ASSET PURCHASE AGREEMENT
Dated as of
April 2, 1996
Among
CENTURY 21 REAL ESTATE CORPORATION,
CENTURY 21 REAL ESTATE OF
SOUTHERN FLORIDA, INC.,
HFS INCORPORATED
and
RICHARD C. RITCHEY
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 Purchase and Sale of Assets.......................... 2
Section 1.2 NAF Assets........................................... 6
Section 1.3 Excluded Assets...................................... 7
Section 1.4 Assumption of Liabilities............................10
Section 1.5 Retained Liabilities and Unassumed
Obligations..........................................10
Section 1.6 Purchase Price.......................................10
Section 1.7 Closing Time and Place...............................11
Section 1.8 Allocation of Purchase Price.........................11
Section 1.9 Seller's Deliveries at Closing.......................12
Section 1.10 Purchaser's Deliveries at Closing....................13
Section 1.11 Lease of Office Space................................14
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDER
Section 2.1 Organization and Standing............................14
Section 2.2 Capital Structure....................................15
Section 2.3 Corporate Authority and Action.......................15
Section 2.4 Consents.............................................16
Section 2.5 No Conflict..........................................17
Section 2.6 Financial Statements.................................18
Section 2.7 Absence of Undisclosed Liabilities...................19
Section 2.8 Absence of Specified Changes.........................19
Section 2.9 Tax Matters..........................................21
Section 2.10 Employee Benefit Matters.............................21
Section 2.11 Litigation...........................................23
Section 2.12 Assets...............................................23
Section 2.13 Title to Assets......................................28
Section 2.14 Employees and Compensation...........................29
Section 2.15 Conflicts of Interest................................30
Section 2.16 Compliance with Law..................................30
Section 2.17 Corporate Documents..................................31
Section 2.18 Brokers or Finders...................................31
Section 2.19 National Ad Fund.....................................32
Section 2.20 Insurance............................................32
Section 2.21 No Assurances........................................32
Page
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Section 3.1 Organization and Standing........................... 34
Section 3.2 Corporate Authority; Action......................... 34
Section 3.3 Consents............................................ 34
Section 3.4 No Violation........................................ 35
Section 3.5 Litigation.......................................... 35
Section 3.6 Brokers and Finders................................. 36
Section 3.7 No Other Representations............................ 36
ARTICLE IV
CERTAIN COVENANTS OF SELLER, SHAREHOLDER AND PURCHASER
Section 4.1 Severance.......................................... 36
Section 4.2 Use of Name........................................ 37
Section 4.3 Non-Competition.................................... 38
Section 4.4 Separate Covenants................................. 40
Section 4.5 Non-Disclosure of Trade Secrets.................... 40
Section 4.6 Injunctive Relief.................................. 40
Section 4.7 Service and NAF Fees............................... 41
Section 4.8 Accounts Receivable................................ 42
Section 4.9 Computer Software.................................. 42
Section 4.10 Employment Agreement............................... 42
ARTICLE V
SURVIVAL, INDEMNIFICATION
Section 5.1 Survival of the Representations.................... 43
Section 5.2 Statements as Representations...................... 43
Section 5.3 Indemnification by Seller and
Shareholder........................................ 44
Section 5.4 Indemnification by Purchaser and HFS............... 46
Section 5.5 Claims............................................. 48
Section 5.6 Conditions of Indemnification...................... 48
Section 5.7 Set-off............................................ 51
Section 5.8 Limitation on Indemnification...................... 52
ii
Page
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Expenses........................................... 53
Section 6.2 Reimbursement of and Payment to
Purchaser and Seller............................. 54
Section 6.3 Interpretation..................................... 55
Section 6.4 Amendments and Waivers............................. 56
Section 6.5 Other Instruments to Be Executed................... 57
Section 6.6 Public Statements.................................. 57
Section 6.7 Confidentiality.................................... 58
Section 6.8 Access To Records After Closing.................... 59
Section 6.9 Parties Bound...................................... 59
Section 6.10 Parties in Interest................................ 60
Section 6.11 Notices............................................ 60
Section 6.12 Number and Gender of Words......................... 62
Section 6.13 Captions........................................... 62
Section 6.14 Invalid Provisions................................. 63
Section 6.15 Accounting Terms................................... 63
Section 6.16 Entirety of Agreement.............................. 64
Section 6.17 Multiple Counterparts.............................. 64
Section 6.18 Governing Law...................................... 64
Section 6.19 Jurisdiction....................................... 64
Section 6.20 Waiver of Audits................................... 65
Section 6.21 Prevailing Party Expenses.......................... 66
Section 6.22 Waiver of Rescission............................... 66
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SCHEDULES
Schedule A - Franchise Agreements
Schedule B - Assumed Real Property Leases
Schedule C - Assumed Contracts
Schedule D - Purchased Equipment
Schedule E - Purchased Inventory
Schedule F - Intellectual Property
Schedule G - Transferred Claims
Schedule H - Deposits
Schedule I - Other Assets
Schedule J- Tax Allocation
EXHIBITS
Exhibit I - Undertaking
Exhibit II - Promissory Note
Exhibit III - Bill of Sale
Exhibit IV - Contract Assignment
Exhibit V - Opinion of Seller's Counsel
Exhibit VI - FIRPTA Certificate
Exhibit VII - Opinion of Purchaser's Counsel
Exhibit VIII - Severance Policy
Exhibit IX - Office Lease
Exhibit X - Employment Agreement
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ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT, made and entered into this 2nd day of April,
1996 (the "Agreement"), by and among CENTURY 21 REAL ESTATE CORPORATION, a
Delaware corporation ("Purchaser"), HFS INCORPORATED, a Delaware corporation
and ultimate parent of Purchaser ("HFS"), CENTURY 21 REAL ESTATE OF SOUTHERN
FLORIDA, INC., a Florida corporation ("Seller"), and RICHARD C. RITCHEY, the
holder of all of the outstanding shares of capital stock of Seller (the
"Shareholder").
WHEREAS, Seller is engaged in the business of real estate brokerage
office subfranchising and related operations for the CENTURY 21(R) system (the
"Business") in the State of Florida south of and including the counties of
Pinellas, Hillsborough, Polk, Osceola and Indian River (the "Region"); and
WHEREAS, Seller desires to sell to Purchaser its assets essential to the
continued, uninterrupted operations relating to the Business, as more
particularly identified in this Agreement, and Purchaser desires to purchase
such assets.
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
SECTION 1.1 Purchase and Sale of Assets. Subject to the terms and
conditions of this Agreement, Purchaser is hereby purchasing and paying
for, and Seller is hereby selling, assigning, transferring and conveying
to Purchaser, free and clear of any mortgage, lien, pledge, charge,
security interest, restriction, claim or other encumbrance (a "Lien"),
for the consideration specified in Section 1.6, the following properties
and assets of Seller (the "Purchased Assets"):
(a) CENTURY 21 Subfranchise Agreement. All right, title and interest
of Seller in, to and under the CENTURY 21 Subfranchise Agreement, dated
April 1, 1975, between Purchaser and Seller, as amended by the Addendum,
dated April 1, 1975, and all other amendments thereto, if any (the
"Subfranchise Agreement");
(b) CENTURY 21 Real Estate Franchise Agreements. All right, title
and interest of Seller in, to and under all CENTURY 21 Real Estate
Franchise Agreements ("Franchise Agreements") of CENTURY 21 franchisees
2
of Seller in the Region as of the date of this Agreement ("Franchisees"),
as set forth in Schedule A, including all franchisee files, records and
other information pertaining thereto;
(c) Open Transactions. All right, title and interest of Seller in
and to service fees owing or to be owing on Opens (as hereinafter
defined), whether reported or unreported, which close after March 31,
1996; for purposes of this Agreement, "Opens" shall mean agreements to
convey real property awaiting completion/fulfillment of all terms and
conditions of such agreements, at which time the transactions represented
thereby will close, whether or not such agreements were placed into the
custody of a third party, as escrow holder;
(d) Assumed Real Property Leases. All right, title and interest of
Seller in and to the leases of real property listed in Schedule B (the
"Assumed Real Property Leases");
(e) Assumed Contracts. All right, title and interest of Seller in,
to and under the contracts listed in Schedule C (the "Assumed
Contracts");
(f) Purchased Office Machines and Equipment. All right, title and
interest of Seller in and to
3
the office machines, equipment and computers listed in Schedule D
(the "Purchased Equipment");
(g) Inventory. All right, title and interest of Seller in and to the
training programs and materials and other inventory utilizing the
"Century 21" name listed in Schedule E (the "Purchased Inventory");
(h) Intellectual Property. All right, title and interest of Seller
in and to intellectual property assets used by Seller in connection with
the Business, including without limitation (i) registered and
unregistered copyrights, trademarks, service marks, service names, trade
names, slogans, assumed names and other trademark rights, including all
applications therefor and (ii) statutory, common law and registered
copyrights, including all applications therefor (the items described in
clauses (i) and (ii) constituting, collectively, "Intellectual
Property");
(i) Purchased Books and Records. All lists, files and records
pertaining to Franchisees, Franchise Agreements, customers and vendors,
and copies of all data, books, ledgers, records, correspondence,
accounts, lists, sales and advertising materials, files and documents
relating to the Purchased Assets, but not including the Excluded Books
and Records (as defined in
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Section 1.3(d)) (the "Purchased Books and Records"), subject, however, to
the right of Seller to retain and use copies thereof and to Seller's
reasonable access and inspection rights pursuant to Section 6.8 hereof
after the Closing Date (as hereinafter defined);
(j) Claims. All right, title and interest of Seller in and to the
claims, refunds, credits, causes of action, chooses in action, rights of
recovery and rights of set-off of every kind and nature associated with
the Purchased Assets or Assumed Liabilities (as that term is defined in
Section 1.4) (the "Transferred Claims"), excluding those referred to in
to Section 1.3(g) hereof;
(k) Goodwill. All right, title and interest of Seller in and to
all goodwill and going concern value and all other intangible properties
of Seller used in or held for use in the conduct of the Business ("Good-
will");
(l) Deposits Held for Others. All right, title and interest of
Seller in and to the prepayments or other deposits by Franchisees or
others in the amounts set forth in Schedule H representing the amount of
liabilities or obligations Purchaser or HFS is assuming and agreeing to
perform or caused to be performed with re-
5
spect to which the deposit or prepayment was paid ("Deposits"); and
(m) Other Assets. The other assets identified on Schedule I hereto.
SECTION 1.2 NAF Assets. At the Closing (as hereinafter defined) or
as soon thereafter as practicable, Seller will deliver to Purchaser
documents sufficient to transfer control of all bank accounts maintained
by Seller at which monies received by the Seller for the CENTURY 21
(Registered Trademark) National Advertising Fund ("NAF") are held (the "NAF
Accounts") and agrees, following the Closing, to pay over any other amounts
or transfer any other assets or rights for which Seller is otherwise
accountable or responsible with respect to the NAF pursuant to Seller's
obligations and responsibilities under the Agreement Regarding National
Advertising Fund, dated March 1, 1976, between Purchaser and Seller, as
amended by the Addendum, dated February 26, 1988 (the "NAF Agreement"),
between Purchaser and Seller and any other amendments or addendums thereto.
As of the Closing, the NAF Agreement is terminated and Seller shall have no
further obligations or liabilities thereunder for any matters arising after
the Closing Date.
6
SECTION 1.3 Excluded Assets. The Purchased Assets shall not include
the following (all of Seller's assets that are not a part of the
Purchased Assets being called the "Excluded Assets"):
(a) Land and Improvements. Real property (except the Assumed Real
Property Leases) owned by Seller (including all land and buildings and
improvements thereon);
(b) Excluded Machinery and Equipment. All machinery and equipment,
other fixtures and fittings, moveable office machinery and equipment,
computer software (subject, however, to Purchaser's right to utilize such
software in connection with obtaining the information thereon) furniture
and fixtures and other tangible personal property, owned by Seller and
which is not specifically listed on Schedule D as constituting the
Purchased Equipment;
(c) Vehicles. All automobiles, trucks, and other vehicles owned by
Seller;
(d) Excluded Books and Records. Seller's certificate of
incorporation, corporate seal, bylaws, minute books, stock and
shareholder records and books, tax returns and financial statements,
other corporate records pertaining to the corporate organization and
7
capitalization of Seller, ledgers, books and records used by Seller for
accounting and tax purposes and not required for future operation of the
Business, and all files and records relating to the Excluded Assets (the
"Excluded Books and Records"); subject, however, to Purchaser's
reasonable inspection rights under this Agreement before and after the
Closing Date with respect to the Purchased Assets and the Business;
(e) Cash and Marketable Securities. All cash and cash equivalents of
Seller, including, without limitation, cash on hand or at any other
location in or from which Seller conducts the Business, certificates of
deposit and other bank accounts, treasury bills, other cash equivalents
and marketable securities and any pre-payments made by Seller with
respect to the Business (except Deposits);
(f) Life Insurance Policies. Any life insurance policies insuring
the life of the Shareholder;
(g) Retained Claims. All claims, refunds, causes of action, choses
in action, rights of recovery and rights of set-off of every kind and
nature, except the Transferred Claims, including without limitation,
claims represented by law suits currently in process with Seller as
plaintiff or counterclaimant;
8
(h) Regional Headquarters. The lease and any and all obligations and
liabilities related thereto for the regional headquarters building and
property of the Seller located at 3100 N.W. 77th Court, Miami, Florida;
(i) Accounts and Notes Receivable. All right, title and interest of
Seller in and to the trade accounts and notes receivable existing as of
the Closing Date, including without limitation: (i) service fees and
other payments owing by Franchisees; (ii) notes receivable; and (iii)
other receivables of Seller arising out of or directly related to the
ordinary course of the Business through the Closing Date, including
without limitation, any rights of indemnification by Franchisees and any
right of Seller with respect to any third-party collection procedures or
court actions which have been commenced in connection therewith (the
"Accounts Receivable");
(j) Seller's Prepaid Deposits. Any deposits or prepaid expenses paid
by Seller in connection with the Business, whether or not reflected as
assets on Seller's balance sheet; and
(k) Opens. Any Opens, whether reported or unreported, which close
prior to April 1, 1996.
9
SECTION 1.4 Assumption of Liabilities. Purchaser is assuming at the
Closing and, after the Closing Date, shall pay, perform and discharge
when due, the obligations and liabilities of Seller, including current
and future liabilities, expenses, and costs, related to or associated
with the Purchased Assets (the "Assumed Liabilities") set forth in the
Undertaking and Instrument of Assignment substantially in the form set
forth as Exhibit I hereto (the "Undertaking"), and no others, as the same
shall exist on the Closing Date.
SECTION 1.5 Retained Liabilities and Unassumed Obligations. Except
for the Assumed Liabilities, Purchaser is not assuming by virtue of this
Agreement or the transactions contemplated hereby any other obligations
or liabilities of Seller of any kind whatever and all such obligations
and liabilities, other than the Assumed Liabilities, shall remain the
sole responsibility and obligation of Seller.
SECTION 1.6 Purchase Price. Subject to the terms and conditions of
the Agreement, HFS and Purchaser are paying to Seller as the total
purchase price (the "Purchase Price") for the Purchased Assets at the
Closing being held simultaneously with the execution of this Agreement,
(i) the amount of $27,835,825 by wire transfer
10
in immediately available funds and (ii) a promissory note in the form set
forth as Exhibit II hereto in the principal amount of $5,000,000 and
having such other terms as set forth therein (the "Promissory Note").
SECTION 1.7 Closing Time and Place. The closing of the transactions
contemplated by this Agreement (the "Closing") is taking place
simultaneously with the execution of this Agreement at 10:00 a.m., New
York City time, at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York, on April 2, 1996. The date and time
upon which the Closing is occurring are herein referred to as the
"Closing Date."
SECTION 1.8 Allocation of Purchase Price. The parties to this
Agreement agree (i) to allocate the Purchase Price, in accordance with
the rules under Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code")and the Treasury Regulations promulgated thereunder,
as set forth on Schedule J to this Agreement, and that $164,175 is being
paid for the agreement not to compete provided in Section 4.3 of this
Agreement; (ii) to utilize the amounts allocated pursuant to subsection
(i) for purposes of filing all tax returns, including amended tax returns
and Form 8594 and otherwise; and (iii) not to take any position
inconsistent therewith on
11
any tax return (including amended tax returns) or for any other Tax (as
defined in Section 2.9 of this Agreement) or non-Tax purpose, provided,
however, that HFS and Seller shall be permitted, for purposes of filing
Form 8594, to take into account legal and accounting fees and other
buying or selling expenses, respectively, as applicable.
SECTION 1.9 Seller's Deliveries at Closing. At the Closing, Seller
is delivering to Purchaser the following:
(a) the Bill of Sale substantially in the form of Exhibit III hereto
(the "Bill of Sale");
(b) the Contract Assignment substantially in the form of Exhibit IV
hereto (the "Contract Assignment");
(c) documents to transfer or agreeing to transfer control of the NAF
Accounts to Purchaser referred to in Section 1.2 hereof;
(d) the opinion of Seller's counsel substantially to the effect
set forth in Exhibit V hereto;
(e) the certificates annexed as Exhibit VI hereto as to the
non-foreign status of the Seller (the "FIRPTA Certificates"), duly
executed by the Seller and the Shareholder, provided, however, that if
such certif-
12
icates are not delivered, the Closing shall nevertheless occur and
Purchaser and HFS shall withhold from the Purchase Price such amounts as
are required, in Purchaser's and HFS's sole judgment, to be withheld
under applicable law; and
(f) such other documents, assignments and instruments as are called
to be delivered at Closing or reasonably requested by Purchaser.
SECTION 1.10 Purchaser's Deliveries at Closing. At the Closing,
Purchaser is delivering or causing to be delivered to Seller the
following:
(a) the $27,835,825 and the $164,175 in cash referred to in Sections
1.6 and 4.3(b) hereof, respectively, by wire transfer of immediately
available funds to the bank account of Seller designated in writing to
HFS or Purchaser prior to the Closing;
(b) the Promissory Note duly executed by HFS;
(c) the Undertaking substantially in the form of Exhibit I hereto;
(d) the opinion of Purchaser's counsel substantially to the effect
set forth in Exhibit VII hereto; and
13
(e) such other documents or instruments as are called to be
delivered at Closing or reasonably requested by Seller.
SECTION 1.11 Lease of Office Space. At the Closing, Purchaser and
Seller are entering into a lease substantially in the form of Exhibit IX
attached hereto (the "Office Lease") for certain office space, furniture,
fixtures and equipment in the headquarters office for the Region located
at 3100 N.W. 77 Court, Miami, Florida.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDER
Seller and Shareholder, jointly and severally, hereby represent and
warrant to Purchaser that:
SECTION 2.1 Organization and Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Florida, with full corporate power and authority to enter into
this Agreement and carry out its obligations hereunder, has all necessary
corporate power to carry on the Business as now being conducted by it,
and Seller is duly qualified to do business as a foreign corporation in
each jurisdiction in which the nature of its Business or the
14
ownership or lease of its properties makes such qualification
necessary.
SECTION 2.2 Capital Structure. Seller's authorized capital stock
consists of 50 shares of common stock, no par value per share, 20 of
which shares are validly issued and outstanding, fully paid, and
nonassessable and all of which are owned, beneficially and of record by
the Shareholder. There are no outstanding subscriptions, options, rights,
warrants, convertible securities or other agreements which obligate or
may obligate Seller to issue or transfer any additional shares of its
capital stock. There is no corporation, partnership, joint venture or
other entity in which the Seller, directly or indirectly, is affiliated
and which owns any interest in the Purchased Assets.
SECTION 2.3 Corporate Authority and Action. Seller has the full
corporate power and authority to execute and deliver this Agreement and
perform its obligations hereunder. The execution and delivery of this
Agreement by Seller and the consummation by Seller of the transactions
contemplated by this Agreement have been duly authorized by all requisite
corporate action on the part of Seller, including by its Shareholders and
Board of Directors. This Agreement has been duly executed and
15
delivered by the Seller and the Shareholder and constitutes the legal,
valid and binding obligation of Seller and the Shareholder, enforceable
in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, or similar laws relating to creditors'
rights, generally
SECTION 2.4 Consents. Except (i) for the approval of this Agreement
by the Seller's Board of Directors and the sole Shareholder which have
been obtained and (ii) as disclosed in Section 2.4 of the document being
delivered by Seller and the Shareholder simultaneously with the execution
of this Agreement scheduling the items required to be disclosed therein
(the "Disclosure Schedule") or as specifically contemplated by this
Agreement, and based on HFS's and Purchaser's advice to the Shareholder
that, if the representation and warranty made in the last sentence of
this Section 2.4 is true, compliance with the filing requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is not
required, no consent, approval, authorization, filing with or order of
any court, governmental agency, person or financial institution is
required, in connection with the execution and delivery of this Agreement
by Seller and the Shareholder, and the consummation
16
by Seller and Shareholder of the transactions contemplated hereby or
performance by Seller and the Shareholder of their obligations under this
Agreement. After calculating the amount of his assets in accordance with
accounting principles normally used by him, the Shareholder has less than
$10,000,000 in investment assets and other income producing assets,
including the value of Seller as reflected on its most recent balance
sheet, but excluding the amount of consideration to be received by the
Seller pursuant to this Agreement.
SECTION 2.5 No Conflict. Assuming compliance with the matters
referred to in Section 2.4 by Seller and the Shareholder, neither the
execution and delivery of this Agreement by Seller and the Shareholder,
the consummation by Seller and the Shareholder of the transactions
contemplated by this Agreement nor the performance by Seller or the
Shareholder of its and his obligations under this Agreement will: (i)
violate any provision of the certificate of incorporation or by-laws of
the Seller, (ii) except as disclosed in Section 2.5 of the Disclosure
Schedule, violate, conflict with, or result in a breach of, the terms,
conditions or provisions of, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or
17
result in the creation of a lien or encumbrance on, or cause the
triggering of a "due on sale" clause or similar provision affecting the
Purchased Assets pursuant to any indenture, mortgage, lease, agreement or
other instrument to which Seller is a party or by which any of the
Purchased Assets may be bound or affected or (iii) violate any law, rule,
regulation, judgment, order or decree to which Seller is subject or by
which the Purchased Assets are bound.
SECTION 2.6 Financial Statements. Section 2.6 of the Disclosure
Schedule sets forth the following financial statements, all of which have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the periods indicated except as
indicated below:
(a) Balance sheet of Seller as of December 31, 1993 and 1994
audited by Johnson, Adorno & McCall, Chartered, certified public
accountants, and a balance sheet of Seller prepared by the internal
accounting department of Seller as of December 31, 1995 (the "December
Balance Sheet"), which presents fairly as of its date the financial
condition of Seller; and
(b) Statement of operations and cash flows of Seller for the twelve
(12) months ended December
18
31, 1993 and 1994, audited by Johnson, Adorno & McCall, Chartered,
certified public accountants, and a statement of operations and cash
flows of Seller prepared by the internal accounting department of Seller
for the 12 month period ended December 31, 1995, which fairly presents
the results of operations and cash flows of Seller for the periods
indicated.
SECTION 2.7 Absence of Undisclosed Liabilities. To Seller's
knowledge, Seller does not have any debts, liabilities or obligations,
except for the CIB Bonus, of a type required to be shown on a balance
sheet prepared in accordance with GAAP that are not reflected or reserved
against in Seller's December Balance Sheet, except for matters referred
to in Section 2.7 of the Disclosure Schedule and for lease and other
contractual obligations that are disclosed in this Agreement, the
Disclosure Schedule or the Schedules hereto.
SECTION 2.8 Absence of Specified Changes. Except as set forth in
Section 2.8 of the Disclosure Schedule, since December 31, 1995, there
has not been any:
(a) Sale, lease, transfer, assignment or other transaction by Seller
with respect to the Purchased
19
Assets or the Business with a value in excess of $50,000 or $200,000 in
the aggregate;
(b) Material adverse change of any character in the financial
condition or in the operations of the Business except that Seller has not
updated its FTC disclosure document due to this Agreement and the waiver
of the 1995 audit provided for hereunder;
(c) Change in the authorized, issued or outstanding capital stock of
Seller, grant of any stock option, warrant or right to purchase shares of
capital stock of Seller, or issuance of any security convertible into
shares of capital stock of Seller;
(d) Amendment or termination of any Franchise Agreement by Seller,
except in the ordinary course of business and not in violation of the
terms and conditions of the Subfranchise Agreement and any such Franchise
Agreement, respectively;
(e) Except in the ordinary course of business, change in the rate of
compensation or employee benefits of Seller, including contributions to
any employee Benefit Plans (as defined in Section 2.10), other than
Christmas bonuses and one-time termination bonuses which Seller may pay
in its sole discretion;
20
(f) Other action by Seller of any character that has or is likely
to have a material adverse effect, directly or indirectly, on the
Business or the Purchased Assets; or
(g) Agreement by Seller to do any of the things described in the
preceding clauses (a) through (f) except as required by this Agreement.
SECTION 2.9 Tax Matters.
There is not now, nor will there be at the Closing Date, any
liability for federal, state or local income, sales, use, excise,
withholding, payroll, property or other taxes of any kind or nature
whatsoever ("Taxes") attributable to or affecting the Purchased Assets
for which Purchaser will have any liability for payment nor is there now,
nor will there be at the Closing Date, any Lien attached to the Purchased
Assets.
SECTION 2.10 Employee Benefit Matters.
(a) Section 2.10 of the Disclosure Schedule lists each stock
option, stock purchase, stock appreciation, life, health, accident,
disability or other insurance, medical, bonus, deferred or incentive
compensation, severance, salary continuation or separation, profit
sharing, retirement, plan, program, agreement or arrangement or other
employee benefit plan, program,
21
agreement or arrangement, including, but not limited to, each employee
benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which
covers employees, former employees, independent agents or independent
contractors of Seller or the beneficiaries or dependents of any such
persons, and which Seller or an entity included within the "controlled
group" as defined in Section 414(b), (c), (m) or (o) of the Code
("Affiliated Employers") maintains, to which Seller or any of its
Affiliated Employers contributes, or under which Seller or any of its
Affiliated Employers may have any liability (collectively, the "Benefit
Plans"). No Benefit Plans are "Multiemployer Plans," as defined in
Section 3(37) of ERISA.
(b) Except as set forth in Section 2.10 of the Disclosure Schedule,
there are no material undischarged liabilities of Seller or its
Affiliated Employers for employees or former employees other than plan
administrative expenses incurred in the normal course of operation
arising under or in connection with any Benefit Plan and liability for
benefits to be paid to participants in such plans and their beneficiaries
in accordance with the terms of each such plan.
22
SECTION 2.11 Litigation. Except as set forth in Section 2.11 of the
Disclosure Schedule, as of the date of this Agreement, there are no
actions, suits, claims, investigations or proceedings pending of which
Seller has received written notice or, to the knowledge of Seller or the
Shareholder, threatened in writing in any court or by or before any
governmental agency to which Seller is a party or otherwise affecting the
Purchased Assets or the Business. There is no action, suit, claim,
investigation or proceeding pending of which Seller has received notice
or, to the knowledge of Seller or the Shareholder, threatened in writing
which questions the validity or propriety of this Agreement or any action
taken or to be taken by Seller in connection with this Agreement. Seller
is not subject to any injunction or order issued by a court of competent
jurisdiction and has not agreed to be bound by any restriction with
respect to its ownership of the Purchased Assets or its conduct of the
Business which would reasonably be expected to have a material adverse
effect on the Business.
SECTION 2.12 Assets.
(a) Schedule A is a complete and accurate list of all Franchise
Agreements to which Seller is a party as of March 27, 1996, which Seller
agrees to sup-
23
plement as soon as practicable after the Closing to list all
Franchise Agreements as of the Closing Date. Copies of all Franchise
Agreements (including all amendments or addenda thereto) have been
made available to Purchaser and HFS or their counsel for review. The
parties acknowledge that Seller does not operate in Cayman Islands
under written franchise authority from Purchaser pursuant to the
Subfranchise Agreement but that Seller has entered into franchise
agreements in Cayman Islands under Purchaser's oral authority. For
purposes of this Agreement, franchise agreements executed with
brokers in Cayman Islands prior to the Closing shall be considered
Franchise Agreements. Except as expressly indicated in Section
2.12(a) of the Disclosure Schedule, each Franchisee has executed a
Franchise Agreement and, to Seller's knowledge, each such Franchise
Agreement is enforceable against the related Franchisee. Except as
set forth in Section 2.12(a) of the Disclosure Schedule, Seller has
not received from any such Franchisee written notification that it
will not or may not renew its Franchise Agreement at the expiration
of its term, or will or may otherwise cease doing business with
Seller, or will or may attempt to materially or adversely alter the
volume of business any such Franchisee is presently doing with
24
Seller or terminate its Franchise Agreement or that it has any claim
against Seller;
(b) Schedule B is a complete and accurate list of all Assumed Real
Property Leases. All the Assumed Real Property Leases are valid and in
full force, Seller is not in default thereunder and, to Seller's
knowledge, there does not exist any material default by any other party
thereto or event that with notice or lapse of time, or both, would
constitute a material default under any of such Leases;
(c) Copies of all Assumed Contracts (and any amendments or addenda
thereto) have been made available to Purchaser or its counsel for review.
To Seller's knowledge, each of the Assumed Contracts is the legal, valid
and binding obligation of Seller and, to Seller's knowledge, is the
legal, valid and binding obligation of the other parties thereto,
enforceable in accordance with its terms. Except as set forth in Section
2.12(c) of the Disclosure Schedule, Seller is not, and to Seller's
knowledge, none of the other parties to any of the Franchise Agreements
or Assumed Contracts are in material default thereunder, with the
exception of any monetary defaults occurring after the date of the
accounts receivable reports attached to Section 2.12(a) of the Disclo-
25
sure Schedule. There are no events which with notice or lapse of
time or both would constitute a material default by Seller, or to
Seller's knowledge, by any other party to any Franchise Agreement or
Assumed Contract under such Franchise Agreement or Assumed Contract.
Except as indicated in Section 2.12(c) of the Disclosure Schedule,
each Assumed Contract and Franchise Agreement is freely assignable
and transferable without the consent of any third party, and its
continuation, validity and effectiveness will not be materially and
adversely affected by the consummation of the transactions
contemplated by this Agreement. Except as indicated in Section
2.12(c) of the Disclosure Schedule, Seller has not received any
written notice of the intention of any party to terminate any
Assumed Contract which termination would have a material adverse
effect on the Business;
(d) Schedule D is a complete and accurate list describing and
specifying the location of the Purchased Equipment. Except as set forth
in Section 2.12 (d) of the Disclosure Schedule, the Purchased Equipment
is, in the aggregate, in reasonably good operating condition and repair,
subject to normal wear and tear;
(e) Schedule E is a complete and accurate list describing each
material category of, and specifying
26
the location of, Purchased Inventory pertaining to the Business. Except
as otherwise specified in Schedule E, all items of Purchased Inventory
were purchased in the ordinary course of the Business and are of standard
and usable quality;
(f) To Seller's knowledge, Schedule F is a complete and accurate
list and description of the material Intellectual Property, other than
that derived from Purchaser, and such Schedule indicates whether each of
the foregoing are owned or licensed by the Seller. The Seller owns, or is
licensed to use, the Intellectual Property, subject to no material
restrictions, except as indicated in Section 2.12(f) of the Disclosure
Schedule. No claim has been asserted in writing or, to the knowledge of
Seller, orally, and is pending by any person challenging or questioning
the ownership or use of any such Intellectual Property, nor does Seller
know of any valid basis for any such claim. To the knowledge of Seller,
the use of such Intellectual Property by the Seller does not infringe on
the rights of any person and, to the knowledge of Seller, there is no
infringing use of any such Intellectual Property by any other person.
Seller has not granted to anyone else the right to use any of the
Intellectual Property except pursuant to the
27
Franchise Agreements. Seller is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligation under this Agreement, in breach of any license, sublicense or
other agreement relating to the Intellectual Property;
(g) To Seller's knowledge, Schedule G is a complete and accurate
list and description of the material Transferred Claims; and
(h) Schedule H is a complete and accurate list and description of
all Deposits.
SECTION 2.13 Title to Assets. Except as disclosed in Section 2.13 of
the Disclosure Schedule, (a) Seller has good and marketable title to all
the Purchased Assets and interests therein, whether real, personal,
mixed, tangible or intangible; (b) all the Purchased Assets are free of
restrictions on or conditions to transfer or assignment except as set
forth in the Schedules and Exhibits attached hereto and in the documents
and instruments referred to therein; and (c) upon purchase by the
Purchaser pursuant to this Agreement, will be free and clear of any Lien,
except for Permitted Liens. "Permitted Liens" are those Liens (i) created
by or on behalf of Purchaser, (ii) of carriers, warehousemen, mechanics,
suppliers, materialmen and the like,
28
incurred in the ordinary course of business for amounts not overdue more
than 30 days or the validity of which is being contested in good faith
and (iii) those for Taxes not delinquent or payable without penalty or
being contested in good faith.
SECTION 2.14 Employees and Compensation.
(a) Section 2.14 of the Disclosure Schedule, when taken together
with Section 2.10 of the Disclosure Schedule, sets forth a complete and
accurate list of the names and aggregate monthly base salary or wages,
description of employment contracts and any incentive, commission, bonus
and/or other compensation arrangement as of April 2, 1996, of Seller's
officers and employees (collectively, "Employees"). Except in the
ordinary course of the Business, which includes, but is not limited to,
changes required by law and salary increases agreed to by Seller in
January, 1996, to Seller's knowledge, there will not be a change of, or
agreement to change, any terms of employment, including without
limitation, salary, wage rates, commissions or other compensation or
employee benefit arrangement, of any Employee prior to the Closing Date.
(b) To Seller's knowledge, all of the contracts and arrangements
listed in Section 2.14 of the
29
Disclosure Schedule are in full force and effect, and neither Seller nor,
to Seller's knowledge, any other party is in default under them. There
have been no claims of default and, to the knowledge of Seller, there are
no facts or conditions which will result in a default under these
contracts or arrangements. There are not now, nor will there be, any
unfunded liabilities or other liabilities associated with these contracts
or arrangements as of the Closing Date. Except as disclosed in Section
2.14 of the Disclosure Schedule, to Seller's knowledge, there is no
pending, or threat, in writing, of an, employment dispute involving
Seller's Employees.
SECTION 2.15 Conflicts of Interest. Except as set forth in Section
2.15 of the Disclosure Schedule, to Seller's knowledge, neither Seller,
nor any other officer or director of Seller, nor any spouse or child of
any of them, nor any Employee of Seller, has any direct or indirect
interest in any competitor, supplier of Seller, or any Franchisee, or in
any Purchased Asset other than the ownership of not more than 5% of the
stock of a publicly traded company by any such person or entity.
SECTION 2.16 Compliance with Law. To the Seller's knowledge, during
the last three years Seller has complied in all material respects with,
and is not in
30
material violation of, any applicable federal, state, or local statute,
law, rule or regulation (including, without limitation, any applicable
building, zoning, franchise, pension, labor, securities or other statute,
law, rule or regulation), which violation would be reasonably likely to
have a material adverse effect on the Purchased Assets or the operation
of the Business following the Closing.
SECTION 2.17 Corporate Documents. Seller has made available to
Purchaser for its examination complete and accurate copies of:
(1) the certificate of incorporation and by-laws of Seller;
(2) the minute books of Seller with respect to material actions
and meetings of the Shareholders and Board of Directors and
committees of the Board of Directors of Seller; and
(3) all material permits, orders, authorizations and consents
which are in Seller's possession and which have been issued with
respect to Seller.
SECTION 2.18 Brokers or Finders. Seller and Shareholder have not
employed or utilized any broker, finder or other person which would be
entitled to compen-
31
sation by HFS or Purchaser if not paid by Seller or the Shareholder in
connection with the transactions contemplated by this Agreement.
SECTION 2.19 National Ad Fund. Seller is not currently in default
under any material requirements of the NAF Agreement. As of February 29,
1996 Seller had $321,435.70 owing to the NAF under its control, which
amount was held in an account at First Union Bank, Miami, Florida.
SECTION 2.20 Insurance. Section 2.20 of the Disclosure Schedule sets
forth all insurance policies relating to the Purchased Assets. To the
knowledge of Seller, all such policies are enforceable against the
related insurer. The Seller has not received notice of default under any
such policy, and has not received written notice or, to the knowledge of
Seller, oral notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium
increase with respect to any such policy.
SECTION 2.21 No Assurances. Neither Seller nor the Shareholder can
assure Purchaser that the Business will continue to perform as well under
Purchaser's ownership as it did under Seller's ownership nor that
Franchisees will continue to perform (or perform as well)
32
or honor their Franchise Agreements following the Closing nor that any or
all of the Assumed Contracts or Franchise Agreements will not be dishonored
or breached by the contracting parties following the date of this
Agreement. In addition, neither Seller nor the Shareholder can assure
Purchaser that any of Seller's employees will wish to be employed by
Purchaser or, if employed, wish to continue to be employed by Purchaser.
Seller and the Shareholder have disclosed under Section 2.8 certain remarks
or expressions made to or inferred by Seller or the Shareholder by or from
certain Franchisees and Employees. Neither Seller nor the Shareholder
represents or warrants that there will not be one or more Franchisees who
terminate or seek to terminate or who fail to renew their Franchise
Agreements. Moreover, Seller and the Shareholder hereby advise Purchaser
that this Agreement may cause one or more Franchisees to terminate or fail
to renew the applicable Franchise Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser and HFS, jointly and severally, represent and warrant to
Seller and the Shareholder as follows:
33
SECTION 3.1 Organization and Standing. Purchaser and HFS each is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, with full corporate power and
authority to enter into this Agreement and carry out their respective
obligations hereunder.
SECTION 3.2 Corporate Authority; Action. Pur chaser and HFS each has
the full corporate power and authority to execute and deliver this
Agreement and perform their obligations hereunder. The execution and
delivery of this Agreement by Purchaser and HFS and the consummation by
Purchaser and HFS of the transactions contemplated by this Agreement
have been authorized by all requisite corporate action on the part of
Purchaser and HFS. This Agreement has been duly executed and delivered by
Purchaser and HFS and constitutes the legal, valid and binding obligation
of each of Purchaser and HFS and is enforceable, jointly and severally,
against Purchaser and HFS in accordance with its terms.
SECTION 3.3 Consents. Except for the approvals of the Boards of
Directors of the Purchaser and HFS of this Agreement, which approvals
have been obtained, no consent, approval, authorization, filing with or
order of any court, governmental agency, person or financial
34
institution is required in connection with the execution and delivery of
this Agreement by Purchaser and HFS, the consummation by Purchaser and
HFS of the transactions contemplated by this Agreement and the
performance by Purchaser and HFS of their respective obligations under
this Agreement.
SECTION 3.4 No Violation. Neither the execution or delivery of this
Agreement, the consummation by Purchaser and HFS of the transactions
contemplated by this Agreement nor the performance by Purchaser and HFS
of their respective obligations under this Agreement will: (i) violate
the certificate of incorporation or by-laws of Purchaser or HFS, (ii)
violate, conflict with, or result in a breach of, the terms, conditions
or provisions of, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under any agreement,
instrument, or arrangement to which Purchaser or HFS is a party or by
which Purchaser or HFS is bound or (iii) violate any law, rule,
regulation, judgment, order or decree to which Purchaser or HFS is
subject or by which either is bound.
SECTION 3.5 Litigation. There is no action, suit, claim,
investigation or proceeding which is pending or, to the knowledge of
Purchaser or HFS, threatened
35
which questions the validity or propriety of this Agreement or any action
taken or to be taken by Purchaser or HFS in connection with this
Agreement.
SECTION 3.6 Brokers and Finders. Neither Purchaser nor HFS has
employed or utilized any broker, finder or other person which would be
entitled to compensation by Seller or the Shareholder in connection with
the transactions contemplated by this Agreement.
SECTION 3.7 No Other Representations. Except as otherwise expressly
set forth in this Agreement, neither Purchaser nor HFS has relied upon
any representation or warranty with respect to the Business or any of the
Purchased Assets made by Seller or the Shareholder or any of Seller's
officers, directors, employees, agents or representatives.
ARTICLE IV
CERTAIN COVENANTS OF SELLER, SHAREHOLDER AND PURCHASER
SECTION 4.1 Severance. HFS agrees that immediately following the
Closing (i) it will offer all Employees of Seller who are actively
employed by Seller immediately prior to the Closing Date employment for
the purpose of making those Employees who accept such offers eligible for
the severance policy set forth on Exhibit
36
VIII (the "Severance Policy"), but such offer of employment will not
obligate HFS or Purchaser to continue to employ such persons if they
accept employment with HFS, (ii) it will follow the Severance Policy with
respect to all such Employees of Seller who accept employment with
Purchaser within the ten-day period immediately following the Closing
Date, (iii) it will treat Laurence Lisk, William Scott, Carolyn Mora and
Grace Vignes as Vice-Presidents under the Severance Policy, (iv) it will
include, for purposes of determining years of service under the Severance
Policy, all years of employment with the Seller, the Purchaser or other
entity that is or was owned by the Purchaser and (v) in no event will any
"transitional employees" (as such term is used in the Severance Policy)
be required, as a condition of the receipt of any benefits, to undertake
a covenant not to compete more onerous than the covenant applicable to
Seller and the Shareholder pursuant to Section 4.3.
SECTION 4.2 Use of Name. Seller agrees that as soon as practicable
after the Closing it will amend its certificate of incorporation and
change its bank accounts and other business documentation, arrangements
and instruments to change the name of Seller to a name which does not
include "Century 21" in its name and that,
37
from and after the Closing, except for indicating (when reasonably
necessary to do so) that it was formerly known as Century 21 Real Estate
of Southern Florida, Inc., it will not have any rights to or utilize the
name "Century 21" in its business or operations, except for the time it
may reasonably take to practicably comply with the change of name
requirement hereunder, or hold itself out as a Century 21 franchisee.
SECTION 4.3 Non-Competition.
(a) Seller and the Shareholder agree for a period of three (3) years
following the Closing Date that, so long as Purchaser or any of its
successors shall engage in the residential real estate brokerage
franchise business in the Region, neither Seller nor the Shareholder
will, directly or indirectly, engage in or have any interest in any
person, firm, corporation or business (whether as an employee, officer,
director, agent, security holder, consultant or otherwise) that engages
in the Region in the residential real estate brokerage franchise business
other than, as requested, with HFS or Purchaser. Purchaser and HFS
expressly agree that (i) neither Seller nor the Shareholder is prohibited
hereunder from engaging in or having an interest in any endeavor or
activity providing other services supportive of or ancillary to the
38
real estate brokerage franchise business if such services are not being
offered by Seller as of December 31, 1995 (including, without limitation,
for example, AmeriNet Financial Services, Inc. and Global Referral
Network, a Florida corporation) and (ii) ownership of not more than 5% of
the stock of a publicly traded company by the Shareholder or Seller even
if such company engages in the residential real estate brokerage
franchising business if the Shareholder or Seller does not participate in
management of any such company (which shall not be deemed to include the
exercise of voting rights), shall not be considered a violation of this
covenant.
(b) Seller, the Shareholder, Purchaser and HFS acknowledge and agree
that (i) the restrictions imposed on the Seller and the Shareholder under
this Section 4.3 are an integral part of, not severable from, and solely
intended to protect, the value of the goodwill included in the Purchased
Assets and the Business being purchased by Purchaser, (ii) $164,175 as
consideration for such restrictions is fair and reasonable and, in
accordance therewith, Purchaser and HFS are paying such amount in cash to
Seller at the Closing and (iii) the amount of consideration being paid
for such restrictions was arrived at by the parties after consideration
of
39
Seller's and the Shareholder's ability to compete against Purchaser and
HFS following the Closing.
SECTION 4.4 Separate Covenants. The parties intend that the covenant
contained in Section 4.3 shall be construed as a series of separate
covenants, one for each county within the Region. Except for geographic
coverage, each such separate covenant shall be deemed identical. If, in
any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in Section 4.3, then such
unenforceable covenant shall be deemed eliminated from those provisions
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
SECTION 4.5 Non-Disclosure of Trade Secrets. Seller and the
Shareholder agree not to divulge, communicate, use to the detriment of
Purchaser or the Business or for the benefit of any other person or
persons, or misuse in any way, any confidential information or trade
secrets of Purchaser or Seller with respect to the Business.
SECTION 4.6 Injunctive Relief. Seller and the Shareholder each
acknowledge that the agreement set forth in Section 4.3 is necessary to
protect for Purchaser the value of the Purchased Assets and the Business,
that a
40
breach of such agreement will result in irreparable damage to the value
of the Purchased Assets and the Business, and that money damages would
not adequately compensate Purchaser and HFS for any such breach and,
therefore, that Purchaser and HFS would not have an adequate remedy at
law. Accordingly, Purchaser and HFS shall have, in addition to any and
all remedies at law, the right, without posting of bond or other
security, to an injunction, both temporary and permanent, specific
performance and/or other equitable relief to prevent the violation of any
obligation under Section 4.3.
SECTION 4.7 Service and NAF Fees. Following the Closing and
notwithstanding the sale of the Subfranchise Agreement to Purchaser and
the termination of the NAF Agreement, Seller agrees that, by the
fifteenth day of each month, it shall pay to Purchaser any service fees
and NAF fees owed to Purchaser under the Subfranchise Agreement and the
NAF Agreement received during the preceding month, including, without
limitation, for those Opens which are Excluded Assets.
41
SECTION 4.8 Accounts Receivable. Purchaser agrees that it will keep
accurate records of all accounts receivable from Franchisees. In this
regard, Purchaser agrees to use ordinary procedures in auditing the books
and records of Franchisees and to pay over such after-discovered
accounts receivable within thirty (30) days of collection whether such
collection resulted from such audits or otherwise. Purchaser also agrees
that Seller shall have the right, upon notice, but not more frequently
than once a month and not after one year from the date of this Agreement,
to review during normal business hours Purchaser's audit files related to
Franchisees.
SECTION 4.9 Computer Software. Seller agrees that following the
Closing, Purchaser shall have the right to utilize the computer software
of Seller used in the Business for the purposes of obtaining the
information thereon.
SECTION 4.10 Employment Agreement. Purchaser agrees that it will
execute the employment agreement attached as Exhibit X hereto.
42
ARTICLE V
SURVIVAL, INDEMNIFICATION
SECTION 5.1 Survival of the Representations. The respective
representations, warranties, covenants and agreements made by any party
to this Agreement or pursuant hereto shall survive the Closing, shall not
be deemed waived or otherwise affected by any investigation at any time
made by any party hereto and, for the purposes of this Article V, any
representation and warranty shall continue in effect until February 28,
1997, except for a breach of a representation or warranty being made
pursuant to:
(i) Section 2.13 (Title to Assets) hereof, but only with respect to
title to Franchise Agreements, which shall survive until the date which
is five years from the date hereof;
(ii) Section 2.9 (Tax Matters) which shall survive until the date
which is 60 days after the expiration of the applicable statute of
limitations; and
(iii) Section 2.10 (Employee Benefit Matters) which will survive
until the applicable statute of limitations has run.
SECTION 5.2 Statements as Representations. All of the statements
contained in the Disclosure Sched-
43
ule shall be deemed representations and warranties for all purposes of
this Agreement but by only the party delivering or causing the foregoing
to be delivered.
SECTION 5.3 Indemnification by Seller and Shareholder. In lieu of
any and all other remedies Purchaser may have at law or in equity, and/or
under this Agreement, other than as provided in Section 4.6 and Section
6.22 hereof and subject to the terms and upon the conditions of this
Article V, Seller and the Shareholder, jointly and severally, agree to
indemnify, fully defend and save and hold harmless Purchaser, any
Affiliate (which, shall mean, for purposes of this Section 5.3 and
Section 5.4 hereof with respect to a specified person, any person that,
directly or indirectly, controls or is controlled by or is under common
control with the specified person) of the Purchaser and their respective
officers and directors (collectively, the "Purchaser Indemnified Group")
from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties and reasonable attorneys' fees
and expenses, but net of any Tax savings and insurance proceeds actually
received by the indemnitee as a result of the matter giving rise to
indemnification (col-
44
lectively, "Damages"), asserted against, resulting to, imposed upon or
incurred by any member of the Purchaser Indemnified Group, directly or
indirectly, by reason of or resulting from:
(a) any inaccuracy in, or a breach of, any representation or
warranty of Seller or the Shareholder contained in this Agreement;
(b) any breach or failure to perform any covenant or agreement of
Seller or the Shareholder contained in or made pursuant to this
Agreement;
(c) any and all obligations and liabilities, direct or indirect,
absolute or contingent, for Taxes or related claims ("Tax Claims")
asserted against the Purchaser Indemnified Group or any member thereof
(i) with respect to any Taxes of the Seller for any taxable period; (ii)
with respect to any Affiliated Group (which shall mean an affiliated
group within the meaning of Section 1504(a) of the Code or any similar
provision of state, local, or foreign law) or any member of an Affiliated
Group for periods during which Seller was a member of such group; (iii)
with respect to the Purchased Assets, to the extent such Tax Claims are
attributable to periods ending on or prior to the Closing Date, except
for Taxes described in Section 6.1 hereof;
45
(d) any liability which is imposed upon any member of the Purchaser
Indemnified Group and which accrues or arises on or prior to the Closing
Date (whether or not in connection with any Benefit Plan) with respect to
employees, former employees, independent agents or independent
contractors (whether employed by Seller or by an entity which was an
Affiliated Employer at any time within the six-year period immediately
preceding the Closing Date) or in connection with the transactions
contemplated in this Agreement other than as provided in Section 4.1
hereof under the Severance Policy set forth as Exhibit VIII.
SECTION 5.4 Indemnification by Purchaser and HFS. In addition to all
other remedies Seller and the Shareholder may have at law or in equity,
and/or under this Agreement, and subject to the terms and conditions of
this Article V, Purchaser and HFS agree to, jointly and severally,
indemnify, fully defend, save and hold harmless Seller and the
Shareholder and any Affiliate of Seller or the Shareholder or any of
their respective directors or officers (the "Seller Indemnified Group")
from and against all Damages asserted against, resulting to, imposed upon
or incurred by the Seller Indemnified
46
Group or any member thereof, directly or indirectly, by reason of or
resulting from:
(a) any inaccuracy in, or a breach of, any representation
or warranty of Purchaser or HFS contained in or made pursuant to this
Agreement or any facts or circumstances constituting such a breach;
(b) any breach of or failure to perform any covenant or agreement of
Purchaser or HFS contained in or made pursuant to this Agreement;
(c) any failure by Purchaser or HFS to fully and timely pay and
perform and satisfy any of the Assumed Liabilities or any other
liabilities or obligations to be paid, performed or satisfied by
Purchaser or HFS under or pursuant to this Agreement or any other
agreement or instrument which is executed or delivered by Purchaser or
HFS in connection with the transactions contemplated hereby;
(d) any liabilities of the Business, or related to the Business,
arising out of facts or circumstances which occur after the Closing Date,
including, without limitation, claims brought by any one or more
Franchisees relating to the assignment of any Franchise Agreement
pursuant to the provisions hereof or relating
47
to the management or expenditures from the NAF after the Closing Date;
(e) any liabilities or obligations owing to Franchisees or otherwise
to be performed by Purchaser under or pursuant to the NAF Agreement for
matters arising from facts or circumstances after the Closing Date;
(f) any action or omission by Purchaser or HFS with respect to any
Franchisee; and
(g) any other Taxes incurred as a result of or in connection with
the consummation of the transactions contemplated by this Agreement,
including without limitation transfer, sales and use taxes, but excluding
Taxes based upon the income of Seller or the Shareholder.
SECTION 5.5 Claims. Each matter for which any party hereunder has
agreed to provide indemnification pursuant to Sections 5.3 or 5.4 hereof
is hereinafter referred to individually as a "Claim" and collectively as
the "Claims."
SECTION 5.6 Conditions of Indemnification. The obligations and
liabilities of any party to indemnify any other party under Sections 5.3
and 5.4 hereof with respect to Claims shall be subject to the following
terms and conditions:
48
(a) The party to be indemnified (the "Indemnified Party") will
give the other party or parties (the "Indemnifying Party") prompt notice
of any such Claim. Such notice shall be a condition precedent to any
liability of the Indemnifying Party under the provisions for
indemnification contained in this Agreement (provided that the delay to
notify the Indemnifying Party promptly shall not relieve such
Indemnifying Party of its obligations under this Article V except to the
extent that the failure to so notify materially adversely prejudices the
Indemnifying Party's ability to defend such Claim).
(b) The Indemnifying Party may elect to undertake the defense of any
Claim with respect to which indemnification is sought by the Indemnified
Party by representatives chosen by it reasonably satisfactory to the
Indemnified Party. If the Indemnifying Party elects to compromise or
defend such asserted liability, it shall within 30 days from delivery of
the notice pursuant to Section 5.6(a) (or sooner, if the nature of the
asserted liability so requires) notify the Indemnified Party of its
intent to do so and the Indemnified Party shall cooperate in the
compromise of, or defense against, any such asserted liability. In such
case, the Indemnified Party may participate in such defense at its own
expense.
49
If the Indemnifying Party, within such 30-day period after notice of any
such Claim, fails to so defend, the Indemnified Party will have the right
to assume the defense, compromise or settlement of such Claim on behalf
of and for the account and risk of the Indemnifying Party, subject to the
right of the Indemnifying Party to assume the defense of such Claim at
any time prior to settlement, compromise or final determination thereof.
If, in the good faith opinion of counsel to an Indemnified Party, the
interests of the Indemnified Party and the Indemnifying Party with
respect to any Claim are conflicting in any material respect, the
Indemnifying Party shall bear the reasonable and documented costs and
expenses of the Indemnified Party's participation in the defense thereof.
If the Indemnifying Party chooses to defend any Claim, the Indemnified
Party shall make available to the Indemnifying Party any books, records
or other documents within its control that are necessary or appropriate
for such defense.
(c) The notice referred to in Section 5.6(a) hereof shall set forth
the details of the Claim (including the amount, estimated, if necessary,
of the asserted Damages) and the specific provisions of this Agreement
relating thereto.
50
(d) Anything in this Section 5.6 to the contrary notwithstanding,
(i) if there is a reasonable probability that a Claim may materially and
adversely affect the Indemnified Party other than solely as a result of
money damages or other money payments, the Indemnified Party shall have
the right, at its own cost and expense, to defend, compromise or settle
such Claim, and (ii) the Indemnifying Party shall not, without the
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld), settle or compromise any Claim or consent to the
entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified
Party of a release from all liability in respect of such Claim.
SECTION 5.7 Set-off. Notwithstanding any provision of this Agreement
or of any other agreement, instrument or undertaking, and in addition to
the right of the Indemnified Party to indemnification hereunder and to
all remedies provided by law, the Indemnified Party shall have the right
to set off the amount of any Claim against any sums of money or other
property at any time or from time to time payable or deliverable by the
Indemnified Party to the Indemnifying Party pursuant to this
51
Agreement, or any other agreement to which the parties to this Agreement
are parties, provided that no such right of set-off shall arise and no
such Claim shall be payable by the Indemnifying Party until a final
non-appealable judgment or arbitration award with respect to the Claim
has been entered.
SECTION 5.8 Limitation on Indemnification. Notwithstanding anything
to the contrary set forth in this Agreement:
(a) No indemnification for any Damages shall be required to be made
by Seller or the Shareholder pursuant to Section 5.3(a) hereof for the
breaches or inaccuracies of the representations and warranties contained
in Sections 2.1, 2.3, 2.8, 2.10, 2.11, 2.14, 2.15 and 2.20 to the extent
that the amounts which would be payable as Damages for such breaches
and/or inaccuracies either (i) exceeds $1,400,000 or (ii) when added to
any amount(s) paid as Damages for breaches or inaccuracies of the
representations and warranties referred to in Section 5.8(b) hereof,
exceeds $3,500,000.
(b) No indemnification for any Damages shall be required to be made
by Seller or the Shareholder pursuant to Section 5.3(a) hereof for
breaches or inaccuracies of the representations and warranties contained
in
52
Sections 2.2, 2.4 through 2.7, 2.9, 2.12, 2.13, 2.16 through 2.19 to the
extent that the amount which would otherwise be payable as Damages for
such breaches or inaccuracies (plus any amount paid as Damages pursuant
to Section 5.8(a) hereof) by Seller or the Shareholder exceeds
$3,500,000.
(c) No indemnification for any Damages shall be required to be made
by Seller or the Shareholder pursuant to Sections 5.3(a), 5.3(c) or
5.3(d) hereof unless and only to the extent that the aggregate amount
which would otherwise be payable as Damages exceeds $280,000.
(d) No indemnification for any Damages shall be required to be made
by Seller or the Shareholder pursuant to Section 5.3(a) hereof for a
breach or inaccuracy of a representation or warranty made by Seller or
the Shareholder if HFS or Purchaser had knowledge as of the Closing of
the breach or inaccuracy.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 Expenses. Except as otherwise expressly provided in this
Agreement, HFS and Purchaser shall pay all expenses incident to the
origin, negotia-
53
tion and execution of this Agreement and the consummation of the
transactions contemplated hereby other than legal and accounting fees and
disbursements incurred by the Shareholder and the fees of any broker,
finder or investment adviser utilized by the Seller or the Shareholder,
for which they shall be responsible. Any sales, use or similar taxes
applicable to the conveyance and transfer to Purchaser of the Purchased
Assets shall be borne and paid by Purchaser. Any transfer, documentary
taxes or similar taxes and any filing or recording taxes or fees
applicable to such conveyance to Purchaser of the Purchased Assets shall
be borne and paid by Purchaser. Purchaser shall file any Returns that are
required to be filed in respect of Taxes described in this Section and
shall pay the Taxes shown on such Return.
SECTION 6.2 Reimbursement of and Payment to Purchaser and Seller.
Seller and Purchaser agree that if subsequent to the Closing Date either
of them shall receive any payment due to the other party (including, but
not limited to service fees, franchise fees and NAF payments from
Franchisees), each shall promptly remit the same to the other, and if
either party shall pay any obligations of the other not assumed by it
hereunder, the payment shall be for the account of the party to whom the
54
obligation relates, and such party shall promptly reimburse the other
party for any such payment.
SECTION 6.3 Interpretation. As used herein, the expression "this
Agreement" means the body of this Agreement and the Exhibits, the
Schedules and the Disclosure Schedule attached hereto; and the
expressions "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement and such Exhibits, Schedules and the
Disclosure Schedule as a whole and not to any particular part or
subdivision thereof. If information is included, disclosed or referred to
on a Schedule, it shall be deemed to be included, disclosed or referred
to on all other Schedules to which such information is relevant except in
those instances where such inclusion, disclosure or reference would
result in a conflict with such other Schedule. As used herein with
respect to any person or entity, the word "knowledge" refers to the
actual knowledge of such person or of any officer of such entity, without
further investigation. As used herein, the "knowledge" of the Seller
means the actual knowledge of the Shareholder, without further
investigation, and the "knowledge" of HFS or Purchaser means the actual
knowledge of the following persons, without further investigation: Henry
R. Silverman, James E. Buckman,
55
Stephen P. Holmes, Robert W. Pittman, John D. Snodgrass and Thomas J.
Freeman. Whenever this Agreement states that an agreement or contract is
enforceable according to its terms, such statement is to be interpreted
with the proviso that such enforcement may be limited (i) by applicable
bankruptcy, insolvency, reorganization, fraudulent transfer, equity of
redemption, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) by general principles of equity
(regardless of whether enforcement is sought in equity or at law).
SECTION 6.4 Amendments and Waivers. This Agreement may be amended
only by a written instrument executed by the parties hereto. At any time
prior to the Closing Date, any party hereto which is entitled to the
benefits hereof may, by an instrument in writing signed and delivered on
behalf of such party, (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any
inaccuracy in the representations and warranties of the other parties
contained herein or in any Schedule hereto or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements of
the other parties hereto or conditions contained herein. No waiver of any
56
of the provisions of the Agreement shall be deemed to or shall constitute
a waiver of any other provision hereof (whether or not similar). No delay
on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
SECTION 6.5 Other Instruments to Be Executed. From and after the
Closing Date, the parties shall, from time to time, at the request of
another party and without further consideration, do, execute, acknowledge
and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney, assurances and other documents as may be
reasonably required to more fully consummate the transactions
contemplated by this Agreement.
SECTION 6.6 Public Statements. Except for announcements as may be
required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other parties with reasonable time
under the circumstances to comment on the announcement in advance of such
announcement, neither Seller, the Shareholder nor Purchaser or HFS shall
issue any press release or other public statement concerning the
transactions contemplated by this Agreement without
57
first obtaining the written consent of the others respecting such
statement, which consent will not be unreasonably withheld.
SECTION 6.7 Confidentiality. Seller and the Shareholder acknowledge
that HFS may be required to file this document with the Securities and
Exchange Commission and other regulatory agencies and agree that HFS may
do so and Seller, HFS, the Shareholder and Purchaser agree that, if the
Closing under this Agreement does not occur, they will keep confidential,
unless required by law or in pursuit of their remedies hereunder, the
terms and conditions of this Agreement; provided that the foregoing
obligations shall not apply to information which (i) is contained in a
publicly recorded document, or (ii) is or becomes generally known other
than as a result of a disclosure by or through the party obliged to
maintain its confidentiality. Nothing in this Agreement shall prevent any
party from disclosing information regarding this Agreement (a) in pursuit
of its remedies hereunder, (b) if required to do so by law or regulation,
(c) to any governmental authority having or claiming authority to receive
such information or (d) pursuant to subpoena. Further, nothing in this
Agreement shall prevent the Shareholder from disclosing information
regarding this
58
Agreement to other current or former parties to subfranchise arrangements
with the Purchaser.
SECTION 6.8 Access To Records After Closing. Purchaser and Seller
shall, after the Closing Date, make available to each other at reasonable
times during normal business hours any books, correspondence, employment
records, ledgers and other records relating to the Business that either
may request for use in connection with: (a) the preparation of tax
returns; (b) any audit of taxes or tax returns by local, state or federal
authorities; (c) any claim or suit in which they are a party; or (d) any
other reasonable and proper purpose, including without limitation, the
inspections and verifications referred to in Section 1.8 hereof and shall
permit the other, at its expense, to make copies thereof. Seller and the
Shareholder agree that they will allow HFS to use the Seller's historical
audited financial statements for purposes of any announcements or filings
required by law or the rules and regulations of the stock exchange.
SECTION 6.9 Parties Bound. This Agreement shall apply to, inure to
the benefit of and be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. The
respective rights and obligations of any party hereto shall not
59
be assignable without the consent of the other parties except that
Purchaser may assign this Agreement and Purchaser's rights hereunder to
its parent or any subsidiary of Purchaser; provided that the Purchaser
unconditionally guarantees all of such assignee's obligations, warrants
and agreements hereunder in a written guaranty reasonably acceptable to
Seller.
SECTION 6.10 Parties in Interest. Except as specifically provided
herein, nothing in this Agreement, whether express or implied is intended
to confer any rights or remedies under or by reason of this Agreement on
any persons other than the parties to it and their respective successors,
heirs, legal representatives, and permitted assigns, nor is anything in
this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall
any provision give any third persons any right of subrogation or action
over against any party to this Agreement.
SECTION 6.11 Notices. Any notice, demand, approval, consent,
request, waiver or other communication which may be or is required to be
given pursuant to this Agreement shall be in writing and shall be (1)
deposited in the United States mail, postage prepaid, certified or
60
registered, (2) sent by telecopier or (3) sent by private overnight
courier service for delivery on the next following business day,
addressed to the party at the address set forth after its respective name
below, or at such different address as such party shall have theretofore
advised the other parties in writing:
If to Seller:
Century 21 Real Estate
of Southern Florida, Inc.
3100 N.W. 77th Court
Miami, Florida 33122
Attention: Richard C. Ritchey
Telecopier: (305) 593-7023
If to Shareholder:
Richard C. Ritchey
3100 N.W. 77th Court
Miami, Florida 33122
Telecopier: (305) 593-7023
with a copy to:
Oliver C. Murray, Esq.
Murray Law Offices
1349 West Peachtree Street, N.E.
Suite 1190
Atlanta, Georgia 30309-2956
Telecopier: (404) 892-5446
If to Purchaser or HFS:
HFS Incorporated
or
Century 21 Real Estate Corporation
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman
Executive Vice President
Telecopier: (201) 428-3260
61
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Mark T. Shehan, Esq.
Telecopier: (212) 735-2001
Any such communication personally delivered shall be deemed to have been
received on the day delivered; or if sent by telecopier, on the day
telecopied, but only if receipt by the addressee is confirmed by a return
telecopy signed by the addressee; or if properly mailed, certified or
registered mail, postage prepaid, shall be deemed to have been received
on the day three days from and including the day mailed; or if sent by
private overnight courier service shall be deemed to have been received
on the business day following the day so sent. Any party may change its
address for purposes of this Section by giving the other parties written
notice of the new address in any manner set forth above.
SECTION 6.12 Number and Gender of Words. Whenever herein the
singular number is used, the same shall include the plural where
appropriate, and the words of any gender shall include each other gender
where appropriate.
SECTION 6.13 Captions. The captions, headings and arrangements used
in this Agreement are for conve-
62
nience only and do not affect, limit or amplify the terms and provisions
hereof, or their construction or interpretation.
SECTION 6.14 Invalid Provisions. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof, and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. In lieu of such
illegal, invalid or unenforceable provision there shall be added
automatically as a part hereof a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
SECTION 6.15 Accounting Terms. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in
accordance with generally accepted accounting principles as in effect
from time to time.
63
SECTION 6.16 Entirety of Agreement. This Agreement contains the
entire agreement among the parties hereto, and supersedes all prior and
contemporaneous agreements, representations and understandings of the
parties, including without limitation all preliminary offers and letters
of intent made by or between Purchaser and Seller (or the Shareholder).
No representations, inducements, promises or agreements, oral or
otherwise, which are not embodied herein shall be of any force or effect.
SECTION 6.17 Multiple Counterparts. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original for
all purposes and all of which shall be deemed, collectively, one
agreement.
SECTION 6.18 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law principles.
SECTION 6.19 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby
shall be brought in the United States District Court for
64
the Southern District of Florida or any Florida State court sitting in
Miami, Florida and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on
any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in this
Section 6.19 shall be deemed effective service of process on such party.
SECTION 6.20 Waiver of Audits. Purchaser hereby waives, provided
Purchaser and HFS are provided with access to Seller's books and records,
any requirement Seller may have under any agreement or understanding with
Purchaser or its predecessor under the Subfranchise Agreement or
otherwise to have conducted and issued an
65
audit with respect to Seller's 1995 financial statements with respect to
Seller's 1995 fiscal year.
SECTION 6.21 Prevailing Party Expenses. Should any legal action be
instituted under, as a result of, or requiring reference to, this
Agreement, the party or parties prevailing in such action shall be
entitled to be reimbursed by the non-prevailing party or parties for all
expenses and costs incurred by the prevailing party or parties in
connection with such action, including without limitation attorneys'
fees.
SECTION 6.22 Waiver of Rescission. Notwithstanding any breach or
default by any of such parties of any of their respective
representations, warranties, covenants or agreements under this
Agreement, if the purchase and sale contemplated by it shall be
consummated at the Closing, each such party waives any rights that it or
they may have to rescind this Agreement or the transaction consummated by
it; provided, however, this waiver shall not affect any other rights or
remedies available to any such party under this Agreement or under the
law and shall not apply if actual fraud has been committed by any party
in connection with the transactions contemplated by this Agreement and
the effect thereof has caused Damages to a party hereto in an amount
greater
66
than the amount provided for indemnification under Article V hereof.
67
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CENTURY 21 REAL ESTATE
CORPORATION
By /s/ JAMES E. BUCKMAN
--------------------
Name: James E. Buckman
Title: Executive Vice
President
HFS INCORPORATED
By /s/ STEPHEN P. HOLMES
--------------------
Name: Stephen P. Holmes
Title: Executive Vice
President
CENTURY 21 REAL ESTATE
OF SOUTHERN FLORIDA, INC.
By /s/ RICHARD C. RITCHEY
--------------------
Name: Richard C. Ritchey
Title: President
/s/ RICHARD C. RITCHEY
--------------------
RICHARD C. RITCHEY