AGREEMENT AND PLAN OF MERGER
Dated as of
April 3, 1996
Among
HFS INCORPORATED,
C21 HOLDING CORP.,
CENTURY 21 REAL ESTATE OF THE
MID-ATLANTIC STATES, INC.
and
GEORGE F. KETTLE
ARTICLE I
THE MERGER AND ADDITIONAL ACQUISITION MATTERS
Section 1.1 The Merger....................................... 2
Section 1.2 Effective Time................................... 2
Section 1.3 Consideration.................................... 3
Section 1.4 Annual Amount.................................... 4
Section 1.5 Additional Purchase Price........................ 5
Section 1.6 Closing Time and Place........................... 11
Section 1.7 Transfer of NAF Assets........................... 11
Section 1.8 Deliveries by Mid-Atlantic and
the
Shareholder...................................... 12
Section 1.9 Deliveries by Acquiror and C21
Holding.......................................... 14
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDER
Section 2.1 Organization and Existence....................... 15
Section 2.2 Capital Structure................................ 16
Section 2.3 Title to Shares.................................. 17
Section 2.4 Authority; Valid and Binding
Agreement........................................ 17
Section 2.5 Consents......................................... 18
Section 2.6 No Conflict...................................... 19
Section 2.7 Financial Statements............................. 20
Section 2.8 Absence of Undisclosed Liabilities............... 22
Section 2.9 Tax Matters...................................... 22
Section 2.10 Employee Benefit Matters......................... 28
Section 2.11 Assets........................................... 31
Section 2.12 Title to Assets.................................. 37
Section 2.13 Absence of Specified Changes..................... 38
Section 2.14 Litigation....................................... 40
Section 2.15 Employees and Compensation....................... 40
Section 2.16 Conflicts of Interest............................ 42
Section 2.17 Compliance with Law.............................. 42
Section 2.18 Licenses and Permits............................. 43
Section 2.19 Brokers or Finders............................... 43
Section 2.20 National Ad Fund................................. 43
Section 2.21 Insurance........................................ 43
Section 2.22 Payment of Obligations........................... 44
Section 2.23 Use of Excluded Assets........................... 44
Page
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF C21-HOLDING CORP. AND ACQUIROR
Section 3.1 Organization and Standing........................ 45
Section 3.2 Corporate Authority; Action...................... 45
Section 3.3 Consents......................................... 46
Section 3.4 No Violation..................................... 46
Section 3.5 Litigation....................................... 47
Section 3.6 Brokers and Finders.............................. 47
Section 3.7 Representations of Shareholder................... 48
ARTICLE IV
CERTAIN COVENANTS OF THE
SHAREHOLDER, C21-HOLDING CORP. AND ACQUIROR
Section 4.1 Severance........................................ 48
Section 4.2 Non-Competition.................................. 49
Section 4.3 Separate Covenants............................... 50
Section 4.4 Non-Disclosure of Trade Secrets.................. 50
Section 4.5 Injunctive Relief................................ 52
Section 4.6 Real Estate Leases............................... 52
Section 4.7 Preparation and Filing of Tax
Returns.......................................... 54
Section 4.8 Allocation of Purchase Price and
Other Tax Matters................................ 55
Section 4.9 Accounts Receivable.............................. 56
Section 4.10 Severance and Other Payments..................... 60
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.1 Expenses......................................... 60
Section 5.2 Reimbursement of and Payment to
C21-Holding and the Shareholder.................. 60
Section 5.3 Interpretation................................... 61
Section 5.4 Amendments and Waivers........................... 62
Section 5.5 Public Statements................................ 62
Section 5.6 Confidentiality.................................. 63
Section 5.7 Access To Records After Closing.................. 64
Section 5.8 Parties Bound.................................... 64
Section 5.9 Parties in Interest.............................. 65
Section 5.10 Notices.......................................... 65
Section 5.11 Number and Gender of Words....................... 67
Section 5.12 Captions......................................... 67
Section 5.13 Invalid Provisions............................... 67
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Page
Section 5.14 Accounting Terms................................. 68
Section 5.15 Entirety of Agreement............................ 68
Section 5.16 Multiple Counterparts............................ 68
Section 5.17 Governing Law.................................... 69
Section 5.18 Jurisdiction..................................... 69
Section 5.19 Prevailing Party Expenses........................ 70
Section 5.20 Waiver of Rescission............................. 70
iii
EXHIBITS
Exhibit A - Plan of Merger
Exhibit B - Opinion of Williams & Connolly
Exhibit C - FIRPTA Certificates
Exhibit D - Indemnification Agreement
Exhibit E - Opinion of Skadden, Arps, Slate, Meagher & Flom
Exhibit F - Severance Policy
Exhibit G - Tax Allocation
iv
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, made and entered into this 3rd day of
April, 1996 (the "Agreement"), by and among HFS INCORPORATED, a Delaware
corporation (the "Acquiror"), C21 HOLDING CORP., a Delaware corporation and
subsidiary of Acquiror ("C21-Holding"), CENTURY 21 REAL ESTATE OF THE
MID-ATLANTIC STATES, INC., a Virginia corporation ("Mid-Atlantic"), and GEORGE
F. KETTLE, the holder (the "Shareholder") of all of the outstanding shares of
capital stock of Mid-Atlantic.
WHEREAS, the respective Boards of Directors of Acquiror, C21-Holding and
Mid-Atlantic deem it advisable and in the best interests of their respective
stockholders that Acquiror acquire Mid-Atlantic by merger of Mid-Atlantic
with and into C21-Holding; and
WHEREAS, Acquiror, C21-Holding, Century 21 of Eastern Pennsylvania, Inc.,
a Pennsylvania corporation ("Eastern Pennsylvania"), the Shareholder and James
O. Nelson are simultaneously herewith entering into an Agreement and Plan of
Merger pursuant to which Acquiror is acquiring Eastern Pennsylvania by merger
of Eastern Pennsylvania with and into C21-Holding (the "Eastern Pennsylvania
Agreement");
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER AND ADDITIONAL ACQUISITION MATTERS
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement and the Plan of Merger attached hereto as Exhibit A (the "Plan
of Merger"), Acquiror shall acquire Mid-Atlantic by Mid-Atlantic being
merged with and into C21-Holding (the "Merger") with C21-Holding as the
surviving corporation in the Merger. The Plan of Merger provides for the
terms and conditions of the Merger and the mode of carrying the same into
effect. At the Effective Time (as hereinafter defined), the terms and
conditions set forth in the Plan of Merger shall be implemented. Such
terms and conditions are incorporated by reference herein and made a part
hereof.
SECTION 1.2 Effective Time. The term "Effective Time" shall mean the
date and time at which the Merger has become effective pursuant to the
laws of the Commonwealth of Virginia and the laws of the State of
Delaware, respectively, as provided in the Plan of Merger.
2
SECTION 1.3 Consideration. The consideration being provided by
Acquiror to the Shareholder pursuant to the Plan of Merger (the "Merger
Consideration"), shall be paid at the following times and in the
following amounts: (i) at the Closing (as defined in Section 1.6), the
amount of $4,555,064, and (ii) on the second business day after the
Closing, the amount of $23,444,936, in each case by wire transfer in
immediately available funds to the bank account designated in writing by
the Shareholder to the Acquiror, which payments together represent the
amount of $29,227.56 per share of common stock, par value $1.00 per
share, of Mid-Atlantic that the Shareholder is to receive pursuant to the
Plan of Merger for the 958 shares of such common stock owned by him (the
"Common Stock"). In addition, Acquiror hereby agrees to pay and deliver
to the Shareholder or his designee (i) at the times set forth in Section
1.4, the monthly payments of the annual amount of $350,000 (the "Annual
Amount"); (ii) at the times set forth in Section 1.5, the additional
consideration provided for in Section 1.5 (the "Additional Purchase
Price"); (iii) at the Closing, the amount of $115,535.52 (the "Prepaid
Expense Amount" and, with the Merger Consideration, the Annual Amount and
the Additional Purchase Price, the "Total Consideration") which the
parties hereto have mutually agreed is the amount of
3
prepaid expenses of Mid-Atlantic existing as of the Closing Date and (iv)
on the last day of the Transition Period (as hereinafter defined),
$250,000 in cash.
SECTION 1.4 Annual Amount.
(a) Within 30 days following the end of each month during the Annual
Payment Period (as hereinafter defined), Acquiror agrees to pay to the
Shareholder or the Shareholder's designee (as designated by the
Shareholder and for such portion thereof also designated pursuant to
Section 1.5(g)) in cash, by mailing a valid check to the address
specified by the Shareholder to Purchaser in writing, the amount of
$29,166.67, representing one twelfth of the Annual Amount for each Annual
Payment Year (as hereinafter defined) of $350,000.
(b) For purposes of this Section 1.4, the term "Annual Payment Period"
shall mean the ten-year period commencing April 1, 1996 and ending March
31, 2006.
(c) For purposes of this Section 1.4, the term "Annual Payment Year"
shall mean the 12-month period commencing April 1, 1996 and ending March
31, 1997 and each of the nine successive 12-month periods thereafter
during the Annual Payment Period.
4
SECTION 1.5 Additional Purchase Price.
(a) Within 30 days following the end of each month during the
Additional Payment Period (as hereinafter defined), Acquiror agrees,
subject to the other provisions of this Section 1.5, to pay to the
Shareholder or to Shareholder's designee (as designated by the
Shareholder pursuant to Section 1.5(g)) in cash, by mailing a valid check
to the address specified by the Shareholder to Acquiror in writing, the
Additional Purchase Price consisting of the positive difference, if any,
between ten percent (10%) of the gross service fees paid to C21-Holding
or its affiliates during the preceding month by Franchisees (as
hereinafter defined) and the monthly amount ($29,166.69) of the Annual
Amount.
(b) Notwithstanding Section 1.5(a) hereof, the maximum amount to
be paid by Acquiror with respect to any Additional Payment Year (as
hereinafter defined) shall be $200,000 (the "Maximum Additional Annual
Payment"). Notwithstanding Section 1.5(a) hereof, after the Maximum
Additional Annual Payment has been paid by Acquiror to the Shareholder
(and/or its designee(s)) with respect to any Additional Payment Year,
Acquiror shall not be required to make any additional payments of
Additional Purchase Price with respect to such Additional Payment Year.
5
(c) In connection with the payment of the Additional Purchase Price,
Acquiror and the Shareholder agree (i) with respect to the first
Additional Payment Year, Acquiror may make a deduction to the amount of
Additional Purchase Price to be paid to take into account the
proportionate amount of CIB Bonus (as hereinafter defined) owed by
Mid-Atlantic to its Franchisees for the 1996 calendar year with respect
to the period prior to the Closing Date, which proportionate amount shall
be based on the amount that gross service fees paid or owed to
Mid-Atlantic by its Franchisees for the period prior to the Closing Date
bears to the total amount of gross service fees paid or owed to
Mid-Atlantic and C21-Holding for the entire 1996 calendar year (subject
to adjustment, in case of gross service fees owed, to collection thereof)
or may bill the Shareholder for such amount which will be promptly paid
by the Shareholder, (ii) Acquiror may offset ten percent (10%) of the
amount of the CIB Bonus which has been paid by Acquiror or its affiliates
to Franchisees with respect to the period beginning on the Closing Date
against subsequent monthly payments of Additional Purchase Price until
such amount is zero; (iii) in the last quarter of the tenth Additional
Payment Year, Acquiror may offset against the monthly payments of the
Additional Purchase Price an amount which they esti-
6
mate in good faith will have to be paid as ten percent (10%) of the CIB
Bonus for the calendar years covered by the tenth Additional Payment
Year, (iv) to adjust and make appropriate payments to the party owed
following the completion of the calendar years covered by the tenth
Additional Payment Year and the availability of information necessary to
calculate the CIB Bonus and gross service fees for the calendar years
covered by the tenth Additional Payment Year and (v) if the monthly
payments of Additional Purchase Price paid to the Shareholder (and/or its
designee(s)) with respect to any Additional Payment Year shall be greater
than the amount which is to be paid pursuant to Section 1.5(a) for any
Additional Payment Year (the "Required APP Amount"), the Shareholder,
upon written notice from Acquiror, shall promptly pay Acquiror the
difference between the Required APP Amount and the aggregate amount of
such monthly payments of Additional Purchase Price (the "APP
Overpayment"); provided, however, that if the Shareholder fails to pay
Acquiror the APP Overpayment, Acquiror may offset such APP Overpayment
against subsequent monthly payments of the Additional Purchase Price
until such amount is zero, and Acquiror shall have the right to offset
for such APP Overpayment against the Additional Purchase Price owed for
any remaining Additional Payment Years.
7
(d) For purposes of this Section 1.5 and as used elsewhere in this
Agreement (except as otherwise specifically indicated), the following
terms shall have the following meanings:
(i) "Additional Payment Period" shall mean the ten-year period
commencing April 1, 1996 and ending March 31, 2006.
(ii) "Franchisees" shall mean and include all franchisees and other
owners and operators of Century 21 real estate brokerage offices located
within the Commonwealth of Virginia and the States of Maryland and
Delaware and the District of Columbia (the "Region"), whether pursuant to
the Franchise Agreements (as hereinafter defined) listed pursuant to
Section 2.11(a) hereof, additional franchise agreements entered into
after the Closing with new franchisees or other contracts or arrangements
with C21-Holding, Acquiror and/or their respective affiliates and such
entities' respective successors and assigns relating to Century 21 real
estate brokerage offices within the Region.
(iii) "CIB Bonus" shall mean the amount of the annual bonus paid to
Franchisees pursuant to the Century 21 Commission Incentive Bonus Program
or any successor similar bonus or rebate program for Franchisees.
8
(iv) "Additional Payment Year" shall mean the 12-month period
commencing April 1, 1996 and ending March 31, 1997 and each of the nine
successive 12-month periods thereafter during the Additional Payment
Period.
(e) Acquiror and C21-Holding shall keep accurate books of account
and records of the gross service fees received from, and CIB Bonus paid
to, the Franchisees for purposes of calculating the Additional Purchase
Price. Each payment of the Additional Purchase Price shall be accompanied
by a written statement describing, in reasonable detail, the calculation
of such payment and any deductions or offsets therefrom. The Shareholder
and his independent public accountants, on ten business days' notice,
shall have the right, not more than once during an Additional Payment
Year and once during the six-month period following the Additional
Payment Period, during normal business hours, to examine said books of
account and records of the gross service fees received from the
Franchisees for the purpose of verifying the amount of Additional
Purchase Price owed to the Shareholder. The Shareholder shall be
responsible for his costs incurred in conducting any such audit, unless
his independent public accountants determine that there is a deficit in
the aggregate net amounts paid to
9
the Shareholder (or his designee, as applicable) with regard to the
period so examined of more than five percent (5%), in which case Acquiror
shall be responsible for such costs. Acquiror shall be responsible for
the prompt payment of any such deficit in any amount found by the
Shareholder's independent public accountants, together with accrued but
unpaid interest therein at an annual rate equal to the prime rate charged
by leading money center banks as reported in The Wall Street Journal plus
1 1/2% (the "Specified Interest Rate"), by delivery of a valid check to
the Shareholder (or his designee, as applicable).
(f) Acquiror and C21-Holding agree not to make (or to permit their
affiliates, successors and assigns, as applicable, to make) any change in
the amount of gross service fees to be paid by Franchisees or manner of
calculating gross service fees for the entire Region unless such change
is made on a nationwide basis; provided, however, that the foregoing
shall not prohibit such entities from changing the amount of gross
service fees to be paid by any particular Franchisees or manner of
calculating such gross service fees on a selected individual basis.
(g) The Shareholder hereby designates J. Richard Eagan, President of
Mid-Atlantic, to receive ten
10
percent (10%) of the Annual Payment and the Additional Purchase Price
otherwise payable to the Shareholder. Acquiror and C21-Holding agree that
the Shareholder may designate, by written notice to them as provided
herein at any time during the Additional Payment Period, other persons to
receive a portion of the Additional Purchase Price.
SECTION 1.6 Closing Time and Place. Subject to the terms and
conditions of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") is taking place,
simultaneously with the execution of this Agreement, at 10:00 a.m., New
York City time, at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York, on April 3, 1996. The date and time
upon which the Closing is occurring are herein referred to as the
"Closing Date."
SECTION 1.7 Transfer of NAF Assets. At the Closing, Mid-Atlantic
shall transfer to Century 21 Real Estate, a Delaware corporation and
wholly owned subsidiary of C21-Holding ("C21-Real Estate"), by check made
payable to C21-Real Estate, in its capacity as Trustee of the Century 21
National Advertising Fund ("NAF") all monies in Mid-Atlantic's possession
and/or pay over any other amounts (collectively, the "NAF Funds") for
which Mid-Atlantic is accountable or responsible with respect
11
to the NAF's or Mid-Atlantic's fiduciary (or other) obligations and
responsibilities as the agent of theTrustee of the NAF.
SECTION 1.8 Deliveries by Mid-Atlantic and the Shareholder. At the
Closing, Mid-Atlantic and the Shareholder are delivering or causing to be
delivered to C21-Holding and Acquiror, unless previously delivered, the
following:
(a) Certificates representing the Common Stock (as hereinafter
defined) registered in the name of the Shareholder.
(b) All books and records of Mid-Atlantic in the possession or
control of the Shareholder or Mid-Atlantic, including, without
limitation, the stock books, stock ledgers, minute books, corporate seals
and all financial books, records and work papers, provided that the
Shareholder may retain copies thereof.
(c) Certificates issued not more than two business days prior to the
Closing Date as to the good standing of, and payments of taxes by,
Mid-Atlantic in the Commonwealth of Virginia and each jurisdiction in
which it is qualified to do business as a foreign corporation.
12
(d) Certified Articles of Incorporation and By-Laws of Mid-Atlantic
referred to in Section 2.1(b) hereof.
(e) The opinion of Williams & Connolly, counsel to the Shareholder,
substantially to the effect set forth in Exhibit B hereto.
(f) The certificates annexed as Exhibit C hereto as to the
non-foreign status of Mid-Atlantic, duly executed by Mid-Atlantic and the
Shareholder (the "FIRPTA Certificates"), provided, however, that if such
certificate is not delivered, the Closing shall nevertheless occur and
Acquiror shall withhold from the consideration being provided by Acquiror
to the Shareholder pursuant to the Plan of Merger and the Additional
Purchase Price such amounts as are required, in Acquiror's sole
judgement, to be withheld under applicable law.
(g) The Indemnification Agreement substantially in the form of
Exhibit D hereto (the "Indemnification Agreement"), duly executed by the
Shareholder.
(h) The NAF Funds.
(i) All other previously undelivered items required to be delivered
by Mid-Atlantic and the Shareholder at or prior to the Closing pursuant
to this Agreement or otherwise required in connection herewith.
13
SECTION 1.9 Deliveries by Acquiror and C21-Holding. At the Closing,
Acquiror and C21-Holding are delivering or causing to be delivered to the
Shareholder, unless previously delivered, the following:
(a) The amount of $4,555,064 by wire transfer in immediately
available funds to the bank account designated in writing by the
Shareholder to the Acquiror, which together with the $23,444,936 payment
to be made on the second business day after the Closing pursuant to
Section 1.3 hereof represents the amount of $29,227.56 per share of
Common Stock that the Shareholder is to receive pursuant to the Plan of
Merger for the 958 shares of Common Stock owned by him.
(b) The opinion of Skadden, Arps, Slate, Meagher & Flom, counsel to
C21-Holding, substantially to the effect set forth in Exhibit E hereto.
(c) The Indemnification Agreement, duly executed by Acquiror and
C21-Holding.
(d) The Prepaid Expense Amount.
(e) All other previously undelivered items required to be delivered
by Acquiror or C21-Holding at or prior to the Closing pursuant to this
Agreement or otherwise in connection herewith.
14
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDER
The Shareholder hereby represents and warrants to Acquiror and
C21-Holding that:
SECTION 2.1 Organization and Existence.
(a) Mid-Atlantic is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia,
Mid-Atlantic has all necessary corporate power to carry on the business
of real estate brokerage office subfranchising and related operations for
the Century 21 system (the "Business") as now being conducted by it, and
Mid-Atlantic is duly qualified to do business as a foreign corporation in
each jurisdiction in which the nature of the Business or the ownership or
lease of its properties makes such qualification necessary, which
jurisdictions are listed in Section 2.1 of the document being delivered
by the Shareholder to C21-Holding simultaneously with the execution of
this Agreement scheduling the items required to be disclosed therein
pursuant to this Agreement (the "Disclosure Schedule").
(b) The copies of the Articles of Incorporation and By-Laws of
Mid-Atlantic heretofore delivered by the Shareholder to C21-Holding are
complete and cor-
15
rect copies of such instruments as presently in effect. To the
Shareholder's knowledge, all minutes of Mid-Atlantic relating to
material meetings or actions taken by the Board of Directors (or
committees thereof) or shareholders of Mid-Atlantic are contained in the
minute books, no material action which would require approval by its
Board of Directors or its shareholders has been taken by Mid-Atlantic for
which minutes are not contained in the minute books, and all such minutes
have heretofore been furnished to C21-Holding for examination.
SECTION 2.2 Capital Structure.
(a) Mid-Atlantic's authorized capital stock consists of 5,000 shares
of common stock, par value $1.00 per share, 958 of which shares are
validly issued and outstanding, fully paid, and nonassessable and all of
which are owned, beneficially and of record, by the Shareholder.
(b) There are no (i) other outstanding securities of Mid-Atlantic,
(ii) securities convertible into or exchangeable for shares of
Mid-Atlantic's capital stock; (iii) options, warrants or other rights to
purchase or subscribe to capital stock of Mid-Atlantic or securities
convertible into or exchangeable for capital stock of Mid-Atlantic; or
(iv) contracts, commitments, agreements, understandings or arrangements
of any kind
16
relating to the issuance of any capital stock of Mid-Atlantic, any such
convertible or exchangeable securities or any such options, warrants or
rights.
(c) There is no corporation, partnership, joint venture or other
entity in which Mid-Atlantic, directly or indirectly, owns any equity or
ownership interest.
SECTION 2.3 Title to Shares. The Shareholder has good, valid and
marketable title to the Common Stock, free and clear of all claims,
liens, charges, encumbrances, options, shareholder agreements and
security interests of whatever nature (a "Lien").
SECTION 2.4 Authority; Valid and Binding Agreement.
(a) Mid-Atlantic has the requisite corporate power and authority
to execute and deliver this Agreement and the Plan of Merger and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Plan of
Merger by Mid-Atlantic and the consummation by Mid-Atlantic of the Merger
and of the other transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors of Mid-Atlantic and approved
and adopted by the Shareholder and no other corporate proceedings on the
part of Mid-Atlantic are necessary to
17
authorize this Agreement and Plan of Merger or to consummate the
transactions so contemplated hereby and thereby.
(b) This Agreement and the Plan of Merger have been duly executed
and delivered by Mid-Atlantic and each constitutes a valid and binding
obligation of Mid-Atlantic, enforceable against it in accordance with
its terms.
(c) This Agreement and the Indemnification Agreement have been
duly executed and delivered by the Shareholder and this Agreement and the
Indemnification Agreement each constitute the legal, valid and binding
obligation of the Shareholder, enforceable in accordance with its terms.
SECTION 2.5 Consents. Except for (i) compliance with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the approvals of the Board of
Directors of Mid-Atlantic and the Shareholder of this Agreement and the
Plan of Merger, which approvals have been obtained, (iii) the filing with
the Virginia State Corporation Commission of Articles of Merger to effect
the Plan of Merger and the filing of a Certificate of Merger with the
Delaware Secretary of State and (iv) as disclosed in Section 2.5 of the
Disclosure Schedule or as otherwise specifically contemplated by this
Agreement, no
18
consent, approval, authorization, filing with or order of any court,
governmental agency, person or financial institution is required in
connection with the execution and delivery of this Agreement by
Mid-Atlantic or the Shareholder, the consummation by Mid-Atlantic or the
Shareholder of the transactions contemplated hereby or the performance by
Mid-Atlantic or the Shareholder of its or his respective obligations
under this Agreement.
SECTION 2.6 No Conflict. Assuming compliance with the matters
referred to in Section 2.5 by Mid-Atlantic and the Shareholder, neither
the execution and delivery of this Agreement by Mid-Atlantic or the
Shareholder, the consummation by Mid-Atlantic or the Shareholder of the
transactions contemplated by this Agreement nor the performance by
Mid-Atlantic or the Shareholder of its or his respective obligations
under this Agreement will: (i) violate any provision of the Articles of
Incorporation or By-Laws of Mid-Atlantic, (ii) except as disclosed in
Section 2.6 of the Disclosure Schedule, violate, conflict with, or result
in a breach of, the terms, conditions or provisions of, or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or result in the creation of a lien or
encumbrance on, or cause the triggering of a "due on sale" clause or
similar provision affecting the Assets
19
(as hereinafter defined) pursuant to, any indenture, mortgage, lease,
agreement or other instrument to which Mid-Atlantic is a party or by
which any of the Assets may be bound or affected or (iii) violate any
law, rule, regulation, judgment, order or decree to which Mid-Atlantic or
the Shareholder is subject or by which the Assets are bound.
SECTION 2.7 Financial Statements. Section 2.7 of the Disclosure
Schedule sets forth the following financial statements, all of which have
been prepared, except as may be stated in the notes thereto or as
described below, in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
indicated:
(a) Balance sheet of Mid-Atlantic as of December 31, 1993 and 1994
audited by Beers & Cutler, certified public accountants, and an
internally prepared balance sheet of Mid-Atlantic as of October 31, 1995
which was prepared on a basis consistent with Mid-Atlantic's internal
practices (the "October Balance Sheet"), each of which presents fairly as
of its date the financial condition of Mid-Atlantic; and
(b) Statement of operations and cash flows of Mid-Atlantic for the
twelve (12) months ended December 31, 1993 and 1994, audited by Beers &
Cutler,
20
certified public accountants, and an internally prepared statement of
operations and cash flows of Mid-Atlantic for the ten-month period ended
October 31, 1995 which was prepared on a basis consistent with
Mid-Atlantic's internal practices, each of which fairly presents the
results of operations and cash flows of Mid-Atlantic for the periods
indicated.
(c) Notwithstanding the foregoing, with regard to the internally
prepared balance sheet and statement of operations and cash flows
referred to above:
(i) Consistent with internal reporting practices, Mid-Atlantic did
not attempt to recalculate the service fee receivable amount due from
transactions which had closed prior to October 31, 1995, but on which the
service fee had not been paid to and received by Mid-Atlantic by that
date. The amount of such service fee receivable included in the October
31, 1995 financial statements is the same amount as calculated for the
audited financial statements as at December 31, 1994.
(ii) Consistent with internal reporting practices, Mid-Atlantic did
not close out October 1995 business until the third working day of
November. As a result, service fee payments received during that three
working day period after month end were included as having been received
as of October 31, 1995, and thus as
21
cash versus accounts receivable. There would be no operating statement
effect to this cutoff date since the service fee payments included in
this period would only have been from transactions which closed prior to
October 31, 1995.
(iii) Consistent with internal reporting practices, unsecured
service fee notes receivable are not adjusted to actual except at year
end.
SECTION 2.8 Absence of Undisclosed Liabilities. To the Shareholder's
knowledge, Mid-Atlantic does not have any debts, liabilities or
obligations of a type required to be shown on a balance sheet prepared in
accordance with GAAP that are not reflected or reserved against in
Mid-Atlantic's October Balance Sheet, except for matters referred to in
Section 2.8 of the Disclosure Schedule and for the Real Property Leases
(as hereinafter defined) and Contracts (as hereinafter defined) that are
disclosed in Section 2.11 of the Disclosure Schedule.
SECTION 2.9 Tax Matters. Except as set forth in Section 2.9 of the
Disclosure Schedule:
(a) Mid-Atlantic is a small business corporation under the Internal
Revenue Code of 1986, as amended (the "Code") and has had in effect for
all taxable years beginning July 1, 1988 a valid election to be treated
as an "S" corporation for federal income Tax (as
22
defined in subsection (j) hereof) purposes under the Code and, where
available, in any state and local jurisdictions in which Mid-Atlantic is
required by law to file a Tax Return, and neither Mid-Atlantic, the
Shareholder, nor any other Person has taken or caused or permitted to be
taken any action during such periods that would have caused a termination
of such S election. Mid-Atlantic, within the time and in the manner
prescribed by law, has filed all Tax Returns required to be filed by or
with respect to Mid-Atlantic, and all such Tax Returns are true, complete
and correct in all material respects. Mid-Atlantic has timely paid all
Taxes that are due, or have been asserted in writing by any taxing
authority to be due, from or with respect to it except for those taxes
the failure of which to pay would not have a material adverse effect on
the financial condition of Mid-Atlantic. Mid-Atlantic is not required to
file any Tax Return in any jurisdiction other than those set forth in
Section 2.9(a) of the Disclosure Schedule other than Tax Returns, if any,
the failure of which to file would not have a material adverse effect on
the financial condition of Mid-Atlantic. Mid-Atlantic does not have any
potential liability for Taxes pursuant to Treasury Reg. Section 1.1502-6 or
any similar provision of state, local or foreign laws. The distribution
of the Excluded Assets (as defined in
23
Section 2.11(i)) will not result in any "recognized built-in gain" within
the meaning of Section 1374(d)(3) of the Code.
(b) There are no liens with respect to any material amount of Taxes
upon any of the assets or properties of Mid-Atlantic other than with
respect to Taxes not yet due and payable.
(c) The statute of limitations with respect to the Tax Returns of
Mid-Atlantic and each affiliated group (within the meaning of Section
1504 of the Code) and combined, unitary and other similar group
("Affiliated Group") of which Mid-Atlantic has been a member, if any, for
all periods through the respective years specified in Section 2.9(c) of
the Disclosure Schedule has expired. No issue relating to Mid-Atlantic
has been raised in writing by any taxing authority in any audit or
examination of Mid-Atlantic which, if applied to a later taxable period
(including periods after the Closing Date), could reasonably be expected
to result in a material deficiency for Mid-Atlantic for any such period.
Further, no state of facts exists or has existed which would constitute
grounds for the assessment of any liability of Mid-Atlantic for any
material amount of Taxes for periods that have not been audited by any
taxing authority. There are no outstanding agreements,
24
waivers or arrangements extending the statutory period of limitation
applicable to any claim for, or the period for the collection or
assessment of, Taxes due from or with respect to Mid-Atlantic for any
taxable period, and no power of attorney granted by or with respect to
Mid-Atlantic relating to Taxes is currently in force. No closing
agreement pursuant to Section 7121 of the Code (or any predecessor
provision) or any similar provision of any state, local, or foreign law
has been entered into by or with respect to Mid-Atlantic that could
materially and negatively affect the future liability for Taxes of
Mid-Atlantic. Mid-Atlantic has made available to C21-Holding and
Acquiror complete and correct copies of each of (i) all audit reports
issued by any governmental authority within the last three years relating
to the United States federal, state, local or foreign Taxes due from or
with respect to Mid-Atlantic and any Affiliated Group member and (ii) the
United States federal income Tax Returns, and those state, local and
foreign income Tax Returns for each of the last three taxable years,
filed by Mid-Atlantic and filed by any Affiliated Group of which
Mid-Atlantic was then a member.
(d) No audit or other proceeding by any governmental authority has
formally commenced and no written notification has been given that such
an audit or
25
other proceeding is pending or threatened with respect to any Taxes due
from or with respect to Mid-Atlantic or any Affiliated Group of which
Mid-Atlantic was a member. No unpaid assessment of Tax has been proposed
in writing against Mid-Atlantic or any of the assets or properties of
Mid-Atlantic, other than assessments of a type that arise on a recurring
basis in the ordinary course of business.
(e) No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect
to Mid-Atlantic or any of the assets or properties of Mid-Atlantic. None
of the assets or properties of Mid-Atlantic is an asset or property that
is or will be required to be treated as being (i) owned by any other
person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as in effect prior to the Tax Reform Act of 1986,
or (ii) tax-exempt use property within the meaning of Section 168(h) of
the Code.
(f) Mid-Atlantic has not been and is not currently in violation (or,
with or without notice or lapse of time or both, would not be in
violation) of any applicable law or regulation relating to the payment or
withholding of a material amount of Taxes with respect to compensation
paid to employees or other withholding
26
obligations. Mid-Atlantic has duly and timely withheld and paid over to
the appropriate taxing authorities all material amounts required to be so
withheld and paid over for all periods under all applicable laws and
regulations.
(g) As of the Closing, Mid-Atlantic shall not be a party to, be
bound by or have any obligation under, any Tax sharing agreement or
similar contract or arrangement.
(h) There is no contract or agreement, plan or arrangement by
Mid-Atlantic covering any person that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
by Mid-Atlantic by reason of Section 280G of the Code, as now in effect.
(i) The Shareholder is not a "foreign person" within the meaning of
Section 1445 of the Code.
(j) "Tax" means any federal, state, local, foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value-
27
added, alternative or add-on minimum, estimated, other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not. "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
SECTION 2.10 Employee Benefit Matters.
(a) Section 2.10 of the Disclosure Schedule contains a list of all
bonus, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit and compensation plans,
programs, agreements or arrangements and any "change of control" or
similar provisions which would apply to the transactions contemplated by
this Agreement in any plan, program, contract or arrangement which cover
employees or former employees ("Employees") of Mid-Atlantic or any entity
which would have been considered one employer with Mid-Atlantic at any
time during the six-year period immediately preceding the Effective Time
under Section 4001 of Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 414 of the Code (an "ERISA Affiliate") and
all
28
other benefit and compensation plans, programs, contracts or arrangements
(regardless of whether they are funded or unfunded) covering Employees,
including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of ERISA (collectively, the "Compensation and
Benefit Plans"). True and complete copies of all the Compensation and
Benefit Plans, including any trust instruments and/or insurance
contracts, if any, forming a part of any such plans, and all amendments
thereto have been made available to Acquiror and C21-Holding.
(b) All of the Compensation and Benefit Plans are in material
compliance with all applicable laws, including, without limitation, ERISA
and the Code. Each Compensation and Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under Section
401(a) of the Code is so qualified. Neither Mid-Atlantic nor any ERISA
Affiliate has engaged in a transaction with respect to any Compensation
and Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, could reasonably be expected to subject
Mid-Atlantic or any ERISA Affiliate to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would have a material adverse effect on Mid-
29
Atlantic. Neither Mid-Atlantic nor any ERISA Affiliate has contributed or
been required to contribute to any Multiemployer Plan (as defined in
ERISA).
(c) No Pension Plans currently or formerly maintained, contributed
to or required to be contributed to, by Mid-Atlantic or any ERISA
Affiliate is subject to Title IV of ERISA or to Section 412 of the Code.
(d) All contributions required to be made under the terms of any
Compensation and Benefit Plan for which Mid-Atlantic has liability
through the Closing Date have been timely made.
(e) Mid-Atlantic does not have any obligations for retiree health
and life benefits under any Compensation and Benefit Plan.
(f) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer
of Mid-Atlantic or any ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided in
Section 4.1 of this Agreement or pursuant to an employment or consultant
agreement listed in Section 2.15 of the Disclosure Schedule or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
30
(g) There are no pending claims (or written threats thereof) by or
on behalf of any Compensation and Benefit Plan, by any employee or
beneficiary covered under any such Compensation and Benefit Plan, or
otherwise involving any such Compensation and Benefit Plan (other than
routine claims for benefits).
SECTION 2.11 Assets.
(a) Section 2.11(a) of the Disclosure Schedule is a complete and
accurate list of all Century 21 Real Estate Franchise Agreements (the
"Franchise Agreements") of Century 21 franchisees of Mid-Atlantic (for
purposes of this Section 2.11, the "Franchisees") which are presently in
effect. Copies of all Franchise Agreements (including all amendments and
addenda thereto) have been made available to the C21-Holding and Acquiror
or their counsel for review. Except as indicated in Section 2.11(a) of
the Disclosure Schedule, each Franchisee has executed a Franchise
Agreement and, to the Shareholder's knowledge, each such Franchise
Agreement is enforceable against the related Franchisee; Mid-Atlantic has
not been notified in writing or otherwise informed in writing by any such
Franchisee that it will not renew its Franchise Agreement at the
expiration of its term, will attempt to materially and adversely alter
the volume of business any such Franchisee is presently doing with Mid-
31
Atlantic or terminate its Franchise Agreement or that it has any material
claim against Mid-Atlantic. Mid-Atlantic is not, and to the Shareholder's
knowledge, none of the other parties to any of the Franchise Agreements
is, in material default thereunder. Except as set forth in Section
2.11(a) of the Disclosure Schedule, there are no events which with notice
or lapse of time or both would constitute a material default by
Mid-Atlantic or, to the Shareholder's knowledge, by any other party to
any Franchise Agreement. Except as indicated in Section 2.11(a) of the
Disclosure Schedule, the continuation, validity and effectiveness of each
Franchise Agreement will not be materially and adversely affected by the
consummation of the transactions contemplated by this Agreement.
(b) Section 2.11(b) of the Disclosure Schedule is a complete and
accurate list of all leases for real property to which Mid-Atlantic is a
party (the "Real Property Leases"). To the Shareholder's knowledge, all
the Real Property Leases are enforceable against the other parties
thereto. There does not exist any material default by Mid-Atlantic or, to
the Shareholder's knowledge, by any other party thereto, or event that
with notice or lapse of time, or both, would constitute a material
default by Mid-Atlantic or, to the Shareholder's
32
knowledge, any other party thereto under any of such Real Property
Leases.
(c) Mid-Atlantic will not be a party to, or in any way obligated
under, any written contract, agreement or understanding which will
continue to be in effect and is to be performed by Mid-Atlantic after the
Closing which requires the payment by it of more than $10,000 on an
annual basis or which is not terminable on 30 days notice (the
"Contracts") other than the Real Property Leases, the Franchise
Agreements and the Contracts listed in Section 2.11(c) of the Disclosure
Schedule. Copies of all Contracts have been made available to C21-Holding
or its counsel for review. To the Shareholder's knowledge, each of the
Contracts is enforceable against the other parties thereto. Mid-Atlantic
is not and, to the Shareholder's knowledge, none of the other parties to
any of the Contracts is, in material default thereunder. There are no
events which with notice or lapse of time or both would constitute a
material default by Mid-Atlantic or, to the Shareholder's knowledge, by
any other party to any Contract under such Contract. Except as indicated
in Section 2.11(c) of the Disclosure Schedule, the continuation, validity
and effectiveness of each Contract will not be materially and adversely
affected by the consummation of the transac-
33
tions contemplated by this Agreement. Mid-Atlantic has not received any
written notice of the intention of any party to terminate any Contract
which termination would have a material adverse effect on the Business.
(d) Section 2.11(d) of the Disclosure Schedule is a complete and
accurate list describing and specifying the location of office machines,
computers and other equipment (the "Equipment") which Mid-Atlantic will
own following the Closing. The Equipment is, in the aggregate, in
reasonably good operating condition and repair, subject to normal wear
and tear.
(e) Section 2.11(e) of the Disclosure Schedule is a complete and
accurate list and description of the Intellectual Property (as
hereinafter defined), other than Intellectual Property as to which Mid-
Atlantic's rights derive from C21-Real Estate, to be owned by
Mid-Atlantic immediately following the Closing and Section 2.11(e) of the
Disclosure Schedule indicates whether each of the foregoing are owned or
licensed by Mid-Atlantic. Mid-Atlantic owns, or is licensed to use, all
Intellectual Property necessary for the conduct of the Business as
currently conducted in all material respects, subject to no material
restrictions. No claim has been asserted in writing and is pending by any
person challenging or questioning the ownership or use of any
34
such Intellectual Property, nor does the Shareholder know of any valid
basis for any such claim. To the Shareholder's knowledge, there is no
infringing use of any such Intellectual Property by any other person.
Mid-Atlantic has not granted to anyone else the right to use any of the
Intellectual Property except pursuant to the Franchise Agreements.
Mid-Atlantic is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligation under
this Agreement, in breach of any material license, sublicense or other
agreement relating to the Intellectual Property. For purposes of this
Agreement, "Intellectual Property" shall mean all right, title and
interest of Mid-Atlantic in and to intellectual property assets relating
to the Business, including, without limitation, (i) registered and
unregistered copyrights, trademarks, service marks, service names, trade
names, slogans, assumed names and other trademark rights, including all
applications therefor and (ii) statutory, common law and registered
copyrights, including all applications therefor.
(f) There are no material Claims (as defined below) which will be
owned by Mid-Atlantic following the Closing, except for Claims reflected
in the October Balance Sheet or acquired in the ordinary course of
business since the date thereof. For purposes of this
35
Agreement, "Claims" means all claims, refunds, credits, causes of action,
choses in action, rights of recovery and rights of set-off of every kind
and nature associated with the Business.
(g) Section 2.11(g) of the Disclosure Schedule is a complete and
accurate list and description of all material Deposits (as defined below)
which will be owned by Mid-Atlantic immediately following the Closing.
For purposes of this Agreement, "Deposits" means all prepayments or other
deposits by Franchisees or others pertaining to the Business including,
without limitation, prepaid initial franchise fees, deposits/prepayments
for training programs, assignments/renewals of Franchise Agreements and
convention enrollments.
(h) Section 2.11(h) of the Disclosure Schedule is a complete and
accurate list of all Opens (as defined below) owing to Mid-Atlantic as of
February 29, 1996 which have been filed with Mid-Atlantic by Franchisees.
For purposes of this Agreement, "Opens" means all agreements to convey
real property awaiting completion/fulfillment of all terms and conditions
of such agreements, at which time the transactions represented thereby
will close, whether or not placed into the custody of a third party, as
escrow holder.
36
(i) For purposes of this Agreement, "Assets" shall mean all assets
and properties which are owned or leased by Mid-Atlantic or agreements to
which Mid-Atlantic is a party including, but not limited, to the
Franchise Agreements, the Real Property Leases, the Contracts, the
Equipment, the Intellectual Property, the Claims, the Deposits, the
Opens, and the Century 21 Subfranchise Agreement, dated December 1, 1974,
between C21-Real Estate and Century 21 Real Estate Corporation of
Virginia, the former name of Mid-Atlantic, as amended by the First
Addendum, dated July 10, 1976, the Second Addendum, dated January 4,
1977, and all other amendments thereto, if any (the "Subfranchise
Agreement"), other than accounts and notes receivable owing to
Mid-Atlantic, advances made by Mid-Atlantic prior to the Closing Date,
and Opens which close prior to April 1, 1996 and those assets or
properties listed in Section 2.11(i) of the Disclosure Schedule which the
Shareholder has caused Mid-Atlantic to transfer to him prior to the
Closing (the "Excluded Assets").
SECTION 2.12 Title to Assets. Except as disclosed in Section 2.12 of
the Disclosure Schedule, (a) Mid-Atlantic has good and marketable title
to all the Assets and interests therein which are owned by it, whether
real, personal, mixed, tangible or intangible;
37
(b) all the Assets which are owned by it are owned by Mid-Atlantic free
and clear of any Lien other than a Permitted Lien (as defined below); and
(c) upon acquisition by C21-Holding and Acquiror pursuant to this
Agreement, will be free and clear of any Lien other than a Permitted
Lien. For purposes of this Agreement, "Permitted Liens" means (i) Liens
of carriers, warehousemen, mechanics, suppliers, materialmen, landlords
and the like incurred in the ordinary course of the Business for sums not
overdue more than thirty days or the validity of which is being contested
in good faith by appropriate actions; (ii) Liens for Taxes not delinquent
or payable without penalty or being contested in good faith by
appropriate actions and (iii) Liens in favor of or created by
C21-Holding.
SECTION 2.13 Absence of Specified Changes. Except as set forth in
Section 2.13 of the Disclosure Schedule, since October 31, 1995, there
has not been any:
(a) Sale, lease, transfer, assignment or other transaction by
Mid-Atlantic with respect to the Assets or the Business with a value in
excess of $50,000 individually or $200,000 in the aggregate;
(b) Material adverse change of any character in the financial
condition or in the operations of the Business;
38
(c) Amendment or termination (or threat, in writing, of termination
or non-renewal) of any material Contract;
(d) Incurrence of any liabilities or obligations (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business
and consistent with past practice, none of which exceeds $50,000
individually or $200,000 in the aggregate (treating obligations or
liabilities arising from one transaction or a series of similar
transactions, and all periodic installments or payments under any lease
or other agreement providing for periodic installments or payments, as a
single obligation or liability);
(e) Other act or omission of the Shareholder or Mid-Atlantic that
has a material adverse effect on the financial condition or operations of
the Business;
(f) Declaration of any dividend or other distribution in respect of
Mid-Atlantic's Common Stock other than in an amount not greater than the
cash on hand; or
(g) Agreement by Mid-Atlantic to do any of the things described in
the preceding clauses (a) through (f) except as required by this
Agreement.
39
SECTION 2.14 Litigation. Except as set forth in Section 2.14 of the
Disclosure Schedule, as of the date of this Agreement, there are no
actions, suits, claims, investigations or proceedings pending or, to the
Shareholder's knowledge, threatened in writing in any court or by or
before any governmental agency with respect to Mid-Atlantic, the Assets
or the Business. There is no action, suit, claim, investigation or
proceeding pending or, to the Shareholder's knowledge, threatened in
writing which questions the validity or propriety of this Agreement or
any action taken or to be taken by the Shareholder in connection with
this Agreement. Mid-Atlantic is not subject to any injunction or order
of any court of competent jurisdiction or agreement to be bound by any
restriction with respect to its ownership of the Assets or its conduct of
the Business which restriction could reasonably be expected to have a
material adverse effect on the Business.
SECTION 2.15 Employees and Compensation. (a) Section 2.15 of the
Disclosure Schedule, when taken together with Section 2.10 of the
Disclosure Schedule, sets forth a complete and accurate list of the names
and aggregate monthly base salary or wages, and any incentive,
commission, bonus and/or other compensation arrangement as of December
31, 1995, including,
40
without limitation, pursuant to employment contracts and consultant contracts,
of Mid-Atlantic's officers and employees (collectively, "Employees"). Except
for any Employee which is a party to an employment or consultant contract,
such other Employee may be terminated at will by Mid-Atlantic without payment
of additional compensation or monies other than that owed through the date of
termination. Except as set forth in Section 2.15 of the Disclosure Schedule
and in the ordinary course of the Business, which includes, but is not limited
to, changes required by law, to the Shareholder's knowledge, there is no
agreement to change any terms of employment, including, without limitation,
salary, wage rates, commissions or other compensation or employee benefit
arrangement, of any Employee prior to or following the Closing Date.
(b) To the Shareholder's knowledge, all of the contracts and
arrangements listed in Section 2.15 of the Disclosure Schedule are
enforceable against the other parties thereto. Neither Mid-Atlantic nor,
to the Shareholder's knowledge, any other party is in material default
under any of these contracts or arrangements. There have been no claims
of default by Mid-Atlantic asserted in writing and, to the Shareholder's
knowledge, there are no facts or conditions which would result in a
material default under these contracts or arrangements.
41
Except as set forth in Section 2.15 of the Disclosure Schedule, there is
no pending or, to the Shareholder's knowledge, threat in writing of an
employment dispute involving Mid-Atlantic's Employees.
SECTION 2.16 Conflicts of Interest. Except as set forth in Section
2.16 of the Disclosure Schedule, to the Shareholder's knowledge, neither
the Shareholder, nor any other officer or director of Mid-Atlantic, nor
any spouse or child of any of them, nor any Employee of Mid-Atlantic,
has any direct or indirect interest in any competitor of Mid-Atlantic or
any Franchisee, or in any Asset, other than the ownership of not more
than 5% of the stock of a publicly traded company by any such person or
entity.
SECTION 2.17 Compliance with Law. To the Shareholder's knowledge,
Mid-Atlantic during the past three years has complied in all material
respects with, and is not in material violation of, any applicable
federal, state or local statute, law, rule or regulation (including,
without limitation, any applicable building, zoning, franchise, pension,
labor, securities or other statute, law, rule or regulation), which
violation would be reasonably likely to have a material adverse effect on
the Assets or the financial condition or the operation of the Business.
42
SECTION 2.18 Licenses and Permits. Section 2.18 of the Disclosure
Schedule lists all licenses, permits, orders or other authorizations
necessary for Mid-Atlantic to operate the Business as currently
operated, in all material respects.
SECTION 2.19 Brokers or Finders. Neither the Shareholder nor
Mid-Atlantic has employed or utilized any broker, finder or investment
adviser in connection with the transactions contemplated by this
Agreement.
SECTION 2.20 National Ad Fund. During the past three years,
Mid-Atlantic has transmitted to C21-Real Estate the requisite amounts
owing to the NAF and has complied in all material respects with all other
material requirements of Mid-Atlantic's National Advertising Fund
Agreement. As of February 29, 1996, Mid-Atlantic had $305,606.97 owing
to the NAF under its control, which amount was held in accounts at
Calvert Group and Fairfax Bank and Trust.
SECTION 2.21 Insurance. Section 2.21 of the Disclosure Schedule sets
forth all insurance policies owned by Mid-Atlantic relating to
Mid-Atlantic or the Assets. To the Shareholder's knowledge, all such
policies are enforceable against the related insurers. Mid-Atlantic has
not received written notice of default under any such policy or of any
pending or threatened termina-
43
tion or cancellation, coverage limitation or reduction, or material
premium increase with respect to any such policy.
SECTION 2.22 Payment of Obligations. Except as specifically provided
in this Agreement, the Shareholder has caused Mid-Atlantic to pay all of
its obligations that are due and payable prior to the Closing Date (or
has caused Mid-Atlantic to retain sufficient cash reserves to pay such
obligations or will cause Mid-Atlantic to pay, on the Closing Date out
of the Merger Consideration) when they become due and payable if and to
the extent that they relate to the period prior to the Closing Date. If
after payment of all such obligations, Mid-Atlantic retains any funds so
deposited by the Shareholder from the Merger Consideration, Mid-Atlantic
shall promptly pay any such funds to the Shareholder without interest.
SECTION 2.23 Use of Excluded Assets. Notwithstanding the fact that
the Excluded Assets have been transferred to the Shareholder prior to the
Closing, the Shareholder agrees that C21-Holding following the Closing
shall have the right to use and utilize at no additional cost the
furniture, fixtures and equipment identified in Section 2.1(i),
subsection 1(a)-(d), of the Disclosure Schedule during the Transition
Period and that such
44
furniture, fixtures and equipment will not be removed during the
Transition Period.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF C21-HOLDING CORP. AND ACQUIROR
Acquiror and C21-Holding, jointly and severally, represent and
warrant to the Shareholder as follows:
SECTION 3.1 Organization and Standing. Acquiror and C21-Holding each
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with corporate power and
authority to enter into this Agreement and carry out their respective
obligations hereunder.
SECTION 3.2 Corporate Authority; Action. Acquiror and C21-Holding
each has the corporate power and authority to execute and deliver this
Agreement, the Plan of Merger and the Indemnification Agreement and
perform their respective obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Plan of Merger and the
Indemnification Agreement by Acquiror and C21-Holding and the
consummation by Acquiror and C21-Holding of the transactions
contemplated by this Agreement, the Plan of Merger and the
Indemnification Agreement have been authorized by all requisite corporate
45
action on the part of Acquiror and C21-Holding. This Agreement, the Plan
of Merger and the Indemnification Agreement constitute legal, valid and
binding obligations of each of Acquiror and C21-Holding, enforceable in
accordance with their terms.
SECTION 3.3 Consents. Except for (i) compliance with the applicable
requirements of the HSR Act and (ii) the approvals of the Boards of
Directors of Acquiror and C21-Holding of this Agreement and the Plan of
Merger, which approvals have been obtained and (iii) the filing with the
Virginia State Corporation Commission of Articles of Merger to effect the
Plan of Merger and the filing of the Certificate of Merger with the
Delaware Secretary of State, no consent, approval, authorization, filing
with or order of any court, governmental agency, person or financial
institution is required in connection with the execution and delivery of
this Agreement by Acquiror and C21-Holding, the consummation by Acquiror
and C21-Holding of the transactions contemplated by this Agreement and
the performance by Acquiror and C21-Holding of their respective
obligations under this Agreement.
SECTION 3.4 No Violation. Assuming compliance with the matters
referred to in Section 3.3 by Acquiror and C21-Holding, neither the
execution or delivery of this Agreement, the consummation by Acquiror and
C21-
46
Holding of the transactions contemplated by this Agreement nor the
performance by Acquiror and C21-Holding of their respective obligations
under this Agreement will: (i) violate the certificate of incorporation
or by-laws of Acquiror or C21-Holding, (ii) violate, conflict with, or
result in a breach of, the terms, conditions or provisions of, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under any agreement, instrument, or
arrangement to which Acquiror or C21-Holding is a party or by which
Acquiror or C21-Holding is bound or (iii) violate any law, rule,
regulation, judgment, order or decree to which Acquiror or C21-Holding is
subject or by which either is bound.
SECTION 3.5 Litigation. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of
Acquiror or C21-Holding, threatened which questions the validity or
propriety of this Agreement or any action taken or to be taken by
Acquiror or C21-Holding in connection with this Agreement.
SECTION 3.6 Brokers and Finders. Neither Acquiror nor C21-Holding
has employed or utilized any broker, finder or investment advisor
involved in connection with the transactions contemplated by this
Agreement.
47
SECTION 3.7 Representations of Shareholder. Except for the
representations and warranties of the Shareholder which are contained in
this Agreement, there are no other representations and warranties by or
on behalf of the Shareholder which are being relied upon by the Acquiror
or C21-Holding. To the knowledge of Acquiror and C21-Holding there are no
facts or circumstances which could constitute a breach of the
representations and warranties of the Shareholder, other than with
respect to the Shareholder's title to all of the outstanding shares of
capital stock of Mid-Atlantic, which would give Acquiror or C21-Holding a
basis to seek rescission of the consummation of this Agreement or
indemnification from the Shareholder pursuant to the Indemnification
Agreement.
ARTICLE IV
CERTAIN COVENANTS OF THE
SHAREHOLDER, C21-HOLDING CORP. AND ACQUIROR
SECTION 4.1 Severance. Acquiror and C21-Holding agree that
following the Closing they will follow the severance policy set forth on
Exhibit F with respect to all Employees of Mid-Atlantic who are active
employees of Mid-Atlantic immediately prior to the Closing and that, in
no event, will any "transitional employees" (as such term is used
therein) be required, as a condition of the
48
receipt of any benefits, to undertake a covenant not to compete more
onerous than the covenant applicable to the Shareholder pursuant to
Section 4.2.
SECTION 4.2 Non-Competition.
(a) The Shareholder agrees for a period of three (3) years following
the Closing Date that he will not, directly or indirectly, engage in or
have any interest in any person, firm, corporation, or business (whether
as an employee, officer, director, agent, security holder, consultant or
otherwise) that engages in the business of franchising real estate
brokerage offices in the Region, so long as C21-Real Estate (or its
successors) shall engage in such activity in the Region. Without
limitation of the foregoing, (i) the Shareholder is not prohibited from
engaging in or having any interest in any endeavor or other activity
providing other services supportive of or ancillary to the real estate
brokerage franchise business if such services were not being offered by
Mid-Atlantic as of the Closing Date (including, without limitation and
for example, Amerinet Financial Services, Inc. and New Homes Marketing),
and (ii) ownership of not more than 5% of the stock of a publicly traded
company by the Shareholder, even if such company engages in such
activity, if he does not participate in management of any such company
(which shall not be deemed
49
to include the exercise of voting rights) shall not be considered a
violation of this covenant.
(b) The Shareholder, Acquiror and C21-Holding agree that the
restrictions imposed on the Shareholder under this Section 4.2 are an
integral part of, not severable from, and solely intended to protect, the
value of the goodwill included in the Assets and the Business being
merged with and into C21-Holding pursuant to the Plan of Merger.
SECTION 4.3 Separate Covenants. The parties intend that the covenant
contained in Section 4.2 shall be construed as a series of separate
covenants, one for each county within the Region. Except for geographic
coverage, each such separate covenant shall be deemed identical. If, in
any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in Section 4.2, then such
unenforceable covenant shall be deemed eliminated from those provisions
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
SECTION 4.4 Non-Disclosure of Trade Secrets. The Shareholder agrees
to hold and treat in confidence all confidential information and trade
secrets of C21-Real Estate or Mid-Atlantic with respect to the Business,
including, but not limited to, personnel information,
50
know-how, franchisee lists, operations manuals, sales training,
management manuals and associated information, real estate license
training materials or other technical data ("Confidential Information");
provided that "Confidential Information" shall not include such
information which otherwise would constitute Confidential Information
hereunder which (i) is contained in a publicly recorded document, (ii) is
or becomes generally known other than as a result of a disclosure by or
through the Shareholder, or (iii) is or becomes known by the Shareholder
on a nonconfidential basis from a source other than through his interest
in Mid-Atlantic that, to the Shareholder's knowledge, is not prohibited
from disclosing such Confidential Information to the Shareholder by a
legal, contractual, fiduciary or other obligation. The Shareholder will
employ such procedures to insure the confidentiality of Confidential
Information as would be employed by a reasonable and prudent person to
safeguard the confidentiality of his own most confidential information
or, if more stringent, such procedures as are employed for such purpose
by the Shareholder. Nothing in this Agreement shall prevent the
Shareholder from disclosing Confidential Information (x) if required to
do so by law or regulation, (y) to any governmental authority having or
51
claiming authority to receive such Confidential Information, or (z)
pursuant to subpoena.
SECTION 4.5 Injunctive Relief. The Shareholder acknowledges that the
agreement set forth in Section 4.2 is necessary to protect for Acquiror
and C21-Holding the value of the Assets and the Business, that a breach
of such agreement will result in irreparable damage to the value of the
Assets and the Business, and that money damages would not adequately
compensate Acquiror and C21-Holding for any such breach and, therefore,
that Acquiror and C21 Real Estate would not have an adequate remedy at
law. Accordingly, Acquiror and C21-Holding shall have, in addition to any
and all remedies at law, the right, without posting of bond or other
security, to an injunction, both temporary and permanent, specific
performance and/or other equitable relief to prevent the violation of any
obligation under Section 4.2.
SECTION 4.6 Real Estate Leases.
(a) For a period of 180 days following the Closing Date (the
"Transition Period"), (i) C21-Holding and the Shareholder shall share
occupancy of the offices located at 7601 Lewinsville Road, Suite 400,
McLean, Virginia (the "Mid-Atlantic Offices") which Mid-Atlantic leases
from The Realty Associates Fund III, L.P. ("RAF") pursuant to a lease
dated July 31, 1992 (the "RAF
52
Lease") and (ii) C21-Holding and the Shareholder shall share, on a pro
rata basis based on the amount of space occupied by each of them, the
liability for all payments to be made under the RAF Lease for the
Mid-Atlantic Offices during such period. The Shareholder shall pay
C21-Holding the amount owed pursuant to the foregoing sentence in advance
on the fifth day of each month during the Transition Period.
(b) During the Transition Period, C21-Holding shall pay all
payments to be made pursuant to the lease for the premises located in the
5th Election District of Anne Arundel County, Maryland leased by Mid-
Atlantic from Airport Square XXI Company ("Airport XXI") pursuant to a
lease dated July 31, 1992 (the "Airport XXI Lease" and, with the RAF
Lease, the "Shared Leases").
(c) Commencing upon the first day following the expiration of the
Transition Period, the Shareholder (or his designee) shall have the right
to occupy the premises under the RAF Lease and the Airport XXI Lease and,
in any event, the Shareholder shall be responsible for and shall pay,
perform and discharge when due, all obligations and liabilities of the
lessee pursuant to the Shared Leases arising from and after the
Transition Period.
53
(d) The Shareholder shall use all reasonable efforts to obtain any
necessary consents from RAF and Airport XXI to the assignment of the
Shared Leases to the Shareholder or to a corporation controlled by the
Shareholder without any continuing obligation or liability by C21-Holding
following such assignment. Such assignment shall commence upon the first
day following the expiration of the Transition Period and shall relieve
C21-Holding from any responsibility or liability for the Shared Leases.
SECTION 4.7 Preparation and Filing of Tax Returns. The Shareholder
shall or shall cause Beers & Cutler, Mid-Atlantic's independent public
accountants, to cause to be prepared and timely filed (in each case, at
the Shareholder's cost and expense and in a manner consistent with
Mid-Atlantic's past practice) on a timely basis all Tax Returns of
Mid-Atlantic for all taxable periods including, without limitation, a
Form 966 Corporation Dissolution or Liquidation. Subject to the
Indemnification Agreement, the Shareholder shall cause to be paid, on
Mid-Atlantic's behalf, all Taxes shown to be due and payable thereon.
Notwithstanding the foregoing, with respect to the Tax Returns of
Mid-Atlantic for the Tax period ending on the Closing Date, the
Shareholder shall consult with the Acquiror and, at the Acquiror's
expense,
54
the Acquiror's independent accountants, Deloitte & Touche LLP, in
preparing and filing such returns, in determining and allocating income,
gain, credits, losses, deductions and other items and in making any
elections and other decisions relating to such Tax Returns. Such Tax
Returns shall be filed only upon the parties' mutual agreement.
SECTION 4.8 Allocation of Purchase Price and Other Tax Matters.
(a) The Shareholder Acquiror and C21-Holding agree (i) to allocate
the Total Consideration for all Tax and non-Tax purposes, in accordance
with the rules under Section 1060 of the Code and the Treasury
Regulations promulgated thereunder, as set forth on Exhibit G hereto;
(ii) to utilize the amounts allocated pursuant to subsection (i) for
purposes of filing all Tax Returns, including amended Tax Returns and
Form 8594 and otherwise; and (iii) not to take any position inconsistent
therewith on any Tax Return (including amended Tax Returns) or for any
other Tax or non-Tax purpose, provided, however, that Acquiror and the
Shareholder shall be permitted, for purposes of filing Form 8594 and all
other purposes, to take into account legal and accounting fees and other
buying or selling expenses, respectively, as applicable.
55
(b) The Acquiror, C-21 Holding and the Shareholder hereby
acknowledge that for federal, state and local income Tax purposes the
transactions contemplated by this Agreement shall be characterized as (i)
a sale by Mid-Atlantic of its Assets to, and the assumption of
Mid-Atlantic's liabilities by, the Acquiror in exchange for the Total
Merger Consideration, followed by (ii) the distribution of such Total
Merger Consideration by Mid-Atlantic to the Shareholder in complete
redemption and cancellation of the Mid-Atlantic stock held by the
Shareholder, followed by (iii) the transfer to, and the assumption by,
C21-Holding of the Assets and liabilities, which are considered to have
been purchased or assumed by Acquiror pursuant to this paragraph, in
exchange for a note of C21-Holding, and followed by (iv) the transfer to,
and the assumption by, C21-Real Estate of such Assets and liabilities.
The Acquiror, C21-Holding and the Shareholder agree not to take any
position inconsistent with this Section 4.8 for federal, state or local
income Tax purposes.
SECTION 4.9 Accounts Receivable.
(a) C21-Holding agrees that it will cause C21-Real Estate to use its
reasonable efforts, consistent with its accounts receivable collection
practices, to collect accounts receivable for the Shareholder which are
56
outstanding in accordance with GAAP as of the Closing Date (the "Accounts
Receivable") and identified on a schedule delivered to C21-Holding at
Closing or no later than five days after the Closing Date which schedule
shall be reviewed by and deemed acceptable to C21-Holding as mutually
agreed upon with the Shareholder (the "Accounts Receivable Schedule"),
but C21-Real Estate shall not, in connection with such collection
efforts, be required to terminate any Franchise Agreement or bring any
legal action against any Franchisee or any affiliate of any Franchisee.
C21-Holding and the Shareholder agree that Opens shall be treated as
Accounts Receivable, even though not listed on the Accounts Receivable
Schedule, but the Shareholder understands and agrees that Opens shall
only be considered as an Account Receivable if closed prior to April 1,
1996. C21-Holding agrees that it will cause C21-Real Estate to pay to the
Shareholder, by valid check, the amounts which C21-Holding has collected
with respect to any Accounts Receivable within 15 days after the end of
each month, commencing with the month following the month in which the
Closing occurs, and to deliver a written statement listing the Accounts
Receivable listed on the Accounts Receivable Schedule to which the
payment relates and the amount being paid with respect thereto.
C21-Holding may cause C21-Real Estate
57
to suspend its efforts to collect any Accounts Receivable, in the
exercise of its reasonable judgment, and consistent with the accounts
receivable collection practices of C21-Real Estate.
(b) C21-Holding shall not permit C21-Real Estate to compromise,
settle, surrender, release, discharge, renew, extend or grant any other
indulgence with respect to any Accounts Receivable (a "Compromise")
except in connection with an identical action with regard to all of its
own accounts receivable owing from the same obligor; and C21-Holding
shall cause C21-Real Estate to give the Shareholder ten days' written
notice prior to any proposed Compromise (a "Compromise Notice"). The
Shareholder will cooperate with C21-Real Estate with respect to its
collection of Accounts Receivable on his behalf, provided that the
Shareholder will not be obligated to incur any out-of-pocket expenses in
connection with such cooperation.
(c) The Shareholder may at any time and from time to time, upon
written notice to C21-Holding, revoke C21-Holding's authority to cause
C21-Real Estate to collect any Accounts Receivable on his behalf (which
notice, if relating to Accounts Receivable as to which C21-Real Estate
has given a Compromise Notice, must be given at least five business days
prior to the date on
58
which C21-Real Estate has proposed to Compromise such Accunts
Receivable).
(d) C21-Holding agrees that it shall cause C21-Real Estate to apply
all payments received from any obligor under an Accounts Receivable as
directed by such obligor. In the event such obligor fails to direct the
application of such payment, such undirected payment shall be applied to
the oldest undisputed amount due from such obligor at that time.
(e) One year following the Closing Date, or on such earlier date as
may be requested by the Shareholder, C21-Holding shall assign to the
Shareholder all right, title and interest in and to all Accounts
Receivable that remain uncollected and undischarged, and which have not
been settled or compromised as of that date, and the Shareholder shall
then have the right to collect such Accounts Receivable for his own
account and C21-Holding shall have no further obligations with respect
thereto.
(f) Following the Closing and notwithsanding the acquisition of the
Subfranchise Agreement by Acquiror, Shareholder agrees that C21-Holding
may deduct from the payment of an Account Receivable the applicable
service fees and NAF fees owed to C21-Real Estate under the Subfranchise
Agreement with respect thereto.
59
SECTION 4.10 Severance and Other Payments. The Shareholder agrees
that he shall be responsible for and make all payments owed (other than
pursuant to the Severance Policy) to any current or former officer of
Mid-Atlantic for severance pay, termination pay or other payments which
are payable as a result of the Merger, including, without limitation,
pursuant to the employment or consultant agreements listed in Section
2.15 of the Disclosure Schedule.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1 Expenses. Except as otherwise expressly provided in this
Agreement, Acquiror shall pay all expenses incident to the origin,
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby other than legal and accounting fees and
disbursements incurred by the Shareholder and the fees of any broker,
finder or investment adviser utilized by him, for which the Shareholder
shall be responsible.
SECTION 5.2 Reimbursement of and Payment to C21-Holding and the
Shareholder. The Shareholder, C21-Holding and Acquiror agree that if
subsequent to the Closing Date any of them shall receive any payment due
to
60
the other party, including, without limitation, service fees or NAF fees
under the Subfranchise Agreement, each shall promptly remit the same to
the other, and if any party shall pay any obligations of the other not
assumed by it hereunder, the payment shall be for the account of the
party to whom the obligation relates, and such party shall promptly
reimburse the other party for any such payment.
SECTION 5.3 Interpretation. As used herein, the expression "this
Agreement" means the body of this Agreement and the Exhibits and the
Disclosure Schedule attached hereto; and the expressions "herein,"
"hereof," and "hereunder" and other words of similar import refer to this
Agreement and such Exhibits and the Disclosure Schedule as a whole and
not to any particular part or subdivision thereof. As used herein, the
"knowledge" of the Shareholder means the Shareholder's actual knowledge,
without further investigation, and the "knowledge" of Acquiror or
C21-Holding means the actual knowledge of the following persons, without
further investigation: Henry R. Silverman, James E. Buckman, Stephen P.
Holmes, Robert W. Pittman, John D. Snodgrass, Thomas J. Freeman, Mayo S.
Stuntz, Jr., Paul McNichol and John J. Russell. Whenever this Agreement
states that an agreement or a contract is enforceable according to its
terms, such statement is to
61
be interpreted with the proviso that such enforcement may be limited (i)
by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, equity of redemption, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) by general
principles of equity (regardless of whether enforcement is sought in
equity or at law).
SECTION 5.4 Amendments and Waivers. This Agreement may be amended
only by a written instrument executed by the parties hereto. No waiver of
any of the provisions of the Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof.
SECTION 5.5 Public Statements. Except for announcements as may be
required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other party with reasonable time under
the circumstances to comment on the announcement in advance of such
announcement, neither the Shareholder nor Acquiror or C21-Holding shall
issue any press release or other public statement concerning the
transactions contemplated by this Agreement without first
62
obtaining the written consent of the other parties respecting such
statement, which consent will not be unreasonably withheld.
SECTION 5.6 Confidentiality. The Shareholder acknowledges that
Acquiror may be required to file this document with the Securities and
Exchange Commission and other regulatory agencies and agrees that
Acquiror may so do so and, subject to the foregoing, the parties hereto
agree that they will keep confidential the terms and conditions of this
Agreement; provided that the foregoing obligations shall not apply to
information which (i) is contained in a publicly recorded document or
(ii) is or becomes generally known other than as a result of a disclosure
by or through the party obliged to maintain its confidentiality. Nothing
in this Agreement shall prevent any party from disclosing information
regarding this Agreement (w) in pursuit of its remedies hereunder, (x) if
required to do so by law or regulation, (y) to any governmental authority
having or claiming authority to receive such information or (z) pursuant
to subpoena. Further, nothing in this Agreement shall prevent the
Shareholder from disclosing information regarding this Agreement to other
current or former parties to subfranchise arrangements with C21-Real
Estate.
63
SECTION 5.7 Access To Records After Closing. Acquiror and the
Shareholder shall, after the Closing Date, make available to each other
at reasonable times during normal business hours any books and records
relating to the Business that either may request for use in connection
with: (a) the preparation of Tax Returns; (b) any audit of Taxes or Tax
Returns by any taxing authority; (c) any claim or suit in which they are
a party; or (d) any other reasonable and proper purpose, and shall permit
the other, at its expense, to make copies thereof.
SECTION 5.8 Parties Bound. This Agreement shall apply to, inure to
the benefit of and be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. The
respective rights and obligations of any party hereto shall not be
assignable without the consent of the other party (which will not be
unreasonably withheld) except that (i) Acquiror may assign this Agreement
and Acquiror's rights hereunder to any subsidiary of Acquiror (provided
that the Acquiror unconditionally guarantees all of such assignee's
obligations, warrants and agreements hereunder in a written guaranty
reasonably acceptable to the Shareholder), (i) C21-Holding may assign
this Agreement and C21-Holding's rights and obligations hereunder to C21-
Real Estate and (iii) the Shareholder may assign all or
64
any part of the payment of the Annual Payment and the Additional Purchase
Price to another party.
SECTION 5.9 Parties in Interest. Except as specifically provided
herein, nothing in this Agreement, whether express or implied, is
intended to infer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their
respective successors, heirs, legal representatives and permitted
assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party
to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over against any party to this Agreement.
SECTION 5.10 Notices. Any notice, demand, approval, consent,
request, waiver or other communication which may be or is required to be
given pursuant to this Agreement shall be in writing and shall be (1)
deposited in the United States mail, postage prepaid, certified or
registered, (2) sent by telecopier, or (3) sent by private overnight
courier service for delivery on the next following business day,
addressed to the party at the address set forth after its respective name
below, or at such different address as such party shall have theretofore
advised the other party in writing:
65
If to the Shareholder:
George F. Kettle
2417 Fisher Island Drive
Fisher Drive, Florida 33109
with a copy to:
J. Richard Eagan
7601 Lewinsville Road
Suite 400
McLean, Virginia 22102
Telecopier: (703) 821-0491
and
Williams & Connolly
725 12th Street, N.W.
Washington, D.C. 20005
Attention: Charles A. Sweet, Esq.
Telecopier: (202) 434-5029
If to Acquiror or C21-Holding:
HFS Incorporated or
C21 Holding Corp.
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman
Executive Vice President
Telecopier: (201) 428-3260
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Mark T. Shehan, Esq.
Telecopier: (212) 735-2001
Any such communication personally delivered shall be deemed to have been
received on the day delivered; or if sent by telecopier, on the day
telecopied, but only if receipt by the addressee is confirmed by a return
telecopy signed by the addressee; or if properly mailed
66
certified or registered mail, postage prepaid, shall be deemed to have
been received on the day three days from and including the day mailed; or
if sent by private overnight courier service shall be deemed to have been
received on the business day following the day so sent. Any party may
change its address for purposes of this Section by giving the other
parties written notice of the new address in any manner set forth above.
SECTION 5.11 Number and Gender of Words. Whenever herein the
singular number is used, the same shall include the plural where
appropriate, and the words of any gender shall include each other gender
where appropriate.
SECTION 5.12 Captions. The captions, headings and arrangements used
in this Agreement are for convenience only and do not affect, limit or
amplify the terms and provisions hereof, or their construction or
interpretation.
SECTION 5.13 Invalid Provisions. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof, and the remaining provisions
67
hereof shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance
herefrom. In lieu of such illegal, invalid or unenforceable provision
there shall be added automatically as a part hereof a provision as
similar in terms to such illegal, invalid or unenforceable provision as
may be possible and be legal, valid and enforceable.
SECTION 5.14 Accounting Terms. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in
accordance with GAAP as in effect from time to time.
SECTION 5.15 Entirety of Agreement. This Agreement, the Plan of
Merger and the Indemnification Agreement contain the entire agreement
among the parties hereto, and supersede all prior and contemporaneous
agreements, representations and understandings of the parties, including,
without limitation, all preliminary offers and letters of intent made by
or between C21-Holding and Mid-Atlantic or the Shareholder. No
representations, inducements, promises or agreements, oral or otherwise,
which are not embodied herein or therein shall be of any force or effect.
SECTION 5.16 Multiple Counterparts. This Agreement may be executed
in multiple counterparts, each
68
of which shall be deemed an original for all purposes and all of which
shall be deemed, collectively, one agreement.
SECTION 5.17 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law principles.
SECTION 5.18 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby
shall be brought in the United States District Court for the Eastern
District of Virginia or the courts of Fairfax County in Virginia, and
each of the parties hereby consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court.
69
Without limiting the foregoing, each party agrees that service of process
on such party as provided in this Section 5.18 shall be deemed effective
service of process on such party.
SECTION 5.19 Prevailing Party Expenses. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for all
expenses and costs incurred by the prevailing party or parties in
connection with such action, including, without limitation, attorneys'
fees.
SECTION 5.20 Waiver of Rescission. Notwithstanding any breach or
default by any of such parties of any of their respective
representations, warranties, covenants or agreements under this
Agreement, other than as set forth in clause (ii) below, each such party
waives any rights that it or they may have to rescind this Agreement or
the transactions consummated by it; provided, however, that (i) this
waiver shall not affect any other rights or remedies available to any
such party under this Agreement or under the law and (ii) Acquiror and
C21-Holding shall have the right to rescind this Agreement in the event
that, as of the Closing, all of the outstanding shares of capital stock
of Mid-Atlantic
70
were not owned by the Shareholder, or if actual fraud has been committed
by Mid-Atlantic or the Shareholder in connection with any of the
transactions contemplated by the Agreement.
71
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
HFS INCORPORATED
By /s/ STEPHEN P. HOLMES
---------------------
Name: Stephen P. Holmes
Title: Executive Vice
President
C21 HOLDING CORP.
By /s/ JAMES E. BUCKMAN
--------------------
Name: James E. Buckman
Title: Executive Vice
President
CENTURY 21 REAL ESTATE OF
THE MID-ATLANTIC STATES, INC.
By /s/ J. RICHARD EAGAN
---------------------
Name: J. Richard Eagan
Title: President
/s/ GEORGE F. KETTLE
--------------------
GEORGE F. KETTLE