ASSET PURCHASE AGREEMENT
Dated as of
April 3, 1996
Among
CENTURY 21 REAL ESTATE CORPORATION,
HFS INCORPORATED,
CENTURY 21 OF
THE SOUTHWEST, INC.
and
LARRY E. BRYSON
TABLE OF CONTENTS
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Page
ARTICLE I
PURCHASE AND SALE OF ASSETS.................. 2
Section 1.1 Purchase and Sale of Assets................... 2
Section 1.2 Transfer of NAF Assets........................ 7
Section 1.3 Excluded Assets............................... 8
Section 1.4 Assumption of Liabilities..................... 10
Section 1.5 Retained Liabilities and
Unassumed Obligations......................... 10
Section 1.6 Purchase Price................................ 11
Section 1.7 Closing Time and Place........................ 11
Section 1.8 Seller's Deliveries at Closing................ 11
Section 1.9 Purchaser's Deliveries at Closing............. 12
Section 1.10 Allocation of Purchase Price.................. 13
Section 1.11 Lease of Office Space......................... 13
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDER
Section 2.1 Organization and Standing..................... 14
Section 2.2 Capital Structure............................. 14
Section 2.3 Corporate Authority and Action................ 15
Section 2.4 Consents...................................... 15
Section 2.5 No Conflict................................... 16
Section 2.6 Financial Statements.......................... 17
Section 2.7 Absence of Undisclosed Liabilities............ 18
Section 2.8 Absence of Specified Changes.................. 18
Section 2.9 Tax Matters................................... 20
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......................... 31
Section 2.16 Compliance with Law........................... 31
Section 2.17 Corporate Documents........................... 32
Section 2.18 Brokers or Finders............................ 33
Section 2.19 National Ad Fund.............................. 33
Section 2.20 Insurance..................................... 33
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Page
Section 3.1 Organization and Standing..................... 34
Section 3.2 Corporate Authority; Action................... 34
Section 3.3 Consents...................................... 35
Section 3.4 No Violation.................................. 35
Section 3.5 Litigation.................................... 36
Section 3.6 Brokers and Finders........................... 36
Section 3.7 No Other Representations...................... 36
ARTICLE IV
CERTAIN COVENANTS OF SELLER, BRYSON AND PURCHASER
Section 4.1 Severance and Benefits........................ 37
Section 4.2 Use of Name................................... 37
Section 4.3 Audit Waiver.................................. 38
Section 4.4 Accounts Receivable........................... 38
Section 4.5 Non-Competition............................... 41
Section 4.6 Separate Covenants............................ 42
Section 4.7 Non-Disclosure of Trade Secrets............... 42
Section 4.8 NAF Fees...................................... 44
ARTICLE V
SURVIVAL, INDEMNIFICATION
Section 5.1 Survival of the Representations............... 44
Section 5.2 Statements as Representations................. 45
Section 5.3 Indemnification by Seller and Bryson.......... 45
Section 5.4 Indemnification by Purchaser and HFS.......... 48
Section 5.5 Claims........................................ 49
Section 5.6 Conditions of Indemnification................. 50
Section 5.7 Limitation on Indemnification................. 53
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Expenses...................................... 54
Section 6.2 Reimbursement of and Payment to
Purchaser and Seller.......................... 55
Section 6.3 Interpretation................................ 55
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Page
Section 6.4 Amendments and Waivers........................ 56
Section 6.5 Other Instruments to Be Executed.............. 57
Section 6.6 Public Statements............................. 58
Section 6.7 Access To Records After Closing............... 58
Section 6.8 Parties Bound. .............................. 59
Section 6.9 Parties in Interest........................... 59
Section 6.10 Notices....................................... 60
Section 6.11 Number and Gender of Words.................... 62
Section 6.12 Captions...................................... 62
Section 6.13 Invalid Provisions............................ 62
Section 6.14 Accounting Terms.............................. 63
Section 6.15 Entirety of Agreement......................... 63
Section 6.16 Multiple Counterparts......................... 63
Section 6.17 Jurisdiction.................................. 63
Section 6.18 Prevailing Party Expenses..................... 64
Section 6.19 Waiver of Rescission.......................... 65
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SCHEDULES
Schedule A - Franchise Agreements
Schedule B - Assumed Contracts
Schedule C - Purchased Equipment
Schedule D - Purchased Materials
Schedule E - IntellectualProperty
Schedule F - Transferred Claims
Schedule G - Deposits
Schedule H - Allocation
EXHIBITS
Exhibit I - Undertaking
Exhibit II - Bill of Sale
Exhibit III - Contract Assignment
Exhibit IV - Opinion of Seller's Counsel
Exhibit V - FIRPTA Certificates
Exhibit VI - Opinion of Purchaser's Counsel
Exhibit VII - Office Lease
Exhibit VIII - Severance Policy
Exhibit IX - Medical Benefits for Employees
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, made and entered into this 3rd 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
OF THE SOUTHWEST, INC., an Arizona corporation ("Seller"), and LARRY E.
BRYSON ("Bryson"), a beneficiary under the Bryson Family Trust, a
revocable trust established by a Trust Agreement dated March 20, 1996
(the "Shareholder"), which is the holder of all of the outstanding shares
of Seller.
WHEREAS, Seller is engaged in the business of real estate brokerage
office subfranchising and related operations for the CENTURY 21(Registered
Trademark) system (the "Business") in the States of Arizona and New Mexico
and in Clark County, Nevada and El Paso County, Texas (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 and HFS are purchasing and paying
for, and Seller is 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") on the
Closing Date (as defined in Section 1.7), for the consideration specified
in Section 1.6, the following properties and assets of Seller (the
"Purchased Assets"), as the same shall exist on the Closing Date:
(a) CENTURY 21 Subfranchise Agreement. All right, title and interest
of Seller in, to and under the CENTURY 21 Regional License Agreement,
dated July 1, 1973, between Purchaser and Century 21 Real Estate of
Arizona, Inc., the former name of Seller, as amended by
2
the Addendum, dated July 1, 1973, 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
of Seller in the Region as of the date of this Agreement and as of the
Closing Date ("Franchisees"), as set forth in Schedule A, including all
franchisee files, records and other information pertaining thereto, but
excluding (i) all rights of Seller to indemnification from Franchisees
for matters arising out of or in any way connected with the operations of
any Franchisee prior to the Closing Date and (ii) all right, title and
interest in and to Accounts Receivable (as hereinafter defined);
(c) Open Transactions. All right, title and interest of Seller in
and to service fees owing or to be owing on open transactions, whether
reported or unreported ("Opens"), which for purposes of this Agreement
shall mean agreements to convey real property, which agreements are
placed into the custody of a third party, as escrow holder, awaiting
completion/fulfillment of all terms and conditions of such agreements, at
which time the transactions represented thereby will close;
3
(d) Assumed Contracts. All right, title and interest of Seller in,
to and under the contracts listed in Schedule B (the "Assumed
Contracts");
(e) Purchased Office Machines and Equipment. All right, title and
interest of Seller in and to the computer, office machines and equipment
listed in Schedule C (the "Purchased Equipment");
(f) Inventory. All right, title and interest of Seller in and to the
training programs and materials and other items utilizing the "Century
21" name listed in Schedule D (the "Purchased Materials");
(g) Intellectual Property. All right, title and interest of Seller
in and to intellectual property assets relating to the Business (other
than the computer software which is an Excluded Asset (as hereinafter
defined)), 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, (ii) statutory, common law and registered
copyrights, including all applications therefor and (iii) the Microdata
system computer software utilized for the Business' accounting (the items
described in clauses (i),
4
(ii) and (iii) constituting, collectively, the "Intellectual
Property");
(h) 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 Section 1.3(d)) (the "Purchased Books and
Records"), subject, however, to the right of Seller to retain copies
thereof and to Seller's inspection rights after the Closing Date pursuant
to Section 6.8 hereof;
(i) Claims. All right, title and interest of Seller in and to the
claims, refunds, credits, causes of action, choses in action, rights of
recovery (and restrictions granted in favor of Seller by another party
with respect to interference with Seller's Business) 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), that are
set forth in Schedule F, but, not including, Accounts Receivable and
rights of indemnification from Franchisees for matters arising out of or
in any way connected with
5
the operations of any Franchisee prior to the Closing (the "Transferred
Claims");
(j) Goodwill. All right, title and in- terest 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
("Goodwill"); and
(k) Deposits Held for Others. All right, title and interest of
Seller in and to all prepayments or other deposits by franchisees, their
agents or independent contractors pertaining to the Business, as set
forth in Schedule G, including, without limitation, prepaid initial
franchise fees, deposits/prepayments for training programs,
assignments/renewals of franchise agreements and convention enrollments
(but not including the NAF Assets, as described in Section 1.2) (the
"Deposits").
SECTION 1.2 Transfer of NAF Assets. Seller is transferring, by check
made payable to the Purchaser at the Closing (as hereinafter defined), to
Purchaser in its capacity as Trustee of the CENTURY 21(Registered
Trademark) National Advertising Fund ("NAF") all monies in Seller's
possession or under Seller's control (the "NAF Funds"), and agrees,
following the Closing, to pay over any other monies or transfer any
other assets or rights for which Seller is
6
otherwise accountable or responsible with respect to the NAF or Seller's
fiduciary (or other) obligations and responsibilities as the agent of the
Trustee of the NAF which Seller receives after the Closing. Purchaser and
Seller agree that (i) the Agreement regarding the National Advertising
Fund, dated as of March 1, 1976, as amended, between Purchaser and Seller
(the "NAF Agreement"), is terminated as of the Closing, (ii) Seller shall
have no further obligations or liabilities thereunder for any matters
arising after the Closing Date other than to pay over to Purchaser any
monies received from Franchisees after the Closing Date relating to the
NAF and to transfer any other assets or rights as aforesaid, (iii) HFS
and Purchaser will indemnify the Seller with respect to the operation of
the NAF after the Closing as provided in Article V hereof and (iv)
Purchaser, effective as of the Closing, is assuming the performance of
all liabilities and obligations under the NAF Agreement to be performed
after the Closing.
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"):
7
(a) Land and Improvements. All real property owned or leased by
Seller (including all land and buildings and improvements thereon);
(b) Excluded Machinery; Equipment and Software. All fixed machinery
and equipment, other fixtures and fittings, moveable office machinery and
equipment, computer software (other than the Microdata system used for
the Business' accounting), furniture and fixtures that are owned by
Seller other than those constituting 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
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 inspection
rights under this Agreement before
8
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 prepayments made by Seller with respect
to the Business;
(f) Life Insurance Policies. Any life insurance policies insuring
the life of Bryson;
(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 those specifically listed in Schedule F as constituting
the Transferred Claims;
(h) Accounts and Notes Receivable. All 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
related to the Business through the Closing Date, including any right of
Seller with respect to any third-party collection procedures or court
9
actions which shall have been commenced as of the Closing Date in
connection therewith (the "Accounts Receivable"); and
(i) Prepaid Expenses and Deposit Rights. All prepaid expenses of
Seller existing as of the Closing Date, as well as all right, title and
interest of Seller in and to any and all deposits held by others (the
"Prepaid Expenses and Deposit Rights").
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 (the "Assumed
Liabilities") set forth in the Undertaking and Instrument of Assumption
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 and except as may otherwise be provided in
this Agreement, Purchaser shall not assume 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
not so assumed by
10
Purchaser shall remain the sole responsibility and obligation of Seller.
SECTION 1.6 Purchase Price. Subject to the terms and conditions of
this Agreement, HFS and Purchaser are paying to Seller as the purchase
price for the Purchased Assets at the Closing, which is being held
simultaneously with the execution of this Agreement, the amount of
$27,983,417, by wire transfer of immediately available funds (the
"Purchase Price").
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 3, 1996. The date and time
of the closing are herein referred to as the "Closing Date."
SECTION 1.8 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 II hereto
(the "Bill of Sale");
11
(b) the Contract Assignment substantially in the form of Exhibit III
hereto (the "Contract Assignment");
(c) the opinion of Seller's counsel substantially in the form of
Exhibit IV to this Agreement;
(d) the certificates annexed as Exhibit V hereto as to the
non-foreign status of the Seller and Bryson (the "FIRPTA Certificates"),
duly executed by the Seller and Bryson, respectively;
(e) the Office Lease (as defined below) duly executed by Seller;
(f) the NAF Funds; and
(g) such other documents, assignments and instruments as are called
to be delivered at Closing or reasonably requested by Purchaser.
SECTION 1.9 Purchaser's Deliveries at Closing. At the Closing,
Purchaser is delivering to Seller the following:
(a) the Purchase Price referred to in Section 1.6 hereof 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 Undertaking substantially in the form of Exhibit I hereto;
12
(c) the opinion of Purchaser's counsel substantially in the form of
Exhibit VI to this Agreement;
(d) the Office Lease duly executed by Purchaser; and
(e) such other documents or instruments as are called to be
delivered at Closing or reasonably requested by Seller.
SECTION 1.10 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, and the Treasury Regulations promulgated thereunder and to
allocate $100,000 of the Purchase Price to the agreement not to compete
provided in Section 4.5 hereof, (ii) to utilize the amounts allocated
pursuant to this Section for purposes of filing all Returns (as defined
in Section 2.9 of this Agreement) and as specified in Schedule H hereto
and (iii) not to take any position inconsistent therewith on any Return
or for any other Tax (as defined in Section 2.9 of this Agreement) or
non-Tax purpose.
SECTION 1.11 Lease of Office Space. At the Closing, Purchaser and
Seller are entering into a lease substantially in the form of Exhibit VII
attached hereto
13
(the "Office Lease") for certain office space, in the headquarters office
for the Region located at 5201 North 7th Street, Phoenix, Arizona, as
described in and on the terms provided in the Office Lease.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDER
Seller and Bryson, 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 Arizona, 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 ownership or
lease of its properties makes such qualification necessary.
SECTION 2.2 Capital Structure. Seller's authorized capital stock
consists of 100,000 shares of common stock, par value $10.00 per share,
2,000 of which shares are validly issued and outstanding, fully paid,
14
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 Company, directly or indirectly,
owns any equity or ownership interest.
SECTION 2.3 Corporate Authority and Action. Seller has 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 Shareholder and
Board of Directors. This Agreement has been duly executed and delivered
by Seller and Bryson and constitutes the legal, valid and binding
obligation of Seller and Bryson and is enforceable against Seller and
Bryson in accordance with its terms.
SECTION 2.4 Consents. Except (i) for the approval of this
Agreement by the Seller's Board of Direc-
15
tors and the sole Shareholder which have been obtained and (ii) as
disclosed in Section 2.4 of the Disclosure Schedule or as otherwise
contemplated by this Agreement, no consent, approval, authorization,
filing with or order of any court, governmental agency, person or
financial institution is required in connection with the execution and
delivery of this Agreement by Seller and Bryson, the consummation by
Seller and Bryson of the transactions contemplated hereby or the
performance by Seller and Bryson of its and his obligations under this
Agreement. After calculating the amount of his assets in accordance with
accounting principles normally used by him, Bryson 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 Bryson, neither the execution
and delivery of this Agreement by Seller and Bryson, the consummation by
Seller and Bryson of the transactions contemplated by this Agreement nor
the performance by Seller or Bryson of its and his obligations under this
Agreement will: (i) violate any
16
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 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 or Bryson 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 or Bryson 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:
(a) Balance sheet of Seller as of March 31, 1994 and 1995 audited by
Toback CPAs P.C., certified public accountants (the March 31, 1995
balance sheet
17
being referred to herein as the "March Balance Sheet"), each of 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 March 31, 1994 and 1995, audited by Toback CPAs P.C.,
certified public accountants, each of which fairly presents the results
of operations and cash flows of Seller for the periods indicated.
SECTION 2.7 Absence of Undisclosed Liabilities. To the Seller's
knowledge, Seller does not have any debts, liabilities or obligations of
a type required to be shown on a balance sheet prepared in accordance
with GAAP that are not reflected or reserved against in Seller's March
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 March 31, 1995, there has
not been any:
18
(a) Sale, lease, transfer, assignment or other transaction by Seller
with respect to the Purchased Assets or the Business with a value in
excess of $50,000;
(b) Material adverse change of any character in the financial
condition or in the operations (other than the cessation by Seller of
marketing franchises in the Region) of the Business;
(c) Amendment or termination (or threatened termination or
non-renewal) of any Franchise Agreement, 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;
(d) 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 in the ordinary course of business and other
than one-time termination bonuses which Seller may pay in its sole
discretion;
(e) Other action by Seller of any character that has or is
reasonably likely to have a material adverse effect, directly or
indirectly, on the financial condition or operations of the Business; or
19
(f) Agreement by Seller to do any of the things described in the
preceding clauses (a) through (e) except as required by this Agreement.
SECTION 2.9 Tax Matters.
(a) Except as set forth in Section 2.9 of the Disclosure Schedule,
Seller, within the time and in the manner prescribed by law, has filed
all federal, state and local tax returns, declarations, reports,
estimates, information returns and statements ("Returns") relating to the
Business for periods ending on or prior to the date hereof and will file
all Returns required to be filed on or prior to the Closing Date, and has
timely paid and will timely pay when due all federal, state and local
Taxes (as defined below) which are shown to be due and payable on such
Returns and such Returns are true, correct and complete in all material
respects.
(b) There are no Liens for Taxes upon the Purchased Assets, except
for statutory liens for Taxes not yet due.
(c) Seller has timely complied with all rules relating to the
withholding of all Taxes and has withheld and paid over to the proper
taxing authorities all amounts required to have been withheld or paid
over.
20
(d) Seller has not received any notice, not heretofore complied
with, that claims for delinquent or unpaid taxes or assessments are being
asserted against it.
(e) For purposes of this Agreement, "Taxes" shall mean, all taxes,
charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority upon Seller.
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, agreement or arrangement, including, but
not limited to,
21
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 notice or, to the knowledge of Seller, 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. As of
the date of this Agreement, there is no action, suit, claim,
investigation or proceeding pending of which Seller has notice or, to the
knowledge of Seller, 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 of any court of competent jurisdiction or material
restriction with respect to its ownership of the Purchased Assets or its
conduct of the Business.
SECTION 2.12 Assets.
(a) Schedule A is a complete and accurate list of all Franchisee
Agreements to which Seller is a party as of the date of this Agreement
and copies of all Franchise Agreements and any amendments or addenda
thereto have been made available to Purchaser for its review.
23
Except as set forth in Section 2.12(a) of the Disclosure Schedule, each
Franchisee has executed, at the time it was executed, a Franchise
Agreement which contained substantially all of the material provisions of
the then most current standard printed form Franchise Agreement published
by Seller and there is no amendment or addendum to any such Franchise
Agreement either oral or in writing other than the Information Center
Addendum, the Satellite Office Addendum, the Seasonal Office Addendum,
the Entity Ownership Rider, the standard agreement concerning the CENTURY
21(Registered Trademark) Incentive Bonus Addendum or other amendment or
addendum set forth in Section 2.12(a) of the Disclosure Schedule. Except
as set forth in Section 2.12(a) of the Disclosure Schedule, to Seller's
knowledge, each such Franchise Agreement is enforceable against the
related Franchisee according to its terms and Seller is not, and to
Seller's knowledge, none of the other parties to any Franchise Agreement
is, in material default thereunder, with the exception of any monetary
defaults occuring after the date of the accounts receivable report
attached to Section 2.12(a) of the Disclosure Schedule. Except as set
forth in Section 2.12(a) of the Disclosure Schedule, Seller has not
received as of the date of this Agreement from any such Franchisee
written notification that it
24
will not or may not renew its Franchise Agreement at the expiration of
its term or wishes to terminate its Franchise Agreement, 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 Seller or has any claim against Seller. Except as
set forth in Section 2.12(a) of the Disclosure 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 under such Franchise Agreement. Except as
indicated in Section 2.12(a) of the Disclosure Schedule, the
continuation, validity and effectiveness of each Franchise Agreement will
not be materially and adversely directly affected by the consummation of
the transactions contemplated by this Agreement.
(b) Other than the Assumed Contracts set forth on Schedule B and any
understanding or agreement relating to the Excluded Assets, Seller is not
a party to, or in any way obligated under, any understanding or
agreement, written or oral, of any sort materially affecting the Business
or the Purchased Assets. Copies of all Assumed Contracts and any
amendments or addenda
25
thereto have been made available to Purchaser or its counsel for review.
To Seller's knowledge, each Assumed Contract listed on Schedule B is, as
of the date of this Agreement, except as set forth in Section 2.12(b) of
the Disclosure Schedule, enforceable against the other parties thereto in
accordance with its terms and is in full force and effect. Seller is not,
and to Seller's knowledge, none of the other parties to any of the
Assumed Contracts are, in material default thereunder. Except as set
forth in Section 2.12(b) of the Disclosure 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
Assumed Contract under such Assumed Contract. Except as indicated in
Section 2.12(b) of the Disclosure Schedule, the continuation, validity
and effectiveness of any Assumed Contract will not be materially and
adversely directly affected by the consummation of the transactions
contemplated by this Agreement. As of the date of this Agreement, Seller
has not received any written notice of the intention of any party to
terminate any Assumed Contract;
(c) Schedule C is a complete and accurate list describing and
specifying the location of the Purchased Equipment. The Purchased
Equipment is, in the
26
aggregate, in reasonably good operating condition and repair, subject
to normal wear and tear;
(d) Schedule D is a complete and accurate list describing each
material category of, and specifying the location of, the Purchased
Materials. Except as otherwise specified in Schedule D, all the Purchased
Materials were purchased in the ordinary course of the Business and are
of standard and usable quality;
(e) Schedule E is a complete and accurate list and description of
the Intellectual Property, other than Intellectual Property as to which
Seller's rights derive 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, all Intellectual Property necessary
for the conduct of its business as currently conducted in all material
respects, subject to no material restrictions. As of the date of this
Agreement, no claim has been asserted to Seller in writing 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. As of the date of this Agreement, Seller has not received
notice from any third party to the effect that the use of such
Intellectual Property by the Seller
27
may 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 other than Purchaser and
its affiliates or licensees the right to use any of the Intellectual
Property except pursuant to the 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 obligations under this Agreement, in breach of any
material license, sublicense or other agreement relating to the
Intellectual Property.
(f) Schedule F is, to Seller's knowledge, a complete and accurate
list and description of the Transferred Claims; and
(g) Schedule G is, to Seller's knowledge, 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, and free and
clear of any Lien;
28
and (c) upon purchase by the Purchaser pursuant to this Agreement, will
be free and clear of any Lien except for Permitted Liens (as hereinafter
defined). For purposes of this Agreement, "Permitted Liens" shall mean
(i) Liens of carriers, warehousemen, mechanics, suppliers, materialmen
and the like incurred in the ordinary course of business for sums not
overdue more than 30 days or the validity of which is being contested in
good faith; (ii) Liens for taxes not delinquent or payable without
penalty or being contested in good faith; and (iii) Liens in favor of or
those created by or on behalf of Purchaser or HFS.
SECTION 2.14 Employees and Compensation.
(a) Section 2.14 of the Disclosure Sched- ule sets forth a complete
and accurate list of the names and aggregate monthly base salary or
wages, and any incentive, commission, bonus and/or other compensation
arrangement as of December 31, 1995, including without limitation,
employment contracts and consultant contracts, of Seller's officers,
employees and managers (excluding Bryson, but including Dennis Pysz)
(collectively, "Employees"). Except in the ordinary course of the
Business, which includes, but is not limited to, changes required by law,
to Seller's knowledge, there is
29
no 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 Disclosure Schedule are in full force and
effect as of the date of this Agreement, and neither Seller nor, to
Seller's knowledge, any other party is in default under them as of the
date of this Agreement. As of the date of this Agreement, there have been
no claims of default by Seller asserted in writing and, to the knowledge
of Seller, there are no facts or conditions which will result in a
material default under these contracts or arrangements. Except for
liabilities to be paid and satisfied by Seller, 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, nor will the
future termination of any such contract or arrangement result in any
liability to Purchaser other than post-closing obligations or liabilities
under COBRA. Except as set forth in Section 2.14 of the Disclosure
Schedule, there is no pending or, to Seller's knowledge,
30
written threat 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 Bryson, 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 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. As of the date of this Agreement,
Seller has not received any notice, not heretofore complied with, from
any federal, state or local governmental authority that any of its
assets, properties, facilities, equipment, business procedures or
practices is in material violation of, and, to Seller's knowledge, Seller
is not in material violation of, any applicable federal, state, or local
statute, law, rule or regulation (including, without limitation, any
applicable building, zoning, franchise, pension, labor, securities or
other statute, law, rule or regulation), which violation would be
reasonably likely to have
31
a material adverse effect on the Purchased Assets or the operation of the
Business.
SECTION 2.17 Corporate Documents.
(a) 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.
(b) To Seller's knowledge, the respective corporate record books of
the Seller contain accurate and complete records in all material respects
of all material meetings and accurately reflect in all material respects
all other material actions taken by the shareholders, Board of Directors
and all committees of the Board of Directors of the Seller.
32
SECTION 2.18 Brokers or Finders. Seller and Bryson have not employed
or utilized any broker, finder or investment adviser 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 $470,058 owing to the NAF under its control, which
amount was held in accounts at Bank of America.
SECTION 2.20 Insurance. Section 2.20 of the Disclosure Schedule sets
forth all insurance policies relating as of the date of this Agreement to
the Seller or the Purchased Assets. All such policies are in full force
and effect as of the date of this Agreement. The Seller has not as of the
date of this Agreement received written notice of default under any such
policy, or written notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium
increase with respect to any such policy.
33
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND HFS
Purchaser and HFS, jointly and severally, represent and warrant to
Seller and Bryson as follows:
SECTION 3.1 Organization and Standing. Purchaser and HFS are each 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. Purchaser and HFS each has
the 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 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.
34
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 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 or 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,
35
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 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 investment advisor involved 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 Bryson or any of Seller's officers,
directors, employees, agents or representatives. To the knowledge of HFS
and Purchaser, there are no facts or circumstances which could constitute
a breach of the representations and warranties of the Seller and Bryson
which would give HFS or Purchaser a basis to seek rescission of the
consummation of this
36
Agreement or indemnification hereunder from Seller or Bryson.
ARTICLE IV
CERTAIN COVENANTS OF SELLER, BRYSON AND PURCHASER
SECTION 4.1 Severance and Benefits. 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 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 Seller within ten
days after being offered such employment and (iii) it will treat Dennis
Pysz and Randy Wiest as Vice Presidents under the Severance Policy. HFS
also agrees that all Employees who accept employment with HFS will be
provided medical benefits as set forth in Exhibit IX hereto.
SECTION 4.2 Use of Name. Seller agrees that as soon as practicable
after the Closing it will amend its certificate of incorporation to
change the name of
37
Seller to a name which does not include "Century 21" in its name and
that, from and after the Closing, except for indicating (when reasonably
necessary to do so) that it was formerly known as Century 21 of the
Southwest, Inc. or Century 21 of Arizona, Inc., it will not have any
rights to or utilize the name "Century 21" in its business or operations
or hold itself out as a Century 21 franchisee.
SECTION 4.3 Audit Waiver. Purchaser agrees that the requirement
contained in the Subfranchise Agreement to provide Purchaser with annual
audited financial statements for Seller's fiscal year ended March 31,
1996 is hereby waived by Purchaser.
SECTION 4.4 Accounts Receivable.
(a) The Purchaser agrees that it will use its reasonable efforts,
consistent with its accounts receivable collection practices, to collect
Accounts Receivable for the Seller which are outstanding in accordance
with generally accepted accounting principles as of the Closing Date and
identified on a schedule delivered to the Purchaser at Closing or no
later than fifteen days after the Closing Date which schedule shall be
reviewed by and deemed acceptable to the Purchaser as mutually agreed
upon with the Seller (the "Accounts Receivable
38
Schedule"), but the Purchaser shall not, in connection with such
collection efforts, be required to terminate any Franchise Agreement or
bring any legal action against any Franchisee or any affiliate of any
Franchisee. The Purchaser agrees to pay to the Seller, by valid check,
delivered by the 15th day of each month, the amounts which the Purchaser
has collected with respect to any Account Receivable during the
immediately preceding month, and to deliver a written statement listing
the Accounts Receivable listed on the Accounts Receivable Schedule to
which the payment relates and the amount being paid with respect thereto.
The Purchaser may suspend its efforts to collect any Accounts Receivable,
in the exercise of its reasonable judgment, and consistent with the
accounts receivable collection practices of the Purchaser.
(b) Purchaser shall not compromise, settle, surrender, release,
discharge, renew, extend or grant any other indulgence with respect to (a
"Compromise") any Accounts Receivable except in connection with an
identical action with regard to all of its own accounts receivable owing
from the same obligor; and Purchaser shall give the Seller ten business
days' written notice prior to any proposed Compromise (a "Compromise
Notice"). The Seller will cooperate with Purchaser with
39
respect to its collection of Accounts Receivable on its behalf, provided
that the Seller will not be obligated to incur any out-of-pocket expenses
in connection with such cooperation.
(c) The Seller may at any time and from time to time, upon written
notice to the Purchaser, revoke the Purchaser's authority to collect any
Accounts Receivable on the Seller's behalf (which notice, if relating to
Accounts Receivable as to which Purchaser has given a Compromise Notice,
must be given at least five business days prior to the date on which the
Purchaser has proposed to Compromise such Accounts Receivable).
(d) The Purchaser agrees that all payments received from any
obligor under an Accounts Receivable shall be applied to the oldest
undisputed amount due from such obligor at that time.
(e) One year following the Closing Date, or earlier if requested by
Seller, the Purchaser shall assign all right, title and interest in and
to all Accounts Receivable that remain uncollected and undischarged, and
which have not been settled or compromised as of that date, to the Seller
and the Seller shall then have the right to collect such Accounts
Receivable for
40
its own account and Purchaser shall have no further obligations with
respect thereto.
SECTION 4.5 Non-Competition.
(a) Seller and Bryson agree for a period of three (3) years
following the Closing Date that neither it nor he 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
business of franchising real estate brokerage offices in the Region, so
long as Purchaser (or any of its successors) shall engage in such
activity in the Region; provided, however, that ownership of not more
than 5% of the stock of a publicly traded company by Seller or Bryson,
even if such company engages in such activity, if neither participate in
management of any such company, shall not be considered a violation of
this covenant. It also shall not be a violation of the foregoing covenant
for either the Seller or Bryson to engage in or have any interest in (i)
Amerinet Financial Services, Inc. provided that Amerinet does not engage
in the franchising of real estate brokerage offices in the Region or (ii)
any endeavor or other activity providing
41
other services supportive of or ancillary to the real estate brokerage
franchise business.
(b) Seller, Bryson and Purchaser agree that the restrictions imposed
on the Seller and Bryson under this Section 4.5 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.
SECTION 4.6 Separate Covenants. The parties intend that the covenant
contained in Section 4.5 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 4.5, 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 4.7 Non-Disclosure of Trade Secrets. Seller and Bryson agree
to hold and treat in confidence all confidential information or trade
secrets of Purchaser or Seller with respect to the Business, including,
but not limited to, personnel information, know-how, opera-
42
tions manuals, sales training, management manuals and associated
information, real estate license training materials or other technical
data ("Confidential Information"); provided that "Confidential
Information" shall not include such information which otherwise would
constitute Confidential Information hereunder which (i) is contained in a
publicly recorded document, (ii) is or becomes generally known other than
as a result of a disclosure by or through the Seller or Bryson, or (iii)
is or becomes known by the Seller or Bryson on a nonconfidential basis
from a source that, to the Seller or Bryson's knowledge, is not
prohibited from disclosing such Confidential Information by a legal,
contractual, fiduciary or other obligation. The Seller and Bryson will
employ such procedures to insure the confidentiality of Confidential
Information as would be employed by a reasonable and prudent person to
safeguard the confidentiality of his own most confidential information
or, if more stringent, such procedures as are employed for such purpose
by the Seller and Bryson. Nothing in this Agreement shall prevent the
Seller or Bryson from disclosing Confidential Information (i) if required
to do so by law or regulation, (ii) to any governmental authority having
43
or claiming authority to receive such Confidential Information, or (iii)
pursuant to subpoena.
SECTION 4.8 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 NAF fees owed to Purchaser under the
NAF Agreement received during the preceding month, and agrees that
Purchaser may deduct the amount owing to it as a NAF fee under the NAF
Agreement with respect to any Account Receivable which Purchaser has
agreed to collect for Seller from the amount Purchaser pays to Seller
pursuant to Section 4.4 hereof.
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 shall survive the Closing, shall not be deemed waived
or otherwise affected by any investigation at any time made by any party
hereto except as provided in Section 5.7(d) hereof and, for the purposes
of this Article V, any representation and warranty shall continue in
effect
44
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
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 Schedule or in any Schedule delivered
pursuant hereto 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 Bryson. In lieu of all
other remedies Purchaser may have at law or in equity, and/or under this
Agreement, other than the remedy provided in Section 6.20 hereof, and
subject to the terms and upon the conditions of this Article V, Seller
and Bryson, jointly and severally, agree to
45
indemnify, fully defend and save and hold harmless Purchaser, any
Affiliate (which shall mean, 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 actual Tax
savings and insurance proceeds received by the indemnitee as a result of
the matter giving rise to the indemnification (collectively, "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 Bryson contained in this Agreement;
(b) any breach or failure to perform any covenant or agreement of
Seller contained in or made pursuant to this Agreement;
46
(c) any and all obligations and liabilities, direct or indirect,
absolute or contingent, for Taxes or related 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 Internal Revenue Code of 1986, as amended, 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
and are not based on the income or revenues of Purchaser, its
successor(s) or assign(s); and
(d) any liability which may be imposed upon any member of the
Purchaser Indemnified Group (including, without limitation, any liability
for direct administrative costs which may be imposed under Section 4980B
of the Code and Part 6 of Title I of ERISA (together, "COBRA"), but not
any other obligation of liability which may be imposed under COBRA) and
which accrues or arises (whether or not in connection with any Benefit
Plan) with respect to employees, former employees, inde-
47
pendent 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) on or before 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 hereto.
SECTION 5.4 Indemnification by Purchaser and HFS. In addition to all
other remedies Seller 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, jointly and severally, agree to indemnify, fully
defend, save and hold harmless Seller, any Affiliate of Seller and any of
their respective directors or officers (the "Seller Indemnified Group")
from and against Damages asserted against, resulting to, imposed upon or
incurred by the Seller Indemnified 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;
48
(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 Assumed Liability;
(d) any and all liabilities of or obligations of, or claims
against, Seller, Purchaser or the Business (whether absolute, accrued,
contingent or otherwise) relating to the Business after the Closing Date,
or 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(s)
pursuant to the provisions hereof or relating to the operation or
management of or expenditures from the NAF after the Closing Date;
(e) any liabilities or obligations to be performed by Purchaser
under or pursuant to the NAF Agreement; and
(f) any action(s) or omission(s) by Purchaser or HFS with respect
to any Franchisee.
SECTION 5.5 Claims. Each matter for which Seller, Bryson, Purchaser
or HFS has agreed to provide indemnification pursuant to Sections 5.3 or
5.4 hereof is
49
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:
(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
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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. 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 opinion of counsel
to an Indemnified Party, the interests of the Indemnified Party and the
Indemnifying Party with respect to any Claim are conflicting, the
Indemnified Party shall be entitled to undertake the defense of such
Claim at the expense of the Indemnifying Party. 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
51
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.
(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.
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SECTION 5.7 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 Bryson pursuant to Section 5.3(a) hereof for breaches or
inaccuraciis 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
aggregate amount which would otherwise be payable as Damages for such
breaches and/or inaccuracies either (i) exceeds $1,350,000 or (ii) when
added to any amount(s) paid as Damages for breaches or inaccuracies of
the representations and warranties referred to in Section 5.7(b) hereof,
exceeds $3,375,000.
(b) No indemnification shall be required to be made by Seller or
Bryson pursuant to Section 5.3(a) hereof for breaches or inaccuracies of
the representations and warranties contained in Sections 2.2, 2.4 through
2.7, 2.9, 2.12, 2.13 and 2.16 through 2.19 to the extent that the amount
which would otherwise be payable as Damages for such breaches and/or
inaccuracies (plus any amount(s) paid as Damages for breaches or
inaccuracies of the representations and warranties referred to in Section
5.7(a) hereof) exceeds $3,375,000.
53
(c) No indemnification for any Damages shall be required to be made
by Seller or Bryson pursuant to Section 5.3(a) hereof unless and only to
the extent that the aggregate amount which would otherwise be payable as
Damages exceeds $270,000.
(d) No indemnification for any Damages shall be required to be made
by Seller or Bryson pursuant to Section 5.3(a) hereof for a breach or
inaccuracy of a representation or warranty made by the Seller or Bryson
if HFS or the 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, each party hereto shall pay its own expenses incident to the
origin, negotiation and execution of this Agreement and the consummation
of the transactions contemplated hereby (whether or not the transactions
are actually consummated), including, without limitation, all legal and
accounting fees and disbursements and the fees of any broker, finder or
investment adviser utilized by them. Any sales, use or similar taxes
applicable to the conveyance and transfer
54
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 Return that is 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, 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 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, the Exhibits, the Disclosure
Schedule and Schedules attached hereto; and the expressions "herein,"
"hereof," and "hereunder" and other words of similar import refer to this
Agreement, such Exhibits, the Dis-
55
closure Schedule and Schedules as a whole and not to any particular part
or subdivision thereof. As used herein, the "knowledge" of the Seller
means the actual knowledge of the following persons: Larry E. Bryson,
Dennis Pysz and Randy P. Wiest, 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, Stephen P. Holmes, Robert W. Pittman, John D. Snodgrass
and Thomas J. Freeman. Whenever this Agreement states that an agreement
or a contract is enforceable according to its terms, such statement is to
be interpreted with the proviso that such enforcement may be limited (i)
by applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, equity of redemption, moratorium or other similar laws now or
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
56
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 party,
(b) waive any inaccuracy in the representations and warranties of the
other party 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 party hereto or conditions contained herein. No
waiver of any of the provisions of this 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, Seller shall, from time to time, at the request of
Purchaser and without further consideration, do, execute, acknowledge and
deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably
required to convey, assign, transfer or confirm the sale of the Purchased
Assets, and the rights of Seller with respect thereto to be assigned in
accordance with this Agreement to Purchaser, its successors and permitted
assigns.
57
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 party with reasonable time under
the circumstances to comment on the announcement in advance of such
announcement, neither Seller, Bryson, HFS nor Purchaser shall issue any
press release or other public statement concerning the transactions
contemplated by this Agreement without first obtaining the written
consent of the other parties respecting such statement, which consent
will not be unreasonably withheld.
SECTION 6.7 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, and shall permit the other, at its
expense, to make copies thereof.
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Seller and Bryson 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 6.8 Parties Bound. This Agreement shall apply to, inure to
the benefit of and be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. The
respective rights and obligations of any party hereto shall not be
assignable without the consent of the other party 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 6.9 Parties in Interest. 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
59
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
SECTION 6.10 Notices. Any notice, demand, approval, consent,
request, waiver or other communication which may be or is required to be
given pursuant to this Agreement shall be in writing and shall be (1)
deposited in the United States mail, postage prepaid, certified or
registered, (2) sent by telecopier or (3) sent by private overnight
courier service for delivery on the next following business day,
addressed to the party at the address set forth after its respective name
below, or at such different address as such party shall have theretofore
advised the other party in writing:
If to Seller or Larry Bryson:
Century 21 of the Southwest, Inc.
or
Larry Bryson
27825 North 42nd Street
Cave Creek, Arizona 85331
Telecopier: (602)585-6929
with a copy to:
Bosco, Blau, Ward & Nopar
2166 The Alameda
San Jose, California 95126-1187
Attention: Alan S. Nopar, Esq.
Telecopier: (408) 984-2689
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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
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 business 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.
61
SECTION 6.11 Number and Gender of Words. Whenever herein the
singular number is used, the same shall include the plural where
appropriate, and the words of any gender shall include each other gender
where appropriate.
SECTION 6.12 Captions. The captions, headings and arrangements used
in this Agreement are for convenience only and do not affect, limit or
amplify the terms and provisions hereof, or their construction or
interpretation.
SECTION 6.13 Invalid Provisions. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof, and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable 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 unenforce-
62
able provision as may be possible and be legal, valid and enforceable.
SECTION 6.14 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.
SECTION 6.15 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, HFS, Seller or Bryson. No
representations, inducements, promises or agreements, oral or otherwise,
which are not embodied herein shall be of any force or effect.
SECTION 6.16 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 6.17 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with,
63
this Agreement or the transactions contemplated hereby shall be brought
in the United States District Court for the District of Arizona or any
Arizona state court sitting in Phoenix, Arizona, 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 6.18 shall be deemed effective
service of process on such party.
SECTION 6.18 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
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all expenses and costs incurred by the prevailing party or parties in
connection with such action, including without limitation attorney's
fees.
SECTION 6.19 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, 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.
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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 OF THE
SOUTHWEST, INC.
By /s/ LARRY E. BRYSON
-------------------
Name: Larry E. Bryson
Title: President
/s/ LARRY E. BRYSON
-------------------
LARRY E. BRYSON