Agreement And Plan Of Merger

EXECUTION COPY


AGREEMENT AND PLAN OF MERGER


This Agreement and Plan of Merger ("Agreement") is made as of July 17, 1998 by and among Equivest Finance, Inc., a Florida corporation ("Purchaser"), ERC Acquisition Corp., a Delaware corporation ("Acquisition Corp."), and Eastern Resorts Corporation, a Rhode Island corporation ("ERC").


W I T N E S S E T H:


WHEREAS, R. Perry Harris and Karen Harris (the "ERC Shareholders") own all of the issued and outstanding stock of ERC; and


WHEREAS, ERC is the sole member and the sole manager of Eastern Resorts Company, LLC, a Rhode Island limited liability company (the "LLC"), which develops, owns and operates timesharing resorts in Rhode Island and Massachusetts; and


WHEREAS, Purchaser desires to acquire ERC and has formed Acquisition Corp. for the sole and express purpose of completing such acquisition; and


WHEREAS, the Board of Directors of ERC (i) has determined that the merger of ERC with and into Acquisition Corp. (the "Merger") is fair to and in the best interests of ERC and the ERC Shareholders and has approved this Agreement and the Merger and (ii) has recommended the approval of this Agreement and the Merger by the ERC Shareholders;


WHEREAS, the ERC Shareholders have approved this Agreement and the Merger;


WHEREAS, the Board of Directors of Purchaser has determined that the Merger is fair to and in the best interests of Purchaser and its shareholders and has approved this Agreement and the Merger;


WHEREAS, the Board of Directors of Acquisition Corp. (i) has determined that the Merger is fair to and in the best interests of Acquisition Corp. and its shareholder and has approved this Agreement and the Merger and (ii) has recommended the approval of this Agreement and the Merger by the shareholder of Acquisition Corp., and Purchaser, as sole shareholder of Acquisition Corp., has approved this Agreement and the Merger;


WHEREAS, the Merger will be consummated upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL") and the Rhode Island Business Corporation Act (the "RBCA"); and


WHEREAS, for federal (and applicable state and local) income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");


NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, the parties hereto, intending legally to be bound, hereby agree as follows:


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ARTICLE I


TERMS OF MERGER


SECTION 1.1 MERGER.


Purchaser, Acquisition Corp. and ERC acknowledge and agree that their representations, covenants, warranties, agreements, indemnities and other undertakings contained in this Agreement are made and given to induce the other parties to enter into this Agreement and to consummate the Merger and that each party in reliance thereon has agreed to execute this Agreement and consummate the Merger. Subject to the satisfaction or waiver of the conditions set forth in this Agreement, at the Closing (as defined in Section 1.2), pursuant to the terms and provisions of this Agreement and all relevant laws, ERC shall be merged with and into Acquisition Corp. As a result of the Merger, the separate corporate existence of ERC shall cease and Acquisition Corp. shall continue as the surviving corporation of the Merger (the "Surviving Corporation").


SECTION 1.2 TIME AND PLACE OF CLOSING.


As promptly as practicable and in no event later than the fifth business day following the satisfaction or waiver of the conditions specified in Article VI (other than conditions which, by their nature, are to be satisfied at the Closing, but subject to those conditions), the closing of the Merger (the "Closing") shall take place at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, N.Y. 10022. At the Closing, there shall be delivered to Purchaser and the ERC Shareholders the consideration, certificates and other documents and instruments required to be delivered under Articles VI and VII. The parties shall prepare, execute and file a certificate of merger and articles of merger and any other related documents in order to comply in effecting the Merger in all respects with the respective requirements of the DGCL and the RBCA. Upon filing of the articles of merger with the Secretary of State of the State of Rhode Island and a certificate of merger with the Secretary of State of the State of Delaware, the Merger shall become effective (the time of such effectiveness being referred to as the "Effective Time").


SECTION 1.3 EFFECTS OF MERGER.


At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL and the RBCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of ERC and Acquisition Corp. shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of ERC and Acquisition Corp. shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation.


SECTION 1.4 CONVERSION OF SECURITIES. (a) At the Effective Time, by virtue of the Merger and without any action on the part of Acquisition Corp., ERC or the ERC Shareholders:


(i) each issued and outstanding share (each a "Share" and,
collectively, the "Shares"), of common stock, no par value per share,
of ERC ("ERC Common Stock") issued and outstanding immediately prior to
the Effective Time (other than any Shares to be canceled pursuant to
Section 1.4(a)(ii)) shall be converted into the right to receive (A)
$1,500 (the "Per Share Cash Amount") plus (B) 320 shares (the "Per
Share Stock Amount" and, together with the Per Share Cash Amount, the
"Merger Consideration") of common stock, $.05 par value per share, of
Purchaser ("Purchaser Common Stock"); provided, however, that if,
between the date of this Agreement and the Effective Time, the


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Purchaser Common Stock or the ERC Common Stock shall have been
reclassified for any reason (other than pursuant to any action
described in Schedule 2.4 hereto) including, without limitation, any
reclassification, recapitalization, split, stock dividend, combination
or exchange of shares, the Per Share Cash Amount and the Per Share
Stock Amount shall be equitably adjusted to reflect such change; and


(ii) each Share held in the treasury of ERC and each Share
owned by Purchaser or any direct or indirect wholly owned subsidiary of
Purchaser or ERC immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof, and no
payment shall be made with respect thereto.


SECTION 1.5 EXCHANGE OF CERTIFICATES.


(a) Exchange Procedures. At the Closing, each ERC Shareholder shall surrender to Purchaser for cancellation a certificate or certificates representing the Shares held by such holder (collectively, the "Certificates"), duly endorsed in blank, or with appropriate stock powers, duly executed in blank, attached thereto, in proper form for transfer, and with all applicable taxes, if any, paid or provided for. At the Closing, Purchaser shall deliver to such ERC Shareholder, in exchange for the surrendered Certificates, (i) cash (by wire transfer) in an amount equal to the number of Shares to be exchanged by such holder pursuant to Section 1.4(a) multiplied by the Per Share Cash Amount and (ii) a certificate representing that number of shares of Purchaser Common Stock that such holder shall have the right to receive in respect of the Shares formerly represented by such Certificate or Certificates (after taking into account all Shares then held by such holder), and the Certificate or Certificates so surrendered shall forthwith be canceled.


(b) No Further Rights in Shares. All Merger Consideration transferred to the ERC Shareholders upon conversion of the Shares in accordance with the terms hereof (including any cash paid pursuant to Section 1.5(c)) shall be deemed to have been issued in full satisfaction of all rights pertaining to such Shares.


(c) No Fractional Shares. No certificates or scrip representing fractional shares of Purchaser Common Stock shall be issued upon the surrender for exchange of Certificates. Each holder of a fractional share interest shall be paid an amount in cash equal to the product obtained by multiplying (i) such fractional share interest to which such holder (after taking into account all fractional share interests then held by such holder) would otherwise be entitled by (ii) the Exchange Price. As used herein, the "Exchange Price" means an amount equal to the average of the per share closing prices, as reported by NASDAQ SmallCap Market, of shares of Purchaser Common Stock for the 20 consecutive trading days ending on (and including) the trading day immediately preceding the Effective Time.


(d) Withholding Rights. Purchaser shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to the ERC Shareholders such amounts, if any, as it is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. However, if Purchaser will in fact have an obligation to deduct and withhold from the Merger Consideration, then to the extent such obligation can be avoided or minimized by either (i) the ERC Shareholders' compliance with any applicable certification requirement or other exemption or (ii) Purchaser's compliance with any applicable certification requirement or other exemption, or by both (i) and (ii), each party agrees to individually undertake such action or actions prior to the Closing as will be necessary to so comply with any such certification requirement or other exemption that is available to it (and, to the extent reasonably necessary, to assist the other party in so complying with any certification requirement or other exemption that is available to such other party). To the extent that amounts are so


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deducted and withheld from the Merger Consideration by Purchaser, (i) such deducted and withheld amounts shall be treated for all purposes of this Agreement as having been paid to the ERC Shareholders in respect of which such deduction and withholding was made by Purchaser and (ii) such deducted and withheld amounts shall be paid by Purchaser to the appropriate governmental bodies and agencies.


(e) Dividends. Holders of shares of Purchaser Common Stock issued pursuant to the Merger shall be entitled to any dividends paid with respect to such shares of Purchaser Common Stock that become payable to persons who are holders of record of Purchaser Common Stock as of any record date following the Effective Time.


SECTION 1.6 STOCK TRANSFER BOOKS.


At the Effective Time, the stock transfer books of ERC shall be closed and there shall be no further registration of transfers of Shares thereafter on the records of ERC. From and after the Effective Time, the holders of Certificates representing Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares, except as otherwise provided herein or by applicable law. On or after the Effective Time, any Certificates presented to Purchaser for any reason shall be converted into Merger Consideration and any cash in lieu of fractional shares of Purchaser Common Stock to which the holders thereof are entitled pursuant to Section 1.5(c).


SECTION 1.7 METHOD OF CARRYING MERGER INTO EFFECT.


Purchaser, Acquisition Corp. and ERC shall cooperate in all reasonable respects in effecting the Merger, including, without limitation, taking, or causing to be taken, such actions as may be required in order to cause the Merger to become effective, subject to and in accordance with the provisions hereof.


SECTION 1.8 CHARTER, BY-LAWS AND BOARD OF DIRECTORS OF THE SURVIVING CORPORATION.


At the Effective Time: (a) the Certificate of Incorporation and By-Laws of Acquisition Corp., as the Surviving Corporation in the Merger, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and By-Laws of the Surviving Corporation; provided, however, that, at the Effective Time, Article I of the Certificate of Incorporation of the Surviving Corporation shall read as follows: "The name of the Corporation is Eastern Resorts Corporation" and (b) the directors of Acquisition Corp. immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation, and the officers of ERC immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified.


SECTION 1.9 TAX-FREE REORGANIZATION.


(a) The parties intend that (i) the Merger shall qualify as a reorganization pursuant to Section 368(a) of the Code, (ii) the ERC Shareholders shall recognize no gain or loss and shall take into account no income as a result of the Merger (except for gain recognition with respect to the cash portion of the Merger Consideration received by the ERC Shareholders), (iii) the tax basis of ERC's assets that are directly transferred to Acquisition Corp. by ERC in exchange for the Merger Consideration, as well as the tax basis of the LLC's assets that are indirectly transferred by ERC to Acquisition Corp. as a result of the Merger shall remain unchanged by reason of the Merger, and (iv)


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any elections made by ERC or the LLC with respect to periods ending on or prior to the date of the Effective Time to account for the sale of certain timeshare units (as set forth in Schedule 3.17 hereto) on an installment basis shall be in effect and be similarly accounted for by the Purchaser Group (as defined in Section 4.5(a)) after the date of the Effective Time. Each party shall report the transactions contemplated by this Agreement to the Internal Revenue Service and other taxing authorities in a manner consistent with this Section 1.9, and no party will take or fail to take (or permit any of its subsidiaries or affiliates to take or fail to take) any action or position if the taking of such action or position or the failure to take such action or position, as the case may be, would be inconsistent with or would jeopardize such treatment, unless and until such party is required pursuant to a Final Determination (as defined below) under applicable law to report the transaction in another manner. The parties do not intend that the transfer of the equity interests in ERC Ventures, Inc. by R. Perry Harris on or prior to the Closing shall constitute a transaction contemplated or otherwise governed by this Agreement.


(b) If, pursuant to a Final Determination (as defined below), the ERC Shareholders are required to report the transactions contemplated by this Agreement or the income associated with the sale of certain timeshare units described in Section 1.9(a)(iv), or both, in a manner inconsistent with Section 1.9(a), Purchaser agrees to use its reasonable efforts to cause the members of the Purchaser Group (as defined in Section 4.5(a)) to revise their reporting of the transactions or the sale of certain timeshare units as contemplated by this Agreement (including, but not limited to, by the filing of an amended return or claim for a refund of Taxes (as such term is defined in Section 3.17); provided that Purchaser shall have no obligation to take any action that it concludes would have an adverse effect on the Purchaser Group.


(c) For purposes of this Agreement, "Final Determination" shall mean the final resolution of liability for any Tax for a taxable period, including any related interest or penalties, (i) by Internal Revenue Service Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the Internal Revenue Service (the "IRS"), or by a comparable form under the laws of other jurisdictions; except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund and/or the right of a taxing authority to assert a further deficiency with respect to an item or items shall not constitute a Final Determination with respect to such item or items; (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (iii) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iv) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by a taxing authority; or (v) by any other final disposition, including by reason of the expiration of the applicable statute of limitations.


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ARTICLE II


REPRESENTATIONS AND WARRANTIES OF PURCHASER


Purchaser hereby represents and warrants to ERC and the ERC Shareholders as follows:


SECTION 2.1 ORGANIZATION.


Each of Purchaser and Acquisition Corp. 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, Acquisition Corp. The term "Purchaser Material Adverse Effect" means any change in or effect on the business 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.


SECTION 2.2 ARTICLES OF INCORPORATION, BYLAWS AND AGREEMENTS.


A true, complete and correct copy of the Articles of Incorporation and By-Laws of Purchaser and the Certificate of Incorporation and By-Laws of Acquisition Corp. as currently in effect have been delivered to ERC. There are no agreements by and between or among Purchaser, Acquisition Corp. and any or all of their respective shareholders imposing any restrictions upon the transfer of or otherwise pertaining to the Purchaser Common Stock to be received by the ERC Shareholders or the ownership thereof.


SECTION 2.3 AUTHORIZATION.


Each of Purchaser and Acquisition Corp. has full legal right, power and authority to enter into this Agreement and consummate the Merger. The execution, delivery and performance by Purchaser and Acquisition Corp. of this Agreement and the Related Agreements (as defined in Section 7.1(g)) 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 or Acquisition Corp., as applicable, enforceable against it in accordance with their terms.


SECTION 2.4 CAPITAL STRUCTURE.


(a) Since March 31, 1998 (except as disclosed in the SEC Documents (as defined in Section 2.5) filed prior to the date hereof or as set forth on Schedule 2.4 hereto), there has been no change in the authorized and outstanding equity securities and rights to acquire equity securities of Purchaser.


(b) Since March 31, 1998, Purchaser has not taken any action prohibited by Section 4.1(c) of this Agreement.


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SECTION 2.5 SEC DOCUMENTS; FINANCIAL STATEMENTS.


(a) Except as set forth on Schedule 2.5(a) hereto, Purchaser has filed all required reports, forms and documents required to be filed by it with the Securities and Exchange Commission (the "SEC") since June 30, 1996 (the "SEC Documents"). All of the SEC Documents (i) were prepared in accordance with the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, (ii) did not, at the time they were filed, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent such statements have been modified or superseded by subsequent SEC Documents filed prior to the date hereof.


(b) Except as set forth on Schedule 2.5(b) hereto, the consolidated financial statements of Purchaser included in the SEC Documents have been prepared in accordance with generally accepted accounting principles ("GAAP") (except, in the case of interim financial statements, as permitted by the applicable forms of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto), fairly presented, in all material respects, the consolidated financial position of Purchaser and its subsidiaries, taken as a whole, as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended (subject, in the case of interim financial statements, to normal year-end adjustments) and include all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated financial condition of Purchaser and its subsidiaries and the results of operations and cash flows of Purchaser and its subsidiaries as of the dates thereof or for the periods covered thereby.


SECTION 2.6 PURCHASER COMMON STOCK.


The shares of Purchaser Common Stock to be issued in the Merger have been duly authorized by all necessary corporate action on the part of Purchaser and, upon issuance to the ERC Shareholders in accordance with this Agreement, will be validly issued, fully paid and non-assessable and not subject to preemptive rights.


SECTION 2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS.


Except as set forth on schedule 2.7 hereto or disclosed in the SEC Documents filed prior to the date hereof, since the date of the most recent financial statements included in the SEC Documents filed prior to the date hereof, there has not been any change in or effect on the business of Purchaser and its subsidiaries that, individually or together with all other 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.


SECTION 2.8 NONCONTRAVENTION; REQUIRED CONSENTS.


(a) Except as described in Schedule 2.8 hereto, the execution and delivery of this Agreement and the Related Agreements by Purchaser, the consummation by Purchaser of the Merger 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


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or assets of Purchaser or any of its subsidiaries under, (i) the Articles of Incorporation or By-Laws 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 Merger.


(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 ("Governmental Entity"), except (i) for applicable requirements, if any, of the Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws"), the National Association of Securities Dealers, Inc. (the "NASD"), and state takeover laws, and filing and recordation of appropriate merger documents as required by the DGCL and the RBCA, 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 Merger or otherwise prevent Purchaser from performing its obligations under this Agreement, and would not constitute a Purchaser Material Adverse Effect.


SECTION 2.9 LIABILITIES.


There are no material liabilities of Purchaser or its subsidiaries, except (i) as set forth in Schedule 2.9(a) hereto, (ii) as and to the extent reflected or reserved against in the financial statements of Purchaser, or (iii) incurred since the date of this Agreement in the ordinary course of business, consistent with past practice of Purchaser and its subsidiaries, and which do not and are not reasonably likely to have a Purchaser Material Adverse Effect. For purposes of this Section 2.9 only, "material" means in excess of $25,000 individually or $100,000 in the aggregate. Except as set forth on Schedule 2.9(b) hereto, reserves are reflected on the financial statements of Purchaser and its subsidiaries against all liabilities of Purchaser and its subsidiaries in amounts that have been established on a basis consistent with past practices of Purchaser and its subsidiaries and in accordance with GAAP.


SECTION 2.10 CONTRACTS.


Except as set forth in Schedule 2.10 hereto, neither Purchaser nor any of its subsidiaries is in material breach of any provisions of, or is in material violation or default under the terms of, any material contract (except for such defaults which individually or, in the aggregate, would not constitute a Purchaser Material Adverse Effect).


SECTION 2.11 LITIGATION AND COMPLIANCE.


Except as set forth in Schedule 2.11 hereto and except as set forth in the SEC Documents filed prior to the date hereof, there is no litigation, suit, claim, action, arbitration, administrative proceeding, or, to the knowledge of Purchaser, investigation of Purchaser or any of its subsidiaries or the operation of any of their businesses pending before any court, arbitrator, administrative agency or other governmental authority o ...