AGREEMENT AND PLAN OF MERGER
Dated as of
April 3, 1996
Among
HFS INCORPORATED,
C21 HOLDING CORP.,
CENTURY 21 OF EASTERN PENNSYLVANIA, INC.,
GEORGE F. KETTLE
and
JAMES O. NELSON
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER AND ADDITIONAL ACQUISITION MATTERS
Section 1.1 Merger; Surviving Corporation.................... 2
Section 1.2 Effect of the Merger............................. 2
Section 1.3 Additional Actions............................... 3
Section 1.4 Certificate of Incorporation and
By-Laws.......................................... 3
Section 1.5 Directors and Officers........................... 4
Section 1.6 Effective Time................................... 4
Section 1.7 Conversion of Shares............................. 4
Section 1.8 Additional Consideration......................... 5
Section 1.9 Closing Time and Place........................... 6
Section 1.10 Transfer of NAF Assets........................... 6
Section 1.11 Deliveries by Eastern Pennsylvania
and the Shareholders............................. 7
Section 1.12 Deliveries by Acquiror and C21-
Holding.......................................... 9
Section 1.13 Additional Payment............................... 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
Section 2.1 Organization and Existence....................... 10
Section 2.2 Capital Structure................................ 11
Section 2.3 Title to Shares.................................. 13
Section 2.4 Authority; Valid and Binding Agree-
ment............................................. 13
Section 2.5 Consents......................................... 14
Section 2.6 No Conflict...................................... 15
Section 2.7 Financial Statements............................. 16
Section 2.8 Absence of Undisclosed Liabilities............... 18
Section 2.9 Tax Matters...................................... 18
Section 2.10 Employee Benefit Matters......................... 24
Section 2.11 Assets........................................... 27
Section 2.12 Title to Assets.................................. 34
Section 2.13 Absence of Specified Changes..................... 35
Section 2.14 Litigation....................................... 36
Section 2.15 Employees and Compensation....................... 37
Section 2.16 Conflicts of Interest............................ 38
Section 2.17 Compliance with Law.............................. 39
Section 2.18 Licenses and Permits............................. 39
Page
Section 2.19 Brokers or Finders............................... 39
Section 2.20 National Ad Fund................................. 39
Section 2.21 Insurance........................................ 40
Section 2.22 Payment of Obligations........................... 40
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND C21-HOLDING
Section 3.1 Organization and Standing........................ 41
Section 3.2 Corporate Authority; Action...................... 41
Section 3.3 Consents......................................... 42
Section 3.4 No Violation..................................... 42
Section 3.5 Litigation....................................... 43
Section 3.6 Brokers and Finders.............................. 43
Section 3.7 Representations of Shareholders.................. 44
ARTICLE IV
CERTAIN COVENANTS OF THE
SHAREHOLDERS, C21-HOLDING AND ACQUIROR
Section 4.1 Severance........................................ 44
Section 4.2 Non-Competition.................................. 45
Section 4.3 Separate Covenants............................... 46
Section 4.4 Non-Disclosure of Trade Secrets.................. 47
Section 4.5 Injunctive Relief................................ 48
Section 4.6 Real Estate Leases............................... 48
Section 4.7 Preparation and Filing of Tax Re-
turns............................................ 50
Section 4.8 Allocation of Purchase Price and
Other Tax Matters................................ 51
Section 4.9 Accounts Receivable.............................. 52
Section 4.10 Severance and Other Payments..................... 55
Section 4.11 Consulting Agreement............................. 56
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.1 Expenses......................................... 56
Section 5.2 Reimbursement of and Payment to
C21-Holding and the Shareholders................. 56
Section 5.3 Interpretation................................... 57
Section 5.4 Amendments and Waivers........................... 58
Section 5.5 Public Statements................................ 58
Section 5.6 Confidentiality.................................. 59
Section 5.7 Access To Records After Closing.................. 59
ii
Page
Section 5.8 Parties Bound.................................... 60
Section 5.9 Parties in Interest.............................. 60
Section 5.10 Notices.......................................... 61
Section 5.11 Number and Gender of Words....................... 63
Section 5.12 Captions......................................... 63
Section 5.13 Invalid Provisions............................... 63
Section 5.14 Accounting Terms................................. 64
Section 5.15 Entirety of Agreement............................ 64
Section 5.16 Multiple Counterparts............................ 64
Section 5.17 Governing Law.................................... 65
Section 5.18 Jurisdiction..................................... 65
Section 5.19 Prevailing Party Expenses........................ 66
Section 5.20 Waiver of Rescission............................. 66
iii
EXHIBITS
Exhibit A - Opinion of Williams & Connolly
Exhibit B - FIRPTA Certificates
Exhibit C - Indemnification Agreement
Exhibit D - Opinion of Skadden, Arps, Slate, Meagher & Flom
Exhibit E - Severance Policy
Exhibit F - Tax Allocation
Exhibit G - Consulting Agreement
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 OF EASTERN PENNSYLVANIA,
INC., a Pennsylvania corporation ("Eastern Pennsylvania"), GEORGE F. KETTLE
("Kettle") and James O. Nelson ("Nelson" and, with Kettle, the
"Shareholders"), the holders of all of the outstanding shares of capital stock
of Eastern Pennsylvania.
WHEREAS, the respective Boards of Directors of Acquiror, C21-Holding and
Eastern Pennsylvania deem it advisable and in the best interests of their
respective stockholders that Acquiror acquire Eastern Pennsylvania by merger
of Eastern Pennsylvania with and into C21-Holding (the "Merger"); and
WHEREAS, Acquiror, C21-Holding, Century 21 Real Estate of the
Mid-Atlantic States, Inc., a Virginia corporation ("Mid-Atlantic") and Kettle
are simultaneously herewith entering into an Agreement and Plan of Merger
pursuant to which Acquiror is acquiring Mid-Atlantic by merger of Mid-Atlantic
with and into C21-Holding;
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER AND ADDITIONAL ACQUISITION MATTERS
SECTION 1.1 Merger; Surviving Corporation. In accordance with the
provisions of this Agreement, the Pennsylvania Business Corporation Law
(the "PBCL") and the Delaware General Corporation Law (the "DGCL"), at
the Effective Time (as defined in Section 1.6 hereof), Eastern
Pennsylvania shall be merged with and into C21-Holding (the "Merger")
and the separate corporate existence of Eastern Pennsylvania shall cease.
C21-Holding shall be the surviving corporation in the Merger (hereinafter
sometimes referred to as the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Delaware. The name
of the Surviving Corporation shall continue to be C21 Holding Corp.
SECTION 1.2 Effect of the Merger. At the Effective Time, the Merger
shall have the effects set forth in Section 1929 of the PBCL and Section
259 of the DGCL.
2
SECTION 1.3 Additional Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of
the rights, properties or assets of Eastern Pennsylvania acquired or to
be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or to otherwise carry out this Agreement, Eastern
Pennsylvania and its officers and directors grant an irrevocable power of
attorney and authorization to the Surviving Corporation to execute and
deliver all such proper bills of sale, assignments and assurances and to
take and do, in the name and on behalf of Eastern Pennsylvania, all such
other actions and things as may be necessary or desirable to vest,
perfect or confirm title to and possession of such rights, properties or
assets in the Surviving Corporation or to otherwise carry out the
purposes of this Agreement.
SECTION 1.4 Certificate of Incorporation and By-Laws. The
Certificate of Incorporation and the ByLaws of C21-Holding, as in effect
at the Effective Time, shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation and shall thereafter continue
3
to be its Certificate of Incorporation and By-Laws until amended as
provided therein or by law.
SECTION 1.5 Directors and Officers. The directors and officers of
C21-Holding immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and ByLaws of the
Surviving Corporation.
SECTION 1.6 Effective Time. The Merger shall become effective at the
time and date which is the later of (i) the filing of the Articles of
Merger in the Department of State of the Commonwealth of Pennsylvania and
(ii) the filing of a Certificate of Merger with the Secretary of State of
the State of Delaware with respect to the Merger (such time and date is
herein referred to as the "Effective Time").
SECTION 1.7 Conversion of Shares.
(a) Each share of common stock, par value $0.01 per share, of
C21-Holding outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any further action by the holder
thereof, be converted into one share of common stock, par value $0.01 per
share, of the Surviving Corporation.
(b) Each share of common stock, par value $1.00 per share, of
Eastern Pennsylvania ("Eastern Penn-
4
sylvania Common Stock") held in the treasury of Eastern Pennsylvania or
held other than by the Shareholders immediately prior to the Effective
Time shall be cancelled.
(c) Each share of Eastern Pennsylvania Common Stock outstanding
immediately prior to the Effective Time shall, by virtue of the Merger
and without any further action by the holder thereof, be converted into
the right to receive $2,352.95 in cash from Acquiror at the times and
manners provided in Sections 1.12 and 1.13 hereof upon delivery by a
Shareholder to the Acquiror of certificates which immediately prior to
the Effective Time represented the 5,100 outstanding shares of Eastern
Pennsylvania Common Stock.
(d) Each share Class B Common Stock par value $1.00 per share of
Eastern Pennsylvania, which was authorized but unissued immediately prior
to the Effective Time, shall be cancelled.
SECTION 1.8 Additional Consideration. In addition to the
consideration being provided by Acquiror to the Shareholders pursuant to
Section 1.7 hereof (the "Merger Consideration"), Acquiror hereby agrees
to pay and deliver to the Shareholders at the Closing (as defined in
Section 1.9), the amount of $4,441.00 (the "Prepaid Expense Amount" and,
with the Merger Consideration, the "Total Merger Consideration") which
the parties
5
hereto have mutually agreed is the amount of prepaid expenses of Eastern
Pennsylvania existing as of the Closing Date (as defined in Section 1.9).
SECTION 1.9 Closing Time and Place. Subject to the terms and
conditions of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") is taking place,
simultaneously with the execution of this Agreement, at 10:00 a.m., New
York City time, at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York, on April 3, 1996. The date and time
upon which the Closing is occurring are herein referred to as the
"Closing Date."
SECTION 1.10 Transfer of NAF Assets. At the Closing, Eastern
Pennsylvania shall transfer, by delivery of a check at Closing, to
Century 21 Real Estate Corporation, a Delaware corporation and wholly
owned subsidiary of C21-Holding ("C21-Real Estate"), in its capacity as
Trustee of the Century 21 National Advertising Fund ("NAF") all monies in
Eastern Pennsylvania's possession and/or pay over any other amounts
(collectively, the "NAF Funds") for which Eastern Pennsylvania is
accountable or responsible with respect to the NAF's or Eastern
Pennsylvania's fiduciary (or other) obligations and responsibilities as
the agent of the Trustee of the NAF.
6
SECTION 1.11 Deliveries by Eastern Pennsylvania and the
Shareholders. At the Closing, Eastern Pennsylvania and the Shareholders
are delivering or causing to be delivered to C21-Holding and Acquiror,
unless previously delivered, the following:
(a) Certificates representing the Eastern Pennsylvania Common Stock
registered in the name of each of the Stockholders.
(b) All books and records of Eastern Pennsylvania in the possession
or control of the Shareholders or Eastern Pennsylvania, including,
without limitation, the stock books, stock ledgers, minute books,
corporate seals and all financial books, records and work papers,
provided that the Shareholders may retain copies thereof.
(c) Certificates issued not more than two business days prior to the
Closing Date as to the good standing of, and payments of taxes by,
Eastern Pennsylvania in the Commonwealth of Pennsylvania (including, but
not limited to, tax clearance certificates from the Department of Revenue
and the Bureau of Employment Security of the Department of Labor and
Industry) and each jurisdiction in which it is qualified to do business
as a foreign corporation.
7
(d) Certified Articles of Incorporation and By-Laws of Eastern
Pennsylvania referred to in Section 2.1(b) hereof.
(e) The opinion of Williams & Connolly, counsel to the Shareholders,
substantially to the effect set forth in Exhibit A hereto.
(f) The certificates annexed as Exhibit B hereto as to the
non-foreign status of Eastern Pennsylvania, duly executed by Eastern
Pennsylvania and the Shareholders (the "FIRPTA Certificates"), provided,
however, that if such certificates are not delivered, the Closing shall
nevertheless occur and Acquiror shall withhold from the consideration
being provided by Acquiror to the Shareholders pursuant to this Agreement
such amounts as are required, in Acquiror's sole judgement, to be
withheld under applicable law.
(g) The Indemnification Agreement substantially in the form of
Exhibit C hereto (the "Indemnification Agreement"), duly executed by
Kettle.
(h) The NAF Funds.
(i) All other previously undelivered items required to be delivered
by Eastern Pennsylvania and the Shareholders at or prior to the Closing
pursuant to this Agreement or otherwise required in connection herewith.
8
SECTION 1.12 Deliveries by Acquiror and C21-Holding. At the
Closing, Acquiror and C21-Holding are delivering or causing to be
delivered to the Shareholders, unless previously delivered, the
following:
(a) The amount of $645,046 by wire transfer in immediately
available funds to the bank accounts designated in writing by each of the
Shareholders to the Acquiror, representing the amount of $2,352.95 per
share of Common Stock that Nelson is to receive for the 1,275 shares of
Common Stock owned by him, and (together with the payment required by
Section 1.13) represents the amount of $2,352.95 per share of Common
Stock that Kettle is to receive for the 3,825 share of Common Stock owned
by him.
(b) The opinion of Skadden, Arps, Slate, Meagher & Flom, counsel to
Acquiror and C21-Holding, substantially to the effect set forth in
Exhibit D hereto.
(c) The Indemnification Agreement, duly executed by Acquiror and
C21-Holding.
(d) The Prepaid Expense Amount.
(e) All other previously undelivered items required to be delivered
by Acquiror or C21-Holding at or prior to the Closing pursuant to this
Agreement or otherwise in connection herewith.
9
SECTION 1.13 Additional Payment. On the second business day after
the Closing, the Acquiror shall pay to Kettle the amount of $2,830,474 by
wire transfer and to Nelson the amount of $8,524,480 by wire transfer in
immediately available funds to the bank accounts designated in writing by
the Shareholders to the Acquiror, which together with the payment made on
the Closing Date pursuant to Section 1.12 hereof represents the amount of
$2,352.95 per share of Common Stock that the Shareholders are to receive
for the 5,100 shares of Common Stock owned by them.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
The Shareholders hereby, jointly and severally, represent and
warrant to Acquiror and C21-Holding that:
SECTION 2.1 Organization and Existence.
(a) Eastern Pennsylvania is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania, Eastern Pennsylvania has all necessary corporate power to
carry on the business of real estate brokerage office subfranchising and
related operations for the Century 21 system (the "Business") as now
being conducted by it, and Eastern Pennsylvania is duly qualified to do
business as
10
a foreign corporation in each jurisdiction in which the nature of the
Business or the ownership or lease of its properties makes such
qualification necessary, which jurisdictions are listed in Section 2.1 of
the document being delivered by the Shareholders to C21-Holding
simultaneously with the execution of this Agreement scheduling the items
required to be disclosed therein pursuant to this Agreement (the
"Disclosure Schedule").
(b) The copies of the Articles of Incorporation and By-Laws of
Eastern Pennsylvania heretofore delivered by the Shareholders to
C21-Holding are complete and correct copies of such instruments as
presently in effect. To the Shareholders' knowledge, all minutes of
Eastern Pennsylvania relating to material meetings or actions taken by
the Board of Directors (or committees thereof) or shareholders of Eastern
Pennsylvania are contained in the minute books, no material action which
would require approval by its Board of Directors or its shareholders has
been taken by Eastern Pennsylvania for which minutes are not contained in
the minute books, and all such minutes have heretofore been furnished to
C21-Holding for examination.
SECTION 2.2 Capital Structure.
(a) Eastern Pennsylvania's authorized capital stock consists of (i)
99,000 shares of common
11
stock, par value $1.00 per share, of which 5,100 shares are validly
issued and outstanding (the "Common Stock"), fully paid, and
nonassessable and all of which are owned, beneficially and of record, by
the Shareholders as follows: Kettle owns 3,825 shares of Common Stock and
Nelson owns 1,275 shares of Common Stock and (ii) 50,000 shares of Class
B common stock, par value $1.00 per share, of which no shares are issued
and outstanding.
(b) There are no (i) other outstanding securities of Eastern
Pennsylvania, (ii) securities convertible into or exchangeable for shares
of Eastern Pennsylvania's capital stock; (iii) options, warrants or other
rights to purchase or subscribe to capital stock of Eastern Pennsylvania
or securities convertible into or exchangeable for capital stock of
Eastern Pennsylvania; or (iv) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the issuance of
any capital stock of Eastern Pennsylvania, any such convertible or
exchangeable securities or any such options, warrants or rights.
(c) There is no corporation, partnership, joint venture or other
entity in which Eastern Pennsylvania, directly or indirectly, owns any
equity or ownership interest.
12
SECTION 2.3 Title to Shares. The Shareholders have good, valid and
marketable title to the Common Stock, free and clear of all claims,
liens, charges, encumbrances, options, shareholder agreements and
security interests of whatever nature (a "Lien").
SECTION 2.4 Authority; Valid and Binding Agreement.
(a) Eastern Pennsylvania has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
of this Agreement by Eastern Pennsylvania and the consummation by Eastern
Pennsylvania of the Merger and of the other transactions contemplated
hereby have been duly authorized by the Board of Directors of Eastern
Pennsylvania and approved and adopted by the Shareholders and no other
corporate proceedings on the part of Eastern Pennsylvania are necessary
to authorize this Agreement or to consummate the transactions so
contemplated hereby.
(b) This Agreement has been duly executed and delivered by Eastern
Pennsylvania and constitutes a valid and binding obligation of Eastern
Pennsylvania, enforceable against it in accordance with its terms.
(c) This Agreement has been duly executed and delivered by the
Shareholders and constitutes the
13
legal, valid and binding obligations of the Shareholders, enforceable in
accordance with its terms.
(d) The Indemnification Agreement has been duly executed and
delivered by Kettle and constitutes the legal, valid and binding
obligation of Kettle, enforceable in accordance with its terms.
SECTION 2.5 Consents. Except for (i) compliance with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the approvals of the Board of
Directors of Eastern Pennsylvania and the Shareholders of this Agreement
and the Merger, which approvals have been obtained, (iii) the filing with
the Department of State of the Commonwealth of Pennsylvania of articles
of merger and the filing of a certificate of merger with the Secretary of
State of the State of Delaware to effect the merger and (iv) as disclosed
in Section 2.5 of the Disclosure Schedule or as otherwise specifically
contemplated by this Agreement, no consent, approval, authorization,
filing with or order of any court, governmental agency, person or
financial institution is required in connection with the execution and
delivery of this Agreement by Eastern Pennsylvania or the Shareholders,
the consummation by Eastern Pennsylvania or the Shareholders of the
transactions contemplated hereby or the perfor-
14
mance by Eastern Pennsylvania or the Shareholders of its or their
respective obligations under this Agreement.
SECTION 2.6 No Conflict. Assuming compliance with the matters
referred to in Section 2.5 by Eastern Pennsylvania and the Shareholders,
neither the execution and delivery of this Agreement by Eastern
Pennsylvania or the Shareholders, the consummation by Eastern
Pennsylvania or the Shareholders of the transactions contemplated by this
Agreement nor the performance by Eastern Pennsylvania or the Shareholders
of its or their respective obligations under this Agreement will: (i)
violate any provision of the Articles of Incorporation or By-Laws of
Eastern Pennsylvania, (ii) except as disclosed in Section 2.6 of the
Disclosure Schedule, violate, conflict with, or result in a breach of,
the terms, conditions or provisions of, or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or result in the creation of a lien or encumbrance on, or cause
the triggering of a "due on sale" clause or similar provision affecting
the Assets (as hereinafter defined) pursuant to, any indenture, mortgage,
lease, agreement or other instrument to which Eastern Pennsylvania is a
party or by which any of the Assets may be bound or affected or (iii)
violate any law, rule, regulation, judgment, order or decree to which
Eastern Pennsylvania
15
or the Shareholders is or are subject or by which the Assets are bound.
SECTION 2.7 Financial Statements. Section 2.7 of the Disclosure
Schedule sets forth the following financial statements, all of which have
been prepared, except as may be stated in the notes thereto or as
described below, in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
indicated:
(a) Balance sheet of Eastern Pennsylvania as of April 30, 1994 and
1995 audited by Woolard, Krajnik & Company, certified public accountants,
and an internally prepared balance sheet of Eastern Pennsylvania as of
October 31, 1995 which was prepared on a basis consistent with Eastern
Pennsylvania's internal practices (the "October Balance Sheet"), each of
which presents fairly as of its date the financial condition of Eastern
Pennsylvania; and
(b) Statement of operations and cash flows of Eastern Pennsylvania
for the twelve (12) months ended April 30, 1994 and 1995, audited by
Woolard, Krajnik & Company, certified public accountants, and an
internally prepared statement of operations and cash flows of Eastern
Pennsylvania for the ten-month period ended October 31, 1995 which was
prepared on a basis
16
consistent with Eastern Pennsylvania's internal practices, each of which
fairly presents the results of operations and cash flows of Eastern
Pennsylvania for the periods indicated.
(c) Notwithstanding the foregoing, with regard to the internally
prepared balance sheet and statement of operations and cash flows
referred to above:
(i) Consistent with internal reporting practices, Eastern
Pennsylvania did not attempt to recalculate the service fee receivable
amount due from transactions which had closed prior to October 31, 1995,
but on which the service fee had not been paid to and received by Eastern
Pennsylvania by that date. The amount of such service fee receivable
included in the October 31, 1995 financial statements is the same amount
as calculated for the audited financial statements as at December 31,
1994.
(ii) Consistent with internal reporting practices, Eastern
Pennsylvania did not close out October 1995 business until the third
working day of November. As a result, service fee payments received
during that three working day period after month end were included as
having been received as of October 31, 1995, and thus as cash versus
accounts receivable. There would be no oper-
17
ating statement effect to this cutoff date since the service fee
payments included in this period would only have been from
transactions which closed prior to October 31, 1995.
(iii) Consistent with internal reporting practices, unsecured
service fee notes receivable are not adjusted to actual value except
at year end.
SECTION 2.8 Absence of Undisclosed Liabilities. To the Shareholders'
knowledge, Eastern Pennsylvania does not have any debts, liabilities or
obligations of a type required to be shown on a balance sheet prepared in
accordance with GAAP that are not reflected or reserved against in
Eastern Pennsylvania's October Balance Sheet, except for matters referred
to in Section 2.8 of the Disclosure Schedule and for the Real Property
Leases (as hereinafter defined) and Contracts (as hereinafter defined)
that are disclosed in Section 2.11 of the Disclosure Schedule.
SECTION 2.9 Tax Matters. Except as set forth in Section 2.9 of the
Disclosure Schedule:
(a) Eastern Pennsylvania is a small business corporation under the
Internal Revenue Code of 1986, as amended (the "Code") and has had in
effect for all taxable years beginning July 1, 1988 a valid election to
18
be treated as an "S" corporation for federal income Tax (as defined in
subsection (j) hereof) purposes under the Code and, where available, in
any state and local jurisdictions in which Eastern Pennsylvania is
required by law to file a Tax Return, and neither Eastern Pennsylvania,
the Shareholders, nor any other Person has taken or caused or permitted
to be taken any action during such periods that would have caused a
termination of such S election. Eastern Pennsylvania, within the time and
in the manner prescribed by law, has filed all Tax Returns required to be
filed by or with respect to Eastern Pennsylvania, and all such Tax
Returns are true, complete and correct in all material respects. Eastern
Pennylvania has timely paid all Taxes that are due, or have been asserted
in writing by any taxing authority to be due, from or with respect to it
except for those taxes the failure of which to pay would not have a
material adverse effect on the financial condition of Eastern
Pennsylvania. Eastern Pennsylvania is not required to file any Tax Return
in any jurisdiction other than those set forth in Section 2.9(a) of the
Disclosure Schedule other than Tax Returns, if any, the failure of which
to file would not have a material adverse effect on the financial
condition of Eastern Pennsylvania. Eastern Pennsylvania does not have any
potential liability for Taxes pursuant
19
to Treasury Reg. ss. 1.1502-6 or any similar provision of state, local or
foreign laws. The distribution of the Excluded Assets (as defined in
Section 2.11(i)) will not result in any "recognized built-in gain" within
the meaning of Section 1374(d)(3) of the Code.
(b) There are no liens with respect to any material amount of Taxes
upon any of the assets or properties of Eastern Pennsylvania other than
with respect to Taxes not yet due and payable.
(c) The statute of limitations with respect to the Tax Returns of
Eastern Pennsylvania and each affiliated group (within the meaning of
Section 1504 of the Code) and combined, unitary and other similar group
("Affiliated Group") of which Eastern Pennsylvania has been a member, if
any, for all periods through the respective years specified in Section
2.9(c) of the Disclosure Schedule has expired. No issue relating to
Eastern Pennsylvania has been raised in writing by any taxing authority
in any audit or examination of Eastern Pennsylvania which, if applied to
a later taxable period (including periods after the Closing Date), could
reasonably be expected to result in a material deficiency for Eastern
Pennsylvania for any such period. Further, no state of facts exists or
has existed which would constitute grounds for the assessment of any
liability of Eastern
20
Pennsylvania for any material amount of Taxes for periods that have not
been audited by any taxing authority. There are no outstanding
agreements, waivers or arrangements extending the statutory period of
limitation applicable to any claim for, or the period for the collection
or assessment of, Taxes due from or with respect to Eastern Pennsylvania
for any taxable period, and no power of attorney granted by or with
respect to Eastern Pennsylvania relating to Taxes is currently in force.
No closing agreement pursuant to Section 7121 of the Code (or any
predecessor provision) or any similar provision of any state, local or
foreign law has been entered into by or with respect to Eastern
Pennsylvania that could materially and negatively affect the future
liability for Taxes of Eastern Pennsylvania. Eastern Pennsylvania has
made available to C21-Holding and Acquiror complete and correct copies of
each of (i) all audit reports issued by any governmental authority within
the last three years relating to the United States federal, state, local
or foreign Taxes due from or with respect to Eastern Pennsylvania and any
Affiliated Group member and (ii) the United States federal income Tax
Returns, and those state, local and foreign income Tax Returns for each
of the last three taxable years, filed by Eastern Pennsylva-
21
nia and filed by any Affiliated Group of which Eastern Pennsylvania was
then a member.
(d) No audit or other proceeding by any governmental authority has
formally commenced and no written notification has been given that such
an audit or other proceeding is pending or threatened with respect to any
Taxes due from or with respect to Eastern Pennsylvania or any Affiliated
Group of which Eastern Pennsylvania was a member. No unpaid assessment of
Tax has been proposed in writing against Eastern Pennsylvania or any of
the assets or properties of Eastern Pennsylvania, other than assessments
of a type that arise on a recurring basis in the ordinary course of
business.
(e) No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect
to Eastern Pennsylvania or any of the assets or properties of Eastern
Pennsylvania. None of the assets or properties of Eastern Pennsylvania is
an asset or property that is or will be required to be treated as being
(i) owned by any other person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as in effect prior to the
Tax Reform Act of 1986, or (ii) tax-exempt use property within the
meaning of Section 168(h) of the Code.
22
(f) Eastern Pennsylvania has not been and is not currently in
violation (or, with or without notice or lapse of time or both, would not
be in violation) of any applicable law or regulation relating to the
payment or withholding of a material amount of Taxes with respect to
compensation paid to employees or other withholding obligations. Eastern
Pennsylvania has duly and timely withheld and paid over to the
appropriate taxing authorities all material amounts required to be so
withheld and paid over for all periods under all applicable laws and
regulations.
(g) As of the Closing, Eastern Pennsylvania shall not be a party
to, be bound by or have any obligation under, any Tax sharing agreement
or similar contract or arrangement.
(h) There is no contract or agreement, plan or arrangement by
Eastern Pennsylvania covering any person that, individually or
collectively, could give rise to the payment of any amount that would not
be deductible by Eastern Pennsylvania by reason of Section 280G of the
Code, as now in effect.
(i) Neither of the Shareholders is a "foreign person" within the
meaning of Section 1445 of the Code.
23
(j) "Tax" means any federal, state, local, foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code ss. 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration,
value-added, alternative or add-on minimum, estimated, other tax of any
kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not. "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
SECTION 2.10 Employee Benefit Matters.
(a) Section 2.10 of the Disclosure Schedule contains a list of all
bonus, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit and compensation plans,
programs, agreements or arrangements and any "change of control" or
similar provisions which would apply to the transactions contemplated by
24
this Agreement in any plan, program, contract or arrangement which covers
employees or former employees ("Employees") of Eastern Pennsylvania or
any entity which would have been considered one employer with Eastern
Pennsylvania at any time during the six-year period immediately preceding
the Effective Time under Section 4001 of Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 414 of the Code
(an "ERISA Affiliate") and all other benefit and compensation plans,
programs, contracts or arrangements (regardless of whether they are
funded or unfunded) covering Employees, including, but not limited to,
"employee benefit plans" within the meaning of Section 3(3) of ERISA
(collectively, the "Compensation and Benefit Plans"). True and complete
copies of all the Compensation and Benefit Plans including any trust
instruments and/or insurance contracts, if any, forming a part of any
such plans, and all amendments thereto have been made available to
Acquiror and C21-Holding.
(b) All of the Compensation and Benefit Plans are in material
compliance with all applicable laws, including, without limitation, ERISA
and the Code. Each Compensation and Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be
25
qualified under Section 401(a) of the Code is so qualified. Neither
Eastern Pennsylvania nor any ERISA Affiliate has engaged in a transaction
with respect to any Compensation and Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could
reasonably be expected to subject Eastern Pennsylvania or any ERISA
Affiliate to a tax or penalty imposed by either Section 4975 of the Code
or Section 502(i) of ERISA in an amount which would have a material
adverse effect on Eastern Pennsylvania. Neither Eastern Pennsylvania nor
any ERISA Affiliate has contributed or been required to contribute to any
Multiemployer Plan (as defined in ERISA).
(c) No Pension Plan currently or formerly maintained, contributed to
or required to be contributed to, by Eastern Pennsylvania or any ERISA
Affiliate is subject to Title IV of ERISA or to Section 412 of the Code.
(d) All contributions required to be made under the terms of any
Compensation and Benefit Plan for which Eastern Pennsylvania has
liability through the Closing Date have been timely made.
(e) Eastern Pennsylvania does not have any obligations for retiree
health and life benefits under any Compensation and Benefit Agreement.
26
(f) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer
of Eastern Pennsylvania or any ERISA Affiliate to severance pay,
unemployment compensation or any other payment, except as expressly
provided in Section 4.1 of this Agreement or pursuant to an employment or
consultant agreement listed in Section 2.15 of the Disclosure Schedule or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
(g) There are no pending claims (or written threats thereof) by or
on behalf of any Compensation and Benefit Plan, by any employee or
beneficiary covered under any such Compensation and Benefit Agreement, or
otherwise involving any such Compensation and Benefit Plan (other than
routine claims for benefits).
SECTION 2.11 Assets.
(a) Section 2.11(a) of the Disclosure Schedule is a complete and
accurate list of all Century 21 Real Estate Franchise Agreements (the
"Franchise Agreements") of Century 21 franchisees of Eastern Pennsylvania
(the "Franchisees") which are presently in effect. Copies of all
Franchise Agreements (including all amendments and addenda thereto) have
been made available to the C21-Holding and Acquiror or their counsel for
27
review. Except as indicated in Section 2.11(a) of the Disclosure
Schedule, each Franchisee has executed a Franchise Agreement and, to the
Shareholders' knowledge, each such Franchise Agreement is enforceable
against the related Franchisee; Eastern Pennsylvania has not been
notified in writing or otherwise informed in writing by any such
Franchisee that it will not renew its Franchise Agreement at the
expiration of its term, will attempt to materially and adversely alter
the volume of business any such Franchisee is presently doing with
Eastern Pennsylvania or terminate its Franchise Agreement or that it has
any material claim against Eastern Pennsylvania. Eastern Pennsylvania is
not, and to the Shareholders' knowledge, none of the other parties to any
of the Franchise Agreements is, in material default thereunder. Except as
set forth in Section 2.11(a) of the Disclosure Schedule, there are no
events which with notice or lapse of time or both would constitute a
material default by Eastern Pennsylvania or, to the Shareholders'
knowledge, by any other party to any Franchise Agreement. Except as
indicated in Section 2.11(a) of the Disclosure Schedule, the
continuation, validity and effectiveness of each Franchise Agreement will
not be materially and adversely affected by the consummation of the
transactions contemplated by this Agreement.
28
(b) Section 2.11(b) of the Disclosure Schedule is a complete and
accurate list of all leases for real property to which Eastern
Pennsylvania is a party (the "Real Property Leases"). To the
Shareholders' knowledge, all the Real Property Leases are enforceable
against the other parties thereto. There does not exist any material
default by Eastern Pennsylvania or, to the Shareholders' knowledge, by
any other party thereto, or event that with notice or lapse of time, or
both, would constitute a material default by Eastern Pennsylvania or, to
the Shareholders' knowledge, any other party thereto under any of such
Real Property Leases.
(c) Eastern Pennsylvania will not be a party to, or in any way
obligated under, any written contract, agreement or understanding which
will continue to be in effect and is to be performed by Eastern
Pennsylvania after the Closing which requires the payment by it of more
than $10,000 on an annual basis or which is not terminable on 30 days
notice (the "Contracts") other than the Real Property Leases, the
Franchise Agreements and the Contracts listed in Section 2.11(c) of the
Disclosure Schedule. Copies of all Contracts have been made available to
C21-Holding or its counsel for review. To the Shareholders' knowledge,
each of the Contracts is enforceable against the other parties thereto.
Eastern
29
Pennsylvania is not and, to the Shareholders' knowledge, none of the
other parties to any of the Contracts is, in material default thereunder.
There are no events which with notice or lapse of time or both would
constitute a material default by Eastern Pennsylvania or, to the
Shareholders' knowledge, by any other party to any Contract under such
Contract. Except as indicated in Section 2.11(c) of the Disclosure
Schedule, the continuation, validity and effectiveness of each Contract
will not be materially and adversely affected by the consummation of the
transactions contemplated by this Agreement. Eastern Pennsylvania has not
received any written notice of the intention of any party to terminate
any Contract which termination would have a material adverse effect on
the Business.
(d) Section 2.11(d) of the Disclosure Schedule is a complete and
accurate list describing and specifying the location of office machines,
computers and other equipment (the "Equipment") which Eastern
Pennsylvania will own following the Closing. The Equipment is, in the
aggregate, in reasonably good operating condition and repair, subject to
normal wear and tear.
(e) Section 2.11(e) of the Disclosure Schedule is a complete and
accurate list and description of the Intellectual Property (as
hereinafter defined),
30
other than Intellectual Property as to which Eastern Pennsylvania's
rights derive from C21-Real Estate, to be owned by Eastern Pennsylvania
immediately following the Closing and Section 2.11(e) of the Disclosure
Schedule indicates whether each of the foregoing are owned or licensed by
Eastern Pennsylvania. Eastern Pennsylvania owns, or is licensed to use,
all Intellectual Property necessary for the conduct of the Business as
currently conducted in all material respects, subject to no material
restrictions. No claim has been asserted in writing and is pending by any
person challenging or questioning the ownership or use of any such
Intellectual Property, nor do the Shareholders know of any valid basis
for any such claim. To the Shareholders' knowledge, there is no
infringing use of any such Intellectual Property by any other person.
Eastern Pennsylvania has not granted to anyone else the right to use any
of the Intellectual Property except pursuant to the Franchise Agreements.
Eastern Pennsylvania is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligation under
this Agreement, in breach of any material license, sublicense or other
agreement relating to the Intellectual Property. For purposes of this
Agreement, "Intellectual Property" shall mean all right, title and
interest of Eastern Pennsylva-
31
nia in and to intellectual property assets relating to the Business,
including, without limitation, (i) registered and unregistered
copyrights, trademarks, service marks, service names, trade names,
slogans, assumed names and other trademark rights, including all
applications therefor and (ii) statutory, common law and registered
copyrights, including all applications therefor.
(f) There are no material Claims (as defined below) which will
be owned by Eastern Pennsylvania following the Closing, except for
Claims reflected in the October Balance Sheet or acquired in the
ordinary course of business since the date thereof. For purposes of
this Agreement, "Claims" means all claims, refunds, credits, causes
of action, choses in action, rights of recovery and rights of
set-off of every kind and nature associated with the Business.
(g) Section 2.11(g) of the Disclosure Schedule is a complete
and accurate list and description of all material Deposits (as
defined below) which will be owned by Eastern Pennsylvania
immediately following the Closing. For purposes of this Agreement,
"Deposits" means all prepayments or other deposits by Franchisees or
others pertaining to the Business including, without limitation,
prepaid initial franchise fees, deposits/prepayments for training
programs, assign-
32
ments/renewals of Franchise Agreements and convention enrollments.
(h) Section 2.11(h) of the Disclosure Schedule is a complete
and accurate list of all Opens (as defined below) owing to Eastern
Pennsylvania as of February 29, 1996 which have been filed with
Eastern Pennsylvania by Franchisees. For purposes of this Agreement,
"Opens" means all agreements to convey real property awaiting
completion/fulfillment of all terms and conditions of such
agreements, at which time the transactions represented thereby will
close, whether or not placed into the custody of a third party, as
escrow holder.
(i) For purposes of this Agreement, "Assets" shall mean all
assets and properties which are owned or leased by Eastern
Pennsylvania or agreements to which Eastern Pennsylvania is a party
including, but not limited, to the Franchise Agreements, the Real
Property Leases, the Contracts, the Equipment, the Intellectual
Property, the Claims, the Deposits, the Opens, and the Century 21
Subfranchise Agreement, dated December 1, 1974, between C21-Real
Estate and Eastern Pennsylvania, as amended by the First Addendum,
dated September 30, 1976, the Second Addendum, dated January 4,
1977, the Addendum to Regional "NAF" Agreement, dated March 13,
1988, and all other amendments thereto, if any, other
33
than accounts and notes receivable owing to Eastern Pennsylvania,
advances made by Eastern Pennsylvania prior to the Closing Date, and
Opens which close prior to April 1, 1996 and those assets or properties
listed in Section 2.11(i) of the Disclosure Schedule which the
Shareholders have caused Eastern Pennsylvania to transfer to them prior
to the Closing (the "Excluded Assets").
SECTION 2.12 Title to Assets. Except as disclosed in Section 2.12 of
the Disclosure Schedule, (a) Eastern Pennsylvania has good and marketable
title to all the Assets and interests therein which are owned by it,
whether real, personal, mixed, tangible or intangible; (b) all the Assets
which are owned by it are owned by Eastern Pennsylvania free and clear of
any Lien other than a Permitted Lien (as defined below); and (c) upon
acquisition by C21-Holding and Acquiror pursuant to this Agreement, will
be free and clear of any Lien other than a Permitted Lien. For purposes
of this Agreement, "Permitted Liens" means (i) Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, landlords and the like
incurred in the ordinary course of the Business for sums not overdue more
than thirty days or the validity of which is being contested in good
faith by appropriate actions; (ii) Liens for Taxes not delinquent or
payable without penalty or being contested in good faith by
34
appropriate actions and (iii) Liens in favor of or created by
C21-Holding.
SECTION 2.13 Absence of Specified Changes. Except as set forth in
Section 2.13 of the Disclosure Schedule, since October 31, 1995, there
has not been any:
(a) Sale, lease, transfer, assignment or other transaction by
Eastern Pennsylvania with respect to the Assets or the Business with a
value in excess of $50,000 individually or $200,000 in the aggregate;
(b) Material adverse change of any character in the financial
condition or in the operations of the Business;
(c) Amendment or termination (or threat, in writing, of termination
or non-renewal) of any material Contract;
(d) Incurrence of any liabilities or obligations (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business
and consistent with past practice, none of which exceeds $50,000
individually or $200,000 in the aggregate (treating obligations or
liabilities arising from one transaction or a series of similar
transactions, and all periodic installments or payments under any lease
or other agreement providing for periodic installments or payments, as a
single obligation or liability);
35
(e) Other act or omission of the Shareholders or Eastern
Pennsylvania that has a material adverse effect on the financial
condition or operations of the Business;
(f) Declaration of any dividend or other distribution in respect of
Eastern Pennsylvania's Common Stock other than in an amount not greater
than the cash on hand; or
(g) Agreement by Eastern Pennsylvania to do any of the things
described in the preceding clauses (a) through (f) except as required by
this Agreement.
SECTION 2.14 Litigation. Except as set forth in Section 2.14 of the
Disclosure Schedule, as of the date of this Agreement, there are no
actions, suits, claims, investigations or proceedings pending or, to the
Shareholders' knowledge, threatened in writing in any court or by or
before any governmental agency with respect to Eastern Pennsylvania, the
Assets or the Business. There is no action, suit, claim, investigation or
proceeding pending or, to the Shareholders' knowledge, threatened in
writing which questions the validity or propriety of this Agreement or
any action taken or to be taken by the Shareholders in connection with
this Agreement. Eastern Pennsylvania is not subject to any injunction or
order of any court of competent jurisdiction
36
or agreement to be bound by any restriction with respect to its ownership
of the Assets or its conduct of the Business which restriction could
reasonably be expected to have a material adverse effect on the Business.
SECTION 2.15 Employees and Compensation.
(a) Section 2.15 of the Disclosure Schedule, when taken together
with Section 2.10 of the Disclosure Schedule, sets forth a complete and
accurate list of the names and aggregate monthly base salary or wages,
and any incentive, commission, bonus and/or other compensation
arrangement as of December 31, 1995, including, without limitation,
pursuant to employment contracts and consultant contracts, of Eastern
Pennsylvania's officers and employees (collectively, "Employees"). Except
for any Employee which is a party to an employment or consultant
contract, such other Employee may be terminated at will by Eastern
Pennsylvania without payment of additional compensation or monies other
than that owed through the date of termination. Except as set forth in
Section 2.15 of the Disclosure Schedule and in the ordinary course of the
Business, which includes, but is not limited to, changes required by law,
to the Shareholders' knowledge, there is no agreement to change any terms
of employment, including, without limitation, salary, wage rates,
commissions or other compensation or employee
37
benefit arrangement, of any Employee prior to or following the Closing
Date.
(b) To the Shareholders' knowledge, all of the contracts and
arrangements listed in Section 2.15 of the Disclosure Schedule are
enforceable against the other parties thereto. Neither Eastern
Pennsylvania nor, to the Shareholders' knowledge, any other party is in
material default under any of these contracts or arrangements. There have
been no claims of default by Eastern Pennsylvania asserted in writing
and, to the Shareholders' knowledge, there are no facts or conditions
which would result in a material default under these contracts or
arrangements. Except as set forth in Section 2.15 of the Disclosure
Schedule, there is no pending or, to the Shareholders' knowledge, threat
in writing of an employment dispute involving Eastern Pennsylvania's
Employees.
SECTION 2.16 Conflicts of Interest. Except as set forth in Section
2.16 of the Disclosure Schedule, to the Shareholders' knowledge, neither
of the Shareholders, nor any other officer or director of Eastern
Pennsylvania, nor any spouse or child of any of them, nor any Employee of
Eastern Pennsylvania, has any direct or indirect interest in any
competitor of Eastern Pennsylvania or any Franchisee, or in any Asset,
other than the
38
ownership of not more than 5% of the stock of a publicly traded company
by any such person or entity.
SECTION 2.17 Compliance with Law. To the Shareholders' knowledge,
Eastern Pennsylvania during the past three years has complied in all
material respects with, and is not in material violation of, any
applicable federal, state or local statute, law, rule or regulation
(including, without limitation, any applicable building, zoning,
franchise, pension, labor, securities or other statute, law, rule or
regulation), which violation would be reasonably likely to have a
material adverse effect on the Assets or the financial condition or the
operation of the Business.
SECTION 2.18 Licenses and Permits. Section 2.18 of the Disclosure
Schedule lists all licenses, permits, orders or other authorizations
necessary for Eastern Pennsylvania to operate the Business as currently
operated, in all material respects.
SECTION 2.19 Brokers or Finders. Neither the Shareholders nor
Eastern Pennsylvania has employed or utilized any broker, finder or
investment adviser in connection with the transactions contemplated by
this Agreement.
SECTION 2.20 National Ad Fund. During the past three years, Eastern
Pennsylvania has transmitted to
39
C21-Real Estate the requisite amounts owing to the NAF and has complied
in all material respects with all other material requirements of Eastern
Pennsylvania's National Advertising Fund Agreement. As of February 29,
1996, Eastern Pennsylvania had $224,827.14 owing to the NAF under its
control, which amount was held in accounts at Corestates Bank, N.A.
SECTION 2.21 Insurance. Section 2.21 of the Disclosure Schedule sets
forth all insurance policies owned by Eastern Pennsylvania relating to
Eastern Pennsylvania or the Assets. To the Shareholders' knowledge, all
such policies are enforceable against the related insurers. Eastern
Pennsylvania has not received written notice of default under any such
policy or of any pending or threatened termination or cancellation,
coverage limitation or reduction, or material premium increase with
respect to any such policy.
SECTION 2.22 Payment of Obligations. Except as specifically provided
in this Agreement, the Shareholders have caused Eastern Pennsylvania to
pay all of its obligations that are due and payable prior to the Closing
Date (or has caused Eastern Pennsylvania to retain sufficient cash
reserves to pay such obligations or will cause Eastern Pennsylvania to
pay such obligations, as of the Closing Date, out of the Total Merger
40
Consideration) when they become due and payable if and to the extent that
they relate to the period prior to the Closing Date. If after payment of
all such obligations Eastern Pennsylvania retains any funds so deposited
by the Shareholders from the Total Merger Consideration, Eastern
Pennsylvania shall promptly pay any such funds to the Shareholders
without interest.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND C21-HOLDING
Acquiror and C21-Holding, jointly and severally, represent and
warrant to the Shareholders as follows:
SECTION 3.1 Organization and Standing. Acquiror and C21-Holding each
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with corporate power and
authority to enter into this Agreement and carry out their respective
obligations hereunder.
SECTION 3.2 Corporate Authority; Action. Acquiror and C21-Holding
each has the corporate power and authority to execute and deliver this
Agreement and the Indemnification Agreement and perform their respective
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Indemnification Agreement by Acquiror and C21-Holding
and the consummation by
41
Acquiror and C21-Holding of the transactions contemplated by this
Agreement and the Indemnification Agreement have been authorized by all
requisite corporate action on the part of Acquiror and C21-Holding. This
Agreement and the Indemnification Agreement constitute legal, valid and
binding obligations of each of Acquiror and C21-Holding, enforceable in
accordance with their terms.
SECTION 3.3 Consents. Except for (i) compliance with the applicable
requirements of the HSR Act, (ii) the approvals of the Boards of
Directors of Acquiror and C21-Holding of this Agreement, which approvals
have been obtained and (iii) the filing with the Department of State of
the Commonwealth of Pennsylvania of articles of merger and the filing
with the Secretary of State of the State of Delaware of a certificate of
merger, no consent, approval, authorization, filing with or order of any
court, governmental agency, person or financial institution is required
in connection with the execution and delivery of this Agreement by
Acquiror and C21-Holding, the consummation by Acquiror and C21-Holding of
the transactions contemplated by this Agreement and the performance by
Acquiror and C21-Holding of their respective obligations under this
Agreement.
SECTION 3.4 No Violation. Assuming compliance with the matters
referred to in Section 3.3 by Acquiror
42
and C21-Holding, neither the execution or delivery of this Agreement, the
consummation by Acquiror and C21-Holding of the transactions
contemplated by this Agreement nor the performance by Acquiror and
C21-Holding of their respective obligations under this Agreement will:
(i) violate the certificate of incorporation or by-laws of Acquiror or
C21-Holding, (ii) violate, conflict with, or result in a breach of, the
terms, conditions or provisions of, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under
any agreement, instrument or arrangement to which Acquiror or C21-Holding
is a party or by which Acquiror or C21-Holding is bound or (iii) violate
any law, rule, regulation, judgment, order or decree to which Acquiror or
C21-Holding is subject or by which either is bound.
SECTION 3.5 Litigation. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of
Acquiror or C21-Holding, threatened which questions the validity or
propriety of this Agreement or any action taken or to be taken by
Acquiror or C21-Holding in connection with this Agreement.
SECTION 3.6 Brokers and Finders. Neither Acquiror nor C21-Holding
has employed or utilized any broker, finder or investment advisor
involved in connec-
43
tion with the transactions contemplated by this Agreefment.
SECTION 3.7 Representations of Shareholders. Except for the
representations and warranties of the Shareholders which are contained in
this Agreement, there are no other representations and warranties by or
on behalf of the Shareholders which are being relied upon by the Acquiror
or C21-Holding. To the knowledge of Acquiror and C21-Holding there are no
facts or circumstances which could constitute a breach of the
representations and warranties of the Shareholders, other than with
respect to the Shareholders' title to all of the outstanding shares of
capital stock of Eastern Pennsylvania, which would give Acquiror or
C21-Holding a basis to seek rescission of the consummation of this
Agreement or indemnification from Kettle pursuant to the Indemnification
Agreement.
ARTICLE IV
CERTAIN COVENANTS OF THE
SHAREHOLDERS, C21-HOLDING AND ACQUIROR
SECTION 4.1 Severance. Acquiror and C21-Holding agree that
following the Closing they will follow the severance policy set forth on
Exhibit E with respect to all Employees of Eastern Pennsylvania who are
active employees of Eastern Pennsylvania immediately prior to
44
the Closing and that, in no event, will any "transitional employees" (as
such term is used therein) be required, as a condition of the receipt of
any benefits, to undertake a covenant not to compete more onerous than
the covenant applicable to the Shareholders pursuant to Section 4.2.
SECTION 4.2 Non-Competition.
(a) The Shareholders agree for a period of three (3) years following
the Closing Date that they will not, directly or indirectly, engage in or
have any interest in any person, firm, corporation, or business (whether
as an employee, officer, director, agent, security holder, consultant or
otherwise) that engages in the business of franchising real estate
brokerage offices in the Region, so long as C21-Real Estate (or its
successors) shall engage in such activity in the Region. Without
limitation of the foregoing, (i) the Shareholders are not prohibited from
engaging in or having any interest in any endeavor or other activity
providing other services supportive of or ancillary to the real estate
brokerage franchise business if such services were not being offered by
Eastern Pennsylvania as of the Closing Date (including, without
limitation and for example, Amerinet Financial Services, Inc. and New
Homes Marketing), (ii) Nelson is not prohibited from entering into a
consulting arrangement with C21-Holding pursuant to
45
Section 4.11 hereof and (iii) ownership of not more than 5% of the stock
of a publicly traded company by either Shareholder, even if such company
engages in such activity, if he does not participate in management of any
such company (which shall not be deemed to include the exercise of voting
rights) shall not be considered a violation of this covenant.
(b) The Shareholders, Acquiror and C21-Holding agree that the
restrictions imposed on the Shareholders under this Section 4.2 are an
integral part of, not severable from, and solely intended to protect, the
value of the goodwill included in the Assets and the Business being
merged with and into C21-Holding pursuant to this Agreement.
SECTION 4.3 Separate Covenants. The parties intend that the covenant
contained in Section 4.2 shall be construed as a series of separate
covenants, one for each county within the Region. Except for geographic
coverage, each such separate covenant shall be deemed identical. If, in
any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in Section 4.2, then such
unenforceable covenant shall be deemed eliminated from those provisions
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
46
SECTION 4.4 Non-Disclosure of Trade Secrets. The Shareholders agree
to hold and treat in confidence all confidential information and trade
secrets of C21-Real Estate or Eastern Pennsylvania with respect to the
Business, including, but not limited to, personnel information, know-how,
franchisee lists, operations manuals, sales training, management manuals
and associated information, real estate license training materials or
other technical data ("Confidential Information"); provided that
"Confidential Information" shall not include such information which
otherwise would constitute Confidential Information hereunder which (i)
is contained in a publicly recorded document, (ii) is or becomes
generally known other than as a result of a disclosure by or through the
Shareholders or (iii) is or becomes known by the Shareholders on a
nonconfidential basis from a source other than through their interest in
Eastern Pennsylvania that, to the Shareholders' knowledge, is not
prohibited from disclosing such Confidential Information to the
Shareholders by a legal, contractual, fiduciary or other obligation. The
Shareholders will employ such procedures to insure the confidentiality of
Confidential Information as would be employed by a reasonable and prudent
person to safeguard the confidentiality of his own most confidential
information or, if more stringent, such procedures
47
as are employed for such purpose by the Shareholders. Nothing in this
Agreement shall prevent the Shareholders from disclosing Confidential
Information (x) if required to do so by law or regulation, (y) to any
governmental authority having or claiming authority to receive such
Confidential Information or (z) pursuant to subpoena.
SECTION 4.5 Injunctive Relief. The Shareholders acknowledge that the
agreement set forth in Section 4.2 is necessary to protect for Acquiror
and C21-Holding the value of the Assets and the Business, that a breach
of such agreement will result in irreparable damage to the value of the
Assets and the Business and that money damages would not adequately
compensate Acquiror and C21-Holding for any such breach and, therefore,
that Acquiror and C21 Real Estate would not have an adequate remedy at
law. Accordingly, Acquiror and C21-Holding shall have, in addition to any
and all remedies at law, the right, without posting of bond or other
security, to an injunction, both temporary and permanent, specific
performance and/or other equitable relief to prevent the violation of any
obligation under Section 4.2.
SECTION 4.6 Real Estate Leases. (a) For a period of 180 days following
the Closing Date (the "Transition Period"), C21-Holding shall pay all
payments to be made pursuant to the lease for the
48
premises located at 550 American Avenue, King of Prussia, Pennsylvania
leased by Eastern Pennsylvania from The Westover Companies ("Westover")
pursuant to a lease dated March 15, 1989 (the "Eastern Pennsylvania
Lease").
(b) Commencing upon the first day following the expiration of the
Transition Period, the Shareholders (or their designee) shall have the
right to occupy the premises under the Eastern Pennsylvania Lease and the
Shareholders shall be responsible for and shall pay, perform and
discharge when due, all obligations and liabilities of the lessee
pursuant to the Eastern Pennsylvania Lease arising from and after the
Transition Date.
(c) The Shareholders shall use all reasonable efforts to obtain any
necessary consents from Westover to the assignment of the Eastern
Pennsylvania Lease to the Shareholders (or either of them) or to a
corporation controlled by the Shareholders (or either of them) without
any continuing obligation or liability by C21-Holding following such
assignment. Such assignment shall commence upon the first day following
the expiration of the Transition Period and shall relieve C21-Holding
from any responsibility or liability for the Eastern Pennsylvania Lease.
49
SECTION 4.7 Preparation and Filing of Tax Returns. The Shareholders
shall or shall cause Woolard, Krajnik & Company, Eastern Pennsylvania's
independent public accountants, to cause to be prepared and timely filed
(in each case, at the Shareholders' cost and expense and in a manner
consistent with Eastern Pennsylvania's past practice) on a timely basis
all Tax Returns of Eastern Pennsylvania for all taxable periods
including, without limitation, a form 966 Corporation Dissolution or
Liquidation. Subject to the Indemnification Agreement, the Shareholders
shall cause to be paid, on Eastern Pennsylvania's behalf, all Taxes shown
to be due and payable thereon. Notwithstanding the foregoing, with
respect to the Tax Returns of Eastern Pennsylvania for the Tax period
ending on the Closing Date, the Shareholders shall consult with the
Acquiror and, at the Acquiror's expense, the Acquiror's independent
accountants, Deloitte & Touche LLP, in preparing and filing such returns,
in determining and allocating income, gain, credits, losses, deductions
and other items and in making any elections and other decisions relating
to such Tax Returns. Such Tax Returns shall be filed only upon the
parties' mutual agreement.
50
SECTION 4.8 Allocation of Purchase Price and Other Tax Matters.
(a) The Shareholders, Acquiror and C21-Holding agree (i) to
allocate the Total Merger Consideration, for all Tax and non-tax
purposes, in accordance with the rules under Section 1060 of the Code and
the Treasury Regulations promulgated thereunder, as set forth on Exhibit
F hereto; (ii) to utilize the amounts allocated pursuant to subsection
(i) for purposes of filing all Tax Returns, including amended Tax Returns
and Form 8594 and otherwise; and (iii) not to take any position
inconsistent therewith on any Tax Return (including amended Tax Returns)
or for any other Tax or non-Tax purpose, provided, however, that Acquiror
and the Shareholders shall be permitted, for purposes of filing Form 8594
and all other purposes, to take into account legal and accounting fees
and other buying or selling expenses, respectively, as applicable.
(b) The Acquiror, C-21 Holding and the Shareholders hereby
acknowledge that for federal, state and local income Tax purposes the
transactions contemplated by this Agreement shall be characterized as (i)
a sale by Eastern Pennsylvania of its Assets to, and the assumption of
Eastern Pennsylvania's liabilities by, the Acquiror in exchange for the
Total Merger Consideration,
51
followed by (ii) the distribution of such Total Merger Consideration by
Eastern Pennsylvania to the Shareholders in complete redemption and
cancellation of the Eastern Pennsylvania stock held by the Shareholders,
followed by (iii) the transfer to, and the assumption by, C21-Holding of
the Assets and liabilities, which are considered to have been purchased
or assumed by Acquiror pursuant to this paragraph, in exchange for a note
of C21-Holding, and followed by (iv) the transfer to, and the assumption
by, C21-Real Estate of such Assets and liabilities. The Acquiror, C-21
Holding and the Shareholders hereby agree not to take any position
inconsistent with this Section 4.8(b) for federal, state or local income
Tax purposes.
SECTION 4.9 Accounts Receivable.
(a) C21-Holding agrees that it will cause C21-Real Estate to use
its reasonable efforts, consistent with its accounts receivable
collection practices, to collect accounts receivable for the Shareholders
which are outstanding in accordance with GAAP as of the Closing Date (the
"Accounts Receivable") and identified on a schedule delivered to
C21-Holding at Closing or no later than five days after the Closing Date
which schedule shall be reviewed by and deemed acceptable to C21-Holding
as mutually agreed upon with the Shareholders (the "Accounts Receivable
Schedule"), but C21-Real Estate shall
52
not, in connection with such collection efforts, be required to terminate
any Franchise Agreement or bring any legal action against any Franchisee
or any affiliate of any Franchisee. C21-Holding and the Shareholders
agree that Opens shall be treated as Accounts Receivable, even though not
listed on the Accounts Receivable Schedule, but the Shareholders
understand and agree that Opens shall only be considered as an Account
Receivable if closed prior to April 1, 1996. C21-Holding agrees that it
will cause C21-Real Estate to pay to the Shareholders, by valid check,
the amounts which C21-Holding has collected with respect to any Accounts
Receivable within 15 days after the end of each month, commencing with
the month following the month in which the Closing occurs, and to deliver
a written statement listing the Accounts Receivable listed on the
Accounts Receivable Schedule to which the payment relates and the amount
being paid with respect thereto. C21-Holding may cause C21-Real Estate to
suspend its efforts to collect any Accounts Receivable, in the exercise
of its reasonable judgment, and consistent with the accounts receivable
collection practices of C21-Real Estate.
(b) C21-Holding shall not permit C21-Real Estate to compromise,
settle, surrender, release, discharge, renew, extend or grant any other
indulgence with
53
respect to any Accounts Receivable (a "Compromise") except in
connection with an identical action with regard to all of its own
accounts receivable owing from the same obligor; and C21-Holding shall
cause C21-Real Estate to give the Shareholders ten days' written notice
prior to any proposed Compromise (a "Compromise Notice"). The
Shareholders will cooperate with C21-Real Estate with respect to its
collection of Accounts Receivable on their behalf, provided that the
Shareholders will not be obligated to incur any out-of-pocket expenses in
connection with such cooperation.
(c) The Shareholders may at any time and from time to time, upon
written notice to C21-Holding, revoke C21-Holding's authority to cause
C21-Real Estate to collect any Accounts Receivable on their behalf (which
notice, if relating to Accounts Receivable as to which C21-Real Estate
has given a Compromise Notice, must be given at least five business days
prior to the date on which C21-Real Estate has proposed to Compromise
such Accounts Receivable).
(d) C21-Holding agrees that it shall cause C21-Real Estate Ito apply
all payments received from any obligor under an Accounts Receivable as
directed by such obligor. In the event such obligor fails to direct the
application of such payment, such undirected payment
54
shall be applied to the oldest undisputed amount due from such obligor at
that time.
(e) One year following the Closing Date, or on such earlier date as
may be requested by the Shareholders, C21-Holding shall assign to the
Shareholders all right, title and interest in and to all Accounts
Receivable that remain uncollected and undischarged, and which have not
been settled or compromised as of that date, and the Shareholders shall
then have the right to collect such Accounts Receivable for their own
account(s) and C21-Holding shall have no further obligations with respect
thereto.
(f) Following the Closing and notwithstanding the acquisition of the
Subfranchise Agreement by Acquiror, the Shareholders agree that
C21-Holding may deduct from the payment of an Account Receivable the
applicable service fees and NAF fees owed to C21-Real Estate under the
Subfranchise Agreement with respect thereto.
SECTION 4.10 Severance and Other Payments. The Shareholders agree
that they shall be responsible for and make all payments owed (other than
pursuant to the Severance Policy) to any current or former officer of
Eastern Pennsylvania for severance pay, termination pay or other payments
which are payable as a result of the
55
Merger, including, without limitation, pursuant to the employment or
consultant agreements listed in Section 2.15 of the Disclosure Schedule.
SECTION 4.11 Consulting Agreement. C21-Holding agrees that it will
offer to retain Nelson as of the Closing as a consultant pursuant to a
Consulting Agreement substantially in the form of Exhibit G hereto.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1 Expenses. Except as otherwise expressly provided in this
Agreement, Acquiror shall pay all expenses incident to the origin,
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby (whether or not the transactions are
actually consummated), other than legal and accounting fees and
disbursements incurred by the Shareholders and the fees of any broker,
finder or investment adviser utilized by them.
SECTION 5.2 Reimbursement of and Payment to C21-Holding and the
Shareholders. The Shareholders, C21-Holding and Acquiror agree that if
subsequent to the Closing Date any of them shall receive any payment due
to another party, each shall promptly remit the same to such other party,
and if any party shall pay any obligations
56
of another party not assumed by it hereunder, the payment shall be for
the account of the party to whom the obligation relates, and such party
shall promptly reimburse the other party for any such payment.
SECTION 5.3 Interpretation. As used herein, the expression "this
Agreement" means the body of this Agreement and the Exhibits and the
Disclosure Schedule attached hereto; and the expressions "herein,"
"hereof," and "hereunder" and other words of similar import refer to this
Agreement and such Exhibits and the Disclosure Schedule as a whole and
not to any particular part or subdivision thereof. As used herein, the
"knowledge" of the Shareholders means the Shareholders' actual knowl-
edge, without further investigation, and the "knowledge" of Acquiror or
C21-Holding means the actual knowledge of the following persons, without
further investigation: Henry R. Silverman, James E. Buckman, Stephen P.
Holmes, Robert W. Pittman, John D. Snodgrass, Thomas J. Freeman, Mayo S.
Stuntz, Jr., Paul McNichol and John J. Russell. Whenever this Agreement
states that an agreement or a contract is enforceable according to its
terms, such statement is to be interpreted with the proviso that such
enforcement may be limited (i) by applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, equity of redemption, moratorium or
other similar laws now or
57
hereafter in effect relating to creditors' rights, and (ii) by general
principles of equity (regardless of whether enforcement is sought in
equity or at law).
SECTION 5.4 Amendments and Waivers. This Agreement may be amended
only by a written instrument executed by the parties hereto. No waiver of
any of the provisions of the Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof.
SECTION 5.5 Public Statements. Except for announcements as may be
required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other parties with reasonable time
under the circumstances to comment on the announcement in advance of such
announcement, neither the Shareholders nor Acquiror or C21-Holding shall
issue any press release or other public statement concerning the
transactions contemplated by this Agreement without first obtaining the
written consent of the other parties respecting such statement, which
consent will not be unreasonably withheld.
58
SECTION 5.6 Confidentiality. The Shareholders acknowledge that
Acquiror may be required to file this document with the Securities and
Exchange Commission and other regulatory agencies and agree that Acquiror
may so do so and, subject to the foregoing, the parties hereto agree that
they will keep confidential the terms and conditions of this Agreement;
provided that the foregoing obligations shall not apply to information
which (i) is contained in a publicly recorded document or (ii) is or
becomes generally known other than as a result of a disclosure by or
through the party obliged to maintain its confidentiality. Nothing in
this Agreement shall prevent any party from disclosing information
regarding this Agreement (w) in pursuit of its remedies hereunder, (x) if
required to do so by law or regulation, (y) to any governmental authority
having or claiming authority to receive such information or (z) pursuant
to subpoena. Further, nothing in this Agreement shall prevent the
Shareholders from disclosing information regarding this Agreement to
other current or former parties to subfranchise arrangements with
C21-Real Estate.
SECTION 5.7 Access To Records After Closing. Acquiror and the
Shareholders shall, after the Closing Date, make available to each other
at reasonable times during normal business hours any books and records
relat-
59
ing to the Business that either may request for use in connection with:
(a) the preparation of Tax Returns; (b) any audit of Taxes or Tax Returns
by any taxing authority; (c) any claim or suit in which they are a party;
or (d) any other reasonable and proper purpose, and shall permit the
other, at its expense, to make copies thereof.
SECTION 5.8 Parties Bound. This Agreement shall apply to, inure to
the benefit of and be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. The
respective rights and obligations of any party hereto shall not be
assignable without the consent of the other party (which will not be
unreasonably withheld) except that (i) Acquiror may assign this Agreement
and Acquiror's rights hereunder to any subsidiary of Acquiror (provided
that the Acquiror unconditionally guarantees all of such assignee's
obligations, warrants and agreements hereunder in a written guaranty
reasonably acceptable to the Shareholders) and (ii) C21-Holding may
assign this Agreement and C21-Holding's rights and obligations hereunder
to C21-Real Estate.
SECTION 5.9 Parties in Interest. Except as specifically provided
herein, nothing in this Agreement, whether express or implied, is
intended to infer any rights or remedies under or by reason of this
Agreement
60
on any persons other than the parties to it and their respective
successors, heirs, legal representatives and permitted assigns, nor is
anything in this Agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
SECTION 5.10 Notices. Any notice, demand, approval, consent,
request, waiver or other communication which may be or is required to be
given pursuant to this Agreement shall be in writing and shall be (1)
deposited in the United States mail, postage prepaid, certified or
registered, (2) sent by telecopier or (3) sent by private overnight
courier service for delivery on the next following business day,
addressed to the party at the address set forth after its respective name
below or at such different address as such party shall have theretofore
advised the other party in writing:
If to the Shareholders:
George F. Kettle
2417 Fisher Island Drive
Fisher Drive, Florida 33109
and
James O. Nelson
7035 County Road A
Webster, Wisconsin 54893
61
with a copy to:
J. Richard Eagan
7601 Lewinsville Road
Suite 400
McLean, Virginia 22102
Telecopier: (703) 821-0491
and
Williams & Connolly
725 12th Street, N.W.
Washington, D.C. 20005
Attention: Charles A. Sweet, Esq.
Telecopier: (202) 434-5029
If to Acquiror or C21-Holding:
HFS Incorporated or
C21 Holding Corp.
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman
Executive Vice President
Telecopier: (201) 428-3260
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Mark T. Shehan, Esq.
Telecopier: (212) 735-2001
Any such communication personally delivered shall be deemed to have been
received on the day delivered; or if sent by telecopier, on the day
telecopied, but only if receipt by the addressee is confirmed by a return
telecopy signed by the addressee; or if properly mailed certified or
registered mail, postage prepaid, shall be deemed to have been received
on the day three days from
62
and including the day mailed; or if sent by private overnight courier
service shall be deemed to have been received on the business day
following the day so sent. Any party may change its address for purposes
of this Section by giving the other parties written notice of the new
address in any manner set forth above.
SECTION 5.11 Number and Gender of Words. Whenever herein the
singular number is used, the same shall include the plural where
appropriate, and the words of any gender shall include each other gender
where appropriate.
SECTION 5.12 Captions. The captions, headings and arrangements used
in this Agreement are for convenience only and do not affect, limit or
amplify the terms and provisions hereof, or their construction or
interpretation.
SECTION 5.13 Invalid Provisions. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof, and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable
63
provision or by its severance herefrom. In lieu of such illegal, invalid
or unenforceable provision there shall be added automatically as a part
hereof a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
SECTION 5.14 Accounting Terms. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in
accordance with GAAP as in effect from time to time.
SECTION 5.15 Entirety of Agreement. This Agreement and the
Indemnification Agreement contain the entire agreement among the parties
hereto, and supersede all prior and contemporaneous agreements,
representations and understandings of the parties, including, without
limitation, all preliminary offers and letters of intent made by or
between C21-Holding and Eastern Pennsylvania or the Shareholders. No
representations, inducements, promises or agreements, oral or otherwise,
which are not embodied herein or therein shall be of any force or effect.
SECTION 5.16 Multiple Counterparts. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original for
all purposes and
64
all of which shall be deemed, collectively, one agreement.
SECTION 5.17 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law principles.
SECTION 5.18 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby
shall be brought in the United States District Court for the Eastern
District of Virginia or the courts of Fairfax County in Virginia, and
each of the parties hereby consents to the jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court.
Without limiting the foregoing, each party agrees that
65
service of process on such party as provided in this Section 5.18 shall
be deemed effective service of process on such party.
SECTION 5.19 Prevailing Party Expenses. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for all
expenses and costs incurred by the prevailing party or parties in
connection with such action, including, without limitation, attorneys'
fees.
SECTION 5.20 Waiver of Rescission. Notwithstanding any breach or
default by any of such parties of any of their respective
representations, warranties, covenants or agreements under this
Agreement, other than as set forth in clause (ii) below, each such party
waives any rights that it or they may have to rescind this Agreement or
the transactions consummated by it; provided, however, that (i) this
waiver shall not affect any other rights or remedies available to any
such party under this Agreement or under the law and (ii) Acquiror and
C21-Holding shall have the right to rescind this Agreement in the event
that, as of the Closing, all of the outstanding shares of capital stock
of Eastern Pennsylvania were not owned by the Shareholders, or if actual
66
fraud has been committed by Eastern Pennsylvania or the Shareholders in
connection with any of the transactions contemplated by the Agreement.
67
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
HFS INCORPORATED
By /s/ STEPHEN P. HOLMES
---------------------
Name: Stephen P. Holmes
Title: Executive Vice
President
C21 HOLDING CORP.
By /s/ JAMES E. BUCKMAN
--------------------
Name: James E. Buckman
Title: Executive Vice
President
CENTURY 21 OF EASTERN
PENNSYLVANIA, INC.
By /s/ JAMES O. NELSON
-------------------
Name: James O. Nelson
Title: President
/s/ GEORGE F. KETTLE
--------------------
GEORGE F. KETTLE
/s/ JAMES O. NELSON
-------------------
JAMES O. NELSON