory Services or Corporate
Services or for taxes or related charges imposed upon such HFS personnel or upon
their compensation, and against any claim or liability for failure by HFS to
withhold any such taxes or charges from such compensation.
(b) NALC agrees to indemnify, defend and hold harmless HFS, its
subsidiaries and Affiliates and their respective directors, officers, employees,
<PAGE>
agents and representatives against any and all Losses incurred by any of them
and arising out of (i) the performance by HFS of Advisory Services or Corporate
Services, except to the extent that such Losses result from the gross negligence
or willful misconduct of HFS or (ii) the breach by NALC of any of its
obligations under this Agreement.
(c) HFS agrees to indemnify, defend and hold harmless NALC, its
subsidiaries and Affiliates and their respective directors, officers, employees,
agents and representatives against any and all Losses incurred by any of them
and arising out of the breach by HFS of any of its obligations under this
Agreement.
Section 6.5 Disclaimer of Warranties; Limitation of Liability.
(a) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREE MENT, HFS MAKES NO
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, ANY REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE, ARISING OUT OF THIS AGREEMENT OR THE SERVICES TO BE
PROVIDED HEREUNDER.
(b) In no event shall HFS or NALC be liable for any indirect, special or
consequential damages arising out of or in connection with this Agreement.
Section 6.6 Excuses for Nonperformance. If performance by HFS of any of the
Advisory Services or Corporate Services is prevented, restricted, or interfered
with in whole or in part by reason of any event or cause whatsoever beyond the
reasonable control of HFS and NALC, then in any such event, HFS shall be excused
from such performance to the extent of such prevention, restriction or
interference, and the Corporate Services Fees payable to HFS by NALC in respect
of such Advisory Services or Corporate Services shall be reduced
proportionately.
Section 6.7 Subcontracting. HFS will not subcontract to any third party the
performance of any Advisory Services or Corporate Services without NALC's prior
consent, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, HFS shall be permitted to engage, in connection with the performance
of the Advisory Services and the Corporate Services hereunder, such attorneys,
independent accountants, financial advisors and consultants as HFS may, from
time to time, deem necessary or appropriate.
<PAGE>
ARTICLE VII
MISCELLANEOUS
Section 7.1 Complete Agreement. This Agreement shall constitute the entire
agreement between HFS and NALC with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments, writings and
understandings with respect thereto.
Section 7.2 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts law) as to all matters, including, without limitation, matters of
validity, construction, effect, performance and remedies.
Section 7.3 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and, unless otherwise
provided herein, shall be deemed to have been duly given (i) on the date of
service if served personally on the party to whom notice is given, (ii) on the
day of transmission if sent via facsimile transmission to the facsimile number
given below, provided telephonic confirmation of receipt is obtained promptly
after completion of transmission, (iii) on the business day after delivery to an
overnight courier service, provided that receipt of delivery to the party to
whom notice is to be given has been confirmed, or (iv) on the fifth day after
mailing, provided receipt of delivery is confirmed, if mailed to the party to
whom notice is to be given by first class mail, registered or certified, postage
prepaid, properly addressed and return-receipt requested, to HFS or NALC, as the
case may be, as follows:
If to HFS:
Hospital Franchise Systems, Inc.
339 Jefferson Road
Parsippany, New Jersey 07054
Attn: General Counsel
Fax No.: (201) 428-5269
If to NALC:
National Lodging Corp.
605 Third Avenue
New York, New York 10158
Attn: General Counsel
Fax No.: (212) 867-4644
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn: Martin L. Edelman
Fax No.: (212) 856-7808
<PAGE>
Any party may change its address or fax number by giving the other party written
notice of its new address in the manner set forth above.
Section 7.4 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
Section 7.5 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party without the prior written consent of the other party.
Section 7.6 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and is not intended to confer any rights or
remedies upon any person other than the parties hereto, except to the extent
that any of the persons identified in Section 7.4 may be entitled to
indemnification hereunder.
Section 7.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Section 7.8 Interpretation. The Article and Section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, the term "Person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
Section 7.9 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision or any other provision hereof in any other
jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first written above
HFS INCORPORATED
By:
Name:
Title:
NATIONAL LODGING CORP.
By:
Name:
Title:
EXHIBIT 11
HFS Incorporated and Subsidiaries
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
----------------------------------------------
1996 1995
------------------ -----------------
Fully Fully
Primary Diluted Primary Diluted
-------------------------------------
<S> <C> <C> <C> <C>
Net income $ 38,744 $ 38,744 $ 20,183 $ 20,183
Convertible debt interest
& amortization of deferred
loan costs, net of tax 1,122 1,122 1,092 1,092
------- ------- ------- -------
Net income as adjusted $ 39,866 $ 39,866 $ 21,275 $ 21,275
======== ======== ======== ========
Weighted average common shares outstanding 109,948 109,948 94,284 94,284
Incremental shares for outstanding
stock options and warrants 11,381 11,954 8,640 9,320
Contingent shares -- -- 1,072 1,072
Convertible debt 8,257 8,257 8,266 8,266
----- ----- ----- -----
Weighted average common and common
equivalent shares outstanding 129,586 130,159 112,262 112,942
======= ======= ======= =======
Net income per share $ 0.31 $ 0.31 $ 0.19 $ 0.19
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-------------------------------------
1996 1995
----------------- -----------------
Fully Fully
Primary Diluted Primary Diluted
--------------------------------------
<S> <C> <C> <C> <C>
Net income $ 61,562 $ 61,562 $ 32,245 $ 32,245
Convertible debt interest
and amortization of deferred
loan costs, net of tax 2,244 2,244 2,184 2,184
----- ----- ----- -----
Net income as adjusted $ 63,806 $ 63,806 $ 34,429 $ 34,429
======== ======== ======== ========
Weighted average
common shares outstanding 106,331 106,331 93,618 93,618
Incremental shares for outstanding
stock options and warrants 10,641 11,687 8,284 9,320
Contingent shares -- -- 1,072 1,072
Convertible debt 8,257 8,257 8,266 8,266
----- ----- ----- -----
Weighted average common and
common equivalent shares outstanding 125,229 126,275 111,240 112,276
======= ======= ======= =======
Net income per share $ 0.51 $ 0.51 $ 0.31 $ 0.31
======== ======== ======== ========
</TABLE>
