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 September 30, 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)
6 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive office) (Zip Code)
(201) 428-9700
(Registrant's telephone number, including area code)
------------
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 128,676,074 shares of Common Stock outstanding as at November
11, 1996.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 471,194 $ 16,109
Royalty accounts and notes receivable, net of
allowance for doubtful accounts 76,975 37,326
Marketing and reservation receivables, net of
allowance for doubtful accounts 36,200 22,297
Relocation receivables 136,052 51,180
Other current assets 22,625 21,304
Deferred income taxes 36,456 20,200
----------- -----------
Total current assets 779,502 168,416
Property and equipment, net 106,233 67,892
Franchise agreements, net 594,415 517,218
Excess of cost over fair value of net assets
acquired, net 1,339,836 356,754
Other assets 80,064 55,528
----------- -----------
TOTAL ASSETS $ 2,900,050 $ 1,165,808
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - -------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and other $ 185,012 $ 73,724
Income taxes payable 81,633 38,640
Accrued acquisition obligations 40,287 10,276
Current portion of long-term debt 29,907 2,249
----------- -----------
Total current liabilities 336,839 124,889
Long-term debt 541,563 300,778
Other liabilities 31,259 17,150
Deferred income taxes 85,400 82,800
Commitments and contingencies
Series A Adjustable Rate Preferred Stock of Century 21 -- 80,000
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 1,237 1,025
Additional paid-in capital 1,705,541 475,562
Retained earnings 206,236 83,604
Treasury stock, at cost (8,025) --
------------ -----------
Total stockholders' equity 1,904,989 560,191
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,900,050 $ 1,165,808
=========== ===========
-See notes to consolidated financial statements-
</TABLE>
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Franchise $ 184,027 $ 113,340 $ 424,162 $ 265,129
Other 61,773 15,909 125,848 34,602
--------- --------- --------- ---------
Total revenue 245,800 129,249 550,010 299,731
--------- --------- --------- ---------
EXPENSES:
Marketing and reservation 55,237 44,160 130,728 110,842
Selling, general and administrative 40,232 21,867 110,588 46,117
Depreciation and amortization 17,724 8,389 41,129 21,721
Interest 7,620 6,017 22,194 16,272
Other 23,033 2,376 40,109 3,595
--------- --------- --------- ---------
Total expenses 143,846 82,809 344,748 198,547
--------- --------- --------- ---------
Income before income taxes 101,954 46,440 205,262 101,184
Provision for income taxes 40,884 19,321 82,630 41,820
--------- --------- --------- ---------
Net income $ 61,070 $ 27,119 $ 122,632 $ 59,364
========= ========= ========= =========
SHARE INFORMATION (fully diluted):
Net income per share $ 0.44 $ 0.24 $ 0.96 $ 0.56
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 142,942 115,758 131,684 112,056
========= ========= ========= =========
</TABLE>
-See notes to consolidated financial statements-
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Retained Treasury
Shares Amount Capital Earnings Stock Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 102,539 $ 1,025 $ 475,562 $ 83,604 $ -- $ 560,191
Issuance of common stock 20,278 203 1,205,768 -- -- 1,205,971
Purchase of common stock -- -- -- -- (8,025) (8,025)
Exercise of stock options 898 9 7,973 -- -- 7,982
Tax benefit from exercise
of stock options -- -- 16,145 -- -- 16,145
Conversion of 41/2% Notes 5 -- 93 -- -- 93
Net income -- -- -- 122,632 -- 122,632
------- ------- ----------- --------- ---------- ----------
Balance, September 30, 1996 123,720 $ 1,237 $ 1,705,541 $ 206,236 $ (8,025) $1,904,989
======= ======= =========== ========= =========== ==========
</TABLE>
-See notes to consolidated financial statements-
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 122,632 $ 59,364
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization, including
amortization of deferred financing costs 42,524 22,680
Changes in operating assets and liabilities
and other (25,777) 2,200
----------- -----------
Net cash provided by operating activities 139,379 84,244
---------- -----------
Investing Activities:
Property and equipment additions (23,578) (5,780)
Loans and investments (10,000) (13,000)
Acquisition of businesses, net of cash acquired (970,885) (70,977)
----------- ------------
Net cash used in investing activities (1,004,463) (89,757)
----------- ------------
Financing Activities:
Issuance of common stock, net 1,167,953 57,053
Proceeds from borrowings, net 242,025 -
Purchases of treasury stock (8,025) -
Redemption of Series A Preferred Stock (80,000) -
Principal payments - long-term debt (1,784) (16,252)
----------- ------------
Net cash provided by financing activities 1,320,169 40,801
---------- -----------
Net increase in cash and cash equivalents 455,085 35,288
Cash and cash equivalents, beginning of period 16,109 5,956
---------- -----------
Cash and cash equivalents, end of period $ 471,194 $ 41,244
========= ===========
</TABLE>
-See notes to consolidated financial statements-
<PAGE>
HFS Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated balance sheet of HFS Incorporated (the "Company") as of
September 30, 1996, the consolidated statements of income for the three and nine
months ended September 30, 1996 and 1995, the consolidated statements of cash
flows for the nine months ended September 30, 1996 and 1995 and the consolidated
statement of stockholders' equity for the nine months ended September 30, 1996
are unaudited and reflect all adjustments of a normal recurring nature which
are, in the opinion of management, necessary for a fair presentation. There were
no adjustments of an unusual nature recorded during the three and nine months
ended September 30, 1996 and 1995 except that in June 1996, the Company recorded
a $7.0 million pre-tax restructuring charge, related primarily to the
contribution of owned Coldwell Banker brokerage offices to a newly created
independent entity, National Realty Trust (the "Trust") (See Note 2). Through
September 30, 1996, the Company has engaged principally in the business of
franchising guest lodging facilities (lodging segment) and real estate brokerage
offices (real estate segment). The principal sources of lodging segment revenue
are based upon the annual gross room revenue of franchised properties. The
principal sources of real estate segment revenue are based upon franchisee gross
commission revenue from real estate sales and may include monthly franchisee
membership fees. As a result, the Company experiences seasonal revenue patterns
similar to those of the hotel and real estate industries wherein the summer
months produce higher revenue than other periods of the year. Accordingly, the
first and fourth quarters are traditionally weaker than the second and third
quarters and interim results are not necessarily indicative of results for a
full year.
The consolidated financial statements include the accounts and transactions
of all wholly-owned and majority owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation. The
consolidated financial statements of the Company include the assets and
liabilities of Ramada Franchise Systems, Inc., an entity controlled by the
Company by virtue of its ownership of 100% of the common stock of such entity.
The assets of Ramada Franchise Systems, Inc. are not available to satisfy the
claims of any creditors of the Company or any of its other affiliates, except as
otherwise specifically agreed by Ramada Franchise Systems, Inc.
The consolidated financial statements and notes are presented as required
by Form 10-Q and do not contain certain information included in the Company's
annual consolidated financial statements. The December 31, 1995 consolidated
balance sheet was derived from the Company's audited financial statements. This
Form 10-Q should be read in conjunction with the Company's consolidated
financial statements and notes thereto, incorporated by reference in the 1995
Annual Report on Form 10-K.
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with classifications used in 1996.
2. Acquisitions
The following acquisitions were accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed were recorded
at their estimated fair values. The results of operations of acquisitions
completed during the nine months ended September 30, 1996 have been included in
the Company's consolidated results since the respective dates of acquisition.
<PAGE>
A. ACQUISITION OF RESORT CONDOMINIUMS INTERNATIONAL, INC. - On November 12,
1996, the Company completed the acquisition of all the outstanding capital stock
of Resort Condominiums International, Inc., and its affiliates ("RCI") for
approximately $625 million comprised of $550 million in cash and $75 million of
Company common stock. The purchase agreement provides for contingent payments of
up to $200 million over the next five years.
RCI, based in Indianapolis, Indiana, is the world's largest provider of
timeshare exchange programs, providing services for approximately two million
timeshare owners and approximately 3,000 resorts around the world. RCI is also
engaged in publishing related to the timeshare industry and provides other
travel-related services, integrated software systems and resort management and
consulting services.
B. ACQUISITION OF AVIS, INC. - On October 17, 1996, the Company completed
the acquisition of all of the outstanding capital stock of Avis, Inc. ("Avis"),
including payments under certain employee stock plans of Avis and the redemption
of certain series of preferred stock of Avis for an aggregate $806.5 million.
The purchase price was comprised of approximately $367.2 million in cash, $100.9
million in indebtedness and $338.4 million (approximately 4.6 million shares) in
Company common stock.
Avis, together with its subsidiaries, licensees and affiliates, operates
the Avis rental car business, which the Company believes is the second largest
car rental system in the world.
Prior to the consummation of the acquisition, the Company announced its
intention to dispose of a majority interest in the corporation which owns all
company-owned Avis car rental locations (the "Operating Company") through an
initial public offering of the common stock of the Operating Company during
1997. The Operating Company will license the Avis trademark from the Company in
return for a license fee based on a percentage of Operating Company revenue.
C. COLDWELL BANKER - On May 31, 1996, the Company acquired by merger
Coldwell Banker Corporation ("Coldwell Banker"), at the time the largest gross
revenue producing residential real estate company in North America and a leading
provider of corporate relocation services. The Company paid $640 million in cash
for all of the outstanding capital stock of Coldwell Banker and repaid
approximately $105 million of Coldwell Banker indebtedness. The aggregate
purchase price for the transaction was financed through the sale of Company
common stock (see Note 5).
Immediately following the closing of the Coldwell Banker acquisition, the
Company conveyed Coldwell Banker's 318 owned real estate brokerage offices to
the Trust. The Company recorded a pre-tax restructuring charge of $7 million
(approximately $4.3 million, net of tax or $0.03 per share), in the second
quarter, related primarily to the contribution of net assets to the Trust.
D. CENTURY 21 NON-OWNED REGIONS - During the second quarter of 1996, the
Company purchased from four independent master licensees, the six U.S.
previously non-owned Century 21 regions ("Century 21 NORS") consisting of more
than 1,000 franchised real estate offices. The $147 million aggregate purchase
price consisted of approximately $96 million in cash, $5 million in notes and
$46 million (approximately 0.9 million shares) in Company common stock.
E. ERA - In February 1996, the Company purchased substantially all of the
assets comprising the Electronic Realty Associates ("ERA") residential real
estate brokerage franchise system for approximately $40.5 million in cash.
<PAGE>
F. TRAVELODGE - In January 1996, the Company purchased the assets
comprising the Travelodge hotel franchise system ("Travelodge") in North America
including the Travelodge(R) and Thriftlodge(R) service marks and the franchise
agreements from Forte Hotels, Inc. ("FHI") for $39.3 million.
Concurrent with the Company's acquisition of the Travelodge franchise
system, Motels of America, Inc., through a wholly owned subsidiary (collectively
"MOA"), purchased 19 Travelodge motels from FHI for $32.3 million. MOA, a
significant Company franchisee, entered into twenty year Travelodge franchise
agreements. The Company financed $10 million of MOA's purchase price under a $10
million revolving credit facility, bearing interest at 14% per annum. The loan
is guaranteed by a parent company of MOA and secured by approximately 80% of
MOA's outstanding common stock.
In addition, Chartwell Leisure Inc. ("CHRT") formerly National Lodging
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 common stock of FHI for $98.4 million. FHI owned or had an interest
in 112 hotel and motel properties at the acquisition date. In connection with
CHRT's acquisition, the Company guaranteed $75 million of CHRT borrowings under
a $125 million revolving credit facility entered into by CHRT with certain
banks. The Company is paid a guarantee fee of 2% per annum of the outstanding
guarantee commitment by the Company pursuant to a financing agreement entered
into between CHRT and the Company at the Distribution Date (the "Financing
Agreement"). The Financing Agreement was modified to provide expressly for the
guaranty of such CHRT borrowings. The Company and CHRT terminated or modified
other agreements entered into with CHRT at the Distribution Date, including a
gaming related marketing services agreement and an advisory agreement. CHRT paid
the Company an advisory fee approximating $2 million in January 1996 in
connection with CHRT's acquisition of FHI.
Pro Forma Information: The following information reflects the comparative
pro forma statements of operations of the Company for the nine months ended
September 30, 1996 and 1995 assuming the following transactions occurred on
January 1, 1995: (i) the August 1, 1995 acquisition of Century 21 Real Estate
Corporation ("Century 21"); (ii) the acquisition by merger in May 1995 of,
Central Credit, Inc.; (iii) the acquisition of Avis and the issuance of the
Company common stock as partial consideration for Avis; (iv) the acquisition of
RCI and the issuance of the Company common stock as partial consideration for
RCI; (v) the acquisition of Coldwell Banker and the related contribution of
Coldwell Banker's owned real estate brokerage offices to the Trust; (vi)
proceeds from an offering of the Company's common stock (See Note 5) to the
extent necessary to fund the acquisition of Coldwell Banker and the related
repayment of indebtedness and acquisition expenses; (vii) the 1996 acquisitions
of Travelodge, ERA and the Century 21 NORS; and (viii) the February 22, 1996
issuance of $240 million of 4 3/4% convertible senior notes due 2003 (the "4
3/4% Notes", see Note 6) to the extent such proceeds were used to finance
acquisitions. The acquisitions have been 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, 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
<PAGE>
associated with the assets acquired, the reflection of the Company's
financing arrangements, the elimination of redundant costs and the related
income tax effects. Certain other Company acquisitions were not material and
therefore were not reflected in the pro forma statements of operations.
Nine Months Ended
September 30,
(000's, except net income per share) 1996 1995
----------- ----------
Revenue .............................................. $ 999,865 $ 841,323
Income before income taxes ........................... 332,150 232,827
Net income per share (fully diluted) ................. $ 1.35 $ 1.00
Weighted average common and common equivalent shares
outstanding (fully diluted) ................ 147,513 140,582
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 and nine months ended September 30, 1996
and 1995 are based upon the weighted average number of common and common
equivalent shares outstanding during the respective periods. The 4 3/4% Notes,
issued February 22, 1996, are antidilutive for the three and nine months ended
September 30, 1996 and, accordingly, are not included in the computation of
earnings per share for 1996. For purposes of calculating earnings per share, the
$150 million 4 1/2% convertible senior notes are assumed to be converted and,
accordingly, interest expense, including amortization of deferred financing
costs (net of taxes) has been added back to net income.
5. Stockholders' Equity
A. Authorized Shares - On January 22, 1996, the Company's shareholders
approved an amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of common stock to 300 million.
B. Public Offering - On May 9, 1996, the Company sold an aggregate 19.4
million shares of Company common stock pursuant to a public offering (the
"Offering"). A majority of the net proceeds from the Offering of $1.2 billion
financed the acquisition of Coldwell Banker and the balance was principally used
as partial consideration in the subsequent acquisition of Avis.
6. 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
<PAGE>
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.
On October 2, 1996, the Company replaced an existing $300 million revolving
credit facility with $1 billion in revolving credit facilities consisting of (i)
a $500 million, five year revolving credit facility (the "Five Year Credit
Facility") and (ii) a $500 million, 364 day revolving credit facility (the "364
Day Revolving Credit Facility" (collectively the "Revolving Credit Facilities").
The Company may renew the 364 Day Revolving Credit Facility on an annual basis
for an additional 364 days up to a maximum aggregate term of five years upon
receiving lender approval. The Revolving Credit Facilities, at the option of the
Company, bear interest based on competitive bids of lenders participating in the
facilities, at the prime rate or at LIBOR plus a margin approximating 25 basis
points.
7. Recent Events
A. PENDING ACQUISITION OF PHH CORPORATION ("PHH") - On November 10, 1996,
the Company entered into a definitive merger agreement (the "Merger Agreement")
pursuant to which the Company will issue approximately $1.7 billion of Company
common stock in exchange for all of the outstanding common stock of PHH.
Pursuant to the terms of the Merger Agreement, the number of Company shares to
be issued may range from 21.3 to 28.7 million, based upon the average share
price of the Company's common stock over a period of 20 trading days ending five
days prior to the date of the vote by PHH shareholders on approval of the
transaction. PHH is the world's largest provider of corporate relocation
services and also provides mortgage banking and vehicle management services.
Consummation of the transaction is subject to customary regulatory approvals and
the approval of the shareholders of each company. The transaction, which is
expected to close in early 1997, will be accounted for as a pooling of
interests.
B. PURCHASE OF MINORITY INTEREST- Effective October 29, 1996 (the
"Effective Date"), the Company amended the Subscription and Stockholders
Agreement dated as of August 1, 1995 among C21 Holding Corp., the Company and a
group of former executives of Century 21 Real Estate Corporation (the "Former
Management") pursuant to which the Company owns 87.5% of C21 Holding Corp. and
the Former Management owns 12.5% of C21 Holding Corp. Such amendment provides
for the acceleration of the Company's option to purchase the 12.5% ownership
from the Former Management at fair market value to a date which is approximately
90 days from the Effective Date, with fair market value determined as of the
Effective Date The Company is in the process of determining the fair market
value of C21 Holding Corp. and expects to complete such purchase in the first
quarter of 1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
HFS Incorporated (the "Company") provides services to various businesses in
consumer industries. The Company began 1996 as the world's largest franchisor of
lodging facilities and real estate brokerage offices. In 1996, the Company
continued to pursue its strategy of adding franchise brands to its existing
franchise infrastructure with several acquisitions, including the acquisition of
Coldwell Banker Corporation ("Coldwell Banker"), at the time the largest gross
revenue producing residential real estate company in North America and a leading
provider of relocation services. The Company expanded its consumer services
business to include the car rental industry with its October 17, 1996
acquisition of Avis, Inc. ("Avis"), which the Company believes is the second
largest car rental system in the world. On November 12, 1996, the Company
continued its expansion by acquiring Resort Condominiums International, Inc.
("RCI") which is the world's largest provider of timeshare exchange programs.
See "Liquidity and Capital Resources - Acquisitions". On November 11, 1996, the
Company entered into a definitive merger agreement with PHH Corporation ("PHH"),
pursuant to which PHH will become a subsidiary of the Company. PHH is the
world's largest provider of corporate relocation services and also provides
mortgage banking and vehicle management services. See "Liquidity and Capital
Resources - Pending Acquisition". The Company continues to pursue acquisitions
and other strategic transactions within its existing industry segments as well
as other franchise or franchisable businesses and other consumer services
businesses.
RESULTS OF OPERATIONS -- REVENUE OVERVIEW
Company revenue increased 90% ($116.6 million) to $245.8 million in the
third quarter of 1996 compared to $129.2 million in the third quarter of 1995.
Approximately $78.9 million of the increase represented incremental revenue from
the Company's real estate segment including revenue generated from the CENTURY
21(R), Electronic Realty Associates (ERA(R)) and Coldwell Banker(R) franchise
systems which were acquired in August 1995, February 1996 and May 1996,
respectively. Preferred vendor revenue also increased $10.4 million representing
a 241% increase over such revenue in the third quarter of 1995.
Company revenue increased 84% ($250.3 million) to $550.0 million during the
nine months ended September 30, 1996 compared to the same period in 1995. The
lodging and real estate segments each contributed to the revenue increase. The
real estate segment, which was not established until the third quarter of 1995,
generated $187.4 million of revenue for the nine months ended September 30, 1996
compared to $22.8 million for the same period in the prior year.
3Q96 vs. 3Q95
Lodging Franchise Fees
The royalty portion of lodging franchise fees increased $5.4 million (11%),
in the third quarter of 1996 compared to the same period in 1995. Room growth
through the sale of franchise agreements and the acquisitions of the Knights
Inn(R) and Travelodge(R) franchise systems in August 1995 and January 1996,
respectively, contributed to the increase. Excluding these acquisitions, the
Company added 24,859 rooms, net of terminations, during the twelve months ended
September 30, 1996.
<PAGE>
Real Estate Franchise Fees
The real estate segment contributed $74.4 million of franchise fees for the
third quarter of 1996 including $36.6 million from the CENTURY 21 franchise
system, acquired in August 1995, $5.6 million from the ERA franchise system,
acquired on February 12, 1996 and $32.2 million from the Coldwell Banker
franchise system, acquired on May 31, 1996. Franchise fees of acquired real
estate segment franchise systems increased $54.9 million for the quarter ended
September 30, 1996 compared to the same period in 1995, due to such real estate
segment acquisitions.
Other
Other revenue is primarily comprised of revenue from preferred vendor
arrangements and relocation service revenue. Preferred vendor fees consist of
revenue generated from vendors seeking access to the Company's franchisees and
franchisees' customers. Preferred vendor revenue increased $10.4 million (241%)
from the third quarter of 1995 to the third quarter of 1996. The Company
acquired relocation service businesses in connection with the acquisitions of
the CENTURY 21, ERA and Coldwell Banker franchise systems. Relocation service
fees approximated $28.9 million in the third quarter of 1996, compared to $3.7
million in the third quarter of 1995, including $25.0 million from Coldwell
Banker Relocation Services, Inc., ("CBRS") acquired by the Company on May 31,
1996.
Year-to-date 1996 vs. 1995
Lodging Franchise Fees
Lodging segment franchise fees and the royalty portion of franchise fees
increased $30.1 million (12%) and $17.4 million (15%), respectively, in the nine
months ended September 30, 1996 compared to the same period in 1995. The
increase in lodging segment franchise fees is primarily attributable to room
growth through the sale of franchise agreements and the acquisition of the
Knights Inn and Travelodge franchise systems.
Real Estate Franchise Fees
The real estate segment contributed $148.4 million of franchise fees for
the nine months ended September 30, 1996 including approximately $91.3 million,
$13.4 million and $43.7 million from the Century 21, ERA and Coldwell Banker
franchise systems, respectively. Franchise fees of the aforementioned acquired
real estate segment franchise systems increased $128.9 million for the nine
months ended September 30, 1996 compared to the same period in 1995 due to such
real estate segment acquisitions.
Other
Other revenue is substantially comprised of fees from preferred vendor
arrangements, which increased $26.6 million (200%) from the first nine months of
1995 to the same period in 1996 and relocation services fees of $44.1 million
from businesses acquired in connection with the Company's real estate segment
acquisitions, including $32.7 million from CBRS.
<PAGE>
RESULTS OF OPERATIONS - EXPENSES AND INCOME
3Q96 vs 3Q95
Income before income taxes for the third quarter of 1996 increased $55.5
million (120%) over the same period in 1995 as a result of the increase in
revenue for such period discussed above in "Results of Operations - Revenue
Overview", net of a $61.0 million (74%) increase in expenses.
Marketing and reservation expenses increased $11.1 million (25%) compared
to the same period in 1995. This increase includes a $9.2 million increase in
marketing fees from franchised lodging properties, $5.1 million of which is
attributable to the acquisition of Travelodge and a $1.9 million increase in
contributions by the Company to the CENTURY 21 National Advertising Fund
("NAF"), a dedicated advertising fund for national and local marketing. Century
21 Real Estate Corporation ("Century 21") is contractually obligated to
contribute 10% of net service fees received to the NAF.
Selling, general and administrative expenses ("SG&A") increased $18.4
million for the third quarter of 1996 over the comparable period in 1995,
primarily as a result of $15.7 million of incremental expenses attributable to
the recently acquired real estate segment operations.
Depreciation and amortization for the third quarter of 1996 increased $9.3
million when compared to the same period in 1995, which increase is primarily
attributable to amortization of fixed assets, franchise agreements and excess of
cost over fair value of net assets acquired ("goodwill") in connection with the
acquisitions of the CENTURY 21, Coldwell Banker, ERA and Travelodge franchise
systems and the Century 21 non-owned regions.
Interest expense for the third quarter of 1996 increased $1.6 million as a
result of the issuance of $240 million 4 3/4% Convertible Senior Notes ("4 3/4%
Notes") in February 1996. The increase in interest expense was offset in part by
the decrease in the Company's weighted average effective interest rate from 6.7%
in the third quarter 1995 to 5.6% in the third quarter of 1996 as a result of
the issuance of the 4 3/4% Notes. Outstanding borrowings at September 30, 1996
were substantially comprised of fixed rate debt securities.
Other expenses increased $20.7 million in the third quarter of 1996
compared to the same quarter of 1995, corresponding to a $45.9 million increase
in related revenue. Other expenses include $17.4 million of relocation services
expenses associated with the Company's 1995 and 1996 real estate franchise
system acquisitions.
Year-To-Date 1996 vs. 1995
Income before income taxes increased $104.1 million (103%) for the nine
months ended September 30, 1996 versus the comparable period in 1995. This
increase resulted from the increase in revenue for such period as discussed
above in "Results of Operations -Revenue Overview" net of a $146.2 million (74%)
increase in expenses.
SG&A increased $64.5 million for the nine months ended September 30, 1996
over the comparable period in 1995, primarily as a result of $57.8 million of
incremental expenses attributable to real estate segment operations including
the CENTURY 21, ERA and Coldwell Banker franchise systems following their
respective acquisitions. Included in real estate segment SG&A expenses is a $7.0
million restructuring charge related primarily to the contribution to the Trust.
The $19.9 million increase in marketing and reservation expenses includes a
$13.1 million increase in marketing fees from franchised lodging properties,
$10.0 million of which is attributable to the acquisition of Travelodge, and a
$6.8 million contractual contribution by Century 21 to the NAF.
<PAGE>
Depreciation and amortization for the nine months ended September 30, 1996
increased $19.4 million when compared to the same period in 1995. This increase
is primarily attributable to amortization of fixed assets, franchise agreements
and goodwill in connection with the acquisitions of the CENTURY 21, Coldwell
Banker, ERA, Knights Inn(R) and Travelodge franchise systems; the Century 21
non-owned regions and Central Credit, Inc.
Interest expense for the nine months ended September 30, 1996 increased
$5.9 million due to the issuance of the 4 3/4% Notes in February 1996. Interest
expense was offset in part by the decrease in the Company's weighted average
effective interest rate from 6.0% in the first nine months of 1995 to 5.7% in
the nine months ended September 30, 1996 as a result of the issuance of the 4
3/4% Notes.
The $36.5 million increase in other expenses for the nine months ended
September 30, 1996 compared to the same period in 1995, corresponds to the $91.2
million increase in other revenue. The increase includes $27.5 million of
relocation expenses generated by the relocation services businesses acquired in
the real estate franchise system acquisitions.
Pro Forma Results of Operations
Pro forma net income increased $58.3 million (43%) for the nine months
ended September 30, 1996 over the comparable pro forma 1995 period. The increase
results from a $158.5 million increase in revenue with a corresponding increase
in total expenses of only $59.2 million. The revenue increase is primarily
attributable to increases in: combined lodging and real estate franchise fees of
$36.0 million (8%), relocation service fees of $11.6 million (17%), timeshare
revenue of $27.4 million (13%), net rental car operations of $64.6 million (97%)
and reported preferred vendor revenue of $26.6 million (200%). Pro forma revenue
does not reflect potential revenue enhancements which may be realized from
preferred vendors seeking access to the Company's newly acquired franchise
systems. The increase in lodging segment franchise fees is attributable
primarily to system growth during periods of Company ownership. The increase in
real estate segment franchise fees is a result of increased gross commission
revenue from franchised brokerage offices. The increase in net rental car
operations is primarily due to industry growth and an increase in market share.
Increases in relocation revenue are directly attributable to increased services
provided to relocating employees and the timeshare revenue increase is due to
increased timeshare members and related timeshares exchanges.
LIQUIDITY AND CAPITAL RESOURCES
Pending Acquisition
On November 10 1996, the Company entered into a definitive merger agreement
(the "Merger Agreement") pursuant to which the Company will issue $1.7 billion
of Company common stock in exchange for all of the outstanding common stock of
PHH. Pursuant to the terms of the Merger Agreement, the number of Company shares
to be issued may range from 21.3 million to 28.7 million, based upon the average
share price of the Company's common stock over a period of 20 trading days
ending five days prior to the date of the vote by PHH shareholders on approval
of the transaction. PHH is the world's largest provider of corporate relocation
services and also provides mortgage banking and vehicle management services.
Consummation of the transaction is subject to customary regulatory approvals and
the approval of the shareholders of each company. The transaction is expected to
close in early 1997.
<PAGE>
Acquisitions
RCI - On November 12, 1996, the Company completed the acquisition of all
the outstanding capital stock of Resort Condominiums International, Inc. and its
affiliates ("RCI") for approximately $625 million comprised of $550 million in
cash and $75 million of Company common stock plus future contingent payments of
up to $200 million over the next five years.
RCI, based in Indianapolis Indiana, is the world's largest provider of
timeshare exchange programs, providing services for approximately two million
timeshare owners and approximately 3,000 resorts around the world. RCI is also
engaged in publishing related to the timeshare industry and provides other
travel-related services, integrated software systems and resort management and
consulting services.
AVIS - On October 17, 1996, the Company completed the acquisition of all of
the outstanding capital stock of Avis Inc. ("Avis"), including payments under
certain employee stock plans of Avis and the redemption of certain series of
preferred stock of Avis for $806.5 million. The purchase price was comprised of
approximately $367.2 million in cash, $100.9 million in indebtedness and $338.4
million (approximately 4.6 million shares) in Company common stock.
Avis, together with its subsidiaries, licensees and affiliates, operates
the Avis System, which the Company believes to be the second largest car rental
system in the world.
Prior to the consummation of the acquisition, the Company announced that it
would dispose of a majority interest in the corporation which owns all
company-owned Avis car rental locations (the "Operating Company") through an
initial public offering of the common stock of the Operating Company during
1997. The Operating Company will license the Avis trademark from the Company in
return for a license fee based on a percentage of the Operating Company revenue.
COLDWELL BANKER - On May 31, 1996, the Company acquired by merger Coldwell
Banker (the "Merger") for $640 million of cash plus repayment of approximately
$105 million of indebtedness. At the effective date of the Merger, Coldwell
Banker had 2,164 franchised brokerage offices and owned 318 residential real
estate brokerage offices ("Owned Brokerage Business") in the United States,
Canada and Puerto Rico, representing the third largest real estate brokerage
system in the United States.
The Company financed the Coldwell Banker transaction with approximately
$1.2 billion of proceeds from a public offering of approximately 19.4 million
common shares (the "Offering") in the second quarter of 1996. Immediately
following the closing of the Merger, the Company conveyed the Owned Brokerage
Business to a newly created independent trust (the "Trust"). The Company
recorded a $7 million pre-tax restructuring charge related primarily to the
contribution of the Owned Brokerage Business to the Trust.
CENTURY 21 NON-OWNED REGIONS - During the second quarter of 1996, the
Company completed the acquisition of the six U.S. Century 21 regions which were
licensed to four independent master licensees. The aggregate purchase price
consisted of approximately $96 million of cash, $5 million of notes and $46
million (approximately 0.9 million shares) of the Company's common stock. These
regions represent more than 1,000 CENTURY 21 franchised real estate offices in
the United States and the acquisitions result in the Company receiving royalty
fees of up to 6% of franchisee gross commissions generated by such offices
compared to less than 1% previously received under the master licensing
agreements. The cash portion of the aggregate purchase price was financed with
proceeds from the issuance of the 4 3/4% Notes.
<PAGE>
ERA - On February 12, 1996, the Company purchased substantially all of the
assets comprising the ERA residential real estate brokerage franchise system for
approximately $40.5 million which was financed by borrowings under the Company's
revolving credit facility.
CENTURY 21 - On August 1, 1995, a majority-owned Company subsidiary, C21
Holding Corp. ("Holding"), acquired Century 21 from Metropolitan Life Insurance
Company ("MetLife") for an aggregate purchase price of $245 million plus
expenses. In February 1996, the Company paid the $30 million contingent portion
of the purchase price of Century 21 and redeemed $80 million of Century 21
redeemable preferred stock issued to MetLife prior to the acquisition. The
Company financed these payments with proceeds from the 4 3/4% Notes.
Effective October 29, 1996 (the "Effective Date"), the Company amended the
Subscription and Stockholders Agreement dated as of August 1, 1995 among C21
Holding Corp., the Company and a group of former executives of Century 21 Real
Estate Corporation (the "Former Management") pursuant to which the Company owns
87.5% of C21 Holding Corp. and the Former Management owns 12.5% of C21 Holding
Corp. Such amendment provides for the acceleration of the Company's option to
purchase the 12.5% ownership from the Former Management at fair market value to
a date which is approximately 90 days from the Effective Date, with fair market
value determined as of the Effective Date The Company is in the process of
determining the fair market value of C21 Holding Corp. and expects to complete
such purchase in the first quarter of 1997.
TRAVELODGE - On January 23, 1996, the Company purchased the assets
comprising the Travelodge hotel franchise system in North America, including the
Travelodge and Thriftlodge(R) service marks and franchise agreements, from Forte
Hotels, Inc. ("FHI") for $39.3 million. The Company financed the acquisition
with borrowings under its revolving credit facility and repaid the borrowings
with proceeds from the 4 3/4% Notes.
Concurrent with the Company's acquisition of the Travelodge franchise
system, Motels of America, Inc., through a wholly owned subsidiary (collectively
"MOA"), purchased 20 Travelodge motels from FHI for $32.3 million. MOA, a
significant Company franchisee, entered into twenty year Travelodge franchise
agreements. The Company financed $10 million of MOA's purchase price under a $10
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, Chartwell Leisure, Inc. ("CHRT") formerly National Lodging
Corp. a former wholly owned Company subsidiary which was distributed to the
Company sharesholders in November 1994, purchased all of the common stock of FHI
for $98.4 million. FHI owned or had an interest in 112 hotel and motel
properties at the acquisition date. In connection with CHRT's acquisition, the
Company guaranteed $75 million of CHRT borrowings under a $125 million revolving
credit facility entered into by CHRT with certain banks. The Company is paid a
guarantee fee of 2% per annum of outstanding guarantee commitment by the Company
pursuant to a Financing Agreement.
Concurrent with the acquisition of the Travelodge franchise system and
CHRT's acquisition of FHI, the marketing and advisory agreements between the
Company and CHRT 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. CHRT paid a $2.0 million advisory fee to the Company in connection with
CHRT's acquisition of FHI.
<PAGE>
Financing
The Company believes that it has excellent liquidity and access to
liquidity through various sources. The Company has generated significant
positive cash flow from operations in every quarter since its public offering in
December 1992. The Company has also demonstrated its ability to access equity
and public debt markets and financial institutions to generate capital for
strategic acquisitions. Indicative of the Company's creditworthiness, Standard &
Poors Corporation and Duff and Phelps assigned an "A" credit rating to the
Company's $540 million of publicly issued debt. The Company generated $139.4
million of cash flow from operations during the nine months ended September 30,
1996, representing a $55.1 million (65%) increase from the nine months ended
September 30, 1995.
On October 2, 1996, the Company replaced an existing $300 million revolving
credit facility with a $1 billion of revolving credit facilities consisting of
(i) a $500 million, five year revolving credit facility (the "Five Year Credit
Facility") and (ii) a $500 million, 364 day revolving credit facility (the "364
Day Revolving Credit Facility" (collectively the "Revolving Credit Facilities").
The Company may renew the 364 Day Revolving Credit Facility on an annual basis
for an additional 364 days up to a maximum aggregate term of five years upon
receiving lender approval. The Revolving Credit Facilities, at the option of the
Company, bear interest based on competitive bids of lenders participating in the
facilities, at the prime rate or at LIBOR plus a margin approximating 25 basis
points.
The Company completed an offering of 19.4 million shares of common stock in
the second quarter of 1996 which yielded net proceeds to the Company after
expenses of approximately $1.2 billion. Approximately $ 755 million of the
proceeds were used to finance the acquisition of Coldwell Banker and $75 million
was used to repay outstanding borrowings under the Company's existing credit
facility. The remaining $331 million of proceeds were used as partial
consideration for the October 17, 1996 acquisition of Avis.
The Company filed a shelf registration statement with the Securities and
Exchange Commission effective August 29, 1996, for the aggregate issuance of up
to $1 billion of debt and equity securities. These securities may be offered
from time to time, together or separately, based on terms to be determined at
the time of sale. The proceeds may be used for general corporate purposes, which
may include future acquisitions.
Working capital at September 30, 1996 approximated $443 million including
the remaining $331 million of excess proceeds from the Offering. Excluding the
excess proceeds of the Offering, working capital increased $68 million at
September 30, 1996 from December 31, 1995. The increase in working capital is
attributable to cash generated from operations and the seasonal increase in
lodging segment royalty receivables. Additionally, included in working capital
at September 30, 1996 is $136 million in relocation receivables relating to the
Company's relocation services business acquired as part of the acquisitions of
Century 21 and Coldwell Banker. Outstanding relocation receivables are
guaranteed by client corporations and accordingly are, in the opinion of the
Company, subject to minimal risk.
Long-term debt consists of $540 million of publicly issued debt including
the 4 3/4% Notes, $150 million of 4 1/2% convertible senior notes due 1999 and
$150 million of 5 7/8% senior notes due December 1998. Interest on the publicly
issued debt is paid semi-annually. Long-term debt increased from $300.8 million
at December 31, 1995 to $541.6 million at September 30, 1996, due to the
issuance of the 4 3/4% Notes. The weighted average stated interest rate on
long-term debt at September 30, 1996 was 5.0% compared to the weighted average
stated interest rate of 5.2% at December 31, 1995.
<PAGE>
On October 17, 1996, the acquisition date, Avis had $2.5 billion of
outstanding borrowings associated with Avis fleet and other financing
arrangements with banks, vehicle manufacturer finance companies and other
financial institutions with a weighted average interest rate of approximately
6.3%. Avis may borrow up to $4 billion on such facilities. Approximately $2.2
billion of available borrowings are secured by Avis' fleet of vehicles and are
non-recourse to the Company. The remaining available borrowings are unsecured.
The most significant Avis financing arrangement is a $2.5 billion, 364-day
revolving credit facility which bears interest at LIBOR plus 0.63%.
Capital expenditures approximating $23.6 million during the nine months
ended September 30, 1996 consisted of approximately $14.7 million of software
development and the acquisition of computer equipment primarily associated with
a new transactional data base and reporting system for the real estate segment
and $3.2 million of additions and modifications to the hotel brands' central
reservation systems, which will be reimbursed by collections of reservation fees
from the Company's lodging franchisees. Also included in capital expenditures is
$5.7 million of improvements principally associated with the purchase of a
building in 1995, which is now the Company's new headquarters.
The Company believes that based upon its analysis of its financial
position, its cash flow during the past twelve months and the expected results
of operations in the future, operating cash flow, available funding under the
revolving credit facility and issuances of securities in the capital markets, if
appropriate, will be adequate to fund operations, investments and acquisitions
for the next twelve months.
<PAGE>
ITEM 5. OTHER INFORMATION
HFS Incorporated And Subsidiaries
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma consolidated balance sheet as of September 30, 1996 is
presented as if (i) the acquisition of Avis, Inc. ("Avis") and issuance of
Company common stock (the "Avis Offering") as partial consideration for Avis
and; (ii) the acquisition of Resort Condominiums International, Inc. and its
affiliates ("RCI") and the issuance of Company common stock as partial
consideration for RCI occurred on September 30, 1996. The Company intends to
undertake an initial public offering of a majority interest in the corporation
which owns all company-owned Avis car rental locations (the "Operating Company")
in 1997 and to enter into franchise, information technology and other agreements
to provide services to the Operating Company based on terms to be determined.
Accordingly, the pro forma financial statements reflect the acquired net assets
and results of operations of the Avis rental car operating subsidiary intended
to be sold as "Investment in car rental operating company-net" and "other
revenue", respectively.
The pro forma statements of operations for the nine months ended September
30, 1996 and 1995 are presented as if the acquisitions of Avis and RCI and the
following transactions had occurred on January 1, 1995: (i) the May 31, 1996
acquisition of the common stock of Coldwell Banker Corporation ("Coldwell
Banker") and the related contribution of Coldwell Banker's owned real estate
brokerage offices (the "Owned Brokerage Business") to a newly created
independent trust (the "Trust") (the "Coldwell Banker Transaction"); (ii) the
receipt of proceeds from an offering of the Company's common stock (the "Second
Quarter 1996 Offering") to the extent necessary to fund (a) the acquisition of
Coldwell Banker and the related repayment of indebtedness and acquisition
expenses; and (b) the cash consideration portion in the Avis acquisition (iii)
the acquisitions of: the six non-owned Century 21 regions ("Century 21 NORS")
during the second quarter of 1996, the Travelodge franchise system
("Travelodge") on January 23, 1996 and the Electronic Realty Associates
franchise system ("ERA") on February 12, 1996 (collectively, the "Other 1996
Acquisitions"); and (iv) the February 22, 1996 issuance of $240 million of 4
3/4% convertible senior notes due 2003 to the extent such proceeds were used to
finance the Other 1996 Acquisitions. The pro forma statement of operations for
the nine months ended September 30, 1995 is also presented as if the August 1,
1995 acquisition of Century 21 and the acquisition by merger (the "CCI Merger")
in May 1995 of Casino & Credit Services, Inc's gambling patron credit
information business, Central Credit Inc. ("CCI") had occurred on January 1,
1995.
The acquisitions are accounted for using the purchase method of accounting.
Accordingly, assets acquired and liabilities assumed are 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 statements of operations, the pro forma consolidated statements of
operations do 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.
<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 Statements of Operations and should be read in conjunction
therewith and with (i) the consolidated financial statements and related notes
of the Company included in its 1995 Annual Report on Form 10-K (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996; and (iii) the financial statements and related notes of certain of the
acquired companies previously filed in Current Reports on Form 8-K pursuant to
Regulation S-X Rule 3.05, "Financial Statements of Businesses Acquired or to be
Acquired".
<PAGE>
HFS Incorporated and Subsidiaries
PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
----------------------------------------- --------------------------
HFS (1) Avis (2) RCI Avis (A) RCI (B) Pro Forma
----------------------------------------- -------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents ............. $ 471,194 $ -- $ 89,070 $ (367,166) $ (42,198) $ 150,900
Marketable securities ................. -- -- 184,599 -- (184,599) --
Accounts & notes receivable, net 76,975 1,800 33,107 -- -- 111,882
Relocation receivables ................ 136,052 -- -- -- -- 136,052
Marketing and reservation
receivables, net .................... 36,200 -- -- -- -- 36,200
Other current assets .................. 22,625 1,881 22,836 -- -- 47,342
Deferred income taxes ................. 36,456 -- -- -- -- 36,456
----------- ----------- ----------- ----------- ----------- -----------
Total current assets .................... 779,502 3,681 329,612 (367,166) (226,797) 518,832
----------- ----------- ----------- ----------- ----------- -----------
Property and equipment-net .............. 106,233 33,828 87,785 58,172 (45,000) 241,018
Franchise agreements-net ................ 594,415 -- -- -- -- 594,415
Excess of cost over fair value of
net assets acquired-net ............... 1,339,836 -- -- -- -- 1,339,836
Intangible assets ....................... -- 499,143 -- 127,426 541,831 1,168,400
Investment in car rental
operating company-net ................. -- (127,384) -- 202,384 -- 75,000
Deferred income taxes-net ............... -- -- -- 5,200 56,000 61,200
Other assets ............................ 80,064 59,633 40,936 (9,614) (33,203) 137,816
----------- ----------- ----------- ----------- ----------- -----------
Total ................................... $ 2,900,050 $ 468,901 $ 458,333 $ 16,402 $ 292,831 $ 4,136,517
=========== =========== =========== =========== =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and other
accrued liabilities ................. $ 160,357 $ 1,954 $ 80,996 $ -- $ -- $ 243,307
Unearned income ....................... 24,655 -- 119,218 -- -- 143,873
Income taxes payable .................. 81,633 182 -- (182) -- 81,633
Accrued acquisition obligations ....... 40,287 -- -- 44,000 -- 84,287
Current portion of long-term debt 29,907 -- -- 100,930 -- 130,837
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities ............... 336,839 2,136 200,214 144,748 -- 683,937
----------- ----------- ----------- ----------- ----------- -----------
Long-term debt .......................... 534,264 -- 3,536 -- 285,000 822,800
Unearned income ......................... 7,299 -- 185,703 -- -- 193,002
Other non-current liabilities ........... 31,259 -- 1,711 -- -- 32,970
Deferred income taxes ................... 85,400 -- -- -- -- 85,400
Preferred Stock - Avis, Inc. ............ -- 72,416 -- (72,416) -- --
Redeemable portion of common
stock - ESOP ......................... -- 295,465 -- (295,465) -- --
Unearned compensation-ESOP .............. -- (257,751) -- 257,751 -- --
Stockholders' Equity:
Participating convertible
preferred stock ..................... -- 132,000 -- (132,000) -- --
Common stock .......................... 1,237 290 -- (244) 10 1,293
Additional paid-in capital ............ 1,705,541 220,401 16,189 117,972 58,801 2,118,904
Retained earnings ..................... 206,236 103,339 37,459 (103,339) (37,459) 206,236
Treasury stock ........................ (8,025) (102,269) -- 102,269 -- (8,025)
Net unrealized gain on available
for sale of securities .............. -- -- 13,521 -- (13,521) --
Foreign currency equity adjustment .... -- 2,874 -- (2,874) -- --
----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity .............. 1,904,989 356,635 67,169 (18,216) 7,831 2,318,408
----------- ----------- ----------- ----------- ----------- -----------
Total ................................... $ 2,900,050 $ 468,901 $ 458,333 $ 16,402 $ 292,831 $ 4,136,517
=========== =========== =========== =========== =========== ===========
(1) Certain reclassifications have been made to the historical results of HFS to conform with the Company's pro forma
classification.
(2) See Historical Consolidated Balance Sheet of Avis, Inc. as adjusted as of August 31, 1996.
</TABLE>
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED HISTORICAL BALANCE SHEET
OF AVIS, INC., AS ADJUSTED
As of August 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Historical Reclassification Avis
Avis Adjustment As Adjusted
----------------- ---------------- -----------
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents ........ $ 75,683 $ (75,683) $ --
Accounts and notes
receivable, net ................ 174,047 (172,247) 1,800
Vehicles, net .................... 2,567,517 (2,567,517) --
Due from affiliated company ...... 114,976 (114,976) --
Other current assets ............. 45,296 (43,415) 1,881
Deferred income taxes ............ 68,667 (68,667) --
----------- ----------- -----------
Total Current assets ............... 3,046,186 (3,042,505) 3,681
----------- ----------- -----------
Property and equipment-net ......... 151,854 (118,026) 33,828
Intangible assets-Avis ............. 499,143 -- 499,143
Investment in car rental
operating company-net .......... -- (127,384) (127,384)
Other assets ....................... 85,368 (25,735) 59,633
----------- ----------- -----------
Total .............................. $ 3,782,551 $(3,313,650) $ 468,901
=========== =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable and other ....... $ 444,867 $ (442,731) $ 2,136
----------- ----------- -----------
Long-term debt ..................... 2,488,651 (2,488,651) --
Public liability and property damage 215,135 (215,135) --
Due to affiliated company .......... 132,563 (132,563) --
Other non-current liabilities
Deferred income taxes ............ 34,570 (34,570) --
Preferred stock - Avis, Inc. ..... 72,416 -- 72,416
Redeemable portion of common
stock - ESOP ................... 295,465 -- 295,465
Unearned compensation-ESOP ....... (257,751) -- (257,751)
Stockholders' Equity
Participating convertible
preferred stock ................ 132,000 -- 132,000
Common stock ..................... 290 -- 290
Additional paid-in capital ....... 220,401 -- 220,401
Retained earnings ................ 103,339 -- 103,339
Treasury stock ................... (102,269) -- (102,269)
Foreign currency equity adjustment 2,874 -- 2,874
----------- ----------- -----------
Total stockholders' Equity ......... 356,635 -- 356,635
----------- ----------- -----------
Total .............................. $ 3,782,551 $(3,313,650) $ 468,901
=========== =========== ===========
Note: The reclassification adjustment made to the historical balance sheet of Avis, Inc. is to present the historical net
assets of car rental operations as "investment in car rental subsidiary-net".
</TABLE>
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1996 and 1995
(In thousands, except per share amounts)
1996 1995
--------- ---------
Revenue
Franchise ......................... $471,322 $435,344
Relocation ........................ 78,993 67,394
Timeshare ......................... 236,675 209,242
Other ............................. 212,875 129,343
-------- --------
Total revenue ................... 999,865 841,323
-------- --------
Expenses
Marketing and reservation ......... 238,606 219,395
Selling, general and administrative 217,431 179,345
Depreciation and amortization ..... 102,208 100,632
Interest .......................... 36,930 41,063
Relocation ........................ 56,281 45,733
Other ............................. 16,259 22,328
-------- --------
Total expenses .................. 667,715 608,496
-------- --------
Income before income taxes .......... 332,150 232,827
Provision for income taxes .......... 137,087 96,094
-------- --------
Net income .......................... $195,063 $136,733
======== ========
Per Share Information (fully diluted)
Net income ........................ $ 1.35 $ 1.00
======== ========
Weighted average common and common
equivalent shares outstanding ..... 147,513 140,582
======== ========
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
See notes to pro forma consolidated balance sheet and statements of
operations.
<PAGE>
<TABLE>
<CAPTION>
Historical
-----------------------
Acquired Pro Forma
HFS Companies Adjustments Pro Forma
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Franchise $ 424,162 $ 35,325 $ 11,835 (C) $ 471,322
Owned brokerage business - 235,625 (235,625) (D) -
Relocation services 44,115 34,878 - 78,993
Timeshare - 251,516 (14,841) (E) 236,675
Other 81,733 104,955 26,187 (F) 212,875
--------- --------- ---------- ---------
Total revenue 550,010 662,299 (212,444) 999,865
--------- --------- ----------- ---------
Expenses
Marketing and reservation 130,728 107,878 - 238,606
Selling, general
and administrative 110,588 161,833 (54,990) (G) 217,431
Owned brokerage - 227,363 (227,363) (D) -
Depreciation
and amortization 41,129 37,041 24,038 (H) 102,208
Interest 22,194 4,993 9,743 (I) 36,930
Relocation 29,121 28,171 (1,011) 56,281
Other 10,988 5,616 (345) 16,259
--------- --------- ----------- ---------
Total expenses 344,748 572,895 (249,928) 667,715
--------- --------- ----------- ---------
Income before income taxes 205,262 89,404 37,484 332,150
Provision for income taxes 82,630 21,904 32,553 (J) 137,087
--------- --------- ----------- ---------
Net income $ 122,632 $ 67,500 $ 4,931 $ 195,063
--------- --------- ----------- =========
Per Share Information
(fully diluted)
Net income $ 0.96 - - $ 1.35
Weighted average common and
common equivalent shares
outstanding 131,684 - 15,829 (K) 147,513
========= =========== =========
</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.
<PAGE>
HFS Incorporated and Subsidiaries
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
For the Nine Months Ended September 30, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------
Other
Avis (1) Coldwell 1996 (2) Total
As Adjusted RCI Banker (2) Acquisitions Historical
----------- ------- ------------- ------------ ----------
<S> <C> <C> <C>
Revenue
Franchise ........... $ -- $ -- $ 25,694 $ 9,631 $ 35,325
Owned brokerage
business .......... -- -- 235,625 -- 235,625
Relocation services . -- -- 34,159 719 34,878
Timeshare ........... -- 251,516 -- -- 251,516
Other ............... 99,237 -- 4,067 1,651 104,955
--------- --------- --------- --------- ---------
Total revenue ..... 99,237 251,516 299,545 12,001 662,299
--------- --------- --------- --------- ---------
Expenses
Marketing and
reservation ....... -- 106,744 -- 1,134 107,878
Selling, general and
administrative .... 20,173 74,745 57,455 9,460 161,833
Owned brokerage ..... -- -- 227,363 -- 227,363
Depreciation and
amortization ...... 14,247 13,352 9,021 421 37,041
Interest ............ -- 345 3,155 1,493 4,993
Relocation .......... -- -- 27,530 641 28,171
Other ............... -- 4,340 512 764 5,616
--------- --------- --------- --------- ---------
Total expenses .... 34,420 199,526 325,036 13,913 572,895
--------- --------- --------- --------- ---------
Income (loss) before
income taxes ........ 64,817 51,990 (25,491) (1,912) 89,404
Provision (benefit) for
income taxes ........ 29,966 2,370 (10,432) -- 21,904
--------- --------- --------- --------- ---------
Net income (loss) ..... $ 34,851 $ 49,620 $ (15,059) $ (1,912) $ 67,500
========= ========= ========= ========= =========
</TABLE>
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) The historical financial statements of operations of Avis, as adjusted, has
been adjusted to include the historical results of Avis operations intended
to be retained by the Company and the operating results of the Avis Car
rental subsidiary, included in Other Revenue. See Historical Consolidated
Statement of Operations of Avis, Inc., as Adjusted for the nine months
ended August 31, 1996.
(2) 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.
<PAGE>
HFS Incorporated and Subsidiaries
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
OF AVIS, INC., AS ADJUSTED
For the Nine Months Ended August 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Rental Car
Subsidiary Avis
Historical Adjustment As Adjusted
----------- ------------ ------------
<S> <C> <C> <C>
Revenue $ 1,490,709 $(1,391,472) $ 99,237
----------- ----------- ----------
Expenses:
Selling, general and administrative....... 975,769 (955,596) 20,173
Depreciation and amortization ............. 333,147 (318,900) 14,247
Interest .................................. 116,958 (116,958) --
Other ..................................... 18 (18) --
----------- ----------- -----------
Total expenses .......................... 1,425,892 (1,391,472) 34,420
----------- ----------- -----------
Income before income taxes .................. 64,817 -- 64,817
Provision for income taxes .................. 29,966 -- 29,966
----------- ----------- -----------
Net income .................................. $ 34,851 $ -- $ 34,851
=========== =========== ===========
</TABLE>
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
<TABLE>
<CAPTION>
Century 21
NORS (1) Travelodge (1) ERA (1) Total
--------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Franchise .......... $ 6,668 $ 688 $ 2,275 $ 9,631
Relocation ......... -- -- 719 719
Other .............. 449 -- 1,202 1,651
-------- -------- -------- --------
Total revenue .... 7,117 688 4,196 12,001
-------- -------- -------- --------
Expenses
Marketing and
reservation ...... 681 453 -- 1,134
Selling, general
and administrative 6,885 99 2,476 9,460
Depreciation
and amortization . 285 -- 136 421
Interest ........... 2 -- 1,491 1,493
Relocation ......... -- -- 641 641
Other .............. -- -- 764 764
-------- -------- -------- --------
Total expenses ... 7,853 552 5,508 13,913
-------- -------- -------- --------
Income (loss) before
income taxes ....... (736) 136 (1,312) (1,912)
Provision for
income taxes ....... -- -- -- --
-------- -------- -------- --------
Net income (loss) .... $ (736) $ 136 $ (1,312) $ (1,912)
======== ======== ======== ========
</TABLE>
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) Reflects results of operations for the period from January 1, 1996 to
the respective date of acquisition.
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
-----------------------
Acquired Pro Forma
HFS Companies Adjustments Pro Forma
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Franchise $ 265,129 $ 150,707 $ 19,508 (C) $ 435,344
Owned brokerage business - 411,795 (411,795) (D) -
Relocation services 3,733 63,661 - 67,394
Timeshare - 222,627 (13,385) (E) 209,242
Other 30,869 66,676 31,798 (F) 129,343
--------- --------- ---------- ---------
Total revenue 299,731 915,466 (373,874) 841,323
--------- --------- ----------- ---------
Expenses
Marketing and reservation 110,842 108,553 - 219,395
Selling, general
and administrative 46,117 182,182 (48,954) (G) 179,345
Owned brokerage - 393,594 (393,594) (D) -
Depreciation
and amortization 21,721 52,566 26,345 (H) 100,632
Interest 16,272 8,135 16,656 (I) 41,063
Relocation 1,583 45,969 (1,819) 45,733
Other 2,012 21,018 (702) 22,328
--------- --------- ----------- ---------
Total expenses 198,547 812,017 (402,068) 608,496
--------- --------- ----------- ---------
Income before income taxes
and extraordinary loss 101,184 103,449 28,194 232,827
Provision for income taxes 41,820 43,250 11,024 (J) 96,094
--------- --------- ---------- ---------
Income before extraordinary loss 59,364 60,199 17,170 136,733
Extraordinary loss - 2,027 (2,027) -
--------- --------- ----------- ---------
Net income $ 59,364 $ 58,172 $ 19,197 $ 136,733
========= ========= =========== =========
Per Share Information
(fully diluted)
Net income $ 0.56 $ 1.00
========= =========
Weighted average common &
common equivalent shares
outstanding 112,056 28,526 (K) 140,582
========= =========== =========
</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 statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
For the Nine Months Ended September 30, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------
Avis (1) Coldwell Other Total
As Adjusted RCI Banker Acquisitions Historical
----------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenue
Franchise $ - $ - $ 47,219 $ 103,488 $ 150,707
Owned brokerage - - 411,795 - 411,795
Relocation - - 54,469 9,192 63,661
Timeshare - 222,627 - - 222,627
Other 35,010 - 3,972 27,694 66,676
--------- -------- -------- --------- ---------
Total revenue 35,010 222,627 517,455 140,374 915,466
--------- -------- -------- --------- ---------
Expenses
Marketing and
reservation - 91,792 - 16,761 108,553
Selling, general
and administrative 7,106 62,435 25,289 87,352 182,182
Owned brokerage - - 393,594 - 393,594
Depreciation and
amortization 14,253 12,698 17,272 8,343 52,566
Interest - 402 2,958 4,775 8,135
Relocation - - 39,902 6,067 45,969
Other - 6,570 1,944 12,504 21,018
--------- -------- -------- --------- ---------
Total expenses 21,359 173,897 480,959 135,802 812,017
--------- -------- -------- --------- ---------
Income before
income taxes and
extraordinary loss 13,651 48,730 36,496 4,572 103,449
Provision for
income taxes 21,644 1,940 16,422 3,244 43,250
--------- -------- -------- --------- ---------
Income (loss) before
extraordinary loss (7,993) 46,790 20,074 1,328 60,199
Extraordinary loss - - 2,027 - 2,027
--------- -------- -------- --------- ---------
Net income (loss) $ (7,993) $ 46,790 $ 18,047 $ 1,328 $ 58,172
========= ======== ======== ========= =========
</TABLE>
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) The historical financial statement of operations of Avis, as adjusted,
has been adjusted to present only the historical results of operations intended
to be retained by the Company. See Historical Consolidated Statement of
Operations of Avis, Inc., as Adjusted, for the six months ended August 31, 1996.
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
HFS Incorporated and Subsidiaries
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
OF AVIS, INC. AS ADJUSTED
For the Nine Months Ended August 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Rental Car
Subsidiary Avis
Historical Adjustment As Adjusted
------------ ------------- -------------
<S> <C> <C> <C>
Revenue ................................... $ 1,190,189 $(1,155,179) $ 35,010
----------- ----------- -----------
Expenses:
Selling, general & administrative 766,509 (759,403) 7,106
Depreciation & amortization ............. 304,339 (290,086) 14,253
Interest ................................ 105,379 (105,379) --
Other ................................... 311 (311) --
----------- ----------- -----------
Total expenses ........................ 1,176,538 (1,155,179) 21,359
----------- ----------- -----------
Income before income taxes ................ 13,651 -- 13,651
Provision for income taxes ................ 21,644 -- 21,644
----------- ----------- -----------
Net income ................................ $ (7,993) $ -- $ (7,993)
=========== =========== ===========
</TABLE>
See notes to pro forma consolidated balance sheet and statements of operations.
<PAGE>
<TABLE>
<CAPTION>
Century Century 21
CCI (1) 21 (1) NORS Travelodge ERA Total
-------- --------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Franchise ................. $ -- $ 53,992 $ 20,750 $ 13,476 $ 15,270 $103,488
Relocation ................ -- 6,514 -- -- 2,678 9,192
Other ..................... 3,326 10,164 288 59 13,857 27,694
-------- -------- -------- -------- -------- --------
Total revenue ........... 3,326 70,670 21,038 13,535 31,805 140,374
-------- -------- -------- -------- -------- --------
Expenses:
Marketing and
reservation ............. -- 5,128 2,082 9,551 -- 16,761
Selling, general
& administrative ........ -- 47,232 16,339 1,952 21,829 87,352
Depreciation &
amortization ............ 529 5,217 413 6 2,178 8,343
Interest .................. -- 2,904 38 -- 1,833 4,775
Relocation ................ -- 4,881 -- -- 1,186 6,067
Other ..................... 1,917 2,751 -- -- 7,836 12,504
-------- -------- -------- -------- -------- --------
Total expenses .......... 2,446 68,113 18,872 11,509 34,862 135,802
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes .............. 880 2,557 2,166 2,026 (3,057) 4,572
Provision for income taxes 313 2,097 -- 834 -- 3,244
-------- -------- -------- -------- -------- --------
Net income (loss) ........... $ 567 $ 460 $ 2,166 $ 1,192 $ (3,057) $ 1,328
======== ======== ======== ======== ======== ========
</TABLE>
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform with the Company's classification.
(1) Reflects results of operations for the period from January 1, 1995 to the
respective dates of acquisition.
See notes to pro forma consolidated balance sheet and statement of operations.
<PAGE>
HFS Incorporated and Subsidiaries
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF OPERATIONS
A. Acquisition of Avis:
The purchase price for Avis has 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 acquired Avis for the following consideration ($000's):
Cash consideration (i) $ 367,166
Issuance of approximately 4.6 million shares of Company
common stock 338,419
Issuance of note to ESOP 100,930
----------
Total pro forma acquisition cost 806,515
----------
Fair value of net assets acquired:
Historical book value of acquired company 356,635
Elimination of net assets (liabilities) not acquired or assumed:
Other assets (9,614)
Preferred stock - Avis 72,416
Intangible assets - Avis (499,143)
Redeemable portion of common stock - ESOP 295,465
Unearned compensation - ESOP (257,751)
Fair value adjustments to assets acquired and liabilities assumed:
Deferred income tax asset, net (ii) 5,200
Property and equipment 58,172
Investment in car rental operating company 202,384
Accrued acquisition obligations (44,000)
Other 182
----------
Fair value of identifiable net assets acquired 179,946
----------
Intangible assets-Avis (iii) $ 626,569
==========
(i) The cash consideration of the pro forma acquisition cost was financed
by the Second Quarter 1996 Offering.
(ii) The pro forma adjustment to deferred income taxes recorded in
connection with the acquisition results from differences in the fair values of
assets acquired and liabilities assumed and their respective income tax bases.
(iii) The Company has not completed the valuation of identifiable
intangible assets.
<PAGE>
A. Acquisition of Avis (continued)
The pro forma adjustments include the elimination of Avis stockholders'
equity and the issuance of approximately 4.6 million shares of the Company's
common stock to finance the acquisition.
<TABLE>
<CAPTION>
Stockholders' Equity
---------------------------------------------
Issuance of Elimination of Adjustment to
Company Stockholders' Stockholders'
Common Stk. Equity Equity
------------ -------------- -------------
<S> <C> <C> <C>
Participating convertible preferred stock $ -- $ 132,000 $(132,000)
Common stock ............................ 46 290 (244)
Additional paid-in capital .............. 338,373 220,401 117,972
Retained earnings ....................... -- 103,339 (103,339)
Treasury stock .......................... -- (102,269) 102,269
Foreign currency equity adjustment ...... -- 2,874 (2,874)
--------- --------- ---------
$ 338,419 $ 356,635 $ (18,216)
========= ========= =========
</TABLE>
B. Acquisition of RCI
The purchase price for RCI has 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 acquired RCI for the following consideration ($000's):
Cash (i) $ 265,000
Borrowings under the
Company's Revolving
Credit Facilities 285,000
Issuance of approximately
one million shares of
Company common stock (ii) 75,000
-----------
Total pro forma acquisition cost $ 625,000
Fair value of net assets acquired
is as follows:
Historical book value of RCI $ 67,169
Fair value adjustments to assets acquired
and liabilities assumed:
Property and equipment (45,000)
Other non-current assets 5,000
Deferred income taxes - non -current (iii) 56,000
-----------
Fair value of net assets acquired 83,169
----------
Intangible assets - RCI (iv) $ 541,831
==========
(i) Cash consideration is comprised of $185 in marketable securities and $38
million in notes not acquired and $42 million of acquired RCI cash.
(ii) The
number of shares of Company common stock issued in connection with the
acquisition was calculated using a $75.0375 per share stock price.
(iii) The proforma adjustment to deferred income taxes recorded in the fair
value of unearned income liabilities assumed and the respective income tax
basis.
(iv) The Company has not completed the valuation of identifiable intangible
assets.
<PAGE>
B. Acquisition of RCI (continued)
<TABLE>
<CAPTION>
Stockholders' Equity
--------------------------------------------------
Issuance of Elimination of Adjustment to
Company Stockholders' Stockholders'
Common Stk. Equity Equity
------------ -------------- -------------
<S> <C> <C> <C>
Common stock ....................... $ 10 $ -- $ 10
Additional paid-in capital ......... 74,990 (16,189) 58,801
Retained earnings .................. -- (37,459) (37,459)
Net unrealized gain on available for
sale of securities ............. -- (13,521) (13,521)
-------- -------- --------
$ 75,000 $(67,169) $ 7,831
======== ======== ========
</TABLE>
The pro forma adjustments include the elimination of RCI stockholders'
equity and the issuance of approximately one million shares of the Company's
common stock as partial consideration for RCI.
C. 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 with owned brokerage offices upon contribution of the Owned
Brokerage Business to the Trust. Pro forma adjustments to franchise revenue
consists of the following:
For the Nine Months Ended
September 30,
1996 1995
---------- -----------
Eliminate:
Discontinued operations ........................... $ -- $ (34)
Century 21 revenue included as Century 21 NORS SG&A (1,003) (3,375)
Add:
Franchise fees from Owned Brokerage Business ...... 12,838 22,917
-------- --------
Total ................................................ $ 11,835 $ 19,508
======== ========
D. Owned brokerage revenue and expenses:
The pro forma adjustments reflect the elimination of revenue and expenses
for Coldwell Banker's 318 formerly owned brokerage offices. The Company
contributed the net assets of the Owned Brokerage Business to the Trust upon
consummation of the Coldwell Banker acquisition. The free cash flow of the Trust
will be expended at the discretion of the trustees to enhance the growth of
funds available for advertising and promotion.
E. Timeshare revenue
The pro forma adjustment reflects the elimination of timeshare revenue
associated with investment income generated from RCI cash and marketable
securities which were used by the Company as partial consideration for the
RCI acquisition.
<PAGE>
F. Other revenue
The pro forma adjustment is comprised of the following:
For the Nine Months Ended
Adjustments to Rental Car Operations: September 30,
1996 1995
-------- --------
Elimination of historical expense associated with:
Long-term incentive compensation plans .............. $ 9,302 $ --
Unfavorable vehicle leases .......................... 15,488 30,478
Depreciation and amortization ....................... 26,120 23,208
Addition of pro forma expenses associated with:
Depreciation and amortization of property, equipment
and other intangibles ................................ (17,174) (17,174)
Increased financing costs ............................... (1,549) (4,714)
-------- --------
Total adjustments to rental car operations .............. 32,187 31,798
Other Adjustment:
Elimination of historical interest income related to
cash consideration portion of Avis Acquisition (i) ... (6,000) --
-------- --------
Total ................................................... $ 26,187 $ 31,798
======== ========
(i) The pro forma adjustment eliminates historical interest income on the
portion of cash generated from the Second Quarter 1996 Offering which was used
as consideration in the Avis Acquisition.
G. Selling, general and administrative expense:
The pro forma adjustments eliminate redundant costs associated with the
restructuring of franchise services and other businesses and the resulting
termination of certain functions and positions in connection with company
acquisitions. Adjustments are comprised of the following ($000's):
For the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
Coldwell Century 21
RCI Banker NORS Travelodge ERA Total
-------- -------- ---------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Payroll and related ...................... $ 880 $ 4,451 $ 2,425 $ 25 $ 222 $ 8,003
Stock option expense ..................... -- 40,801 -- -- -- 40,801
Professional ............................. 750 1,055 705 4 -- 2,514
Occupancy ................................ -- -- 604 4 102 710
Franchise fees (Note B) .................. -- -- 1,003 -- -- 1,003
Other .................................... 1,333 (604) 1,069 4 157 1,959
-------- -------- -------- -------- -------- --------
Total .................................... $ 2,963 $ 45,703 $ 5,806 $ 37 $ 481 $ 54,990
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
For the nine months ended September 30, 1995:
<TABLE>
<CAPTION>
Century Coldwell Century 21
21 RCI Banker NORS Travelodge ERA Total
------- ------- -------- ---------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Payroll and related ... $10,885 $ 914 $ 8,011 $ 5,354 $ 502 $ 1,526 $27,192
Professional .......... 2,693 750 1,573 1,063 70 -- 6,149
Occupancy ............. 3,628 -- -- 1,944 84 666 6,322
Franchise fees (Note B) -- -- -- 3,375 -- -- 3,375
Other ................. 3,128 1,275 (1,072) 1,528 74 983 5,916
------- ------- ------- ------- ------- ------- -------
Total ................. $20,334 $ 2,939 $ 8,512 $13,264 $ 730 $ 3,175 $48,954
======= ======= ======= ======= ======= ======= =======
</TABLE>
H. Depreciation and amortization:
The pro forma adjustment for depreciation and amortization is comprised of
($000's):
For the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
Coldwell Other 1996
RCI Avis Banker Acquisitions Total
-------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Elimination of historical
expense ............. $(13,352) $(14,247) $ (9,021) $ (421) $(37,041)
Property, equipment &
furniture & fixtures 3,467 9,300 540 -- 13,307
Intangible assets ....... 20,285 15,246 10,775 1,466 47,772
-------- -------- -------- -------- --------
Total ................... $ 10,400 $ 10,299 $ 2,294 $ 1,045 $ 24,038
======== ======== ======== ======== ========
</TABLE>
For the nine months ended September 30, 1995:
<TABLE>
<CAPTION>
CCI Century Coldwell Other 1996
Merger 21 RCI Avis Banker Acquisitions Total
--------- --------- -------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Elimination of historical
expense ............... $ (529) $ (5,217) $(12,698) $ (14,253) ($(17,272) $ (2,597) $(52,566)
Property, equipment &
furniture and fixtures 100 534 3,467 9,300 972 -- 14,373
Information data base ... 375 -- -- -- -- -- 375
Intangible assets ....... 289 3,669 20,285 15,246 19,408 5,266 64,163
-------- -------- -------- -------- -------- -------- --------
Total ................... $ 235 $ (1,014) $ 11,054 $ 10,293 $ 3,108 $ 2,669 $ 26,345
======== ======== ======== ======== ======== ======== ========
</TABLE>
CCI Merger
The estimated fair values of CCI's information data base, property and
equipment and excess of cost over fair value of net assets acquired are $7.5
million, $1.0 million and $33.8 million, respectively, and are amortized on a
straight-line basis over the periods to be benefited which are ten , five and
forty years, respectively. The benefit periods associated with the excess cost
over fair value of net assets acquired were determined based on CCI's position
as the dominant provider of gambling patron credit information services since
1956, its ability to generate operating profits and expansion of its customer
base and the longevity of the casino gaming industry.
<PAGE>
Century 21
The estimated fair values of Century 21 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.
RCI
The fair value of RCI's property and equipment is estimated at
approximately $37 million and is amortized on a straight line basis over the
estimated useful lives, ranging from seven to thirty years.
RCI's intangible assets consist of customer lists and excess of cost over
fair value of net assets acquired. The estimated fair value of such intangible
assets is approximately $542 million and is amortized on a straight-line basis
over the periods to be benefited. The excess of cost over fair value of net
assets acquired was determined to have a benefit period of forty years, which
was based on RCI being a leading provider of services to the timeshare industry,
which includes being the world's largest provider of timeshare exchange
programs.
Avis
The estimated fair value of Avis' property and equipment intended to be
retained by the Company, is $92 million, comprised primarily of a reservation
system and related assets. Such property and equipment is amortized on a
straight-line basis over the estimated benefit periods ranging from five to
eight years. The estimated fair values of Avis' intangible assets, comprised
principally of excess of cost over fair value of net assets acquired, are $627
million and are amortized on a straight-line basis over the respective assets
benefit periods which range between ten to forty years.
The excess of cost over fair value of net assets acquired was determined to
have a benefit period of forty years, which was based on Avis' position as the
second largest car rental system in the world, the recognition of its brand name
in the car rental industry and the longevity of the car rental business.
Coldwell Banker
The estimated fair value of Coldwell Banker's property and equipment
(excluding land) of $16.7 million, is amortized on a straight-line basis over
the estimated benefit periods ranging from five to twenty-five years. The
estimated fair value of Coldwell Banker's intangible assets, comprised of
franchise agreements and excess of cost over fair value of net assets acquired,
is $768.4 million and is amortized on a straight-line basis over the periods to
be benefited. The excess of cost over fair value of net assets acquired was
determined to have a benefit period of forty years, which was based on Coldwell
Banker's position as the largest gross revenue producing real estate company in
North American, the recognition of its brand name in the real estate brokerage
industry and the longevity of the real estate brokerage business.
<PAGE>
Other 1996 Acquisitions
The estimated fair values of Other 1996 Acquisitions franchise agreements
aggregate $61.0 million and are being amortized on a straight line basis over
the periods to be benefited, which range from twelve to thirty years. The
estimated fair values of Other Acquisitions excess of cost over fair value of
net assets acquired aggregate $164.2 million and are each being amortized on a
straight line basis over the periods to benefited which are forty years.
I. Interest expense:
For the Nine Months Ended
September 30,
1996 1995
--------- ----------
Elimination of historical interest expense of:
Century 21 ................................. $ -- $ (2,904)
Other 1996 Acquisitions .................... (1,493) (1,871)
RCI ........................................ (345) (402)
Reversal of Coldwell Banker .................. (3,155) (2,958)
Century 21 ................................... -- 2,835
RCI .......................................... 13,466 13,466
Minority interest - preferred dividends ...... -- 1,796
43/4% Notes to finance Other 1996 Acquisitions 1,270 6,694
-------- --------
Total ........................................ $ 9,743 $ 16,656
======== ========
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 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):
For the Nine Months Ended
September 30,
1996 1995
---------- ----------
Expense associated with the Owned
Brokerage Business ..................... $ (179) $ 72
Expense associated with revolving credit
facility borrowings which will be repaid
with proceeds from offering ............ 3,334 2,886
------- -------
Total ..................................... $ 3,155 $ 2,958
======= =======
RCI
The pro forma adjustment reflects the recording of interest expense on $285
million of borrowings under the Company's revolving credit facilities at an
interest rate of 6.3%. Borrowings represent the amount used as partial
consideration in the RCI acquisition.
<PAGE>
Minority interest - preferred dividends:
The pro forma adjustment represents dividends on the redeemable Series A
Adjustable Rate Preferred Stock of Century 21.
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 Other 1996
Acquisitions.
J. Income Taxes
The pro forma adjustment to income taxes is comprised of ($000's):
For the Nine Months Ended
September 30,
1996 1995
---------- -----------
Reversal of historical (provision) benefit of:
Company ...................................... $ (82,630) $ (41,820)
CCI .......................................... -- (313)
Century 21 ................................... -- (2,097)
RCI .......................................... (2,370) (1,940)
Avis ......................................... (29,966) (21,644)
Coldwell Banker .............................. 10,432 (16,422)
Travelodge ................................... -- (834)
Pro forma provision ............................. 137,087 96,094
--------- ---------
Total ........................................... $ 32,553 $ 11,024
========= =========
The pro forma effective tax rates are approximately 1% higher than the
Company's historical effective tax rates due to non-deductible excess of cost
over fair value of net assets acquired to be recorded in connection with the
acquisition of Avis and RCI.
K. Weighted average common and common equivalent shares outstanding
The pro forma adjustment to weighted average shares consists of the
following (000's):
For the Nine Months
September 30,
1996 1995
------- -------
CCI .......................................... -- 1,180
Century 21 ................................... -- 3,120
Avis Offering ................................ 4,569 4,569
RCI .......................................... 1,000 1,000
Second Quarter 1996 Offering - Coldwell Banker 7,122 12,838
Second Quarter 1996 Offering - Avis .......... 2,720 4,896
Century 21 NORS .............................. 418 923
------ ------
Total ........................................ 15,829 28,526
====== ======
<PAGE>
The unaudited Pro Forma Consolidated Statements of Operations is presented
as if the acquisitions took place at the beginning of the periods presented;
thus, the stock issuances referred to above are considered outstanding as of the
beginning of the period for purposes of per share calculations.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
2.1 Stock Purchase Agreement dated as of October 6, 1996 by and among the
Company, Christel DeHaan and Resort Condominiums International, Inc.
3.1 By laws of the Company, as amended effective October 24, 1996.
10.1 Third Amendment to Employment Agreement dated as of October 30, 1996
between the Company and John D. Snodgrass.
10.2 Employment Agreement dated October 14, 1996 between the Company and Michael
P. Monaco.
11 Computation of per share earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated August 29, 1996 for
purposes of incorporating by reference certain financial statements in the
Company's Registration Statements which were filed shortly after the filing of
such Current Report on Form 8-K. The financial statements filed included:
1. Pro forma financial statements of the Registrant as of and for the six
months ended June 30, 1996 and for the year ended December 31, 1995, including
the proposed acquisition of Avis, Inc.
2. The audited consolidated statements of financial position of Avis, Inc.
and its subsidiaries at February 29, 1996 and February 28, 1995, and the related
consolidated statements of operations, of changes in stockholders' equity, of
changes in redeemable preferred stock, and of cash flows for each of the three
years in the period ended February 29, 1996.
3. The unaudited consolidated financial statements of Avis, Inc. and its
subsidiaries at May 31, 1996 and for the three months ended May 31, 1996 and
1995.
<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: November 14, 1996 And General Counsel
By: /s/ Michael P. Monaco
Michael P. Monaco
Vice Chairman
Date: November 14, 1996 And Chief Financial Officer
(Principal Financial Officer
And Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
(a) Exhibits
2.1 Stock Purchase Agreement dated as of October 6, 1996 by and among the
Company, Christel DeHaan and Resort Condominiums International, Inc.
3.1 By laws of the Company, as amended effective October 24, 1996.
10.1 Third Amendment to Employment Agreement dated as of October 30, 1996
between the Company and John D. Snodgrass.
10.2 Employment Agreement dated October 14, 1996 between the Company and Michael
P. Monaco.
11 Computation of per share earnings.
27 Financial Data Schedule.
<PAGE>
[CONFORMED]
STOCK PURCHASE AGREEMENT
BY AND AMONG
HFS INCORPORATED,
CHRISTEL DeHAAN
and
RESORT CONDOMINIUMS INTERNATIONAL, INC.
Dated as of
October 6, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS AND TERMS............................................ 1
Section 1.1 Certain Definitions...................................... 1
Section 1.2 Other Terms.............................................. 12
Section 1.3 Other Definitional Provisions............................ 12
ARTICLE II PURCHASE AND SALE OF SHARES..................................... 13
Section 2.1 Purchase and Sale of the Company Shares and the Seller Affili-
ate Shares............................................... 13
Section 2.2 Purchase and Sale of the Trust Shares.................... 13
Section 2.3 Conveyance............................................... 13
Section 2.4 Consideration............................................ 13
ARTICLE III CLOSING........................................................ 14
Section 3.1 Closing.................................................. 14
Section 3.2 Estimated Cash Consideration............................. 14
Section 3.3 Deliveries by Seller and the Company..................... 14
Section 3.4 Deliveries by Acquiror................................... 15
Section 3.5 Simultaneous Transactions................................ 16
ARTICLE IV PROCEEDS TO SELLER; ADJUSTMENT; CONTINGENT PAYMENTS..............16
Section 4.1 Proceeds to Seller....................................... 16
Section 4.2 Purchase Price Adjustment................................ 17
Section 4.3 Contingent Payments...................................... 18
Section 4.4 Acquiror's Right of Offset............................... 24
ARTICLE V RELATED MATTERS.................................................. 24
Section 5.1 Registration Statement................................... 24
Section 5.2 Representation on Acquiror Board......................... 24
Section 5.3 Long-Term Securities..................................... 25
Section 5.4 Seller Lease............................................. 25
Section 5.5 Transferred Liquid Securities............................ 25
Section 5.6 UK Securities............................................ 25
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER AND THE
COMPANY.............................................................. 26
Section 6.1 Authority; Binding Effect................................ 26
Section 6.2 Organization............................................. 27
Section 6.3 Records.................................................. 28
Section 6.4 Capitalization........................................... 28
Section 6.5 No Violation; Consents and Approvals..................... 30
i
<PAGE>
PAGE
Section 6.6 Absence of Litigation.................................... 31
Section 6.7 Related Party Agreements................................. 31
Section 6.8 Permits; Compliance with Laws............................ 32
Section 6.9 Financial Statements/Undisclosed Liabilities/Receivables. 32
Section 6.10 Absence of Certain Changes or Events............... 34
Section 6.11 Employee Benefit Plans; ERISA...................... 35
Section 6.12 Contracts.......................................... 38
Section 6.13 Environmental Matters.............................. 39
Section 6.14 Personal Property.................................. 40
Section 6.15 Real Property...................................... 40
Section 6.16 Labor Matters...................................... 41
Section 6.17 Insurance Policies................................. 42
Section 6.18 Intellectual Property.............................. 42
Section 6.19 Bank Accounts; Powers of Attorney.................. 43
Section 6.20 Taxes.............................................. 43
Section 6.21 Developers/Suppliers............................... 46
Section 6.22 Acquisition of the Acquiror Common Stock for Investment;
Securities Act..................................... 46
Section 6.23 Timeshare Exchange Business........................ 46
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF ACQUIROR..................... 47
Section 7.1 Authority; Binding Effect................................ 47
Section 7.2 Organization............................................. 47
Section 7.3 SEC Documents and Other Reports.......................... 47
Section 7.4 Capitalization........................................... 48
Section 7.5 No Violation; Consents and Approvals..................... 48
Section 7.6 Acquisition of Shares for Investment..................... 49
ARTICLE VIII COVENANTS..................................................... 49
Section 8.1 Access to Information; Confidentiality................... 49
Section 8.2 Conduct of Business...................................... 50
Section 8.3 Reasonable Best Efforts.................................. 53
Section 8.4 Consents................................................. 53
Section 8.5 Antitrust Notification................................... 54
Section 8.6 No Solicitation.......................................... 54
Section 8.7 Further Assurances....................................... 54
Section 8.8 Notification of Certain Matters.......................... 55
Section 8.9 Certain Tax Matters...................................... 55
Section 8.10 Intercompany Obligations; Affiliate Agreements..... 60
Section 8.11 Supplements to Disclosure Schedule................. 61
Section 8.12 Resignations....................................... 61
ii
<PAGE>
PAGE
Section 8.13 Non-Competition.................................... 61
Section 8.14 Access to Books and Records Following the Closing.. 62
Section 8.15 Nominee Shareholders............................... 62
Section 8.16 Amendments to Organizational Documents............. 62
ARTICLE IX CONDITIONS TO CLOSING........................................... 62
Section 9.1 Mutual Conditions to the Obligations of the Parties...... 62
Section 9.2 Conditions to the Obligations of Acquiror................ 63
Section 9.3 Conditions to the Obligations of Seller and the Company.. 64
ARTICLE X INDEMNIFICATION OBLIGATIONS; SURVIVAL............................ 65
Section 10.1 The Seller's Agreement to Indemnify................ 65
Section 10.2 Seller's Limitation of Liability................... 65
Section 10.3 Acquiror's Agreement to Indemnify.................. 66
Section 10.4 Acquiror's Limitation of Liability................. 66
Section 10.5 Conditions of Indemnification...................... 67
Section 10.6 Survival of Representations........................ 68
Section 10.7 Exclusive Remedy................................... 68
ARTICLE XI TERMINATION..................................................... 68
Section 11.1 Termination........................................ 68
Section 11.2 Effect of Termination.............................. 68
ARTICLE XII MISCELLANEOUS.................................................. 69
Section 12.1 Notices............................................ 69
Section 12.2 Amendment; Waiver.................................. 70
Section 12.3 Assignment......................................... 70
Section 12.4 Entire Agreement................................... 70
Section 12.5 Fulfillment of Obligations......................... 70
Section 12.6 Parties in Interest................................ 71
Section 12.7 Expenses........................................... 71
Section 12.8 Brokers............................................ 71
Section 12.9 Governing Law; Jurisdiction........................ 71
Section 12.10 Counterparts....................................... 71
Section 12.11 Headings........................................... 71
Section 12.12 Further Assurances................................. 71
Section 12.13 Specific Performance............................... 72
iii
<PAGE>
SCHEDULES AND EXHIBITS
Schedule I.................................................Affiliated Entities
Schedule II........................................................EBITDA Test
Schedule III......................................................Members Test
Schedule IV.......................................................Revenue Test
Schedule V...............Capital Expenditures relating to BPR Computer Project
Exhibit A........................................Registration Rights Agreement
Exhibit B..............................................Seller Lease Term Sheet
Exhibit C.........................................Form of Seller Legal Opinion
Exhibit D.......................................Form of Acquiror Legal Opinion
iv
<PAGE>
STOCK PURCHASE AGREEMENT, dated as of October 6, 1996, by and among HFS
Incorporated, a Delaware corporation ("Acquiror"), Ms. Christel DeHaan, an
individual resident of the State of Indiana ("Seller"), and Resort Condominiums
International, Inc., an Indiana corporation (the "Company").
W I T N E S S E T H :
WHEREAS, Seller is the record and beneficial owner of all of the issued and
outstanding shares of common stock, without par value, of the Company (the
"Company Shares") and, except as otherwise noted on Schedule I hereto, is the
record and beneficial owner, directly or indirectly, of all of the issued and
outstanding shares (the "Seller Affiliate Shares") of capital stock of the
Affiliated Entities (as hereinafter defined);
WHEREAS, Acquiror desires to acquire from Seller and Seller desires to sell
to Acquiror the Company and each of the Affiliated Entities through a purchase
of all of the Company Shares and the Seller Affiliate Shares from Seller (the
"Stock Purchase"), each on the terms and subject to the conditions contained
herein; and
WHEREAS, the respective Board of Directors of each of the Company and
Acquiror has approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants and undertak- ings
contained herein, and subject to and on the terms and conditions herein set
forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the meanings set forth or as referenced below:
"Acquiror" shall have the meaning set forth in the recitals hereto.
"Acquiror Borrowing Rate" shall mean Acquiror's average weighted cost of
debt capital.
"Acquiror Claims" shall have the meaning set forth in Section 10.3 hereof.
"Acquiror Common Stock" shall mean the common stock, par value $.01 per
share, of Acquiror.
"Acquiror Group" shall have the meaning set forth in Section 10.1 hereof.
<PAGE>
"Acquiror SEC Documents" shall have the meaning set forth in Section 7.3
hereof.
"Acquiror Subsidiary" shall mean a wholly owned subsidiary of Acquiror that
shall issue the Preferred Stock pursuant to Section 5.6 hereof.
"Acquiror Taxes" shall have the meaning set forth in Section 8.9(e)(iii)
hereof.
"Adjustment Cash" shall mean the amount, if any, by which the Realizable
Value of the Liquid Securities plus the Book Value of the Long-Term Securities
(before giving effect to any Bonus Payments), each as set forth on the Closing
Statement, exceeds the sum of $280,000,000 plus the amount of the UK Taxes;
provided, however, that in no event shall the amount of the Adjustment Cash
exceed $10,000,000.
"Affiliate" shall mean, as to any Person (as hereinafter defined), any
other Person which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person. 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.
"Affiliate Agreements" shall have the meaning set forth in Section 8.10(b)
hereof.
"Affiliate Shares" shall mean the Company Affiliate Shares, the Seller
Affiliate Shares and the equity interests of Persons other than Seller in the
Affiliated Entities.
"Affiliated Entities" shall mean the Affiliates of the Company listed on
Schedule I hereto, which entities include the Combined Entities (other than
Resort Capital Corporation) and the Related Entities.
"Aggregate Purchase Price" shall mean the sum of the Cash Consideration,
the Common Stock Consideration and the Contingent Payments, if any, paid to
Seller.
"Agreement" shall mean this Agreement, as the same may be amended or
supplemented from time to time in accordance with the terms hereof.
"Balance Sheet" shall have the meaning set forth in Section 6.9(a) hereof.
"Base Amount" shall have the meaning set forth in Section 4.1(a)(i) hereof.
2
<PAGE>
"Bonus Payments" shall mean all bonus or similar payments payable by the
Company or any of the Affiliated Entities to any director, officer, employee or
consultant subsequent to the date of this Agreement.
"BPR Computer Project" shall mean the Business Process Reengineering and
Information Architecture programs of the Company.
"Book Value" shall mean, with respect to Long-Term Securities, the book
value of such Long-Term Securities, as to Long-Term Securities owned as of the
date of the Balance Sheet, as reflected on the Balance Sheet and, as to
Long-Term Securities acquired after the date of the Balance Sheet, as determined
in a manner consistent with the Financial Statements, net of all applicable
reserves. As to the Book Value of the RCC Stock, such Book Value shall be the
book value of RCI's 49% investment in RCC (approximately $1.1 million).
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banks in the City of New York are authorized or obligated by law or
executive order to close.
"Cash and Equivalents" shall mean cash and cash equivalents of the Company
and the Affiliated Entities, including, without limitation, the proceeds of any
liquidation of all or a portion of the Liquid Securities, held by the Company or
any of the Affiliated Entities.
"Cash Consideration" shall have the meaning set forth in Section 4.1(a)(i)
hereof.
"Claims" shall have the meaning set forth in Section 10.3 hereof.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement, as provided for in Section 3.1 hereof.
"Closing Cash Amount" shall have the meaning set forth in Section 4.2
hereof.
"Closing Date" shall have the meaning set forth in Section 3.1 hereof.
"Closing Statement" shall have the meaning set forth in Section 4.2(a)
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Combined Entities" shall mean the Affiliates of the Company engaged in the
Timeshare Exchange Business and included in the Financial Statements, as listed
on Schedule I hereto.
3
<PAGE>
"Common Stock Consideration" shall have the meaning set forth in Section
4.1(a)(ii) hereof.
"Company" shall have the meaning set forth in the recitals hereto.
"Company Affiliate Shares" shall mean the shares of common stock of the
Affiliated Entities held by the Company.
"Company Shares" shall have the meaning set forth in the recitals hereto.
"Competition Laws" shall mean foreign statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines, and other foreign laws that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopoliza- tion, lessening of competition or restraint of
trade, including, without limitation, the Investment Canada Act and the Canadian
Competition Act.
"Compliance Costs" shall have the meaning set forth in Section 5.6(b)
hereof.
"Confidentiality Agreement" shall mean the Confidentiality Agreement, dated
July 24, 1996, between Acquiror and the Company.
"Consents" shall have the meaning set forth in Section 6.5(c) hereof.
"Contingent Payment" shall have the meaning set forth in Section 4.3(a)
hereof.
"Contracts" shall have the meaning set forth in Section 6.12(b) hereof.
"Damages" shall have the meaning set forth in Section 10.1 hereof.
"Developer Contracts" shall have the meaning set forth in Section 6.12(b)
hereof.
"Earnings Baseline" shall mean EBITDA (as hereinafter defined) of the
Timeshare Exchange Business for the fiscal year ended December 31, 1996, as
reflected in the audited financial statements for such fiscal year of the
Timeshare Exchange Business.
"Earn-Out Period" shall mean the period commencing on the Closing Date and
ending on December 31, 2001.
"Earn-Out Schedule" shall have the meaning set forth in Section 4.3(a)
hereof.
"EBITDA" shall mean, for any period, the sum of the amounts for such period
of (a) net income, as adjusted for any expensed portion of the BPR Computer
Project, plus
4
<PAGE>
(b) to the extent net income is reduced thereby, (i) all charges for
amortization of intangibles and depreciation, (ii) interest expense, (iii)
income tax expense and (iv) extraordinary losses, minus (c) interest income,
extraordinary gains (net of taxes), in each case, as reflected in the audited
financial statements for such period of the Timeshare Exchange Business
(prepared in accordance with GAAP).
"EBITDA Test" shall mean the standard under which EBITDA Payments will be
made under Section 4.3(c) hereof.
"Elections" shall have the meaning set forth in Section 8.9(b)(i) hereof.
"Environmental Claim" means any claim, action, cause of action,
investigation or written notice by any person or entity alleging potential
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence or Release of any Hazardous Materials at any
location, whether or not owned or operated by the Seller, the Company or any
Affiliated Entity, or (b) circumstances forming the basis of any violation of
any Environmental Law.
"Environmental Laws" shall mean all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment, including laws relating to Releases or threatened Releases of
Hazardous Materials or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials and all laws and regulations with regard to recordkeeping,
notification, disclosure and reporting requirements respecting Hazardous
Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorpo- rated) that together with the Company would be deemed to be a "single
employer" within the meaning of Section 4001 of ERISA.
"ERISA Plans" shall have the meaning set forth in Section 6.11(a) hereof.
"Estimated Cash Consideration" shall have the meaning set forth in Section
3.2 hereof.
"Estimated Statement" shall have the meaning set forth in Section 3.2
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Financial Statements" shall have the meaning set forth in Section 6.9(a)
hereof.
5
<PAGE>
"Foreign Plans" shall have the meaning set forth in Section 6.11(n) hereof.
"GAAP" shall mean United States generally accepted accounting principles
and practices in effect from time to time as consistently applied.
"Governmental Authority" shall have the meaning set forth in Section 6.5(c)
hereof.
"Hazardous Materials" shall mean all materials regulated by law as capable
of causing harm or injury to human health or the environment, including (a)
Hazardous Sub- stances (as hereinafter defined), (b) friable asbestos containing
material, (c) polychlorinated biphenyls, (d) highly toxic materials as defined
by OSHA in 29 C.F.R. Para. 1910.1200, (e) radioactive materials and (f) all
substances defined as Hazardous Substances, Oils, Pollutants or Contaminants in
the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
Para. 300.5, or defined as such by, or regulated as such under, any
Environmental Law.
"Hazardous Substances" shall mean any hazardous substances within the
meaning of Section 101(14) of CERCLA, 42 U.S.C. Para. 9601(14), or any pollutant
or constituent that is regulated under any Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" of any Person at any date shall include (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 that is evidenced by a note, bond, debenture
or similar instrument, (c) all obligations of such Person under leases required
in accordance with GAAP to be capitalized on a balance sheet of the lessee, (d)
all obligations of such Person in respect of acceptances issued or created for
the account of such Person, (e) all liabilities secured by any Lien (as
hereinafter defined) on any property owned by such Person even though such
Person has not assumed or otherwise become liable for the payment thereof and
(f) all direct or indirect guarantees of any of the foregoing for the benefit of
another Person.
"Indemnity Credit" shall mean, at any point in time, (a) in the case of
Seller's indemnity obligations under Section 8.9(e) hereof, (i) an amount equal
to any Adjustment Cash in excess of $5 million, less (ii) the amount by which
any Adjustment Cash shall have previously been applied to reduce Seller's
indemnity obligations under either Section 8.9 or Section 10.1 hereof and (b) in
the case of Seller's indemnity obligations under Section 10.1 hereof, (i) an
amount equal to any Adjustment Cash, less (ii) the amount by which any
Adjustment Cash shall have previously been applied to reduce Seller's indemnity
obligations under either Section 8.9 or Section 10.1 hereof.
6
<PAGE>
"Intellectual Property" shall have the meaning set forth in Section 6.18
hereof.
"IRS" shall mean the Internal Revenue Service of the United States.
"Labor Laws" shall have the meaning set forth in Section 6.16 hereof.
"Laws" shall mean any federal, state, local or foreign law, statute,
ordinance, rule, regulation, order, judgment or decree, administrative order or
decree, administrative or judicial decision, and any other executive or
legislative proclamation.
"Leased Realty" shall have the meaning set forth in Section 6.15(b) hereof.
"Leases" shall have the meaning set forth in Section 6.15(c) hereof.
"Liens" shall mean any lien, encumbrance, security interest, mortgage,
pledge, charge, claim, option, right of first refusal or call, or restriction of
any kind.
"Liquidation Costs" shall have the meaning set forth in Section 5.5(b)
hereof.
"Liquid Securities" shall mean (a) Cash and Equivalents and (b) securities
of a character that would be treated as "available-for-sale securities", as such
term is used in the Financial Statements, held by the Company or any of the
Affiliated Entities.
"Litigation" shall have the meaning set forth in Section 6.6(a) hereof.
"Long-Term Securities" shall mean (a) collateralized resort mortgage
obliga- tions, securitized timeshare receivables, notes issued by or on behalf
of developers, related party notes and other securities of a character that
would be treated as "held-to-maturity" securities, as such term is used in the
Financial Statements, held by the Company or any of the Affiliated Entities, and
(b) the outstanding shares of capital stock of Resort Capital Corporation.
"Material Adverse Effect" shall mean, with respect to any Person, a
material adverse effect on the business, results of operations, assets,
liabilities, net worth, sales, income, prospects, operations or condition
(financial or otherwise) of such Person.
"Material Affiliate" shall mean those Affiliated Entities marked with an
asterisk on Schedule-I hereto.
"Members" shall mean those Persons for whom annual subscription or
membership fees shall have been paid for the right to participate in the
exchange of vacation ownership interests through the Timeshare Exchange
Business. As of any determination date, the aggregate number of Members shall be
determined by the independent auditors of
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the Timeshare Exchange Business using methods consistent with those applied
during fiscal 1995.
"Members Baseline" shall mean the aggregate number of Members as of
December 31, 1996, as determined by the independent auditors of the Timeshare
Exchange Business.
"Members Conversion" shall have the meaning set forth in Section 4.3(f)
hereof.
"Members Target Amount" shall mean $62.5 million minus an amount equal to
50% of all Excess EBITDA Payments, if any.
"Members Test" shall mean the standard under which the Members Payments
will be made under Section 4.3(d) hereof.
"Net Revenue" shall mean, for any period, the sum of (a) the amounts
recognized during such period of (i) subscription income, (ii) exchange fees,
(iii) travel and related income, (iv) advertising income, (v) resort related
income, (vi) foreign license income, (vii) management fees, (vii) software
license fees and other computer related revenues, (viii) consulting fees and
(ix) other items of revenue net of (b) returns, credits and allowances relating
to the items referred to in clauses (i)-(ix) above, in each case, as reflected
in the audited financial statements of the Timeshare Exchange Business for such
period, which are prepared on a basis consistent with the Financial Statements.
"Net Revenues Test" shall mean the standard under which the Revenue
Payments will be made under Section 4.3(e) hereof.
"1995 Combined Balance Sheet" shall mean the audited combined balance sheet
of the Company and the Combined Entities as of December 31, 1995.
"Nominee Shareholders" shall have the meaning set forth in Section 6.4(i)
hereof.
"Nominee Shares" shall have the meaning set forth in Section 6.4(i) hereof.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Other Contracts" shall have the meaning set forth in Section 6.12(b)
hereof.
"Owned Realty" shall have the meaning set forth in Section 6.15(b) hereof.
"PBGC" shall have the meaning set forth in Section 6.11(c) hereof.
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"Permits" shall have the meaning set forth in Section 6.8 hereof.
"Permitted Liens" means (i) mechanics', carriers', workmen's, repairmen's
or other like Liens arising or incurred in the ordinary course of business with
respect to liabilities that are not yet due or delinquent, (ii) Liens for Taxes
(as hereinafter defined), as- sessments and other governmental charges which are
not due and payable or which may hereafter be paid without penalty or which are
being contested in good faith by appropriate proceedings (for which reserves
have been made in the Financial Statements in accordance with GAAP) and
(iii) other imperfections of title or encumbrances, if any, which imperfec-
tions of title or other encumbrances, individually or in the aggregate, would
not materially detract from the value of the property or asset to which it
relates or materially impair the ability of the Company (as hereinafter defined)
to use the property or asset to which it relates in substantially the same
manner as it was used prior to the Closing Date.
"Person" shall mean an individual, a corporation, a partnership, an
associa- tion, a trust or other entity or organization.
"Plans" shall have the meaning set forth in Section 6.11(a) hereof.
"Post-Closing Periods" shall have the meaning set forth in Section
8.9(e)(iii) hereof.
"Post-Closing Taxes" shall have the meaning set forth in Section
8.9(e)(iii) hereof.
"Pre-Closing Periods" shall have the meaning set forth in Section 8.9(e)(i)
hereof.
"Pre-Closing Taxes" shall have the meaning set forth in Section 8.9(e)(i)
hereof.
"Preferred Stock" shall have the meaning set forth in Section 5.6 hereof.
"Prime Rate" shall mean the prime lending rate of interest as published
from time to time in The Wall Street Journal.
"Proposed Adjustments" shall have the meaning set forth in Section 4.3(f)
hereof.
"RCC Stock" shall have the meaning set forth in Section 5.3 hereof.
"RCI Europe" shall mean RCI Europe Limited.
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"Realizable Value" shall mean (a) with respect to cash, the actual amount
of such cash; (b) with respect to securities (other than open-end mutual funds)
the fair market value of such securities based upon the last closing sales price
on the date of determination of the value of such securities on the principal
securities exchange or other market on which such securities are primarily
traded and sold; and (c) with respect to securities held through open-end mutual
funds, the fair market value of such securities based upon the net asset value
per share on the date of redemption of such securities.
"Registration Rights Agreement" shall have the meaning set forth in Section
5.1 hereof.
"Related Entities" shall mean the affiliates of the Company engaged in the
Timeshare Exchange Business but not included in the Financial Statements, as
listed on Schedule I hereto.
"Related Entity Financial Statements" shall have the meaning set forth in
Section 6.9(b) hereof.
"Related Party Agreements" shall have the meaning set forth in Section 6.7
hereof.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment (including ambient air, surface water,
groundwater and surface or subsurface strata), or into or out of any property,
including the movement of Hazardous Materials through or in the air, soil,
surface water, groundwater or property.
"Revenue Baseline" shall mean the Net Revenue of the Timeshare Exchange
Business for the fiscal year ended December 31, 1996, as reflected in the
audited financial statements of the Timeshare Exchange Business for such fiscal
year.
"Revenue Target Amount" shall mean $62.5 million minus an amount equal to
50% of all Excess EBITDA Payments, if any.
"Reviewing Accountants" shall have the meaning set forth in Section 4.2(c)
hereof.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in the recitals hereto.
"Seller Affiliate Shares" shall have the meaning set forth in the recitals
hereto.
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"Seller Claims" shall have the meaning set forth in Section 10.1 hereof.
"Seller Disclosure Schedule" shall mean the disclosure schedule being
delivered by Seller and the Company concurrently with the execution of this
Agreement.
"Seller Group" shall have the meaning set forth in Section 10.3 hereof.
"Seller Lease" shall have the meaning set forth in Section 5.4 hereof.
"Seller Payment Amounts" shall have the meaning set forth in Section 4.4(b)
hereof.
"Seller Tax Returns" shall have the meaning set forth in Section 8.9(c)(i)
hereof.
"Stock Purchase" shall have the meaning set forth in the recitals hereto.
"Straddle Periods" shall have the meaning set forth in Section 8.9(e)(i)
hereof.
"Straddle Taxes" shall have the meaning set forth in Section 8.9(e)(i)
hereof.
"Structural Change" shall have the meaning set forth in Section 4.3(f)
hereof.
"Structural Change Notice" shall have the meaning set forth in Section
4.3(f) hereof.
"Tax Basket" shall have the meaning set forth in Section 8.9(e)(i) hereof.
"Tax Claim" shall have the meaning set forth in Section 8.9(e)(v) hereof.
"Tax Law" shall mean any Law relating to Taxes.
"Tax Return" shall mean any return, report, information return or other
docu- ment (including any related or supporting information) with respect to
Taxes.
"Taxes" shall mean all taxes, charges, fees, duties, levies, penalties or
other assessments imposed by any federal, state, local or foreign Governmental
Authority, includ- ing, but not limited to, income, gross receipts, excise,
property, sales, gain, use, license, capital stock, transfer, franchise,
payroll, withholding, social security, value added or other taxes, including any
interest, penalties or additions attributable thereto.
"Timeshare Exchange Business" shall mean the worldwide condominium and
resort timeshare exchange business, subscription business, travel business, and
other businesses conducted by the Company or any of the Affiliated Entities.
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"Transfer Taxes" shall have the meaning set forth in Section 8.9(d) hereof.
"Transferred Liquid Securities" shall have the meaning set forth in Section
5.5 hereof.
"Treasury Regulations" shall mean the United States Income Tax Regulations,
including Temporary Regulations, promulgated under the Code, as in effect on the
date hereof.
"Trust" shall have the meaning set forth in Section 2.2 hereof.
"Trust Shares" shall have the meaning set forth in Section 2.2 hereof.
"UK Cash and Equivalents" shall have the meaning set forth in Section 5.6
hereof.
"UK Securities" shall have the meaning set forth in Section 5.5 hereof.
"UK Tax" shall mean the United Kingdom tax incurred by RCI Europe upon the
liquidation of the UK Securities in accordance with Section 5.6 hereof related
to the gain on the sale of such securities.
"Unearned EBITDA Payments" shall have the meaning set forth in Section
4.3(f) hereof.
"Unearned Net Revenues Payments" shall have the meaning set forth in
Section 4.3 hereof.
"Updated Information" shall have the meaning set forth in Section 8.11
hereof.
"WARN Act" shall have the meaning set forth in Section 6.16 hereof.
Section 1.2 Other Terms. Other terms may be defined elsewhere in the text
of this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
Section 1.3 Other Definitional Provisions.
(a) As used herein, "knowledge of the Company" shall mean the best
knowledge, after due inquiry, of each of (i) Christel DeHaan, (ii) L. Steven
Miller, (iii) Bruce J. Bentcover, (iv) William F. McConnell, Jr., (v) Cheryl J.
Wendling, (vi) Sandy Bittner, (vii) Kathy Krishnan, (viii) David R. Clifton,
(ix) Gabriel Oropeza, (x) Xavier Gonzalez, (xi) Fredy Dellis, (xii) John
Williams, (xiii) Stephen Swordy and (xiv) Martin Briggs.
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(b) The words "hereof", "herein", "hereto", "hereunder" and "herein- after"
and words of similar import, when used in this Agreement, shall refer to this
Agree- ment as a whole and not to any particular provision of this Agreement.
(c) The terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
(d) The term "dollars" and character "$" shall mean United States dollars.
(e) The word "including" shall mean including, without limitation, and the
words "include" and "includes" shall have corresponding meanings.
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1 Purchase and Sale of the Company Shares and the Seller
Affiliate Shares. Upon the terms and subject to the conditions of this
Agreement, at the Closing, Seller shall sell, convey, assign, transfer and
deliver to Acquiror, and Acquiror shall pur- chase, acquire and accept from
Seller, all right, title and interest in and to the Company Shares and the
Seller Affiliate Shares, free and clear of any and all Liens.
Section 2.2 Purchase and Sale of the Trust Shares. Upon the terms and
subject to the conditions of this Agreement, at the Closing, Seller shall
deliver to Acquiror, and Acquiror shall accept from Seller, all right, title and
interest in and to all shares (the "Trust Shares") of any Affiliated Entity
owned by the Trust created under the Irrevocable Trust Agreement Of Christel
DeHaan For The Benefit Of Kirsten DeHaan, dated March 25, 1993 (the "Trust"),
free and clear of any and all Liens.
Section 2.3 Conveyance. Such sale, conveyance, assignment, transfer and
delivery shall be effected by delivery to Acquiror or, at Acquiror's request, to
any other designee of Acquiror, of stock certificates representing the Company
Shares, the Seller Affiliate Shares and the Trust Shares, duly endorsed or
accompanied by stock powers duly executed in blank with appropriate transfer
stamps, if any, affixed, and any other documents that are necessary to transfer
title to the Company Shares, the Seller Affiliate Shares and the Trust Shares to
Acquiror (or any designee of Acquiror), free and clear of any and all Liens.
Section 2.4 Consideration. In consideration of such sale, conveyance,
assignment, transfer and delivery of the Company Shares, the Seller Affiliate
Shares and the Trust Shares by Seller (and, in the case of the Trust Shares, the
Trust), Acquiror shall pay or cause to be paid to Seller, on behalf of Seller
and the Trust, as their respective interests may
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appear, the Aggregate Purchase Price in accordance with, and subject to the
terms and condi- tions of, Article IV hereof.
ARTICLE III
CLOSING
Section 3.1 Closing. The closing of the Stock Purchase (the "Closing")
shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York 10022, at 10:00 A.M., New York City time, on
the second Business Day following the satisfaction or waiver of the conditions
precedent specified in Article IX, or at such other time and place as the
parties hereto may mutually agree. The date on which the Closing occurs is
called the "Closing Date".
Section 3.2 Estimated Cash Consideration. Two (2) Business Days prior to
the Closing Date, the Company shall deliver to Acquiror a statement (the
"Estimated State- ment") setting forth its good faith estimate of the Cash
Consideration payable by Acquiror in accordance with Section 4.1(a)(i) hereof.
Such Estimated Statement shall include in reason- able detail the calculation of
(i) all Bonus Payments to be made as of the Closing Date, (ii) the Realizable
Value of any Transferred Liquid Securities as of the Closing Date, (iii) the
Realizable Value of the Liquid Securities as of the Closing Date, (iv) the
aggregate Book Value of the Long-Term Securities as of the Closing Date and (v)
the adjustment to the Purchase Price in accordance with Section 4.2(d)(i) hereof
and shall be certified by the Chief Financial Officer of the Company and be
reasonably acceptable to Acquiror. The amount of the Cash Consideration, as set
forth on the Estimated Statement, shall be referred to herein as the "Estimated
Cash Consideration."
Section 3.3 Deliveries by Seller and the Company. At the Closing, Seller
and the Company, as applicable, shall deliver or cause to be delivered to
Acquiror and Acquisi- tion, as applicable (unless delivered previously), the
following:
(a) the stock certificate or stock certificates representing the Company
Shares, duly endorsed or accompanied by stock powers duly executed in blank with
appropri- ate transfer stamps, if any, affixed, and any other documents that are
reasonably necessary to transfer title to the Company Shares;
(b) the stock certificates representing the Seller Affiliate Shares, duly
endorsed or accompanied by stock powers duly executed in blank with appropriate
transfer stamps, if any, affixed, and any other documents that are reasonably
necessary to transfer title to the Seller Affiliate Shares;
(c) the stock certificate or stock certificates representing the Trust
Shares, duly endorsed or accompanied by stock powers duly executed in blank with
appropri-
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ate transfer stamps, if any, affixed, and any other documents that are
reasonably necessary to transfer title to the Trust Shares;
(d) the resignations of certain officers and directors of the Company and
the Seller Affiliates referred to in Section 8.12 hereof;
(e) the officer's certificate referred to in Section 9.2(d) hereof;
(f) the opinion(s) of counsel to Seller referred to in Section 9.2(e)
hereof;
(g) duly executed counterparts of any Consents referred to in Section
9.2(f) hereof;
(h) the Registration Rights Agreement;
(i) the Seller Lease; and
(j) all other documents, certificates, instruments or writings required to
be delivered by Seller or the Company at or prior to the Closing pursuant to
this Agreement or otherwise reasonably required in connection herewith.
Section 3.4 Deliveries by Acquiror. At the Closing, Acquiror shall deliver
or cause to be delivered to Seller and the Company, as applicable (unless
delivered previously), the following:
(a) a stock certificate or stock certificates representing the shares of
Acquiror Common Stock to be delivered to Seller in payment of the Common Stock
Consideration, free and clear of any and all Liens, other than the terms of, and
bearing the legend referred to in, the Registration Rights Agreement;
(b) a wire transfer of federal or other immediately available funds to a
single account at a bank located in the United States designated at least two
(2) Business Days prior to the Closing Date by Seller in an amount equal to the
sum of (i) the Estimated Cash Consideration plus (ii) fifty percent (50%) of the
Liquidation Costs plus (iii) fifty percent (50%) of the Compliance Costs;
(c) the officer's certificate referred to in Section 9.3(c) hereof;
(d) the opinion of counsel to Acquiror referred to in Section 9.3(d)
hereof;
(e) the Registration Rights Agreement; and
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(f) all other documents, certificates, instruments or writings reasonably
required to be delivered by Acquiror at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith.
Section 3.5 Simultaneous Transactions. All of the transactions contemplated
by this Agreement shall be deemed to occur simultaneously, and no such
transaction shall be deemed to have been consummated until all such transactions
have been consummated.
ARTICLE IV
PROCEEDS TO SELLER; ADJUSTMENT; CONTINGENT PAYMENTS
Section 4.1 Proceeds to Seller.
(a) Purchase Price. The Aggregate Purchase Price to be paid by Acquiror in
respect of the Stock Purchase shall be comprised of the following:
(i) cash in an amount equal to $550,000,000 (the "Base Amount") less the
sum of: (A) the aggregate amount of all Bonus Payments plus (B) an amount equal
to the aggregate Book Value of the Long-Term Securities transferred to Seller
pursuant to Section 5.3 hereof plus (C) the Realizable Value of any Transferred
Liquid Securities transferred to Seller pursuant to Section 5.5 hereof, subject
to adjustment as set forth in Section 4.2(d) hereof (the "Cash Consideration");
(ii) that number of shares of Acquiror's Common Stock (the "Common Stock
Consideration") determined by dividing $75,000,000 by the average of the per
share closing prices of the Acquiror Common Stock on the NYSE Composite
Transaction Reporting System for the 20 consecutive trading days immediately
preceding the third trading day prior to the Closing Date; and
(iii) the amount of the Contingent Payments, if any, payable to Seller in
accordance with Section 4.3 hereof.
(b) Assets Transferred to Seller. At the Closing, the Company or the
appropriate Affiliated Entity shall transfer to Seller the following:
(i) the Long-Term Securities (including the RCC Stock) in accordance with
Section 5.3 hereof; and
(ii) the Transferred Liquid Securities in accordance with Section 5.5
hereof.
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Section 4.2 Purchase Price Adjustment.
(a) Within forty-five (45) days following the Closing Date, Acquiror shall
cause the Company to prepare and deliver to Seller a statement (the "Closing
State- ment") setting forth the Cash Consideration determined in accordance with
Section 4.1(a)(i) hereof. Such Closing Statement shall include in reasonable
detail the calculation of (i) all Bonus Payments, (ii) the Realizable Value of
any Transferred Liquid Securities as of the Closing Date, (iii) the Realizable
Value of the Liquid Securities as of the Closing Date, (iv) the aggregate Book
Value of the Long-Term Securities as of the Closing Date and (v) the adjustment
to the Purchase Price in accordance with Section 4.2(d)(i) hereof.
(b) If Seller disagrees with all or part of the Closing Statement, Seller
may, within ten (10) Business Days after receipt thereof, deliver a written
notice to Acquiror setting forth its disagreement. Any such notice of
disagreement shall specify in reasonable detail those items or amounts as to
which Seller disagrees and the basis of such disagree- ment. If no such notice
of disagreement is timely delivered, the Closing Statement shall be final,
conclusive and binding on the parties hereto.
(c) If a notice of disagreement shall be timely delivered by Seller
pursuant to Section 4.2(b) hereof, the parties shall, during the ten (10)
Business Days following such delivery, use their reasonable best efforts to
reach agreement on the disputed items. If such an agreement is reached, the
Closing Statement, as so agreed, shall be final and binding on the parties
hereto. If the parties are unable to reach such agreement, Price Waterhouse LLP
or such other nationally recognized "Big Six" accounting firm on which the
parties mutually agree (the "Reviewing Accountants") shall be retained to
resolve such dispute. In connection therewith, the Reviewing Accountants shall
address only those items or amounts in the Closing Statement as to which Seller
has disagreed. The Reviewing Accountants shall deliver to Seller and Acquiror,
as promptly as practicable, but in no event later than thirty (30) days after
submission of the disputed items, a report setting forth its ad- justments, if
any, to the Closing Statement and the calculations supporting such adjustments.
Such report shall be final and binding upon the parties hereto and the Closing
Statement, as adjusted pursuant to such report, shall be final and binding on
the parties hereto. The cost of the Reviewing Accountants' review and report
shall be borne equally by Seller and Acquiror.
(d) Upon finalization of the Closing Statement, either upon acceptance by
Seller or, in the event of a dispute, upon agreement of the parties or
resolution by the Re- viewing Accountants, the Cash Consideration payable by
Acquiror to Seller shall be finally determined as set forth below in this
Section 4.2(d).
(i) If the sum of the Realizable Value of the Liquid Securities plus the
Book Value of the Long-Term Securities (before giving effect to any Bonus
Payments), each as set forth on the Closing Statement, is less than the sum of
$280,000,000 plus the amount of the UK Taxes, then the Cash Consideration shall
be decreased by the amount of such shortfall. If the sum of the Realizable Value
of the Liquid Securities plus the
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Book Value of the Long-Term Securities (before giving effect to any Bonus
Payments), each as set forth on the Closing Statement, exceeds the sum of
$290,000,000, then the Cash Consideration shall be increased by the amount of
such excess.
(ii) The adjustment to the Base Amount provided for in Section 4.1(a)(i)
hereof shall be determined based upon the amounts set forth on the Closing
Statement.
(e) In the event that the Estimated Cash Consideration is less than the
Cash Consideration, as finally determined in accordance with Section 4.2(d)
hereof, then Acquiror shall pay to Seller an amount in cash equal to such
shortfall.
(f) In the event that the Estimated Cash Consideration exceeds the Cash
Consideration, as finally determined in accordance with Section 4.2(d) hereof,
then Seller shall pay to Acquiror an amount in cash equal to such excess.
(g) Any payments required to be made pursuant to subparagraph (e) or (f) of
this Section 4.2 shall be made by wire transfer of immediately available funds
to a single account at a bank located in the United States designated in writing
by Acquiror or Seller, as the case may be, on the second Business Day following
the date on which the amount of such payments is finally determined. The amount
of any such payment shall bear interest for the period from and including the
Closing Date to but excluding the payment date at the Acquiror Borrowing Rate
calculated on the basis of a 365-day year and the actual number of days elapsed.
Section 4.3 Contingent Payments.
(a) No later than 90 days following the end of each fiscal year of the
Company during the Earn-Out Period, commencing with the fiscal year ending
December 31, 1997, Acquiror shall, subject to Section 4.5 hereof, pay or cause
to be paid to Seller, by wire transfer of immediately available funds to a
single account at a bank in the United States designated by Seller, an aggregate
amount up to a maximum of $200,000,000 equal to the sum of all amounts payable,
if any, under the EBITDA Test, the Members Test and the Net Revenues Test
(collectively, "Contingent Payment"). Such Contingent Payment shall be
accompanied by (or if no such Contingent Payment is payable, Seller shall
receive in lieu thereof) (i) the financial statements of the Timeshare Exchange
Business for the relevant fiscal year-end and (ii) a reasonably detailed
schedule certified by the Chief Financial Officer of Acquiror (an "Earn-Out
Schedule") setting forth (A) the computation of each of the EBITDA Test, the
Members Test and the Net Revenues Test for the relevant period, (B) any
deductions from or offsets to the Contingent Payment pursuant to Section 4.5
hereof and (C) the calculation of imputed interest or original issue discount
for U.S. federal tax purposes.
(b) If Seller disputes any calculations shown in the Earn-Out Schedule,
Seller shall give written notice thereof to Acquiror no later than 30 days after
receipt thereof
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accompanied by the Earn-Out Schedule for the relevant period. Such notice
of dispute shall include a reasonably detailed description of the disputed
items. If the parties are unable to resolve such dispute within 30 days of
receipt by Acquiror of Seller's notice of dispute, then such dispute shall be
finally resolved by the Reviewing Accountants in accordance with the procedures
set forth in Section 4.2(c) hereof.
(c) EBITDA Test. Seller shall be entitled to receive, as a component of the
Contingent Payments, cash in an amount determined in accordance with this
Section 4.3(c), in respect of growth in EBITDA ("EBITDA Payments").
(i) Seller shall be entitled to receive EBITDA Payments in the event that
EBITDA for the fiscal year ended December 31, 1997 ("1997 EBITDA") exceeds the
Earnings Baseline in accordance with the following:
1997 EBITDA
as a Percentage
of Earnings Baseline Amount of EBITDA Payments
less than 108% $0
108% $37.5 million
greater than 108% but equal to or less inear increase from $37.5 million (at
than 110% 108%) to $75 million (at 110%)
greater than 110% but equal to or less linear increase from $75 million (at
than 112% 110%) to $100 million (at 112%)
greater than 112% $100 million
(ii) if 1997 EBITDA is less than 108% of the Earnings Baseline, but EBITDA
for the fiscal year ended December 31, 1998 ("1998 EBITDA") is an amount equal
to or greater than 116% of the Earnings Baseline, then EBITDA Payments shall be
made in the amount of $75 million in respect of such period;
(iii) if (x) 1997 EBITDA is less than 108% of the Earnings Baseline, (y)
1998 EBITDA is an amount less than 116% of the Earnings Baseline, and (z) EBITDA
for the fiscal year ended December 31, 1999 ("1999 EBITDA") is equal to or
greater than 124% of the Earnings Baseline, then EBITDA Payments shall be made
in the amount of $75 million in respect of such period;
(iv) if at least $37.5 million but less than $75 million is paid to Seller
as EBITDA Payments in respect of the fiscal year ended December 31, 1997, then
(x) if 1998 EBITDA is an amount equal to or greater than 116% of the Earnings
Baseline, then EBITDA Payments shall be made in an amount such that the
aggregate EBITDA Payments equals $75 million; or (y) if 1998 EBITDA is less than
116% of the Earnings Baseline, but
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1999 EBITDA is an amount equal to or greater than 124% of the Earnings
Baseline, then EBITDA Payments shall be made in an amount such that the
aggregate EBITDA Payments equals $75 million;
(v) To the extent the aggregate EBITDA Payments made to Seller exceed $75
million, such excess is referred to herein as "Excess EBITDA Payments"; and
(vi) Set forth on Schedule II hereto is an example of application of the
EBITDA Test to hypothetical facts.
(d) Members Test. Seller shall be entitled to receive, as a component of
the Contingent Payments, cash in an amount determined in accordance with this
Section 4.3(d), in respect of growth in the number of Members over the Earn-Out
Period ("Members Payments"). Seller shall be entitled to receive Members
Payments in the event that the number of Members in each of the fiscal years
referred to below exceeds the Members Baseline in accordance with the following:
(i) for the fiscal year ended December 31, 1997, no Members Payments shall
be made;
(ii) for the fiscal year ended December 31, 1998 (the "1998 Period"), (x)
if the aggregate number of Members as of such date ("1998 Members") is less than
114% of the Members Baseline, then no Members Payments shall be made in respect
of the 1998 Period; or (y) if the number of 1998 Members is equal to or greater
than 114% of the Members Baseline, then Members Payments in respect of the 1998
Period shall be made in an amount equal to 25% of the Members Target Amount;
(iii) for the fiscal year ended December 31, 1999 (the "1999 Period"), (x)
if the aggregate number of Members as of such date ("1999 Members") is less than
121% of the Members Baseline, then no Members Payments shall be made in respect
of the 1999 Period; provided, however, that, if the number of 1999 Members is
equal to or greater than 107% of the number of 1998 Members, then Members
Payments in respect of the 1999 Period shall be made in an amount equal to 25%
of the Members Target Amount; or (y) if the number of 1999 Members is equal to
or greater than 121% of the Members Baseline, then Members Payments in respect
of the 1999 Period shall be made in an amount equal to 25% of the Members Target
Amount; provided, however, that, if no Members Pay- ments were made in respect
of the 1998 Period, then Members Payments in respect of the 1999 Period shall be
made in an amount equal to 50% of the Members Target Amount;
(iv) for the fiscal year ended December 31, 2000 (the "2000 Period"), (x)
if the aggregate number of Members as of such date ("2000 Members") is less than
128% of the Members Baseline, then no Members Payments shall be made in respect
of the 2000 Period; provided, however, that, if the number of 2000 Members is
equal to or
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greater than 107% of the number of 1999 Members, then Members Payments in
respect of the 2000 Period shall be made in an amount equal to 25% of the
Members Target Amount; or (y) if the number of 2000 Members is equal to or
greater than 128% of the Members Baseline, then Members Payments in respect of
the 2000 Period shall be made in an amount equal to 25% of the Member Target
Amount; provided, however, that, if no Members Pay- ments were made in respect
of the 1998 and 1999 Periods, then Members Payments in respect of the 2000
Period shall be made in an amount equal to 75% of the Members Target Amount;
provided, further, however, that, if aggregate Members Payments in respect of
the 1998 and 1999 Periods were made in an amount equal to 25% of the Members
Target Amount, then Members Payments in respect of the 2000 Period shall be made
in an amount equal to 50% of the Members Target Amount;
(v) for the fiscal year ended December 31, 2001 (the "2001 Period"), (x) if
the aggregate number of Members as of such date ("2001 Members") is less than
128% of the Members Baseline, then no Members Payments shall be made in respect
of the 2001 Period; provided, however, that, if the number of 2001 Members is
equal to or greater than 107% of the number of 2000 Members, then Members
Payments in respect of the 2001 Period shall be made in an amount equal to 25%
of the Members Target Amount; or (y) if the number of 2001 Members is equal to
or greater than 128% of the Members Baseline, then Members Payments in respect
of the 2001 Period shall be made in an amount equal to 25% of the Members Target
Amount; provided, however, that, if no Members Payments were made in respect of
the 1998, 1999 and 2000 Periods, then the Members Pay- ment in respect of the
2001 Period shall be in an amount equal to 100% of the Members Target Amount;
provided, further, however, that, if aggregate Members Payments in respect of
the 1998, 1999 and 2000 Periods were made in an amount equal to 25% of the
Members Target Amount, then the Members Payments in respect of the 2001 Period
shall be made in an amount equal to 75% of the Members Target Amount; provided,
further, however, that, if aggregate Members Payments in respect of the 1998,
1999 and 2000 Periods were made in an amount equal to 50% of the Members Target
Amount, then Members Payments in respect of the 2001 Period shall be made in an
amount equal to 50% of the Members Target Amount; and
(vi) Set forth on Schedule III hereto is an example of applica- tion of the
Members Test to hypothetical facts.
(e) Net Revenues Test. Seller shall be entitled to receive, as a compo-
nent of the Contingent Payments, cash in an amount determined in accordance with
this Section 4.3(e), in respect of growth in Net Revenue over the Earn-Out
Period ("Revenue Payments"). Seller shall be entitled to receive Revenue
Payments in the event that the Net Revenue in each of the fiscal years referred
to below exceeds the Revenue Baseline in accor- dance with the following:
(i) for the fiscal year ended December 31, 1997, no Revenue Payments shall
be made;
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(ii) for the 1998 Period, (x) if the Net Revenue for such period ("1998
Revenue") is less than 120% of the Revenue Baseline, then no Revenue Payments
shall be made in respect of the 1998 Period; or (y) if 1998 Revenue is equal to
or greater than 120% of the Revenue Baseline, then Revenue Payments in respect
of the 1998 Period shall be made in an amount equal to 25% of the Revenue Target
Amount;
(iii) for the 1999 Period, (x) if Net Revenue for such period ("1999
Revenue") is less than 130% of the Revenue Baseline, then no Revenue Payments
shall be made in respect of the 1999 Period; provided, however, that, if 1999
Revenue is equal to or greater than 110% of 1998 Revenue, then Revenue Payments
in respect of the 1999 Period shall be made in an amount equal to 25% of the
Revenue Target Amount; or (y) if 1999 Revenue is equal to or greater than 130%
of the Revenue Baseline, then Revenue Payments in respect of the 1999 Period
shall be made in an amount equal to 25% of the Revenue Target Amount; provided,
however, that, if no Revenue Payments were made in re- spect of the 1998 Period,
then Revenue Payments in respect of the 1999 Period shall be made in an amount
equal to 50% of the Revenue Target Amount;
(iv) for the 2000 Period, (x) if the Net Revenue for such period ("2000
Revenue") is less than 140% of the Revenue Baseline, then no Revenue Payments
shall be made in respect of the 2000 Period; provided, however, that, if 2000
Revenue is equal to or greater than 110% of the 1999 Revenue, then Revenue
Payments in respect of the 2000 Period shall be made in an amount equal to 25%
of the Revenue Target Amount; or (y) if 2000 Revenue is equal to or greater than
140% of the Revenue Baseline, then Revenue Payments in respect of the 2000
Period shall be made in an amount equal to 25% of the Revenue Target Amount;
provided, however, that, if no Revenue Payments were made in re- spect of the
1998 and 1999 Periods, then Revenue Payments in respect of the 2000 Period shall
be made in an amount equal to 75% of the Revenue Target Amount; provided,
further, however, that, if aggregate Revenue Payments in respect of the 1998 and
1999 Periods were made in an amount equal to 25% of the Revenue Target Amount,
then Revenue Payments in respect of the 2000 Period shall be made in an amount
equal to 50% of the Revenue Target Amount;
(v) for the 2001 Period, (x) if the Net Revenue for such period ("2001
Revenue") is less than 140% of the Revenue Baseline, then no Revenue Payments
shall be made in respect of the 2001 Period; provided, however, that, if the
2001 Revenue is equal to or greater than 110% of 2000 Revenue, then Revenue
Payments in respect of the 2001 Period shall be made in an amount equal to 25%
of the Revenue Target Amount; or (y) if 2001 Revenue is equal to or greater than
140% of the Revenue Baseline, then Revenue Payments in respect of the 2001
Period shall be made in an amount equal to 25% of the Revenue Target Amount;
provided, however, that, if no Revenue Payments were made in re- spect of the
1998, 1999 and 2000 Periods, then the Revenue Payment in respect of the 2001
Period shall be in an amount equal to 100% of the Revenue Target Amount;
provided, further, however, that, if aggregate Revenue Payments in respect of
the 1998, 1999 and 2000 Periods were made in an amount equal to 25% of the
Revenue Target Amount, then the
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Revenue Payments in respect of the 2001 Period shall be made in an amount
equal to 75% of the Revenue Target Amount; provided, further, however, that, if
aggregate Revenue Payments in respect of the 1998, 1999 and 2000 Periods were
made in an amount equal to 50% of the Revenue Target Amount, then Revenue
Payments in respect of the 2001 Period shall be made in an amount equal to 50%
of the Revenue Target Amount; and
(vi) Set forth on Schedule IV hereto is an example of applica- tion of the
Revenue Test to hypothetical facts.
(f) Changes Affecting Contingent Payments. It is the mutual intention of
the parties that, during the Earn-Out Period (i) the Contingent Payments to be
received by Seller shall be determined as though no change in the structure of
the Timeshare Exchange Business will occur, and (ii) Acquiror shall not be
restricted in exercising its business judgment as to the management of the
Timeshare Exchange Business. Acquiror shall not implement any Structural Changes
that would materially adversely affect the ability of Seller to earn the then
unearned Contingent Payments under the Members Test, other than changes
consistent with the historic practices of the Company. During the period
commencing January 1, 1998 and ending on the first to occur of (i) the payment
to Seller of the full amount of the Contingent Payments or (ii) December 31,
2001, Acquiror shall give Seller at least thirty (30) days' prior written notice
(a "Structural Change Notice") of any other Structural Change. Such Structural
Change Notice shall include (i) a description of the Structural Change and of
Acquiror's proposal for adjusting the terms of the EBITDA Test and/or the Net
Revenues Test, as appropriate, so that, after implementation of such Struc-
tural Change, the economic basis of such tests shall mirror the economic basis
of such tests as set forth herein (the "Proposed Adjustments") and (ii)
pro-forma financial information of the Timeshare Exchange Business giving effect
to such Structural Change for the most recent fiscal year ending prior to the
implementation of such Structural Change. Within thirty (30) days of receipt of
such Structural Change Notice, Seller shall either (i) consent in writing to
such Proposed Adjustments, or (ii) inform Acquiror in writing that Seller
objects to such Proposed Adjustments. In the event that Seller objects to the
Proposed Adjustments, Seller and Acquiror shall negotiate in good faith to
resolve such dispute. If such dispute can not be resolved within fifteen (15)
days of receipt by Acquiror of Seller's notice of objection, Seller may, at her
election, either (i) consent to the Proposed Adjustments or (ii) convert the
unearned portion of the Contingent Payments under either or both of the EBITDA
Test (the "Unearned EBITDA Payments") and the Net Revenues Test (the "Unearned
Net Revenues Payments") to the Members Test (a "Members Conversion"). Following
any Members Con- version, in addition to the application of the Members Test to
the Members Target Amount the following adjustments shall be made, as
applicable: (i) the Members Test shall be applied to the Unearned Net Revenues
Payments for the year in which the Members Conver- sion occurs and all
subsequent years of the Earn-Out Period and (ii) in the event that any payment
becomes due under the Members Test, the Unearned EBITDA Payments shall become
due. As used herein, a "Structural Change" shall mean a material change in the
organization, operation or financial reporting of the Timeshare Exchange
Business that has an
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adverse effect on the interest of Seller in the Contingent Payments other
than changes consistent with the historic practices of the Company.
Section 4.4 Acquiror's Right of Offset.
(a) Acquiror may, in its sole discretion, exercise a right of offset
against any Contingent Payments required to be made by or on behalf of Acquiror
pursuant to Section 4.3 hereof by deducting from the amount of any Contingent
Payments owed to Seller under this Agreement (i) the amount of any payment
required to be made by Seller pursuant to Section 4.2 hereof that has not been
timely made and (ii) the amount of any indemnity obligation of Seller to any
member of the Acquiror Group pursuant to Section 8.9(e), Section 9.2(f) or
Section 10.1 hereof.
(b) In the event that any Contingent Payments become due and payable to
Seller pursuant to Section 4.3 hereof at a time when there is an unresolved
dispute as to any amounts owed by Seller to Acquiror pursuant to Section 4.2,
8.9(e) or 10.1 hereof ("Seller Payment Amounts"), then Acquiror may hold such
Contingent Payments (up to the amount of the disputed Seller Payment Amount) as
security for the payment by Seller of the Seller Payment Amount upon resolution
of such dispute in accordance with Section 4.2, 8.9(e) or 10.1 hereof, as the
case may be.
(c) Any Contingent Payments not paid when due shall bear interest at the
Prime Rate.
ARTICLE V
RELATED MATTERS
Section 5.1 Registration Statement. At the Closing, Acquiror and Seller
shall enter into a registration rights agreement in substantially the form of
Exhibit A hereto (the "Registration Rights Agreement") relating to the shares of
Acquiror Common Stock issued to Seller as the Common Stock Consideration.
Section 5.2 Representation on Acquiror Board. At the Closing, Acquiror
shall use its best efforts and shall exercise all authority under applicable
Laws to (i) if necessary, increase the size of its Board of Directors by one
member and (ii) cause Seller to be elected as a member of the Board of Directors
of Acquiror until the next annual Meeting of Stockholders. Subject to its
fiduciary duties under applicable law, Acquiror shall nomi- nate Seller as part
of management's slate of nominees for election as a member of the Board of
Directors of Acquiror at each Annual Meeting of Stockholders held in 1997, 1998
and 1999.
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Section 5.3 Long-Term Securities. At the Closing, (a) all Long-Term Securi-
ties held by the Company or any Affiliated Entity and (b) all of the capital
stock of Resort Capital Corporation ("RCC Stock") owned by the Company shall be
assigned and transferred to Seller, who thereupon shall receive all right, title
and interest to such Long-Term Securities and to such RCC Stock. The Cash
Consideration to be paid to Seller by Acquiror shall be reduced by an amount
equal to the Book Value of such Long-Term Securities in accordance with Section
4.1(a) hereof.
Section 5.4 Seller Lease. Prior to the Closing, the Company shall assign
and transfer to Seller, by a recordable deed in appropriate form, the real
property presently owned by the Company in Indianapolis, Indiana on which the
Woodview Trace building is situated, whereupon the Seller shall receive all
right, title and interest to such real property. At the Closing, Seller and the
Company shall enter into a mutually acceptable lease agree- ment (the "Seller
Lease") relating to the lease by the Company from Seller of the Woodview Trace
property and building, with substantially the terms set forth on Exhibit B
hereto.
Section 5.5 Transferred Liquid Securities. (a) Prior to the close of
business on the Business Day immediately preceding the Closing Date, Seller (i)
may, subject to clause (ii) hereof, cause the Company or the appropriate
Affiliated Entity to liquidate all or a portion of the Liquid Securities (other
than Cash and Equivalents), and (ii) shall cause RCI Europe to liquidate all of
the Liquid Securities (other than Cash and Equivalents) held by RCI Europe ("UK
Securities"). At the Closing, the Company or the appropriate Affiliated Entity,
as the case may be, shall assign and transfer any of the Liquid Securities
(other than Cash and Equivalents) not so liquidated (the "Transferred Liquid
Securities") to Seller, who thereupon shall receive all right and title to and
interest in such Transferred Liquid Securi- ties. The Cash Consideration to be
paid to Seller by Acquiror shall be reduced by the Realizable Value of the
Transferred Liquid Securities in accordance with Section 4.1(a) hereof.
(b) Seller and the Company shall cause such liquidation of the Liquid
Securities pursuant to Section 5.5(a) hereof to be conducted in a commercially
reasonable manner. On the Business Day immediately preceding the Closing Date,
the Company shall provide to Acquiror a written statement setting forth the
brokerage fees, commissions and other out-of-pocket costs incurred in connection
with such liquidation (the "Liquidation Costs"). At the Closing, Acquiror shall
reimburse Seller for fifty percent (50%) of the Liquidation Costs.
Section 5.6 UK Securities. (a) On the Business Day immediately preceding
the Closing Date, Acquiror Subsidiary shall issue to RCI Europe shares of its
preferred stock (the "Preferred Stock"), in exchange for all Cash and
Equivalents held by RCI Europe, including the gross Cash and Equivalents
realized by RCI Europe upon liquidation of the UK Securities pursuant to Section
5.5 hereof, but excluding any restricted cash ("UK Cash and Equivalents"). The
liquidation value of the Preferred Stock shall be equal to the UK Cash and
Equivalents. The Preferred Stock shall (i) be redeemable after an agreed upon
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period of time at the option of RCI Europe and (ii) accrue dividends at a
mutually agreed upon rate.
(b) Prior to the Business Day immediately preceding the Closing Date, the
Company shall cause RCI Europe to comply with the requirements of Section 151 of
the Companies Act 1985 of the United Kingdom. On the Business Day immediately
preceding the Closing Date, the Company shall provide to Acquiror a written
statement setting forth the legal and accounting fees incurred by RCI Europe in
effecting such compliance ("Compliance Costs"). At the Closing, Acquiror shall
reimburse Seller for fifty percent (50%) of the Compliance Costs.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF SELLER AND THE COMPANY
Seller and the Company, jointly and severally, hereby represent and warrant
to Acquiror as follows:
Section 6.1 Authority; Binding Effect.
(a) The Company has all requisite corporate power and corporate au- thority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Company. No other corporate action on the part of the Company or any of the
Affiliated Entities or their respective stockholders is re- quired to authorize
the execution, delivery and performance hereof, and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, enforce- able against the Company in accordance with its terms, except
that such enforcement may be subject to any bankruptcy, insolvency,
reorganization, moratorium or other laws now or hereafter in effect relating to
or limiting creditors' rights generally and the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the Court before which any proceedings
therefor may be brought.
(b) Seller has the requisite power, capacity and authority to execute and
deliver this Agreement, to perform her obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Seller and constitutes the valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except that such
enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium or other laws now or hereafter in effect relating to or
26
<PAGE>
limiting creditors' rights generally and the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the Court before which any proceedings
therefor may be brought.
Section 6.2 Organization.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Indiana, and has all requisite
corporate power and authority to own, lease and operate all of its properties
and assets and to conduct its business as it is now being conducted. Except as
set forth in Section 6.2(a) of the Seller Disclosure Schedule, the Company is
duly qualified or licensed and in good standing to do business as a foreign
corporation in each jurisdiction in which the nature of its business, or the
ownership, leasing or operation of its properties or assets, makes such
qualification necessary, except in those jurisdictions where the failure to have
such power and authority or to be so qualified or licensed and in good standing
would not, individually or in the aggre- gate, reasonably be expected to have a
Material Adverse Effect on the Company and the Affiliated Entities considered as
a whole. Seller has delivered or made available to Acquiror a complete and
correct copy of the Company's Articles of Incorporation and By-Laws, each as
amended to date. Each of the Company's Articles of Incorporation and the
Company's By-Laws is in full force and effect, and the Company is not in
violation of any provision thereof.
(b) Section 6.2(b) of the Seller Disclosure Schedule sets forth the name,
jurisdiction of organization, capitalization and ownership of all outstanding
capital stock of each Affiliated Entity. Except as set forth in Section 6.2(b)
of the Seller Disclosure Schedule, each Affiliated Entity (i) is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its organization, (ii) has all requisite corporate power and
authority to own, lease and operate all of its properties and assets and to
conduct its business as it is now being conducted and (iii) is duly qualified
and in good stand- ing to do business as a foreign corporation in each
jurisdiction in which the nature of its business, or the ownership, leasing or
operation of its properties or assets, makes such qualification necessary,
except in those jurisdictions where the failure to have such power and authority
or to be so qualified or licensed and in good standing would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company and the Affiliated Entities considered as a whole. Seller has
delivered or made available (or prior to Closing will deliver or make available)
to Acquiror a complete and cor- rect copy of the certificate or articles of
incorporation and by-laws or comparable charter or organizational documents,
each as amended to date, of each Affiliated Entity. All such organizational
documents are in full force and effect, and none of the Affiliated Entities is
in violation of any provision of its certificate or articles of incorporation or
by-laws or compa- rable charter or organizational documents.
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(c) The Material Affiliates constitute each of the Affiliated Entities that
generated net revenues (on the basis of management statements), individually, in
excess of $8,000,000 in fiscal 1995.
Section 6.3 Records.
(a) The respective corporate record books of the Company and each
Affiliated Entity contain accurate and complete records of all material meetings
and accu- rately reflect all other material actions taken by the stockholders,
Boards of Directors and all material committees of the Boards of Directors of
the Company and each Affiliated Entity. Except as set forth in Section 6.3 of
the Seller Disclosure Schedule, all such record books have been made available
by Seller to Acquiror.
(b) The books and records of the Company and each Affiliated Entity are
complete, have been maintained in accordance with applicable laws and good
business practices, and, as a whole, accurately reflect, in all material
respects, the basis for the financial condition and results of operations of the
Company and the Affiliated Entities set forth in the Financial Statements or the
Related Entity Financial Statements, as the case may be.
Section 6.4 Capitalization.
(a) The authorized capital stock of the Company consists of 2,000 shares of
common stock, without par value, of which 1,000 shares are issued and outstand-
ing. No shares of capital stock of the Company are held in the treasury of the
Company. Each issued and outstanding share of capital stock of the Company has
been duly authorized and validly issued, is fully paid and nonassessable, and
has not been issued in violation of, and is not subject to, any preemptive or
subscription rights.
(b) The capitalization information contained in Section 6.2(b) of the
Seller Disclosure Schedule represents a true, correct and complete description
of the authorized and outstanding capitalization of each Affiliated Entity. No
shares of capital stock of any Affiliated Entity are held in the treasury of
such Affiliated Entity. Each issued and outstanding share of capital stock of
each Affiliated Entity has been duly authorized and validly issued, is fully
paid and nonassessable, and has not been issued in violation of, and is not
subject to, any preemptive or subscription rights.
(c) Seller has good and valid title to all of the Company Shares, free and
clear of all Liens.
(d) Seller (or the Affiliated Entity listed in Section 6.2(b) of the Seller
Disclosure Schedule) has good and valid title to all of the Seller Affiliate
Shares (other than the Company Affiliate Shares) owned by such Person, free and
clear of all Liens.
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(e) The Company has good and valid title to all of the Company Affiliate
Shares, free and clear of all Liens.
(f) The Trust has good and valid title to all of the Trust Shares, free and
clear of all Liens.
(g) Each Nominee Shareholder has good and valid title to all Nominee Shares
owned by such Nominee Shareholder, free and clear of all Liens, other than the
rights of the Company or the appropriate Affiliated Entity in and to such
shares.
(h) Except as set forth in Section 6.4(f) of the Seller Disclosure
Schedule, (i) there is no option, warrant or other right, agreement,
arrangement, or commit- ment of any kind whatsoever relating to the issued or
unissued capital stock or other equity interests of the Company or any
Affiliated Entity or obligating the Company or any Affiliat- ed Entity to grant,
issue or sell any share of the capital stock or other equity interests of the
Company or such Affiliated Entity by sale, lease, license or otherwise; (ii)
there is no obliga- tion, contingent or otherwise, of the Company or any
Affiliated Entity to (A) repurchase, redeem or otherwise acquire any share of
the capital stock or other equity interests of the Company or any Affiliated
Entity, or (B) provide funds to, or make any investment in (in the form of a
loan, capital contribution or otherwise), or provide any guarantee with respect
to the obligations of, the Company or any Affiliated Entity or any other Person;
(iii) other than as set forth in Section 6.2(b) of the Seller Disclosure
Schedule, neither the Company nor any Affiliated Entity, directly or indirectly,
owns, or has agreed to purchase or otherwise ac- quire, the capital stock or
other equity interests of, or any interest convertible into or ex- changeable or
exercisable for such capital stock or such equity interests of, any corporation,
partnership, joint venture or other entity (other than ownership of shares of
another Affiliated Entity as reflected on Schedule I hereto); (iv) there is no
agreement, arrangement, contract or other commitment of any kind whatsoever
(contingent or otherwise) pursuant to which any Person is or may become entitled
to receive any payment based on the revenues or earnings, or calculated in
accordance therewith, of the Company or any Affiliated Entity; and (v) there is
no voting trust, proxy or other agreement, arrangement, contract or other
commitment of any kind whatsoever to which the Company or any Affiliated Entity
is a party, or by which the Company or any Affiliated Entity, or any of their
respective properties or assets, is bound with respect to the voting of any
share of capital stock or other equity interest of the Company or any Affiliated
Entity.
(i) Set forth on Section 6.4(i) of the Seller Disclosure Schedule are (i)
the names of all persons or entities (other than Seller, the Company, any
Affiliated Entity or the Trust) who hold an equity interest in any of the
Affiliated Entities (the"Nominee Shareholders"), (ii) the shares of any
Affiliated Entity owned by each Nominee Shareholder ("Nominee Shares") and (iii)
the respective relationships or affiliations of each Nominee Shareholder with
Seller, the Company or any of the Affiliated Entities.
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(j) Upon delivery to Acquiror at the Closing of the Company Shares, the
Seller Affiliate Shares and the Trust Shares pursuant to Sections 2.1 and 2.2
hereof, and payment by Acquiror of the consideration therefor pursuant to
Section 2.4 hereof, Acquiror shall acquire and receive all right, title and
interest in and to 100% of the issued and outstanding shares of the Company and
each Affiliated Entity, free and clear of all Liens, other than the Nominee
Shares.
Section 6.5 No Violation; Consents and Approvals.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) except as set forth in Section
6.5(c) of the Seller Disclosure Schedule, conflict with or violate the articles
of incorporation or by-laws, in each case as currently in effect, of the Company
or any Affiliated Entity, (ii) conflict with or violate any Laws applicable to
the Company or any Affiliated Entity or by or to which any of their respective
properties or assets is bound or subject, or (iii) result in any breach of, or
constitute a default (or an event that with notice or lapse of time or both
would consti- tute a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or require payment under, or result
in the creation of a Lien on any of the properties or assets of the Company or
any Affiliated Entity under, any note, bond, mort- gage, indenture, contract,
agreement, arrangement, commitment, lease, license, permit, fran- chise or other
instrument or obligation to which the Company or any Affiliated Entity is a
party or by or to which the Company or any Affiliated Entity or any of their
respective prop- erties or assets is bound or subject, except where the
conflict, violation, breach, default, termination, amendment, acceleration,
cancellation, requirement or creation would not have a Material Adverse Effect
on the Company and the Affiliated Entities considered as a whole, would not
prevent Seller's or the Company's ability to consummate the transactions con-
templated hereby, or would not impair in any material respect Acquiror's ability
to operate the Company and the Affiliated Entities, considered as a whole, as
currently operated.
(b) The execution and delivery of this Agreement by Seller do not, and the
performance of this Agreement by Seller and the consummation of the transactions
con- templated hereby will not, (i) except as set forth in Section 6.5(c) of the
Seller Disclosure Schedule, conflict with or violate any Laws applicable to
Seller or by or to which any of her properties or assets is bound or subject, or
(ii) result in any breach of, or constitute a default (or an event that with
notice or lapse of time or both would constitute a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
require payment under, or result in the creation of a Lien on any of the
properties or assets of Seller under, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Seller is a party or by or to which any of her properties or
assets is bound or subject, except where the conflict, violation, breach,
default, termination, amendment, acceleration, cancellation, requirement or
creation would not have a Material Adverse Effect on the Company and the
Affiliated Entities considered as a whole, would not prevent Seller's or the
Company's ability to
30
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consummate the transactions contemplated hereby, or would not impair in any
material re- spect Acquiror's ability to operate the Company and the Affiliated
Entities, considered as a whole, as currently operated.
(c) The execution and delivery of this Agreement by Seller and the Company
do not, and the performance by Seller and the Company of this Agreement and the
consummation of the transactions contemplated hereby will not require Seller,
the Company or any Affiliated Entity to obtain any consent, approval, waiver,
authorization or permit of, or to make any filing or registration with or
notification to ("Consents"), any court, agency or commission, or other
governmental entity, authority or instrumentality, whether domestic or foreign
("Governmental Authority"), or any third party, except for (i) applicable
require- ments, if any, of the HSR Act and the Competition Laws and (ii) the
Consents set forth in Section 6.5(c) of the Seller Disclosure Schedule.
(d) Except as set forth in Section 6.5(d) of the Seller Disclosure
Schedule, none of the Permits will lapse, terminate or expire as a result of the
performance of this Agreement by Seller and the Company or the consummation of
the transactions con- templated hereby.
Section 6.6 Absence of Litigation.
(a) Except as set forth in Section 6.6(a) of the Seller Disclosure Sche-
dule, (i) there is no claim, action, suit, proceeding or investigation of any
kind whatsoever, at law or in equity (including actions or proceedings seeking
injunctive relief), by or before any Governmental Authority ("Litigation")
pending or, to the knowledge of each of Seller and the Company, threatened
against Seller, the Company or any Affiliated Entity or af- fecting any of their
respective properties or assets, and none of Seller, the Company or any
Affiliated Entity is a party or subject to, or in default under, any judgment,
order or decree of any Governmental Authority.
(b) To the knowledge of each of Seller and the Company, none of the
Litigation set forth in Section 6.6(a) of the Seller Disclosure Schedule, if
adversely deter- mined, or the judgments, orders or decrees, in each case as set
forth in Section 6.6(a) of the Seller Disclosure Schedule, (i) has had or could
reasonably be expected to have a Material Adverse Effect on the Company, (ii)
could impair Seller's or the Company's ability to perform their respective
obligations hereunder or to consummate the transactions contem- plated hereby or
(iii) could impair the ability of the Company or any Affiliated Entity to con-
duct their respective businesses after the Closing Date in substantially the
manner as they are now being conducted.
Section 6.7 Related Party Agreements. Except as set forth in Section 6.7 of
the Seller Disclosure Schedule, no current or former director, executive officer
or stock- holder of the Company or any Affiliated Entity is a party to any
agreement, arrangement, contract or other commitment (the "Related Party
Agreements") to which the Company or
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any Material Affiliate is a party or by or to which any of their respective
properties or assets is bound or subject, or to the knowledge of each of Seller
and the Company, has a material interest in any agreement, arrangement, contract
or other commitment, property or asset (real or personal), tangible or
intangible, owned by, used in or pertaining to the business of the Company or
any Affiliated Entity.
Section 6.8 Permits; Compliance with Laws. The Company and each Affiliated
Entity possesses all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and assets and to carry on
its business as it is now being conducted (other than those required under
Environmental Laws, which are governed by Section 6.13 hereof), other than those
that are not material to the operation of the business of the Company and the
Affiliated Entities considered as a whole (collectively, the "Permits"), and
there is no claim, action, suit, proceeding or investigation pending or, to the
knowledge of each of Seller and the Company, threatened regarding suspension or
cancellation of any such Permits. Section 6.8 of the Seller Disclosure Schedule
sets forth a true, correct and com- plete list of all such Permits. Except as
set forth in Section 6.8 of the Seller Disclosure Schedule, each of the Company
and the Affiliated Entities is, and has been since January 1, 1993, in
compliance in all material respects with such Permits and with all Laws
applicable to it or by or to which any of its properties or assets is bound or
subject (other than (i) Envi- ronmental Laws, which are governed by Section 6.13
hereof, (ii) ERISA and other Laws re- garding employee benefit matters, which
are governed by Section 6.11 hereof, (iii) Labor Laws, which are governed by
Section 6.16 hereof, and (iv) Tax Laws, which are governed by Section 6.20
hereof).
Section 6.9 Financial Statements/Undisclosed Liabilities/Receivables.
(a) The Company has delivered to Acquiror true and complete copies of: (i)
the audited combined balance sheets of the Company and the Combined Entities as
of December 31, 1995, December 31, 1994 and December 31, 1993, and the audited
combined statements of operations and retained earnings and cash flows of the
Company and the Combined Entities for each of the fiscal years then ended, all
certified by the Company's independent auditors, Ernst & Young LLP, whose
reports thereon are included therewith; and (ii) the unaudited combined balance
sheets of the Company and the Combined Entities as of June 30, 1996 and August
31, 1996, respectively, and the unaudited combined statements of operations and
retained earnings of the Company and the Combined Entities for the six- month
period ended June 30, 1996 and the eight-month period ended August 31, 1996
(col- lectively, such audited and unaudited financial statements are referred to
herein as the "Financial Statements"). Each of the Financial Statements
(including any related notes there- to) has been prepared in accordance with
GAAP consistently applied throughout the periods involved (except as may be
indicated therein or in the notes thereto and, as to the Financial Statements
referred to in clause (ii) above, except as set forth in Section 6.9(a) of the
Seller Disclosure Schedule) and fairly presents the combined financial position,
results of operations and cash flows of the Company and the Combined Entities as
of the dates or for the periods
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indicated therein, subject, in the case of the unaudited financial
statements, to normal and recurring year-end audit adjustments (which are not,
individually or in the aggregate, materi- al to the Company and the Combined
Entities) and the absence of footnote disclosure. The unaudited combined balance
sheet of the Company and the Combined Entities as of August 31, 1996 included in
the Financial Statements is herein referred to as the "Balance Sheet". Since
December 31, 1994, neither the Company nor any of the Combined Entities has made
any material change in the accounting practices or policies applied in the
preparation of its financial statements.
(b) The Company has delivered to Acquiror true and complete copies of: (i)
the unaudited combined balance sheets of the Related Entities as of December 31,
1995, December 31, 1994 and December 31, 1993, and the unaudited combined
statements of operations and retained earnings of the Related Entities for each
of the fiscal years then ended, certified by the Chief Financial Officer of the
Company; and (ii) the unaudited combined balance sheets of the Related Entities
as of June 30, 1996 and August 31, 1996, respectively, and the unaudited
combined statements of operations and retained earnings of the Related Entities
for the six-month period ended June 30, 1996 and the eight-month period ended
August 31, 1996 (collectively, such unaudited financial statements are referred
to here- in as the "Related Entity Financial Statements"). Each of the Related
Entity Financial State- ments has been prepared in accordance with GAAP
consistently applied throughout the peri- ods involved (except as set forth in
Section 6.9 of the Seller Disclosure Schedule) and fairly presents the combined
financial position and results of operations of the Related Entities as of the
dates or for the periods indicated therein, subject to normal and recurring
year-end audit adjustments (which are not, individually or in the aggregate,
material to the Related Entities) and the absence of footnote disclosure. Since
December 31, 1995, none of the Related Entities has made any material change in
the accounting practices or policies applied in the preparation of its financial
statements.
(c) Since December 31, 1995, neither the Company nor any Affiliated Entity
has incurred any liability or obligation (whether direct or indirect, fixed,
contingent or otherwise) other than (i) such as have been reflected on the
Balance Sheet in accordance with GAAP consistently applied and (ii) such as have
been incurred in the ordinary course of business consistent with past practice
since August 31, 1996 and none of which represent contingent liabilities in
excess of $100,000 individually or $500,000 in the aggregate. Except as set
forth in Section 6.9(c) of the Seller Disclosure Schedule, the reserves for such
liabilities and obligations reflected on the Balance Sheet are adequate.
(d) Except as set forth in Section 6.9(d) of the Seller Disclosure
Schedule, all accounts receivable and notes receivable of the Company and the
Affiliated Entities have arisen from bona fide transactions in the ordinary
course of business consistent with past practice and are current and collectible
net of any reserves reflected on the Balance Sheet (which reserves were
determined in accordance with GAAP consistent with past prac- tice).
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(e) Section 6.9(e) of the Seller Disclosure Schedule sets forth a true and
complete list of all derivative securities and similar financial instruments
owned by the Company or any of the Affiliated Entities.
Section 6.10 Absence of Certain Changes or Events. Except as set forth in
Section 6.10 of the Seller Disclosure Schedule, since December 31, 1995, (a) the
Company and each of the Material Affiliates has conducted its business only in
the ordinary course of business consistent with past practice and has made
efforts consistent with past practice to preserve each of its relationships with
timeshare exchange members and subscribers and resort and condominium developers
and owners, (b) there has not occurred, nor has there been any condition, event,
circumstance, change or effect that has had or would reasonably be expected to
have, a Material Adverse Effect on the Company and the Affiliated Entities
considered as a whole, and (c) none of the Company or any of the Affiliated
Entities has taken any of the following actions:
(i) declared, set aside or paid any dividend or other distribution (whether
in cash, securities or property or any combination thereof) in respect of any
class or series of its capital stock; except (A) in the ordinary course of
business among the Company and the Affiliated Entities pursuant to their normal
cash management practices and (B) cash dividends by the Company to Seller during
1996 as set forth in Section 6.10 of the Seller Disclosure Schedule;
(ii) adjusted, split, combined, subdivided or reclassified any shares of
its capital stock, as the case may be, or any option, warrant or right relating
thereto;
(iii) (A) sold, leased, transferred or otherwise disposed of any of its
properties, assets or rights, other than transfers of properties, assets or
rights for fair value in the ordinary course of business consistent with past
practice in an amount not to exceed $250,000 individually or $500,000 in the
aggregate, (B) permitted, allowed or suffered any of its properties or assets to
be subjected to any Lien, restriction or charge other than Permitted Liens,
except for such Liens set forth in Section 6.14 or 6.15 of the Seller Disclosure
Schedule, or (C) acquired or leased any properties, assets or rights in an
amount not to exceed $250,000 individually or $500,000 in the aggregate, in each
case, other than purchases and sales of Liquid Securities and Long-Term
Securities in the ordinary course of business consistent with past practice;
(iv) created, incurred, assumed or guaranteed (A) any Indebted- ness or (B)
any other liability or obligation other than in the ordinary course of business
consistent with past practice;
(v) paid, discharged or satisfied any claim, encumbrance, liability or
obligation (whether absolute, accrued, contingent or otherwise, and whether due
or to become due), other than the payment, discharge or satisfaction in the
ordinary course
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of business consistent with past practice of liabilities and obligations
that were actually due and payable and are reflected on the Balance Sheet or
incurred in the ordinary course of business consistent with past practice since
the date thereof;
(vi) changed any of the accounting or tax principles, practices or methods
used by the Company or any of the Affiliated Entities, failed to maintain the
ac- counts, books and records of the Company or any of the Affiliated Entities
in the usual, regular and ordinary manner on a basis consistently applied or
caused or permitted to terminate the status as an S Corporation of the Company
or any Affiliated Entity that is an S Corporation.
(vii) made any material change in its working capital practices from those
in effect from the beginning of fiscal 1995 through the date of the Balance
Sheet, including the payment of payables and the collection of receivables; and
(viii) made or authorized any capital expenditures or commit- ment for
capital expenditures, except for (A) capital expenditures on items other than
the BPR Project in the ordinary course of business consistent with past practice
not in excess of $250,000 individually or $1,000,000 in the aggregate, and (B)
capital expenditures set forth on Schedule V hereto relating to the BPR Computer
Project.
Section 6.11 Employee Benefit Plans; ERISA.
(a) Section 6.11 of the Seller Disclosure Schedule sets forth a true and
complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension or retirement plan, program, agreement or arrangement,
and each other employee benefit plan, program, agree- ment or arrangement,
sponsored, maintained or contributed to or required to be contributed to by the
Company or any Affiliated Entity or by any ERISA Affiliate, for the benefit of
any employee or former employee of the Company or any Affiliated Entity or any
ERISA Affili- ate, whether formal or informal other than any such plan, program,
agreement or arrange- ment sponsored, maintained or mandated by any governmental
authority outside the United States of America (collectively, the "Plans").
Section 6.11(a) of the Seller Disclosure Sche- dule identifies each of the Plans
that is an "employee benefit plan", as that term is defined in Section 3(3) of
ERISA (such plans being hereinafter referred to collectively as the "ERISA
Plans"). Except as set forth in Section 6.11(a) of the Seller Disclosure
Schedule, neither the Company nor any Affiliated Entity nor any ERISA Affiliate
has any formal plan or commit- ment to create any additional Plan or modify or
change any existing Plan in a way that would affect any employee or terminated
employee of the Company or any Affiliated Entity or any ERISA Affiliate.
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(b) With respect to each of the Plans, the Company has delivered (or prior
to Closing will deliver) to Acquiror true, correct and complete copies of each
of the following documents:
(i) the Plan (including all amendments thereto);
(ii) the annual report, if required under ERISA, for each of the last three
years;
(iii) the actuarial report, if required under ERISA, for each of the last
three years;
(iv) the most recent Summary Plan Description, together with each Summary
of Material Modifications, required under ERISA, and all material employee
communications relating to such Plan;
(v) if the Plan is funded through a trust or any third-party funding
agreement, a copy of the current trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof;
(vi) all current contracts relating to the Plan with respect to which the
Company or any Affiliated Entity or any ERISA Affiliate may have any liability,
including insurance contracts, investment management agreements, subscription
and partic- ipation agreements and record-keeping agreements; and
(vii) the most recent determination letter received from the IRS with
respect to each Plan that is intended to be qualified under Section 401 of the
Code.
(c) No liability under Title IV of ERISA has been incurred by the Company
or any Affiliated Entity or any ERISA Affiliate since the effective date of
ERISA that has not been satisfied in full, and no condition exists that presents
a risk to the Company or any Affiliated Entity or any ERISA Affiliate of
incurring a liability under Title IV of ERISA, other than liability for premiums
due the Pension Benefit Guaranty Corporation ("PBGC") (which premiums have been
paid when due). To the extent this representation applies to Section 4064, 4069
or 4204 of Title IV of ERISA, it is made not only with respect to the ERISA
Plans, but also with respect to any Plan subject to Title IV of ERISA to which
the Company or any Affiliated Entity or any ERISA Affiliate made, or was
required to make, contributions during the six-year period ending on the Closing
Date.
(d) The PBGC has not instituted any proceeding to terminate any ERISA Plan,
and no condition exists which presents a risk that any such proceeding will be
instituted.
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(e) Except as set forth in Section 6.11(e) of the Seller Disclosure
Schedule, no ERISA Plan is subject to Title IV of ERISA.
(f) Neither the Company nor any Affiliated Entity nor any ERISA Affiliate
nor any ERISA Plan, nor any trust created thereunder nor any trustee or
administra- tor thereof, has engaged in a transaction in connection with which
the Company, any Affiliated Entity, any ERISA Affiliate or any ERISA Plan, or
any such trust or any trustee or administrator thereof, or any party dealing
with any ERISA Plan or any such trust, could be subject to either a civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed
pursuant to Section 4975 or 4976 of the Code.
(g) Full payment has been made of all amounts that the Company or any
Affiliated Entity or any ERISA Affiliate is required to pay under the terms of
each ERISA Plan and Section 412 of the Code as of the last day of the most
recent Plan year thereof ended prior to the date of this Agreement, and all such
amounts properly accrued through the Closing Date with respect to the current
Plan year thereof will be paid by the Company or the applicable Affiliated
Entity on or prior to the Closing Date or will be prop- erly recorded in the
Company's combined financial statements in accordance with GAAP; and no ERISA
Plan or any trust established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of each
ERISA Plan ended prior to the date of this Agreement; and all contributions
required to be made with respect thereto (whether pursuant to the terms of any
ERISA Plan or otherwise) on or prior to the Closing Date have been timely made.
(h) With respect to each of the ERISA Plans that is subject to Title IV of
ERISA, the present value of accrued benefits under such Plan, based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such Plan's actuary with respect to such Plan, did not, as of
its latest validation date, exceed the then current value of the assets of such
Plan allocable to such accrued benefits.
(i) No ERISA Plan is a "multiemployer plan," as such term is defined in
Section 3(37) of ERISA, nor is any ERISA Plan a plan described in Section
4063(a) of ERISA.
(j) Each Plan has been created, operated and administered in all material
respects in accordance with its terms and in compliance with applicable laws,
including, but not limited to, ERISA and the Code.
(k) (i) Each ERISA Plan that is intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code; and (ii)
each Plan that is intended to satisfy the requirements of Section 501(c)(9) of
the Code has so satisfied such requirements.
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(l) Except as set forth in Section 6.11(l) of the Seller Disclosure Sche-
dule, no Plan provides benefits, including death or medical benefits (whether or
not insured), with respect to current or former employees of the Company or any
Affiliated Entity or any ERISA Affiliate beyond their retirement or other
termination of service (other than coverage mandated by applicable Laws), and
neither the Company nor any Affiliated Entity nor any ERISA Affiliate has ever
represented, promised or contracted (whether in oral or written form) that any
employee or group of employees would be provided with any such benefits upon
their retirement or termination of employment.
(m) Except as set forth in Section 6.11(m) of the Seller Disclosure
Schedule, neither the execution and delivery of this Agreement by Seller and the
Company nor the performance by Seller and the Company of this Agreement nor the
consummation of the transactions contemplated hereby will (i) entitle any
current or former director, officer or employee of the Company or any Affiliated
Entity or any ERISA Affiliate to severance pay, unemployment compensation or any
other payment from the Company or any Affiliated Entity, (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
director, officer or employee, or (iii) result in any prohibited transaction de-
scribed in Section 406 of ERISA or Section 4975 of the Code for which an
exemption is not available.
(n) Each Plan that is not subject to Title I of ERISA pursuant to Section
4(b)(4) of ERISA (the "Foreign Plans") is in compliance in all material respects
with all laws, regulations and rules applicable thereto and the respective
requirements of the governing documents for such Plan. With respect to each
Foreign Plan that is required to be funded through a trust or other funding
vehicle, the aggregate liabilities of the accrued benefits do not exceed the
fair market value of the assets held in the trust of other funding vehicle for
such Plan. The aggregate unfunded liabilities with respect to each Foreign Plan,
after giving effect to any reserves for such liabilities, will not result in a
material liability to the Company or the Affiliated Entities considered as a
whole.
Section 6.12 Contracts.
(a) The number of fully paid Members as of December 31, 1995 set forth in
the Combined Statement of Key Operating Statistics, as audited by the Company's
independent public accountants, was 2,048,804. To the knowledge of each of
Seller and the Company, there has not been a material reduction in the number of
Members since Decem- ber 31, 1995.
(b) Section 6.12(b) of the Seller Disclosure Schedule sets forth a true and
complete list of all agreements, arrangements, contracts and commitments (other
than such agreements, arrangements, contracts and other commitments among or
between one or more of the Company and any Affiliated Entity, on the one hand,
and the resort and condominium developers and owners, on the other hand,
(collectively, the "Developer Con- tracts")) to which the Company or any
Material Affiliate is a party or by or to which any of
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their respective properties or assets is bound or subject (the "Other
Contracts" and, together with the Developer Contracts, the "Contracts"), other
than such Other Contracts as (i) (A) may be terminated at any time without
penalty by the Company or each Material Affiliate party thereto upon notice of
90 days or less or (B) involve aggregate obligations of the Company or any
Material Affiliate in any future twelve-month period of $50,000 or less; (ii)
are Plans listed in Section 6.11(a) of the Seller Disclosure Schedule; (iii) are
Related Party Agreements listed in Section 6.7 of the Seller Disclosure
Schedule; or (iv) are Leases listed in Section 6.15(b) of the Seller Disclosure
Schedule. Each Contract is in full force and ef- fect and is the valid and
binding obligation of the Company or the Material Affiliate party thereto.
Except as set forth in Section 6.12(b) of the Seller Disclosure Schedule, none
of the Company or any Material Affiliate or, to the knowledge of each of Seller
and the Company, any other party thereto is in breach of or in default in any
material respect under any of the Contracts, and no event has occurred that,
with the passage of time or the giving of notice, or both, would constitute such
a breach or default. Except as set forth in Schedule 6.12(b) of the Seller
Disclosure Schedule, neither the Company nor any Material Affiliate is a party
to, nor are any of their respective properties or assets bound by or subject to,
any agreement, arrangement, contract or other commitment, including, without
limitation, any covenant not to compete or other restrictive covenant, which
purports to limit in any respect the manner, or the localities, in which the
Company or any Material Affiliate is entitled to conduct all or
any portion of its business.
Section 6.13 Environmental Matters.
(a) Except as set forth in Section 6.13(a) of the Seller Disclosure
Schedule, the Company and each of the Affiliated Entities are in compliance in
all material respects with all applicable Environmental Laws (which compliance
includes, but is not limited to, the possession by the Company and each of the
Affiliated Entities of all permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof).
(b) Except as set forth in Section 6.13(b) of the Seller Disclosure
Schedule, there is no Environmental Claim pending or, to the knowledge of each
of Seller and the Company, threatened that would have a Material Adverse Effect
on the Company or any of the Affiliated Entities. To the knowledge of each of
Seller and the Company after due inquiry, there have been no Releases of
Hazardous Materials on, beneath or adjacent to any property currently or
formerly owned, operated, or leased by the Company or any of the Affiliated
Entities in quantities sufficient to form the basis for an Environmental Claim.
(c) Seller and the Company have delivered or otherwise made available for
inspection to Acquiror true, complete and correct copies and results of any
reports, studies, analyses, tests or monitoring possessed or initiated by the
Company or any of the Affiliated Entities pertaining to Hazardous Materials in,
on, beneath or adjacent to any property currently or formerly owned, operated or
leased by the Company or any of the
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Affiliated Entities, or regarding the Company's or such Affiliated Entity's
compliance with applicable Environmental Laws.
(d) No Lien imposed by any governmental agency in connection with the
presence of any Hazardous Materials is currently outstanding on any property,
facility, machinery or equipment owned, operated or leased by the Company or any
of the Affiliated Entities.
Section 6.14 Personal Property.
(a) Except as set forth in Section 6.14 of the Seller Disclosure Sche-
dule, the Company or one of the Affiliated Entities has good and valid title to,
or a valid and enforceable right to use, all personal property (whether tangible
or intangible) reflected on the Balance Sheet or acquired by the Company or any
Affiliated Entity since August 31, 1996 (except such personal property as has
been disposed of in the ordinary course of busi- ness), free and clear of any
and all Liens except Permitted Liens.
(b) As of December 31, 1995, Resort Capital Corporation held approximately
$2.2 million of timeshare receivables and other net assets of less than
$500,000.
Section 6.15 Real Property.
(a) Section 6.15 of the Seller Disclosure Schedule sets forth a true and
complete list of all real property to which the Company or any Affiliated Entity
has legal or equitable title (the "Owned Realty") or in which the Company or any
Affiliated Entity has a valid and subsisting leasehold or other interest (the
"Leased Realty"), and sets forth for each such Owned Realty and Leased Realty
the title or interest held by the Company or any Affiliated Entity. All title
insurance policies issued to the Company or any Affiliated Entity are listed in
Section 6.15(a) of the Seller Disclosure Schedule and true, correct and complete
copies of such policies have been furnished to Acquiror.
(b) The Company or the Affiliated Entity, as the case may be, set forth on
Section 6.15(a) as the owner of a particular piece of the Owned Realty has good
and marketable fee title to such Owned Realty, free and clear of any and all
Liens (except Per- mitted Liens and the leases, subleases, rights of parties in
possession, easements and en- croachments set forth in Section 6.15(b) of the
Seller Disclosure Schedule).
(c) The Company and each Material Affiliate set forth on Section 6.15(a) as
the lessee of a particular piece of Leased Realty possesses a valid and
subsisting leasehold or other interest in such Leased Realty pursuant to the
leases or other instruments set forth in Section 6.15(c) of the Seller
Disclosure Schedule (the "Leases"), free and clear of any and all Liens (except
Permitted Liens and the subleases, rights of parties in posses- sion, easements
and encroachments set forth in Section 6.15(c) of the Seller Disclosure Sche-
40
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dule). Each Lease of the Company and each Material Affiliate is in full
force and effect, and is the valid and binding obligation of each party thereto
in accordance with its terms, and there is not under any Lease any existing
default by the Company or any Material Affiliate or, to the knowledge of each of
Seller and the Company, any other party thereto, or, to the knowledge of each of
Seller and the Company, any condition or event which, with notice or lapse of
time or both, would constitute such a default.
(d) To the knowledge of each of Seller and the Company, (i) all structures
and equipment material to the operations of the Company and the Affiliated
Entities considered as a whole owned, leased or used by the Company or any
Material Affiliate in the conduct of their respective businesses are
structurally sound and are in good and normal operating condition and repair
(ordinary wear and tear excepted) and are ade- quate for the uses to which they
are being put and (ii) none of such structures or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that
are not material in nature or cost.
Section 6.16 Labor Matters. Except as set forth in Section 6.16 of the
Seller Disclosure Schedule, (a) neither the Company nor any Affiliated Entity is
a party to (i) any collective bargaining agreement or similar agreement with any
labor organization or employee association, (ii) any other written contract
concerning employment or (iii) to the knowledge of each of Seller and the
Company, any binding oral contract concerning employ- ment; (b) no grievance or
arbitration proceeding arising out of or under any collective bar- gaining
agreement is pending, and, to the knowledge of each of Seller and the Company
after due inquiry, no such grievance or proceeding is threatened and no claim
therefor exists; (c) since January 1, 1993, there has not been, nor is there
pending or, to the knowledge of each of Seller or the Company, threatened, (i)
any labor dispute between the Company or any Affiliated Entity and any labor
organization, or any strike, slowdown, jurisdictional dispute, work stoppage or
other similar organized labor activity involving any employee of the Company or
any Affiliated Entity or affecting the Company or any Affiliated Entity or (ii)
any union organizing or election activity involving any employee of the Company
or any Affiliated Entity; (d) each of the Company and the Affiliated Entities is
and has been since January 1, 1993 in compliance in all material respects with
all federal, state, local and for- eign laws regarding labor, employment and
employment practices, conditions of employ- ment, occupational safety and
health, and wages and hours, including any bargaining or other obligations under
the National Labor Relations Act (collectively, "Labor Laws"); (e) neither the
Company nor any Affiliated Entity is engaged in any unfair labor practice, and
there is no unfair labor practice charge pending or, to the knowledge of each of
Seller or the Company, threatened against the Company or any Affiliated Entity
before the National Labor Relations Board or other Governmental Authority; (f)
to the knowledge of each of Seller and the Company, no union claims to represent
any of the employees of the Company or any Affiliated Entity; (g) to the
knowledge of each of Seller and the Company, neither the Company nor any
Affiliated Entity has received notice of the intent of any Governmental
Authority responsible for the enforcement of any Labor Law to conduct an
investigation with respect to or relating to the Company or any Affiliated
Entity, and no such investigation is in
<PAGE>
progress; (h) there exists no pending or, to the knowledge of each of
Seller and the Compa- ny, threatened lawsuit, administrative proceeding or
investigation between the Company or any Affiliated Entity and any current or
former director, officer or employee of the Company or any Affiliated Entity,
including any claim for wrongful termination, breach of express or implied
contract of employment or for violation of equal employment opportunity laws;
and (i) since the enactment of the Worker Adjustment and Retraining Notification
Act of 1988 (the "WARN Act"), neither the Company nor any Affiliated Entity has
effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of employment or facility of the Company or any Affiliated Entity or (ii) a
"mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company or any Affiliated Entity without complying with the WARN
Act; nor has the Company or any Affiliated Entity been affected by any
transaction or engaged in any layoff or employment termination of employees of
the Compa- ny or any Affiliated Entity sufficient in number to trigger
application of any similar foreign, state or local law without complying with
any such law.
Section 6.17 Insurance Policies. Section 6.17 of the Seller Disclosure
Schedule sets forth a true and complete list of policies of fire, medical, life,
liability, libel and other forms of insurance with respect to the properties,
assets, directors, officers, em- ployees, business and operations of the Company
and each Material Affiliate. Such policies insure against such risks, casualties
and contingencies and of such types and amounts as are appropriate for the size
and scope of the respective businesses of the Company and each Material
Affiliate as they are now being conducted. Each such policy is in full force and
effect, and is the valid and binding obligation of the Company or the Material
Affiliate party thereto; all premiums due and payable for such policies have
been timely paid; and all such policies (or extensions, renewals or replacements
thereof on comparable terms) in such amounts will be outstanding and in full
force and effect without interruption until the Closing.
Section 6.18 Intellectual Property. Either the Company or one of the
Affiliated Entities owns or has a valid and enforceable right to use all
copyrights, trade names, trademarks, service marks, service names, trade
secrets, designs, licenses, patents and other intellectual property rights,
including, without limitation, know-how (whether related to any of the foregoing
or otherwise) (including pending applications for any of the foregoing)
(collectively, "Intellectual Property"), used in or necessary to the conduct by
the Company and each Affiliated Entity of their respective businesses as they
are now being con- ducted. Section 6.18 of the Seller Disclosure Schedule sets
forth a true and complete list of the Intellectual Property material to the
Company and the Affiliated Entities considered as a whole, identifies the owner
thereof, the right to use or other interest therein of the Company or any
Affiliated Entity, and, with respect to each registration, grant and
application, the jurisdiction and record owner thereof. Except as set forth in
Section 6.18 of the Seller Di- sclosure Schedule, neither the Company nor any
Affiliated Entity is a licensor or licensee in respect of any Intellectual
Property. Except as set forth in Section 6.18 of the Seller Disclosure Schedule,
there is no claim, action, suit, proceeding or investigation presently
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pending, nor, since January 1, 1993, has there been any claim, action,
suit, proceeding or investigation made or, to the knowledge of each of Seller
and the Company, threatened, nor, to the knowledge of each of Seller and the
Company, is there any basis for any valid claim, action, suit, proceeding or
investigation that (a) the operations of the Company or any Affiliated Entity
infringe upon or conflict with the rights of any other person in respect of any
Intellectual Property or (b) any Intellectual Property is invalid or
unenforceable.
Section 6.19 Bank Accounts; Powers of Attorney. Section 6.19 of the Seller
Disclosure Schedule sets forth (a) the names and locations of all banks, trust
companies, sav- ings and loan associations and other financial institutions at
which the Company and each Material Affiliate has accounts or safe-deposit boxes
and the names of all persons authorized to draw thereon or to have access
thereto and (b) the names of all persons having powers of attorney from the
Company and each Material Affiliate and, in each case, a summary of the terms
thereof.
Section 6.20 Taxes.
(a) The Company and the Affiliated Entities listed in Section 6.20(a) of
the Seller Disclosure Schedule are small business corporations and have had in
effect since the dates shown in Section 6.20(a) of the Seller Disclosure
Schedule valid elections to be treated as "S" corporations for federal income
tax purposes under the Code and in the States listed in Section 6.20(a) of the
Seller Disclosure Schedule, and neither the Company nor Seller nor any of the
Affiliated Entities has taken or caused or permitted to be taken any action that
would have caused a termination of such S elections for any period. Each of
Resort Condominiums International De Mexico, S. De R.L. De C.V. and RCI Brazilia
Ltda. is a Mexican entity and a Brazilian entity, respectively, that is
characterized as a partnership for U.S. federal income tax purposes.
(b) Except as set forth in Section 6.20(b) of the Seller Disclosure
Schedule:
(i) Each of the Company and the Affiliated Entities has (x) duly and timely
filed or caused to be filed or there have been filed on its behalf with the
appropri- ate Governmental Authorities all Tax Returns required to be filed by
it, and all such Tax Re- turns are true, correct and complete and (y) timely
paid or there have been paid on its behalf all Taxes due or claimed to be due
from it by any taxing authority;
(ii) None of the Company or any of the Affiliated Entities has violated or
is in violation of any applicable Law 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 Law and
withholding of Taxes in respect of employee wages). Each of the Company and the
Affiliated Entities has, within the time and within the manner prescribed by
Law, withheld and paid over to the proper
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Governmental Authorities all amounts required to be withheld and paid over
under all applicable Laws;
(iii) There are no Liens for Taxes upon the Company Shares or the assets or
properties of the Company or any of the Affiliated Entities except for statutory
liens for Taxes not yet due;
(iv) There are no outstanding waivers or comparable Consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns of the Company or any of the Affiliated Entities;
(v) Neither the Company nor any of the Affiliated Entities has requested an
extension of time within which to file any Tax Return in respect of any fiscal
year which has not since been filed;
(vi) No federal, state, local or foreign audits or other adminis- trative
proceedings have been formally commenced or are presently pending with regard to
any Taxes or Tax Returns of Seller (insofar as such Tax Returns relate to the
Company or any of the Affiliated Entities), the Company or any of the Affiliated
Entities, and no noti- fication has been received by the Seller, the Company or
any of the Affiliated Entities that such an audit or other proceeding is pending
or threatened with respect to any Taxes due from or with respect to or
attributable to the Company or any of the Affiliated Entities or any Tax Return
filed by or with respect to the Company or any of the Affiliated Entities;
(vii) Since January 1,1990, none of the Company, the Seller or any of the
Affiliated Entities has made a change in accounting methods, received a ruling
from any taxing authority or signed an agreement with any taxing authority which
could have an adverse effect on the Company or any of the Affiliated Entities;
(viii) None of the Company, the Seller or any of the Affiliated Entities is
required to include in income any adjustment pursuant to Section 481(a) of the
Code or any similar provision of foreign, state or local Law, by reason of the
voluntary change in accounting method (nor has any taxing authority proposed in
writing any such adjustment or change of accounting method);
(ix) Except as set forth in Section 6.20(b) of the Seller Disclo- sure
Schedule, neither the Company nor any of the Affiliated Entities is a party to,
is bound by, or has any obligation under, any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement. None of the
Company, the Seller or any of the Affiliated Entities is aware of any potential
liability or obligation to any Person as a result of, or pursuant to, any such
agreement, contract or arrangement;
(x) No power of attorney has been granted by or with respect to the Company
or any of the Affiliated Entities with respect to any matter relating to Taxes;
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(xi) Neither the Company nor any of the Affiliated Entities is a party to
any agreement, plan, 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;
(xii) Since January 1, 1990, 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 of the Affiliated Entities;
(xiii) Neither the Company nor any of the Affiliated Entities has filed a
consent pursuant to Section 341(f) of the Code (or any predecessor provision) 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 the Affiliated Entities;
(xiv) Except as set forth in Section 6.20(b)(xiv) of the Seller Disclosure
Schedule, neither the Company nor any of the Affiliated Entities has any
liability for Taxes of another Person by contract or otherwise;
(xv) Neither the Company nor any of the Affiliated Entities has or could
have any liability for Taxes under or as a result of Section 482 of the Code or
any similar provision of state, local or foreign Law; and
(xvi) The Company and each of the Affiliated Entities have filed all Tax
Returns in accordance with all written franchise, license and other agreements
entered into by any of them.
(xvii) Neither the Company nor any of the Affiliated Entities is a passive
foreign investment company, personal holding company or foreign personal holding
company or is subject to the accumulated earnings tax.
(c) All material elections with respect to Taxes of the Company and each of
the Affiliated Entities made since January 1, 1990 are set forth in Section
6.20(b) of the Seller Disclosure Schedule.
(d) The Company and each of the Affiliated Entities have previously
delivered or made available to Acquiror complete and accurate copies of each of:
(i) all audit reports, letter rulings, technical advice memoranda relating to
United States federal, state, local and foreign Taxes due from or with respect
to the Company or any of the Affiliated Entities, (ii) United States federal Tax
Returns, and those state, local or foreign Tax Returns filed by the Company or
any of the Affiliated Entities, and (iii) any closing agreements en- tered into
by the Company or any of the Affiliated Entities with any taxing authority in
each case existing on the date hereof. The Company and each of the Affiliated
Entities will
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deliver to Acquiror all materials with respect to the foregoing for all
matters arising after the date hereof.
Section 6.21 Developers/Suppliers.
(a) To the knowledge of each of Seller and the Company, no Material
Developer has (i) given notice to Seller, the Company or any Affiliated Entity
that it intends to terminate its relationship with the Company or any Affiliated
Entity, as the case may be, or (ii) threatened in writing to terminate its
relationship with the Company or any Affiliated Entity, as the case may be. To
the knowledge of each of Seller and the Company, no Material Developer is likely
to pursue a course of action having either the purpose or effect of terminating
its relationship with the Company or any Affiliated Entity if the transactions
contemplated by this Agreement are consummated.
(b) Section 6.21(b) of the Seller Disclosure Schedule sets forth a list of
all suppliers of the Company and each Affiliated Entity to whom the Company or
such Affiliated Entities have made net payments in excess of $1,000,000 during
the fiscal year ended December 31, 1995 and the dollar amount of payments made
to each such supplier in such fiscal year. To the knowledge of each of Seller
and the Company, no supplier required to be listed in Section 6.21(b) of the
Seller Disclosure Schedule has (i) given notice to Seller, the Company or any
Affiliated Entity that it intends to terminate its relationship with the Company
or any Affiliated Entity, as the case may be, or (ii) threatened in writing to
termi- nate its relationship with the Company or any Affiliated Entity, as the
case may be. To the knowledge of each of Seller and the Company, no supplier
required to be listed in Section 6.21(b) of the Seller Disclosure Schedule is
likely to pursue a course of action having either the purpose or effect of
terminating its relationship with the Company or any Affiliated Entity if the
transactions contemplated by this Agreement are consummated.
Section 6.22 Acquisition of the Acquiror Common Stock for Investment;
Securities Act. Seller is not acquiring the shares of Acquiror Common Stock
constituting the Common Stock Consideration with any present intention of
distributing or selling such shares in violation of federal, state or other
securities laws. Seller agrees that it will not sell, transfer, offer for sale,
pledge, hypothecate or otherwise dispose of the shares of Acquiror Common Stock
constituting the Common Stock Consideration in violation of any federal, state
or other securities laws. Seller acknowledges that the Acquiror Common Stock is
subject to market and other conditions beyond the control of Acquiror and agrees
that neither Acquiror nor any of its agents, representatives, employees or
affiliates has or shall have any liability or responsibility whatsoever to
Seller on any basis (including, without limitation, in contract or tort, under
federal or state securities laws, or otherwise), except as and to the extent
expressly set forth herein and subject to the limitations and restrictions
contained herein.
Section 6.23 Timeshare Exchange Business. The Company and the Affiliated
Entities are the only entities under the control, directly or indirectly, of
Seller that carry on
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or are involved in the worldwide condominium and resort timeshare exchange
business, subscription business, travel business and other related businesses.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR
Acquiror hereby represents and warrants to Seller and the Company as fol-
lows:
Section 7.1 Authority; Binding Effect.
(a) Acquiror has all requisite corporate power and corporate authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consum- mate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Acquiror. No other corporate action on the part of Acquiror or its stockholders
is required to authorize the execution, delivery and performance hereof, and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Acquiror and constitutes the valid and binding
obliga- tion of Acquiror, enforceable against Acquiror in accordance with its
terms, except that such enforcement may be subject to any bankruptcy,
insolvency, reorganization, moratorium or other laws now or hereafter in effect
relating to or limiting creditors' rights generally and the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the Court before which any
proceedings therefor may be brought.
Section 7.2 Organization. Acquiror is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate all of its
properties and assets and to conduct its business as it is now being conducted.
Section 7.3 SEC Documents and Other Reports. Acquiror has filed all docu-
ments required to be filed by it with the SEC since January 1995 (the "Acquiror
SEC Documents"). As of their respective dates, the Acquiror SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and none of the Acquiror SEC Documents
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of Acquiror included in the
Acquiror SEC Documents complied as to form in all material respects with the
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have
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been prepared in accordance with GAAP (except, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) consistently applied
throughout the periods involved (except as may be indicated therein or in the
notes thereto) and fairly present the consolidated financial position, results
of operations and cash flows of Acquiror and its consolidated subsidiaries as of
the dates or for the periods indicated therein, subject, in the case of the
unaudited statements, to normal year-end audit adjustments (which are not,
individually or in the aggregate, material to Acquiror) and the absence of
footnote disclosure. Since December 31, 1994, Acquiror has not made any change
in the accounting practices or policies applied in the preparation of its
financial statements.
Section 7.4 Capitalization.
(a) Acquiror's authorized capitalization is as set forth in the Acquiror
SEC Documents. All of Acquiror's issued and outstanding capital stock has been
duly autho- rized, validly issued and is fully paid and nonassessable.
(b) The shares of Acquiror Common Stock to be issued to Seller have been
duly and validly authorized for issuance by Acquiror and Acquiror has the
corporate power and authority to issue, sell and deliver the Acquiror Common
Stock to be issued by it hereunder; and, when the Acquiror Common Stock is
issued and delivered to Seller against payment therefor as provided by this
Agreement, the shares of Acquiror Common Stock issued to Seller hereunder will
have been validly issued, fully paid and nonassessable, and the issuance of such
shares will not be subject to any preemptive or similar rights.
(c) The shares of Acquiror Common Stock to be issued to Seller at the
Closing will be duly approved for listing on the NYSE, subject to official
notice of issuance.
Section 7.5 No Violation; Consents and Approvals.
(a) The execution and delivery of this Agreement by Acquiror do not, and
the performance of this Agreement by Acquiror and the consummation of the
transac- tions contemplated hereby will not, (i) conflict with or violate the
certificate of incorporation or by-laws, in each case as currently in effect, of
Acquiror, (ii) conflict with or violate any Laws applicable to Acquiror or by or
to which any of its properties or assets is bound or subject, or (iii) result in
any breach of, or constitute a default (or an event that with notice or lapse of
time or both would constitute a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of a Lien on any of the properties or assets of
Acquiror under, any material note, bond, mortgage, indenture, contract,
agreement, arrangement, commitment, lease, li- cense, permit, franchise or other
instrument or obligation to which Acquiror is a party or by or to which Acquiror
or any of its properties or assets is bound or subject, except where the
conflict, violation, breach, default, termination, amendment, acceleration,
cancellation, requirement or creation would not prevent or delay Acquiror's
ability to consummate the transactions contemplated hereby.
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(b) The execution and delivery of this Agreement by Acquiror do not, and
the performance by Acquiror of this Agreement and the consummation of the
transac- tions contemplated hereby, will not, require Acquiror to obtain any
Consents from any Governmental Authority, or any third party, except for (i)
applicable requirements, if any, of the HSR Act or the Competition Laws, (ii)
required filings under the Exchange Act, (iii) the filing and approval of a
listing application with the NYSE relating to the shares of Acquiror Common
Stock constituting the Common Stock Consideration and (vi) the giving of notice
to Acquiror's lenders under Acquiror's existing credit facility.
Section 7.6 Acquisition of Shares for Investment. Acquiror is not acquiring
the Company Shares or the Affiliate Shares with any present intention of
distributing or selling such shares in violation of federal, state or other
securities laws. Acquiror agrees that it will not sell, transfer, offer for
sale, pledge, hypothecate or otherwise dispose of the Company Shares or the
Affiliate Shares in violation of any federal, state or other securities laws.
ARTICLE VIII
COVENANTS
Section 8.1 Access to Information; Confidentiality.
(a) Prior to the execution of this Agreement, Acquiror, its accountants,
counsel and advisers have reviewed and investigated financial, tax and operating
data and other information with respect to the Company and the Affiliated
Entities, and their offices, facilities, assets, properties, employees, books
and records, for the purpose of confirming the accuracy of the representations
and warranties of Seller and the Company contained in this Agreement. Neither
that review and investigation by Acquiror, nor any review and investi- gation
made hereafter pursuant to Section 8.1(c), shall affect any representation or
warranty made by Seller or the Company hereunder.
(b) Notwithstanding any other information or documents made available to
Acquiror, its accountants, counsel or advisers, Seller and the Company shall not
be deemed to have made to Acquiror any representation or warranty other than
those expressly made in Article VI; and neither Seller nor the Company shall be
deemed to have made any representation or warranty to Acquiror with respect to
any projections, estimates or budgets delivered to or made available to Acquiror
relating to future revenues, future expenses, future results of operations,
future developer affiliations or future Members, or, except as set forth in
Article VI, any other forward-looking data.
(c) During the period from the date of this Agreement through the Closing
Date, Seller and the Company shall permit, and shall cause the Affiliated
Entities to permit, Acquiror and its advisors, accountants, attorneys and
representatives to have access,
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during regular business hours and upon reasonable notice, to the offices,
facilities, assets, properties, employees, books and records of the Company and
the Affiliated Entities, and shall furnish, or cause to be furnished, to
Acquiror, such financial, tax and operating data and other information with
respect to such entities and their respective offices, facilities, assets,
properties, employees, businesses and operations as Acquiror shall from time to
time reasonably request. Acquiror shall hold, and shall cause its Affiliates,
advisors, accountants, attorneys and representatives to hold, any non-public
information so provided to Acquiror by or on behalf of Seller or the Company in
connection with the transactions contemplated by this Agreement in confidence in
accordance with the provisions of the Confidentiality Agree- ment.
Section 8.2 Conduct of Business. Except as expressly permitted by this
Agreement or with the prior written consent of Acquiror, during the period from
the date of this Agreement to the Closing Date, the Company shall, and the
Company and Seller shall cause each Affiliated Entity to, conduct its business
only in the ordinary course consistent with past practice and the Company shall
use its reasonable best efforts, and Seller and the Company shall cause each
Affiliated Entity to use its reasonable best efforts, to preserve intact its
present business organization, keep available the services of its present
officers and employees and preserve its current relationships with resort and
condominium owners and developers, timeshare subscribers and Members, licensors,
licensees, customers, suppliers, employees and any others having business
dealings with them. Without limiting the general- ity of the foregoing, and
except as otherwise expressly set forth in Section 8.2 of the Seller Disclosure
Schedule, during the period from the date of this Agreement through the Closing
Date, the Company shall not, and Seller and the Company shall cause each of the
Affiliated Entities not to, and for purposes of Section 8.2(a) hereof, Seller
shall not, without the prior written consent of Acquiror:
(a) except as set forth in Section 8.16, amend the certificate of
incorporation or by-laws or comparable organizational documents of the Company
or any Affiliated Entity;
(b) issue, reissue, sell, deliver, transfer, repurchase, redeem, acquire or
pledge or authorize or propose the issuance, reissuance, sale, delivery,
transfer, repur- chase, redemption, acquisition or pledge of shares of capital
stock of any class or series, or any securities convertible into capital stock
of any class or series, or grant or enter into any rights, warrants, options,
agreements or commitments with respect to the issuance of such capital stock or
convertible securities or amend any terms of any such right, warrant, option,
agreement or commitment;
(c) declare, set aside or pay any dividend or other distribution (wheth- er
in cash, securities or property or any combination thereof) in respect of any
class or series of its capital stock; except in the ordinary course of business
among the Company and the Affiliated Entities pursuant to their normal cash
management practices;
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(d) adjust, split, combine, subdivide or reclassify any shares of its
capital stock, as the case may be, or any option, warrant or right relating
thereto;
(e) (i) sell, lease, transfer or otherwise dispose of any of its
properties, assets or rights, other than (x) transfers of properties, assets or
rights for fair value in the ordinary course of business consistent with past
practice in an amount not to exceed $250,000 individually or $500,000 in the
aggregate and (y) the transfer of the real property on which the Woodview Trace
building is situated to Seller pursuant to Section 5.4 hereof; (ii) permit,
allow or suffer any of its properties or assets to be subjected to any Lien,
restriction or charge other than Permitted Liens, except for such Liens set
forth in Section 6.14 or 6.15 of the Seller Disclosure Schedule; or (iii)
acquire or lease any properties, assets or rights in an amount not to exceed
$250,000 individually or $500,000 in the aggregate;
(f) create, incur, assume or guarantee (i) any Indebtedness or (ii) any
other liability or obligation, not in the ordinary course of business consistent
with past practice;
(g) pay, discharge or satisfy any claim, encumbrance, liability or
obligation (whether absolute, accrued, contingent or otherwise, and whether due
or to become due), other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice of liabilities and
obligations that are actually due and payable and are reflected on the Balance
Sheet or incurred in the ordinary course of business consistent with past
practice since the date thereof;
(h) change any of the accounting or tax principles, practices or methods
used by the Company or any of the Affiliated Entities, fail to maintain the
accounts, books and records of the Company or any of the Affiliated Entities in
the usual, regular and ordinary manner on a basis consistently applied or cause
or permit to terminate the status as an S Corporation of the Company or any
Affiliated Entity that is listed on Section 6.20(a) of the Seller Disclosure
Schedule as an S Corporation;
(i) make any material change in its working capital practices from those in
effect from the beginning of fiscal 1995 through the date of the Balance Sheet,
including the payment of payables and the collection of receivables;
(j) except as set forth on Section 8.2(j) of the Seller Disclosure
Schedule, run any promotions not consistent with past practice, provide any
special financial arrangements to developers or owners associations or make any
change to past practice that reduce assets other than Cash and Equivalents or
increase liabilities at Closing;
(k) enter into, amend or supplement any employment, severance, termination
or other agreement or employee benefit plan, including any of the Plans, or make
any change in the compensation, severance or termination benefits payable or to
become payable to any of its officers, directors, employees, agents or
consultants (other than planned
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annual increases in the rates of compensation to employees who are not
officers or directors or Affiliates of the Company or any of the Affiliated
Entities in the ordinary course of business consistent with past practice,
provided such increases are disclosed to Acquiror in advance);
(l) enter into, adopt, amend or terminate any collective bargaining
agreement;
(m) make any payments (other than regular compensation payable to officers
and employees of the Company or the Affiliated Entities in the ordinary course
of business consistent with past practice), loans, advances or other
distributions to, or enter into any transaction, agreement or arrangement with,
any of its Affiliates, officers, directors, partners, employees, agents,
consultants, stockholders or their Affiliates, associates or family members;
(n) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets or securities of, or by any other manner, any
corporation, partnership, joint venture or other entity;
(o) make or authorize any capital expenditures or commitment for capital
expenditures, except for (i) capital expenditures on items other than the BPR
Project in the ordinary course of business consistent with past practice not in
excess of $250,000 individually or $1,000,000 in the aggregate, and (ii) capital
expenditures set forth on Schedule V hereto relating to the BPR Computer
Project;
(p) settle or compromise any Tax liability or agree to any adjustment of
any Tax attribute or make any election with respect to its Taxes;
(q) fail to duly and timely file any Tax Return with the appropriate
Governmental Authorities required to be filed by it in a true, complete and
correct form or to timely pay all Taxes shown to be due thereon;
(r) (i) except in the ordinary course of business consistent with past
practice and involving liabilities or obligations not in excess of $250,000
individually or $500,000 in the aggregate, enter into, or amend, terminate or
waive any right under, any contract, any agreement or arrangement or (ii) take
any action or fail to take any action that, with or without either notice or
lapse of time or both, would constitute a default under any contract, agreement
or arrangement;
(s) fail to maintain or renew (at levels consistent with presently existing
levels) any policy of insurance listed on Section 6.17 of the Seller Disclosure
Schedule or terminate or amend or fail to perform any of its obligations or
permit any default to exist or cause any material breach under, any such policy
of insurance, or enter into
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(except for renewals in the ordinary course of business consistent with
past practice), any policy of insurance;
(t) dispose of or permit to lapse any rights to any Intellectual Property;
or
(u) enter into any agreement, commitment or transaction with respect to
taking any of the foregoing actions or any action that would make any
representation or warranty contained in this Agreement untrue or incorrect or
which could reasonably be expected to prevent the satisfaction of any condition
to Closing set forth in Article IX hereof or to otherwise prevent or delay the
consummation of the transactions contemplated by this Agreement.
Section 8.3 Reasonable Best Efforts. Upon the terms and subject to the
conditions of this Agreement, each of Acquiror, Seller and the Company agrees
to, and Seller and the Company agree to cause each of the Affiliated Entities
to, use its reasonable best 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 to consummate and make effec- tive the transactions contemplated
by this Agreement as promptly as practicable (including satisfaction, but not
waiver, of the conditions to Closing set forth in Article IX hereof).
Section 8.4 Consents.
(a) Without limiting the generality of Section 8.3 hereof, each of the
parties hereto shall use its reasonable best efforts to obtain all Consents of
all third parties and Governmental Authorities necessary in connection with the
consummation of the transactions contemplated by this Agreement prior to the
Closing, including, without limitation, all Consents required under all
Subscription Agreements between Seller, on the one hand, and the Company or one
of the Affiliated Entities, on the other hand. Notwith- standing the foregoing,
neither Acquiror nor Seller shall have any obligation to pay any fee to any
third party (which does not include filing or other fees payable to Governmental
Authorities) for the purpose of obtaining any Consent or any costs and expenses
of any third party resulting from the process of obtaining such Consents. Each
of the parties hereto shall make or cause to be made all filings and submissions
under laws and regulations applicable to it as may be required for the
consummation of the transactions contemplated by this Agreement.
(b) Each of the parties shall consult, coordinate and cooperate with other
parties hereto in exchanging such information and assistance as any of the
parties hereto may reasonably request in connection with the foregoing. Each
party shall promptly provide any necessary information with respect to, and
provide the other copies of, all filings made by such party with any
Governmental Authority or any other information supplied by such party to a
Governmental Authority in connection with this Agreement and the transac-
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tions contemplated by this Agreement. Each party hereto shall promptly
inform the other of any communication from any Governmental Authority regarding
any of the transactions contemplated by this Agreement. If any party or
Affiliate thereof receives a request for additional information or documentary
material from any such Governmental Authority with respect to the transactions
contemplated by this Agreement, then such party will endeavor in good faith to
make, or cause to be made, as soon as reasonably practicable and after consul-
tation with the other party, an appropriate response in compliance with such
request. In addition, no party hereto shall take any action after the date
hereof that could reasonably be expected to materially delay the obtaining of,
or result in not obtaining, any permission, approval or consent from any
Governmental Authority necessary to be obtained prior to Closing.
(c) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to require any party hereto to enter into any agreement with any
Governmental Authority or to consent to any order, decree or judgment requiring
such party to hold, separate or divest, or to restrict the dominion or control
of such party or any of its Affiliates over, any of the assets, properties or
businesses of such party or its Affiliates in existence on the date hereof.
Section 8.5 Antitrust Notification. Each of the parties shall use its
respective reasonable best efforts to obtain all authorizations or waivers
required under the HSR Act and the Competition Laws to consummate the
transactions contemplated hereby, including, without limitation, making all
filings required in connection therewith.
Section 8.6 No Solicitation. During the period from the date hereof until
the earlier of the Closing Date or termination of this Agreement, each of Seller
and the Compa- ny shall not, and shall cause the Affiliated Entities and each of
their respective officers, directors, Affiliates, representatives, agents and
employees not to, directly or indirectly, en- courage, solicit, participate in
or initiate discussions or negotiations with, or furnish or cause to be
furnished any information concerning the business, properties or assets of the
Company or the Affiliated Entities to, any person or group of persons (other
than Acquiror or its direc- tors, officers, employees, agents or
representatives) concerning any merger, business combination, joint venture,
sale of material assets, sale of shares of stock or other equity securities or
any similar transaction or proposal therefor involving the Company, any of the
Affiliated Entities or the Timeshare Exchange Business. Seller and the Company
shall imme- diately notify Acquiror of any such discussion, negotiation or
request for information with respect to any of the foregoing proposed
transactions, shall provide Acquiror with a true, correct and complete copy of
any written request or other proposal, and all related docu- ments, and shall
keep Acquiror fully informed of the status and details of any such request or
other proposal. Each of Seller and Acquiror represents and warrants that no such
discussions are ongoing.
Section 8.7 Further Assurances. From and after the Closing Date, Seller and
the Company shall take all such action as may be necessary or appropriate in
order to carry
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out the purposes of this Agreement or to vest the Company with full title
to all property and rights of the Company and the Affiliated Entities.
Section 8.8 Notification of Certain Matters. Seller and the Company shall
give prompt notice to Acquiror and Acquiror shall give prompt notice to Seller
and the Company of the occurrence, or non-occurrence, of any event the
occurrence or non-occurrence of which would be reasonably likely to cause (i)
any representation or warranty of Seller, the Company or Acquiror, as the case
may be, contained in this Agree- ment to be untrue or inaccurate in any material
respect at or prior to the Closing or (ii) Seller, the Company or Acquiror, as
the case may be, to fail to comply with or satisfy in any material respect 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 8.8 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
Section 8.9 Certain Tax Matters
(a) S Corporation Status. Seller, the Company and the Affiliated Entities
shall maintain the status of the Company and each Affiliated Entity that is
listed on Section 6.20(a) of the Seller Disclosure Schedule as an S corporation
as an S corporation for federal income Tax purposes through the Closing Date.
(b) Section 338(h)(10) Elections.
(i) With respect to the Company and each Affiliated Entity that is an S
Corporation for federal and state income tax purposes, each of Seller and
Acquiror shall jointly make the election provided for by Section 338(h)(10) of
the Code and Section 1.338(h)(10)-1 of the Treasury Regulations and any
comparable election under state or local tax law (collectively, the
"Elections"). As soon as practicable after the Closing, with respect to each
Election, Seller and Acquiror shall mutually prepare a Form 8023-A, with all
attach- ments, and Seller shall sign such Form 8023-A. Also, Acquiror and Seller
shall cooperate with each other to take all actions necessary and appropriate
(including filing such additional forms, returns, elections, schedules and other
documents as may be required to effect and preserve timely Elections in
accordance with the provisions of Section 1.338(h)(10)-1 of the Treasury
Regulations (or any comparable provisions of state or local tax law) or any suc-
cessor provisions).
(ii) Acquiror shall not make or permit to be made an election pursuant to
Section 338(g) of the Code with respect to the stock of RCI Europe, any of its
subsidiaries or any other Affiliated Entity which was a "controlled foreign
corporation" within the meaning of Section 957 of the Code prior to the Closing
Date.
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(c) Preparation and Filing of Tax Returns; Payment of Taxes.
(i) Seller, the Company and the Affiliated Entities shall prepare and file
or cause to be prepared and filed (at Seller's cost and expense and, to the
extent permissible under applicable Law, in a manner consistent with past
practice) on a timely basis all U.S. federal and state income Tax Returns of the
Company and each of the Affiliat- ed Entities that is an S Corporation or a
partnership for income tax purposes for all Pre-Clos- ing Periods ("Seller Tax
Returns"); provided, however, that Seller shall cooperate with Acquiror with
respect to reporting any items giving rise to Acquiror Taxes (as defined in
subparagraph (e)(iii)(C) of this Section 8.9) on such Seller Tax Returns and,
provided further, that no later than ten days before the due date (including
extensions) of any Seller Tax Return, Seller shall provide or cause to be
provided to Acquiror, for Acquiror's review, a copy of such Seller Tax Return.
If any such Seller Tax Return includes an item which could give rise to a
liability for Acquiror Taxes or any other Taxes for which Acquiror is or could
be liable pursuant to this Agreement, Seller shall not file any such Seller Tax
Return without the prior written approval of Acquiror with respect to such item,
which approval shall not unreasonably be withheld. If Acquiror does not approve
any such Seller Tax Return, the manner of reporting any disputed item shall be
resolved by an independent accounting firm mutually chosen by Seller and
Acquiror, and the Seller Tax Returns shall be filed or, if necessary, amended,
in accordance with the decision of such independent accounting firm. Seller
shall pay all Taxes due and payable as a result of the income on the Seller Tax
Returns; provided, however, that Acquiror shall deliver to Seller the funds
necessary for Seller to pay any Acquiror Taxes no later than the later of five
days after Seller delivers to Acquiror copies of Tax Returns showing the amount
of Acquiror Taxes owed or five days before such payments are due.
(ii) Acquiror shall cause the Company and each of the Affiliated Entities
to prepare and file on a timely basis all Tax Returns of the Company and each
Affiliated Entity other than those Tax Returns provided for in Section 8.9(c)(i)
hereof. Subject to Section 8.9(e) hereof, Acquiror shall pay or cause the
Company and each of the Affiliated Entities to pay all Taxes shown to be due and
payable thereon.
(iii) Seller and Acquiror shall cooperate, and shall cause their respective
officers, employees, agents, auditors and representatives to cooperate, in
preparing and filing the Tax Returns of the Company and each of the Affiliated
Entities, including maintaining and making available to each other all records
necessary in connection with Taxes payable with respect to such Tax Returns.
Seller shall have the right to review all Tax Returns prepared by Acquiror with
respect to Pre-Closing Periods and Straddle Periods, and Acquiror shall not file
such Tax Returns without the prior written consent of Seller, which consent
shall not unreasonably be withheld.
(d) Transfer and Similar Taxes. Notwithstanding any other provision of this
Agreement to the contrary, Seller shall assume and promptly pay all sales, use,
privi- lege, transfer, documentary, gains, stamp, duties, recording and similar
Taxes and fees
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(including any penalties, interest and additions to such fees) imposed upon
any party incurred in connection with any of the transactions contemplated by
this Agreement (collectively, the "Transfer Taxes"), and Seller shall procure
any stock transfer stamps required by, and accu- rately file all necessary Tax
Returns and other documentation with respect to, any Transfer Tax. Acquiror
shall reimburse Seller for fifty percent (50%) of the amount of the Transfer
Taxes.
(e) Tax Indemnification.
(i) To the extent that any of the following Damages exceed $1,000,000 plus
the amount of any unused Indemnity Credit (the "Tax Basket"), Seller shall
indemnify, defend and hold harmless the Acquiror Group from and against any and
all Damages asserted against, resulting to, imposed on or suffered by the
Acquiror Group, or any member of the Acquiror Group, directly or indirectly, by
reason of or resulting from (A) except as provided in subparagraph (iii)(C)
below, any and all Taxes other than U.K. Taxes imposed upon any of the Company
or the Affiliated Entities (x) with respect to any taxable period ending on or
before the Closing Date (such Taxes (excluding Acquiror Taxes and UK Taxes) are
hereinafter referred to as "Pre-Closing Taxes" and such periods as "Pre-Closing
Periods") and (y) with respect to any taxable period beginning before the
Closing Date and ending after the Closing Date (such Taxes are hereinafter
referred to as "Straddle Taxes" and such periods as "Straddle Periods") but only
with respect to the portion of such Straddle Period ending on the close of the
Closing Date and in the manner provided in Section 8.9(e)(iv) hereof; (B) the
breach of any representation made pursuant to Section 6.20 hereof; and (C) any
and all Taxes imposed upon the Company or any Affiliated Entity pursuant to
Treasury Regulation 1.1502-6 or comparable provision under state or local law.
For purposes of the foregoing, if a Tax imposed upon an Affiliated Entity for a
Pre-Closing Period or for the pre-closing portion of any Straddle Period results
in a Tax Benefit for another Affiliated Entity for a Pre-Closing Period or for
the pre-closing portion of any Straddle Period, any obligation of Seller to
indemnify the Acquiror Group pursuant to this Section 8.9 shall be reduced by
the amount of such Tax Benefit to the extent that such Tax Benefit is Actually
Realized.
(ii) Without limiting the generality of Section 8.9(e)(i) above, Seller
shall indemnify, defend, and hold harmless the Acquiror Group from and against
any and all Damages asserted against, resulting to, imposed on, suffered by the
Acquiror Group, or any one of them, directly or indirectly, by reason of or
resulting from (A) the failure of any of the Company or any of the Affiliated
Entities referred to in Section 6.20(a) hereof to be S corporations or the
termination of the status of the Company or any of the Affiliated Entities
referred to in Section 6.20(a) hereof as S corporations, (B) except for Acquiror
Taxes, the imposition of any Taxes on the Company for any taxable period in
which the Company's election of subchapter S status was in effect (including,
but not limited to, those taxes described in Section 1375 of the Code), or (C)
the imposition of any Taxes on the Company or any of the Affiliated Entities as
a result of the Election other than Acquiror Taxes.
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(iii) Acquiror shall indemnify, defend and hold harmless the Seller Group
from and against any and all Damages, asserted against, resulting to, imposed on
or suffered by the Seller Group, or any one of them, directly or indirectly, by
reason of or resulting from any and all Taxes imposed upon the Company or any of
the Affiliated Entities with respect to (A) any taxable period beginning after
the Closing Date (such Taxes are hereinafter referred to as "Post-Closing Taxes"
and such periods as "Post-Closing Peri- ods"), (B) any Straddle Taxes for any
Straddle Period, but only with respect to the portion of such Straddle Period
beginning the day after the Closing Date and in the manner provided for in
Section 8.9(e)(iv) and (C) federal, state and local income Taxes incurred by the
Company under Section 1374(a) of the Code and attributable to assets held by the
Company for the first taxable year for which an S election was in effect for the
Company and which are held by the Company at the Closing ("Acquiror Taxes").
(iv) For purposes of determining the amount of Taxes for or which relate to
a Straddle Period, the Closing Date shall be treated as the last day of a tax-
able period, and the portion of any such Tax that is allocable to the taxable
period that is so deemed to end on and include the Closing Date: (A) in the case
of Taxes that are either (x) based upon or related to income or receipts or (y)
imposed in connection with any sale, transfer, assignment or distribution of
property (real or personal, tangible or intangible), shall be deemed equal to
the amount which would be payable if the period for which such Tax is assessed
ended on and included the Closing Date, determined, to the extent permissi- ble
under applicable laws, in a manner which is consistent with Seller's accounting
practices and business operations as in effect prior to the Closing Date, and
(B) in the cases of Taxes other than Taxes described in clause (A) hereof, shall
be computed on a per diem basis determined, to the extent permissible under
applicable laws, in a manner which is consistent with Seller's accounting
practices and business operations as in effect prior to the Closing Date.
(v) If a notice of deficiency, proposed adjustment, adjustment, assessment,
audit, examination, suit, dispute or other claim (a "Tax Claim") shall be deliv-
ered, sent, commenced, or initiated to or against the Company or any of the
Affiliated Entities by any taxing authority with respect to Taxes for which one
party to this Agreement is entitled to indemnification from another party, the
Company or Affiliated Entity shall promptly notify Seller in writing of the Tax
Claim. If a Tax Claim with respect to Taxes for which one party to this
Agreement is entitled to indemnification from another party shall be delivered,
sent, commenced or initiated to or against Seller by any taxing authority,
Seller shall promptly notify Acquiror in writing of such Tax Claim.
(vi) Seller may, upon timely notice to Acquiror, assume and control the
defense of a Tax Claim involving only Pre-Closing Taxes at Seller's own cost and
expense and with Seller's own counsel and Acquiror and its Affiliates agree to
cooperate with Seller in pursuing such contest. If Seller elects to assume the
defense of any such Tax Claim, notwithstanding anything to the contrary
contained herein, (A) Seller shall consult with Acquiror and shall not enter
into any settlement with respect to any such Tax Claim without Acquiror's prior
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written consent if the effect of such settlement would be to increase the
liability for Taxes of the Company or any of the Affiliated Entities for any
Post-Closing Period, which consent shall not unreasonably be withheld; (B)
Seller shall keep Acquiror in- formed of all material developments and events
relating to such Tax Claim; and (C) at its own cost and expense, Acquiror shall
have the right to participate in (but not to control) the defense of such Tax
Claim.
(vii) In connection with the contest of any Tax Claim that re- lates to (A)
any Post-Closing Period, (B) any Straddle Period, (C) any Acquiror Taxes and (D)
any Tax Claim that Seller has the ability to control but does not timely elect
to control pursuant to Section 8.9(e)(vi), such contest shall be controlled by
Acquiror, and Seller agrees to cooperate with Acquiror and its Affiliates in
pursuing such contest. In connection with any such contest that relates to (B),
(C) or (D) above, Acquiror shall keep Seller informed of all material
developments and events relating to such Tax Claim and Seller, at Seller's own
cost and expense, shall have the right to participate in (but not control) the
defense of such Tax claim. Acquiror shall not enter into any settlement with
respect to any such Tax Claim without Seller's prior written consent if the
effect of such settlement would be to increase the liability for Taxes of the
Company or any of the Affiliated Entities for which Seller would be liable or
responsible pursuant to any provision of this Section 8.9, which consent shall
not unreasonably be withheld. Nothing contained herein shall be construed as
limiting Acquiror's right to indemnification under this Section 8.9.
(viii) In the event that (A) after the Closing Date, there is an increase
in the earnings and profits for the 1996 taxable year of any Affiliated Entity
which was a "controlled foreign corporation" within the meaning of Section 957
of the Code on or prior to the Closing Date, (B) such increase in earnings and
profits is allocated to Seller, (C) such allocation results in a portion of the
payments received by Seller pursuant to this Agreement being recharacterized as
ordinary income (as opposed to capital gain), and (D) such increase in earnings
and profits results from a change made by Acquiror in the accounting practices
or business operations of the Affiliated Entity before January 1, 1997, or any
other extraordinary transaction outside the ordinary course of business before
January 1, 1997, or from any purchase of preferred shares in the Acquiror Group
or any sale of UK Securities, then Acquiror shall reimburse Seller for the
incremental tax costs to Seller arising from such recharacterization.
(f) Timing Adjustment.
(i) If an amendment, audit or other examination of any income Tax Return of
Seller or any Affiliated Entity (A) results in an adjustment that leads to the
payment of an amount by Seller pursuant to this Section 8.9 and (B) will permit
the Acquiror Group to increase deductions, losses or tax credits or decrease
income, gains, or recapture of tax credits which would otherwise (but for such
adjustment) have been taken or reported with respect to the Acquiror Group for
one or more taxable periods beginning on or after the Closing Date, Seller will
notify Acquiror and provide it with adequate information so that it can reflect
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on the income Tax Returns of the Acquiror Group such increases in
deductions, losses or tax credits or decreases in income, gains, or recapture of
tax credits. With respect to such increases or decreases on income Tax Returns,
Acquiror shall and shall cause the Acquiror Group to, pay Seller the amount of
any Tax Benefit which results therefrom, within ten days of the date such Tax
Benefit is Actually Realized. Principles similar to those set forth in this
subsection (f)(i) shall also apply to adjustments resulting from examinations of
income Tax Returns of the Acquiror Group that make available Tax Benefits to the
Seller or the Affiliated Entities for Pre-Closing Periods and the pre-closing
portion of any Straddle Period.
(ii) For purposes of this Agreement, the term "Tax Benefit" means the net
amount by which the tax liability of a person to the appropriate taxing
authority is reduced, plus any interest (on an after-tax basis) from such
government or jurisdiction relating to such tax liability. For purposes of this
Agreement, a Tax Benefit shall be deemed to have been Actually Realized at the
time any refund of Taxes is received or applied against other Taxes due, or at
the time of filing of a Tax Return on which a loss, deductions or credit is
applied in reduction of Taxes which would otherwise be payable; provided,
however, that, where a party has other losses, deductions, credits or similar
items available to it, deductions, credits or items for which the other party
would be entitled to a payment under this Agreement shall be treated as the last
items utilized to produce a Tax Benefit.
(g) Any Tax Claim shall be brought under this Section 8.9 and shall not be
subject to the terms of Article X.
(h) Acquiror may not alter, change, re-file or otherwise amend any Tax
Returns of the Company or any Affiliated Entity with respect to a Pre-Closing or
a Straddle Period without the prior written consent of Seller, which consent
shall not unreason- ably be withheld.
Section 8.10 Intercompany Obligations; Affiliate Agreements.
(a) Except for the items set forth in Section 8.10(a) of the Seller
Disclosure Schedule, immediately prior to the Closing, Seller shall and Seller
and the Company shall cause all of Seller's Affiliates (other than the Company
and the Affiliated Entities) to (i) repay in full any Indebtedness or other
amounts owing to the Company or the Affiliated Entities and (ii) cancel without
payment any Indebtedness or other amounts owing to Seller or such Persons from
the Company or the Affiliated Entities.
(b) Except for those agreements set forth in Section 8.10(b) of the Seller
Disclosure Schedule, prior to the Closing, Seller and the Company shall cause
all agreements between Seller or Seller's Affiliates (other than the Company and
the Affiliated Entities), on the one hand, and the Company or any of the
Affiliated Entities, on the other hand (the "Affiliate Agreements"), to be
terminated in all respects such that there is no liability thereunder on the
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part of the Company or any Affiliated Entity. Seller and the Company shall
cause Seller's appropriate Affiliates to effectuate the foregoing without, and
Seller shall indemnify Acquiror and its Affiliates (including the Company and
the Affiliated Entities), from, any cost or expense to the Company or any
Affiliated Entity or to Acquiror.
Section 8.11 Supplements to Disclosure Schedule. Seller and the Company
shall promptly supplement or amend the Seller Disclosure Schedule with respect
to any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or otherwise
disclosed in the Seller Disclosure Schedule (the "Updated Information"). No such
supplement or amendment of the Seller Disclosure Schedule to include the Updated
Information shall (i) affect the ability of Acquiror to rely on the conditions
to Closing set forth in Article IX hereof, or (ii) be deemed to have been set
forth or otherwise disclosed as of the date of this Agreement unless Acquiror
specifically agrees thereto in writing. In the event Acquiror elects to proceed
with the Closing after delivery to Acquiror of the supplemented or amended
Seller Disclosure Schedule, Acquiror may not bring any Claim for indemnification
under Section 10.1(a) hereof based on the Updated Information.
Section 8.12 Resignations. At or prior to the Closing Date, each officer
and director of the Company and any Affiliated Entity designated in writing by
Acquiror at least five (5) days prior to Closing shall execute and deliver to
Acquiror a letter of resignation (effective on or prior to the Closing Date)
from his or her position as a director and/or officer (but not terminating
employment).
Section 8.13 Non-Competition.
(a) Seller agrees that for a period commencing on the Closing Date and
ending on the fifth anniversary of the Closing Date, Seller and Seller's
Affiliates shall not (i) engage anywhere in the world, in the timeshare exchange
or subscription business or in marketing any products or services that compete
with the Timeshare Exchange Business as conducted or as proposed to be conducted
by the Company, or (ii) directly or indirectly invest in, manage, operate, join
or control as a partner, stockholder, consultant or otherwise, any Person that
engages in the timeshare exchange or subscription business or markets any
products or services that compete with the Timeshare Exchange Business as
conducted by the Company; provided, however, that it shall not be deemed to be a
violation of this Section 8.13 for (i) Seller to provide services to the Company
or any of the Affiliated Entities after the Closing, (ii) Seller or any of
Seller's Affiliates to invest in securities having less than three percent (3%)
of the outstanding economic interest or voting power of any Person, the
securities of which are publicly traded or listed on any securities exchange or
automated quotation system, or (iii) Seller to hold Long-Term Securities of
developers which provide limited exchange privileges as to such developers' own
properties.
(b) Seller and Acquiror acknowledge that this Section 8.13 constitutes an
independent covenant and shall not be affected by performance or nonperformance
of any other provision of this Agreement. Each of Seller and Acquiror has
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independently consulted with its counsel and after such consultation agrees that
the covenants set forth in this Section 8.13 are reasonable and proper. It is
the desire and intent of the parties that the provisions of this Section 8.13
shall be enforced to the fullest extent permissible under applicable Law. If all
or part of this Section 8.13 is held invalid, illegal or incapable of being
enforced by any Law or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect. If any part of
this Section 8.13 is finally determined in a proceeding by a Governmental
Authority to be excessively broad as to duration, scope, activity or subject,
such part will be construed by limiting and reducing it so as to be en-
forceable to the maximum extent compatible with applicable Law.
Section 8.14 Access to Books and Records Following the Closing. Following
the Closing, Acquiror shall permit Seller and her authorized representatives,
during normal business hours and upon reasonable notice, to have reasonable
access to, and examine and make copies of, all books and records which relate to
transactions or events occurring prior to the Closing or transactions or events
occurring subsequent to the Closing which are related to or arise out of
transactions or events occurring prior to the Closing.
Section 8.15 Nominee Shareholders. Prior to the Closing, Seller shall cause
each of the Affiliated Entities whose capital stock is owned in part by a
Nominee Shareholder to enter into an agreement with each Nominee Shareholder, in
form and substance reasonably satisfactory to Acquiror, providing for (i) the
transfer of the shares held by such Nominee Shareholder to Acquiror (or a
designee of Acquiror) when and as Acquiror deems such transfer to be necessary
or appropriate and (ii) the ability of such Affiliated Entity to engage in
Acquiror's normal cash management practices.
Section 8.16 Amendments to Organizational Documents. Prior to the Closing,
Seller shall cause the Company and each Affiliated Entity to amend as necessary
its articles of incorporation, by-laws or other similar organizational documents
to eliminate any requirements that (i) Seller serve the Company or such
Affiliated Entity in any capacity, (ii) Seller be a signatory to any contracts
of the Company or any Affiliated Entity, (iii) are inconsistent with the terms
of this Agreement and (iv) are similar in nature.
ARTICLE IX
CONDITIONS TO CLOSING
Section 9.1 Mutual Conditions to the Obligations of the Parties. The
respec- tive obligations of each party hereto to consummate the transactions
contemplated by this Agreement are subject to the satisfaction or waiver at or
prior to the Closing of each of the following conditions:
(a) No Injunctions. No temporary restraining order, preliminary or
permanent injunction or other judgment, order or decree issued by a court of
competent
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jurisdiction which prevents the consummation of the transactions
contemplated hereby shall have been issued and remain in effect, and no statute,
rule or regulation shall have been enacted, promulgated or enforced by any
Governmental Authority which makes the consum- mation of the transactions
contemplated hereby illegal; provided, that the parties shall use their
reasonable best efforts to have any temporary or preliminary order or injunction
lifted.
(b) Registration Rights Agreement. The Registration Rights Agree- ment
shall have been duly executed and delivered by each of Acquiror and Seller.
(c) NYSE Listing. The shares of Acquiror Common Stock to be issued to
Seller as the Common Stock Consideration shall have been approved for listing on
the NYSE (subject to official notice of issuance).
(d) Seller Lease. The Seller Lease shall have been duly executed and
delivered by each of the Company and Seller.
Section 9.2 Conditions to the Obligations of Acquiror. The obligation of
Acquiror to consummate the transactions contemplated by this Agreement is
subject to the satisfaction at or prior to the Closing of the following
conditions (unless waived, to the extent permitted by applicable Law, by
Acquiror):
(a) Representations and Warranties. The representations and warran- ties of
Seller and the Company contained herein which are qualified as to materiality
shall be true, correct and complete in all respects, and such representations
and warranties as are not so qualified shall be true, correct and complete in
all material respects, as of the date when made and at and as of the Closing
Date, as though such representations and warranties were made at and as of such
date.
(b) Performance. Seller and the Company shall have performed and complied
with, in all material respects, all agreements, conditions, covenants and
obligations required by this Agreement to be performed or complied with by
Seller on or prior to the Closing Date.
(c) No Material Adverse Effect. From the date of this Agreement to the
Closing Date, there shall not have occurred any condition, event or
circumstance, change or effect that, individually or in the aggregate, has
resulted or would reasonably be expected to result in a Material Adverse Effect
on the Company or any of the Affiliated Entities considered as a whole.
(d) Officer's Certificate. Seller and the Company shall have delivered to
Acquiror a certificate, dated as of the Closing Date, executed by Seller and a
duly autho- rized officer of the Company, certifying the satisfaction of the
conditions set forth in subparagraphs (a), (b) and (c) of this Section 9.2.
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(e) Opinion of Counsel. Seller and the Company shall have delivered to
Acquiror an opinion or opinions of legal counsel to the Company and the
Affiliated Entities, addressed to Acquiror and dated as of the Closing Date, in
substantially the form of Exhibit C attached hereto.
(f) Consents. All Consents of any Governmental Authority or third party
required to be obtained, declarations or filings required to be made, and all
waiting periods or terminations required to have occurred prior to the Closing
shall have been obtained, made or occurred (including under the HSR Act and the
Competition Laws), other than those Consents the failure of which to have
obtained, made or occurred by the Closing Date would not, individually or in the
aggregate, subject Acquiror, the Company or any of the Affiliated Entities after
the Closing to (i) criminal liability, (ii) significant financial penalty for
which Seller is unwilling to provide an indemnity, or (iii) other material
adverse consequences as a result of consummating the transactions contemplated
hereby without such Consents, including, without limitation, the inability of
Acquiror, the Company or the Affiliated Entities to conduct the business of the
Company and the Affiliated Entities after the Closing in substantially the same
manner and in all material respects as conducted prior to the Closing.
(g) Seller and the Company shall have each delivered an affidavit in the
form required by Section 1.1445 of the Treasury Regulations that Seller and the
Compa- ny are not foreign Persons within the meaning of such Section; provided,
however, that if Seller and/or the Company fail to produce such certificate, the
transactions contemplated by this Agreement shall close and Acquiror shall
withhold the appropriate amount of the consideration to be paid hereunder.
Section 9.3 Conditions to the Obligations of Seller and the Company. The
obligation of Seller and the Company to consummate the transactions contemplated
by this Agreement is subject to the satisfaction at or prior to the Closing of
the following conditions (unless waived, to the extent permitted by applicable
Law, by Seller and the Company):
(a) Representations and Warranties. The representations and warran- ties of
Acquiror contained herein which are qualified as to materiality shall be true,
correct and complete in all respects, and such representations and warranties as
are not so qualified shall be true, correct and complete in all material
respects, as of the date when made and at and as of the Closing Date, as though
such representations and warranties were made at and as of such date.
(b) Performance. Acquiror shall have performed and complied with, in all
material respects, all agreements, conditions, covenants and obligations
required by this Agreement to be performed or complied with by Acquiror on or
prior to the Closing Date.
(c) Officer's Certificate. Acquiror shall have delivered to Seller and the
Company a certificate, dated as of the Closing Date, executed by a duly
authorized
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officer of Acquiror, certifying to the satisfaction of the conditions set
forth in subsections 9.3(a) and (b) hereof.
(d) Opinion of Counsel. Acquiror shall have delivered to Seller and the
Company an opinion of legal counsel to Acquiror, addressed to Seller and the
Company and dated as of the Closing Date, in substantially the form of Exhibit D
hereto.
(e) Consents. All Consents of any Governmental Authority or third party
required to be obtained, declarations or filings required to be made, and all
waiting periods or terminations required to have occurred prior to the Closing
shall have been obtained, made or occurred, (including under the HSR Act and the
Competition Laws) other than those Consents the failure of which to have
obtained, made or occurred by the Closing Date would not, individually or in the
aggregate, subject Seller after the Closing to (i) criminal liability or (ii)
significant financial penalty for which Acquiror is unwilling to provide an
indemnity.
ARTICLE X
INDEMNIFICATION OBLIGATIONS; SURVIVAL
Section 10.1 The Seller's Agreement to Indemnify. Subject to the terms and
conditions of this Article X and in addition to the obligations of Seller under
Section 8.9 hereof with respect to Tax Claims, from and after the Closing,
Seller shall indemnify, defend and hold harmless Acquiror, the Company, each
Affiliated Entity and each of their respective successors and permitted assigns,
directors, officers, employees, representatives, agents, Affiliates and
associates (collectively, the "Acquiror Group") from and against any and all
losses, liabilities, expenses (including reasonable attorneys' fees), claims and
damages (collectively, "Damages") asserted against, resulting to, imposed upon
or suffered by the Acquiror Group, or any one of them, arising out of or related
to (a) any breach of any reprsentation or warranty of Seller or the Company
contained in or made pursuant to this Agree- ment and (b) any breach of any
covenant or agreement of Seller or the Company contained in or made pursuant to
this Agreement (collectively, "Seller Claims"). For purposes of this Article X
only, as to any representation or warranty that is qualified as to materiality
(including as to any Material Adverse Effect), notwithstanding such
qualification, such representation or warranty shall be deemed breached in the
event that the Damages for such breach equal or exceed $400,000. This Section
10.1 shall not apply to any breach of the representations and warranties
contained in Section 6.20 hereof, which will be subject to Section 8.9 hereof.
Section 10.2 Seller's Limitation of Liability.
(a) Anything in this Agreement to the contrary notwithstanding, the
liability of Seller to indemnify the Acquiror Group pursuant to Section 10.1(a)
hereof against
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any Damages sustained by reason of any Seller Claim thereunder for a breach
of any representation or warranty of Seller or the Company shall be limited to
Seller Claims as to which any member of the Acquiror Group has given Seller
written notice on or prior to March 31, 1998, whether or not any Damages have
then actually been sustained; provided, however, that, notwithstanding the
foregoing, the liability of Seller to indemnify the Acquiror Group against any
Damages sustained by reason of any Seller Claim for a breach of any of the
representations and warranties set forth in Sections 6.4, 6.14 and 6.15 hereof
shall not be so limited.
(b) Other than with respect to the representations and warranties set forth
in Sections 6.4, 6.14 and 6.15 hereof, (i) the amount of any single Seller Claim
under Section 10.1(a) hereof for which Seller is liable for a breach of any
representation or warranty of Seller or the Company shall be reduced by a
$100,000 deductible (as to each single Seller Claim, a "Deductible"), (ii) the
provisions in Section 10.1(a) hereof for indem- nity by Seller of the Acquiror
Group against Damages sustained by reason of any Seller Claim thereunder for a
breach of any representation or warranty of Seller or the Company shall be
effective only after the aggregate amount of all such Seller Claims for which
Seller is liable (after giving effect to all Deductibles) exceeds $5,000,000
plus the amount of any unused Indemnity Credit, and then only to the extent of
such excess, and (ii) in no event shall Seller's indemnity obligations with
respect to breach of any representations or warranties of Seller or the Company
exceed the Aggregate Purchase Price.
Section 10.3 Acquiror's Agreement to Indemnify. Subject to the terms and
conditions of this Article X, from and after the Closing, Acquiror shall
indemnify, defend and hold harmless Seller and her heirs, legatees,
beneficiaries and permitted assigns (collec- tively, the "Seller Group"), from
and against all Damages asserted against, resulting to, imposed upon or suffered
by the Seller Group, or any one of them, arising out of or related to: (a) any
breach of any representation or warranty of Acquiror contained in or made
pursuant to this Agreement (which, for purposes of this Article X, shall be
determined without regard to any materiality threshold or qualification
contained in any such representa- tion or warranty) and (b) any breach of any
covenant or agreement of Acquiror contained in or made pursuant to this
Agreement ("Acquiror Claims" and, collectively with Seller Claims, "Claims").
Section 10.4 Acquiror's Limitation of Liability.
(a) Anything in this Agreement to the contrary notwithstanding, the
liability of Acquiror to indemnify the Seller Group pursuant to Section 10.3(a)
hereof against any Damages sustained by reason of any Acquiror Claim thereunder
for a breach of any representation and warranty of Acquiror shall be limited to
Acquiror Claims as to which any member of the Seller Group has given Acquiror
written notice on or prior to March 31, 1998, whether or not any Damages have
then actually been sustained; provided, however, that notwithstanding the
foregoing, the liability of Acquiror to indemnify the Seller Group against any
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Damages sustained by reason of any Acquiror Claim for a breach of any of
the representations and warranties set forth in Section 7.4(b) hereof shall not
be so limited.
(b) Other than with respect to the representations and warranties set forth
in Section 7.4(b) hereof, (i) the provisions in Section 10.3(a) hereof for
indemnity by Acquiror of the Seller Group against Damages sustained by reason of
any Acquiror Claim thereunder for a breach of any representation or warranty of
Acquiror shall be effective only after the aggregate amount of all such Acquiror
Claims for which Seller is liable exceeds $5,000,000, and then only to the
extent of such excess, and (ii) in no event shall Acquiror's indemnity
obligations with respect to breach of any representation or warranty of Acquiror
exceed the Aggregate Purchase Price.
Section 10.5 Conditions of Indemnification. The obligations and liabilities
of the Seller Group and Acquiror Group with respect to Claims made by third
parties shall be subject to the following terms and conditions:
(a) The indemnified party shall give the indemnifying party prompt notice
of any such Claim, and the indemnifying party shall have the right to undertake
the defense thereof by representatives chosen by it;
(b) If the indemnifying party undertakes the defense of any such Claim, the
indemnified party shall, to the best of its ability, assist the indemnifying
party, at the expense of the indemnifying party, in the defense of such Claim,
and shall promptly send to the indemnifying party, at the expense of the
indemnifying party, copies of any documents received by the indemnified party
which relate to such Claim;
(c) If the indemnifying party, within a reasonable time after notice of any
such Claim, fails to defend the indemnified party against which such Claim has
been asserted, the indemnified party shall (upon further notice to the
indemnifying party) have the right to undertake 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; and
(d) Anything in this Article X to the contrary notwithstanding, (i) if
there is a reasonable probability that a Claim may materially and adversely
affect the indemnified party other than 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, 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 a release from all liability with respect to
such Claim.
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Section 10.6 Survival of Representations. The representations and
warranties in this Agreement and in any certificate delivered pursuant hereto
shall survive the Closing solely for purposes of this Article X and shall
terminate upon expiration of the period for which indemnification for breach of
such representation and warranty may be sought under this Article X; provided,
however, that (i) representations and warranties under Section 6.20 hereof shall
terminate sixty days after the related statute of limitations (giving effect to
any extensions thereto) has expired with respect to the relevant Tax; (ii)
representations and warranties under Sections 6.4, 6.15 and 7.4(b) hereof shall
survive until sixty days after any applicable statute of limitations (or
indefinitely, if no statute of limitations is applicable).
Section 10.7 Exclusive Remedy. Except as set forth in Section 12.13 hereof,
the indemnities provided in this Article X shall be the exclusive remedy for
breach of this Agreement by any party hereto.
ARTICLE XI
TERMINATION
Section 11.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual written agreement of Acquiror and Seller;
(b) at any time after January 10, 1997 by either Acquiror or Seller, by
giving written notice of such termination to the other party, if the Closing
shall not have occurred on or prior to such date (unless the failure to
consummate the Closing by such date shall be due to or have resulted from (i)
failure to receive any regulatory or third-party consent or approval for which a
request is pending; or (ii) any breach of the representations or warranties made
by, or the failure to perform or comply with any of the agreements or covenants
hereof to be performed or complied with prior to the Closing by, the party
seeking to terminate this Agreement); or
(c) by either Acquiror or Seller by written notice of such termination to
the other party if any event, fact or condition shall occur or exist that makes
it impossible to satisfy a condition to such party's obligations to consummate
the transactions contemplated by this Agreement, unless the occurrence or
existence of such event, fact or condition shall be due to the failure of such
party to perform or comply with any of the agreements or covenants hereof to be
performed or complied with by such party prior to the Closing.
Section 11.2 Effect of Termination. In the event of the termination of this
Agreement in accordance with Section 11.1 hereof, this Agreement shall
thereafter become void and have no effect and the transactions contemplated
hereby shall be abandoned, and no party hereto shall have any liability to the
other party hereto or their respective Affiliates, directors, officers or
employees, except for the obligations of the parties hereto contained in
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this Section 11.2 and in Sections 12.1, 12.6, 12.7 and 12.8 hereof, and
except that nothing herein will relieve any party from liability for a breach of
any provision of this Agreement or limit or restrict the rights or remedies of
any party hereto against the other party for any breach of this Agreement. If
this Agreement is terminated pursuant to Section 11.1 hereof:
(a) all confidential information received by the parties shall be treated
in accordance with Section 8.1 hereof and the Confidentiality Agreements
referred to in such Section; and
(b) all filings, applications and other submissions made pursuant to
Sections 8.3, 8.4 and 8.5 hereof shall, to the extent practicable, be withdrawn
from the agency or other person to which made.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Notices. All notices or other communications hereunder shall
be deemed to have been duly given and made if in writing and if served by
personal delivery upon the party for whom it is intended, if delivered by
registered or certified mail, return receipt requested, or by a national courier
service, or if sent by telecopier, provided that the telecopy is promptly
confirmed by telephone confirmation thereof, to the person at the address set
forth below, or such other address as may be designated in writing hereafter, in
the same manner, by such person:
To Seller:
Ms. Christel DeHaan
6330 Mayfield Lane
Zionsville, Indiana 46077
Telephone: (317) 873-1781
With a copy to:
Ice Miller Donadio & Ryan
for express deliveries:
Suite 3400
One America Square
Indianapolis, Indiana 46208
for regular mail:
Box 82001
Indianapolis, Indiana 46282-0002
Telephone: (317) 236-2100
Facsimile: (317) 236-2219
Attn: Berkley W. Duck, III, Esq.
<PAGE>
To Acquiror:
HFS Incorporated
Six Sylvan Way
Parsippany, NJ 07054
Telephone: (201) 359-5266
Facsimile: (201) 359-5331
Attn: James E. Buckman, Esq.
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
Telephone: 302-651-3000
Telecopy: 302-651-3001
Attn: Patricia Moran Chuff, Esq.
Section 12.2 Amendment; Waiver. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Acquiror, the Company and Seller, or in
the case of a waiver, by the party against whom the waiver is to be effective.
No failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
Section 12.3 Assignment. No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior written consent of
the other party hereto, except that Acquiror may without such consent assign its
rights, duties and obligations hereunder, in whole or in part, to any direct or
indirect wholly owned subsidiary of Acquiror designated by Acquiror in a writing
delivered to Seller at or prior to the Closing; provided, however, that no
assignment by Acquiror shall relieve Acquiror of any of its obligations
hereunder.
Section 12.4 Entire Agreement. This Agreement (including the Seller Disclo-
sure Schedule and all Schedules and Exhibits hereto) contains the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters, except for the Confidenti- ality Agreement which will
remain in full force and effect for the term provided for therein.
Section 12.5 Fulfillment of Obligations. Any obligation of any party to any
other party under this Agreement, which obligation is performed, satisfied or
fulfilled by an
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Affiliate of such party, shall be deemed to have been performed, satisfied
or fulfilled by such party.
Section 12.6 Parties in Interest. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
confer upon any Person other than Acquiror, Seller, the Company, the Affiliated
Entities or their successors or permitted assigns, any rights or remedies under
or by reason of this Agreement.
Section 12.7 Expenses. Except as otherwise expressly provided in this
Agree- ment, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contem- plated hereby shall be borne by the party incurring
such expenses; provided, however, that all reasonably incurred costs and
expenses of Seller's counsel and accountants may be borne by the Company up to a
maximum amount of $1,000,000. All other costs and expenses of Seller (including
those described in Section 12.8 hereof) shall be borne by Seller.
Section 12.8 Brokers. The fees of any broker, finder or investment banker
hired by Seller, the Company or any Affiliated Entity hereto shall be borne
solely by the Seller. The fees of any broker, finder or investment banker hired
by Acquiror or Acquisition shall be borne solely by Acquiror.
Section 12.9 Governing Law; Jurisdiction. This Agreement shall be governed
by the laws of the State of New York, its rules of conflict of laws
notwithstanding. Each of Seller, the Company and Acquiror hereby agrees and
consents to be subject to the jurisdic- tion of the United States District Court
for the District of New York and the jurisdiction of the courts of the State of
New York in any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby. Each party hereby irrevocably consents to
the service of any and all process in any such suit, action or proceeding by the
delivery of such process to such party at the address and in the manner provided
in Section 12.1.
Section 12.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same agreement.
Section 12.11 Headings. The heading references herein and in the table of
contents hereto are for convenience purposes only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
Section 12.12 Further Assurances. From time to time after the Closing Date,
at the request of the other party hereto and at the expense of the party so
requesting, Seller, the Company and Acquiror shall execute and deliver to such
requesting party such documents and take such other action
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and take such other action as such requesting party may reasonably request
in order to consummate the transactions contemplated hereby.
Section 12.13 Specific Performance. Each party hereto acknowledges that
money damages would be both incalculable and an insufficient remedy for any
breach of this Agreement by such party and that any such breach would cause the
other party hereto irreparable harm. Accordingly, each party hereto also agrees
that, in the event of any breach or threatened breach of the provisions of this
Agreement by such party, the other party hereto shall be entitled to equitable
relief without the requirement of posting a bond or other security, including in
the form of injunctions and orders for specific performance.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed or caused this Agreement to
be executed as of the date first written above.
HFS INCORPORATED
By: /s/ Stephen P. Holmes
Name: Stephen P. Holmes
Title: Executive Vice President and
Chief Financial Officer
SELLER
/s/ Christel DeHaan
Christel DeHaan
RESORT CONDOMINIUMS INTERNATIONAL, INC.
By: /s/ Christel DeHaan
Name: Christel DeHaan
Title: Chairman and Chief Executive Officer
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B Y - L A W S
OF
HOSPITALITY FRANCHISE SYSTEMS, INC.
(hereinafter called the "Corporation")
As amended and restated December 9, 1992
and as further amended June 14, 1994
and as further amended October 24, 1996
ARTICLE I
OFFICES
SECTION 1. OFFICES. The Corporation shall maintain its
registered office in the State of Delaware at 32 Loockerman Square, Suite L-100,
Dover, 19901 and its resident agent at such address is The Prentice-Hall
Corporation System, Inc. The Corporation may also have offices in such other
places in the United States or elsewhere as the Board of Directors may, from
time to time, appoint or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings
of stockholders for the election of directors and for
such other business as may properly be conducted at such
meeting shall be held at such place, either within or
<PAGE>
without the State of Delaware, and at such time and date as the Board of
Directors shall determine by resolution and set forth in the notice of the
meeting. Notice of each annual meeting shall be given in accordance with Section
3 of this Article II.
SECTION 2. SPECIAL MEETINGS. Unless otherwise prescribed by
statute, special meetings of the stockholders of the Corporation for any purpose
or purposes may be called by the Board of Directors or the Executive Committee
thereof, and shall be called by the President or Secretary upon the written
request of stockholders holding not less than 20% of the outstanding shares of
capital stock of the Corporation entitled to vote thereat. Unless otherwise
permitted by law, business transacted at any special meeting of stockholders
shall be limited to the purpose stated in the notice. Notice of each special
meeting shall be given in accordance with Section 3 of this Article II.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided by
law, whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting, which shall state the place, date and
time of the meeting, and, in the case of a special meeting, the purposes for
which the meeting is
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called, shall be mailed to or delivered to each stockholder of record entitled
to vote thereat not less than ten (10) days nor more than sixty (60) days before
the date of any such meeting.
SECTION 4. QUORUM. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the issued and
outstanding stock entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all meetings
of stockholders.
SECTION 5. VOTING. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall be entitled to one vote for
each share of capital stock held by such stockholder. The Board of Directors, in
its discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such meeting
shall be cast by written ballot. Unless otherwise provided by the Certificate of
Incorporation or these By--Laws, all elections of directors shall be decided by
plurality vote. Unless otherwise required by law, these By-Laws or the
Certificate of Incorporation, all other corporate action shall be decided by
majority vote.
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SECTION 6. INSPECTORS. The Board of Directors may, in advance
of any meeting of stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If any of the inspectors so appointed shall
fail to appear or act, the chairman of the meeting may, or if inspectors shall
not have been appointed, the chairman of the meeting shall, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the results, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and
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shall execute a certificate of any fact found by them. No director or candidate
for the office of director shall act as an inspector of an election of
directors.
SECTION 7. CHAIRMAN OF MEETINGS. The Chairman
of the Board of Directors of the Corporation, if one is
elected, or, in his absence or disability, the President
of the Corporation, shall preside at all meetings of the
stockholders.
SECTION 8. SECRETARY OF MEETING. The Secretary of the
Corporation shall act as Secretary at all meetings of the stockholders. In the
absence or disability of the Secretary, the Chairman of the Board of Directors
or the President shall appoint a person to act as Secretary at such meetings.
SECTION 9. LISTS OF STOCKHOLDERS. The officer who has charge
of the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of each stockholder and the number and class of shares held by each.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten
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days prior to the meeting, either at a place within the city where the meeting
is to be held, which shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the meeting and may be inspected by any stockholder who
is present.
SECTION 10. ADJOURNMENT. At any meeting of stockholders of the
Corporation, if less than a quorum be present, any officer entitled to preside
at or to act as Secretary of the meeting shall have the power to adjourn the
meeting from time to time without notice other than announcement at the meeting
until a quorum shall be present. Any business may be transacted at the adjourned
meeting which might have been transacted at the meeting originally noticed. If
the adjournment is for more than thirty days, or if after the adjournment a new
record date, as provided for in Section 5 of Article V of these By-Laws, is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWERS. The property, business and
affairs of the Corporation shall be managed and con-
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trolled by its Board of Directors. There shall at all times be an Executive
Committee of the Board of Directors, which will consist of one or more of the
directors of the Corporation. The Board shall exercise all of the powers and
duties conferred by law except as provided by the Certificate of Incorporation
or these By-Laws. The Executive Committee of the Board of Directors shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation except as set forth in
Section 9 of this ARTICLE III.
SECTION 2. NUMBER AND TERM. The number of directors shall be
fixed at no less than one nor more than twelve. Within the limits specified
above, the number of directors shall be fixed from time to time by or pursuant
to a resolution passed by the Board of Directors. The Board of Directors shall
be elected by the stockholders at their annual meeting, and each director shall
be elected to serve for the term set forth in the Certificate of Incorporation.
Directors need not be stockholders.
SECTION 3. RESIGNATIONS. Any director may
resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified
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therein, and if no time is specified, at the time of its receipt by the
President or Secretary. The acceptance of a resignation shall not be necessary
to make it effective.
SECTION 4. REMOVAL. Any director or the entire Board of
Directors may be removed only for cause at any time by the affirmative vote of
the holders of a majority of the shares entitled to vote for the election of
directors at any annual or special meeting of stockholders called for that
purpose.
SECTION 5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS.
Vacancies occurring in any directorship and newly created directorships shall be
filled by a majority vote of the remaining directors, even though less than a
quorum of the Board of Directors or by its sole director. Any director so chosen
shall hold office for the unexpired term of his predecessor (as long as such
director remains qualified) and until his successor shall be elected and
qualified or until his earlier death, resignation or removal. The Board of
Directors may not fill the vacancy created by removal of a director by electing
the director so removed.
SECTION 6. MEETINGS. The newly elected direc-
tors shall hold their first meeting to organize the
8
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Corporation, elect officers and transact any other business which may properly
come before the meeting. An annual organizational meeting of the Board of
Directors shall be held immediately after each annual meeting of stockholders,
or at such time and place as may be noticed for the meeting.
Regular meetings of the Board of Directors may be held without
notice at such places and times as shall be determined from time to time by
resolution of the directors.
Special meetings of the Board of Directors shall be called by
the President or by the Secretary on the written request of any director with at
least two days' notice to each director and shall be held at such place as may
be determined by the directors or as shall be stated in the notice of the
meeting.
SECTION 7. QUORUM, VOTING AND ADJOURNMENT. Except as may be
otherwise specifically required by law, the Certificate of Incorporation or
these By-Laws, at all meetings of the Board of Directors, a majority of the
total number of directors or any committee thereof shall constitute a quorum for
the transaction of business. The vote of the majority of the total number of
directors shall be the act of the Board of Directors. In the
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absence of a quorum, a majority of the directors present thereat may adjourn
such meeting to another time and place. Notice of such adjourned meeting need
not be given if the time and place of such adjourned meeting are announced at
the meeting so adjourned.
SECTION 8. COMMITTEES. There shall at all times be an Audit
Committee of the Board of Directors, which will consist of one or more of the
directors of the Corporation. The Board of Directors may, by resolution passed
by a majority of the total number of directors, designate one or more additional
committees, each such committee to consist of one or more of the directors of
the Corporation. The action of a majority of the total number of members of any
committee shall be the act of such committee. The Board may designate one or
more directors as alternate members of any committee to replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or author-
10
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ity to amend the Certificate of Incorporation, adopt an agreement of merger or
consolidation, recommend to the stockholders the sale, lease, or exchange of all
or substantially all of the Corporation's properties and assets, recommend to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution or to amend these By-Laws. Unless a resolution of the Board
expressly provides, no such committee (other than the Executive Committee) shall
have the power or authority to declare a dividend, to authorize the issuance of
stock of the Corporation or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of the State of Delaware.
The Executive Committee shall have the power and authority to declare a
dividend, to authorize the issuance of stock of the Corporation and to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of the State of Delaware. All committees of the Board shall
report their proceedings to the Board when required.
SECTION 9. ACTION WITHOUT A MEETING. Unless
otherwise restricted by the Certificate of Incorporation
or these By-Laws, any action required or permitted to be
taken at any meeting of the Board of Directors or of any
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committee thereof may be taken without a meeting if all members of the Board or
any committee thereof consent thereto in writing.
SECTION 10. COMPENSATION. The Board of Direc-
tors shall have the authority to fix the compensation of
directors for their services. A director may also serve
the Corporation in other capacities and receive compensa-
tion therefor.
SECTION 11. TELEPHONIC MEETING. Unless otherwise restricted by
the Certificate of Incorporation, members of the Board, or any committee
designated by the Board, may participate in a meeting by means of conference
telephone or similar communications equipment in which all persons participating
in the meeting can hear each other. Participation in such telephonic meeting
shall constitute the presence in person at such meeting.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation shall include a
President, a Secretary and one or more subordinate officers, all of whom shall
be elected by the Board of Directors and who shall hold office for a term of one
year and until their successors are elected and
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qualified or until their earlier resignation or removal. In addition, the Board
of Directors may elect a Chairman of the Board, one or more Vice Chairmen, one
or more Vice Presidents, including one or more Executive Vice Presidents and
Senior Vice Presidents, a Treasurer and one or more Assistant Treasurers, and a
Secretary and one or more Assistant Secretaries, who shall hold their office for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors. The initial officers
shall be elected at the first meeting of the Board of Directors and, thereafter,
at the annual organizational meeting of the Board held after each annual meeting
of the stockholders. Any number of offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors
may appoint such other officers and agents as it deems advisable, who shall hold
their office for such terms and shall exercise and perform such powers and
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the
Board of Directors shall be a member of the Board and
shall preside at all meetings of the Board of Directors
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and of the stockholders. He shall be the Chief Executive Officer of the
Corporation, and except where by law the signature of the President is required,
the Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of Directors
shall exercise all powers and discharge all duties of the President.
In addition, the Chairman of the Board shall have such powers
and perform such other duties as from time to time may be assigned to him by the
Board of Directors.
SECTION 4. PRESIDENT. The President shall, subject to the
control of the Board of Directors, have general supervision of the business of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The President shall exercise such duties as
customarily pertain to the Office of President, and shall have general and
active management of the property, business and affairs of the Corporation,
subject to the supervision and control of the Board of Directors. Except as the
Board of
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Directors shall otherwise authorize, the President shall execute all bonds,
mortgages, contracts and other instruments of the Corporation requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these By-Laws,
the Board of Directors or the President.
In the absence, disability or refusal of the Chairman of the
Board to act, or the vacancy of such office, the President shall preside at all
meetings of the stockholders and of the Board of Directors. The President shall
perform such other duties as prescribed from time to time by the Board of
Directors or these By-Laws.
SECTION 5. VICE PRESIDENTS. Each Vice President, if any are
elected, of whom one or more may be designated an Executive Vice President or
Senior Vice President, shall have such powers and shall perform such duties as
shall be assigned to him by the Chairman of the Board, the President or the
Board of Directors.
SECTION 6. TREASURER. The Treasurer shall
have custody of the corporate funds, securities, evidenc-
es of indebtedness and other valuables of the Corporation
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and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation. He shall deposit all moneys and other valuables in
the name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation,
taking proper vouchers therefor. He shall render to the Chairman of the Board,
the President and the Board of Directors, upon their request, a report of the
financial condition of the Corporation. If required by the Board of Directors,
he shall give the Corporation a bond for the faithful discharge of his duties in
such amount and with such surety as the Board of Directors shall prescribe.
The Treasurer shall have such further powers and perform such
other duties incident to the office of Treasurer as from time to time are
assigned to him by the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall:
(a) cause minutes of all meetings of the stockholders and
directors to be recorded and kept; (b) cause all notices
required by these By-Laws or otherwise to be given prop-
erly; (c) see that the minute books, stock books, and
other nonfinancial books, records and papers of the
16
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Corporation are kept properly; and (d) cause all reports, statements, returns,
certificates and other documents to be prepared and filed when and as required.
The Secretary shall also perform like duties for the standing committees when
required. The Secretary shall have such further powers and perform such other
duties as prescribed from time to time by the Board of Directors.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
Each Assistant Treasurer and each Assistant Secretary, if any are elected, shall
be vested with all the powers and shall perform all the duties of the Treasurer
and Secretary, respectively, in the absence or disability of such officer,
unless or until the Board of Directors shall otherwise determine. In addition,
Assistant Treasurers and Assistant Secretaries shall have such powers and shall
perform such duties as shall be assigned to them by the Board of Directors.
SECTION 9. CORPORATE FUNDS AND CHECKS. The funds of the
Corporation shall be kept in such depositories as shall from time to time be
prescribed by the Board of Directors. All checks or other orders for the payment
of money shall be signed by the Chairman of the Board, the President or the
Treasurer or such other person or agent as may from time to time be authorized
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and with such countersignature, if any, as may be re-
quired by the Board of Directors.
SECTION 10. CONTRACTS AND OTHER DOCUMENTS. The Chairman of the
Board, the President (or, in his absence, a Vice President) or Treasurer, or
such other officer or officers as may from time to time be authorized by the
Board of Directors, shall have power to sign and execute on behalf of the
Corporation deeds, conveyances and contracts, and any and all other documents
requiring execution by the Corporation.
SECTION 11. OWNERSHIP OF STOCK OF ANOTHER CORPORATION. The
Chairman of the Board, the President or the Treasurer, or such other officer or
agent as shall be authorized by the Board of Directors, shall have the power and
authority, on behalf of the Corporation, to attend and to vote at any meeting of
stockholders of any corporation in which the Corporation holds stock and may
exercise, on behalf of the Corporation, any and all of the rights and powers
incident to the ownership of such stock at any such meeting, including the
authority to execute and deliver proxies and consents on behalf of the
Corporation.
SECTION 12. DELEGATION OF DUTIES. In the
absence, disability or refusal of any officer to exercise
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and perform his duties, the Board of Directors may delegate to another officer
such powers or duties.
SECTION 13. RESIGNATION AND REMOVAL. Any officer of the
Corporation may be removed from office for or without cause at any time by the
Board of Directors. Any officer may resign at any time in the same manner
prescribed under Section 3 of Article III of these By--Laws.
SECTION 14. VACANCIES. The Board of Directors
shall have power to fill vacancies occurring in any
office.
ARTICLE V
STOCK
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the Chairman of the Board or the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number and class of shares of stock in the
Corporation owned by him. Any or all of the signatures on the certificate may be
a facsimile. The Board of Directors shall have the power to appoint one or more
transfer agents and/or registrars for the transfer
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or registration of certificates of stock of any class, and may require stock
certificates to be countersigned or registered by one or more of such transfer
agents and/or registrars.
SECTION 2. TRANSFER OF SHARES. Shares of stock of the
Corporation shall be transferable upon its books by the holders thereof, in
person or by their duly authorized attorneys or legal representatives, upon
surrender to the Corporation by delivery thereof to the person in charge of the
stock and transfer books and ledgers. Such certificates shall be cancelled and
new certificates shall thereupon be issued. A record shall be made of each
transfer. Whenever any transfer of shares shall be made for collateral security,
and not absolutely, it shall be so expressed in the entry of the transfer if,
when the certificates are presented, both the transferor and transferee request
the Corporation to do so. The Board of Directors shall have power and authority
to make such rules and regulations as it may deem necessary or proper concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 3. LOST CERTIFICATES. A new certifi-
cate of stock may be issued in the place of any certifi-
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cate previously issued by the Corporation, alleged to have been lost, stolen,
destroyed or mutilated, and the Board of Directors may, in their discretion,
require the owner of such lost, stolen, destroyed or mutilated certificate, or
his legal representative, to give the Corporation a bond, in such sum as the
Board of Directors may direct, not exceeding double the value of the stock, in
order to indemnify the Corporation against any claims that may be made against
it in connection therewith.
SECTION 4. STOCKHOLDERS OF RECORD. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder thereof, in fact, and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
SECTION 5. STOCKHOLDERS RECORD DATE. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
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exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may at any regular or
special meeting, out of funds legally available therefor, declare dividends upon
the stock of the Corporation. Before the declaration of any dividend, the Board
of Directors may set apart, out of any funds of the Corporation available for
dividends, such sum or sums as from time to time in their discretion may be
deemed proper for working capital or as a reserve fund to meet contingencies or
for such other purposes as shall be deemed conducive to the interests of the
Corporation.
ARTICLE VI
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NOTICE AND WAIVER OF NOTICE
SECTION 1. NOTICE. Whenever any written
notice is required to be given by law, the Certificate of Incorporation or these
By-Laws, such notice, if mailed, shall be deemed to be given when deposited in
the United States mail, postage prepaid, addressed to the person entitled to
such notice at his address as it appears on the books and records of the
Corporation. Such notice may also be sent by telegram.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required to be
given by law, the Certificate of Incorporation or these By-Laws, a written
waiver thereof signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders, directors, or members of a
committee of the Board of Directors need be specified in any written waiver of
notice.
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ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. AMENDMENTS. These By-Laws may be amended or
repealed or new By-Laws may be adopted by the affirmative vote of a majority of
the total number of directors at any regular or Special Meeting of the Board of
Directors; provided however, that the Board of Directors may not amend or repeal
the provisions of the first three sentences of ARTICLE III, Section 9 of the
By-Laws or this proviso. If any By-Law regulating an impending election of
directors is adopted, amended or repealed by the Board of Directors, there shall
be set forth in the notice of the next meeting of stockholders for the election
of directors the By-Law(s) so adopted, amended, or repealed, together with a
precise statement of the changes made. By-Laws adopted by the Board of Directors
may be amended or repealed by stockholders.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any
24
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threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director or
officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director or officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action
25
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or proceeding, had reasonable cause to believe that his
conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the
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court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense
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of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint
28
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venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections 1 or
2 of this Article VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Not-
withstanding any contrary determination in the specific
case under Section 3 of this Article VIII, and notwith-
standing the absence of any determination thereunder, any
director or officer may apply to any court of competent
jurisdiction in the State of Delaware for indemnification
to the extent otherwise permissible under Sections 1 and
2 of this Article VIII. The basis of such indemnifica-
tion by a court shall be a determination by such court
that indemnification of the director or officer is proper
in the circumstances because he has met the applicable
standards of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of
this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or
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create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled to
be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law,
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agreement, contract, vote of stockholders or disinterested directors or pursuant
to the direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising
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out of his status as such, whether or not the Corporation would have the power
or the obligation to indemnify him against such liability under the provisions
of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VIII, references to "fines" shall include any excise taxes assessed
on a person with respect to an
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employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director or officer with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION.
Notwithstanding anything contained in this Article VIII
to the contrary, except for proceedings to enforce rights
to indemnification (which shall be governed by Section 5
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hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
SECTION 1. SEAL. The seal of the Corporation
shall be circular in form and shall have the name of the
Corporation on the circumference and the jurisdiction and
year of incorporation in the center.
SECTION 2. FISCAL YEAR. The fiscal year of
the Corporation shall end on December 31 of each year, or
such other twelve consecutive months as the Board of
Directors may designate.
34
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RESOLVED, that Article IV, Section 1 of the Bylaws of the Corporation
is hereby amended in its entirety to read as follows:
SECTION 1. The officers of the Corporation
shall include a President, a Secretary and one or more
subordinate officers, all of whom shall be elected by the
Board of Directors and who shall hold office for a term of one
year and until their successors are elected and qualified or
until their earlier resignation or removal. In addition, the
Board of Directors may elect a Chairman of the Board, one or
more Vice Chairmen, one or more Vice Presidents, including one
or more Executive Vice Presidents and Senior Vice Presidents,
a Treasurer and one or more Assistant Treasurers, and a
Secretary and one or more Assistant Secretaries, who shall
hold their office for such terms and shall exercise such
powers and perform such duties as shall be determined from
time to time by the Board of Directors. The initial officers
shall be elected at the first meeting of the Board of
Directors and, thereafter, at the annual organizational
meeting of the Board held after each annual meeting of the
stockholders. Any number of offices may be held by the same
person.
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THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
DATED AS OF JANUARY 31, 1992
BETWEEN
HFS INCORPORATED
AND JOHN D. SNODGRASS
THIS THIRD AMENDMENT entered into as of October __, 1996 between JOHN D.
SNODGRASS (the "Employee") and HFS INCORPORATED, formerly known as Hospitality
Franchise Systems, Inc., a Delaware corporation ("HFS").
WITNESSETH:
WHEREAS, the Employee and HFS desire to amend the Employment Agreement dated as
of January 31. 1992 (the "Agreement") between HFS and the Employee to extend the
term of the Agreement to December 31, 1998 and to provide certain supplemental
terms and provisions to the Agreement.
NOW, THEREFORE, in consideration of the respective promises contained herein and
the agreement of the Employee and HFS to continue the employee-employer
relationship through the date of the execution of this Third Amendment and,
thereafter, to the extent the parties so desire pursuant to the terms of the
Agreement, the parties agree that the Agreement shall be amended and
supplemented as follows:
1. Section 2 of the Agreement is amended to read in its entirety
as follows:
"The term of the Employee's employment under this Agreement
shall be for a period from the Effective Date through December
31, 1998, unless terminated sooner as hereinafter provided
(the "Term of this Agreement").
2. In addition to all other compensation and benefits provided in the
Agreement, the Employee shall be granted during or before May 1997 and May 1998
stock options to purchase 250,000 shares of HFS Common Stock as of each grant
(or a total of 500,000 shares) under the HFS 1993 Stock Option Plan, as amended
(the "Plan"), with exercise prices equal to the Fair Market Value of HFS Common
Stock (as defined in the Plan) on the date of the respective grant; provided
that the obligation to make such stock option grants shall be subject to the
availability of an adequate number of shares of HFS Common Stock reserved for
stock option grants under the Plan at the time such options are provided herein
to be granted. Such stock options will be evidenced by stock option agreements
substantially in the form attached hereto as Exhibit A and shall be subject to
the provisions of the Amendment to Stock Options, dated the same date as this
Third Amendment, between HFS and the Employee. Unless otherwise requested by the
Employee prior to each stock option grant, the applicable stock option agreement
will provide for the assignability of such stock options as provided in the
Plan. Such number of shares of HFS Common Stock for which stock options are to
be granted as provided
<PAGE>
herein shall be adjusted appropriately to give effect to stock splits, stock
dividends and similar changes in capitalization affecting the HFS Common Stock
taking effect prior to the grant of the respective stock options.
3. Notwithstanding any provisions of the Agreement to the contrary,
from and after June 1, 1997 the Employee may relocate his personal residence to
the Atlanta, Georgia area without being deemed to have breached the Agreement by
virtue of such relocation, provided that he continues to comply with all of his
other obligations under the Agreement. Notwithstanding any such relocation, the
Employee's office and principal place of business shall continue to be located
at the HFS headquarters which is currently in Parsippany, New Jersey.
4. From and after June 1, 1997 HFS will make available to the Employee,
the use of a Hawker 800 aircraft (or similar aircraft) for personal and business
purposes, the cost of which will be charged to the Employee and/or HFS in
accordance with the currently existing HFS policies governing such matters. The
availability and use of such aircraft shall be in addition to the use of any
aircraft owned or leased by HFS from time to time in accordance with HFS's
policy relating to use of such aircraft in effect from time to time.
5. Notwithstanding any provisions of the Agreement to the contrary
(including subparagraph (4) of the "Good Reason" definition in Section 8.3), it
is mutually understood and agreed that from and after September 1, 1997, the
persons directly reporting to the Employee may be limited to the senior officers
of HFS having responsibility over the hotel franchising group, the real estate
brokerage franchising group and the franchise sales function, which officers are
currently John Russell, Richard Smith and John Osborne, respectively.
6. Except to the extent modified and supplemented by the provisions
of this Third Amendment, the Agreement shall remain in effect as on the date
hereof.
IN WITNESS WHEREOF, the Employee and HFS have executed this Third
Amendment as of the date first above written.
HFS INCORPORATED
By:_________________________________
EMPLOYEE
------------------------------------
John D. Snodgrass
<PAGE>
EMPLOYMENT AGREEMENT, dated as of October 14, 1996 between HFS
INCORPORATED, a Delaware corporation (the "Company"), and
MICHAEL P. MONACO (the "Executive").
The Board of Directors of the Company (the "Board") desires to induce
the Executive to enter the employ of the Company, to provide for the employment
of the Executive and to provide the Executive with employment arrangements with
the Company which the Board has determined will encourage the attention and
dedication to the Company by the Executive as a member of the Company's
management, in the best interests of the Company and its shareholders. The
Executive is willing to enter the employ of the Company on the terms and
conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
Accordingly, the parties hereto agree as follows:
1. Term of Employment. The employment of the Executive by the Company
pursuant to this Agreement will commence October 14, 1996 (the "Effective Date")
and end on December 31, 1998 (the Expiration Date") (such period being
hereinafter referred to as the "Term"), unless sooner terminated as hereinafter
provided.
2. Position and Duties. The Executive shall serve as Chief Financial
Officer and Vice Chairman of the Company, and shall have such commensurate
responsibilities, duties and authority as may from time to time be assigned to
the Executive by the Board or the Chief Executive Officer of the Company, and
the Executive shall report to the Chief Executive Officer of the Company. The
Executive shall devote substantially all his time, energy and skill during
reasonable business hours to the service of the Company. Subject to approval by
the shareholders of the Company, the Executive shall serve on the Board of
Directors of the Company. The Executive's office shall be located at the
Company's headquarters, which shall be located in Parsippany, New Jersey, or
elsewhere in the New York City metropolitan area. Without his consent, the
Executive will not be required to relocate outside of the New York City
metropolitan area.
3. Compensation and Related Matters. (a) Salary. During the period of
the Executive's employment, the Company shall pay him an annual base salary at a
rate of $500,000.00 per year, such salary to be paid in substantially equal
installments no less frequently than semi-monthly. Such annual base salary shall
be subject to increase on each anniversary date of this Agreement at the
discretion of the Chief Executive Officer of the Company, taking into account
the Executive's performance of his duties during the preceding year and other
relevant factors, and subject to the approval of the Board. The Executive shall
also be eligible to participate in any cash incentive bonus program generally
applicable to executives at the level provided for Vice Chairman.
Notwithstanding the foregoing provisions of this Section, such annual
salary shall be increased on each anniversary date of this Agreement (an
"Adjustment Date") in an amount calculated as follows: if the "Consumer Price
Index" for the calendar month immediately
<PAGE>
preceding the applicable Adjustment Date shall exceed the Consumer Price Index
for the corresponding month during the prior year, then such salary (as
previously adjusted) shall be determined by multiplying the amount of such
salary (as previously adjusted) by a fraction, the numerator of which shall be
the Consumer Price Index for the calendar month immediately preceding the
applicable Adjustment Date, and the denominator of which shall be the Consumer
Price Index for the applicable month during the prior year. Each adjustment
shall be made as promptly as practicable after publication of the Consumer Price
Index for the month immediately preceding the applicable Adjustment Date.
Immediately after such publication, the Company shall pay to the Executive such
additional amount as shall be required to bring the aggregate of the bi-weekly
installments of the then current annual base salary paid to the Executive on and
after the applicable Adjustment Date up to the total dollar amount required by
reason of such adjustment; thereafter, all installments of the adjusted annual
salary for the balance of the 12 months shall be made at the newly adjusted
rate. In no event shall such annual salary (as previously adjusted) be decreased
to reflect a decline in the Consumer Price Index. As used in this Agreement,
"Consumer Price Index" shall mean the Consumer Price Index, Urban Wage Earners
and Clerical Workers, U.S. City Average, All Items (1982-4 = 100), published by
the Bureau of Labor Statistics of the United States Department of Labor. The
applicable number in such Index, for purposes of this Agreement, shall be the
number for "All Items" (which number for the month of July 1991 was 134.3). In
the event a substantial change is made with respect to the information used to
determine the Consumer Price Index, or in the event another publication is used
because the Consumer Price Index is not published, appropriate adjustment shall
be made in the corresponding numbers for prior periods so that after such
adjustment the same result will be produced as would have resulted had there
been no such change in the Consumer Price Index or had it continued to be
published.
(b) Change of Control. If any "Change-of-Control Transaction" shall
occur during the Term, the Executive shall be entitled to receive, upon the
closing of such Change-of-Control Transaction, a lump sum payment equal to the
annual base salary to which the Executive would be entitled under Section 3(a)
during the greater of (i) one year from the closing of such Change-Of-Control
Transaction or (ii) the balance of the Term, irrespective of whether the
Executive offers to continue his employment with the Company on the terms and
conditions set forth herein or otherwise; provided that such lump sum shall not
be paid to the Executive if, following the completion of any such
Change-of-Control Transaction, he shall be employed pursuant to any employment
agreement in form and substance substantially identical to this Agreement, but
having a term of at least the period from the execution thereof to the
Expiration Date, directly or indirectly, by the Company or by any entity which
shall, after such Change-of-Control Transaction, be in control of the Company or
the assets and business of the Company, the transfer of which constituted the
Change-of-Control Transaction. "Change-of-Control Transaction" means any
transaction or series of transactions pursuant to or as a result of which (i)
during any period of not more than twenty-four (24) months, individuals who at
the beginning of such period constitute the Board, and any new director (other
than a director designated by a third party who has entered into an agreement to
effect a transaction described in clause (ii), (iii) or (iv) below) whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least a majority of the directors then still
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in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved (other than
approval given in connection with an actual or threatened proxy or election
contest), cease for any reason to constitute at least a majority of the members
of the Board, (ii) beneficial ownership of 50% or more of the common stock (or
other securities having generally the right to vote for election of the Board)
of the Company (the "Shares") shall be sold, assigned or otherwise transferred,
directly or indirectly, other than pursuant to a public offering, to a third
party, whether by sale or issuance of Shares or other securities or otherwise,
(iii) the Company or any Subsidiary shall sell, assign or otherwise transfer,
directly or indirectly, assets (including stock or other securities of
Subsidiaries) having a fair market or book value or earning power of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any third party, other than the Company or a wholly-owned Subsidiary
thereof, or (iv) control of 50% or more of the business of the Company shall be
sold, assigned or otherwise transferred directly or indirectly to any third
party. This Section 3(b) shall survive any termination of this Agreement or
termination of the Executive's employment with the Company, other than (x) a
termination for Cause (as defined in Section 4(a)(iii)) or (y) the Executive's
voluntary resignation of employment (except any such resignation arising from a
breach of this Agreement by the Company) or (z) the Executive's death or
disability (as contemplated by Section 4(a)(ii)); provided that any lump sum
payment to which the Executive is entitled under this Section 3(b) shall be
reduced by the amount of any payment provided by clause I of Section 4(a)(iv)
which has been paid to the Executive. For purposes of this paragraph, the term
"Subsidiary" shall mean any corporation in an unbroken chain of corporations,
beginning with the Company, if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(c) Stock Option Grant. Subject to the approval of the Compensation
Committee of the Board of Directors of the Company, the Executive shall be
granted an option to purchase 600,000 shares of the common stock of the Company
priced at market value as of the date of grant, and otherwise having terms as
set forth in the Company's Amended and Restated 1993 Stock Option Plan.
(c) Expenses. During the term of the Executive's employment hereunder,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable and customary expenses incurred by him in performing services
hereunder, including all expense of travel and living expenses while away from
home on business or at the request of and in the service of the Company;
provided, that such expenses are incurred and accounted for in accordance with
the policies and procedures established by the Company and approved by the
Board. In addition, the Executive will be provided 24-hour access to a car
service of the Company's choice for business-related ground transportation,
which shall include daily commutation to the Company's offices. The cost of this
service will be reimbursed to the Executive through the ordinary travel expense
reimbursement process and governed by the Company's policies with respect to
such expenses.
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<PAGE>
(d) Other Benefits. The Executive shall be entitled to participate in
or receive benefits under any employee benefit plan, arrangement or perquisite
made available by the Company now or in the future to its executives and key
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans, arrangements and
perquisites. Nothing paid to the Executive under any plan, arrangement or
perquisite presently in effect or made available in the future shall be deemed
to be in lieu of the salary and other compensation payable to the Executive
pursuant to this Section 3. Any payments or benefits payable to the Executive
hereunder in respect of any year during which the Executive is employed by the
Company for less than the entire such year shall, unless otherwise provided in
the applicable plan or arrangement or approved by the Chief Executive Officer of
the Company, be prorated in accordance with the number of days in such year
during which he is so employed. Notwithstanding any provision in any such plan,
arrangement or perquisite to the contrary, the Executive's eligibility for
participation in such plan, arrangement or perquisite shall commence immediately
upon his employment with the Company.
(e) Indemnification. In addition to any indemnification provided by the
By-Laws of the Company or otherwise, the Company shall indemnify and provide
reasonable advances for expenses to the Executive, to the fullest extent
permitted by the laws of the State of Delaware, if the Executive is made a
party, or threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the Executive is or was an officer,
director or employee of the Company or any subsidiary or affiliate thereof, in
which capacity the Executive is or was serving at the Company's request, against
expenses (including reasonable attorneys' fees and expenses), judgments, fines
and amounts paid in settlement incurred by him in connection with such action,
suit or proceeding.
4. Termination. (a) The Executive's employment may be terminated by
the Company only under the following circumstances:
(i) Death. The Executive's employment shall terminate upon
his death.
(ii) Disability. If, in the written opinion of a qualified
physician selected by the Company and reasonably approved by the
Executive, the Executive shall become unable to perform his duties
hereunder due to physical or mental illness, and has failed, because of
such illness, to render, for 90 days out of any 180 day period,
services of the character contemplated by this Agreement, the Company
may terminate the Executive's employment.
(iii) Cause. The Company may terminate the Executive's
employment for Cause. As used in this Agreement, "Cause" shall mean (I)
the willful and continued failure by the Executive substantially to
perform his duties hereunder or to perform such other reasonable duties
assigned to him by the Chief Executive Officer (other than any such
failure resulting from the Executive's incapacity due to physical or
mental illness); (II) any act of fraud, misappropriation, dishonesty,
embezzlement or similar conduct against
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<PAGE>
the Company as finally determined through arbitration or final judgment
of a court of competent jurisdiction (which arbitration or judgment,
due to the passage of time or otherwise, is not subject to further
appeal); or (III) conviction of a felony or any crime involving moral
turpitude (which conviction, due to the passage of time or otherwise,
is not subject to further appeal). The Executive's employment shall not
be deemed to have been terminated for Cause unless the Company shall
have given or delivered to the Executive (A) reasonable notice setting
forth the reasons for the Company's intention to terminate the
Executive's employment for Cause, (B) an opportunity for the Executive
to cure any such breach during the thirty (30) day period after the
Executive's receipt of such notice, (C) a reasonable opportunity, at
any time during the thirty (30) day period after the Executive's
receipt of such notice, for the Executive, together with his counsel,
to be heard before the Board, and (D) a Notice of Termination (as
defined below) stating that, in the good faith opinion of not less than
a majority of the entire membership of the Board, the Executive was
guilty of the conduct set forth in clauses (I), (II) or (III) of the
preceding sentence. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (X) indicates the specific
termination provision of this Agreement relied upon, (Y) sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provisions so indicated and (Z) specifies the termination date (which
date shall not be less than 15 days after the giving of such notice).
On the termination date specified in a Notice of Termination duly
delivered pursuant to this paragraph, the Executive's compensation and
other benefits set forth in this Agreement (other than under Section
3(e) and other than any compensation or benefit that shall have accrued
but not been paid as of such date) shall terminate.
(iv) Other. If the Executive's employment is terminated by the
Company for any reason other than as set forth in paragraphs (i), (ii)
or (iii) of this Section 4(a), or if the Executive terminates this
Agreement for Good Reason (as defined in paragraph (v) below), then the
Company shall (I) pay to the Executive, in a lump sum on the date of
such termination, an amount equal to 100% of the annual base salary in
effect for the Executive under Section 3(a) immediately prior to the
date of such termination, and (II) continue to make available to the
Executive the other benefits set forth in this Agreement (but only to
the extent that the Executive is not receiving substantially the same
benefits from another employer) until the earlier of (A) the first
anniversary of the date of such termination or (B) the Expiration Date,
unless the Executive shall theretofore deliver a written notice to the
Company to the effect that he elects not to accept such other benefits.
In addition, if (x) this Agreement expires without extension or renewal
or (y) the Executive's employment is terminated by the Company without
cause or for any reason other than a reason set forth in paragraph
(iii) of this Section 4(a) or in connection with a Change-of-Control
Transaction as contemplated by Section 3(b) hereof or (z) the Executive
terminates his employment for Good Reason as set forth below, then the
Company shall pay to the Executive, at the time bonuses are distributed
to participants in the bonus plan in which the Executive would have
participated had the Executive's employment not so terminated, an
amount equal to the bonus percentage for which the
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<PAGE>
Executive would have been eligible had the Executive's employment not
so terminated multiplied by the Executive's base salary earned in the
preceding calendar through the Executive's date of termination, not
including any other payments made pursuant to this Section 4(a)(iv).
The Executive acknowledges that there is no guarantee that any amount
may be payable under any such bonus plan.
(v) Good Reason. For purposes of this Agreement, the Executive
has terminated this Agreement for "Good Reason" if any of the following
have occurred:
(A) The Executive no longer reports to the Chief
Executive Officer of the Company;
(b) The Executive's job title or position of
responsibility or the nature of the Executive's duties or the
scope of his responsibilities is materially reduced without
the Executive's written consent, and that reduction is not
corrected by the Company within thirty (30) days after written
notice from the Executive; or
(C) The material breach by the Company of any other
provision of this Agreement, if the Company fails to remedy
such breach within thirty (30) days after written notice from
the Executive.
(b) If the Executive voluntarily resigns his employment under this
Agreement (other than due to a breach of this Agreement by the Company), the
Executive's compensation and other benefits (other than any compensation or
benefit that shall have accrued but not been paid as of the date of such
resignation) set forth in this Agreement shall thereupon terminate.
(c) If any of the payments received or to be received by the Executive
in connection with a Change-of-Control Transaction or the Executive's
termination of employment as provided in this Agreement (such payments or
benefits, excluding the Gross-up Payment, being hereinafter referred to as the
"Total Payments") will be subject to any excise tax (the "Excise Tax") imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company shall pay to the Executive an additional amount such that
the net amount retained by the Executive, after deduction of any Excise Tax on
the Total Payments and any federal, state and local income and employment taxes
and Excise Tax upon the Gross-up Payment, shall be equal to the Total Payments.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as "parachute payments" (within the meaning of
Section 280G(b) (2) of the Code) unless, in the opinion of tax counsel ("Tax
Counsel") reasonably acceptable to the Executive and selected by the accounting
firm which was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be
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<PAGE>
treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the base amount allocable to such
reasonable compensation, or are otherwise not subject to the Excise Tax, and
(iii) the value of any noncash benefits or any deferred payment or benefit shall
be determined by the Auditor in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence on the date of termination (or if there is no date of termination,
then the date on which the Gross-Up Payment is calculated for purposes of this
Section 4(c)), net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is finally determined to be
less than the amount taken into account hereunder in calculating the Gross-Up
Payment, the Executive shall repay to the Company, at the time that the amount
of such reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and local
income and employment taxes imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise Tax
and/or a federal, state or local income or employment tax deduction) plus
interest on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Total
Payments.
5. Other Covenants by the Executive. (a) During the Term, neither the
Executive nor any "Controlled Affiliate" will, without the prior written consent
of the Board, solicit for employment, employ in any capacity or advise or
recommend to any other person that it employ or solicit for employment any
person who is on the date hereof or who hereafter becomes, prior to the
termination of the Executive's employment with the Company, an officer or
executive or professional employee of the Company or any of its subsidiaries or
affiliates and who was employed by the Company within 12 months before the time
of such solicitation, employment, advice or recommendation (any such officer,
executive or professional employee being a "Company Professional"). During the
Term, the Executive shall not initiate or facilitate the employment of any
Company Professional by any other person, it being understood that this means
that the Executive shall have no contact regarding such employment with any
Company Professional so employed prior to such employment and that the Executive
shall not suggest or
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otherwise indicate to any other person that such person should approach or
otherwise contact such Company Professional. As used in this Agreement,
"Controlled Affiliate" means any company, partnership, firm or other entity as
to which the Executive possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such entity, whether
through the ownership of voting securities, by contract or otherwise.
(b) The Executive acknowledges that, through his status as Chief
Financial Officer and Vice Chairman of the Company, he has, and will have,
possession of important, confidential information and knowledge as to the
Company's business, including, but not limited to, knowledge of marketing and
operating strategies, franchise agreements, financial results and projections,
future plans, the provisions of important contracts entered into by the Company
and possible acquisitions. The Executive agrees that such knowledge and
information constitute a vital part of the business of the Company and are by
their nature trade secrets and confidential information (collectively,
"Confidential Information"). The Executive agrees that he shall not, so long as
the Company remains in existence, divulge, communicate, furnish or make
accessible (whether orally or in writing or in books, articles or any other
medium) to any individual, firm, partnership or corporation any knowledge and
information with respect to Confidential Information directly or indirectly
useful in any aspect of the business of the Company. As used in the preceding
sentences, "Confidential Information" shall not include any knowledge or
information which (i) is or becomes available to others, other than as a result
of breach by the Executive of this Section 5(b), (ii) was available to the
Executive on a nonconfidential basis prior to its disclosure to the Executive
through his status as an officer of the Company or (iii) becomes available to
the Executive on a nonconfidential basis from a third party (other than the
Company or its representatives) who is not bound by any confidentiality
obligation to the Company.
(c) During the Term, neither the Executive nor any of his Controlled
Affiliates will render any services, directly or indirectly, as an employee,
officer, consultant or in any other capacity, to any individual, firm,
corporation or partnership engaged in the franchising of hotels or motels or
similar activities competitive with any activities in which the Company or its
subsidiaries or affiliates are engaged at the time of such termination (such
businesses being herein called the "Company Business"). During the Term, the
Executive shall not, without the prior written consent of the Company, hold an
equity interest in any firm, partnership or corporation which competes with the
Company Business, except that beneficial ownership by the Executive (together
with any one or more members of his immediate family and together with any
entity under his direct or indirect control) of less than 1% of the outstanding
shares of capital stock of any corporation which may be engaged in any of the
same lines of business as the Company Business which stock is listed on a
national securities exchange or publicly traded in the over-the-counter market
shall not constitute a breach of the covenants in this Section 5(c).
(d) The Executive agrees that the provisions of Sections 5(a), (b) and
(c) may not be adequately enforced by an action for damages and that, in the
event of a breach thereof by the Executive, the Company shall be entitled to
apply for and obtain injunctive relief in any court of competent jurisdiction to
restrain the breach or threatened breach of such violation or otherwise to
enforce specifically such provisions against such violation.
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6. Successors; Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees.
7. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Michael P. Monaco
350 East 79th Street, Apt. 33A
New York, New York 10021
If to the Company:
HFS Incorporated
6 Sylvan Way
Parsippany, New Jersey 07054-0299
Attention: Chief Executive Officer
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be amended,
supplemented, modified, cancelled or discharged unless such amendment,
supplement, modification, cancellation or discharge is agreed to in writing
signed by the Executive and a duly authorized officer of the Company (other than
the Executive); and no provisions hereof may be waived except in writing so
signed by or on behalf of the party granting such waiver. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement shall
be governed by and interpreted in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
State.
-9-
<PAGE>
9. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in New York, New York, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators' award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Section 5 and the
Executive hereby consents that such restraining order or injunction may be
granted without the necessity of the Company's posting any bond. The expense of
such arbitration shall be borne by the Company.
11. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written by any
officer, employee or representative of any party hereto, and any prior agreement
of the parties hereto in respect of the subject matter contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
HFS INCORPORATED
BY:
Chairman of the Board and
Chief Executive Officer
AGREED:
MICHAEL P. MONACO
-10-
<PAGE>
HFS Incorporated and Subsidiaries EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
1996 1995
------------------- ------------------
Fully Fully
Primary Diluted Primary Diluted
-----------------------------------------
<S> <C> <C> <C> <C>
Net income .................................................................. $ 61,070 $ 61,070 $ 27,119 $ 27,119
Convertible debt interest and amortization
of deferred loan costs, net of tax ........................................ 1,134 1,134 1,092 1,092
-------- -------- -------- --------
Net income as adjusted ...................................................... $ 62,204 $ 62,204 $ 28,211 $ 28,211
======== ======== ======== ========
Weighted average common shares outstanding 123,322 123,322 99,398 99,398
Incremental shares for outstanding
stock options and warrants ................................................ 11,052 11,364 7,306 8,094
Convertible debt ............................................................ 8,256 8,256 8,266 8,266
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding ............................................. 142,630 142,942 114,970 115,758
======== ======== ======== ========
Net income per share ........................................................ $ 0.44 $ 0.44 $ 0.25 $ 0.24
======== ======== ======== ========
For the Three Months Ended September 30,
1996 1995
------------------- ------------------
Fully Fully
Primary Diluted Primary Diluted
-----------------------------------------
Net income .................................................................. $122,632 $122,632 $ 59,364 $ 59,364
Convertible debt interest and amortization
of deferred loan costs, net of tax ........................................ 3,369 3,369 3,276 3,276
-------- -------- -------- --------
Net income as adjusted ...................................................... $126,001 $126,001 $ 62,640 $ 62,640
======== ======== ======== ========
Weighted average
common shares outstanding ................................................. 112,036 112,036 96,166 96,166
Incremental shares for outstanding
stock options and warrants ................................................ 10,667 11,391 5,132 7,624
Convertible debt ............................................................ 8,257 8,257 8,266 8,266
-------- -------- -------- --------
Weighted average common and
common equivalent shares outstanding 130,960 131,684 109,564 112,056
======== ======== ======== ========
Net income per share ........................................................ $ 0.96 $ 0.96 $ 0.57 $ 0.56
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 471,194
<SECURITIES> 0
<RECEIVABLES> 249,227
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 779,502
<PP&E> 106,233
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,900,050
<CURRENT-LIABILITIES> 336,839
<BONDS> 541,563
0
0
<COMMON> 1,237
<OTHER-SE> 1,903,752
<TOTAL-LIABILITY-AND-EQUITY> 2,900,050
<SALES> 0
<TOTAL-REVENUES> 550,010
<CGS> 0
<TOTAL-COSTS> 322,554
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,194
<INCOME-PRETAX> 205,262
<INCOME-TAX> 82,630
<INCOME-CONTINUING> 122,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,632
<EPS-PRIMARY> $0.96
<EPS-DILUTED> $0.96
</TABLE>
