PURCHASE AGREEMENT
among
EQUIVEST FINANCE, INC.
and
KOSMAS GROUP INTERNATIONAL, INC.
and
AVENUE PLAZA, LLC
and
OCEAN CITY COCONUT MALORIE RESORT, INC.
and
CAPITAL CITY SUITES, INC.
and
KOSMAS CARIBBEAN HOLDING CORPORATION
and
THE STOCKHOLDERS NAMED HEREIN
and, if applicable,
ST. AUGUSTINE RESORT DEVELOPMENT GROUP, INC.
Dated as of February 16, 1999
RECITALS.....................................................................1
ARTICLE I
DEFINITIONS............................................................2
ARTICLE II
PURCHASE AND SALE.....................................................14
2.01 Purchase and Sale of Assets.....................................14
2.02 Excluded Assets.................................................15
2.03 Additional Assets; Conversion to Stock Acquisition..............15
2.04 Retained Liabilities and Assumed Liabilities....................16
2.05 Stock Purchase..................................................16
2.06 Purchase Price..................................................16
2.07 Closing Adjustment Amount.......................................17
2.08 Advances........................................................18
2.09 Payables Account................................................18
2.10 Earn-Out Payment................................................19
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE
STOCKHOLDERS..........................................................19
3.01 Organization....................................................19
3.02 Articles of Incorporation, Bylaws and Agreements................20
3.03 Authorization...................................................20
3.04 Financial Statements and Absence of Changes.....................20
3.05 Title to and Condition of Assets and Property...................21
3.06 Intellectual Property...........................................23
3.07 Insurance.......................................................23
3.08 Environmental Matters...........................................23
3.09 Minute and Stock Books; Records.................................24
3.10 Liabilities.....................................................24
3.11 Contracts.......................................................24
3.12 Litigation and Compliance.......................................26
3.13 Non-Contravention; Conflicts....................................27
3.14 Capital Stock of the Company....................................27
3.15 Transactions in Capital Stock. .................................28
3.16 Subsidiaries Stock..............................................28
3.17 Licenses, Permits and Required Consents.........................28
3.18 Labor and Employment............................................28
3.19 Employee Benefit Plans..........................................30
3.20 Taxes and Tax Returns...........................................34
3.21 Receivables.....................................................38
3.22 Equipment.......................................................38
3.23 Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions..................................38
3.24 Certain Interests...............................................38
3.25 Brokers.........................................................39
3.26 Bulk Sales......................................................39
3.27 Private Placement...............................................39
3.28 Gross Receipts Tax..............................................39
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................40
4.01 Organization....................................................40
4.02 Articles of Incorporation, Bylaws and Agreements................40
4.03 Authorization...................................................40
4.04 Purchaser Common Stock..........................................40
4.05 Non-Contravention; Required Consents............................40
4.06 Litigation and Compliance.......................................41
ARTICLE V
COVENANTS OF SELLERS AND STOCKHOLDERS.................................42
5.01 HSR Filings.....................................................42
5.02 Conduct of Acquired Business by Sellers.........................42
5.03 Access..........................................................45
5.04 Confidentiality.................................................45
5.05 Non-Competition and Non-Solicitation............................46
5.06 Transition of Plans.............................................47
5.07 Acquisition Proposals...........................................47
5.08 Agreement to Pay Retained Liabilities...........................47
5.09 Disclosure Schedules............................................47
ARTICLE VI
COVENANTS OF PURCHASER................................................47
6.01 HSR Filings.....................................................47
6.02 Books and Records: Access.......................................48
6.03 Agreement to Pay Assumed Liabilities............................48
6.04 Employment Negotiations with John Santopadre....................48
6.05 Assistance to Sellers...........................................48
6.06 Payment of Remaining Purchase Price.............................48
ARTICLE VII
ADDITIONAL COVENANTS BY THE PARTIES...................................48
7.01 Expenses; Transfer Taxes; Apportionment.........................49
7.02 Publicity.......................................................49
7.03 Agreement to Take Necessary Action..............................49
7.04 Full Disclosure.................................................50
7.05 Purchaser's Use of Assets or Contracts..........................50
7.06 Consents to Transfer of Acquired Assets.........................50
7.07 Title to Real Property..........................................51
7.08 Additional Agreement Regarding Receivables Financing............51
7.09 Bulk Transfer Law...............................................52
7.10 Tax Matters.....................................................53
ARTICLE VIII
TERMINATION...........................................................56
8.01 Grounds for Termination.........................................56
8.02 Manner of Exercise..............................................58
8.03 Effect of Termination...........................................58
ARTICLE IX
THE CLOSING...........................................................59
9.01 Time and Place of Closing.......................................59
9.02 Conditions to Purchaser's Closing Obligations...................59
(a) Representations and Warranties True.................59
(b) Performance.........................................59
(c) HSR Act.............................................59
(d) Opinion of Counsel..................................59
(e) Absence of Litigation...............................60
(f) Consents and Approvals..............................60
(g) Title Insurance.....................................60
(h) Deliveries by Seller................................60
(i) Overdue Interest Payments...........................60
(j) Resolution of Certain Obligations...................60
(k) Resolution of Interval International, Inc.
Litigation .........................................60
(l) Due Diligence Review................................61
(m) Bulk Sales Laws.....................................61
(n) FIRPTA Certificate..................................61
(o) Purchasers' Obligations to CSFB.....................61
(p) Regulatory Approval.................................61
(q) Notice to Bargaining Agents.........................61
(r) Closing Financial Certificate.......................61
9.03 Conditions to Sellers' Closing Obligations......................61
(a) Representations and Warranties True.................61
(b) Performance.........................................62
(c) HSR Act.............................................62
(d) Consents and Approvals..............................62
(e) Opinion of Counsel..................................62
(f) Absence of Litigation...............................62
(g) Deliveries by Purchaser.............................62
(h) Resolution of Certain Obligations...................62
9.04 Deliveries by Sellers at Closing................................63
9.05 Availability of Records.........................................64
9.06 Deliveries by Purchaser at Closing..............................65
ARTICLE X
INDEMNIFICATION.......................................................66
10.01 Indemnification of Sellers......................................66
10.02 Indemnification of Purchaser....................................66
10.03 Cap and Basket..................................................67
10.04 Indemnifiable Losses Net of Insurance Proceeds..................68
10.05 Procedure for Seeking Indemnification...........................68
10.06 Indemnification Remedy After Closing............................69
10.07 Survival of Representations, Warranties, and Covenants..........69
10.08 Setoff and Recoupment...........................................69
ARTICLE XI
GENERAL PROVISIONS....................................................70
11.01 Entire Agreement................................................70
11.02 Severability....................................................70
11.03 Amendment and Modification......................................70
11.04 Arm's Length Agreement..........................................70
11.05 Exhibits........................................................70
11.06 Headings........................................................70
11.07 Assignment......................................................70
11.08 No Third Party Beneficiaries....................................71
11.09 Waiver of Compliance; Consents..................................71
11.10 Notices.........................................................71
PURCHASE AGREEMENT
This Purchase Agreement, dated as of February 16, 1999 and effective as of
the Effective Date, is by and among Equivest Finance, Inc., a Delaware
corporation ("Purchaser"), Kosmas Group International, Inc., a Florida
corporation ("Parent"), Avenue Plaza, LLC, a Louisiana limited liability company
("APLLC"), Ocean City Coconut Malorie Resort, Inc., a Maryland corporation
("OCCMR"), Capital City Suites, Inc., a District of Columbia corporation
("CCS"), Kosmas Caribbean Holding Corporation, a Florida corporation ("KCHC"),
the undersigned stockholders of Kosmas Group International, Inc.
("Stockholders") and, if applicable, St. Augustine Resort Development Group,
Inc., a Florida corporation ("SARDG").
RECITALS
A. Sellers and the Acquired Companies are engaged in the business of
developing, marketing, and managing resort properties that offer timeshare
condominiums.
B. Sellers and the Acquired Companies own and operate, among other things:
the Avenue Plaza, a timeshare and hotel facility located in New Orleans,
Louisiana; the Coconut Malorie Resort, a timeshare and hotel facility located in
Ocean City, Maryland; the Bluebeard's Castle, Bluebeard's Beach Club & Villas
and Elysian Beach Resort, each of which is a timeshare and hotel facility
located in St. Thomas, U.S. Virgin Islands; a parcel of land and the building
thereon with zoning approval for the future construction of a timeshare facility
located at 2501 Pennsylvania Avenue, N.W. in Washington, D.C.; and the Ocean
Gate Resort, a timeshare and hotel facility located in St. Augustine, Florida.
C. During 1998, Parent began to experience a significant cash shortfall
from its operations, resulting from a number of adverse developments including:
the costs and distraction of preparing Parent for an initial public offering; a
significant decline in the efficiency of direct mail solicitations; and
operating losses at two of Parent's newly-acquired properties.
D. In order to deal with the significant cash shortfall, Parent embarked
on an exploration of various strategies, including a recapitalization of the
company or the sale of certain business units, and Parent engaged in discussions
with a number of possible purchasers (including Purchaser) of certain of
Parent's business units.
E. On or about January 29, 1999, Parent determined that Purchaser was
offering the most favorable terms for a purchase of certain business units and
was willing to consummate such a transaction with a rapidity that would greatly
promote the continued operation of Parent and the orderly payment of its debts.
F. As part of Purchaser's offer, Purchaser agreed (i) to cause its
subsidiary, Resort Funding, Inc. ("RFI"), to continue advancing under various
existing credit facilities between Sellers and RFI (despite the fact Sellers'
failure to meet certain requirements thereunder meant that RFI was under no
obligation to do so) and (ii) to advance to Parent additional substantial sums
even before the signing of a definitive purchase agreement, which sums were used
by Parent to pay creditors and
employees of Sellers.
G. Upon the terms and subject to the conditions contained in this
Agreement, Sellers wish to sell to Purchaser, and Purchaser wishes to purchase
from Sellers, the Acquired Assets and all of the capital stock of the Acquired
Companies.
THEREFORE, the Parties agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, and except as otherwise expressly
provided in this Agreement or unless the context otherwise requires, capitalized
terms shall have the meanings ascribed to them in this Article I.
1.01 "Acquired Assets" shall mean all right, title, and interest in and to
all of the assets of Sellers used in the Ordinary Course of Business of the
Acquired Properties, including, without limitation, the following (but excluding
the Acquired Companies and any assets thereof, as well as the Excluded Assets),
in each case subject to applicable Permitted Encumbrances:
(a) Good and marketable fee simple title to (i) the Real Property
comprising the Acquired Properties; (ii) all VOI Inventory; and (iii) all
rights, if any, of Sellers to reclaim, to retake, or to have conveyed to it
either of the foregoing;
(b) Any and all material real property leases, material easements,
material licenses or similar material possessory agreements ("Leases") pursuant
to which Sellers use or occupy real property in connection with the Acquired
Properties, as identified in the Disclosure Schedule, together with any prepaid
rent, security deposits, options to renew or purchase, benefits, rights-of-way
and other interests and other rights or interests of Sellers that may be
appurtenant to the rights of Sellers under such Leases to the extent that such
Leases are freely assignable, or if not so assignable, to the extent that any
necessary consent to assignment has been obtained;
(c) Good and marketable title to all furnishings, furniture, office
supplies, computers and hardware, vehicles, spare parts, signs, shelving,
telephone equipment, tools, machinery and equipment, inventory and supplies (the
"Equipment"), or if any of the foregoing are leased, then the leases thereto (to
the extent that such leases are freely assignable, or if not so assignable, to
the extent that any necessary consent to assignment has been obtained) that are
used in the operation of the Acquired Properties, except for the Equipment
identified as "Excluded" in the Disclosure Schedule;
(d) Good and marketable title in and to all cash, down payments and
escrow accounts, broker reserve accounts, accounts receivable, notes receivable,
and all other receivables of
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Sellers, in each case related to the Acquired Properties (whether short-term or
long-term) from third parties (including, without limitation, all mortgage
receivables, contract receivables, receivables in foreclosure, and VOI
Receivables), together with any unpaid interest and other amounts accrued
thereon and any security or collateral therefor, including recoverable deposits;
provided, however, that all negotiable instruments and other instruments
included therein shall be indorsed to Purchaser by Sellers "without recourse"
and all accounts receivable, mortgage receivables, contract receivables, and VOI
Receivables shall be conveyed to Purchaser without warranty as to
collectability;
(e) Good and marketable title to all other assets of Sellers related
to the Acquired Properties set forth on the balance sheets included in the
Interim Financial Statements of the Selling Subsidiaries, except to the extent
such assets have been used or disposed of in the Ordinary Course of Business
since the Interim Balance Sheet Date; provided, however, that if any asset is
included on such a balance sheet only because it corresponds with a capitalized
lease obligation appearing as a liability on such balance sheet, such asset
shall be included in the Acquired Assets only to the extent that Purchaser
properly assumes (with the consent of the lessor, if necessary) the
corresponding capitalized lease obligation;
(f) All goodwill of Sellers related to the Acquired Properties,
including, without limitation all right, title, and interest of Sellers to the
names "Avenue Plaza," "Coconut Malorie," and, if applicable, "Ocean Gate";
(g) All (i) deposits of Sellers' funds with third parties, (ii)
prepaid charges, (iii) fees of Sellers and (iv) all deferred charges of Sellers
(to the extent that such deferred charges are properly classified as an asset
and are assignable to Purchaser) as of the Effective Date, in each case as are
related to the Acquired Properties;
(h) Except as set forth on the Disclosure Schedule, all right,
title, and interest of Sellers in and to the insurance policies covering the
Acquired Properties or assets related to the Acquired Properties, including any
liability, casualty, excess, health, dental, and workers' compensation insurance
policies (collectively, "Insurance Policies") and any proceeds payable to
Sellers under such Insurance Policies (excluding proceeds payable in respect of
Retained Liabilities), to the extent that the same are assignable to Purchaser,
or if not so assignable, to the extent that any necessary consent to assignment
has been obtained;
(i) All right, title, and interest of Sellers in and to (i) patents,
trademarks, trade names, copyrights, and service marks; (ii) registrations and
applications for patents, trademarks, trade names, copyrights, and service
marks; (iii) trade secrets and know-how; and (iv) computer software or software
programs (including source code and object code), or licenses thereto,
computerized data or licenses thereto, and any related documentation, used
primarily in connection with the Acquired Business, including, without
limitation, the design and content of all documents utilized in the creation of
Sellers' timeshare condominiums and all related sales and marketing documents,
and manufacturing and other technical information relating to the Acquired
Business (the "Intellectual Property"), to the extent that the same are
assignable to Purchaser, or if not so assignable, to the extent that any
necessary consent to assignment has been obtained;
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(j) All right, title, and interest of Sellers under or pursuant to
all warranties, representations, and guarantees made by suppliers,
manufacturers, lessors, and contractors, or affecting the Real Property
comprising the Acquired Properties or the Equipment, to the extent that the same
are assignable to Purchaser, or if not so assignable, to the extent that any
necessary consent to assignment has been obtained;
(k) All Permits and trade association memberships held or used by
Sellers, to the extent that the same are (i) related to the Acquired Properties
and (ii) assignable to Purchaser, or if not so assignable, to the extent that
any necessary consent to assignment has been obtained;
(l) All contracts, agreements, arrangements and/or commitments of
Sellers, and all unfilled purchase orders, contracts, and commitments of Sellers
with suppliers, contractors, and customers, including exchange contracts,
declarant rights and management contracts, to the extent that the same are (i)
related to the Acquired Properties and (ii) assignable to Purchaser, or if not
so assignable, to the extent that any necessary consent to assignment has been
obtained; provided, however, that in the case of any management contract under
which any Seller performs the management duties, such Seller shall assign all of
its rights and obligations under the contract to Purchaser or its designee;
(m) Except as set forth in Paragraph 9.05, all records related to
the Acquired Properties, including customer and vendor lists, and all files and
documents (including credit and sales records and information) relating to
customers, employees, suppliers, and vendors of Sellers, Association members,
and all other business and financial records, files, books, and documents of
Sellers and the Managed Associations, including without limitation, manuals and
data, sales, marketing and advertising materials, sales distribution and
purchase correspondence (in whatever form, whether documentary, computer storage
or otherwise) (the "Records"); and
(n) All other assets, business, properties, interests, rights, and
claims owned, leased, licensed, employed or held by Sellers in connection with
the business of the Acquired Properties, of every kind and description, wherever
located, whether tangible or intangible, real, personal or mixed, whether or not
appearing on the books of Sellers, as the same shall exist on the Effective
Date, to the extent that the same are assignable to Purchaser or, if not so
assignable, to the extent that any necessary consent to assignment has been
obtained.
1.02 "Acquired Business" shall mean the Acquired Companies and the
businesses and operations of Sellers related to the Acquired Properties, taken
as a whole, including the VOI Business, as currently conducted by Sellers
relating to the Acquired Companies and the Acquired Properties.
1.03 "Acquired Business Benefit Arrangement" shall have the meaning set
forth in subparagraph 3.19(a).
1.04 "Acquired Business Benefit Plan" shall have the meaning set forth in
subparagraph
4
3.19(a).
1.05 "Acquired Companies" shall mean CAI, a U.S. Virgin Island
corporation, and BCI, a U.S. Virgin Island corporation; provided, however, that
Acquired Companies shall include APLLC, OCCMR, CCS and/or SARDG to the extent
that Purchaser elects to acquire any such entity or entities pursuant to
Paragraph 2.03.
1.06 "Acquired Properties" shall mean the Avenue Plaza property in New
Orleans, Louisiana ("Avenue Plaza Property"), the Coconut Malorie property in
Ocean City, Maryland ("Coconut Malorie Property"), the parcel of land and
building thereon located at 2501 Pennsylvania Avenue, N.W. in Washington, D.C.
("Washington, D.C. Property"), and, if applicable, the Ocean Gate property in
St. Augustine, Florida ("Ocean Gate Property"), each as described in further
detail in the Disclosure Schedule; provided, however, that Acquired Properties
shall not include any one or more of the foregoing to the extent that Purchaser
elects to acquire the entity owning such property as part of a stock acquisition
pursuant to Paragraph 2.03.
1.07 "Affiliate" of a Person shall mean any Person that directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Person specified. The term "control" (including
the correlative terms "controlled by" and "under common control with") as used
with respect to any Person means the possession, directly or indirectly, of the
power to direct or to cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract, or
otherwise.
1.08 "Agreement" shall mean this Purchase Agreement, including all
Exhibits and Schedules hereto.
1.09 "Annual Financial Statements" shall have the meaning set forth in
Paragraph 3.04(a).
1.10 "APLLC" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
1.11 "Assets" shall mean all the assets of Sellers used in the Business
including without limitation the Excluded Assets and the Acquired Assets
1.12 "Assignment Agreements" shall have the meaning set forth in
subparagraph 9.04(a).
1.13 "Association" shall mean any condominium, timeshare or homeowner
association (each, an "Association" and, collectively, the "Associations").
1.14 "Assumed Liabilities" shall mean (a) all liabilities of Sellers
pursuant to the Mortgage Loans; (b) all liabilities of Sellers pursuant to the
Receivables Facilities; (c) all liabilities and obligations of Sellers (i)
related to the business of the Acquired Properties set forth in Sections 3.10,
3.11 or 3.18(a) of the Disclosure Schedule under an express statement (that the
Purchaser has initialed) to the effect that the definition of Assumed
Liabilities will include the liabilities and
5
obligations so disclosed or (ii) to provide or pay for goods or services related
to the Acquired Business that are not required to be disclosed in Sections 3.10,
3.11 or 3.18(a) of the Disclosure Schedule; (d) any obligation not disclosed in
Sections 3.10, 3.11 or 3.18(a) of the Disclosure Schedule, required to be so
disclosed, which Purchaser notifies Parent in writing within 180 days after the
Closing that Purchaser wishes to assume; (e) all obligations of Sellers related
to the Acquired Properties in respect of customer deposits for VOI purchases,
whenever made, that were transferred to Purchaser at the Closing; (f) all
obligations of Sellers in respect of unpaid insurance premiums for all Insurance
Policies assigned to Purchaser (collectively, "Insurance Premiums"); (g) all
obligations of Sellers in respect of all leases, contracts, agreements,
arrangements, and commitments conveyed to Purchaser under subparagraph 1.01(l);
(h) all liabilities of Sellers to brokers for commissions on sales (whether the
sale was made before or after the Effective Date), but, as to pre-Effective Date
sales, only to the extent that such liability represents an obligation to pay to
the broker amounts withheld by a Seller as a broker reserve and such amount is
shown in Section 3.10 of the Disclosure Schedule; and (i) all obligations of
Sellers in respect of construction and architectural contracts in progress
(including the rights to any plans and specifications) at any of the Acquired
Properties, to the extent that the same are assignable to Purchaser, or if not
so assignable, to the extent that any necessary consent to assignment has been
obtained; provided, however, that the Assumed Liabilities shall not include any
Retained Liabilities nor any liabilities of the Acquired Companies.
1.15 "Assumption Agreements" shall have the meaning set forth in
subparagraph 9.06(b).
1.16 "Avenue Plaza Property" shall have the meaning set forth in Paragraph
1.06.
1.17 "BCI" shall mean Bluebeard's Castle, Inc., a U.S. Virgin Islands
corporation.
1.18 "Benefit Arrangement" shall have the meaning set forth in Paragraph
3.19(a).
1.19 "Bulk Sales Laws" shall have the meaning set forth in Paragraph 7.09.
1.20 "Business" shall mean the businesses and operations of Sellers, taken
as a whole, including the VOI Business, as currently conducted by Sellers,
whether relating to the Acquired Properties, the Acquired Companies or
otherwise.
1.21 "CAI" shall mean Castle Acquisition, Inc., a U.S. Virgin Islands
corporation.
1.22 "Cash Purchase Price" shall have the meaning set forth in
subparagraph 2.06(b).
1.23 "Cavanaugh Lenders" shall mean John Cavanaugh, William Reilly and
others who loaned approximately $2.2 million to KGI in respect of the St. Thomas
Properties.
1.24 "CCS" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
1.25 "Closing" shall have the meaning set forth in Paragraph 9.01.
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1.26 "Closing Adjustment Amount" shall have the meaning set forth in
subparagraph 2.07(b).
1.27 "Closing Date" shall have the meaning set forth in Paragraph 9.01.
1.28 "Closing Financial Certificate" shall have the meaning set forth in
subparagraph 2.07(a).
1.29 "Coconut Malorie Property" shall have the meaning set forth in
Paragraph 1.06.
1.30 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.31 "Consumer Interval Sales" shall mean sales of VOIs to third-party
retail consumers and shall not include any bulk or wholesale sales to any party.
1.32 "Contract" shall have the meaning set forth in Paragraph 3.11.
1.33 "CSFB" shall mean Credit Suisse First Boston Mortgage Capital LLC or
its Affiliates.
1.34 "Disclosure Schedule" shall mean the disclosure schedule accompanying
this Agreement and initialed by the Parties, which will be arranged in sections
corresponding to the lettered and numbered paragraphs referencing such schedule
contained in this Agreement.
1.35 "DOJ" shall mean the United States Department of Justice.
1.36 "Dwelling Units" shall have the meaning set forth in Paragraph
3.05(a).
1.37 "Earn-Out Payment" shall have the meaning set forth in Paragraph
2.10.
1.38 "Effective Date" shall mean February 1, 1999.
1.39 "Encumbrance" shall mean any lien, claim, pledge, option, charge,
adverse interest, security interest, mortgage, or other proscription,
restriction, condition, or covenant or similar right of third parties.
1.40 "Environmental Materials Indemnity Agreement" shall have the meaning
set forth in subparagraph 9.04(l).
1.41 "Environmental Law" shall mean any law now in effect and any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment, health, safety or natural resources, including
without limitation, those relating to the use, handling, transportation,
treatment, storage, disposal, release or discharge of Hazardous Materials.
7
1.42 "Environmental Permit" shall mean any permit, approval,
identification number, license or other authorization required under any
applicable Environmental Law.
1.43 "Equipment" shall have the meaning set forth in subparagraph 1.01(c).
1.44 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
1.45 "ERISA Affiliate" shall mean any person that, together with Sellers,
would be or was at any time treated as a single employer under Section 414 of
the Code or Section 4001 of ERISA and any general partnership of which Sellers
are or have been a general partner.
1.46 "Excluded Assets" shall mean the following assets, rights, interests,
or properties: (a) the assets, contracts, leases and agreements designated as
"Excluded" on the Disclosure Schedule; (b) unless otherwise provided by the
terms of Paragraph 2.03, the VOI Receivables financed by FINOVA related to the
Avenue Plaza Property; (c) all rights of Sellers as to the Acquired Assets
described in subparagraphs 1.01(b), (c), (h) through (l) and (n), to the extent
that (i) Sellers' obligation to assign the same is expressly conditioned on the
assignability of such Acquired Assets in Paragraph 1.01, (ii) the same are by
their express terms not assignable, and (iii) the consent of any third party
obligor or obligee thereon required to consent to such assignment cannot be
obtained by the Closing Date despite the best efforts of Sellers and Purchaser
(subject to the terms of subparagraph 7.03(a) and Paragraph 7.06) to obtain such
consent; and (d) any right, claim, or interest of Sellers to the proceeds of any
Insurance Policies in respect of Retained Liabilities.
1.47 "Financial Statements" shall have the meaning set forth in Paragraph
3.04(a).
1.48 "FINOVA" shall mean FINOVA Capital Corporation.
1.49 "FTC" shall mean the United States Federal Trade Commission.
1.50 "Hazardous Materials" shall mean (a) petroleum and petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials and polychlorinated biphenyls and (b) any other
chemicals, materials or substances regulated as toxic or hazardous or as a
pollutant, contaminant or waste under any applicable Environmental Law
1.51 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated under it.
1.52 "Indemnifiable Losses" shall mean any and all direct or indirect
demands, claims, payments, obligations, actions, or causes of action,
assessments, losses, liabilities, costs, expenses paid or incurred, or
diminutions in value of any kind or character (whether or not known or asserted
before the date of this Agreement, fixed or unfixed, conditional or
unconditional, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent, or otherwise).
8
Indemnifiable Losses shall include penalties, interest, or any amount payable to
a third party as a result of such Indemnifiable Losses. Subject to the
provisions of Article X, Indemnifiable Losses shall include legal or other
expenses reasonably incurred in connection with investigating or defending any
claims or actions involving third parties, whether or not resulting in any
liability, and all amounts paid in settlement of claims or actions in accordance
with Article X.
1.53 "Indemnitee" shall mean any Person that may be entitled to seek
indemnification pursuant to the provisions of Article X.
1.54 "Indemnitor" shall mean any Person that may be obligated to provide
indemnification pursuant to the provisions of Article X.
1.55 "Insurance Policies" shall have the meaning set forth in subparagraph
1.01(h).
1.56 "Insurance Premiums" shall have the meaning set forth in Paragraph
1.14.
1.57 "Intellectual Property" shall have the meaning set forth in
subparagraph 1.01(i).
1.58 "Interim Balance Sheet Date" shall have the meaning set forth in
Paragraph 3.04(a).
1.59 "Interim Financial Statements" shall have the meaning set forth in
Paragraph 3.04(a).
1.60 "IRS" shall mean the Internal Revenue Service.
1.61 "KCHC" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
1.62 "Land" shall have the meaning set forth in Paragraph 3.05(a).
1.63 "Leases" shall have the meaning set forth in Paragraph 1.01(b).
1.64 "Licenses and Permits" shall have the meaning set forth in Paragraph
3.17.
1.65 "Managed Association" shall mean any Association that is managed by
any Seller or Acquired Company in connection with the Acquired Business.
1.66 "Mortgage Loans" shall mean the loans from CSFB or RFI to one or more
of the Sellers or Acquired Companies which loans are secured by mortgages on
real property used in the Acquired Business.
1.67 "Multiemployer Plan" shall have the meaning set forth in Paragraph
3.19(a).
1.68 "Mutual Release" shall have the meaning set forth in Paragraph
9.04(m).
9
1.69 "OCCMR" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
1.70 "Net VOI Sales" shall mean sales for which (i) a down payment of no
less than 10% has been received from purchaser and (ii) all applicable closing
costs have been received from purchaser; provided, however, that Net VOI Sales
shall not include sales that are canceled or rescinded at any time before all
applicable rescission periods have expired.
1.71 "Ocean Gate Property" shall have the meaning set forth in Paragraph
1.06.
1.72 "Ordinary Course of Business" shall mean in the ordinary course of
the relevant Seller or Acquired Company, consistent with its past practices.
1.73 "Parent" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
1.74 "Party" or "Parties" shall mean those Persons who are party to this
Agreement.
1.75 "Payables Account" shall have the meaning set forth in Paragraph
2.09.
1.76 "Permits" shall mean all governmental licenses, permits,
certificates, orders, development orders, franchises, waivers, approvals and
authorizations necessary for the current conduct of the Acquired Business or
Acquired Company (as the case may be), including, without limitation, building
permits, timeshare registrations, liquor licenses and zoning approvals.
1.77 "Permitted Encumbrances" shall have the meaning set forth on the
Disclosure Schedule hereto.
1.78 "Person" shall mean any natural person, corporation, general
partnership, limited partnership, union, association, court, agency, government,
tribunal, instrumentality, commission, arbitrator, board, bureau, or other
entity or authority.
1.79 "Piggyback Registration Rights Agreement" shall have the meaning set
forth in subparagraph 9.04(a).
1.80 "Purchase and Option Agreements" shall have the meaning set forth in
Paragraph 3.05(a).
1.81 "Purchase Price" shall have the meaning set forth in Paragraph 2.06.
1.82 "Purchaser" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
1.83 "Purchaser Material Adverse Effect" shall mean any change in or
effect on the business
10
of Purchaser and its subsidiaries that, individually or together with all other
related adverse changes and effects, is reasonably likely to be materially
adverse to the business, results of operations, properties or financial
condition of Purchaser and its subsidiaries taken as a whole.
1.84 "Qualified Plan" shall have the meaning set forth in Paragraph
3.19(a).
1.85 "Real Property" shall have the meaning set forth in Paragraph
3.05(a).
1.86 "Receivables Facilities" shall mean the loans from CSFB or RFI to one
or more of the Sellers or Acquired Companies, which such loans are
collateralized by VOIs sold in the Acquired Business; provided, however, that
the loan from FINOVA to APLLC secured by such receivables shall also be deemed
to be a "Receivables Facility" only if Purchaser exercises its option pursuant
to subparagraph 2.03(a) and FINOVA consents to such assignment.
1.87 "Records" shall have the meaning set forth in subparagraph 1.01(m).
1.88 "Related Agreement" shall mean the Environmental Materials Indemnity
Agreement, the Piggyback Registration Rights Agreement, the Assumption
Agreements, the Assignment Agreements and the Mutual Release.
1.89 "Release" shall mean disposing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and
the like into or upon any land or water or air or otherwise entering into the
environment.
1.90 "Retained Liabilities" shall mean (a) any liability of Sellers for
Taxes (except as provided in Paragraph 7.01), including without limitation Taxes
on income recognized in the future on contracts for VOIs entered into prior to
the Effective Date; (b) any obligation of Sellers (i) to indemnify any Person
(including any of the Stockholders) by reason of the fact that such Person was a
director, officer, employee, agent or fiduciary of any of Sellers or was serving
at the request of any such entity as a partner, trustee, director, officer,
employee, agent or fiduciary of another entity (whether such indemnification is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such indemnification is pursuant to
any statute, charter document, bylaw, agreement, or otherwise) or (ii) resulting
from, arising out of, relating to, in the nature of, or caused by any breach of
contract, breach of warranty, tort, infringement, violation of law by Sellers,
including without limitation those arising under Environmental Laws; (c) any
liability of Sellers for costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby; (d) any liability or
obligation of Sellers that, following the completion of the Disclosure Schedule
and Purchaser's due diligence, Purchaser requests be deleted from such
Disclosure Schedule and that is so removed by Sellers; (e) any liability or
obligation of Sellers under this Agreement (or under any side agreement between
Sellers on the one hand and Purchaser on the other hand entered into on or after
the date of this Agreement); (f) the Retained Liabilities expressly designated
as such on the Disclosure Schedule; (g) any liability arising under an agreement
relating to the Acquired Business that requires consent for such agreement to be
assigned to Purchaser, which consent cannot be obtained by the Closing Date
despite the best effort of Sellers
11
and Purchaser (subject to the terms of subparagraph 7.03(a) and Paragraph 7.06)
to obtain such consent; (h) any liability described in subparagraph 3.11(p)
unless the Parties expressly agree that the Purchaser shall assume such
liability; and (i) any liability described in Article III, including without
limitation Paragraph 3.10, 3.11 or 3.18(a) to the extent such liability accrued
prior to or relates to periods prior to the Effective Date (unless such
provision by its terms expressly relates to pre-Effective Date matters). No
liabilities of the Acquired Companies shall be "Retained Liabilities" for
purposes of this Agreement; provided, however, that Sellers and/or the
Stockholders will be liable to Purchaser for any breach of representation or
warranty or covenant regarding liabilities of the Acquired Companies as provided
in Article X.
1.91 "RFI" shall have the meaning ascribed to such term in the sixth
recital of this Agreement.
1.92 "RFI Advances" shall have the meaning set forth in Paragraph 2.08.
1.93 "RFI Interim Credit Agreement" shall have the meaning set forth in
Paragraph 2.08.
1.94 "RFI Interim Loan Documents" shall have the meaning set forth in
Paragraph 2.08.
1.95 "SARDG" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
1.96 "Securities Act" shall mean the Securities Act of 1933.
1.97 "Securities Exchange Act" shall mean the Securities and Exchange Act
of 1934.
1.98 "Seller Benefit Arrangement" shall have the meaning set forth in
Paragraph 3.19(a).
1.99 "Seller Benefit Plan"shall have the meaning set forth in Paragraph
3.19(a).
1.100 "Sellers" shall mean the Parent, the Selling Subsidiaries and their
respective Affiliates (but excluding the Acquired Companies).
1.101 "Sellers' Affidavit" shall mean an affidavit of Sellers in form and
substance as shall be reasonably acceptable to the Parties for delivery to
Purchaser and the issuer or issuers of title insurance policies on the Real
Property in favor of Purchaser, with such exceptions and qualifications as shall
be necessitated by the facts as they exist as of the Closing Date.
1.102 "Sellers' Knowledge" shall mean (a) actual knowledge of all the
officers of Sellers and the Acquired Companies and those employees of Parent
directly responsible for the benefits and labor matters and environmental
compliance of Sellers and Acquired Companies; (b) actual knowledge of those
employees of the Selling Subsidiaries and Acquired Companies directly
responsible for the benefits and labor matters and environmental compliance of
the Selling Subsidiaries and Acquired Companies; and (c) knowledge that any of
the persons described in clauses (a) or (b) above should
12
have obtained in the reasonably prudent exercise of his or her duties; provided,
however, that with regard to any events related to BCI or CAI that took place
before July 23, 1998, only clause (a) above shall be applicable.
1.103 "Seller Material Adverse Effect" shall mean any change in or effect
on the business of any Seller that, individually or together with all other
adverse changes and effects, is reasonably likely to be materially adverse to
the business, properties, results of operations or financial condition of the
Acquired Business taken as a whole.
1.104 "Selling Subsidiaries" shall mean APLLC, OCCMR, CCS, KCHC and, if
applicable, SARDG; provided, however, that Selling Subsidiaries shall not
include any one or more of the foregoing to the extent that Purchaser elects to
acquire the stock of such entity pursuant to Paragraph 2.03.
1.105 "State" shall mean any state or territory of the United States,
including the District of Columbia and the U.S. Virgin Islands.
1.106 "State Governing Statutes" shall mean the statutes and regulations
of Louisiana, Maryland, the District of Columbia, the U.S. Virgin Islands and,
if applicable, Florida, that govern the sale and operation of VOIs.
1.107 "State Regulatory Authorities" shall mean the government agencies
governing sales of VOIs in Louisiana, Maryland, the District of Columbia, the
U.S. Virgin Islands and, if applicable, Florida.
1.108 "Stockholders" shall have the meaning ascribed to such term in the
first paragraph of this Agreement.
1.109 "St. Thomas Properties" means, collectively, the Bluebeard's Castle,
Bluebeard's Beach Club & Villas and Elysian Beach Resort properties in St.
Thomas, U.S. Virgin Islands.
1.110 "Taxes" and "Tax Returns" shall have the meanings set forth in
Paragraph 3.20(a).
1.111 "Threshold Amount" shall have the meaning set forth in Paragraph
10.03.
1.112 "Title Insurance Report" shall mean each of the title insurance
policies the Disclosure Schedule hereof describing the status of title as of the
dates indicated on such schedule.
1.113 "Unsold Inventory" shall have the meaning set forth in Paragraph
3.5(a).
1.114 "Vacation Ownership Units" shall mean condominiums available for
sale in intervals.
1.115 "Vacation Ownership Intervals" or "VOIs" shall mean timeshare
ownership intervals.
13
1.116 "VOI Business" shall mean the business of developing, marketing, and
managing resort properties that offer Vacation Ownership Units.
1.117 "VOI Inventory" shall mean the VOIs owned by Sellers at any of the
Acquired Properties, and consisting of those VOIs set forth on the Disclosure
Schedule, all VOIs at any of the Acquired Properties recovered by Sellers
through foreclosure, deed in lieu of foreclosure, or similar reconveyance on or
after the Effective Date and on or prior to the Closing Date, all Vacation
Ownership Units at any of the Acquired Properties completed before the Closing
Date, less and except those VOIs deeded by Sellers in the Ordinary Course of
Business prior to the Effective Date, and all other VOIs titled in Sellers at
any of the Acquired Properties (including those which may be subject to a
contract or option to purchase).
1.118 "VOI Receivables" shall mean promissory notes, contracts for deed,
mortgages and any and all related documentation evidencing the sale of VOIs by
Sellers or the Acquired Companies, as the case may be, to purchasers.
1.119 "Washington, D.C. Property" shall have the meaning set forth in
Paragraph 1.06.
ARTICLE II
PURCHASE AND SALE
2.01 Purchase and Sale of Assets. Upon the terms and subject to the
conditions of this Agreement, at the Closing and effective as of the Effective
Date, Sellers shall sell, convey, transfer, assign, and deliver (or cause to be
sold, conveyed, transferred, assigned, and delivered) to Purchaser, and
Purchaser shall purchase, acquire, and accept from Sellers the Acquired Assets;
provided, however, that the assignment and assumption of all assets and
liabilities of the hotel operations of the Avenue Plaza Property shall be
effective as of the Closing Date.
2.02 Excluded Assets. Notwithstanding anything to the contrary contained
in Paragraph 2.01, the Parties to this Agreement expressly understand and agree
that Sellers will not sell, assign, transfer, or convey to Purchaser hereunder,
and Purchaser will not purchase, any of the Excluded Assets.
2.03 Additional Assets; Conversion to Stock Acquisition.
(a) Purchaser shall have the option (subject to FINOVA's consent) to
purchase the VOI Receivables financed by FINOVA related to the Avenue Plaza
Property existing as of the Effective Date subject to the following conditions:
(i) Purchaser must exercise the option to purchase such notes receivable on or
before the later of either (x) the Closing Date or (y) thirty days after the
date hereof; and (ii) any negotiable instruments or other instruments included
therein shall be indorsed to Purchaser by Sellers "without recourse" and all
such notes receivable shall be conveyed to Purchaser without warranty as to
collectability; in such event such VOI Receivables shall be deemed
14
"Acquired Assets" for all purposes of this Agreement;
(b) If, as of the Closing Date, Sellers have not sold the assets or
stock of SARDG to a Person reasonably acceptable to Purchaser, for cash
sufficient to satisfy all of Sellers' and SARDG's obligations to RFI related to
the Ocean Gate Property, or for an assumption of RFI's mortgage on the Ocean
Gate Property by a Person reasonably acceptable to Purchaser, Purchaser shall
acquire the Ocean Gate Property (in which case such property shall be an
Acquired Property) or the capital stock of SARDG (in which case such company
shall be an Acquired Company), the form of such acquisition being at Purchaser's
sole discretion; provided, however, that in lieu of the foregoing, RFI may
commence foreclosure proceedings pursuant to its mortgage on the Ocean Gate
Property, in which event, Parent, SARDG and Stockholders shall confess and/or
stipulate to a judgment of foreclosure, shall not defend against such
foreclosure proceedings or judgment, and shall otherwise cooperate with and
assist RFI to complete such foreclosure and to minimize the transaction costs
associated with such foreclosure to the maximum extent possible;
(c) Purchaser shall also have the option, exercisable at any time
prior to Closing to convert the acquisition of any one or more of the Avenue
Plaza Property, the Coconut Malorie Property, the Capital City Suites Property
and/or the Ocean Gate Property into the acquisition of all of the capital stock
or equity, as the case may be, of APLLC, OCCMR, CCS and/or SARDG, respectively.
If Purchaser shall exercise this right as to any particular Acquired Property,
such property shall cease to be an Acquired Property, and the relevant Seller
shall be treated as an Acquired Company (and not as a Seller) for all purposes
under this Agreement.
2.04 Retained Liabilities and Assumed Liabilities.
(a) Except as otherwise expressly provided in subparagraph 2.04(b),
Purchaser shall not assume, discharge, or in any way be or become liable for, or
be obligated in respect of, any of the debts, claims, obligations, liabilities,
indebtedness, or commitments (of any kind and nature whatsoever, whether known,
unknown, contingent, absolute, determined, indeterminable, or otherwise) of
Sellers or in respect of the operation of the Business or of the Assets. All
debts, claims, obligations, liabilities, indebtedness, or commitments of Sellers
not expressly assumed by Purchaser hereunder shall continue to be the
obligations of Sellers. Except as expressly provided herein, Purchaser shall
have no obligations or liabilities as a "successor-in-interest" to Sellers with
respect to the operations of the Acquired Business.
(b) Purchaser shall assume and become liable for, shall pay,
perform, and discharge in accordance with the terms thereof, and shall hold
Sellers harmless in respect of the Assumed Liabilities; provided that, except as
otherwise expressly indicated, the indebtedness, obligations and liabilities so
assumed are only those arising on or after the Effective Date in respect of
matters or periods occurring on or after the Effective Date); and provided,
further, that the indebtedness, obligations and liabilities so assumed that
arise from the hotel operations of the Avenue Plaza Property are only those
arising on or after the Closing Date in respect of matters or periods occurring
on or after the Closing Date.
15
2.05 Stock Purchase. Upon the terms and subject to the conditions of this
Agreement, at the Closing, Sellers shall sell, convey, transfer, assign, and
deliver (or cause to be sold, conveyed, transferred, assigned, and delivered) to
Purchaser, and Purchaser shall purchase, acquire, and accept from Sellers all of
the capital stock of the Acquired Companies effective as of the Effective Date.
2.06 Purchase Price.
(a) The consideration for the Acquired Assets and the Acquired
Companies (the "Purchase Price") shall be the sum of (i) the Cash Purchase
Price, (ii) the Closing Adjustment Amount, (iii) the amount of the Assumed
Liabilities, and (iv) the amount of the indebtedness of any Seller, Stockholder
or Acquired Company to John Fager, Castle Holdings, LLC, the Cavanaugh Lenders
and Christian Kjaer, to the extent that Purchasers have paid or have agreed to
pay such indebtedness as of the Closing Date.
(b) The "Cash Purchase Price" shall be $4,000,000; provided,
however, that if any adjustments downward are made to the Cash Purchase Price
hereunder, Sellers shall be entitled to a credit against any such adjustments in
an amount equal to 75% of the loan balance of all otherwise unfunded performing
VOI Receivables originating from Consumer Interval Sales at the Avenue Plaza
Property to the extent that such VOI Receivables satisfy normal performance and
eligibility criteria pursuant to the existing financing facility between RFI and
Parent and Parent's Affiliates.
2.07 Closing Adjustment Amount.
(a) At least five business days prior to the Closing, Sellers and
the Stockholders shall deliver to Purchaser a certificate (the "Closing
Financial Certificate"), dated as of such date, setting forth their best
estimate of the following items: (i) to the extent that such expenses are
related to the pre-Effective Date period, expenses that are or will be paid by
the Selling Subsidiaries or the Acquired Companies on or after the Effective
Date and on or prior to the Closing Date; (ii) to the extent that in connection
with the Acquired Business, the Selling Subsidiaries or the Acquired Companies
finance, under any Receivables Facility (including, for this purpose, the FINOVA
facility) existing as of the Effective Date, VOI Receivables on and after the
Effective Date and on or prior to the Closing Date, which such receivables are
derived from Vacation Ownership Units for which a purchase contract was executed
prior to the Effective Date, the proceeds of such financing; (iii) net operating
income or loss of the hotel operations of the Avenue Plaza Property on and after
the Effective Date and on or prior to the Closing Date; (iv) a percentage of the
amount of Net VOI Sales made at the Acquired Properties or by the Acquired
Companies on and after the Effective Date and on or prior to the Closing Date
(which percentage shall be the corporate overhead allocated by Parent to the
Selling Subsidiaries and the Acquired Companies as a percentage of Net VOI Sales
not to exceed 6.5%); (v) the amount of operating cash held by each of the
Acquired Properties and Acquired Companies as of February 1, 1999 (as reflected
in the schedule supplied to Purchaser on February 15, 1999); and (vi) the amount
of cash held as timeshare deposit escrows (as reflected in the schedule supplied
to Purchaser on February 15, 1999) to the extent that the recission periods for
the underlying contracts have expired and Sellers are under no obligation to
refund such amounts to the relevant
16
purchasers. Such Closing Financial Certificate shall specify the items set forth
in this subparagraph 2.07(a) separately for each of the Acquired Properties and
each of the Acquired Companies.
(b) The "Closing Adjustment Amount" shall be the amount (but not
less than zero) obtained by taking the amount specified in clause (a)(i) of this
Paragraph and deducting therefrom the amounts specified in clauses (a)(ii) -
(vi). Sellers will use their best efforts to cause the officers and employees of
the Acquired Companies to cooperate with Purchaser prior to Closing in
furnishing information, documents, evidence and other assistance necessary for
Purchaser to verify the accuracy of the Closing Adjustment Amount.
(c) The Parties intend that the provisions of this Paragraph 2.07
shall have the effect such that Purchaser will receive all benefits and assume
all liabilities as set forth in this Agreement accruing on and after the
Effective Date, except benefits and liabilities related to the hotel operations
at the Avenue Plaza Property, which will not accrue to or be assumed by
Purchaser until the Closing Date. An example of this adjustment is set forth as
Exhibit A hereto.
2.08 Advances. On January 29, 1999, Purchaser caused its subsidiary, RFI,
to advance to Parent the sum of $202.313.00 (the "First RFI Advance") under that
certain Loan and Security Agreement between RFI and Parent dated as of January
29, 1999, as amended by that letter agreement dated as of February 4, 1999 (the
"RFI Interim Credit Agreement"). No later than the close of the next business
day following the date hereof, Purchaser shall cause its Affiliate, RFI, to
advance to Parent an additional $633,000 under the RFI Interim Credit Agreement
(from which RFI may deduct and retain $133,000 then owed to it), which $633,000
will exclude any funding in the ordinary course under any existing line of
credit between Parent and RFI on or after the Effective Date and on or prior to
the Closing Date (the "Second RFI Advance," and together with the First RFI
Advance, the "RFI Advances"). The RFI Advances are secured by a promissory note
and the pledge by KCHC of all the stock in BCI and CAI (together with the RFI
Interim Credit Agreement and the notes, pledges and collateral referred to in
the following sentence, the "RFI Interim Loan Documents"). In addition, Sellers
shall provide RFI with the following additional assets as security for the RFI
Advances: a pledge of all collateral separately pledged to RFI pursuant to any
Mortgage Loan or Receivable Facility between RFI and Parent or one or more of
its Affiliates (together with the promissory note and the pledged stock in BCI
and CAI, the "RFI Advance Collateral"). BCI, CAI, OCCMR and SARDG agree that a
default under the RFI Interim Credit Agreement shall also constitute an Event of
Default as defined in the respective separate financing facilities between each
of them and RFI. As of the Closing, (a) RFI shall release its interest in any of
the RFI Advance Collateral that is not part of the Acquired Business and (b) the
amount of the RFI Advances shall be included in the Purchase Price as set forth
in Paragraph 2.06.
2.09 Payables Account. On the Closing Date, Purchaser shall cause RFI to
deposit a sum equal to one-third of the difference between (i) the Cash Purchase
Price and (ii) the sum of the Closing Adjustment Amount and the RFI Advances
into an escrow account to be established by Purchaser's counsel (the "Payables
Account"). Purchaser shall make further deposits of an equivalent sum on the
30th day and 60th day after the Closing Date. Purchaser will make direct
payments from the Payables Account to those vendors of Sellers set forth in the
Disclosure Schedule up to the
17
amounts available in the Payables Account on the following dates: (a) the
Closing Date, (b) the 30th day after the Closing Date, and (c) the 60th day
after the Closing Date. The contents of the Disclosure Schedule with regard to
the Payables Account vendors and the timing of such payments shall be proposed
by Parent, subject to Purchaser's approval (which will not be unreasonably
withheld) and may be supplemented or amended by the Parties as necessary until
no later than two days prior to the Closing Date; provided, however, that
Purchaser shall have the right to disburse funds from the Payables Account to
meet any liabilities for Taxes, utilities, accrued wages, commissions, or other
items that have not been assumed by Purchaser and that could, in the reasonable
judgment of Purchaser, result in a lien on any of the Acquired Properties or the
interruption of the Acquired Business; and provided further, that Purchaser
shall have the right to disburse funds from the Payables Account into another
escrow account maintained by Purchaser for the purpose of paying any Taxes of
any kind that may be owed for periods prior to Closing with respect to any of
the Acquired Properties or the Acquired Business, with any excess from such
escrow amount to be applied to payment of Sellers' other accounts payables.
2.10 Earn-Out Payment. If, at the conclusion of the one-year period
beginning on April 1, 1999 and ending on March 31, 2000, the Acquired Business
has generated at least $6,000,000 in after-tax earnings during such one-year
period, Purchaser will issue to Parent 250,000 shares of Purchaser's common
stock ("Earn-Out Payment"). To the extent that the Acquired Business generates
less than $6,000,000 in after-tax earnings during such period, the Earn-Out
Payment shall be that percentage of 250,000 shares which is proportionate to the
actual after-tax earnings achieved divided by $6,000,000. For example, if the
Acquired Business generates $4,500,000 in after tax revenue between April 1,
1999 and March 31, 2000, Purchaser will issue to Parent 187,500 shares of its
common stock (i.e., 75% of 250,000). Such shares shall bear restrictive legends
appropriate for stock issued privately and subject to Rule 144. If Purchaser
shall issue any of its common stock pursuant to this Paragraph, Purchaser and
Parent shall execute the Piggyback Registration Rights Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE
STOCKHOLDERS
To induce Purchaser to enter into this Agreement and consummate the
transactions contemplated hereby, each Seller and Stockholder, jointly and
severally, represents and warrants to Purchaser as follows:
3.01 Organization.
(a) Each Seller and Acquired Company is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, is duly qualified to do business and in good
standing as a foreign corporation in the jurisdictions where its assets or the
conduct of its business requires such qualification (except where the failure to
so qualify
18
would not have a Seller Material Adverse Effect) and has the full power and
authority to own its properties and assets and to carry on lawfully its business
as currently conducted. Except as set forth on the Disclosure Schedule and
except for the Acquired Companies, (i) Sellers do not own, directly or
indirectly, the stock of any corporation engaged in the Acquired Business, and
(ii) no Seller is a partner in any partnership or owner of any other entity
(excluding Associations) engaged in the Acquired Business.
(b) Except as set forth in the Disclosure Schedule hereto, there are
no Associations for any of the Acquired Properties or the resorts owned by the
Acquired Companies. To Sellers' Knowledge, each Association is organized and
validly existing under the laws of the state of its organization, is duly
qualified and in good standing, with full power and authority to own its
properties and assets and to carry on lawfully its business as currently
conducted in all material respects. With respect to the Managed Associations,
except as set forth on the Disclosure Schedule, to Sellers' Knowledge, no
Managed Association is insolvent or has many material funding deficiency and
each Managed Association has been and is currently being operated in accordance
with applicable governing documents and applicable law.
3.02 Articles of Incorporation, Bylaws and Agreements. A true, complete
and correct copy of the articles of incorporation, bylaws or other
organizational documents of each Seller and Acquired Company, together with all
amendments thereto, have been delivered to Purchaser, as set forth on the
Disclosure Schedule hereto. There are no agreements by and between or among
Sellers, the Acquired Companies or any Association imposing any restrictions
upon the transfer of, or otherwise pertaining to, the Acquired Business.
3.03 Authorization. Each Seller and (to the extent a party thereto)
Stockholder has full legal right, capacity, power and authority to enter into
this Agreement and each Related Agreement and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Sellers of this Agreement and the Related Agreements and the actions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and this Agreement and (upon their execution) each
of the Related Agreements constitute or will constitute valid and binding
obligations of Sellers and (to the extent they are Parties hereto) the
Stockholders, enforceable against such persons in accordance with their terms.
3.04 Financial Statements and Absence of Changes.
(a) True and complete copies of the balance sheet of (i) APLLC for
each of its three fiscal years ended December 31, 1996 (audited), 1997,
(audited) and 1998, (ii) BCI for each of the three fiscal years ended as of
September 30, 1996 (reviewed), 1997 (reviewed) and 1998 (audited), and (iii)
OCCMR, CAI, CCS and SARDG for the fiscal year ended December 31, 1998, and the
related statements of income, retained earnings and changes in financial
position of such entity, together with all related notes and schedules thereto,
accompanied by the reports thereon (collectively referred to herein as the
"Annual Financial Statements") are to be delivered to Purchaser no later than
ten days after the date hereof; provided, however, that if the 1998 audit of BCI
is not complete by such date, Sellers will deliver unaudited financials together
with a draft audit report that
19
explains what aspects of the audit have not yet been completed and will deliver
1998 audited financial statements of BCI as soon as they are prepared. Except as
specifically noted, the Annual Financial Statements are neither audited nor
reviewed. True and complete copies of the balance sheet of BCI for the three
months ended December 31, 1998, and the related statements of income, retained
earnings and changes in financial position of BCI, together with all related
notes and schedules thereto, accompanied by the reports thereon (collectively
referred to herein as the "Interim Financial Statements" and, together with the
Annual Financial Statements, the "Financial Statements") have been delivered to
Purchaser. The Financial Statements (i) present fairly in all material respects
the financial condition, results of operations, and cash flows of the business
of each of the Acquired Properties and the Acquired Companies as of the dates
thereof or for the periods covered thereby, (ii) were prepared, in the case of
audited statements, in accordance with GAAP and, in the case of other
statements, in material respects consistent with GAAP, applied on a basis
consistent with the past practices of the Selling Subsidiary or Acquired
Company, as applicable, (iii) were prepared in accordance with the books of
account and other financial records of the Selling Subsidiary or Acquired
Company, as applicable, and (iv) include all adjustments (consisting only of
normal recurring accruals) that are necessary for a fair presentation of the
financial condition of each such business and the results of the operations, and
cash flows thereof as of the dates thereof or for the periods covered thereby.
For the purposes of this Agreement, the "Interim Balance Sheet Date" shall mean
December 31, 1998.
(b) The books of account and other financial records of each Selling
Subsidiary and each Acquired Company: (i) reflect all items of income and
expense and all assets and liabilities required to be reflected therein in
accordance with GAAP applied on a basis consistent with the past practices of
the Selling Subsidiary or Acquired Company, as applicable, (ii) are in all
material respects complete and correct, and do not contain or reflect any
material inaccuracies or discrepancies and (iii) have been maintained in
accordance with good business and accounting practices. Except as set forth in
the Disclosure Schedule hereto, since December 31, 1998, there has not been any
change in or effect on any Acquired Property or any Acquired Company that,
individually or together with all other adverse changes and effects, is
reasonably likely to be materially adverse to the business, properties, results
of operations or financial condition of the Acquired Business taken as a whole.
3.05 Title to and Condition of Assets and Property.
(a) As of the date hereof, the Disclosure Schedule hereto sets forth
(i) a description of all real property which comprises the Acquired Properties
or is owned by the Acquired Companies (the "Real Property" or "Real
Properties"), which description includes (A) the land comprising the Real
Property and all buildings, improvements, structures, and fixtures located
thereon, and all easements, rights-of-way, benefits, hereditaments, and
appurtenances thereto (the "Land"); (B) all condominium, undivided interests and
other dwelling units which have been constructed on the Land (the "Dwelling
Units"), including all Dwelling Units which have been dedicated to timeshare
regimes and which have not been dedicated to timeshare regimes, as well as a
list of all timeshare interests therein which have not been sold and which are
owned by Sellers and/or the Acquired Companies as of five business days prior to
the date hereof (the "Unsold Inventory"); (C) all construction in progress of
Sellers on the Real Property as of the date hereof; and
20
(D) all rights, if any, of Sellers to reclaim, to retake, or to have conveyed to
it any of the foregoing; and (ii) a list of all material real property Leases,
pursuant to which Sellers and/or the Acquired Companies uses or occupies real
property (in the case of Sellers, in connection with the Acquired Properties),
true, correct and complete (in all material respects) copies of which have been
delivered to Purchaser. As of the date hereof, except as set forth on the
Disclosure Schedule hereto, neither Sellers nor the Acquired Companies owns any
interest in any real property or any leasehold interest therein and has not
entered into any agreements to acquire additional Real Property ("Purchase and
Option Agreements") (in the case of Sellers, in connection with the Acquired
Properties). Sellers and the Acquired Companies have good title to all Real
Property, including Unsold Inventory, and good title to all other assets
reflected in the Financial Statements or currently owned and (in the case of
Sellers, used in the operation of the Acquired Properties), and such Real
Property and other assets are free and clear of all material liens (except for
liens for taxes that are (i) not yet due and payable or (ii) being contested in
good faith by proper proceedings, and in each case as to which appropriate
reserves are being maintained), claims, charges, security interests, purchase
options, or other material Encumbrances, except for the Encumbrances described
on the Disclosure Schedule hereto or set forth on the title policies (other than
general exceptions) listed on the Disclosure Schedule hereto attached hereto.
(b) Except as noted on the Disclosure Schedule hereto, with respect
to the Leases and the Purchase and Option Agreements, there is no material
breach or event of default on the part of Sellers or the Acquired Companies
which would have a Seller Material Adverse Effect. The Leases and the Purchase
and Option Agreements are in full force an effect and, to Sellers' Knowledge,
are valid and enforceable against the parties thereto in accordance with their
terms (subject to bankruptcy, insolvency and other similar laws or equitable
principles relating to, affecting or qualifying the rights of creditors
generally) and all rental and other payments currently due under each of the
Leases and all option and other payments currently due under each of the
Purchase and Option Agreements have been duly paid or are outstanding for fewer
than 30 days.
(c) There is no pending or, to Sellers' Knowledge threatened
condemnation, eminent domain or similar proceeding with respect to any Real
Property.
(d) Neither Sellers nor the Acquired Companies have granted any
outstanding options or rights of first refusal to purchase or lease any of the
Real Property, or any portion thereof or interest therein, except as noted in
the Disclosure Schedule hereto.
(e) Except as set forth on the Disclosure Schedule, no portion of
the Real Property or any interest of Sellers or the Acquired Companies therein
has been alienated, encumbered, conveyed or otherwise transferred after the
Interim Balance Sheet Date except for Consumer Interval Sales and the financing
thereof in the Ordinary Course of Business consistent with past practice (as
permitted by Paragraph 5.02(a)(xi)) and borrowings on currently existing
construction loans. Except as set forth on the Disclosure Schedule hereto, there
are no agreements (whether or oral or written) to sell, convey or transfer any
VOIs, except sales and financing of VOIs in the Ordinary Course of Business.
21
(f) Sellers have made or caused to be made available to Purchaser
true and complete copies of each deed for each parcel of Real Property and all
the title insurance policies, title reports, surveys, certificates of occupancy,
environmental reports and audits, appraisals, permits, other title documents and
other documents relating to or otherwise affecting the Real Property, the
operations of Sellers or the Acquired Companies thereon or any other uses
thereof. Each Seller and Acquired Company, as the case may be, is in peaceful
and undisturbed possession of each parcel of Real Property and to Sellers'
Knowledge there are no contractual or legal restrictions that preclude or
restrict the ability to use the Real Property for the purposes for which they
are currently being used.
(g) With respect to each of the Leases constituting part of the Real
Property:
(i) except as otherwise disclosed in the Disclosure Schedule
with respect to each such lease or sublease: (A) no Seller nor any
Acquired Company has received any notice of cancellation or termination
under such lease or sublease and no lessor has any right of termination or
cancellation under such lease or sublease except as set forth therein, (B)
no Seller nor any Acquired Company has received any notice of a breach or
default under such lease or sublease, which breach or default has not been
cured, and (C) no Seller nor any Acquired Company has assigned or sublet
all or any portion of its interest under such Leases, except in connection
with a collateral assignment thereof; and
(ii) no Seller nor any Acquired Company nor (to Sellers'
Knowledge) any other party to such Lease or sublease, is in breach or
default in any material respect, and, to Sellers' Knowledge, no event has
occurred that, with notice or lapse of time would constitute such a breach
or default or permit termination, modification or acceleration under such
Lease or sublease.
(h) Except as disclosed on the Disclosure Schedule, all the Real
Property is occupied under a current certificate of occupancy or similar permit,
the transactions contemplated by this Agreement will not require the issuance of
any new or amended certificate of occupancy.
3.06 Intellectual Property. Except as set forth on the Disclosure Schedule
hereto, neither Sellers nor the Acquired Companies has any Intellectual Property
(in the case of Sellers, in connection with the Acquired Properties). To
Sellers' Knowledge, Sellers' and the Acquired Companies' use and ownership of
the Intellectual Property and the operation of the Acquired Business do not
conflict with the proprietary or intellectual property rights of any other
Person. There are no pending, nor to Sellers' Knowledge, threatened claims of
infringement upon the rights to any Intellectual Property referred to on the
Disclosure Schedule hereto of others or, except as set forth on the Disclosure
Schedule hereto, any agreements or undertakings with respect to any such rights.
Except as set forth on the Disclosure Schedule, no other Person has any rights
to any of the Intellectual Property, and to Sellers' Knowledge no other Person
is infringing, violating or misappropriating any of the Intellectual Property.
Purchaser and/or its subsidiaries will not cease to own or have the right to
use, as applicable, any of the Intellectual Property by reason of the execution
and performance of this Agreement and consummation of the transactions
contemplated hereby. Except as set forth on the
22
Disclosure Schedule, neither Sellers nor the Acquired Companies have any
obligations to compensate any Person for the use of any Intellectual Property.
3.07 Insurance. The Disclosure Schedule hereto sets forth a list of all
policies of insurance which insure the Acquired Business setting forth the types
and amounts of coverage. Each of such policies is current and in full force and
effect and no Seller nor any Acquired Company has received notice of default
under, or notice of intended cancellation or nonrenewal of, any such policies.
3.08 Environmental Matters. Except as noted on the Disclosure Schedule
hereto and except for violations which would not have a Seller Material Adverse
Effect: (i) each Seller and Acquired Company has conducted and is conducting the
Acquired Business in substantial compliance with all applicable Environmental
Laws and has all Permits necessary for the operation of its respective business
as presently conducted, (ii) neither Sellers nor the Acquired Companies nor (to
Sellers' Knowledge) any other Person has Released Hazardous Materials on any of
the Real Property, (iii) no Seller nor any Acquired Company has received any
written notice that it is the subject of any pending or threatened investigation
or inquiry by any governmental authority, or subject to any remedial obligations
under any Environmental Laws with respect to any of the Real Property, (iv) no
Hazardous Materials have been disposed of, released or transported in violation
of any applicable Environmental Law to or from any of the Real Property and (v)
no Seller nor any Acquired Company nor any of the Real Property is subject to
any material liabilities relating to any suit, settlement, court order,
administrative order, judgment or claim asserted or arising under any applicable
Environmental Laws.
3.09 Minute and Stock Books; Records. The minute books of Sellers and the
Acquired Companies have been made available to Purchaser and contain accurate
records of all meetings held and reflect all other material corporate or similar
actions of the respective shareholders, directors, partners and members and
committees thereof (in the case of Sellers, concerning the Acquired Properties).
The copies of the corporate charter, bylaws or other organization documents
which are contained in or kept with said minute books are true, complete and
correct and contain all amendments thereto duly adopted and in force. The
respective stock or other interests transfer records maintained by each of the
Acquired Companies, and each Selling Subsidiary engaged in the Acquired
Business, have been made available to Purchaser, are complete, and accurately
disclose all issuances and transfers of stock or other interest of each of such
Acquired Companies and Selling Subsidiaries.
3.10 Liabilities. There are no material liabilities of any Seller or any
Acquired Company (in the case of Sellers, related to the Acquired Properties),
except (a) as set forth on the Disclosure Schedule hereto or (b) incurred since
the Effective Date in the Ordinary Course of Business and which do not and are
not reasonably likely to have a Seller Material Adverse Effect. For purposes of
this Paragraph 3.10 "material" means in excess of $10,000 individually or
$100,000 in the aggregate; provided, however, that any liabilities to
salespeople in respect of their reserve accounts shall be included on the
Disclosure Schedule without respect to the amount of such liabilities.
3.11 Contracts. Except as set forth in the Disclosure Schedule hereto or
as disclosed
23
pursuant to Paragraph 3.10 or 3.18, as of the Effective Date no Seller nor any
Acquired Company is a party to or bound by any of the following (in the case of
Sellers, with respect to the Acquired Properties) (each a "Contract" and
collectively the "Contracts") and true, correct and complete copies of which
referenced items have previously been delivered to Purchaser:
(a) any contract for the purchase or sale of services, equipment,
inventory, materials, supplies, or any capital item or items (the cost or
expense of which is more than $10,000 in any single instance or which cannot be
terminated without penalty on 90 days or less notice), or supply agreements with
the federal government or any state or local government or any agency thereof;
(b) any loan agreements, indentures, mortgages (other than mortgages
securing VOI Receivables), notes (other than VOI Receivables), capital leases or
other instruments relating to the borrowing of money (or guarantees thereof);
(c) any licenses, leases or other agreements to provide or acquire
services or goods related to the timeshare industry;
(d) any contracts relating to the sale, hypothecation or factoring
of accounts receivable, notes receivable (including VOI Receivables) or
servicing of such receivables;
(e) any instruments or agreements relating to indebtedness by way of
lease-purchase agreements, conditional sale, guarantee or other undertakings on
which others rely in extending credit, any joint venture agreements or any
chattel mortgages or other security agreements not otherwise disclosed;
(f) any agreements or contracts between an Acquired Company or
Selling Subsidiary, on the one hand, and Parent, any Affiliate thereof, or any
director, officer, employee or shareholder of Parent or such Affiliate (or any
relative, beneficiary, spouse or affiliate of such person) on the other,
including any intercompany debt;
(g) any joint venture, "partnering" and similar agreements or
understandings;
(h) any agreements relating to the management of, or provision of
management services to, the Acquired Business;
(i) any broker, distributor, dealer, franchise, agency, sales
promotion, market research, marketing consulting and advertising agreements to
which Sellers, the Acquired Companies or any of their Affiliates is a party;
(j) any management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which Sellers, the
Acquired Companies, or any of their Affiliates is a party and which are not
cancelable without penalty or further payment and without more than 30 days'
notice;
24
(k) any contracts and agreements with the federal government or any
state or local government or any agency thereof to which Sellers, the Acquired
Companies, or any Affiliate is a party;
(l) any contracts and agreements that limit or purport to limit the
ability of Sellers or the Acquired Companies to compete in any line of business
or with any Person or in any geographic area or during any period of time;
(m) any obligation running with the Real Property used in the
Acquired Business, including any development order;
(n) any obligations of Sellers or the Acquired Companies to provide
any developer guaranty or promised improvement in connection with the Acquired
Business or to provide any subsidy to an Association;
(o) any obligations of Sellers or the Acquired Companies in respect
of unexpired express, implied, and statutory warranties, or warranties contained
in the rules of any State Regulatory Authority, in each case arising out of
Vacation Ownership Unit construction completed or commenced at any of the
Acquired Properties or the Acquired Companies prior to the Effective Date;
(p) any master equipment lease or similar agreement for the
provision of goods or services to more than one subsidiary of Parent that
relates at least in part to the Acquired Business; or
(q) any other contracts and agreements whether or not made in the
Ordinary Course of Business, which are material to Sellers or the Acquired
Companies (in the case of Sellers, in the conduct of the business of the
Acquired Properties) or the absence of which would have a Seller Material
Adverse Effect; provided, however, that for purposes of this subparagraph
3.11(q), "material" means in excess of $10,000 individually or $100,000 in the
aggregate.
Except as set forth in the Disclosure Schedule hereto, no Seller nor any
Acquired Company is in material breach of any provisions of, or is in material
violation or default under the terms of, any Contract. The Disclosure Schedule
contains a list of all the Contracts that are used in the operation of the
Acquired Business.
3.12 Litigation and Compliance. Except as set forth on the Disclosure
Schedule hereto, there is no litigation, suit, claim, action, arbitration,
administrative proceeding, or, to Sellers' Knowledge, investigation of Sellers
or the Acquired Companies or the operation of any of their businesses (in the
case of Sellers, in the conduct of the business of the Acquired Properties)
pending before any court, arbitrator, administrative agency or other
governmental authority or, to Sellers' Knowledge, threatened against Sellers or
the Acquired Companies, by or before any court, arbitrator, administrative
agency or other governmental authority. Except as otherwise set forth in this
25
Agreement and except where such non-compliance would not have a Seller Material
Adverse Effect, Sellers and the Acquired Companies (in the case of Sellers, in
the conduct of the business of the Acquired Properties) are in compliance in all
material respects with all laws including, without limitation, all laws
regarding the advertising, marketing, offer to sell, or sale of VOIs in each
State and local jurisdiction in which Sellers and the Acquired Companies are
doing business and there is no order, writ, injunction or decree of any court,
arbitrator, administrative agency or other governmental authority materially
affecting the operations or the business of Sellers, the Acquired Companies or
the transactions contemplated hereby.
3.13 Non-Contravention; Conflicts.
(a) Except as described on the Disclosure Schedule the execution and
delivery of this Agreement and the Related Agreements, the consummation of the
transactions contemplated hereby and thereby and the compliance with the
provisions of this Agreement and the Related Agreements by Sellers, the Acquired
Companies and the Stockholders (in each case to the extent each is a party
thereto) will not conflict with, or result in any violation of, or default
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation of or to a loss of a material benefit under or result in
the creation of any lien upon any of the properties or assets of Sellers, the
Acquired Companies (in the case of Sellers, related to the Acquired Properties)
under, (i) the organizational documents of Sellers and the Acquired Companies,
(ii) any material loan or credit agreement, note, bond, mortgage, indenture,
reciprocal easement agreement, lease or other agreement, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulations applicable to
Sellers or the Acquired Companies or their respective properties or assets,
other than, in the case of clause (ii) or (iii), any such conflicts, violations,
defaults, rights or liens that individually or, in the aggregate, would not (x)
constitute a Seller Material Adverse Effect or (y) prevent the consummation of
the transactions contemplated hereby.
(b) The execution and delivery of this Agreement by Sellers and the
Stockholders do not, and the performance of this Agreement by Sellers, the
Acquired Companies and the Stockholders will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of HSR, the Securities Act, the Securities Exchange Act,
"blue sky" laws, and the National Association of Securities Dealers, Inc., and
(ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the transactions contemplated hereby or otherwise prevent
Sellers, the Acquired Companies or the Stockholders from performing their
obligations under this Agreement, and would not, individually or in the
aggregate, have a Seller Material Adverse Effect.
3.14 Capital Stock of the Company. The authorized capital stock of
Bluebeard's Castle, Inc. consists of 5,000,000 shares of common stock,
two-tenths of one cent par value, of which one share is issued and outstanding,
and no shares of preferred stock. The authorized capital stock of Castle
Acquisition, Inc. consists of 100 shares of common stock, no par value, of which
100 shares are issued and outstanding, and no shares of preferred stock. All of
the issued and outstanding shares of the capital stock of the Acquired Companies
have been duly authorized and validly issued, are fully
26
paid and nonassessable and are owned of record and beneficially by KCHC or
Parent, free and clear of all Encumbrances. All of the issued and outstanding
shares of the capital stock of the Acquired Companies were offered, issued, sold
and delivered in compliance with all applicable local, state and federal laws
concerning the issuance of securities. Further, none of such shares was issued
in violation of any preemptive rights. There are no voting agreements or voting
trusts with respect to any of the outstanding shares of the capital stock of any
Acquired Company.
3.15 Transactions in Capital Stock. Except as set forth on the Disclosure
Schedule, no option, warrant, call, subscription right, conversion right or
other contract or commitment of any kind exists of any character, written or
oral, which may obligate any Acquired Company to issue, sell or otherwise become
outstanding any shares of capital stock. No Acquired Company has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. As a result of the acquisition of the capital
stock of the Acquired Companies, Purchaser will be the record and beneficial
owner of all outstanding capital stock of each such companies and the rights to
acquire capital stock of each such company.
3.16 Subsidiaries Stock.
(a) Except as set forth on the Disclosure Schedule, no Acquired
Company has any subsidiaries.
(b) Except as set forth on the Disclosure Schedule, no Acquired
Company presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
any Acquired Company, directly or indirectly, a participant in any joint
venture, partnership or other noncorporate entity.
3.17 Licenses, Permits and Required Consents. Sellers and the Acquired
Companies have all Permits necessary to conduct their businesses as currently
conducted (in the case of Sellers, in connection with the Acquired Properties),
including, but not limited to licenses and other permits required by federal,
state and local laws (i) to sell VOIs in the States and local jurisdictions in
which the Acquired Properties and Acquired Companies are located, as well as all
other State and local jurisdictions in which the VOIs are being advertised,
marketed and sold, and (ii) to occupy and operate the Real Property
(collectively, "Licenses and Permits"). A list of the Licenses and Permits is
set forth on the Disclosure Schedule hereto, true, correct and complete copies
of which have previously been delivered to Purchaser. Except as would not have a
Seller Material Adverse Effect, all Licenses and Permits are in full force and
effect, and no material violations have been made in respect thereof and no
proceeding is pending which is likely to have the effect of revoking or limiting
any such Licenses and Permits. The execution and delivery of this Agreement and
the Related Agreements, and the consummation of the transactions contemplated
hereby and thereby and the compliance with the provisions of this Agreement and
the Related Agreements by Sellers, Acquired Companies and the Stockholders will
not conflict, or result in any violation of or default under any License or
Permit.
27
3.18 Labor and Employment.
(a) The Disclosure Schedule sets forth a complete and correct list
of (i) any executive severance agreements, non-competition and retainer
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, employee pension plans or retirement plans, employee stock option or
stock purchase plans, employee stock ownership plans and group life, health and
accident insurance and other employee benefit or welfare plans, agreements or
arrangements and (ii) each person whom, as of the Effective Date, Sellers or the
Acquired Companies employ in connection with the Acquired Business, including
each active employee and each employee classified as inactive as a result of
disability, leave of absence, layoff, or other absence, and who earned more than
$35,000 in 1998. With respect to such persons, the Disclosure Schedule includes
the positions, 1998 compensation (and the portions attributable to salary,
bonus, and other compensation, respectively), the current rate of compensation
(with the same portions specified), the wages for the most recent payroll period
and any employment, consulting or similar agreements to which such person is a
party. The Disclosure Schedule also lists the accrued vacation liability of
Sellers and Acquired Companies with respect to the Acquired Business as of the
Interim Balance Sheet Date.
(b) With respect to employees of and service providers to Sellers
and Acquired Companies:
(i) Sellers and Acquired Companies are complying and have
complied in all respects with all applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, including without limitation any such laws respecting employment
discrimination, workers' compensation, family and medical leave, the
Immigration Reform and Control Act, and occupational safety and health
requirements, and no claims or investigations are pending or, to the
Sellers' Knowledge, threatened with respect to such laws, either by
private individuals or by governmental agencies;
(ii) Sellers and Acquired Companies have not and are not
engaged in any unfair labor practice, and there is not now, nor within the
past three years has there been, any unfair labor practice complaint
against Sellers or Acquired Companies pending or, to the Sellers'
Knowledge, threatened before the National Labor Relations Board or any
other comparable authority;
(iii) Except has set forth in the Disclosure Schedule, no
labor union represents or has ever represented Sellers' or Acquired
Companies' employees, no collective bargaining agreement is or has been
binding and in force against Sellers or Acquired Companies, Sellers and
the Acquired Companies are not negotiating such an agreement, and no labor
representation organization effort exists nor has there been any such
activity within the past five years;
(iv) No labor strike, lock-out, slowdown or work stoppage is
or has ever
28
been pending or threatened against or directly affecting Sellers or the
Acquired Companies, and no grievance or arbitration proceeding arising out
of or under collective bargaining agreements or employment relationships
is pending, and no claims therefor exist or have, to the Sellers'
Knowledge, been threatened; and
(v) Except as set forth in the Disclosure Schedule, all
employees of Sellers and Acquired Companies in the Acquired Business are
employed on an at-will basis, and Sellers or the Acquired Companies may
terminate them without cause and without penalty or liability. All
individuals who are or were performing services and are or were classified
by Sellers or Acquired Companies as "independent contractors" for tax
purposes qualify or qualified for such classification, and Sellers and
Acquired Companies have fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.19 Employee Benefit Plans.
(a) Definitions.
(i) "Seller Benefit Arrangement" means any Benefit Arrangement
Sellers or Acquired Companies sponsor or maintain with respect to which
Sellers or Acquired Companies have or may have any current or future
liability (whether actual, contingent, with respect to any of its assets
or otherwise). "Acquired Business Benefit Arrangement" means any Seller
Benefit Arrangement with respect to any present or former directors,
employees, or agents of Sellers or Acquired Companies with respect to the
Acquired Business. References to "Acquired Business Benefit Arrangement"
do not connote that Purchaser is acquiring or assuming such plans.
"Benefit Arrangement" means any benefit arrangement, obligation, custom,
or practice, whether or not legally enforceable, to provide benefits,
(other than simply as salary and other than Plans), as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, including, without limitation, employment
agreements, severance agreements, executive compensation arrangements,
incentive programs or arrangements, sick leave, vacation pay, severance
pay policies, plant closing benefits, salary continuation for disability,
consulting, or other compensation arrangements, workers' compensation,
retirement, deferred compensation, bonus, stock option or purchase,
hospitalization, medical insurance, life insurance, tuition reimbursement
or scholarship programs, employee discount programs, meals, travel, or
vehicle allowances, any plans subject to Section 125 of the Code, and any
plans providing benefits or payments in the event of a change of control,
change in ownership or effective control, or sale of a substantial portion
(including all or substantially all) of the assets of any business or
portion thereof, in each case with respect to any present or former
employees, directors, or agents.
(ii) "Seller Benefit Plan" means any Plan for which Sellers or
Acquired Companies are or have been the "plan sponsor" (as defined in
Section 3(16)(B) of ERISA) or any Plan Sellers or Acquired Companies have
maintained or to which Sellers or Acquired Companies are obligated to make
payments or has or may have any liability. "Acquired
29
Business Benefit Plan" means any Seller Benefit Plan with respect to any
present or former employees of Sellers or Acquired Companies with respect
to the Acquired Business. Acquired Business Benefit Plan also includes any
such Plan terminated since January 1, 1989. References to "Acquired
Business Benefit Plan" do not connote that Purchaser is acquiring or
assuming such plans. "Multiemployer Plan" means any plan described in
Section 3(37) of ERISA. "Plan" means an employee benefit plan as defined
in Section 3(3) of ERISA, whether or not otherwise exempt from the
application of that section by another provision of ERISA. "Qualified
Plan" means any Acquired Business Benefit Plan that meets, purports to
meet, or is intended to meet the requirements of Section 401(a) of the
Code, including any previously terminated Plan.
(b) The Disclosure Schedule contains a complete and accurate list of
all Acquired Business Benefit Plans and Acquired Business Benefit Arrangements.
The Disclosure Schedule identifies all Acquired Business Benefit Plans that (i)
are Qualified Plans or (ii) provide for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment, other than coverage or benefits that meet only the
requirements of Part 6 of Title I of ERISA or Section 4980B(f) of the Code
("COBRA") where the participant or beneficiary pays 100% of the cost of such
coverage or benefits.
(c) With respect to Plans and Benefit Arrangements:
(i) The Disclosure Schedule contains the name of the only
Qualified Plan (the "Sellers' 401(k) Plan") and neither the Sellers nor
the Acquired Companies have ever maintained or contributed to any other
Qualified Plan. The Sellers' 401(k) Plan qualifies and has always
qualified under Section 401(a) of the Code, and any trusts maintained for
that plan are exempt from federal income taxation under Section 501 of the
Code, and nothing has occurred with respect to the design or operation of
the Qualified Plan that could cause the loss of such qualification or
exemption or the imposition of any liability, lien, penalty, or tax under
ERISA or the Code;
(ii) No Seller nor any Acquired Company nor any ERISA
Affiliate thereof has ever sponsored or maintained, or had any obligation
to sponsor or maintain, or had any liability (whether actual, contingent,
with respect to any of its assets or otherwise) with respect to any Plan
subject to Section 302 of ERISA or Section 412 of the Code or to Title IV
of ERISA or any Multiemployer Plan; neither the execution and delivery of
this Agreement by Sellers nor the consummation of the transactions
contemplated hereby will result in a "complete withdrawal" or a "partial
withdrawal" (as defined in Sections 4203 and 4205 of ERISA, respectively)
from any Multiemployer Plan so as to result in a liability, contingent or
otherwise, of the Acquired Business or the Purchaser; and (iii) no Seller
nor any Acquired Company has liability (whether actual or contingent, with
respect to any of their assets or otherwise) with respect to its, any
predecessor's, or any current or former ERISA Affiliate's participation in
a Multiemployer Plan or any other plan covered by Title IV of ERISA.
(iii) Sellers have delivered true, correct and complete copies
all of the
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following documents with respect to all Acquired Business Benefit Plans
and Acquired Business Benefit Arrangements to Purchaser: (A) all plan or
arrangement documents, including but not limited to trust agreements,
insurance policies, service agreements and formal and informal amendments
to each; (B) the most recent Forms 5500 or 5500C/R and any attached
financial statements, and those for the prior three years; (C) the last
IRS determination letter, the last IRS determination letter that covered
the qualification of the entire plan (if different), and the materials
Sellers or the Acquired Companies submitted to obtain those letters; (D)
summary plan descriptions, summaries of material modifications, and any
prospectuses that describe the Acquired Business Benefit Arrangements or
Acquired Business Benefit Plans; (E) written descriptions of all
non-written agreements relating to any such plan or arrangement; (F) all
reports submitted within the three years preceding the Effective Date by
third-party administrators, actuaries, investment managers, consultants,
or other independent contractors; (G) all notices that the IRS, Department
of Labor or any other governmental agency or entity issued to Sellers or
the Acquired Companies within the four years preceding the Effective Date;
and (H) employee manuals or handbooks containing personnel or employee
relations policies;
(iv) Each Acquired Business Benefit Plan and Acquired Business
Benefit Arrangement has been maintained in accordance with its constituent
documents and with all applicable provisions of the Code, ERISA, and other
laws, including federal and state securities laws; Sellers or other
sponsor has made all amendments and taken all actions required to bring
the Acquired Business Benefit Plans into conformity with the applicable
provisions of ERISA, the Code, and other applicable laws, except to the
extent applicable law does not require such amendments or actions to be
made or taken until after the Closing Date; Sellers, the Acquired
Companies, and plan fiduciaries have fully and completely satisfied all
reporting and disclosure requirements of ERISA and the Code with respect
to each Acquired Business Benefit Plan and Acquired Business Benefit
Arrangement; with respect to each Acquired Business Benefit Plan, there
has occurred no non-exempt "prohibited transaction" (within the meaning of
Section 4975 of the Code) or transaction prohibited by Section 406 of
ERISA, or breach of any fiduciary duty described in Section 404 of ERISA;
neither Sellers nor any Acquired Company has made any statement, either
written or oral, to any person with regard to any Acquired Business
Benefit Plan or Acquired Business Benefit Arrangement that was not in
accordance with the Acquired Business Benefit Plan or Acquired Business
Benefit Arrangement and that could have an adverse economic consequence to
the Acquired Business; no Acquired Business Benefit Plan contains any
security issued by Sellers, the Acquired Companies, or any ERISA
Affiliate; and no event has occurred prior to the Effective Date in
connection with a Seller Benefit Plan or Seller Benefit Arrangement by
reason of which the Acquired Business, the Purchaser, or such Seller
Benefit Plan or Seller Benefit Arrangement could, directly or indirectly,
be subject to any material liability (other than a liability that would be
payable in the normal course of the claims and other operations of such
Seller Benefit Plan or Seller Benefit Arrangement) under any statute,
regulation or governmental order relating to such plan or arrangement, or
pursuant to any obligation of the Sellers or the Acquired Companies to
indemnify any person against liability incurred under any such statute,
regulation or order.
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(v) There are no pending claims (other than routine benefit
claims) or lawsuits that have been asserted or instituted by, against, or
relating to, any Acquired Business Benefit Plans or Acquired Business
Benefit Arrangements, against the assets of any trust or other funding
arrangement under any such plan or arrangement, by or against Sellers or
the Acquired Companies with respect to any such plan or arrangement or by
or against the plan administrator or any fiduciary of any such plan or
arrangement, nor is there any basis for any such claim or lawsuit. No
Acquired Business Benefit Plans or Acquired Business Benefit Arrangements
are, to the Sellers' Knowledge, presently under audit or examination (nor
has notice been received of a potential audit or examination) by the IRS,
the Department of Labor, or any other governmental agency or entity, and
no matters are pending with respect to any Acquired Business Benefit Plan
under the IRS's Employee Plans Compliance Resolutions System or any
successor or predecessor program;
(vi) No Acquired Business Benefit Plan contains any provision
or is subject to any law that would prohibit the transactions contemplated
by this Agreement or that would give rise to any acceleration or vesting
of benefits, severance, termination or other payments or liabilities as a
result of the transactions contemplated by this Agreement; Sellers have
not declared or paid any bonus or incentive compensation in contemplation
of the transactions contemplated by this Agreement;
(vii) Sellers have no liability (whether actual, contingent,
with respect to any of its assets or otherwise) with respect to any Plan
or Benefit Arrangement that is not an Acquired Business Benefit Plan or
Acquired Business Benefit Arrangement or with respect to any Plan
sponsored or maintained (or that has been or should have been sponsored or
maintained) by any ERISA Affiliate;
(viii) No employee or former employee of Sellers or the
Acquired Companies, or beneficiary of any such employee or former employee
is, by reason of such employee's or former employee's employment, entitled
to receive any benefits, including, without limitation, death or medical
benefits (whether or not insured) beyond retirement or other termination
of employment as described in Statement of Financial Accounting Standards
No. 106, other than continuation coverage mandated under Section 4980B of
the Code or other applicable law; all group health plans of Sellers, the
Acquired Companies and their respective ERISA Affiliates have been
operated in material compliance with the requirements of COBRA and Section
5000 of the Code and the Health Insurance Portability and Accountability
Act, and Sellers and the Acquired Companies have provided, or will have
provided before the Closing Date, to individuals entitled thereto all
required COBRA notices and coverage with respect to any "qualifying event"
(as defined in COBRA) occurring before or on the Effective Date; and
(ix) Sellers and the Acquired Companies have made all required
contributions to the Acquired Business Benefit Plans as of the last day of
the most recent fiscal year of each of the plans ended before the
Effective Date, and all monies withheld from
32
employee paychecks with respect to Acquired Business Benefit Plans have
been transferred to the appropriate plan within the requirements of
applicable law.
(d) To Sellers' knowledge, there are no pending, threatened, or
reasonably anticipated claims or actions against Sellers or the Acquired
Companies under any workers' compensation or long-term disability policy. The
Disclosure Schedule contains the most recent listing of workers' compensation
claims and a schedule of Sellers' and the Acquired Companies' workers'
compensation claims of $2,500 or more for the last three fiscal years.
3.20 Taxes and Tax Returns.
(a) For purposes of this Agreement:
(i) "Tax" (including with correlative meaning the terms
"Taxes" and "Taxable") means (a) all foreign, federal, state, local and
other income, gross receipts, sales, use, ad valorem, value-added,
intangible, unitary, transfer, franchise, license, payroll, employment,
estimated, excise, environmental, stamp, occupation, premium, property,
prohibited transactions, windfall or excess profits, customs, duties or
other taxes, levies, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, (b) any liability for payment of
amounts described in clause (a) as a result of transferee liability, of
being a member of an affiliated, consolidated, combined or unitary group
for any period, or otherwise through operation of law, and (c) any
liability for payment of amounts described in clause (a) or (b) as a
result of any tax sharing, tax indemnity or tax allocation agreement or
any other express or implied agreement to indemnify any other person for
Taxes.
(ii) The term "Tax Return" means any return (including any
information return), report, statement, schedule, notice, form, estimate
or declaration of estimated tax relating to or required to be filed with
any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
(b) (i) Except as set forth in the Disclosure Schedule with respect
to the 1997 partnership return of APLLC, all Tax Returns required to be filed
(x) by or with respect to the Sellers; (y) by or on behalf of the Acquired
Companies and (z) by or on behalf of any Managed Association, have been filed,
and all such Tax Returns are correct and complete in all material respects and
any Tax Return listed on the Disclosure Schedule shall be filed and correct and
complete in all material respects prior to the Closing Date.
(ii) All Taxes owed by or with respect to the Sellers, the
Acquired Business, the Acquired Assets, the Acquired Companies and the Managed
Associations have been paid (whether or not shown on any Tax Return) in full on
a timely basis.
(iii) There are (and immediately following the Closing there
will be) no Encumbrances on the Acquired Assets or on the assets of the Acquired
Companies relating or
33
attributable to Taxes, except for Taxes not yet due and payable.
(iv) There is no basis for the assertion of any claim relating
or attributable to Taxes which, if adversely determined, would result in any
Encumbrance (i) on the assets of the Acquired Companies or otherwise have an
adverse effect on the Acquired Companies or their business or (ii) on the
Acquired Assets or otherwise adversely effect the Purchaser, the Acquired
Business or the Acquired Assets.
(v) No deficiencies for any Taxes have been asserted in
writing or assessed against Sellers or the Acquired Companies which, if unpaid,
might result in a Encumbrance on any of the Acquired Assets or on the assets of
the Acquired Companies.
(vi) There are no claims, audits or investigations pending or
threatened with respect to Taxes of Sellers or relating to the Acquired Business
or any of the Acquired Assets or with respect to the Acquired Companies in
respect of any Tax.
(vii) No claim has ever been made by a governmental authority
in any jurisdiction where Sellers or the Acquired Companies do not file Tax
Returns that Sellers or any of the Acquired Companies are or may be subject to
tax in that jurisdiction.
(viii) Sellers and the Acquired Companies have each withheld
or otherwise collected and paid over to the proper governmental authority all
Taxes required to have been withheld or otherwise collected or paid over, and
complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(ix) None of the Acquired Assets or Acquired Companies' assets
are "tax exempt use property" within the meaning of Section 168(h) of the Code.
(x) Sellers have provided or otherwise will provide to
Purchaser true and complete copies of Sellers' and Acquired Companies' material
Tax Returns (including, without limitation, the Sellers' federal and state
income Tax Returns) for taxable periods ending after December 31, 1994.
(xi) The amount of any Acquired Company's liability for unpaid
Taxes as of the Interim Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the balance sheet included in the Interim Financial Statements, and the
amount of any Acquired Company's liability for unpaid Taxes for all periods or
portions thereof ending on or before the Closing Date will not exceed the amount
of the current liability accruals for Taxes (excluding reserves for deferred
Taxes) as such accruals are reflected on the books and records of such Acquired
Company on the Closing Date.
(xii) Except as set forth on the Disclosure Schedule, the
Acquired Companies have taxable years ending on December 31, in each year
commencing 1994.
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(xiii) The Acquired Companies have not agreed to, are not and
will not be required to, make any adjustments under Code Section 481(a) as a
result of a change in accounting methods.
(xiv) The Acquired Companies have not requested an extension
of time within which to file any Tax Return or have been granted any extension
or waiver of the statute of limitations period applicable to any Tax Return, and
all Tax Returns of the Acquired Companies for the preceding three years have
been made available to and delivered to Purchaser.
(xv) There are no contracts, agreements, plans or arrangements
covering any employee or former employee of any Acquired Company that,
individually or collectively, could give rise to the payment of any amount (or
portion thereof) that would not be deductible pursuant to Sections 280G, 404 or
162 of the Code.
(xvi) No Acquired Company nor any direct or indirect
shareholder thereof has filed a consent under 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 defined in Section 341(f)(4) of the Code) owned by such
Acquired Company.
(xviii) The Acquired Companies are not, nor have they ever
been, a party to a tax sharing, tax indemnity or tax allocation agreement, and
the Acquired Companies have not assumed the tax liability of any other person
under contract.
(xix) The Acquired Companies are not, nor have they ever been
members of an affiliated group filing a consolidated federal income Tax Return
other than any consolidated or combined group the common parent of which is
Parent. The Acquired Companies do not and will not have up to and including the
Closing Date any interest in any other corporation with respect to which the
Acquired Companies jointly or separately owns a majority of the common stock or
has the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
(xx) No Acquired Company or its subsidiaries has any liability
for the Taxes of any individual or entity other than such Acquired Company or
its subsidiary under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(xxi) No Acquired Company is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income tax purposes.
(xxii) No Acquired Company has ever elected to be treated as
an S corporation within the meaning of Code Sections 1361 and 1362, or such
mirror law of the Acquired Company's organization, at any time since its
formation and will not make any such election up to an including the Closing
Date.
(c) The Disclosure Schedule contains accurate and complete
descriptions of (i)
35
each Acquired Company's basis in its material assets (which for purposes of this
Paragraph 3.20(c) means assets having a book basis in excess of Five Hundred
Dollars ($500)); (ii) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to such Acquired Company; (iii) the amount of any
deferred gain or loss allocable to such Acquired Company arising out of any
deferred intercompany transaction; and (iv) tax elections affecting such
Acquired Company. No Acquired Company has net operating losses or other tax
attributes presently subject to limitation under Code Sections 382, 383, or 384,
or the federal consolidated return regulations.
(d) If the Purchaser elects to acquire any of APLLC, OCCMR, CCS
and/or SARDG and such entity or entities is a member of a consolidated or
combined group, the following shall apply in addition to the other
representations of this section:
(i) Any representation and warranty made by or with respect to
Sellers under subparagraph 3.20(b) shall also be made by any consolidated
or combined group that includes any Seller or Acquired Company.
(ii) There are (and immediately following the Closing there
will be) no Encumbrances on the assets of any consolidated or combined
group that includes any Seller or Acquired Company relating or
attributable to Taxes, except for Taxes not yet due and payable.
(iii) There is no basis for the assertion of any claim
relating or attributable to Taxes which, if adversely determined, would
result in any Encumbrance on any consolidated or combined group that
includes any Seller or Acquired Company for any taxable period during
which any of the Acquired Companies and their subsidiaries was a member of
the group.
(iv) Any consolidated or combined group that includes any
Seller or Acquired Company has not waived any statute of limitations in
respect of any income Taxes or agreed to any extension of time with
respect to an income Tax assessment or deficiency for any taxable period
during which any of the Acquired Companies and their subsidiaries were
members of the group.
(e) Except as set forth in the Disclosure Schedule, none of the
Acquired Companies has any deferred Taxes as of the Effective Date.
3.21 Receivables. The Disclosure Schedule sets forth an aged list of the
receivables of Sellers and the Acquired Companies as of no more than five
business days before the Closing Date (in the case of Sellers, related to the
Acquired Properties), showing separately those receivables that as of such date
had been outstanding (i) 30 days or less, (ii) 31 to 60 days, (iii) 61 to 90
days, and (iv) more than 90 days. All receivables reflected on the Financial
Statements arose from, and the receivables existing at the Closing Date will
have arisen from, the sale of inventory, VOIs or services to persons not
affiliated with Sellers, the Acquired Companies or the Stockholders and in the
36
Ordinary Course of Business.
3.22 Equipment. Except as set forth on the Disclosure Schedule, (i) the
Selling Subsidiaries and the Acquired Companies own or lease all Equipment used
in the operation of the Acquired Business; (ii) such Equipment, if owned, is
owned with good title, free and clear of all encumbrances other than Permitted
Encumbrances; and (iii) Purchaser and/or its subsidiaries will not cease to own
or have the right to use such Equipment by reason or the execution or
performance of this Agreement.
3.23 Conduct in the Ordinary Course; Absence of Certain Changes, Events
and Conditions. Since the Interim Balance Sheet Date except as disclosed in the
Disclosure Schedule, the Acquired Business has been conducted in the ordinary
course and consistent with past practice. As amplification and not limitation of
the foregoing, except as disclosed in the Disclosure Schedule between the
Interim Balance Sheet Date and the hereof, no Seller nor any Acquired Company
(i) has taken any action described in Paragraph 5.02(a) which, if taken between
the date hereof and Closing Date would be in breach of this Agreement or (ii)
has neglected, since the Effective Date, to take any action described in
Paragraph 5.02(b) which, if not taken between the date hereof and the Closing
Date, would be in breach of this Agreement.
3.24 Certain Interests. Except as disclosed in the Disclosure Schedule, no
officer or director of any Seller, Acquired Company or Affiliate and no relative
or spouse (or relative of such spouse) who resides with, or is a dependent of,
any such officer or director:
(a) has any direct or indirect financial interest in any competitor,
supplier or customer of the Acquired Business; provided, however, that the
ownership of securities representing no more than one percent of the outstanding
voting power of any competitor, supplier or customer, and which are listed on
any national securities exchange or traded actively in the national
over-the-counter market, shall not be deemed to be a "financial interest" so
long as the person owning such securities has no other connection or
relationship with such competitor, supplier or customer;
(b) owns, directly or indirectly, in whole or in part, or has any
other interest in any tangible or intangible property which Sellers, or the
Acquired Companies use or have used in the conduct of the Acquired Business.
3.25 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Sellers or Stockholders.
3.26 Bulk Sales. The Sellers have taken all actions necessary to comply
with the Bulk Sales Laws, such that none of the Sellers' liabilities and
obligations shall be transferred to the Purchaser.
37
3.27 Private Placement.
(a) Sellers and Stockholders understand that (i) the shares of
Purchaser Common Stock to be issued pursuant to Paragraph 2.10 will not be
registered under the Securities Act on the ground that the offering and sale of
the shares of Purchaser Common Stock are exempt from registration pursuant to
Section 4(2) of the Securities Act, (ii) the resale or other disposition of the
shares of Purchaser Common Stock is restricted pursuant to the securities laws
and (ii) there can be no assurance that such Seller or Stockholder will be able
to sell or dispose of such shares.
(b) The shares of Purchaser Common Stock to be issued to any Seller
or Stockholder pursuant to Paragraph 2.10 are being acquired for investment only
and not with a view to any sale or distribution of such shares or any part
thereof in violation of the Securities Act. Each Seller and Stockholder
receiving Purchaser Common Stock agrees at all times to sell or otherwise
dispose of all or any part of the shares of Purchaser Common Stock only pursuant
to a registration, or exemption therefrom, under the Securities Act and in
compliance with applicable state securities laws. Each party disposing of such
Purchaser Common Stock shall take any steps necessary to ensure that any
purchaser thereof shall agree not to sell or otherwise dispose of shares of
Purchaser Common Stock except in compliance with the requirements contained in
the preceding sentence.
(c) Parent is an "accredited investor" within the meaning of Rule
501 promulgated under the Securities Act and has such knowledge and experience,
or has consulted with persons having knowledge and experience, in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the shares of Purchaser Common Stock. Each such person has
received all the information that such person deems material to his/her/its
evaluation of the business, assets, liabilities, financial condition and results
of operations of Purchaser and all the information that such person has
requested from Purchaser and considers necessary or appropriate for deciding
whether to acquire the shares of Purchaser Common Stock. Each such person has
the ability to bear the economic risks of such prospective investment and is
able, without materially impairing such financial condition, to hold the shares
of Purchaser Common Stock for an indefinite period of time and to suffer
complete loss on such investment, in the event such a loss should occur.
3.28 Gross Receipts Tax. Except for contracts for deed for VOIs sold by or
on behalf of CAI or BCI before July 23, 1998, no contracts for deed require CAI
or BCI to pay the gross receipts tax on the recording of deeds for VOIs.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
To induce Parent to enter into this Agreement and consummate the
transactions contemplated hereby, Purchaser represents and warrants to Parent as
follows:
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4.01 Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
is duly qualified and in good standing as a foreign corporation in the
jurisdictions where the ownership of its assets or the conduct of its business
requires such qualification (except where the failure to so qualify would not
have a Purchaser Material Adverse Effect), and has full power and authority to
own its properties and assets and to carry on lawfully its business as currently
conducted. Purchaser owns all of the stock of, and controls all of the voting
power of, RFI.
4.02 Articles of Incorporation, Bylaws and Agreements. A true, complete
and correct copy of the Articles of Incorporation and Bylaws of Purchaser, as
currently in effect, have been delivered to Parent.
4.03 Authorization. Purchaser has full legal right, power and authority to
enter into this Agreement and consummate the transactions contemplated hereby.
The execution, delivery and performance by Purchaser of this Agreement and the
Related Agreements and the actions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action, and this
Agreement and (upon their execution) each of the Related Agreements constitute
or will constitute valid and binding obligations of Purchaser enforceable
against it in accordance with their terms.
4.04 Purchaser Common Stock. At the Closing, the shares of Purchaser
Common Stock to be issued pursuant to Paragraph 2.10 will have been duly
authorized by all necessary corporate action on the part of Purchaser and, upon
issuance to Parent in accordance with this Agreement, will be validly issued,
fully paid and non-assessable and not subject to preemptive rights.
4.05 Non-Contravention; Required Consents.
(a) Except as described in the Disclosure Schedules hereto, the
execution and delivery of this Agreement and the Related Agreements by
Purchaser, the consummation by Purchaser of the transactions contemplated hereby
and compliance by Purchaser with the provisions of this Agreement and the
Related Agreements will not conflict with, or result in any violation of, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to a loss of a material benefit under, or result in the creation
of any lien upon any of the properties or assets of Purchaser or any of its
subsidiaries under, (i) the Articles of Incorporation or Bylaws of Purchaser or
the comparable charter or organizational documents or limited liability or
partnership or similar agreement (as the case may be) of any such subsidiary,
(ii) any material loan or credit agreement, note, bond, mortgage, indenture,
reciprocal easement agreement, lease or other agreement, instrument, permit,
concession, franchise or license of Purchaser or any of its subsidiaries or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Purchaser or any of its subsidiaries or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights or liens that individually or in the
aggregate would not (x) constitute a Purchaser Material Adverse Effect or (y)
prevent the consummation of the transactions contemplated hereby.
39
(b) The execution and delivery of this Agreement by Purchaser does
not, and the performance of this Agreement by Purchaser will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of HSR, the Securities Act, the Securities
Exchange Act, "blue sky" laws and National Association of Securities Dealers,
Inc., and (ii) where failure to obtain such consents, approvals, authorizations
or permits, or to make such filings or notifications, would not prevent or delay
consummation of the transactions contemplated hereby or otherwise prevent
Purchaser from performing its obligations under this Agreement, and would not
constitute a Purchaser Material Adverse Effect.
4.06 Litigation and Compliance. Except as set forth in the Disclosure
Schedule hereto and except as set forth in Purchaser's filings with the
Securities and Exchange Commission prior to the date hereof, there is no order,
writ, injunction or decree of any court, arbitrator, administrative agency or
other governmental authority materially affecting the operations or the business
of Purchaser or any of its subsidiaries or prohibiting the consummation of the
transactions contemplated hereby.
4.07 Capital Stock of Purchaser. The authorized capital stock of Purchaser
consists of 50,000,000 shares of common stock, $.05 par value, of which
25,106,706 shares are issued and outstanding; 15,000 shares of Cumulative
Redeemable Preferred Stock -- Series 2 Class A, $3.00 par value, of which 10,000
are outstanding; and 3,000 shares of Cumulative Convertible Preferred Stock --
Series 2, of which no shares are outstanding. All of the issued and outstanding
shares of the capital stock of Purchaser have been duly authorized and validly
issued, are fully paid and nonassessable and are owned of record and
beneficially by Purchaser, free and clear of all Encumbrances. All of the issued
and outstanding shares of the capital stock of Purchaser were offered, issued,
sold and delivered in compliance with all applicable local, state and federal
laws concerning the issuance of securities. Further, none of such shares was
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to any of the outstanding shares of the capital stock
of Purchaser.
ARTICLE V
COVENANTS OF SELLERS AND STOCKHOLDERS
Sellers and Stockholders (where applicable) covenant and agree with
Purchaser as follows:
5.01 HSR Filings.
(a) As promptly as practicable after the date hereof, Parent shall
cause to be filed a Notification and Report Form regarding the purchase and sale
of the Acquired Assets and the capital stock of the Acquired Companies, in
accordance with the HSR Act, and shall thereafter promptly make all filings or
supply all information requested by the FTC or the DOJ in connection with such
filing.
40
(b) Sellers shall furnish to Purchaser such necessary information
and reasonable assistance as Purchaser reasonably may request in connection with
Purchaser's preparation of filings or submissions under the HSR Act.
(c) Sellers shall use all reasonable efforts to obtain either
approval from FTC or DOJ, as the case may be, of the sale of the Acquired Assets
and the capital stock of the Acquired Companies, or the lapse or termination of
the HSR waiting period on or before the Closing Date without litigation
commencing.
(d) Notwithstanding the foregoing, Parent shall not be required to
make the filings or take the other actions described in subparagraphs (a), (b),
and (c) of this Paragraph 5.01 if counsel to the Parties mutually determine that
such filings are not required to be made under the HSR Act to consummate the
transactions contemplated hereby.
5.02 Conduct of Acquired Business by Sellers.
(a) Except as may be permitted under this Agreement or as Purchaser
may agree in writing (which agreement may be withheld in Purchaser's sole and
absolute discretion), between the date of this Agreement and either the Closing
Date or the date that this Agreement is terminated pursuant to Paragraph 8.01,
Sellers shall cause the Acquired Business to be conducted only in the Ordinary
Course of Business and, without limitation, Sellers shall not, and shall insure
that the Acquired Companies do not:
(i) make any material change in the conduct of the Acquired
Business or its operations;
(ii) introduce any material new method of management,
operations, or accounting in connection with the Acquired Business
(including any changes to the items included and percentages used in
allocating overhead) except as related to any elections on any of Sellers'
tax returns for periods prior to the Effective Date;
(iii) make any sale, assignment, transfer, lease, Encumbrance,
or other conveyance or otherwise dispose of, or make any commitment to
dispose of any interest in any assets (including the sale of receivables)
of the Acquired Business, except transactions pursuant to contracts for
Consumer Interval Sales in the Ordinary Course of Business;
(iv) enter into any contract, agreement, or instrument or
amend or terminate any existing contract to the extent that same relate to
the Acquired Business, except in the Ordinary Course of Business or as
expressly required by this Agreement;
(v) subject any of the assets of the Acquired Business or
stock of the Acquired Companies, or any part thereof, to any material
Encumbrance or suffer such to be imposed;
(vi) declare, set aside, or pay any dividends, or make any
distributions in
41
respect of, or issue any or repurchase, redeem or otherwise acquire any
shares of any of Sellers' or Acquired Companies' equity securities or
other capital stock or loan any money, repay the indebtedness of, or
distribute any cash to any other Seller;
(vii) authorize any capital expenditures (except in connection
with construction in progress of Vacation Ownership Units in the Ordinary
Course of Business), or make any material additions to the Real Property
not in the Ordinary Course of Business, or purchase or lease or commit to
purchase or lease any materials, supplies, equipment, property, parts, or
other assets in amounts, quantities, or for a term in excess of normal
operating needs and requirements, to the extent that the same are used in
connection with the Acquired Business;
(viii) make any change in their certificate of incorporation,
bylaws, or equivalent governing instruments;
(ix) merge into or with or consolidate with any other Person
or acquire all or substantially all of the business or assets or any other
Person;
(x) incur any additional indebtedness, repay any indebtedness,
or guarantee any indebtedness for borrowed money or any material
obligation of any other Person, except in the Ordinary Course of Business
as currently conducted; provided, however, that from the date hereof to
the Closing Date, Sellers will be permitted to continue to finance
Consumer Receivables related to the Acquired Business under existing
facilities, subject to the provisions of Paragraph 7.08;
(xi) (A) grant any increase, or announce any increase, in the
wages, salaries, compensation, bonuses, incentives, pension or other
benefits payable to any employees, officers, or consultants of the
Acquired Business, including, without limitation, any increase or change
under a Seller Benefit Plan or Seller Benefit Arrangement, (B) establish
or increase or promise to increase benefits under any Acquired Business
Benefit Plan or Acquired Business Benefit Arrangement, in either case
except as required by law or involving ordinary increases consistent with
past practices, or (C) terminate or amend any Seller Benefit Plan or
Seller Benefit Arrangement;
(xii) allow or otherwise permit the termination, cancellation,
or lapse of any license, Permit, authorization, or certificate, including
but not limited to environmental, regulatory, or otherwise, issued or
granted by any court or any federal, State, or other governmental
department, commission, or agency;
(xiii) enter into any agreement, arrangement or transaction
with any of its directors, officers, employees or shareholders (or with
any relative, beneficiary, spouse or affiliate of such person) related to
the Acquired Business;
(xiv) authorize any securities of the Acquired Companies or
grant options,
42
warrants or other rights to acquire any securities of the Acquired
Companies; or
(xv) commit itself to do any of the foregoing.
(b) In addition, Sellers covenant and agree with Purchaser that,
with respect to the Acquired Business, between the date hereof until the Closing
Date or the date this Agreement is terminated pursuant to Paragraph 8.01, except
as permitted hereunder or contemplated hereby or as consented to in writing by
Purchaser, Sellers shall, and shall insure that the Acquired Companies:
(i) continue to maintain, in all material respects all assets
in accordance with current practices in a condition suitable for their
current use, normal wear and tear excepted;
(ii) keep its books of account, records, and files in the
ordinary course and in accordance with existing accounting methods and
practices and not make any change in such accounting methods or practices;
(iii) use reasonable commercial efforts to preserve and
maintain its business organizations, employees and advantageous business
relationships, with the end that its goodwill shall be unimpaired at the
Closing Date;
(iv) keep all of the indebtedness, liabilities, and
obligations to be assumed by Purchaser pursuant to subparagraph 2.04(b)
current and in good standing in the ordinary course and give prompt notice
to Purchaser of any written notice of default or violation received during
such period under any contract, instrument, agreement, law or regulation
to which any Seller or Acquired Company is a party or by which any Seller
or Acquired Company is bound;
(v) notify Purchaser of any material developments in
regulatory proceedings, notices from regulatory agencies, any information
requests, letters, notices or litigation, that is or are related to or
affecting this Agreement and the consummation of the transactions
contemplated hereby; and
(vi) keep all insurance policies listed in the Disclosure
Schedule in effect through the Closing, in the same amounts, with the same
insurers, and in all other ways as in effect as of the date hereof.
(c) Sellers shall not be deemed in breach of any of their
obligations under this Paragraph 5.02 as a consequence of any affirmative action
taken by Sellers at the direction of or with the express approval of any of
Purchaser's Officers.
5.03 Access. Between the date of this Agreement and the Closing Date,
Sellers shall afford to Purchaser and its authorized representatives, at
Purchaser's sole expense, reasonable access during normal business hours to the
properties, books, and records of Sellers and the Acquired Companies
43
(insofar as such books and records relate to the Acquired Business) and will
disclose to Purchaser such additional financial and operating data and other
information as Purchaser reasonably may request that is in Sellers' or the
Acquired Companies' possession and that relates to the Acquired Business;
provided that such access and disclosure would not (i) violate the terms of any
agreement to which any Seller or Acquired Company is bound or of any applicable
law or regulation; or (ii) impair any attorney-client privilege of any Seller.
For twelve months following the date of this Agreement, at the request of
Purchaser, Sellers will provide Purchaser with information as to all outstanding
payables of the Acquired Business.
5.04 Confidentiality. From and after the Closing, Sellers and Stockholders
shall keep confidential all information regarding the Acquired Business
including, without limitation, information included in Records retained by
Sellers pursuant to Paragraph 9.05. In addition, Sellers, at the election of
Purchaser, shall either (i) grant to Purchaser the right to enforce the terms of
confidentiality agreements entered into with other potential purchasers of all
or any part of the Acquired Business; or (ii) take all actions reasonably
necessary to enforce the terms of such confidentiality agreements (at
Purchaser's cost and expense), in either case as promptly as practicable after
written notification from Purchaser of such election. Purchaser shall give
Sellers prior notice before initiating any action to enforce such
confidentiality agreements. Sellers and Stockholders shall not, without the
prior written consent of Purchaser, disclose such information except as required
by law; provided, however, that no such disclosure shall be made prior to
Sellers' or Stockholders' giving Purchaser reasonable prior written notification
that explains in reasonable detail the basis for such disclosure and reasonable
opportunity to seek relief from such requirement. This Paragraph shall not apply
to any information that is readily ascertainable from public or published
information that did not become public or published as a result of a breach of
the confidentiality provisions of this Paragraph 5.04 or otherwise as a result
of any improper disclosure.
5.05 Non-Competition and Non-Solicitation.
(a) Each Seller and Stockholder covenants and agrees that from and
after the Closing for a period of three years he, she or it will not:
(i) Engage in (or own any interests in or in any way have any
involvement with) any VOI Business within the State of Maryland, State of
Louisiana, District of Columbia , St. Thomas, U.S. Virgin Islands, or (if
Purchaser acquires the stock or assets of SARDG) within St. Johns County,
Florida;
(ii) Interfere with, disrupt, or attempt to disrupt any
relationship, contractual or otherwise, between Purchaser or any
Affiliates thereof and any customer, supplier, sales representative, or
employee of Purchaser or of any Affiliates to the extent such relationship
pertains to the Acquired Business;
(iii) Directly or indirectly solicit for employment, attempt
to employ or employ, or assist any entity in employing or soliciting for
employment any employee or executive who is, at such time, employed by
Purchaser or any of its Affiliates in connection
44
with the Acquired Business or the VOI Business in general; provided,
however, that the foregoing prohibition on solicitation shall not be
applicable with regard to the solicitation of Dean Vaughn and Dan Carter
for a 90-day period beginning on the Closing Date; and provided, further,
that the foregoing prohibition on attempts to employ and employment shall
not be applicable with respect to Dean Vaughn and Dan Carter for the
period beginning 60 days after the Closing Date and ending 90 days after
the Closing Date; and
(iv) Employ, affiliate or otherwise engage in business
activities with John Santopadre in the State of Louisiana.
(b) Notwithstanding the foregoing provisions of subparagraph
5.05(a):
(i) Parent may continue to hold VOI Receivables for Vacation
Ownership Units of the Ocean Development Group, Inc. at the Villas at
Ocean Pines, which such Vacation Ownership Units exist as of the Effective
Date;
(ii) Cape Canaveral Cruise Line Tour & Travel, Inc. and
Promotional Vacation, Inc. may continue to operate their current
respective businesses, so long as they do not sell or market VOIs
developed by Parent or its Affiliates in violation of subparagraph
5.05(a); and
(iii) Mr. Santopadre may continue to be employed at the Club
La Pension and Parent may continue to own stock in Club La Pension, so
long as the Club La Pension (x) remains at its location as of the date of
this Agreement and (y) does not increase the number of VOIs available for
sale above the number of VOIs available for sale as of the date of this
Agreement.
5.06 Transition of Plans. Sellers will cooperate with and assist Purchaser
in the transition to Purchaser of any of the Acquired Business Benefit Plans and
Acquired Business Benefit Arrangements the Purchaser elects to assume.
5.07 Acquisition Proposals. Prior to Closing, Sellers will not, nor will
they permit any officer, director, employee or any investment banker, attorney,
accountant, or other agent retained by any of them to initiate or solicit,
directly or indirectly, any inquiries or the making of any proposal with respect
to, or engage in negotiations concerning, or have any discussions with any
Person relating to any acquisition, business combination, or purchase of all or
any significant portion of the Acquired Assets of, or any equity interest in any
Seller, or otherwise facilitate any effort or attempt to do or seek any of the
foregoing. Sellers will immediately cease and cause to be terminated any
existing activities, discussions, or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Sellers will notify Purchaser
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with any Seller. Nothing in this Paragraph
will be deemed to prohibit discussions with persons interested in investing
equity in Parent if such person, prior to or contemporaneous with being provided
confidential information concerning Parent and its subsidiaries
45
acknowledges in writing (with a copy sent to Purchaser) the existence of this
Agreement and Purchaser's right to acquire the Acquired Business in accordance
with the terms hereof.
5.08 Agreement to Pay Retained Liabilities. Sellers covenant and agree
that following the Closing, they shall perform and pay in a timely fashion and
in accordance with the terms thereof all of the Retained Liabilities. At or
prior to Closing, Sellers will cause to be paid all release fees and regular
interest and scheduled principal payments under the Mortgage Loans and
Receivable Facilities that accrued prior to the Effective Date.
5.09 Disclosure Schedules. Sellers shall complete delivery of all
Disclosure Schedules by no later than ten days after the date hereof (unless a
specific Schedule is called for by another date) and made such other deliveries
as are called for by this Agreement.
ARTICLE VI
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Parent as follows:
6.01 HSR Filings.
(a) As promptly as practicable after the date hereof, Purchaser
shall cause to be filed a Notification and Report Form regarding the purchase
and sale of the Acquired Assets and the capital stock of the Acquired Companies
in accordance with the HSR Act and shall thereafter promptly make all filings or
supply all information requested by the FTC or the DOJ in connection with such
filing.
(b) Purchaser shall furnish to Parent such necessary information and
reasonable assistance as Sellers reasonably may request in connection with their
preparation of filings or submissions under the HSR Act.
(c) Purchaser shall use all reasonable efforts to obtain either
approval from the FTC or DOJ, as the case may be, of the purchase of the
Acquired Assets and capital stock of the Acquired Companies or the lapse or
termination of the HSR waiting period on or before the Closing Date, without
litigation commencing.
(d) Notwithstanding the foregoing, Purchaser shall not be required
to make the filings or take the other actions described in subparagraphs (a),
(b), and (c) of this Paragraph 6.01 if counsel to the Parties mutually determine
that such filings are not required to be made under the HSR Act to consummate
the transactions contemplated hereby.
6.02 Books and Records: Access. After the Closing, Purchaser shall be
responsible at its sole expense for transporting all Records to Purchaser's
offices. After the Closing, Purchaser shall
46
afford to Sellers and its authorized representatives, upon not less than three
(3) business days' notice, reasonable access during normal business hours to the
former properties, and Records of Sellers to the extent necessary to permit
Sellers to determine any matter relating to Sellers regarding any period ending
on or before the Closing Date.
6.03 Agreement to Pay Assumed Liabilities. Purchaser covenants and agrees
that following the Closing, it shall perform and pay in a timely fashion and in
accordance with the terms thereof all of the Assumed Liabilities.
6.04 Employment Negotiations with John Santopadre. Purchaser will use its
reasonable efforts to enter into a mutually satisfactory employment agreement
with John Santopadre on or before the Closing Date.
6.05 Assistance to Sellers. Purchaser will give Sellers all reasonable
assistance in communicated the terms of this Agreement to the lenders, vendors
or other creditors of Sellers.
6.06 Payment of Remaining Purchase Price. Purchaser covenants and agrees
that it will perform its obligations pursuant to Paragraph 2.09, and deposit the
sums called for thereby on the thirtieth and sixtieth days after the Closing.
ARTICLE VII
ADDITIONAL COVENANTS BY THE PARTIES
7.01 Expenses; Transfer Taxes; Apportionment.
(a) Except as otherwise expressly provided in this Agreement or as
otherwise agreed in writing, each Party shall pay its own expenses incident to
the negotiation, preparation and carrying out of this Agreement and the
consummation of the transactions contemplated hereby, including legal fees,
commitment fees, and the expenses of any broker, finder or investment advisor
incurred by such Party in connection with this Agreement, regardless of whether
this Agreement is terminated pursuant to Article VIII.
(b) Sellers, on the one hand, and Purchaser on the other, shall each
pay when due one-half of: (i) all transfer, stamp taxes and fees applicable to
the conveyance of the Real Property comprising the Acquired Properties
contemplated hereby; (ii) in the event a Closing occurs, the premiums for the
owner's title insurance policies; and (iii) all applicable transfer or sales
taxes with respect to the transfer of personal property contemplated hereby.
(c) Unless previously listed on the Disclosure Schedule to be paid
by disbursement from the Payables Account, (i) all Insurance Premiums (except
title insurance premiums), rents, State and local ad valorem taxes and
assessments (whether due, accrued and not yet due, or not yet computed), common
area charges and assessments, utility expenses and management fees relating to
the Acquired Assets and (ii) all real property, personal property and other
similar Taxes levied with
47
respect to the Acquired Business, the Acquired Companies or the Acquired Assets,
except as specified in subparagraph (b) shall be prorated based on the number of
days in such period between Purchaser and Sellers as of the Effective Date. All
ad valorem real and personal property taxes shall be prorated based upon maximum
allowable discounts for early payments, all available exemptions for homestead,
agricultural classification, or other such exemptions, and currently available
millage and assessment values as of the Effective Date. If the final tax bills
are not available as of the Closing Date, the prorations shall be made on the
most current available information and shall be adjusted by the Parties as soon
as final tax bills are made available.
7.02 Publicity. Prior to the Closing Date, Sellers shall not issue any
press release or otherwise make any public statement regarding this Agreement
and the transactions that it contemplates without consent of Purchaser except as
required by law or by obligations pursuant to any listing agreement with any
securities exchange. Sellers shall not communicate any information regarding
this Agreement to any party other than necessary employees, attorneys, and other
professionals until Purchaser shall have publicly announced this transaction
contemplated by this Agreement; provided, however, that nothing contained in
this Paragraph 7.02 shall prohibit either Party from seeking any required
consent from any third party or regulatory authority to the consummation of the
transactions contemplated hereby or from otherwise taking any action
contemplated by or required to be performed under this Agreement.
7.03 Agreement to Take Necessary Action.
(a) Each of the Parties hereto agrees to use its best efforts
(subject to the provisions of subparagraph 7.03(b)) to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or reasonably advisable to (i) fulfill all conditions referred to in Paragraphs
9.02 and 9.03, and (ii) consummate and make effective the transactions
contemplated by this Agreement as soon as practicable.
(b) No Party shall intentionally perform any act that, if performed,
or omit to perform any act that, if omitted to be performed, would prevent or
excuse the performance of this Agreement by any Party hereto or which would
result in any representation or warranty herein contained of such Party being
untrue in any material respect.
7.04 Full Disclosure. Each of the Parties shall, on or before the Closing
Date, disclose in writing to the other Parties hereto any event or condition the
occurrence of which would violate or result in a violation of any of its
representations, warranties, or covenants contained in this Agreement, affect
its ability to perform fully the transactions contemplated by this Agreement, or
cause any information contained in the Disclosure Schedule to be inaccurate or
incomplete at any time after the date hereof until the Closing Date; provided,
however, that no such delivery shall diminish or affect the representations and
warranties of Sellers and Stockholders.
7.05 Purchaser's Use of Assets or Contracts. If, following the Closing
Date, Purchaser desires to continue (a) to use any asset that is currently used
in the operation of the Acquired Business or (b) to benefit from any contractual
right or service that is currently used in the operation
48
of the Acquired Business, and such asset or contract is owned by, leased by,
licensed to or otherwise proprietary to Parent or any Affiliate of Parent that
is not a Selling Subsidiary or Acquired Company, and Purchaser has not otherwise
obtained the rights to such asset or under such contract, directly or
indirectly, pursuant to this Agreement, Purchaser shall notify Sellers in
writing prior to the Closing Date of its desire to do so and shall specify the
anticipated period of such use. Sellers shall use all reasonable efforts to make
such assets and contractual rights and services available to Purchaser following
the Closing Date (including seeking any necessary consents of lessors or other
third parties). During the period of Purchaser's use thereof, Purchaser shall
reimburse Sellers at the rates called for in the applicable lease agreement for
any leased assets, at the rates called for in the applicable service contract
for any contractual services, and at a pro rata rate for any other assets or
contractual services or rights. In addition, Purchaser shall, at its sole
expense, keep any assets obtained pursuant to this Paragraph 7.05 insured during
the period of its use thereof.
7.06 Consents to Transfer of Acquired Assets. It is acknowledged by the
Parties that certain assets used in the Acquired Business may contain express
prohibitions on assignment or transfer or change of control without the prior
consent of a third party. Because it is the intention of the Parties to assure
that as many of such assets as possible are assigned and transferred to
Purchaser at the Closing, Sellers and Purchaser shall jointly use their best
efforts to obtain any necessary third party consent to the assignment and
transfer of any asset that according to the express terms thereof is not
assignable or transferable without such third party consent, including the
transfer of any Licenses and Permits requiring governmental consent. To the
extent that any such necessary third party consent (other than a consent that is
a condition to Purchaser's obligation to close under Paragraph 9.02 or Seller's
obligation to close under Paragraph 9.03, unless waived by the Party for whose
benefit such condition was included) cannot be obtained prior to the Closing
Date despite the best efforts of the Parties to obtain the same, the Closing
shall nevertheless occur. In any such case, any assets (other than those of the
Acquired Companies) for which such necessary third party consent to assignment
and transfer could not be obtained shall be Excluded Assets.
7.07 Title to Real Property. If between the date of this Agreement and the
Closing Date, the Purchaser or Sellers shall become aware of any title defect or
Encumbrance on the Real Property other than Permitted Encumbrances, such Party
shall notify the other Party in writing of the existence of such title defect or
Encumbrance. If Purchaser shall object to such title defect or Encumbrance,
Sellers shall take curative action with respect thereto. Purchaser agrees and
acknowledges that Sellers shall have no obligation to take any curative action
relating to any title defects or Encumbrances that cannot be cured by the
payment of monies not exceeding $50,000 in the aggregate. If any such title
defect or Encumbrance is not cured by the Closing Date, then the failure to cure
such title defect or Encumbrance shall be deemed a breach of Sellers'
representations and warranties contained in Article III under this Agreement,
and Purchaser may terminate this Agreement.
7.08 Additional Agreement Regarding Receivables Financing.
(a) Sellers and Purchaser agree that, on and after the date of this
Agreement and until the Closing Date or the date that this Agreement is
terminated pursuant to Paragraph 8.01,
49
Purchaser will cause RFI to finance the outstanding principal balance of new VOI
Receivables from Consumer Interval Sales at the St. Thomas Properties pursuant
to the existing financing facility between RFI and KCHC, BCI and CAI but subject
to the following additional terms:
(i) For notes relating to sales of existing VOIs that occurred
prior to the Effective Date, such VOI Receivables may be financed, subject
to all normal credit underwriting and eligibility standards, at a rate of
90%. All proceeds thereof, net of release fees, shall be subject to escrow
and may be used only for CAI or BCI payables;
(ii) For notes relating to sales of existing VOIs that occur
subsequent to the Effective Date, such VOI Receivables may be financed,
subject to all normal underwriting and eligibility standards, at a rate of
70%. All proceeds thereof, net of release fees, shall be subject to escrow
and may be used only for CAI or BCI payables.
(iii) For notes relating to presales, Parent shall be allowed
to present such notes to RFI for financing, subject to all normal
underwriting and eligibility standards (other than the issuance of a
certificate of occupancy), at a rate of 70%. All proceeds thereof, net of
release fees, shall be subject to escrow and may be used only for CAI or
BCI payables.
(b) Sellers and Purchaser agree that, on and after the date of this
Agreement Sellers will be permitted to continue financing the outstanding
principal amount of new receivables from Consumer Interval Sales at the Avenue
Plaza Property pursuant to the existing financing facility between FINOVA and
APLLC but subject to the following additional terms:
(i) as to any such Consumer Interval Sale (including presales)
that is ineligible for financing under the FINOVA facility, Purchaser will
cause RFI to finance 85% of the principal balance amount of such new VOI
Receivable to the extent that such receivables qualify for financing under
the existing financing facility between RFI and Parent in respect of the
Avenue Plaza Property (subject to all normal credit underwriting and
eligibility standards and subject to the payment of release fees);
(ii) the proceeds of such financings by RFI (net of all
release fees, which shall be paid) shall be placed into an escrow account,
jointly controlled by the Parties, and applied exclusively to the payment
of third party liabilities of the Avenue Plaza Property to be mutually
agreed upon by the Parties;
(iii) any amount of new receivables from Consumer Interval
Sales at the Avenue Plaza Property that are not financed by FINOVA or
pursuant to the preceding clause shall remain unencumbered and shall
become the property of Purchaser as of the Effective Date.
(c) Sellers and Purchaser agree that, on and after the date of this
Agreement Sellers will be permitted to continue financing the outstanding
principal balance amount of new receivables from Consumer Interval Sales at the
Coconut Malorie Property pursuant to the existing
50
financing facility between RFI and OCCMR but subject to the following additional
terms:
(i) the proceeds of such financings by RFI (net of all release
fees, which shall be paid) shall be paid to Parent and shall not exceed
$200,000;
(ii) any amount of new receivables from Consumer Interval
Sales at the Coconut Malorie Property that are not financed pursuant to
the preceding clause shall remain unencumbered and shall become the
property of Purchaser as of the Effective Date.
(d) Purchaser shall insure that any VOI Receivables financed by RFI
pursuant to this Paragraph 7.08 shall be serviced and collected by RFI.
7.09 Bulk Transfer Law. The Sellers shall take all actions necessary to
comply with the provisions of the Uniform Commercial Code, the tax laws and any
other commercial laws concerning bulk sales or bulk transfers or any similar law
(the "Bulk Sales Laws") of any State or jurisdiction in which the Acquired
Assets or Acquired Companies are located, including, without limitation, the
filing of all notifications required to be filed, such that the Purchaser shall
not become responsible for any of the Sellers' liabilities or obligations other
than the Assumed Liabilities. The Purchaser shall fully cooperate with the
Sellers with respect to compliance with the Bulk Sales Laws.
7.10 Tax Matters.
(a) Payment of Taxes.
(i) The Sellers shall timely pay all Taxes of the Sellers for
all periods, including, without limitation, all Taxes that relate to the
Acquired Business or the Acquired Assets and that were incurred in or are
attributable to any taxable period (or portion thereof) ending on or
before the Effective Date.
(ii) Each of the Sellers and KCHC covenants and agrees to
indemnify, hold harmless and reimburse promptly Purchaser for the amount
of the Acquired Companies' combined liability for unpaid Taxes for all
periods or portions thereof ending on or before the Effective Date.
(b) [reserved]
(c) Allocation of Adjusted Purchase Price. The consideration to be
paid as set forth in Paragraph 2.06 shall be allocated among the Acquired
Assets, the capital stock of the Acquired Companies, and the covenant not to
compete described in Paragraph 5.05 hereof in accordance with Exhibit B annexed
hereto, which has been prepared pursuant to the requirements of Treasury
Regulation Section 1.1060-1T promulgated under Section 1060 of the Code.
Purchaser and, as required, Sellers, shall file with the IRS form 8594 in a
manner consistent with such allocation and shall reflect such allocation on all
applicable Tax Returns and reports. The Parties agree that all Tax Returns and
reports (including IRS Form 8594 (Asset Acquisition Statement), and all
financial
51
statements shall be prepared in a manner consistent with (and the Parties shall
not otherwise take a position inconsistent with) the Allocation unless required
by the IRS or a state taxing authority.
(d) Tax Periods Ending on or before the Closing Date. Sellers shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Acquired Companies and their Subsidiaries for all periods ending on or
prior to the Closing Date which are filed after the Closing Date. Sellers shall
permit Purchaser to review and comment on each such Tax Return described in the
preceding sentence prior to filing and shall make such revisions to such Tax
Returns as are reasonably requested by Purchaser. Sellers shall prepare or cause
to be prepared and file or cause to be filed any Acquired Company's Tax Returns
for calendar year 1998 on or prior to the Closing Date.
(e) Responsibility for Taxes. Except as provided in Paragraph 7.01,
all transfer, documentary, sales, use, stamp, registration, excise and other
such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any corporate-level gains tax
triggered by the sale of the stock of the Acquired Companies, any state or
municipal transfer tax), shall be paid by Sellers when due, and the Sellers
will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law,
Purchaser will, and will cause its Affiliates to, join in the execution of any
such Tax Returns and other documentation. Each of the Sellers jointly and
severally, hereby indemnifies and agrees to hold the Purchaser harmless from,
against and in respect of any U.S. federal or state Tax liability (including
interest and penalties), if any, incurred by or imposed upon the Purchaser
resulting from or as a consequence of the transactions contemplated hereby.
(f) Tax Cooperation. To the extent relevant to the Acquired
Business, the Sellers, on the one hand, and Purchaser, on the other, shall (i)
provide the other Party with such assistance as may reasonably be required in
connection with the preparation of any Tax Returns, the conduct of any audit or
other examination by any taxing authority or judicial or administrative
proceedings relating to any liability for Taxes and (ii) retain and provide the
other Party with all records or other information that may be relevant to the
preparation of any Tax Returns, the conduct of any audit or examination or other
Tax proceeding. Each Party shall retain all relevant documents, including prior
years' Tax Returns, supporting work schedules and other records or information
that may be relevant to such Tax Returns until the expiration of the statute of
limitations (and, to the extent notified by the other Party, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and shall give the other
Party, reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other Party, so requests, Sellers shall
allow the other party to take possession of such books and records.
(g) [reserved].
52
(h) Acquisition of Consolidated Subsidiaries. If Purchaser elects to
acquire any of APLLC, OCCMR, CCS and/or SARDG and such entity or entities is a
member of a consolidated or combined group (the "Consolidated Subsidiaries"),
the following shall apply:
(i) Tax Sharing Agreements. Any tax sharing agreement between
Parent and any of the Consolidated Subsidiaries and their subsidiaries
will be terminated as of the Closing Date and will have no further effect
for any taxable year (whether the current year, a future year, or a past
year).
(ii) Returns for Periods Through the Closing Date. Parent will
include the income of the Consolidated Subsidiaries and their subsidiaries
(including any deferred income triggered into income by Treasury
Regulation Section 1.1502-13 and Treasury Regulation Section 1.1502-14 and
any excess loss accounts taken into income under Treasury Regulation
Section 1.1502-19) on Parent's consolidated federal income Tax Returns for
all periods through the Closing Date and Parent will pay any federal
income Taxes attributable to such income. The Consolidated Subsidiaries
and their subsidiaries will furnish Tax information to Parent for
inclusion in Parent's federal consolidated income Tax Return for the
period which includes the Closing Date in accordance with the Consolidated
Subsidiaries' past custom and practice. Parent will allow Purchaser an
opportunity to review and comment upon such Tax Returns (including any
amended returns) to the extent that they relate to the Consolidated
Subsidiaries and their subsidiaries. Parent will take no position on such
returns that relate to the Consolidated Subsidiaries and their
subsidiaries that would adversely affect the Consolidated Subsidiaries and
their subsidiaries after the Closing Date. The income of the Consolidated
Subsidiaries and their subsidiaries will be apportioned to the period up
to and including the Closing Date and the period after the Closing Date by
closing the books of the Consolidated Subsidiaries and their subsidiaries
as of the end of the Closing Date.
(iii) Audits. Parent will allow the Consolidated Subsidiaries
and its counsel to participate in any audits of Parent consolidated
federal income Tax Returns to the extent that such returns relate to the
Consolidated Subsidiaries and their subsidiaries. Parent will not settle
any such audit in a manner which would adversely affect the Consolidated
Subsidiaries and their subsidiaries after the Closing Date without the
prior written consent of Purchaser, which consent shall not unreasonably
be withheld.
(iv) Carrybacks. Parent will immediately pay to Purchaser any
Tax refund (or reduction in Tax liability) resulting from a carryback of a
post-acquisition Tax attribute of any of the Consolidated Subsidiaries and
their subsidiaries into the Parent consolidated Tax Return, when such
refund or reduction is realized by the Parent group. Parent will cooperate
with the Consolidated Subsidiaries and their subsidiaries in obtaining
such refunds (or reduction in Tax liability), including through the filing
of amended Tax Returns or refund claims. Purchaser agrees to indemnify
Parent for any Taxes resulting from the disallowance of such
post-acquisition Tax attribute on audit or otherwise.
53
(v) Retention of Carryovers. Parent will not elect to retain
any net operating loss carryovers or capital loss carryovers of the
Consolidated Subsidiaries and their subsidiaries under Treasury Regulation
Section 1.1502-20(g).
(vi) Prior Ownership Changes. Parent will file a timely
election under Proposed Treasury Regulation Section 1.1502-95(e) to
apportion to the Consolidated Subsidiaries and their subsidiaries that
amount of the Parent group's annual consolidated Section 382 limitation
that equals such subsidiaries' net operating losses from their operations.
At Parent's request, Purchaser will cause any of the Consolidated
Subsidiaries and their subsidiaries to join with Parent in making any
election required under Proposed Treasury Regulation Section 1.1502-95(e).
(vii) Post-Closing Elections. At Parent's request, Purchaser
will cause any of the Consolidated Subsidiaries and their subsidiaries to
make and/or join with Parent in making such elections after Closing as
would not have any adverse consequence to Purchaser. At Parent's request,
Purchaser will cause any of the Consolidated Subsidiaries and their
subsidiaries to make or join with Parent in making any other election if
the making of such election does not have an adverse impact on Purchaser
(or any of the Consolidated Subsidiaries and their subsidiaries) for any
post-acquisition Tax period.
(viii) Section 338(h)(10) Election. At Purchaser's option,
Parent will join with Purchaser in making an election under Section
338(h)(10) of the Code (and any corresponding elections under state,
local, or foreign tax law) (collectively a "Section 338(h)(10) Election")
with respect to the purchase and sale of the stock of any of the
Consolidated Subsidiaries hereunder. Parent will pay any Tax attributable
to the making of the Section 338(h)(10) Election and will indemnify
Purchaser, the Consolidated Subsidiaries, and their subsidiaries against
any adverse consequences arising out of any failure to pay such Tax.
7.11 Cooperation.
(a) The Parties and the Acquired Companies shall each deliver or
cause to be delivered to the relevant party on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such instruments as the
other may reasonably request for the purpose of carrying out this Agreement.
(b) From and after the Closing Date, Sellers and the Stockholders
shall cooperate and use their reasonable efforts to have the present officers,
directors and employees cooperate with Purchaser and any lawyers, accountants or
experts retained by Purchaser on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements, disputes, audits or
investigations of any nature with respect to matters pertaining to all periods
prior to the Closing Date.
(c) Each Party hereto shall cooperate in obtaining all consents and
approvals
54
required under this Agreement to effect the transactions contemplated hereby.
ARTICLE VIII
TERMINATION
8.01 Grounds for Termination. This Agreement may be terminated at any time
on or before the Closing Date:
(a) by the mutual written agreement of Sellers and Purchaser;
(b) by Purchaser, in the event that Purchaser's due diligence raises
concerns such that Purchaser, in its sole judgment, does not consider the
transaction desirable;
(c) by Purchaser, in the event of a Seller Material Adverse Effect
and by Sellers in the event of a Purchaser Material Adverse Effect;
(d) (i) by Sellers upon the satisfaction of the following two
conditions: (1) the giving of ten days prior written notice to Purchaser, which
notice may not be given until the later of (x) the date that is 21 days after
the date that Purchaser has received from Sellers Disclosure Schedules that are
materially complete, (y) the last date that Sellers make revisions to the
Disclosure Schedules that are, individually or in the aggregate, material or (z)
March 31, 1999 (and which notice shall have no force or effect if Purchaser is
prepared to proceed to Closing within such ten-day notice period), and (2)
Sellers' delivery to Purchaser in immediately available funds of an amount equal
to the RFI Advances plus such other sums advanced by Purchaser to Sellers on and
after January 29, 1999, which sums would not have been advanced to Sellers under
the terms of the existing Receivables Facilities as applied to Sellers prior to
January 29, 1999; provided, however, that at the time of giving such notice
Sellers shall have also provided to Purchaser and Purchaser shall have had in
its possession for at least five business days any such other information as is
reasonably requested by Purchaser; from and after the giving of the notice
described above and expiration of the ten-day notice period, the covenants
provided in Paragraph 5.07 shall cease to have force or effect;
(ii) by Purchaser if (x) Sellers have failed to supply
Disclosure Schedules that are materially complete within 17 days after the date
hereof, (y) Sellers have failed to supply any such other information as
Purchaser reasonably requests or (z) the Closing of the purchase and sale of the
Acquired Assets contemplated in this Agreement is not consummated by March 19,
1999 (or such other date, if any, as Sellers and Purchaser shall have agreed in
writing) (notwithstanding clause (ii)(z), Purchaser shall not have the right to
terminate this Agreement unless the failure to consummate the purchase and sale
on or before such date is not caused by any material breach of this Agreement by
it);
(e) by Sellers or by Purchaser if the consummation of the
transactions contemplated by this Agreement would violate any nonappealable
final order, decree, or judgment
55
of any court or governmental body having competent jurisdiction;
(f) by Purchaser, if one or more representations or warranties of
the Sellers or the Stockholders is not true when made and/or if the other party
is in breach of one or more of its covenants or agreements under this Agreement,
if the diminution in value of the consideration to be received pursuant to this
Agreement by Purchaser is at least $100,000 in the aggregate as provided in
subparagraph 9.02(a); provided, however, that Purchaser shall give Parent five
(5) days written notice of its intent to do so, and Parent shall have such five
(5) day period (i) in the case of any untrue material representation or
warranty, to bring the underlying factual circumstances into conformity with any
such representation or warranty; or (ii) in the case of any material breach of a
covenant, to cure any such breach; provided further, however, that
notwithstanding the provisions of this subparagraph 8.01(f), Purchaser shall
retain all of its other rights to make appropriate claims or take other
appropriate action against Sellers in respect of untrue representations or
warranties made by or breaches of covenants or agreements by Sellers under the
express terms of this Agreement whether before or after the Closing or the
termination of this Agreement; or
(g) by Purchaser, if Sellers shall (i) apply for or consent to the
appointment of a receiver, trustee in bankruptcy, or liquidator for itself or
any of its property; (ii) admit in writing its inability to pay its debts as
they mature or generally fail to pay such debts as they mature; (iii) make a
general assignment for the benefit of creditors; (iv) be adjudicated a bankrupt
or insolvent; or (v) file a voluntary petition in bankruptcy, or a petition or
an answer seeking reorganization or an arrangement with creditors, or seeking to
take advantage of any bankruptcy, reorganization, insolvency, readjustment or
debt, dissolution or liquidation law or statute or any answer admitting an act
of bankruptcy alleged in a petition filed against it in any proceeding under any
such law.
8.02 Manner of Exercise. In the event that Sellers or Purchaser desires to
terminate this Agreement pursuant to Paragraph 8.01, written notice of that
termination must be given to the other Party within five (5) days of the date on
which the condition allowing for such termination occurs. On receipt of such
notice, subject, in the event of a termination pursuant to subparagraph 8.01(d),
8.01(e), or 8.01(f), to the right of the other Party to dispute the asserted
basis for termination, and subject to the expiration of any other applicable
notice period as specified in this Article VIII, this Agreement shall terminate
and the transactions that it contemplates shall be abandoned without further
action by the Parties, except that the brokerage indemnification set forth in
Paragraphs 9.01 and 9.02 shall survive any termination of this Agreement.
8.03 Effect of Termination. In the event that Sellers or Purchaser
terminates this Agreement pursuant to Paragraph 8.01, other than pursuant to
subparagraph 8.01(f), such termination shall be without liability to any Party
to this Agreement or to its shareholders, directors, officers, employees,
agents, consultants, or representatives, except as provided under the provisions
of Paragraph 7.01 of this Agreement or as otherwise agreed in writing by the
Parties; provided that in the event grounds for termination of this Agreement by
Purchaser pursuant to subparagraph 8.01(f) exist, this sentence shall be
inapplicable. In the event that this Agreement is terminated by Purchaser
pursuant to subparagraph 8.01(f) or otherwise if grounds for termination by
Purchaser exist under subparagraph 8.01(f), shall have the right to pursue such
rights and remedies that it may have at law
56
or in equity against Sellers provided (i) that in all events other than a breach
of the covenant set forth in Paragraph 5.07 the Purchaser's total recovery from
the other party pursuant to this Paragraph 8.03 shall be limited to its actual
damages, not to exceed $100,000 plus the repayment of any and all RFI Advances
or (ii) in the case of a breach of Paragraph 5.07 or if Sellers fail to proceed
to Closing despite Purchaser's willingness to proceed to Closing and in the
absence of any grounds for termination under Paragraph 8.01 by Sellers,
Purchaser's recovery shall include repayment of the RFI Advances and actual and
consequential damages and shall not be subject to the limit set forth in clause
(i).
ARTICLE IX
THE CLOSING
9.01 Time and Place of Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Wilmer, Cutler & Pickering, 2445 M Street, N.W. Washington, D.C. 20037. The
Closing will be at 10:30 a.m. (Eastern Time) on a date as soon as practicable to
be agreed on by the Parties, after all conditions to Closing set forth in
Paragraphs 9.02 and 9.03 have been satisfied or waived by the applicable Party
(the "Closing Date") (and, in any event, within five (5) business days of the
satisfaction or waiver of all such conditions).
9.02 Conditions to Purchaser's Closing Obligations. The obligations of
Purchaser under this Agreement are subject to the satisfaction, on or before the
Closing Date, of the conditions set out in this Paragraph 9.02, any one or more
of which may be waived in whole or in part by Purchaser as provided by Paragraph
11.09.
(a) Representations and Warranties True. Sellers' representations
and warranties contained in Article III shall be true in all material respects
on and as of the Closing Date, and Sellers shall deliver to Purchaser a
certificate of an officer of Parent to that effect; provided, that this
condition shall be deemed satisfied or waived if the diminution in value of the
consideration to be received by Purchaser as a result of the existence of any
untrue representations and warranties contained in Article III is less than
$100,000. If the conditions to Purchaser's obligations to close set forth in
this subparagraph 9.02(a) are deemed waived by virtue of the preceding sentence,
the occurrence of the Closing shall not be deemed a waiver by Purchaser of its
rights to indemnity therefor under Article X hereof for any such untrue
representations or warranties.
(b) Performance. Sellers shall have performed and complied in all
material respects with the covenants, conditions, terms, and agreements that it
is to perform and comply with on or before the Closing Date, and Sellers shall
deliver to Purchaser a certificate of an officer of each Seller to that effect.
(c) HSR Act. All necessary filings and notifications under the HSR
Act shall have been made by Sellers, including any required additional
information or documents, and the waiting period referred to in the HSR Act
applicable to the transactions contemplated by this Agreement shall
57
have expired or been terminated.
(d) Opinion of Counsel. Purchaser shall have received one or more
opinions, dated as of the Closing Date, of Cobb, Cole & Bell, counsel to Sellers
in a form, and with respect to matters of Maryland, Louisiana, District of
Columbia, U.S. Virgin Islands and, if applicable, Florida law, in a form and
from such local counsel, as is reasonably acceptable to Purchaser.
(e) Absence of Litigation. There shall not (i) have been any legal
action or proceeding or other action instituted or threatened challenging the
purchase and sale of the Acquired Assets or stock of the Acquired Companies
contemplated by this Agreement or seeking to place any Encumbrance upon the
Acquired Assets or stock of the Acquired Companies, or any attempt to terminate
any of the ERISA Affiliate Plans subject to Title IV of ERISA; or (2) be
outstanding any order of any court or governmental agency having jurisdiction
over the Parties enjoining or otherwise preventing consummation of the purchase
and sale of the Acquired Assets; provided, however, that if such outstanding
order is a temporary restraining order, preliminary injunction, stay, or other
similar order and all other conditions precedent to Closing are satisfied or
waived, the Closing Date shall be extended without further act of the Parties to
a date three (3) business days after the date on which such order ceases to be
in effect.
(f) Consents and Approvals. Sellers shall have obtained all third
party and governmental consents and approvals necessary for Sellers to
consummate the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, Sellers shall have obtained consents from CSFB and
FINOVA to this Agreement as well as any required consent to the assignment of
construction and architectural contracts in progress (including rights to any
plans and specifications) at any of the Acquired Properties or St. Thomas
Properties. Any terms and conditions of such consents shall be acceptable to
Purchaser in its sole and absolute discretion.
(g) Title Insurance. Purchaser shall have received title insurance
with respect to all of the Real Property, except for any VOI included in the VOI
Inventory that was acquired by Sellers on or after the Effective Date and on or
prior to the Closing Date as a result of any foreclosure, deed in lieu of
foreclosure, or similar reconveyance.
(h) Deliveries by Sellers. Sellers shall have delivered or provided
for the delivery of, to the reasonable satisfaction of Purchaser, the items
listed in Paragraph 9.04.
(i) Overdue Interest Payments. Any overdue payments of interest on
indebtedness of any kind relating to the Acquired Properties or the Acquired
Business shall be satisfied in full, unless otherwise agreed to by the Parties
prior to the Closing Date.
(j) Resolution of Certain Obligations. The Parties and Acquired
Companies shall have reached such resolution of the obligations that are related
to the Acquired Business and owed by any Seller, Stockholder or Acquired Company
to Castle Holdings, LLC, the Cavanaugh Lenders, Christian Kjaer and John Fager
as Purchaser in its sole and absolute discretion determines is satisfactory.
58
(k) Resolution of Interval International, Inc. Litigation. Sellers
and Acquired Companies shall have resolved the pending suit between Interval
International, Inc. and Parent and Parent's Affiliates in a manner reasonably
acceptable to Purchaser or shall have provided Purchaser with reasonable
satisfaction that such litigation will not result in a material liability.
(l) Due Diligence Review. Purchaser shall be fully satisfied in its
sole discretion with the results of its review of all of the Disclosure
Schedules, whether delivered before or after the execution hereof, and such
deliveries, and its review of, and other due diligence investigations with
respect to, the operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits and condition (financial or
otherwise) of the Acquired Business.
(m) Bulk Sales Laws. The Sellers shall have taken all actions
necessary to comply with the Bulk Sales Laws, including, without limitation, the
filing of all notices required to be filed, such that the Purchaser shall not
become responsible for any of the Sellers' liabilities or obligations other than
the Assumed Liabilities. The Sellers shall provide the Purchaser, for the
Purchaser's approval, copies of all bulk sales filings and recordings prior to
the filing or recording of the same.
(n) FIRPTA Certificate. The Sellers shall have delivered to the
Purchaser certificates in form and substance reasonably satisfactory to the
Purchaser, duly executed and acknowledged, certifying all facts necessary to
exempt the transactions contemplated hereby from withholding pursuant to the
provisions of the Foreign Investment In Real Property Tax Act or any similar
certification required by the U.S. Virgin Islands.
(o) Purchasers' Obligations to CSFB. The Purchasers shall have
renegotiated and modified Purchasers' obligations to CSFB so as to facilitate
the transactions contemplated by this Agreement, and any terms and conditions of
such modification shall be acceptable to Purchaser in its sole discretion.
(p) Regulatory Approval. The Purchasers shall have received all
necessary approvals from any applicable regulatory authorities (for example,
alcohol beverage control board, timeshare registrations, licenses to operate
hotels, etc.) to close and operate the Acquired Business consistent with prior
operations in its sole discretion.
(q) Notice to Bargaining Agents. Sellers shall have satisfied any
requirement for notice of the transactions contemplated by this Agreement under
applicable collective bargaining agreements and complied with any other
applicable labor laws relating to this Agreement and shall provide satisfactory
evidence of the same to Purchaser.
(r) Closing Financial Certificate. The Closing Financial Certificate
shall be reasonably satisfactory to Purchaser.
9.03 Conditions to Sellers' Closing Obligations. The obligations of
Sellers under this Agreement are subject to the satisfaction, on or before the
Closing Date, of the conditions set out in
59
this Paragraph 9.03, any one or more of which may be waived in whole or in part
by Sellers as provided in Paragraph 11.09.
(a) Representations and Warranties True. Purchaser's representations
and warranties contained in Article IV shall be true in all material respects on
and as of the Closing Date, and shall also be true in all material respects on
and as of the Closing Date as to any entity to which any of Purchaser's rights
under this Agreement have been assigned pursuant to Paragraph 11.07 and
Purchaser shall deliver to Sellers a certificate of an officer of Purchaser to
that effect.
(b) Performance. Purchaser shall have performed and complied in all
material respects with the covenants, conditions, terms, and agreements it is to
perform and comply with on or before the Closing Date, and Purchaser shall
deliver to Sellers a certificate of an officer of Purchaser to that effect.
(c) HSR Act. All necessary filings and notifications under the HSR
Act shall have been made by Purchaser, including any required additional
information or documents, and the waiting period referred to in the HSR Act
applicable to the transactions contemplated by this Agreement shall have expired
or terminated.
(d) Consents and Approvals. Sellers shall have obtained those
consents and approvals listed in Paragraph 3.17 and, in connection with the
consent of CSFB and FINOVA to the transaction, any terms and conditions to the
consent of CSFB and FINOVA shall be acceptable to Sellers in their reasonable
discretion.
(e) Opinion of Counsel. Sellers shall have received an opinion,
dated as of the Closing Date, of Wilmer, Cutler & Pickering, counsel to
Purchaser, in a form reasonably acceptable to Sellers.
(f) Absence of Litigation. There shall not (1) have been any legal
action or proceeding instituted or threatened challenging the purchase and sale
of the Acquired Assets or stock of the Acquired Companies as contemplated by
this Agreement; or (2) be outstanding any order of any court or governmental
agency having jurisdiction over the Parties enjoining or otherwise preventing
consummation of the purchase and sale of the Acquired Assets or stock of the
Acquired Companies; provided, however, that if such outstanding order is a
temporary restraining order, preliminary injunction, stay, or other similar
order and all other conditions precedent to Closing are satisfied or waived, the
Closing Date shall be extended without further action of the Parties to a date
three (3) business days after the date on which such order ceases to be in
effect.
(g) Deliveries by Purchaser. Purchaser shall have delivered or
provided for the delivery of, to the reasonable satisfaction of Sellers, the
items listed in Paragraph 9.05.
(h) Resolution of Certain Obligations. Sellers and Stockholders
shall have no further obligations related to the Acquired Business to Castle
Holdings, LLC, the Cavanaugh Lenders, Christian Kjaer or John Fager (provided,
in the case of Fager, that Sellers shall be
60
responsible for $25,000 of the remaining obligation to him, which shall be due
and payable on April 1, 1999).
9.04 Deliveries by Sellers at Closing. At the Closing, Sellers shall
deliver or shall cause to be delivered to Purchaser the items identified below.
Purchaser's receipt of these items is a condition to its obligations under this
Agreement, although Purchaser may waive any or all of these conditions in whole
or in part, as provided in Paragraph 11.09.
(a) Duly executed (i) instruments of conveyance of the Acquired
Assets, including general warranty deeds by the holder of title to any Real
Property, subject only to applicable Permitted Encumbrances; (ii) assignments of
mortgage and delivery of all promissory notes and similar instruments duly
endorsed (without recourse) by Sellers; (iii) assignments of Leases, contracts
and Permits (items described in clauses (i) - (iii) collectively referred to as
the "Assignment Agreements"); and (iv) a registration rights agreement providing
the rights described in Paragraph 2.10 (the "Piggyback Registration Rights
Agreement"); in each case in form and substance reasonably satisfactory to the
Parties;
(b) Certificates representing the capital stock of the Acquired
Companies, duly endorsed in blank by KCHC or Parent as the case may be, or
accompanied by blank stock powers duly executed by the KCHC or Parent as the
case may be and with all necessary transfer tax and other revenue stamps,
acquired at the KCHC's or Parent's expense as the case may be, affixed and
canceled;
(c) A copy of the articles of incorporation or other governing
document of each Seller, certified by the appropriate official of the
jurisdiction of incorporation or organization of such Seller, as of a date not
more than ten (10) days before the Closing Date;
(d) A copy of the bylaws of each Seller certified by the Secretary
of such Seller;
(e) An incumbency and signature certificate executed by the
Secretary or Assistant Secretary of each Seller;
(f) A certified copy of any necessary resolution of each Seller
evidencing approval of this Agreement and the other documents and transactions
contemplated hereby;
(g) Copies of all documents evidencing other necessary corporate or
other action and governmental approvals, if any, with respect to this Agreement
that Purchaser reasonably requests on reasonable notice prior to the Closing;
(h) Evidence reasonably satisfactory to Purchaser that Encumbrances
not assumed by Purchaser have been completely released;
(i) A certificate from a duly authorized officer of each Seller
stating that (A) the representations and warranties of such Seller contained in
Article III of this Agreement are true and correct in all material respects as
of the Closing Date; and (B) no condition or event with respect to
61
such Seller has occurred, or is continuing, or will result from the execution
and delivery of this Agreement or the sale of the Acquired Assets or the stock
of the Acquired Companies that constitutes a material breach of this Agreement;
(j) The opinions(s) of Cobb, Cole & Bell, counsel to Sellers, and
other local counsel reasonably satisfactory to Purchaser;
(k) Duly executed consents of CSFB and FINOVA to the transactions
contemplated by this Agreement;
(l) The Environmental Materials Indemnity Agreement (the
"Environmental Materials Indemnity Agreement"), substantially in the form
entered into between CSFB and Parent in connection with the CSFB Mortgage Loans;
(m) A mutual release of liabilities (the "Mutual Release"), in form
and substance reasonable satisfactory to the Parties; and
(n) Subject to Permitted Encumbrances, an assignment of developer,
managing entity, and exchange company rights and obligations, in form and
substance satisfactory to Purchaser, under: (i) all existing declarations of
condominium, including without limitation all exhibits thereto, pertaining to
any of the Acquired Properties; (ii) all rights reserved by Sellers with respect
to the Acquired Business under State Governing Statutes, as amended, and the
rules and regulations promulgated by the State Governing Authorities; (iii) all
existing condominium management agreements, exchange company agreements and
agreements with third parties to perform services for each Association that is
related to the Acquired Business; (iv) all Insurance Policies maintained for the
benefit of Managed Associations; (v) any offering materials, advertising, prizes
and promotions pertaining to the Acquired Business; and (vi) all contracts,
reservation agreements or escrow agreements with VOI purchasers at any of the
Acquired Properties.
9.05 Availability of Records. On the Closing Date, Sellers shall make
available all original (or a certified copy if the original has been lost or
destroyed) Records in the possession of Sellers on the Closing Date relating to
the Acquired Business, subject to the following exceptions:
(a) Purchaser recognizes that certain Records of Sellers may contain
information only incidentally related to the Acquired Business and that Sellers
may retain these Records;
(b) Sellers may retain (i) a copy of all materials prepared by
Sellers to which Purchaser has been provided access in connection with the
purchase and sale contemplated by this Agreement, together with a copy of all
documents referred to in such materials; and (ii) all Records prepared in
connection with the sale of the Acquired Assets; and
(c) Sellers may retain all consolidating and consolidated financial
information and all other accounting Records prepared or used in connection with
the preparation of financial statements.
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9.06 Deliveries by Purchaser at Closing. At the Closing, Purchaser shall
deliver or shall cause to be delivered to Sellers the items identified below.
Sellers' receipt of these items is a condition to their obligations under this
Agreement, although Sellers may waive any or all of these conditions in whole or
in part.
(a) Payment of the Purchase Price as contemplated by Paragraph 2.06.
(b) One or more duly executed instruments or agreements of
assumption of liabilities in respect of the Assumed Liabilities, in form and
substance reasonably satisfactory to the Parties, including an assumption of
developer, managing entity, and exchange company rights and obligations (the
"Assumption Agreements"), in form and substance satisfactory to Parent under:
(i) all existing declarations of condominium, including without limitation all
exhibits thereto, pertaining to the Acquired Properties; (ii) all rights
reserved by Sellers with respect to the Acquired Properties under Statue
Governing Statutes and the rules and regulations promulgated by the State
Regulatory Authorities; (iii) all existing condominium management agreements,
exchange company agreements and agreements with third parties to perform
services for each Association that is related to the Acquired Properties; (iv)
all Insurance Policies maintained for the benefit of Managed Associations; (v)
any offering materials, advertising, prizes and promotions pertaining to the
Acquired Properties; and (vi) all contracts, reservation agreements or escrow
agreements with VOI purchasers at any of the Acquired Properties.
(c) A current copy of the certificate of incorporation of Purchaser
certified by the Secretary of State of Delaware, as of a date not more than ten
(10) days before the Closing Date;
(d) A current copy of the bylaws of Purchaser certified by the
secretary of Purchaser;
(e) A Good Standing Certificate for Purchaser from the Secretary of
State of Delaware, as of a date not more than ten (10) days before the Closing
Date;
(f) A certified copy of any necessary resolutions of the boards of
directors of Purchaser evidencing approval of this Agreement and the other
documents that it contemplates;
(g) Copies of all documents evidencing other necessary corporate or
other action and government approvals, if any, with respect to this Agreement
and the Acquired Assets or the Stock of the Acquired Companies that Sellers
reasonably request on reasonable notice prior to the Closing;
(h) An incumbency and signature certificate executed by the
Secretary or Assistant Secretary of Purchaser;
(i) A certificate from a duly authorized officer of Purchaser
stating that (i) the representations and warranties of Purchaser contained in
Article IV of this Agreement are true and
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correct in all material respects as of the Closing Date; and (ii) no condition
or event with respect to Purchaser has occurred, is continuing, or will result
from the execution and delivery of this Agreement or the sale of the Acquired
Assets or the stock of the Acquired Companies that constitutes a material breach
of this Agreement;
(j) The opinion of Wilmer, Cutler & Pickering, counsel to Purchaser;
(k) The Piggyback Registration Rights Agreement, in form and
substance reasonably satisfactory to the Parties;
(l) The Mutual Release, in form and substance reasonably
satisfactory to the Parties; and
(m) All documents reasonably required by Sellers to evidence the
assumption of obligations under this Agreement.
ARTICLE X
INDEMNIFICATION
10.01 Indemnification of Sellers. Subject to the survival provisions in
Paragraph 10.07, from and after the Closing Purchaser shall indemnify Sellers
and their respective officers, directors, employees, partners (general or
limited), shareholders, and shareholders of their partners (general or limited),
for, and shall defend and hold harmless each of them from, against, and with
respect to all Indemnifiable Losses as a result of, arising from, in connection
with, or incident to (a) any breach or inaccuracy of any representation or
warranty Purchaser makes in this Agreement; (b) any breach of this Agreement by
Purchaser; (c) any failure of Purchaser to fulfill, satisfy, and discharge any
of its obligations or covenants under this Agreement other than under Paragraph
6.06; (d) any claim against Sellers by any broker or finder alleging its
engagement by Purchaser; (e) any claim against Sellers arising after the Closing
relating to any of the Assumed Liabilities or the operations or business
dealings of Purchaser (except to the extent Purchaser is entitled to be
indemnified by Sellers under Paragraph 10.02 for an untrue representation or
warranty made herein, or breach of a covenant or agreement hereunder, relating
to such Assumed Liabilities, assuming all such representations, warranties, and
covenants survive indefinitely) or the obligations under Paragraph 6.06.
10.02 Indemnification of Purchaser. Subject to the survival provisions of
Paragraph 10.07, from and after the Closing Sellers and Stockholders shall
indemnify Purchaser and its Affiliates, officers, directors, employees, partners
(general or limited) and shareholders of its partners (general or limited) for,
and shall defend and hold harmless each of them from, against, and with respect
to all Indemnifiable Losses as a result of, arising from, in connection with, or
incident to (a) any breach or inaccuracy of any written representation or
warranty made by Sellers or Stockholders in this Agreement; (b) any breach of
this Agreement by Sellers; (c) any failure of Sellers or Stockholders to
fulfill, satisfy, and discharge any of its obligations or covenants under this
Agreement; (d) any claim
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against Purchaser by any broker or finder alleging its engagement by any Seller;
(e) any claim against Purchaser relating to any of the Retained Liabilities or
the operations or business dealings of Sellers not connected to the Acquired
Business; or (f) any Tax liability, any claims arising out of or relating to
employee benefit plans, programs or agreements (including, without limitation,
any multiemployer liability) and any claim against Purchaser relating to any
ERISA Affiliate Plan (including, without limitation, withdrawal liability
assessed pursuant to Section 4201 of ERISA and any other liability under Title
IV of ERISA or under Section 412 of the Code).
10.03 Cap and Basket.
(a) Purchaser's maximum liability under subparagraphs (a), (b) and
(c) of Paragraph 10.01 shall be limited to $2,500,000; provided, however, that
the foregoing limitation shall be of no force or effect for any Indemnifiable
Losses resulting from fraud or intentional misrepresentation.
(b) (i) Sellers' maximum liability under subparagraphs (a), (b) and
(c) of Paragraph 10.02 shall be limited to $20,000,000; provided, however, that
the foregoing limitation shall be of no force or effect for any Indemnifiable
Losses resulting from fraud or intentional misrepresentation.
(ii) The Stockholders' liability under this Agreement shall be
joint and several; provided, however, that the Stockholders shall have no
personal liability for Indemnifiable Losses relating to BCI or CAI that arose
prior to July 23, 1998 unless one or more of the Stockholders had (x) actual
knowledge of the action or event giving rise to such loss or (y) based upon
their knowledge after such date, a reasonably prudent person would have inquired
further and learned about such losses.
(iii) The Stockholders' maximum joint and several liability
under subparagraphs (a), (b), (c) and (f) of Paragraph 10.02 (but for
subparagraph (f) only with respect to Tax liability of the Acquired Companies)
shall be limited to $2,500,000 ($750,000 in the aggregate for any claim or
claims to which clause (y) of subparagraph (ii) above applies); provided,
however, that the foregoing limitations of subparagraphs (ii) or (iii) shall be
of no force or effect for any Indemnifiable Losses resulting from fraud or
intentional misrepresentation.
(c) Neither Party shall be entitled to the indemnification provided under
this Article X until the aggregate of all Indemnifiable Losses incurred by it
shall exceed $50,000 (the "Threshold Amount"); provided, that once the Threshold
Amount shall have been exceeded, such indemnification shall be effective for all
Indemnifiable Losses, including any Indemnifiable Losses that were aggregated as
part of the Threshold Amount. Notwithstanding anything herein apparently to the
contrary, the "cap" and "basket" contemplated by this Paragraph 10.03 shall not
apply to, and satisfaction of the Threshold Amount shall not be a condition
precedent to, (i) the indemnity rights of Purchaser in respect of claims made by
a broker or finder, as contemplated by Paragraphs 3.25, (ii) the indemnity
rights of Sellers in respect of Purchaser's covenant to perform the Assumed
Liabilities as required by Paragraph 6.03, or the indemnity rights in respect of
Sellers' covenant to
65
perform Retained Liabilities as required by Paragraph 5.08; (iii) the indemnity
rights of Purchaser in respect of the failure of Sellers to cure any title
defects or Encumbrances that can be cured by payment of amounts (in the
aggregate) of up to $50,000 as required under Paragraph 7.07; (iv) the indemnity
rights of Purchaser under subparagraph 10.02(f); (v) the rights of a Party to
recover damages in respect of the unexcused failure of the other Party to close
the transactions contemplated hereby; or (vi) breaches of the covenants of
Sellers or Stockholders set forth in this Agreement or representations and
warranties made in Paragraph 3.19 (Employee Benefit Plans) and Paragraph 3.20
(Taxes and Tax Returns).
10.04 Indemnifiable Losses Net of Insurance Proceeds. Indemnifiable Losses
shall be net of the amount of insurance proceeds received by an Indemnitee from
an insurance company on account of such losses, after accounting for any costs
incurred in obtaining such proceeds and any increase in insurance premiums
resulting from a claim regarding such proceeds, and no insurance companies shall
be subrogated to any rights of the Indemnitee against the Indemnitor under this
Article X. This Paragraph 10.04, however, shall not permit an Indemnitor to
delay payment of Indemnifiable Losses until after an Indemnitee receives
insurance proceeds. Notwithstanding the foregoing, to the extent that Sellers
have paid for title insurance for Purchaser with respect to the Real Property,
Purchaser shall first look to the coverage provided by such policy for otherwise
Indemnifiable Losses related to title to such property, and Purchaser shall be
entitled to indemnification under this Article X in respect of Indemnifiable
Losses related to title to such property only to the extent it does not recover
the full amount of such Indemnifiable Losses from the proceeds of such title
insurance policy.
10.05 Procedure for Seeking Indemnification. The provisions of Paragraphs
10.01 and 10.02 expressly are subject to the procedural requirements below.
(a) Notice. The Indemnitee shall give notice to the Indemnitor with
reasonable promptness on becoming aware of the claim or other fact on which a
claim for indemnification will or could be based. The notice regarding claimed
indemnification shall set forth all material information regarding the claim as
is then available to the Indemnitee.
(b) Defenses. The Indemnitor shall have the right, at its sole cost
and expense, to undertake the defense of any claim asserted by a third party,
provided that the Indemnitor agrees in writing that it does not and will not
contest its responsibility for indemnifying the Indemnitee in respect of the
Indemnifiable Losses attributable to such claim or proceeding. If an Indemnitor
assumes the defense of any such claim or legal proceeding, the Indemnitor shall
be entitled to select counsel reasonably satisfactory to the Indemnitee and take
all steps necessary in the defense thereof. The Indemnitee shall cooperate in
such defense and make available all records and materials requested by the
Indemnitor in connection with that defense. Indemnitee shall be entitled to
participate in such defense, although it shall not be entitled to
indemnification for the costs and expenses of such participation if the
Indemnitor assumed defense of the claim with counsel reasonably satisfactory to
the Indemnitee.
(c) Settlement of Claims. The Indemnitor shall not be liable for any
claim settled
66
without its consent. The Indemnitor may settle any claim without the consent of
the Indemnitee, but only if such settlement requires only the payment of
monetary damages that are paid in full by the Indemnitor.
10.06 Indemnification Remedy After Closing. After the Closing, the
indemnification obligations of this Article X shall be the exclusive remedy for
breaches of this Agreement except for breaches of covenants requiring
performance by a Party after Closing, which may be enforced or remedied in any
manner available at law or in equity. No other remedy shall be had for any such
breach in tort, contact, or otherwise.
10.07 Survival of Representations, Warranties, and Covenants. Except as
provided in clauses (a), (b) or (c) of this Paragraph 10.07, representations,
warranties, and agreements included in this Agreement shall survive for a period
of two years; (a) the obligations set forth in Paragraphs 5.02 (Conduct of
Acquired Business by Sellers), 5.03 (Access), 6.02 (Books and Records; Access),
7.02 (Publicity), 7.04 (Full Disclosure), 7.07 (Title to Real Property) and 7.08
(Additional Agreement Regarding Receivables Financing) shall survive for the
periods specified therein for the performance of the covenants set forth
therein; (b) Paragraphs 3.05(a) (last sentence only) (Title to and Condition of
Assets and Property), 3.14 (Capital Stock of the Company), 5.08 (Agreement to
Pay Retained Liabilities), 6.03 (Agreement to Pay Assumed Liabilities) and
Articles X (Indemnification) and XI (General Provisions), each of which shall
survive indefinitely; and (c) claims relating to or arising out of breaches of
the covenants contained in Paragraph 7.10 (Tax Matters) and damages arising from
breaches of the representations and warranties set forth in Paragraph 3.08
(Environmental Matters), Paragraph 3.18 (Labor and Employment), Paragraph 3.19
(Employee Benefit Plans) or Paragraph 3.20 (Taxes) each of which shall survive
for (i) the date that is six months after the expiration of the longest
applicable federal or state statute of limitations (including extensions
thereof) or (ii), if there is no applicable statute of limitations, (x) ten
years after the Closing Date if the claim is related to the cost of
investigating, containing, removing or remediating a release of Hazardous
Material into the environment or (y) five years after the Closing Date for any
other such claim.
10.08 Setoff and Recoupment. Purchaser shall be entitled to setoff against
or recoup from any payment of stock or cash due hereunder the amount of any
Indemnifiable Losses suffered by it.
ARTICLE XI
GENERAL PROVISIONS
11.01 Entire Agreement. This Agreement supersedes all prior agreements
between the Parties (written or oral) and, together with RFI Interim Loan
Documents, the Related Agreements and any other contemporaneous agreements, is
intended as a complete and exclusive statement of the terms of the Parties'
agreement. Nothing herein shall affect in any way Sellers' obligation to
Purchaser or RFI under the loan agreement in respect of Parent's New Smyrna
Property.
11.02 Severability. The validity or enforceability of any term or
provision of this Agreement
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shall in no way affect the validity or enforceability of any other term or
provision. If any provision of this Agreement is so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
11.03 Amendment and Modification. This Agreement may be modified, amended,
or supplemented only by an instrument in writing signed by each Party.
11.04 Arm's Length Agreement. This Agreement has been negotiated at arm's
length and between Persons sophisticated and knowledgeable in the matters dealt
with in this Agreement. In addition, each Party has been represented by
experienced and knowledgeable legal counsel. Accordingly, any rule of law or
legal decision that would require interpretation of any ambiguities in this
Agreement against the Party that has drafted the Agreement is not applicable and
is waived. This Agreement shall be construed without regard to the identity of
the Person who drafted it or the Party who caused it to be drafted and shall be
construed as if all Parties had jointly prepared this Agreement. Each and every
provision of this Agreement shall be construed as though all of the Parties
participated equally in its drafting, and any uncertainty or ambiguity shall not
be interpreted against any one Party. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the purpose of the Parties and of
this Agreement.
11.05 Exhibits. All Exhibits and Schedules to this Agreement are
incorporated into this Agreement and made a part of this Agreement by reference.
11.06 Headings. The headings contained in this Agreement are solely for
reference purposes and shall not affect the meaning or interpretation of this
Agreement in any way. All references in this Agreement to subparts, parts,
subparagraphs, Paragraphs, Articles, Schedules and Exhibits are to subparts,
parts, subparagraphs, Paragraphs and Articles of, and schedules and exhibits to,
this Agreement, unless otherwise expressly indicated.
11.07 Assignment. Neither Sellers, Stockholders, nor Purchaser shall
assign any of its rights or delegate any of its obligations under this Agreement
without the prior written consent of the other Party; except that
notwithstanding any provision to the contrary in this Agreement, Purchaser may
assign all or any part of its rights and obligations to any wholly-owned
subsidiary or any partnership of which it is a general partner (including,
without limitation, directing Sellers to transfer any or all of the Acquired
Assets directly to one or more of such entities at the Closing) and may direct
that any receivables be sold directly to any Person providing any of the
financing necessary to consummate the transactions contemplated by this
Agreement (including the sale of such receivables to any entity formed by such
Person to hold such receivables); provided, however, that (i) Seller's prior
written consent to any assignment does not obviate the necessity of obtaining
any other consents necessary for such assignment; (ii) Purchaser shall
unconditionally guarantee performance by such entity of all terms and conditions
of this Agreement to be performed by such entity; and (iii) such entity shall
agree to perform such obligations, including, without limitation, the Assumed
Liabilities, by documents reasonably satisfactory in form and in substance to
the Parties and their counsel. Except as otherwise provided, this Agreement
shall be binding on and inure to the benefit of the Parties and their respective
successors and assigns.
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11.08 No Third Party Beneficiaries. Except as otherwise expressly
provided, nothing in this Agreement shall entitle any Person other than Sellers,
Stockholders or Purchaser, or their respective successors and assigns as
permitted under this Agreement, to any claim, cause of action, remedy, or right
of any kind. No current or former employee of Sellers or Acquired Companies has
any right to enforce this agreement against any Party.
11.09 Waiver of Compliance; Consents. Except as otherwise expressly
provided in this Agreement, any failure of any Party to comply with any
obligation, covenant, agreement, or condition herein may be waived by the Party
or Parties entitled to the benefits thereof only by a written instrument signed
by the Party granting the waiver. Such waiver or failure to insist on strict
compliance with an obligation, covenant, agreement, or condition shall not
operate as a waiver of, or estoppel with respect to, any other failure. Whenever
this Agreement requires or permits consent by or on behalf of any Party hereto,
such consent shall be given in writing in a manner consistent with requirements
for a waiver of compliance as provided in this Paragraph 11.09.
11.10 Notices. All notices, requests, demands, and other communications
provided in this Agreement shall be in writing and shall be deemed given if
delivered personally, transmitted by facsimile (receipt confirmed), sent by
national overnight courier service, or mailed by registered or certified United
States Mail (return receipt requested) postage prepaid, to the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice, provided that notices of a change of address shall be effective
only on receipt of such notice):
To Sellers and Stockholders:
Kosmas Group International, Inc.
920 Third Avenue
New Smyrna Beach, FL 32169
Attn: Steven P. Kosmas
Fax: (904) 428-9536
With a copy to:
Cobb Cole & Bell
150 Magnolia Avenue
Daytona Beach, FL 32115
Attn: John P. Ferguson
Fax: (904) 238-7003
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To Purchaser:
Equivest Finance, Inc.
2 Clinton Square
Syracuse, New York 13202
Attn: Eric C. Cotton
Fax: (315) 422-9477
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Attn: Eric R. Markus, Esquire
Fax: (202) 663-6363
All notices, requests, demands, and other communications shall be
effective at the earlier of (a) five (5) business days after deposit of the same
in the United States Mail, certified postage prepaid; (b) twenty-four (24) hours
after delivery to a national overnight courier service; or (c) confirmation of
receipt if transmitted by facsimile or if delivered personally.
11.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
principles or rules regarding conflicts of laws.
11.12 Jurisdiction, Venue, and Service of Process. The Parties consent to
and waive any objection to the jurisdiction of the United States District Court
for the Northern District of New York, or any state court located in Onondaga
County, New York, over the person of any Party to this Agreement, for purposes
of any action brought under or as the result of a breach of this Agreement. The
Parties agree that venue of any action brought under or as the result of a
breach of this Agreement shall be proper in the courts named above, and each
Party waives any objection to such venue.
11.13 Attorneys' Fees. Should a dispute arise relating to this Agreement,
the Party prevailing in such dispute shall be entitled to all costs and
reasonable attorneys' fees and paralegals' fees (whether or not involving
litigation and/or appellate, administrative, or bankruptcy proceedings), in
addition to such other relief as may be granted.
11.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.15 Specific Performance. Sellers and Stockholders agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed by them in
70
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Purchaser shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which Purchaser is entitled at law or in equity.
11.16 Jury Trial Waiver. TO THE FULL EXTENT PERMITTED BY LAW, EACH OF THE
PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
ANY PARTY HERETO.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed by their respective duly authorized officers of the date first written
above.
PURCHASER
EQUIVEST FINANCE, INC.
By: /s/ Richard C. Breeden
----------------------------------
Its: Chief Executive Officer
---------------------------------
SELLERS
KOSMAS GROUP INTERNATIONAL, INC.
By: /s/ Steven P. Kosmas
----------------------------------
Its: President
---------------------------------
AVENUE PLAZA, LLC
By: /s/ Steven P. Kosmas
----------------------------------
Its: Manager
---------------------------------
OCEAN CITY COCONUT MALORIE RESORT, INC.
By: /s/ Steven P. Kosmas
----------------------------------
Its: President
---------------------------------
[More Execution Pages to Follow]
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SELLERS (continued)
CAPITAL CITY SUITES, INC.
By: /s/ Steven P. Kosmas
----------------------------------
Its: President
---------------------------------
KOSMAS CARIBBEAN HOLDING CORPORATION
By: /s/ Steven P. Kosmas
----------------------------------
Its: President
---------------------------------
ST. AUGUSTINE RESORT DEVELOPMENT GROUP, INC.
By: /s/ Steven P. Kosmas
----------------------------------
Its: President
---------------------------------
STOCKHOLDERS
/s/ Steven P. Kosmas
- -------------------------------------
Steven Kosmas
/s/ Paul Kosmas
- -------------------------------------
Paul Kosmas
/s/ Chip Gordy
- -------------------------------------
Chip Gordy
[Last Execution Page to Follow]
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STOCKHOLDERS (continued)
/s/ Nicholas Kosmas
- -------------------------------------
Nicholas Kosmas
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