AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Dated as of April 15, 1996
By and Among
HFS INCORPORATED,
CENTURY 21 REGION V, INC.
and
YEAGER REAL ESTATE AND FINANCIAL SERVICES, INC.
TABLE OF CONTENTS
Page
ARTICLE I
The Merger
Section 1.1 Effective Time of the Merger.................................. 4
Section 1.2 Closing....................................................... 5
Section 1.3 Effects of the Merger......................................... 5
Section 1.4 Certificate of Incorporation and By-Laws...................... 5
Section 1.5 Directors..................................................... 6
Section 1.6 Officers...................................................... 6
ARTICLE II
Conversion of Securities
Section 2.1 Conversion of Capital Stock................................... 7
Section 2.2 Exchange of Certificates and Cash............................. 9
ARTICLE III
Representations and Warranties of the Company
Section 3.1 Organization.................................................. 12
Section 3.2 Capitalization................................................ 15
Section 3.3 Authority..................................................... 17
Section 3.4 Consents and Approvals; No Violations......................... 18
Section 3.5 Franchise Business............................................ 20
Section 3.6 Litigation.................................................... 25
Section 3.7 Employee Benefits............................................. 25
Section 3.8 Financial Statements.......................................... 28
Section 3.9 Absence of Undisclosed Liabilities............................ 30
Section 3.10 Absence of Certain Changes or Events; Material Agreements..... 31
Section 3.11 No Violation of Law........................................... 31
Section 3.12 Taxes......................................................... 31
Section 3.13 Labor Matters................................................. 36
Section 3.14 Licenses...................................................... 37
Section 3.15 Intellectual Property......................................... 37
Section 3.16 Brokers or Finders............................................ 39
Section 3.17 Transactions with Affiliates.................................. 39
Section 3.18 Material Agreements........................................... 40
Section 3.19 Insurance..................................................... 41
Section 3.20 Environmental Laws............................................ 41
Section 3.21 National Ad Fund.............................................. 43
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Page
ARTICLE IV
Representations and Warranties of HFS
Section 4.1 Organization.................................................. 44
Section 4.2 Capitalization................................................ 45
Section 4.3 Authority..................................................... 47
Section 4.4 Consents and Approvals; No Violations......................... 48
Section 4.5 SEC Reports and Financial Statements.......................... 50
Section 4.6 Brokers or Finders............................................ 51
Section 4.7 Full Disclosure............................................... 52
Section 4.8 Litigation.................................................... 52
Section 4.9 No Other Representations...................................... 52
ARTICLE V
Covenants
Section 5.1 Conduct of Business of the Company............................ 52
Section 5.2 Covenants of HFS.............................................. 58
ARTICLE VI
Additional Agreements
Section 6.1 Reasonable Efforts............................................ 60
Section 6.2 Access to Information......................................... 61
Section 6.3 Stock Exchange Listing........................................ 61
Section 6.4 Employee Matters; Employee Benefit Plans...................... 61
Section 6.5 Fees and Expenses............................................. 63
Section 6.6 Pre-Merger Transactions....................................... 64
Section 6.7 Notification of Certain Matters............................... 64
Section 6.8 Deposit and Escrow............................................ 65
Section 6.9 Release and Discharge......................................... 66
Section 6.10 HFS Share Issuance............................................ 66
Section 6.11 Lease......................................................... 66
Section 6.12 Certain Tax-Related Representations,
Covenants and Other Matters...................... 67
Section 6.13 Computer Access............................................... 75
ARTICLE VII
Conditions
Section 7.1 Conditions to Each Party's Obligation To Effect the Merger.... 75
Section 7.2 Conditions of Obligations of HFS.............................. 77
Section 7.3 Conditions of Obligations of the Company...................... 81
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Page
ARTICLE VIII
Termination and Amendment
Section 8.1 Termination................................................... 84
Section 8.2 Effect of Termination......................................... 86
Section 8.3 Waiver of Rescission...........................................87
ARTICLE IX
Miscellaneous
Section 9.1 Effectiveness of Representations, Warranties and Agreements... 87
Section 9.2 Amendment..................................................... 88
Section 9.3 Extension; Waiver............................................. 88
Section 9.4 Notices....................................................... 89
Section 9.5 Interpretation................................................ 90
Section 9.6 Counterparts.................................................. 90
Section 9.7 Entire Agreement; No Third Party Beneficiaries................ 91
Section 9.8 Governing Law................................................. 91
Section 9.9 Jurisdiction...................................................91
Section 9.10 Specific Performance.......................................... 92
Section 9.11 Publicity..................................................... 93
Section 9.12 Assignment.................................................... 93
Section 9.13 Prevailing Party Expenses..................................... 93
EXHIBITS
Exhibit A - Distribution Agreement
Exhibit B - Indemnification Agreement
Exhibit C - Certificate of Merger
Exhibit D - Escrow Agreement
Exhibit E - Non-Competition Agreement (Philip J. Yeager)
Exhibit F - Non-Competition Agreement (William P. Yeager, Sr.)
Exhibit G - Guaranty
Exhibit H - Occupancy Agreement
Exhibit I - Litigation Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of April
15, 1996, is entered into by and among HFS INCORPORATED, a Delaware
corporation ("HFS"), CENTURY 21 REGION V, INC., a California corporation (the
"Company"), and YEAGER REAL ESTATE AND FINANCIAL SERVICES, INC., a California
corporation and a wholly owned subsidiary of the Company ("Spinco"). WHEREAS,
the respective Boards of Directors of the Company and HFS deem it advisable
and in the best interests of their respective stockholders that HFS acquire by
Merger (as hereinafter defined) the Century 21 master franchising businesses
and certain related assets of the Company and three of its Subsidiaries (as
hereinafter defined); WHEREAS, as a business matter, HFS and its Subsidiaries
desire to acquire the Century 21 master franchising businesses and certain
related assets of the Company and three of its Subsidiaries but do not wish to
acquire the Other Assets, including the Insurance Business (each as
hereinafter defined in Section 6.12(a) of the Agreement), and HFS is unwilling
to engage in a transaction to acquire such Century 21 master franchising
businesses and related assets if such
transaction would also involve the acquisition of the Other
Assets;
WHEREAS, in order to facilitate the acquisition of such Century 21 master
franchising businesses and related assets without acquiring the Other Assets,
HFS has expressed its preference that such Century 21 master franchising
businesses and related assets be owned at the time of the Merger by, and
therefore acquired from, a single corporate owner; WHEREAS, the respective
Boards of Directors of the Company and Spinco deem it advisable and in the
best interests of the Company's stockholders (the "Stockholders") (a) to cause
Spinco to retain, or to acquire and retain, the Other Assets and to use the
Other Assets in the operation of the Insurance Business, and (b) to distribute
to the Stockholders all of the outstanding capital stock of Spinco prior to
the Merger;
WHEREAS, to achieve the foregoing intentions and desires, the parties
have agreed that, as a condition to and in consideration of the Merger, as
provided herein and in the Distribution Agreement (as hereinafter defined),
the Company and Spinco shall cause, prior to the Merger, the consummation of
each of the transactions set forth in Section 6.12(c)(i) of this Agreement in
the order set forth therein, including, but not limited to, the Subsidiary-
2
Parent Mergers, the Brother-Sister Merger, the Transfer and
the Distribution (as such terms are hereinafter defined);
WHEREAS, the respective Boards of Directors of the Company and HFS have
determined that, following the Distribution, the merger of the Company with
and into HFS (the "Merger") with HFS continuing as the surviving corporation
in the Merger (the "Surviving Corporation") would be advantageous and
beneficial to their respective corporations and stockholders;
WHEREAS, as a condition to and in consideration of the transactions
contemplated hereby, (a) the Company and Spinco are entering or will enter
into a Reorganization and Distribution Agreement, dated as of the date hereof
in the form attached as Exhibit A hereto (the "Distribution Agreement"), and
(b) Spinco and HFS will enter into an Indemnification and Tax Allocation
Agreement in the form attached as Exhibit B hereto (the "Indemnification
Agreement" and, together with the Distribution Agreement, the "Ancillary
Agreements"); and
WHEREAS, for federal income tax purposes, it is intended that (a) each of
the Subsidiary-Parent Mergers shall qualify as a tax-free liquidation pursuant
to Section 332 of the Internal Revenue Code of 1986, as amended (the "Code"),
(b) the Brother-Sister Merger shall qualify as a tax-free reorganization
pursuant to Section 368(a) of the Code, (c)
3
the Transfer, together with the Distribution, shall qualify as a tax-free
reorganization pursuant to Section 368(a)(1)(D) of the Code, (d) the
Distribution shall qualify as a tax-free distribution pursuant to Section 355
of the Code and (e) the Merger shall qualify as a tax-free reorganization
pursuant to Section 368(a) of the Code, and this Agreement is intended to be
and is adopted as a plan of reorganization;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 EFFECTIVE TIME OF THE MERGER. Upon the terms and subject to
the conditions hereof, a certificate of merger substantially in the form
attached as Exhibit C hereto (the "Certificate of Merger") shall be duly
prepared, executed and acknowledged by the Surviving Corporation and
thereafter delivered to the Secretary of State of the State of Delaware, for
filing, as provided in the Delaware General Corporation Law (the "DGCL"), as
soon as practicable on or after the Closing Date (as defined in Section 1.2)
and after
4
filing and certification by the Secretary of State of the State of Delaware,
to the Secretary of State of the State of California, for filing, as provided
in the California General Corporation Law (the "CGCL"). The Merger shall
become effective immediately following the Distribution, upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
or at such time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
Section 1.2 CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") will take place as
promptly as practicable (and in any event within five business days) after
satisfaction or waiver of the conditions to Closing contained in Article VII,
at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New
York, New York 10022, unless another date or place is agreed to in writing by
the parties hereto. The date on which the Closing occurs is referred to herein
as the "Closing Date".
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the DGCL and CGCL.
Section 1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Restated Certificate of Incorporation, as amended, of
HFS in effect at the Effective Time shall
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be the Restated Certificate of Incorporation, as amended, of the
Surviving Corporation until amended in accordance with applicable
law.
(b) The Amended and Restated By-Laws of HFS in effect at the
Effective Time shall be the Amended and Restated By-Laws of the
Surviving Corporation until amended in accordance with applicable
law.
Section 1.5 DIRECTORS. The directors of HFS at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold
office from the Effective Time in accordance with the Restated
Certificate of Incorporation, as amended, and Amended and Restated
By-Laws of the Surviving Corporation and until his or her successor is
duly elected and qualified.
Section 1.6 OFFICERS. The officers of HFS at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold
office from the Effective Time in accordance with the Restated
Certificate of Incorporation, as amended, and Amended and Restated
By-Laws of the Surviving Corporation and until his or her successor is
duly appointed and qualified.
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ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holder
of any shares of Common Stock, par value $1.00 per share, of the Company
(the "Company Common Stock"), or the holder of any capital stock of HFS:
(a) COMMON STOCK OF HFS. Each issued and outstanding share of
Common Stock, par value $.01 per share, of HFS (the "HFS Common
Stock") shall continue to be one issued and outstanding, fully paid
and nonassessable share of Common Stock, par value $.01 per share,
of the Surviving Corporation and any shares of HFS Common Stock held
in HFS's treasury immediately prior to the Effective Time shall
continue to be held in the treasury of the Surviving Corporation at
the Effective Time.
(b) EXCHANGE RATIO FOR COMPANY COMMON STOCK. Subject to Section
2.2(d), each issued and outstanding share of Company Common Stock
shall be converted into the right to receive the number (rounded to
the nearest one-thousandth of a share) of fully paid and
nonassessable shares of HFS Common Stock determined by dividing
7
(i) the number of shares of HFS Common Stock determined by dividing
$46,000,000 by the average of the closing prices of the HFS Common
Stock on the New York Stock Exchange (the "NYSE") Composite
Transactions Reporting System for the twenty (20) consecutive
trading days immediately preceding the third (3rd) trading day prior
to the date of the Closing (the "Average HFS Price") by (ii) the
total number of issued and outstanding shares of Company Common
Stock (after giving effect to the redemption of shares of Company
Common Stock which is occurring in connection with the
Distribution). All such shares of Company Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares
of HFS Common Stock and any cash in lieu of fractional shares of HFS
Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.2(a),
without interest.
(c) ADJUSTMENT OF EXCHANGE RATIO. If after the date hereof and
prior to the Effective Time the outstanding shares of Company Common
Stock or HFS Common
8
Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange
of shares, the foregoing exchange ratio shall be correspondingly
adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares.
Section 2.2 EXCHANGE OF CERTIFICATES AND CASH.
(a) EXCHANGE PROCEDURES. At the Closing, each holder of a
certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (the
"Certificates") shall surrender the Certificate or Certificates to
Mellon Securities Trust Company, the Registrar and Transfer Agent
for HFS, or to such other agent or agents as may be appointed by HFS
(the "Exchange Agent") for cancellation and the Surviving
Corporation shall cause the Exchange Agent to deliver to the holder
of such Certificate in exchange therefor (x) a certificate
representing that number of whole shares of HFS Common Stock which
such holder has the right to receive pursuant to the provisions of
this Article II and (y) cash in lieu of any fractional shares of HFS
Common
9
Stock to which such holder is entitled pursuant to Section 2.2(d)
hereof, after giving effect to any required tax withholdings for
failure to deliver required certifications or other information, and
the Certificates so surrendered shall forthwith be cancelled. Until
surrendered as contemplated by this Section 2.2, each Certificate
shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender a certificate
representing shares of HFS Common Stock and cash in lieu of any
fractional shares of HFS Common Stock as contemplated by this
Section 2.2.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the
Effective Time with respect to HFS Common Stock with a record date
after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of HFS Common
Stock which such holder is entitled to receive upon the surrender
thereof in accordance with this Section 2.2 and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant
to Section 2.2(d) until the holder of record of such Certificate
shall so surrender such Certificate.
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(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of HFS Common Stock issued upon the surrender for exchange of
shares of Company Common Stock in accordance with the terms hereof
(including any cash paid pursuant to Section 2.2(b) or 2.2(d)) shall
be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall
be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and
exchanged as provided in this Article II.
(d) NO FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of HFS Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share
interests will not entitle the owner thereof to vote or to any
rights of a stockholder of HFS. In lieu of any such fractional
shares, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a share of HFS Common Stock upon
surrender of Certifi-
11
cates for exchange will be entitled to receive a cash payment in
lieu of such fractional share in an amount equal to such fraction
multiplied by the Average HFS Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to HFS that, except as set forth
in the schedule being delivered by the Company to HFS on or prior to the
date hereof, as updated on or prior to the Closing Date (the "Disclosure
Schedule"), and except as contemplated by this Agreement or the
Distribution Agreement:
Section 3.1 ORGANIZATION.
(a) Each of the Company and its Subsidiaries (as hereinafter
defined) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority
would not have a material adverse effect on the Company. The Company
and each of its Subsidiaries is duly qualified or licensed to do
12
business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate have a
material adverse effect on the Company.
(b) As used in this Agreement, any reference to (i) the word
"Subsidiary" means, with respect to any party, any corporation or
other organization, whether incorporated or unincorporated, of which
(x) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests
of which held by such party or any Subsidiary of such party do not
have a majority of the voting interest in such partnership) or (y)
at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the Board
of Directors or others performing similar functions with respect to
such corporation or other organization is, directly or indirectly,
owned or controlled by such party and/or by any one or more of its
Subsidiaries; (ii) an entity and its Subsidiaries means such entity
and each of its Subsidiaries; (iii) any reference to the "Retained
Company" means the Company and Century 21 Real Estate, Inc., an
Oregon corporation ("C21-Oregon"), Century 21
13
Real Estate of Washington, Inc., a Washington corporation
("C21-Washington"), and Century 21 Real Estate of the
Northwest, Inc., an Idaho corporation ("C21-Idaho"), all of
which will be merged successively into the Company and not
exist as separate corporations following the consummation of
the transactions contemplated by the Distribution Agreement;
(iv) any reference to Spinco and its Subsidiaries means Spinco
at the time of the Distribution and those entities that at or
immediately prior to the Distribution will be direct or
indirect Subsidiaries of or merged with or liquidated into
Spinco; (v) any event, change or effect having a material
adverse effect on or with respect to the Company means such
event, change or effect which is materially adverse to the
business, properties, assets, prospects, results of operations
or financial condition of the Retained Company, or on the
ability of any of the Company and its Subsidiaries and Spinco
to consummate the transactions contemplated hereby and in the
Ancillary Agreements, including the Distribution and the Merger
and, in the case of Spinco, its indemnification obligations
under the Indemnification Agreement; and (vi) any reference to
"knowledge" of a party means actual knowledge without
investigation or inquiry.
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(c) The Company has heretofore made available to HFS a
complete and correct copy of the charter and by-laws or
comparable organizational documents, each as amended to date,
of the Company and each of its Subsidiaries. Such charters,
by-laws and comparable organizational documents are in full
force and effect. Neither the Company nor any of its
Subsidiaries is in violation of any provision of its charter,
by-laws or comparable organizational documents, except for such
violations that would not, individually or in the aggregate,
have a material adverse effect on the Company.
Section 3.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of
the Company consists of 50,000 shares of capital stock (the
"Company Common Stock") of which 20,000 shares were issued and
outstanding. All the outstanding shares of the Company Common
Stock are duly authorized, validly issued, fully paid and
non-assessable and free of any pre-emptive rights in respect
thereto. As of the date hereof, there are no existing options,
warrants, calls, subscriptions or other rights or other
agreements, commitments, understandings or restrictions of any
character binding on the Company or any of its Subsidiaries
with respect to the issued or unissued capital stock of the
Company or any of its Subsidiaries or obligating the Company or
any of its
15
Subsidiaries to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock of, or other
equity interests in, the Company or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or
equity interests or obligating the Company or any of its
Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement,
commitment, understanding or restriction. There are no
contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company or any of its
Subsidiaries. There are no voting trusts, proxies or other
agreements or understandings to which the Company or any of its
Subsidiaries is a party or is bound with respect to voting any
shares of capital stock of the Company or any of its
Subsidiaries.
(b) Each of the outstanding shares of capital stock of
each of the Company's Subsidiaries is duly authorized, validly
issued, fully paid, nonassessable and free of any preemptive
rights in respect thereto and such shares are owned by the
Company or by a Subsidiary of the Company free and clear of any
lien, claim, option, charge, security interest, limitation on
voting rights and encumbrance of any kind.
16
Section 3.3 AUTHORITY. Each of the Company and Spinco has the
requisite corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which the Company or Spinco are
a party and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and
the Ancillary Agreements to which the Company or Spinco are a party by
the Company and Spinco and the consummation by the Company and Spinco of
the Distribution and the Merger and of the other transactions
contemplated hereby and thereby have been duly authorized by the
respective Boards of Directors of the Company and Spinco and approved and
adopted by the requisite vote of the Stockholders of the Company and no
other corporate proceedings on the part of the Company and Spinco are
necessary to authorize this Agreement and the Ancillary Agreements to
which the Company or Spinco are a party, the Merger or the Distribution
or to consummate the transactions so contemplated (other than the formal
declaration of the Distribution by the Company's Board of Directors).
This Agreement and each of the Ancillary Agreements to which the Company
or Spinco are a party has been or (to the extent any such agreement is
not being entered into as of the date hereof) will be duly executed and
delivered by the Company and Spinco and constitutes, or to the extent any
17
such agreement is not being entered into as of the date hereof will
constitute, a valid and binding obligation of each of the Company and
Spinco, enforceable against it in accordance with its terms except that
such enforcement may be limited (i) by applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, equity of redemption, moratorium or
other similar laws now or hereafter in effect relating to creditors'
rights, and (ii) by general principles of equity (regardless of whether
enforcement is sought in equity or at law).
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) Except for such filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the filing of the Certificate of Merger as required by the
DGCL and the CGCL, none of the execution, delivery or performance of this
Agreement or the Ancillary Agreements by the Company or Spinco, or the
consummation by the Company or Spinco of the transactions contemplated
hereby or thereby and compliance by the Company or Spinco with any of the
provisions hereof or thereof will (i) conflict with or result in any
breach of any provisions of the charter or by-laws or comparable
organizational documents of the Company or of any of
18
its Subsidiaries, (ii) require any filing by the Company or any of its
Subsidiaries with, or any permit, authorization, consent or approval to
be obtained by the Company or any of its Subsidiaries of, any court,
arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority or administrative agency or
commission (a "Governmental Entity"), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, or result in the creation of any
lien or other encumbrance on any property or asset of the Company or any
of its Subsidiaries pursuant to, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement, franchise, permit, concession or other instrument,
obligation, understanding, commitment or other arrangement (each, a
"Contract") to which the Company or any of its Subsidiaries is a party or
by which any of them or any of their properties or assets may be bound or
affected, (iv) result in the triggering of any right of first refusal or
other right under any stockholder, partnership or joint venture agreement
to which the Company or any of its Subsidiaries is a party or (v) violate
any order, writ, injunction, decree, statute, ordinance, rule or regu-
19
lation applicable to the Company or any of its Subsidiaries except, in
the case of clauses (i), (ii), (iii) or (v), for violations, breaches or
defaults which would not, individually or in the aggregate, have a
material adverse effect on the Company or its Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries is in conflict
with, or in default or violation of, (i) any order, writ, injunction,
decree, statute, rule or regulation of any Governmental Entity applicable
to the Company or any of its Subsidiaries or by which any of them or any
of their properties or assets may be bound or (ii) any material Contract
except for any such conflicts, defaults or violations which have not and
are not likely to have a material adverse effect on the Company or any of
its Subsidiaries.
Section 3.5 FRANCHISE BUSINESS.
(a) Attached hereto as Exhibit 3.5 is a compiled pro forma balance
sheet of the Retained Company at March 31, 1996 (including any notes
thereto, the "Franchise Business Balance Sheet"). Except as described on
Exhibit 3.5 (or in the Disclosure Schedule), there has been no material
change in the financial position of the Retained Company since March 31,
1996 to the date hereof, except as has resulted from the ordinary course
of operation of the Retained Company. The Franchise Business Balance
Sheet has been compiled
20
in accordance with United States generally accepted accounting
principles. The Franchise Business Balance Sheet presents the unaudited
balance sheet at March 31, 1996 as adjusted for the distribution,
assuming the distribution and all transactions set forth in Section
6.12(c)(i) of this Agreement had occurred on or before March 31, 1996.
The Franchise Business Balance Sheet presents the significant effects of
the indicated transactions (assuming the tax consequences are as
contemplated by this Agreement), the related pro forma adjustments give
appropriate effect to the transactions and assumptions and the pro forma
column reflects the proper application of those adjustments to the
historical financial statement amounts.
(b) As of March 31, 1996 and as of the Closing Date, the Company,
directly or indirectly, owned and will own, respectively, and had and
will have, respectively, good, valid and marketable title to all of the
assets reflected on the Franchise Business Balance Sheet, free and clear
of any lien, claim, charge, security interest, pledge, encumbrance or
other right (a "Lien") of third parties, except as may be reflected in
the Franchise Business Balance Sheet or as may be set forth therein (or
in the Disclosure Schedule), all of which Liens will be removed as of the
Effective Time. "Franchise Business" means the subfranchising of Century
21
21
franchises in the regions permitted by the Company Subfranchise
Agreement and the Northwest Subfranchise Agreement (as defined below) and
related training and servicing to those franchises. "Franchise Business
Assets" means the following: (i) the Century 21 Subfranchise Agreement,
dated as of July 1, 1977, between the Company and Century 21 Real Estate
Corporation, a Delaware corporation and a Subsidiary of HFS ("C21-Real
Estate"), as amended by the First and Second Addendums thereto, each
dated July 1, 1977, and any other amendments thereto (the "Company
Subfranchise Agreement"); (ii) the Century 21 Subfranchise Agreement,
dated as of December 13, 1973, between C21-Real Estate and C21-Oregon,
as amended by the First, Second and Third Addendums thereto, dated
December 13, 1973, December 13, 1973 and July 5, 1977, respectively, and
any other amendments thereto (the "Northwest Subfranchise Agreement");
(iii) the Century 21 Real Estate Franchise Agreements of Century 21
franchisees of the Company and its Subsidiaries (the "Franchise
Agreements"), including all franchisee files, records and other
information pertaining thereto; (iv) commission disbursement
authorizations with respect to service fees owing to the Company and its
Subsidiaries on open transactions as of the date following the Closing
Date, whether reported or unreported, pursuant to agreements to convey
real property,
22
which agreements have been placed into the custody of a third party, as
escrow holder, awaiting completion/fulfillment of all terms and
conditions of such agreements, at which time the transactions represented
thereby will close; (v) all patents, patent rights trademarks, trademark
rights, trade names, trade name rights, copyrights, service marks, trade
secrets, applications for trademarks and for service marks, technology
and know-how and other proprietary rights and information relating to the
Franchise Business (except those relating to the AmeriNet System
described in the Non-Competition Agreements (as hereinafter defined));
(vi) all office supplies, stationery and other materials which utilize
the Century 21 name; (vii) all customer lists and records pertaining to
customers and accounts, personnel records, all lists and records
pertaining to suppliers and agents, and all books, ledgers, files and
business records of every kind relating to the Franchise Business; (viii)
all advertising materials and all other printed or written materials
relating to the Franchise Business; (ix) all permits, waivers, licenses,
approvals and authorizations of governmental authorities or third parties
relating to the ownership, possession or operation of the Franchise
Business; and (x) all goodwill as a going concern and all other
intangible properties relating to the Franchise Business.
23
Notwithstanding the foregoing, Franchise Business Assets do not include
the Company's interest in the litigation currently pending against
Prudential Real Estate Affiliates, et al., or any other litigation listed
in the Disclosure Schedule, including any recovery based on damage to the
goodwill of the Company or lost revenues or profits of the Company. The
Franchise Business Balance Sheet shall make provision for all liabilities
or obligations (except those not required to be listed on a balance
sheet) to be performed by the Retained Company following the Closing
which existed as of the date of the Franchise Business Balance Sheet.
(c) At the Effective Time, neither Spinco nor any of its
Subsidiaries will use in the conduct of its business or own or have
rights to use any assets or property, whether tangible, intangible or
mixed, listed on the Franchise Business Balance Sheet. At the Effective
Time neither Spinco nor any of its Subsidiaries will be a party to any
material agreement with the Retained Company (other than the Ancillary
Agreements), including, without limitation, any material Contract,
providing for the furnishing of services or rental of real or personal
property to or from, or otherwise relating to the business or operations
of, any of the Retained Company or any of its Subsidiaries or pursuant to
24
which the Retained Company or any of its Subsidiaries may have any
obligation or liability.
Section 3.6 LITIGATION. The Company has not received notification
that any suit, claim, action, proceeding or investigation is pending or,
to the knowledge of the Company, is any of the foregoing threatened,
against the Company or any of its Subsidiaries before any Governmental
Entity. Neither the Company nor any of its Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, in the future
would have a material adverse effect on the Company.
Section 3.7 EMPLOYEE BENEFITS.
(a) Section 3.10 of the Company Disclosure Schedule contains a list
of all bonus, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit and compensation plans and any
"change of control" or similar provisions which would apply to the
transactions contemplated by this Agreement in any plan, program,
contract or arrangement which cover employees or former employees
("Company Employees") of the Company or any entity which would have been
25
considered one employer with the Company at any time during the six-year
period immediately preceding the Effective Time under Section 4001 of
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 414 of the Code (an "ERISA Affiliate") and all other benefit and
compensation plans, programs, contracts or arrangements (regardless of
whether they are funded or unfunded or [foreign or domestic]) covering
Company Employees, including, but not limited to, "employee benefit
plans" within the meaning of Section 3(3) of the ERISA (collectively, the
"Compensation and Benefit Plans"). True and complete copies of all the
Compensation and Benefit Plans, including any trust instruments and/or
insurance contracts, if any, forming a part of any such plans, and all
amendments thereto have been provided to HFS.
(b) All of the Compensation and Benefit Plans are in material
compliance with all applicable laws, including, without limitation, ERISA
and the Code. Each Compensation and Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under Section
401(a) of the Code, is so qualified. Neither the Company nor any ERISA
Affiliate has engaged in a transaction with respect to any Compensation
and Benefit Plan that, assuming the taxable
26
period of such transaction expired as of the date hereof, could subject
the Company or any ERISA Affiliate to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would have a material adverse effect on the Company. Neither the Company
nor any ERISA Affiliate has contributed or been required to contribute to
any Multiemployer Plan (as defined in ERISA).
(c) No Pension Plans, currently or formerly maintained, contributed
to or required to be contributed to, by the Company or any ERISA
Affiliate are subject to Title IV of ERISA or to Section 412 of the Code.
(d) All contributions required to be made or accrued as of December
31, 1995 under the terms of any Compensation and Benefit Plan for which
the Retained Company or any of its Subsidiaries may have liability have
been timely made or have been reflected on the Franchise Business Balance
Sheet.
(e) Neither the Retained Company nor any of its Subsidiaries have
any obligations for retiree health and life benefits under any
Compensation and Benefit Plan, except those which may be imposed under
section 4980B of the Code and Part 6 of Title I of ERISA (for which the
Retained Company is indemnified by Spinco pursuant to the Indemnification
Agreement).
27
(f) All Compensation and Benefit Plans covering foreign Company
Employees comply in all material respects with applicable local law. The
Company and its Subsidiaries have no unfunded liabilities in an amount
which would have a material adverse effect on the Company with respect to
any Pension Plan which covers foreign Company Employees.
(g) The consummation of the transactions contemplated by this
Agreement or in the Ancillary Agreements will not (i) entitle any current
or former employee or officer of the Company or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee or officer, except as provided in Section 6.4 hereof.
(h) There are no pending, or the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Compensation and
Benefit Plan, by any employee or beneficiary covered under any such
Compensation and Benefit Plan, or otherwise involving any such
Compensation and Benefit Plan (other than routine claims for benefits).
Section 3.8 FINANCIAL STATEMENTS. Attached to this Agreement are the
following financial statements (the "Company Financial Statements"),
all of which have been prepared
28
on a consolidated basis (except as otherwise indicated) in accordance
with generally accepted accounting principles ("GAAP") consistently
applied throughout the periods indicated (except as may be indicated in
the notes thereto):
(a) Balance sheet of the Company and its Subsidiaries as of
July 31, 1993 and 1995, audited by White, Nelson & Co., certified
public accountants, and as of July 31, 1994, audited by Kenneth
Leventhal & Company, certified public accountants, and unaudited,
unconsolidated balance sheets of each of the Company, C21-Oregon,
C21-Washington and C21-Idaho as of January 31, 1996, each of which
presents fairly (subject, in the case of the unaudited statements,
to normal, recurring audit adjustments) as of its date the financial
condition of the respective corporation; and
(b) Consolidated statement of operations and cash flows of the
Company and its Subsidiaries for the twelve (12) months ended July
31, 1993 and 1995, audited by White, Nelson & Co., certified public
accountants, and for the twelve (12) months ended July 31, 1994,
audited by Kenneth Leventhal & Company, certified public
accountants, and unaudited, unconsolidated statements of operations
and cash flows of each of the Company, C21-Oregon, C21-Washington
and C21-Idaho for
29
the six-month period ended January 31, 1996, each of which presents
fairly (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the results of operations and cash
flows of the respective corporation for the periods indicated.
(c) With respect to the unaudited periods, all adjustments,
consisting of only normal recurring items, necessary for a fair
presentation of interim financial statements have been made.
Section 3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as
contemplated by this Agreement, to the knowledge of the Company, neither
the Company nor any of its Subsidiaries had at January 31, 1996, or has
incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature of a type
required to be reflected on a balance sheet, except liabilities,
obligations or contingencies (i) which are accrued or reserved against in
the Company Financial Statements for the six months ended January 31,
1996 or reflected in the notes thereto, or (ii) which were incurred after
January 31, 1996 in the ordinary course of business consistent with past
practice and which in the aggregate are not material to the business,
results of operations or financial condition of
30
the Company or which have been discharged or paid in full prior to the
date hereof.
Section 3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL
AGREEMENTS. Since January 31, 1996, the Company and its Subsidiaries have
conducted their business only in the ordinary and usual course consistent
with past practice, and there has not been any change or development, or
combination of changes or developments, which individually or in the
aggregate have a material adverse effect on the Franchise Business.
Section 3.11 NO VIOLATION OF LAW. To the knowledge of the Company,
the Company and its Subsidiaries have complied in all material respects
with and neither the Company nor any of its Subsidiaries is in material
violation of or is under investigation with respect to or has been given
notice or been charged by any Governmental Entity with any material
violation of any, law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Entity.
Section 3.12 TAXES.
(a)(i) The Company and its Subsidiaries have (x) duly filed (or
there has been filed on their behalf) with the appropriate
governmental authorities all
31
Tax Returns (as hereinafter defined) required to be filed by them on
or prior to the date hereof, and such Tax Returns are true, correct
and complete in all material respects, and (y) duly paid in full or
made provision in accordance with generally accepted accounting
principles (or there has been paid or provision has been made on
their behalf) for the payment of all Taxes (as hereinafter defined)
for all periods ending through the date hereof, except where the
failure to file Tax Returns or to pay, or to provide for payment of,
Taxes would not have a material adverse effect on the financial
condition of the Company;
(ii) Neither the Company nor any of its Subsidiaries has made
any change in accounting methods, received a ruling from any taxing
authority or signed an agreement with any taxing authority which is
reasonably likely to have a material adverse effect on the Company;
(iii) The Company and its Subsidiaries have complied in all
respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code
or similar provisions under any foreign laws)
32
APITAL PRINTING SYSTEMS]
and have, within the time and the manner prescribed by law, withheld
from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over
under applicable laws;
(iv) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings have been initiated
or are presently pending with regard to any Taxes or Tax Returns of
the Company or its Subsidiaries, and neither the Company nor its
Subsidiaries has received any notice of any such audits or
proceedings;
(v) The federal income Tax Returns of the Company and its
Subsidiaries have been examined by the Service (or the applicable
statutes of limitation for the assessment of federal income Taxes
for such periods have expired) for all periods through and including
July 31, 1991, and no material deficiencies were asserted as a
result of such examinations which have not been resolved and fully
paid;
(vi) There are no outstanding requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to
the assessment of any Taxes or deficiencies against the Company or
any of its Subsidiaries, and no power of attorney granted by
33
either the Company or any of its Subsidiaries with respect to any
Taxes is currently in force;
(vii) Neither the Company nor any of its Subsidiaries is a
party to, is bound by, nor has any obligation under, any agreement
providing for the allocation or sharing of Taxes; (viii) Neither the
Company nor its Subsidiaries is a party to any agreement, contract
or arrangement that could result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code;
(ix) Neither the Company nor any of its Subsidiaries has, with
regard to any assets or property held, acquired or to be acquired by
any of them, filed a consent to the application of Section 341(f) of
the Code, or agreed to have Section 341(f)(2) of the Code apply to
any disposition of a subsection (f) asset (as such term is defined
in Section 341(f)(4) of the Code) owned by the Company or any of its
Subsidiaries;
(x) Neither C21-Idaho, C21-Washington or C21-Oregon is
insolvent for purposes of Section 332 of the Code; and
(xi) Neither the Company nor any of its Subsidiaries have, as
of the date of this Agreement, any
34
deferred gain from a deferred intercompany transaction within the
meaning of Treasury Regulation Section 1.1502-13 (or any similar
provision under state, local or foreign law).
(b) "Taxes" shall mean any and all taxes, charges, fees, levies
or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding,
social security, occupation, use, service, service use, license, net
worth, payroll, franchise, transfer and recording taxes, fees and
charges, imposed by the United States Internal Revenue Service or
any taxing authority (whether domestic or foreign including, without
limitation, any state, county, local or foreign government or any
subdivision or taxing agency thereof (including a United States
possession)), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any
interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments. "Tax Return"
shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing
authority
35
or jurisdiction (foreign or domestic) with respect to Taxes,
including, without limitation, information returns, any documents
with respect to or accompanying payments of estimated Taxes, or with
respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or
other information.
Section 3.13 LABOR MATTERS. To the knowledge of the Company, the
Company and its Subsidiaries have complied in all material respects with
all laws relating to wages, hours, collective bargaining, and the payment
of social security and similar taxes, and, as of the date hereof, no
person has, to the knowledge of the Company, asserted that the Company or
any of its Subsidiaries is liable in any material amount for any arrears
of wages or any taxes or penalties for failure to comply with any of the
foregoing. As of the date hereof, neither the Company nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other understanding with a labor union or labor
organization, and, to the knowledge of the Company, as of the date
hereof, there are no organizational efforts presently being made
involving any of the employees of the Company or any of its Subsidiaries.
36
Section 3.14 LICENSES. To the knowledge of the Company, the Company
has, and as of the Closing Date the Retained Company will have, all
permits, licenses, waivers and authorizations which are necessary for it
to conduct its business in the manner in which it is presently being
conducted (collectively, "Licenses"). To the knowledge of the Company, no
event has occurred or other fact exists with respect to such Licenses
which permits, or after notice or lapse of time or both would permit,
revocation or termination of any of such Licenses or would result in any
other impairment of the rights of the holder of any of such Licenses. The
Company and its Subsidiaries have duly performed their respective
obligations under such Licenses in all material respects.
Section 3.15 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries own, or have valid rights to
use, all trademarks, trademark rights, trade names, trade name rights,
copyrights, service marks, trade secrets, customer lists, rights in
computer software and documentation, databases, training materials and
other proprietary rights and information used or held for use in
connection with the Franchise Business as currently conducted other than
any of the foregoing as to which the rights of the Company or its
Subsidiaries derive from HFS or any of
37
its Subsidiaries, all of which are expressly excluded from the
representations and warranties contained in this Section 3.15
(collectively, as so limited, "Intellectual Property"), subject to no
material restrictions. The Disclosure Schedule lists all material
licenses, sublicenses, software agreements and other agreements, other
than (i) the Company Subfranchise Agreement and (ii) the Northwest
Subfranchise Agreement, as to which Company or any of its Subsidiaries is
a party and pursuant to which Company or any of its Subsidiaries is
authorized to use any Intellectual Property.
(b) No claim has been asserted to the Company in writing, or, to the
knowledge of the Company, orally, and is pending by any person
challenging or questioning the ownership of any such Intellectual
Property, nor does the Company know of any valid basis for any such
claim. The Company has not received notice from any third party to the
effect that the use of such Intellectual Property by the Company or any
of its Subsidiaries may infringe on the rights of any person and the
Company has no knowledge of any infringing use of any such Intellectual
Property by any other person in the territory where the Company or any of
its Subsidiaries does business. Neither the Company nor any of its
Subsidiaries has granted to anyone else other than HFS and its affiliates
or licensees the right to use any of the Intellectual Prop-
38
erty except pursuant to the Franchise Agreements. Neither the Company nor
any of its Subsidiaries are, nor will any be as a result of the execution
and delivery of this Agreement or the performance of their obligations
under this Agreement, in breach of any license, sublicense or other
agreement relating to the Intellectual Property.
Section 3.16 BROKERS OR FINDERS. Neither the Company nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any brokers' or finder's
fee or any other commission or similar fee in connection with this
Agreement or the Ancillary Agreements or any of the transactions
contemplated hereby or thereby.
Section 3.17 TRANSACTIONS WITH AFFILIATES. As of the Closing Date
hereof, (i) there will be no outstanding notes or other payables payable
by the Retained Company to, or advances by the Retained Company to, and
the Retained Company will otherwise not be a creditor or debtor of, any
stockholder, officer, director, employee, Subsidiary or affiliate of the
Retained Company, Spinco or its Subsidiaries, and (ii) the Retained
Company will not be a party to any Contract with any stockholder,
officer, director, or employee of the Retained Company, Spinco or any
Subsidiary.
39
Section 3.18 MATERIAL AGREEMENTS. As of the date hereof, neither the
Company nor any of its Subsidiaries is a party to any Contract: (a) to
undertake capital expenditures or to acquire any property involving the
expenditure of $10,000 or more; (b) to loan money or to extend credit to
any person or group of related persons in the amount of $10,000 or more;
(c) which would restrict the Retained Company or any of its Subsidiaries
or any affiliate of the Retained Company or any of its Subsidiaries from
carrying on any business anywhere in the world or which would restrict
the services which the Retained Company may sell or the customers to whom
the Retained Company may sell; (d) involving any indebtedness, obligation
or liability for borrowed money or the guaranty of any such indebtedness,
obligation or liability in the amount of $10,000 or more; (e) involving
the provision of services requiring the expenditure on an annual basis of
$10,000 or more; (f) involving employment, consulting, compensation or
severance obligations requiring payments on an annual basis of $10,000 or
more and which is not cancellable on 30 days notice; (g) involving any
lease of personal or real property having annual payments in excess of
$10,000 or (h) which is otherwise material to the Company and its
Subsidiaries taken as a whole or which is material to the Retained
Company. To the knowledge of the Company,
40
there is no breach or violation of, or default under any such Contract,
and no event has occurred which, with notice or lapse of time or both,
would constitute a breach, violation or default, or give rise to a right
of termination, modification, cancellation, prepayment or acceleration
under any such Contract. The Disclosure Schedule identifies the Contracts
which will be included in the Franchise Business.
Section 3.19 INSURANCE. All insurance policies relating to the
Company and applicable to the Franchise Business (except those obtained
by C21-Real Estate) are listed in the Disclosure Schedule and, to the
knowledge of the Company, all such policies are in full force and effect.
The Company has not received written notice of default under any such
policy, and has not received written notice or, to the knowledge of the
Company, oral notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium
increase with respect to any such policy.
Section 3.20 ENVIRONMENTAL LAWS.
(a)(i) Each of the Company and its Subsidiaries complies and has
complied in all material respects with all applicable Environmental Laws
(as hereinafter defined), and possesses and complies with and has
possessed and complied in all material respects with all Environmental
Permits (as
41
hereinafter defined) required under such laws; and (ii) to the knowledge
of the Company, there are and have been no Materials of Environmental
Concern (as hereinafter defined) or other conditions at any property
owned, operated or otherwise used by the Company or any of its
Subsidiaries now or in the past, or at any other location, that could
reasonably be expected to give rise to liability of the Company or any
Subsidiaries under any Environmental Law which, individually or in the
aggregate, would have a material adverse effect on the Company. The
Company has provided to HFS true and complete copies of all Environmental
Reports (as hereinafter defined) in its possession or control.
(b) As used in this Agreement:
(i) "Environmental Laws" means any and all foreign, federal,
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, requirements of any
Governmental Entity or other requirements of law (including common
law) regulating, relating to or imposing liability or standards of
conduct concerning protection of human health or the environment, as
now or may at any time on or prior to the Closing Date be in effect.
(ii) "Environmental Permit" means any license, permit, order,
approval, concession, registration,
42
authorization, or qualification required under any Environmental
Law.
(iii) "Environmental Report" means any report, study,
assessment, audit, or other similar document that addresses any
issue of actual or potential non-compliance with, or actual or
potential liability under, any Environmental Law that may in any way
affect the Company or any Subsidiary.
(iv) "Materials of Environmental Concern" means any waste,
pollutant, or contaminant (whether or not defined or regulated as
such under any Environmental Law), or any other substance of any
kind (including without limitation petroleum or petroleum products,
asbestos or asbestos-containing materials, urea-formaldehyde
insulation, polychlorinated biphenyls, odors and radioactivity)
regulated by or under, or which may otherwise give rise to liability
under, any Environmental Law.
Section 3.21 NATIONAL AD FUND. The Company has transmitted to
C21-Real Estate the requisite amounts which are owing to the NAF and is
presently in compliance in all material respects with all other material
requirements of the Agreement Concerning National Advertising Fund (the
"NAF") to which the Company and any of its Subsidiaries are
43
a party to with C21-Real Estate. As of April 4, 1996, the Company and its
Subsidiaries had approximately $457,460 owing to the NAF under its
control, which amount was held in accounts at Union Bank, City of
Industry, California.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HFS
HFS represents and warrants to the Company and Spinco as follows:
Section 4.1 ORGANIZATION.
(a) HFS and each of its Significant Subsidiaries (within the meaning
of Rule 1-02(w) of Regulation S-X of the Rules and Regulations of the
Securities and Exchange Commission) is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now
being conducted except where the failure to be so organized, existing and
in good standing or to have such power and authority would not have a
material adverse effect on HFS. HFS and each of its Significant
Subsidiaries is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business con-
44
ducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good
standing would not in the aggregate have a material adverse effect on
HFS.
(b) As used in this Agreement, any reference to any event, change or
effect having a material adverse effect on or with respect to HFS means
such event, change or effect which is materially adverse to the business,
properties, assets, prospects, results of operations or financial
condition of HFS and its Significant Subsidiaries taken as a whole or on
the ability of HFS to consummate the transactions contemplated hereby,
including the Merger.
(c) HFS has heretofore made available to the Company a complete and
correct copy of the charter and bylaws, each as amended to date, of HFS.
HFS's charter and by-laws are in full force and effect. Neither HFS nor
any of its Significant Subsidiaries is in violation of any provision of
its charter or by-laws or comparable organizational documents, except for
such violations that would not, individually or in the aggregate, have a
material adverse effect on HFS taken as a whole.
Section 4.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of HFS
consists of: (i) 300,000,000 shares of HFS
45
Common Stock of which, as of March 21, 1996, 102,775,148 shares were
issued and outstanding and no shares were held in treasury, (ii)
10,000,000 shares of preferred stock, par value $1.00 per share, of
which, as of March 21, 1996 no shares were issued and outstanding. All
the outstanding shares of HFS's capital stock are, and all shares of HFS
Common Stock which are to be issued pursuant to the Merger will be, when
issued in accordance with the terms hereof, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive rights
in respect thereto.
(b) Except as set forth on Schedule 4.2, as of March 21, 1996, there
are no existing options, warrants, calls, subscriptions or other rights
or other agreements, commitments, understandings or restrictions of any
character relating to the issued or unissued capital stock of HFS or any
of its Subsidiaries or obligating HFS or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any
shares of capital stock of, or other material equity interests in, HFS or
of any of its Subsidiaries or securities convertible into or exchangeable
for such shares, or equity interests or obligating HFS or any of its
Subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, commitment, understanding
or restriction. As of the
46
date of this Agreement, except as set forth on Schedule 4.2, there are no
contractual obligations of HFS or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of HFS or any of
its Subsidiaries. Since March 21, 1996 and prior to the date hereof, no
shares of HFS Common Stock have been issued except issuances of shares
reserved for issuance as described above and issued in the ordinary
course of business.
Section 4.3 AUTHORITY. HFS has the requisite corporate power and
authority to execute and deliver this Agreement and the Indemnification
Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and
the Indemnification Agreement by HFS and the consummation by HFS of the
Merger and the other transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors of HFS and no other
corporate proceedings on the part of HFS are necessary to authorize this
Agreement, the Indemnification Agreement or the Merger or for HFS to
consummate the transactions so contemplated. This Agreement has been, and
the Indemnification Agreement will be, duly executed and delivered by HFS
and constitutes or, in the case of the Indemnification Agreement, will
constitute a valid and binding obligation of HFS, enforceable against HFS
47
in accordance with its terms except that such enforcement may be limited
(i) by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, equity of redemption, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) by general
principles of equity (regardless of whether enforcement is sought in
equity or at law).
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) Except for such filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of,
the Securities Act of 1933, as amended (the "Securities Act"), to
register the shares of HFS Common Stock being issued to the Stockholders
pursuant hereto for resale, the HSR Act, filings under state securities
or "blue sky" laws in connection with the resale of the shares of HFS
Common Stock being issued to the Stockholders pursuant hereto, and the
filing of the Certificate of Merger as required by the DGCL and CGCL,
neither the execution, delivery or performance of this Agreement or the
Indemnification Agreement by HFS nor the consummation by it of the
transactions contemplated hereby or thereby nor compliance by HFS with
any of the provisions hereof or thereof will (i) conflict with or result
in any breach of any provision of the charter or by-laws of HFS or any of
its Subsidiaries,
48
(ii) require any filing by HFS or its Subsidiaries with, or permit,
authorization, consent or approval of, any Governmental Entity to be
obtained by HFS or its Subsidiaries, (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation
or acceleration) under, or result in the creation of a Lien (as defined
in Section 3.5) on any property or asset of HFS or its Subsidiaries
pursuant to, any of the terms, conditions or provisions of any Contract
to which HFS or any of its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound or affected or
(iv) violate any order, writ, injunction, decree, statute, ordinance,
rule or regulation applicable to HFS or any of its Subsidiaries except
for violations, breaches or defaults which would not, individually or in
the aggregate, have a material adverse effect on HFS.
(b) Neither HFS nor any of its Subsidiaries is in conflict with, or
in default or violation of, (i) any order, writ, injunction, decree,
statute, rule or regulation of any Governmental Entity applicable to HFS
or any of its Subsidiaries or by which any of them or any of their
properties or assets may be bound or (ii) any material Contract except
for
49
any such conflicts, defaults or violations which have not and are not
likely to have a material adverse effect on HFS.
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. HFS has made
available to the Company (i) a copy of HFS's Form 10-K for the fiscal
year ended December 31, 1995 (the "1995 10-K"), (ii) HFS's proxy
statements relating to HFS's 1995 annual meeting of stockholders held on
May 20, 1996 and the special meeting of stockholders held on January 22,
1996, (iii) description of the HFS Common Stock contained in Form 8-A
dated September 16, 1992, including the amendment on Form 8-A/A dated
September 1, 1995 and (iv) HFS's Current Reports on Form 8-K dated March
8, 1996 and April 9, 1996 (the foregoing being referred to herein,
collectively, as the "HFS SEC Documents"). The HFS SEC Documents, at the
time filed, (a) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied
in all material respects with the applicable requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or the
Securities Act, as the case may be. The consolidated financial statements
of HFS included in the HFS SEC Documents comply as to form in all
material respects with appli-
50
cable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present (subject, in the
case of the unaudited statements, to normal, recurring audit adjustments
which will not be material in amount) the consolidated financial position
of HFS and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended. Since the date of the 1995 10-K, HFS has not made any
material change in its accounting principles, practices or methods, nor
has there occurred any event which has had or might have a material
adverse effect on the business, results of operations or financial
condition of HFS.
Section 4.6 BROKERS OR FINDERS. Neither HFS nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any brokers' or finder's
fee or any other commission or similar fee in connection with this
Agreement or the Ancillary Agreements or any of the transactions
contemplated hereby or thereby.
51
Section 4.7 FULL DISCLOSURE. As of the Closing Date, there will be
no fact or condition which HFS has not disclosed to the Company which
materially and adversely affects HFS and its Subsidiaries taken as a
whole.
Section 4.8 LITIGATION. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of HFS,
threatened which questions the validity or propriety of this Agreement or
any action to be taken by HFS in connection with this Agreement.
Section 4.9 NO OTHER REPRESENTATIONS. HFS is relying on no other
representations or warranties other than those contained in this
Agreement and understands and agrees the Company is making no
representation or warranty regarding the performance of the Franchise
Business. To the knowledge of HFS, as of the date hereof, there are no
facts or circumstances which could constitute a breach of the
representations and warranties of the Company.
ARTICLE V
COVENANTS
Section 5.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period
from the date of this Agreement and continuing until the Effective Time,
the Company agrees as to itself and its Subsidiaries that, except for the
Subsidiary-Parent Mergers, the Brother-Sister Merger, the Transfer, the
52
Distribution and the other transactions contemplated by the Distribution
Agreement, as contemplated or permitted by this Agreement or as provided
in the Disclosure Schedule, or to the extent that HFS shall otherwise
consent in writing, which consent shall not be unreasonably withheld:
(a) ORDINARY COURSE. The Company shall, and shall cause each of
its Subsidiaries to, conduct its business in the usual, regular and
ordinary course consistent with past practice and shall use all
reasonable efforts, and will cause each of its Subsidiaries to use
all reasonable efforts, to preserve intact the present business
organization, keep available the services of its present officers
and employees and preserve its relationships with customers,
suppliers and others having business dealings with it.
(b) DIVIDENDS; CHANGES IN STOCK. The Company shall not, nor
shall it permit any of its Subsidiaries to, nor shall the Company
propose to, (i) declare or pay any dividends on or make other
distributions (whether in cash, securities or property or any
combination thereof) in respect of any of its capital stock, (ii)
adjust, split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities
in respect of, in lieu
53
of or in substitution for shares of its capital stock or (iii)
repurchase, redeem or otherwise acquire, or permit any Subsidiary to
repurchase, redeem or otherwise acquire, any shares of capital stock
of the Company or any of its Subsidiaries.
(c) ISSUANCE OF SECURITIES. The Company shall not, nor shall
the Company permit any of its Subsidiaries to, issue, transfer,
pledge or sell, or authorize or propose or agree to the issuance,
transfer, pledge or sale of, any shares of its capital stock of any
class, any other equity interests or any securities convertible
into, or any rights, warrants, calls, subscriptions, options or
other rights or agreements, commitments or understandings to
acquire, any such shares, equity interests or convertible
securities.
(d) GOVERNING DOCUMENTS. The Company shall not, nor shall it
permit any of its Subsidiaries to, amend or agree to amend its
certificate of incorporation or by-laws or comparable organizational
documents.
(e) NO ACQUISITIONS; MATERIAL COMMITMENTS. The Company shall
not, nor shall it permit any of its Subsidiaries to, acquire or
agree to acquire by merging or consolidating with, or by purchasing
a substantial equity interest in or substantial portion of the
assets
54
of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets outside
the ordinary and usual course of business consistent with past
practice or otherwise enter into any material commitment or
transaction outside the ordinary and usual course of business
consistent with past practice.
(f) NO DISPOSITIONS. The Company shall not, nor shall it permit
any of its Subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets outside the ordinary and
usual course of business consistent with past practice.
(g) INDEBTEDNESS. Except for transactions in the ordinary
course of business, the Company shall not, nor shall it permit any
of its Subsidiaries to, (i) incur, assume, pre-pay, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for any indebtedness for borrowed money
or (ii) issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its
Subsidiaries or guarantee any obligations of others, or (iii) make
any loans, advances or capital
55
contributions to, or investments in, any other person in an amount
greater than $100,000.
(h) CHANGES TO BENEFIT PLANS. The Company shall not, nor shall
it permit any of its Subsidiaries to, (i) enter into, adopt, amend
(except as may be required by law and except for immaterial
amendments) or terminate any Compensation and Benefit Plan or other
employee benefit plan or any agreement, arrangement, plan or policy
between the Company or any of its Subsidiaries and one or more of
its directors, officers or employees, (ii) except for normal
increases in the ordinary course of business consistent with past
practice and the payment of bonuses to employees in the aggregate
not to exceed $10,000, increase in any manner, the compensation or
fringe benefits of any director, officer or employee or pay any
benefit to any director, officer or employee not required by any
plan or arrangement as in effect as of the date hereof or enter into
any contract, agreement, commitment or arrangement to do any of the
foregoing.
(i) FILINGS. The Company shall promptly provide HFS (or its
counsel) copies of all filings made by the Company with any federal,
state or foreign Governmental Entity in connection with this
Agreement, the Distribu-
56
tion Agreement and the transactions contemplated hereby
and thereby.
(j) ACCOUNTING POLICIES AND PROCEDURES. The Company will not
and will not permit any of its Subsidiaries to change any of its
accounting principles, policies or procedures, except as may be
required by United States generally accepted accounting principles.
(k) LAWSUITS AND CLAIMS. The Company will not, and shall not
permit any of its Subsidiaries to, settle or compromise any material
suit or claim or threatened suit or claim.
(l) CONTRACTS. The Company will not, and shall not permit any
of its Subsidiaries to, modify, amend or terminate any Contract,
waive, release, relinquish or assign any Contract or other right or
claim or cancel or forgive any indebtedness owed to the Company or
its Subsidiaries, other than in the ordinary course of business
consistent with past practice or which is not material to the
business of the Retained Company.
(m) TAX MATTERS. The Company will not, and shall not permit any
of its Subsidiaries to, make any tax election or settle or
compromise any tax liability, in either case that is material to the
Company or any of its Subsidiaries individually or taken as a whole.
57
(n) SPINCO. The Company shall (i) not engage in or allow
transfers of assets or liabilities or engage or enter into other
transactions between the Company and its Subsidiaries, (ii) abide
and cause Spinco to abide by their respective obligations under the
Distribution Agreement, and (iii) not terminate or amend, or waive
compliance with any obligations under, the Distribution Agreement.
(o) OTHER ACTIONS. Notwithstanding the fact that such action
might otherwise be permitted pursuant to this Section 5.1, the
Company shall not knowingly, nor shall it permit any of its
Subsidiaries to knowingly, take any action that would or is
reasonably likely to result in any of the conditions to the Merger
set forth in Article VII not being satisfied or that would
materially impair the ability of the Company to consummate the
Distribution or the Merger in accordance with the terms hereof and
of the Distribution Agreement or materially delay such consummation.
Section 5.2 COVENANTS OF HFS.
(a) Filings. HFS shall promptly provide the Company (or its
counsel) copies of all filings made by HFS with any federal, state
or foreign Governmental Entity in connection with this Agreement,
the Distribution
58
Agreement and the transactions contemplated hereby and thereby,
other than those which would not otherwise be publicly made
available, and provide the Company with any press releases it issues
regarding matters of a material nature.
(b) Consents. HFS will not unreasonably withhold a consent
required under the Distribution Agreement.
(c) Waivers. HFS shall cause C21-Real Estate to waive its
rights of first refusal and consent to the transactions contemplated
by this Agreement and the Distribution Agreement under the Company
Subfranchise Agreement and the Northwest Subfranchise Agreement.
(d) Other Actions. During the period from the date of this
Agreement and continuing until the Effective Time, HFS agrees as to
itself and its Subsidiaries that HFS shall not take any action that
would or is reasonably likely to result in any of the conditions to
the Merger set forth in Article VII not being satisfied or that
would materially impair the ability of HFS to consummate the Merger
in accordance with the terms hereof or materially delay such
consummation.
59
ARTICLE VI
ADDITIONAL AGREEMENTS AND
OTHER ADDITIONAL MATTERS
Section 6.1 REASONABLE EFFORTS. Subject to the terms and conditions
of this Agreement, each of the parties hereto agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and each party shall promptly
consult with the other and provide any necessary information and material
with respect to all filings made by such party with any Governmental
Entity in connection with this Agreement and the transactions
contemplated hereby. HFS agrees that it will take all necessary action
(i) to promptly prepare and file with the SEC a registration statement
(the "Registration Statement") to register the shares of HFS Common Stock
being issued to the Stockholders pursuant hereto for resale, (ii) as may
be required to have the Registration Statement declared effective under
the Securities Act as promptly as practicable, and (iii) as may be
required to be taken under applicable state securities or "blue sky" laws
in connection with the resale of the shares
60
of HFS Common Stock being issued to the Stockholders pursuant hereto.
Section 6.2 ACCESS TO INFORMATION. Upon reasonable notice, the
Company shall (and shall cause its Subsidiaries to) afford to the
officers, employees, accountants, counsel and other representatives of
HFS, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and
records and all other information concerning its business, properties and
personnel as HFS may reasonably request. Unless otherwise required by
law, the parties will hold any such information which is non-public in
confidence. Section
6.3 STOCK EXCHANGE LISTING. HFS shall use its reasonable efforts to
cause the shares of HFS Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date. Section
6.4 EMPLOYEE MATTERS; EMPLOYEE BENEFIT PLANS. (a) Schedule 6.4(a)
hereto sets forth a list of all employees of the Company and its
Subsidiaries who, if the Effective Time occurred as of the date of this
Agreement, will be offered employment with the Retained Company following
the Distribution and the Merger (the "Retained Employees").
61
(b) The Schedule 6.4(b) hereto sets forth (i) a list of all
employees of the Company and its Subsidiaries who will become employees
of Spinco following the Closing and whose services will be made available
to the Retained Company (the "Transitional Employees") from the Closing
Date until the earlier of the conversion of the business information
systems of the Franchise Business to HFS' systems and September 30, 1996
(the "Transitional Employees") and (ii) the amount of annual salary to be
paid to each Transitional Employee. Spinco agrees that the Retained
Company shall have (i) the right to the services of each of the
Transitional Employees to the extent that it requires, which may include
up to substantially all of their working hours, at an hourly rate based
on their annual compensation and a forty-hour week and (ii) the work
requested to be performed by the Transitional Employees for the Retained
Company to be completed on a timely basis. HFS agrees that Spinco shall
be paid promptly for the services of the Transitional Employees upon
receipt of an invoice from Spinco for their services.
(c) Prior to the Distribution, the Company shall, and shall cause
its Subsidiaries to, assign to Spinco or its Subsidiaries and/or
terminate any employment and/or severance agreements with employees of
the Company who are not
62
Retained Employees. The parties hereto acknowledge and agree that, whether or
not such employment and severance agreements are so assigned and/or
terminated, all liabilities and obligations under or arising from such
agreements (or, with respect to such employees, under any severance plan or
policy of the Company) shall be deemed to be "Spinco Liabilities," as such
term is defined in the Distribution Agreement and the Company shall have no
obligation or liability with respect thereto.
(d) HFS shall not have any liability or obligation, including,
without limitation, in respect of severance, to or for any employee or former
employee of the Company or any of its Subsidiaries based upon events,
occurrences or services performed by such employees or former employees for
the Company or any of its Subsidiaries on or prior to the Closing Date and, in
the case of employees of the Company or any of its Subsidiaries other than
Retained Employees, following the Closing Date.
Section 6.5 FEES AND EXPENSES. Except as set forth in the
Distribution Agreement, whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
63
Section 6.6 PRE-MERGER TRANSACTIONS. Prior to the Closing, the
Company will take all reasonable action necessary to effect the
Subsidiary-Parent Mergers, the Brother-Sister Merger, the Transfer, and
the Distribution pursuant to the terms of the Distribution Agreement,
which shall not be amended or modified without HFS's written consent
where HFS's consent is required thereunder, which consent will not be
unreasonably withheld.
Section 6.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt written notice to HFS, and HFS shall give prompt written notice to
the Company, of (a) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause (i) any
representation or warranty contained in this Agreement to be untrue or
inaccurate or (ii) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied and (b) any failure of the
Company or HFS, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.7 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
64
Section 6.8 DEPOSIT AND ESCROW. Simultaneously with the execution of
this Agreement, HFS has delivered to Wells Fargo Bank, N.A. (the "Escrow
Agent") the sum of $5,000,000 as a good faith deposit, which sum (the
"Deposit") is to be held in escrow pursuant to the Escrow Agreement
(substantially in the form attached hereto as Exhibit D) until the
Closing or the earlier termination of this Agreement pursuant to the
terms of this Agreement. The Deposit shall be distributed as follows:
(i) In the event that the Closing occurs, HFS and the Company
shall instruct the Escrow Agent to return the Deposit to HFS;
(ii) In the event that the Closing does not occur due to HFS's
Default (as defined in Section 8.2 of this Agreement), and the
Company elects, in its sole discretion, to waive its right to seek
specific performance under Section 9.10 of this Agreement, HFS and
the Company shall instruct the Escrow Agent that the Deposit should
be delivered to the Company as and for liquidated damages for such
Default; and thereafter any and all obligations and liabilities of
the parties to each other with respect to the transactions
contemplated by this Agreement shall terminate;
65
(iii) In the event that the Closing does not occur due to the
Company's Default, HFS and the Company shall instruct the Escrow
Agent that the Deposit should be delivered to HFS;
(iv) In the event that the Closing does not occur due to
neither HFS's nor the Company's Default, HFS and the Company shall
instruct the Escrow Agent to return the Deposit to HFS.
Section 6.9 RELEASE AND DISCHARGE. Prior to or on the Closing Date,
the Company will, on a basis and pursuant to documentation reasonably
satisfactory to HFS, cause the Retained Company and its properties or
assets to be released and discharged from any and all liabilities,
obligations, indebtedness, guarantees, pledges and liens.
Section 6.10 HFS SHARE ISSUANCE. Prior to the Closing, the Company
understands and agrees that HFS and its Subsidiaries may issue additional
shares of their capital stock and that such issuance shall not be a
violation of the representations and warranties made by HFS pursuant to
Section 7.2 hereof.
Section 6.11 LEASE. Spinco agrees that at the Closing it will enter
into a lease with HFS for a portion of the office located at 3400 Inland
Empire Boulevard, Ontario,
66
California in substantially the form set forth as Exhibit H hereto (the
"Occupancy Agreement").
Section 6.12 CERTAIN TAX-RELATED REPRESENTATIONS,
COVENANTS AND OTHER MATTERS.
(a) Tax Related Representations of HFS.
(i) HFS and its Subsidiaries wish to acquire only the
Franchise Business and the Franchise Business Assets held by
the Company and its Subsidiaries. They have no interest in
operating, and are unwilling to acquire, any other business of
the Company or its Subsidiaries, including, without limitation,
the insurance business held by RIS (the "Insurance Business").
HFS is unwilling to engage in a transaction to acquire the
Franchise Business if such transaction also would involve the
acquisition of any of the Other Assets. "Other Assets" means
all businesses, cash and other assets held by the Company and
its Subsidiaries, other than the Franchise Business and the
Franchise Business Assets. (ii) HFS owns directly 87.5 percent
of the issued and outstanding shares of the sole outstanding
class of capital stock of C21 Holding Corp., a Delaware
corporation ("Holding"). Hold-
67
ing owns directly all of the issued and outstanding shares of
the sole outstanding class of capital stock of C21-Real Estate,
which directly operates the Century 21 franchising business. In
connection with its proposed acquisition of the Franchise
Business from the Company, HFS has stated its intention to
cause the Franchise Business to be directly operated by
C21-Real Estate and has expressed its preference that the
Franchise Business and the Franchise Business Assets be owned
at the time of the acquisition by, and therefore acquired from,
a single corporate owner.
(iii) The stock of C21-Real Estate owned by Holding has a
value in excess of $100 million. Since September 1, 1995, (a)
C21-Real Estate has been directly engaged in the Century 21
master franchising business in certain regions of the country
and has owned assets with a value in excess of $100 million;
(b) Holding has owned directly all of the issued and
outstanding shares of the sole outstanding class of common
stock of C21-Real Estate; and (c) HFS has owned directly 87.5
percent of the issued and outstanding shares of
68
the sole outstanding class of capital stock of Holding.
(iv) There are no contractual obligations of HFS or any of
its Subsidiaries to repurchase, redeem, or otherwise acquire
any shares of capital stock of HFS, Holding or C21-Real Estate
and no options or other rights to acquire any capital stock of
Holding or C21-Real Estate are outstanding; provided, however,
that, pursuant to an agreement between Holding, HFS, and Robert
W. Pittman and others (collectively, the "Management
Stockholders") dated August 1, 1995, as amended (the
"Subscription Agreement"), (i) the Management Stockholders hold
certain preemptive rights with respect to Holding and its
subsidiaries, and provided, further, that, pursuant to such
Subscription Agreement, the Management Stockholders, generally,
have the ability to subscribe for an amount of equity
securities (e.g., any capital stock, or securities convertible
into or exchangeable for any capital stock), pro rata to the
Management Stockholders' proportional ownership of Holding's
capital stock, that is offered by Holding or its subsidiaries,
(ii) under certain condi-
69
tions, HFS has a call option to purchase all of the Holding
common stock owned by the Management Stockholders for the fair
market value of such stock when the option is exercised (the
"Exercise Price"), and the Management Stockholders have a put
option to require HFS to purchase all of their Holding common
stock at the Exercise Price and (iii) the Management
Stockholders have been granted tag-along rights in respect of a
sale by HFS of Holding common stock, if, after giving effect to
such sale, HFS would own less than a majority of the Holding
common stock.
(b) Tax Related Covenants of HFS.
(i) To accomplish its business objective of causing all of
the Century 21 business to be directly operated by C21-Real
Estate, at the Closing and immediately following the Merger,
HFS shall (a) contribute the Franchise Business and the
Franchise Business Assets to Holding; and (b) cause Holding to
contribute the Franchise Business and the Franchise Business
Assets to C21-Real Estate, in transactions intended to be
tax-free (i) pursuant to Section 351 of the Code and (ii)
pursuant to Section 368(a)(2)(C) of the Code.
70
(ii) Following the Merger, HFS will not take or cause or
permit any of its Subsidiaries to take any action, or suffer to
exist any condition, including, without limitation, cessation
of the Franchise Business, or sales or other dispositions of
any of the Franchise Business Assets, that would disqualify the
Merger as a reorganization within the meaning of Section 368(a)
of the Code. For purposes of this section, the Parties agree
that the following shall not constitute a breach by HFS of this
covenant: (A) dispositions made in the ordinary course of
business of any of the Franchise Business Assets, (B) transfers
of any of the Franchise Business Assets pursuant to Section
368(a)(2)(C) of the Code, and (C) any action, omission or
failure to take action by HFS in connection with the sale,
exchange, transfer by gift or other disposition (including
through transactions which would have the ultimate economic
effect of a disposition, including but not limited to short
sales and equity swap types of arrangements) (collectively,
"Disposition") of shares of HFS Common Stock by a shareholder
of the Company to any person where such Disposition is other
than
71
pursuant to a merger or other agreement to which HFS is a party
pursuant to which such shareholder of the Company is legally
compelled to make such Disposition.
(c) Tax Related Covenants of the Company and Spinco.
(i) In order to facilitate the acquisition by HFS of the
Franchise Business and the Franchise Business Assets and the
operation and acquisition by Spinco of the Insurance Business
and the Other Assets, respectively, the Company and Spinco,
pursuant to Sections 2.1, 2.2 and Article III of the
Distribution Agreement, will cause the following transactions
to occur, in the following order, prior to the Merger:
(A) pursuant to a plan of complete liquidation and
merger, C21-Idaho will be merged into its parent
corporation, C21-Oregon, with C21-Oregon continuing as the
surviving corporation, in a transaction intended to be a
tax-free liquidation pursuant to Section 332 of the Code;
(B) pursuant to a plan of complete liquidation and
merger, C21-Washington will
72
be merged into its parent corporation, C21-Oregon, with
C21-Oregon continuing as the surviving corporation, in a
transaction intended to be a tax-free liquidation pursuant
to Section 332 of the Code;
(C) pursuant to a plan of complete liquidation and
merger, C21-Oregon will be merged into its parent
corporation, the Company, with the Company continuing as
the surviving corporation, in a transaction intended to be
a tax-free liquidation pursuant to Section 332 of the
Code, with the result that by operation of law the
Company, prior to the Merger, will own the entire
Franchise Business and all of the Franchise Business
Assets (collectively, the three mergers described
immediately above are referred to as the
"Subsidiary-Parent Mergers");
(D) the Company will make a contribution to the
capital of Regional Insurance Services, Inc., a Washington
corporation ("RIS"), which will then be a wholly-owned
subsidiary of the Company, of any and all
73
then-outstanding indebtedness of RIS to the Company;
(E) pursuant to a plan of merger, RIS will be merged
with and into Spinco (the "Brother-Sister Merger"), with
Spinco continuing as the surviving corporation;
(F) pursuant to a plan of reorganization, the Company
will transfer as a contribution to the capital of Spinco
certain assets of the Company, and Spinco will assume
certain liabilities of the Company, which, in each case,
HFS is unwilling to acquire (the "Transfer"), in a
transaction that, together with the Distribution, is
intended to be a tax-free reorganization pursuant to
Section 368(a)(1)(D) of the Code; and
(G) pursuant to a plan of reorganization, the Company
will distribute (the "Distribution") to the Stockholders
all of the issued and outstanding shares of capital stock
of Spinco (the "Spinco Common Stock") in redemption of a
certain number of their shares of Company Common Stock, in
a trans-
74
action intended to be a tax-free distribution pursuant to
Section 355 of the Code.
(ii) On or after the date of this Agreement and prior to the
Merger, the Company will not take or cause or permit any of its
Subsidiaries to take any action, or suffer to exist any condition,
that would disqualify the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
6.13 COMPUTER ACCESS. For a reasonable time period not exceeding six
months following the Merger, Spinco agrees that it will make available
to, and allow HFS access to, any computer hardware, software, computer
programs and systems and documentation relating to the Franchise Business
in order for HFS to process information relating to the Franchise
Business and to obtain and transfer such information to its own database.
ARTICLE VII
CONDITIONS
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of the parties to effect the Merger
are subject to the satisfaction, on or prior to the Closing Date, of the
following conditions:
75
(a) NYSE LISTING. The shares of HFS Common Stock issuable to
the Company's Stockholders pursuant to this Agreement shall have
been authorized for listing on the NYSE, upon official notice of
issuance.
(b) HSR APPROVAL. Any applicable waiting period under the HSR
Act shall have expired or been terminated.
(c) OTHER APPROVALS. Other than the filing provided for by
Section 1.1, all authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations of waiting periods
imposed by, any other Governmental Entity, the failure to obtain
which would have a material adverse effect on the Surviving
Corporation and its Subsidiaries, the Retained Company or Spinco and
its Subsidiaries, in each case where appropriate taken as a whole,
shall have been filed, occurred or been obtained.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining
order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in
effect (each party agreeing to use all reasonable ef-
76
forts to have any such order reversed or injunction lifted).
(e) CONSUMMATION OF THE PRE-MERGER TRANSACTIONS. The
Subsidiary-Parent Mergers, the Brother-Sister Merger, the Transfer
and the Distribution shall have occurred in accordance with the
Distribution Agreement.
(f) NO ACTION. No action, suit or proceeding by any
Governmental Entity before any court or governmental or regulatory
authority shall be pending or threatened against the Company, HFS,
Spinco or any of their respective Subsidiaries challenging the
validity or legality of the transactions contemplated by this
Agreement or the Distribution Agreement, other than actions, suits
or proceedings which, in the reasonable opinion of counsel to the
parties hereto, are unlikely to result in an adverse judgment.
Section 7.2 CONDITIONS OF OBLIGATIONS OF HFS. The obligation of HFS
to effect the Merger is subject to the satisfaction, on or prior to the
Closing Date, of the following conditions unless waived by HFS:
(a) REPRESENTATIONS AND WARRANTIES. (i) Each of the
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects as of
the date hereof and as of
77
the Closing Date as though made on and as of the Closing Date, except
to the extent a representation and warranty speaks as of an earlier
date in which case it shall be true as of the date at which it
speaks, and HFS shall have received a certificate signed on behalf of
the Company by the chief executive officer or the chief financial
officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and
its Subsidiaries (including Spinco) shall have performed in all
material respects all obligations required to be performed by it
under this Agreement and the Distribution Agreement at or prior to
the Closing Date, and HFS shall have received a certificate signed
on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(c) OPINIONS OF COUNSEL. HFS shall have received the opinion of
Kindel & Anderson L.L.P., special counsel to the Company,
substantially to the effect set forth in Exhibit 7.2(c) hereto.
(d) TAX OPINION. HFS shall have received a copy of the written
opinion to Spinco of Kindel & Anderson L.L.P., special counsel to
the Company, which opinion shall specifically set forth the facts
and legal analy-
78
sis forming the basis of such opinion, that for federal income tax
purposes:
(i) no gain or loss was recognized with respect to the
Franchise Business Assets by C21-Idaho, C21-Washington,
C-21-Oregon or the Company (collectively, the "Target Group")
pursuant to the mergers of C21-Idaho and C21-Washington into
C21-Oregon and the merger of C21-Oregon into the Company,
except for any gain or loss which may have resulted (A) from
the satisfaction or deemed satisfaction of any indebtedness
between members of the Target Group, (B) from any corporation
ceasing to be a member of the affiliated group filing
consolidated federal income tax returns that had the Company as
its common parent corporation or (C) from the termination of
such affiliated group; and
(ii) the Merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code and the Company
and HFS will each be a party to the reorganization within the
meaning of Section 368(b) of the Code, with the consequence
that:
79
a. No gain or loss will be recognized by either
the Company or HFS pursuant to the Merger;
b. No gain or loss will be recognized by
the shareholders of the Company in the exchange of
their Shares of Company Common Stock for shares of
HFS Common Stock pursuant to the Merger (except to
the extent cash is received in lieu of fractional
shares of HFS Common Stock);
c. The tax basis of the shares of HFS
Common Stock received by the shareholders of the
Company in the exchange of Company Common Stock
pursuant to the Merger will be the same as the tax
basis immediately prior to the Merger of the Shares
of Company Common Stock exchanged therefor (less
any portion of such tax basis allocable to any
fractional interest in any share of HFS Common
Stock for which a shareholder of the Company
receives cash); and
d. The holding period of the HFS Com-
mon Stock received by the shareholders of the
Company in exchange for Shares of Company
80
Common Stock pursuant to the Merger will include
the period that the Shareholders held such Shares
of Company Common Stock, provided such Shares were
held as capital assets by the shareholders on the
date of the Merger.
For purposes of rendering the foregoing opinion, counsel
may receive and rely upon representations contained in
appropriate certificates of the Company, Spinco, HFS and
others.
(e) NON-COMPETITION AGREEMENTS. Non-Competition
Agreements substantially in the form attached as Exhibit
E and Exhibit F hereto (the "Non-Competition Agree-
ments") shall have been entered into by each of Philip J.
Yeager and William P. Yeager, Sr., respectively.
(f) INDEMNIFICATION AND OCCUPANCY AGREEMENTS. The
Indemnification Agreement and Occupancy Agreement shall
have been executed by Spinco.
(g) GUARANTY. The Guaranty substantially in the form
attached as Exhibit G hereto shall have been entered
into by the parties thereto.
Section 7.3 CONDITIONS OF OBLIGATIONS OF THE COMPANY. The obligation
of the Company to effect the Merger is subject to the satisfaction of
the following conditions, on or
81
prior to the Closing Date, unless waived by the Company in writing:
(a) REPRESENTATIONS AND WARRANTIES. (i) Each of the
representations and warranties of HFS contained in this Agreement
shall be true and correct in all material respects as of the date
hereof and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representation and warranty
speaks as of an earlier date in which case it shall be true as of
the date at which it speaks, and the Company shall have received a
certificate signed on behalf of HFS by the chief executive officer
or the chief operating officer of HFS to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF HFS. HFS shall have performed
in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate signed on behalf of HFS by
the chief executive officer or the chief operating officer of HFS to
such effect.
(c) OPINIONS OF COUNSEL. The Company and Spinco shall have
received the opinions of Skadden, Arps, Slate, Meagher & Flom,
special counsel to HFS, substan-
82
tially to the effect set forth in Exhibit 7.3(c) hereto.
(d) ADDITIONAL AGREEMENTS. The Indemnification Agreement and
the Agreement for Continuation of Litigation, substantially in the
Form of Exhibit I hereto (the "Litigation Agreement"), shall have
been executed by HFS and Century 21 Real Estate Corporation.
(e) NOTICE TO ESCROW AGENT. The Company shall have delivered
instructions to the Escrow Agent to release the Deposit.
(f) ADDITIONAL AGREEMENTS. Spinco and the other parties to the
Indemnification and Non-Competition Agreements, which shall be
substantially in the form set forth as Exhibit B, Exhibit E and
Exhibit F hereto, respectively, shall have executed such agreements.
(g) WAIVER OF RIGHTS OF FIRST REFUSAL. C21-Real Estate shall
have waived in writing its rights of first refusal under the Company
Subfranchise Agreement and the Northwest Subfranchise Agreement and
consented to the transactions contemplated by this Agreement and the
Distribution Agreement.
(h) REGISTRATION STATEMENT EFFECTIVENESS. The Registration
Statement shall have been declared effective, and all actions
required to be taken under appli-
83
cable state securities or "blue sky" laws in connection with the
issuance of the shares of HFS Common Stock being issued to the
Stockholders pursuant to this Agreement shall have been taken;
provided, however, that if the foregoing condition that the
Registration Statement shall have been declared effective by the SEC
is waived by the Company, each holder of Company Common Stock at the
Closing shall deliver an investment representation letter stating
that the holder is holding the HFS Common Stock to be received in
the Merger for investment and agreeing to a restrictive legend being
placed on the certificates therefor regarding the non-registration
of the HFS Common Stock being placed on the certificates therefor.
(i) INSURANCE BUSINESS LICENSES. Spinco shall be licensed to
conduct the Insurance Business in Washington, Oregon, Idaho and
California.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time:
(a) by mutual written consent of HFS and the Company;
84
(b) by either HFS or the Company if the Merger shall not have
been consummated before May 15, 1996 (or if the Registration
Statement is reviewed by the SEC, May 25, 1996; provided, however,
that HFS agrees that the condition in Section 7.3(h) of this
Agreement may be waived by the Company on or before May 14, 1996 and
if so waived, there shall be no extension to May 25, 1996 as a
result of SEC review of the Registration Statement) has caused the
Registration Statement to not be effective by May 15, 1996) (unless
the failure to so consummate the Merger by such date shall be due to
the action or failure to act of the party seeking to terminate this
Agreement, which action or failure to act constitutes a breach of
this Agreement);
(c) by HFS if there has been a material breach on the part of
the Company in the representations, warranties or covenants of the
Company set forth herein or in the Distribution Agreement, or any
material failure on the part of the Company to comply with its
obligations hereunder or thereunder and such breach or failure is
not cured if capable of cure by the Closing Date;
(d) by the Company if there has been a material breach on the
part of HFS in the representations, warranties or covenants of HFS
set forth herein, or any
85
material failure on the part of HFS to comply with its obligations
hereunder and such breach or failure is not cured if capable of cure
by the Closing Date; or
(e) by HFS or the Company if there has been a material breach
on the part of the other party in its representations, warranties,
or covenants or a material failure on the part of the other to
comply with its obligations hereunder and such breach or failure is
not cured if capable of cure by the Closing Date.
Section 8.2 EFFECT OF TERMINATION. In the event of a termination of
this Agreement by either the Company or HFS as provided in Section 8.1,
(i) if such termination is not the result of a Default by either party,
this Agreement and the Distribution Agreement shall forthwith become void
and there shall be no liability or obligation on the part of HFS or the
Company, and upon request therefor, each party shall redeliver all copies
of all documents, work papers and other materials of any other party
relating to or furnished in connection with the transactions contemplated
by this Agreement to the party furnishing the same and (ii) if the
Company terminates this Agreement because of HFS's Default and, in its
sole discretion, elects not to seek specific performance under Section
9.10 of this Agreement, the Company agrees that its only remedy shall be
to receive the Deposit
86
as liquidated damages. For purposes of this Section 8.2, "Default" shall
mean: a party's failure to consummate this Agreement where all conditions
to its obligations to consummate it were satisfied; or the breach of a
material covenant which is not capable of being cured as of the Closing;
or the failure to cure a material covenant prior to Closing after notice
from the non-breaching party; or a material breach or material inaccuracy
of a representation or warranty, which in the exercise of reasonable
business judgment, would cause a person to not wish to consummate the
transactions contemplated hereby.
Section 8.3 WAIVER OF RESCISSION. Notwithstanding any breach or
default by any party of any of their respective representations,
warranties, covenants or agreements under this Agreement, if the
transactions contemplated by this Agreement shall be consummated at the
Closing, each such party waives, other than for fraud committed by
another party, any rights that it or they may have to rescind this
Agreement or the transactions consummated.
ARTICLE IX
MISCELLANEOUS
Section 9.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and
87
agreements in this Agreement or in any instrument delivered pursuant to
this Agreement shall survive the Effective Time and continue until the
time provided in the Indemnification Agreement.
Section 9.2 AMENDMENT. This Agreement may be amended by the parties
hereto only by an instrument in writing signed on behalf of each of the
parties hereto, by action taken or authorized by their respective Boards
of Directors, at any time before or after approval of the matters
presented in connection with the Merger by the Stockholders of the
Company but, after any such approval, no amendment shall be made which by
law requires further approval by such Stockholders without such further
approval.
Section 9.3 EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by the respective
Boards of Directors, may to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the agreements or
conditions contained here. Any agreement on the part of a party hereto to
any such exten-
88
sion or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party.
Section 9.4 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given on the date delivered if
delivered personally (including by reputable overnight courier), on the
date transmitted if sent by telecopy (which is confirmed) or 72 hours
after mailing if mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to HFS, to:
HFS Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054-0278
Attn: James E. Buckman, Esq.
Executive Vice President
and General Counsel
Telecopy: (201) 428-3260
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: Mark T. Shehan, Esq.
Telecopy: (212) 735-2000
and
89
(b) if to the Company, to:
Century 21 Region V, Inc.
3400 Inland Empire Boulevard,
Suite 205
Ontario, California 91764-5510
Attn: William P. Yeager
Telecopy: (909) 941-1093
with a copy to:
Kindel & Anderson L.L.P.
5959 Topanga Canyon Boulevard
Suite 244
Woodland Hills, California 91367
Attn: Christopher J. Husa, Esq.
Telecopy: (818) 346-6502
Section 9.5 INTERPRETATION. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without
limitation."
Section 9.6 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement
and shall become effective when a counterpart has been signed by each of
the parties and de-
90
livered to each of the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement, the Distribution Agreement, the Indemnification Agreement, the
Non-Competition Agreements, the Guaranty and the Escrow Agreement
(including the documents and the instruments referred to herein and
therein) (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties
to this Agreement with respect to the subject matter hereof and thereof,
and (b) are not intended to confer upon any person other than the
Stockholders (who are hereby acknowledged to be third party beneficiaries
of all such agreements) and the parties hereto and thereto any rights or
remedies hereunder or thereunder.
Section 9.8 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of California without
regard to any applicable conflicts of law principles.
Section 9.9 JURISDICTION. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby
may be brought only in the United States District Court for the Central
District
91
of California or any California state court sitting in Los Angeles,
California, and each of the parties hereby consents to the jurisdiction
of such courts (and of the appropriate appellate courts therefrom) in any
such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding in any
such court or that any such suit, action or proceeding which is brought
in any such court has been brought in an inconvenient forum. Process in
any such suit, action or proceeding may be served on any party anywhere
in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of
process on such party as provided in this Section 9.9 shall be deemed
effective service of process on such party.
Section 9.10 SPECIFIC PERFORMANCE. The parties hereto agree that if
any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached, irreparable damage
would occur, no adequate remedy at law would exist and damages would be
difficult to determine, and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy
at law or equity.
92
Section 9.11 PUBLICITY. Except as otherwise required by law or the
rules of NYSE, for so long as this Agreement is in effect, neither the
Company nor HFS shall, nor shall they permit any of their Subsidiaries
to, issue or cause the publication of any press release or other public
announcement with respect to the transactions contemplated by this
Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed.
Section 9.12 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise, other than
in connection with the Merger), without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 9.13 PREVAILING PARTY EXPENSES. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for all
expenses and costs incurred by the prevailing party or parties in connec-
93
tion with such action, including, without limitation, attorneys'
fees.
94
IN WITNESS WHEREOF, HFS, the Company and Spinco have caused this
Agreement and Plan of Merger and Reorganization to be signed by their
respective officers thereunto duly authorized as of the date first written
above.
HFS INCORPORATED
By: /s/ JAMES E. BUCKMAN
-----------------------
Name: James E. Buckman
Title: Executive Vice
President
CENTURY 21 REGION V, INC.
By: /s/ PHILIP J. YEAGER
----------------------
Name: Philip J. Yeager
Title: Chairman and Chief
Executive Officer
YEAGER REAL ESTATE AND FINANCIAL
SERVICES, INC.
By: /s/ W.P. YEAGER
----------------------
Name: W.P. Yeager
Title: President
95