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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
COMMISSION FILE NO. 1-11402
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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 103,764,297 shares of Common Stock outstanding as at May 6, 1996.
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<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HFS INCORPORATED AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 81,432 $ 16,109
Royalty accounts and notes receivable, net of
allowance for doubtful accounts 59,917 37,326
Marketing and reservation receivables, net of
allowance for doubtful accounts 35,829 22,297
Relocation receivables 44,043 51,180
Other current assets 35,060 21,304
Deferred income taxes 23,192 20,200
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Total current assets 279,473 168,416
Property and equipment, net 72,380 67,892
Franchise agreements, net 564,057 517,218
Excess of cost over fair value of net assets
acquired, net 411,090 356,754
Other assets 71,148 55,528
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TOTAL ASSETS $1,398,148 $1,165,808
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Accounts payable and other $ 101,990 $ 84,000
Income taxes payable 51,591 38,640
Current portion of long-term debt 2,352 2,249
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Total current liabilities 155,933 124,889
Long-term debt 554,373 300,778
Other liabilities 16,842 17,150
Deferred income taxes 82,800 82,800
Commitments and contingencies
Series A Adjustable Rate Preferred Stock of Century 21 -- 80,000
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 1,027 1,025
Additional paid-in capital 480,751 475,562
Retained earnings 106,422 83,604
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Total stockholders' equity 588,200 560,191
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,398,148 $1,165,808
========== ==========
</TABLE>
-See notes to consolidated financial statements-
2
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
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(In thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
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1996 1995
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REVENUE:
Franchise $ 95,001 $ 66,155
Other 29,544 7,998
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Total revenue 124,545 74,153
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EXPENSES:
Marketing and reservation 31,618 29,357
Selling, general and administrative 26,354 8,086
Ramada license fee 4,889 4,513
Depreciation and amortization 10,186 6,556
Interest 5,995 5,099
Other 5,883 102
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Total expenses 84,925 53,713
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Income before income taxes and minority interest 39,620 20,440
Provision for income taxes 16,006 8,378
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Income before minority interest 23,614 12,062
Minority interest - preferred dividend 796 --
-------- --------
Net income $ 22,818 $ 12,062
======== ========
SHARE INFORMATION (FULLY DILUTED):
Net income per share $ .20 $ .12
======== ========
Weighted average common and common
equivalent shares outstanding 121,088 102,556
======== ========
-See notes to consolidated financial statements-
3
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- 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
Exercise of stock options 236 2 2,215 -- 2,217
Tax benefit from exercise
of stock options -- -- 2,882 -- 2,882
Conversion of 4 1/2% Notes 5 -- 92 -- 92
Net income -- -- -- 22,818 22,818
-------- --------- ----------- ----------- ----------
Balance, March 31, 1996 102,780 $ 1,027 $ 480,751 $ 106,422 $ 588,200
======== ========= =========== =========== ==========
</TABLE>
-See notes to consolidated financial statements-
4
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 22,818 $ 12,062
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization, including
amortization of deferred financing costs 10,556 6,870
Decrease in accured acquisition obligations (8,239) (1,826)
Changes in operating assets and liabilities
and other (13,053) (8,110)
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Net cash provided by operating activities 12,082 8,996
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INVESTING ACTIVITIES:
Property and equipment additions (7,075) (2,191)
Loans and investments (10,000) (12,827)
Net assets acquired, exclusive of cash acquired (99,959) --
--------- ---------
Net cash used in investing activities (117,034) (15,018)
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FINANCING ACTIVITIES:
Redemption of Series A Preferred Stock (80,000) --
Principal payments - long-term debt (545) (415)
Issuance of common stock 2,217 1,347
Proceeds from borrowings, net 248,603 4,808
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Net cash provided by financing activities 170,275 5,740
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Net increase (decrease) in cash and cash equivalents 65,323 (282)
Cash and cash equivalents, beginning of period 16,109 5,956
--------- ---------
Cash and cash equivalents, end of period $ 81,432 $ 5,674
========= =========
</TABLE>
-See notes to consolidated financial statements-
5
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1. Basis of Presentation
The consolidated balance sheet of HFS Incorporated (the "Company") as
of March 31, 1996, the consolidated statements of income and cash flows
for the three months ended March 31, 1996 and 1995 and the consolidated
statement of stockholders' equity for the three months ended March 31,
1996 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal recurring items. 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. 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 completed or pending acquisitions were or will be
accounted for using the purchase method of accounting. Accordingly,
assets acquired and liabilities assumed were or will be recorded at their
estimated fair values. The results of operations of acquisitions
completed during the three months ended March 31, 1996 have been included
in the Company's consolidated results since the respective dates of
acquisition.
A. TRAVELODGE - On January 23, 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 20 Travelodge motels from FHI for
6
<PAGE>
$32.3 million. MOA, a significant Company franchisee, entered into twenty
year Travelodge and Ramada franchise agreements for nineteen and one
acquired motels, respectively. 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"), formerly National Gaming
Corp., a former wholly owned Company subsidiary which was distributed to
the Company shareholders on November 22, 1994 (the "Distribution Date"),
purchased all of the capital 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 to be 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 of approximately $2 million in
January 1996 in connection with NLC's acquisition of FHI.
B. ERA - On February 12, 1996, the Company purchased the assets
comprising the Electronic Realty Associates ("ERA") residential real
estate brokerage franchise system for approximately $38.0 million. The
Company has also entered into an agreement to purchase the ERA affiliates
which conduct the ERA home warranty business in eight states for $9.2
million, subject to certain working capital adjustments. The purchase of
these affiliates is subject to the approval of certain state insurance
authorities and is expected to be completed during the second quarter of
1996.
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 aggregate purchase price
was $95 million in cash and approximately 0.9 million shares of Company
common stock.
D. PENDING ACQUISITION OF COLDWELL BANKER - On May 2, 1996, the
Company entered into an agreement to acquire 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 agreed to
pay $640 million in cash for all of the outstanding capital stock of
Coldwell Banker and to repay approximately $100 million of indebtedness
of Coldwell Banker. The aggregate purchase price for the transaction will
be financed through the sale of Company common stock (see Note 5). While
completion of this transaction is not assured, the Company expects that
the transaction will be completed on or about May 31, 1996. The Merger,
if consummated, will be accounted for under the purchase method of
accounting.
Immediately following the closing of the Merger, the Company expects
to convey Coldwell Banker's 318 owned real estate brokerage offices (the
"Owned Brokerage Business") to an independent trust (the "Trust")
governed by independent trustees. The Company expects to incur
approximately $16 million of restructuring expenses ($11.6 million net of
tax) related to the contribution to the Trust and relocation of Company
headquarters in the second quarter of 1996.
7
<PAGE>
Pro Forma Information:
The following information reflects the comparative pro forma
statements of operations of the Company for the three months ended March
31, 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 acquisitions of
Travelodge, ERA and the Century 21 NORS; (iv) the Merger; (v) proceeds
from the proposed May 1996 offering of Company common stock (see Note 5)
and the February 22, 1996 issuance of $240 million of 4 3/4% convertible
senior notes due 2003 (the "4 3/4% Notes") to the extent such proceeds
were used or are expected to be used to finance acquisitions. The
acquisitions have been or will be 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. The August 31, 1995
acquisition of the Knights Inn franchise system is immaterial and
therefore is not reflected in the 1995 pro forma statement of operations.
<TABLE>
<CAPTION>
March 31,
----------------------------
(000's, except net income per share) 1996 1995
---------- --------
<S> <C> <C>
Revenue $ 181,829 $ 159,998
Income before income taxes and minority interest 51,625 32,335
Net income 30,025 18,159
Net income per share (fully diluted) .23 .15
Weighted average common and common equivalent shares
outstanding (fully diluted) 135,711 131,921
</TABLE>
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 three months ended March 31, 1996 and 1995
are based upon the weighted average number of common and common
equivalent shares outstanding during the respective periods. The $240
million 4 3/4% Notes issued in February 1996 are antidilutive for the
three months ended March 31, 1996 and, accordingly, are not included in
the computation of earnings per share for 1996. The $150 million 4 1/2%
convertible senior notes (the "4 1/2% Notes") issued in October 1994 are
antidilutive for the three months ended March 31, 1995 and, accordingly,
are not included in the computation of earnings per share for 1995. For
purposes of calculating earnings per share, interest expense, including
amortization of deferred financing costs (net of taxes) associated with
the 4 1/2% Notes has been added back to net income.
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.
8
<PAGE>
B. PENDING PUBLIC OFFERING - On May 9, 1996, the Company filed a
prospectus supplement pursuant to an effective Registration Statement on
Form S-3 for the public offering of approximately 15 million shares of
Company common stock (the "Offering"). Net proceeds from the Offering will
be used to finance the acquisition of Coldwell Banker and for general
corporate purposes. The Offering is expected to be completed in May 1996.
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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL OVERVIEW
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 pending
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.
RESULTS OF OPERATIONS -- REVENUE OVERVIEW
Company revenue increased 68% ($50.4 million) to $124.5 million in the first
quarter of 1996 compared to $74.2 million in the first quarter of 1995.
Approximately $21.2 million of the increase represented incremental franchise
fees from the Company's real estate segment including revenue generated from
the CENTURY 21(R) and Electronic Realty Associates(R) (ERA(R)) franchise
systems which were acquired in August 1995 and February 1996, respectively.
Preferred vendor revenue also increased $9.8 million representing a 231%
increase.
LODGING
Lodging segment franchise fees and the royalty portion of franchise fees
increased $7.6 million (11.5%) and $6.0 million (19.6%), respectively, in
the first quarter of 1996 compared to the same period in 1995. Once
again, room growth represented the most significant revenue outcome
driver contributing to the increase. The Company added 57,061 rooms, net
of terminations, during the twelve months ended March 31, 1996,
representing a 13.4% increase from March 31, 1995. In the first quarter
of 1996 total system revenue per available room ("REVPAR") increased 3.5%
driven primarily by a 2.5% increase in total system average daily rate
from the first quarter 1995 to 1996. Additionally, the average royalty
rate for the first quarter of 1996 increased 2.4% when compared to the
same period in 1995.
REAL ESTATE
The real estate segment contributed $21.2 million of franchise fees for
the first quarter of 1996 including approximately $19.2 million from the
CENTURY 21 franchise system acquired in August 1995 and approiximately
$2.0 million from the ERA franchise system acquired on February 12, 1996.
OTHER
Other revenue was substantially comprised of fees from preferred vendor
arrangements, which consists of revenue generated from vendors seeking
access to the Company's franchisees and franchisees' customers. Preferred
vendor revenue increased $9.8 million (231%) from the first quarter of
1995 to the first quarter of 1996. Other revenue also includes $3.4
million of relocation services fees and $1.7 million of home warranty
product sales from businesses acquired in connection with the
acquisitions of CENTURY 21 and ERA franchise systems.
10
<PAGE>
RESULTS OF OPERATIONS - EXPENSES AND INCOME
1Q96 VS 1Q95
Income before income taxes and minority interest increased $19.2 million
(94%) resulting from a $50.4 million increase in revenue net of a $31.2
million (58%) increase in expenses.
Selling, general and administrative expenses ("SG&A") increased $18.3
million for the first quarter of 1996 over the comparable period in 1995,
primarily as a result of $12.8 million of incremental expenses
attributable to real estate segment operations including CENTURY 21 and
ERA following their respective August 1995 and February 1996
acquisitions. The $2.3 million increase in marketing and reservation
expenses includes a $0.7 million increase in marketing fees from
franchised lodging properties and a $1.6 million contribution by the
Company to the CENTURY 21 National Advertising Fund ("NAF"), a dedicated
advertising fund for national and local marketing. Contractually, Century
21 is obligated to contribute 10% of net service fees received to the
NAF.
Depreciation and amortization for the first quarter of 1996 increased
$3.6 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, ERA, Knights Inn(R)
and Travelodge(R) franchise systems and CCI and the issuance of Company
common stock in September 1995, pursuant to an earnout agreement entered
into with Bryanston Group, Inc. ("Bryanston"), an affiliate of the
sellers of the Days Inn(R) franchise system. Such issuance to Bryanston
resulted in additional goodwill and related amortization, commencing in
September 1995.
Interest expense for the first quarter of 1996 increased $0.9 million as
a result of increased borrowings due to the acquisition of Century 21
Real Estate Corporation ("Century 21") in 1995 and the acquisitions of
the ERA and Travelodge franchise systems in the first quarter of 1996,
reduced in part by the Company's lower average borrowing rate for
comparative periods. The Company's weighted average effective interest
rate decreased from 5.9% in the first quarter 1995 to 5.3% in the first
quarter of 1996 as a result of the issuance of $240 million 4 3/4%
Convertible Senior Notes ("4 3/4% Notes"). Outstanding borrowings at
March 31, 1996 were substantially comprised of fixed rate debt
securities.
PRO FORMA RESULTS OF OPERATIONS
The 65% ($11.9 million) increase in pro forma net income from the first
quarter of 1995 to 1996 primarily results from a $21.8 million increase
in revenue and only a $2.5 million increase in total expenses. The
revenue increase includes a $7.6 million (6.6%) increase in combined
lodging and real estate 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 $9.8 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
ACQUISITIONS
COLDWELL BANKER - On May 2, 1996, the Company entered into an agreement
to acquire by merger Coldwell Banker for $640 million of cash plus
repayment of approximately $100 million of indebtedness. Coldwell
11
<PAGE>
Banker franchises 2,164 brokerage offices and owns 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. While completion of this
transaction is not assured, the Company expects that the transaction will
be completed on or about May 31, 1996.
The Company intends to finance the Coldwell Banker transaction with
proceeds from a public offering of approximately 15 million shares of its
common stock in May 1996. On May 9, 1996, the Company filed a prospectus
supplement to an effective shelf registration of up to $1.0 billion of
equity and debt securities. Proceeds in excess of the purchase price and
remaining availability under the shelf offering may be used for general
corporate purposes or future acquisitions and strategic transactions in
franchise or franchisable businesses. Immediately following the closing
of the merger, the Company expects to convey the Owned Brokerage Business
to an independent trust (the "Trust") governed by independent trustees.
The Company expects to incur approximately $16 million of restructuring
expenses ($11.6 million net of tax) related to the contribution of the
Trust and relocation of Company headquarters in the second quarter of
1996.
CENTURY 21 NON-OWNED REGIONS - During the second quarter of 1996, the
Company completed the acquisition of the six U.S. non-owned CENTURY 21
regions owned by four independent master licensees. The aggregate
purchase price consisted of approximately $95 million of cash and
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 - On February 12, 1996, the Company purchased the assets comprising
the ERA residential real estate brokerage franchise system for
approximately $38.0 million and entered into an agreement to purchase ERA
affiliates which conduct the ERA home warranty business in eight states
for $9.2 million, subject to certain working capital adjustments. The
purchase price was financed by borrowings under the Company's revolving
credit facility and subsequently repaid with proceeds from the issuance
of the 4 3/4% Notes.
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. The Company financed the $30 million contingent
portion of the purchase price and $80 million redemption of Century 21
redeemable preferred stock issued to MetLife prior to the acquisition
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 and Ramada franchise agreements for nineteen and one acquired
motels, respectively. 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 the parent company of MOA and
secured by approximately 80% of MOA's outstanding common stock.
In addition, NLC purchased all of the capital 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
12
<PAGE>
guaranteed $75 million of NLC borrowings under a $125 million revolving
credit facility entered into by NLC with certain banks. The Company is to
be 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 the Company a $2.0 million advisory fee
in connection with NLC's acquisition of FHI.
FINANCING
During the Company's seasonally weakest quarter of cash flow, the Company
generated $12.1 million of cash flow from operations, representing a $3.1
million (34%) increase from the first quarter of 1995. First quarter 1996
cash flow from operations included $6.4 million of acquisition related
expenditures in excess of similar expenditures in the first quarter 1995.
First quarter 1996 also included $4.5 million of payments to real estate
franchisees under gross commission incentive programs which are remitted
once annually. Additional liquidity is available to the Company through a
revolving credit facility which provides up to a maximum of $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. At March 31, 1996, the Company had
$284.0 million of available borrowings under the revolving credit
facility.
Working capital at March 31, 1996 approximated $123.5 million,
representing an $80.0 million increase from December 31, 1995. The
increase in working capital is primarily a result of the excess proceeds
received from the issuance of the 4 3/4% Notes. Additionally, included in
working capital at March 31, 1995 is $44.0 million in relocation
receivables relating to the Company's relocation services business
acquired as part of the acquisition of Century 21. Outstanding relocation
receivables are guaranteed by client corporations and accordingly are, in
the opinion of the Company, subject to minimal risk.
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 a redemption price 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. Standard & Poors Corporation
and Moody's Investors Service Inc. assigned investment grade ratings of
A- and Baa2, respectively to the 4 3/4% Notes and Standard & Poors
Corporation subsequently upgraded the credit rating for the Company's
existing public debt issues to A.
In 1994, the Company issued $150 million 4 1/2% Convertible Senior Notes
due 1999 (the "4 1/2% Notes") which are convertible at the option of the
holders into 55.106 shares of the Company's common stock per $1,000
principal amount of the 4 1/2% Notes, representing a conversion price of
$18.15 per share. The 4 1/2% Notes are redeemable at the option of the
Company in whole or in part at any time on or after October 1, 1997 at a
redemption price of 101.125% of principal if redeemed prior to September
30, 1998 or 100% of principal any time thereafter until maturity. The
Company also has outstanding $150 million 5 7/8% Senior Notes (the
13
<PAGE>
"Senior Notes") due December 1998. Interest on each of the 4 1/2% Notes
and the Senior Notes is paid semi-annually.
Long-term debt, which consists primarily of publicly issued debt,
approximated $556.7 million at March 31, 1996 representing an increase of
approximately $253.7 million from December 31, 1995 primarily due to the
issuance of the 4 3/4% Notes. The weighted average stated interest rate
on long-term debt at March 31, 1996 was 5.0% compared to the weighted
average stated interest rate of 5.2% at December 31, 1995.
Capital expenditures approximating $7.1 million during the first quarter
of 1996 consisted primarily of the cost of software development and
computer equipment associated with a new transaction data base and
reporting system for Century 21 and additions and modifications to the
hotel brands' central reservation systems.
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 of other franchise related
businesses for the next twelve months.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the stockholders of the Company was held on January 22,
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. Approval and adoption of an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares
of Common Stock, par value $.01 per share, from 100,000,000 shares to
300,000,000 shares;
2. Approval of an amendment to the Company's Amended and Restated 1993
Stock Option Plan, as amended to date;
3. Approval of an incentive bonus arrangement with respect to Henry R.
Silverman, Chairman and Chief Executive Officer of the Company, and
4. Approval of an incentive bonus arrangement with respect to Robert W.
Pittman, a Director of the Company and Chief Executive Officer of
Century 21 Real Estate Corporation, a subsidiary of the Company.
The results of the voting on each such matter is as follows:
1. Increase in authorized stock:
For: 33,356,594 Against: 5,991,551
Abstained: 223,056
2. Amendment to Amended and Restated 1993 Stock Option Plan:
For: 28,715,011 Against: 8,892,398
Abstained: 226,607
3. Incentive bonus arrangement for Henry R. Silverman:
For: 37,651,797 Against: 1,661,884
Abstained: 257,520
4. Incentive bonus arrangement for Robert W. Pittman:
For: 37,913,655 Against: 1,400,841
Abstained: 256,705
There were no broker non-votes.
15
<PAGE>
ITEM 5. OTHER INFORMATION
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma consolidated balance sheet as of March 31, 1996 is presented as
if the following transactions had occurred on March 31, 1996:
(1) the acquisition of the common stock of Coldwell Banker (the "Merger");
(2) 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;
(3) the acquisition of the six non-owned Century 21 regions
("Century 21 NORS");
The pro forma statements of operations for the three months ended March 31,
1996 and 1995 are presented as if the above transactions and the acquisitions
of the Travelodge and ERA franchise systems and 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 these acquisitions, had occurred on January 1,
1995. The pro forma statement of operations for the three months ended March
31, 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 or will be accounted for using the purchase method
of accounting. Accordingly, assets acquired and liabilities assumed have been
or will be 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. In addition,
there can be no assurance the Company will complete the acquisition of
Coldwell Banker, in which case the Company would retain the proceeds from the
Offering for general corporate purposes, including acquisitions.
The pro forma consolidated financial statements do not reflect approximately
$16 million of expenses which the Company expects to incur following the
acquisition of Coldwell Banker relating to the contribution of Coldwell
Banker's 318 owned real estate brokerage offices ("Owned Brokerage Business")
to an independent trust (the "Trust") and the relocation of Company
headquarters.
16
<PAGE>
The pro forma consolidated financial statements are based on certain
assumptions and adjustments described in the Notes to Pro Forma Consolidated
Balance Sheet and Statement of Operations and should be read in conjunction
therewith and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and related notes thereto.
17
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
COLDWELL CENTURY 21 PRO FORMA
HFS BANKER NORS ADJUSTMENT (A) PRO FORMA
----------- ----------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 81,432 $ 23,149 $ 3,933 $ (99,832) $ 8,682
Royalty accounts and notes
receivable, net 59,917 11,045 7,776 (10,997) 67,741
Relocation receivables 44,043 83,670 - - 127,713
Marketing and reservation
receivables, net 35,829 - - - 35,829
Other current assets 35,060 4,742 738 792 41,332
Deferred income taxes 23,192 4,541 - (4,541) 23,192
----------- ----------- --------- ----------- -----------
Total current assets 279,473 127,147 12,447 (114,578) 304,489
Property and equipment-net 72,380 63,210 3,538 (41,748) 97,380
Franchise agreements-net 564,057 - - 11,000 575,057
Excess of cost over fair value of
net assets acquired-net 411,090 35,275 - 135,784 582,149
Intangible assets - Coldwell Banker - - - 702,935 702,935
Deferred income taxes - 9,503 - (9,503) 3,695
3,695
Other assets 71,148 11,020 4,522 (5,308) 81,382
----------- ----------- --------- ----------- -----------
Total $ 1,398,148 $ 246,155 $ 20,507 $ 682,277 $ 2,347,087
=========== =========== ========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other
accrued liabilities $ 101,990 $ 112,952 $ 6,442 $ (43,465) $ 177,919
Income taxes payable 51,591 8,175 - (8,175) 51,591
Accrued acquisition obligations - - - 9,499 9,499
Current portion of long-term debt 2,352 33,370 35 (12,875) 22,822
----------- ----------- --------- ----------- -----------
Total current liabilities 155,933 154,497 6,477 (55,016) 261,891
----------- ----------- --------- ----------- -----------
Long-term debt 554,373 133,316 328 (133,063) 554,954
Other non-current liabilities 16,842 5,860 95 (2,555) 20,242
Deferred income taxes 82,800 - - - 82,800
STOCKHOLDERS' EQUITY
Common stock 1,027 58 77 11 1,173
Additional paid-in capital 480,751 59,124 104 779,626 1,319,605
Retained earnings (deficit) 106,422 (106,700) 13,426 93,274 106,422
----------- ----------- --------- ----------- -----------
Total stockholders' equity (deficit) 588,200 (47,518) 13,607 872,911 1,427,200
----------- ----------- --------- ----------- -----------
Total $ 1,398,148 $ 246,155 $ 20,507 $ 682,277 $ 2,347,087
=========== =========== ========= =========== ===========
</TABLE>
- ---------------
Note: Certain reclassifications have been made to the historical balance
sheets of acquired companies to conform with the Company's
classification.
See notes to pro forma consolidated balance sheet and
statement of operations.
18
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
COLDWELL 1996 PRO FORMA
HFS BANKER ACQUISITIONS(1) ADJUSTMENTS PRO FORMA
----------- ----------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Franchise $ 95,001 $ 13,010 $ 8,899 $ 5,497 (B) $ 122,407
Owned brokerage - 112,283 - (112,283)(C) -
Relocation 2,960 20,537 719 - 24,216
Other 26,584 7,079 1,543 - 35,206
----------- ----------- ----------- ---------- -----------
Total revenue 124,545 152,909 11,161 (106,786) 181,829
----------- ----------- ----------- ----------- -----------
EXPENSES:
Marketing and reservation 31,618 - 1,050 - 32,668
Selling, general and administrative 26,354 6,991 8,636 (5,602)(D) 36,379
Ramada license fee 4,889 - - - 4,889
Owned brokerage - 117,507 - 117,507)(C) -
Depreciation and amortization 10,186 5,273 368 3,469 (E) 19,296
Interest 5,995 2,125 1,493 (2,343)(F) 7,270
Relocation 2,298 18,970 641 - 21,909
Other 3,585 3,444 764 - 7,793
----------- ----------- ----------- ---------- -----------
Total expenses 84,925 154,310 12,952 (121,983) 130,204
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest 39,620 (1,401) (1,791) 15,197 51,625
Provision (benefit) for income taxes 16,006 (556) - 5,354 (H) 20,804
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest 23,614 (845) (1,791) 9,843 30,821
Minority interest-preferred dividend 796 - - - 796
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 22,818 $ (845) $ (1,791) $ 9,843 $ 30,025
=========== =========== =========== =========== ===========
PER SHARE INFORMATION (FULLY DILUTED)
Net income $ .20 $ .23
=========== ===========
Weighted average common
and common equivalent
shares outstanding 121,088 14,623 (J) 135,711
=========== =========== ===========
</TABLE>
- ---------------
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification
(1) Represents the acquisitions of the Travelodge and ERA franchise
systems and the Century 21 NORS (collectively, the "1996
Acquisitions").
See notes to pro forma consolidated balance sheet and statement of
operations.
19
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS OF 1996 ACQUISITIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
CENTURY 21
NORS TRAVELODGE(1) ERA (1) TOTAL
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Franchise $ 5,936 $ 688 $ 2,275 $ 8,899
Relocation - - 719 719
Other 341 - 1,202 1,543
----------- ---------- ---------- ----------
Total revenue 6,277 688 4,196 11,161
----------- ---------- ---------- ----------
EXPENSES:
Marketing and
reservation 597 453 - 1,050
Selling, general and
administrative 6,061 99 2,476 8,636
Depreciation and
amortization 232 - 136 368
Interest 2 - 1,491 1,493
Relocation - - 641 641
Other - - 764 764
----------- ---------- ---------- ----------
Total expenses 6,892 552 5,508 12,952
----------- ---------- ---------- ----------
Income (loss) before
income taxes (615) 136 (1,312) (1,791)
Provision for income taxes - - - -
----------- ---------- ---------- ----------
Net income (loss) $ (615) $ 136 $ (1,312) $ (1,791)
=========== ========== ========== ==========
</TABLE>
- ---------------
Note: Certain reclassifications have been made to the historical results of
the 1996 Acquisitions 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
statement of operations.
20
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------
COLDWELL ACQUIRED PRO FORMA
HFS BANKER COMPANIES ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Franchise $ 66,155 $ 11,353 $ 32,855 $ 4,434 (B) $ 114,797
Owned brokerage - 94,337 - (94,337)(C) -
Relocation - 16,776 3,021 - 19,797
Other 7,998 4,971 12,435 - 25,404
----------- ----------- ----------- ---------- -----------
Total revenue 74,153 127,437 48,311 (89,903) 159,998
----------- ----------- ----------- ---------- -----------
EXPENSES:
Marketing and reservation 29,357 - 4,993 - 34,350
Selling, general and administrative 8,086 8,538 35,691 (14,477)(D) 37,838
Ramada license fee 4,513 - - - 4,513
Owned brokerage - 104,980 - (104,980)(C) -
Depreciation and amortization 6,556 5,934 3,183 2,612 (E) 18,285
Interest 5,099 1,486 2,168 (476)(F) 8,277
Relocation - 14,534 2,715 - 17,249
Other 102 2,872 4,454 (277)(G) 7,151
----------- ----------- ----------- --------- -----------
Total expenses 53,713 138,344 53,204 (117,598) 127,663
----------- ----------- ----------- --------- -----------
Income (loss) before income taxes and
minority interest 20,440 (10,907) (4,893) 27,695 32,335
Provision (benefit) for income taxes 8,378 (4,675) (356) 10,008 (H) 13,355
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest 12,062 (6,232) (4,537) 17,687 18,980
Minority interest-preferred dividend - - - 821 (I) 821
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 12,062 $ (6,232) $ (4,537) $ 16,866 $ 18,159
=========== =========== =========== =========== ===========
PER SHARE INFORMATION (FULLY DILUTED)
Net income $ .12 $ .15
=========== ===========
Weighted average common
and common equivalent
shares outstanding 102,556 29,365 (J) 131,921
=========== =========== ===========
</TABLE>
- ---------------
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
statement of operations.
21
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CENTURY 21
CCI CENTURY 21 NORS TRAVELODGE ERA TOTAL
--------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Franchise $ - $ 18,940 $ 5,527 $ 3,763 $ 4,625 $ 32,855
Relocation 2,264 - - 757 3,021
Other 2,310 5,482 314 - 4,329 12,435
--------- ----------- ---------- ---------- --------- ---------
Total revenue 2,310 26,686 5,841 3,763 9,711 48,311
--------- ----------- ---------- ---------- --------- ---------
EXPENSES:
Marketing and
reservation - 1,802 536 2,655 - 4,993
Selling, general and
administrative - 23,162 5,488 543 6,498 35,691
Depreciation and
amortization 367 2,201 220 - 395 3,183
Interest - 1,329 15 2 822 2,168
Relocation - 2,000 - - 715 2,715
Other 1,332 - - - 3,122 4,454
--------- ----------- ---------- ---------- --------- ---------
Total expenses 1,699 30,494 6,259 3,200 11,552 53,204
--------- ----------- ---------- ---------- --------- ---------
Income (loss) before
income taxes 611 (3,808) (418) 563 (1,841) (4,893)
Provision (benefit)
for income taxes 217 (805) - 232 - (356)
--------- ------------ ----------- ---------- --------- ----------
Net income (loss) $ 394 $ (3,003) $ (418) $ 331 $ (1,841) $ (4,537)
========= ============ ============ ========== ========= ==========
</TABLE>
- ---------------
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
statement of operations.
22
<PAGE>
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND
STATEMENT OF OPERATIONS
A. ACQUISITIONS OF COLDWELL BANKER AND THE CENTURY 21 NORS:
The purchase price for the Coldwell Banker and the Century 21 NORS
have been allocated to assets acquired and liabilities assumed at their
estimated fair values. Pro forma adjustments consist of the elimination
of certain acquired assets and assumed liabilities, net of the fair
value ascribed to such assets and liabilities.
The Company will acquire Coldwell Banker and the Century 21 NORS for
the following consideration ($000's):
<TABLE>
<CAPTION>
COLDWELL CENTURY 21
BANKER NORS TOTAL
---------- ---------- --------
<S> <C> <C> <C>
Cash consideration (i) $ 792,000 $ 94,980 $ 886,980
Issuance of approximately 0.9 million
shares of Company common stock - 46,000 46,000
----------- ---------- ---------
TOTAL PRO FORMA ACQUISITION COST 792,000 140,980 932,980
----------- ---------- ---------
Fair value of net assets acquired:
Historical book value of acquired companies (47,518) 13,607 (33,911)
Elimination of net assets (liabilities) not acquired
or assumed:
Cash and cash equivalents (1,919) (3,933) (5,852)
Accounts and notes receivable (3,221) (7,776) (10,997)
Deferred income taxes, current (4,541) -- (4,541)
Other current assets 1,530 (738) 792
Property and equipment (38,210) (3,538) (41,748)
Deferred income taxes, non current (9,503) -- (9,503)
Other assets (786) (4,522) (5,308)
Accounts payable and other 37,023 6,442 43,465
Income taxes payable 8,175 -- 8,175
Current portion of long-term debt 12,840 35 12,875
Long-term debt 132,735 328 133,063
Other non-current liabilities 2,460 95 2,555
Fair value of assets acquired and liabilities assumed:
Deferred income taxes - non-current (ii) -- 3,695 3,695
Franchise agreements -- 11,000 11,000
Accrued acquisition liabilities -- (9,499) (9,499)
----------- ---------- ---------
FAIR VALUE OF IDENTIFIABLE NET ASSETS ACQUIRED 89,065 5,196 $94,261
----------- ---------- =========
Intangible assets - Coldwell Banker (iii) $ 702,935 $ 702,935
=========== =========
Excess of cost over fair value of net
assets acquired $ 135,784 $135,784
========== =========
</TABLE>
(i) The adjustment reflects $640,000 for the acquisition of
Coldwell Banker, $20,000 of related expenses and repayment
of $132,000 of indebtedness of Coldwell Banker outstanding
as of March 31, 1996. The Company expects that $100,000 of
such indebtedness will be outstanding and repaid upon
consummation of the merger.
(ii) The pro forma adjustment to deferred income taxes recorded
in connection with the acquisitions results from differences
in the fair values of assets acquired and liabilities
assumed and their respective income taxes bases.
(iii) The Company has not completed the valuation of franchise
agreements and other identifiable intangible assets.
23
<PAGE>
A. ACQUISITIONS OF COLDWELL BANKER AND CENTURY 21 NORS: (CONTINUED)
The pro forma adjustments include the elimination of Coldwell Banker and
Century 21 NORS stockholders' net deficit, the issuance of approximately
13.7 million shares to finance the acquisition of Coldwell Banker and
approximately 923,000 shares in connection with the acquisition of
certain Century 21 NORS entities. The number of shares of Company common
stock issued in connection with the acquisition of Coldwell Banker
assumes a market value of Company common stock of $60.00 per share and
expenses related to the Offering approximating $29.0 million. The
adjustment to stockholders' equity is calculated as follows ($000's):
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
--------- --------- ----------- -----------
<S> <C> <C> <C>
Issuance of Company Common Stock $ 146 $ 838,854 $ - $ 839,000
Elimination of Coldwell Banker
stockholders' net deficit (58) (59,124) 106,700 47,518
Elimination of Century 21 NORS
stockholders' net deficit (77) (104) (13,426) (13,607)
---------- ----------- ----------- -----------
Adjustment to stockholders' equity $ 11 $ 779,626 $ 93,274 $ 872,911
========= =========== =========== ===========
</TABLE>
B. 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:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------
Eliminate: 1996 1995
---------- ---------
<S> <C> <C>
Discontinued operations $ - $ (17)
Century 21 revenue included as Century 21 NORS
(1996 acquisitions) SG&A (878) (823)
Add :
Franchise fees from Owned Brokerage Business 6,375 5,274
---------- ----------
Total $ 5,497 $ 4,434
========== ==========
</TABLE>
C. OWNED BROKERAGE REVENUE AND EXPENSES:
The pro forma adjustments reflect the elimination of revenue and
expenses for Coldwell Banker's 318 owned offices involved in the Owned
Brokerage Business. The Company intends to contribute the Owned
Brokerage Business following the acquisition of Coldwell Banker by
contributing corresponding net assets to the Trust. 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.
24
<PAGE>
D. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
The pro forma adjustments eliminate redundant costs associated with the
restructuring of franchise services and the resulting termination of
certain functions and positions in connection with Company acquisitions.
Adjustments are comprised of the following ($000's):
For the three months ended March 31, 1996:
<TABLE>
<CAPTION>
COLDWELL CENTURY 21
BANKER NORS TRAVELODGE ERA TOTAL
---------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Payroll and related $ - $ 2,147 $ 25 $ 222 $ 2,394
Professional 420 569 4 - 993
Occupancy - 519 4 102 625
Conventions and
meetings - 420 - 420
Franchise fees
(see Note B) - 878 - 878
Other (372) 503 4 157 292
---------- ----------- ------- --------- --------
TOTAL $ 48 $ 5,036 $ 37 $ 481 $ 5,602
========== =========== ======= ========= ========
</TABLE>
For the three months ended March 31, 1995:
<TABLE>
<CAPTION>
COLDWELL CENTURY 21
CENTURY 21 BANKER NORS TRAVELODGE ERA TOTAL
------------ ---------- ----------- ----------- --------- -------
<S> <C> <C> <C> <C>
Payroll and related $ 4,665 $ - $ 1,623 $ 139 $ 462 $ 6,889
Professional 1,154 608 423 19 - 2,204
Occupancy 1,555 - 666 23 222 2,466
Conventions and
meetings 558 - 405 - - 963
Franchise fees
(see Note B) - - 823 - - 823
Other 781 (418) 523 22 224 1,132
----------- --------- --------- ------- --------- --------
TOTAL $ 8,713 $ 190 $ 4,463 $ 203 $ 908 $ 14,477
=========== ======== ========= ======= ========= ========
</TABLE>
E. DEPRECIATION AND AMORTIZATION:
The pro forma adjustment for depreciation and amortization is comprised
of ($000's):
For the three months ended March 31, 1996:
COLDWELL 1996
BANKER ACQUISITIONS TOTAL
-------- ------------ -------
Elimination of historical
expense $ (5,273) $ (368) $(5,641)
Property and equipment 293 - 293
Excess of cost over fair value
of net assets acquired - 945 945
Intangible assets-Coldwell Banker 7,382 - 7,382
Franchise agreements - 490 490
-------- ----------- --------
Total $ 2,402 $ 1,067 $ 3,469
======== =========== ========
25
<PAGE>
For the three months ended March 31, 1995:
<TABLE>
<CAPTION>
CCI COLDWELL 1996
MERGER CENTURY 21 BANKER ACQUISITIONS TOTAL
------- ---------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
Elimination of historical
expense $ (367) $ (2,201) $(5,934) $ (615) $ (9,117)
Property and equipment 69 196 293 - 558
Information data base 260 - - - 260
Excess of cost over fair value
of net assets acquired 201 875 - 1,026 2,102
Intangible assets-Coldwell Banker - - 7,382 - 7,382
Franchise agreements - 698 - 729 1,427
-------- ----------- -------- ------------ --------
Total $ 163 $ (432) $ 1,741 $ 1,140 $ 2,612
======== =========== ======== ============ ========
</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.
Century 21
The estimated fair values of Century 21 property and equipment,
franchise agreements and excess 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 values of Coldwell Banker's property and
equipment of $25 million is amortized over the estimated average benefit
period of seven to twenty-five years.
The Company has not completed its valuation of franchise agreements
and therefore has not determined the amount of costs in excess of fair
value of net identifiable assets acquired. However, based on a
preliminary analysis, the Company believes that the aggregate
intangibles will have a benefit period of twelve to forty years. For
purposes of the pro forma financial statements, an estimated average
life of twenty-five years was used to calculate the amortization
expense.
26
<PAGE>
1996 Acquisitions
The estimated fair value of franchise agreements acquired in
connection with the acquisition of Century 21 NORS, Travelodge and ERA
aggregate $61.0 million and is being amortized on a straight line basis
over the periods to be benefited, which ranges from twelve to thirty
years. The estimated fair value of 1996 Acquisitions excess of cost over
fair value of net assets acquired aggregate $164.2 million and is each
being amortized on a straight line basis over the period to be benefited
which is forty years.
F. INTEREST EXPENSE:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Elimination of historical interest expense of
1996 Acquisitions and Century 21 $ (1,493) $ (2,168)
Reversal of Coldwell Banker (2,125) (1,486)
Century 21 - 945
4 3/4% Notes 1,275 2,233
----------- ----------
TOTAL $ (2,343) $ (476)
============ ==========
</TABLE>
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.
Coldwell Banker
The pro forma adjustment reflects the reversal of interest expense
relating to the following ($000's):
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------
1996 1995
---------- -----------
<S> <C> <C>
Expense associated with the Owned Brokerage Business $ (59) $ 24
Expense associated with revolving credit facility borrowings
which will be repaid with proceeds from the Offering 2,184 1,462
---------- -----------
Total $ 2,125 $ 1,486
========== ===========
</TABLE>
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.
27
<PAGE>
G. OTHER EXPENSES:
The pro forma adjustment eliminates $277,000 of accounting, legal and
other administrative expenses allocated to CCI which would not have been
incurred by the Company.
H. INCOME TAXES:
The pro forma adjustment to income taxes is comprised of ($000's):
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Reversal of historical (provision) benefit of:
Company $ (16,006) $ (8,378)
CCI - (217)
Century 21 - 805
Coldwell Banker 556 4,675
Travelodge - (232)
Pro forma provision 20,804 13,355
----------- ----------
Incremental provision for income taxes $ 5,354 $ 10,008
=========== ==========
</TABLE>
The pro forma effective tax rates approximates the Company's
historical effective tax rates.
I. MINORITY INTEREST - PREFERRED DIVIDENDS:
The pro forma adjustment represents 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 4.7%
dividend rate.
28
<PAGE>
J. WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
The pro forma adjustment to weighted average shares consists of the
following (000's):
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------
1996 1995
------------- -----------
<S> <C> <C>
CCI - 2,476
Century 21 - 4,000
Coldwell Banker 13,700 13,700
Century 21 NORS 923 923
Assumed conversion of the $150 million
4 1/2% convertible senior notes due 1999 - 8,266
------------ -----------
Total 14,623 29,365
============ ===========
</TABLE>
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.
29
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit
No. Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of April 3, 1996 among the Registrant, C-21
Holding Corp., Century 21 Real Estate of the Mid-Atlantic States, Inc. and George F.
Kettle
2.2 Agreement and Plan of Merger dated as of April 3, 1996 among the Registrant, C21
Holding Corp., Century 21 of Eastern Pennsylvania, Inc., George F. Kettle and James
O. Nelson
2.3 Agreement and Plan of Merger and Reorganization dated as of April 15, 1996 among
the Registrant, Century 21 Region V, Inc. and Yeager Real Estate and Financial
Services, Inc.
2.4 Agreement and Plan of Merger dated as of May 1, 1996 among the Registrant, CBC
Acquisition Corp., Fremont Investors, Inc. and Coldwell Banker Corporation
10.1 Asset Purchase Agreement dated as of April 2, 1996 among Century 21 Real Estate of
Southern Florida, Inc., the Registrant and Richard C. Ritchey.
10.2 Asset Purchase Agreement dated as of April 3, 1996 among Century 21 Real Estate
Corporation, the Registrant, Century 21 of the Southwest, Inc. and Larry E. Bryson.
11 Statement re: computation of per share earnings
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated February 16,
1996 which included, as exhibits, the financial statements of
businesses acquired or to be acquired in order to incorporate such
exhibits in the Company's Registration Statement on Form S-3,
originally filed with the Commission on December 21, 1994 (File
number 33-87830)
.
30
<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: May 15, 1996 And General Counsel
BY: /s/ Stephen P. Holmes
-----------------------------------------
Stephen P. Holmes
Executive Vice President
Date: May 15, 1996 And Chief Financial Officer
(Principal Financial Officer
And Principal Accounting Officer)
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of April 3, 1996 among the Registrant,
C-21 Holding Corp., Century 21 Real Estate of the Mid-Atlantic States, Inc.
and George F. Kettle
2.2 Agreement and Plan of Merger dated as of April 3, 1996 among the Registrant,
C21 Holding Corp., Century 21 of Eastern Pennsylvania, Inc., George F. Kettle
and James O. Nelson
2.3 Agreement and Plan of Merger and Reorganization dated as of April 15, 1996
among the Registrant, Century 21 Region V, Inc. and Yeager Real Estate and Financial
Services, Inc.
2.4 Agreement and Plan of Merger dated as of May 1, 1996 among the Registrant, CBC
Acquisition Corp., Fremont Investors, Inc. and Coldwell Banker Corporation
10.1 Asset Purchase Agreement dated as of April 2, 1996 among Century 21 Real Estate
of Southern Florida, Inc., the Registrant and Richard C. Ritchey.
10.2 Asset Purchase Agreement dated as of April 3, 1996 among Century 21 Real Estate
Corporation, the Registrant, Century 21 of the Southwest, Inc. and Larry E. Bryson.
11 Statement re: computation of per share earnings
27 Financial Data Schedule
</TABLE>
33
AGREEMENT AND PLAN OF MERGER
Dated as of
April 3, 1996
Among
HFS INCORPORATED,
C21 HOLDING CORP.,
CENTURY 21 REAL ESTATE OF THE
MID-ATLANTIC STATES, INC.
and
GEORGE F. KETTLE
<PAGE>
ARTICLE I
THE MERGER AND ADDITIONAL ACQUISITION MATTERS
Section 1.1 The Merger....................................... 2
Section 1.2 Effective Time................................... 2
Section 1.3 Consideration.................................... 3
Section 1.4 Annual Amount.................................... 4
Section 1.5 Additional Purchase Price........................ 5
Section 1.6 Closing Time and Place........................... 11
Section 1.7 Transfer of NAF Assets........................... 11
Section 1.8 Deliveries by Mid-Atlantic and
the
Shareholder...................................... 12
Section 1.9 Deliveries by Acquiror and C21
Holding.......................................... 14
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDER
Section 2.1 Organization and Existence....................... 15
Section 2.2 Capital Structure................................ 16
Section 2.3 Title to Shares.................................. 17
Section 2.4 Authority; Valid and Binding
Agreement........................................ 17
Section 2.5 Consents......................................... 18
Section 2.6 No Conflict...................................... 19
Section 2.7 Financial Statements............................. 20
Section 2.8 Absence of Undisclosed Liabilities............... 22
Section 2.9 Tax Matters...................................... 22
Section 2.10 Employee Benefit Matters......................... 28
Section 2.11 Assets........................................... 31
Section 2.12 Title to Assets.................................. 37
Section 2.13 Absence of Specified Changes..................... 38
Section 2.14 Litigation....................................... 40
Section 2.15 Employees and Compensation....................... 40
Section 2.16 Conflicts of Interest............................ 42
Section 2.17 Compliance with Law.............................. 42
Section 2.18 Licenses and Permits............................. 43
Section 2.19 Brokers or Finders............................... 43
Section 2.20 National Ad Fund................................. 43
Section 2.21 Insurance........................................ 43
Section 2.22 Payment of Obligations........................... 44
Section 2.23 Use of Excluded Assets........................... 44
<PAGE>
Page
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF C21-HOLDING CORP. AND ACQUIROR
Section 3.1 Organization and Standing........................ 45
Section 3.2 Corporate Authority; Action...................... 45
Section 3.3 Consents......................................... 46
Section 3.4 No Violation..................................... 46
Section 3.5 Litigation....................................... 47
Section 3.6 Brokers and Finders.............................. 47
Section 3.7 Representations of Shareholder................... 48
ARTICLE IV
CERTAIN COVENANTS OF THE
SHAREHOLDER, C21-HOLDING CORP. AND ACQUIROR
Section 4.1 Severance........................................ 48
Section 4.2 Non-Competition.................................. 49
Section 4.3 Separate Covenants............................... 50
Section 4.4 Non-Disclosure of Trade Secrets.................. 50
Section 4.5 Injunctive Relief................................ 52
Section 4.6 Real Estate Leases............................... 52
Section 4.7 Preparation and Filing of Tax
Returns.......................................... 54
Section 4.8 Allocation of Purchase Price and
Other Tax Matters................................ 55
Section 4.9 Accounts Receivable.............................. 56
Section 4.10 Severance and Other Payments..................... 60
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.1 Expenses......................................... 60
Section 5.2 Reimbursement of and Payment to
C21-Holding and the Shareholder.................. 60
Section 5.3 Interpretation................................... 61
Section 5.4 Amendments and Waivers........................... 62
Section 5.5 Public Statements................................ 62
Section 5.6 Confidentiality.................................. 63
Section 5.7 Access To Records After Closing.................. 64
Section 5.8 Parties Bound.................................... 64
Section 5.9 Parties in Interest.............................. 65
Section 5.10 Notices.......................................... 65
Section 5.11 Number and Gender of Words....................... 67
Section 5.12 Captions......................................... 67
Section 5.13 Invalid Provisions............................... 67
ii
<PAGE>
Page
Section 5.14 Accounting Terms................................. 68
Section 5.15 Entirety of Agreement............................ 68
Section 5.16 Multiple Counterparts............................ 68
Section 5.17 Governing Law.................................... 69
Section 5.18 Jurisdiction..................................... 69
Section 5.19 Prevailing Party Expenses........................ 70
Section 5.20 Waiver of Rescission............................. 70
iii
<PAGE>
EXHIBITS
Exhibit A - Plan of Merger
Exhibit B - Opinion of Williams & Connolly
Exhibit C - FIRPTA Certificates
Exhibit D - Indemnification Agreement
Exhibit E - Opinion of Skadden, Arps, Slate, Meagher & Flom
Exhibit F - Severance Policy
Exhibit G - Tax Allocation
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, made and entered into this 3rd day of
April, 1996 (the "Agreement"), by and among HFS INCORPORATED, a Delaware
corporation (the "Acquiror"), C21 HOLDING CORP., a Delaware corporation and
subsidiary of Acquiror ("C21-Holding"), CENTURY 21 REAL ESTATE OF THE
MID-ATLANTIC STATES, INC., a Virginia corporation ("Mid-Atlantic"), and GEORGE
F. KETTLE, the holder (the "Shareholder") of all of the outstanding shares of
capital stock of Mid-Atlantic.
WHEREAS, the respective Boards of Directors of Acquiror, C21-Holding and
Mid-Atlantic deem it advisable and in the best interests of their respective
stockholders that Acquiror acquire Mid-Atlantic by merger of Mid-Atlantic
with and into C21-Holding; and
WHEREAS, Acquiror, C21-Holding, Century 21 of Eastern Pennsylvania, Inc.,
a Pennsylvania corporation ("Eastern Pennsylvania"), the Shareholder and James
O. Nelson are simultaneously herewith entering into an Agreement and Plan of
Merger pursuant to which Acquiror is acquiring Eastern Pennsylvania by merger
of Eastern Pennsylvania with and into C21-Holding (the "Eastern Pennsylvania
Agreement");
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER AND ADDITIONAL ACQUISITION MATTERS
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement and the Plan of Merger attached hereto as Exhibit A (the "Plan
of Merger"), Acquiror shall acquire Mid-Atlantic by Mid-Atlantic being
merged with and into C21-Holding (the "Merger") with C21-Holding as the
surviving corporation in the Merger. The Plan of Merger provides for the
terms and conditions of the Merger and the mode of carrying the same into
effect. At the Effective Time (as hereinafter defined), the terms and
conditions set forth in the Plan of Merger shall be implemented. Such
terms and conditions are incorporated by reference herein and made a part
hereof.
SECTION 1.2 Effective Time. The term "Effective Time" shall mean the
date and time at which the Merger has become effective pursuant to the
laws of the Commonwealth of Virginia and the laws of the State of
Delaware, respectively, as provided in the Plan of Merger.
2
<PAGE>
SECTION 1.3 Consideration. The consideration being provided by
Acquiror to the Shareholder pursuant to the Plan of Merger (the "Merger
Consideration"), shall be paid at the following times and in the
following amounts: (i) at the Closing (as defined in Section 1.6), the
amount of $4,555,064, and (ii) on the second business day after the
Closing, the amount of $23,444,936, in each case by wire transfer in
immediately available funds to the bank account designated in writing by
the Shareholder to the Acquiror, which payments together represent the
amount of $29,227.56 per share of common stock, par value $1.00 per
share, of Mid-Atlantic that the Shareholder is to receive pursuant to the
Plan of Merger for the 958 shares of such common stock owned by him (the
"Common Stock"). In addition, Acquiror hereby agrees to pay and deliver
to the Shareholder or his designee (i) at the times set forth in Section
1.4, the monthly payments of the annual amount of $350,000 (the "Annual
Amount"); (ii) at the times set forth in Section 1.5, the additional
consideration provided for in Section 1.5 (the "Additional Purchase
Price"); (iii) at the Closing, the amount of $115,535.52 (the "Prepaid
Expense Amount" and, with the Merger Consideration, the Annual Amount and
the Additional Purchase Price, the "Total Consideration") which the
parties hereto have mutually agreed is the amount of
3
<PAGE>
prepaid expenses of Mid-Atlantic existing as of the Closing Date and (iv)
on the last day of the Transition Period (as hereinafter defined),
$250,000 in cash.
SECTION 1.4 Annual Amount.
(a) Within 30 days following the end of each month during the Annual
Payment Period (as hereinafter defined), Acquiror agrees to pay to the
Shareholder or the Shareholder's designee (as designated by the
Shareholder and for such portion thereof also designated pursuant to
Section 1.5(g)) in cash, by mailing a valid check to the address
specified by the Shareholder to Purchaser in writing, the amount of
$29,166.67, representing one twelfth of the Annual Amount for each Annual
Payment Year (as hereinafter defined) of $350,000.
(b) For purposes of this Section 1.4, the term "Annual Payment Period"
shall mean the ten-year period commencing April 1, 1996 and ending March
31, 2006.
(c) For purposes of this Section 1.4, the term "Annual Payment Year"
shall mean the 12-month period commencing April 1, 1996 and ending March
31, 1997 and each of the nine successive 12-month periods thereafter
during the Annual Payment Period.
4
<PAGE>
SECTION 1.5 Additional Purchase Price.
(a) Within 30 days following the end of each month during the
Additional Payment Period (as hereinafter defined), Acquiror agrees,
subject to the other provisions of this Section 1.5, to pay to the
Shareholder or to Shareholder's designee (as designated by the
Shareholder pursuant to Section 1.5(g)) in cash, by mailing a valid check
to the address specified by the Shareholder to Acquiror in writing, the
Additional Purchase Price consisting of the positive difference, if any,
between ten percent (10%) of the gross service fees paid to C21-Holding
or its affiliates during the preceding month by Franchisees (as
hereinafter defined) and the monthly amount ($29,166.69) of the Annual
Amount.
(b) Notwithstanding Section 1.5(a) hereof, the maximum amount to
be paid by Acquiror with respect to any Additional Payment Year (as
hereinafter defined) shall be $200,000 (the "Maximum Additional Annual
Payment"). Notwithstanding Section 1.5(a) hereof, after the Maximum
Additional Annual Payment has been paid by Acquiror to the Shareholder
(and/or its designee(s)) with respect to any Additional Payment Year,
Acquiror shall not be required to make any additional payments of
Additional Purchase Price with respect to such Additional Payment Year.
5
<PAGE>
(c) In connection with the payment of the Additional Purchase Price,
Acquiror and the Shareholder agree (i) with respect to the first
Additional Payment Year, Acquiror may make a deduction to the amount of
Additional Purchase Price to be paid to take into account the
proportionate amount of CIB Bonus (as hereinafter defined) owed by
Mid-Atlantic to its Franchisees for the 1996 calendar year with respect
to the period prior to the Closing Date, which proportionate amount shall
be based on the amount that gross service fees paid or owed to
Mid-Atlantic by its Franchisees for the period prior to the Closing Date
bears to the total amount of gross service fees paid or owed to
Mid-Atlantic and C21-Holding for the entire 1996 calendar year (subject
to adjustment, in case of gross service fees owed, to collection thereof)
or may bill the Shareholder for such amount which will be promptly paid
by the Shareholder, (ii) Acquiror may offset ten percent (10%) of the
amount of the CIB Bonus which has been paid by Acquiror or its affiliates
to Franchisees with respect to the period beginning on the Closing Date
against subsequent monthly payments of Additional Purchase Price until
such amount is zero; (iii) in the last quarter of the tenth Additional
Payment Year, Acquiror may offset against the monthly payments of the
Additional Purchase Price an amount which they esti-
6
<PAGE>
mate in good faith will have to be paid as ten percent (10%) of the CIB
Bonus for the calendar years covered by the tenth Additional Payment
Year, (iv) to adjust and make appropriate payments to the party owed
following the completion of the calendar years covered by the tenth
Additional Payment Year and the availability of information necessary to
calculate the CIB Bonus and gross service fees for the calendar years
covered by the tenth Additional Payment Year and (v) if the monthly
payments of Additional Purchase Price paid to the Shareholder (and/or its
designee(s)) with respect to any Additional Payment Year shall be greater
than the amount which is to be paid pursuant to Section 1.5(a) for any
Additional Payment Year (the "Required APP Amount"), the Shareholder,
upon written notice from Acquiror, shall promptly pay Acquiror the
difference between the Required APP Amount and the aggregate amount of
such monthly payments of Additional Purchase Price (the "APP
Overpayment"); provided, however, that if the Shareholder fails to pay
Acquiror the APP Overpayment, Acquiror may offset such APP Overpayment
against subsequent monthly payments of the Additional Purchase Price
until such amount is zero, and Acquiror shall have the right to offset
for such APP Overpayment against the Additional Purchase Price owed for
any remaining Additional Payment Years.
7
<PAGE>
(d) For purposes of this Section 1.5 and as used elsewhere in this
Agreement (except as otherwise specifically indicated), the following
terms shall have the following meanings:
(i) "Additional Payment Period" shall mean the ten-year period
commencing April 1, 1996 and ending March 31, 2006.
(ii) "Franchisees" shall mean and include all franchisees and other
owners and operators of Century 21 real estate brokerage offices located
within the Commonwealth of Virginia and the States of Maryland and
Delaware and the District of Columbia (the "Region"), whether pursuant to
the Franchise Agreements (as hereinafter defined) listed pursuant to
Section 2.11(a) hereof, additional franchise agreements entered into
after the Closing with new franchisees or other contracts or arrangements
with C21-Holding, Acquiror and/or their respective affiliates and such
entities' respective successors and assigns relating to Century 21 real
estate brokerage offices within the Region.
(iii) "CIB Bonus" shall mean the amount of the annual bonus paid to
Franchisees pursuant to the Century 21 Commission Incentive Bonus Program
or any successor similar bonus or rebate program for Franchisees.
8
<PAGE>
(iv) "Additional Payment Year" shall mean the 12-month period
commencing April 1, 1996 and ending March 31, 1997 and each of the nine
successive 12-month periods thereafter during the Additional Payment
Period.
(e) Acquiror and C21-Holding shall keep accurate books of account
and records of the gross service fees received from, and CIB Bonus paid
to, the Franchisees for purposes of calculating the Additional Purchase
Price. Each payment of the Additional Purchase Price shall be accompanied
by a written statement describing, in reasonable detail, the calculation
of such payment and any deductions or offsets therefrom. The Shareholder
and his independent public accountants, on ten business days' notice,
shall have the right, not more than once during an Additional Payment
Year and once during the six-month period following the Additional
Payment Period, during normal business hours, to examine said books of
account and records of the gross service fees received from the
Franchisees for the purpose of verifying the amount of Additional
Purchase Price owed to the Shareholder. The Shareholder shall be
responsible for his costs incurred in conducting any such audit, unless
his independent public accountants determine that there is a deficit in
the aggregate net amounts paid to
9
<PAGE>
the Shareholder (or his designee, as applicable) with regard to the
period so examined of more than five percent (5%), in which case Acquiror
shall be responsible for such costs. Acquiror shall be responsible for
the prompt payment of any such deficit in any amount found by the
Shareholder's independent public accountants, together with accrued but
unpaid interest therein at an annual rate equal to the prime rate charged
by leading money center banks as reported in The Wall Street Journal plus
1 1/2% (the "Specified Interest Rate"), by delivery of a valid check to
the Shareholder (or his designee, as applicable).
(f) Acquiror and C21-Holding agree not to make (or to permit their
affiliates, successors and assigns, as applicable, to make) any change in
the amount of gross service fees to be paid by Franchisees or manner of
calculating gross service fees for the entire Region unless such change
is made on a nationwide basis; provided, however, that the foregoing
shall not prohibit such entities from changing the amount of gross
service fees to be paid by any particular Franchisees or manner of
calculating such gross service fees on a selected individual basis.
(g) The Shareholder hereby designates J. Richard Eagan, President of
Mid-Atlantic, to receive ten
10
<PAGE>
percent (10%) of the Annual Payment and the Additional Purchase Price
otherwise payable to the Shareholder. Acquiror and C21-Holding agree that
the Shareholder may designate, by written notice to them as provided
herein at any time during the Additional Payment Period, other persons to
receive a portion of the Additional Purchase Price.
SECTION 1.6 Closing Time and Place. Subject to the terms and
conditions of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") is taking place,
simultaneously with the execution of this Agreement, at 10:00 a.m., New
York City time, at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York, on April 3, 1996. The date and time
upon which the Closing is occurring are herein referred to as the
"Closing Date."
SECTION 1.7 Transfer of NAF Assets. At the Closing, Mid-Atlantic
shall transfer to Century 21 Real Estate, a Delaware corporation and
wholly owned subsidiary of C21-Holding ("C21-Real Estate"), by check made
payable to C21-Real Estate, in its capacity as Trustee of the Century 21
National Advertising Fund ("NAF") all monies in Mid-Atlantic's possession
and/or pay over any other amounts (collectively, the "NAF Funds") for
which Mid-Atlantic is accountable or responsible with respect
11
<PAGE>
to the NAF's or Mid-Atlantic's fiduciary (or other) obligations and
responsibilities as the agent of theTrustee of the NAF.
SECTION 1.8 Deliveries by Mid-Atlantic and the Shareholder. At the
Closing, Mid-Atlantic and the Shareholder are delivering or causing to be
delivered to C21-Holding and Acquiror, unless previously delivered, the
following:
(a) Certificates representing the Common Stock (as hereinafter
defined) registered in the name of the Shareholder.
(b) All books and records of Mid-Atlantic in the possession or
control of the Shareholder or Mid-Atlantic, including, without
limitation, the stock books, stock ledgers, minute books, corporate seals
and all financial books, records and work papers, provided that the
Shareholder may retain copies thereof.
(c) Certificates issued not more than two business days prior to the
Closing Date as to the good standing of, and payments of taxes by,
Mid-Atlantic in the Commonwealth of Virginia and each jurisdiction in
which it is qualified to do business as a foreign corporation.
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(d) Certified Articles of Incorporation and By-Laws of Mid-Atlantic
referred to in Section 2.1(b) hereof.
(e) The opinion of Williams & Connolly, counsel to the Shareholder,
substantially to the effect set forth in Exhibit B hereto.
(f) The certificates annexed as Exhibit C hereto as to the
non-foreign status of Mid-Atlantic, duly executed by Mid-Atlantic and the
Shareholder (the "FIRPTA Certificates"), provided, however, that if such
certificate is not delivered, the Closing shall nevertheless occur and
Acquiror shall withhold from the consideration being provided by Acquiror
to the Shareholder pursuant to the Plan of Merger and the Additional
Purchase Price such amounts as are required, in Acquiror's sole
judgement, to be withheld under applicable law.
(g) The Indemnification Agreement substantially in the form of
Exhibit D hereto (the "Indemnification Agreement"), duly executed by the
Shareholder.
(h) The NAF Funds.
(i) All other previously undelivered items required to be delivered
by Mid-Atlantic and the Shareholder at or prior to the Closing pursuant
to this Agreement or otherwise required in connection herewith.
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SECTION 1.9 Deliveries by Acquiror and C21-Holding. At the Closing,
Acquiror and C21-Holding are delivering or causing to be delivered to the
Shareholder, unless previously delivered, the following:
(a) The amount of $4,555,064 by wire transfer in immediately
available funds to the bank account designated in writing by the
Shareholder to the Acquiror, which together with the $23,444,936 payment
to be made on the second business day after the Closing pursuant to
Section 1.3 hereof represents the amount of $29,227.56 per share of
Common Stock that the Shareholder is to receive pursuant to the Plan of
Merger for the 958 shares of Common Stock owned by him.
(b) The opinion of Skadden, Arps, Slate, Meagher & Flom, counsel to
C21-Holding, substantially to the effect set forth in Exhibit E hereto.
(c) The Indemnification Agreement, duly executed by Acquiror and
C21-Holding.
(d) The Prepaid Expense Amount.
(e) All other previously undelivered items required to be delivered
by Acquiror or C21-Holding at or prior to the Closing pursuant to this
Agreement or otherwise in connection herewith.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDER
The Shareholder hereby represents and warrants to Acquiror and
C21-Holding that:
SECTION 2.1 Organization and Existence.
(a) Mid-Atlantic is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia,
Mid-Atlantic has all necessary corporate power to carry on the business
of real estate brokerage office subfranchising and related operations for
the Century 21 system (the "Business") as now being conducted by it, and
Mid-Atlantic is duly qualified to do business as a foreign corporation in
each jurisdiction in which the nature of the Business or the ownership or
lease of its properties makes such qualification necessary, which
jurisdictions are listed in Section 2.1 of the document being delivered
by the Shareholder to C21-Holding simultaneously with the execution of
this Agreement scheduling the items required to be disclosed therein
pursuant to this Agreement (the "Disclosure Schedule").
(b) The copies of the Articles of Incorporation and By-Laws of
Mid-Atlantic heretofore delivered by the Shareholder to C21-Holding are
complete and cor-
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rect copies of such instruments as presently in effect. To the
Shareholder's knowledge, all minutes of Mid-Atlantic relating to
material meetings or actions taken by the Board of Directors (or
committees thereof) or shareholders of Mid-Atlantic are contained in the
minute books, no material action which would require approval by its
Board of Directors or its shareholders has been taken by Mid-Atlantic for
which minutes are not contained in the minute books, and all such minutes
have heretofore been furnished to C21-Holding for examination.
SECTION 2.2 Capital Structure.
(a) Mid-Atlantic's authorized capital stock consists of 5,000 shares
of common stock, par value $1.00 per share, 958 of which shares are
validly issued and outstanding, fully paid, and nonassessable and all of
which are owned, beneficially and of record, by the Shareholder.
(b) There are no (i) other outstanding securities of Mid-Atlantic,
(ii) securities convertible into or exchangeable for shares of
Mid-Atlantic's capital stock; (iii) options, warrants or other rights to
purchase or subscribe to capital stock of Mid-Atlantic or securities
convertible into or exchangeable for capital stock of Mid-Atlantic; or
(iv) contracts, commitments, agreements, understandings or arrangements
of any kind
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relating to the issuance of any capital stock of Mid-Atlantic, any such
convertible or exchangeable securities or any such options, warrants or
rights.
(c) There is no corporation, partnership, joint venture or other
entity in which Mid-Atlantic, directly or indirectly, owns any equity or
ownership interest.
SECTION 2.3 Title to Shares. The Shareholder has good, valid and
marketable title to the Common Stock, free and clear of all claims,
liens, charges, encumbrances, options, shareholder agreements and
security interests of whatever nature (a "Lien").
SECTION 2.4 Authority; Valid and Binding Agreement.
(a) Mid-Atlantic has the requisite corporate power and authority
to execute and deliver this Agreement and the Plan of Merger and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Plan of
Merger by Mid-Atlantic and the consummation by Mid-Atlantic of the Merger
and of the other transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors of Mid-Atlantic and approved
and adopted by the Shareholder and no other corporate proceedings on the
part of Mid-Atlantic are necessary to
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authorize this Agreement and Plan of Merger or to consummate the
transactions so contemplated hereby and thereby.
(b) This Agreement and the Plan of Merger have been duly executed
and delivered by Mid-Atlantic and each constitutes a valid and binding
obligation of Mid-Atlantic, enforceable against it in accordance with
its terms.
(c) This Agreement and the Indemnification Agreement have been
duly executed and delivered by the Shareholder and this Agreement and the
Indemnification Agreement each constitute the legal, valid and binding
obligation of the Shareholder, enforceable in accordance with its terms.
SECTION 2.5 Consents. Except for (i) compliance with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the approvals of the Board of
Directors of Mid-Atlantic and the Shareholder of this Agreement and the
Plan of Merger, which approvals have been obtained, (iii) the filing with
the Virginia State Corporation Commission of Articles of Merger to effect
the Plan of Merger and the filing of a Certificate of Merger with the
Delaware Secretary of State and (iv) as disclosed in Section 2.5 of the
Disclosure Schedule or as otherwise specifically contemplated by this
Agreement, no
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consent, approval, authorization, filing with or order of any court,
governmental agency, person or financial institution is required in
connection with the execution and delivery of this Agreement by
Mid-Atlantic or the Shareholder, the consummation by Mid-Atlantic or the
Shareholder of the transactions contemplated hereby or the performance by
Mid-Atlantic or the Shareholder of its or his respective obligations
under this Agreement.
SECTION 2.6 No Conflict. Assuming compliance with the matters
referred to in Section 2.5 by Mid-Atlantic and the Shareholder, neither
the execution and delivery of this Agreement by Mid-Atlantic or the
Shareholder, the consummation by Mid-Atlantic or the Shareholder of the
transactions contemplated by this Agreement nor the performance by
Mid-Atlantic or the Shareholder of its or his respective obligations
under this Agreement will: (i) violate any provision of the Articles of
Incorporation or By-Laws of Mid-Atlantic, (ii) except as disclosed in
Section 2.6 of the Disclosure Schedule, violate, conflict with, or result
in a breach of, the terms, conditions or provisions of, or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or result in the creation of a lien or
encumbrance on, or cause the triggering of a "due on sale" clause or
similar provision affecting the Assets
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(as hereinafter defined) pursuant to, any indenture, mortgage, lease,
agreement or other instrument to which Mid-Atlantic is a party or by
which any of the Assets may be bound or affected or (iii) violate any
law, rule, regulation, judgment, order or decree to which Mid-Atlantic or
the Shareholder is subject or by which the Assets are bound.
SECTION 2.7 Financial Statements. Section 2.7 of the Disclosure
Schedule sets forth the following financial statements, all of which have
been prepared, except as may be stated in the notes thereto or as
described below, in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
indicated:
(a) Balance sheet of Mid-Atlantic as of December 31, 1993 and 1994
audited by Beers & Cutler, certified public accountants, and an
internally prepared balance sheet of Mid-Atlantic as of October 31, 1995
which was prepared on a basis consistent with Mid-Atlantic's internal
practices (the "October Balance Sheet"), each of which presents fairly as
of its date the financial condition of Mid-Atlantic; and
(b) Statement of operations and cash flows of Mid-Atlantic for the
twelve (12) months ended December 31, 1993 and 1994, audited by Beers &
Cutler,
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certified public accountants, and an internally prepared statement of
operations and cash flows of Mid-Atlantic for the ten-month period ended
October 31, 1995 which was prepared on a basis consistent with
Mid-Atlantic's internal practices, each of which fairly presents the
results of operations and cash flows of Mid-Atlantic for the periods
indicated.
(c) Notwithstanding the foregoing, with regard to the internally
prepared balance sheet and statement of operations and cash flows
referred to above:
(i) Consistent with internal reporting practices, Mid-Atlantic did
not attempt to recalculate the service fee receivable amount due from
transactions which had closed prior to October 31, 1995, but on which the
service fee had not been paid to and received by Mid-Atlantic by that
date. The amount of such service fee receivable included in the October
31, 1995 financial statements is the same amount as calculated for the
audited financial statements as at December 31, 1994.
(ii) Consistent with internal reporting practices, Mid-Atlantic did
not close out October 1995 business until the third working day of
November. As a result, service fee payments received during that three
working day period after month end were included as having been received
as of October 31, 1995, and thus as
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cash versus accounts receivable. There would be no operating statement
effect to this cutoff date since the service fee payments included in
this period would only have been from transactions which closed prior to
October 31, 1995.
(iii) Consistent with internal reporting practices, unsecured
service fee notes receivable are not adjusted to actual except at year
end.
SECTION 2.8 Absence of Undisclosed Liabilities. To the Shareholder's
knowledge, Mid-Atlantic does not have any debts, liabilities or
obligations of a type required to be shown on a balance sheet prepared in
accordance with GAAP that are not reflected or reserved against in
Mid-Atlantic's October Balance Sheet, except for matters referred to in
Section 2.8 of the Disclosure Schedule and for the Real Property Leases
(as hereinafter defined) and Contracts (as hereinafter defined) that are
disclosed in Section 2.11 of the Disclosure Schedule.
SECTION 2.9 Tax Matters. Except as set forth in Section 2.9 of the
Disclosure Schedule:
(a) Mid-Atlantic is a small business corporation under the Internal
Revenue Code of 1986, as amended (the "Code") and has had in effect for
all taxable years beginning July 1, 1988 a valid election to be treated
as an "S" corporation for federal income Tax (as
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defined in subsection (j) hereof) purposes under the Code and, where
available, in any state and local jurisdictions in which Mid-Atlantic is
required by law to file a Tax Return, and neither Mid-Atlantic, the
Shareholder, nor any other Person has taken or caused or permitted to be
taken any action during such periods that would have caused a termination
of such S election. Mid-Atlantic, within the time and in the manner
prescribed by law, has filed all Tax Returns required to be filed by or
with respect to Mid-Atlantic, and all such Tax Returns are true, complete
and correct in all material respects. Mid-Atlantic has timely paid all
Taxes that are due, or have been asserted in writing by any taxing
authority to be due, from or with respect to it except for those taxes
the failure of which to pay would not have a material adverse effect on
the financial condition of Mid-Atlantic. Mid-Atlantic is not required to
file any Tax Return in any jurisdiction other than those set forth in
Section 2.9(a) of the Disclosure Schedule other than Tax Returns, if any,
the failure of which to file would not have a material adverse effect on
the financial condition of Mid-Atlantic. Mid-Atlantic does not have any
potential liability for Taxes pursuant to Treasury Reg. Section 1.1502-6 or
any similar provision of state, local or foreign laws. The distribution
of the Excluded Assets (as defined in
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Section 2.11(i)) will not result in any "recognized built-in gain" within
the meaning of Section 1374(d)(3) of the Code.
(b) There are no liens with respect to any material amount of Taxes
upon any of the assets or properties of Mid-Atlantic other than with
respect to Taxes not yet due and payable.
(c) The statute of limitations with respect to the Tax Returns of
Mid-Atlantic and each affiliated group (within the meaning of Section
1504 of the Code) and combined, unitary and other similar group
("Affiliated Group") of which Mid-Atlantic has been a member, if any, for
all periods through the respective years specified in Section 2.9(c) of
the Disclosure Schedule has expired. No issue relating to Mid-Atlantic
has been raised in writing by any taxing authority in any audit or
examination of Mid-Atlantic which, if applied to a later taxable period
(including periods after the Closing Date), could reasonably be expected
to result in a material deficiency for Mid-Atlantic for any such period.
Further, no state of facts exists or has existed which would constitute
grounds for the assessment of any liability of Mid-Atlantic for any
material amount of Taxes for periods that have not been audited by any
taxing authority. There are no outstanding agreements,
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waivers or arrangements extending the statutory period of limitation
applicable to any claim for, or the period for the collection or
assessment of, Taxes due from or with respect to Mid-Atlantic for any
taxable period, and no power of attorney granted by or with respect to
Mid-Atlantic relating to Taxes is currently in force. No closing
agreement pursuant to Section 7121 of the Code (or any predecessor
provision) or any similar provision of any state, local, or foreign law
has been entered into by or with respect to Mid-Atlantic that could
materially and negatively affect the future liability for Taxes of
Mid-Atlantic. Mid-Atlantic has made available to C21-Holding and
Acquiror complete and correct copies of each of (i) all audit reports
issued by any governmental authority within the last three years relating
to the United States federal, state, local or foreign Taxes due from or
with respect to Mid-Atlantic and any Affiliated Group member and (ii) the
United States federal income Tax Returns, and those state, local and
foreign income Tax Returns for each of the last three taxable years,
filed by Mid-Atlantic and filed by any Affiliated Group of which
Mid-Atlantic was then a member.
(d) No audit or other proceeding by any governmental authority has
formally commenced and no written notification has been given that such
an audit or
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other proceeding is pending or threatened with respect to any Taxes due
from or with respect to Mid-Atlantic or any Affiliated Group of which
Mid-Atlantic was a member. No unpaid assessment of Tax has been proposed
in writing against Mid-Atlantic or any of the assets or properties of
Mid-Atlantic, other than assessments of a type that arise on a recurring
basis in the ordinary course of business.
(e) No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect
to Mid-Atlantic or any of the assets or properties of Mid-Atlantic. None
of the assets or properties of Mid-Atlantic is an asset or property that
is or will be required to be treated as being (i) owned by any other
person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as in effect prior to the Tax Reform Act of 1986,
or (ii) tax-exempt use property within the meaning of Section 168(h) of
the Code.
(f) Mid-Atlantic has not been and is not currently in violation (or,
with or without notice or lapse of time or both, would not be in
violation) of any applicable law or regulation relating to the payment or
withholding of a material amount of Taxes with respect to compensation
paid to employees or other withholding
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obligations. Mid-Atlantic has duly and timely withheld and paid over to
the appropriate taxing authorities all material amounts required to be so
withheld and paid over for all periods under all applicable laws and
regulations.
(g) As of the Closing, Mid-Atlantic shall not be a party to, be
bound by or have any obligation under, any Tax sharing agreement or
similar contract or arrangement.
(h) There is no contract or agreement, plan or arrangement by
Mid-Atlantic covering any person that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
by Mid-Atlantic by reason of Section 280G of the Code, as now in effect.
(i) The Shareholder is not a "foreign person" within the meaning of
Section 1445 of the Code.
(j) "Tax" means any federal, state, local, foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value-
27
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added, alternative or add-on minimum, estimated, other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not. "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
SECTION 2.10 Employee Benefit Matters.
(a) Section 2.10 of the Disclosure Schedule contains a list of all
bonus, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit and compensation plans,
programs, agreements or arrangements and any "change of control" or
similar provisions which would apply to the transactions contemplated by
this Agreement in any plan, program, contract or arrangement which cover
employees or former employees ("Employees") of Mid-Atlantic or any entity
which would have been considered one employer with Mid-Atlantic at any
time during the six-year period immediately preceding the Effective Time
under Section 4001 of Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 414 of the Code (an "ERISA Affiliate") and
all
28
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other benefit and compensation plans, programs, contracts or arrangements
(regardless of whether they are funded or unfunded) covering Employees,
including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of ERISA (collectively, the "Compensation and
Benefit Plans"). True and complete copies of all the Compensation and
Benefit Plans, including any trust instruments and/or insurance
contracts, if any, forming a part of any such plans, and all amendments
thereto have been made available to Acquiror and C21-Holding.
(b) All of the Compensation and Benefit Plans are in material
compliance with all applicable laws, including, without limitation, ERISA
and the Code. Each Compensation and Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under Section
401(a) of the Code is so qualified. Neither Mid-Atlantic nor any ERISA
Affiliate has engaged in a transaction with respect to any Compensation
and Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, could reasonably be expected to subject
Mid-Atlantic or any ERISA Affiliate to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would have a material adverse effect on Mid-
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Atlantic. Neither Mid-Atlantic nor any ERISA Affiliate has contributed or
been required to contribute to any Multiemployer Plan (as defined in
ERISA).
(c) No Pension Plans currently or formerly maintained, contributed
to or required to be contributed to, by Mid-Atlantic or any ERISA
Affiliate is subject to Title IV of ERISA or to Section 412 of the Code.
(d) All contributions required to be made under the terms of any
Compensation and Benefit Plan for which Mid-Atlantic has liability
through the Closing Date have been timely made.
(e) Mid-Atlantic does not have any obligations for retiree health
and life benefits under any Compensation and Benefit Plan.
(f) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer
of Mid-Atlantic or any ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided in
Section 4.1 of this Agreement or pursuant to an employment or consultant
agreement listed in Section 2.15 of the Disclosure Schedule or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
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(g) There are no pending claims (or written threats thereof) by or
on behalf of any Compensation and Benefit Plan, by any employee or
beneficiary covered under any such Compensation and Benefit Plan, or
otherwise involving any such Compensation and Benefit Plan (other than
routine claims for benefits).
SECTION 2.11 Assets.
(a) Section 2.11(a) of the Disclosure Schedule is a complete and
accurate list of all Century 21 Real Estate Franchise Agreements (the
"Franchise Agreements") of Century 21 franchisees of Mid-Atlantic (for
purposes of this Section 2.11, the "Franchisees") which are presently in
effect. Copies of all Franchise Agreements (including all amendments and
addenda thereto) have been made available to the C21-Holding and Acquiror
or their counsel for review. Except as indicated in Section 2.11(a) of
the Disclosure Schedule, each Franchisee has executed a Franchise
Agreement and, to the Shareholder's knowledge, each such Franchise
Agreement is enforceable against the related Franchisee; Mid-Atlantic has
not been notified in writing or otherwise informed in writing by any such
Franchisee that it will not renew its Franchise Agreement at the
expiration of its term, will attempt to materially and adversely alter
the volume of business any such Franchisee is presently doing with Mid-
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Atlantic or terminate its Franchise Agreement or that it has any material
claim against Mid-Atlantic. Mid-Atlantic is not, and to the Shareholder's
knowledge, none of the other parties to any of the Franchise Agreements
is, in material default thereunder. Except as set forth in Section
2.11(a) of the Disclosure Schedule, there are no events which with notice
or lapse of time or both would constitute a material default by
Mid-Atlantic or, to the Shareholder's knowledge, by any other party to
any Franchise Agreement. Except as indicated in Section 2.11(a) of the
Disclosure Schedule, the continuation, validity and effectiveness of each
Franchise Agreement will not be materially and adversely affected by the
consummation of the transactions contemplated by this Agreement.
(b) Section 2.11(b) of the Disclosure Schedule is a complete and
accurate list of all leases for real property to which Mid-Atlantic is a
party (the "Real Property Leases"). To the Shareholder's knowledge, all
the Real Property Leases are enforceable against the other parties
thereto. There does not exist any material default by Mid-Atlantic or, to
the Shareholder's knowledge, by any other party thereto, or event that
with notice or lapse of time, or both, would constitute a material
default by Mid-Atlantic or, to the Shareholder's
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knowledge, any other party thereto under any of such Real Property
Leases.
(c) Mid-Atlantic will not be a party to, or in any way obligated
under, any written contract, agreement or understanding which will
continue to be in effect and is to be performed by Mid-Atlantic after the
Closing which requires the payment by it of more than $10,000 on an
annual basis or which is not terminable on 30 days notice (the
"Contracts") other than the Real Property Leases, the Franchise
Agreements and the Contracts listed in Section 2.11(c) of the Disclosure
Schedule. Copies of all Contracts have been made available to C21-Holding
or its counsel for review. To the Shareholder's knowledge, each of the
Contracts is enforceable against the other parties thereto. Mid-Atlantic
is not and, to the Shareholder's knowledge, none of the other parties to
any of the Contracts is, in material default thereunder. There are no
events which with notice or lapse of time or both would constitute a
material default by Mid-Atlantic or, to the Shareholder's knowledge, by
any other party to any Contract under such Contract. Except as indicated
in Section 2.11(c) of the Disclosure Schedule, the continuation, validity
and effectiveness of each Contract will not be materially and adversely
affected by the consummation of the transac-
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tions contemplated by this Agreement. Mid-Atlantic has not received any
written notice of the intention of any party to terminate any Contract
which termination would have a material adverse effect on the Business.
(d) Section 2.11(d) of the Disclosure Schedule is a complete and
accurate list describing and specifying the location of office machines,
computers and other equipment (the "Equipment") which Mid-Atlantic will
own following the Closing. The Equipment is, in the aggregate, in
reasonably good operating condition and repair, subject to normal wear
and tear.
(e) Section 2.11(e) of the Disclosure Schedule is a complete and
accurate list and description of the Intellectual Property (as
hereinafter defined), other than Intellectual Property as to which Mid-
Atlantic's rights derive from C21-Real Estate, to be owned by
Mid-Atlantic immediately following the Closing and Section 2.11(e) of the
Disclosure Schedule indicates whether each of the foregoing are owned or
licensed by Mid-Atlantic. Mid-Atlantic owns, or is licensed to use, all
Intellectual Property necessary for the conduct of the Business as
currently conducted in all material respects, subject to no material
restrictions. No claim has been asserted in writing and is pending by any
person challenging or questioning the ownership or use of any
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such Intellectual Property, nor does the Shareholder know of any valid
basis for any such claim. To the Shareholder's knowledge, there is no
infringing use of any such Intellectual Property by any other person.
Mid-Atlantic has not granted to anyone else the right to use any of the
Intellectual Property except pursuant to the Franchise Agreements.
Mid-Atlantic is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligation under
this Agreement, in breach of any material license, sublicense or other
agreement relating to the Intellectual Property. For purposes of this
Agreement, "Intellectual Property" shall mean all right, title and
interest of Mid-Atlantic in and to intellectual property assets relating
to the Business, including, without limitation, (i) registered and
unregistered copyrights, trademarks, service marks, service names, trade
names, slogans, assumed names and other trademark rights, including all
applications therefor and (ii) statutory, common law and registered
copyrights, including all applications therefor.
(f) There are no material Claims (as defined below) which will be
owned by Mid-Atlantic following the Closing, except for Claims reflected
in the October Balance Sheet or acquired in the ordinary course of
business since the date thereof. For purposes of this
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Agreement, "Claims" means all claims, refunds, credits, causes of action,
choses in action, rights of recovery and rights of set-off of every kind
and nature associated with the Business.
(g) Section 2.11(g) of the Disclosure Schedule is a complete and
accurate list and description of all material Deposits (as defined below)
which will be owned by Mid-Atlantic immediately following the Closing.
For purposes of this Agreement, "Deposits" means all prepayments or other
deposits by Franchisees or others pertaining to the Business including,
without limitation, prepaid initial franchise fees, deposits/prepayments
for training programs, assignments/renewals of Franchise Agreements and
convention enrollments.
(h) Section 2.11(h) of the Disclosure Schedule is a complete and
accurate list of all Opens (as defined below) owing to Mid-Atlantic as of
February 29, 1996 which have been filed with Mid-Atlantic by Franchisees.
For purposes of this Agreement, "Opens" means all agreements to convey
real property awaiting completion/fulfillment of all terms and conditions
of such agreements, at which time the transactions represented thereby
will close, whether or not placed into the custody of a third party, as
escrow holder.
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(i) For purposes of this Agreement, "Assets" shall mean all assets
and properties which are owned or leased by Mid-Atlantic or agreements to
which Mid-Atlantic is a party including, but not limited, to the
Franchise Agreements, the Real Property Leases, the Contracts, the
Equipment, the Intellectual Property, the Claims, the Deposits, the
Opens, and the Century 21 Subfranchise Agreement, dated December 1, 1974,
between C21-Real Estate and Century 21 Real Estate Corporation of
Virginia, the former name of Mid-Atlantic, as amended by the First
Addendum, dated July 10, 1976, the Second Addendum, dated January 4,
1977, and all other amendments thereto, if any (the "Subfranchise
Agreement"), other than accounts and notes receivable owing to
Mid-Atlantic, advances made by Mid-Atlantic prior to the Closing Date,
and Opens which close prior to April 1, 1996 and those assets or
properties listed in Section 2.11(i) of the Disclosure Schedule which the
Shareholder has caused Mid-Atlantic to transfer to him prior to the
Closing (the "Excluded Assets").
SECTION 2.12 Title to Assets. Except as disclosed in Section 2.12 of
the Disclosure Schedule, (a) Mid-Atlantic has good and marketable title
to all the Assets and interests therein which are owned by it, whether
real, personal, mixed, tangible or intangible;
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(b) all the Assets which are owned by it are owned by Mid-Atlantic free
and clear of any Lien other than a Permitted Lien (as defined below); and
(c) upon acquisition by C21-Holding and Acquiror pursuant to this
Agreement, will be free and clear of any Lien other than a Permitted
Lien. For purposes of this Agreement, "Permitted Liens" means (i) Liens
of carriers, warehousemen, mechanics, suppliers, materialmen, landlords
and the like incurred in the ordinary course of the Business for sums not
overdue more than thirty days or the validity of which is being contested
in good faith by appropriate actions; (ii) Liens for Taxes not delinquent
or payable without penalty or being contested in good faith by
appropriate actions and (iii) Liens in favor of or created by
C21-Holding.
SECTION 2.13 Absence of Specified Changes. Except as set forth in
Section 2.13 of the Disclosure Schedule, since October 31, 1995, there
has not been any:
(a) Sale, lease, transfer, assignment or other transaction by
Mid-Atlantic with respect to the Assets or the Business with a value in
excess of $50,000 individually or $200,000 in the aggregate;
(b) Material adverse change of any character in the financial
condition or in the operations of the Business;
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(c) Amendment or termination (or threat, in writing, of termination
or non-renewal) of any material Contract;
(d) Incurrence of any liabilities or obligations (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business
and consistent with past practice, none of which exceeds $50,000
individually or $200,000 in the aggregate (treating obligations or
liabilities arising from one transaction or a series of similar
transactions, and all periodic installments or payments under any lease
or other agreement providing for periodic installments or payments, as a
single obligation or liability);
(e) Other act or omission of the Shareholder or Mid-Atlantic that
has a material adverse effect on the financial condition or operations of
the Business;
(f) Declaration of any dividend or other distribution in respect of
Mid-Atlantic's Common Stock other than in an amount not greater than the
cash on hand; or
(g) Agreement by Mid-Atlantic to do any of the things described in
the preceding clauses (a) through (f) except as required by this
Agreement.
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SECTION 2.14 Litigation. Except as set forth in Section 2.14 of the
Disclosure Schedule, as of the date of this Agreement, there are no
actions, suits, claims, investigations or proceedings pending or, to the
Shareholder's knowledge, threatened in writing in any court or by or
before any governmental agency with respect to Mid-Atlantic, the Assets
or the Business. There is no action, suit, claim, investigation or
proceeding pending or, to the Shareholder's knowledge, threatened in
writing which questions the validity or propriety of this Agreement or
any action taken or to be taken by the Shareholder in connection with
this Agreement. Mid-Atlantic is not subject to any injunction or order
of any court of competent jurisdiction or agreement to be bound by any
restriction with respect to its ownership of the Assets or its conduct of
the Business which restriction could reasonably be expected to have a
material adverse effect on the Business.
SECTION 2.15 Employees and Compensation. (a) Section 2.15 of the
Disclosure Schedule, when taken together with Section 2.10 of the
Disclosure Schedule, sets forth a complete and accurate list of the names
and aggregate monthly base salary or wages, and any incentive,
commission, bonus and/or other compensation arrangement as of December
31, 1995, including,
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without limitation, pursuant to employment contracts and consultant contracts,
of Mid-Atlantic's officers and employees (collectively, "Employees"). Except
for any Employee which is a party to an employment or consultant contract,
such other Employee may be terminated at will by Mid-Atlantic without payment
of additional compensation or monies other than that owed through the date of
termination. Except as set forth in Section 2.15 of the Disclosure Schedule
and in the ordinary course of the Business, which includes, but is not limited
to, changes required by law, to the Shareholder's knowledge, there is no
agreement to change any terms of employment, including, without limitation,
salary, wage rates, commissions or other compensation or employee benefit
arrangement, of any Employee prior to or following the Closing Date.
(b) To the Shareholder's knowledge, all of the contracts and
arrangements listed in Section 2.15 of the Disclosure Schedule are
enforceable against the other parties thereto. Neither Mid-Atlantic nor,
to the Shareholder's knowledge, any other party is in material default
under any of these contracts or arrangements. There have been no claims
of default by Mid-Atlantic asserted in writing and, to the Shareholder's
knowledge, there are no facts or conditions which would result in a
material default under these contracts or arrangements.
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Except as set forth in Section 2.15 of the Disclosure Schedule, there is
no pending or, to the Shareholder's knowledge, threat in writing of an
employment dispute involving Mid-Atlantic's Employees.
SECTION 2.16 Conflicts of Interest. Except as set forth in Section
2.16 of the Disclosure Schedule, to the Shareholder's knowledge, neither
the Shareholder, nor any other officer or director of Mid-Atlantic, nor
any spouse or child of any of them, nor any Employee of Mid-Atlantic,
has any direct or indirect interest in any competitor of Mid-Atlantic or
any Franchisee, or in any Asset, other than the ownership of not more
than 5% of the stock of a publicly traded company by any such person or
entity.
SECTION 2.17 Compliance with Law. To the Shareholder's knowledge,
Mid-Atlantic during the past three years has complied in all material
respects with, and is not in material violation of, any applicable
federal, state or local statute, law, rule or regulation (including,
without limitation, any applicable building, zoning, franchise, pension,
labor, securities or other statute, law, rule or regulation), which
violation would be reasonably likely to have a material adverse effect on
the Assets or the financial condition or the operation of the Business.
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SECTION 2.18 Licenses and Permits. Section 2.18 of the Disclosure
Schedule lists all licenses, permits, orders or other authorizations
necessary for Mid-Atlantic to operate the Business as currently
operated, in all material respects.
SECTION 2.19 Brokers or Finders. Neither the Shareholder nor
Mid-Atlantic has employed or utilized any broker, finder or investment
adviser in connection with the transactions contemplated by this
Agreement.
SECTION 2.20 National Ad Fund. During the past three years,
Mid-Atlantic has transmitted to C21-Real Estate the requisite amounts
owing to the NAF and has complied in all material respects with all other
material requirements of Mid-Atlantic's National Advertising Fund
Agreement. As of February 29, 1996, Mid-Atlantic had $305,606.97 owing
to the NAF under its control, which amount was held in accounts at
Calvert Group and Fairfax Bank and Trust.
SECTION 2.21 Insurance. Section 2.21 of the Disclosure Schedule sets
forth all insurance policies owned by Mid-Atlantic relating to
Mid-Atlantic or the Assets. To the Shareholder's knowledge, all such
policies are enforceable against the related insurers. Mid-Atlantic has
not received written notice of default under any such policy or of any
pending or threatened termina-
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tion or cancellation, coverage limitation or reduction, or material
premium increase with respect to any such policy.
SECTION 2.22 Payment of Obligations. Except as specifically provided
in this Agreement, the Shareholder has caused Mid-Atlantic to pay all of
its obligations that are due and payable prior to the Closing Date (or
has caused Mid-Atlantic to retain sufficient cash reserves to pay such
obligations or will cause Mid-Atlantic to pay, on the Closing Date out
of the Merger Consideration) when they become due and payable if and to
the extent that they relate to the period prior to the Closing Date. If
after payment of all such obligations, Mid-Atlantic retains any funds so
deposited by the Shareholder from the Merger Consideration, Mid-Atlantic
shall promptly pay any such funds to the Shareholder without interest.
SECTION 2.23 Use of Excluded Assets. Notwithstanding the fact that
the Excluded Assets have been transferred to the Shareholder prior to the
Closing, the Shareholder agrees that C21-Holding following the Closing
shall have the right to use and utilize at no additional cost the
furniture, fixtures and equipment identified in Section 2.1(i),
subsection 1(a)-(d), of the Disclosure Schedule during the Transition
Period and that such
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furniture, fixtures and equipment will not be removed during the
Transition Period.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF C21-HOLDING CORP. AND ACQUIROR
Acquiror and C21-Holding, jointly and severally, represent and
warrant to the Shareholder as follows:
SECTION 3.1 Organization and Standing. Acquiror and C21-Holding each
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with corporate power and
authority to enter into this Agreement and carry out their respective
obligations hereunder.
SECTION 3.2 Corporate Authority; Action. Acquiror and C21-Holding
each has the corporate power and authority to execute and deliver this
Agreement, the Plan of Merger and the Indemnification Agreement and
perform their respective obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Plan of Merger and the
Indemnification Agreement by Acquiror and C21-Holding and the
consummation by Acquiror and C21-Holding of the transactions
contemplated by this Agreement, the Plan of Merger and the
Indemnification Agreement have been authorized by all requisite corporate
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action on the part of Acquiror and C21-Holding. This Agreement, the Plan
of Merger and the Indemnification Agreement constitute legal, valid and
binding obligations of each of Acquiror and C21-Holding, enforceable in
accordance with their terms.
SECTION 3.3 Consents. Except for (i) compliance with the applicable
requirements of the HSR Act and (ii) the approvals of the Boards of
Directors of Acquiror and C21-Holding of this Agreement and the Plan of
Merger, which approvals have been obtained and (iii) the filing with the
Virginia State Corporation Commission of Articles of Merger to effect the
Plan of Merger and the filing of the Certificate of Merger with the
Delaware Secretary of State, no consent, approval, authorization, filing
with or order of any court, governmental agency, person or financial
institution is required in connection with the execution and delivery of
this Agreement by Acquiror and C21-Holding, the consummation by Acquiror
and C21-Holding of the transactions contemplated by this Agreement and
the performance by Acquiror and C21-Holding of their respective
obligations under this Agreement.
SECTION 3.4 No Violation. Assuming compliance with the matters
referred to in Section 3.3 by Acquiror and C21-Holding, neither the
execution or delivery of this Agreement, the consummation by Acquiror and
C21-
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Holding of the transactions contemplated by this Agreement nor the
performance by Acquiror and C21-Holding of their respective obligations
under this Agreement will: (i) violate the certificate of incorporation
or by-laws of Acquiror or C21-Holding, (ii) violate, conflict with, or
result in a breach of, the terms, conditions or provisions of, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under any agreement, instrument, or
arrangement to which Acquiror or C21-Holding is a party or by which
Acquiror or C21-Holding is bound or (iii) violate any law, rule,
regulation, judgment, order or decree to which Acquiror or C21-Holding is
subject or by which either is bound.
SECTION 3.5 Litigation. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of
Acquiror or C21-Holding, threatened which questions the validity or
propriety of this Agreement or any action taken or to be taken by
Acquiror or C21-Holding in connection with this Agreement.
SECTION 3.6 Brokers and Finders. Neither Acquiror nor C21-Holding
has employed or utilized any broker, finder or investment advisor
involved in connection with the transactions contemplated by this
Agreement.
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SECTION 3.7 Representations of Shareholder. Except for the
representations and warranties of the Shareholder which are contained in
this Agreement, there are no other representations and warranties by or
on behalf of the Shareholder which are being relied upon by the Acquiror
or C21-Holding. To the knowledge of Acquiror and C21-Holding there are no
facts or circumstances which could constitute a breach of the
representations and warranties of the Shareholder, other than with
respect to the Shareholder's title to all of the outstanding shares of
capital stock of Mid-Atlantic, which would give Acquiror or C21-Holding a
basis to seek rescission of the consummation of this Agreement or
indemnification from the Shareholder pursuant to the Indemnification
Agreement.
ARTICLE IV
CERTAIN COVENANTS OF THE
SHAREHOLDER, C21-HOLDING CORP. AND ACQUIROR
SECTION 4.1 Severance. Acquiror and C21-Holding agree that
following the Closing they will follow the severance policy set forth on
Exhibit F with respect to all Employees of Mid-Atlantic who are active
employees of Mid-Atlantic immediately prior to the Closing and that, in
no event, will any "transitional employees" (as such term is used
therein) be required, as a condition of the
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receipt of any benefits, to undertake a covenant not to compete more
onerous than the covenant applicable to the Shareholder pursuant to
Section 4.2.
SECTION 4.2 Non-Competition.
(a) The Shareholder agrees for a period of three (3) years following
the Closing Date that he will not, directly or indirectly, engage in or
have any interest in any person, firm, corporation, or business (whether
as an employee, officer, director, agent, security holder, consultant or
otherwise) that engages in the business of franchising real estate
brokerage offices in the Region, so long as C21-Real Estate (or its
successors) shall engage in such activity in the Region. Without
limitation of the foregoing, (i) the Shareholder is not prohibited from
engaging in or having any interest in any endeavor or other activity
providing other services supportive of or ancillary to the real estate
brokerage franchise business if such services were not being offered by
Mid-Atlantic as of the Closing Date (including, without limitation and
for example, Amerinet Financial Services, Inc. and New Homes Marketing),
and (ii) ownership of not more than 5% of the stock of a publicly traded
company by the Shareholder, even if such company engages in such
activity, if he does not participate in management of any such company
(which shall not be deemed
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to include the exercise of voting rights) shall not be considered a
violation of this covenant.
(b) The Shareholder, Acquiror and C21-Holding agree that the
restrictions imposed on the Shareholder under this Section 4.2 are an
integral part of, not severable from, and solely intended to protect, the
value of the goodwill included in the Assets and the Business being
merged with and into C21-Holding pursuant to the Plan of Merger.
SECTION 4.3 Separate Covenants. The parties intend that the covenant
contained in Section 4.2 shall be construed as a series of separate
covenants, one for each county within the Region. Except for geographic
coverage, each such separate covenant shall be deemed identical. If, in
any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in Section 4.2, then such
unenforceable covenant shall be deemed eliminated from those provisions
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
SECTION 4.4 Non-Disclosure of Trade Secrets. The Shareholder agrees
to hold and treat in confidence all confidential information and trade
secrets of C21-Real Estate or Mid-Atlantic with respect to the Business,
including, but not limited to, personnel information,
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know-how, franchisee lists, operations manuals, sales training,
management manuals and associated information, real estate license
training materials or other technical data ("Confidential Information");
provided that "Confidential Information" shall not include such
information which otherwise would constitute Confidential Information
hereunder which (i) is contained in a publicly recorded document, (ii) is
or becomes generally known other than as a result of a disclosure by or
through the Shareholder, or (iii) is or becomes known by the Shareholder
on a nonconfidential basis from a source other than through his interest
in Mid-Atlantic that, to the Shareholder's knowledge, is not prohibited
from disclosing such Confidential Information to the Shareholder by a
legal, contractual, fiduciary or other obligation. The Shareholder will
employ such procedures to insure the confidentiality of Confidential
Information as would be employed by a reasonable and prudent person to
safeguard the confidentiality of his own most confidential information
or, if more stringent, such procedures as are employed for such purpose
by the Shareholder. Nothing in this Agreement shall prevent the
Shareholder from disclosing Confidential Information (x) if required to
do so by law or regulation, (y) to any governmental authority having or
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claiming authority to receive such Confidential Information, or (z)
pursuant to subpoena.
SECTION 4.5 Injunctive Relief. The Shareholder acknowledges that the
agreement set forth in Section 4.2 is necessary to protect for Acquiror
and C21-Holding the value of the Assets and the Business, that a breach
of such agreement will result in irreparable damage to the value of the
Assets and the Business, and that money damages would not adequately
compensate Acquiror and C21-Holding for any such breach and, therefore,
that Acquiror and C21 Real Estate would not have an adequate remedy at
law. Accordingly, Acquiror and C21-Holding shall have, in addition to any
and all remedies at law, the right, without posting of bond or other
security, to an injunction, both temporary and permanent, specific
performance and/or other equitable relief to prevent the violation of any
obligation under Section 4.2.
SECTION 4.6 Real Estate Leases.
(a) For a period of 180 days following the Closing Date (the
"Transition Period"), (i) C21-Holding and the Shareholder shall share
occupancy of the offices located at 7601 Lewinsville Road, Suite 400,
McLean, Virginia (the "Mid-Atlantic Offices") which Mid-Atlantic leases
from The Realty Associates Fund III, L.P. ("RAF") pursuant to a lease
dated July 31, 1992 (the "RAF
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Lease") and (ii) C21-Holding and the Shareholder shall share, on a pro
rata basis based on the amount of space occupied by each of them, the
liability for all payments to be made under the RAF Lease for the
Mid-Atlantic Offices during such period. The Shareholder shall pay
C21-Holding the amount owed pursuant to the foregoing sentence in advance
on the fifth day of each month during the Transition Period.
(b) During the Transition Period, C21-Holding shall pay all
payments to be made pursuant to the lease for the premises located in the
5th Election District of Anne Arundel County, Maryland leased by Mid-
Atlantic from Airport Square XXI Company ("Airport XXI") pursuant to a
lease dated July 31, 1992 (the "Airport XXI Lease" and, with the RAF
Lease, the "Shared Leases").
(c) Commencing upon the first day following the expiration of the
Transition Period, the Shareholder (or his designee) shall have the right
to occupy the premises under the RAF Lease and the Airport XXI Lease and,
in any event, the Shareholder shall be responsible for and shall pay,
perform and discharge when due, all obligations and liabilities of the
lessee pursuant to the Shared Leases arising from and after the
Transition Period.
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(d) The Shareholder shall use all reasonable efforts to obtain any
necessary consents from RAF and Airport XXI to the assignment of the
Shared Leases to the Shareholder or to a corporation controlled by the
Shareholder without any continuing obligation or liability by C21-Holding
following such assignment. Such assignment shall commence upon the first
day following the expiration of the Transition Period and shall relieve
C21-Holding from any responsibility or liability for the Shared Leases.
SECTION 4.7 Preparation and Filing of Tax Returns. The Shareholder
shall or shall cause Beers & Cutler, Mid-Atlantic's independent public
accountants, to cause to be prepared and timely filed (in each case, at
the Shareholder's cost and expense and in a manner consistent with
Mid-Atlantic's past practice) on a timely basis all Tax Returns of
Mid-Atlantic for all taxable periods including, without limitation, a
Form 966 Corporation Dissolution or Liquidation. Subject to the
Indemnification Agreement, the Shareholder shall cause to be paid, on
Mid-Atlantic's behalf, all Taxes shown to be due and payable thereon.
Notwithstanding the foregoing, with respect to the Tax Returns of
Mid-Atlantic for the Tax period ending on the Closing Date, the
Shareholder shall consult with the Acquiror and, at the Acquiror's
expense,
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the Acquiror's independent accountants, Deloitte & Touche LLP, in
preparing and filing such returns, in determining and allocating income,
gain, credits, losses, deductions and other items and in making any
elections and other decisions relating to such Tax Returns. Such Tax
Returns shall be filed only upon the parties' mutual agreement.
SECTION 4.8 Allocation of Purchase Price and Other Tax Matters.
(a) The Shareholder Acquiror and C21-Holding agree (i) to allocate
the Total Consideration for all Tax and non-Tax purposes, in accordance
with the rules under Section 1060 of the Code and the Treasury
Regulations promulgated thereunder, as set forth on Exhibit G hereto;
(ii) to utilize the amounts allocated pursuant to subsection (i) for
purposes of filing all Tax Returns, including amended Tax Returns and
Form 8594 and otherwise; and (iii) not to take any position inconsistent
therewith on any Tax Return (including amended Tax Returns) or for any
other Tax or non-Tax purpose, provided, however, that Acquiror and the
Shareholder shall be permitted, for purposes of filing Form 8594 and all
other purposes, to take into account legal and accounting fees and other
buying or selling expenses, respectively, as applicable.
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(b) The Acquiror, C-21 Holding and the Shareholder hereby
acknowledge that for federal, state and local income Tax purposes the
transactions contemplated by this Agreement shall be characterized as (i)
a sale by Mid-Atlantic of its Assets to, and the assumption of
Mid-Atlantic's liabilities by, the Acquiror in exchange for the Total
Merger Consideration, followed by (ii) the distribution of such Total
Merger Consideration by Mid-Atlantic to the Shareholder in complete
redemption and cancellation of the Mid-Atlantic stock held by the
Shareholder, followed by (iii) the transfer to, and the assumption by,
C21-Holding of the Assets and liabilities, which are considered to have
been purchased or assumed by Acquiror pursuant to this paragraph, in
exchange for a note of C21-Holding, and followed by (iv) the transfer to,
and the assumption by, C21-Real Estate of such Assets and liabilities.
The Acquiror, C21-Holding and the Shareholder agree not to take any
position inconsistent with this Section 4.8 for federal, state or local
income Tax purposes.
SECTION 4.9 Accounts Receivable.
(a) C21-Holding agrees that it will cause C21-Real Estate to use its
reasonable efforts, consistent with its accounts receivable collection
practices, to collect accounts receivable for the Shareholder which are
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outstanding in accordance with GAAP as of the Closing Date (the "Accounts
Receivable") and identified on a schedule delivered to C21-Holding at
Closing or no later than five days after the Closing Date which schedule
shall be reviewed by and deemed acceptable to C21-Holding as mutually
agreed upon with the Shareholder (the "Accounts Receivable Schedule"),
but C21-Real Estate shall not, in connection with such collection
efforts, be required to terminate any Franchise Agreement or bring any
legal action against any Franchisee or any affiliate of any Franchisee.
C21-Holding and the Shareholder agree that Opens shall be treated as
Accounts Receivable, even though not listed on the Accounts Receivable
Schedule, but the Shareholder understands and agrees that Opens shall
only be considered as an Account Receivable if closed prior to April 1,
1996. C21-Holding agrees that it will cause C21-Real Estate to pay to the
Shareholder, by valid check, the amounts which C21-Holding has collected
with respect to any Accounts Receivable within 15 days after the end of
each month, commencing with the month following the month in which the
Closing occurs, and to deliver a written statement listing the Accounts
Receivable listed on the Accounts Receivable Schedule to which the
payment relates and the amount being paid with respect thereto.
C21-Holding may cause C21-Real Estate
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to suspend its efforts to collect any Accounts Receivable, in the
exercise of its reasonable judgment, and consistent with the accounts
receivable collection practices of C21-Real Estate.
(b) C21-Holding shall not permit C21-Real Estate to compromise,
settle, surrender, release, discharge, renew, extend or grant any other
indulgence with respect to any Accounts Receivable (a "Compromise")
except in connection with an identical action with regard to all of its
own accounts receivable owing from the same obligor; and C21-Holding
shall cause C21-Real Estate to give the Shareholder ten days' written
notice prior to any proposed Compromise (a "Compromise Notice"). The
Shareholder will cooperate with C21-Real Estate with respect to its
collection of Accounts Receivable on his behalf, provided that the
Shareholder will not be obligated to incur any out-of-pocket expenses in
connection with such cooperation.
(c) The Shareholder may at any time and from time to time, upon
written notice to C21-Holding, revoke C21-Holding's authority to cause
C21-Real Estate to collect any Accounts Receivable on his behalf (which
notice, if relating to Accounts Receivable as to which C21-Real Estate
has given a Compromise Notice, must be given at least five business days
prior to the date on
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which C21-Real Estate has proposed to Compromise such Accunts
Receivable).
(d) C21-Holding agrees that it shall cause C21-Real Estate to apply
all payments received from any obligor under an Accounts Receivable as
directed by such obligor. In the event such obligor fails to direct the
application of such payment, such undirected payment shall be applied to
the oldest undisputed amount due from such obligor at that time.
(e) One year following the Closing Date, or on such earlier date as
may be requested by the Shareholder, C21-Holding shall assign to the
Shareholder all right, title and interest in and to all Accounts
Receivable that remain uncollected and undischarged, and which have not
been settled or compromised as of that date, and the Shareholder shall
then have the right to collect such Accounts Receivable for his own
account and C21-Holding shall have no further obligations with respect
thereto.
(f) Following the Closing and notwithsanding the acquisition of the
Subfranchise Agreement by Acquiror, Shareholder agrees that C21-Holding
may deduct from the payment of an Account Receivable the applicable
service fees and NAF fees owed to C21-Real Estate under the Subfranchise
Agreement with respect thereto.
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SECTION 4.10 Severance and Other Payments. The Shareholder agrees
that he shall be responsible for and make all payments owed (other than
pursuant to the Severance Policy) to any current or former officer of
Mid-Atlantic for severance pay, termination pay or other payments which
are payable as a result of the Merger, including, without limitation,
pursuant to the employment or consultant agreements listed in Section
2.15 of the Disclosure Schedule.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1 Expenses. Except as otherwise expressly provided in this
Agreement, Acquiror shall pay all expenses incident to the origin,
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby other than legal and accounting fees and
disbursements incurred by the Shareholder and the fees of any broker,
finder or investment adviser utilized by him, for which the Shareholder
shall be responsible.
SECTION 5.2 Reimbursement of and Payment to C21-Holding and the
Shareholder. The Shareholder, C21-Holding and Acquiror agree that if
subsequent to the Closing Date any of them shall receive any payment due
to
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the other party, including, without limitation, service fees or NAF fees
under the Subfranchise Agreement, each shall promptly remit the same to
the other, and if any party shall pay any obligations of the other not
assumed by it hereunder, the payment shall be for the account of the
party to whom the obligation relates, and such party shall promptly
reimburse the other party for any such payment.
SECTION 5.3 Interpretation. As used herein, the expression "this
Agreement" means the body of this Agreement and the Exhibits and the
Disclosure Schedule attached hereto; and the expressions "herein,"
"hereof," and "hereunder" and other words of similar import refer to this
Agreement and such Exhibits and the Disclosure Schedule as a whole and
not to any particular part or subdivision thereof. As used herein, the
"knowledge" of the Shareholder means the Shareholder's actual knowledge,
without further investigation, and the "knowledge" of Acquiror or
C21-Holding means the actual knowledge of the following persons, without
further investigation: Henry R. Silverman, James E. Buckman, Stephen P.
Holmes, Robert W. Pittman, John D. Snodgrass, Thomas J. Freeman, Mayo S.
Stuntz, Jr., Paul McNichol and John J. Russell. Whenever this Agreement
states that an agreement or a contract is enforceable according to its
terms, such statement is to
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be interpreted with the proviso that such enforcement may be limited (i)
by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, equity of redemption, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) by general
principles of equity (regardless of whether enforcement is sought in
equity or at law).
SECTION 5.4 Amendments and Waivers. This Agreement may be amended
only by a written instrument executed by the parties hereto. No waiver of
any of the provisions of the Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof.
SECTION 5.5 Public Statements. Except for announcements as may be
required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other party with reasonable time under
the circumstances to comment on the announcement in advance of such
announcement, neither the Shareholder nor Acquiror or C21-Holding shall
issue any press release or other public statement concerning the
transactions contemplated by this Agreement without first
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obtaining the written consent of the other parties respecting such
statement, which consent will not be unreasonably withheld.
SECTION 5.6 Confidentiality. The Shareholder acknowledges that
Acquiror may be required to file this document with the Securities and
Exchange Commission and other regulatory agencies and agrees that
Acquiror may so do so and, subject to the foregoing, the parties hereto
agree that they will keep confidential the terms and conditions of this
Agreement; provided that the foregoing obligations shall not apply to
information which (i) is contained in a publicly recorded document or
(ii) is or becomes generally known other than as a result of a disclosure
by or through the party obliged to maintain its confidentiality. Nothing
in this Agreement shall prevent any party from disclosing information
regarding this Agreement (w) in pursuit of its remedies hereunder, (x) if
required to do so by law or regulation, (y) to any governmental authority
having or claiming authority to receive such information or (z) pursuant
to subpoena. Further, nothing in this Agreement shall prevent the
Shareholder from disclosing information regarding this Agreement to other
current or former parties to subfranchise arrangements with C21-Real
Estate.
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SECTION 5.7 Access To Records After Closing. Acquiror and the
Shareholder shall, after the Closing Date, make available to each other
at reasonable times during normal business hours any books and records
relating to the Business that either may request for use in connection
with: (a) the preparation of Tax Returns; (b) any audit of Taxes or Tax
Returns by any taxing authority; (c) any claim or suit in which they are
a party; or (d) any other reasonable and proper purpose, and shall permit
the other, at its expense, to make copies thereof.
SECTION 5.8 Parties Bound. This Agreement shall apply to, inure to
the benefit of and be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. The
respective rights and obligations of any party hereto shall not be
assignable without the consent of the other party (which will not be
unreasonably withheld) except that (i) Acquiror may assign this Agreement
and Acquiror's rights hereunder to any subsidiary of Acquiror (provided
that the Acquiror unconditionally guarantees all of such assignee's
obligations, warrants and agreements hereunder in a written guaranty
reasonably acceptable to the Shareholder), (i) C21-Holding may assign
this Agreement and C21-Holding's rights and obligations hereunder to C21-
Real Estate and (iii) the Shareholder may assign all or
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any part of the payment of the Annual Payment and the Additional Purchase
Price to another party.
SECTION 5.9 Parties in Interest. Except as specifically provided
herein, nothing in this Agreement, whether express or implied, is
intended to infer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their
respective successors, heirs, legal representatives and permitted
assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party
to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over against any party to this Agreement.
SECTION 5.10 Notices. Any notice, demand, approval, consent,
request, waiver or other communication which may be or is required to be
given pursuant to this Agreement shall be in writing and shall be (1)
deposited in the United States mail, postage prepaid, certified or
registered, (2) sent by telecopier, or (3) sent by private overnight
courier service for delivery on the next following business day,
addressed to the party at the address set forth after its respective name
below, or at such different address as such party shall have theretofore
advised the other party in writing:
65
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If to the Shareholder:
George F. Kettle
2417 Fisher Island Drive
Fisher Drive, Florida 33109
with a copy to:
J. Richard Eagan
7601 Lewinsville Road
Suite 400
McLean, Virginia 22102
Telecopier: (703) 821-0491
and
Williams & Connolly
725 12th Street, N.W.
Washington, D.C. 20005
Attention: Charles A. Sweet, Esq.
Telecopier: (202) 434-5029
If to Acquiror or C21-Holding:
HFS Incorporated or
C21 Holding Corp.
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman
Executive Vice President
Telecopier: (201) 428-3260
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Mark T. Shehan, Esq.
Telecopier: (212) 735-2001
Any such communication personally delivered shall be deemed to have been
received on the day delivered; or if sent by telecopier, on the day
telecopied, but only if receipt by the addressee is confirmed by a return
telecopy signed by the addressee; or if properly mailed
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certified or registered mail, postage prepaid, shall be deemed to have
been received on the day three days from and including the day mailed; or
if sent by private overnight courier service shall be deemed to have been
received on the business day following the day so sent. Any party may
change its address for purposes of this Section by giving the other
parties written notice of the new address in any manner set forth above.
SECTION 5.11 Number and Gender of Words. Whenever herein the
singular number is used, the same shall include the plural where
appropriate, and the words of any gender shall include each other gender
where appropriate.
SECTION 5.12 Captions. The captions, headings and arrangements used
in this Agreement are for convenience only and do not affect, limit or
amplify the terms and provisions hereof, or their construction or
interpretation.
SECTION 5.13 Invalid Provisions. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof, and the remaining provisions
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hereof shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance
herefrom. In lieu of such illegal, invalid or unenforceable provision
there shall be added automatically as a part hereof a provision as
similar in terms to such illegal, invalid or unenforceable provision as
may be possible and be legal, valid and enforceable.
SECTION 5.14 Accounting Terms. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in
accordance with GAAP as in effect from time to time.
SECTION 5.15 Entirety of Agreement. This Agreement, the Plan of
Merger and the Indemnification Agreement contain the entire agreement
among the parties hereto, and supersede all prior and contemporaneous
agreements, representations and understandings of the parties, including,
without limitation, all preliminary offers and letters of intent made by
or between C21-Holding and Mid-Atlantic or the Shareholder. No
representations, inducements, promises or agreements, oral or otherwise,
which are not embodied herein or therein shall be of any force or effect.
SECTION 5.16 Multiple Counterparts. This Agreement may be executed
in multiple counterparts, each
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of which shall be deemed an original for all purposes and all of which
shall be deemed, collectively, one agreement.
SECTION 5.17 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law principles.
SECTION 5.18 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby
shall be brought in the United States District Court for the Eastern
District of Virginia or the courts of Fairfax County in Virginia, and
each of the parties hereby consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court.
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Without limiting the foregoing, each party agrees that service of process
on such party as provided in this Section 5.18 shall be deemed effective
service of process on such party.
SECTION 5.19 Prevailing Party Expenses. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for all
expenses and costs incurred by the prevailing party or parties in
connection with such action, including, without limitation, attorneys'
fees.
SECTION 5.20 Waiver of Rescission. Notwithstanding any breach or
default by any of such parties of any of their respective
representations, warranties, covenants or agreements under this
Agreement, other than as set forth in clause (ii) below, each such party
waives any rights that it or they may have to rescind this Agreement or
the transactions consummated by it; provided, however, that (i) this
waiver shall not affect any other rights or remedies available to any
such party under this Agreement or under the law and (ii) Acquiror and
C21-Holding shall have the right to rescind this Agreement in the event
that, as of the Closing, all of the outstanding shares of capital stock
of Mid-Atlantic
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were not owned by the Shareholder, or if actual fraud has been committed
by Mid-Atlantic or the Shareholder in connection with any of the
transactions contemplated by the Agreement.
71
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
HFS INCORPORATED
By /s/ STEPHEN P. HOLMES
---------------------
Name: Stephen P. Holmes
Title: Executive Vice
President
C21 HOLDING CORP.
By /s/ JAMES E. BUCKMAN
--------------------
Name: James E. Buckman
Title: Executive Vice
President
CENTURY 21 REAL ESTATE OF
THE MID-ATLANTIC STATES, INC.
By /s/ J. RICHARD EAGAN
---------------------
Name: J. Richard Eagan
Title: President
/s/ GEORGE F. KETTLE
--------------------
GEORGE F. KETTLE
AGREEMENT AND PLAN OF MERGER
Dated as of
April 3, 1996
Among
HFS INCORPORATED,
C21 HOLDING CORP.,
CENTURY 21 OF EASTERN PENNSYLVANIA, INC.,
GEORGE F. KETTLE
and
JAMES O. NELSON
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER AND ADDITIONAL ACQUISITION MATTERS
Section 1.1 Merger; Surviving Corporation.................... 2
Section 1.2 Effect of the Merger............................. 2
Section 1.3 Additional Actions............................... 3
Section 1.4 Certificate of Incorporation and
By-Laws.......................................... 3
Section 1.5 Directors and Officers........................... 4
Section 1.6 Effective Time................................... 4
Section 1.7 Conversion of Shares............................. 4
Section 1.8 Additional Consideration......................... 5
Section 1.9 Closing Time and Place........................... 6
Section 1.10 Transfer of NAF Assets........................... 6
Section 1.11 Deliveries by Eastern Pennsylvania
and the Shareholders............................. 7
Section 1.12 Deliveries by Acquiror and C21-
Holding.......................................... 9
Section 1.13 Additional Payment............................... 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
Section 2.1 Organization and Existence....................... 10
Section 2.2 Capital Structure................................ 11
Section 2.3 Title to Shares.................................. 13
Section 2.4 Authority; Valid and Binding Agree-
ment............................................. 13
Section 2.5 Consents......................................... 14
Section 2.6 No Conflict...................................... 15
Section 2.7 Financial Statements............................. 16
Section 2.8 Absence of Undisclosed Liabilities............... 18
Section 2.9 Tax Matters...................................... 18
Section 2.10 Employee Benefit Matters......................... 24
Section 2.11 Assets........................................... 27
Section 2.12 Title to Assets.................................. 34
Section 2.13 Absence of Specified Changes..................... 35
Section 2.14 Litigation....................................... 36
Section 2.15 Employees and Compensation....................... 37
Section 2.16 Conflicts of Interest............................ 38
Section 2.17 Compliance with Law.............................. 39
Section 2.18 Licenses and Permits............................. 39
<PAGE>
Page
Section 2.19 Brokers or Finders............................... 39
Section 2.20 National Ad Fund................................. 39
Section 2.21 Insurance........................................ 40
Section 2.22 Payment of Obligations........................... 40
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND C21-HOLDING
Section 3.1 Organization and Standing........................ 41
Section 3.2 Corporate Authority; Action...................... 41
Section 3.3 Consents......................................... 42
Section 3.4 No Violation..................................... 42
Section 3.5 Litigation....................................... 43
Section 3.6 Brokers and Finders.............................. 43
Section 3.7 Representations of Shareholders.................. 44
ARTICLE IV
CERTAIN COVENANTS OF THE
SHAREHOLDERS, C21-HOLDING AND ACQUIROR
Section 4.1 Severance........................................ 44
Section 4.2 Non-Competition.................................. 45
Section 4.3 Separate Covenants............................... 46
Section 4.4 Non-Disclosure of Trade Secrets.................. 47
Section 4.5 Injunctive Relief................................ 48
Section 4.6 Real Estate Leases............................... 48
Section 4.7 Preparation and Filing of Tax Re-
turns............................................ 50
Section 4.8 Allocation of Purchase Price and
Other Tax Matters................................ 51
Section 4.9 Accounts Receivable.............................. 52
Section 4.10 Severance and Other Payments..................... 55
Section 4.11 Consulting Agreement............................. 56
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.1 Expenses......................................... 56
Section 5.2 Reimbursement of and Payment to
C21-Holding and the Shareholders................. 56
Section 5.3 Interpretation................................... 57
Section 5.4 Amendments and Waivers........................... 58
Section 5.5 Public Statements................................ 58
Section 5.6 Confidentiality.................................. 59
Section 5.7 Access To Records After Closing.................. 59
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Page
Section 5.8 Parties Bound.................................... 60
Section 5.9 Parties in Interest.............................. 60
Section 5.10 Notices.......................................... 61
Section 5.11 Number and Gender of Words....................... 63
Section 5.12 Captions......................................... 63
Section 5.13 Invalid Provisions............................... 63
Section 5.14 Accounting Terms................................. 64
Section 5.15 Entirety of Agreement............................ 64
Section 5.16 Multiple Counterparts............................ 64
Section 5.17 Governing Law.................................... 65
Section 5.18 Jurisdiction..................................... 65
Section 5.19 Prevailing Party Expenses........................ 66
Section 5.20 Waiver of Rescission............................. 66
iii
EXHIBITS
Exhibit A - Opinion of Williams & Connolly
Exhibit B - FIRPTA Certificates
Exhibit C - Indemnification Agreement
Exhibit D - Opinion of Skadden, Arps, Slate, Meagher & Flom
Exhibit E - Severance Policy
Exhibit F - Tax Allocation
Exhibit G - Consulting Agreement
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, made and entered into this 3rd day of
April, 1996 (the "Agreement"), by and among HFS INCORPORATED, a Delaware
corporation (the "Acquiror"), C21 HOLDING CORP., a Delaware corporation and
subsidiary of Acquiror ("C21-Holding"), CENTURY 21 OF EASTERN PENNSYLVANIA,
INC., a Pennsylvania corporation ("Eastern Pennsylvania"), GEORGE F. KETTLE
("Kettle") and James O. Nelson ("Nelson" and, with Kettle, the
"Shareholders"), the holders of all of the outstanding shares of capital stock
of Eastern Pennsylvania.
WHEREAS, the respective Boards of Directors of Acquiror, C21-Holding and
Eastern Pennsylvania deem it advisable and in the best interests of their
respective stockholders that Acquiror acquire Eastern Pennsylvania by merger
of Eastern Pennsylvania with and into C21-Holding (the "Merger"); and
WHEREAS, Acquiror, C21-Holding, Century 21 Real Estate of the
Mid-Atlantic States, Inc., a Virginia corporation ("Mid-Atlantic") and Kettle
are simultaneously herewith entering into an Agreement and Plan of Merger
pursuant to which Acquiror is acquiring Mid-Atlantic by merger of Mid-Atlantic
with and into C21-Holding;
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER AND ADDITIONAL ACQUISITION MATTERS
SECTION 1.1 Merger; Surviving Corporation. In accordance with the
provisions of this Agreement, the Pennsylvania Business Corporation Law
(the "PBCL") and the Delaware General Corporation Law (the "DGCL"), at
the Effective Time (as defined in Section 1.6 hereof), Eastern
Pennsylvania shall be merged with and into C21-Holding (the "Merger")
and the separate corporate existence of Eastern Pennsylvania shall cease.
C21-Holding shall be the surviving corporation in the Merger (hereinafter
sometimes referred to as the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Delaware. The name
of the Surviving Corporation shall continue to be C21 Holding Corp.
SECTION 1.2 Effect of the Merger. At the Effective Time, the Merger
shall have the effects set forth in Section 1929 of the PBCL and Section
259 of the DGCL.
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SECTION 1.3 Additional Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of
the rights, properties or assets of Eastern Pennsylvania acquired or to
be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or to otherwise carry out this Agreement, Eastern
Pennsylvania and its officers and directors grant an irrevocable power of
attorney and authorization to the Surviving Corporation to execute and
deliver all such proper bills of sale, assignments and assurances and to
take and do, in the name and on behalf of Eastern Pennsylvania, all such
other actions and things as may be necessary or desirable to vest,
perfect or confirm title to and possession of such rights, properties or
assets in the Surviving Corporation or to otherwise carry out the
purposes of this Agreement.
SECTION 1.4 Certificate of Incorporation and By-Laws. The
Certificate of Incorporation and the ByLaws of C21-Holding, as in effect
at the Effective Time, shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation and shall thereafter continue
3
<PAGE>
to be its Certificate of Incorporation and By-Laws until amended as
provided therein or by law.
SECTION 1.5 Directors and Officers. The directors and officers of
C21-Holding immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and ByLaws of the
Surviving Corporation.
SECTION 1.6 Effective Time. The Merger shall become effective at the
time and date which is the later of (i) the filing of the Articles of
Merger in the Department of State of the Commonwealth of Pennsylvania and
(ii) the filing of a Certificate of Merger with the Secretary of State of
the State of Delaware with respect to the Merger (such time and date is
herein referred to as the "Effective Time").
SECTION 1.7 Conversion of Shares.
(a) Each share of common stock, par value $0.01 per share, of
C21-Holding outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any further action by the holder
thereof, be converted into one share of common stock, par value $0.01 per
share, of the Surviving Corporation.
(b) Each share of common stock, par value $1.00 per share, of
Eastern Pennsylvania ("Eastern Penn-
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sylvania Common Stock") held in the treasury of Eastern Pennsylvania or
held other than by the Shareholders immediately prior to the Effective
Time shall be cancelled.
(c) Each share of Eastern Pennsylvania Common Stock outstanding
immediately prior to the Effective Time shall, by virtue of the Merger
and without any further action by the holder thereof, be converted into
the right to receive $2,352.95 in cash from Acquiror at the times and
manners provided in Sections 1.12 and 1.13 hereof upon delivery by a
Shareholder to the Acquiror of certificates which immediately prior to
the Effective Time represented the 5,100 outstanding shares of Eastern
Pennsylvania Common Stock.
(d) Each share Class B Common Stock par value $1.00 per share of
Eastern Pennsylvania, which was authorized but unissued immediately prior
to the Effective Time, shall be cancelled.
SECTION 1.8 Additional Consideration. In addition to the
consideration being provided by Acquiror to the Shareholders pursuant to
Section 1.7 hereof (the "Merger Consideration"), Acquiror hereby agrees
to pay and deliver to the Shareholders at the Closing (as defined in
Section 1.9), the amount of $4,441.00 (the "Prepaid Expense Amount" and,
with the Merger Consideration, the "Total Merger Consideration") which
the parties
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hereto have mutually agreed is the amount of prepaid expenses of Eastern
Pennsylvania existing as of the Closing Date (as defined in Section 1.9).
SECTION 1.9 Closing Time and Place. Subject to the terms and
conditions of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") is taking place,
simultaneously with the execution of this Agreement, at 10:00 a.m., New
York City time, at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York, on April 3, 1996. The date and time
upon which the Closing is occurring are herein referred to as the
"Closing Date."
SECTION 1.10 Transfer of NAF Assets. At the Closing, Eastern
Pennsylvania shall transfer, by delivery of a check at Closing, to
Century 21 Real Estate Corporation, a Delaware corporation and wholly
owned subsidiary of C21-Holding ("C21-Real Estate"), in its capacity as
Trustee of the Century 21 National Advertising Fund ("NAF") all monies in
Eastern Pennsylvania's possession and/or pay over any other amounts
(collectively, the "NAF Funds") for which Eastern Pennsylvania is
accountable or responsible with respect to the NAF's or Eastern
Pennsylvania's fiduciary (or other) obligations and responsibilities as
the agent of the Trustee of the NAF.
6
<PAGE>
SECTION 1.11 Deliveries by Eastern Pennsylvania and the
Shareholders. At the Closing, Eastern Pennsylvania and the Shareholders
are delivering or causing to be delivered to C21-Holding and Acquiror,
unless previously delivered, the following:
(a) Certificates representing the Eastern Pennsylvania Common Stock
registered in the name of each of the Stockholders.
(b) All books and records of Eastern Pennsylvania in the possession
or control of the Shareholders or Eastern Pennsylvania, including,
without limitation, the stock books, stock ledgers, minute books,
corporate seals and all financial books, records and work papers,
provided that the Shareholders may retain copies thereof.
(c) Certificates issued not more than two business days prior to the
Closing Date as to the good standing of, and payments of taxes by,
Eastern Pennsylvania in the Commonwealth of Pennsylvania (including, but
not limited to, tax clearance certificates from the Department of Revenue
and the Bureau of Employment Security of the Department of Labor and
Industry) and each jurisdiction in which it is qualified to do business
as a foreign corporation.
7
<PAGE>
(d) Certified Articles of Incorporation and By-Laws of Eastern
Pennsylvania referred to in Section 2.1(b) hereof.
(e) The opinion of Williams & Connolly, counsel to the Shareholders,
substantially to the effect set forth in Exhibit A hereto.
(f) The certificates annexed as Exhibit B hereto as to the
non-foreign status of Eastern Pennsylvania, duly executed by Eastern
Pennsylvania and the Shareholders (the "FIRPTA Certificates"), provided,
however, that if such certificates are not delivered, the Closing shall
nevertheless occur and Acquiror shall withhold from the consideration
being provided by Acquiror to the Shareholders pursuant to this Agreement
such amounts as are required, in Acquiror's sole judgement, to be
withheld under applicable law.
(g) The Indemnification Agreement substantially in the form of
Exhibit C hereto (the "Indemnification Agreement"), duly executed by
Kettle.
(h) The NAF Funds.
(i) All other previously undelivered items required to be delivered
by Eastern Pennsylvania and the Shareholders at or prior to the Closing
pursuant to this Agreement or otherwise required in connection herewith.
8
<PAGE>
SECTION 1.12 Deliveries by Acquiror and C21-Holding. At the
Closing, Acquiror and C21-Holding are delivering or causing to be
delivered to the Shareholders, unless previously delivered, the
following:
(a) The amount of $645,046 by wire transfer in immediately
available funds to the bank accounts designated in writing by each of the
Shareholders to the Acquiror, representing the amount of $2,352.95 per
share of Common Stock that Nelson is to receive for the 1,275 shares of
Common Stock owned by him, and (together with the payment required by
Section 1.13) represents the amount of $2,352.95 per share of Common
Stock that Kettle is to receive for the 3,825 share of Common Stock owned
by him.
(b) The opinion of Skadden, Arps, Slate, Meagher & Flom, counsel to
Acquiror and C21-Holding, substantially to the effect set forth in
Exhibit D hereto.
(c) The Indemnification Agreement, duly executed by Acquiror and
C21-Holding.
(d) The Prepaid Expense Amount.
(e) All other previously undelivered items required to be delivered
by Acquiror or C21-Holding at or prior to the Closing pursuant to this
Agreement or otherwise in connection herewith.
9
<PAGE>
SECTION 1.13 Additional Payment. On the second business day after
the Closing, the Acquiror shall pay to Kettle the amount of $2,830,474 by
wire transfer and to Nelson the amount of $8,524,480 by wire transfer in
immediately available funds to the bank accounts designated in writing by
the Shareholders to the Acquiror, which together with the payment made on
the Closing Date pursuant to Section 1.12 hereof represents the amount of
$2,352.95 per share of Common Stock that the Shareholders are to receive
for the 5,100 shares of Common Stock owned by them.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
The Shareholders hereby, jointly and severally, represent and
warrant to Acquiror and C21-Holding that:
SECTION 2.1 Organization and Existence.
(a) Eastern Pennsylvania is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania, Eastern Pennsylvania has all necessary corporate power to
carry on the business of real estate brokerage office subfranchising and
related operations for the Century 21 system (the "Business") as now
being conducted by it, and Eastern Pennsylvania is duly qualified to do
business as
10
<PAGE>
a foreign corporation in each jurisdiction in which the nature of the
Business or the ownership or lease of its properties makes such
qualification necessary, which jurisdictions are listed in Section 2.1 of
the document being delivered by the Shareholders to C21-Holding
simultaneously with the execution of this Agreement scheduling the items
required to be disclosed therein pursuant to this Agreement (the
"Disclosure Schedule").
(b) The copies of the Articles of Incorporation and By-Laws of
Eastern Pennsylvania heretofore delivered by the Shareholders to
C21-Holding are complete and correct copies of such instruments as
presently in effect. To the Shareholders' knowledge, all minutes of
Eastern Pennsylvania relating to material meetings or actions taken by
the Board of Directors (or committees thereof) or shareholders of Eastern
Pennsylvania are contained in the minute books, no material action which
would require approval by its Board of Directors or its shareholders has
been taken by Eastern Pennsylvania for which minutes are not contained in
the minute books, and all such minutes have heretofore been furnished to
C21-Holding for examination.
SECTION 2.2 Capital Structure.
(a) Eastern Pennsylvania's authorized capital stock consists of (i)
99,000 shares of common
11
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stock, par value $1.00 per share, of which 5,100 shares are validly
issued and outstanding (the "Common Stock"), fully paid, and
nonassessable and all of which are owned, beneficially and of record, by
the Shareholders as follows: Kettle owns 3,825 shares of Common Stock and
Nelson owns 1,275 shares of Common Stock and (ii) 50,000 shares of Class
B common stock, par value $1.00 per share, of which no shares are issued
and outstanding.
(b) There are no (i) other outstanding securities of Eastern
Pennsylvania, (ii) securities convertible into or exchangeable for shares
of Eastern Pennsylvania's capital stock; (iii) options, warrants or other
rights to purchase or subscribe to capital stock of Eastern Pennsylvania
or securities convertible into or exchangeable for capital stock of
Eastern Pennsylvania; or (iv) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the issuance of
any capital stock of Eastern Pennsylvania, any such convertible or
exchangeable securities or any such options, warrants or rights.
(c) There is no corporation, partnership, joint venture or other
entity in which Eastern Pennsylvania, directly or indirectly, owns any
equity or ownership interest.
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SECTION 2.3 Title to Shares. The Shareholders have good, valid and
marketable title to the Common Stock, free and clear of all claims,
liens, charges, encumbrances, options, shareholder agreements and
security interests of whatever nature (a "Lien").
SECTION 2.4 Authority; Valid and Binding Agreement.
(a) Eastern Pennsylvania has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
of this Agreement by Eastern Pennsylvania and the consummation by Eastern
Pennsylvania of the Merger and of the other transactions contemplated
hereby have been duly authorized by the Board of Directors of Eastern
Pennsylvania and approved and adopted by the Shareholders and no other
corporate proceedings on the part of Eastern Pennsylvania are necessary
to authorize this Agreement or to consummate the transactions so
contemplated hereby.
(b) This Agreement has been duly executed and delivered by Eastern
Pennsylvania and constitutes a valid and binding obligation of Eastern
Pennsylvania, enforceable against it in accordance with its terms.
(c) This Agreement has been duly executed and delivered by the
Shareholders and constitutes the
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legal, valid and binding obligations of the Shareholders, enforceable in
accordance with its terms.
(d) The Indemnification Agreement has been duly executed and
delivered by Kettle and constitutes the legal, valid and binding
obligation of Kettle, enforceable in accordance with its terms.
SECTION 2.5 Consents. Except for (i) compliance with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the approvals of the Board of
Directors of Eastern Pennsylvania and the Shareholders of this Agreement
and the Merger, which approvals have been obtained, (iii) the filing with
the Department of State of the Commonwealth of Pennsylvania of articles
of merger and the filing of a certificate of merger with the Secretary of
State of the State of Delaware to effect the merger and (iv) as disclosed
in Section 2.5 of the Disclosure Schedule or as otherwise specifically
contemplated by this Agreement, no consent, approval, authorization,
filing with or order of any court, governmental agency, person or
financial institution is required in connection with the execution and
delivery of this Agreement by Eastern Pennsylvania or the Shareholders,
the consummation by Eastern Pennsylvania or the Shareholders of the
transactions contemplated hereby or the perfor-
14
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mance by Eastern Pennsylvania or the Shareholders of its or their
respective obligations under this Agreement.
SECTION 2.6 No Conflict. Assuming compliance with the matters
referred to in Section 2.5 by Eastern Pennsylvania and the Shareholders,
neither the execution and delivery of this Agreement by Eastern
Pennsylvania or the Shareholders, the consummation by Eastern
Pennsylvania or the Shareholders of the transactions contemplated by this
Agreement nor the performance by Eastern Pennsylvania or the Shareholders
of its or their respective obligations under this Agreement will: (i)
violate any provision of the Articles of Incorporation or By-Laws of
Eastern Pennsylvania, (ii) except as disclosed in Section 2.6 of the
Disclosure Schedule, violate, conflict with, or result in a breach of,
the terms, conditions or provisions of, or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or result in the creation of a lien or encumbrance on, or cause
the triggering of a "due on sale" clause or similar provision affecting
the Assets (as hereinafter defined) pursuant to, any indenture, mortgage,
lease, agreement or other instrument to which Eastern Pennsylvania is a
party or by which any of the Assets may be bound or affected or (iii)
violate any law, rule, regulation, judgment, order or decree to which
Eastern Pennsylvania
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or the Shareholders is or are subject or by which the Assets are bound.
SECTION 2.7 Financial Statements. Section 2.7 of the Disclosure
Schedule sets forth the following financial statements, all of which have
been prepared, except as may be stated in the notes thereto or as
described below, in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
indicated:
(a) Balance sheet of Eastern Pennsylvania as of April 30, 1994 and
1995 audited by Woolard, Krajnik & Company, certified public accountants,
and an internally prepared balance sheet of Eastern Pennsylvania as of
October 31, 1995 which was prepared on a basis consistent with Eastern
Pennsylvania's internal practices (the "October Balance Sheet"), each of
which presents fairly as of its date the financial condition of Eastern
Pennsylvania; and
(b) Statement of operations and cash flows of Eastern Pennsylvania
for the twelve (12) months ended April 30, 1994 and 1995, audited by
Woolard, Krajnik & Company, certified public accountants, and an
internally prepared statement of operations and cash flows of Eastern
Pennsylvania for the ten-month period ended October 31, 1995 which was
prepared on a basis
16
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consistent with Eastern Pennsylvania's internal practices, each of which
fairly presents the results of operations and cash flows of Eastern
Pennsylvania for the periods indicated.
(c) Notwithstanding the foregoing, with regard to the internally
prepared balance sheet and statement of operations and cash flows
referred to above:
(i) Consistent with internal reporting practices, Eastern
Pennsylvania did not attempt to recalculate the service fee receivable
amount due from transactions which had closed prior to October 31, 1995,
but on which the service fee had not been paid to and received by Eastern
Pennsylvania by that date. The amount of such service fee receivable
included in the October 31, 1995 financial statements is the same amount
as calculated for the audited financial statements as at December 31,
1994.
(ii) Consistent with internal reporting practices, Eastern
Pennsylvania did not close out October 1995 business until the third
working day of November. As a result, service fee payments received
during that three working day period after month end were included as
having been received as of October 31, 1995, and thus as cash versus
accounts receivable. There would be no oper-
17
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ating statement effect to this cutoff date since the service fee
payments included in this period would only have been from
transactions which closed prior to October 31, 1995.
(iii) Consistent with internal reporting practices, unsecured
service fee notes receivable are not adjusted to actual value except
at year end.
SECTION 2.8 Absence of Undisclosed Liabilities. To the Shareholders'
knowledge, Eastern Pennsylvania does not have any debts, liabilities or
obligations of a type required to be shown on a balance sheet prepared in
accordance with GAAP that are not reflected or reserved against in
Eastern Pennsylvania's October Balance Sheet, except for matters referred
to in Section 2.8 of the Disclosure Schedule and for the Real Property
Leases (as hereinafter defined) and Contracts (as hereinafter defined)
that are disclosed in Section 2.11 of the Disclosure Schedule.
SECTION 2.9 Tax Matters. Except as set forth in Section 2.9 of the
Disclosure Schedule:
(a) Eastern Pennsylvania is a small business corporation under the
Internal Revenue Code of 1986, as amended (the "Code") and has had in
effect for all taxable years beginning July 1, 1988 a valid election to
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be treated as an "S" corporation for federal income Tax (as defined in
subsection (j) hereof) purposes under the Code and, where available, in
any state and local jurisdictions in which Eastern Pennsylvania is
required by law to file a Tax Return, and neither Eastern Pennsylvania,
the Shareholders, nor any other Person has taken or caused or permitted
to be taken any action during such periods that would have caused a
termination of such S election. Eastern Pennsylvania, within the time and
in the manner prescribed by law, has filed all Tax Returns required to be
filed by or with respect to Eastern Pennsylvania, and all such Tax
Returns are true, complete and correct in all material respects. Eastern
Pennylvania has timely paid all Taxes that are due, or have been asserted
in writing by any taxing authority to be due, from or with respect to it
except for those taxes the failure of which to pay would not have a
material adverse effect on the financial condition of Eastern
Pennsylvania. Eastern Pennsylvania is not required to file any Tax Return
in any jurisdiction other than those set forth in Section 2.9(a) of the
Disclosure Schedule other than Tax Returns, if any, the failure of which
to file would not have a material adverse effect on the financial
condition of Eastern Pennsylvania. Eastern Pennsylvania does not have any
potential liability for Taxes pursuant
19
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to Treasury Reg. ss. 1.1502-6 or any similar provision of state, local or
foreign laws. The distribution of the Excluded Assets (as defined in
Section 2.11(i)) will not result in any "recognized built-in gain" within
the meaning of Section 1374(d)(3) of the Code.
(b) There are no liens with respect to any material amount of Taxes
upon any of the assets or properties of Eastern Pennsylvania other than
with respect to Taxes not yet due and payable.
(c) The statute of limitations with respect to the Tax Returns of
Eastern Pennsylvania and each affiliated group (within the meaning of
Section 1504 of the Code) and combined, unitary and other similar group
("Affiliated Group") of which Eastern Pennsylvania has been a member, if
any, for all periods through the respective years specified in Section
2.9(c) of the Disclosure Schedule has expired. No issue relating to
Eastern Pennsylvania has been raised in writing by any taxing authority
in any audit or examination of Eastern Pennsylvania which, if applied to
a later taxable period (including periods after the Closing Date), could
reasonably be expected to result in a material deficiency for Eastern
Pennsylvania for any such period. Further, no state of facts exists or
has existed which would constitute grounds for the assessment of any
liability of Eastern
20
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Pennsylvania for any material amount of Taxes for periods that have not
been audited by any taxing authority. There are no outstanding
agreements, waivers or arrangements extending the statutory period of
limitation applicable to any claim for, or the period for the collection
or assessment of, Taxes due from or with respect to Eastern Pennsylvania
for any taxable period, and no power of attorney granted by or with
respect to Eastern Pennsylvania relating to Taxes is currently in force.
No closing agreement pursuant to Section 7121 of the Code (or any
predecessor provision) or any similar provision of any state, local or
foreign law has been entered into by or with respect to Eastern
Pennsylvania that could materially and negatively affect the future
liability for Taxes of Eastern Pennsylvania. Eastern Pennsylvania has
made available to C21-Holding and Acquiror complete and correct copies of
each of (i) all audit reports issued by any governmental authority within
the last three years relating to the United States federal, state, local
or foreign Taxes due from or with respect to Eastern Pennsylvania and any
Affiliated Group member and (ii) the United States federal income Tax
Returns, and those state, local and foreign income Tax Returns for each
of the last three taxable years, filed by Eastern Pennsylva-
21
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nia and filed by any Affiliated Group of which Eastern Pennsylvania was
then a member.
(d) No audit or other proceeding by any governmental authority has
formally commenced and no written notification has been given that such
an audit or other proceeding is pending or threatened with respect to any
Taxes due from or with respect to Eastern Pennsylvania or any Affiliated
Group of which Eastern Pennsylvania was a member. No unpaid assessment of
Tax has been proposed in writing against Eastern Pennsylvania or any of
the assets or properties of Eastern Pennsylvania, other than assessments
of a type that arise on a recurring basis in the ordinary course of
business.
(e) No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect
to Eastern Pennsylvania or any of the assets or properties of Eastern
Pennsylvania. None of the assets or properties of Eastern Pennsylvania is
an asset or property that is or will be required to be treated as being
(i) owned by any other person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as in effect prior to the
Tax Reform Act of 1986, or (ii) tax-exempt use property within the
meaning of Section 168(h) of the Code.
22
<PAGE>
(f) Eastern Pennsylvania has not been and is not currently in
violation (or, with or without notice or lapse of time or both, would not
be in violation) of any applicable law or regulation relating to the
payment or withholding of a material amount of Taxes with respect to
compensation paid to employees or other withholding obligations. Eastern
Pennsylvania has duly and timely withheld and paid over to the
appropriate taxing authorities all material amounts required to be so
withheld and paid over for all periods under all applicable laws and
regulations.
(g) As of the Closing, Eastern Pennsylvania shall not be a party
to, be bound by or have any obligation under, any Tax sharing agreement
or similar contract or arrangement.
(h) There is no contract or agreement, plan or arrangement by
Eastern Pennsylvania covering any person that, individually or
collectively, could give rise to the payment of any amount that would not
be deductible by Eastern Pennsylvania by reason of Section 280G of the
Code, as now in effect.
(i) Neither of the Shareholders is a "foreign person" within the
meaning of Section 1445 of the Code.
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(j) "Tax" means any federal, state, local, foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code ss. 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration,
value-added, alternative or add-on minimum, estimated, other tax of any
kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not. "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
SECTION 2.10 Employee Benefit Matters.
(a) Section 2.10 of the Disclosure Schedule contains a list of all
bonus, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit and compensation plans,
programs, agreements or arrangements and any "change of control" or
similar provisions which would apply to the transactions contemplated by
24
<PAGE>
this Agreement in any plan, program, contract or arrangement which covers
employees or former employees ("Employees") of Eastern Pennsylvania or
any entity which would have been considered one employer with Eastern
Pennsylvania at any time during the six-year period immediately preceding
the Effective Time under Section 4001 of Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 414 of the Code
(an "ERISA Affiliate") and all other benefit and compensation plans,
programs, contracts or arrangements (regardless of whether they are
funded or unfunded) covering Employees, including, but not limited to,
"employee benefit plans" within the meaning of Section 3(3) of ERISA
(collectively, the "Compensation and Benefit Plans"). True and complete
copies of all the Compensation and Benefit Plans including any trust
instruments and/or insurance contracts, if any, forming a part of any
such plans, and all amendments thereto have been made available to
Acquiror and C21-Holding.
(b) All of the Compensation and Benefit Plans are in material
compliance with all applicable laws, including, without limitation, ERISA
and the Code. Each Compensation and Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be
25
<PAGE>
qualified under Section 401(a) of the Code is so qualified. Neither
Eastern Pennsylvania nor any ERISA Affiliate has engaged in a transaction
with respect to any Compensation and Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could
reasonably be expected to subject Eastern Pennsylvania or any ERISA
Affiliate to a tax or penalty imposed by either Section 4975 of the Code
or Section 502(i) of ERISA in an amount which would have a material
adverse effect on Eastern Pennsylvania. Neither Eastern Pennsylvania nor
any ERISA Affiliate has contributed or been required to contribute to any
Multiemployer Plan (as defined in ERISA).
(c) No Pension Plan currently or formerly maintained, contributed to
or required to be contributed to, by Eastern Pennsylvania or any ERISA
Affiliate is subject to Title IV of ERISA or to Section 412 of the Code.
(d) All contributions required to be made under the terms of any
Compensation and Benefit Plan for which Eastern Pennsylvania has
liability through the Closing Date have been timely made.
(e) Eastern Pennsylvania does not have any obligations for retiree
health and life benefits under any Compensation and Benefit Agreement.
26
<PAGE>
(f) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer
of Eastern Pennsylvania or any ERISA Affiliate to severance pay,
unemployment compensation or any other payment, except as expressly
provided in Section 4.1 of this Agreement or pursuant to an employment or
consultant agreement listed in Section 2.15 of the Disclosure Schedule or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
(g) There are no pending claims (or written threats thereof) by or
on behalf of any Compensation and Benefit Plan, by any employee or
beneficiary covered under any such Compensation and Benefit Agreement, or
otherwise involving any such Compensation and Benefit Plan (other than
routine claims for benefits).
SECTION 2.11 Assets.
(a) Section 2.11(a) of the Disclosure Schedule is a complete and
accurate list of all Century 21 Real Estate Franchise Agreements (the
"Franchise Agreements") of Century 21 franchisees of Eastern Pennsylvania
(the "Franchisees") which are presently in effect. Copies of all
Franchise Agreements (including all amendments and addenda thereto) have
been made available to the C21-Holding and Acquiror or their counsel for
27
<PAGE>
review. Except as indicated in Section 2.11(a) of the Disclosure
Schedule, each Franchisee has executed a Franchise Agreement and, to the
Shareholders' knowledge, each such Franchise Agreement is enforceable
against the related Franchisee; Eastern Pennsylvania has not been
notified in writing or otherwise informed in writing by any such
Franchisee that it will not renew its Franchise Agreement at the
expiration of its term, will attempt to materially and adversely alter
the volume of business any such Franchisee is presently doing with
Eastern Pennsylvania or terminate its Franchise Agreement or that it has
any material claim against Eastern Pennsylvania. Eastern Pennsylvania is
not, and to the Shareholders' knowledge, none of the other parties to any
of the Franchise Agreements is, in material default thereunder. Except as
set forth in Section 2.11(a) of the Disclosure Schedule, there are no
events which with notice or lapse of time or both would constitute a
material default by Eastern Pennsylvania or, to the Shareholders'
knowledge, by any other party to any Franchise Agreement. Except as
indicated in Section 2.11(a) of the Disclosure Schedule, the
continuation, validity and effectiveness of each Franchise Agreement will
not be materially and adversely affected by the consummation of the
transactions contemplated by this Agreement.
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<PAGE>
(b) Section 2.11(b) of the Disclosure Schedule is a complete and
accurate list of all leases for real property to which Eastern
Pennsylvania is a party (the "Real Property Leases"). To the
Shareholders' knowledge, all the Real Property Leases are enforceable
against the other parties thereto. There does not exist any material
default by Eastern Pennsylvania or, to the Shareholders' knowledge, by
any other party thereto, or event that with notice or lapse of time, or
both, would constitute a material default by Eastern Pennsylvania or, to
the Shareholders' knowledge, any other party thereto under any of such
Real Property Leases.
(c) Eastern Pennsylvania will not be a party to, or in any way
obligated under, any written contract, agreement or understanding which
will continue to be in effect and is to be performed by Eastern
Pennsylvania after the Closing which requires the payment by it of more
than $10,000 on an annual basis or which is not terminable on 30 days
notice (the "Contracts") other than the Real Property Leases, the
Franchise Agreements and the Contracts listed in Section 2.11(c) of the
Disclosure Schedule. Copies of all Contracts have been made available to
C21-Holding or its counsel for review. To the Shareholders' knowledge,
each of the Contracts is enforceable against the other parties thereto.
Eastern
29
<PAGE>
Pennsylvania is not and, to the Shareholders' knowledge, none of the
other parties to any of the Contracts is, in material default thereunder.
There are no events which with notice or lapse of time or both would
constitute a material default by Eastern Pennsylvania or, to the
Shareholders' knowledge, by any other party to any Contract under such
Contract. Except as indicated in Section 2.11(c) of the Disclosure
Schedule, the continuation, validity and effectiveness of each Contract
will not be materially and adversely affected by the consummation of the
transactions contemplated by this Agreement. Eastern Pennsylvania has not
received any written notice of the intention of any party to terminate
any Contract which termination would have a material adverse effect on
the Business.
(d) Section 2.11(d) of the Disclosure Schedule is a complete and
accurate list describing and specifying the location of office machines,
computers and other equipment (the "Equipment") which Eastern
Pennsylvania will own following the Closing. The Equipment is, in the
aggregate, in reasonably good operating condition and repair, subject to
normal wear and tear.
(e) Section 2.11(e) of the Disclosure Schedule is a complete and
accurate list and description of the Intellectual Property (as
hereinafter defined),
30
<PAGE>
other than Intellectual Property as to which Eastern Pennsylvania's
rights derive from C21-Real Estate, to be owned by Eastern Pennsylvania
immediately following the Closing and Section 2.11(e) of the Disclosure
Schedule indicates whether each of the foregoing are owned or licensed by
Eastern Pennsylvania. Eastern Pennsylvania owns, or is licensed to use,
all Intellectual Property necessary for the conduct of the Business as
currently conducted in all material respects, subject to no material
restrictions. No claim has been asserted in writing and is pending by any
person challenging or questioning the ownership or use of any such
Intellectual Property, nor do the Shareholders know of any valid basis
for any such claim. To the Shareholders' knowledge, there is no
infringing use of any such Intellectual Property by any other person.
Eastern Pennsylvania has not granted to anyone else the right to use any
of the Intellectual Property except pursuant to the Franchise Agreements.
Eastern Pennsylvania is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligation under
this Agreement, in breach of any material license, sublicense or other
agreement relating to the Intellectual Property. For purposes of this
Agreement, "Intellectual Property" shall mean all right, title and
interest of Eastern Pennsylva-
31
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nia in and to intellectual property assets relating to the Business,
including, without limitation, (i) registered and unregistered
copyrights, trademarks, service marks, service names, trade names,
slogans, assumed names and other trademark rights, including all
applications therefor and (ii) statutory, common law and registered
copyrights, including all applications therefor.
(f) There are no material Claims (as defined below) which will
be owned by Eastern Pennsylvania following the Closing, except for
Claims reflected in the October Balance Sheet or acquired in the
ordinary course of business since the date thereof. For purposes of
this Agreement, "Claims" means all claims, refunds, credits, causes
of action, choses in action, rights of recovery and rights of
set-off of every kind and nature associated with the Business.
(g) Section 2.11(g) of the Disclosure Schedule is a complete
and accurate list and description of all material Deposits (as
defined below) which will be owned by Eastern Pennsylvania
immediately following the Closing. For purposes of this Agreement,
"Deposits" means all prepayments or other deposits by Franchisees or
others pertaining to the Business including, without limitation,
prepaid initial franchise fees, deposits/prepayments for training
programs, assign-
32
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ments/renewals of Franchise Agreements and convention enrollments.
(h) Section 2.11(h) of the Disclosure Schedule is a complete
and accurate list of all Opens (as defined below) owing to Eastern
Pennsylvania as of February 29, 1996 which have been filed with
Eastern Pennsylvania by Franchisees. For purposes of this Agreement,
"Opens" means all agreements to convey real property awaiting
completion/fulfillment of all terms and conditions of such
agreements, at which time the transactions represented thereby will
close, whether or not placed into the custody of a third party, as
escrow holder.
(i) For purposes of this Agreement, "Assets" shall mean all
assets and properties which are owned or leased by Eastern
Pennsylvania or agreements to which Eastern Pennsylvania is a party
including, but not limited, to the Franchise Agreements, the Real
Property Leases, the Contracts, the Equipment, the Intellectual
Property, the Claims, the Deposits, the Opens, and the Century 21
Subfranchise Agreement, dated December 1, 1974, between C21-Real
Estate and Eastern Pennsylvania, as amended by the First Addendum,
dated September 30, 1976, the Second Addendum, dated January 4,
1977, the Addendum to Regional "NAF" Agreement, dated March 13,
1988, and all other amendments thereto, if any, other
33
<PAGE>
than accounts and notes receivable owing to Eastern Pennsylvania,
advances made by Eastern Pennsylvania prior to the Closing Date, and
Opens which close prior to April 1, 1996 and those assets or properties
listed in Section 2.11(i) of the Disclosure Schedule which the
Shareholders have caused Eastern Pennsylvania to transfer to them prior
to the Closing (the "Excluded Assets").
SECTION 2.12 Title to Assets. Except as disclosed in Section 2.12 of
the Disclosure Schedule, (a) Eastern Pennsylvania has good and marketable
title to all the Assets and interests therein which are owned by it,
whether real, personal, mixed, tangible or intangible; (b) all the Assets
which are owned by it are owned by Eastern Pennsylvania free and clear of
any Lien other than a Permitted Lien (as defined below); and (c) upon
acquisition by C21-Holding and Acquiror pursuant to this Agreement, will
be free and clear of any Lien other than a Permitted Lien. For purposes
of this Agreement, "Permitted Liens" means (i) Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, landlords and the like
incurred in the ordinary course of the Business for sums not overdue more
than thirty days or the validity of which is being contested in good
faith by appropriate actions; (ii) Liens for Taxes not delinquent or
payable without penalty or being contested in good faith by
34
<PAGE>
appropriate actions and (iii) Liens in favor of or created by
C21-Holding.
SECTION 2.13 Absence of Specified Changes. Except as set forth in
Section 2.13 of the Disclosure Schedule, since October 31, 1995, there
has not been any:
(a) Sale, lease, transfer, assignment or other transaction by
Eastern Pennsylvania with respect to the Assets or the Business with a
value in excess of $50,000 individually or $200,000 in the aggregate;
(b) Material adverse change of any character in the financial
condition or in the operations of the Business;
(c) Amendment or termination (or threat, in writing, of termination
or non-renewal) of any material Contract;
(d) Incurrence of any liabilities or obligations (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business
and consistent with past practice, none of which exceeds $50,000
individually or $200,000 in the aggregate (treating obligations or
liabilities arising from one transaction or a series of similar
transactions, and all periodic installments or payments under any lease
or other agreement providing for periodic installments or payments, as a
single obligation or liability);
35
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(e) Other act or omission of the Shareholders or Eastern
Pennsylvania that has a material adverse effect on the financial
condition or operations of the Business;
(f) Declaration of any dividend or other distribution in respect of
Eastern Pennsylvania's Common Stock other than in an amount not greater
than the cash on hand; or
(g) Agreement by Eastern Pennsylvania to do any of the things
described in the preceding clauses (a) through (f) except as required by
this Agreement.
SECTION 2.14 Litigation. Except as set forth in Section 2.14 of the
Disclosure Schedule, as of the date of this Agreement, there are no
actions, suits, claims, investigations or proceedings pending or, to the
Shareholders' knowledge, threatened in writing in any court or by or
before any governmental agency with respect to Eastern Pennsylvania, the
Assets or the Business. There is no action, suit, claim, investigation or
proceeding pending or, to the Shareholders' knowledge, threatened in
writing which questions the validity or propriety of this Agreement or
any action taken or to be taken by the Shareholders in connection with
this Agreement. Eastern Pennsylvania is not subject to any injunction or
order of any court of competent jurisdiction
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<PAGE>
or agreement to be bound by any restriction with respect to its ownership
of the Assets or its conduct of the Business which restriction could
reasonably be expected to have a material adverse effect on the Business.
SECTION 2.15 Employees and Compensation.
(a) Section 2.15 of the Disclosure Schedule, when taken together
with Section 2.10 of the Disclosure Schedule, sets forth a complete and
accurate list of the names and aggregate monthly base salary or wages,
and any incentive, commission, bonus and/or other compensation
arrangement as of December 31, 1995, including, without limitation,
pursuant to employment contracts and consultant contracts, of Eastern
Pennsylvania's officers and employees (collectively, "Employees"). Except
for any Employee which is a party to an employment or consultant
contract, such other Employee may be terminated at will by Eastern
Pennsylvania without payment of additional compensation or monies other
than that owed through the date of termination. Except as set forth in
Section 2.15 of the Disclosure Schedule and in the ordinary course of the
Business, which includes, but is not limited to, changes required by law,
to the Shareholders' knowledge, there is no agreement to change any terms
of employment, including, without limitation, salary, wage rates,
commissions or other compensation or employee
37
<PAGE>
benefit arrangement, of any Employee prior to or following the Closing
Date.
(b) To the Shareholders' knowledge, all of the contracts and
arrangements listed in Section 2.15 of the Disclosure Schedule are
enforceable against the other parties thereto. Neither Eastern
Pennsylvania nor, to the Shareholders' knowledge, any other party is in
material default under any of these contracts or arrangements. There have
been no claims of default by Eastern Pennsylvania asserted in writing
and, to the Shareholders' knowledge, there are no facts or conditions
which would result in a material default under these contracts or
arrangements. Except as set forth in Section 2.15 of the Disclosure
Schedule, there is no pending or, to the Shareholders' knowledge, threat
in writing of an employment dispute involving Eastern Pennsylvania's
Employees.
SECTION 2.16 Conflicts of Interest. Except as set forth in Section
2.16 of the Disclosure Schedule, to the Shareholders' knowledge, neither
of the Shareholders, nor any other officer or director of Eastern
Pennsylvania, nor any spouse or child of any of them, nor any Employee of
Eastern Pennsylvania, has any direct or indirect interest in any
competitor of Eastern Pennsylvania or any Franchisee, or in any Asset,
other than the
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ownership of not more than 5% of the stock of a publicly traded company
by any such person or entity.
SECTION 2.17 Compliance with Law. To the Shareholders' knowledge,
Eastern Pennsylvania during the past three years has complied in all
material respects with, and is not in material violation of, any
applicable federal, state or local statute, law, rule or regulation
(including, without limitation, any applicable building, zoning,
franchise, pension, labor, securities or other statute, law, rule or
regulation), which violation would be reasonably likely to have a
material adverse effect on the Assets or the financial condition or the
operation of the Business.
SECTION 2.18 Licenses and Permits. Section 2.18 of the Disclosure
Schedule lists all licenses, permits, orders or other authorizations
necessary for Eastern Pennsylvania to operate the Business as currently
operated, in all material respects.
SECTION 2.19 Brokers or Finders. Neither the Shareholders nor
Eastern Pennsylvania has employed or utilized any broker, finder or
investment adviser in connection with the transactions contemplated by
this Agreement.
SECTION 2.20 National Ad Fund. During the past three years, Eastern
Pennsylvania has transmitted to
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C21-Real Estate the requisite amounts owing to the NAF and has complied
in all material respects with all other material requirements of Eastern
Pennsylvania's National Advertising Fund Agreement. As of February 29,
1996, Eastern Pennsylvania had $224,827.14 owing to the NAF under its
control, which amount was held in accounts at Corestates Bank, N.A.
SECTION 2.21 Insurance. Section 2.21 of the Disclosure Schedule sets
forth all insurance policies owned by Eastern Pennsylvania relating to
Eastern Pennsylvania or the Assets. To the Shareholders' knowledge, all
such policies are enforceable against the related insurers. Eastern
Pennsylvania has not received written notice of default under any such
policy or of any pending or threatened termination or cancellation,
coverage limitation or reduction, or material premium increase with
respect to any such policy.
SECTION 2.22 Payment of Obligations. Except as specifically provided
in this Agreement, the Shareholders have caused Eastern Pennsylvania to
pay all of its obligations that are due and payable prior to the Closing
Date (or has caused Eastern Pennsylvania to retain sufficient cash
reserves to pay such obligations or will cause Eastern Pennsylvania to
pay such obligations, as of the Closing Date, out of the Total Merger
40
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Consideration) when they become due and payable if and to the extent that
they relate to the period prior to the Closing Date. If after payment of
all such obligations Eastern Pennsylvania retains any funds so deposited
by the Shareholders from the Total Merger Consideration, Eastern
Pennsylvania shall promptly pay any such funds to the Shareholders
without interest.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND C21-HOLDING
Acquiror and C21-Holding, jointly and severally, represent and
warrant to the Shareholders as follows:
SECTION 3.1 Organization and Standing. Acquiror and C21-Holding each
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with corporate power and
authority to enter into this Agreement and carry out their respective
obligations hereunder.
SECTION 3.2 Corporate Authority; Action. Acquiror and C21-Holding
each has the corporate power and authority to execute and deliver this
Agreement and the Indemnification Agreement and perform their respective
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Indemnification Agreement by Acquiror and C21-Holding
and the consummation by
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Acquiror and C21-Holding of the transactions contemplated by this
Agreement and the Indemnification Agreement have been authorized by all
requisite corporate action on the part of Acquiror and C21-Holding. This
Agreement and the Indemnification Agreement constitute legal, valid and
binding obligations of each of Acquiror and C21-Holding, enforceable in
accordance with their terms.
SECTION 3.3 Consents. Except for (i) compliance with the applicable
requirements of the HSR Act, (ii) the approvals of the Boards of
Directors of Acquiror and C21-Holding of this Agreement, which approvals
have been obtained and (iii) the filing with the Department of State of
the Commonwealth of Pennsylvania of articles of merger and the filing
with the Secretary of State of the State of Delaware of a certificate of
merger, no consent, approval, authorization, filing with or order of any
court, governmental agency, person or financial institution is required
in connection with the execution and delivery of this Agreement by
Acquiror and C21-Holding, the consummation by Acquiror and C21-Holding of
the transactions contemplated by this Agreement and the performance by
Acquiror and C21-Holding of their respective obligations under this
Agreement.
SECTION 3.4 No Violation. Assuming compliance with the matters
referred to in Section 3.3 by Acquiror
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and C21-Holding, neither the execution or delivery of this Agreement, the
consummation by Acquiror and C21-Holding of the transactions
contemplated by this Agreement nor the performance by Acquiror and
C21-Holding of their respective obligations under this Agreement will:
(i) violate the certificate of incorporation or by-laws of Acquiror or
C21-Holding, (ii) violate, conflict with, or result in a breach of, the
terms, conditions or provisions of, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under
any agreement, instrument or arrangement to which Acquiror or C21-Holding
is a party or by which Acquiror or C21-Holding is bound or (iii) violate
any law, rule, regulation, judgment, order or decree to which Acquiror or
C21-Holding is subject or by which either is bound.
SECTION 3.5 Litigation. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of
Acquiror or C21-Holding, threatened which questions the validity or
propriety of this Agreement or any action taken or to be taken by
Acquiror or C21-Holding in connection with this Agreement.
SECTION 3.6 Brokers and Finders. Neither Acquiror nor C21-Holding
has employed or utilized any broker, finder or investment advisor
involved in connec-
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tion with the transactions contemplated by this Agreefment.
SECTION 3.7 Representations of Shareholders. Except for the
representations and warranties of the Shareholders which are contained in
this Agreement, there are no other representations and warranties by or
on behalf of the Shareholders which are being relied upon by the Acquiror
or C21-Holding. To the knowledge of Acquiror and C21-Holding there are no
facts or circumstances which could constitute a breach of the
representations and warranties of the Shareholders, other than with
respect to the Shareholders' title to all of the outstanding shares of
capital stock of Eastern Pennsylvania, which would give Acquiror or
C21-Holding a basis to seek rescission of the consummation of this
Agreement or indemnification from Kettle pursuant to the Indemnification
Agreement.
ARTICLE IV
CERTAIN COVENANTS OF THE
SHAREHOLDERS, C21-HOLDING AND ACQUIROR
SECTION 4.1 Severance. Acquiror and C21-Holding agree that
following the Closing they will follow the severance policy set forth on
Exhibit E with respect to all Employees of Eastern Pennsylvania who are
active employees of Eastern Pennsylvania immediately prior to
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the Closing and that, in no event, will any "transitional employees" (as
such term is used therein) be required, as a condition of the receipt of
any benefits, to undertake a covenant not to compete more onerous than
the covenant applicable to the Shareholders pursuant to Section 4.2.
SECTION 4.2 Non-Competition.
(a) The Shareholders agree for a period of three (3) years following
the Closing Date that they will not, directly or indirectly, engage in or
have any interest in any person, firm, corporation, or business (whether
as an employee, officer, director, agent, security holder, consultant or
otherwise) that engages in the business of franchising real estate
brokerage offices in the Region, so long as C21-Real Estate (or its
successors) shall engage in such activity in the Region. Without
limitation of the foregoing, (i) the Shareholders are not prohibited from
engaging in or having any interest in any endeavor or other activity
providing other services supportive of or ancillary to the real estate
brokerage franchise business if such services were not being offered by
Eastern Pennsylvania as of the Closing Date (including, without
limitation and for example, Amerinet Financial Services, Inc. and New
Homes Marketing), (ii) Nelson is not prohibited from entering into a
consulting arrangement with C21-Holding pursuant to
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Section 4.11 hereof and (iii) ownership of not more than 5% of the stock
of a publicly traded company by either Shareholder, even if such company
engages in such activity, if he does not participate in management of any
such company (which shall not be deemed to include the exercise of voting
rights) shall not be considered a violation of this covenant.
(b) The Shareholders, Acquiror and C21-Holding agree that the
restrictions imposed on the Shareholders under this Section 4.2 are an
integral part of, not severable from, and solely intended to protect, the
value of the goodwill included in the Assets and the Business being
merged with and into C21-Holding pursuant to this Agreement.
SECTION 4.3 Separate Covenants. The parties intend that the covenant
contained in Section 4.2 shall be construed as a series of separate
covenants, one for each county within the Region. Except for geographic
coverage, each such separate covenant shall be deemed identical. If, in
any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in Section 4.2, then such
unenforceable covenant shall be deemed eliminated from those provisions
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
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SECTION 4.4 Non-Disclosure of Trade Secrets. The Shareholders agree
to hold and treat in confidence all confidential information and trade
secrets of C21-Real Estate or Eastern Pennsylvania with respect to the
Business, including, but not limited to, personnel information, know-how,
franchisee lists, operations manuals, sales training, management manuals
and associated information, real estate license training materials or
other technical data ("Confidential Information"); provided that
"Confidential Information" shall not include such information which
otherwise would constitute Confidential Information hereunder which (i)
is contained in a publicly recorded document, (ii) is or becomes
generally known other than as a result of a disclosure by or through the
Shareholders or (iii) is or becomes known by the Shareholders on a
nonconfidential basis from a source other than through their interest in
Eastern Pennsylvania that, to the Shareholders' knowledge, is not
prohibited from disclosing such Confidential Information to the
Shareholders by a legal, contractual, fiduciary or other obligation. The
Shareholders will employ such procedures to insure the confidentiality of
Confidential Information as would be employed by a reasonable and prudent
person to safeguard the confidentiality of his own most confidential
information or, if more stringent, such procedures
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as are employed for such purpose by the Shareholders. Nothing in this
Agreement shall prevent the Shareholders from disclosing Confidential
Information (x) if required to do so by law or regulation, (y) to any
governmental authority having or claiming authority to receive such
Confidential Information or (z) pursuant to subpoena.
SECTION 4.5 Injunctive Relief. The Shareholders acknowledge that the
agreement set forth in Section 4.2 is necessary to protect for Acquiror
and C21-Holding the value of the Assets and the Business, that a breach
of such agreement will result in irreparable damage to the value of the
Assets and the Business and that money damages would not adequately
compensate Acquiror and C21-Holding for any such breach and, therefore,
that Acquiror and C21 Real Estate would not have an adequate remedy at
law. Accordingly, Acquiror and C21-Holding shall have, in addition to any
and all remedies at law, the right, without posting of bond or other
security, to an injunction, both temporary and permanent, specific
performance and/or other equitable relief to prevent the violation of any
obligation under Section 4.2.
SECTION 4.6 Real Estate Leases. (a) For a period of 180 days following
the Closing Date (the "Transition Period"), C21-Holding shall pay all
payments to be made pursuant to the lease for the
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premises located at 550 American Avenue, King of Prussia, Pennsylvania
leased by Eastern Pennsylvania from The Westover Companies ("Westover")
pursuant to a lease dated March 15, 1989 (the "Eastern Pennsylvania
Lease").
(b) Commencing upon the first day following the expiration of the
Transition Period, the Shareholders (or their designee) shall have the
right to occupy the premises under the Eastern Pennsylvania Lease and the
Shareholders shall be responsible for and shall pay, perform and
discharge when due, all obligations and liabilities of the lessee
pursuant to the Eastern Pennsylvania Lease arising from and after the
Transition Date.
(c) The Shareholders shall use all reasonable efforts to obtain any
necessary consents from Westover to the assignment of the Eastern
Pennsylvania Lease to the Shareholders (or either of them) or to a
corporation controlled by the Shareholders (or either of them) without
any continuing obligation or liability by C21-Holding following such
assignment. Such assignment shall commence upon the first day following
the expiration of the Transition Period and shall relieve C21-Holding
from any responsibility or liability for the Eastern Pennsylvania Lease.
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SECTION 4.7 Preparation and Filing of Tax Returns. The Shareholders
shall or shall cause Woolard, Krajnik & Company, Eastern Pennsylvania's
independent public accountants, to cause to be prepared and timely filed
(in each case, at the Shareholders' cost and expense and in a manner
consistent with Eastern Pennsylvania's past practice) on a timely basis
all Tax Returns of Eastern Pennsylvania for all taxable periods
including, without limitation, a form 966 Corporation Dissolution or
Liquidation. Subject to the Indemnification Agreement, the Shareholders
shall cause to be paid, on Eastern Pennsylvania's behalf, all Taxes shown
to be due and payable thereon. Notwithstanding the foregoing, with
respect to the Tax Returns of Eastern Pennsylvania for the Tax period
ending on the Closing Date, the Shareholders shall consult with the
Acquiror and, at the Acquiror's expense, the Acquiror's independent
accountants, Deloitte & Touche LLP, in preparing and filing such returns,
in determining and allocating income, gain, credits, losses, deductions
and other items and in making any elections and other decisions relating
to such Tax Returns. Such Tax Returns shall be filed only upon the
parties' mutual agreement.
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SECTION 4.8 Allocation of Purchase Price and Other Tax Matters.
(a) The Shareholders, Acquiror and C21-Holding agree (i) to
allocate the Total Merger Consideration, for all Tax and non-tax
purposes, in accordance with the rules under Section 1060 of the Code and
the Treasury Regulations promulgated thereunder, as set forth on Exhibit
F hereto; (ii) to utilize the amounts allocated pursuant to subsection
(i) for purposes of filing all Tax Returns, including amended Tax Returns
and Form 8594 and otherwise; and (iii) not to take any position
inconsistent therewith on any Tax Return (including amended Tax Returns)
or for any other Tax or non-Tax purpose, provided, however, that Acquiror
and the Shareholders shall be permitted, for purposes of filing Form 8594
and all other purposes, to take into account legal and accounting fees
and other buying or selling expenses, respectively, as applicable.
(b) The Acquiror, C-21 Holding and the Shareholders hereby
acknowledge that for federal, state and local income Tax purposes the
transactions contemplated by this Agreement shall be characterized as (i)
a sale by Eastern Pennsylvania of its Assets to, and the assumption of
Eastern Pennsylvania's liabilities by, the Acquiror in exchange for the
Total Merger Consideration,
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followed by (ii) the distribution of such Total Merger Consideration by
Eastern Pennsylvania to the Shareholders in complete redemption and
cancellation of the Eastern Pennsylvania stock held by the Shareholders,
followed by (iii) the transfer to, and the assumption by, C21-Holding of
the Assets and liabilities, which are considered to have been purchased
or assumed by Acquiror pursuant to this paragraph, in exchange for a note
of C21-Holding, and followed by (iv) the transfer to, and the assumption
by, C21-Real Estate of such Assets and liabilities. The Acquiror, C-21
Holding and the Shareholders hereby agree not to take any position
inconsistent with this Section 4.8(b) for federal, state or local income
Tax purposes.
SECTION 4.9 Accounts Receivable.
(a) C21-Holding agrees that it will cause C21-Real Estate to use
its reasonable efforts, consistent with its accounts receivable
collection practices, to collect accounts receivable for the Shareholders
which are outstanding in accordance with GAAP as of the Closing Date (the
"Accounts Receivable") and identified on a schedule delivered to
C21-Holding at Closing or no later than five days after the Closing Date
which schedule shall be reviewed by and deemed acceptable to C21-Holding
as mutually agreed upon with the Shareholders (the "Accounts Receivable
Schedule"), but C21-Real Estate shall
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not, in connection with such collection efforts, be required to terminate
any Franchise Agreement or bring any legal action against any Franchisee
or any affiliate of any Franchisee. C21-Holding and the Shareholders
agree that Opens shall be treated as Accounts Receivable, even though not
listed on the Accounts Receivable Schedule, but the Shareholders
understand and agree that Opens shall only be considered as an Account
Receivable if closed prior to April 1, 1996. C21-Holding agrees that it
will cause C21-Real Estate to pay to the Shareholders, by valid check,
the amounts which C21-Holding has collected with respect to any Accounts
Receivable within 15 days after the end of each month, commencing with
the month following the month in which the Closing occurs, and to deliver
a written statement listing the Accounts Receivable listed on the
Accounts Receivable Schedule to which the payment relates and the amount
being paid with respect thereto. C21-Holding may cause C21-Real Estate to
suspend its efforts to collect any Accounts Receivable, in the exercise
of its reasonable judgment, and consistent with the accounts receivable
collection practices of C21-Real Estate.
(b) C21-Holding shall not permit C21-Real Estate to compromise,
settle, surrender, release, discharge, renew, extend or grant any other
indulgence with
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respect to any Accounts Receivable (a "Compromise") except in
connection with an identical action with regard to all of its own
accounts receivable owing from the same obligor; and C21-Holding shall
cause C21-Real Estate to give the Shareholders ten days' written notice
prior to any proposed Compromise (a "Compromise Notice"). The
Shareholders will cooperate with C21-Real Estate with respect to its
collection of Accounts Receivable on their behalf, provided that the
Shareholders will not be obligated to incur any out-of-pocket expenses in
connection with such cooperation.
(c) The Shareholders may at any time and from time to time, upon
written notice to C21-Holding, revoke C21-Holding's authority to cause
C21-Real Estate to collect any Accounts Receivable on their behalf (which
notice, if relating to Accounts Receivable as to which C21-Real Estate
has given a Compromise Notice, must be given at least five business days
prior to the date on which C21-Real Estate has proposed to Compromise
such Accounts Receivable).
(d) C21-Holding agrees that it shall cause C21-Real Estate Ito apply
all payments received from any obligor under an Accounts Receivable as
directed by such obligor. In the event such obligor fails to direct the
application of such payment, such undirected payment
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shall be applied to the oldest undisputed amount due from such obligor at
that time.
(e) One year following the Closing Date, or on such earlier date as
may be requested by the Shareholders, C21-Holding shall assign to the
Shareholders all right, title and interest in and to all Accounts
Receivable that remain uncollected and undischarged, and which have not
been settled or compromised as of that date, and the Shareholders shall
then have the right to collect such Accounts Receivable for their own
account(s) and C21-Holding shall have no further obligations with respect
thereto.
(f) Following the Closing and notwithstanding the acquisition of the
Subfranchise Agreement by Acquiror, the Shareholders agree that
C21-Holding may deduct from the payment of an Account Receivable the
applicable service fees and NAF fees owed to C21-Real Estate under the
Subfranchise Agreement with respect thereto.
SECTION 4.10 Severance and Other Payments. The Shareholders agree
that they shall be responsible for and make all payments owed (other than
pursuant to the Severance Policy) to any current or former officer of
Eastern Pennsylvania for severance pay, termination pay or other payments
which are payable as a result of the
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Merger, including, without limitation, pursuant to the employment or
consultant agreements listed in Section 2.15 of the Disclosure Schedule.
SECTION 4.11 Consulting Agreement. C21-Holding agrees that it will
offer to retain Nelson as of the Closing as a consultant pursuant to a
Consulting Agreement substantially in the form of Exhibit G hereto.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1 Expenses. Except as otherwise expressly provided in this
Agreement, Acquiror shall pay all expenses incident to the origin,
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby (whether or not the transactions are
actually consummated), other than legal and accounting fees and
disbursements incurred by the Shareholders and the fees of any broker,
finder or investment adviser utilized by them.
SECTION 5.2 Reimbursement of and Payment to C21-Holding and the
Shareholders. The Shareholders, C21-Holding and Acquiror agree that if
subsequent to the Closing Date any of them shall receive any payment due
to another party, each shall promptly remit the same to such other party,
and if any party shall pay any obligations
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of another party not assumed by it hereunder, the payment shall be for
the account of the party to whom the obligation relates, and such party
shall promptly reimburse the other party for any such payment.
SECTION 5.3 Interpretation. As used herein, the expression "this
Agreement" means the body of this Agreement and the Exhibits and the
Disclosure Schedule attached hereto; and the expressions "herein,"
"hereof," and "hereunder" and other words of similar import refer to this
Agreement and such Exhibits and the Disclosure Schedule as a whole and
not to any particular part or subdivision thereof. As used herein, the
"knowledge" of the Shareholders means the Shareholders' actual knowl-
edge, without further investigation, and the "knowledge" of Acquiror or
C21-Holding means the actual knowledge of the following persons, without
further investigation: Henry R. Silverman, James E. Buckman, Stephen P.
Holmes, Robert W. Pittman, John D. Snodgrass, Thomas J. Freeman, Mayo S.
Stuntz, Jr., Paul McNichol and John J. Russell. Whenever this Agreement
states that an agreement or a contract is enforceable according to its
terms, such statement is to be interpreted with the proviso that such
enforcement may be limited (i) by applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, equity of redemption, moratorium or
other similar laws now or
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hereafter in effect relating to creditors' rights, and (ii) by general
principles of equity (regardless of whether enforcement is sought in
equity or at law).
SECTION 5.4 Amendments and Waivers. This Agreement may be amended
only by a written instrument executed by the parties hereto. No waiver of
any of the provisions of the Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof.
SECTION 5.5 Public Statements. Except for announcements as may be
required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other parties with reasonable time
under the circumstances to comment on the announcement in advance of such
announcement, neither the Shareholders nor Acquiror or C21-Holding shall
issue any press release or other public statement concerning the
transactions contemplated by this Agreement without first obtaining the
written consent of the other parties respecting such statement, which
consent will not be unreasonably withheld.
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SECTION 5.6 Confidentiality. The Shareholders acknowledge that
Acquiror may be required to file this document with the Securities and
Exchange Commission and other regulatory agencies and agree that Acquiror
may so do so and, subject to the foregoing, the parties hereto agree that
they will keep confidential the terms and conditions of this Agreement;
provided that the foregoing obligations shall not apply to information
which (i) is contained in a publicly recorded document or (ii) is or
becomes generally known other than as a result of a disclosure by or
through the party obliged to maintain its confidentiality. Nothing in
this Agreement shall prevent any party from disclosing information
regarding this Agreement (w) in pursuit of its remedies hereunder, (x) if
required to do so by law or regulation, (y) to any governmental authority
having or claiming authority to receive such information or (z) pursuant
to subpoena. Further, nothing in this Agreement shall prevent the
Shareholders from disclosing information regarding this Agreement to
other current or former parties to subfranchise arrangements with
C21-Real Estate.
SECTION 5.7 Access To Records After Closing. Acquiror and the
Shareholders shall, after the Closing Date, make available to each other
at reasonable times during normal business hours any books and records
relat-
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ing to the Business that either may request for use in connection with:
(a) the preparation of Tax Returns; (b) any audit of Taxes or Tax Returns
by any taxing authority; (c) any claim or suit in which they are a party;
or (d) any other reasonable and proper purpose, and shall permit the
other, at its expense, to make copies thereof.
SECTION 5.8 Parties Bound. This Agreement shall apply to, inure to
the benefit of and be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. The
respective rights and obligations of any party hereto shall not be
assignable without the consent of the other party (which will not be
unreasonably withheld) except that (i) Acquiror may assign this Agreement
and Acquiror's rights hereunder to any subsidiary of Acquiror (provided
that the Acquiror unconditionally guarantees all of such assignee's
obligations, warrants and agreements hereunder in a written guaranty
reasonably acceptable to the Shareholders) and (ii) C21-Holding may
assign this Agreement and C21-Holding's rights and obligations hereunder
to C21-Real Estate.
SECTION 5.9 Parties in Interest. Except as specifically provided
herein, nothing in this Agreement, whether express or implied, is
intended to infer any rights or remedies under or by reason of this
Agreement
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on any persons other than the parties to it and their respective
successors, heirs, legal representatives and permitted assigns, nor is
anything in this Agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
SECTION 5.10 Notices. Any notice, demand, approval, consent,
request, waiver or other communication which may be or is required to be
given pursuant to this Agreement shall be in writing and shall be (1)
deposited in the United States mail, postage prepaid, certified or
registered, (2) sent by telecopier or (3) sent by private overnight
courier service for delivery on the next following business day,
addressed to the party at the address set forth after its respective name
below or at such different address as such party shall have theretofore
advised the other party in writing:
If to the Shareholders:
George F. Kettle
2417 Fisher Island Drive
Fisher Drive, Florida 33109
and
James O. Nelson
7035 County Road A
Webster, Wisconsin 54893
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with a copy to:
J. Richard Eagan
7601 Lewinsville Road
Suite 400
McLean, Virginia 22102
Telecopier: (703) 821-0491
and
Williams & Connolly
725 12th Street, N.W.
Washington, D.C. 20005
Attention: Charles A. Sweet, Esq.
Telecopier: (202) 434-5029
If to Acquiror or C21-Holding:
HFS Incorporated or
C21 Holding Corp.
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman
Executive Vice President
Telecopier: (201) 428-3260
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Mark T. Shehan, Esq.
Telecopier: (212) 735-2001
Any such communication personally delivered shall be deemed to have been
received on the day delivered; or if sent by telecopier, on the day
telecopied, but only if receipt by the addressee is confirmed by a return
telecopy signed by the addressee; or if properly mailed certified or
registered mail, postage prepaid, shall be deemed to have been received
on the day three days from
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and including the day mailed; or if sent by private overnight courier
service shall be deemed to have been received on the business day
following the day so sent. Any party may change its address for purposes
of this Section by giving the other parties written notice of the new
address in any manner set forth above.
SECTION 5.11 Number and Gender of Words. Whenever herein the
singular number is used, the same shall include the plural where
appropriate, and the words of any gender shall include each other gender
where appropriate.
SECTION 5.12 Captions. The captions, headings and arrangements used
in this Agreement are for convenience only and do not affect, limit or
amplify the terms and provisions hereof, or their construction or
interpretation.
SECTION 5.13 Invalid Provisions. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof, and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable
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provision or by its severance herefrom. In lieu of such illegal, invalid
or unenforceable provision there shall be added automatically as a part
hereof a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
SECTION 5.14 Accounting Terms. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in
accordance with GAAP as in effect from time to time.
SECTION 5.15 Entirety of Agreement. This Agreement and the
Indemnification Agreement contain the entire agreement among the parties
hereto, and supersede all prior and contemporaneous agreements,
representations and understandings of the parties, including, without
limitation, all preliminary offers and letters of intent made by or
between C21-Holding and Eastern Pennsylvania or the Shareholders. No
representations, inducements, promises or agreements, oral or otherwise,
which are not embodied herein or therein shall be of any force or effect.
SECTION 5.16 Multiple Counterparts. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original for
all purposes and
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all of which shall be deemed, collectively, one agreement.
SECTION 5.17 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law principles.
SECTION 5.18 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby
shall be brought in the United States District Court for the Eastern
District of Virginia or the courts of Fairfax County in Virginia, and
each of the parties hereby consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court.
Without limiting the foregoing, each party agrees that
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service of process on such party as provided in this Section 5.18 shall
be deemed effective service of process on such party.
SECTION 5.19 Prevailing Party Expenses. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for all
expenses and costs incurred by the prevailing party or parties in
connection with such action, including, without limitation, attorneys'
fees.
SECTION 5.20 Waiver of Rescission. Notwithstanding any breach or
default by any of such parties of any of their respective
representations, warranties, covenants or agreements under this
Agreement, other than as set forth in clause (ii) below, each such party
waives any rights that it or they may have to rescind this Agreement or
the transactions consummated by it; provided, however, that (i) this
waiver shall not affect any other rights or remedies available to any
such party under this Agreement or under the law and (ii) Acquiror and
C21-Holding shall have the right to rescind this Agreement in the event
that, as of the Closing, all of the outstanding shares of capital stock
of Eastern Pennsylvania were not owned by the Shareholders, or if actual
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fraud has been committed by Eastern Pennsylvania or the Shareholders in
connection with any of the transactions contemplated by the Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
HFS INCORPORATED
By /s/ STEPHEN P. HOLMES
---------------------
Name: Stephen P. Holmes
Title: Executive Vice
President
C21 HOLDING CORP.
By /s/ JAMES E. BUCKMAN
--------------------
Name: James E. Buckman
Title: Executive Vice
President
CENTURY 21 OF EASTERN
PENNSYLVANIA, INC.
By /s/ JAMES O. NELSON
-------------------
Name: James O. Nelson
Title: President
/s/ GEORGE F. KETTLE
--------------------
GEORGE F. KETTLE
/s/ JAMES O. NELSON
-------------------
JAMES O. NELSON
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Dated as of April 15, 1996
By and Among
HFS INCORPORATED,
CENTURY 21 REGION V, INC.
and
YEAGER REAL ESTATE AND FINANCIAL SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
The Merger
Section 1.1 Effective Time of the Merger.................................. 4
Section 1.2 Closing....................................................... 5
Section 1.3 Effects of the Merger......................................... 5
Section 1.4 Certificate of Incorporation and By-Laws...................... 5
Section 1.5 Directors..................................................... 6
Section 1.6 Officers...................................................... 6
ARTICLE II
Conversion of Securities
Section 2.1 Conversion of Capital Stock................................... 7
Section 2.2 Exchange of Certificates and Cash............................. 9
ARTICLE III
Representations and Warranties of the Company
Section 3.1 Organization.................................................. 12
Section 3.2 Capitalization................................................ 15
Section 3.3 Authority..................................................... 17
Section 3.4 Consents and Approvals; No Violations......................... 18
Section 3.5 Franchise Business............................................ 20
Section 3.6 Litigation.................................................... 25
Section 3.7 Employee Benefits............................................. 25
Section 3.8 Financial Statements.......................................... 28
Section 3.9 Absence of Undisclosed Liabilities............................ 30
Section 3.10 Absence of Certain Changes or Events; Material Agreements..... 31
Section 3.11 No Violation of Law........................................... 31
Section 3.12 Taxes......................................................... 31
Section 3.13 Labor Matters................................................. 36
Section 3.14 Licenses...................................................... 37
Section 3.15 Intellectual Property......................................... 37
Section 3.16 Brokers or Finders............................................ 39
Section 3.17 Transactions with Affiliates.................................. 39
Section 3.18 Material Agreements........................................... 40
Section 3.19 Insurance..................................................... 41
Section 3.20 Environmental Laws............................................ 41
Section 3.21 National Ad Fund.............................................. 43
i
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Page
ARTICLE IV
Representations and Warranties of HFS
Section 4.1 Organization.................................................. 44
Section 4.2 Capitalization................................................ 45
Section 4.3 Authority..................................................... 47
Section 4.4 Consents and Approvals; No Violations......................... 48
Section 4.5 SEC Reports and Financial Statements.......................... 50
Section 4.6 Brokers or Finders............................................ 51
Section 4.7 Full Disclosure............................................... 52
Section 4.8 Litigation.................................................... 52
Section 4.9 No Other Representations...................................... 52
ARTICLE V
Covenants
Section 5.1 Conduct of Business of the Company............................ 52
Section 5.2 Covenants of HFS.............................................. 58
ARTICLE VI
Additional Agreements
Section 6.1 Reasonable Efforts............................................ 60
Section 6.2 Access to Information......................................... 61
Section 6.3 Stock Exchange Listing........................................ 61
Section 6.4 Employee Matters; Employee Benefit Plans...................... 61
Section 6.5 Fees and Expenses............................................. 63
Section 6.6 Pre-Merger Transactions....................................... 64
Section 6.7 Notification of Certain Matters............................... 64
Section 6.8 Deposit and Escrow............................................ 65
Section 6.9 Release and Discharge......................................... 66
Section 6.10 HFS Share Issuance............................................ 66
Section 6.11 Lease......................................................... 66
Section 6.12 Certain Tax-Related Representations,
Covenants and Other Matters...................... 67
Section 6.13 Computer Access............................................... 75
ARTICLE VII
Conditions
Section 7.1 Conditions to Each Party's Obligation To Effect the Merger.... 75
Section 7.2 Conditions of Obligations of HFS.............................. 77
Section 7.3 Conditions of Obligations of the Company...................... 81
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Page
ARTICLE VIII
Termination and Amendment
Section 8.1 Termination................................................... 84
Section 8.2 Effect of Termination......................................... 86
Section 8.3 Waiver of Rescission...........................................87
ARTICLE IX
Miscellaneous
Section 9.1 Effectiveness of Representations, Warranties and Agreements... 87
Section 9.2 Amendment..................................................... 88
Section 9.3 Extension; Waiver............................................. 88
Section 9.4 Notices....................................................... 89
Section 9.5 Interpretation................................................ 90
Section 9.6 Counterparts.................................................. 90
Section 9.7 Entire Agreement; No Third Party Beneficiaries................ 91
Section 9.8 Governing Law................................................. 91
Section 9.9 Jurisdiction...................................................91
Section 9.10 Specific Performance.......................................... 92
Section 9.11 Publicity..................................................... 93
Section 9.12 Assignment.................................................... 93
Section 9.13 Prevailing Party Expenses..................................... 93
EXHIBITS
Exhibit A - Distribution Agreement
Exhibit B - Indemnification Agreement
Exhibit C - Certificate of Merger
Exhibit D - Escrow Agreement
Exhibit E - Non-Competition Agreement (Philip J. Yeager)
Exhibit F - Non-Competition Agreement (William P. Yeager, Sr.)
Exhibit G - Guaranty
Exhibit H - Occupancy Agreement
Exhibit I - Litigation Agreement
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of April
15, 1996, is entered into by and among HFS INCORPORATED, a Delaware
corporation ("HFS"), CENTURY 21 REGION V, INC., a California corporation (the
"Company"), and YEAGER REAL ESTATE AND FINANCIAL SERVICES, INC., a California
corporation and a wholly owned subsidiary of the Company ("Spinco"). WHEREAS,
the respective Boards of Directors of the Company and HFS deem it advisable
and in the best interests of their respective stockholders that HFS acquire by
Merger (as hereinafter defined) the Century 21 master franchising businesses
and certain related assets of the Company and three of its Subsidiaries (as
hereinafter defined); WHEREAS, as a business matter, HFS and its Subsidiaries
desire to acquire the Century 21 master franchising businesses and certain
related assets of the Company and three of its Subsidiaries but do not wish to
acquire the Other Assets, including the Insurance Business (each as
hereinafter defined in Section 6.12(a) of the Agreement), and HFS is unwilling
to engage in a transaction to acquire such Century 21 master franchising
businesses and related assets if such
<PAGE>
transaction would also involve the acquisition of the Other
Assets;
WHEREAS, in order to facilitate the acquisition of such Century 21 master
franchising businesses and related assets without acquiring the Other Assets,
HFS has expressed its preference that such Century 21 master franchising
businesses and related assets be owned at the time of the Merger by, and
therefore acquired from, a single corporate owner; WHEREAS, the respective
Boards of Directors of the Company and Spinco deem it advisable and in the
best interests of the Company's stockholders (the "Stockholders") (a) to cause
Spinco to retain, or to acquire and retain, the Other Assets and to use the
Other Assets in the operation of the Insurance Business, and (b) to distribute
to the Stockholders all of the outstanding capital stock of Spinco prior to
the Merger;
WHEREAS, to achieve the foregoing intentions and desires, the parties
have agreed that, as a condition to and in consideration of the Merger, as
provided herein and in the Distribution Agreement (as hereinafter defined),
the Company and Spinco shall cause, prior to the Merger, the consummation of
each of the transactions set forth in Section 6.12(c)(i) of this Agreement in
the order set forth therein, including, but not limited to, the Subsidiary-
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Parent Mergers, the Brother-Sister Merger, the Transfer and
the Distribution (as such terms are hereinafter defined);
WHEREAS, the respective Boards of Directors of the Company and HFS have
determined that, following the Distribution, the merger of the Company with
and into HFS (the "Merger") with HFS continuing as the surviving corporation
in the Merger (the "Surviving Corporation") would be advantageous and
beneficial to their respective corporations and stockholders;
WHEREAS, as a condition to and in consideration of the transactions
contemplated hereby, (a) the Company and Spinco are entering or will enter
into a Reorganization and Distribution Agreement, dated as of the date hereof
in the form attached as Exhibit A hereto (the "Distribution Agreement"), and
(b) Spinco and HFS will enter into an Indemnification and Tax Allocation
Agreement in the form attached as Exhibit B hereto (the "Indemnification
Agreement" and, together with the Distribution Agreement, the "Ancillary
Agreements"); and
WHEREAS, for federal income tax purposes, it is intended that (a) each of
the Subsidiary-Parent Mergers shall qualify as a tax-free liquidation pursuant
to Section 332 of the Internal Revenue Code of 1986, as amended (the "Code"),
(b) the Brother-Sister Merger shall qualify as a tax-free reorganization
pursuant to Section 368(a) of the Code, (c)
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the Transfer, together with the Distribution, shall qualify as a tax-free
reorganization pursuant to Section 368(a)(1)(D) of the Code, (d) the
Distribution shall qualify as a tax-free distribution pursuant to Section 355
of the Code and (e) the Merger shall qualify as a tax-free reorganization
pursuant to Section 368(a) of the Code, and this Agreement is intended to be
and is adopted as a plan of reorganization;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 EFFECTIVE TIME OF THE MERGER. Upon the terms and subject to
the conditions hereof, a certificate of merger substantially in the form
attached as Exhibit C hereto (the "Certificate of Merger") shall be duly
prepared, executed and acknowledged by the Surviving Corporation and
thereafter delivered to the Secretary of State of the State of Delaware, for
filing, as provided in the Delaware General Corporation Law (the "DGCL"), as
soon as practicable on or after the Closing Date (as defined in Section 1.2)
and after
4
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filing and certification by the Secretary of State of the State of Delaware,
to the Secretary of State of the State of California, for filing, as provided
in the California General Corporation Law (the "CGCL"). The Merger shall
become effective immediately following the Distribution, upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
or at such time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
Section 1.2 CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") will take place as
promptly as practicable (and in any event within five business days) after
satisfaction or waiver of the conditions to Closing contained in Article VII,
at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New
York, New York 10022, unless another date or place is agreed to in writing by
the parties hereto. The date on which the Closing occurs is referred to herein
as the "Closing Date".
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the DGCL and CGCL.
Section 1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Restated Certificate of Incorporation, as amended, of
HFS in effect at the Effective Time shall
5
<PAGE>
be the Restated Certificate of Incorporation, as amended, of the
Surviving Corporation until amended in accordance with applicable
law.
(b) The Amended and Restated By-Laws of HFS in effect at the
Effective Time shall be the Amended and Restated By-Laws of the
Surviving Corporation until amended in accordance with applicable
law.
Section 1.5 DIRECTORS. The directors of HFS at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold
office from the Effective Time in accordance with the Restated
Certificate of Incorporation, as amended, and Amended and Restated
By-Laws of the Surviving Corporation and until his or her successor is
duly elected and qualified.
Section 1.6 OFFICERS. The officers of HFS at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold
office from the Effective Time in accordance with the Restated
Certificate of Incorporation, as amended, and Amended and Restated
By-Laws of the Surviving Corporation and until his or her successor is
duly appointed and qualified.
6
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ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holder
of any shares of Common Stock, par value $1.00 per share, of the Company
(the "Company Common Stock"), or the holder of any capital stock of HFS:
(a) COMMON STOCK OF HFS. Each issued and outstanding share of
Common Stock, par value $.01 per share, of HFS (the "HFS Common
Stock") shall continue to be one issued and outstanding, fully paid
and nonassessable share of Common Stock, par value $.01 per share,
of the Surviving Corporation and any shares of HFS Common Stock held
in HFS's treasury immediately prior to the Effective Time shall
continue to be held in the treasury of the Surviving Corporation at
the Effective Time.
(b) EXCHANGE RATIO FOR COMPANY COMMON STOCK. Subject to Section
2.2(d), each issued and outstanding share of Company Common Stock
shall be converted into the right to receive the number (rounded to
the nearest one-thousandth of a share) of fully paid and
nonassessable shares of HFS Common Stock determined by dividing
7
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(i) the number of shares of HFS Common Stock determined by dividing
$46,000,000 by the average of the closing prices of the HFS Common
Stock on the New York Stock Exchange (the "NYSE") Composite
Transactions Reporting System for the twenty (20) consecutive
trading days immediately preceding the third (3rd) trading day prior
to the date of the Closing (the "Average HFS Price") by (ii) the
total number of issued and outstanding shares of Company Common
Stock (after giving effect to the redemption of shares of Company
Common Stock which is occurring in connection with the
Distribution). All such shares of Company Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares
of HFS Common Stock and any cash in lieu of fractional shares of HFS
Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.2(a),
without interest.
(c) ADJUSTMENT OF EXCHANGE RATIO. If after the date hereof and
prior to the Effective Time the outstanding shares of Company Common
Stock or HFS Common
8
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Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange
of shares, the foregoing exchange ratio shall be correspondingly
adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares.
Section 2.2 EXCHANGE OF CERTIFICATES AND CASH.
(a) EXCHANGE PROCEDURES. At the Closing, each holder of a
certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (the
"Certificates") shall surrender the Certificate or Certificates to
Mellon Securities Trust Company, the Registrar and Transfer Agent
for HFS, or to such other agent or agents as may be appointed by HFS
(the "Exchange Agent") for cancellation and the Surviving
Corporation shall cause the Exchange Agent to deliver to the holder
of such Certificate in exchange therefor (x) a certificate
representing that number of whole shares of HFS Common Stock which
such holder has the right to receive pursuant to the provisions of
this Article II and (y) cash in lieu of any fractional shares of HFS
Common
9
<PAGE>
Stock to which such holder is entitled pursuant to Section 2.2(d)
hereof, after giving effect to any required tax withholdings for
failure to deliver required certifications or other information, and
the Certificates so surrendered shall forthwith be cancelled. Until
surrendered as contemplated by this Section 2.2, each Certificate
shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender a certificate
representing shares of HFS Common Stock and cash in lieu of any
fractional shares of HFS Common Stock as contemplated by this
Section 2.2.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the
Effective Time with respect to HFS Common Stock with a record date
after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of HFS Common
Stock which such holder is entitled to receive upon the surrender
thereof in accordance with this Section 2.2 and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant
to Section 2.2(d) until the holder of record of such Certificate
shall so surrender such Certificate.
10
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(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of HFS Common Stock issued upon the surrender for exchange of
shares of Company Common Stock in accordance with the terms hereof
(including any cash paid pursuant to Section 2.2(b) or 2.2(d)) shall
be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall
be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and
exchanged as provided in this Article II.
(d) NO FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of HFS Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share
interests will not entitle the owner thereof to vote or to any
rights of a stockholder of HFS. In lieu of any such fractional
shares, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a share of HFS Common Stock upon
surrender of Certifi-
11
<PAGE>
cates for exchange will be entitled to receive a cash payment in
lieu of such fractional share in an amount equal to such fraction
multiplied by the Average HFS Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to HFS that, except as set forth
in the schedule being delivered by the Company to HFS on or prior to the
date hereof, as updated on or prior to the Closing Date (the "Disclosure
Schedule"), and except as contemplated by this Agreement or the
Distribution Agreement:
Section 3.1 ORGANIZATION.
(a) Each of the Company and its Subsidiaries (as hereinafter
defined) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority
would not have a material adverse effect on the Company. The Company
and each of its Subsidiaries is duly qualified or licensed to do
12
<PAGE>
business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate have a
material adverse effect on the Company.
(b) As used in this Agreement, any reference to (i) the word
"Subsidiary" means, with respect to any party, any corporation or
other organization, whether incorporated or unincorporated, of which
(x) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests
of which held by such party or any Subsidiary of such party do not
have a majority of the voting interest in such partnership) or (y)
at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the Board
of Directors or others performing similar functions with respect to
such corporation or other organization is, directly or indirectly,
owned or controlled by such party and/or by any one or more of its
Subsidiaries; (ii) an entity and its Subsidiaries means such entity
and each of its Subsidiaries; (iii) any reference to the "Retained
Company" means the Company and Century 21 Real Estate, Inc., an
Oregon corporation ("C21-Oregon"), Century 21
13
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Real Estate of Washington, Inc., a Washington corporation
("C21-Washington"), and Century 21 Real Estate of the
Northwest, Inc., an Idaho corporation ("C21-Idaho"), all of
which will be merged successively into the Company and not
exist as separate corporations following the consummation of
the transactions contemplated by the Distribution Agreement;
(iv) any reference to Spinco and its Subsidiaries means Spinco
at the time of the Distribution and those entities that at or
immediately prior to the Distribution will be direct or
indirect Subsidiaries of or merged with or liquidated into
Spinco; (v) any event, change or effect having a material
adverse effect on or with respect to the Company means such
event, change or effect which is materially adverse to the
business, properties, assets, prospects, results of operations
or financial condition of the Retained Company, or on the
ability of any of the Company and its Subsidiaries and Spinco
to consummate the transactions contemplated hereby and in the
Ancillary Agreements, including the Distribution and the Merger
and, in the case of Spinco, its indemnification obligations
under the Indemnification Agreement; and (vi) any reference to
"knowledge" of a party means actual knowledge without
investigation or inquiry.
14
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(c) The Company has heretofore made available to HFS a
complete and correct copy of the charter and by-laws or
comparable organizational documents, each as amended to date,
of the Company and each of its Subsidiaries. Such charters,
by-laws and comparable organizational documents are in full
force and effect. Neither the Company nor any of its
Subsidiaries is in violation of any provision of its charter,
by-laws or comparable organizational documents, except for such
violations that would not, individually or in the aggregate,
have a material adverse effect on the Company.
Section 3.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of
the Company consists of 50,000 shares of capital stock (the
"Company Common Stock") of which 20,000 shares were issued and
outstanding. All the outstanding shares of the Company Common
Stock are duly authorized, validly issued, fully paid and
non-assessable and free of any pre-emptive rights in respect
thereto. As of the date hereof, there are no existing options,
warrants, calls, subscriptions or other rights or other
agreements, commitments, understandings or restrictions of any
character binding on the Company or any of its Subsidiaries
with respect to the issued or unissued capital stock of the
Company or any of its Subsidiaries or obligating the Company or
any of its
15
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Subsidiaries to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock of, or other
equity interests in, the Company or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or
equity interests or obligating the Company or any of its
Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement,
commitment, understanding or restriction. There are no
contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company or any of its
Subsidiaries. There are no voting trusts, proxies or other
agreements or understandings to which the Company or any of its
Subsidiaries is a party or is bound with respect to voting any
shares of capital stock of the Company or any of its
Subsidiaries.
(b) Each of the outstanding shares of capital stock of
each of the Company's Subsidiaries is duly authorized, validly
issued, fully paid, nonassessable and free of any preemptive
rights in respect thereto and such shares are owned by the
Company or by a Subsidiary of the Company free and clear of any
lien, claim, option, charge, security interest, limitation on
voting rights and encumbrance of any kind.
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Section 3.3 AUTHORITY. Each of the Company and Spinco has the
requisite corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which the Company or Spinco are
a party and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and
the Ancillary Agreements to which the Company or Spinco are a party by
the Company and Spinco and the consummation by the Company and Spinco of
the Distribution and the Merger and of the other transactions
contemplated hereby and thereby have been duly authorized by the
respective Boards of Directors of the Company and Spinco and approved and
adopted by the requisite vote of the Stockholders of the Company and no
other corporate proceedings on the part of the Company and Spinco are
necessary to authorize this Agreement and the Ancillary Agreements to
which the Company or Spinco are a party, the Merger or the Distribution
or to consummate the transactions so contemplated (other than the formal
declaration of the Distribution by the Company's Board of Directors).
This Agreement and each of the Ancillary Agreements to which the Company
or Spinco are a party has been or (to the extent any such agreement is
not being entered into as of the date hereof) will be duly executed and
delivered by the Company and Spinco and constitutes, or to the extent any
17
<PAGE>
such agreement is not being entered into as of the date hereof will
constitute, a valid and binding obligation of each of the Company and
Spinco, enforceable against it in accordance with its terms except that
such enforcement may be limited (i) by applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, equity of redemption, moratorium or
other similar laws now or hereafter in effect relating to creditors'
rights, and (ii) by general principles of equity (regardless of whether
enforcement is sought in equity or at law).
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) Except for such filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the filing of the Certificate of Merger as required by the
DGCL and the CGCL, none of the execution, delivery or performance of this
Agreement or the Ancillary Agreements by the Company or Spinco, or the
consummation by the Company or Spinco of the transactions contemplated
hereby or thereby and compliance by the Company or Spinco with any of the
provisions hereof or thereof will (i) conflict with or result in any
breach of any provisions of the charter or by-laws or comparable
organizational documents of the Company or of any of
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its Subsidiaries, (ii) require any filing by the Company or any of its
Subsidiaries with, or any permit, authorization, consent or approval to
be obtained by the Company or any of its Subsidiaries of, any court,
arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority or administrative agency or
commission (a "Governmental Entity"), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, or result in the creation of any
lien or other encumbrance on any property or asset of the Company or any
of its Subsidiaries pursuant to, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement, franchise, permit, concession or other instrument,
obligation, understanding, commitment or other arrangement (each, a
"Contract") to which the Company or any of its Subsidiaries is a party or
by which any of them or any of their properties or assets may be bound or
affected, (iv) result in the triggering of any right of first refusal or
other right under any stockholder, partnership or joint venture agreement
to which the Company or any of its Subsidiaries is a party or (v) violate
any order, writ, injunction, decree, statute, ordinance, rule or regu-
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lation applicable to the Company or any of its Subsidiaries except, in
the case of clauses (i), (ii), (iii) or (v), for violations, breaches or
defaults which would not, individually or in the aggregate, have a
material adverse effect on the Company or its Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries is in conflict
with, or in default or violation of, (i) any order, writ, injunction,
decree, statute, rule or regulation of any Governmental Entity applicable
to the Company or any of its Subsidiaries or by which any of them or any
of their properties or assets may be bound or (ii) any material Contract
except for any such conflicts, defaults or violations which have not and
are not likely to have a material adverse effect on the Company or any of
its Subsidiaries.
Section 3.5 FRANCHISE BUSINESS.
(a) Attached hereto as Exhibit 3.5 is a compiled pro forma balance
sheet of the Retained Company at March 31, 1996 (including any notes
thereto, the "Franchise Business Balance Sheet"). Except as described on
Exhibit 3.5 (or in the Disclosure Schedule), there has been no material
change in the financial position of the Retained Company since March 31,
1996 to the date hereof, except as has resulted from the ordinary course
of operation of the Retained Company. The Franchise Business Balance
Sheet has been compiled
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in accordance with United States generally accepted accounting
principles. The Franchise Business Balance Sheet presents the unaudited
balance sheet at March 31, 1996 as adjusted for the distribution,
assuming the distribution and all transactions set forth in Section
6.12(c)(i) of this Agreement had occurred on or before March 31, 1996.
The Franchise Business Balance Sheet presents the significant effects of
the indicated transactions (assuming the tax consequences are as
contemplated by this Agreement), the related pro forma adjustments give
appropriate effect to the transactions and assumptions and the pro forma
column reflects the proper application of those adjustments to the
historical financial statement amounts.
(b) As of March 31, 1996 and as of the Closing Date, the Company,
directly or indirectly, owned and will own, respectively, and had and
will have, respectively, good, valid and marketable title to all of the
assets reflected on the Franchise Business Balance Sheet, free and clear
of any lien, claim, charge, security interest, pledge, encumbrance or
other right (a "Lien") of third parties, except as may be reflected in
the Franchise Business Balance Sheet or as may be set forth therein (or
in the Disclosure Schedule), all of which Liens will be removed as of the
Effective Time. "Franchise Business" means the subfranchising of Century
21
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franchises in the regions permitted by the Company Subfranchise
Agreement and the Northwest Subfranchise Agreement (as defined below) and
related training and servicing to those franchises. "Franchise Business
Assets" means the following: (i) the Century 21 Subfranchise Agreement,
dated as of July 1, 1977, between the Company and Century 21 Real Estate
Corporation, a Delaware corporation and a Subsidiary of HFS ("C21-Real
Estate"), as amended by the First and Second Addendums thereto, each
dated July 1, 1977, and any other amendments thereto (the "Company
Subfranchise Agreement"); (ii) the Century 21 Subfranchise Agreement,
dated as of December 13, 1973, between C21-Real Estate and C21-Oregon,
as amended by the First, Second and Third Addendums thereto, dated
December 13, 1973, December 13, 1973 and July 5, 1977, respectively, and
any other amendments thereto (the "Northwest Subfranchise Agreement");
(iii) the Century 21 Real Estate Franchise Agreements of Century 21
franchisees of the Company and its Subsidiaries (the "Franchise
Agreements"), including all franchisee files, records and other
information pertaining thereto; (iv) commission disbursement
authorizations with respect to service fees owing to the Company and its
Subsidiaries on open transactions as of the date following the Closing
Date, whether reported or unreported, pursuant to agreements to convey
real property,
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which agreements have been placed into the custody of a third party, as
escrow holder, awaiting completion/fulfillment of all terms and
conditions of such agreements, at which time the transactions represented
thereby will close; (v) all patents, patent rights trademarks, trademark
rights, trade names, trade name rights, copyrights, service marks, trade
secrets, applications for trademarks and for service marks, technology
and know-how and other proprietary rights and information relating to the
Franchise Business (except those relating to the AmeriNet System
described in the Non-Competition Agreements (as hereinafter defined));
(vi) all office supplies, stationery and other materials which utilize
the Century 21 name; (vii) all customer lists and records pertaining to
customers and accounts, personnel records, all lists and records
pertaining to suppliers and agents, and all books, ledgers, files and
business records of every kind relating to the Franchise Business; (viii)
all advertising materials and all other printed or written materials
relating to the Franchise Business; (ix) all permits, waivers, licenses,
approvals and authorizations of governmental authorities or third parties
relating to the ownership, possession or operation of the Franchise
Business; and (x) all goodwill as a going concern and all other
intangible properties relating to the Franchise Business.
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Notwithstanding the foregoing, Franchise Business Assets do not include
the Company's interest in the litigation currently pending against
Prudential Real Estate Affiliates, et al., or any other litigation listed
in the Disclosure Schedule, including any recovery based on damage to the
goodwill of the Company or lost revenues or profits of the Company. The
Franchise Business Balance Sheet shall make provision for all liabilities
or obligations (except those not required to be listed on a balance
sheet) to be performed by the Retained Company following the Closing
which existed as of the date of the Franchise Business Balance Sheet.
(c) At the Effective Time, neither Spinco nor any of its
Subsidiaries will use in the conduct of its business or own or have
rights to use any assets or property, whether tangible, intangible or
mixed, listed on the Franchise Business Balance Sheet. At the Effective
Time neither Spinco nor any of its Subsidiaries will be a party to any
material agreement with the Retained Company (other than the Ancillary
Agreements), including, without limitation, any material Contract,
providing for the furnishing of services or rental of real or personal
property to or from, or otherwise relating to the business or operations
of, any of the Retained Company or any of its Subsidiaries or pursuant to
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which the Retained Company or any of its Subsidiaries may have any
obligation or liability.
Section 3.6 LITIGATION. The Company has not received notification
that any suit, claim, action, proceeding or investigation is pending or,
to the knowledge of the Company, is any of the foregoing threatened,
against the Company or any of its Subsidiaries before any Governmental
Entity. Neither the Company nor any of its Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, in the future
would have a material adverse effect on the Company.
Section 3.7 EMPLOYEE BENEFITS.
(a) Section 3.10 of the Company Disclosure Schedule contains a list
of all bonus, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit and compensation plans and any
"change of control" or similar provisions which would apply to the
transactions contemplated by this Agreement in any plan, program,
contract or arrangement which cover employees or former employees
("Company Employees") of the Company or any entity which would have been
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considered one employer with the Company at any time during the six-year
period immediately preceding the Effective Time under Section 4001 of
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 414 of the Code (an "ERISA Affiliate") and all other benefit and
compensation plans, programs, contracts or arrangements (regardless of
whether they are funded or unfunded or [foreign or domestic]) covering
Company Employees, including, but not limited to, "employee benefit
plans" within the meaning of Section 3(3) of the ERISA (collectively, the
"Compensation and Benefit Plans"). True and complete copies of all the
Compensation and Benefit Plans, including any trust instruments and/or
insurance contracts, if any, forming a part of any such plans, and all
amendments thereto have been provided to HFS.
(b) All of the Compensation and Benefit Plans are in material
compliance with all applicable laws, including, without limitation, ERISA
and the Code. Each Compensation and Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under Section
401(a) of the Code, is so qualified. Neither the Company nor any ERISA
Affiliate has engaged in a transaction with respect to any Compensation
and Benefit Plan that, assuming the taxable
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period of such transaction expired as of the date hereof, could subject
the Company or any ERISA Affiliate to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would have a material adverse effect on the Company. Neither the Company
nor any ERISA Affiliate has contributed or been required to contribute to
any Multiemployer Plan (as defined in ERISA).
(c) No Pension Plans, currently or formerly maintained, contributed
to or required to be contributed to, by the Company or any ERISA
Affiliate are subject to Title IV of ERISA or to Section 412 of the Code.
(d) All contributions required to be made or accrued as of December
31, 1995 under the terms of any Compensation and Benefit Plan for which
the Retained Company or any of its Subsidiaries may have liability have
been timely made or have been reflected on the Franchise Business Balance
Sheet.
(e) Neither the Retained Company nor any of its Subsidiaries have
any obligations for retiree health and life benefits under any
Compensation and Benefit Plan, except those which may be imposed under
section 4980B of the Code and Part 6 of Title I of ERISA (for which the
Retained Company is indemnified by Spinco pursuant to the Indemnification
Agreement).
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(f) All Compensation and Benefit Plans covering foreign Company
Employees comply in all material respects with applicable local law. The
Company and its Subsidiaries have no unfunded liabilities in an amount
which would have a material adverse effect on the Company with respect to
any Pension Plan which covers foreign Company Employees.
(g) The consummation of the transactions contemplated by this
Agreement or in the Ancillary Agreements will not (i) entitle any current
or former employee or officer of the Company or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee or officer, except as provided in Section 6.4 hereof.
(h) There are no pending, or the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Compensation and
Benefit Plan, by any employee or beneficiary covered under any such
Compensation and Benefit Plan, or otherwise involving any such
Compensation and Benefit Plan (other than routine claims for benefits).
Section 3.8 FINANCIAL STATEMENTS. Attached to this Agreement are the
following financial statements (the "Company Financial Statements"),
all of which have been prepared
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on a consolidated basis (except as otherwise indicated) in accordance
with generally accepted accounting principles ("GAAP") consistently
applied throughout the periods indicated (except as may be indicated in
the notes thereto):
(a) Balance sheet of the Company and its Subsidiaries as of
July 31, 1993 and 1995, audited by White, Nelson & Co., certified
public accountants, and as of July 31, 1994, audited by Kenneth
Leventhal & Company, certified public accountants, and unaudited,
unconsolidated balance sheets of each of the Company, C21-Oregon,
C21-Washington and C21-Idaho as of January 31, 1996, each of which
presents fairly (subject, in the case of the unaudited statements,
to normal, recurring audit adjustments) as of its date the financial
condition of the respective corporation; and
(b) Consolidated statement of operations and cash flows of the
Company and its Subsidiaries for the twelve (12) months ended July
31, 1993 and 1995, audited by White, Nelson & Co., certified public
accountants, and for the twelve (12) months ended July 31, 1994,
audited by Kenneth Leventhal & Company, certified public
accountants, and unaudited, unconsolidated statements of operations
and cash flows of each of the Company, C21-Oregon, C21-Washington
and C21-Idaho for
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the six-month period ended January 31, 1996, each of which presents
fairly (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the results of operations and cash
flows of the respective corporation for the periods indicated.
(c) With respect to the unaudited periods, all adjustments,
consisting of only normal recurring items, necessary for a fair
presentation of interim financial statements have been made.
Section 3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as
contemplated by this Agreement, to the knowledge of the Company, neither
the Company nor any of its Subsidiaries had at January 31, 1996, or has
incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature of a type
required to be reflected on a balance sheet, except liabilities,
obligations or contingencies (i) which are accrued or reserved against in
the Company Financial Statements for the six months ended January 31,
1996 or reflected in the notes thereto, or (ii) which were incurred after
January 31, 1996 in the ordinary course of business consistent with past
practice and which in the aggregate are not material to the business,
results of operations or financial condition of
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the Company or which have been discharged or paid in full prior to the
date hereof.
Section 3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL
AGREEMENTS. Since January 31, 1996, the Company and its Subsidiaries have
conducted their business only in the ordinary and usual course consistent
with past practice, and there has not been any change or development, or
combination of changes or developments, which individually or in the
aggregate have a material adverse effect on the Franchise Business.
Section 3.11 NO VIOLATION OF LAW. To the knowledge of the Company,
the Company and its Subsidiaries have complied in all material respects
with and neither the Company nor any of its Subsidiaries is in material
violation of or is under investigation with respect to or has been given
notice or been charged by any Governmental Entity with any material
violation of any, law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Entity.
Section 3.12 TAXES.
(a)(i) The Company and its Subsidiaries have (x) duly filed (or
there has been filed on their behalf) with the appropriate
governmental authorities all
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Tax Returns (as hereinafter defined) required to be filed by them on
or prior to the date hereof, and such Tax Returns are true, correct
and complete in all material respects, and (y) duly paid in full or
made provision in accordance with generally accepted accounting
principles (or there has been paid or provision has been made on
their behalf) for the payment of all Taxes (as hereinafter defined)
for all periods ending through the date hereof, except where the
failure to file Tax Returns or to pay, or to provide for payment of,
Taxes would not have a material adverse effect on the financial
condition of the Company;
(ii) Neither the Company nor any of its Subsidiaries has made
any change in accounting methods, received a ruling from any taxing
authority or signed an agreement with any taxing authority which is
reasonably likely to have a material adverse effect on the Company;
(iii) The Company and its Subsidiaries have complied in all
respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code
or similar provisions under any foreign laws)
32
APITAL PRINTING SYSTEMS]
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and have, within the time and the manner prescribed by law, withheld
from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over
under applicable laws;
(iv) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings have been initiated
or are presently pending with regard to any Taxes or Tax Returns of
the Company or its Subsidiaries, and neither the Company nor its
Subsidiaries has received any notice of any such audits or
proceedings;
(v) The federal income Tax Returns of the Company and its
Subsidiaries have been examined by the Service (or the applicable
statutes of limitation for the assessment of federal income Taxes
for such periods have expired) for all periods through and including
July 31, 1991, and no material deficiencies were asserted as a
result of such examinations which have not been resolved and fully
paid;
(vi) There are no outstanding requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to
the assessment of any Taxes or deficiencies against the Company or
any of its Subsidiaries, and no power of attorney granted by
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either the Company or any of its Subsidiaries with respect to any
Taxes is currently in force;
(vii) Neither the Company nor any of its Subsidiaries is a
party to, is bound by, nor has any obligation under, any agreement
providing for the allocation or sharing of Taxes; (viii) Neither the
Company nor its Subsidiaries is a party to any agreement, contract
or arrangement that could result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code;
(ix) Neither the Company nor any of its Subsidiaries has, with
regard to any assets or property held, acquired or to be acquired by
any of them, filed a consent to the application of Section 341(f) of
the Code, or agreed to have Section 341(f)(2) of the Code apply to
any disposition of a subsection (f) asset (as such term is defined
in Section 341(f)(4) of the Code) owned by the Company or any of its
Subsidiaries;
(x) Neither C21-Idaho, C21-Washington or C21-Oregon is
insolvent for purposes of Section 332 of the Code; and
(xi) Neither the Company nor any of its Subsidiaries have, as
of the date of this Agreement, any
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deferred gain from a deferred intercompany transaction within the
meaning of Treasury Regulation Section 1.1502-13 (or any similar
provision under state, local or foreign law).
(b) "Taxes" shall mean any and all taxes, charges, fees, levies
or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding,
social security, occupation, use, service, service use, license, net
worth, payroll, franchise, transfer and recording taxes, fees and
charges, imposed by the United States Internal Revenue Service or
any taxing authority (whether domestic or foreign including, without
limitation, any state, county, local or foreign government or any
subdivision or taxing agency thereof (including a United States
possession)), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any
interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments. "Tax Return"
shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing
authority
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or jurisdiction (foreign or domestic) with respect to Taxes,
including, without limitation, information returns, any documents
with respect to or accompanying payments of estimated Taxes, or with
respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or
other information.
Section 3.13 LABOR MATTERS. To the knowledge of the Company, the
Company and its Subsidiaries have complied in all material respects with
all laws relating to wages, hours, collective bargaining, and the payment
of social security and similar taxes, and, as of the date hereof, no
person has, to the knowledge of the Company, asserted that the Company or
any of its Subsidiaries is liable in any material amount for any arrears
of wages or any taxes or penalties for failure to comply with any of the
foregoing. As of the date hereof, neither the Company nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other understanding with a labor union or labor
organization, and, to the knowledge of the Company, as of the date
hereof, there are no organizational efforts presently being made
involving any of the employees of the Company or any of its Subsidiaries.
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Section 3.14 LICENSES. To the knowledge of the Company, the Company
has, and as of the Closing Date the Retained Company will have, all
permits, licenses, waivers and authorizations which are necessary for it
to conduct its business in the manner in which it is presently being
conducted (collectively, "Licenses"). To the knowledge of the Company, no
event has occurred or other fact exists with respect to such Licenses
which permits, or after notice or lapse of time or both would permit,
revocation or termination of any of such Licenses or would result in any
other impairment of the rights of the holder of any of such Licenses. The
Company and its Subsidiaries have duly performed their respective
obligations under such Licenses in all material respects.
Section 3.15 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries own, or have valid rights to
use, all trademarks, trademark rights, trade names, trade name rights,
copyrights, service marks, trade secrets, customer lists, rights in
computer software and documentation, databases, training materials and
other proprietary rights and information used or held for use in
connection with the Franchise Business as currently conducted other than
any of the foregoing as to which the rights of the Company or its
Subsidiaries derive from HFS or any of
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its Subsidiaries, all of which are expressly excluded from the
representations and warranties contained in this Section 3.15
(collectively, as so limited, "Intellectual Property"), subject to no
material restrictions. The Disclosure Schedule lists all material
licenses, sublicenses, software agreements and other agreements, other
than (i) the Company Subfranchise Agreement and (ii) the Northwest
Subfranchise Agreement, as to which Company or any of its Subsidiaries is
a party and pursuant to which Company or any of its Subsidiaries is
authorized to use any Intellectual Property.
(b) No claim has been asserted to the Company in writing, or, to the
knowledge of the Company, orally, and is pending by any person
challenging or questioning the ownership of any such Intellectual
Property, nor does the Company know of any valid basis for any such
claim. The Company has not received notice from any third party to the
effect that the use of such Intellectual Property by the Company or any
of its Subsidiaries may infringe on the rights of any person and the
Company has no knowledge of any infringing use of any such Intellectual
Property by any other person in the territory where the Company or any of
its Subsidiaries does business. Neither the Company nor any of its
Subsidiaries has granted to anyone else other than HFS and its affiliates
or licensees the right to use any of the Intellectual Prop-
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erty except pursuant to the Franchise Agreements. Neither the Company nor
any of its Subsidiaries are, nor will any be as a result of the execution
and delivery of this Agreement or the performance of their obligations
under this Agreement, in breach of any license, sublicense or other
agreement relating to the Intellectual Property.
Section 3.16 BROKERS OR FINDERS. Neither the Company nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any brokers' or finder's
fee or any other commission or similar fee in connection with this
Agreement or the Ancillary Agreements or any of the transactions
contemplated hereby or thereby.
Section 3.17 TRANSACTIONS WITH AFFILIATES. As of the Closing Date
hereof, (i) there will be no outstanding notes or other payables payable
by the Retained Company to, or advances by the Retained Company to, and
the Retained Company will otherwise not be a creditor or debtor of, any
stockholder, officer, director, employee, Subsidiary or affiliate of the
Retained Company, Spinco or its Subsidiaries, and (ii) the Retained
Company will not be a party to any Contract with any stockholder,
officer, director, or employee of the Retained Company, Spinco or any
Subsidiary.
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Section 3.18 MATERIAL AGREEMENTS. As of the date hereof, neither the
Company nor any of its Subsidiaries is a party to any Contract: (a) to
undertake capital expenditures or to acquire any property involving the
expenditure of $10,000 or more; (b) to loan money or to extend credit to
any person or group of related persons in the amount of $10,000 or more;
(c) which would restrict the Retained Company or any of its Subsidiaries
or any affiliate of the Retained Company or any of its Subsidiaries from
carrying on any business anywhere in the world or which would restrict
the services which the Retained Company may sell or the customers to whom
the Retained Company may sell; (d) involving any indebtedness, obligation
or liability for borrowed money or the guaranty of any such indebtedness,
obligation or liability in the amount of $10,000 or more; (e) involving
the provision of services requiring the expenditure on an annual basis of
$10,000 or more; (f) involving employment, consulting, compensation or
severance obligations requiring payments on an annual basis of $10,000 or
more and which is not cancellable on 30 days notice; (g) involving any
lease of personal or real property having annual payments in excess of
$10,000 or (h) which is otherwise material to the Company and its
Subsidiaries taken as a whole or which is material to the Retained
Company. To the knowledge of the Company,
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there is no breach or violation of, or default under any such Contract,
and no event has occurred which, with notice or lapse of time or both,
would constitute a breach, violation or default, or give rise to a right
of termination, modification, cancellation, prepayment or acceleration
under any such Contract. The Disclosure Schedule identifies the Contracts
which will be included in the Franchise Business.
Section 3.19 INSURANCE. All insurance policies relating to the
Company and applicable to the Franchise Business (except those obtained
by C21-Real Estate) are listed in the Disclosure Schedule and, to the
knowledge of the Company, all such policies are in full force and effect.
The Company has not received written notice of default under any such
policy, and has not received written notice or, to the knowledge of the
Company, oral notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium
increase with respect to any such policy.
Section 3.20 ENVIRONMENTAL LAWS.
(a)(i) Each of the Company and its Subsidiaries complies and has
complied in all material respects with all applicable Environmental Laws
(as hereinafter defined), and possesses and complies with and has
possessed and complied in all material respects with all Environmental
Permits (as
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hereinafter defined) required under such laws; and (ii) to the knowledge
of the Company, there are and have been no Materials of Environmental
Concern (as hereinafter defined) or other conditions at any property
owned, operated or otherwise used by the Company or any of its
Subsidiaries now or in the past, or at any other location, that could
reasonably be expected to give rise to liability of the Company or any
Subsidiaries under any Environmental Law which, individually or in the
aggregate, would have a material adverse effect on the Company. The
Company has provided to HFS true and complete copies of all Environmental
Reports (as hereinafter defined) in its possession or control.
(b) As used in this Agreement:
(i) "Environmental Laws" means any and all foreign, federal,
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, requirements of any
Governmental Entity or other requirements of law (including common
law) regulating, relating to or imposing liability or standards of
conduct concerning protection of human health or the environment, as
now or may at any time on or prior to the Closing Date be in effect.
(ii) "Environmental Permit" means any license, permit, order,
approval, concession, registration,
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authorization, or qualification required under any Environmental
Law.
(iii) "Environmental Report" means any report, study,
assessment, audit, or other similar document that addresses any
issue of actual or potential non-compliance with, or actual or
potential liability under, any Environmental Law that may in any way
affect the Company or any Subsidiary.
(iv) "Materials of Environmental Concern" means any waste,
pollutant, or contaminant (whether or not defined or regulated as
such under any Environmental Law), or any other substance of any
kind (including without limitation petroleum or petroleum products,
asbestos or asbestos-containing materials, urea-formaldehyde
insulation, polychlorinated biphenyls, odors and radioactivity)
regulated by or under, or which may otherwise give rise to liability
under, any Environmental Law.
Section 3.21 NATIONAL AD FUND. The Company has transmitted to
C21-Real Estate the requisite amounts which are owing to the NAF and is
presently in compliance in all material respects with all other material
requirements of the Agreement Concerning National Advertising Fund (the
"NAF") to which the Company and any of its Subsidiaries are
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a party to with C21-Real Estate. As of April 4, 1996, the Company and its
Subsidiaries had approximately $457,460 owing to the NAF under its
control, which amount was held in accounts at Union Bank, City of
Industry, California.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HFS
HFS represents and warrants to the Company and Spinco as follows:
Section 4.1 ORGANIZATION.
(a) HFS and each of its Significant Subsidiaries (within the meaning
of Rule 1-02(w) of Regulation S-X of the Rules and Regulations of the
Securities and Exchange Commission) is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now
being conducted except where the failure to be so organized, existing and
in good standing or to have such power and authority would not have a
material adverse effect on HFS. HFS and each of its Significant
Subsidiaries is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business con-
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ducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good
standing would not in the aggregate have a material adverse effect on
HFS.
(b) As used in this Agreement, any reference to any event, change or
effect having a material adverse effect on or with respect to HFS means
such event, change or effect which is materially adverse to the business,
properties, assets, prospects, results of operations or financial
condition of HFS and its Significant Subsidiaries taken as a whole or on
the ability of HFS to consummate the transactions contemplated hereby,
including the Merger.
(c) HFS has heretofore made available to the Company a complete and
correct copy of the charter and bylaws, each as amended to date, of HFS.
HFS's charter and by-laws are in full force and effect. Neither HFS nor
any of its Significant Subsidiaries is in violation of any provision of
its charter or by-laws or comparable organizational documents, except for
such violations that would not, individually or in the aggregate, have a
material adverse effect on HFS taken as a whole.
Section 4.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of HFS
consists of: (i) 300,000,000 shares of HFS
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Common Stock of which, as of March 21, 1996, 102,775,148 shares were
issued and outstanding and no shares were held in treasury, (ii)
10,000,000 shares of preferred stock, par value $1.00 per share, of
which, as of March 21, 1996 no shares were issued and outstanding. All
the outstanding shares of HFS's capital stock are, and all shares of HFS
Common Stock which are to be issued pursuant to the Merger will be, when
issued in accordance with the terms hereof, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive rights
in respect thereto.
(b) Except as set forth on Schedule 4.2, as of March 21, 1996, there
are no existing options, warrants, calls, subscriptions or other rights
or other agreements, commitments, understandings or restrictions of any
character relating to the issued or unissued capital stock of HFS or any
of its Subsidiaries or obligating HFS or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any
shares of capital stock of, or other material equity interests in, HFS or
of any of its Subsidiaries or securities convertible into or exchangeable
for such shares, or equity interests or obligating HFS or any of its
Subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, commitment, understanding
or restriction. As of the
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date of this Agreement, except as set forth on Schedule 4.2, there are no
contractual obligations of HFS or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of HFS or any of
its Subsidiaries. Since March 21, 1996 and prior to the date hereof, no
shares of HFS Common Stock have been issued except issuances of shares
reserved for issuance as described above and issued in the ordinary
course of business.
Section 4.3 AUTHORITY. HFS has the requisite corporate power and
authority to execute and deliver this Agreement and the Indemnification
Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and
the Indemnification Agreement by HFS and the consummation by HFS of the
Merger and the other transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors of HFS and no other
corporate proceedings on the part of HFS are necessary to authorize this
Agreement, the Indemnification Agreement or the Merger or for HFS to
consummate the transactions so contemplated. This Agreement has been, and
the Indemnification Agreement will be, duly executed and delivered by HFS
and constitutes or, in the case of the Indemnification Agreement, will
constitute a valid and binding obligation of HFS, enforceable against HFS
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in accordance with its terms except that such enforcement may be limited
(i) by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, equity of redemption, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) by general
principles of equity (regardless of whether enforcement is sought in
equity or at law).
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) Except for such filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of,
the Securities Act of 1933, as amended (the "Securities Act"), to
register the shares of HFS Common Stock being issued to the Stockholders
pursuant hereto for resale, the HSR Act, filings under state securities
or "blue sky" laws in connection with the resale of the shares of HFS
Common Stock being issued to the Stockholders pursuant hereto, and the
filing of the Certificate of Merger as required by the DGCL and CGCL,
neither the execution, delivery or performance of this Agreement or the
Indemnification Agreement by HFS nor the consummation by it of the
transactions contemplated hereby or thereby nor compliance by HFS with
any of the provisions hereof or thereof will (i) conflict with or result
in any breach of any provision of the charter or by-laws of HFS or any of
its Subsidiaries,
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(ii) require any filing by HFS or its Subsidiaries with, or permit,
authorization, consent or approval of, any Governmental Entity to be
obtained by HFS or its Subsidiaries, (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation
or acceleration) under, or result in the creation of a Lien (as defined
in Section 3.5) on any property or asset of HFS or its Subsidiaries
pursuant to, any of the terms, conditions or provisions of any Contract
to which HFS or any of its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound or affected or
(iv) violate any order, writ, injunction, decree, statute, ordinance,
rule or regulation applicable to HFS or any of its Subsidiaries except
for violations, breaches or defaults which would not, individually or in
the aggregate, have a material adverse effect on HFS.
(b) Neither HFS nor any of its Subsidiaries is in conflict with, or
in default or violation of, (i) any order, writ, injunction, decree,
statute, rule or regulation of any Governmental Entity applicable to HFS
or any of its Subsidiaries or by which any of them or any of their
properties or assets may be bound or (ii) any material Contract except
for
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any such conflicts, defaults or violations which have not and are not
likely to have a material adverse effect on HFS.
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. HFS has made
available to the Company (i) a copy of HFS's Form 10-K for the fiscal
year ended December 31, 1995 (the "1995 10-K"), (ii) HFS's proxy
statements relating to HFS's 1995 annual meeting of stockholders held on
May 20, 1996 and the special meeting of stockholders held on January 22,
1996, (iii) description of the HFS Common Stock contained in Form 8-A
dated September 16, 1992, including the amendment on Form 8-A/A dated
September 1, 1995 and (iv) HFS's Current Reports on Form 8-K dated March
8, 1996 and April 9, 1996 (the foregoing being referred to herein,
collectively, as the "HFS SEC Documents"). The HFS SEC Documents, at the
time filed, (a) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied
in all material respects with the applicable requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or the
Securities Act, as the case may be. The consolidated financial statements
of HFS included in the HFS SEC Documents comply as to form in all
material respects with appli-
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cable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present (subject, in the
case of the unaudited statements, to normal, recurring audit adjustments
which will not be material in amount) the consolidated financial position
of HFS and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended. Since the date of the 1995 10-K, HFS has not made any
material change in its accounting principles, practices or methods, nor
has there occurred any event which has had or might have a material
adverse effect on the business, results of operations or financial
condition of HFS.
Section 4.6 BROKERS OR FINDERS. Neither HFS nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any brokers' or finder's
fee or any other commission or similar fee in connection with this
Agreement or the Ancillary Agreements or any of the transactions
contemplated hereby or thereby.
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Section 4.7 FULL DISCLOSURE. As of the Closing Date, there will be
no fact or condition which HFS has not disclosed to the Company which
materially and adversely affects HFS and its Subsidiaries taken as a
whole.
Section 4.8 LITIGATION. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of HFS,
threatened which questions the validity or propriety of this Agreement or
any action to be taken by HFS in connection with this Agreement.
Section 4.9 NO OTHER REPRESENTATIONS. HFS is relying on no other
representations or warranties other than those contained in this
Agreement and understands and agrees the Company is making no
representation or warranty regarding the performance of the Franchise
Business. To the knowledge of HFS, as of the date hereof, there are no
facts or circumstances which could constitute a breach of the
representations and warranties of the Company.
ARTICLE V
COVENANTS
Section 5.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period
from the date of this Agreement and continuing until the Effective Time,
the Company agrees as to itself and its Subsidiaries that, except for the
Subsidiary-Parent Mergers, the Brother-Sister Merger, the Transfer, the
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Distribution and the other transactions contemplated by the Distribution
Agreement, as contemplated or permitted by this Agreement or as provided
in the Disclosure Schedule, or to the extent that HFS shall otherwise
consent in writing, which consent shall not be unreasonably withheld:
(a) ORDINARY COURSE. The Company shall, and shall cause each of
its Subsidiaries to, conduct its business in the usual, regular and
ordinary course consistent with past practice and shall use all
reasonable efforts, and will cause each of its Subsidiaries to use
all reasonable efforts, to preserve intact the present business
organization, keep available the services of its present officers
and employees and preserve its relationships with customers,
suppliers and others having business dealings with it.
(b) DIVIDENDS; CHANGES IN STOCK. The Company shall not, nor
shall it permit any of its Subsidiaries to, nor shall the Company
propose to, (i) declare or pay any dividends on or make other
distributions (whether in cash, securities or property or any
combination thereof) in respect of any of its capital stock, (ii)
adjust, split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities
in respect of, in lieu
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of or in substitution for shares of its capital stock or (iii)
repurchase, redeem or otherwise acquire, or permit any Subsidiary to
repurchase, redeem or otherwise acquire, any shares of capital stock
of the Company or any of its Subsidiaries.
(c) ISSUANCE OF SECURITIES. The Company shall not, nor shall
the Company permit any of its Subsidiaries to, issue, transfer,
pledge or sell, or authorize or propose or agree to the issuance,
transfer, pledge or sale of, any shares of its capital stock of any
class, any other equity interests or any securities convertible
into, or any rights, warrants, calls, subscriptions, options or
other rights or agreements, commitments or understandings to
acquire, any such shares, equity interests or convertible
securities.
(d) GOVERNING DOCUMENTS. The Company shall not, nor shall it
permit any of its Subsidiaries to, amend or agree to amend its
certificate of incorporation or by-laws or comparable organizational
documents.
(e) NO ACQUISITIONS; MATERIAL COMMITMENTS. The Company shall
not, nor shall it permit any of its Subsidiaries to, acquire or
agree to acquire by merging or consolidating with, or by purchasing
a substantial equity interest in or substantial portion of the
assets
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of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets outside
the ordinary and usual course of business consistent with past
practice or otherwise enter into any material commitment or
transaction outside the ordinary and usual course of business
consistent with past practice.
(f) NO DISPOSITIONS. The Company shall not, nor shall it permit
any of its Subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets outside the ordinary and
usual course of business consistent with past practice.
(g) INDEBTEDNESS. Except for transactions in the ordinary
course of business, the Company shall not, nor shall it permit any
of its Subsidiaries to, (i) incur, assume, pre-pay, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for any indebtedness for borrowed money
or (ii) issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its
Subsidiaries or guarantee any obligations of others, or (iii) make
any loans, advances or capital
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contributions to, or investments in, any other person in an amount
greater than $100,000.
(h) CHANGES TO BENEFIT PLANS. The Company shall not, nor shall
it permit any of its Subsidiaries to, (i) enter into, adopt, amend
(except as may be required by law and except for immaterial
amendments) or terminate any Compensation and Benefit Plan or other
employee benefit plan or any agreement, arrangement, plan or policy
between the Company or any of its Subsidiaries and one or more of
its directors, officers or employees, (ii) except for normal
increases in the ordinary course of business consistent with past
practice and the payment of bonuses to employees in the aggregate
not to exceed $10,000, increase in any manner, the compensation or
fringe benefits of any director, officer or employee or pay any
benefit to any director, officer or employee not required by any
plan or arrangement as in effect as of the date hereof or enter into
any contract, agreement, commitment or arrangement to do any of the
foregoing.
(i) FILINGS. The Company shall promptly provide HFS (or its
counsel) copies of all filings made by the Company with any federal,
state or foreign Governmental Entity in connection with this
Agreement, the Distribu-
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tion Agreement and the transactions contemplated hereby
and thereby.
(j) ACCOUNTING POLICIES AND PROCEDURES. The Company will not
and will not permit any of its Subsidiaries to change any of its
accounting principles, policies or procedures, except as may be
required by United States generally accepted accounting principles.
(k) LAWSUITS AND CLAIMS. The Company will not, and shall not
permit any of its Subsidiaries to, settle or compromise any material
suit or claim or threatened suit or claim.
(l) CONTRACTS. The Company will not, and shall not permit any
of its Subsidiaries to, modify, amend or terminate any Contract,
waive, release, relinquish or assign any Contract or other right or
claim or cancel or forgive any indebtedness owed to the Company or
its Subsidiaries, other than in the ordinary course of business
consistent with past practice or which is not material to the
business of the Retained Company.
(m) TAX MATTERS. The Company will not, and shall not permit any
of its Subsidiaries to, make any tax election or settle or
compromise any tax liability, in either case that is material to the
Company or any of its Subsidiaries individually or taken as a whole.
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(n) SPINCO. The Company shall (i) not engage in or allow
transfers of assets or liabilities or engage or enter into other
transactions between the Company and its Subsidiaries, (ii) abide
and cause Spinco to abide by their respective obligations under the
Distribution Agreement, and (iii) not terminate or amend, or waive
compliance with any obligations under, the Distribution Agreement.
(o) OTHER ACTIONS. Notwithstanding the fact that such action
might otherwise be permitted pursuant to this Section 5.1, the
Company shall not knowingly, nor shall it permit any of its
Subsidiaries to knowingly, take any action that would or is
reasonably likely to result in any of the conditions to the Merger
set forth in Article VII not being satisfied or that would
materially impair the ability of the Company to consummate the
Distribution or the Merger in accordance with the terms hereof and
of the Distribution Agreement or materially delay such consummation.
Section 5.2 COVENANTS OF HFS.
(a) Filings. HFS shall promptly provide the Company (or its
counsel) copies of all filings made by HFS with any federal, state
or foreign Governmental Entity in connection with this Agreement,
the Distribution
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Agreement and the transactions contemplated hereby and thereby,
other than those which would not otherwise be publicly made
available, and provide the Company with any press releases it issues
regarding matters of a material nature.
(b) Consents. HFS will not unreasonably withhold a consent
required under the Distribution Agreement.
(c) Waivers. HFS shall cause C21-Real Estate to waive its
rights of first refusal and consent to the transactions contemplated
by this Agreement and the Distribution Agreement under the Company
Subfranchise Agreement and the Northwest Subfranchise Agreement.
(d) Other Actions. During the period from the date of this
Agreement and continuing until the Effective Time, HFS agrees as to
itself and its Subsidiaries that HFS shall not take any action that
would or is reasonably likely to result in any of the conditions to
the Merger set forth in Article VII not being satisfied or that
would materially impair the ability of HFS to consummate the Merger
in accordance with the terms hereof or materially delay such
consummation.
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ARTICLE VI
ADDITIONAL AGREEMENTS AND
OTHER ADDITIONAL MATTERS
Section 6.1 REASONABLE EFFORTS. Subject to the terms and conditions
of this Agreement, each of the parties hereto agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and each party shall promptly
consult with the other and provide any necessary information and material
with respect to all filings made by such party with any Governmental
Entity in connection with this Agreement and the transactions
contemplated hereby. HFS agrees that it will take all necessary action
(i) to promptly prepare and file with the SEC a registration statement
(the "Registration Statement") to register the shares of HFS Common Stock
being issued to the Stockholders pursuant hereto for resale, (ii) as may
be required to have the Registration Statement declared effective under
the Securities Act as promptly as practicable, and (iii) as may be
required to be taken under applicable state securities or "blue sky" laws
in connection with the resale of the shares
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of HFS Common Stock being issued to the Stockholders pursuant hereto.
Section 6.2 ACCESS TO INFORMATION. Upon reasonable notice, the
Company shall (and shall cause its Subsidiaries to) afford to the
officers, employees, accountants, counsel and other representatives of
HFS, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and
records and all other information concerning its business, properties and
personnel as HFS may reasonably request. Unless otherwise required by
law, the parties will hold any such information which is non-public in
confidence. Section
6.3 STOCK EXCHANGE LISTING. HFS shall use its reasonable efforts to
cause the shares of HFS Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date. Section
6.4 EMPLOYEE MATTERS; EMPLOYEE BENEFIT PLANS. (a) Schedule 6.4(a)
hereto sets forth a list of all employees of the Company and its
Subsidiaries who, if the Effective Time occurred as of the date of this
Agreement, will be offered employment with the Retained Company following
the Distribution and the Merger (the "Retained Employees").
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(b) The Schedule 6.4(b) hereto sets forth (i) a list of all
employees of the Company and its Subsidiaries who will become employees
of Spinco following the Closing and whose services will be made available
to the Retained Company (the "Transitional Employees") from the Closing
Date until the earlier of the conversion of the business information
systems of the Franchise Business to HFS' systems and September 30, 1996
(the "Transitional Employees") and (ii) the amount of annual salary to be
paid to each Transitional Employee. Spinco agrees that the Retained
Company shall have (i) the right to the services of each of the
Transitional Employees to the extent that it requires, which may include
up to substantially all of their working hours, at an hourly rate based
on their annual compensation and a forty-hour week and (ii) the work
requested to be performed by the Transitional Employees for the Retained
Company to be completed on a timely basis. HFS agrees that Spinco shall
be paid promptly for the services of the Transitional Employees upon
receipt of an invoice from Spinco for their services.
(c) Prior to the Distribution, the Company shall, and shall cause
its Subsidiaries to, assign to Spinco or its Subsidiaries and/or
terminate any employment and/or severance agreements with employees of
the Company who are not
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Retained Employees. The parties hereto acknowledge and agree that, whether or
not such employment and severance agreements are so assigned and/or
terminated, all liabilities and obligations under or arising from such
agreements (or, with respect to such employees, under any severance plan or
policy of the Company) shall be deemed to be "Spinco Liabilities," as such
term is defined in the Distribution Agreement and the Company shall have no
obligation or liability with respect thereto.
(d) HFS shall not have any liability or obligation, including,
without limitation, in respect of severance, to or for any employee or former
employee of the Company or any of its Subsidiaries based upon events,
occurrences or services performed by such employees or former employees for
the Company or any of its Subsidiaries on or prior to the Closing Date and, in
the case of employees of the Company or any of its Subsidiaries other than
Retained Employees, following the Closing Date.
Section 6.5 FEES AND EXPENSES. Except as set forth in the
Distribution Agreement, whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
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Section 6.6 PRE-MERGER TRANSACTIONS. Prior to the Closing, the
Company will take all reasonable action necessary to effect the
Subsidiary-Parent Mergers, the Brother-Sister Merger, the Transfer, and
the Distribution pursuant to the terms of the Distribution Agreement,
which shall not be amended or modified without HFS's written consent
where HFS's consent is required thereunder, which consent will not be
unreasonably withheld.
Section 6.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt written notice to HFS, and HFS shall give prompt written notice to
the Company, of (a) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause (i) any
representation or warranty contained in this Agreement to be untrue or
inaccurate or (ii) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied and (b) any failure of the
Company or HFS, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.7 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
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Section 6.8 DEPOSIT AND ESCROW. Simultaneously with the execution of
this Agreement, HFS has delivered to Wells Fargo Bank, N.A. (the "Escrow
Agent") the sum of $5,000,000 as a good faith deposit, which sum (the
"Deposit") is to be held in escrow pursuant to the Escrow Agreement
(substantially in the form attached hereto as Exhibit D) until the
Closing or the earlier termination of this Agreement pursuant to the
terms of this Agreement. The Deposit shall be distributed as follows:
(i) In the event that the Closing occurs, HFS and the Company
shall instruct the Escrow Agent to return the Deposit to HFS;
(ii) In the event that the Closing does not occur due to HFS's
Default (as defined in Section 8.2 of this Agreement), and the
Company elects, in its sole discretion, to waive its right to seek
specific performance under Section 9.10 of this Agreement, HFS and
the Company shall instruct the Escrow Agent that the Deposit should
be delivered to the Company as and for liquidated damages for such
Default; and thereafter any and all obligations and liabilities of
the parties to each other with respect to the transactions
contemplated by this Agreement shall terminate;
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(iii) In the event that the Closing does not occur due to the
Company's Default, HFS and the Company shall instruct the Escrow
Agent that the Deposit should be delivered to HFS;
(iv) In the event that the Closing does not occur due to
neither HFS's nor the Company's Default, HFS and the Company shall
instruct the Escrow Agent to return the Deposit to HFS.
Section 6.9 RELEASE AND DISCHARGE. Prior to or on the Closing Date,
the Company will, on a basis and pursuant to documentation reasonably
satisfactory to HFS, cause the Retained Company and its properties or
assets to be released and discharged from any and all liabilities,
obligations, indebtedness, guarantees, pledges and liens.
Section 6.10 HFS SHARE ISSUANCE. Prior to the Closing, the Company
understands and agrees that HFS and its Subsidiaries may issue additional
shares of their capital stock and that such issuance shall not be a
violation of the representations and warranties made by HFS pursuant to
Section 7.2 hereof.
Section 6.11 LEASE. Spinco agrees that at the Closing it will enter
into a lease with HFS for a portion of the office located at 3400 Inland
Empire Boulevard, Ontario,
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California in substantially the form set forth as Exhibit H hereto (the
"Occupancy Agreement").
Section 6.12 CERTAIN TAX-RELATED REPRESENTATIONS,
COVENANTS AND OTHER MATTERS.
(a) Tax Related Representations of HFS.
(i) HFS and its Subsidiaries wish to acquire only the
Franchise Business and the Franchise Business Assets held by
the Company and its Subsidiaries. They have no interest in
operating, and are unwilling to acquire, any other business of
the Company or its Subsidiaries, including, without limitation,
the insurance business held by RIS (the "Insurance Business").
HFS is unwilling to engage in a transaction to acquire the
Franchise Business if such transaction also would involve the
acquisition of any of the Other Assets. "Other Assets" means
all businesses, cash and other assets held by the Company and
its Subsidiaries, other than the Franchise Business and the
Franchise Business Assets. (ii) HFS owns directly 87.5 percent
of the issued and outstanding shares of the sole outstanding
class of capital stock of C21 Holding Corp., a Delaware
corporation ("Holding"). Hold-
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ing owns directly all of the issued and outstanding shares of
the sole outstanding class of capital stock of C21-Real Estate,
which directly operates the Century 21 franchising business. In
connection with its proposed acquisition of the Franchise
Business from the Company, HFS has stated its intention to
cause the Franchise Business to be directly operated by
C21-Real Estate and has expressed its preference that the
Franchise Business and the Franchise Business Assets be owned
at the time of the acquisition by, and therefore acquired from,
a single corporate owner.
(iii) The stock of C21-Real Estate owned by Holding has a
value in excess of $100 million. Since September 1, 1995, (a)
C21-Real Estate has been directly engaged in the Century 21
master franchising business in certain regions of the country
and has owned assets with a value in excess of $100 million;
(b) Holding has owned directly all of the issued and
outstanding shares of the sole outstanding class of common
stock of C21-Real Estate; and (c) HFS has owned directly 87.5
percent of the issued and outstanding shares of
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the sole outstanding class of capital stock of Holding.
(iv) There are no contractual obligations of HFS or any of
its Subsidiaries to repurchase, redeem, or otherwise acquire
any shares of capital stock of HFS, Holding or C21-Real Estate
and no options or other rights to acquire any capital stock of
Holding or C21-Real Estate are outstanding; provided, however,
that, pursuant to an agreement between Holding, HFS, and Robert
W. Pittman and others (collectively, the "Management
Stockholders") dated August 1, 1995, as amended (the
"Subscription Agreement"), (i) the Management Stockholders hold
certain preemptive rights with respect to Holding and its
subsidiaries, and provided, further, that, pursuant to such
Subscription Agreement, the Management Stockholders, generally,
have the ability to subscribe for an amount of equity
securities (e.g., any capital stock, or securities convertible
into or exchangeable for any capital stock), pro rata to the
Management Stockholders' proportional ownership of Holding's
capital stock, that is offered by Holding or its subsidiaries,
(ii) under certain condi-
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tions, HFS has a call option to purchase all of the Holding
common stock owned by the Management Stockholders for the fair
market value of such stock when the option is exercised (the
"Exercise Price"), and the Management Stockholders have a put
option to require HFS to purchase all of their Holding common
stock at the Exercise Price and (iii) the Management
Stockholders have been granted tag-along rights in respect of a
sale by HFS of Holding common stock, if, after giving effect to
such sale, HFS would own less than a majority of the Holding
common stock.
(b) Tax Related Covenants of HFS.
(i) To accomplish its business objective of causing all of
the Century 21 business to be directly operated by C21-Real
Estate, at the Closing and immediately following the Merger,
HFS shall (a) contribute the Franchise Business and the
Franchise Business Assets to Holding; and (b) cause Holding to
contribute the Franchise Business and the Franchise Business
Assets to C21-Real Estate, in transactions intended to be
tax-free (i) pursuant to Section 351 of the Code and (ii)
pursuant to Section 368(a)(2)(C) of the Code.
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(ii) Following the Merger, HFS will not take or cause or
permit any of its Subsidiaries to take any action, or suffer to
exist any condition, including, without limitation, cessation
of the Franchise Business, or sales or other dispositions of
any of the Franchise Business Assets, that would disqualify the
Merger as a reorganization within the meaning of Section 368(a)
of the Code. For purposes of this section, the Parties agree
that the following shall not constitute a breach by HFS of this
covenant: (A) dispositions made in the ordinary course of
business of any of the Franchise Business Assets, (B) transfers
of any of the Franchise Business Assets pursuant to Section
368(a)(2)(C) of the Code, and (C) any action, omission or
failure to take action by HFS in connection with the sale,
exchange, transfer by gift or other disposition (including
through transactions which would have the ultimate economic
effect of a disposition, including but not limited to short
sales and equity swap types of arrangements) (collectively,
"Disposition") of shares of HFS Common Stock by a shareholder
of the Company to any person where such Disposition is other
than
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pursuant to a merger or other agreement to which HFS is a party
pursuant to which such shareholder of the Company is legally
compelled to make such Disposition.
(c) Tax Related Covenants of the Company and Spinco.
(i) In order to facilitate the acquisition by HFS of the
Franchise Business and the Franchise Business Assets and the
operation and acquisition by Spinco of the Insurance Business
and the Other Assets, respectively, the Company and Spinco,
pursuant to Sections 2.1, 2.2 and Article III of the
Distribution Agreement, will cause the following transactions
to occur, in the following order, prior to the Merger:
(A) pursuant to a plan of complete liquidation and
merger, C21-Idaho will be merged into its parent
corporation, C21-Oregon, with C21-Oregon continuing as the
surviving corporation, in a transaction intended to be a
tax-free liquidation pursuant to Section 332 of the Code;
(B) pursuant to a plan of complete liquidation and
merger, C21-Washington will
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be merged into its parent corporation, C21-Oregon, with
C21-Oregon continuing as the surviving corporation, in a
transaction intended to be a tax-free liquidation pursuant
to Section 332 of the Code;
(C) pursuant to a plan of complete liquidation and
merger, C21-Oregon will be merged into its parent
corporation, the Company, with the Company continuing as
the surviving corporation, in a transaction intended to be
a tax-free liquidation pursuant to Section 332 of the
Code, with the result that by operation of law the
Company, prior to the Merger, will own the entire
Franchise Business and all of the Franchise Business
Assets (collectively, the three mergers described
immediately above are referred to as the
"Subsidiary-Parent Mergers");
(D) the Company will make a contribution to the
capital of Regional Insurance Services, Inc., a Washington
corporation ("RIS"), which will then be a wholly-owned
subsidiary of the Company, of any and all
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then-outstanding indebtedness of RIS to the Company;
(E) pursuant to a plan of merger, RIS will be merged
with and into Spinco (the "Brother-Sister Merger"), with
Spinco continuing as the surviving corporation;
(F) pursuant to a plan of reorganization, the Company
will transfer as a contribution to the capital of Spinco
certain assets of the Company, and Spinco will assume
certain liabilities of the Company, which, in each case,
HFS is unwilling to acquire (the "Transfer"), in a
transaction that, together with the Distribution, is
intended to be a tax-free reorganization pursuant to
Section 368(a)(1)(D) of the Code; and
(G) pursuant to a plan of reorganization, the Company
will distribute (the "Distribution") to the Stockholders
all of the issued and outstanding shares of capital stock
of Spinco (the "Spinco Common Stock") in redemption of a
certain number of their shares of Company Common Stock, in
a trans-
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action intended to be a tax-free distribution pursuant to
Section 355 of the Code.
(ii) On or after the date of this Agreement and prior to the
Merger, the Company will not take or cause or permit any of its
Subsidiaries to take any action, or suffer to exist any condition,
that would disqualify the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
6.13 COMPUTER ACCESS. For a reasonable time period not exceeding six
months following the Merger, Spinco agrees that it will make available
to, and allow HFS access to, any computer hardware, software, computer
programs and systems and documentation relating to the Franchise Business
in order for HFS to process information relating to the Franchise
Business and to obtain and transfer such information to its own database.
ARTICLE VII
CONDITIONS
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of the parties to effect the Merger
are subject to the satisfaction, on or prior to the Closing Date, of the
following conditions:
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(a) NYSE LISTING. The shares of HFS Common Stock issuable to
the Company's Stockholders pursuant to this Agreement shall have
been authorized for listing on the NYSE, upon official notice of
issuance.
(b) HSR APPROVAL. Any applicable waiting period under the HSR
Act shall have expired or been terminated.
(c) OTHER APPROVALS. Other than the filing provided for by
Section 1.1, all authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations of waiting periods
imposed by, any other Governmental Entity, the failure to obtain
which would have a material adverse effect on the Surviving
Corporation and its Subsidiaries, the Retained Company or Spinco and
its Subsidiaries, in each case where appropriate taken as a whole,
shall have been filed, occurred or been obtained.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining
order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in
effect (each party agreeing to use all reasonable ef-
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forts to have any such order reversed or injunction lifted).
(e) CONSUMMATION OF THE PRE-MERGER TRANSACTIONS. The
Subsidiary-Parent Mergers, the Brother-Sister Merger, the Transfer
and the Distribution shall have occurred in accordance with the
Distribution Agreement.
(f) NO ACTION. No action, suit or proceeding by any
Governmental Entity before any court or governmental or regulatory
authority shall be pending or threatened against the Company, HFS,
Spinco or any of their respective Subsidiaries challenging the
validity or legality of the transactions contemplated by this
Agreement or the Distribution Agreement, other than actions, suits
or proceedings which, in the reasonable opinion of counsel to the
parties hereto, are unlikely to result in an adverse judgment.
Section 7.2 CONDITIONS OF OBLIGATIONS OF HFS. The obligation of HFS
to effect the Merger is subject to the satisfaction, on or prior to the
Closing Date, of the following conditions unless waived by HFS:
(a) REPRESENTATIONS AND WARRANTIES. (i) Each of the
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects as of
the date hereof and as of
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the Closing Date as though made on and as of the Closing Date, except
to the extent a representation and warranty speaks as of an earlier
date in which case it shall be true as of the date at which it
speaks, and HFS shall have received a certificate signed on behalf of
the Company by the chief executive officer or the chief financial
officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and
its Subsidiaries (including Spinco) shall have performed in all
material respects all obligations required to be performed by it
under this Agreement and the Distribution Agreement at or prior to
the Closing Date, and HFS shall have received a certificate signed
on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(c) OPINIONS OF COUNSEL. HFS shall have received the opinion of
Kindel & Anderson L.L.P., special counsel to the Company,
substantially to the effect set forth in Exhibit 7.2(c) hereto.
(d) TAX OPINION. HFS shall have received a copy of the written
opinion to Spinco of Kindel & Anderson L.L.P., special counsel to
the Company, which opinion shall specifically set forth the facts
and legal analy-
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sis forming the basis of such opinion, that for federal income tax
purposes:
(i) no gain or loss was recognized with respect to the
Franchise Business Assets by C21-Idaho, C21-Washington,
C-21-Oregon or the Company (collectively, the "Target Group")
pursuant to the mergers of C21-Idaho and C21-Washington into
C21-Oregon and the merger of C21-Oregon into the Company,
except for any gain or loss which may have resulted (A) from
the satisfaction or deemed satisfaction of any indebtedness
between members of the Target Group, (B) from any corporation
ceasing to be a member of the affiliated group filing
consolidated federal income tax returns that had the Company as
its common parent corporation or (C) from the termination of
such affiliated group; and
(ii) the Merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code and the Company
and HFS will each be a party to the reorganization within the
meaning of Section 368(b) of the Code, with the consequence
that:
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a. No gain or loss will be recognized by either
the Company or HFS pursuant to the Merger;
b. No gain or loss will be recognized by
the shareholders of the Company in the exchange of
their Shares of Company Common Stock for shares of
HFS Common Stock pursuant to the Merger (except to
the extent cash is received in lieu of fractional
shares of HFS Common Stock);
c. The tax basis of the shares of HFS
Common Stock received by the shareholders of the
Company in the exchange of Company Common Stock
pursuant to the Merger will be the same as the tax
basis immediately prior to the Merger of the Shares
of Company Common Stock exchanged therefor (less
any portion of such tax basis allocable to any
fractional interest in any share of HFS Common
Stock for which a shareholder of the Company
receives cash); and
d. The holding period of the HFS Com-
mon Stock received by the shareholders of the
Company in exchange for Shares of Company
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Common Stock pursuant to the Merger will include
the period that the Shareholders held such Shares
of Company Common Stock, provided such Shares were
held as capital assets by the shareholders on the
date of the Merger.
For purposes of rendering the foregoing opinion, counsel
may receive and rely upon representations contained in
appropriate certificates of the Company, Spinco, HFS and
others.
(e) NON-COMPETITION AGREEMENTS. Non-Competition
Agreements substantially in the form attached as Exhibit
E and Exhibit F hereto (the "Non-Competition Agree-
ments") shall have been entered into by each of Philip J.
Yeager and William P. Yeager, Sr., respectively.
(f) INDEMNIFICATION AND OCCUPANCY AGREEMENTS. The
Indemnification Agreement and Occupancy Agreement shall
have been executed by Spinco.
(g) GUARANTY. The Guaranty substantially in the form
attached as Exhibit G hereto shall have been entered
into by the parties thereto.
Section 7.3 CONDITIONS OF OBLIGATIONS OF THE COMPANY. The obligation
of the Company to effect the Merger is subject to the satisfaction of
the following conditions, on or
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prior to the Closing Date, unless waived by the Company in writing:
(a) REPRESENTATIONS AND WARRANTIES. (i) Each of the
representations and warranties of HFS contained in this Agreement
shall be true and correct in all material respects as of the date
hereof and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representation and warranty
speaks as of an earlier date in which case it shall be true as of
the date at which it speaks, and the Company shall have received a
certificate signed on behalf of HFS by the chief executive officer
or the chief operating officer of HFS to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF HFS. HFS shall have performed
in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate signed on behalf of HFS by
the chief executive officer or the chief operating officer of HFS to
such effect.
(c) OPINIONS OF COUNSEL. The Company and Spinco shall have
received the opinions of Skadden, Arps, Slate, Meagher & Flom,
special counsel to HFS, substan-
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tially to the effect set forth in Exhibit 7.3(c) hereto.
(d) ADDITIONAL AGREEMENTS. The Indemnification Agreement and
the Agreement for Continuation of Litigation, substantially in the
Form of Exhibit I hereto (the "Litigation Agreement"), shall have
been executed by HFS and Century 21 Real Estate Corporation.
(e) NOTICE TO ESCROW AGENT. The Company shall have delivered
instructions to the Escrow Agent to release the Deposit.
(f) ADDITIONAL AGREEMENTS. Spinco and the other parties to the
Indemnification and Non-Competition Agreements, which shall be
substantially in the form set forth as Exhibit B, Exhibit E and
Exhibit F hereto, respectively, shall have executed such agreements.
(g) WAIVER OF RIGHTS OF FIRST REFUSAL. C21-Real Estate shall
have waived in writing its rights of first refusal under the Company
Subfranchise Agreement and the Northwest Subfranchise Agreement and
consented to the transactions contemplated by this Agreement and the
Distribution Agreement.
(h) REGISTRATION STATEMENT EFFECTIVENESS. The Registration
Statement shall have been declared effective, and all actions
required to be taken under appli-
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cable state securities or "blue sky" laws in connection with the
issuance of the shares of HFS Common Stock being issued to the
Stockholders pursuant to this Agreement shall have been taken;
provided, however, that if the foregoing condition that the
Registration Statement shall have been declared effective by the SEC
is waived by the Company, each holder of Company Common Stock at the
Closing shall deliver an investment representation letter stating
that the holder is holding the HFS Common Stock to be received in
the Merger for investment and agreeing to a restrictive legend being
placed on the certificates therefor regarding the non-registration
of the HFS Common Stock being placed on the certificates therefor.
(i) INSURANCE BUSINESS LICENSES. Spinco shall be licensed to
conduct the Insurance Business in Washington, Oregon, Idaho and
California.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time:
(a) by mutual written consent of HFS and the Company;
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(b) by either HFS or the Company if the Merger shall not have
been consummated before May 15, 1996 (or if the Registration
Statement is reviewed by the SEC, May 25, 1996; provided, however,
that HFS agrees that the condition in Section 7.3(h) of this
Agreement may be waived by the Company on or before May 14, 1996 and
if so waived, there shall be no extension to May 25, 1996 as a
result of SEC review of the Registration Statement) has caused the
Registration Statement to not be effective by May 15, 1996) (unless
the failure to so consummate the Merger by such date shall be due to
the action or failure to act of the party seeking to terminate this
Agreement, which action or failure to act constitutes a breach of
this Agreement);
(c) by HFS if there has been a material breach on the part of
the Company in the representations, warranties or covenants of the
Company set forth herein or in the Distribution Agreement, or any
material failure on the part of the Company to comply with its
obligations hereunder or thereunder and such breach or failure is
not cured if capable of cure by the Closing Date;
(d) by the Company if there has been a material breach on the
part of HFS in the representations, warranties or covenants of HFS
set forth herein, or any
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material failure on the part of HFS to comply with its obligations
hereunder and such breach or failure is not cured if capable of cure
by the Closing Date; or
(e) by HFS or the Company if there has been a material breach
on the part of the other party in its representations, warranties,
or covenants or a material failure on the part of the other to
comply with its obligations hereunder and such breach or failure is
not cured if capable of cure by the Closing Date.
Section 8.2 EFFECT OF TERMINATION. In the event of a termination of
this Agreement by either the Company or HFS as provided in Section 8.1,
(i) if such termination is not the result of a Default by either party,
this Agreement and the Distribution Agreement shall forthwith become void
and there shall be no liability or obligation on the part of HFS or the
Company, and upon request therefor, each party shall redeliver all copies
of all documents, work papers and other materials of any other party
relating to or furnished in connection with the transactions contemplated
by this Agreement to the party furnishing the same and (ii) if the
Company terminates this Agreement because of HFS's Default and, in its
sole discretion, elects not to seek specific performance under Section
9.10 of this Agreement, the Company agrees that its only remedy shall be
to receive the Deposit
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as liquidated damages. For purposes of this Section 8.2, "Default" shall
mean: a party's failure to consummate this Agreement where all conditions
to its obligations to consummate it were satisfied; or the breach of a
material covenant which is not capable of being cured as of the Closing;
or the failure to cure a material covenant prior to Closing after notice
from the non-breaching party; or a material breach or material inaccuracy
of a representation or warranty, which in the exercise of reasonable
business judgment, would cause a person to not wish to consummate the
transactions contemplated hereby.
Section 8.3 WAIVER OF RESCISSION. Notwithstanding any breach or
default by any party of any of their respective representations,
warranties, covenants or agreements under this Agreement, if the
transactions contemplated by this Agreement shall be consummated at the
Closing, each such party waives, other than for fraud committed by
another party, any rights that it or they may have to rescind this
Agreement or the transactions consummated.
ARTICLE IX
MISCELLANEOUS
Section 9.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and
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agreements in this Agreement or in any instrument delivered pursuant to
this Agreement shall survive the Effective Time and continue until the
time provided in the Indemnification Agreement.
Section 9.2 AMENDMENT. This Agreement may be amended by the parties
hereto only by an instrument in writing signed on behalf of each of the
parties hereto, by action taken or authorized by their respective Boards
of Directors, at any time before or after approval of the matters
presented in connection with the Merger by the Stockholders of the
Company but, after any such approval, no amendment shall be made which by
law requires further approval by such Stockholders without such further
approval.
Section 9.3 EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by the respective
Boards of Directors, may to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the agreements or
conditions contained here. Any agreement on the part of a party hereto to
any such exten-
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sion or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party.
Section 9.4 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given on the date delivered if
delivered personally (including by reputable overnight courier), on the
date transmitted if sent by telecopy (which is confirmed) or 72 hours
after mailing if mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to HFS, to:
HFS Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054-0278
Attn: James E. Buckman, Esq.
Executive Vice President
and General Counsel
Telecopy: (201) 428-3260
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: Mark T. Shehan, Esq.
Telecopy: (212) 735-2000
and
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(b) if to the Company, to:
Century 21 Region V, Inc.
3400 Inland Empire Boulevard,
Suite 205
Ontario, California 91764-5510
Attn: William P. Yeager
Telecopy: (909) 941-1093
with a copy to:
Kindel & Anderson L.L.P.
5959 Topanga Canyon Boulevard
Suite 244
Woodland Hills, California 91367
Attn: Christopher J. Husa, Esq.
Telecopy: (818) 346-6502
Section 9.5 INTERPRETATION. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without
limitation."
Section 9.6 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement
and shall become effective when a counterpart has been signed by each of
the parties and de-
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livered to each of the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement, the Distribution Agreement, the Indemnification Agreement, the
Non-Competition Agreements, the Guaranty and the Escrow Agreement
(including the documents and the instruments referred to herein and
therein) (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties
to this Agreement with respect to the subject matter hereof and thereof,
and (b) are not intended to confer upon any person other than the
Stockholders (who are hereby acknowledged to be third party beneficiaries
of all such agreements) and the parties hereto and thereto any rights or
remedies hereunder or thereunder.
Section 9.8 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of California without
regard to any applicable conflicts of law principles.
Section 9.9 JURISDICTION. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby
may be brought only in the United States District Court for the Central
District
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of California or any California state court sitting in Los Angeles,
California, and each of the parties hereby consents to the jurisdiction
of such courts (and of the appropriate appellate courts therefrom) in any
such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding in any
such court or that any such suit, action or proceeding which is brought
in any such court has been brought in an inconvenient forum. Process in
any such suit, action or proceeding may be served on any party anywhere
in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of
process on such party as provided in this Section 9.9 shall be deemed
effective service of process on such party.
Section 9.10 SPECIFIC PERFORMANCE. The parties hereto agree that if
any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached, irreparable damage
would occur, no adequate remedy at law would exist and damages would be
difficult to determine, and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy
at law or equity.
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Section 9.11 PUBLICITY. Except as otherwise required by law or the
rules of NYSE, for so long as this Agreement is in effect, neither the
Company nor HFS shall, nor shall they permit any of their Subsidiaries
to, issue or cause the publication of any press release or other public
announcement with respect to the transactions contemplated by this
Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed.
Section 9.12 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise, other than
in connection with the Merger), without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 9.13 PREVAILING PARTY EXPENSES. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for all
expenses and costs incurred by the prevailing party or parties in connec-
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tion with such action, including, without limitation, attorneys'
fees.
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IN WITNESS WHEREOF, HFS, the Company and Spinco have caused this
Agreement and Plan of Merger and Reorganization to be signed by their
respective officers thereunto duly authorized as of the date first written
above.
HFS INCORPORATED
By: /s/ JAMES E. BUCKMAN
-----------------------
Name: James E. Buckman
Title: Executive Vice
President
CENTURY 21 REGION V, INC.
By: /s/ PHILIP J. YEAGER
----------------------
Name: Philip J. Yeager
Title: Chairman and Chief
Executive Officer
YEAGER REAL ESTATE AND FINANCIAL
SERVICES, INC.
By: /s/ W.P. YEAGER
----------------------
Name: W.P. Yeager
Title: President
95
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HFS INCORPORATED,
CBC ACQUISITION CORP.,
FREMONT INVESTORS, INC.
AND
COLDWELL BANKER CORPORATION
MAY 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS...................... 1
Section 1.1 Defined Terms......................................1
Section 1.2 Other Definitional Provisions......................6
ARTICLE II
THE MERGER.........................6
Section 2.1 The Merger.........................................6
Section 2.2 Effective Time of the Merger.......................6
Section 2.3 Closing............................................7
Section 2.4 Effects of the Merger..............................7
Section 2.5 Articles of Incorporation; By-Laws.................7
Section 2.6 Directors and Officers.............................7
ARTICLE III
CONVERSION OF SHARES;
DISSENTING SHARES; PAYMENT.................8
Section 3.1 Conversion of Shares...............................8
Section 3.2 Dissenting Shares..................................8
Section 3.3 Exchange of Shares.................................9
Section 3.4 Treatment of Employee Options.................... 11
Section 3.5 Escrow Deposits.................................. 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FREMONT
AND THE COMPANY.................... 11
Section 4.1 Representations and Warranties of
Fremont....................................... 11
Section 4.2 Representations and Warranties of the
Company....................................... 13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.... 26
Section 5.1 Due Organization and Power of Parent and
Sub........................................... 26
Section 5.2 Authorization and Validity of Agreement.......... 26
Section 5.3 No Conflict...................................... 26
Section 5.4 Governmental Consents............................ 27
Section 5.5 Purchase for Investment.......................... 27
Section 5.6 Brokers, Finders, etc............................ 27
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ARTICLE VI
COVENANTS....................... 27
Section 6.1 No Solicitation.................................. 27
Section 6.2 No Changes with respect to Common Stock.......... 28
Section 6.3 Conduct of Business.............................. 28
Section 6.4 Access........................................... 30
Section 6.5 No Public Announcement........................... 31
Section 6.6 Notice of Developments........................... 31
Section 6.7 Expenses......................................... 32
Section 6.8 Additional Agreements............................ 32
ARTICLE VII
TAX MATTERS...................... 33
Section 7.1 Transfer Taxes................................... 33
Section 7.2 Tax Indemnification by Fremont................... 33
Section 7.3 Tax Indemnification By Parent.................... 34
Section 7.4 Tax Returns...................................... 34
Section 7.5 Estimated Taxes and True Up...................... 35
Section 7.6 Procedures Relating to Indemnification
of Tax Claims................................. 36
Section 7.7 Cooperation with Respect to Tax Matters.......... 37
Section 7.8 Section 338 Election............................. 37
ARTICLE VIII
CONDITIONS TO THE CLOSING............... 39
Section 8.1 Conditions of Obligation of Each Party........... 39
Section 8.2 Additional Conditions to the Obligations
of Parent..................................... 39
Section 8.3 Additional Conditions to the Obligations
of the Company and Fremont.................... 41
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER........... 41
Section 9.1 Termination...................................... 41
Section 9.2 Effect of Termination............................ 43
ARTICLE X
MISCELLANEOUS..................... 44
Section 10.1 Survival......................................... 44
Section 10.2 Employees........................................ 44
Section 10.3 Brokers and Financial Advisors................... 45
Section 10.4 Notices.......................................... 45
Section 10.5 Interpretation................................... 46
Section 10.6 No Third Party Beneficiaries..................... 46
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Section 10.7 Amendment........................................ 46
Section 10.8 Extension; Waiver................................ 46
Section 10.9 Entire Agreement................................. 47
Section 10.10 Successors and Assigns........................... 47
Section 10.11 Governing Law.................................... 47
Section 10.12 Counterparts..................................... 47
EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Merger Letter of Transmittal
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of May 1, 1996 among HFS
Incorporated, a Delaware corporation (the "Parent"), CBC Acquisition Corp., a
Delaware corporation and a direct wholly owned subsidiary of Parent ("Sub"),
Fremont Investors, Inc., a Nevada corporation ("Fremont"), and Coldwell Banker
Corporation, a Delaware corporation and a direct subsidiary of Fremont (the
"Company").
RECITALS:
WHEREAS, the boards of directors of Parent, Sub, Fremont and the Company
have each approved the terms and conditions of the business combination
between Parent and the Company to be effected by the merger (the "Merger") of
Sub with and into the Company, pursuant to the terms and subject to the
conditions of this Agreement and the General Corporation Law of the State of
Delaware (the "Delaware Statute"), and each deems the Merger advisable and in
the best interests of each corporation; and
WHEREAS, each of Parent, Sub, Fremont and the Company desires to make
certain representations, warranties, covenants and agreements in connection
with the Merger.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. For purposes of this Agreement, the terms
defined in this Agreement shall have the respective meanings specified herein,
and, in addition, the following terms shall have the following meanings:
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common
control with, such Person; provided that Bechtel Group, Inc. and Bechtel
Enterprises, Inc., and any Person controlled by either or both of Bechtel
Group, Inc. or Bechtel Enterprises, Inc., shall not be deemed to be an
Affiliate of Fremont or the Company. The term "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as applied to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or other ownership interest, by contract or otherwise. For all
purposes of this Agreement, Bechtel Group, Inc. and Bechtel Enterprises,
Inc. shall not be
<PAGE>
2
deemed to control Fremont, the Company or any subsidiary of Fremont or
the Company.
"Agreement": this Agreement and Plan of Merger, together with all
schedules and exhibits referenced herein, as amended, modified or
supplemented from time to time.
"Board of Directors": the board of directors of the Company or, to
the extent legally permissible, a duly constituted committee thereof.
"Business Day": a day other than a Saturday or a Sunday or other day
on which commercial banks in New York City are authorized or required by
law to close.
"Code": the Internal Revenue Code of 1986, as amended.
"Common Stock": the shares of common stock of the Company, $.01 par
value per share.
"Confidentiality Agreement": the Confidentiality Agreement between
Fremont and Parent dated March 25, 1996.
"Contractual Obligation": as to any Person, any provision of any
note, bond or security issued by such Person or of any loan agreement,
mortgage, indenture, deed of trust, lease, license, franchise, contract,
agreement, instrument or undertaking to which such Person is a party or
by which it or any of its property or assets is bound.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Environmental Laws": any and all foreign, federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
enforceable decrees or requirements of any Governmental Authority
regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as now or may
at any time on or prior to the Closing Date be in effect.
"Environmental Permit": any license, permit, order, approval,
registration, authorization, or qualification required under any
Environmental Law.
"Environmental Report": any report, study, assessment, audit, or
other similar document that addresses any issue of actual or potential
noncompliance with, or actual or potential liability under, any
Environmental Law that may in any way affect the Company or any
Subsidiary.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
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3
"Escrow Agreement": the escrow agreement set forth in Exhibit A
hereto.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Franchisee": any Person who owns or possesses the right to operate
a Coldwell Banker franchised business under a franchise or license
agreement entered into with the Company, any Subsidiary or any
Subfranchisor.
"FTC Act": the Federal Trade Commission Act, as amended, and the
rules and regulations of the Federal Trade Commission promulgated
thereunder, including without limitation Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures,
all as the same shall be in effect from time to time.
"GAAP": generally accepted accounting principles in the United
States of America as in effect from time to time.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity (including without
limitation a court) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Governmental Order": as to any Person, any judgment, injunction,
decree, order or other determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its
property is subject.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
person (including without limitation any bank under any letter of credit)
to induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any debts, leases, dividends or
other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including without limitation any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency
of the
<PAGE>
4
primary obligor or (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation; provided, however, that the term Guarantee Obligation
shall not include endorsements of instruments for deposit or collection
in the ordinary course of business.
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced
by a note, bond, debenture or similar instrument and (c) all obligations
of such Person under Financing Leases.
"Intellectual Property": any domestic or foreign trademarks, trade
names, brandmarks, brand names, copyrights, patents, applications pending
for patents, for trademarks or trade name registrations, and brandmarks
or brand name registrations or copyright registrations, technical
know-how and other proprietary rights.
"Knowledge of the Company": actual knowledge of any of the seven (7)
senior executives (collectively, the "Executives") of the Company, whose
names are listed in Schedule 1.1(a), including actual knowledge of facts
which should reasonably have placed such Executive on notice of the
matters in question.
"Knowledge of Fremont": actual knowledge of Robert Jaunich II, James
T. Farrell or Timothy H. Hosking, including actual knowledge of facts
which should reasonably have placed such person on notice of the matters
in question.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including
without limitation any conditional sale or other title retention
agreement and any Financing Lease having substantially the same economic
effect as any of the foregoing).
"Material Adverse Effect": a material adverse effect on the
financial condition or results of operations of the Company and its
Subsidiaries taken as a whole.
"Materials of Environmental Concern": any waste, pollutant, or
contaminant regulated as such under any
<PAGE>
5
Environmental Law, or any other substance of any kind (including without
limitation petroleum or petroleum products, asbestos or
asbestos-containing materials, ureaformaldehyde insulation,
polychlorinated biphenyls, odors and radioactivity) regulated by or
under, or which may otherwise give rise to liability under, any
Environmental Law.
"Per Share Interest Amount": shall be $0.0485 for each day following
June 7, 1996 that the Effective Time occurs.
"Permits": as to any Person, all licenses, permits, franchises,
orders, approvals, concessions, registrations, authorizations and
qualifications with and under all federal, state, local or foreign laws
and Governmental Authorities and all industry or other nongovernmental
self-regulatory organizations that are issued to such Person (including
without limitation Environmental Permits).
"Permitted Liens": with respect to the Common Stock, any Liens
imposed by, arising under or resulting from securities laws or any of
those certain agreements between the Company and its stockholders set
forth on Schedule 1.1(b).
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Pre-Closing Tax Period": all taxable periods ending on or before
the Closing Date.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"SEC": the Securities and Exchange Commission or its successor.
"Securities Act": the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder, all as shall be
in effect from time to time.
"Subfranchisor": any Person to whom the Company or any Subsidiary
has granted the right to sell or grant a Target franchise to a third
party.
<PAGE>
6
"Subsidiaries": collectively, the subsidiaries of the Company set
forth on Schedule 4.2(d).
"Taxes": all United States federal, state, local and foreign income,
profits, franchise, gross receipts, payroll, sales, employment, use,
property, excise, value added, estimated, stamp, alternative or add-on
minimum, environmental, withholding and any other taxes, duties or
assessments, together with all interest, penalties and additions imposed
with respect to such amounts.
"Tax Authority" and "Taxing Authority": any domestic, foreign,
federal, national, state, provincial, county or municipal or other local
government or any other authority exercising Tax regulatory authority.
"Tax Return": any return, declaration, report, claim for refund or
information return or statement filed or required to be filed with any
Governmental Authority relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Tax Sharing Agreements": the Federal Income Tax Sharing Agreement,
dated as of October 5, 1993, between Fremont and the Company and the
California Franchise Tax Sharing Agreement, dated as of October 5, 1993,
between Fremont and the Company.
Section 1.2 Other Definitional Provisions. (a) The words
"hereof", "herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the Delaware Statute, at the Effective
Time (as defined in Section 2.2), Sub shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation").
Section 2.2 Effective Time of the Merger. Subject to the provisions of
this Agreement, a certificate of merger (the "Certificate of Merger") shall be
duly prepared, executed and
<PAGE>
7
acknowledged by the Surviving Corporation and thereafter delivered to the
Secretary of State of the State of Delaware for filing, as provided in the
Delaware Statute, simultaneously with or as soon as practicable following the
Closing (as defined in Section 2.3). The Merger shall become effective upon
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware (the "Effective Time").
Section 2.3 Closing. Subject to the conditions set forth in Article VIII
hereof, unless this Agreement shall have been terminated pursuant to the
provisions of Section 9.1, the closing (the "Closing") of the Merger shall
take place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York 10017 on the second Business Day following the date on
which the conditions set forth in Article VIII shall have been satisfied or
waived, or at such other place and time as the parties may mutually agree. The
date and time of such Closing are herein referred to as the "Closing Date".
Section 2.4 Effects of the Merger. At the Effective Time: (a) the
separate existence of Sub shall cease and Sub shall be merged with and into
the Company as the Surviving Corporation and (b) the Merger shall have all of
the effects provided by the Delaware Statute. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time all of the
property, rights, privileges, immunities, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 2.5 Articles of Incorporation; By-Laws. (a) The Certificate of
Incorporation of Sub as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by the Delaware Statute and such Certificate of
Incorporation.
(b) The Bylaws of Sub shall become the Bylaws of the Surviving
Corporation until amended as provided by the Delaware Statute and the
Certificate of Incorporation of the Surviving Corporation.
Section 2.6 Directors and Officers. The directors of Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed (as the case may be) and qualified.
<PAGE>
8
ARTICLE III
CONVERSION OF SHARES;
DISSENTING SHARES; PAYMENT
Section 3.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or the holders
of any of the following securities:
(a) each share of Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Common Stock to be
cancelled pursuant to Section 3.1(b) and any Dissenting Shares (as
defined in Section 3.2)) shall be converted into the right to receive in
cash the sum of (i) $104.3204 and (ii) the Per Share Interest Amount, if
any (the "Merger Price"), payable to the holder thereof, without interest
thereon, upon the surrender of the certificate formerly representing such
share of Common Stock in the manner provided in Section 3.3.
Notwithstanding the preceding sentence, if the number of shares of Common
Stock outstanding on the Closing Date exceeds 5,749,155, then the Merger
Price shall be adjusted such that the aggregate consideration paid to the
record holders of shares of Common Stock pursuant to Section 3.1(a) and
the holders of options of Common Stock pursuant to Section 3.4 shall be
$640,000,000.
(b) each share of Common Stock held in the treasury of the Company
and each share of Common Stock owned by Parent, Sub or any other direct
or indirect subsidiary of Parent or of the Company, in each case
immediately prior to the Effective Time, shall be cancelled and retired
without any conversion thereof and no payment or distribution shall be
made with respect thereto.
(c) each share of common stock, par value $.01 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and shall thereafter evidence one validly issued, fully
paid and nonassessable share of common stock, par value $.01 per share,
of the Surviving Corporation.
Section 3.2 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Common Stock issued and outstanding immediately
prior to the Effective Time and which are held by holders of such shares who
have not voted in favor of the Merger or consented thereto in writing and who
have demanded appraisal rights with respect thereto in accordance with Section
262 of the Delaware Statute (the "Dissenting Shares") shall not be converted
into or be exchangeable for the right to receive the Merger Price, but holders
of such shares shall be entitled to receive payment of the appraised value of
such Dissenting Shares in accordance with
<PAGE>
9
the provisions of such Section 262, except that any Dissenting Shares held by
a stockholder who shall thereafter withdraw such demand for appraisal of such
shares or lose the right to appraisal as provided in such Section 262 shall
thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Price, without any interest thereon. The Company shall give Parent (i) prompt
notice of any written demands for appraisal of any shares of Common Stock,
attempted withdrawals of such demands, and any other instruments served
pursuant to the Delaware Statute received by the Company relating to
stockholders' rights of appraisal and (ii) the opportunity to direct all
negotiations and proceedings with respect to any such demands for appraisal
under the Delaware Statute. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any
demands for appraisals of capital stock of the Company, offer to settle or
settle any such demands or approve any withdrawal of any such demands.
Section 3.3 Exchange of Shares. (a) At the Closing, Parent shall deliver
to Chemical Bank, in trust for the benefit of the record holders of shares of
Common Stock and for the benefit of the holders of options of Common Stock for
exchange in accordance with this Section 3.3 and Section 3.4, (i) cash in
sufficient amount to pay (A) the aggregate consideration set forth in Section
3.1 hereof, less the aggregate amount to be deducted pursuant to Section
3.3(d), and (B) the aggregate consideration required to be paid by the Company
pursuant to Section 3.4 and (ii) irrevocable wire transfer instructions, in
form and substance satisfactory to Fremont, directing Chemical Bank to
transfer by wire transfer of immediately available funds (A) to each holder of
an Employee Option (as defined below), immediately prior to the Effective
Time, the amount opposite such holder's name set forth in Schedule 3.4 in
accordance with wire transfer instructions provided to Parent by each such
holder prior to the Closing and (B) to each record holder of shares of Common
Stock who has duly completed and validly executed a Merger Letter of
Transmittal (as defined below), immediately upon the Effective Time, the
amount opposite such record holder's name set forth in Schedule 3.3(a) in
accordance with the instructions set forth in such Merger Letter of
Transmittal.
(b) At or prior to the Closing, Parent or the Surviving Corporation shall
make available for execution by each record holder including Fremont, as of
the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of Common Stock
(the "Certificates") whose shares are to be converted into the right to
receive the Merger Price, a form of letter of transmittal substantially in the
form attached hereto as Exhibit B (a "Merger Letter of Transmittal") and
instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Price. Upon surrender to the Surviving Corporation of
a Certificate,
<PAGE>
10
together with delivery of such Merger Letter of Transmittal duly completed and
validly executed in accordance with the instructions thereto, and any other
documents required by the Merger Letter of Transmittal, the holder of such
Certificate shall be entitled to receive in exchange therefor solely the
applicable consideration set forth in Section 3.1 less any amounts to be
deducted pursuant to Section 3.3(d) and such Certificate shall forthwith be
cancelled. No interest shall be paid or accrued for the benefit of holders of
the Certificates on the consideration payable upon the surrender of the
Certificates.
(c) At the Closing, Fremont shall deliver to Parent a Merger Letter of
Transmittal with respect to Certificates representing 5,235,650 shares of
Common Stock duly completed and validly executed in accordance with the
instructions to such Merger Letter of Transmittal, and any other documents
required by the Merger Letter of Transmittal.
(d) With respect to Certificates surrendered by any stockholder with
outstanding debt (whether principal or interest) to the Company at the time of
such surrender arising under a loan made by the Company on August 25, 1995, as
set forth on Schedule 3.3(d), the Company shall be entitled to deduct from the
aggregate Merger Price payable in connection with the surrender of such
Certificates the amount of such outstanding debt in exchange for the
extinguishment of such debt.
(e) From and after the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of shares of Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates formerly representing shares of Common Stock
(other than Dissenting Shares (subject to applicable law)) are presented to
the Surviving Corporation, they shall be cancelled and exchanged for the
Merger Price as provided in this Article in accordance with the procedures set
forth in this Article, subject to applicable law in the case of Dissenting
Shares.
(f) Neither Parent, Sub nor the Surviving Corporation shall be liable to
any holder of shares of Common Stock for cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) In the event any Certificates evidencing shares of Common Stock shall
have been lost, stolen or destroyed, the holder of such lost, stolen or
destroyed Certificate(s) shall execute an affidavit of that fact upon request.
The record holder of any such lost, stolen or destroyed Certificate(s) shall
also deliver a bond in such sum as Parent may reasonably require as indemnity
against any claim that may be made against Parent or the Surviving Corporation
with respect to the Certificate(s) alleged to have been lost, stolen or
destroyed. The affidavit and any bond which may be required hereunder shall be
delivered
<PAGE>
11
to the Surviving Corporation, who shall be responsible for making payment for
such lost, stolen or destroyed Certificate(s).
(h) Fremont shall indemnify and hold Parent and the Surviving Corporation
harmless for any and all losses incurred by either of them as a result of more
than 5,749,155 shares of Common Stock being delivered to the Surviving
Corporation for conversion into cash.
Section 3.4 Treatment of Employee Options. Immediately prior to the
Effective Time, each outstanding employee stock option to purchase shares of
Common Stock (an "Employee Option") set forth on Schedule 3.4, whether or not
then exercisable, shall be cancelled by the Company in exchange for the right
to receive from the Company immediately prior to the Effective Time, an amount
in cash equal to the product of (i) the number of shares of Common Stock
previously subject to such Employee Option and (ii) the excess, if any, of the
Merger Price over the exercise price per share of Common Stock previously
subject to such Employee Option, less any required withholding taxes.
Section 3.5 Escrow Deposits. (a) On the date hereof, Parent shall deliver
to Chemical Bank, as escrow agent (the "Escrow Agent"), an amount of cash, in
immediately available funds, equal to $50,000,000 (the "Fund"). Any interest
or earnings that accrue on the Fund on or before June 14, 1996 shall be
segregated from and not form part of the Fund and not be subject to any claim
by the Company or its stockholders, but any such interest or earnings that
accrue after June 14, 1996 shall be included in and form part of the Fund. The
Fund shall be governed by the terms and conditions of this Agreement and the
terms and conditions of the Escrow Agreement.
(b) Unless this Agreement shall have been terminated pursuant to the
provisions of Section 9.1, in which case the Fund shall be delivered to Parent
or the Company and its stockholders as set forth in Section 9.2(b) or (c), the
Fund will be delivered to Parent promptly following the Effective Time. At the
Effective Time, Parent shall have the option to direct the Escrow Agent to
deliver the Fund to Chemical Bank, in trust for the benefit of the record
holders of shares of Common Stock and for the benefit of the holders of
options of Common Stock, as provided in Section 3.3.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FREMONT AND THE COMPANY
Section 4.1 Representations and Warranties of Fremont. Fremont represents
and warrants to Parent and Sub as follows:
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12
(a) Organization and Capacity. Fremont is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite power, authority and capacity to enter into
this Agreement and to perform its obligations hereunder.
(b) Authorization and Validity. The execution, delivery and performance
by Fremont of its obligations under this Agreement and the performance by it
of the transactions contemplated hereby have been duly authorized and no
further action on the part of Fremont is necessary for the execution, delivery
and performance by it of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Fremont and, assuming due authorization, execution and delivery
by Parent, Sub and the Company, this Agreement constitutes the legally valid
and binding obligation of Fremont, enforceable against it in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing.
(c) Good Title. Fremont owns beneficially and of record 5,235,650 shares
of Common Stock, free and clear of all Liens other than Permitted Liens.
Fremont has full authority to surrender the certificates representing such
shares of Common Stock free and clear of all Liens.
(d) No Conflict. (i) Neither the execution, delivery or performance by
Fremont of this Agreement nor the consummation of the transactions
contemplated hereby and compliance by Fremont with any of the provisions
hereof will (a) require any consent, approval or notice under, violate or
result in the violation of, conflict with or result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, result in the termination
of, accelerate the performance required by or result in a right of termination
or acceleration, result in the loss of a material benefit under or result in
the creation of any Lien upon any of the properties or assets of the Company
or the Subsidiaries or Fremont's Common Stock under any of the terms,
conditions or provisions of (i) its organizational or governing documents or
(ii) any Contractual Obligation of Fremont, except for such violations,
conflicts, breaches or defaults which would not, individually or in the
aggregate with all other such violations, conflicts, breaches and defaults,
have a material adverse effect on Fremont's ability to consummate the
transactions contemplated by this Agreement or (b) subject to compliance with
the statutes and regulations referred to in Section 4.1(e) hereof applicable
to Fremont, violate, or result in the violation of, any Requirement of Law,
except for such violations which would not, individually or in the aggregate
with
<PAGE>
13
all other such violations, have a material adverse effect on Fremont's ability
to consummate the transactions contemplated by this Agreement.
(e) Governmental Consents. Except for filings by Fremont under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), no consent, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby by Fremont, except for (a) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and (b) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not individually or in the aggregate have a material
adverse effect on Fremont's ability to consummate the transactions
contemplated by this Agreement.
(f) Brokers, Finders, etc. Fremont has not employed, nor is it subject to
the valid claim of any broker, finder or other financial intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission.
Section 4.2 Representations and Warranties of the Company. The Company
represents and warrants to Parent and Sub as follows:
(a) Organization and Capacity. Each of the Company and its Subsidiaries
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each of the Company and its Subsidiaries is
(i) duly qualified to transact business as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification and (ii) in compliance with all Requirements of Law, except to
the extent that the failure to be in good standing, to qualify as a foreign
corporation or to comply with such requirements would not, individually or in
the aggregate with all such other failures, have a Material Adverse Effect.
Each of the Company and its Subsidiaries has the corporate power and authority
and the legal right to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is engaged, except
to the extent the failure to have such power, authority or legal right would
not, individually or in the aggregate with all such other failures, have a
Material Adverse Effect. The Company has all requisite corporate power and
authority to enter into and deliver this Agreement and to perform its
obligations hereunder. Complete and correct copies of the certificate of
incorporation and by-laws of the Company, as amended to date, have been
delivered to Parent.
<PAGE>
14
(b) Authorization and Validity. The execution, delivery and performance
by the Company of this Agreement and the performance by it of the transactions
contemplated hereby have been duly authorized by the Board of Directors and
the stockholders of the Company, and no other corporate action on the part of
the Company is necessary for the execution, delivery and performance by it of
this Agreement and the consummation by it of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company
and, assuming due authorization, execution and delivery by Parent, Sub and
Fremont, this Agreement constitutes the legally valid and binding obligation
of the Company, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(c) Capitalization. The entire authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, 5,749,155 shares of which are
issued and outstanding and 1,000,000 shares of preferred stock, par value $.01
per share, none of which is issued and outstanding. All of such issued and
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable, have not been issued in violation of any preemptive or similar
rights, and are owned of beneficially and of record free and clear of any
Liens other than Permitted Liens. Other than as set forth on Schedule 4.2(c),
there are no outstanding options, warrants, calls, rights, commitments or
agreements of any kind to which the Company is party or by which it is bound
relating to the sale, issuance or voting of, or the granting of rights to
acquire, any shares of the capital stock of any class or series of, or other
equity interests in, the Company or any securities convertible or exchangeable
into or evidencing the right to purchase any shares of capital stock of any
class or series of, or other equity interests in, the Company or obligating
the Company to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. All such outstanding options, warrants, calls,
rights, commitments or agreements have been validly issued and are validly
outstanding. All capital stock of the Company into or for which any such
outstanding options, warrants, calls, rights, commitments or agreements are
convertible or exercisable, upon conversion or exercise in accordance with
their terms, will be validly issued, fully paid and nonassessable. Other than
as set forth on Schedule 4.2(c), there is no outstanding Indebtedness of the
Company and its Subsidiaries. No Indebtedness of the Company or its
Subsidiaries contains any restriction (other than restrictions with respect to
the giving of notice and the payment of any related breakage costs in the
event of prepayment) upon (i) the prepayment of such Indebtedness, (ii) other
than as set forth on Schedule 4.2(c), the incurrence of Indebtedness by the
Company or any of its Subsidiaries or (iii) other than as set
<PAGE>
15
forth on Schedule 4.2(c), restricts the ability of the Company or any of its
Subsidiaries to grant any Liens on its properties or assets, other than
restrictions that would not have a material adverse effect on the Company's
ability to refinance such Indebtedness.
(d) Subsidiaries. Except as set forth on Schedule 4.2(d), there is no
corporation, partnership, joint venture or other entity in which the Company
directly or indirectly owns any equity or other ownership interest. Set forth
on Schedule 4.2(d) is the number of authorized, issued and outstanding shares
of each Subsidiary and its jurisdiction of incorporation. All the outstanding
shares of capital stock of each Subsidiary are validly issued, fully paid and
nonassessable, have not been issued in violation of any preemptive or similar
rights and, except as set forth on Schedule 4.2(d), are owned beneficially,
directly or indirectly, by the Company free and clear of any Liens. Except as
set forth on Schedule 4.2(d), there are no outstanding options, warrants,
calls, rights or commitments or any other agreements of any character relating
to the sale, issuance or voting of, or the granting of rights to acquire, any
shares of the capital stock of any Subsidiary, or any securities or other
instruments convertible into, exchangeable for or evidencing the right to
purchase any shares of capital stock of any Subsidiary.
(e) Financial Statements. Schedule 4.2(e) contains a copy of the audited
consolidated balance sheets of the Company and its Subsidiaries as of December
31, 1995, December 31, 1994 and December 31, 1993 and the related audited
consolidated statements of operations, statements of shareholders' equity and
cash flows of the Company and its Subsidiaries for the fiscal years ended on
each such date, accompanied by the reports thereon of Deloitte & Touche LLP,
in the case of the December 31, 1993 financial statements, and of Coopers &
Lybrand, in the case of the December 31, 1994 and 1995 financial statements
(all such financial statements, including the notes thereto, referred to
herein as the "Annual Financial Statements"). The Annual Financial Statements
have been prepared in accordance with GAAP consistently applied during the
periods involved, except as otherwise disclosed in the notes to such financial
statements, and present fairly the consolidated financial condition of the
Company and its Subsidiaries as of such dates and the consolidated results of
their operations and their consolidated cash flows for the fiscal years then
ended. The unaudited consolidated balance sheet of the Company as of March 31,
1996 and the related unaudited consolidated statements of operations,
statements of shareholders' equity and cash flows of the Company and its
Subsidiaries for the three-month period ended on such date are also contained
in Schedule 4.2(e) (all such financial statements, including the notes
thereto, referred to herein as the "Interim Financial Statements"). The
Interim Financial Statements present fairly the consolidated financial
condition of the Company and its Subsidiaries as of such dates and the
<PAGE>
16
consolidated results of their operations and their consolidated cash flows for
the three-month period then ended (subject to normal year-end audit
adjustments). There is no liability or obligation of any kind required to be
disclosed under GAAP, whether accrued, absolute, fixed or contingent, of the
Company and its Subsidiaries that is not disclosed, reflected or reserved
against in the Interim Financial Statements, except such liabilities or
obligations (i) incurred in the ordinary course of business, consistent with
past practice, since March 31, 1996 or (ii) which would not individually or in
the aggregate have a Material Adverse Effect. Except as set forth on Schedule
4.2(e), neither the Company nor any of its Subsidiaries has any obligation to
make any "earn out" or similar payments.
(f) Absence of Certain Changes. Except as set forth on Schedule 4.2(f),
from December 31, 1995 until the date hereof, (i) no event has occurred which,
had it occurred subsequent to the date of this Agreement, would have required
the consent or approval of Parent under Section 6.3 hereof and (ii) there has
not been any event which individually or in the aggregate with all other
events has had or would reasonably be expected to have a Material Adverse
Effect.
(g) Legal Proceedings. Schedule 4.2(g) describes as of the date hereof
all litigation, investigations and proceedings of or before any arbitrator or
Governmental Authority formally commenced, pending or, to the Knowledge of the
Company, threatened by or against the Company or any of the Subsidiaries or
against any of its or their respective properties or revenues that the Company
believes would subject the Company or the Subsidiaries to liabilities in
excess of $50,000 (not including legal fees and costs). Except as described on
Schedule 4.2(g), to the Knowledge of the Company there is as of the date
hereof no litigation, investigation or proceeding which, if adversely decided,
would individually or in the aggregate have a Material Adverse Effect.
Schedule 4.2(g) sets forth as of the date hereof a brief description of each
judgment, injunction, decree, order or other determination of an arbitrator or
a court or other Governmental Authority applicable to the Company or any of
the Subsidiaries or any of its or their respective properties which has either
been entered since January 1, 1994 in excess of $50,000 or remains currently
in effect, and no such judgment, injunctive decree, order or other
determination can reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. None of the Company or its Subsidiaries is in
violation of any judgment, decree, injunction or order outstanding against it
which violation would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. As of the date hereof, no suit,
action or governmental proceeding before any court or any governmental or
regulatory authority has been commenced and is pending or, to the Knowledge of
the Company, threatened by any federal or state Governmental Authority against
the Company or any of its Subsidiaries or Affiliates, associates, officers,
directors or partners seeking
<PAGE>
17
to restrain, prevent or change in any respect the transactions contemplated
hereby or seeking damages in connection with any of such transactions.
(h) Compliance with Laws. (i) Each of the Company and each Subsidiary is
in compliance with all Requirements of Law, including without limitation the
FTC Act, the Real Estate Settlement Procedures Act and all applicable state
and foreign franchise laws, holds all Permits that are material to the conduct
of its business or the ownership of its properties, and is in material
compliance with each such Permit, except where such failure to comply with any
such Requirements of Law, to hold any such Permits or to comply with any such
Permits would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(ii) The sale by the Company or by any Subsidiary of any franchise to any
Subfranchisor or to any Franchisee was made in compliance with all
Requirements of Law, including without limitation the FTC Act, if applicable,
and all applicable state and foreign franchise laws, except where such failure
to comply with any such Requirements of Law would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect.
(iii) Except as disclosed on Schedule 4.2(h), since January 1, 1994,
neither the Company nor any Subsidiary has received any notice from any
Governmental Authority asserting that the Company or any Subsidiary is not in
compliance with any Requirement of Law or any Permit, except where such
failure to comply with any such Requirements of Law would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(i) Material Contracts. Schedule 4.2(i) lists, as of the date hereof,
each of the following contracts and other agreements to which the Company or
any Subsidiary is a party or by or to which the Company or any Subsidiary or
any of their respective assets or properties is bound or subject (each such
contract or agreement, a "Material Contract"):
(i) agreements between the Company or any Subsidiary and a
Subfranchisor;
(ii) the standard form of Coldwell Banker franchise agreement
currently in effect;
(iii) agreements between the Company, any Subsidiary or any
Subfranchisor, on the one hand, and a Franchisee, on the other hand,
which contain franchise royalty payment rates materially different from
those contained in the standard form of Coldwell Banker franchise
agreements;
<PAGE>
18
(iv) agreements that limit or purport to limit the ability of the
Company or any Subsidiary to compete in any line of business or with any
Person or in any geographical area or during any period of time, other
than franchise agreements granting exclusive territorial rights to the
extent individually not material to Coldwell Banker Residential
Affiliates, Inc.;
(v) agreements relating to the incurrence of material Indebtedness
by the Company or any Subsidiary or restricting the ability of the
Company or any Subsidiary to incur Indebtedness;
(vi) agreements relating to any material Guarantee Obligations of
the Company or any Subsidiary;
(vii) agreements relating to the making of any loan or advance by
the Company or any Subsidiary;
(viii) agreements providing for the indemnification by the Company
or any Subsidiary of any Person;
(ix) agreements with any Governmental Authority; and
(x) all other agreements whether or not made in the ordinary course
of business which are material to the business, operations, property,
financial condition or results of operations of the Company and its
Subsidiaries taken as a whole or the absence of which could have a
Material Adverse Effect or the presence of which does not or is not
reasonably expected to have a Material Adverse Effect.
Promptly following the execution hereof, there will be delivered or made
available to Parent true and complete copies of all of the written agreements
listed on Schedule 4.2(i) and a written summary of all of the oral agreements
listed on Schedule 4.2(i). As of the date hereof, each Material Contract is in
full force and effect and constitutes a legal, valid and binding obligation of
the Company or the Subsidiary, as the case may be, and, to the Knowledge of
the Company, of each other party thereto, enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and general equitable principles
(whether considered in a proceeding in equity or at law). As of the date
hereof, none of the Company or any Subsidiary has received any written notice
that any Material Contract is not enforceable against any party thereto, and
none of the Company or any Subsidiary has received any notice of termination
or intention to terminate from any other party to any Material Contract. As of
the date hereof, none of the Company nor any Subsidiary or (to the Knowledge
of the Company) any other party to any Material Contract is in breach of or
default under any
<PAGE>
19
such agreement (or, to the Knowledge of the Company, with or without notice or
lapse of time or both, would be in breach of or default under any such
agreement), except breaches or defaults which have not had or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
(j) Certain Agreements. Except as set forth on Schedule 4.2(j) or
permitted by Section 6.3, the Company is not a party to any (i) agreement with
any of its executive officers or other employees (A) any benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction of the nature contemplated by this Agreement, (B) with
respect to executive officers or other employees which will not be terminable
without any liability to the Company by the Company on 30 days' or less
notice, or (C) providing severance benefits or other benefits which are
conditioned upon a change of control after the termination of employment of
such employee regardless of the reason for such termination of employment, or
(ii) agreement or plan, including without limitation any stock option plan,
stock appreciation right plan or stock purchase plan, any of the benefits of
which will be materially increased, or the vesting of benefits of which will
be materially accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement.
(k) Properties. Except as set forth on Schedule 4.2(k), as of the date
hereof, the Company and its Subsidiaries have good and marketable title to all
of their respective real properties in fee simple absolute (except for
leasehold interests, in which event the entity directly holding such interest
has a valid leasehold interest) and have marketable title to all of their
respective other properties and assets (except for leased properties and
assets, in which case the lessee has a valid leasehold interest) (including
without limitation the Intellectual Property), in each case free and clear of
all Liens except for (i) defects in title or Liens which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect, or (ii) statutory or other similar Liens securing payments not yet
due. As of the date hereof, each such lease is valid without default
thereunder by the lessee or, to the Knowledge of Company, the lessor, except
for such defaults which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. To the Knowledge of
Company, there is, as of the date hereof, no defect in the normal operating
condition and repair of the equipment owned or leased by the Company and the
Subsidiaries, except for such defects which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. To the
Knowledge of the Company and except as set forth on Schedule 4.2(k), as of the
date hereof, the Company and its Subsidiaries maintain insurance in such
amounts and of such character as is usually maintained by companies engaged in
the
<PAGE>
20
same or similar businesses, and the insurance policies of the Company and its
Subsidiaries are in full force and effect, all material premiums due thereon
have been paid and the Company and its Subsidiaries have complied in all
material respects with the provisions of such policies.
(l) Intellectual Property. Schedule 4.2(l) sets forth all trademarks
relating to the business of the Company and the Subsidiaries owned and/or used
by the Company and the Subsidiaries, and such Schedule indicates whether each
of the foregoing are owned or licensed by the Company or any Subsidiary.
Except as set forth on Schedule 4.2(l), the Company and each of the
Subsidiaries owns, or is licensed to use, all Intellectual Property used by
the Company and the Subsidiaries, subject to no material restrictions. Except
for such claims which, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect, no claim has been asserted and
is pending by any Person challenging or questioning the ownership or use by
the Company of any such Intellectual Property, nor, to the Knowledge of the
Company, does there exist any valid basis for any such claim. The use of such
Intellectual Property by the Company and the Subsidiaries does not infringe on
the rights of any Person, and, to the Knowledge of the Company, there is no
infringing use of any of such Intellectual Property by any other Person,
except for such uses which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(m) Employee Benefits. (i) Schedule 4.2(m) contains a true and complete
list of each "employee benefit plan" (within the meaning of Section 3(3) of
ERISA (including without limitation multiemployer plans within the meaning of
ERISA Section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), whether formal or informal, oral or written, legally binding or
not under which any employee or former employee of the Company or any
Subsidiary has any present or future right to benefits or under which the
Company or any Subsidiary has any present or future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively referred
to as the "Company Plans". Schedule 4.2(m) also contains a true and complete
description of all severance plans of the Company or any Subsidiary.
(ii) With respect to each Company Plan, the Company has delivered or made
available to Parent a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate description) thereof and, to the extent
applicable, (A) any related trust agreement, annuity contract or other funding
<PAGE>
21
instrument; (B) the most recent determination letter; (C) any summary plan
description and other written communications (or description of any oral
communication) by the Company or any Subsidiary which modify in any
significant respect the benefits provided under the terms of any Company Plan
in a manner not reflected in any of the documents described in this subsection
(ii); and (D) for the three most recent years (I) the Form 5500 and attached
schedules; (II) audited financial statements; and (III) actuarial valuation
reports.
(iii) (A) Each Company Plan has been established and administered
substantially in accordance with its terms and in compliance in all material
respects with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations; (B) each Company Plan which is
intended to be qualified within the meaning of Code Section 401(a) is so
qualified and has received a favorable determination letter as to its
qualification or application has been made to the Internal Revenue Service for
the issuance of such letter and nothing has occurred, whether by action or
failure to act, which would cause the loss of such qualification or would
prevent such letter from being issued; (C) except as described on Schedule
4.2(m), with respect to any Company Plan, no actions, suits or claims (other
than routine claims for benefits in the ordinary course) are pending or, to
the Knowledge of the Company, threatened and no facts or circumstances exist
which would give rise to any such actions, suits or claims and the Company
will promptly notify Parent in writing of any pending or threatened claims
arising between the date hereof and the Closing Date; (D) none of the Company,
any Subsidiary or any fiduciary of a Company Plan has engaged in a prohibited
transaction, as such term is defined under Code Section 4975 or ERISA Section
406, which would subject the Company, any Subsidiary or Parent to any taxes,
penalties or other liabilities under Code Section 4975 or ERISA Sections 409
or 502(i); (E) no event has occurred and no condition exists that would
subject the Company or any Subsidiary, either directly or by reason of its
affiliation with any member of its Controlled Group (defined as any
organization which is a member of a controlled group of organizations within
the meaning of Code Sections 414(b), (c), (m) or (o)), to any material tax,
fine or penalty imposed by ERISA, the Code or other applicable laws, rules and
regulations; (F) all insurance premiums required to be paid with respect to
Company Plans as of the Closing Date have been or will be paid prior thereto
and adequate reserves have been provided for on the Company's balance sheet
for any premiums (or portions thereof) attributable to service on or prior to
the Closing Date; (G) for each Company Plan with respect to which a Form 5500
has been filed, no material change has occurred with respect to the matters
covered by the most recent Form since the date thereof; (H) all contributions
required to be made prior to the Closing Date under the terms of any Company
Plan, the Code, ERISA or other applicable laws, rules and regulations have
been or will be timely made and adequate reserves have been provided for on
the Company's balance sheet for all benefits attributable
<PAGE>
22
to service on or prior to the Closing Date; (I) except as set forth on
Schedule 4.2(m), no Company Plan provides for an increase in benefits on or
after the Closing Date; and (J) except as set forth on Schedule 4.2(m) or as
provided by applicable law, each Company Plan may be amended or terminated
without obligation or liability (other than those obligations and liabilities
for which specific assets have been set aside in a trust or other funding
vehicle or reserved for on the Company's balance sheet).
(iv) No Company Plan is a multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA or is an "employee pension plan" within the
meaning of Section 3(2) of ERISA subject to Title IV of ERISA.
(v) (A) No Company Plan has incurred any "accumulated funding deficiency"
as such term is defined in ERISA Section 302 and Code Section 412 (whether or
not waived); (B) no event or condition exists which could be deemed a
reportable event within the meaning of ERISA Section 4043 which could result
in a liability to the Company or any member of its Controlled Group and no
condition exists which could subject the Company or any member of its
Controlled Group to a fine under ERISA Section 4071; (c) as of the Closing
Date, the Company and each member of its Controlled Group have made all
required premium payments when due to the PBGC; (D) neither the Company nor
any member of its Controlled Group is subject to any liability to the PBGC for
any plan termination occurring on or prior to the Closing Date; (E) no
amendment has occurred which has required or could require the Company or any
member of its Controlled Group to provide security pursuant to Code Section
401(a)(29) and (F) neither the Company nor any member of its Controlled Group
has engaged in a transaction which could subject it to liability under ERISA
Section 4069.
(vi) Except as described in Schedule 4.2(m), no Company Plan exists which
could result in the payment to any employee of the Company or any Subsidiary
of any money or other property or rights or accelerate or provide any other
rights or benefits to any such employee as a result of the execution and
delivery of this Agreement or the consummation of the Merger, whether or not
such payment would constitute a parachute payment within the meaning of Code
section 280G.
(n) Taxes. For purposes of this Section 4.2(n), any reference to the
Company or the Subsidiaries shall include any corporation that merged or was
liquidated with and into the Company or the Subsidiaries. Except as disclosed
in Schedule 4.2(n):
(i) All material Tax Returns required to be filed by or with respect
to the Company and the Subsidiaries have been timely filed, and all such
Tax Returns are complete and correct in all material respects. The
Company and the Subsidiaries have timely paid all material Taxes that are
<PAGE>
23
due, or that have been asserted in writing by any taxing authority to be
due, from or with respect to it for the periods ending prior to the date
hereof.
(ii) The statute of limitations with respect to the Tax Returns of
the Company and the Subsidiaries and of each affiliated group (within the
meaning of the Code) of which the Company and any Subsidiaries are or
have been a member for all periods through the respective years specified
in Schedule 4.2(n) has expired. There are no outstanding agreements,
waivers or arrangements extending the statutory period of limitation
applicable to any claim for, or the period for the collection or
assessment of, Taxes due from or with respect to the Company or any
Subsidiaries for any taxable period, and no power of attorney granted by
or with respect to the Company or any Subsidiaries relating to Taxes is
currently in force. No closing agreement pursuant to section 7121 of the
Code (or any predecessor provision) or any similar provision of any
state, local, or foreign law has been entered into by or with respect to
the Company or any Subsidiaries that could affect the future liability
for Taxes of the Company or any Subsidiary.
(iii) No audit or other proceeding by any Governmental Authority has
formally commenced and no specific notification has been given to the
Company or any Subsidiary that such an audit or other proceeding is
pending or threatened with respect to any Taxes due from or with respect
to the Company or any Subsidiaries or any Tax Return filed by or with
respect to the Company or any Subsidiaries. No assessment of Tax has been
proposed in writing against the Company or any Subsidiaries or any of
their assets or properties.
(iv) No consent to the application of section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect
to the Company or any Subsidiaries or any of their assets or properties.
(v) As of the Closing, neither the Company nor any of the
Subsidiaries shall be a party to, be bound by or have any obligation
under, any Tax sharing agreement or similar contract or arrangement.
(vi) There is no contract or agreement, plan or arrangement by the
Company or any Subsidiaries covering any person that, individually or
collectively, could give rise to the payment of any amount that would not
be deductible by the Company or the Subsidiaries by reason of section
280G of the Code, as now in effect.
(vii) Fremont is not a "foreign person" within the meaning of
section 1445(b)(2) of the Code.
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24
(o) Environmental Laws. Except as set forth on Schedule 4.2(o) and
excluding any residential property held by Coldwell Banker Relocation
Services, Inc. ("Relocation") in the ordinary course of business and assets
disposed of in the ordinary course of business and consistent with past
practice, to the Knowledge of the Company, (i) each of the Company and each
Subsidiary complies and has complied with all Environmental Laws applicable to
the properties, assets or businesses of the Company and the Subsidiaries, and
possesses and complies with and has possessed and complied with all
Environmental Permits required under such laws except where any noncompliance
or failure to possess any Environmental Permit has not had or could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; (ii) there are no past or present events, conditions,
circumstances, practices, plans or legal requirements that could reasonably be
expected to result in material liability to the Company or its Subsidiaries
under applicable Environmental Laws, prevent, or reasonably be expected to
materially increase the burden on the Company or any Subsidiary of, complying
with applicable Environmental Laws or of obtaining, renewing, or complying
with all Environmental Permits required under such laws; (iii) there are and
have been no Materials of Environmental Concern or other conditions at or from
any property owned, operated or otherwise used by the Company or any
Subsidiary now or in the past that could reasonably be expected to give rise
to liability of the Company or any Subsidiary under any Environmental Law,
except for such liabilities which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. Schedule 4.2(o) sets
forth a list of underground storage tanks that to the Knowledge of the Company
exist at properties currently owned, operated or leased by the Company or any
Subsidiary and that to the Knowledge of the Company are subject to regulation
under the federal Resource Conservation and Recovery Act, or any equivalent
state law. The Company will provide to Parent promptly upon execution hereof
true and complete copies of all material Environmental Reports in its
possession or control that it has received since January 1, 1994. With respect
to the residential properties held by Relocation, there are no past or present
events or conditions that could reasonably be expected to result in a
liability to the Company or its Subsidiaries under applicable Environmental
Laws, except for such liabilities (i) for which the Company or its
Subsidiaries are indemnified by the customers of Relocation or (ii) which
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
(p) Affiliate Transactions. Schedule 4.2(p) contains a summary as of the
date hereof of all transactions (including without limitation the provision of
any services or the sale of any goods) since January 1, 1994 between the
Company, any Subsidiary, any Subfranchisor or any Franchisee, on the one hand,
and Fremont or any of its Affiliates (other than the Company and the
Subsidiaries) on the other hand, other than transactions
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25
entered into in the ordinary course of the Company's business on an arm's
length basis and employment agreements or arrangements and employee benefit
plans. Schedule 4.2(p) contains a summary as of the date hereof of all
transactions (including without limitation the provision of any services or
the sale of any goods) since January 1, 1994 between the Company, any
Subsidiary, any Subfranchisor or any Franchisee, on the one hand, and Bechtel
Group, Inc. and Bechtel Enterprises, Inc., and any Person controlled by either
or both of Bechtel Group, Inc. or Bechtel Enterprises, Inc., on the other
hand, other than transactions entered into in the ordinary course of the
Company's business on an arm's length basis. Schedule 4.2(p) also contains a
summary as of the date hereof of all transactions since January 1, 1994
between the Company or any Subsidiary, on the one hand, and any current or
former director or officer of the Company or any Subsidiary, or any entity in
which any such director or officer has a direct or indirect material interest,
other than employment agreements or arrangements and employee benefit plans
and transactions entered into in the ordinary course of the Company's business
on an arm's length basis. The agreements and arrangements set forth on
Schedule 4.2(p) are hereinafter referred to as "Affiliate Transactions".
(q) Franchisees. As of March 31, 1996, there were 1,297 Franchisees,
excluding those in Canada. Except as set forth on Schedule 4.2(q) as of the
date hereof, none of the Company or any Subsidiary or (to the Knowledge of the
Company) any Franchisee is in material breach of or default under any such
agreement (or to the Knowledge of the Company with or without notice or lapse
of time or both, would be in breach of or default under any such agreement).
Except as described on Schedule 4.2(q), there is as of the date hereof no
material dispute between the Company or any Subsidiary, on the one hand, and
any Subfranchisor or Franchisee, on the other hand. Neither the Company nor
any Subsidiary has knowledge that any Subfranchisor or any Franchisee is
failing to comply with its respective Requirements of Law as of the date
hereof, except for failures which would not in the aggregate have a Material
Adverse Effect. Attached on Schedule 4.2(q) are, as of the date hereof, all of
the provisions of any agreement or arrangement regarding the Company's option
to purchase any Subfranchisor's rights under any agreement or arrangement
between the Company and any Subfranchisor, and there are, as of the date
hereof, no other agreements or arrangements, whether written or oral, relating
to such repurchase rights.
(r) Offering Circulars. The Company will deliver promptly upon the
execution hereof to Parent a true and complete copy of the current uniform
franchise offering circular and other disclosure statements of the Company or
of any Subsidiary in connection with its sale of franchises to Subfranchisors
and/or Franchisees (the "Offering Circulars"). As of their respective dates,
such documents complied in all respects with the requirements of the FTC Act,
to the extent applicable, and with
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26
applicable state and foreign laws, except for such requirements and laws the
failure to comply with which would, individually or in the aggregate, not
reasonably be expected to have a Material Adverse Effect.
(s) Brokers, Finders, etc. The Company has not employed, nor is it
subject to the valid claim of any broker, finder or other financial
intermediary in connection with the transactions contemplated by this
Agreement who might be entitled to a fee or commission.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub, jointly and severally, represent and warrant to each of
the Company and Fremont as follows:
Section 5.1 Due Organization and Power of Parent and Sub. Each of Parent
and Sub is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate
power and authority to enter into and deliver this Agreement and perform its
obligations hereunder.
Section 5.2 Authorization and Validity of Agreement. The execution,
delivery and performance by Parent and Sub of this Agreement and the
performance by them of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Sub,
and no other corporate action on the part of Parent or Sub is necessary for
the execution, delivery and performance by Parent or Sub of this Agreement and
the consummation by them of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and Sub and, assuming
due authorization, execution and delivery by the Company and Fremont, this
Agreement constitutes the legally valid and binding obligations of Parent and
Sub, enforceable against them in accordance with its respective terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors' rights generally, by
general equitable principles (regardless of whether such enforceability is
considered a proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing.
Section 5.3 No Conflict. Neither the execution, delivery or performance
by Parent and Sub of this Agreement nor the consummation by them of the
transactions contemplated hereby and compliance by Parent and Sub with any of
the provisions hereof will (a) subject to compliance with the statutes and
regulations referred to in Section 5.4 hereof, violate, or result in the
violation of, any Requirement of Law; (b) violate, conflict with or result in
a breach of any provisions of, or
<PAGE>
27
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under any of the provisions of any organizational or governing
documents or Contractual Obligations of Parent or Sub.
Section 5.4 Governmental Consents. Except for filings under the HSR Act
and the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, no consent, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required in
connection with the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby by Parent or Sub,
except for (a) consents, approvals, orders, authorizations, declarations and
filings as may be required under applicable state securities laws and (b) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not individually or in the aggregate have a
Material Adverse Effect.
Section 5.5 Purchase for Investment. Each of Parent and Sub is aware that
no shares of Common Stock are registered under the Securities Act or under any
state securities laws. Parent is acquiring such shares solely for investment,
with no present intention to distribute any such shares to any Person. Parent
will not sell or otherwise dispose of such shares except in compliance with
the registration requirements or exemptions provisions under the Securities
Act and the rules and regulations promulgated thereunder, and any other
applicable securities laws.
Section 5.6 Brokers, Finders, etc. Except Morgan Stanley & Co.
Incorporated and Merrill Lynch & Co., neither Parent nor Sub has employed, or
is subject to the valid claim of any broker, finder or other financial
intermediary in connection with the transactions contemplated by this
Agreement who might be entitled to a fee or commission.
ARTICLE VI
COVENANTS
Section 6.1 No Solicitation. Fremont and the Company agree that prior to
the earlier of the Closing or termination of this Agreement, neither Fremont
nor the Company will, and will cause their respective officers, directors,
employees and agents not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal with respect to, or
engage in any negotiations concerning, provide any confidential information or
data to, have any discussions with or enter into any agreements with, any
Person relating to any acquisition, business combination or purchase of all or
any portion of the
<PAGE>
28
capital stock or assets of the Company or the Subsidiaries other than in the
ordinary course of business with regard to assets of the Company or the
Subsidiaries. Fremont and the Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any such potential transactions
involving the Company or the Subsidiaries. Fremont and the Company shall
immediately notify Parent if any inquiries are received in respect of the
Company and the Subsidiaries, and shall provide details with respect thereto.
Section 6.2 No Changes with respect to Common Stock. Fremont agrees that
prior to the earlier of the Closing or termination of this Agreement, Fremont
will vote all shares of Common Stock owned by it in favor of approval of this
Agreement and the Merger and will not (i) sell, dispose of or otherwise
transfer any shares of its Stock, (ii) grant any Liens, or permit any Lien
other than Permitted Liens to exist, on any shares of its Stock or (iii) enter
into any agreement to effect any of the foregoing.
Section 6.3 Conduct of Business. During the period from the date hereof
to the Closing Date, without the prior written consent of Parent or except as
expressly contemplated by this Agreement (including without limitation Article
VII) or as described on Schedule 6.3, the Company agrees that the Company will
operate and carry on its business only in the ordinary course consistent with
past practices. Without limiting the generality of the foregoing, the Company
agrees that during the period from the date hereof to the Closing Date:
(a) none of the Company and its Subsidiaries will (i) issue, sell,
deliver, or agree to issue, sell or deliver, any capital stock, warrants,
options or similar rights or other corporate securities of which the
Company or any Subsidiary is the issuer or grantor, or grant or issue, or
agree to grant or issue, any options, warrants, incentive awards or
similar rights calling for the issuance of such securities; or (ii) enter
into any registration rights agreements;
(b) none of the Company and its Subsidiaries will repurchase or
redeem any shares of capital stock of the Company or any Subsidiary;
(c) none of the Company and its Subsidiaries will effect any
recapitalization of capital stock of the Company or any Subsidiary or
make any amendment, whether by merger, consolidation or otherwise, to the
certificate of incorporation or by-laws of the Company or any Subsidiary;
(d) no dividend, redemption or other distribution or payment shall
be declared made or paid in respect to the capital stock of the Company
other than payments in the
<PAGE>
29
ordinary course and consistent with past practices for purposes of
estimated tax payments and payments under that certain letter
agreement, dated October 5, 1993, between Fremont and the Company;
(e) none of the Company and its Subsidiaries will (i) merge
or consolidate with or into any other corporation or entity, (ii)
liquidate, wind up or dissolve, (iii) sell, lease or otherwise
dispose of any of their properties or assets (including the capital
stock or assets of Subsidiaries), other than in the ordinary course
of business, except for transfers from one of the Company and its
Subsidiaries to another one of the Company and its Subsidiaries; (iv)
acquire by purchase the business, assets or stock of any other
business entity except for acquisitions with respect to which the
purchase price does not exceed $500,000 in any single transaction or
$1,500,000 in the aggregate; (v) pay, discharge, settle, compromise
or satisfy any material claims (including claims of stockholders),
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment,
discharge or satisfaction of liabilities or obligations in the
ordinary course of business consistent with past practice or in
accordance with their terms as in effect on the date hereof; (vi)
except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of
this Agreement, increase the compensation or fringe benefits of any
of its directors, officers or employees, except for increases in
salary or wages of employees of the Company or its Subsidiaries who
are not officers of the Company in the ordinary course of business in
accordance with past practice, or grant any severance or termination
pay not currently required to be paid under existing severance plans
or enter into any employment, consulting or severance agreement or
arrangement with any present or former director, officer or other
employee of the Company or any of its Subsidiaries except for such
agreements and arrangements entered into with any employee (other
than officers) of any Subsidiary in the ordinary course of business
in accordance with past practice, or establish, adopt, enter into or
amend or terminate any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees; (vii) make any
capital expenditures or commitment, other than as provided in the
Company's 1996 capital expenditure budget approved by the Board of
Directors in December 1995; (viii) incur, assume or guarantee any
material Indebtedness that is not repayable by the Company without
penalty (other than prepayment penalties for breakage) upon three
Business Days' notice to the
<PAGE>
30
lender; (ix) assume or incur any material Lien in respect to the property
of the Company or any of its Subsidiaries, other than Liens made in the
ordinary course of business; or (x) except in the ordinary course of
business consistent with past practice, enter into any contract,
agreement or other commitment which is not terminable by the parties upon
30 days' notice or less or which involves aggregate consideration in
excess of $500,000;
(f) except in the ordinary course of business and on an arm's length
basis, none of the Company and its Subsidiaries will enter into any
Affiliate Transactions or alter the terms of any existing arrangements
between the Company or any Subsidiary, on the one hand, and an Affiliate
of the Company (other than a Subsidiary of the Company), on the other
hand;
(g) none of the Company and its Subsidiaries will change any of
their tax or accounting policies except as required by law or under GAAP;
(h) neither Fremont nor the Company and the Subsidiaries shall take
any action or fail to take any action that could reasonably be expected
to result in the expiration, revocation, suspension or adverse
modification of any agreement with any Franchisee other than in the
ordinary course of business consistent with past practice;
(i) each of the Company and its Subsidiaries will use commercially
reasonable efforts (a) to preserve intact its business organization, (b)
to keep available to Parent the opportunity to retain the services of its
present employees and (c) to preserve the goodwill of its customers,
suppliers and employees, of the Franchisees and of others having business
relations with it;
(j) each of the Company and its Subsidiaries will comply in all
material respects with all Requirements of Law and will not fail to
prosecute with due diligence any applications to any Governmental
Authority material to the operation of the business, assets or properties
of the Company and the Subsidiaries; and
(k) none of the Company and its Subsidiaries will agree, whether in
writing or otherwise, to do any of the foregoing.
Section 6.4 Access. (a) Upon Fremont's receipt of confirmation that the
Fund has been deposited into the escrow pursuant to Section 3.5 hereof (the
"Deposit Date"), Fremont and the Company shall provide to Parent reasonable
access to the management of the Company, the Company's independent accountants
and counsel and the premises, books and records of the Company and the
Subsidiaries that relate to their business during their
<PAGE>
31
normal business hours, and upon reasonable notice and shall furnish Parent
with such financial and operating data and other information with respect to
the business and properties of the Company and the Subsidiaries as Parent
shall from time to time reasonably request. With respect to the information
set forth on Schedule 6.4(a), (i) to the extent that any such information is
made available to Parent on a day (the "Full Compliance Date") that is after
May 2, 1996, then the June 14, 1996 termination date set forth in Section
9.1(c) shall be extended for each day that the Full Compliance Date is after
May 2, 1996 and (ii) to the extent that the Full Compliance Date is after May
2, 1996, then (A) the June 7, 1996 date set forth in the definition of Per
Share Interest Amount, (B) the June 14, 1996 date set forth in Section 3.5 and
(C) the May 31, 1996 date set forth in Section 7.5(c)(ii)(x) shall each be
extended for each day that the Full Compliance Date is after May 2, 1996. Any
information regarding the Company and the Subsidiaries heretofore obtained
from Fremont, the Company or the Subsidiaries (or representatives of any of
them) by Parent or its representatives or hereafter obtained from such persons
shall be subject to the terms of the Confidentiality Agreement and such
information shall be held by Parent and its representatives in accordance with
the terms of the Confidentiality Agreement.
(b) No investigation pursuant to this Section shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
Section 6.5 No Public Announcement. No party hereto shall make any public
announcement concerning the transactions contemplated by this Agreement
without the prior approval of the other parties, except as such announcement
may be required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other party with reasonable time under the
circumstances to comment on such announcement in advance of such announcement.
Notwithstanding the foregoing, the parties hereto shall make a mutually
acceptable press release as soon as practicable after the execution hereof,
and Fremont and the Company acknowledge that after the execution of this
Agreement, Parent may make other public disclosure of the transactions
contemplated by this Agreement (after giving Fremont the opportunity to review
and comment on such disclosure in advance of its release) and will file this
Agreement (without schedules) with the SEC.
Section 6.6 Notice of Developments. Prior to the Closing Date, Fremont
and the Company shall promptly notify Parent in writing of all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which could reasonably be expected to result in any breach of a
representation or warranty or covenant of Fremont or the Company in this
Agreement or which could reasonably be expected to have
<PAGE>
32
the effect of making any representation or warranty of Fremont or the Company
in this Agreement untrue or incorrect in any material respect; provided that
the delivery of any notice pursuant to this Section shall not limit or
otherwise affect any remedies available to Parent.
Section 6.7 Expenses. Whether or not the transactions contemplated hereby
are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses; provided that all such costs and expenses incurred by
the Company or its Subsidiaries at the direction of Fremont shall not exceed
$500,000.
Section 6.8 Additional Agreements. (a) Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, as
soon as reasonably practicable, the transactions contemplated by this
Agreement. Parent, Sub, Fremont and the Company will use their reasonable best
efforts and cooperate with one another (i) in promptly determining whether any
filings are required to be made or consents, approvals, waivers, licenses,
permits or authorizations are required to be obtained (or, which if not
obtained, would result in an event of default, termination or acceleration of
any agreement under any applicable law or regulation or from any Governmental
Authorities or third parties, including parties to loan agreements or other
debt instruments) in connection with the transactions contemplated by this
Agreement, and (ii) in promptly making any such filings, in furnishing
information required in connection therewith and in timely seeking to obtain
any such consents, approvals, permits or authorizations. In case at any time
after the Closing Date any further action is necessary, proper or advisable to
carry out the purposes of this Agreement, as soon as reasonably practicable,
each party to this Agreement shall cause its proper officers and/or directors
to take all such necessary action.
(b) The Company agrees to provide, and will cause the Subsidiaries and
its and their respective officers, employees, accountants and other advisors
to provide, reasonable cooperation in connection with the arrangement of any
financing to be consummated contemporaneously with or at or after the Closing
in respect of the transactions contemplated by this Agreement; provided that
Parent shall reimburse the Company and the Subsidiaries for any and all
out-of-pocket expenses incurred by any of such parties in connection with such
cooperation. In addition, in conjunction with the obtaining of any such
financing, the Company agrees, at the request of Parent, to (i) cooperate in
the refinancing of any of its existing Indebtedness, including calling for
prepayment or redemption of, or to prepay, redeem and/or renegotiate, as the
case may be, any existing
<PAGE>
33
Indebtedness of the Company; provided that Parent agrees to hold the Company
harmless for any losses incurred by the Company as a result of any such calls
or prepayments if the Closing fails to occur as a result of the failure of any
condition set forth in Section 8.3 hereof and (ii) use its best efforts to
facilitate the release of any property of the Company or any of the
Subsidiaries subject to any Liens, including any accounts and chattel paper
which have been sold or any lockbox arrangements that have been entered into;
provided that no such prepayment, redemption or release need actually be made
until contemporaneously with the Closing.
ARTICLE VII
TAX MATTERS
Section 7.1 Transfer Taxes. Parent shall pay, or cause to be paid, all
transfer Taxes or fees, recordation or similar Taxes or fees, deed, stamp or
other Taxes, recording charges, fees, or other similar cost or expense of any
kind required in connection with the effectuation of the transactions
contemplated by this Agreement, whether such Tax or fee is imposed on Parent,
Sub, the Company, Fremont or any other stockholder of the Company.
Section 7.2 Tax Indemnification by Fremont. (a) Following the Closing,
Fremont shall indemnify and hold harmless Parent and its Affiliates (including
the Company and the Subsidiaries) and each of their respective directors,
officers, employees, agents, and other representatives from (i) all
liabilities for Federal income taxes and California franchise taxes
attributable to the Pre-Closing Tax Period; and (ii) all liabilities for
Federal income taxes arising as a result of Treasury Regulation section
1.1502-6(a) (or comparable provision under California franchise tax law)
attributable to Fremont or any other entity which has been affiliated with
Fremont (other than the Company and the Subsidiaries).
(b) Following the Closing if the Elections (as defined below) are made,
Fremont shall indemnify and hold harmless Parent and its Affiliates (including
the Company and the Subsidiaries) and each of their respective directors,
officers, employees, agents, and other representatives from (i) all Federal
income tax liability and California franchise tax liability of the Company and
the Subsidiaries directly attributable to the deemed sale of the assets of the
Company and the Subsidiaries arising under section 338(h)(10) of the Code and
comparable provision of California law (the "Deemed Sale") and (ii) all state
franchise or income tax liability to the extent that states, other than
California, require Deemed Sale treatment for the sale of the stock of the
Company pursuant to this Agreement; provided however, that such indemnity
shall not apply with respect to any
<PAGE>
34
state with respect to which the Parent, the Company, or the Subsidiaries have
not complied with the provisions of Section 7.8.
(c) Fremont shall be entitled to all refunds in respect of all Taxes for
which it is providing an indemnity under this Agreement.
Section 7.3 Tax Indemnification By Parent. (a) Following the Closing,
Parent shall, and shall cause the Company to, indemnify Fremont and its
Affiliates and each of their respective officers, directors, employees, and
agents and hold them harmless from all liability for Taxes of the Company and
the Subsidiaries other than Taxes for which Fremont is responsible under
Section 7.2.
(b) Parent shall be entitled to all refunds in respect of all Taxes for
which it is providing an indemnity under this Agreement.
Section 7.4 Tax Returns. (a) Fremont shall be solely responsible for
filing all Federal income and California franchise Tax Returns for the
Pre-Closing Tax Period. Such Pre-Closing Tax Period Tax Returns shall reflect
the taxable income of the Company and the Subsidiaries computed on a basis
consistent with past practice, except for the effects of the transactions
contemplated by this Agreement. Fremont shall afford Parent the opportunity to
review such Tax Returns but all decisions regarding such Tax Returns shall
ultimately be made by Fremont. The Company and the Subsidiaries will end their
respective tax years for Federal income and California franchise tax purposes
at the end of the Closing Date.
(b) Except as otherwise provided in Section 7.4(a), Parent and the
Company shall be solely responsible for filing all Federal and California Tax
Returns for the period beginning after the Closing Date and for the filing of
all other Tax Returns; provided however that (i) except as provided in Section
7.8, no Tax Return for which Parent and the Company (or any Subsidiary) are
responsible shall be filed on the basis that there has been a Deemed Sale;
(ii) Parent, the Company, and its Subsidiaries shall afford Fremont the
opportunity to review all Tax Returns that include the Closing Date; (iii) the
manner of reporting the consequences of any Deemed Sale must be approved by
Fremont; and (iv) Parent, the Company, and the Subsidiaries shall (x) permit
Fremont to participate, at its cost, in any dispute or controversy with a
Taxing Authority regarding whether there has been a Deemed Sale and the
reporting of the consequences of any Deemed Sale and (y) not settle any such
dispute or controversy without the express approval of Fremont.
<PAGE>
35
Section 7.5 Estimated Taxes and True Up.
(a) Prior to or on the Closing Date, the Company (and, where applicable,
the Subsidiaries) shall continue to make payments to Fremont in respect of its
Federal income and California franchise tax liability for the period ended
December 31, 1995 (the "1995 Period") and the period beginning January 1, 1996
and ending on and including the Closing Date (the "1996 Period"). Such
payments shall be determined in accordance with the Tax Sharing Agreements,
except with respect to the timing of the payment. In addition to the payments
required to be made by the Company for the 1995 Period under the Tax Sharing
Agreements, the Company shall pay $4,881,000 to Fremont prior to the Closing.
Fremont, the Company, and Parent will in good faith endeavor to calculate the
Federal and California taxable income of the Company (and, where applicable,
the Subsidiaries) for the 1996 Period prior to September 30, 1996.
(b) Prior to the due dates for the Federal income and California
franchise Tax Returns for the 1995 Period and the 1996 Period, respectively,
Fremont shall deliver to the Parent a schedule (the "True-up Schedule")
showing (x) the Federal income and California franchise tax liability of the
Company (and, where applicable, the Subsidiaries) for the appropriate period
computed in accordance with this Section 7.5 and the Tax Sharing Agreements
and (y) the amount of payments previously made by the Company in respect of
such liabilities (in respect of any particular Tax Return, the difference
between (x) and (y) is hereinafter referred to as the "True-up Amount").
Within 10 days after the delivery of the True-up Schedule, (i) Parent shall
pay or cause the Company to pay to Fremont the excess of (x) over (y) or (ii)
Fremont shall pay to the Company the excess of (y) over (x).
(c) For purposes of calculating the True-up Amount,
(i) the effects of the Deemed Sale shall not be considered; (ii) the
payments made with respect to each Employee Option pursuant to Section 3.4 and
other employee plans shall be treated as attributable to the 1996 Period and
the deductions attributable to such payments (x) shall first be used to reduce
the taxable income of the Company (and, where applicable, the Subsidiaries)
for the 1996 Period but only up to and including May 31, 1996, but not below
zero and (y) the balance, if any, shall be fully available to Fremont without,
notwithstanding the Tax Sharing Agreements, the need to compensate the Company
or the Subsidiaries for the Tax benefits attributable to such deductions; and
(iii) the taxable income of the Company and the Subsidiaries shall be computed
consistently with past practice.
(d) Notwithstanding the Tax Sharing Agreements, (i) Fremont shall be
entitled, without compensating the Company or the Subsidiaries, to use any Tax
attributes of the Company and the Subsidiaries to the extent such attributes
cannot be fully used to reduce the taxable income or Taxes of the Company for
the
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36
1996 Period and (ii) the payments referenced in Section 7.5(c)(ii) shall be
treated as attributable to the 1996 Period for all Tax purposes.
(e) Notwithstanding the Tax Sharing Agreements, the Company or the
Subsidiaries may not amend any Federal income or California franchise Tax
Return, or carryback any item into a prior tax period for purposes of such
taxes without the approval of Fremont, which approval can be denied in its
sole and absolute discretion.
(f) The Tax Sharing Agreements and other Tax arrangements among Fremont,
the Company, and the Subsidiaries, shall be terminated as of the Closing Date,
except to the extent otherwise provided in this Agreement.
Section 7.6 Procedures Relating to Indemnification of Tax Claims.
(a) If a claim shall be made by any Taxing Authority, which, if
successful, might result in an indemnity payment to a party (the "First
Party"), one of its Affiliates or any of their respective directors, officers,
employees, agents or representatives pursuant to this Section 7.6, the First
Party shall promptly and in any event no more than 15 days following the First
Party's receipt of such claim, give notice to the other party (the "Second
Party") in writing of such claim (a "Tax Claim"); provided, however, the
failure of the First Party to give such notice shall not relieve the Second
Party from any indemnification obligations hereunder unless the failure to
give prompt notice jeopardizes the Second Party's ability to defend such
claim.
(b) With respect to any Tax Claim for Taxes that Fremont may be liable
under this Agreement (including the income and franchise Tax consequences of a
Deemed Sale), Fremont shall control, at its cost, all proceedings and may make
all decisions taken in connection with such Tax Claim (including selection of
counsel) and, without limiting the foregoing, may in its sole discretion
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with any Taxing Authority with respect thereto, and may, in its
sole discretion, either pay the Tax claimed and sue for a refund where
applicable law permits such refund suits or contest the Tax Claim in any
permissible manner. Without limiting the control of the Tax Claim by Fremont
as set forth above, Fremont shall allow Parent or the Company to participate
as an observer, at its cost, in any dispute or controversy with any Taxing
Authority with respect to the Tax Claims described in this Section 7.6(b).
(c) With respect to any Tax Claim for Taxes that Parent or the Company
may be liable, Parent shall, except as provided in Section 7.6(b), control all
proceedings relating to such Taxes.
<PAGE>
37
Section 7.7 Cooperation with Respect to Tax Matters.
Fremont, Parent, the Company and each of their respective Affiliates
(including the Subsidiaries) shall reasonably cooperate with each other in the
filing of Tax Returns and in contesting any Tax Claim, which cooperation shall
include the retention and, upon the request of the party or parties filing
such Tax Returns or controlling proceedings relating to such Tax Claim, the
provision to such party or parties of records and information which are
reasonably relevant to such Tax Returns or such Tax Claim, and making
employees available on a mutually convenient basis to provide additional
information, explanation of any material provided hereunder, assistance in
completing such Tax Returns or to testify at proceedings relating to such Tax
Claim. The party requesting such information shall pay the reasonable external
costs of the party providing the requested information. All costs of preparing
the Tax Returns for the Pre-Closing Tax Period shall be borne by the Company
except the costs of Fremont and its advisors.
Section 7.8 Section 338 Election. (a) Fremont agrees, if so directed by
Parent, to join with Parent in making a timely election pursuant to Sections
338(g), and 338(h)(10) of the Code, and comparable provisions of California
tax law (the "Elections") with respect to the acquisition of the shares of the
capital stock of the Company and the Subsidiaries, which Parent has listed in
Schedule 4.2(d) (the Company together with such Subsidiaries are referred to
in this Section 7.8 as the "338 Entities"); provided however that if Parent
directs Fremont to make the Elections, the Elections must be made for all
Subsidiaries unless Fremont consents, in writing, to exclude a particular
Subsidiary.
(b) To the extent possible, Fremont and Parent agree to execute at the
Closing all forms necessary to effectuate the Elections (including without
limitation Internal Revenue Service Form 8023 and any similar forms under
California law (the "Section 338 Forms"). If any Section 338 Forms are not
executed at the Closing, Fremont and Parent will prepare and complete each
such Section 338 Form no later than 90 days before the date on which such Form
is required to be filed. Fremont and Parent shall each cause the Section 338
Forms to be duly executed by an authorized person and shall duly and timely
file the Section 338 Forms in accordance with applicable tax laws and the
terms of this Agreement. Fremont agrees that they will procure the assistance
of any of their Affiliates to the extent necessary to effectuate properly the
Elections (including without limitation the execution of any required forms).
(c) Parent and Fremont will allocate the deemed sales price among the
assets of the 338 Entities for Tax purposes in accordance with the classes of
assets set forth in Section 338 of the Code and the applicable Treasury
Regulations. Fremont and Parent shall in good faith endeavor to arrive at a
mutually
<PAGE>
38
agreeable allocation of the deemed sales price among such assets for Tax
purposes. If Fremont and Parent cannot decide on the appropriate allocation of
the deemed sales price among the assets of the 338 Entities for Tax purposes,
Fremont and Parent will jointly appoint Price Waterhouse to make such
allocation. Price Waterhouse's determination of such allocations shall be
binding on Fremont and Parent, and Parent, Fremont, the Company, and the
Subsidiaries shall file all Tax Returns consistently with the allocation set
forth in this Section 7.8(c).
(d) Fremont shall not be required to join in an Election with respect to
any jurisdiction other than as set forth in Section 7.8(a) (the "Non-Electing
Jurisdiction(s)") nor shall Parent, the Company or the Subsidiaries be
permitted to make an Election with respect to any Non-Electing Jurisdiction.
Fremont shall be permitted to make, and Parent, the Company, and the
Subsidiaries will cooperate with Fremont in making, any appropriate election
under the laws of any Non-Electing Jurisdiction so that the sale of stock
pursuant to this Agreement will not be treated as a Deemed Sale in such
jurisdictions. Parent, the Company, and the Subsidiaries will file Tax Returns
in the Non-Electing Jurisdictions in accordance with this Section 7.8. Fremont
will use its best efforts to notify Parent and the Company, within 2 1/2
months of the Closing, of the jurisdictions with respect to which Fremont will
not agree to Deemed Sale treatment (or with respect to which it wishes to
elect out), together with any available legal authorities.
(e) Notwithstanding Section 7.8(d), if, within 30 days of Fremont's
delivery of notice under Section 7.8(d), Parent shall deliver a certificate
signed by a duly authorized officer of Parent to the effect that, after due
inquiry and in good faith (including making available to Fremont the legal
authorities and analyses for their conclusion), Parent believes that there is
no reasonable basis under the applicable income or franchise tax law of a
Non-Electing Jurisdiction to not report the sale of stock under this Agreement
as a Deemed Sale, then the issue of whether the sale of stock under this
Agreement must be reported as a Deemed Sale will be referred to Price
Waterhouse who will be required either to (i) give an opinion that there is no
reasonable basis under the applicable income or franchise tax law of such
jurisdiction to not report the sale of stock under this Agreement as a Deemed
Sale, in which case the applicable Tax Return will be filed on the basis of a
Deemed Sale for such Non-Electing Jurisdiction; or (ii) give an opinion that
there is a reasonable basis under such law to report the sale of stock under
this Agreement as a sale of stock, in which case the applicable Tax Return
shall be filed on the basis that there is no Deemed Sale for such Non-Electing
Jurisdiction. The costs and expenses of Price Waterhouse shall be shared
equally by Fremont and Parent.
<PAGE>
39
ARTICLE VIII
CONDITIONS TO THE CLOSING
Section 8.1 Conditions of Obligation of Each Party. The respective
obligations of each party to effect the Closing are subject to the condition
precedent that at or prior to the Closing Date there shall be no temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby in effect,
nor shall any proceeding by any Governmental Authority seeking any of the
foregoing be pending. There shall not be in effect any statute, rule,
regulation or order of any Governmental Authority which prohibits or makes
illegal the transactions contemplated by this Agreement.
Section 8.2 Additional Conditions to the Obligations of Parent. The
obligations of Parent and Sub are also subject to fulfillment (or waiver by
Parent) at or prior to the Closing Date of each of the following conditions
precedent:
(a) Representations and Warranties. The representations and
warranties of Fremont and the Company contained in Article IV of this
Agreement shall be true and correct on the date of this Agreement and as
of the Closing Date as though made at and as of the Closing Date, except
(i) for changes permitted or contemplated by this Agreement, (ii) to the
extent they expressly refer to an earlier time, in which case they shall
be true and correct as of such time and (iii) for representations and
warranties not containing any materiality qualifier, in which case such
representations and warranties shall be true and correct in all material
respects.
(b) Performance of Covenants. Each of Fremont and the Company shall
have duly performed and complied with each covenant, agreement and
condition required by this Agreement to be performed or complied with by
it prior to or on the Closing Date, except where such non-performance or
non-compliance does not have, or would not reasonably be expected to
have, a Material Adverse Effect.
(c) No Material Adverse Change. There shall have been no development
or event which has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(d) Officer's Certificates. Parent shall have received from Fremont
and the Company a certificate as to the matters described in Sections
8.2(a) and 8.2(b).
(e) Corporate Action. Parent shall have received: (i) a copy of the
resolutions duly adopted by the Board of
<PAGE>
40
Directors and the board of directors of Fremont authorizing the
execution, delivery and performance by the Company and Fremont of this
Agreement, certified by the Secretary or an Assistant Secretary of the
Company and Fremont, respectively; (ii) a copy of the resolutions duly
adopted by the stockholders of the Company authorizing the Merger and the
execution, delivery and performance by the Company of this Agreement,
certified by the Secretary or an Assistant Secretary of the Company; and
(iii) a certificate of the Secretary or an Assistant Secretary of the
Company and Fremont as to the incumbency and signature of the officer of
the Company and Fremont executing this Agreement and any certificate
delivered to Parent hereunder.
(f) Resignations. The directors of the Company shall have tendered
their written resignations from the Board of Directors of the Company,
effective upon consummation of the Closing.
(g) Termination of Affiliate Transactions. The Company and Fremont
shall have delivered to Parent legally binding documentation evidencing
the termination of all agreements between Fremont and the Company of any
kind, including without limitation all agreements set forth in Schedule
4.2(p) (other than the agreements set forth on Schedule 8.2(g)) and any
other stockholders, registration rights, subscription, contribution,
management, advisory and service agreements between the Company or any of
its Subsidiaries, on the one hand, and Fremont or its Affiliates, on the
other hand. The Company shall have delivered to Parent evidence that it
has received waivers of all rights granted to Fremont under the
agreements set forth in Schedule 4.2(p) (other than the agreements set
forth on Schedule 8.2(g)) with respect to the execution of this Agreement
and the consummation of the transactions contemplated by this Agreement.
(h) Consents. All consents of other parties under any Governmental
Authority or any of the Material Contracts, licenses and permits of the
Company and the Subsidiaries relating to the operation of the business or
required for the consummation of the transactions contemplated by this
Agreement and identified in Schedule 8.2(h) shall have been obtained.
(i) No Appraisal Rights. No right of appraisal of any holder of
issued and outstanding capital stock of the Company shall have been
asserted in writing to the Company or otherwise exercised.
<PAGE>
41
Section 8.3 Additional Conditions to the Obligations of the Company and
Fremont. The obligations of the Company and Fremont are also subject to
fulfillment (or waiver by Fremont) at or prior to the Closing Date of each of
the following conditions precedent:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub contained in Article V of this Agreement
shall be true and correct on the date of this Agreement and as of the
Closing Date as though made at and as of the Closing Date, except for (i)
changes permitted or contemplated by this Agreement, (ii) to the extent
they expressly refer to an earlier time, in which case they shall be true
and correct as of such time and (iii) for representations and warranties
not containing any materiality qualifier, in which case such
representations and warranties shall be true and correct in all material
respects.
(b) Performance of Covenants. Parent and Sub shall have duly
performed and complied with each covenant, agreement and condition
required by this Agreement to be performed or complied with by it prior
to or on the Closing Date, except where such non-performance or
non-compliance do not have, or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(c) Officer's Certificate. Fremont shall have received from a duly
authorized senior officer of Parent a certificate as to the matters
described in Sections 8.3(a) and 8.3(b).
(d) Corporate Action. Fremont shall have received: (i) a copy of the
resolutions duly adopted by the board of directors of Parent and Sub
authorizing the execution, delivery and performance by Parent and Sub of
this Agreement, certified by the Secretary or an Assistant Secretary of
Parent and the Secretary of Sub; and (ii) a certificate of the Secretary
or an Assistant Secretary of Parent as to the incumbency and signature of
the officer of Parent and Sub executing this Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. Subject to delivery of the Fund pursuant to
Section 9.2(b) or 9.2(c), as the case may be, this Agreement may be terminated
at any time prior to the Closing:
(a) by mutual agreement of Fremont and Parent;
<PAGE>
42
(b) (i) by Parent upon notice given to Fremont in the event that
Fremont or the Company shall, contrary to the terms of this Agreement,
fail or refuse to consummate the transactions contemplated hereby or to
take any other action referred to herein necessary to consummate the
transactions contemplated hereby, after affording Fremont a 30-day period
after notice in which to cure, or (ii) by Fremont upon notice given to
Parent in the event that Parent and Sub shall, contrary to the terms of
this Agreement, fail or refuse to consummate the transactions
contemplated hereby or to take any other action referred to herein or in
the Confidentiality Agreement necessary to consummate the transactions
contemplated hereby, after affording Parent a 30-day period after notice
in which to cure;
(c) (i) by Parent upon notice given to Fremont if the Closing shall
not have taken place on or before June 14, 1996; provided that the
failure of the Closing to occur on or before such date is not the result
of the breach of any covenants, agreements, representations or warranties
hereunder of Parent or Sub or (ii) by Fremont upon notice given to Parent
if the Closing shall not have taken place on or before June 14, 1996;
provided that the failure of the Closing to occur on or before such date
is not the result of an event set forth in Section 9.2(b);
(d) by Parent, on the one hand, or Fremont on the other hand, upon
notice given to the other if any court or Governmental Authority of
competent jurisdiction shall have issued a final permanent order,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement;
(e) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company or Fremont set forth in
this Agreement, or if any representation or warranty of the Company or
Fremont shall have become untrue, in either case such that the conditions
set forth in Section 8.2(a) or Section 8.2(b) would not be satisfied as
of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided that if such inaccuracy in
the Company's or Fremont's representations and warranties or breach by
the Company or Fremont is curable through the exercise of its reasonable
efforts and for so long as the Company or Fremont continues to exercise
such reasonable efforts, Parent may not terminate this Agreement under
this Section 9.1(e);
(f) by Fremont, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent or Sub set forth in this
Agreement, or if any representation or warranty of Parent or Sub shall
have become untrue, in either case such that the conditions set forth in
Section 8.3(a) or Section 8.3(b) would not be satisfied as of the time of
such breach or as of the time such representation or
<PAGE>
43
warranty shall have become untrue, provided that if such inaccuracy in
Parent's or Sub's representations and warranties or breach by Parent or
Sub curable through the exercise of its reasonable efforts and for so
long as Parent or Sub continues to exercise such reasonable efforts,
Fremont may not terminate this Agreement under this Section 9.1(f); or
(g) by Parent upon notice given to Fremont by the fifth Business Day
after the date hereof; provided that notice of termination pursuant to
this Section 9.1(g) shall be accompanied by the return of all copies of
the Information (as defined in the Confidentiality Agreement) and
certification of destruction as required by Paragraph 3 of the
Confidentiality Agreement.
Section 9.2 Effect of Termination. (a) In the event of the termination of
this Agreement as provided in Section 9.1, subject to delivery of the Fund
pursuant to Section 9.2(b) or 9.2(c) as the case may be, all of the
obligations and liabilities of the parties under this Agreement shall
terminate and each party hereto shall pay its own fees and expenses incurred
in connection with the negotiation, preparation, execution and performance of
this Agreement, including without limitation the fees and expenses of
attorneys, accountants and other advisors; provided that nothing in this
Section 9.2 shall relieve any party from any liability for any breach of this
Agreement; provided that neither Fremont nor the Company shall have any
liability for any breach of this Agreement, unless this Agreement will have
been terminated as a result of an event set forth in Section 9.2(b).
Notwithstanding this Section 9.2, the obligations of the parties to this
Agreement under Sections 6.7, 6.8(b) and 10.4 shall survive any such
termination.
(b) In the event of the termination of this Agreement as provided in
Section 9.1 in any of the following circumstances, Fremont and Parent agree
that all amounts in the Fund held by the Escrow Agent shall be promptly
delivered to Parent and neither Fremont nor the Company shall have any claim
to any amount held by the Escrow Agent in the Fund:
(i) Any representation or warranty made by Fremont in Sections
4.1(a), (b) or (c) fails to be true and correct in all material respects
on the Closing Date;
(ii) Any representation or warranty made by the Company in the
penultimate sentence of Section 4.2(a) or in Section 4.2(b) fails to be
true and correct in all material respects on the Closing Date;
(iii) Fremont or the Company, as applicable, fails (A) to comply
with or perform the covenants of Fremont or the Company, as applicable,
set forth in Sections 3.2, 3.3(c), 3.4, 6.1, 6.2, 6.3 and 6.4 in all
material respects, (B) to
<PAGE>
44
use its commercially reasonable best efforts to obtain the consents set
forth on Schedule 8.2(h) or (C) to act in good faith with respect to any
action reasonably requested of Fremont or the Company by Parent under
Section 6.8 the failure of which would reasonably be expected to have a
(x) Material Adverse Effect or (y) material adverse effect on Parent's or
the Company's ability to finance the Merger or to refinance the
Indebtedness of the Company and its Subsidiaries outstanding on the date
hereof; and
(iv) The failure of the representations and warranties made by
Fremont or the Company to be true and correct in all material respects
and the non-compliance or non-performance of the covenants of Fremont or
the Company set forth herein, in the aggregate, cause a diminution in the
value of the Company's equity in excess of $65,000,000.
(c) In the event of the termination of this Agreement as provided in
Section 9.1 as a result of any event other than those set forth in Section
9.2(b), the parties hereto agree that all amounts contained in the Fund will
be promptly delivered to the Company and its stockholders in the manner set
forth in Schedule 9.2(b).
(d) Notwithstanding any provision set forth in this Article IX to the
contrary, the Company shall have no further obligation under Section 6.3 upon
any purported termination of this Agreement pursuant to Section 9.1
irrespective of whether the Fund will have been released from escrow.
ARTICLE X
MISCELLANEOUS
Section 10.1 Survival. None of the representations and warranties made by
the parties in this Agreement, including the schedules hereto and the
certificates delivered in accordance with Sections 8.2(d) and 8.3(c) hereof,
shall survive the Closing. None of the covenants made by the parties in this
Agreement that are required to be performed prior to the Closing shall survive
the Closing. All of the covenants made by the parties in this Agreement that
are required to be performed after the Closing shall survive the Closing. As
of the Effective Time, all of Parent's and Fremont's rights and obligations
under the Confidentiality Agreement (excluding such rights and obligations
under paragraphs 5, 9, 12 and 13 thereof) shall terminate.
Section 10.2 Employees. The parties hereto agree that employment of all
persons actively employed (including those on leave of absence) by the Company
or any Subsidiary immediately prior to the Closing Date (the "Transitioned
Employees") shall not be deemed terminated or interrupted by reason of the
<PAGE>
45
transactions contemplated by this Agreement. Nothing contained in this
Agreement shall (i) restrict or otherwise inhibit Parent's rights to terminate
the employment of any Transitioned Employees on or after the Closing Date or
(ii) be construed or interpreted to restrict Parent's right or authority to
amend or terminate any employee benefit plans, policies or programs of Parent,
the Company or any Subsidiary.
Section 10.3 Brokers and Financial Advisors. Fremont, on the one hand,
and Parent, on the other hand, shall be solely responsible for, and shall
indemnify the other party in respect of, any brokerage or finder's fees,
financial advisory fees and other similar fees and the expenses related
thereto based on arrangements or undertakings made by such party or any of its
Affiliates (including the Company and the Subsidiaries, in the case of
Fremont) in connection with the transactions contemplated hereby, including
without limitation the fees and expenses of Morgan Stanley & Co. Incorporated
and Merrill Lynch & Co., in the case of Parent.
Section 10.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or
transmitted by facsimile or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to Parent, to:
HFS Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman, Esq.
Facsimile: 201-428-3260
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Robert L. Friedman, Esq.
Facsimile: 212-455-2502
if to Fremont or the Company to:
Fremont Investors, Inc.
50 Fremont Street, Suite 3700
San Francisco, California 94105
Attention: Robert Jaunich II
Facsimile: 415-284-8191
with a copy to:
Fremont Investors, Inc.
50 Fremont Street, Suite 3700
<PAGE>
46
San Francisco, California 94105
Attention: Timothy H. Hosking, Esq.
Facsimile: 415-512-7121
and with a copy to:
Skadden, Arps, Slate, Meagher & Flom
Four Embarcadero Center
Suite 3800
San Francisco, California 94111
Attention: Kenton J. King, Esq.
Facsimile: 415-984-2698
Section 10.5 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.6 No Third Party Beneficiaries. Nothing herein express or
implied shall confer upon any of the employees of Fremont, the Company, any
Subsidiary, Parent, Sub, or any of their respective Affiliates, or any third
party, any rights or remedies, including without limitation any right to
employment, or continued employment for any specified period, of any nature or
kind under or by reason of this Agreement.
Section 10.7 Amendment. At any time prior the Effective Time, this
Agreement may be amended by the parties hereto, by action taken by their
respective Board of Directors, provided that no amendment shall be made that
reduces the amount of the consideration to be paid to the stockholders of the
Company or that in any way adversely affects the rights of such stockholders
without the further approval of such stockholders. Without limiting the
foregoing, this Agreement and the Schedules hereto may not be amended except
by an instrument or instruments in writing signed and delivered on behalf of
each of the parties hereto.
Section 10.8 Extension; Waiver. At any time prior to the Effective Time,
any party hereto which is entitled to the benefits hereof may (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracy in the representations and warranties of the
other party contained herein or in any schedule hereto or in any document
delivered pursuant hereto, and (c) waive compliance with any of the agreements
of the other party hereto or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid if set
forth in an instrument in writing signed and delivered on behalf of such
party.
<PAGE>
47
Section 10.9 Entire Agreement. This Agreement (including the schedules,
documents and instruments referred to herein), the Escrow Agreement and the
Confidentiality Agreement constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, among the
parties hereto with respect to the subject matter hereof. The provisions of
this Agreement shall supersede any contrary or inconsistent provisions set
forth in Paragraph 10 of the Confidentiality Agreement.
Section 10.10 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Notwithstanding the foregoing, this
Agreement shall not be assignable by any party hereto (other than by operation
of law) without the prior written consent of the other parties hereto,
provided, that Parent may assign its rights hereunder to any of its
Affiliates, provided, further, that any such assignment shall not release
Parent from any of its obligations hereunder.
Section 10.11 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN
UNDER APPLICABLE NEW YORK PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS,
INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT,
PREFERENCE AND REMEDIES. EACH PARTY HERETO IRREVOCABLE SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF CALIFORNIA, OR IF THAT COURT DOES NOT HAVE SUBJECT MATTER
JURISDICTION, OF ANY STATE COURT LOCATED IN THE CITY OF SAN FRANCISCO,
CALIFORNIA. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, (I) ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
LAYING VENUE OF ANY SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT AND (II)
ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
Section 10.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute a single agreement.
<PAGE>
48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their respective officersk thereunto duly
authorized all as of the date first written above.
HFS INCORPORATED
By: /s/ James E. Buckman
----------------------
Name: James E. Buckman
Title: Executive Vice President
CBC ACQUISITION CORP.
By: /s/ James E. Buckman
______________________
Name: James E. Buckman
Title: Executive Vice President
FREMONT INVESTORS, INC.
By: /s/ Robert Jaunich
______________________
Name: Robert Jaunich
Title:
COLDWELL BANKER CORPORATION
By: /s/ Robert Jaunich
______________________
Name: Robert Jaunich
Title:
ASSET PURCHASE AGREEMENT
Dated as of
April 2, 1996
Among
CENTURY 21 REAL ESTATE CORPORATION,
CENTURY 21 REAL ESTATE OF
SOUTHERN FLORIDA, INC.,
HFS INCORPORATED
and
RICHARD C. RITCHEY
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 Purchase and Sale of Assets.......................... 2
Section 1.2 NAF Assets........................................... 6
Section 1.3 Excluded Assets...................................... 7
Section 1.4 Assumption of Liabilities............................10
Section 1.5 Retained Liabilities and Unassumed
Obligations..........................................10
Section 1.6 Purchase Price.......................................10
Section 1.7 Closing Time and Place...............................11
Section 1.8 Allocation of Purchase Price.........................11
Section 1.9 Seller's Deliveries at Closing.......................12
Section 1.10 Purchaser's Deliveries at Closing....................13
Section 1.11 Lease of Office Space................................14
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDER
Section 2.1 Organization and Standing............................14
Section 2.2 Capital Structure....................................15
Section 2.3 Corporate Authority and Action.......................15
Section 2.4 Consents.............................................16
Section 2.5 No Conflict..........................................17
Section 2.6 Financial Statements.................................18
Section 2.7 Absence of Undisclosed Liabilities...................19
Section 2.8 Absence of Specified Changes.........................19
Section 2.9 Tax Matters..........................................21
Section 2.10 Employee Benefit Matters.............................21
Section 2.11 Litigation...........................................23
Section 2.12 Assets...............................................23
Section 2.13 Title to Assets......................................28
Section 2.14 Employees and Compensation...........................29
Section 2.15 Conflicts of Interest................................30
Section 2.16 Compliance with Law..................................30
Section 2.17 Corporate Documents..................................31
Section 2.18 Brokers or Finders...................................31
Section 2.19 National Ad Fund.....................................32
Section 2.20 Insurance............................................32
Section 2.21 No Assurances........................................32
<PAGE>
Page
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Section 3.1 Organization and Standing........................... 34
Section 3.2 Corporate Authority; Action......................... 34
Section 3.3 Consents............................................ 34
Section 3.4 No Violation........................................ 35
Section 3.5 Litigation.......................................... 35
Section 3.6 Brokers and Finders................................. 36
Section 3.7 No Other Representations............................ 36
ARTICLE IV
CERTAIN COVENANTS OF SELLER, SHAREHOLDER AND PURCHASER
Section 4.1 Severance.......................................... 36
Section 4.2 Use of Name........................................ 37
Section 4.3 Non-Competition.................................... 38
Section 4.4 Separate Covenants................................. 40
Section 4.5 Non-Disclosure of Trade Secrets.................... 40
Section 4.6 Injunctive Relief.................................. 40
Section 4.7 Service and NAF Fees............................... 41
Section 4.8 Accounts Receivable................................ 42
Section 4.9 Computer Software.................................. 42
Section 4.10 Employment Agreement............................... 42
ARTICLE V
SURVIVAL, INDEMNIFICATION
Section 5.1 Survival of the Representations.................... 43
Section 5.2 Statements as Representations...................... 43
Section 5.3 Indemnification by Seller and
Shareholder........................................ 44
Section 5.4 Indemnification by Purchaser and HFS............... 46
Section 5.5 Claims............................................. 48
Section 5.6 Conditions of Indemnification...................... 48
Section 5.7 Set-off............................................ 51
Section 5.8 Limitation on Indemnification...................... 52
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Page
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Expenses........................................... 53
Section 6.2 Reimbursement of and Payment to
Purchaser and Seller............................. 54
Section 6.3 Interpretation..................................... 55
Section 6.4 Amendments and Waivers............................. 56
Section 6.5 Other Instruments to Be Executed................... 57
Section 6.6 Public Statements.................................. 57
Section 6.7 Confidentiality.................................... 58
Section 6.8 Access To Records After Closing.................... 59
Section 6.9 Parties Bound...................................... 59
Section 6.10 Parties in Interest................................ 60
Section 6.11 Notices............................................ 60
Section 6.12 Number and Gender of Words......................... 62
Section 6.13 Captions........................................... 62
Section 6.14 Invalid Provisions................................. 63
Section 6.15 Accounting Terms................................... 63
Section 6.16 Entirety of Agreement.............................. 64
Section 6.17 Multiple Counterparts.............................. 64
Section 6.18 Governing Law...................................... 64
Section 6.19 Jurisdiction....................................... 64
Section 6.20 Waiver of Audits................................... 65
Section 6.21 Prevailing Party Expenses.......................... 66
Section 6.22 Waiver of Rescission............................... 66
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SCHEDULES
Schedule A - Franchise Agreements
Schedule B - Assumed Real Property Leases
Schedule C - Assumed Contracts
Schedule D - Purchased Equipment
Schedule E - Purchased Inventory
Schedule F - Intellectual Property
Schedule G - Transferred Claims
Schedule H - Deposits
Schedule I - Other Assets
Schedule J- Tax Allocation
EXHIBITS
Exhibit I - Undertaking
Exhibit II - Promissory Note
Exhibit III - Bill of Sale
Exhibit IV - Contract Assignment
Exhibit V - Opinion of Seller's Counsel
Exhibit VI - FIRPTA Certificate
Exhibit VII - Opinion of Purchaser's Counsel
Exhibit VIII - Severance Policy
Exhibit IX - Office Lease
Exhibit X - Employment Agreement
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ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT, made and entered into this 2nd day of April,
1996 (the "Agreement"), by and among CENTURY 21 REAL ESTATE CORPORATION, a
Delaware corporation ("Purchaser"), HFS INCORPORATED, a Delaware corporation
and ultimate parent of Purchaser ("HFS"), CENTURY 21 REAL ESTATE OF SOUTHERN
FLORIDA, INC., a Florida corporation ("Seller"), and RICHARD C. RITCHEY, the
holder of all of the outstanding shares of capital stock of Seller (the
"Shareholder").
WHEREAS, Seller is engaged in the business of real estate brokerage
office subfranchising and related operations for the CENTURY 21(R) system (the
"Business") in the State of Florida south of and including the counties of
Pinellas, Hillsborough, Polk, Osceola and Indian River (the "Region"); and
WHEREAS, Seller desires to sell to Purchaser its assets essential to the
continued, uninterrupted operations relating to the Business, as more
particularly identified in this Agreement, and Purchaser desires to purchase
such assets.
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties
<PAGE>
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
SECTION 1.1 Purchase and Sale of Assets. Subject to the terms and
conditions of this Agreement, Purchaser is hereby purchasing and paying
for, and Seller is hereby selling, assigning, transferring and conveying
to Purchaser, free and clear of any mortgage, lien, pledge, charge,
security interest, restriction, claim or other encumbrance (a "Lien"),
for the consideration specified in Section 1.6, the following properties
and assets of Seller (the "Purchased Assets"):
(a) CENTURY 21 Subfranchise Agreement. All right, title and interest
of Seller in, to and under the CENTURY 21 Subfranchise Agreement, dated
April 1, 1975, between Purchaser and Seller, as amended by the Addendum,
dated April 1, 1975, and all other amendments thereto, if any (the
"Subfranchise Agreement");
(b) CENTURY 21 Real Estate Franchise Agreements. All right, title
and interest of Seller in, to and under all CENTURY 21 Real Estate
Franchise Agreements ("Franchise Agreements") of CENTURY 21 franchisees
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of Seller in the Region as of the date of this Agreement ("Franchisees"),
as set forth in Schedule A, including all franchisee files, records and
other information pertaining thereto;
(c) Open Transactions. All right, title and interest of Seller in
and to service fees owing or to be owing on Opens (as hereinafter
defined), whether reported or unreported, which close after March 31,
1996; for purposes of this Agreement, "Opens" shall mean agreements to
convey real property awaiting completion/fulfillment of all terms and
conditions of such agreements, at which time the transactions represented
thereby will close, whether or not such agreements were placed into the
custody of a third party, as escrow holder;
(d) Assumed Real Property Leases. All right, title and interest of
Seller in and to the leases of real property listed in Schedule B (the
"Assumed Real Property Leases");
(e) Assumed Contracts. All right, title and interest of Seller in,
to and under the contracts listed in Schedule C (the "Assumed
Contracts");
(f) Purchased Office Machines and Equipment. All right, title and
interest of Seller in and to
3
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the office machines, equipment and computers listed in Schedule D
(the "Purchased Equipment");
(g) Inventory. All right, title and interest of Seller in and to the
training programs and materials and other inventory utilizing the
"Century 21" name listed in Schedule E (the "Purchased Inventory");
(h) Intellectual Property. All right, title and interest of Seller
in and to intellectual property assets used by Seller in connection with
the Business, including without limitation (i) registered and
unregistered copyrights, trademarks, service marks, service names, trade
names, slogans, assumed names and other trademark rights, including all
applications therefor and (ii) statutory, common law and registered
copyrights, including all applications therefor (the items described in
clauses (i) and (ii) constituting, collectively, "Intellectual
Property");
(i) Purchased Books and Records. All lists, files and records
pertaining to Franchisees, Franchise Agreements, customers and vendors,
and copies of all data, books, ledgers, records, correspondence,
accounts, lists, sales and advertising materials, files and documents
relating to the Purchased Assets, but not including the Excluded Books
and Records (as defined in
4
<PAGE>
Section 1.3(d)) (the "Purchased Books and Records"), subject, however, to
the right of Seller to retain and use copies thereof and to Seller's
reasonable access and inspection rights pursuant to Section 6.8 hereof
after the Closing Date (as hereinafter defined);
(j) Claims. All right, title and interest of Seller in and to the
claims, refunds, credits, causes of action, chooses in action, rights of
recovery and rights of set-off of every kind and nature associated with
the Purchased Assets or Assumed Liabilities (as that term is defined in
Section 1.4) (the "Transferred Claims"), excluding those referred to in
to Section 1.3(g) hereof;
(k) Goodwill. All right, title and interest of Seller in and to
all goodwill and going concern value and all other intangible properties
of Seller used in or held for use in the conduct of the Business ("Good-
will");
(l) Deposits Held for Others. All right, title and interest of
Seller in and to the prepayments or other deposits by Franchisees or
others in the amounts set forth in Schedule H representing the amount of
liabilities or obligations Purchaser or HFS is assuming and agreeing to
perform or caused to be performed with re-
5
<PAGE>
spect to which the deposit or prepayment was paid ("Deposits"); and
(m) Other Assets. The other assets identified on Schedule I hereto.
SECTION 1.2 NAF Assets. At the Closing (as hereinafter defined) or
as soon thereafter as practicable, Seller will deliver to Purchaser
documents sufficient to transfer control of all bank accounts maintained
by Seller at which monies received by the Seller for the CENTURY 21
(Registered Trademark) National Advertising Fund ("NAF") are held (the "NAF
Accounts") and agrees, following the Closing, to pay over any other amounts
or transfer any other assets or rights for which Seller is otherwise
accountable or responsible with respect to the NAF pursuant to Seller's
obligations and responsibilities under the Agreement Regarding National
Advertising Fund, dated March 1, 1976, between Purchaser and Seller, as
amended by the Addendum, dated February 26, 1988 (the "NAF Agreement"),
between Purchaser and Seller and any other amendments or addendums thereto.
As of the Closing, the NAF Agreement is terminated and Seller shall have no
further obligations or liabilities thereunder for any matters arising after
the Closing Date.
6
<PAGE>
SECTION 1.3 Excluded Assets. The Purchased Assets shall not include
the following (all of Seller's assets that are not a part of the
Purchased Assets being called the "Excluded Assets"):
(a) Land and Improvements. Real property (except the Assumed Real
Property Leases) owned by Seller (including all land and buildings and
improvements thereon);
(b) Excluded Machinery and Equipment. All machinery and equipment,
other fixtures and fittings, moveable office machinery and equipment,
computer software (subject, however, to Purchaser's right to utilize such
software in connection with obtaining the information thereon) furniture
and fixtures and other tangible personal property, owned by Seller and
which is not specifically listed on Schedule D as constituting the
Purchased Equipment;
(c) Vehicles. All automobiles, trucks, and other vehicles owned by
Seller;
(d) Excluded Books and Records. Seller's certificate of
incorporation, corporate seal, bylaws, minute books, stock and
shareholder records and books, tax returns and financial statements,
other corporate records pertaining to the corporate organization and
7
<PAGE>
capitalization of Seller, ledgers, books and records used by Seller for
accounting and tax purposes and not required for future operation of the
Business, and all files and records relating to the Excluded Assets (the
"Excluded Books and Records"); subject, however, to Purchaser's
reasonable inspection rights under this Agreement before and after the
Closing Date with respect to the Purchased Assets and the Business;
(e) Cash and Marketable Securities. All cash and cash equivalents of
Seller, including, without limitation, cash on hand or at any other
location in or from which Seller conducts the Business, certificates of
deposit and other bank accounts, treasury bills, other cash equivalents
and marketable securities and any pre-payments made by Seller with
respect to the Business (except Deposits);
(f) Life Insurance Policies. Any life insurance policies insuring
the life of the Shareholder;
(g) Retained Claims. All claims, refunds, causes of action, choses
in action, rights of recovery and rights of set-off of every kind and
nature, except the Transferred Claims, including without limitation,
claims represented by law suits currently in process with Seller as
plaintiff or counterclaimant;
8
<PAGE>
(h) Regional Headquarters. The lease and any and all obligations and
liabilities related thereto for the regional headquarters building and
property of the Seller located at 3100 N.W. 77th Court, Miami, Florida;
(i) Accounts and Notes Receivable. All right, title and interest of
Seller in and to the trade accounts and notes receivable existing as of
the Closing Date, including without limitation: (i) service fees and
other payments owing by Franchisees; (ii) notes receivable; and (iii)
other receivables of Seller arising out of or directly related to the
ordinary course of the Business through the Closing Date, including
without limitation, any rights of indemnification by Franchisees and any
right of Seller with respect to any third-party collection procedures or
court actions which have been commenced in connection therewith (the
"Accounts Receivable");
(j) Seller's Prepaid Deposits. Any deposits or prepaid expenses paid
by Seller in connection with the Business, whether or not reflected as
assets on Seller's balance sheet; and
(k) Opens. Any Opens, whether reported or unreported, which close
prior to April 1, 1996.
9
<PAGE>
SECTION 1.4 Assumption of Liabilities. Purchaser is assuming at the
Closing and, after the Closing Date, shall pay, perform and discharge
when due, the obligations and liabilities of Seller, including current
and future liabilities, expenses, and costs, related to or associated
with the Purchased Assets (the "Assumed Liabilities") set forth in the
Undertaking and Instrument of Assignment substantially in the form set
forth as Exhibit I hereto (the "Undertaking"), and no others, as the same
shall exist on the Closing Date.
SECTION 1.5 Retained Liabilities and Unassumed Obligations. Except
for the Assumed Liabilities, Purchaser is not assuming by virtue of this
Agreement or the transactions contemplated hereby any other obligations
or liabilities of Seller of any kind whatever and all such obligations
and liabilities, other than the Assumed Liabilities, shall remain the
sole responsibility and obligation of Seller.
SECTION 1.6 Purchase Price. Subject to the terms and conditions of
the Agreement, HFS and Purchaser are paying to Seller as the total
purchase price (the "Purchase Price") for the Purchased Assets at the
Closing being held simultaneously with the execution of this Agreement,
(i) the amount of $27,835,825 by wire transfer
10
<PAGE>
in immediately available funds and (ii) a promissory note in the form set
forth as Exhibit II hereto in the principal amount of $5,000,000 and
having such other terms as set forth therein (the "Promissory Note").
SECTION 1.7 Closing Time and Place. The closing of the transactions
contemplated by this Agreement (the "Closing") is taking place
simultaneously with the execution of this Agreement at 10:00 a.m., New
York City time, at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York, on April 2, 1996. The date and time
upon which the Closing is occurring are herein referred to as the
"Closing Date."
SECTION 1.8 Allocation of Purchase Price. The parties to this
Agreement agree (i) to allocate the Purchase Price, in accordance with
the rules under Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code")and the Treasury Regulations promulgated thereunder,
as set forth on Schedule J to this Agreement, and that $164,175 is being
paid for the agreement not to compete provided in Section 4.3 of this
Agreement; (ii) to utilize the amounts allocated pursuant to subsection
(i) for purposes of filing all tax returns, including amended tax returns
and Form 8594 and otherwise; and (iii) not to take any position
inconsistent therewith on
11
<PAGE>
any tax return (including amended tax returns) or for any other Tax (as
defined in Section 2.9 of this Agreement) or non-Tax purpose, provided,
however, that HFS and Seller shall be permitted, for purposes of filing
Form 8594, to take into account legal and accounting fees and other
buying or selling expenses, respectively, as applicable.
SECTION 1.9 Seller's Deliveries at Closing. At the Closing, Seller
is delivering to Purchaser the following:
(a) the Bill of Sale substantially in the form of Exhibit III hereto
(the "Bill of Sale");
(b) the Contract Assignment substantially in the form of Exhibit IV
hereto (the "Contract Assignment");
(c) documents to transfer or agreeing to transfer control of the NAF
Accounts to Purchaser referred to in Section 1.2 hereof;
(d) the opinion of Seller's counsel substantially to the effect
set forth in Exhibit V hereto;
(e) the certificates annexed as Exhibit VI hereto as to the
non-foreign status of the Seller (the "FIRPTA Certificates"), duly
executed by the Seller and the Shareholder, provided, however, that if
such certif-
12
<PAGE>
icates are not delivered, the Closing shall nevertheless occur and
Purchaser and HFS shall withhold from the Purchase Price such amounts as
are required, in Purchaser's and HFS's sole judgment, to be withheld
under applicable law; and
(f) such other documents, assignments and instruments as are called
to be delivered at Closing or reasonably requested by Purchaser.
SECTION 1.10 Purchaser's Deliveries at Closing. At the Closing,
Purchaser is delivering or causing to be delivered to Seller the
following:
(a) the $27,835,825 and the $164,175 in cash referred to in Sections
1.6 and 4.3(b) hereof, respectively, by wire transfer of immediately
available funds to the bank account of Seller designated in writing to
HFS or Purchaser prior to the Closing;
(b) the Promissory Note duly executed by HFS;
(c) the Undertaking substantially in the form of Exhibit I hereto;
(d) the opinion of Purchaser's counsel substantially to the effect
set forth in Exhibit VII hereto; and
13
<PAGE>
(e) such other documents or instruments as are called to be
delivered at Closing or reasonably requested by Seller.
SECTION 1.11 Lease of Office Space. At the Closing, Purchaser and
Seller are entering into a lease substantially in the form of Exhibit IX
attached hereto (the "Office Lease") for certain office space, furniture,
fixtures and equipment in the headquarters office for the Region located
at 3100 N.W. 77 Court, Miami, Florida.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDER
Seller and Shareholder, jointly and severally, hereby represent and
warrant to Purchaser that:
SECTION 2.1 Organization and Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Florida, with full corporate power and authority to enter into
this Agreement and carry out its obligations hereunder, has all necessary
corporate power to carry on the Business as now being conducted by it,
and Seller is duly qualified to do business as a foreign corporation in
each jurisdiction in which the nature of its Business or the
14
<PAGE>
ownership or lease of its properties makes such qualification
necessary.
SECTION 2.2 Capital Structure. Seller's authorized capital stock
consists of 50 shares of common stock, no par value per share, 20 of
which shares are validly issued and outstanding, fully paid, and
nonassessable and all of which are owned, beneficially and of record by
the Shareholder. There are no outstanding subscriptions, options, rights,
warrants, convertible securities or other agreements which obligate or
may obligate Seller to issue or transfer any additional shares of its
capital stock. There is no corporation, partnership, joint venture or
other entity in which the Seller, directly or indirectly, is affiliated
and which owns any interest in the Purchased Assets.
SECTION 2.3 Corporate Authority and Action. Seller has the full
corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder. The execution and delivery of this
Agreement by Seller and the consummation by Seller of the transactions
contemplated by this Agreement have been duly authorized by all requisite
corporate action on the part of Seller, including by its Shareholders and
Board of Directors. This Agreement has been duly executed and
15
<PAGE>
delivered by the Seller and the Shareholder and constitutes the legal,
valid and binding obligation of Seller and the Shareholder, enforceable
in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, or similar laws relating to creditors'
rights, generally
SECTION 2.4 Consents. Except (i) for the approval of this Agreement
by the Seller's Board of Directors and the sole Shareholder which have
been obtained and (ii) as disclosed in Section 2.4 of the document being
delivered by Seller and the Shareholder simultaneously with the execution
of this Agreement scheduling the items required to be disclosed therein
(the "Disclosure Schedule") or as specifically contemplated by this
Agreement, and based on HFS's and Purchaser's advice to the Shareholder
that, if the representation and warranty made in the last sentence of
this Section 2.4 is true, compliance with the filing requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is not
required, no consent, approval, authorization, filing with or order of
any court, governmental agency, person or financial institution is
required, in connection with the execution and delivery of this Agreement
by Seller and the Shareholder, and the consummation
16
<PAGE>
by Seller and Shareholder of the transactions contemplated hereby or
performance by Seller and the Shareholder of their obligations under this
Agreement. After calculating the amount of his assets in accordance with
accounting principles normally used by him, the Shareholder has less than
$10,000,000 in investment assets and other income producing assets,
including the value of Seller as reflected on its most recent balance
sheet, but excluding the amount of consideration to be received by the
Seller pursuant to this Agreement.
SECTION 2.5 No Conflict. Assuming compliance with the matters
referred to in Section 2.4 by Seller and the Shareholder, neither the
execution and delivery of this Agreement by Seller and the Shareholder,
the consummation by Seller and the Shareholder of the transactions
contemplated by this Agreement nor the performance by Seller or the
Shareholder of its and his obligations under this Agreement will: (i)
violate any provision of the certificate of incorporation or by-laws of
the Seller, (ii) except as disclosed in Section 2.5 of the Disclosure
Schedule, violate, conflict with, or result in a breach of, the terms,
conditions or provisions of, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or
17
<PAGE>
result in the creation of a lien or encumbrance on, or cause the
triggering of a "due on sale" clause or similar provision affecting the
Purchased Assets pursuant to any indenture, mortgage, lease, agreement or
other instrument to which Seller is a party or by which any of the
Purchased Assets may be bound or affected or (iii) violate any law, rule,
regulation, judgment, order or decree to which Seller is subject or by
which the Purchased Assets are bound.
SECTION 2.6 Financial Statements. Section 2.6 of the Disclosure
Schedule sets forth the following financial statements, all of which have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the periods indicated except as
indicated below:
(a) Balance sheet of Seller as of December 31, 1993 and 1994
audited by Johnson, Adorno & McCall, Chartered, certified public
accountants, and a balance sheet of Seller prepared by the internal
accounting department of Seller as of December 31, 1995 (the "December
Balance Sheet"), which presents fairly as of its date the financial
condition of Seller; and
(b) Statement of operations and cash flows of Seller for the twelve
(12) months ended December
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31, 1993 and 1994, audited by Johnson, Adorno & McCall, Chartered,
certified public accountants, and a statement of operations and cash
flows of Seller prepared by the internal accounting department of Seller
for the 12 month period ended December 31, 1995, which fairly presents
the results of operations and cash flows of Seller for the periods
indicated.
SECTION 2.7 Absence of Undisclosed Liabilities. To Seller's
knowledge, Seller does not have any debts, liabilities or obligations,
except for the CIB Bonus, of a type required to be shown on a balance
sheet prepared in accordance with GAAP that are not reflected or reserved
against in Seller's December Balance Sheet, except for matters referred
to in Section 2.7 of the Disclosure Schedule and for lease and other
contractual obligations that are disclosed in this Agreement, the
Disclosure Schedule or the Schedules hereto.
SECTION 2.8 Absence of Specified Changes. Except as set forth in
Section 2.8 of the Disclosure Schedule, since December 31, 1995, there
has not been any:
(a) Sale, lease, transfer, assignment or other transaction by Seller
with respect to the Purchased
19
<PAGE>
Assets or the Business with a value in excess of $50,000 or $200,000 in
the aggregate;
(b) Material adverse change of any character in the financial
condition or in the operations of the Business except that Seller has not
updated its FTC disclosure document due to this Agreement and the waiver
of the 1995 audit provided for hereunder;
(c) Change in the authorized, issued or outstanding capital stock of
Seller, grant of any stock option, warrant or right to purchase shares of
capital stock of Seller, or issuance of any security convertible into
shares of capital stock of Seller;
(d) Amendment or termination of any Franchise Agreement by Seller,
except in the ordinary course of business and not in violation of the
terms and conditions of the Subfranchise Agreement and any such Franchise
Agreement, respectively;
(e) Except in the ordinary course of business, change in the rate of
compensation or employee benefits of Seller, including contributions to
any employee Benefit Plans (as defined in Section 2.10), other than
Christmas bonuses and one-time termination bonuses which Seller may pay
in its sole discretion;
20
<PAGE>
(f) Other action by Seller of any character that has or is likely
to have a material adverse effect, directly or indirectly, on the
Business or the Purchased Assets; or
(g) Agreement by Seller to do any of the things described in the
preceding clauses (a) through (f) except as required by this Agreement.
SECTION 2.9 Tax Matters.
There is not now, nor will there be at the Closing Date, any
liability for federal, state or local income, sales, use, excise,
withholding, payroll, property or other taxes of any kind or nature
whatsoever ("Taxes") attributable to or affecting the Purchased Assets
for which Purchaser will have any liability for payment nor is there now,
nor will there be at the Closing Date, any Lien attached to the Purchased
Assets.
SECTION 2.10 Employee Benefit Matters.
(a) Section 2.10 of the Disclosure Schedule lists each stock
option, stock purchase, stock appreciation, life, health, accident,
disability or other insurance, medical, bonus, deferred or incentive
compensation, severance, salary continuation or separation, profit
sharing, retirement, plan, program, agreement or arrangement or other
employee benefit plan, program,
21
<PAGE>
agreement or arrangement, including, but not limited to, each employee
benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which
covers employees, former employees, independent agents or independent
contractors of Seller or the beneficiaries or dependents of any such
persons, and which Seller or an entity included within the "controlled
group" as defined in Section 414(b), (c), (m) or (o) of the Code
("Affiliated Employers") maintains, to which Seller or any of its
Affiliated Employers contributes, or under which Seller or any of its
Affiliated Employers may have any liability (collectively, the "Benefit
Plans"). No Benefit Plans are "Multiemployer Plans," as defined in
Section 3(37) of ERISA.
(b) Except as set forth in Section 2.10 of the Disclosure Schedule,
there are no material undischarged liabilities of Seller or its
Affiliated Employers for employees or former employees other than plan
administrative expenses incurred in the normal course of operation
arising under or in connection with any Benefit Plan and liability for
benefits to be paid to participants in such plans and their beneficiaries
in accordance with the terms of each such plan.
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SECTION 2.11 Litigation. Except as set forth in Section 2.11 of the
Disclosure Schedule, as of the date of this Agreement, there are no
actions, suits, claims, investigations or proceedings pending of which
Seller has received written notice or, to the knowledge of Seller or the
Shareholder, threatened in writing in any court or by or before any
governmental agency to which Seller is a party or otherwise affecting the
Purchased Assets or the Business. There is no action, suit, claim,
investigation or proceeding pending of which Seller has received notice
or, to the knowledge of Seller or the Shareholder, threatened in writing
which questions the validity or propriety of this Agreement or any action
taken or to be taken by Seller in connection with this Agreement. Seller
is not subject to any injunction or order issued by a court of competent
jurisdiction and has not agreed to be bound by any restriction with
respect to its ownership of the Purchased Assets or its conduct of the
Business which would reasonably be expected to have a material adverse
effect on the Business.
SECTION 2.12 Assets.
(a) Schedule A is a complete and accurate list of all Franchise
Agreements to which Seller is a party as of March 27, 1996, which Seller
agrees to sup-
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plement as soon as practicable after the Closing to list all
Franchise Agreements as of the Closing Date. Copies of all Franchise
Agreements (including all amendments or addenda thereto) have been
made available to Purchaser and HFS or their counsel for review. The
parties acknowledge that Seller does not operate in Cayman Islands
under written franchise authority from Purchaser pursuant to the
Subfranchise Agreement but that Seller has entered into franchise
agreements in Cayman Islands under Purchaser's oral authority. For
purposes of this Agreement, franchise agreements executed with
brokers in Cayman Islands prior to the Closing shall be considered
Franchise Agreements. Except as expressly indicated in Section
2.12(a) of the Disclosure Schedule, each Franchisee has executed a
Franchise Agreement and, to Seller's knowledge, each such Franchise
Agreement is enforceable against the related Franchisee. Except as
set forth in Section 2.12(a) of the Disclosure Schedule, Seller has
not received from any such Franchisee written notification that it
will not or may not renew its Franchise Agreement at the expiration
of its term, or will or may otherwise cease doing business with
Seller, or will or may attempt to materially or adversely alter the
volume of business any such Franchisee is presently doing with
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Seller or terminate its Franchise Agreement or that it has any claim
against Seller;
(b) Schedule B is a complete and accurate list of all Assumed Real
Property Leases. All the Assumed Real Property Leases are valid and in
full force, Seller is not in default thereunder and, to Seller's
knowledge, there does not exist any material default by any other party
thereto or event that with notice or lapse of time, or both, would
constitute a material default under any of such Leases;
(c) Copies of all Assumed Contracts (and any amendments or addenda
thereto) have been made available to Purchaser or its counsel for review.
To Seller's knowledge, each of the Assumed Contracts is the legal, valid
and binding obligation of Seller and, to Seller's knowledge, is the
legal, valid and binding obligation of the other parties thereto,
enforceable in accordance with its terms. Except as set forth in Section
2.12(c) of the Disclosure Schedule, Seller is not, and to Seller's
knowledge, none of the other parties to any of the Franchise Agreements
or Assumed Contracts are in material default thereunder, with the
exception of any monetary defaults occurring after the date of the
accounts receivable reports attached to Section 2.12(a) of the Disclo-
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sure Schedule. There are no events which with notice or lapse of
time or both would constitute a material default by Seller, or to
Seller's knowledge, by any other party to any Franchise Agreement or
Assumed Contract under such Franchise Agreement or Assumed Contract.
Except as indicated in Section 2.12(c) of the Disclosure Schedule,
each Assumed Contract and Franchise Agreement is freely assignable
and transferable without the consent of any third party, and its
continuation, validity and effectiveness will not be materially and
adversely affected by the consummation of the transactions
contemplated by this Agreement. Except as indicated in Section
2.12(c) of the Disclosure Schedule, Seller has not received any
written notice of the intention of any party to terminate any
Assumed Contract which termination would have a material adverse
effect on the Business;
(d) Schedule D is a complete and accurate list describing and
specifying the location of the Purchased Equipment. Except as set forth
in Section 2.12 (d) of the Disclosure Schedule, the Purchased Equipment
is, in the aggregate, in reasonably good operating condition and repair,
subject to normal wear and tear;
(e) Schedule E is a complete and accurate list describing each
material category of, and specifying
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the location of, Purchased Inventory pertaining to the Business. Except
as otherwise specified in Schedule E, all items of Purchased Inventory
were purchased in the ordinary course of the Business and are of standard
and usable quality;
(f) To Seller's knowledge, Schedule F is a complete and accurate
list and description of the material Intellectual Property, other than
that derived from Purchaser, and such Schedule indicates whether each of
the foregoing are owned or licensed by the Seller. The Seller owns, or is
licensed to use, the Intellectual Property, subject to no material
restrictions, except as indicated in Section 2.12(f) of the Disclosure
Schedule. No claim has been asserted in writing or, to the knowledge of
Seller, orally, and is pending by any person challenging or questioning
the ownership or use of any such Intellectual Property, nor does Seller
know of any valid basis for any such claim. To the knowledge of Seller,
the use of such Intellectual Property by the Seller does not infringe on
the rights of any person and, to the knowledge of Seller, there is no
infringing use of any such Intellectual Property by any other person.
Seller has not granted to anyone else the right to use any of the
Intellectual Property except pursuant to the
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Franchise Agreements. Seller is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligation under this Agreement, in breach of any license, sublicense or
other agreement relating to the Intellectual Property;
(g) To Seller's knowledge, Schedule G is a complete and accurate
list and description of the material Transferred Claims; and
(h) Schedule H is a complete and accurate list and description of
all Deposits.
SECTION 2.13 Title to Assets. Except as disclosed in Section 2.13 of
the Disclosure Schedule, (a) Seller has good and marketable title to all
the Purchased Assets and interests therein, whether real, personal,
mixed, tangible or intangible; (b) all the Purchased Assets are free of
restrictions on or conditions to transfer or assignment except as set
forth in the Schedules and Exhibits attached hereto and in the documents
and instruments referred to therein; and (c) upon purchase by the
Purchaser pursuant to this Agreement, will be free and clear of any Lien,
except for Permitted Liens. "Permitted Liens" are those Liens (i) created
by or on behalf of Purchaser, (ii) of carriers, warehousemen, mechanics,
suppliers, materialmen and the like,
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incurred in the ordinary course of business for amounts not overdue more
than 30 days or the validity of which is being contested in good faith
and (iii) those for Taxes not delinquent or payable without penalty or
being contested in good faith.
SECTION 2.14 Employees and Compensation.
(a) Section 2.14 of the Disclosure Schedule, when taken together
with Section 2.10 of the Disclosure Schedule, sets forth a complete and
accurate list of the names and aggregate monthly base salary or wages,
description of employment contracts and any incentive, commission, bonus
and/or other compensation arrangement as of April 2, 1996, of Seller's
officers and employees (collectively, "Employees"). Except in the
ordinary course of the Business, which includes, but is not limited to,
changes required by law and salary increases agreed to by Seller in
January, 1996, to Seller's knowledge, there will not be a change of, or
agreement to change, any terms of employment, including without
limitation, salary, wage rates, commissions or other compensation or
employee benefit arrangement, of any Employee prior to the Closing Date.
(b) To Seller's knowledge, all of the contracts and arrangements
listed in Section 2.14 of the
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Disclosure Schedule are in full force and effect, and neither Seller nor,
to Seller's knowledge, any other party is in default under them. There
have been no claims of default and, to the knowledge of Seller, there are
no facts or conditions which will result in a default under these
contracts or arrangements. There are not now, nor will there be, any
unfunded liabilities or other liabilities associated with these contracts
or arrangements as of the Closing Date. Except as disclosed in Section
2.14 of the Disclosure Schedule, to Seller's knowledge, there is no
pending, or threat, in writing, of an, employment dispute involving
Seller's Employees.
SECTION 2.15 Conflicts of Interest. Except as set forth in Section
2.15 of the Disclosure Schedule, to Seller's knowledge, neither Seller,
nor any other officer or director of Seller, nor any spouse or child of
any of them, nor any Employee of Seller, has any direct or indirect
interest in any competitor, supplier of Seller, or any Franchisee, or in
any Purchased Asset other than the ownership of not more than 5% of the
stock of a publicly traded company by any such person or entity.
SECTION 2.16 Compliance with Law. To the Seller's knowledge, during
the last three years Seller has complied in all material respects with,
and is not in
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material violation of, any applicable federal, state, or local statute,
law, rule or regulation (including, without limitation, any applicable
building, zoning, franchise, pension, labor, securities or other statute,
law, rule or regulation), which violation would be reasonably likely to
have a material adverse effect on the Purchased Assets or the operation
of the Business following the Closing.
SECTION 2.17 Corporate Documents. Seller has made available to
Purchaser for its examination complete and accurate copies of:
(1) the certificate of incorporation and by-laws of Seller;
(2) the minute books of Seller with respect to material actions
and meetings of the Shareholders and Board of Directors and
committees of the Board of Directors of Seller; and
(3) all material permits, orders, authorizations and consents
which are in Seller's possession and which have been issued with
respect to Seller.
SECTION 2.18 Brokers or Finders. Seller and Shareholder have not
employed or utilized any broker, finder or other person which would be
entitled to compen-
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sation by HFS or Purchaser if not paid by Seller or the Shareholder in
connection with the transactions contemplated by this Agreement.
SECTION 2.19 National Ad Fund. Seller is not currently in default
under any material requirements of the NAF Agreement. As of February 29,
1996 Seller had $321,435.70 owing to the NAF under its control, which
amount was held in an account at First Union Bank, Miami, Florida.
SECTION 2.20 Insurance. Section 2.20 of the Disclosure Schedule sets
forth all insurance policies relating to the Purchased Assets. To the
knowledge of Seller, all such policies are enforceable against the
related insurer. The Seller has not received notice of default under any
such policy, and has not received written notice or, to the knowledge of
Seller, oral notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium
increase with respect to any such policy.
SECTION 2.21 No Assurances. Neither Seller nor the Shareholder can
assure Purchaser that the Business will continue to perform as well under
Purchaser's ownership as it did under Seller's ownership nor that
Franchisees will continue to perform (or perform as well)
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or honor their Franchise Agreements following the Closing nor that any or
all of the Assumed Contracts or Franchise Agreements will not be dishonored
or breached by the contracting parties following the date of this
Agreement. In addition, neither Seller nor the Shareholder can assure
Purchaser that any of Seller's employees will wish to be employed by
Purchaser or, if employed, wish to continue to be employed by Purchaser.
Seller and the Shareholder have disclosed under Section 2.8 certain remarks
or expressions made to or inferred by Seller or the Shareholder by or from
certain Franchisees and Employees. Neither Seller nor the Shareholder
represents or warrants that there will not be one or more Franchisees who
terminate or seek to terminate or who fail to renew their Franchise
Agreements. Moreover, Seller and the Shareholder hereby advise Purchaser
that this Agreement may cause one or more Franchisees to terminate or fail
to renew the applicable Franchise Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser and HFS, jointly and severally, represent and warrant to
Seller and the Shareholder as follows:
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SECTION 3.1 Organization and Standing. Purchaser and HFS each is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, with full corporate power and
authority to enter into this Agreement and carry out their respective
obligations hereunder.
SECTION 3.2 Corporate Authority; Action. Pur chaser and HFS each has
the full corporate power and authority to execute and deliver this
Agreement and perform their obligations hereunder. The execution and
delivery of this Agreement by Purchaser and HFS and the consummation by
Purchaser and HFS of the transactions contemplated by this Agreement
have been authorized by all requisite corporate action on the part of
Purchaser and HFS. This Agreement has been duly executed and delivered by
Purchaser and HFS and constitutes the legal, valid and binding obligation
of each of Purchaser and HFS and is enforceable, jointly and severally,
against Purchaser and HFS in accordance with its terms.
SECTION 3.3 Consents. Except for the approvals of the Boards of
Directors of the Purchaser and HFS of this Agreement, which approvals
have been obtained, no consent, approval, authorization, filing with or
order of any court, governmental agency, person or financial
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institution is required in connection with the execution and delivery of
this Agreement by Purchaser and HFS, the consummation by Purchaser and
HFS of the transactions contemplated by this Agreement and the
performance by Purchaser and HFS of their respective obligations under
this Agreement.
SECTION 3.4 No Violation. Neither the execution or delivery of this
Agreement, the consummation by Purchaser and HFS of the transactions
contemplated by this Agreement nor the performance by Purchaser and HFS
of their respective obligations under this Agreement will: (i) violate
the certificate of incorporation or by-laws of Purchaser or HFS, (ii)
violate, conflict with, or result in a breach of, the terms, conditions
or provisions of, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under any agreement,
instrument, or arrangement to which Purchaser or HFS is a party or by
which Purchaser or HFS is bound or (iii) violate any law, rule,
regulation, judgment, order or decree to which Purchaser or HFS is
subject or by which either is bound.
SECTION 3.5 Litigation. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of
Purchaser or HFS, threatened
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which questions the validity or propriety of this Agreement or any action
taken or to be taken by Purchaser or HFS in connection with this
Agreement.
SECTION 3.6 Brokers and Finders. Neither Purchaser nor HFS has
employed or utilized any broker, finder or other person which would be
entitled to compensation by Seller or the Shareholder in connection with
the transactions contemplated by this Agreement.
SECTION 3.7 No Other Representations. Except as otherwise expressly
set forth in this Agreement, neither Purchaser nor HFS has relied upon
any representation or warranty with respect to the Business or any of the
Purchased Assets made by Seller or the Shareholder or any of Seller's
officers, directors, employees, agents or representatives.
ARTICLE IV
CERTAIN COVENANTS OF SELLER, SHAREHOLDER AND PURCHASER
SECTION 4.1 Severance. HFS agrees that immediately following the
Closing (i) it will offer all Employees of Seller who are actively
employed by Seller immediately prior to the Closing Date employment for
the purpose of making those Employees who accept such offers eligible for
the severance policy set forth on Exhibit
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VIII (the "Severance Policy"), but such offer of employment will not
obligate HFS or Purchaser to continue to employ such persons if they
accept employment with HFS, (ii) it will follow the Severance Policy with
respect to all such Employees of Seller who accept employment with
Purchaser within the ten-day period immediately following the Closing
Date, (iii) it will treat Laurence Lisk, William Scott, Carolyn Mora and
Grace Vignes as Vice-Presidents under the Severance Policy, (iv) it will
include, for purposes of determining years of service under the Severance
Policy, all years of employment with the Seller, the Purchaser or other
entity that is or was owned by the Purchaser and (v) in no event will any
"transitional employees" (as such term is used in the Severance Policy)
be required, as a condition of the receipt of any benefits, to undertake
a covenant not to compete more onerous than the covenant applicable to
Seller and the Shareholder pursuant to Section 4.3.
SECTION 4.2 Use of Name. Seller agrees that as soon as practicable
after the Closing it will amend its certificate of incorporation and
change its bank accounts and other business documentation, arrangements
and instruments to change the name of Seller to a name which does not
include "Century 21" in its name and that,
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from and after the Closing, except for indicating (when reasonably
necessary to do so) that it was formerly known as Century 21 Real Estate
of Southern Florida, Inc., it will not have any rights to or utilize the
name "Century 21" in its business or operations, except for the time it
may reasonably take to practicably comply with the change of name
requirement hereunder, or hold itself out as a Century 21 franchisee.
SECTION 4.3 Non-Competition.
(a) Seller and the Shareholder agree for a period of three (3) years
following the Closing Date that, so long as Purchaser or any of its
successors shall engage in the residential real estate brokerage
franchise business in the Region, neither Seller nor the Shareholder
will, directly or indirectly, engage in or have any interest in any
person, firm, corporation or business (whether as an employee, officer,
director, agent, security holder, consultant or otherwise) that engages
in the Region in the residential real estate brokerage franchise business
other than, as requested, with HFS or Purchaser. Purchaser and HFS
expressly agree that (i) neither Seller nor the Shareholder is prohibited
hereunder from engaging in or having an interest in any endeavor or
activity providing other services supportive of or ancillary to the
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real estate brokerage franchise business if such services are not being
offered by Seller as of December 31, 1995 (including, without limitation,
for example, AmeriNet Financial Services, Inc. and Global Referral
Network, a Florida corporation) and (ii) ownership of not more than 5% of
the stock of a publicly traded company by the Shareholder or Seller even
if such company engages in the residential real estate brokerage
franchising business if the Shareholder or Seller does not participate in
management of any such company (which shall not be deemed to include the
exercise of voting rights), shall not be considered a violation of this
covenant.
(b) Seller, the Shareholder, Purchaser and HFS acknowledge and agree
that (i) the restrictions imposed on the Seller and the Shareholder under
this Section 4.3 are an integral part of, not severable from, and solely
intended to protect, the value of the goodwill included in the Purchased
Assets and the Business being purchased by Purchaser, (ii) $164,175 as
consideration for such restrictions is fair and reasonable and, in
accordance therewith, Purchaser and HFS are paying such amount in cash to
Seller at the Closing and (iii) the amount of consideration being paid
for such restrictions was arrived at by the parties after consideration
of
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Seller's and the Shareholder's ability to compete against Purchaser and
HFS following the Closing.
SECTION 4.4 Separate Covenants. The parties intend that the covenant
contained in Section 4.3 shall be construed as a series of separate
covenants, one for each county within the Region. Except for geographic
coverage, each such separate covenant shall be deemed identical. If, in
any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in Section 4.3, then such
unenforceable covenant shall be deemed eliminated from those provisions
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
SECTION 4.5 Non-Disclosure of Trade Secrets. Seller and the
Shareholder agree not to divulge, communicate, use to the detriment of
Purchaser or the Business or for the benefit of any other person or
persons, or misuse in any way, any confidential information or trade
secrets of Purchaser or Seller with respect to the Business.
SECTION 4.6 Injunctive Relief. Seller and the Shareholder each
acknowledge that the agreement set forth in Section 4.3 is necessary to
protect for Purchaser the value of the Purchased Assets and the Business,
that a
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breach of such agreement will result in irreparable damage to the value
of the Purchased Assets and the Business, and that money damages would
not adequately compensate Purchaser and HFS for any such breach and,
therefore, that Purchaser and HFS would not have an adequate remedy at
law. Accordingly, Purchaser and HFS shall have, in addition to any and
all remedies at law, the right, without posting of bond or other
security, to an injunction, both temporary and permanent, specific
performance and/or other equitable relief to prevent the violation of any
obligation under Section 4.3.
SECTION 4.7 Service and NAF Fees. Following the Closing and
notwithstanding the sale of the Subfranchise Agreement to Purchaser and
the termination of the NAF Agreement, Seller agrees that, by the
fifteenth day of each month, it shall pay to Purchaser any service fees
and NAF fees owed to Purchaser under the Subfranchise Agreement and the
NAF Agreement received during the preceding month, including, without
limitation, for those Opens which are Excluded Assets.
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SECTION 4.8 Accounts Receivable. Purchaser agrees that it will keep
accurate records of all accounts receivable from Franchisees. In this
regard, Purchaser agrees to use ordinary procedures in auditing the books
and records of Franchisees and to pay over such after-discovered
accounts receivable within thirty (30) days of collection whether such
collection resulted from such audits or otherwise. Purchaser also agrees
that Seller shall have the right, upon notice, but not more frequently
than once a month and not after one year from the date of this Agreement,
to review during normal business hours Purchaser's audit files related to
Franchisees.
SECTION 4.9 Computer Software. Seller agrees that following the
Closing, Purchaser shall have the right to utilize the computer software
of Seller used in the Business for the purposes of obtaining the
information thereon.
SECTION 4.10 Employment Agreement. Purchaser agrees that it will
execute the employment agreement attached as Exhibit X hereto.
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ARTICLE V
SURVIVAL, INDEMNIFICATION
SECTION 5.1 Survival of the Representations. The respective
representations, warranties, covenants and agreements made by any party
to this Agreement or pursuant hereto shall survive the Closing, shall not
be deemed waived or otherwise affected by any investigation at any time
made by any party hereto and, for the purposes of this Article V, any
representation and warranty shall continue in effect until February 28,
1997, except for a breach of a representation or warranty being made
pursuant to:
(i) Section 2.13 (Title to Assets) hereof, but only with respect to
title to Franchise Agreements, which shall survive until the date which
is five years from the date hereof;
(ii) Section 2.9 (Tax Matters) which shall survive until the date
which is 60 days after the expiration of the applicable statute of
limitations; and
(iii) Section 2.10 (Employee Benefit Matters) which will survive
until the applicable statute of limitations has run.
SECTION 5.2 Statements as Representations. All of the statements
contained in the Disclosure Sched-
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ule shall be deemed representations and warranties for all purposes of
this Agreement but by only the party delivering or causing the foregoing
to be delivered.
SECTION 5.3 Indemnification by Seller and Shareholder. In lieu of
any and all other remedies Purchaser may have at law or in equity, and/or
under this Agreement, other than as provided in Section 4.6 and Section
6.22 hereof and subject to the terms and upon the conditions of this
Article V, Seller and the Shareholder, jointly and severally, agree to
indemnify, fully defend and save and hold harmless Purchaser, any
Affiliate (which, shall mean, for purposes of this Section 5.3 and
Section 5.4 hereof with respect to a specified person, any person that,
directly or indirectly, controls or is controlled by or is under common
control with the specified person) of the Purchaser and their respective
officers and directors (collectively, the "Purchaser Indemnified Group")
from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties and reasonable attorneys' fees
and expenses, but net of any Tax savings and insurance proceeds actually
received by the indemnitee as a result of the matter giving rise to
indemnification (col-
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lectively, "Damages"), asserted against, resulting to, imposed upon or
incurred by any member of the Purchaser Indemnified Group, directly or
indirectly, by reason of or resulting from:
(a) any inaccuracy in, or a breach of, any representation or
warranty of Seller or the Shareholder contained in this Agreement;
(b) any breach or failure to perform any covenant or agreement of
Seller or the Shareholder contained in or made pursuant to this
Agreement;
(c) any and all obligations and liabilities, direct or indirect,
absolute or contingent, for Taxes or related claims ("Tax Claims")
asserted against the Purchaser Indemnified Group or any member thereof
(i) with respect to any Taxes of the Seller for any taxable period; (ii)
with respect to any Affiliated Group (which shall mean an affiliated
group within the meaning of Section 1504(a) of the Code or any similar
provision of state, local, or foreign law) or any member of an Affiliated
Group for periods during which Seller was a member of such group; (iii)
with respect to the Purchased Assets, to the extent such Tax Claims are
attributable to periods ending on or prior to the Closing Date, except
for Taxes described in Section 6.1 hereof;
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(d) any liability which is imposed upon any member of the Purchaser
Indemnified Group and which accrues or arises on or prior to the Closing
Date (whether or not in connection with any Benefit Plan) with respect to
employees, former employees, independent agents or independent
contractors (whether employed by Seller or by an entity which was an
Affiliated Employer at any time within the six-year period immediately
preceding the Closing Date) or in connection with the transactions
contemplated in this Agreement other than as provided in Section 4.1
hereof under the Severance Policy set forth as Exhibit VIII.
SECTION 5.4 Indemnification by Purchaser and HFS. In addition to all
other remedies Seller and the Shareholder may have at law or in equity,
and/or under this Agreement, and subject to the terms and conditions of
this Article V, Purchaser and HFS agree to, jointly and severally,
indemnify, fully defend, save and hold harmless Seller and the
Shareholder and any Affiliate of Seller or the Shareholder or any of
their respective directors or officers (the "Seller Indemnified Group")
from and against all Damages asserted against, resulting to, imposed upon
or incurred by the Seller Indemnified
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Group or any member thereof, directly or indirectly, by reason of or
resulting from:
(a) any inaccuracy in, or a breach of, any representation
or warranty of Purchaser or HFS contained in or made pursuant to this
Agreement or any facts or circumstances constituting such a breach;
(b) any breach of or failure to perform any covenant or agreement of
Purchaser or HFS contained in or made pursuant to this Agreement;
(c) any failure by Purchaser or HFS to fully and timely pay and
perform and satisfy any of the Assumed Liabilities or any other
liabilities or obligations to be paid, performed or satisfied by
Purchaser or HFS under or pursuant to this Agreement or any other
agreement or instrument which is executed or delivered by Purchaser or
HFS in connection with the transactions contemplated hereby;
(d) any liabilities of the Business, or related to the Business,
arising out of facts or circumstances which occur after the Closing Date,
including, without limitation, claims brought by any one or more
Franchisees relating to the assignment of any Franchise Agreement
pursuant to the provisions hereof or relating
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<PAGE>
to the management or expenditures from the NAF after the Closing Date;
(e) any liabilities or obligations owing to Franchisees or otherwise
to be performed by Purchaser under or pursuant to the NAF Agreement for
matters arising from facts or circumstances after the Closing Date;
(f) any action or omission by Purchaser or HFS with respect to any
Franchisee; and
(g) any other Taxes incurred as a result of or in connection with
the consummation of the transactions contemplated by this Agreement,
including without limitation transfer, sales and use taxes, but excluding
Taxes based upon the income of Seller or the Shareholder.
SECTION 5.5 Claims. Each matter for which any party hereunder has
agreed to provide indemnification pursuant to Sections 5.3 or 5.4 hereof
is hereinafter referred to individually as a "Claim" and collectively as
the "Claims."
SECTION 5.6 Conditions of Indemnification. The obligations and
liabilities of any party to indemnify any other party under Sections 5.3
and 5.4 hereof with respect to Claims shall be subject to the following
terms and conditions:
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(a) The party to be indemnified (the "Indemnified Party") will
give the other party or parties (the "Indemnifying Party") prompt notice
of any such Claim. Such notice shall be a condition precedent to any
liability of the Indemnifying Party under the provisions for
indemnification contained in this Agreement (provided that the delay to
notify the Indemnifying Party promptly shall not relieve such
Indemnifying Party of its obligations under this Article V except to the
extent that the failure to so notify materially adversely prejudices the
Indemnifying Party's ability to defend such Claim).
(b) The Indemnifying Party may elect to undertake the defense of any
Claim with respect to which indemnification is sought by the Indemnified
Party by representatives chosen by it reasonably satisfactory to the
Indemnified Party. If the Indemnifying Party elects to compromise or
defend such asserted liability, it shall within 30 days from delivery of
the notice pursuant to Section 5.6(a) (or sooner, if the nature of the
asserted liability so requires) notify the Indemnified Party of its
intent to do so and the Indemnified Party shall cooperate in the
compromise of, or defense against, any such asserted liability. In such
case, the Indemnified Party may participate in such defense at its own
expense.
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If the Indemnifying Party, within such 30-day period after notice of any
such Claim, fails to so defend, the Indemnified Party will have the right
to assume the defense, compromise or settlement of such Claim on behalf
of and for the account and risk of the Indemnifying Party, subject to the
right of the Indemnifying Party to assume the defense of such Claim at
any time prior to settlement, compromise or final determination thereof.
If, in the good faith opinion of counsel to an Indemnified Party, the
interests of the Indemnified Party and the Indemnifying Party with
respect to any Claim are conflicting in any material respect, the
Indemnifying Party shall bear the reasonable and documented costs and
expenses of the Indemnified Party's participation in the defense thereof.
If the Indemnifying Party chooses to defend any Claim, the Indemnified
Party shall make available to the Indemnifying Party any books, records
or other documents within its control that are necessary or appropriate
for such defense.
(c) The notice referred to in Section 5.6(a) hereof shall set forth
the details of the Claim (including the amount, estimated, if necessary,
of the asserted Damages) and the specific provisions of this Agreement
relating thereto.
50
<PAGE>
(d) Anything in this Section 5.6 to the contrary notwithstanding,
(i) if there is a reasonable probability that a Claim may materially and
adversely affect the Indemnified Party other than solely as a result of
money damages or other money payments, the Indemnified Party shall have
the right, at its own cost and expense, to defend, compromise or settle
such Claim, and (ii) the Indemnifying Party shall not, without the
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld), settle or compromise any Claim or consent to the
entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified
Party of a release from all liability in respect of such Claim.
SECTION 5.7 Set-off. Notwithstanding any provision of this Agreement
or of any other agreement, instrument or undertaking, and in addition to
the right of the Indemnified Party to indemnification hereunder and to
all remedies provided by law, the Indemnified Party shall have the right
to set off the amount of any Claim against any sums of money or other
property at any time or from time to time payable or deliverable by the
Indemnified Party to the Indemnifying Party pursuant to this
51
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Agreement, or any other agreement to which the parties to this Agreement
are parties, provided that no such right of set-off shall arise and no
such Claim shall be payable by the Indemnifying Party until a final
non-appealable judgment or arbitration award with respect to the Claim
has been entered.
SECTION 5.8 Limitation on Indemnification. Notwithstanding anything
to the contrary set forth in this Agreement:
(a) No indemnification for any Damages shall be required to be made
by Seller or the Shareholder pursuant to Section 5.3(a) hereof for the
breaches or inaccuracies of the representations and warranties contained
in Sections 2.1, 2.3, 2.8, 2.10, 2.11, 2.14, 2.15 and 2.20 to the extent
that the amounts which would be payable as Damages for such breaches
and/or inaccuracies either (i) exceeds $1,400,000 or (ii) when added to
any amount(s) paid as Damages for breaches or inaccuracies of the
representations and warranties referred to in Section 5.8(b) hereof,
exceeds $3,500,000.
(b) No indemnification for any Damages shall be required to be made
by Seller or the Shareholder pursuant to Section 5.3(a) hereof for
breaches or inaccuracies of the representations and warranties contained
in
52
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Sections 2.2, 2.4 through 2.7, 2.9, 2.12, 2.13, 2.16 through 2.19 to the
extent that the amount which would otherwise be payable as Damages for
such breaches or inaccuracies (plus any amount paid as Damages pursuant
to Section 5.8(a) hereof) by Seller or the Shareholder exceeds
$3,500,000.
(c) No indemnification for any Damages shall be required to be made
by Seller or the Shareholder pursuant to Sections 5.3(a), 5.3(c) or
5.3(d) hereof unless and only to the extent that the aggregate amount
which would otherwise be payable as Damages exceeds $280,000.
(d) No indemnification for any Damages shall be required to be made
by Seller or the Shareholder pursuant to Section 5.3(a) hereof for a
breach or inaccuracy of a representation or warranty made by Seller or
the Shareholder if HFS or Purchaser had knowledge as of the Closing of
the breach or inaccuracy.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 Expenses. Except as otherwise expressly provided in this
Agreement, HFS and Purchaser shall pay all expenses incident to the
origin, negotia-
53
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tion and execution of this Agreement and the consummation of the
transactions contemplated hereby other than legal and accounting fees and
disbursements incurred by the Shareholder and the fees of any broker,
finder or investment adviser utilized by the Seller or the Shareholder,
for which they shall be responsible. Any sales, use or similar taxes
applicable to the conveyance and transfer to Purchaser of the Purchased
Assets shall be borne and paid by Purchaser. Any transfer, documentary
taxes or similar taxes and any filing or recording taxes or fees
applicable to such conveyance to Purchaser of the Purchased Assets shall
be borne and paid by Purchaser. Purchaser shall file any Returns that are
required to be filed in respect of Taxes described in this Section and
shall pay the Taxes shown on such Return.
SECTION 6.2 Reimbursement of and Payment to Purchaser and Seller.
Seller and Purchaser agree that if subsequent to the Closing Date either
of them shall receive any payment due to the other party (including, but
not limited to service fees, franchise fees and NAF payments from
Franchisees), each shall promptly remit the same to the other, and if
either party shall pay any obligations of the other not assumed by it
hereunder, the payment shall be for the account of the party to whom the
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obligation relates, and such party shall promptly reimburse the other
party for any such payment.
SECTION 6.3 Interpretation. As used herein, the expression "this
Agreement" means the body of this Agreement and the Exhibits, the
Schedules and the Disclosure Schedule attached hereto; and the
expressions "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement and such Exhibits, Schedules and the
Disclosure Schedule as a whole and not to any particular part or
subdivision thereof. If information is included, disclosed or referred to
on a Schedule, it shall be deemed to be included, disclosed or referred
to on all other Schedules to which such information is relevant except in
those instances where such inclusion, disclosure or reference would
result in a conflict with such other Schedule. As used herein with
respect to any person or entity, the word "knowledge" refers to the
actual knowledge of such person or of any officer of such entity, without
further investigation. As used herein, the "knowledge" of the Seller
means the actual knowledge of the Shareholder, without further
investigation, and the "knowledge" of HFS or Purchaser means the actual
knowledge of the following persons, without further investigation: Henry
R. Silverman, James E. Buckman,
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Stephen P. Holmes, Robert W. Pittman, John D. Snodgrass and Thomas J.
Freeman. Whenever this Agreement states that an agreement or contract is
enforceable according to its terms, such statement is to be interpreted
with the proviso that such enforcement may be limited (i) by applicable
bankruptcy, insolvency, reorganization, fraudulent transfer, equity of
redemption, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) by general principles of equity
(regardless of whether enforcement is sought in equity or at law).
SECTION 6.4 Amendments and Waivers. This Agreement may be amended
only by a written instrument executed by the parties hereto. At any time
prior to the Closing Date, any party hereto which is entitled to the
benefits hereof may, by an instrument in writing signed and delivered on
behalf of such party, (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any
inaccuracy in the representations and warranties of the other parties
contained herein or in any Schedule hereto or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements of
the other parties hereto or conditions contained herein. No waiver of any
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of the provisions of the Agreement shall be deemed to or shall constitute
a waiver of any other provision hereof (whether or not similar). No delay
on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
SECTION 6.5 Other Instruments to Be Executed. From and after the
Closing Date, the parties shall, from time to time, at the request of
another party and without further consideration, do, execute, acknowledge
and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney, assurances and other documents as may be
reasonably required to more fully consummate the transactions
contemplated by this Agreement.
SECTION 6.6 Public Statements. Except for announcements as may be
required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other parties with reasonable time
under the circumstances to comment on the announcement in advance of such
announcement, neither Seller, the Shareholder nor Purchaser or HFS shall
issue any press release or other public statement concerning the
transactions contemplated by this Agreement without
57
<PAGE>
first obtaining the written consent of the others respecting such
statement, which consent will not be unreasonably withheld.
SECTION 6.7 Confidentiality. Seller and the Shareholder acknowledge
that HFS may be required to file this document with the Securities and
Exchange Commission and other regulatory agencies and agree that HFS may
do so and Seller, HFS, the Shareholder and Purchaser agree that, if the
Closing under this Agreement does not occur, they will keep confidential,
unless required by law or in pursuit of their remedies hereunder, the
terms and conditions of this Agreement; provided that the foregoing
obligations shall not apply to information which (i) is contained in a
publicly recorded document, or (ii) is or becomes generally known other
than as a result of a disclosure by or through the party obliged to
maintain its confidentiality. Nothing in this Agreement shall prevent any
party from disclosing information regarding this Agreement (a) in pursuit
of its remedies hereunder, (b) if required to do so by law or regulation,
(c) to any governmental authority having or claiming authority to receive
such information or (d) pursuant to subpoena. Further, nothing in this
Agreement shall prevent the Shareholder from disclosing information
regarding this
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Agreement to other current or former parties to subfranchise arrangements
with the Purchaser.
SECTION 6.8 Access To Records After Closing. Purchaser and Seller
shall, after the Closing Date, make available to each other at reasonable
times during normal business hours any books, correspondence, employment
records, ledgers and other records relating to the Business that either
may request for use in connection with: (a) the preparation of tax
returns; (b) any audit of taxes or tax returns by local, state or federal
authorities; (c) any claim or suit in which they are a party; or (d) any
other reasonable and proper purpose, including without limitation, the
inspections and verifications referred to in Section 1.8 hereof and shall
permit the other, at its expense, to make copies thereof. Seller and the
Shareholder agree that they will allow HFS to use the Seller's historical
audited financial statements for purposes of any announcements or filings
required by law or the rules and regulations of the stock exchange.
SECTION 6.9 Parties Bound. This Agreement shall apply to, inure to
the benefit of and be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. The
respective rights and obligations of any party hereto shall not
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be assignable without the consent of the other parties except that
Purchaser may assign this Agreement and Purchaser's rights hereunder to
its parent or any subsidiary of Purchaser; provided that the Purchaser
unconditionally guarantees all of such assignee's obligations, warrants
and agreements hereunder in a written guaranty reasonably acceptable to
Seller.
SECTION 6.10 Parties in Interest. Except as specifically provided
herein, nothing in this Agreement, whether express or implied is intended
to confer any rights or remedies under or by reason of this Agreement on
any persons other than the parties to it and their respective successors,
heirs, legal representatives, and permitted assigns, nor is anything in
this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall
any provision give any third persons any right of subrogation or action
over against any party to this Agreement.
SECTION 6.11 Notices. Any notice, demand, approval, consent,
request, waiver or other communication which may be or is required to be
given pursuant to this Agreement shall be in writing and shall be (1)
deposited in the United States mail, postage prepaid, certified or
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registered, (2) sent by telecopier or (3) sent by private overnight
courier service for delivery on the next following business day,
addressed to the party at the address set forth after its respective name
below, or at such different address as such party shall have theretofore
advised the other parties in writing:
If to Seller:
Century 21 Real Estate
of Southern Florida, Inc.
3100 N.W. 77th Court
Miami, Florida 33122
Attention: Richard C. Ritchey
Telecopier: (305) 593-7023
If to Shareholder:
Richard C. Ritchey
3100 N.W. 77th Court
Miami, Florida 33122
Telecopier: (305) 593-7023
with a copy to:
Oliver C. Murray, Esq.
Murray Law Offices
1349 West Peachtree Street, N.E.
Suite 1190
Atlanta, Georgia 30309-2956
Telecopier: (404) 892-5446
If to Purchaser or HFS:
HFS Incorporated
or
Century 21 Real Estate Corporation
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman
Executive Vice President
Telecopier: (201) 428-3260
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Mark T. Shehan, Esq.
Telecopier: (212) 735-2001
Any such communication personally delivered shall be deemed to have been
received on the day delivered; or if sent by telecopier, on the day
telecopied, but only if receipt by the addressee is confirmed by a return
telecopy signed by the addressee; or if properly mailed, certified or
registered mail, postage prepaid, shall be deemed to have been received
on the day three days from and including the day mailed; or if sent by
private overnight courier service shall be deemed to have been received
on the business day following the day so sent. Any party may change its
address for purposes of this Section by giving the other parties written
notice of the new address in any manner set forth above.
SECTION 6.12 Number and Gender of Words. Whenever herein the
singular number is used, the same shall include the plural where
appropriate, and the words of any gender shall include each other gender
where appropriate.
SECTION 6.13 Captions. The captions, headings and arrangements used
in this Agreement are for conve-
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nience only and do not affect, limit or amplify the terms and provisions
hereof, or their construction or interpretation.
SECTION 6.14 Invalid Provisions. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof, and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. In lieu of such
illegal, invalid or unenforceable provision there shall be added
automatically as a part hereof a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
SECTION 6.15 Accounting Terms. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in
accordance with generally accepted accounting principles as in effect
from time to time.
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SECTION 6.16 Entirety of Agreement. This Agreement contains the
entire agreement among the parties hereto, and supersedes all prior and
contemporaneous agreements, representations and understandings of the
parties, including without limitation all preliminary offers and letters
of intent made by or between Purchaser and Seller (or the Shareholder).
No representations, inducements, promises or agreements, oral or
otherwise, which are not embodied herein shall be of any force or effect.
SECTION 6.17 Multiple Counterparts. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original for
all purposes and all of which shall be deemed, collectively, one
agreement.
SECTION 6.18 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law principles.
SECTION 6.19 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby
shall be brought in the United States District Court for
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the Southern District of Florida or any Florida State court sitting in
Miami, Florida and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on
any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in this
Section 6.19 shall be deemed effective service of process on such party.
SECTION 6.20 Waiver of Audits. Purchaser hereby waives, provided
Purchaser and HFS are provided with access to Seller's books and records,
any requirement Seller may have under any agreement or understanding with
Purchaser or its predecessor under the Subfranchise Agreement or
otherwise to have conducted and issued an
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audit with respect to Seller's 1995 financial statements with respect to
Seller's 1995 fiscal year.
SECTION 6.21 Prevailing Party Expenses. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for all
expenses and costs incurred by the prevailing party or parties in
connection with such action, including without limitation attorneys'
fees.
SECTION 6.22 Waiver of Rescission. Notwithstanding any breach or
default by any of such parties of any of their respective
representations, warranties, covenants or agreements under this
Agreement, if the purchase and sale contemplated by it shall be
consummated at the Closing, each such party waives any rights that it or
they may have to rescind this Agreement or the transaction consummated by
it; provided, however, this waiver shall not affect any other rights or
remedies available to any such party under this Agreement or under the
law and shall not apply if actual fraud has been committed by any party
in connection with the transactions contemplated by this Agreement and
the effect thereof has caused Damages to a party hereto in an amount
greater
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than the amount provided for indemnification under Article V hereof.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CENTURY 21 REAL ESTATE
CORPORATION
By /s/ JAMES E. BUCKMAN
--------------------
Name: James E. Buckman
Title: Executive Vice
President
HFS INCORPORATED
By /s/ STEPHEN P. HOLMES
--------------------
Name: Stephen P. Holmes
Title: Executive Vice
President
CENTURY 21 REAL ESTATE
OF SOUTHERN FLORIDA, INC.
By /s/ RICHARD C. RITCHEY
--------------------
Name: Richard C. Ritchey
Title: President
/s/ RICHARD C. RITCHEY
--------------------
RICHARD C. RITCHEY
ASSET PURCHASE AGREEMENT
Dated as of
April 3, 1996
Among
CENTURY 21 REAL ESTATE CORPORATION,
HFS INCORPORATED,
CENTURY 21 OF
THE SOUTHWEST, INC.
and
LARRY E. BRYSON
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I
PURCHASE AND SALE OF ASSETS.................. 2
Section 1.1 Purchase and Sale of Assets................... 2
Section 1.2 Transfer of NAF Assets........................ 7
Section 1.3 Excluded Assets............................... 8
Section 1.4 Assumption of Liabilities..................... 10
Section 1.5 Retained Liabilities and
Unassumed Obligations......................... 10
Section 1.6 Purchase Price................................ 11
Section 1.7 Closing Time and Place........................ 11
Section 1.8 Seller's Deliveries at Closing................ 11
Section 1.9 Purchaser's Deliveries at Closing............. 12
Section 1.10 Allocation of Purchase Price.................. 13
Section 1.11 Lease of Office Space......................... 13
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDER
Section 2.1 Organization and Standing..................... 14
Section 2.2 Capital Structure............................. 14
Section 2.3 Corporate Authority and Action................ 15
Section 2.4 Consents...................................... 15
Section 2.5 No Conflict................................... 16
Section 2.6 Financial Statements.......................... 17
Section 2.7 Absence of Undisclosed Liabilities............ 18
Section 2.8 Absence of Specified Changes.................. 18
Section 2.9 Tax Matters................................... 20
Section 2.10 Employee Benefit Matters...................... 21
Section 2.11 Litigation.................................... 23
Section 2.12 Assets........................................ 23
Section 2.13 Title to Assets............................... 28
Section 2.14 Employees and Compensation.................... 29
Section 2.15 Conflicts of Interest......................... 31
Section 2.16 Compliance with Law........................... 31
Section 2.17 Corporate Documents........................... 32
Section 2.18 Brokers or Finders............................ 33
Section 2.19 National Ad Fund.............................. 33
Section 2.20 Insurance..................................... 33
i
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Page
Section 3.1 Organization and Standing..................... 34
Section 3.2 Corporate Authority; Action................... 34
Section 3.3 Consents...................................... 35
Section 3.4 No Violation.................................. 35
Section 3.5 Litigation.................................... 36
Section 3.6 Brokers and Finders........................... 36
Section 3.7 No Other Representations...................... 36
ARTICLE IV
CERTAIN COVENANTS OF SELLER, BRYSON AND PURCHASER
Section 4.1 Severance and Benefits........................ 37
Section 4.2 Use of Name................................... 37
Section 4.3 Audit Waiver.................................. 38
Section 4.4 Accounts Receivable........................... 38
Section 4.5 Non-Competition............................... 41
Section 4.6 Separate Covenants............................ 42
Section 4.7 Non-Disclosure of Trade Secrets............... 42
Section 4.8 NAF Fees...................................... 44
ARTICLE V
SURVIVAL, INDEMNIFICATION
Section 5.1 Survival of the Representations............... 44
Section 5.2 Statements as Representations................. 45
Section 5.3 Indemnification by Seller and Bryson.......... 45
Section 5.4 Indemnification by Purchaser and HFS.......... 48
Section 5.5 Claims........................................ 49
Section 5.6 Conditions of Indemnification................. 50
Section 5.7 Limitation on Indemnification................. 53
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Expenses...................................... 54
Section 6.2 Reimbursement of and Payment to
Purchaser and Seller.......................... 55
Section 6.3 Interpretation................................ 55
ii
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Page
Section 6.4 Amendments and Waivers........................ 56
Section 6.5 Other Instruments to Be Executed.............. 57
Section 6.6 Public Statements............................. 58
Section 6.7 Access To Records After Closing............... 58
Section 6.8 Parties Bound. .............................. 59
Section 6.9 Parties in Interest........................... 59
Section 6.10 Notices....................................... 60
Section 6.11 Number and Gender of Words.................... 62
Section 6.12 Captions...................................... 62
Section 6.13 Invalid Provisions............................ 62
Section 6.14 Accounting Terms.............................. 63
Section 6.15 Entirety of Agreement......................... 63
Section 6.16 Multiple Counterparts......................... 63
Section 6.17 Jurisdiction.................................. 63
Section 6.18 Prevailing Party Expenses..................... 64
Section 6.19 Waiver of Rescission.......................... 65
iii
<PAGE>
SCHEDULES
Schedule A - Franchise Agreements
Schedule B - Assumed Contracts
Schedule C - Purchased Equipment
Schedule D - Purchased Materials
Schedule E - IntellectualProperty
Schedule F - Transferred Claims
Schedule G - Deposits
Schedule H - Allocation
EXHIBITS
Exhibit I - Undertaking
Exhibit II - Bill of Sale
Exhibit III - Contract Assignment
Exhibit IV - Opinion of Seller's Counsel
Exhibit V - FIRPTA Certificates
Exhibit VI - Opinion of Purchaser's Counsel
Exhibit VII - Office Lease
Exhibit VIII - Severance Policy
Exhibit IX - Medical Benefits for Employees
iv
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, made and entered into this 3rd day of
April, 1996 (the "Agreement"), by and among CENTURY 21 REAL ESTATE
CORPORATION, a Delaware corporation ("Purchaser"), HFS INCORPORATED, a
Delaware corporation and ultimate parent of Purchaser ("HFS"), CENTURY 21
OF THE SOUTHWEST, INC., an Arizona corporation ("Seller"), and LARRY E.
BRYSON ("Bryson"), a beneficiary under the Bryson Family Trust, a
revocable trust established by a Trust Agreement dated March 20, 1996
(the "Shareholder"), which is the holder of all of the outstanding shares
of Seller.
WHEREAS, Seller is engaged in the business of real estate brokerage
office subfranchising and related operations for the CENTURY 21(Registered
Trademark) system (the "Business") in the States of Arizona and New Mexico
and in Clark County, Nevada and El Paso County, Texas (the "Region"); and
WHEREAS, Seller desires to sell to Purchaser its assets essential to
the continued, uninterrupted operations relating to the Business, as more
particularly identified in this Agreement, and Purchaser desires to
purchase such assets.
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
SECTION 1.1 Purchase and Sale of Assets. Subject to the terms and
conditions of this Agreement, Purchaser and HFS are purchasing and paying
for, and Seller is selling, assigning, transferring and conveying to
Purchaser, free and clear of any mortgage, lien, pledge, charge, security
interest, restriction, claim or other encumbrance (a "Lien") on the
Closing Date (as defined in Section 1.7), for the consideration specified
in Section 1.6, the following properties and assets of Seller (the
"Purchased Assets"), as the same shall exist on the Closing Date:
(a) CENTURY 21 Subfranchise Agreement. All right, title and interest
of Seller in, to and under the CENTURY 21 Regional License Agreement,
dated July 1, 1973, between Purchaser and Century 21 Real Estate of
Arizona, Inc., the former name of Seller, as amended by
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<PAGE>
the Addendum, dated July 1, 1973, and all other amendments thereto,
if any (the "Subfranchise Agreement");
(b) CENTURY 21 Real Estate Franchise Agreements. All right, title
and interest of Seller in, to and under all CENTURY 21 Real Estate
Franchise Agreements ("Franchise Agreements") of CENTURY 21 franchisees
of Seller in the Region as of the date of this Agreement and as of the
Closing Date ("Franchisees"), as set forth in Schedule A, including all
franchisee files, records and other information pertaining thereto, but
excluding (i) all rights of Seller to indemnification from Franchisees
for matters arising out of or in any way connected with the operations of
any Franchisee prior to the Closing Date and (ii) all right, title and
interest in and to Accounts Receivable (as hereinafter defined);
(c) Open Transactions. All right, title and interest of Seller in
and to service fees owing or to be owing on open transactions, whether
reported or unreported ("Opens"), which for purposes of this Agreement
shall mean agreements to convey real property, which agreements are
placed into the custody of a third party, as escrow holder, awaiting
completion/fulfillment of all terms and conditions of such agreements, at
which time the transactions represented thereby will close;
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(d) Assumed Contracts. All right, title and interest of Seller in,
to and under the contracts listed in Schedule B (the "Assumed
Contracts");
(e) Purchased Office Machines and Equipment. All right, title and
interest of Seller in and to the computer, office machines and equipment
listed in Schedule C (the "Purchased Equipment");
(f) Inventory. All right, title and interest of Seller in and to the
training programs and materials and other items utilizing the "Century
21" name listed in Schedule D (the "Purchased Materials");
(g) Intellectual Property. All right, title and interest of Seller
in and to intellectual property assets relating to the Business (other
than the computer software which is an Excluded Asset (as hereinafter
defined)), including without limitation (i) registered and unregistered
copyrights, trademarks, service marks, service names, trade names,
slogans, assumed names and other trademark rights, including all
applications therefor, (ii) statutory, common law and registered
copyrights, including all applications therefor and (iii) the Microdata
system computer software utilized for the Business' accounting (the items
described in clauses (i),
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(ii) and (iii) constituting, collectively, the "Intellectual
Property");
(h) Purchased Books and Records. All lists, files and records
pertaining to Franchisees, Franchise Agreements, customers and vendors,
and copies of all data, books, ledgers, records, correspondence,
accounts, lists, sales and advertising materials, files and documents
relating to the Purchased Assets, but not including the Excluded Books
and Records (as defined in Section 1.3(d)) (the "Purchased Books and
Records"), subject, however, to the right of Seller to retain copies
thereof and to Seller's inspection rights after the Closing Date pursuant
to Section 6.8 hereof;
(i) Claims. All right, title and interest of Seller in and to the
claims, refunds, credits, causes of action, choses in action, rights of
recovery (and restrictions granted in favor of Seller by another party
with respect to interference with Seller's Business) and rights of
set-off of every kind and nature associated with the Purchased Assets or
Assumed Liabilities (as that term is defined in Section 1.4), that are
set forth in Schedule F, but, not including, Accounts Receivable and
rights of indemnification from Franchisees for matters arising out of or
in any way connected with
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the operations of any Franchisee prior to the Closing (the "Transferred
Claims");
(j) Goodwill. All right, title and in- terest of Seller in and to
all goodwill and going concern value, and all other intangible properties
of Seller used in or held for use in the conduct of the Business
("Goodwill"); and
(k) Deposits Held for Others. All right, title and interest of
Seller in and to all prepayments or other deposits by franchisees, their
agents or independent contractors pertaining to the Business, as set
forth in Schedule G, including, without limitation, prepaid initial
franchise fees, deposits/prepayments for training programs,
assignments/renewals of franchise agreements and convention enrollments
(but not including the NAF Assets, as described in Section 1.2) (the
"Deposits").
SECTION 1.2 Transfer of NAF Assets. Seller is transferring, by check
made payable to the Purchaser at the Closing (as hereinafter defined), to
Purchaser in its capacity as Trustee of the CENTURY 21(Registered
Trademark) National Advertising Fund ("NAF") all monies in Seller's
possession or under Seller's control (the "NAF Funds"), and agrees,
following the Closing, to pay over any other monies or transfer any
other assets or rights for which Seller is
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otherwise accountable or responsible with respect to the NAF or Seller's
fiduciary (or other) obligations and responsibilities as the agent of the
Trustee of the NAF which Seller receives after the Closing. Purchaser and
Seller agree that (i) the Agreement regarding the National Advertising
Fund, dated as of March 1, 1976, as amended, between Purchaser and Seller
(the "NAF Agreement"), is terminated as of the Closing, (ii) Seller shall
have no further obligations or liabilities thereunder for any matters
arising after the Closing Date other than to pay over to Purchaser any
monies received from Franchisees after the Closing Date relating to the
NAF and to transfer any other assets or rights as aforesaid, (iii) HFS
and Purchaser will indemnify the Seller with respect to the operation of
the NAF after the Closing as provided in Article V hereof and (iv)
Purchaser, effective as of the Closing, is assuming the performance of
all liabilities and obligations under the NAF Agreement to be performed
after the Closing.
SECTION 1.3 Excluded Assets. The Purchased Assets shall not include
the following (all of Seller's assets that are not a part of the
Purchased Assets being called the "Excluded Assets"):
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(a) Land and Improvements. All real property owned or leased by
Seller (including all land and buildings and improvements thereon);
(b) Excluded Machinery; Equipment and Software. All fixed machinery
and equipment, other fixtures and fittings, moveable office machinery and
equipment, computer software (other than the Microdata system used for
the Business' accounting), furniture and fixtures that are owned by
Seller other than those constituting Purchased Equipment;
(c) Vehicles. All automobiles, trucks, and other vehicles owned by
Seller;
(d) Excluded Books and Records. Seller's certificate of
incorporation, corporate seal, bylaws, minute books, stock and
shareholder records and books, tax returns and financial statements,
other corporate records pertaining to the corporate organization and
capitalization of Seller, ledgers, books and records used by Seller for
accounting and tax purposes and not required for future operation of the
Business, and all files and records relating to the Excluded Assets (the
"Excluded Books and Records"); subject, however, to Purchaser's inspection
rights under this Agreement before
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and after the Closing Date with respect to the Purchased Assets and the
Business;
(e) Cash and Marketable Securities. All cash and cash equivalents of
Seller, including, without limitation, cash on hand or at any other
location in or from which Seller conducts the Business, certificates of
deposit and other bank accounts, treasury bills, other cash equivalents
and marketable securities and any prepayments made by Seller with respect
to the Business;
(f) Life Insurance Policies. Any life insurance policies insuring
the life of Bryson;
(g) Retained Claims. All claims, refunds, causes of action, choses
in action, rights of recovery and rights of set-off of every kind and
nature, except those specifically listed in Schedule F as constituting
the Transferred Claims;
(h) Accounts and Notes Receivable. All the trade accounts and notes
receivable existing as of the Closing Date, including without limitation:
(i) service fees and other payments owing by Franchisees; (ii) notes
receivable; and (iii) other receivables of Seller arising out of or
related to the Business through the Closing Date, including any right of
Seller with respect to any third-party collection procedures or court
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actions which shall have been commenced as of the Closing Date in
connection therewith (the "Accounts Receivable"); and
(i) Prepaid Expenses and Deposit Rights. All prepaid expenses of
Seller existing as of the Closing Date, as well as all right, title and
interest of Seller in and to any and all deposits held by others (the
"Prepaid Expenses and Deposit Rights").
SECTION 1.4 Assumption of Liabilities. Purchaser is assuming at the
Closing and, after the Closing Date, shall pay, perform and discharge
when due, the obligations and liabilities of Seller (the "Assumed
Liabilities") set forth in the Undertaking and Instrument of Assumption
substantially in the form set forth as Exhibit I hereto (the
"Undertaking"), and no others, as the same shall exist on the Closing
Date.
SECTION 1.5 Retained Liabilities and Unassumed Obligations. Except
for the Assumed Liabilities and except as may otherwise be provided in
this Agreement, Purchaser shall not assume by virtue of this Agreement or
the transactions contemplated hereby any other obligations or liabilities
of Seller of any kind whatever and all such obligations and liabilities
not so assumed by
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Purchaser shall remain the sole responsibility and obligation of Seller.
SECTION 1.6 Purchase Price. Subject to the terms and conditions of
this Agreement, HFS and Purchaser are paying to Seller as the purchase
price for the Purchased Assets at the Closing, which is being held
simultaneously with the execution of this Agreement, the amount of
$27,983,417, by wire transfer of immediately available funds (the
"Purchase Price").
SECTION 1.7 Closing Time and Place. The closing of the transactions
contemplated by this Agreement (the "Closing") is taking place
simultaneously with the execution of this Agreement at 10:00 a.m., New
York City time, at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York, on April 3, 1996. The date and time
of the closing are herein referred to as the "Closing Date."
SECTION 1.8 Seller's Deliveries at Closing. At the Closing, Seller
is delivering to Purchaser the following:
(a) the Bill of Sale substantially in the form of Exhibit II hereto
(the "Bill of Sale");
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(b) the Contract Assignment substantially in the form of Exhibit III
hereto (the "Contract Assignment");
(c) the opinion of Seller's counsel substantially in the form of
Exhibit IV to this Agreement;
(d) the certificates annexed as Exhibit V hereto as to the
non-foreign status of the Seller and Bryson (the "FIRPTA Certificates"),
duly executed by the Seller and Bryson, respectively;
(e) the Office Lease (as defined below) duly executed by Seller;
(f) the NAF Funds; and
(g) such other documents, assignments and instruments as are called
to be delivered at Closing or reasonably requested by Purchaser.
SECTION 1.9 Purchaser's Deliveries at Closing. At the Closing,
Purchaser is delivering to Seller the following:
(a) the Purchase Price referred to in Section 1.6 hereof by wire
transfer of immediately available funds to the bank account of Seller
designated in writing to HFS or Purchaser prior to the Closing;
(b) the Undertaking substantially in the form of Exhibit I hereto;
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(c) the opinion of Purchaser's counsel substantially in the form of
Exhibit VI to this Agreement;
(d) the Office Lease duly executed by Purchaser; and
(e) such other documents or instruments as are called to be
delivered at Closing or reasonably requested by Seller.
SECTION 1.10 Allocation of Purchase Price. The parties to this
Agreement agree (i) to allocate the Purchase Price in accordance with the
rules under Section 1060 of the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations promulgated thereunder and to
allocate $100,000 of the Purchase Price to the agreement not to compete
provided in Section 4.5 hereof, (ii) to utilize the amounts allocated
pursuant to this Section for purposes of filing all Returns (as defined
in Section 2.9 of this Agreement) and as specified in Schedule H hereto
and (iii) not to take any position inconsistent therewith on any Return
or for any other Tax (as defined in Section 2.9 of this Agreement) or
non-Tax purpose.
SECTION 1.11 Lease of Office Space. At the Closing, Purchaser and
Seller are entering into a lease substantially in the form of Exhibit VII
attached hereto
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(the "Office Lease") for certain office space, in the headquarters office
for the Region located at 5201 North 7th Street, Phoenix, Arizona, as
described in and on the terms provided in the Office Lease.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDER
Seller and Bryson, jointly and severally, hereby represent and
warrant to Purchaser that:
SECTION 2.1 Organization and Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Arizona, with full corporate power and authority to enter into
this Agreement and carry out its obligations hereunder, has all necessary
corporate power to carry on the Business as now being conducted by it,
and Seller is duly qualified to do business as a foreign corporation in
each jurisdiction in which the nature of its Business or the ownership or
lease of its properties makes such qualification necessary.
SECTION 2.2 Capital Structure. Seller's authorized capital stock
consists of 100,000 shares of common stock, par value $10.00 per share,
2,000 of which shares are validly issued and outstanding, fully paid,
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and nonassessable and all of which are owned, beneficially and of record
by the Shareholder. There are no outstanding subscriptions, options,
rights, warrants, convertible securities or other agreements which
obligate or may obligate Seller to issue or transfer any additional
shares of its capital stock. There is no corporation, partnership, joint
venture or other entity in which the Company, directly or indirectly,
owns any equity or ownership interest.
SECTION 2.3 Corporate Authority and Action. Seller has full
corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder. The execution and delivery of this
Agreement by Seller and the consummation by Seller of the transactions
contemplated by this Agreement have been duly authorized by all requisite
corporate action on the part of Seller, including by its Shareholder and
Board of Directors. This Agreement has been duly executed and delivered
by Seller and Bryson and constitutes the legal, valid and binding
obligation of Seller and Bryson and is enforceable against Seller and
Bryson in accordance with its terms.
SECTION 2.4 Consents. Except (i) for the approval of this
Agreement by the Seller's Board of Direc-
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tors and the sole Shareholder which have been obtained and (ii) as
disclosed in Section 2.4 of the Disclosure Schedule or as otherwise
contemplated by this Agreement, no consent, approval, authorization,
filing with or order of any court, governmental agency, person or
financial institution is required in connection with the execution and
delivery of this Agreement by Seller and Bryson, the consummation by
Seller and Bryson of the transactions contemplated hereby or the
performance by Seller and Bryson of its and his obligations under this
Agreement. After calculating the amount of his assets in accordance with
accounting principles normally used by him, Bryson has less than
$10,000,000 in investment assets and other income producing assets,
including the value of Seller as reflected on its most recent balance
sheet, but excluding the amount of consideration to be received by the
Seller pursuant to this Agreement.
SECTION 2.5 No Conflict. Assuming compliance with the matters
referred to in Section 2.4 by Seller and Bryson, neither the execution
and delivery of this Agreement by Seller and Bryson, the consummation by
Seller and Bryson of the transactions contemplated by this Agreement nor
the performance by Seller or Bryson of its and his obligations under this
Agreement will: (i) violate any
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provision of the certificate of incorporation or by-laws of the Seller,
(ii) except as disclosed in Section 2.5 of the Disclosure Schedule,
violate, conflict with, or result in a breach of, the terms, conditions
or provisions of, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or result in the
creation of a lien or encumbrance on, or cause the triggering of a "due
on sale" clause or similar provision affecting the Purchased Assets
pursuant to any indenture, mortgage, lease, agreement or other instrument
to which Seller or Bryson is a party or by which any of the Purchased
Assets may be bound or affected or (iii) violate any law, rule,
regulation, judgment, order or decree to which Seller or Bryson is
subject or by which the Purchased Assets are bound.
SECTION 2.6 Financial Statements. Section 2.6 of the Disclosure
Schedule sets forth the following financial statements, all of which have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the periods indicated:
(a) Balance sheet of Seller as of March 31, 1994 and 1995 audited by
Toback CPAs P.C., certified public accountants (the March 31, 1995
balance sheet
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being referred to herein as the "March Balance Sheet"), each of which
presents fairly as of its date the financial condition of Seller; and
(b) Statement of operations and cash flows of Seller for the twelve
(12) months ended March 31, 1994 and 1995, audited by Toback CPAs P.C.,
certified public accountants, each of which fairly presents the results
of operations and cash flows of Seller for the periods indicated.
SECTION 2.7 Absence of Undisclosed Liabilities. To the Seller's
knowledge, Seller does not have any debts, liabilities or obligations of
a type required to be shown on a balance sheet prepared in accordance
with GAAP that are not reflected or reserved against in Seller's March
Balance Sheet, except for matters referred to in Section 2.7 of the
Disclosure Schedule and for lease and other contractual obligations that
are disclosed in this Agreement, the Disclosure Schedule or the Schedules
hereto.
SECTION 2.8 Absence of Specified Changes. Except as set forth in
Section 2.8 of the Disclosure Schedule, since March 31, 1995, there has
not been any:
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(a) Sale, lease, transfer, assignment or other transaction by Seller
with respect to the Purchased Assets or the Business with a value in
excess of $50,000;
(b) Material adverse change of any character in the financial
condition or in the operations (other than the cessation by Seller of
marketing franchises in the Region) of the Business;
(c) Amendment or termination (or threatened termination or
non-renewal) of any Franchise Agreement, except in the ordinary course of
business and not in violation of the terms and conditions of the
Subfranchise Agreement and any such Franchise Agreement;
(d) Change in the rate of compensation or employee benefits of
Seller, including contributions to any employee Benefit Plans (as defined
in Section 2.10), other than in the ordinary course of business and other
than one-time termination bonuses which Seller may pay in its sole
discretion;
(e) Other action by Seller of any character that has or is
reasonably likely to have a material adverse effect, directly or
indirectly, on the financial condition or operations of the Business; or
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(f) Agreement by Seller to do any of the things described in the
preceding clauses (a) through (e) except as required by this Agreement.
SECTION 2.9 Tax Matters.
(a) Except as set forth in Section 2.9 of the Disclosure Schedule,
Seller, within the time and in the manner prescribed by law, has filed
all federal, state and local tax returns, declarations, reports,
estimates, information returns and statements ("Returns") relating to the
Business for periods ending on or prior to the date hereof and will file
all Returns required to be filed on or prior to the Closing Date, and has
timely paid and will timely pay when due all federal, state and local
Taxes (as defined below) which are shown to be due and payable on such
Returns and such Returns are true, correct and complete in all material
respects.
(b) There are no Liens for Taxes upon the Purchased Assets, except
for statutory liens for Taxes not yet due.
(c) Seller has timely complied with all rules relating to the
withholding of all Taxes and has withheld and paid over to the proper
taxing authorities all amounts required to have been withheld or paid
over.
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(d) Seller has not received any notice, not heretofore complied
with, that claims for delinquent or unpaid taxes or assessments are being
asserted against it.
(e) For purposes of this Agreement, "Taxes" shall mean, all taxes,
charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority upon Seller.
SECTION 2.10 Employee Benefit Matters.
(a) Section 2.10 of the Disclosure Schedule lists each stock
option, stock purchase, stock appreciation, life, health, accident,
disability or other insurance, medical, bonus, deferred or incentive
compensation, severance, salary continuation or separation, profit
sharing, retirement, plan, program, agreement or arrangement or other
employee benefit plan, program, agreement or arrangement, including, but
not limited to,
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each employee benefit plan within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
which covers employees, former employees, independent agents or
independent contractors of Seller or the beneficiaries or dependents of
any such persons, and which Seller or an entity included within the
"controlled group" as defined in Section 414(b), (c), (m) or (o) of the
Code ("Affiliated Employers") maintains, to which Seller or any of its
Affiliated Employers contributes, or under which Seller or any of its
Affiliated Employers may have any liability (collectively, the "Benefit
Plans"). No Benefit Plans are "Multiemployer Plans," as defined in
Section 3(37) of ERISA.
(b) Except as set forth in Section 2.10 of the Disclosure Schedule,
there are no material undischarged liabilities of Seller or its
Affiliated Employers for employees or former employees other than plan
administrative expenses incurred in the normal course of operation
arising under or in connection with any Benefit Plan and liability for
benefits to be paid to participants in such plans and their beneficiaries
in accordance with the terms of each such plan.
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SECTION 2.11 Litigation. Except as set forth in Section 2.11 of the
Disclosure Schedule, as of the date of this Agreement, there are no
actions, suits, claims, investigations or proceedings pending of which
Seller has notice or, to the knowledge of Seller, threatened in writing
in any court or by or before any governmental agency to which Seller is a
party or otherwise affecting the Purchased Assets or the Business. As of
the date of this Agreement, there is no action, suit, claim,
investigation or proceeding pending of which Seller has notice or, to the
knowledge of Seller, threatened in writing which questions the validity
or propriety of this Agreement or any action taken or to be taken by
Seller in connection with this Agreement. Seller is not subject to any
injunction or order of any court of competent jurisdiction or material
restriction with respect to its ownership of the Purchased Assets or its
conduct of the Business.
SECTION 2.12 Assets.
(a) Schedule A is a complete and accurate list of all Franchisee
Agreements to which Seller is a party as of the date of this Agreement
and copies of all Franchise Agreements and any amendments or addenda
thereto have been made available to Purchaser for its review.
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Except as set forth in Section 2.12(a) of the Disclosure Schedule, each
Franchisee has executed, at the time it was executed, a Franchise
Agreement which contained substantially all of the material provisions of
the then most current standard printed form Franchise Agreement published
by Seller and there is no amendment or addendum to any such Franchise
Agreement either oral or in writing other than the Information Center
Addendum, the Satellite Office Addendum, the Seasonal Office Addendum,
the Entity Ownership Rider, the standard agreement concerning the CENTURY
21(Registered Trademark) Incentive Bonus Addendum or other amendment or
addendum set forth in Section 2.12(a) of the Disclosure Schedule. Except
as set forth in Section 2.12(a) of the Disclosure Schedule, to Seller's
knowledge, each such Franchise Agreement is enforceable against the
related Franchisee according to its terms and Seller is not, and to
Seller's knowledge, none of the other parties to any Franchise Agreement
is, in material default thereunder, with the exception of any monetary
defaults occuring after the date of the accounts receivable report
attached to Section 2.12(a) of the Disclosure Schedule. Except as set
forth in Section 2.12(a) of the Disclosure Schedule, Seller has not
received as of the date of this Agreement from any such Franchisee
written notification that it
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will not or may not renew its Franchise Agreement at the expiration of
its term or wishes to terminate its Franchise Agreement, or will or may
otherwise cease doing business with Seller, or will or may attempt to
materially or adversely alter the volume of business any such Franchisee
is presently doing with Seller or has any claim against Seller. Except as
set forth in Section 2.12(a) of the Disclosure Schedule, there are no
events which with notice or lapse of time or both would constitute a
material default by Seller, or to Seller's knowledge, by any other party
to any Franchise Agreement under such Franchise Agreement. Except as
indicated in Section 2.12(a) of the Disclosure Schedule, the
continuation, validity and effectiveness of each Franchise Agreement will
not be materially and adversely directly affected by the consummation of
the transactions contemplated by this Agreement.
(b) Other than the Assumed Contracts set forth on Schedule B and any
understanding or agreement relating to the Excluded Assets, Seller is not
a party to, or in any way obligated under, any understanding or
agreement, written or oral, of any sort materially affecting the Business
or the Purchased Assets. Copies of all Assumed Contracts and any
amendments or addenda
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thereto have been made available to Purchaser or its counsel for review.
To Seller's knowledge, each Assumed Contract listed on Schedule B is, as
of the date of this Agreement, except as set forth in Section 2.12(b) of
the Disclosure Schedule, enforceable against the other parties thereto in
accordance with its terms and is in full force and effect. Seller is not,
and to Seller's knowledge, none of the other parties to any of the
Assumed Contracts are, in material default thereunder. Except as set
forth in Section 2.12(b) of the Disclosure Schedule, there are no events
which with notice or lapse of time or both would constitute a material
default by Seller, or to Seller's knowledge, by any other party to any
Assumed Contract under such Assumed Contract. Except as indicated in
Section 2.12(b) of the Disclosure Schedule, the continuation, validity
and effectiveness of any Assumed Contract will not be materially and
adversely directly affected by the consummation of the transactions
contemplated by this Agreement. As of the date of this Agreement, Seller
has not received any written notice of the intention of any party to
terminate any Assumed Contract;
(c) Schedule C is a complete and accurate list describing and
specifying the location of the Purchased Equipment. The Purchased
Equipment is, in the
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aggregate, in reasonably good operating condition and repair, subject
to normal wear and tear;
(d) Schedule D is a complete and accurate list describing each
material category of, and specifying the location of, the Purchased
Materials. Except as otherwise specified in Schedule D, all the Purchased
Materials were purchased in the ordinary course of the Business and are
of standard and usable quality;
(e) Schedule E is a complete and accurate list and description of
the Intellectual Property, other than Intellectual Property as to which
Seller's rights derive from Purchaser, and such Schedule indicates
whether each of the foregoing are owned or licensed by the Seller. The
Seller owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted in all material
respects, subject to no material restrictions. As of the date of this
Agreement, no claim has been asserted to Seller in writing and is pending
by any person challenging or questioning the ownership or use of any such
Intellectual Property, nor does Seller know of any valid basis for any
such claim. As of the date of this Agreement, Seller has not received
notice from any third party to the effect that the use of such
Intellectual Property by the Seller
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may infringe on the rights of any person and, to the knowledge of Seller,
there is no infringing use of any such Intellectual Property by any other
person. Seller has not granted to anyone else other than Purchaser and
its affiliates or licensees the right to use any of the Intellectual
Property except pursuant to the Franchise Agreements. Seller is not, nor
will it be as a result of the execution and delivery of this Agreement or
the performance of its obligations under this Agreement, in breach of any
material license, sublicense or other agreement relating to the
Intellectual Property.
(f) Schedule F is, to Seller's knowledge, a complete and accurate
list and description of the Transferred Claims; and
(g) Schedule G is, to Seller's knowledge, a complete and accurate
list and description of all Deposits.
SECTION 2.13 Title to Assets. Except as disclosed in Section 2.13 of
the Disclosure Schedule, (a) Seller has good and marketable title to all
the Purchased Assets and interests therein, whether real, personal,
mixed, tangible or intangible; (b) all the Purchased Assets are free of
restrictions on or conditions to transfer or assignment, and free and
clear of any Lien;
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and (c) upon purchase by the Purchaser pursuant to this Agreement, will
be free and clear of any Lien except for Permitted Liens (as hereinafter
defined). For purposes of this Agreement, "Permitted Liens" shall mean
(i) Liens of carriers, warehousemen, mechanics, suppliers, materialmen
and the like incurred in the ordinary course of business for sums not
overdue more than 30 days or the validity of which is being contested in
good faith; (ii) Liens for taxes not delinquent or payable without
penalty or being contested in good faith; and (iii) Liens in favor of or
those created by or on behalf of Purchaser or HFS.
SECTION 2.14 Employees and Compensation.
(a) Section 2.14 of the Disclosure Sched- ule sets forth a complete
and accurate list of the names and aggregate monthly base salary or
wages, and any incentive, commission, bonus and/or other compensation
arrangement as of December 31, 1995, including without limitation,
employment contracts and consultant contracts, of Seller's officers,
employees and managers (excluding Bryson, but including Dennis Pysz)
(collectively, "Employees"). Except in the ordinary course of the
Business, which includes, but is not limited to, changes required by law,
to Seller's knowledge, there is
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no agreement to change any terms of employment, including without
limitation, salary, wage rates, commissions or other compensation or
employee benefit arrangement, of any Employee prior to the Closing Date.
(b) To Seller's knowledge, all of the contracts and arrangements
listed in Section 2.14 of the Disclosure Schedule are in full force and
effect as of the date of this Agreement, and neither Seller nor, to
Seller's knowledge, any other party is in default under them as of the
date of this Agreement. As of the date of this Agreement, there have been
no claims of default by Seller asserted in writing and, to the knowledge
of Seller, there are no facts or conditions which will result in a
material default under these contracts or arrangements. Except for
liabilities to be paid and satisfied by Seller, there are not now, nor
will there be, any unfunded liabilities or other liabilities associated
with these contracts or arrangements as of the Closing Date, nor will the
future termination of any such contract or arrangement result in any
liability to Purchaser other than post-closing obligations or liabilities
under COBRA. Except as set forth in Section 2.14 of the Disclosure
Schedule, there is no pending or, to Seller's knowledge,
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written threat of an employment dispute involving Seller's Employees.
SECTION 2.15 Conflicts of Interest. Except as set forth in Section
2.15 of the Disclosure Schedule, to Seller's knowledge, neither Seller
nor Bryson, nor any other officer or director of Seller, nor any spouse
or child of any of them, nor any Employee of Seller, has any direct or
indirect interest in any competitor of Seller, or any Franchisee, or in
any Purchased Asset other than the ownership of not more than 5% of the
stock of a publicly traded company by any such person or entity.
SECTION 2.16 Compliance with Law. As of the date of this Agreement,
Seller has not received any notice, not heretofore complied with, from
any federal, state or local governmental authority that any of its
assets, properties, facilities, equipment, business procedures or
practices is in material violation of, and, to Seller's knowledge, Seller
is not in material violation of, any applicable federal, state, or local
statute, law, rule or regulation (including, without limitation, any
applicable building, zoning, franchise, pension, labor, securities or
other statute, law, rule or regulation), which violation would be
reasonably likely to have
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a material adverse effect on the Purchased Assets or the operation of the
Business.
SECTION 2.17 Corporate Documents.
(a) Seller has made available to Purchaser for its examination
complete and accurate copies of:
(1) the certificate of incorporation and by-laws of Seller;
(2) The minute books of Seller with respect to material actions
and meetings of the shareholders and Board of Directors and
committees of the Board of Directors of Seller; and
(3) All material permits, orders, authorizations and consents
which are in Seller's possession and which have been issued with
respect to Seller.
(b) To Seller's knowledge, the respective corporate record books of
the Seller contain accurate and complete records in all material respects
of all material meetings and accurately reflect in all material respects
all other material actions taken by the shareholders, Board of Directors
and all committees of the Board of Directors of the Seller.
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SECTION 2.18 Brokers or Finders. Seller and Bryson have not employed
or utilized any broker, finder or investment adviser in connection with
the transactions contemplated by this Agreement.
SECTION 2.19 National Ad Fund. Seller is not currently in default
under any material requirements of the NAF Agreement. As of February 29,
1996, Seller had $470,058 owing to the NAF under its control, which
amount was held in accounts at Bank of America.
SECTION 2.20 Insurance. Section 2.20 of the Disclosure Schedule sets
forth all insurance policies relating as of the date of this Agreement to
the Seller or the Purchased Assets. All such policies are in full force
and effect as of the date of this Agreement. The Seller has not as of the
date of this Agreement received written notice of default under any such
policy, or written notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium
increase with respect to any such policy.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND HFS
Purchaser and HFS, jointly and severally, represent and warrant to
Seller and Bryson as follows:
SECTION 3.1 Organization and Standing. Purchaser and HFS are each a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, with full corporate power and
authority to enter into this Agreement and carry out their respective
obligations hereunder.
SECTION 3.2 Corporate Authority; Action. Purchaser and HFS each has
the corporate power and authority to execute and deliver this Agreement
and perform their obligations hereunder. The execution and delivery of
this Agreement by Purchaser and HFS, and the consummation by Purchaser
and HFS of the transactions contemplated by this Agreement, have been
authorized by all requisite corporate action on the part of Purchaser and
HFS. This Agreement constitutes the legal, valid and binding obligation
of each of Purchaser and HFS and is enforceable, jointly and severally,
against Purchaser and HFS in accordance with its terms.
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SECTION 3.3 Consents. Except for the approvals of the Boards of
Directors of the Purchaser and HFS of this Agreement, which approvals
have been obtained, no consent, approval, authorization, filing with or
order of any court, governmental agency, person or financial institution
is required in connection with the execution and delivery of this
Agreement by Purchaser and HFS, the consummation by Purchaser and HFS of
the transactions contemplated by this Agreement or the performance by
Purchaser and HFS of their respective obligations under this Agreement.
SECTION 3.4 No Violation. Neither the execution or delivery of this
Agreement, the consummation by Purchaser and HFS of the transactions
contemplated by this Agreement nor the performance by Purchaser and HFS
of their respective obligations under this Agreement will: (i) violate
the certificate of incorporation or by-laws of Purchaser or HFS, (ii)
violate, conflict with, or result in a breach of, the terms, conditions
or provisions of, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under any agreement,
instrument, or arrangement to which Purchaser or HFS is a party or by
which Purchaser or HFS is bound or (iii) violate any law, rule,
regulation,
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judgment, order or decree to which Purchaser or HFS is subject or by
which either is bound.
SECTION 3.5 Litigation. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of
Purchaser or HFS, threatened which questions the validity or propriety of
this Agreement or any action taken or to be taken by Purchaser or HFS in
connection with this Agreement.
SECTION 3.6 Brokers and Finders. Neither Purchaser nor HFS has
employed or utilized any broker, finder or investment advisor involved in
connection with the transactions contemplated by this Agreement.
SECTION 3.7 No Other Representations. Except as otherwise expressly
set forth in this Agreement, neither Purchaser nor HFS has relied upon
any representation or warranty with respect to the Business or any of the
Purchased Assets made by Seller or Bryson or any of Seller's officers,
directors, employees, agents or representatives. To the knowledge of HFS
and Purchaser, there are no facts or circumstances which could constitute
a breach of the representations and warranties of the Seller and Bryson
which would give HFS or Purchaser a basis to seek rescission of the
consummation of this
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Agreement or indemnification hereunder from Seller or Bryson.
ARTICLE IV
CERTAIN COVENANTS OF SELLER, BRYSON AND PURCHASER
SECTION 4.1 Severance and Benefits. HFS agrees that immediately
following the Closing (i) it will offer all Employees of Seller who are
actively employed by Seller immediately prior to the Closing Date
employment for the purpose of making those Employees who accept such
offers eligible for the severance policy set forth on Exhibit VIII (the
"Severance Policy"), but such offer of employment will not obligate HFS
or Purchaser to continue to employ such persons if they accept employment
with HFS, (ii) it will follow the Severance Policy with respect to all
such Employees of Seller who accept employment with Seller within ten
days after being offered such employment and (iii) it will treat Dennis
Pysz and Randy Wiest as Vice Presidents under the Severance Policy. HFS
also agrees that all Employees who accept employment with HFS will be
provided medical benefits as set forth in Exhibit IX hereto.
SECTION 4.2 Use of Name. Seller agrees that as soon as practicable
after the Closing it will amend its certificate of incorporation to
change the name of
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Seller to a name which does not include "Century 21" in its name and
that, from and after the Closing, except for indicating (when reasonably
necessary to do so) that it was formerly known as Century 21 of the
Southwest, Inc. or Century 21 of Arizona, Inc., it will not have any
rights to or utilize the name "Century 21" in its business or operations
or hold itself out as a Century 21 franchisee.
SECTION 4.3 Audit Waiver. Purchaser agrees that the requirement
contained in the Subfranchise Agreement to provide Purchaser with annual
audited financial statements for Seller's fiscal year ended March 31,
1996 is hereby waived by Purchaser.
SECTION 4.4 Accounts Receivable.
(a) The Purchaser agrees that it will use its reasonable efforts,
consistent with its accounts receivable collection practices, to collect
Accounts Receivable for the Seller which are outstanding in accordance
with generally accepted accounting principles as of the Closing Date and
identified on a schedule delivered to the Purchaser at Closing or no
later than fifteen days after the Closing Date which schedule shall be
reviewed by and deemed acceptable to the Purchaser as mutually agreed
upon with the Seller (the "Accounts Receivable
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Schedule"), but the Purchaser shall not, in connection with such
collection efforts, be required to terminate any Franchise Agreement or
bring any legal action against any Franchisee or any affiliate of any
Franchisee. The Purchaser agrees to pay to the Seller, by valid check,
delivered by the 15th day of each month, the amounts which the Purchaser
has collected with respect to any Account Receivable during the
immediately preceding month, and to deliver a written statement listing
the Accounts Receivable listed on the Accounts Receivable Schedule to
which the payment relates and the amount being paid with respect thereto.
The Purchaser may suspend its efforts to collect any Accounts Receivable,
in the exercise of its reasonable judgment, and consistent with the
accounts receivable collection practices of the Purchaser.
(b) Purchaser shall not compromise, settle, surrender, release,
discharge, renew, extend or grant any other indulgence with respect to (a
"Compromise") any Accounts Receivable except in connection with an
identical action with regard to all of its own accounts receivable owing
from the same obligor; and Purchaser shall give the Seller ten business
days' written notice prior to any proposed Compromise (a "Compromise
Notice"). The Seller will cooperate with Purchaser with
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respect to its collection of Accounts Receivable on its behalf, provided
that the Seller will not be obligated to incur any out-of-pocket expenses
in connection with such cooperation.
(c) The Seller may at any time and from time to time, upon written
notice to the Purchaser, revoke the Purchaser's authority to collect any
Accounts Receivable on the Seller's behalf (which notice, if relating to
Accounts Receivable as to which Purchaser has given a Compromise Notice,
must be given at least five business days prior to the date on which the
Purchaser has proposed to Compromise such Accounts Receivable).
(d) The Purchaser agrees that all payments received from any
obligor under an Accounts Receivable shall be applied to the oldest
undisputed amount due from such obligor at that time.
(e) One year following the Closing Date, or earlier if requested by
Seller, the Purchaser shall assign all right, title and interest in and
to all Accounts Receivable that remain uncollected and undischarged, and
which have not been settled or compromised as of that date, to the Seller
and the Seller shall then have the right to collect such Accounts
Receivable for
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its own account and Purchaser shall have no further obligations with
respect thereto.
SECTION 4.5 Non-Competition.
(a) Seller and Bryson agree for a period of three (3) years
following the Closing Date that neither it nor he will, directly or
indirectly, engage in or have any interest in any person, firm,
corporation, or business (whether as an employee, officer, director,
agent, security holder, consultant or otherwise) that engages in the
business of franchising real estate brokerage offices in the Region, so
long as Purchaser (or any of its successors) shall engage in such
activity in the Region; provided, however, that ownership of not more
than 5% of the stock of a publicly traded company by Seller or Bryson,
even if such company engages in such activity, if neither participate in
management of any such company, shall not be considered a violation of
this covenant. It also shall not be a violation of the foregoing covenant
for either the Seller or Bryson to engage in or have any interest in (i)
Amerinet Financial Services, Inc. provided that Amerinet does not engage
in the franchising of real estate brokerage offices in the Region or (ii)
any endeavor or other activity providing
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other services supportive of or ancillary to the real estate brokerage
franchise business.
(b) Seller, Bryson and Purchaser agree that the restrictions imposed
on the Seller and Bryson under this Section 4.5 are an integral part of,
not severable from, and solely intended to protect, the value of the
goodwill included in the Purchased Assets and the Business being
purchased by Purchaser.
SECTION 4.6 Separate Covenants. The parties intend that the covenant
contained in Section 4.5 shall be construed as a series of separate
covenants, one for each county within the Region. Except for geographic
coverage, each such separate covenant shall be deemed identical. If, in
any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in Section 4.5, then such
unenforceable covenant shall be deemed eliminated from those provisions
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
SECTION 4.7 Non-Disclosure of Trade Secrets. Seller and Bryson agree
to hold and treat in confidence all confidential information or trade
secrets of Purchaser or Seller with respect to the Business, including,
but not limited to, personnel information, know-how, opera-
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tions manuals, sales training, management manuals and associated
information, real estate license training materials or other technical
data ("Confidential Information"); provided that "Confidential
Information" shall not include such information which otherwise would
constitute Confidential Information hereunder which (i) is contained in a
publicly recorded document, (ii) is or becomes generally known other than
as a result of a disclosure by or through the Seller or Bryson, or (iii)
is or becomes known by the Seller or Bryson on a nonconfidential basis
from a source that, to the Seller or Bryson's knowledge, is not
prohibited from disclosing such Confidential Information by a legal,
contractual, fiduciary or other obligation. The Seller and Bryson will
employ such procedures to insure the confidentiality of Confidential
Information as would be employed by a reasonable and prudent person to
safeguard the confidentiality of his own most confidential information
or, if more stringent, such procedures as are employed for such purpose
by the Seller and Bryson. Nothing in this Agreement shall prevent the
Seller or Bryson from disclosing Confidential Information (i) if required
to do so by law or regulation, (ii) to any governmental authority having
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or claiming authority to receive such Confidential Information, or (iii)
pursuant to subpoena.
SECTION 4.8 NAF Fees. Following the Closing and notwithstanding the
sale of the Subfranchise Agreement to Purchaser and the termination of
the NAF Agreement, Seller agrees that, by the fifteenth day of each
month, it shall pay to Purchaser any NAF fees owed to Purchaser under the
NAF Agreement received during the preceding month, and agrees that
Purchaser may deduct the amount owing to it as a NAF fee under the NAF
Agreement with respect to any Account Receivable which Purchaser has
agreed to collect for Seller from the amount Purchaser pays to Seller
pursuant to Section 4.4 hereof.
ARTICLE V
SURVIVAL, INDEMNIFICATION
SECTION 5.1 Survival of the Representations. The respective
representations, warranties, covenants and agreements made by any party
to this Agreement shall survive the Closing, shall not be deemed waived
or otherwise affected by any investigation at any time made by any party
hereto except as provided in Section 5.7(d) hereof and, for the purposes
of this Article V, any representation and warranty shall continue in
effect
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until February 28, 1997 except for a breach of a representation or
warranty being made pursuant to:
(i) Section 2.13 (Title to Assets) hereof but only with respect to
Franchise Agreements, which shall survive until the date which is five
years from the date hereof;
(ii) Section 2.9 (Tax Matters) which shall survive until the date
which is 60 days after the expiration of the applicable statute of
limitations; and
(iii) Section 2.10 (Employee Benefit Matters) which will survive
until the applicable statute of limitations has run.
SECTION 5.2 Statements as Representations. All of the statements
contained in the Disclosure Schedule or in any Schedule delivered
pursuant hereto shall be deemed representations and warranties for all
purposes of this Agreement but by only the party delivering or causing
the foregoing to be delivered.
SECTION 5.3 Indemnification by Seller and Bryson. In lieu of all
other remedies Purchaser may have at law or in equity, and/or under this
Agreement, other than the remedy provided in Section 6.20 hereof, and
subject to the terms and upon the conditions of this Article V, Seller
and Bryson, jointly and severally, agree to
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indemnify, fully defend and save and hold harmless Purchaser, any
Affiliate (which shall mean, with respect to a specified person, any
person that, directly or indirectly, controls or is controlled by or is
under common control with the specified person) of the Purchaser and
their respective officers and directors (collectively, the "Purchaser
Indemnified Group") from and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and
expenses, including, without limitation, interest, penalties and
reasonable attorneys' fees and expenses, but net of any actual Tax
savings and insurance proceeds received by the indemnitee as a result of
the matter giving rise to the indemnification (collectively, "Damages"),
asserted against, resulting to, imposed upon or incurred by any member of
the Purchaser Indemnified Group, directly or indirectly, by reason of or
resulting from:]
(a) any inaccuracy in, or a breach of, any representation or
warranty of Seller or Bryson contained in this Agreement;
(b) any breach or failure to perform any covenant or agreement of
Seller contained in or made pursuant to this Agreement;
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(c) any and all obligations and liabilities, direct or indirect,
absolute or contingent, for Taxes or related claims asserted against the
Purchaser Indemnified Group or any member thereof (i) with respect to any
Taxes of the Seller for any taxable period; (ii) with respect to any
Affiliated Group (which shall mean an affiliated group within the meaning
of Section 1504(a) of the Internal Revenue Code of 1986, as amended, or
any similar provision of state, local, or foreign law) or any member of
an Affiliated Group for periods during which Seller was a member of such
group; (iii) with respect to the Purchased Assets, to the extent such Tax
Claims are attributable to periods ending on or prior to the Closing Date
and are not based on the income or revenues of Purchaser, its
successor(s) or assign(s); and
(d) any liability which may be imposed upon any member of the
Purchaser Indemnified Group (including, without limitation, any liability
for direct administrative costs which may be imposed under Section 4980B
of the Code and Part 6 of Title I of ERISA (together, "COBRA"), but not
any other obligation of liability which may be imposed under COBRA) and
which accrues or arises (whether or not in connection with any Benefit
Plan) with respect to employees, former employees, inde-
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pendent agents or independent contractors (whether employed by Seller or
by an entity which was an Affiliated Employer at any time within the
six-year period immediately preceding the Closing Date) on or before the
Closing Date or in connection with the transactions contemplated in this
Agreement other than as provided in Section 4.1 hereof under the
severance policy set forth as Exhibit VIII hereto.
SECTION 5.4 Indemnification by Purchaser and HFS. In addition to all
other remedies Seller may have at law or in equity, and/or under this
Agreement, and subject to the terms and conditions of this Article V,
Purchaser and HFS, jointly and severally, agree to indemnify, fully
defend, save and hold harmless Seller, any Affiliate of Seller and any of
their respective directors or officers (the "Seller Indemnified Group")
from and against Damages asserted against, resulting to, imposed upon or
incurred by the Seller Indemnified Group or any member thereof, directly
or indirectly, by reason of or resulting from:
(a) any inaccuracy in, or a breach of, any representation or
warranty of Purchaser or HFS contained in or made pursuant to this
Agreement or any facts or circumstances constituting such a breach;
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(b) any breach of or failure to perform any covenant or agreement of
Purchaser or HFS contained in or made pursuant to this Agreement;
(c) any Assumed Liability;
(d) any and all liabilities of or obligations of, or claims
against, Seller, Purchaser or the Business (whether absolute, accrued,
contingent or otherwise) relating to the Business after the Closing Date,
or arising out of facts or circumstances which occur after the Closing
Date, including, without limitation, claims brought by any one or more
franchisees relating to the assignment of any franchise agreement(s)
pursuant to the provisions hereof or relating to the operation or
management of or expenditures from the NAF after the Closing Date;
(e) any liabilities or obligations to be performed by Purchaser
under or pursuant to the NAF Agreement; and
(f) any action(s) or omission(s) by Purchaser or HFS with respect
to any Franchisee.
SECTION 5.5 Claims. Each matter for which Seller, Bryson, Purchaser
or HFS has agreed to provide indemnification pursuant to Sections 5.3 or
5.4 hereof is
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hereinafter referred to individually as a "Claim" and collectively as the
"Claims."
SECTION 5.6 Conditions of Indemnification. The obligations and
liabilities of any party to indemnify any other party under Sections 5.3
and 5.4 hereof with respect to Claims shall be subject to the following
terms and conditions:
(a) The party to be indemnified (the "Indemnified Party") will
give the other party or parties (the "Indemnifying Party") prompt notice
of any such Claim. Such notice shall be a condition precedent to any
liability of the Indemnifying Party under the provisions for
indemnification contained in this Agreement (provided that the delay to
notify the Indemnifying Party promptly shall not relieve such
Indemnifying Party of its obligations under this Article V except to the
extent that the failure to so notify materially adversely prejudices the
Indemnifying Party's ability to defend such Claim).
(b) The Indemnifying Party may elect to undertake the defense of any
Claim with respect to which indemnification is sought by the Indemnified
Party by representatives chosen by it reasonably satisfactory to the
Indemnified Party. If the Indemnifying Party elects to compromise or
defend such asserted liability, it shall
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within 30 days from delivery of the notice pursuant to Section 5.6(a) (or
sooner, if the nature of the asserted liability so requires) notify the
Indemnified Party of its intent to do so and the Indemnified Party shall
cooperate in the compromise of, or defense against, any such asserted
liability. In such case, the Indemnified Party may participate in such
defense at its own expense. If the Indemnifying Party, within such 30-day
period after notice of any such Claim, fails to so defend, the
Indemnified Party will have the right to assume the defense, compromise
or settlement of such Claim on behalf of and for the account and risk of
the Indemnifying Party, subject to the right of the Indemnifying Party to
assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof. If, in the opinion of counsel
to an Indemnified Party, the interests of the Indemnified Party and the
Indemnifying Party with respect to any Claim are conflicting, the
Indemnified Party shall be entitled to undertake the defense of such
Claim at the expense of the Indemnifying Party. If the Indemnifying Party
chooses to defend any Claim, the Indemnified Party shall make available
to the Indemnifying Party any books, records or other documents
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within its control that are necessary or appropriate for such defense.
(c) The notice referred to in Section 5.6(a) hereof shall set forth
the details of the Claim (including the amount, estimated, if necessary,
of the asserted Damages) and the specific provisions of this Agreement
relating thereto.
(d) Anything in this Section 5.6 to the contrary notwithstanding,
(i) if there is a reasonable probability that a Claim may materially and
adversely affect the Indemnified Party other than solely as a result of
money damages or other money payments, the Indemnified Party shall have
the right, at its own cost and expense, to defend, compromise or settle
such Claim, and (ii) the Indemnifying Party shall not, without the
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld), settle or compromise any Claim or consent to the
entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified
Party of a release from all liability in respect of such Claim.
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SECTION 5.7 Limitation on Indemnification. Notwithstanding anything
to the contrary set forth in this Agreement:
(a) No indemnification for any Damages shall be required to be made
by Seller or Bryson pursuant to Section 5.3(a) hereof for breaches or
inaccuraciis of the representations and warranties contained in Sections
2.1, 2.3, 2.8, 2.10, 2.11, 2.14, 2.15 and 2.20 to the extent that the
aggregate amount which would otherwise be payable as Damages for such
breaches and/or inaccuracies either (i) exceeds $1,350,000 or (ii) when
added to any amount(s) paid as Damages for breaches or inaccuracies of
the representations and warranties referred to in Section 5.7(b) hereof,
exceeds $3,375,000.
(b) No indemnification shall be required to be made by Seller or
Bryson pursuant to Section 5.3(a) hereof for breaches or inaccuracies of
the representations and warranties contained in Sections 2.2, 2.4 through
2.7, 2.9, 2.12, 2.13 and 2.16 through 2.19 to the extent that the amount
which would otherwise be payable as Damages for such breaches and/or
inaccuracies (plus any amount(s) paid as Damages for breaches or
inaccuracies of the representations and warranties referred to in Section
5.7(a) hereof) exceeds $3,375,000.
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(c) No indemnification for any Damages shall be required to be made
by Seller or Bryson pursuant to Section 5.3(a) hereof unless and only to
the extent that the aggregate amount which would otherwise be payable as
Damages exceeds $270,000.
(d) No indemnification for any Damages shall be required to be made
by Seller or Bryson pursuant to Section 5.3(a) hereof for a breach or
inaccuracy of a representation or warranty made by the Seller or Bryson
if HFS or the Purchaser had knowledge as of the Closing of the breach or
inaccuracy.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party hereto shall pay its own expenses incident to the
origin, negotiation and execution of this Agreement and the consummation
of the transactions contemplated hereby (whether or not the transactions
are actually consummated), including, without limitation, all legal and
accounting fees and disbursements and the fees of any broker, finder or
investment adviser utilized by them. Any sales, use or similar taxes
applicable to the conveyance and transfer
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to Purchaser of the Purchased Assets shall be borne and paid by
Purchaser. Any transfer, documentary taxes or similar taxes and any
filing or recording taxes or fees applicable to such conveyance to
Purchaser of the Purchased Assets shall be borne and paid by Purchaser.
Purchaser shall file any Return that is required to be filed in respect
of Taxes described in this Section and shall pay the Taxes shown on such
Return.
SECTION 6.2 Reimbursement of and Payment to Purchaser and Seller.
Seller and Purchaser agree that if subsequent to the Closing Date either
of them shall receive any payment due to the other party, each shall
promptly remit the same to the other, and if either party shall pay any
obligations of the other not assumed by it hereunder, the payment shall
be for the account of the party to whom the obligation relates, and such
party shall promptly reimburse the other party for any such payment.
SECTION 6.3 Interpretation. As used herein, the expression "this
Agreement" means the body of this Agreement, the Exhibits, the Disclosure
Schedule and Schedules attached hereto; and the expressions "herein,"
"hereof," and "hereunder" and other words of similar import refer to this
Agreement, such Exhibits, the Dis-
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closure Schedule and Schedules as a whole and not to any particular part
or subdivision thereof. As used herein, the "knowledge" of the Seller
means the actual knowledge of the following persons: Larry E. Bryson,
Dennis Pysz and Randy P. Wiest, without further investigation, and the
"knowledge" of HFS or Purchaser means the actual knowledge of the
following persons, without further investigation: Henry R. Silverman,
James E. Buckman, Stephen P. Holmes, Robert W. Pittman, John D. Snodgrass
and Thomas J. Freeman. Whenever this Agreement states that an agreement
or a contract is enforceable according to its terms, such statement is to
be interpreted with the proviso that such enforcement may be limited (i)
by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, equity of redemption, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) by general
principles of equity (regardless of whether enforcement is sought in
equity or at law).
SECTION 6.4 Amendments and Waivers. This Agreement may be amended
only by a written instrument executed by the parties hereto. At any time
prior to the Closing Date, any party hereto which is entitled to the
benefits hereof may, by an instrument in writing signed
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and delivered on behalf of such party, (a) extend the time for the
performance of any of the obligations or other acts of the other party,
(b) waive any inaccuracy in the representations and warranties of the
other party contained herein or in any Schedule hereto or in any document
delivered pursuant hereto and (c) waive compliance with any of the
agreements of the other party hereto or conditions contained herein. No
waiver of any of the provisions of this Agreement shall be deemed to or
shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof.
SECTION 6.5 Other Instruments to Be Executed. From and after the
Closing Date, Seller shall, from time to time, at the request of
Purchaser and without further consideration, do, execute, acknowledge and
deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably
required to convey, assign, transfer or confirm the sale of the Purchased
Assets, and the rights of Seller with respect thereto to be assigned in
accordance with this Agreement to Purchaser, its successors and permitted
assigns.
57
<PAGE>
SECTION 6.6 Public Statements. Except for announcements as may be
required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other party with reasonable time under
the circumstances to comment on the announcement in advance of such
announcement, neither Seller, Bryson, HFS nor Purchaser shall issue any
press release or other public statement concerning the transactions
contemplated by this Agreement without first obtaining the written
consent of the other parties respecting such statement, which consent
will not be unreasonably withheld.
SECTION 6.7 Access To Records After Closing. Purchaser and Seller
shall, after the Closing Date, make available to each other at reasonable
times during normal business hours any books, correspondence, employment
records, ledgers and other records relating to the Business that either
may request for use in connection with: (a) the preparation of tax
returns; (b) any audit of taxes or tax returns by local, state or federal
authorities; (c) any claim or suit in which they are a party; or (d) any
other reasonable and proper purpose, and shall permit the other, at its
expense, to make copies thereof.
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<PAGE>
Seller and Bryson agree that they will allow HFS to use the Seller's
historical audited financial statements for purposes of any announcements
or filings required by law or the rules and regulations of the stock
exchange.
SECTION 6.8 Parties Bound. This Agreement shall apply to, inure to
the benefit of and be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. The
respective rights and obligations of any party hereto shall not be
assignable without the consent of the other party except that Purchaser
may assign this Agreement and Purchaser's rights hereunder to its parent
or any subsidiary of Purchaser; provided that the Purchaser
unconditionally guarantees all of such assignee's obligations, warrants
and agreements hereunder in a written guaranty reasonably acceptable to
Seller.
SECTION 6.9 Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or
by reason of this Agreement on any persons other than the parties to it
and their respective successors, heirs, legal representatives and
permitted assigns, nor is anything in this Agreement intended to relieve
or discharge the obligation or liability of any third persons to any
party to this
59
<PAGE>
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
SECTION 6.10 Notices. Any notice, demand, approval, consent,
request, waiver or other communication which may be or is required to be
given pursuant to this Agreement shall be in writing and shall be (1)
deposited in the United States mail, postage prepaid, certified or
registered, (2) sent by telecopier or (3) sent by private overnight
courier service for delivery on the next following business day,
addressed to the party at the address set forth after its respective name
below, or at such different address as such party shall have theretofore
advised the other party in writing:
If to Seller or Larry Bryson:
Century 21 of the Southwest, Inc.
or
Larry Bryson
27825 North 42nd Street
Cave Creek, Arizona 85331
Telecopier: (602)585-6929
with a copy to:
Bosco, Blau, Ward & Nopar
2166 The Alameda
San Jose, California 95126-1187
Attention: Alan S. Nopar, Esq.
Telecopier: (408) 984-2689
60
<PAGE>
If to Purchaser or HFS:
HFS Incorporated
or
Century 21 Real Estate Corporation
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman
Executive Vice President
Telecopier: (201) 428-3260
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Mark T. Shehan, Esq.
Telecopier: (212) 735-2001
Any such communication personally delivered shall be deemed to have been
received on the day delivered; or if sent by telecopier, on the day
telecopied, but only if receipt by the addressee is confirmed by a return
telecopy signed by the addressee; or if properly mailed certified or
registered mail, postage prepaid, shall be deemed to have been received
on the day three business days from and including the day mailed; or if
sent by private overnight courier service shall be deemed to have been
received on the business day following the day so sent. Any party may
change its address for purposes of this Section by giving the other
parties written notice of the new address in any manner set forth above.
61
<PAGE>
SECTION 6.11 Number and Gender of Words. Whenever herein the
singular number is used, the same shall include the plural where
appropriate, and the words of any gender shall include each other gender
where appropriate.
SECTION 6.12 Captions. The captions, headings and arrangements used
in this Agreement are for convenience only and do not affect, limit or
amplify the terms and provisions hereof, or their construction or
interpretation.
SECTION 6.13 Invalid Provisions. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof, and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. In lieu of such
illegal, invalid or unenforceable provision there shall be added
automatically as a part hereof a provision as similar in terms to such
illegal, invalid or unenforce-
62
<PAGE>
able provision as may be possible and be legal, valid and enforceable.
SECTION 6.14 Accounting Terms. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in
accordance with generally accepted accounting principles as in effect
from time to time.
SECTION 6.15 Entirety of Agreement. This Agreement contains the
entire agreement among the parties hereto, and supersedes all prior and
contemporaneous agreements, representations and understandings of the
parties, including, without limitation all preliminary offers and letters
of intent made by or between Purchaser, HFS, Seller or Bryson. No
representations, inducements, promises or agreements, oral or otherwise,
which are not embodied herein shall be of any force or effect.
SECTION 6.16 Multiple Counterparts. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original for
all purposes and all of which shall be deemed, collectively, one
agreement.
SECTION 6.17 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with,
63
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this Agreement or the transactions contemplated hereby shall be brought
in the United States District Court for the District of Arizona or any
Arizona state court sitting in Phoenix, Arizona, and each of the parties
hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of
the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such
court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court.
Without limiting the foregoing, each party agrees that service of process
on such party as provided in this Section 6.18 shall be deemed effective
service of process on such party.
SECTION 6.18 Prevailing Party Expenses. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for
64
<PAGE>
all expenses and costs incurred by the prevailing party or parties in
connection with such action, including without limitation attorney's
fees.
SECTION 6.19 Waiver of Rescission. Notwithstanding any breach or
default by any of such parties of any of their respective
representations, warranties, covenants or agreements under this
Agreement, each such party waives any rights that it or they may have to
rescind this Agreement or the transaction consummated by it; provided,
however, this waiver shall not affect any other rights or remedies
available to any such party under this Agreement or under the law and
shall not apply if actual fraud has been committed by any party in
connection with the transactions contemplated by this Agreement.
65
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CENTURY 21 REAL ESTATE
CORPORATION
By /s/ JAMES E. BUCKMAN
--------------------
Name: James E. Buckman
Title: Executive Vice
President
HFS INCORPORATED
By /s/ STEPHEN P. HOLMES
---------------------
Name: Stephen P. Holmes
Title: Executive Vice
President
CENTURY 21 OF THE
SOUTHWEST, INC.
By /s/ LARRY E. BRYSON
-------------------
Name: Larry E. Bryson
Title: President
/s/ LARRY E. BRYSON
-------------------
LARRY E. BRYSON
<PAGE>
<TABLE>
<CAPTION>
HFS INCORPORATED AND SUBSIDIARIES EXHIBIT 11
- -------------------------------------------------------------------------------------------------------------------
COMPUTATION OF PER SHARE EARNINGS
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands, except per share data)
FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------
1996 1995
------------------ -------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net income $ 22,818 $ 22,818 $ 12,062 $ 12,062
Convertible debt interest and
amortization of deferred loan
costs, net of tax 1,122 1,122 -- --
-------- -------- -------- --------
Net income as adjusted $ 23,940 $ 23,940 $ 12,062 $ 12,062
======== ======== ======== ========
Weighted average
common shares outstanding 102,713 102,713 92,620 92,620
Incremental shares for outstanding
stock options and warrants 9,769 10,117 7,930 8,864
Contingent shares -- -- 1,072 1,072
Convertible debt 8,258 8,258 -- --
-------- -------- -------- --------
Weighted average
common and common
equivalent shares outstanding 120,740 121,088 101,622 102,556
======== ======== ======== ========
Net income per share $ 0.20 $ 0.20 $ 0.12 $ 0.12
======== ======== ======== ========
</TABLE>
32
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 81,432
<SECURITIES> 0
<RECEIVABLES> 139,789
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 279,473
<PP&E> 72,380
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,139,148
<CURRENT-LIABILITIES> 155,933
<BONDS> 554,373
<COMMON> 1,027
0
0
<OTHER-SE> 587,173
<TOTAL-LIABILITY-AND-EQUITY> 1,398,148
<SALES> 0
<TOTAL-REVENUES> 124,545
<CGS> 0
<TOTAL-COSTS> 78,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,995
<INCOME-PRETAX> 39,620
<INCOME-TAX> 16,006
<INCOME-CONTINUING> 23,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,818
<EPS-PRIMARY> $.20
<EPS-DILUTED> $.20
</TABLE>
