UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) - February 17, 2004
Michigan 1-9750 38-2478409
-------------------------------- ---------------- -------------------
(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) Number) Identification No.)
38500 Woodward Avenue, Suite 100
Bloomfield Hills, Michigan 48303
---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
|
ITEM 2. Acquisition or Disposition of Assets
On February 17, 2004, Sotheby's Holdings, Inc. (the "Company") sold its domestic real estate brokerage business, Sotheby's International Realty, Inc., to a subsidiary of Cendant Corporation ("Cendant") for $100.7 million, which consisted of approximately $98.9 million in cash and the assumption of a $1.8 million note payable. The purchase price is subject to customary, post-closing adjustments. Net cash proceeds from the sale, after deducting approximately $5.0 million in expenses, were $93.9 million. Additionally, in conjunction with the transaction described above, the Company entered into an agreement with Cendant to license the Sotheby's International Realty trademark and certain related trademarks in exchange for an ongoing license fee. The license agreement, which is for an initial 50-year term with a 50-year renewal option, is applicable to Canada, Israel, Mexico, the United States (the "U.S.") and certain Caribbean countries. The other non-U.S. offices and affiliates of the Company's real estate brokerage business, which are not significant to the Company's overall operations, will continue to operate as Sotheby's International Realty under current management. However, Cendant has an option to acquire certain of these offices and affiliates and a license to use the related trademarks in other countries outside the U.S. during the five-year period following February 17, 2004 for a nominal amount.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information
The pro forma financial information required by this item is hereby included in Exhibit 99.1 attached hereto.
(c) Exhibits
99.1 Pro forma financial information of Sotheby's Holdings, Inc.
99.2 Stock Purchase Agreement by and among NRT Incorporated as the Purchaser, Sotheby's Holdings, Inc. as the Seller, and Cendant Corporation as the Purchaser Guarantor; dated as of February 17, 2004
99.3 Trademark License Agreement among SPTC, Inc. as Licensor, Sotheby's Holdings, Inc. as Guarantor,
Monticello Licensee Corporation as Licensee, and Cendant Corporation as Guarantor; dated as of February 17, 2004
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SOTHEBY'S HOLDINGS, INC.
By: /s/ Michael L. Gillis
---------------------
Michael L. Gillis
Senior Vice President,
Controller and Chief
Accounting Officer
Date: March 2, 2004
-------------
|
EXHIBIT 99.1
SOTHEBY'S HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements for the periods described below show the effect of the sale of the Company's domestic real estate brokerage business, Sotheby's International Realty, Inc. ("SIR"), to a subsidiary of Cendant Corporation ("Cendant"), as well the effect of the Company's agreement with Cendant to license the Sotheby's International Realty trademark and certain related trademarks (the "Cendant License Agreement").
The unaudited pro forma condensed consolidated financial statements have been prepared by applying pro forma adjustments to the consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the nine months ended September 30, 2003 and the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (the "Historical Financial Statements"). The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2003 gives effect to the sale of SIR as if it had been consummated on January 1, 2003 and gives effect to the resulting Cendant License Agreement as if it had been entered into on January 1, 2003. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2002 gives effect to the sale of SIR as if it had been consummated on January 1, 2002 and gives effect to the resulting Cendant License Agreement as if it had been entered into on January 1, 2002. The unaudited pro forma condensed consolidated balance sheet gives effect to the sale of SIR as if it had been consummated on September 30, 2003.
The pro forma adjustments, as described in the notes to the unaudited pro forma condensed consolidated financial statements, are estimates based on assumptions that management believes are reasonable.
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Historical Financial Statements, including the related notes thereto, and the related management's discussion and analysis of financial condition and results of operations, which are included in the Company's Quarterly Report on Form 10-Q for the nine months ended September 30, 2003 and the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
The unaudited pro forma condensed consolidated financial statements are presented for informational purposes only and are not necessarily indicative of the financial position and results of operations that would have been achieved had the sale of SIR and the Cendant License Agreement been consummated as of the dates indicated, nor are they necessarily indicative of the Company's future financial position or results of operations.
Sotheby's Holdings, Inc. Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Nine Months Ended September 30, 2003
(Thousands of dollars, except per share data)
Pro Forma
Historical SIR (1) Adjustments Pro Forma (2)
---------- -------- ----------- -------------
Revenues:
Auction and related revenues................ $174,719 $ - $ - $174,719
Other revenues.............................. 34,213 $(26,195) 375(3) 8,393
---------- -------- ------ ---------
Total revenues............................ 208,932 (26,195) 375 183,112
---------- -------- ------ ---------
Expenses:
Direct costs of services.................... 29,856 (3,261) - 26,595
Salaries and related costs.................. 109,209 (8,514) - 100,695
General and administrative expenses......... 74,126 (6,942) - 67,184
Depreciation and amortization charges....... 20,478 (1,649) - 18,829
Retention costs............................. 8,150 - - 8,150
Net restructuring charges................... 5,033 - - 5,033
Special charges............................. 2,571 - - 2,571
---------- -------- ------ ---------
Total expenses............................ 249,423 (20,366) - 229,057
---------- -------- ------ ---------
Operating loss.............................. (40,491) (5,829) 375 (45,945)
Interest expense............................ (24,007) - 1,088(4) (22,919)
Interest income............................. 1,984 - 572(5) 2,556
Other income................................ 606 25 - 631
---------- -------- ------ ---------
Loss before taxes........................... (61,908) (5,804) 2,035 (65,677)
Income tax benefit.......................... (21,049) (2,433) 654(6) (22,828)
---------- -------- ------ ---------
Net loss.................................... $(40,859) $ (3,371) $1,381 $ (42,849)
========== ======== ====== =========
Basic and diluted loss $ (0.66) $ (0.70)
========== =========
Basic and diluted weighted average shares
outstanding (in millions)................. 61.6 61.6
========== =========
|
Sotheby's Holdings, Inc. Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Nine Months Ended September 30, 2003
(1) For purposes of the pro forma condensed consolidated statement of operations for the nine months ended September 30, 2003, the results of SIR exclude the allocation of corporate expenses, which represent expenses of the Company's continuing operations.
(2) The pro forma condensed consolidated statement of operations for the nine months ended September 30, 2003 excludes the following nonrecurring items:
(a) Pre-tax gain on the sale of SIR $ 81,486
(b) Bonuses paid to former SIR employees upon
successful completion of the sale $ (1,500)
(c) Employee termination benefits related to the
sale of SIR $ (670)
|
Additionally, in accordance with the Stock Purchase Agreement, the Company is due to receive any commissions collected in connection with the closing of any real estate transactions and sales contracts pending as of the date of the agreement. Any such amounts were excluded from the pro forma condensed consolidated statement of operations for the nine months ended September 30, 2003.
(3) The adjustment represents estimated license fees during the period assuming the Cendant License Agreement went into effect on January 1, 2003.
(4) The adjustment represents the reduction of interest expense related to the Company's then existing senior secured credit agreement. Specifically, this adjustment assumes the repayment of $100 million in outstanding borrowings under the credit agreement's term facility, as well as reduced revolving credit facility borrowings for the nine months ended September 30, 2003. The assumed repayment of the $100 million in term facility borrowings is assumed to be funded by $90.3 million in assumed net proceeds received from the sale of SIR and $10.7 million from the Company's existing cash balances as of January 1, 2003.
The pro forma reduction of interest expense as a result of the assumed repayment of outstanding term facility borrowings is not very significant due to the fact that such borrowings were actually refinanced on February 7, 2003 in conjunction with a sale-leaseback transaction involving the Company's headquarters building in New York. The pro forma condensed consolidated statement of operations for the nine months ended September 30, 2003 assumes that the sale-leaseback transaction would still have been completed as of the same date and on the same terms that were actually achieved, with the net cash proceeds being used to manage the Company's ongoing general corporate cash requirements during the remainder of 2003.
(5) The adjustment represents the increase in interest income due to higher cash balances principally resulting from the net cash proceeds received from the sale-leaseback transaction, as discussed in Note (4) above.
(6) The adjustment reflects the income tax impact at an effective tax rate of approximately 32% for the aforementioned items.
Sotheby's Holdings, Inc. Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Year Ended December 31, 2002
(Thousands of dollars, except per share data)
Pro Forma
Historical SIR (1) Adjustments Pro Forma (2)
---------- -------- ----------- -------------
Revenues:
Auction and related revenues................ $297,688 $ - $ - $297,688
Other revenues.............................. 47,407 (34,563) 500 (3) 13,344
-------- -------- ------ --------
Total revenues............................ 345,095 (34,563) 500 311,032
-------- -------- ------ --------
Expenses:
Direct costs of services.................... 56,949 (3,874) - 53,075
Salaries and related costs.................. 151,170 (11,034) - 140,136
General and administrative expenses......... 99,391 (8,838) - 90,553
Depreciation and amortization charges....... 24,278 (2,407) - 21,871
Retention costs............................. 22,564 - - 22,564
Net restructuring charges................... 1,961 - - 1,961
Special charges............................. 41,042 - - 41,042
-------- -------- ------ --------
Total expenses............................ 397,355 (26,153) - 371,202
-------- -------- ------ --------
Operating loss.............................. (52,260) (8,410) 500 (60,170)
Interest expense............................ (22,683) - 7,564 (4) (15,119)
Interest income............................. 2,509 - (364)(5) 2,145
Other income................................ 973 17 - 990
-------- -------- ------ --------
Loss before taxes........................... (71,461) (8,393) 7,700 (72,154)
Income tax benefit.......................... (16,706) (3,614) 2,623 (6) (17,697)
-------- -------- ------ --------
Net loss.................................... $(54,755) $ (4,779) $5,077 $(54,457)
======== ======== ====== ========
Basic and diluted loss Per share............ $ (0.89) $ (0.89)
======== ========
Basic and diluted weighted average shares
outstanding (in millions)............... 61.5 61.5
======== ========
|
Sotheby's Holdings, Inc. Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Year Ended December 31, 2002
(1) For purposes of the pro forma condensed consolidated statement of operations for the year ended December 31, 2002, the results of SIR exclude the allocation of corporate expenses, which represent expenses of the Company's continuing operations.
(2) The pro forma condensed consolidated statement of operations for the year ended December 31, 2002 excludes the following nonrecurring items:
(a) Pre-tax gain on the sale of SIR $ 80,921
(b) Bonuses paid to former SIR employees upon
successful completion of the sale $ (1,500)
(c) Employee termination benefits related to the
sale of SIR $ (670)
|
Additionally, in accordance with the Stock Purchase Agreement, the Company is due to receive any commissions collected in connection with the closing of any real estate transactions and sales contracts pending as of the date of the agreement. Any such amounts were excluded from the pro forma condensed consolidated statement of operations for the year ended December 31, 2002.
(3) The adjustment represents estimated license fees during the period assuming the Cendant License Agreement went into effect on January 1, 2002.
(4) The adjustment represents the reduction of interest expense related to the Company's then existing senior secured credit agreement. Specifically, this adjustment assumes the repayment of $130 million in outstanding borrowings under the credit agreement's term facility, as well as reduced revolving credit facility borrowings for the year ended December 31, 2002. The assumed repayment of the $130 million in term facility borrowings is assumed to be funded by $89.3 million in assumed net proceeds received from the sale of SIR and $40.7 million from the Company's existing cash balances as of January 1, 2002.
(5) The adjustment represents the reduction of interest income due to lower cash balances.
(6) The adjustment reflects the income tax impact at an effective tax rate of approximately 34% for the aforementioned items.
Sotheby's Holdings, Inc. Unaudited Pro Forma Condensed Consolidated Balance Sheet As of September 30, 2003
(Thousands of dollars)
Pro Forma
Historical SIR (1) Adjustments Pro Forma
---------- -------- ----------- ---------
Assets:
Current Assets:
Cash and cash equivalents................. $ 6,616 $ - $ 48,078 (2) $ 54,694
Restricted cash........................... 2,997 (1,442) - 1,555
Receivables (net)......................... 165,634 (446) - 165,188
Other current assets...................... 73,987 (213) - 73,774
-------- -------- -------- --------
Total Current Assets................ 249,234 (2,101) 48,078 295,211
-------- -------- -------- --------
Non-Current Assets:
Notes receivable (net).................... 44,676 - - 44,676
Properties (net).......................... 258,436 (10,322) - 248,114
Deferred income taxes..................... 110,276 - (27,070)(3) 83,206
Goodwill.................................. 16,749 (3,338) - 13,411
Other non-current assets.................. 32,905 (152) 32,753
-------- -------- -------- --------
Total Assets............... $712,276 $(15,913) $ 21,008 $717,371
======== ======== ======== ========
Liabilities &
Shareholders' Equity
Liabilities:
Current Liabilities:
Due to consignors......................... $ 86,279 $ - $ - $ 86,279
Credit facility borrowings................ 55,000 - (35,000)(4) 20,000
Accounts payable and accrued liabilities 68,986 (7,772) - 61,214
Other current liabilities................. 15,743 (458) - 15,285
-------- -------- -------- --------
Total Current Liabilities........... 226,008 (8,230) (35,000) 182,778
-------- -------- -------- --------
Long-Term Liabilities:
Long-term debt (net)...................... 99,520 - - 99,520
Settlement liabilities.................... 72,647 - - 72,647
York Property capital lease obligation.... 172,208 - - 172,208
Other long-term liabilities............... 38,758 (9) - 38,749
-------- -------- -------- --------
Total Liabilities................... 609,141 (8,239) (35,000) 565,902
-------- -------- -------- --------
Shareholders' Equity:
Common stock.............................. 6,166 (8) 8 (5) 6,166
Additional paid in capital................ 203,577 (5,641) 5,641 (5) 203,577
Accumulated deficit....................... (98,744) (2,025) 50,359 (6) (50,410)
Deferred compensation expense............. (936) - - (936)
Accumulated other comprehensive loss...... (6,928) - - (6,928)
-------- -------- -------- --------
Total Shareholders' Equity.......... 103,135 (7,674) 56,008 151,469
-------- -------- -------- --------
Total Liabilities and
Shareholders' Equity............... $712,276 $(15,913) $ 21,008 $717,371
======== ======== ======== ========
|
Sotheby's Holdings, Inc. Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet As of September 30, 2003
(1) For purposes of the pro forma condensed consolidated balance sheet, the assets and liabilities of SIR exclude the allocation of corporate assets and liabilities, which represent assets and liabilities of the Company's continuing operations.
(2) The adjustment reflects the net cash inflow directly resulting from the sale of SIR as follows:
Cash received from the sale of SIR $100,670 (8)
Assumed funding of SIR working capital
deficit upon closing of transaction (6,129)
Transaction costs related to the sale of SIR (5,000)
Taxes paid prior to closing of transaction (4,293)
Assumed repayment of outstanding borrowings (35,000)(4)
Bonuses paid to former SIR employees upon
successful completion of the sale (1,500)
Termination benefits paid to a former SIR
employee (670)
--------
$ 48,078
========
|
(3) The adjustment reflects the tax effect at approximately 38% of the gain on the sale of SIR.
(4) The adjustment reflects the assumed repayment of $35 million in outstanding borrowings under the Company's then existing senior secured revolving credit facility.
(5) The adjustment represents the elimination entries required to reflect the deconsolidation of SIR.
(6) The adjustment reflects the after-tax income effect of the sale of SIR and the elimination entry required to reflect the previous consolidation of SIR, as follows:
Gain on the sale of SIR, net of taxes $50,504 (7)
Bonuses paid to former SIR employees upon
successful completion of the sale (1,500)
Employee termination benefits related to the
sale of SIR (670)
Consolidation elimination 2,025
-------
$50,359
=======
|
(7) The gain on the sale of SIR, net of taxes, is calculated as follows:
Cash received from the sale of SIR $100,670 (8)
Assumed funding of SIR working capital
deficit upon closing of transaction (6,129)
Transaction costs related to the sale of SIR (5,000)
--------
Net proceeds 89,541
Less: SIR net assets as of September 30, 2003 (7,674)
--------
Gain on sale of SIR 81,867
Income taxes at approximately 38% (31,363)
--------
Gain on the sale of SIR, net of taxes $ 50,504
========
|
(8) Upon the sale of SIR on February 17, 2004, the Company received total consideration of $100.7 million, which consisted of $98.9 million in cash and the assumption of a $1.8 million note payable. The pro forma condensed consolidated balance sheet as of September 30, 2003 assumes that the consideration received consisted only of cash due to the fact that the $1.8 million note payable assumed by Cendant Corporation was not a liability of SIR as of September 30, 2003.
EXHIBIT 99.2
STOCK PURCHASE AGREEMENT
by and among
NRT INCORPORATED
as the Purchaser,
SOTHEBY'S HOLDINGS, INC.
as the Seller,
and
CENDANT CORPORATION
as the Purchaser Guarantor
Dated as of February 17, 2004
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS AND TERMS.................................................................1
Section 1.1 Definitions...................................................................1
Section 1.2 Other Interpretive Provisions................................................12
ARTICLE II PURCHASE AND SALE...................................................................13
Section 2.1 Purchase and Sale of Shares..................................................13
Section 2.2 Purchase Price...............................................................13
Section 2.3 Closing; Deliveries and Payment..............................................14
Section 2.4 Purchase Price Adjustments...................................................15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.......................................17
Section 3.1 Authority and Validity.......................................................17
Section 3.2 Organization.................................................................18
Section 3.3 No Conflict; Governmental Consents...........................................19
Section 3.4 Financial Statements.........................................................20
Section 3.5 Absence of Certain Changes or Events.........................................20
Section 3.6 Assets.......................................................................22
Section 3.7 Litigation and Claims; Compliance with Laws..................................24
Section 3.8 Insurance....................................................................25
Section 3.9 Environmental Matters........................................................26
Section 3.10 Material Contracts...........................................................26
Section 3.11 Intellectual Property........................................................29
Section 3.12 Taxes........................................................................30
Section 3.13 Employee Benefits; ERISA.....................................................32
Section 3.14 Labor Matters................................................................34
Section 3.15 Affiliate Transactions.......................................................35
Section 3.16 Listings.....................................................................36
Section 3.17 Sales Associates.............................................................36
Section 3.18 Employees....................................................................37
Section 3.19 Broker Affiliates............................................................37
Section 3.20 Client Trust Funds...........................................................38
Section 3.21 Brokers, Finders, etc........................................................38
Section 3.22 Certain Reorganization Matters...............................................38
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.....................................39
Section 4.1 Authority; Validity..........................................................39
Section 4.2 Organization.................................................................39
Section 4.3 No Conflict; Governmental Consents...........................................40
|
Section 4.4 Financing....................................................................40
Section 4.5 Litigation...................................................................40
Section 4.6 Investment Representation....................................................41
Section 4.7 Brokers, Finders, etc........................................................41
ARTICLE V COVENANTS ...........................................................................41
Section 5.1 Reasonable Best Efforts; Further Assurances..................................41
Section 5.2 Public Disclosure; Confidentiality...........................................42
Section 5.3 Employee Plans...............................................................42
Section 5.4 Change of Control Payments...................................................44
Section 5.5 Employees....................................................................44
Section 5.6 Insurance....................................................................45
Section 5.7 Closing Date Transactions....................................................45
Section 5.8 Certain Services and Benefits Provided by Affiliates.........................45
Section 5.9 Pendings.....................................................................45
Section 5.10 Mortgage LLC.................................................................46
Section 5.11 Lease Matters................................................................46
Section 5.12 Litigation...................................................................47
Section 5.13 2004 Capital Plan............................................................48
ARTICLE VI CERTAIN TAX MATTERS.................................................................48
Section 6.1 Preparation and Filing of Tax Returns; Payment of Taxes......................48
Section 6.2 Section 338(h)(10) Election..................................................49
Section 6.3 Tax Indemnification..........................................................50
Section 6.4 Tax Refunds..................................................................52
Section 6.5 Tax Indemnification Procedures...............................................53
Section 6.6 Transfer and Similar Taxes...................................................55
Section 6.7 Termination of Tax Indemnification Agreements................................55
Section 6.8 Conflicts; Survival..........................................................55
Section 6.9 Tax Treatment................................................................55
Section 6.10 Assistance and Cooperation...................................................55
Section 6.11 Limitations on Actions that Can Increase Pre-Closing Period or
Straddle Period Taxes........................................................56
ARTICLE VII SURVIVAL AND INDEMNIFICATION.......................................................56
Section 7.1 Survival of Representations and Warranties...................................56
Section 7.2 Indemnification by the Seller................................................57
Section 7.3 Indemnification by the Purchaser.............................................58
Section 7.4 Limitations on Indemnification...............................................59
Section 7.5 Notice and Resolution of Claim...............................................61
Section 7.7 Exclusive Remedy.............................................................63
|
ARTICLE VIII GUARANTEE.........................................................................63 Section 8.1 Guarantee....................................................................63 Section 8.2 Waiver of Notices, Etc.......................................................64 Section 8.3 Reinstatement................................................................65 Section 8.4 Waiver of Subrogation; Subordination.........................................65 Section 8.5 Successors and Assigns.......................................................65 ARTICLE IX MISCELLANEOUS.......................................................................65 Section 9.1 Notices......................................................................65 Section 9.2 Amendment; Waiver............................................................67 Section 9.3 Assignment...................................................................67 Section 9.4 Entire Agreement.............................................................67 Section 9.5 Parties in Interest..........................................................67 Section 9.6 Expenses.....................................................................67 Section 9.7 Governing Law; Jurisdiction; Service of Process..............................68 Section 9.8 Limitations of Remedies......................................................68 Section 9.9 No Implied Warranties........................................................68 Section 9.10 Specific Performance.........................................................69 Section 9.11 Counterparts.................................................................69 Section 9.12 Severability.................................................................69 Section 9.13 Headings.....................................................................69 Exhibits Exhibit A - License Agreement Exhibit B - Form of Transition Services Agreement Exhibit C - FIRPTA Certificate |
STOCK PURCHASE AGREEMENT, dated as of February 17, 2004 (this "Agreement"), among NRT Incorporated, a Delaware corporation (the "Purchaser"), Cendant Corporation, a Delaware corporation (the "Purchaser Guarantor"), and Sotheby's Holdings, Inc., a Michigan corporation ("Seller").
W I T N E S S E T H :
WHEREAS, on the terms and conditions set forth herein, Seller desires to sell, convey, transfer, assign and deliver to the Purchaser, and the Purchaser desires to purchase from Seller, all of the issued and outstanding shares of capital stock (the "Shares") of Sotheby's International Realty, Inc., a Michigan corporation and a wholly-owned subsidiary of Seller (the "Company");
WHEREAS, in connection with the transactions contemplated herein the Seller is willing to make certain representations and warranties and to indemnify the Purchaser and its Affiliates upon the terms and conditions set forth herein;
WHEREAS, in connection with the transactions contemplated herein, the Purchaser is willing to make certain representations and warranties to the Seller and to indemnify the Seller and its Affiliates upon the terms and conditions set forth herein;
WHEREAS, in connection with the transactions contemplated herein, the Purchaser Guarantor is willing to make certain representations and warranties to the Seller and to provide a guaranty to the Seller and its Affiliates upon the terms and conditions set forth herein; and
WHEREAS, as a condition to, and in connection with, the execution and delivery of this Agreement, the parties and certain of their Affiliates are entering into the Related Agreements (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in this Agreement. In addition, as used in this Agreement, the following terms shall have the following meanings:
"Accounting Referee" shall have the meaning given in Section 2.4.
"Affiliate" shall mean, as to any Person, (i) any other Person which, directly or indirectly, is in control of, is controlled by or is under common control with such Person or
(ii) any corporation or organization of which such Person is a general partner. The term "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as applied to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other ownership interest, by contract or otherwise. Notwithstanding the foregoing, for purposes of this definition, (i) the Affiliates of the Seller shall be its Subsidiaries and (ii) the Affiliates of the Company prior to the Closing shall be the Seller and its Subsidiaries.
"Agreement" shall have the meaning given in the introduction to this Agreement.
"Balance Sheet" shall mean the balance sheet of the Business as of the Balance Sheet Date.
"Balance Sheet Date" shall mean December 31, 2003.
"Broker Affiliate" shall mean a Person (other than Seller and its Subsidiaries) that is a member of the real estate brokerage services affiliation network of the Business or otherwise has rights to operate as a licensee of the Company conducting real estate brokerage business or as a franchisee of the Business.
"Broker Affiliate Agreement" shall mean any agreement between the Company or any of its Affiliates, on the one hand, and one or more Broker Affiliates, on the other hand.
"Business" shall mean the real estate brokerage business as currently conducted by Seller and its Affiliates (other than Mortgage LLC), other than in connection with the business of Mortgage LLC, in the Territory and the businesses ancillary or related thereto, including relocation, referral, title search, title insurance, appraisal, closing and escrow services, mortgage origination, mortgage brokerage and mortgage banking, homeownership tools and services, personal lines insurance, home warranty, real estate marketing, property management, concierge services, other settlement services and products, and services ancillary or related to any of the foregoing, in any such case solely to the extent conducted in the Territory, whether through brokerage offices owned or operated by Seller or one of its Affiliates or pursuant to one or more Broker Affiliate Agreements, but excluding in each case the Excluded Assets.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banks in New York City are authorized or obligated by law or executive order to close.
"Capital Plan" shall mean the 2004 Capital Plan of the Company provided to the Purchaser on or prior to the date hereof.
"Cleanup" shall mean all actions required under Environmental Laws to:
(i) clean up, remove, treat or remediate Hazardous Materials in the indoor or
outdoor environment; (ii) prevent the Release of Hazardous Materials that could
result in a liability to the Company or a violation of Environmental Laws by the
Company; or (iii) respond to any government requests
for information or documents in any way relating to clean-up, removal, treatment or remediation or potential clean-up, removal, treatment or remediation of Hazardous Materials in the indoor or outdoor environment.
"Client Trust Funds" shall mean all binder deposit accounts and other client trust funds relating to Pendings.
"Closing" shall mean the consummation of the transactions contemplated by this Agreement.
"Closing Date" shall mean the date of the Closing.
"Closing Date Balance Sheet" shall have the meaning given in Section 2.4.
"Closing Date Indebtedness" shall have the meaning given in Section 2.4.
"Closing Date Purchase Price" shall have the meaning given in Section 2.2.
"Closing Date Share Purchase Price" shall have the meaning given in
Section 2.2.
"Closing Date Working Capital" shall have the meaning given in Section 2.4.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning given in the recitals.
"Company Plans" shall have the meaning given in Section 3.13.
"Computer Programs" shall mean (i) any and all computer software programs, including all source and object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, and (iii) all descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, and any and all documentation, including user manuals and training materials, relating to any of the foregoing, provided that Computer Programs shall not include any mass marketed or off-the-shelf (i) computer software programs, (ii) "shrink wrap" licenses or (iii) third party databases and compilations.
"Continuation Period" shall have the meaning given in Section 5.5.
"Current Assets" shall mean, without duplication, the sum of the Company's: (i) unrestricted cash and cash equivalents, (ii) trade and other accounts receivable, (iii) commissions receivable on closed (settled) transactions (it being understoond that Current
Assets shall not include any amounts payable to Seller with respect to Pendings in accordance with Section 5.9), (iv) notes receivable (to the extent a current asset), (v) prepaid expenses (to the extent a current asset), and (vi) other current assets (but excluding any restricted cash); in each case as of the close of business on the Closing Date, accounted for in accordance with GAAP on a basis consistent with prior periods.
"Current Liabilities" shall mean, without duplication, the sum of the
Company's: (i) trade accounts payable, (ii) accrued and unpaid salaries, bonuses
and vacation pay, (iii) commissions payable on closed (settled) transactions,
(iv) obligations under the current portion of all capitalized leases, and (v)
other current liabilities, in each case as of the close of business on the
Closing Date, accounted for in accordance with GAAP on a basis consistent with
prior periods; provided that Current Liabilities shall be adjusted to the extent
necessary to exclude: (A) any reserves reflected on the Closing Date Balance
Sheet for any litigation, legal action, arbitration, proceeding, demand, claim
or known investigation for which Seller has the obligation to indemnify the
Purchaser Indemnified Parties pursuant to Section 7.2(iii), (iv) or (v), (B) any
obligations relating to cash advances owed by the Company to the Seller or any
of its Affiliates to the extent that such cash advances shall have been deemed
terminated in full as of the Closing (it being agreed that all such cash
advances to the extent owing immediately prior to the Closing shall be deemed
terminated in full as of the Closing without any such further obligations
relating thereto) and (C) any obligations to be satisfied with restricted cash
or cash equivalents of the Company (it being understood that such obligations
shall only be excluded to the extent of such applicable restricted cash on a
dollar-for-dollar basis). Any liability that would be classified as a Current
Liability for purposes of this definition but which is also classified as
"Indebtedness" under the definition thereof in this Section 1.1 shall be treated
as a Current Liability and shall not be treated as Indebtedness for purposes of
the calculations in this Agreement.
"Damages" shall have the meaning given in Section 7.2.
"Disclosure Schedules" shall mean the disclosure schedules attached to this Agreement.
"dollars" shall have the meaning given in Section 1.2.
"Election" shall have the meaning given in Section 6.2.
"Election Period" shall have the meaning given in Section 7.5.
"Employees" shall have the meaning given in Section 5.5.
"Environmental Claim" shall mean any written claim, action, cause of action, investigation or written notice by any Person alleging potential liability (including potential liability for investigatory costs, Cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from either (a) the presence, or Release, of any Hazardous Materials at any location owned,
leased or operated by the Company, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Laws" shall mean all Laws relating to pollution, protection of human health as it relates to Hazardous Materials or the environment, including Laws relating to Releases or threatened Releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, and all Laws with regard to record keeping, notification, disclosure and reporting requirements respecting Hazardous Materials.
"Environmental Permits" shall mean all permits, approvals, licenses, certificates, exemptions and any other authorizations under any Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" shall have the meaning given in Section 3.13.
"Estimated Indebtedness" shall have the meaning given in Section 2.2.
"Estimated Working Capital" shall have the meaning given in Section 2.2.
"Excluded Assets" shall mean (i) the Excluded Intellectual Property and (ii) the Support Assets.
"Excluded Business" shall mean any business conducted by Seller or its Affiliates (including for the period prior to Closing, the Company) other than the Business.
"Excluded Companies" shall mean Sotheby's International Realty of Colorado, Inc., a Michigan corporation, and Sotheby's France.
"Excluded Intellectual Property" shall mean the intellectual property licensed under the License Agreement, all registrations and applications therefor, all goodwill related thereto and all other rights of Seller and its Affiliates related thereto.
"Financial Statements" shall have the meaning given in Section 3.4.
"FIRPTA Certificate" shall have the meaning given in Section 2.3.
"GAAP" shall mean United States generally accepted accounting principles and practices as currently in effect. For avoidance of doubt, the parties acknowledge that GAAP requires real estate brokerage transactions to be accounted for on a closed (settled) basis.
"Governmental Authority" shall mean any national, federal, state, local or foreign judicial, legislative, executive, regulatory or administrative authority, self-regulatory organization or arbitrator having legally binding authority.
"Guarantee" shall have the meaning given in Section 8.1.
"Hazardous Materials" shall mean all pollutants, contaminants, toxic or other hazardous substances, wastes, petroleum and petroleum products, asbestos or asbestos-containing materials or products, polychlorinated biphenyls, radon or lead or lead-based paints or materials.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Improvements" shall mean all improvements and fixtures located on or attached to any Real Property (but in any event excluding any personal property).
"Indebtedness" of any Person at any date shall include, without duplication, (a) all indebtedness (including interest payments or prepayments required prior to satisfaction) of such Person for borrowed money or for deferred purchase price of property or services (other than current liabilities for trade payables incurred and payable in the ordinary course of business consistent with past practice), including earn-out or similar contingent purchase amounts, other than any earn-out or similar contingent purchase amounts payable pursuant to the Jackson Hole Agreement (but, for the avoidance of doubt, the amounts owed in respect of obligations under the Pines-Aspen Sublease are not considered to be earn-out or similar contingent purchase amounts and are included in Indebtedness), (b) any other indebtedness of such Person which is evidenced by a note, mortgage, bond, debenture or similar instrument, (c) all obligations of such Person under capitalized leases (other than the current portion thereof to the extent reflected in Current Liabilities), (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (e) all obligations of such Person to make payments pursuant to sale-leaseback transactions, (f) all loans from officers of such Person (excluding advances made for reimbursable expenses of such officers), (g) all inter-company balances owed by such Person to any of its Affiliates, (h) all amounts payable under severance, change of control bonus and similar arrangements upon or as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby (but not as a result of any termination (including constructive termination) or other action taken thereafter to the extent that the amount payable upon such termination or other action taken thereafter is not, as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, greater than the amount payable if termination were to occur in the absence of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby), (i) all Indebtedness of others of the types referred to in clauses (a) through (h) above which is guaranteed by such Person, and (j) all liabilities secured by any Lien other than any Permitted Lien, provided, however, that Indebtedness shall not include any liabilities related to Taxes and accounts payable incurred in the ordinary course of business and reflected in the Closing Date Working Capital.
"Indemnified Benefits Liabilities" shall have the meaning given in
Section 5.3.
"Indemnified Party" shall have the meaning given in Section 7.5.
"Indemnifying Party" shall have the meaning given in Section 7.5.
"Indemnity Payments" shall have the meaning given in Section 7.6.
"IRS" shall mean the Internal Revenue Service of the United States.
"Jackson Hole Agreement" shall mean the Asset Purchase Agreement, dated as of October 14, 2003, among the Company, Real Estate Services, Ltd., and certain other parties listed therein.
"Laws" shall mean any federal, state, foreign or local law, common law, statute, ordinance, rule, regulation, order, judgment, administrative order, decree, administrative or judicial decision and any other executive, legislative, regulatory or administrative proclamation in each case having binding legal effect.
"Leases" shall have the meaning given in Section 3.6.
"Lease Security" shall have the meaning given in Section 5.11.
"License Agreement" shall mean the Trademark License Agreement among Seller, Licensor, Licensee and Parent Guarantor executed concurrently with the execution of this Agreement, a copy of which is attached to this Agreement as Exhibit A.
"Licensee" shall mean Monticello Licensee Corporation.
"Licensor" shall mean SPTC, Inc., a Nevada corporation and an indirect wholly owned subsidiary of Seller or any other Person designated as "Licensor" pursuant to the License Agreement.
"Liens" shall mean any lien, pledge, mortgage, security interest, option, right of first refusal or any similar encumbrance, or, with respect to the Shares any restriction on transfer.
"Listings" shall have the meaning given in Section 3.16.
"Litigation" shall mean any litigation, legal action, arbitration, proceeding, demand, claim or known investigation, brought by or against the Company or any of its Affiliates (with respect to the Business) (or any of their respective employees or sales associates if and to the extent that such Persons are entitled to indemnity, reimbursement or contribution therefor from the Company, Seller or their Affiliates or covered therefor under the insurance policies applicable to the Company) by or before any Governmental Authority in each case with respect to any claim if and solely to the extent arising out of or resulting from events, circumstances, actions or failures to act occurring or existing prior to the Closing.
"Material Contracts" shall have the meaning given in Section 3.10.
"Mortgage LLC" shall mean Sotheby's Lehman Mortgage Services LLC, a Delaware limited liability company.
"Mortgage LLC Partner" shall mean Lehman Brothers Bank, FSB.
"Mortgage LLC Contracts" shall mean the agreements listed on Schedule 1.1(a) as currently in effect.
"Mortgage LLC Operating Agreement" shall mean the Limited Liability Company Operating Agreement of Sotheby's Lehman Mortgage Services, LLC, dated May 17, 2000, by and between the Company and Mortgage LLC Partner, as amended.
"Obligations" shall have the meaning given in Section 8.1.
"Organizational Documents" shall mean, as to any Person, the certificate of incorporation and bylaws or memorandum and articles of association or other organizational documents of such Person.
"Option" shall have the meaning given to in the License Agreement.
"Pendings" shall have the meaning given in Section 5.9.
"Permits" shall mean as to any Person, all licenses, permits, franchises, orders, approvals, concessions, registrations, authorizations and qualifications under any federal, state, local or foreign laws with any and all Governmental Authorities or with any and all industry or other nongovernmental self-regulatory organizations that are issued to such Person, including Environmental Permits.
"Permitted Liens" shall mean any (i) Liens disclosed on Schedule 1.1(b), (ii) Liens for Taxes that are not yet due and payable, (iii) Liens for Taxes that are due and payable but that are being contested in good faith through appropriate proceedings and with respect to which adequate reserves have been established on the Balance Sheet in accordance with GAAP, (iv) requirements and restrictions of zoning, building and other laws, rules and regulations, (v) licenses, easements, encumbrances, encroachments and other imperfections of title and Liens which do not impair in any material respect the continued operation of the Business in the manner currently conducted by the Seller, (vi) in the case of leased property, all Liens and other matters, whether or not of record, affecting the title of the lessor (and any underlying lessor) of the leased property, (vii) statutory landlord's liens and Liens granted to landlords under any Leases, (viii) Liens arising under conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business, and (ix) statutory carriers', warehousemen's, materialmen's and mechanics' Liens that, in the aggregate, could not reasonably be expected to be material.
"Person" shall mean an individual, a corporation, a partnership, limited liability company, an association, a trust or other entity or organization.
"Pines-Aspen Sublease" shall mean the Pines-Aspen Sublease, Sublicense and Option Agreement, dated as of October 28, 2003, between Real Estate Services, Inc., RnR LLC and the Company.
"Plans" shall have the meaning given in Section 3.13.
"Post-Closing Periods" shall have the meaning given in Section 6.3.
"Pre-Closing Periods" shall have the meaning given in Section 6.3.
"Pre-Closing Period Tax Returns" shall have the meaning given in
Section 6.1.
"Purchaser" shall have the meaning given in the introduction to this Agreement.
"Purchaser Business" shall mean the real estate brokerage and the real estate brokerage franchise businesses of the Purchaser and its Affiliates.
"Purchaser Deductible Amount" shall have the meaning given in Section 7.4.
"Purchaser Guarantor" shall have the meaning given in the introduction to this Agreement.
"Purchase Price" shall have the meaning given in Section 2.2.
"Purchaser Indemnified Parties" shall have the meaning given in
Section 7.2.
"Purchaser Material Adverse Effect" shall mean a material adverse
effect on (i) the sales, assets, properties, operations, business, results of
operations or financial condition of the Purchaser Business taken as a whole or
(ii) the ability of the Purchaser to consummate the transactions contemplated by
this Agreement or to perform its obligations under this Agreement.
"Purchaser Plans" shall have the meaning given in Section 5.3.
"Real Property" shall have the meaning given in Section 3.6.
"Recoveries" shall mean as to any Person, any indemnity, contribution or other similar payments (but in any case excluding insurance payments) actually recovered by such Person from a third party that is not an Affiliate of such Person, with respect to Damages and with respect to amounts payable pursuant to Section 6.3.
"Related Agreements" shall mean the License Agreement and the Transition Services Agreement.
"Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration in each case into the indoor or outdoor environment (including ambient air, surface water, groundwater and surface or
subsurface strata), or onto, into or out of any property, including the movement of Hazardous Materials through or in the air, soil, surface water, groundwater or property.
"Reorganization" shall have the meaning given in Section 3.22.
"Sales Associates" shall have the meaning given in Section 3.17.
"Seller" shall have the meaning given in the introduction to this Agreement.
"Seller Cap Amount" shall have the meaning given in Section 7.4.
"Seller Deductible Amount" shall have the meaning given in Section 7.4.
"Seller Indemnified Parties" shall have the meaning given in Section 7.3.
"Seller Material Adverse Effect" shall mean a material adverse effect on (i) the sales, assets, properties, operations, business, results of operations or financial condition of the Company taken as a whole or (ii) the ability of the Seller to consummate the transactions contemplated by this Agreement or perform its obligations under this Agreement; provided, however, that, only with respect to the Seller's representations and warranties included in Section 3.5(a), (A) changes resulting from the transactions contemplated by this Agreement and the Related Agreements or the announcement or making public thereof (whether by the parties hereto or otherwise), (B) changes that affect the real estate brokerage industry generally and (C) changes in general economic conditions, shall not be considered in determining whether there has been a Seller Material Adverse Effect; provided further that any such changes described in clauses (B) or (C) do not have a disproportionate impact on the Company.
"Share Purchase Price" shall have the meaning given in Section 2.2.
"Shares" shall have the meaning given in the recitals.
"Sotheby's France" shall mean Sotheby's International Realty, SA, a French corporation.
"Straddle Periods" shall have the meaning given in Section 6.3.
"Straddle Period Tax Returns" shall have the meaning given in Section 6.1.
"Sublease" means each lease, sublease or other right of occupancy affecting or relating to a property in which the Company is the landlord, sublandlord or licensor, either pursuant to the terms of a lease agreement, sublease or other occupancy agreement or as successor to any prior landlord, sublandlord or licensor.
"Subsidiary" shall mean, with respect to any Person, any corporation, limited liability company, partnership or other organization, whether incorporated or unincorporated, of
which such Person or any other subsidiary of such Person beneficially owns a majority of the total combined voting or equity interests.
"Support Assets" shall mean all assets and rights of any nature of the Seller and its Affiliates (other than the Company), used or held for use in connection with the provision of (i) Support Services to the Company (including the right to receive such services) and (ii) the Services (as defined in the Transition Services Agreement) to the Purchaser and its Affiliates following the Closing.
"Support Services" shall mean administrative and corporate services and benefits of a type generally provided internally by Seller and its Affiliates (other than the Company) generally to all of their businesses, including operations and information technology support; computer and information processing services; finance, accounting and payroll and back office services; financial systems; treasury services (including banking, insurance, administration, taxation and internal audit); procurement services; risk management; corporate communications; general administrative services; executive and management services; legal services; human resources services; publication services; and travel services.
"Tax Claim" shall have the meaning given in Section 6.5.
"Tax Indemnification Agreement" shall have the meaning given in
Section 3.12.
"Tax Indemnity Payments" shall have the meaning given in Section 6.3.
"Tax Law" shall mean any Law relating to Taxes.
"Tax Return" shall mean any return, report, declaration, information return or other document (including any related or supporting information) required to be filed with any Governmental Authority with respect to Taxes, including any amendments thereof.
"Taxes" shall mean (i) any and all taxes and other governmental charges of the same or of a similar nature (including, but not limited to, taxes on or with respect to net or gross income, franchise, profits, gross receipts, capital, sales, use, ad valorem, value added, transfer, real property transfer, transfer gains, inventory, capital stock, license, payroll, employment, social security, unemployment, severance, occupation, real or personal property, estimated taxes, rent, excise, occupancy, recordation, bulk transfer, intangibles, alternative minimum, doing business, withholding and stamp), together with any interest thereon, penalties (or other governmental charges of the same or of a similar nature), additions to tax or additional amounts with respect thereto, imposed by the United States (federal, state or local) or other applicable jurisdiction; and (ii) any liability for the payment of any amounts described in clause (i) as a result of the Company having been a member of an affiliated, consolidated, combined, unitary or similar group or as a result of transferor or successor liability.
"Territory" shall mean each of the following countries: (i) Canada,
(ii) Barbados, (iii) Israel, (iv) Mexico, (v) Nassau, the Bahamas, (vi) St.
Barthelemy, (vii) St. Martin, (viii) Turks & Caicos and (ix) the United States
of America (including the U.S. Virgin Islands).
"Transfer Taxes" shall have the meaning given in Section 6.6.
"Transferred Intellectual Property" shall mean all of the following used solely in the Business as currently conducted: patents, patent applications, rights in inventions, invention disclosures, trade secrets, know-how (including customer lists, customer information and personal data), trademarks, service marks, logos, designs, trade dress, slogans, trade names, domain names, and copyrights (including all registrations and pending applications, or rights to apply for registration, of any of the foregoing), Computer Programs, and any licenses or user rights related to the foregoing, and all other intellectual property rights of a similar or corresponding character; provided, however, that Transferred Intellectual Property excludes the Excluded Intellectual Property.
"Transition Services Agreement" shall mean the Transition Services Agreement between the Seller and the Purchaser, in the form attached hereto as Exhibit B.
"Treasury Regulations" shall mean the United States Tax regulations, including Temporary regulations, promulgated under the Code, as the same may be amended hereafter from time to time (including corresponding provisions of succeeding United States Tax regulations).
"Working Capital" shall mean (A) Current Assets excluding any (i)
prepaid, deferred or other items in each case to the extent related to Taxes and
(ii) intercompany balances between the Company, on the one hand, and the Seller
or any of its Affiliates, on the other hand, minus (B) Current Liabilities
excluding any (i) accrued, deferred or other items, in each case to the extent
related to Taxes, (ii) intercompany balances (including accrued interest)
between the Company, on the one hand, and the Seller or any of its Affiliates,
on the other hand and (iii) any liabilities or accruals for bonuses to be paid
to Employees for the year 2004.
Section 1.2 Other Interpretive Provisions.
(a) The words "hereof," "herein," "hereto," "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(b) Terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa except for any reference to the Company which
shall only be interpreted in accordance with its respective definitions in
Section 1.1.
(c) The terms "dollars" and "$" shall mean United States dollars.
(d) The word "including" shall mean including without limitation and the words "include" and "includes" shall have corresponding meanings. The words "or" and "any" are not exclusive.
(e) The term "agreement" shall mean any agreement whether written or oral.
(f) A reference to a law includes any amendment thereto, and any modification or re-enactment thereof, any legislative provision substituted therefor and any rules, regulations and statutory instruments issued thereunder or pursuant thereto.
(g) When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated.
(h) The word "knowledge" shall mean (i) in the case of the Seller, what William F. Ruprecht, William S. Sheridan, Donaldson C. Pillsbury, Stuart N. Siegel, Clifford B. Siegel, David Mazzucco, Candace Chan and Obed Solis actually knew or, in the course of performing his or her duties in a reasonable and prudent manner, should have known, and (ii) in the case of the Purchaser, what any executive officer of the Purchaser actually knew or, in the course of performing his duties in a reasonable and prudent manner, should have known; provided that in the case of clause (i) or (ii) none of the individuals listed above shall be required to make any special review, inquiry or investigation in connection with the execution, delivery and performance of this Agreement.
(i) In the event that the final day of any time period provided herein based on calendar days does not fall on a Business Day, such time period shall be extended such that the final day of such period shall fall on the next Business Day thereafter.
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchase and Sale of Shares. Upon the terms set forth in this Agreement, at the Closing, Seller shall sell, convey, transfer, assign and deliver to the Purchaser, and the Purchaser shall purchase from Seller, all of the Shares, free and clear of all Liens.
Section 2.2 Purchase Price.
(a) In consideration of the sale and transfer of the Shares and the execution and delivery of the Related Agreements upon the terms of this Agreement, at the Closing, the Purchaser shall pay to the Seller $98,862,509.80 (the "Closing Date Purchase Price"), of which amount (i) $53,712,509.80 is the purchase price for the Shares (the "Closing Date Share Purchase Price"), subject to adjustment pursuant to Section 2.4, (as so adjusted, the "Share Purchase Price"), (ii) $45,000,000 is in consideration of the licenses and rights granted to Licensee pursuant to Article II of the License Agreement (without giving effect to the Option (as defined in the License Agreement)) (the "License Purchase Price") and (iii) $150,000 is in
consideration of the grant to Licensee of the Option (together with the Share Purchase Price and the License Purchase Price, the "Purchase Price").
(b) Seller has delivered to the Purchaser a good faith estimated calculation of the Working Capital as of the Closing Date (the "Estimated Working Capital"), which has been certified by the Chief Financial Officer of Seller in his official capacity and the Chief Financial Officer of the Company in his official capacity. The Estimated Working Capital is equal to zero.
(c) Seller has delivered to the Purchaser a good faith estimated calculation of any aggregate Indebtedness of the Company as of the Closing Date (the "Estimated Indebtedness"), which has been certified by the Chief Financial Officer of the Seller in his official capacity and the Chief Financial Officer of the Company in his official capacity. The Closing Date Share Purchase Price reflects a decrease of $1,807,490.20, the amount of such Estimated Indebtedness.
Section 2.3 Closing; Deliveries and Payment.
(a) Upon the terms set forth in this Agreement, the Closing shall take place at the offices of Covington & Burling, 1330 Avenue of the Americas, New York, New York, concurrently with the execution and delivery of this Agreement and shall be effective as of the close of business on the Closing Date.
(b) The Seller is delivering, or causing to be delivered, to the Purchaser at the Closing:
(i) certificates representing all of the Shares duly endorsed or accompanied by stock powers duly executed in blank and otherwise in a form satisfactory to the Purchaser for transfer on the books of the Company (with any requisite transfer tax stamps attached by the Seller);
(ii) a good standing certificate for the Company issued by the applicable Secretary of State dated within ten (10) Business Days prior to the Closing Date;
(iii) the corporate minute books of the Company;
(iv) duly executed resignations of each of the directors of the Company;
(v) a duly executed certificate ("FIRPTA Certificate") from the Seller that complies with the requirements of Section 1445 of the Code and the Treasury Regulations promulgated thereunder in the form of Exhibit C. Notwithstanding anything to the contrary contained herein, if the Seller fails to deliver a FIRPTA Certificate and the Purchaser elects to proceed with the Closing, the Purchaser shall be entitled to withhold the amount required to be withheld pursuant to Section 1445 of the Code from the Share Purchase Price;
(vi) the License Agreement, duly executed by the Licensor and the Seller;
(vii) written evidence of the termination and release of any and all guarantees by the Company of the Seller's or its Affiliates' obligations under any Indebtedness of the Seller or its Affiliates and the release of any related Liens affecting the Company or the Shares;
(viii) written evidence of the delivery of a notice of termination of the Mortgage LLC Operating Agreement in accordance with its terms; and
(ix) a duly executed Internal Revenue Service Form 8023 with respect to the Company.
(c) The Purchaser is delivering, or causing to be delivered, to the Seller at the Closing:
(i) the Closing Date Purchase Price in immediately available funds by wire transfer to the account or accounts designated on Schedule 2.2(a); and
(ii) the License Agreement, duly executed by the Licensee and the Parent Guarantor.
Section 2.4 Purchase Price Adjustments.
(a) Working Capital and Indebtedness Adjustments.
(i) As soon as reasonably practicable, and in any event, within one hundred twenty (120) days following the Closing Date, the Purchaser shall deliver to the Seller a consolidated balance sheet of the Business as of the close of business on the Closing Date (the "Closing Date Balance Sheet"), which shall set forth a calculation of the Working Capital of the Company (including the components thereof in reasonable detail) (the "Closing Date Working Capital") and any Indebtedness of the Company (including the components thereof in reasonable detail), as of the close of business on the Closing Date (the "Closing Date Indebtedness"). If the Purchaser does not deliver the Closing Date Balance Sheet prior to the expiration of 120 days after the Closing Date and the Seller does not, within 120 days following the Closing Date, provide the Purchaser with written notice that it believes that the Estimated Working Capital or the Estimated Indebtedness did not reflect the Closing Date Working Capital or the Closing Date Indebtedness, respectively, then the Estimated Working Capital and the Estimated Indebtedness, as applicable, shall constitute the Closing Date Working Capital and/or the Closing Date Indebtedness, as applicable, and shall be final and binding on the parties. The Closing Date Balance Sheet, the Closing Date Working Capital and the Closing Date Indebtedness shall be prepared in good faith in accordance with GAAP on a basis consistent with prior periods based on the books and records of the Company and shall be certified by the Chief Financial Officer of the Purchaser in his official capacity.
(ii) Until the Closing Date Working Capital and Closing Date Indebtedness have become final in accordance with Section 2.4(a), the Purchaser shall
(i) provide the Seller and its authorized representatives with access to its and the Company's working papers, (ii) use commercially reasonable efforts to have their accountants to provide access to their working papers (subject to the expectation by the Seller of a customary indemnification agreement with such accountants), and (iii) provide reasonable access to the books and records, assets and liabilities and senior financial staff of the Company (and otherwise will cooperate with the Seller and its authorized representatives), to the extent relevant to the determination of the Closing Date Working Capital and Closing Date Indebtedness.
(iii) If the Seller in good faith disagrees with the Purchaser's calculation of the Closing Date Working Capital or Closing Date Indebtedness as set forth on the Closing Date Balance Sheet, the Seller may within sixty (60) days after receipt thereof deliver a written notice to the Purchaser disagreeing with such calculation. Any such notice of disagreement shall specify in reasonable detail those items or amounts comprising the Closing Date Working Capital or the Closing Date Indebtedness as to which the Seller disagrees and the basis of such disagreement to the extent known by the Seller. If no such notice of disagreement is timely delivered, the Closing Date Working Capital and the Closing Date Indebtedness shall be final and binding on the parties.
(iv) If (A) a notice of disagreement shall be timely delivered pursuant to Section 2.4(a)(iii), or (B) the Purchaser does not timely deliver the Closing Date Balance Sheet, and pursuant to Section 2.4(a)(i), the Seller timely delivers written notice that they believe the Estimated Working Capital or the Estimated Indebtedness should be changed, the Seller and the Purchaser shall, during the thirty (30) days (or such longer period as they may mutually agree) following such delivery, use their commercially reasonable efforts to reach agreement on the disputed items or amounts. If such an agreement is reached, the Closing Date Working Capital or the Closing Date Indebtedness as so agreed shall be final and binding on the parties. If, at the end of such period, the parties are unable to reach such an agreement, the New York City office of a nationally recognized accounting firm not then acting as the principal outside accountant for the Company, the Seller or the Purchaser and as mutually agreed by the Purchaser and the Seller (the "Accounting Referee"), shall be retained by the parties to review promptly this Agreement and the disputed items or amounts. If the parties are unable to agree mutually upon an Accounting Referee then each party shall select a nationally recognized accounting firm. Such two (2) nationally recognized accounting firms shall then in turn mutually select a separate nationally recognized accounting firm not then acting as the principal outside accountant for the Company, the Seller or the Purchaser who shall then be designated as the "Accounting Referee." In connection therewith, the Accounting Referee shall consider only those items or amounts in the Closing Date Working Capital or the Closing Date Indebtedness as to which the Seller has disagreed. The parties shall use commercially reasonable efforts to cause the Accounting Referee to deliver to the Seller and the Purchaser, as promptly as practicable, but in any event within thirty (30) days of being referred the matter, a report setting forth its adjustments, if any, to the Closing Date Balance Sheet or the Closing Date Indebtedness (including any adjustments to non-disputed items necessary as a result of changes to disputed items) and the calculations supporting such adjustments. Such report shall be final and binding upon the parties and the Closing Date Working Capital or the Closing Date Indebtedness, as adjusted pursuant to such
report, shall be final and binding on the parties. The cost of the Accounting Referee's review and report shall be borne equally by the Purchaser and the Seller.
(v) If the Estimated Working Capital is negative and exceeds the final Closing Date Working Capital, then the Seller shall pay or cause to be paid to the Purchaser, as an adjustment to the Share Purchase Price, with interest as provided in Section 2.4(b), the amount of such excess. If the Estimated Working Capital is positive and exceeds the final Closing Date Working Capital, then the Purchaser shall pay or cause to be paid to the Seller, as an adjustment to the Share Purchase Price, with interest as provided in Section 2.4(b), the amount of such excess. If the final Closing Date Working Capital exceeds the Estimated Working Capital, then the Purchaser shall pay to the Seller, as an adjustment to the Share Purchase Price, with interest as provided in Section 2.4(b), an amount equal to the amount of such excess.
(vi) If the Estimated Indebtedness reflected on the Closing Date Balance Sheet exceeds the final Closing Date Indebtedness, then the Purchaser shall pay to the Seller, as an adjustment to the Share Purchase Price, with interest as provided in Section 2.4(b), the amount of such excess. If the final Closing Date Indebtedness reflected on the Closing Date Balance Sheet exceeds the Estimated Indebtedness, then the Seller shall pay to the Purchaser, as an adjustment to the Share Purchase Price, with interest as provided in Section 2.4(b), the amount of such excess.
(vii) If a party to this Agreement is both required to make a payment and entitled to receive a payment pursuant to Sections 2.4(a)(v) and 2.4(a)(vi), then such party shall have the right, upon written notice to the other party, to offset its obligation to make such payment by the amount of the payment that it is entitled to receive from the party pursuant to such Sections.
(b) Payments and Interest. Any payments pursuant to this Section 2.4 shall be made by wire transfer of immediately available funds to accounts at United States banks designated in writing by the Purchaser or Seller, as the case may be. Any amount due pursuant to this Section 2.4 shall bear interest for the period from and including the Closing Date to but excluding the payment date at the rate of three percent (3%) per annum.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Purchaser as follows:
Section 3.1 Authority and Validity. The Seller is a company validly existing and in good standing under the laws of the state of its incorporation. The Seller has the corporate power and authority to execute and deliver this Agreement and the Transition Services Agreement and to consummate the transactions contemplated hereunder and thereunder. The execution, delivery and performance of this Agreement and the Transition Services Agreement
by the Seller and the consummation by the Seller of the transactions contemplated hereunder and thereunder, have been duly and validly authorized by the Seller and no other corporate proceedings on the part of the Seller or the Company are necessary to authorize this Agreement and the Transition Services Agreement or the consummation of the transactions contemplated hereunder or thereunder. Each of this Agreement and the Transition Services Agreement have been duly executed and delivered by the Seller and, assuming due execution and delivery thereof by the Purchaser, constitutes a valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
Section 3.2 Organization.
(a) Schedule 3.2(a) sets forth the capitalization (authorized and outstanding capital stock), including the record and beneficial owner thereof, of the Company. All of the Shares have been duly authorized, were validly issued and are fully paid and non-assessable and are directly owned legally and beneficially by the Seller, in each case free and clear of all Liens.
(b) The Company has the requisite corporate power and authority to own, lease and operate its properties and assets and to carry on the Business as it is now being conducted and, to the extent legally applicable, is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, except where the failure to be so qualified and in good standing, individually or in the aggregate, could not reasonably be expected to be material.
(c) Complete and correct copies of the Organizational Documents of the Company, as in effect on the date hereof, have been delivered or made available to the Purchaser.
(d) Upon giving effect to the Reorganization, the Company will have no direct or indirect Subsidiaries and the Company does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other Person. Other than this Agreement, there are no options, warrants, calls, rights, commitments or agreements of any kind to which the Company or any of its Affiliates are parties or by which any of them is bound or to which they are subject, relating to the sale, issuance or voting of, or the granting of rights to acquire, any shares of the capital stock of any class or series of, or other equity interest in, the Company or any securities convertible or exchangeable into or evidencing the right to purchase any shares of capital stock of any class or series of, or other equity interest in, the Company or obligating the Company or any of its Affiliates to enter into any such option, warrant, call, right, commitment or agreement.
(e) The Excluded Companies have not actively conducted, or contributed in any way to the operation of the Business, or owned or held for use any assets relating to the Business,
except that Sotheby's France is currently a franchisor of a real estate brokerage business outside of the Territory.
(f) Of Seller and its Affiliates, only the Company is engaged in the Business, other than Seller and its Affiliates to the extent such Person provides Support Services, licenses the Excluded Intellectual Property to the Company or holds any interest in the Excluded Assets.
(g) The Listing Exchange, LLC, a New York limited liability company, has been dissolved in accordance with applicable Law and the Company does not have, nor shall it have, any liabilities or obligations with respect to the Listing Exchange, LLC, its business or the termination thereof.
(h) To the knowledge of Seller, the Company does not maintain nor does it have in its possession any stock transfer records and no other Person is in possession of any such stock transfer records of the Company.
Section 3.3 No Conflict; Governmental Consents.
(a) Except as set forth on Schedule 3.3(a), neither the execution,
delivery or performance by the Seller of this Agreement nor the consummation of
the transactions contemplated hereby will (i) violate any provision of any
Organizational Document of the Seller or the Company, (ii) require any consent,
approval or notice under, violate, or result in the violation or breach of any
provisions of, constitute a default (or an event which, with notice or lapse of
time or both, could reasonably be expected to constitute a default) under,
result in the termination of, accelerate the performance required by or result
in a right of termination or acceleration, or result in the loss of a benefit
under any Permit (the loss of which due to the sale of the Shares cannot be
cured by a routine re-filing for such Permit with the applicable Governmental
Authority without any material cost) or Material Contract to which the Company
or the Business is a party or by which any of the Company's assets are bound,
(iii) result in the creation of any Lien, other than any Permitted Lien, upon
any of the properties or assets of the Company or on the Shares, or (iv) violate
any Law applicable to the Seller or the Company, except, in the case of clauses
(ii) through (iv) above, for violations, breaches, defaults, terminations,
accelerations, loss of benefits or creations of Liens that, individually or in
the aggregate, could not reasonably be expected to be material.
(b) No consent, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required to be
obtained or made (other than any obtained or made prior to the Closing) by the
Seller or the Company in connection with the execution, delivery and performance
of this Agreement or the Transition Services Agreement, or the consummation of
the transactions contemplated hereby or thereby, that has not been obtained or
made, as applicable, except (i) with respect to any Permits the loss of which
due to the sale of the Shares cannot be cured by a routine re-filing for such
Permit with the applicable Governmental Authority without any material cost,
(ii) where the failure to obtain or make any such consent, order, authorization,
registration, declaration or filing, individually or the aggregate, could not
reasonably be expected to be material or (iii) for any consent, order or
authorization of, or
registration, declaration or filing with, any Governmental Authority that would otherwise not be required to be obtained or made but for the specific regulatory status of the Purchaser or its Affiliates or a material change in the manner in which the Business is conducted by the Purchaser after the Closing from the manner in which the Business was conducted by the Seller and its Affiliates prior to the Closing.
Section 3.4 Financial Statements.
(a) Attached hereto as Schedule 3.4(a) are the unaudited consolidated balance sheets as of December 31, 2002 and 2003, and the income statement of the Business as of and for the fiscal years ended December 31, 2002 and 2003 (together with the Balance Sheet, the "Financial Statements"). The Financial Statements have been prepared in accordance with GAAP (except for the absence of footnotes) applied on a consistent basis during the periods involved and fairly present in all material respects the financial position of the Business as of the dates thereof and the results of operations for the periods then ended, except to the extent that historical retained earnings relating to the operation of the business of the Mortgage LLC have not been excluded therefrom.
(b) Except as set forth on Schedule 3.4(b), the Indebtedness of the Company consists only of the amounts owed pursuant to the Pines-Aspen Sublease. The Company has cash or cash equivalents on hand at least equal to the amount of customer escrow funds delivered to the Company by its customers, together with all interest thereon accrued to the Closing Date. Schedule 3.4(b) sets forth the names of all financial and other similar institutions at which the Company maintains accounts, deposits or safe deposit boxes of any nature and the account numbers thereof, in each case which information is correct and complete in all material respects.
(c) There are no material liabilities or obligations of the Company of any nature (absolute, accrued, contingent or otherwise) due or to become due, that are required in accordance with GAAP applied consistently with the Financial Statements to be reflected on a consolidated balance sheet of the Business, other than (i) liabilities to the extent disclosed, reflected or reserved against on the Balance Sheet, and (ii) liabilities incurred since the Balance Sheet Date in the ordinary course of business consistent with past practice, which, individually or in the aggregate could not reasonably be expected to be material.
(d) The calculation of Estimated Working Capital and the calculation of Indebtedness, in each case as of the Closing Date, delivered by the Seller to the Purchaser were prepared in good faith in accordance with GAAP, applied on a consistent basis, by the Seller based on the books and records of the Company.
Section 3.5 Absence of Certain Changes or Events. Except as set forth on Schedule 3.5 or as expressly provided in this Agreement (including Sections 3.22, 5.3, 5.4 and 5.5), since the Balance Sheet Date the Company has conducted the Business in the ordinary course of business and consistent with past practice and has not:
(a) had any development or event which, individually or in the aggregate, has had or could reasonably be expected to have, a Seller Material Adverse Effect;
(b) declared, set aside or paid any non-cash dividend or other distribution (whether in securities or property or any combination thereof) in respect of any class or series of its capital stock or other interests;
(c) (i) sold, leased, licensed, transferred or disposed of any material assets or rights, other than in the ordinary course of business consistent with past practice, (ii) incurred any Lien upon any material assets other than Permitted Liens, (iii) acquired, leased or licensed any material assets other than in the ordinary course of business consistent with past practice;
(d) paid, discharged or satisfied any material liability, obligation or Lien (other than any Permitted Liens), other than payment, discharge or satisfaction of (i) Indebtedness or (ii) liabilities, obligations or Liens in the ordinary course of business consistent with past practice;
(e) changed any of the accounting or material tax accounting principles, practices or methods, or changed reserve policies or materially changed reserve practices except as required by concurrent changes in GAAP;
(f) (i) made any material change in the compensation payable or to become payable to any of its officers, directors, employees, agents, consultants or sales associates (which is understood in this Agreement not to include the same of any Broker Affiliate) (other than general changes in compensation of employees who are not officers or directors in the ordinary course of business consistent with past practice), (ii) entered into or amended any employment, severance, consulting (other than in the ordinary course of business), termination or other agreement or employee benefit plan or made any loans to any of its officers, directors, employees, agents, consultants or sales associates (other than advances of expenses in the ordinary course consistent with past practice) or (iii) made any change in its existing borrowing or lending arrangements for or on behalf of any of such Persons pursuant to an employee benefit plan or otherwise;
(g) (i) made any accrual or commitment for future payment of any pension, retirement allowance, unused vacation days or other employee benefit to any officer, director, employee, sales associate or Affiliate, except payments and accruals made in the ordinary course consistent with past practice, (ii) adopted or paid, granted, issued, accelerated or accrued salary or other payments or benefits pursuant to any pension, profit-sharing, bonus, extra compensation, incentive, deferred compensation, stock or share purchase, stock or share option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, or any employment or consulting agreement, or made any payments or grants in relation to the foregoing other than in the ordinary course consistent with past practice, or (iii) amended in any material respect any such existing plan, agreement or arrangement in a manner inconsistent with the foregoing;
(h) other than commissions, management sales incentives, administrative bonuses, other compensation or advances or reimbursement of expenses in the ordinary course consistent with past practice, made any payments, loans, advances or other distributions to, or entered into any transaction, agreement or arrangement with, any of its officers, directors, employees, agents, consultants or sales associates involving in any individual case an amount in excess of $10,000;
(i) other than specifically set forth in the Capital Plan, made or entered into an agreement to make any capital expenditures in excess of $50,000;
(j) settled or compromised any material Tax liability, agreed to any adjustment of any material Tax attribute, made, changed or revoked any material election with respect to Taxes, surrendered any right to claim a material refund of Taxes, consented to any extension or waiver of the statute of limitations period applicable to any material Taxes, Tax Return or Tax Claim, amended any material Tax Return, or entered into any closing agreement with respect to material Taxes;
(k) made any material change in its working capital practices generally, including materially accelerating any collections of cash or accounts receivable or materially deferring payments or accruals;
(l) had a judgment entered or settled any Litigation resulting in a loss, payment or other cost to the Company, after receipt of insurance payments, in excess of $50,000 individually, or $250,000 in the aggregate;
(m) altered through merger, liquidation, reorganization, restructuring or in any other material fashion its corporate structure or ownership or amended its Organizational Documents in any material respect;
(n) entered into or amended in any material respect any agreement which (i) has any non-competition, geographical restriction or similar covenant relating to the Business, or (ii) is a Broker Affiliate Agreement, in each case other than in the ordinary course consistent with past practice; or
(o) agreed to take any of the foregoing actions.
Section 3.6 Assets.
(a) Except as set forth on Schedule 3.6, the Company owns, or otherwise has a valid leasehold or licensee interest providing sufficient and legally enforceable (subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law)) rights to use, all of the property, assets and rights necessary or material to its conduct of the Business as currently conducted (other than the Support Services and the services to be provided under the Transition Services Agreement) or otherwise used or held for use by it in the Business.
Set forth on Schedule 3.6(a) is a list which is true and correct (to the
knowledge of Seller) in all material respects of all material fixed assets of
the Business as of the date hereof. The Company has good title (including a
license or leasehold interest, as applicable) to all properties, assets and
rights reflected on the Balance Sheet or acquired since the Balance Sheet Date,
free and clear of all Liens except Permitted Liens, other than properties,
assets and rights which are not in the aggregate material. Such material assets
reflected on the Balance Sheet or acquired since the Balance Sheet Date are,
considered in the aggregate, in reasonable operating condition and repair
(ordinary wear and tear excepted) in all material respects, and have been
reasonably maintained in all material respects. For the avoidance of doubt, the
Seller is not in any event making any representations or warranties in this
Section 3.6 or elsewhere in this Agreement as to the title or condition of any
of the Excluded Assets.
(b) The Company does not own any real property and the Company has not acquired or disposed of any ownership interest in any real property since December 31, 2001. Schedule 3.6(b) identifies (i) each lease, sublease or other occupancy agreement pursuant to which real property is leased by the Company, or by Seller or one of its Affiliates on behalf of the Company, including any real property owned by Seller or its Affiliates and leased to the Company (any such leased real property, "Real Property", and any such Person leasing any such Real Property, a "Lessee"), and each amendment, modification or extension of any such lease (collectively, the "Leases"), (ii) the Lessee thereof and (iii) the name of the lessor thereof. Each Lessee has a good and valid leasehold interest under each Lease to which it is a party pursuant to which such Lessee has the right to use the Real Property demised by such Lease in accordance with the terms of such Lease, free and clear of all Liens except Permitted Liens. To the Seller's knowledge, the current use of the Real Property by the Company does not violate in any material respect the certificate of occupancy thereof, any local zoning or similar land use or other Laws or the applicable Lease. The Company has not received written notice of any pending or threatened condemnation proceeding, or of any sale or other disposition in lieu of condemnation, affecting any of the Real Property that it leases under any Lease. Except pursuant to the Subleases set forth on Schedule 3.6(b), the Company has not subleased any of the Real Property or given any third party any license or other right to occupy any portion of the Real Property leased by it (other than the access provided to employees, consultants, independent contractors (and their assistants) and sales associates to work in the offices). To the Seller's knowledge, no monetary or material non-monetary default exists by the Company under any Sublease. Except as set forth in Schedule 3.6(b), to the Seller's knowledge, no subtenant is in monetary or material non-monetary default, and no condition or event exists which with the giving of notice or the passage of time, or both would constitute a monetary or material non-monetary default by any subtenant under any Sublease. Except as set forth in Schedule 3.6(b), no Real Property is used by any Lessee for any purpose other than the conduct of the Business.
(c) The Seller has delivered or made available to the Purchasers a
copy of each Lease (or in the case of oral agreements a summary of the material
terms thereof) that is correct and complete in all material respects. Except as
set forth in Schedule 3.6(c), and in any event except to the extent that with
respect to such Lease, the same could not reasonably be expected to be material,
(i) each Lease is the legal, valid and binding obligation of the Lessee
thereunder,
enforceable against such Lessee in accordance with its terms (subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law), (ii) none of the Leases or Subleases has been modified in any material respect except (and only to the extent set forth therein) by a written amendment specifically identified as such in Schedule 3.6(b), (iii) other than with respect to matters covered by Section 3.3(a), neither the Company nor, to the knowledge of the Seller, any landlord or any other party to any Lease or any Sublease, is in material breach or default under any Lease or any Sublease, and no event or circumstance exists or has occurred which, with the delivery of notice, the passage of time or both, could reasonably be expected to constitute a material breach or default under any Lease or any Sublease by the Company or, to the knowledge of the Seller, any other party thereto, (v) to the Seller's knowledge, the full amount of the security deposit, if any, required to be deposited with respect to any Lease or any Sublease is on deposit as so required, and (vi) the Company has not collaterally assigned or granted any security interest in any Lease or any Sublease or any interest therein other than in connection with any Lien to be released at the Closing.
(d) To the knowledge of Seller, no account receivable of the Business is owned by any Person other than the Company.
(e) To the knowledge of Seller, all of the Improvements are, considered in the aggregate, in reasonably good condition and repair (ordinary wear and tear excepted) in all material respects.
(f) All Improvements located on any Real Property are adequately supplied, in all material respects, with utilities (including water, sewage, disposal, electricity, gas and telephone) and other services necessary for their operation as the same are currently operated. To the knowledge of the Seller, there are no pending, planned, threatened or proposed cutbacks, moratoriums, restrictions or other limitations or impairments of any of the foregoing as they would materially affect any Real Property.
Section 3.7 Litigation and Claims; Compliance with Laws.
(a) Schedule 3.7(a) sets forth all Litigation pending or, to the knowledge of the Seller, threatened with respect to Business, including a reasonably detailed description thereof. Except as indicated on Schedule 3.7(a), there is no Litigation pending or, to the Seller's knowledge, threatened in writing by any customers, potential customers, employees, prospective employees or others against the Company or its Affiliates relating to alleged unlawful discrimination or sexual harassment by the Company nor, to the knowledge of the Seller, is any Governmental Authority is investigating any such allegation that, individually or in the aggregate, could reasonably be expected to be material. There is no unsatisfied judgment or any injunction, decree, order or other determination of an arbitrator or Governmental Authority issued against, or to the knowledge of the Seller, binding upon the Company or any of its properties or assets. There is no Litigation pending or, to the knowledge of the Seller, threatened
against the Seller or the Company or any of its Affiliates, which seeks to prevent consummation of the transactions contemplated hereby or which seeks damages in connection with the transactions contemplated hereby, and no temporary restraining order, preliminary or permanent injunction or other order or decree which prevents the consummation of the transactions contemplated hereby has been issued against the Seller or the Company or any of its Affiliates and remains in effect.
(b) (i) Except as set forth on Schedule 3.7(b)(i), the Company and the Seller (with respect to the Business) and, to their knowledge, their respective employees and agents acting in their capacity as such on behalf of the Business, are in compliance in all material respects with all Organizational Documents and Laws which affect the Business, including (A) holding all Permits (except for Permits the loss of which due to the sale of the Shares cannot be cured by a routine re-filing for such Permit with the applicable Governmental Authority without any material cost) necessary for the conduct of the Business, and complying in all material respects with each such Permit (other than action required in connection with the execution, delivery or performance by the Seller of this Agreement or the consummation of the transactions contemplated hereby) and (B) being in compliance in all material respects with all Laws having the purpose of prohibiting unlawful discrimination against customers or potential customers.
(ii) Except as set forth on Schedule 3.7(b)(ii), since December 31, 2001, the Company and the Seller have not received any written communication from any Governmental Authority of a competent jurisdiction asserting that the Company or the Seller (with respect to the Business) is not in compliance in all material respects with any Organizational Document or Law applicable to the Company or the Seller (with respect to the Business).
(c) The Company and the Seller have complied in all material respects with all requirements of Law applicable to the Company and the Seller with respect to the treatment of Client Trust Funds or assets subject to escheat, and to the knowledge of the Seller, there is no investigation by any Governmental Authority ongoing or threatened with respect to any such matter and, to the knowledge of Seller, no basis exists for any such investigation. Neither the Company nor, to the knowledge of the Seller, any director, officer, agent or employee acting in their capacity as such on behalf of the Company or the Business has: (A) used corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (B) made any direct or indirect unlawful payments to government officials or employees; or (C) paid any bribe, payoff, kickback or other unlawful payment.
Section 3.8 Insurance.
(a) Effective as of the Closing, there are no insurance policies in effect and maintained by the Company other than the errors and omission policy which will be assigned to the Seller or terminated at or prior to the Closing.
(b) Since December 31, 2001, the Company has maintained uninterrupted claims-made errors and omissions insurance. The Company has not received written notice of default
under any such policy, nor received written notice of any pending or threatened termination or cancellation, coverage limitation or reduction, or material premium increase with respect to any such policy other than increases in the ordinary course.
(c) No letters of credit have been posted and no cash has been restricted to support any material reserves for insurance on the Balance Sheet.
Section 3.9 Environmental Matters.
(a) The Company has been and is in compliance in all material respects with all Environmental Laws (which compliance includes the possession by the Company of all material Environmental Permits required for the operations of the Business as presently conducted under applicable Environmental Laws, and material compliance with the terms and conditions thereof). Since January 1, 1999, the Company and the Seller have not received any written communication from any Governmental Authority alleging that the Company or the Seller or any of its Affiliates (with respect to the Business) has not been in such compliance. There are no material Environmental Permits used by the Company in the conduct of the Business.
(b) There are no Environmental Claims pending or, to the knowledge of the Seller, threatened against the Company or, with respect to the Business, the Seller or any of its Affiliates or to the Seller's knowledge against any Person who is entitled to indemnity, contribution or reimbursement with respect thereto from the Company.
(c) The Company, the Seller or any of their Affiliates have not placed, stored, deposited, discharged, buried, dumped or disposed or caused the Release of any Hazardous Materials on, beneath or from any Real Property or other property currently or formerly owned, operated or leased by the Company or any predecessor of the Company, other than Hazardous Materials typically used in office buildings in the ordinary course, which materials have been used in compliance with applicable Environmental Laws and which could not reasonably be expected to result in any material liability to the Company.
Section 3.10 Material Contracts.
(a) Schedule 3.10 set forth a list that is correct and complete in all material respects (without duplication), with respect to the Company, of all contracts or other agreements having in effect any continuing obligation (or, in the case of oral agreements, summaries of the material terms thereof as to which the Seller has knowledge) to which the Company is a party or by or to which the Company or any of its assets or properties is bound (such contracts and agreements in such schedule being "Material Contracts"), of the following types, excluding in clauses (i) through (xv), (A) the Leases listed on Schedule 3.6(b), (B) the Listings listed on Schedule 3.16, (C) any employment, termination, severance, bonus, deferred compensation, incentive compensation, stock purchase, stock option, stock appreciation right or other stock-based incentive plan, program, agreement, or similar arrangement applicable to employees, consultants, independent contractors or sales associates of the Company listed on Schedule 3.13(a), (D) the Related Agreements, (E) the Broker Affiliate Agreements listed on
Schedule 3.19(a) and (F) the Mortgage LLC Contracts, all of which shall be deemed to be Material Contracts to the extent set forth in clauses (i) through (xvi):
(i) any advertising, market research and other marketing agreements which (A) contain firm commitments by the Company to make annual payments in excess of $100,000, which commitments have a remaining term of at least one year; and (B) which are not terminable on notice of one hundred and twenty (120) days or less without the payment of any termination fee or similar payment.
(ii) any employment, severance, non-competition, restricted stock agreement, consulting or other agreements (in each case excluding stock or share option agreements) with any current or former stockholder, director, officer, sales associate, consultant (other than consultant agreements entered into in the ordinary course of business) or employee of the Company, under which the Company has an obligation to make any payment in excess of $10,000 in each individual case as of the date hereof, in each case other than the agreements with independent contractors listed on Schedule 3.17;
(iii) any agreements (A) evidencing Indebtedness, interest rate swap or hedging arrangements, sale and leaseback transactions or other similar financing transactions involving payments in excess of $10,000 or (B) restricting the ability of the Company or the Seller (with respect to the Business) to incur Indebtedness or make any loan or advance;
(iv) any agreements, except those entered into in the ordinary course of business, providing for indemnification by the Company or the Seller (with respect to the Business) of any Person;
(v) any agreements with any Governmental Authority (except those entered into in the ordinary course of business) (A) requiring remaining payments by the Company in excess of $50,000; and (B) which are not terminable on notice of one hundred and twenty (120) days or less without the payment of any termination fee or similar payment;
(vi) any agreements providing for the purchase of goods by, or the furnishing of services to, the Company (A) requiring remaining payments by the Company in excess of $100,000 and (B) which are not terminable on notice of one hundred and twenty (120) days or less without the payment of any termination fee or similar payment;
(vii) any agreements for the furnishing of services by the Company in exchange for payments in excess of $100,000 in any calendar year and which are not terminable on notice of one hundred and twenty (120) days or less without the payment of any termination fee or similar payment;
(viii) any agreements (including settlement agreements and consent agreements) pursuant to which (A) the Company licenses the right to use any material Transferred Intellectual Property to any Person or from any Person or (B) any Person has the
right to acquire rights in any material Transferred Intellectual Property from the Company or the Seller with respect to the Business;
(ix) any confidentiality agreements entered into by the Company during the period commencing two (2) years prior to the date of this Agreement, which will continue to be in effect after the Closing, and pursuant to which the Company was restricted from providing information to third parties and any agreements pursuant to which the Company has agreed to provide any information regarding any of its listings to any third party, other than agreements entered into with clients, customers, co-brokers and multiple listing service providers of the Business in the ordinary course of business;
(x) any shareholder, voting trust or similar agreements relating to the Business or the Company to which the Company or the Seller (or any Affiliate thereof) is a party and any Organizational Documents to which the Company, Seller (or any Affiliate thereof) is a party;
(xi) any agreements relating to the Business or the Company to which the Company or the Seller is a party (other than agreements with or involving the Mortgage LLC set forth on Schedule 1.1(a)) relating to the provision of mortgage, escrow or title services by the Company or relating to the purchase by the Company of property pursuant to any guaranteed sales or other similar programs or any other similar settlement services;
(xii) any lease agreements with respect to personal property to which the Company is a party which (A) requires the Company to make annual payments in excess of $75,000 and (B) are not terminable on notice of one hundred and twenty (120) days or less without the payment of any termination fee or similar payment;
(xiii) any agreements that limit or purport to limit the ability of the Company or any Affiliate of the Company to compete in any business (other than agreements with or involving the Mortgage LLC set forth on Schedule 1.1(a));
(xiv) all agreements, other than agreements to be terminated at or prior to the Closing and other than accounts payable incurred in the ordinary course of business and reflected in the Closing Date Working Capital, between the Company, on the one hand, and any current or former shareholder, director, officer or other Affiliate of the Company, on the other hand, (A) requiring remaining payments by the Company in excess of $50,000 and (B) which are not terminable on notice of one hundred and twenty (120) days or less without the payment of any termination fee or similar payment;
(xv) all other agreements which cannot be terminated upon notice of one hundred and twenty (120) days or less and will require payments by the Company of an amount in excess of $100,000 in any calendar year and which have a remaining term of at least one year; and
(xvi) all Broker Affiliate Agreements.
(b) Each Material Contract (other than the Leases, which are the subject of Section 3.6(c)) is a legal, valid and binding obligation of, and enforceable against, the Company, and, to the knowledge of the Seller, the other parties thereto, and is in full force and effect, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Company is not (and with the giving of notice or lapse of time would not be) in material breach of, or material default under, any Material Contract and, to the knowledge of the Seller, no other party thereto is in material breach of, or material default under, any Material Contract. The Company has not received written notice in the last year that any party to a Material Contract intends to terminate such Material Contract prior to the termination date specified therein, or that any other party is in material breach of, or material default under, any Material Contract. Except as listed on Schedule 3.10(b), copies of all Material Contracts have been previously delivered or made available to the Purchaser.
(c) (i) Other than the Broker Affiliate Agreements listed on Schedule 3.19(a), neither the Company nor its Affiliates is party to, or is not otherwise bound by, any agreement, arrangement or any commitment relating to franchise matters involving the Business, including the Company being a franchisee, sub-franchisee or franchisor, sub-franchisor of any Person or under any obligation to any Person with respect to a franchisee or franchisor (or sub-franchisor or sub-franchisee) relationship, or the Company having granted any Person the right currently in effect to operate a franchised business using any trademark or tradename owned or used by the Company or the right to sell or grant others a franchise to use any trademarks or tradenames owned by the Company.
(ii) Neither the Company nor any of its Affiliates is party to, or is otherwise bound by, any agreement, arrangement or commitment providing any Person with rights of refusal, buy/sell rights or similar rights with respect to any material asset or material property of the Company or any aspect of the Business.
(iii) Other than in connection with the business of Mortgage LLC, neither the Company nor any of its Affiliates (other than the Mortgage LLC) is party to or is otherwise bound by any agreement, arrangement or commitment with any third parties with respect to the brokering, origination, marketing or processing of mortgage loans or to provide escrow, mortgage or title services to the Company or any other settlement service.
Section 3.11 Intellectual Property. The Company owns all right, title and interest in and to, or has a license, sublicense or otherwise permission to use, all of the Transferred Intellectual Property, free and clear of all Liens other than Permitted Liens, except where the failure to own or possess rights to any such Transferred Intellectual Property could not reasonably be expected to be material. The Company has taken all reasonable actions to protect its interest in such Transferred Intellectual Property except where the failure to take any action could not reasonably be expected to be material. Schedule 3.11 sets forth a complete and accurate, in all material respects, list of all U.S. and foreign registrations and applications for any
Transferred Intellectual Property owned by the Company, and identifies for and with reference to each of the foregoing the owner thereof. Except as set forth on Schedule 3.11, the registrations listed on Schedule 3.11 are valid and subsisting, in full force and effect in all material respects, and have not been cancelled, expired or abandoned. Except as set forth on Schedule 3.11, there is no, nor has there been any in the past two (2) years, Litigation pending or, to the knowledge of the Seller, threatened, and neither the Seller nor the Company has received or sent any written notice of a claim or suit (i) alleging that the Transferred Intellectual Property or the conduct of the Business with respect thereto infringes upon or otherwise violates any intellectual property rights of any third party or (ii) challenging the ownership, use, validity or enforceability of any Transferred Intellectual Property, in each case that could not reasonably be expected to be material. There is no, nor has there been any in the past two (2) years, Litigation pending or threatened by the Company alleging that a third party has, and to the knowledge of the Seller no third party has, infringed or otherwise violated or is infringing on or otherwise violating the Transferred Intellectual Property, except where any such infringement could not reasonably be expected to be material. There are no settlements, consents, judgments, orders or consent agreements, which restrict the Company's right to use any Transferred Intellectual Property in the Business.
Section 3.12 Taxes.
(a) Except as set forth on Schedule 3.12 (a)(i) through (xi):
(i) The Company has (A) duly and timely filed (or there has been duly and timely filed on its behalf) with the appropriate Governmental Authorities all material Tax Returns required to be filed by it, and all such Tax Returns are true, correct and complete in all material respects, (B) timely paid (or there has been timely paid on its behalf) all Taxes shown as due on such Tax Return and (C) established (or there has been established on its behalf) on the Balance Sheet (in accordance with GAAP) reserves that are adequate for the payment of any Taxes not yet due and payable or that are being contested in good faith;
(ii) Except in connection with the transactions contemplated by this Agreement, since the Balance Sheet Date, the Company has not incurred any liability for Taxes other than in the ordinary course of business consistent with past practice;
(iii) The Company has complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes (including, but not limited to, withholding in connection with payments to employees, independent contractors, creditors, stockholders, partners or other third parties) and has, within the time and manner prescribed by Law, withheld and paid over to the proper Governmental Authorities all material amounts required to be withheld and paid over under all applicable Laws;
(iv) There are no Liens for Taxes upon any assets or properties
of the Company except for Liens that are described in either clause (ii) or
(iii) of the definition of Permitted Liens. There are no outstanding waivers or
comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax Returns of the Company;
(v) The Company has not requested an extension of time within which to file any Tax Return in respect of any taxable period for which such Tax Return has not since been filed;
(vi) No jurisdiction in which the Company does not file a Tax Return has made a claim in writing that the Company is required to file a Tax Return for such jurisdiction and the Seller has no knowledge that any such jurisdiction has otherwise made any such claim;
(vii) No federal, state, local or foreign audits or other administrative proceedings have formally commenced or are presently pending with regard to any Taxes or Tax Returns of or including the Company, and no written notification has been received and the Seller has no knowledge that such an audit or other proceeding is pending or threatened with respect to any Taxes due from or with respect to the Company or any Tax Return filed by or with respect to the Company;
(viii) No deficiency for any Tax has been assessed with respect to the Company which has not been paid in full or reserved for on the Balance Sheet in accordance with GAAP;
(ix) No power of attorney which is currently in force has been granted by or with respect to the Company with respect to any matter relating to Taxes;
(x) Since December 31, 2000, the Company has not changed any method of accounting, received a ruling from any Tax authority or signed an agreement with any Tax authority which would affect the Purchaser (or any of its Affiliates) or the Company after the Closing;
(xi) Since December 31, 2000, no closing agreement pursuant to
Section 7121 of the Code (or any predecessor provision) or any similar provision
of any state, local or foreign Law has been entered into by or with respect to
the Company; and
(xii) The Company has not been a member of a federal, state or local consolidated, combined, unitary or similar group other than the group in which Seller is the common parent.
(b) For United States federal income tax purposes, the Seller is the parent of an affiliated group of corporations of which the Company is a member.
(c) (i) The federal income Tax Returns of the Company for all tax years through December 31, 2000, have been examined and the tax years agreed with by the Internal Revenue Service, and no adjustments to any such Tax Returns were made, or (ii) the statute of limitations with respect to all such Tax Returns has expired.
(d) For the two year period ending on the date hereof, the Company has not been a "distributing corporation" or a "controlled corporation" in a distribution intended to qualify under Section 355(a) of the Code.
(e) The Company is not a party to, is not bound by, and does not have any obligation under, any Tax sharing agreement, Tax indemnification agreement or similar contract or arrangement, whether written or, to the knowledge of the Seller, unwritten ("Tax Indemnification Agreement"), and the Company does not have any potential liability or obligation to any Person as a result of, or pursuant to, any such Tax Indemnification Agreement.
Section 3.13 Employee Benefits; ERISA.
(a) Except as provided in the following sentence, Schedule 3.13(a)
contains a correct and complete list of (i) each material employment,
termination, severance, bonus, deferred compensation, incentive compensation,
stock purchase, stock option, stock appreciation right or other stock-based
incentive plan, program, agreement, or arrangement applicable to employees,
consultants, independent contractors or sales associates of the Company; (ii)
each severance, change-in-control, or termination pay, surgical, hospitalization
or other medical, disability, life or other insurance, supplemental unemployment
benefits and other "welfare" plan, fund or program (within the meaning of
Section 3(1) of ERISA) applicable to employees, consultants, independent
contractors or sales associates of the Company; (iii) each profit-sharing, stock
bonus or pension plan, program, agreement or arrangement (within the meaning of
Section 3(2) of ERISA) applicable to employees, consultants, independent
contractors or sales associates of the Company; and (iv) each other material
employee benefit plan, fund, program, agreement or arrangement, that are
sponsored, maintained or contributed to or required to be contributed to by the
Company or any trade or business, whether or not incorporated (including Seller
and its Affiliates) (an "ERISA Affiliate"), that together with the Company would
be deemed a "single employer" within the meaning of Section 4001(b)(1) of ERISA
or to which the Company or an ERISA Affiliate has any liability or potential
liability for the benefit of any current or former employee or director of the
Company (collectively, the "Plans"). Notwithstanding anything in the foregoing
to the contrary, Schedule 3.13(a) needs only list those Plans that are (i)
sponsored by the Company (ii) agreements to which the Company is a party, or
(iii) that relate to severance; provided however that nothing in this sentence
is intended to limit or otherwise alter the definition of the term "Plan".
Neither the Company nor any ERISA Affiliate has any formal plan or commitment,
whether legally binding or not, to create any additional Plan or modify or
change any existing Plan in any material respect (except as required by law)
that would affect any current or former employee of the Company. The Plans
sponsored by the Company, as identified in Schedule 3.13(a), that will continue
to be sponsored by the Company after the Closing are identified as "Company
Plans".
(b) With respect to each of the Plans, copies of each of the following documents that are correct and complete in all material respects have previously been made available to the Purchaser: (i) a copy of the Plan documents (including all amendments thereto) for each written Plan or a written description of any Plan that is not otherwise in writing; (ii) a copy of the three
(3) most recent annual reports and actuarial reports, if required under ERISA, and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87; (iii) a copy of the most recent summary plan description and all other subsequent summaries of material modifications; (iv) if the Plan is funded through a trust or any other funding vehicle, a copy of the trust or other funding agreement (including all amendments thereto) and the latest financial statements thereof, if any; and (v) the most recent determination letter received from the IRS with respect to each Plan that is intended to be qualified under Section 401(a) of the Code.
(c) Except as otherwise disclosed under Schedule 3.13(c), no Plan is a "Multiemployer Plan," as such term is defined in Section 3(37) of ERISA. No liability under Title IV or Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring any such liability. The Company does not have any liability (i) under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, or (iv) as a result of failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code.
(d) All contributions required to be made with respect to any Plan as of the Balance Sheet Date have been timely made or are reflected on the Balance Sheet in all material respects in accordance with GAAP.
(e) None of the Company, any ERISA Affiliate nor any of the Plans, nor
any trust created thereunder, nor to the knowledge of the Seller, any trustee or
plan administrator thereof, has engaged in a transaction or has taken or failed
to take any action in connection with which the Company, any of the Plans, any
trust created thereunder, or any trustee or administrator thereof, or any party
dealing with any Plan or any such trust would subject the Company or the Plans
to any material liability for either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed pursuant to Section 4975(a) or (b) of
the Code. All contributions and premiums which the Company is required to pay
under the terms of each of the Plans and the Code, have, to the extent required,
been paid or properly recorded on the financial statements or records of the
Company in all material respects.
(f) (i) Each of the Company Plans and any Plan that is a qualified
defined contribution pension plan has been operated and administered in all
material respects in accordance with their terms and any Organizational
Documents and Law, including ERISA and the Code; (ii) each of the Plans that is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service, and
no circumstance exists that is or could reasonably be expected to result in a
revocation of any such favorable determination letter or loss of the
qualification of such Plan under Section 401(a) of the Code; (iii) no fund
established under any Company Plan is intended to satisfy the requirements of
Section 501(c)(9) of the Code; and (iv) there are no pending, or to the
knowledge of the Seller, threatened claims by or on behalf of any Company Plan,
by any employee or beneficiary under any such Company Plan, or otherwise
involving any such
Company Plan (other than routine claims for benefits or relating to qualified domestic relations orders). No Person is entitled to receive any "gross-up" payment from the Company in the event that the excise Tax of section 4999(a) is imposed on such Person.
(g) No Company Plan provides benefits, including death, hospitalization, surgical, medical or similar benefits (whether or not insured), with respect to current or former employees of the Company or any ERISA Affiliate after retirement or other termination of service (other than coverage mandated by applicable Laws or death benefits under any "employee pension plan"). The Company has no liability, contingent or otherwise, under any excess benefit plan or supplemental executive retirement plan.
(h) Except as otherwise set forth on Schedule 3.13(a) or as provided
in Sections 5.3, 5.4, or 5.5, the consummation of the transactions contemplated
by this Agreement will not, either alone or in combination with another event,
(i) entitle any current or former employee, officer or director of the Company
to severance pay, unemployment compensation or any other similar payment or (ii)
accelerate the time of payment or vesting, or increase the amount of or
otherwise enhance any benefit due any such employee, officer or director.
(i) The Company is not a party to any agreement, plan, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code.
Section 3.14 Labor Matters.
(a) (i) No labor strike, slowdown, stoppage or lockout of the Company's employees is pending, or to the knowledge of the Seller, threatened against the Company and during the past three (3) years there has not been any such action, (ii) the Company is not party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company, (iii) to the knowledge of the Seller, no employees of the Company are represented by any labor organization with respect to their employment with the Company, nor to the knowledge of the Seller does any question concerning labor representation exist concerning such employees with respect to their employment with the Company and the Seller has no knowledge of any union organizing activities among such employees with respect to their employment with the Company within the past three (3) years, (iv) the Company is not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable Laws, (v) no unfair labor practice charge or complaint against the Company is pending or, to the knowledge of the Seller, threatened before the National Labor Relations Board or any similar agency, (vi) to the knowledge of Seller, no charges or complaints with respect to or relating to the Company are pending before the Equal Employment Opportunity Commission or any other agency responsible for the prevention of unlawful employment practices, (vii) the Company has not received within the past three (3) years any written notice of the intent of any Governmental Authority responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to the Company and, to the knowledge of the Seller, no
such investigation is in progress, (viii) no written complaints or lawsuits are pending or, to the knowledge of the Seller, threatened by or on behalf of any class or group of applicants for employment or retention, or present or former employees or sales associates of the Company or the Seller, alleging breach by the Company of any express or implied contract of employment, any Laws governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship, and (ix) except as set forth on Schedule 3.13(a), no employment contracts or severance agreements exist with any employee of the Company.
(b) The Company and the Seller have at all times in the past three (3) years properly classified each of their respective employees as employees and each of their independent contractors as independent contractors, as applicable, except for any failure which could not reasonably be expected to be material. There is no action, suit or investigation pending, or to the knowledge of the Seller, threatened, against the Company by any Person challenging or questioning the classification by the Company or the Seller of any Person as an independent contractor, including any claim for unpaid benefits, for or on behalf of, any such Persons.
(c) No more than ten of the Company's employees have suffered an "employment loss" (as defined in the Worker Adjustment and Retraining Notification Act) during the six-month period prior to the date of this Agreement.
(d) The Company and the Seller (with respect to the Business) and, to the knowledge of the Seller, each person acting as an agent thereof in his or her capacity as such, is in compliance in all material respects with all federal, state and local laws, statutes and regulations having the purpose or effect of prohibiting unlawful discrimination against customers or potential customers and, to the knowledge of the Seller, the Seller or the Company or their Affiliates have received no written complaints from any person or governmental agency that the Company or the Seller (with respect to the Business) or any person acting as an agent thereof has engaged in any unlawful discrimination.
Section 3.15 Affiliate Transactions.
(a) As of the Closing, all agreements between the Company, on the one hand, and any current or former director or officer of the Company or Seller, on the other hand, shall be deemed terminated without any further liability of the Company thereunder.
(b) Other than accounts payable incurred in the ordinary course of business and reflected in the Closing Date Working Capital and other than obligations under letters of credit or guarantees relating to Leases under which the Company is the Lessee, any Indebtedness or other amounts owing between the Company, on the one hand, and Seller or any of its Affiliates, on the other hand, have been paid or terminated. The Seller and the Company have caused all agreements (other than the Related Agreements and other than letters of credit or guarantees relating to Leases under which the Company is the Lessee) between the Company, on the one hand, and any of its Affiliates, on the other hand, to be terminated in all respects, and there is no
liability thereunder on the part of the Company under such terminated agreements, other than amounts owed in respect of (i) current referrals and (ii) other transactions in the ordinary course of business.
Section 3.16 Listings.
(a) Schedule 3.16(a) sets forth, as of February 10, 2004, an itemization that is correct and complete in all material respects based on the books and records of the Company of all of the Company's rights under open real estate listings (whether or not pursuant to a listing agreement) between the Company and owners of real property ("Listings"), other than Listings that may exist but as to which the Seller does not have specific knowledge. As of the date of this Agreement, the information set forth on Schedule 3.16(a) continues to be correct and complete in all material respects except for such changes since that date resulting from the conduct of the Business in the ordinary course consistent with past practices and for changes that may have occurred but as to which the Seller does not have specific knowledge.
(b) Other than in connection with the business of the Mortgage LLC, the Company has no loan commitments or other commitments to fund the purchase of real property, including under mortgage brokerage arrangements between the Company and any prospective purchasers of real property, third party investors or banks.
(c) Other than the Client Trust Funds the Company does not have any open title or escrow accounts.
Section 3.17 Sales Associates. Schedule 3.17 sets forth the current commission schedule for the Company that is correct and complete in all material respects and a list that is correct and complete in all material respects of the sales associates affiliated with the Business as of January 31, 2004 (the "Sales Associates"), and with respect to each such Sales Associate the following information: (i) the name of such Sales Associate, (ii) the office in which such Sales Associate is located or otherwise affiliated, (iii) the commission split in effect immediately prior to the date of this Agreement (as set forth in the Company's Commission Plan for 2004, annexed to Schedule 3.17), (iv) such Sales Associate's total sales commissions earned for each of calendar year 2003 and for the period from January 1, 2004 through January 31, 2004 and (v) with respect to the commissions set forth under clause (iv), the Sales Associate's portion of such commissions earned, on one hand, and the Company's portion of such commissions earned, on the other hand. To the knowledge of the Seller, as of the date of this Agreement, such list continues to be correct and complete in all material respects except for such changes since that date resulting from the conduct of the Business in the ordinary course consistent with past practices. The Company has not changed its commission schedule other than as reflected in the Sales Associates Commission Plan for 2004, or increased any Sales Associate's commission split (except based upon increased sales commissions earned of such Sales Associate consistent with corporate policy and past practices), since January 1, 2004. Except as set forth on Schedule 3.17, the Sales Associates have each executed an Independent Contractor Agreement in substantially one of the forms annexed to Schedule 3.17.
Section 3.18 Employees.
(a) Schedule 3.18(a) sets forth a list that is correct and complete, as of January 31, 2004, of all of the employees of the Company and of the Seller and their Affiliates engaged in any respect in the Business and any employees of the Company and of the Seller and their Affiliates engaged in any respect in the Business who were hired after January 31, 2004 and who will receive annual salary in excess of $50,000, and with respect to each such employee the following information: (i) the name of such employee, (ii) the employee's location of employment, (iii) the title of such employee, and (iv) compensation and bonuses, for calendar year 2003 and for the period from January 1, 2004 to January 31, 2004. All of the employees listed on Schedule 3.18 other than Stuart Siegel are employed by the Company.
(b) Except as set forth on Schedule 3.18(b), the Company does not have any obligations to make any material payments pursuant to any non-compete agreements or similar arrangements with any employee.
Section 3.19 Broker Affiliates.
(a) Schedule 3.19(a) sets forth, to the knowledge of the Seller, a complete and accurate list, with respect to each Broker Affiliate Agreement, containing the following information: (i) the parties to such agreement (except to the extent the Broker Affiliate's name may have changed) and (ii) if available, the date such Broker Affiliate Agreement was executed. Other than the Broker Affiliate Agreements listed on Schedule 3.19(a), there are no Broker Affiliate Agreements or other agreements creating relationships between the Seller (with respect to the Business) or the Company and any Person similar to those set forth in the Broker Affiliate Agreements. Except as set forth on Schedule 3.19(a), each of the Broker Affiliate Agreements may be terminated at will by the Company, without any payment or penalty, upon notice given not more than 180 days prior to any anniversary date of such Broker Affiliate Agreement, except to the extent a longer notice period may be required by applicable state law.
(b) Other than as set forth in the Broker Affiliate Agreements set forth on Schedule 3.19(a), none of the Business, the Seller (with respect to the Business) or the Company is subject to any geographic limitations or covenants not to compete or similar obligation in their business, in each case other than limitations or covenants that are not material to the Business. During the three years prior to Closing, the Seller has not received any written notice of material dispute from any Broker Affiliate or delivered any written notice of material dispute to any Broker Affiliate, in each case other than in the ordinary course of business.
(c) Except as set forth on Schedule 3.19(a), to the knowledge of the Seller, true and correct copies of all Broker Affiliate Agreements in effect on the date hereof under which the Company conducts the Business (or in the case of oral Broker Affiliate Agreements, summaries of the material terms thereof) have been provided to the Purchaser. To the knowledge of the Seller, there are no oral or written modifications of any such Broker Affiliate Agreements that are currently in effect and no oral or written commitments (other than those commitments expressly set forth in the Broker Affiliates Agreements, or summaries thereof,
provided to the Purchaser) have been made by Seller or its Affiliates (including the Company) with respect thereto.
Section 3.20 Client Trust Funds. Schedule 3.20 sets forth, as of December 31, 2003, a list that is correct and complete in all material respects of any and all Client Trust Funds held by the Company, indicating the name of the depository, the account number, the date of the deposit, and the amount thereof and, as of the date of this Agreement, such list continues to be correct and complete in all material respects except for such changes since that date resulting from the conduct of the Business in the ordinary course consistent with past practices. The Company has held, disbursed and paid to depositors monies from its Client Trust Funds in material compliance with all applicable Laws. To the knowledge of the Seller, since January 1, 2003, there has been no improper co-mingling of its Client Trust Funds and no shortages exist, nor have any shortages ever existed, in such funds. Neither the Company nor the Seller (with respect to the Business) is providing any title or escrow services and neither the Company nor the Seller (with respect to the Business) are holding any funds for the benefit of third parties in connection with any title or escrow services or in connection with mortgage loans to be disbursed.
Section 3.21 Brokers, Finders, etc. In connection with the transactions contemplated by this Agreement and the Related Agreements, no broker, finder or investment bank has acted for the Seller or its Affiliates, and none of them has incurred any obligation to pay a brokerage, finder's or other fee or commission to any Person, in either case, for which the Purchaser will be liable or the Company will be liable.
Section 3.22 Certain Reorganization Matters. Prior to or effective upon the
execution, delivery and closing of this Agreement, (i) the Company has
distributed to Seller all of the issued and outstanding shares of capital stock,
membership interests and other equity interests held by it in each of the
Excluded Companies, (ii) the Seller has caused the Service Mark License and
Trading Name Agreement dated January 1, 1996 between SPTC, Inc. and SIR to be
terminated, and (iii) Seller and the Company have given notice of termination of
the Mortgage LLC Operating Agreement (the transactions referred to in clauses
(i), (ii) and (iii) are referred to collectively as the "Reorganization"). The
Reorganization has not given rise to, nor will it give rise to, any third party
right of termination, cancellation or acceleration or any other third party
right with respect to any asset, property or right (including any agreement)
used or held for use in the Business. The Reorganization has been validly and
duly authorized by the Company and any appropriate Affiliate involved.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser and the Purchaser Guarantor each hereby represents and warrants to the Seller as follows:
Section 4.1 Authority; Validity. Each of the Purchaser and the Purchaser Guarantor is a company validly existing and in good standing under the laws of the state of its incorporation. The Purchaser has the corporate power and authority to execute and deliver this Agreement and the Transition Services Agreement and to consummate the transactions contemplated hereunder and thereunder, and the Purchaser Guarantor has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereunder. The execution, delivery and performance of this Agreement and the Transition Services Agreement by the Purchaser and the consummation by the Purchaser of the transactions contemplated hereunder and thereunder, have been duly and validly authorized by the Purchaser, and no other corporate proceedings on the part of the Purchaser are necessary to authorize this Agreement or the Transition Services Agreement or the consummation of the transactions contemplated hereunder or thereunder. The execution, delivery and performance of this Agreement by the Purchaser Guarantor and the consummation by the Purchaser Guarantor of the transactions contemplated hereunder and thereunder, have been duly and validly authorized by the Purchaser Guarantor, and no other corporate proceedings on the part of the Purchaser Guarantor are necessary to authorize this Agreement or the consummation of the transactions contemplated hereunder. This Agreement and the Transition Services Agreement have been duly executed and delivered by the Purchaser and this Agreement has been duly executed and delivered by the Purchaser Guarantor, and, assuming due execution and delivery by the Seller, constitute valid and binding obligation of the Purchaser and the Purchase Guarantor, as the case may be, enforceable against such Person in accordance with their terms, except as may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
Section 4.2 Organization
(a) Each of the Purchaser and the Purchaser Guarantor has the requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted.
(b) Complete and correct copies of the Organizational Documents of the Purchaser and the Purchaser Guarantor, each as in effect on the date hereof, have been delivered or made available to the Seller.
Section 4.3 No Conflict; Governmental Consents.
(a) The execution, delivery or performance by the Purchaser of this Agreement and the Transition Services Agreement and the consummation of the transactions contemplated hereby or thereby and compliance by the Purchaser with any of the provisions hereof and thereof, and the execution, delivery or performance by the Purchaser Guarantor of this Agreement and the consummation of the transactions contemplated hereby and compliance by the Purchaser Guarantor with any of the provisions hereof, in each case will not: (i) violate any provision of any Organizational Document of the Purchaser or the Purchaser Guarantor, (ii) require any consent, approval or notice under, violate or result in the violation of, conflict with or result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time or both, could reasonably be expected to constitute a default) under, result in the termination of, accelerate the performance required by or result in a right of termination or acceleration, result in the loss of a material benefit under any of the terms, conditions or provisions of any material contractual obligation of the Purchaser or the Purchaser Guarantor (other than such consents as have already been obtained), (iii) result in the creation of any Lien, other than any Permitted Liens, upon any of the properties or assets of any of the Purchaser or the Purchaser Guarantor, or (iv) violate any Law applicable to the Purchaser or the Purchaser Guarantor, except, in the case of clauses (ii) and (iii) above, for violations, breaches, defaults, terminations, accelerations, loss of benefits or creations of Liens that, individually or in the aggregate, could not reasonably be expected to have a Purchaser Material Adverse Effect.
(b) No consent, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by the Purchaser or the Purchaser Guarantor in connection with the execution, delivery and performance of this Agreement or the Transition Services Agreement or the consummation of the transactions contemplated hereby or thereby that has not been obtained or made, as applicable except (i) where the failure to obtain or make any such consent, order, authorization, registration, declaration or filing, individually or in the aggregate, could not reasonably be expected to have a Purchaser Material Adverse Effect and (ii) for any consent, order or authorization of, or registration, declaration or filing with, any Governmental Authority that would otherwise not be required to be obtained or made but for the specific regulatory status of the Seller or its Affiliates.
Section 4.4 Financing. The Purchaser has sufficient cash to enable it to make payment of the Purchase Price and any other amounts to be paid by it hereunder.
Section 4.5 Litigation. There is no litigation, legal action, arbitration, proceeding, demand, claim or known investigation brought by or against the Purchaser or any of its Affiliates or any of their respective assets or businesses pending or, to the knowledge of the Purchaser, threatened against the Purchaser or any of its Affiliates which (i) if adversely determined could reasonably be expected to have a Purchaser Material Adverse Effect, (ii) seeks to prevent consummation of the transactions contemplated hereby or which seeks damages in connection with the transactions contemplated hereby or (iii) was required by applicable Law to be
described in Parent Guarantor's most recent Annual Report on Form 10-K filed with the Securities Exchange Commission or in any registration statement, report, schedule, form, statement or other document filed by Parent Guarantor with the Securities Exchange Commission since the filing of such Form 10-K, and was not so described therein.
Section 4.6 Investment Representation. The Purchaser acknowledges that the Shares are not registered under the securities laws of any jurisdiction and that it is acquiring the Shares for its own account, and not with a view to the distribution thereof. The Purchaser is a sophisticated investor with knowledge and experience in financial matters and has received information from the Seller concerning the Company, and the Business (including the Excluded Assets) and has had the opportunity to obtain additional information in order to evaluate the purchase contemplated hereby.
Section 4.7 Brokers, Finders, etc. In connection with the transactions contemplated by this Agreement and the Related Agreements, no broker, finder or investment bank has acted for the Purchaser or its Affiliates, and none of them has incurred any obligation to pay a brokerage, finder's or other fee or commission to any Person, in either case, for which the Seller or any of its Affiliates will be liable.
ARTICLE V
COVENANTS
Section 5.1 Reasonable Best Efforts; Further Assurances.
(a) From and after the Closing, upon the terms of this Agreement and subject to applicable law, each of the parties shall act in good faith and shall cooperate with each other and use their commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, to the extent such actions have not been taken or completed prior to Closing, all things reasonably necessary to consummate and make effective the transactions contemplated by this Agreement as soon as practicable.
(b) Without limiting the foregoing Section 5.1(a), the Seller shall consult and cooperate in good faith with the Purchaser without payment of any consideration therefor by Seller, in obtaining all necessary consents, approvals, waivers, licenses, permits, authorizations, registrations, qualifications or other permission or action by, and giving all necessary notices to and making all necessary filings with and applications and submissions to, any Governmental Authority or other Person (including without limitation any landlord under any Lease or Sublease), as soon as reasonably practicable after execution of this Agreement.
(c) Following the Closing, the Purchaser shall provide the Seller with reasonable access to the books and records and employees, directors and officers of, and other information relating to, the Company (and its successors and assigns) (i) in connection with the performance by the Seller of its obligations hereunder, (ii) as may be required by Law or (iii) as may
otherwise be reasonably requested by the Seller in connection with any accounting or reporting requirement applicable to the Seller or its Affiliates.
(d) The Purchaser intends, after the Closing, to review the earn-out or similar contingent purchase amounts payable pursuant to the Jackson Hole Agreement. The Purchaser may, in that connection, request that the Seller participate in a discussion with certain parties to the Jackson Hole Agreement (other than the Company) regarding the Purchaser's proposed changes to the provisions of the Jackson Hole Agreement with respect to such earn-out or similar contingent purchase amounts, as between such parties to the Jackson Hole Agreement and the Purchaser or the Company, and the Seller shall join such discussion if so requested. The Seller shall not have any obligation to assist in determining or achieving any such changes or any liability with respect to such matters whatsoever. None of such matters shall diminish the Company's and the Purchaser's retention of the obligation with respect to such earn-out or similar contingent purchase amounts and the Seller not having any responsibility therefor.
Section 5.2 Public Disclosure; Confidentiality. The parties have agreed on the forms of their respective press releases covering the transactions contemplated hereby as set forth on Schedule 5.2. Except as may be required to comply with any applicable Law or stock exchange rule, the Purchaser and the Seller shall not (and shall use their commercially reasonable efforts to cause its Affiliates not to) issue any press release or make any other public announcement concerning the terms of this Agreement, the Related Agreements or the transactions contemplated hereby or thereby. Notwithstanding the foregoing, the parties may disclose the terms of this Agreement to their respective officers, employees, accountants, attorneys, financial advisors and lenders as may be necessary or reasonably desirable in connection with such party's business and the performance of such Person's duties in connection therewith. From and after the Closing Date until October 17, 2005, the Seller shall, and shall use its commercially reasonable efforts to cause its Affiliates and other representatives to, not disclose and to keep confidential all confidential and proprietary information relating to the Company and the Business (other than information which is generally available to the public or thereafter becomes generally available to the public (other than as a result of disclosure by Seller or its Affiliates)); provided, however, that the Seller and any of its Affiliates may disclose confidential and proprietary information relating to the Company and the Business to the extent such disclosure is required by applicable Law or stock market rule, subject (other than in the case of disclosure pursuant to applicable corporation or securities Laws or regulations of any securities exchange) to prior written notice to the Purchaser and cooperation with the Purchaser to obtain a protective order or similar confidentiality arrangement, if available.
Section 5.3 Employee Plans.
(a) The Seller shall assume and retain the Indemnified Benefits Liabilities. "Indemnified Benefits Liabilities" shall mean any and all liabilities relating to, arising out of, or resulting from (i) all Plans (including but not limited to the Sotheby's, Inc. 1998 benefit equalization plan) other than the Company Plans, (ii) the Company Plans to the extent incurred prior to the Closing, (iii) noncompliance with or violation of COBRA to the extent incurred prior
to the Closing, (iv) to the extent not covered under the applicable Plans at the
Closing, the continuation coverage requirements of Section 4980B of the Code
with respect to employees of the Company who have incurred a "qualifying event"
(as defined in Section 4980B(f)(3) of the Code) and their qualified
beneficiaries, (v) noncompliance with or violation of any of the provisions of
ERISA to the extent incurred or related to periods prior to the Closing, and
(vi) claims by employees, independent contractors or directors of the Company to
the extent arising from or relating to their employment with or services to the
Company prior to the Closing (including termination of such employment or
service prior to the Closing).
(b) The Seller has taken any and all actions necessary to cause each employee and independent contractor of the Company, immediately prior to the Closing who has a benefit or account in any employee pension benefit plan (as defined in Section 3(2) of ERISA) which is sponsored by the Seller or any of its ERISA Affiliates to become fully vested in such benefit or account effective immediately prior to the Closing.
(c) On and after the Closing Date, the Purchaser shall provide, or cause to be provided, to each Employee under each Plan maintained by the Company and each other employee benefit plan (within the meaning of Section 3(3) of ERISA) maintained or contributed to by the Purchaser, Purchaser Guarantor or their respective Subsidiaries or Affiliates (collectively, the "Purchaser Plans"), credit, for purposes of eligibility to participate, vesting and accrual of benefits, for full and partial years of service with the Company, the Seller or their respective Subsidiaries or Affiliates performed at any time prior to the Closing Date to the extent credited by the Company, the Seller, or their respective Subsidiaries or Affiliates under the applicable Plan or any employee benefits plan of Seller, except where such crediting results in the duplication of benefits.
(d) The Purchaser shall, or shall cause the Company or any of its Affiliates to, (i) waive all limitations as to pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to all Employees under any welfare benefit plan established to replace any welfare benefit plan (as defined in Section 3(1) of ERISA) covering Employees at the Closing Date, other than limitations or waiting periods that are already in effect with respect to any such Employee and that have not been satisfied as of the Closing Date under the welfare benefit plan maintained for such Employees immediately prior to the Closing Date, and (ii) provide each such Employee with credit for co-payments and deductibles paid prior to the Closing Date in satisfying any co-payment, deductible, or out-of-pocket requirements under any welfare benefit plans that such Employees are eligible to participate in after the Closing Date.
(e) The Purchaser shall recognize accrued but unused paid vacation, earned time off, and sick leave accrued by an Employee as of the Closing Date to the extent that such benefits are reflected on the Balance Sheet. Following the Closing Date, the Seller shall confirm in writing to the Purchaser and to each Employee the amount of such accrued and unpaid days of vacation, earned time off, and sick leave applicable to such Employee. No leave transferred pursuant to this paragraph shall be forfeited by an Employee or included in determining whether
an Employee has accrued the maximum amount of time off that can be carried over from one year to the next under the Purchaser's plan.
(f) The Seller, the Purchaser and the Company shall cooperate, subject
to applicable law, in (i) making all appropriate filings required under the Code
or ERISA and any applicable securities Laws with respect to the Plans, (ii)
implementing all appropriate communications with participants under the Plans,
(iii) maintaining and transferring appropriate records, and (iv) taking all such
other actions as may be necessary and appropriate to implement the provisions of
Section 3.14. The Seller, the Purchaser and the Company shall cooperate fully
with one another in providing records regarding the employment of, and benefits
provided to, all individuals who are or were Employees.
(g) The Company shall continue to sponsor the Company Plans identified as such on Schedule 3.13(a) as of the Closing. However, nothing in the Section 5.3(g) is intended to impair the Company's ability to terminate the Company Plans, at any time.
Section 5.4 Change of Control Payments.
(a) The Seller shall be responsible for any and all severance and
change of control payments under existing employment, independent contractor or
other similar arrangements with any of the Seller or the Company or any of their
Affiliates, if and to the extent such payments are resulting solely from either
(i) events which occur prior to Closing, or (ii) the occurrence of the Closing
(but not as a result of any termination or other action taken thereafter to the
extent that the amount payable upon such termination or other action taken
thereafter is not, as a result of the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, greater than the
amount payable if termination were to occur in the absence of the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby), to the extent such payments are not covered by the definition of
"Indebtedness" herein.
(b) The Purchaser shall be responsible for any and all severance or change of control payments to the Employees, other than those for which the Seller is responsible pursuant to Section 5.4(a) and those included on Schedule 5.4(b).
Section 5.5 Employees. The Purchaser shall (i) cause the Company to continue the employment of the Company's employees, (ii) offer employment to Stuart N. Siegel (the employees referred to in clauses (i) and (ii) of this sentence, collectively, the "Employees") and (iii) provide each Employee with coverage and benefits pursuant to employee benefit plans, programs, policies, and arrangements maintained by the Purchaser consistent with what the Purchaser provides to its other similar situated employees. The Purchaser shall pay the Employees at least the full amount of any unpaid bonuses or commissions earned pursuant to bonus and commission plans of the Seller that are accrued and reflected on the Closing Date Balance Sheet. The Purchaser shall provide the Employees with a qualified defined contribution pension plan that will accept a direct rollover of each Employee's account balance in Seller's qualified defined contribution pension plan, other than any portion of such account balance
which includes outstanding loan balances or after tax contributions. Any Employee terminated during the one year period immediately following the Closing Date (the "Continuation Period") shall receive from the Purchaser severance benefits equal to those that such terminated Employee would have been entitled to receive under the applicable severance plan of the Seller if such Employee had continued to be employed by the Seller until his or her employment termination date. Following the expiration of the Continuation Period, the Employees shall participate in a severance plan of the Purchaser, on the same terms and conditions which are generally applicable to employees of the Purchaser (except that the Purchaser shall provide each such Employee credit for full and partial years of service with the Company, the Seller or their respective Subsidiaries or Affiliates performed at any time prior to the expiration of the Continuation Period), provided that the Employees set forth on Schedule 5.5 shall be entitled to receive severance benefits equal to at least 100% of his then-current base salary plus 100% of his most recent annual bonus if he is terminated without cause during the one-year period immediately following the Continuation Period. Subject to the foregoing, all terms and conditions of the employment of any person hired by the Purchaser are matters within the Purchaser's sole discretion, it being expressly understood that the Purchaser reserves full right (among others) to terminate the employment of any Employee at any time, as well as to amend or terminate any employee benefit plans or programs at any time. As of the Closing Date, the Purchaser shall bear all costs and expenses, including accrued vacation pay arising out of the termination of any Employee after the Closing Date. The Seller shall cause to be paid, at the Closing Date, to Stuart N. Siegel an amount of $670,000 pursuant to the termination agreement entered into between Seller or one of its Affiliates and Stuart N. Siegel.
Section 5.6 Insurance. The Purchaser acknowledges that the Seller's and the Company's insurance coverage for the Company and the Business shall terminate as of the Closing.
Section 5.7 Closing Date Transactions. In the event that the Purchaser
causes the Company to take or the Company takes any action outside the ordinary
course of business on the Closing Date after the Closing which affects any item
included in the calculation of Indebtedness or Working Capital pursuant to
Section 2.5 except as expressly contemplated by this Agreement, such
calculations of Indebtedness and Working Capital shall be appropriately adjusted
to exclude the effect of any such actions.
Section 5.8 Certain Services and Benefits Provided by Affiliates. The Purchaser acknowledges that the Company and the Business currently receive from the Seller and its Affiliates certain Support Services. The Seller and Purchaser acknowledge that all such Support Services shall cease at the Closing, and any agreement in respect thereof shall terminate with respect to the Company and the Business, in each case as of the Closing Date, with no further obligation of the Company.
Section 5.9 Pendings. Following the Closing, Purchaser shall cause the Company to (i) use commercially reasonable efforts (which shall not include any obligation to commence or pursue any litigation, arbitration or similar proceedings) to promptly collect any amounts due
to the Company or its Affiliates in connection with the closing of any real estate transactions and sales contracts pending as of the date of this Agreement, including under real estate listing agreements listed on Schedule 5.9 ("Pendings"), and (ii) pay to the Seller, within five (5) Business Days following the end of any calendar month in which any such proceeds are received, any and all proceeds received by the Company or any of its Affiliates, less, with respect to the closing of any such Pendings, any fees or commissions payable to any employees, sales associates and co-brokers, in accordance with the applicable commission splitting agreement or arrangement with such foregoing parties. Any commission splitting changes made by the Purchaser or the Company following the Closing shall not apply to the Pendings. Seller shall be permitted for a period of three years following the Closing, no more than twice in any twelve-month period, to inspect and conduct an audit of the books and records of the Company relating to the Pendings solely for purposes of verifying the amount and accuracy of any proceeds to which the Seller is entitled to with respect to such Pendings under this Section 5.9. Any such audit or inspection shall be conducted during normal business hours, upon reasonable advance notice and shall not unreasonably interfere with the conduct of the Company's or the Purchaser's business. The Seller shall provide Purchaser not less than 20 days' advance written notice of any inspection and audit pursuant to this Section 5.9.
Section 5.10 Mortgage LLC.
(a) Following the Closing, to the extent that the Company shall have
the right to take any action or exercise any right in each case under the
Mortgage LLC Operating Agreement and the Mortgage LLC Contracts, the Purchaser
shall cause the Company to (i) promptly take any such action and exercise any
such right of the Company solely as directed in writing by Seller (other than
any action or any exercise of right that is not permitted by Mortgage LLC
Operating Agreement and the Mortgage LLC Contracts or under applicable Law),
(ii) not take any other action or exercise any other right of the Company in
each case under the Mortgage LLC Operating Agreement and the Mortgage LLC
Contracts other than as required by applicable Law and except to the extent
required by the Mortgage LLC Contracts and (iii) promptly provide to the Seller
copies of all written notices and a summary of all other communications received
by the Company or its Affiliates from the Mortgage LLC Partner.
(b) Following the Closing, Purchaser shall cause the Company to pay or transfer to the Seller, within five (5) Business Days after receipt thereof, (i) any assets of the Mortgage LLC distributed to the Company and (ii) any other proceeds received by the Company with respect to the Mortgage LLC Contracts.
(c) Except as otherwise required by applicable law, for Tax reporting purposes, the parties shall treat the Company as having transferred to the Seller beneficial ownership of the interests in Mortgage LLC held by the Company immediately prior to Closing.
Section 5.11 Lease Matters. Schedule 5.11 identifies all Leases in respect of which letters of credit or guarantees for the obligations of the Lessees under such Leases have been provided (the "Lease Security"). Within 60 days after the Closing Date, Purchaser shall
use commercially reasonable efforts to deliver to the landlord under each such Lease a replacement letter of credit or guarantee from Purchaser or Parent Guarantor (if needed), as applicable, in the amount, form and substance required under the respective Lease and shall use commercially reasonable efforts to cause the landlord under any such Lease to deliver to the Seller the current Lease Security, together with evidence, in form and substance reasonably acceptable to the Seller, that the Seller has no further obligations or liabilities under or with respect to any of the Lease Security. In connection with the foregoing, the Purchaser shall use commercially reasonable efforts to enter into such amendments to such Leases as may be commercially reasonable to give effect to the foregoing. Notwithstanding the foregoing, commercially reasonable efforts shall not require the Purchaser to pay any consideration to replace the Lease Security other than offering the replacement letter of credit or guarantee referred to above. Upon demand, Purchaser shall reimburse the Seller for all costs, claims and expenses incurred by the Seller under or in respect of any Lease Security (including any payment by Seller or any of its Affiliates under any such guarantee or in respect of reimbursement of any drawing of any such letters of credit) after the Closing Date.
Section 5.12 Litigation.
(a) Following the Closing the Seller (or any of its designated Affiliates) shall have the right to assume the prosecution of any Litigation set forth on Schedule 3.11(a) in which the Company is the plaintiff at its own cost and expense with counsel selected by the Seller or its designated Affiliate by giving written notice to the Purchaser of its intention to assume such prosecution; provided, however, that the Seller (or any of its designated Affiliates) shall not, in prosecution of such Litigation, be permitted to admit to any liability with respect to, or consent to the entry of any judgment or enter into any settlement with respect to, any such Litigation without the prior written consent of the Purchaser (which consent shall not be unreasonably withheld or delayed), and the Purchaser or any of its Affiliates will not be subject to any liability for any such admission, settlement, compromise, discharge or consent to judgment made by the Seller (or any of its designated Affiliates) without such prior written consent of the Purchaser. The Company may participate in (but not control) any prosecution assumed by the Seller (or any of its designated Affiliates) pursuant to this Section 5.12, and the Company will bear its own costs and expenses with respect to such participation. The Purchaser shall cause the Company and its Affiliates to cooperate reasonably with the Seller (or any of its designated Affiliates) in all aspects of any investigation, prosecution, pre-trial activities, trial compromise, settlement or discharge of any such Litigation, including, without limitation, by providing the Seller (or any of its designated Affiliates) with reasonable access to employees, directors and officers (as witnesses) and other information.
(b) The Purchaser shall cause the Company and, if applicable, its Affiliates to pay or transfer to the Seller, within five (5) Business Days after receipt thereof, any proceeds received by the Company or its Affiliates in connection with the settlement, compromise or final determination of any Litigation referred to in Section 5.12(a).
Section 5.13 2004 Capital Plan. The Purchaser acknowledges and agrees that the Company's capital expenditures for the period from the Balance Sheet Date until the Closing as contemplated by the 2004 Capital Plan are adequate for the operation of the Business.
ARTICLE VI
CERTAIN TAX MATTERS
Section 6.1 Preparation and Filing of Tax Returns; Payment of Taxes.
(a) The Seller shall prepare (or cause to be prepared) all Tax Returns required to be filed by the Company for all Pre-Closing Periods that end on or prior to the Closing Date (such Tax Returns, the "Pre-Closing Period Tax Returns") (provided that the Seller shall submit a draft of any such Tax Return required to be filed by the Company on a stand-alone basis to the Purchaser for its review at least five (5) Business Days prior to the due date of such Tax Return). All such Pre-Closing Period Tax Returns, to the extent they relate to the Company, shall be prepared in a manner that is consistent with the prior practice of the Company, except as required by applicable Law. The Seller shall file all such Pre-Closing Period Tax Returns, provided, however, if any Pre-Closing Period Tax Return is due after the Closing and the Seller is not authorized to file such Pre-Closing Period Tax Return by Law, the Purchaser and its Affiliates shall file (or cause to be filed) such Pre-Closing Period Tax Return as prepared by Seller (in accordance with this Section 6.1(a)) with the appropriate Tax authorities. The Seller shall pay all Taxes due and payable in respect of all Pre-Closing Period Taxes and Tax Returns; provided, however, that if any Pre-Closing Period Tax Return is due after the Closing and is to be filed (or caused to be filed) by the Purchaser, the Seller shall pay (in immediately available funds) all Taxes due and payable in respect of such Tax Return to the Purchaser no later than three (3) days prior to the due date of such Tax Return. The Purchaser shall cooperate with Seller in the filing of such Pre-Closing Period Tax Return.
(b) The Purchaser shall prepare and timely file, or cause the Company
to prepare and timely file, all Tax Returns required to be filed by the Company
for all Straddle Periods (such Tax Returns, the "Straddle Period Tax Returns").
All Straddle Period Tax Returns shall be prepared and filed in a manner that is
consistent with the prior practice of the Company, except as required by
applicable Law. The Purchaser shall deliver or cause to be delivered drafts of
all Straddle Period Tax Returns to the Seller for its review at least thirty
(30) days prior to the due date of any such Straddle Period Tax Return (taking
into account valid extensions) and shall notify the Seller of the Purchaser's
calculation of the Seller's share of the Taxes of the Company for any such
Straddle Periods (determined in accordance with Section 6.3(c)); provided,
however, that such drafts of any such Straddle Period Tax Returns and such
calculations of the Seller's share of the Tax liability for such Straddle Period
(determined in accordance with Section 6.3(c)) shall be subject to the Seller's
review and approval, which approval shall not be unreasonably withheld or
delayed. If the Seller disputes any item on such Straddle Period Tax Return, it
shall notify the Purchaser (by written notice within fifteen (15) Business Days
of receipt of the Purchaser's calculation) of such disputed item (or items) and
the basis for its
objection. If the Seller does not object by written notice within such period,
the Purchaser's calculation of the Seller's share of the Taxes for such Straddle
Period shall be deemed to have been accepted and agreed upon, and final and
conclusive, for all purposes hereof. The Purchaser and the Seller shall act in
good faith to resolve any such dispute prior to the date on which the Tax Return
is required to be filed. If the Purchaser and the Seller cannot resolve any
disputed item, the item in question shall be resolved by an independent auditor
mutually acceptable to the Purchaser and the Seller as promptly as practicable.
The fees and expenses of the independent auditor shall be paid fifty percent
(50%) by the Purchaser and fifty percent (50%) by the Seller. No later than
three (3) days prior to the filing of such Straddle Period Tax Return, the
Seller shall pay to the Purchaser in immediately available funds the amount of
the Seller's share of the Tax liability for the Straddle Period determined
pursuant to this Section 6.1(b) and in accordance with the principles of Section
6.3(c). Subject to the preceding sentence and Section 6.3(a), the Purchaser
shall pay or cause to be paid all Taxes due and payable in respect of all such
Straddle Period Tax Returns.
Section 6.2 Section 338(h)(10) Election.
(a) The Purchaser, the Seller and their respective Affiliates shall jointly make a timely and effective election provided for by Section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations and any comparable election under state, local or foreign Tax Law with respect to the purchase of the capital stock of the Company (each, an "Election" and collectively, the "Elections"). The Purchaser, the Seller and their respective Affiliates shall cooperate with each other to take all actions necessary and appropriate, including filing such additional forms, returns, elections, schedules and other documents as may be required to effect and preserve timely Elections in accordance with the provisions of Section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations (and any comparable provisions of state, local or foreign Tax Law) or any successor provisions. Specifically, the Seller and the Purchaser shall, within five (5) days prior to the date such forms are required to be filed under applicable law, exchange completed and executed copies of the Internal Revenue Service Forms 8023 and 8883, required schedules thereto, and any similar state, local or foreign forms. If changes are required in any of these forms as a result of information which is first available after the date on which any such form is completed and executed pursuant to the preceding sentence, the parties will act in good faith to agree on such changes. The Seller, the Purchaser and their respective Affiliates shall report the purchase by the Purchaser of the Shares of the Company consistent with the Election and shall take no position inconsistent therewith in any Tax Return, any proceeding before any Tax authority or otherwise.
(b) In connection with the Elections, within ninety (90) days after
the Closing, the Purchaser (or its Affiliate) shall provide to the Seller the
proposed manner in which the "aggregate deemed sales price," as defined in
Treasury Regulation Section 1.338-4, with respect to the Company shall be
allocated among its assets, which allocations shall be made in accordance with
Section 338(b) of the Code and any applicable Treasury Regulations and shall
reflect the Share Purchase Price. Within fifteen (15) Business Days following
the receipt of such proposed allocations, the Seller shall have the right to
object to such allocations (by written
notice to the Purchaser), and if the Seller objects, it shall notify the Purchaser (in such written notice) of such disputed item (or items) and the basis for its objection and the Purchaser and the Seller shall act in good faith to resolve any such dispute for the thirty (30) day period thereafter. If the Seller does not object by written notice within such period, such proposed allocations shall be deemed to have been accepted and agreed upon, and final and conclusive, for all purposes of this Agreement; provided, however, that such proposed allocation shall be subject to adjustment upon and as a result of the final determination of the Share Purchase Price (taking into account any adjustments pursuant to Section 2.4 hereof). If, within thirty (30) days of the Seller's delivery of a notice of objection, the parties have not reached an agreement regarding such allocations, the dispute shall be presented to an independent accounting firm mutually agreed upon by the Seller and the Purchaser, whose determination shall be binding on both parties. The parties shall endeavor to cause the accounting firm to make a determination within thirty (30) days but in no event later than five (5) days prior to the date the Internal Revenue Service Forms 8023 and 8883 are required to be filed under applicable law. The fees and expenses of such accounting firm shall be paid fifty percent (50%) by the Seller and fifty percent (50%) by the Purchaser (or their Affiliate). As promptly as practicable after the final determination of the adjustments pursuant to Section 2.4 of the Agreement, the Purchaser (or its Affiliate) shall provide Seller with any adjustments to the proposed allocation previously determined and finalized pursuant to Section 6.2 of this Agreement and any such adjustments resulting from Section 2.4 of this Agreement shall be determined in accordance with the principles of this Section 6.2(b). The Seller, the Purchaser and their respective affiliates shall (i) be bound by any such allocation for purposes of determining any Taxes, (ii) prepare and file their Tax Returns on a basis consistent with such determination of the aggregate deemed sales price and such allocations and (iii) take no position inconsistent with such determination and allocations on any applicable Tax Return, in any proceeding before any Tax authority or otherwise. In the event that any of the allocations are disputed by any Tax authority, the party receiving notice of the dispute shall promptly notify the other party concerning resolution of the dispute.
Section 6.3 Tax Indemnification.
(a) Subject to Section 6.5, the Seller shall indemnify, defend, and hold harmless the Purchaser Indemnified Parties from and against (without duplication of any amounts paid pursuant to Section 7.2 or this Section 6.3):
(i) all liabilities for Taxes of or imposed on the Seller or any of its Affiliates (not including, solely for purposes of this Section 6.3(a)(i), the Company);
(ii) all liabilities for Transfer Taxes required to be paid by the Seller pursuant to Section 6.6 of this Agreement;
(iii) all liabilities for Taxes imposed upon the Company with respect to any taxable period ending on or before the Closing Date ("Pre-Closing Periods"), and for any taxable period beginning on or before the Closing Date and ending after the Closing Date ("Straddle Periods") but only with respect to the portion of such Straddle Period ending on the
Closing Date and as determined in the manner provided in Section 6.3(c) of this Agreement (including, without limitation, all Taxes related to any Election and the transactions contemplated pursuant to Section 3.22 of this Agreement but excluding any Taxes resulting from any transaction that is not in the ordinary course of business that occurs on the Closing Date but after the Closing and is not contemplated by this Agreement);
(iv) all liabilities for Taxes imposed on the Company under section 1.1502-6 of the Treasury Regulations (and corresponding provisions of state, local, or foreign Law) as a result of having been a member of any federal, state, local or foreign consolidated, unitary, combined or similar group for any taxable period ending on or before, or that includes, the Closing Date;
(v) all liabilities for Taxes imposed on or related or attributable to the Excluded Companies, Listing Exchange, LLC or Mortgage LLC;
(vi) all liabilities (including reasonable out-of-pocket expenses) arising from any breach by the Seller or its Affiliates of any of the covenants and obligations contained in this Article VI;
(vii) all liabilities (including reasonable out-of-pocket expenses) arising from the breach or inaccuracy of the representation and warranty set forth in Section 3.12(e) of this Agreement; and
(viii) all liabilities relating to net Tax liabilities imposed on the Company as a result of the transactions or any action contemplated pursuant to Section 5.10 hereof.
(b) The Purchaser shall indemnify, defend and hold harmless the Seller Indemnified Parties from and against (without duplication of any amounts paid pursuant to Section 7.3): (i) all liabilities for Taxes of or imposed on the Purchaser and its Affiliates (not including, for purposes of this Section 6.3(b)(i), the Company), (ii) all liabilities for Taxes of the Company for any taxable period beginning after the Closing Date ("Post-Closing Periods"), (iii) all liabilities for Taxes of the Company for any Straddle Period but only with respect to the portion of such Straddle Period beginning after the Closing Date, as determined in the manner provided in Section 6.3(c) of this Agreement, (iv) all liabilities (including reasonable out-of-pocket expenses) arising from any breach by the Purchaser or its Affiliates (including, after the Closing, the Company) of any of the covenants and obligations contained in this Article VI, and (v) all liabilities for Transfer Taxes required to be paid by the Purchaser pursuant to Section 6.6.
(c) For purposes of this Section 6.3, in order to apportion appropriately any Taxes relating to a Straddle Period, the parties hereto shall, to the extent required or permitted under applicable Law, treat the Closing Date as the last day of the taxable year or period of the Company for all Tax purposes. In any case where applicable Law does not permit the Company to treat the Closing Date as the last day of the taxable year or period, the portion of any Taxes that are allocable to the portion of the Straddle Period ending on the Closing Date shall be:
(i) in the case of Taxes that are imposed on a periodic basis (such as real property taxes), deemed to be the amount of such Taxes for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by a fraction the numerator of which is the number of calendar days in the Straddle Period ending on (and including) the Closing Date and the denominator of which is the number of calendar days in the entire relevant Straddle Period; and
(ii) in the case of Taxes not described in (i) (such as (x) taxes that are based upon or measured by income or receipts or imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible) and (y) payroll and similar Taxes), deemed equal to the amount that would be payable if the taxable year or period ended on the Closing Date.
(d) All amounts payable or to be paid under this Section 6.3 (the "Tax
Indemnity Payments") shall be paid in immediately available funds within five
(5) Business Days after the later of (i) the receipt of a written request from
the Indemnified Party entitled to such Tax Indemnity Payment and (ii) the date
payment of the amount that is the subject of the Tax Indemnity Payment by the
Indemnified Party entitled to receive the Tax Indemnity Payment is due to the
relevant Taxing Authority. Notwithstanding the foregoing, in the case of a Tax
that is contested with a Tax authority in accordance with Section 6.5 of this
Agreement, the day of payment will not be earlier than three (3) days after the
date a "determination" (as defined in Section 1313(a) of the Code) has occurred.
Any amounts that are not paid within such required period shall accrue interest
at an annual rate of three percent (3%) per year.
(e) In connection with this Article VI, the Seller hereby (i) waives any right of contribution or indemnification or similar right it may have against the Company for any amounts paid by the Seller hereunder, and (ii) waives any defense based on fault of the Company.
(f) Any amounts payable pursuant to this Section 6.3 shall be subject to the provisions of Section 7.5(d) of this Agreement.
Section 6.4 Tax Refunds. The Purchaser shall pay to the Seller (a) all refunds or credits of Taxes (including any interest in respect thereof) received by the Purchaser or the Company after the Closing Date and attributable to Taxes paid by the Company with respect to a Pre-Closing Period and (b) a portion of all refunds or credits of Taxes (including any interest in respect thereof) received by the Purchaser or the Company after the Closing Date and attributable to Taxes paid by the Company with respect to any Straddle Period (such portion to be allocated consistent with the principles set forth in Section 6.3(c)), in each case, net of any Taxes imposed on the portion of such refund treated as interest income arising in a Post-Closing Period; provided, however, that the Seller shall not be entitled to any refund attributable to a carryback to a Pre-Closing Period or Straddle Period of a Tax attribute of the Company that arises in a period or portion thereof beginning after the Closing Date. Any such refunds or credits required to be paid by the Purchaser to the Seller shall be paid within five (5) Business
Days of the receipt of any such refunds or credits by Purchaser, the Company, or
any of their Affiliates. Upon Seller's reasonable request, the Purchaser shall
cooperate with the Seller to amend any Tax Return of the Company relating to a
Pre-Closing Period (including in the preparation and filing of such amended Tax
Return) if such amendment would entitle the Seller to a refund or credit for
such Pre-Closing Period (and the Seller shall reimburse Purchaser for any
reasonable out-of-pocket expenses incurred by Purchaser or its Affiliates in
connection with the Purchaser's (or its Affiliates') cooperation in the
preparation and filing of such Tax Return); provided, however, that (i) any such
amended Tax Return must be prepared and filed in accordance with applicable law,
(ii) Seller shall submit a draft of any amended Tax Return to be filed by the
Company on a stand-alone basis to the Purchaser for its review at least five (5)
Business Days prior to the filing of such amended Tax Return, and (iii) such
amendment shall not have any adverse effect upon any Taxes or Tax Returns of the
Purchaser or any of its Affiliates (including the Company) for any taxable
period for which the Seller is not required to indemnify the Purchaser pursuant
to this Agreement. Notwithstanding the preceding sentence, the Purchaser agrees
to cooperate with Seller (and shall cause its Affiliates (including the Company)
to cooperate with Seller) in the event that Seller elects to pursue a
redetermination of New York State franchise and/or income Taxes of the Company
for any Pre-Closing Tax Period on a combined unitary basis with the Seller and
certain of its Affiliates, and Purchaser acknowledges that such redetermination
will not have an adverse effect on Purchaser or its Affiliates (including the
Company) in a Post-Closing Tax Period. The Seller shall keep the Purchaser
reasonably informed of developments with respect to any such pursuit of a
redetermination; provided that nothing herein shall require the Seller to
provide the Purchaser with copies of Tax Returns of the Seller or any
affiliated, combined or unitary group of which Seller or any of its Affiliates
are a member, even if such combined, affiliated or unitary group includes the
Company. For purposes of this Section 6.4, a credit shall be treated as having
been received not prior to the time such credit has been applied to reduce Taxes
that would otherwise have been required to be paid.
Section 6.5 Tax Indemnification Procedures.
(a) If a notice of deficiency, proposed adjustment, adjustment, assessment, audit, examination or other administrative or court proceeding, suit, dispute or other claim (a "Tax Claim") shall be delivered or sent to or commenced or initiated against the Company by any Tax authority with respect to Taxes for which a Purchaser Indemnified Party is entitled to indemnification from the Seller, the Purchaser Indemnified Party shall promptly notify the Seller in writing of the Tax Claim, and shall include a copy of the relevant Tax Claim notice; provided, that the failure by a Purchaser Indemnified Party to promptly notify the Seller of any such notice shall not release the Seller from its obligations under this Article VI in whole or in part except to the extent that the Seller is materially and adversely prejudiced as a consequence of such failure.
(b) With respect to Tax Claims of or relating to Taxes of the Company for any Pre-Closing Period, the Seller may, upon written notice to the Purchaser (such written notice to be provided within thirty (30) days after notice of the Tax Claim has been given to the Seller), assume and control the defense of such Tax Claim at its own cost and expense and with its own
counsel and, subject to the provisions below, may (i) pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any Tax authority, (ii) either pay the Tax claimed and sue for a refund where applicable Law permits such refund suits or (iii) contest, settle or compromise the Tax Claim in any permissible manner, and the Purchaser and its Affiliates agree to cooperate with the Seller in pursuing such contest. If the Seller elects to assume the defense of any such Tax Claim, notwithstanding anything to the contrary contained herein, (i) the Seller shall not enter into any settlement with respect to any such Tax Claim without the Purchaser's (or its Affiliate's) prior written consent, which consent shall not be unreasonably withheld or delayed, if such settlement could reasonably be expected to increase the Tax liability of the Purchaser (or any of its Affiliates) for any taxable period for which the Seller has not indemnified the Purchaser pursuant to Section 6.3; (ii) the Seller shall keep the Purchaser reasonably informed of all material developments and events relating to such Tax Claim (including reasonably promptly forwarding copies to the Purchaser of any related correspondence and shall use reasonable efforts to provide the Purchaser with an opportunity to review and comment on any material correspondence before the Seller sends such correspondence to any Tax Authority); and (iii) at its own cost and expense, the Purchaser (or its Affiliate) shall have the right to participate in (but not to control) the defense of such Tax Claim.
(c) In connection with the contest of any Tax Claim that relates to
(i) any taxable Period beginning after the Closing Date and (ii) any Tax Claim
that the Seller has the ability to control but does not timely elect to control
pursuant to Section 6.5(b), such contest shall be controlled by the Purchaser
(and the Seller shall reimburse Purchaser and its Affiliates for reasonable
out-of-pocket expenses incurred by Purchaser or its Affiliates relating to a Tax
Claim described in clause (ii)), and the Seller agrees to cooperate fully with
the Purchaser and its Affiliates in pursuing such contest; provided, however,
that none of the Purchaser, the Company nor any of their Affiliates shall enter
into any settlement with respect to a Tax Claim relating to a Pre-Closing Period
or Straddle Period without the prior written consent of the Seller, which
consent shall not be unreasonably withheld or delayed. In connection with any
contest that relates to Section 6.5(c)(ii) hereof, the Purchaser or its
Affiliate shall keep the Seller informed of all material developments and the
Seller, at its own cost and expense, shall have the right to participate
(including participation in any relevant meetings) in (but not control) the
defense of such Tax Claim. Nothing contained herein shall be construed as
limiting the Purchaser's (or any the Purchaser Indemnified Party's) right to
indemnification under this Article VI.
(d) The Purchaser and Seller shall jointly control (at each party's own cost) all proceedings in connection with any Tax Claim relating solely to a Straddle Period. The parties agree to cooperate with each other in pursuing any such contest and neither Purchaser nor Seller shall (or shall permit any of their Affiliates to) settle a Tax Claim relating solely to a Straddle Period without the other party's prior written consent, which consent shall not be unreasonably withheld or delayed.
(e) Notwithstanding anything to the contrary in this Agreement, the procedure for indemnification claims with regard to Taxes of or relating to the Company shall be governed exclusively by this Section 6.5.
Section 6.6 Transfer and Similar Taxes. Notwithstanding any provision of this Agreement to the contrary, the Seller and the Purchaser shall each pay one-half of all sales, value added, use, privilege, transfer, documentary, gains, stamp, duties, recording and similar Taxes and fees (including any penalties, interest or additions) imposed upon any party incurred as a result of the sale of the Shares (collectively, the "Transfer Taxes"), and the Seller and the Purchaser agree to jointly prepare and timely file all necessary Tax Returns and other documentation with respect to, any Transfer Tax.
Section 6.7 Termination of Tax Indemnification Agreements. The Seller hereby agrees and covenants that any and all Tax Indemnification Agreements that may have been entered into by the Seller or its Affiliates and the Company shall be terminated on or before the Closing Date, and no payments to or from the Company pursuant to any such Tax Indemnification Agreement shall be made after such termination. Except for powers of attorney listed on Schedule 3.12(a)(ix), the Seller hereby agrees and covenants that any and all powers of attorney granted by the Company shall be terminated on or before the Closing Date.
Section 6.8 Conflicts; Survival. Notwithstanding anything to the contrary contained in this Agreement, each of the provisions set forth in this Article VI shall survive (30) days after the expiration of applicable statute of limitations (taking into account all valid extensions) for the applicable Taxes or Tax Return to which the provision relates, provided, however, in the event notice of any claim for indemnification under Section 6.3 of this Agreement shall have been given within the applicable survival period, the provisions that are the subject of the indemnification claim shall survive with respect to such claims until such time as such claim is finally resolved. In the event of a conflict between this Article VI and any other provision of this Agreement, this Article VI shall govern and control. In the event of a conflict between this Article VI and Section 5.5 of the License Agreement, Section 5.5 of the License Agreement shall govern and control.
Section 6.9 Tax Treatment. The parties hereto agree to treat any payment made pursuant to this Article VI and Article VII as an adjustment to the Purchase Price for all Tax purposes, except as required under applicable law.
Section 6.10 Assistance and Cooperation. After the Closing, the Seller and the Purchaser shall, subject to the other provisions of this Article VI:
(a) assist (and cause their respective Affiliates to assist) the other party in preparing any Tax Returns (including extensions thereof and executing powers of attorney with respect thereto) which such other party is responsible for preparing and filing in accordance with this Article VI;
(b) cooperate fully in preparing for any audits of, or disputes with Tax authorities regarding, any Tax Returns with respect to the Company;
(c) promptly make available to each other and to any Tax authority, upon either party's reasonable request, all information, records, and documents relating to the Taxes of the Company;
(d) provide timely notice to the other in writing of any pending or threatened tax audits or assessments with respect to the Company for which the other may have a liability under this Article VI;
(e) furnish the other with copies of all material correspondence received from any Tax authority in connection with any Tax audit or information request with respect to any taxable period for which the other may have a liability under this Article VI; and
(f) The Purchaser, the Seller, the Company and their Affiliates shall retain (or cause to be retained) all books and records with respect to Tax matters pertinent to the Company relating to any Pre-Closing Period or Straddle Period until the expiration of the relevant statutory period of limitations for the assessment of Tax. Purchaser shall notify Seller in writing prior to disposing of any such books and records and, at Seller's request, shall provide Seller with copies of any such documents.
Section 6.11 Limitations on Actions that Can Increase Pre-Closing Period or Straddle Period Taxes. Neither the Purchaser nor any of its Affiliates (including, after the Closing, the Company) shall (i) make or change any Tax election applicable to any Pre-Closing Period or Straddle Period, provided, however that the Purchaser and its Affiliates shall be entitled to make an Election with respect to the Company, (ii) amend or file any Tax Return relating to a Pre-Closing Period or Straddle Period except as contemplated by this Article VI, and (iii) except as contemplated pursuant to this Article VI, take any action relating to a Pre-Closing Period or Straddle Period that results in any increased Tax liability (including, without limitation, a reduction in a refund) or reduction of any Tax asset of Seller or the Company in respect of a Pre-Closing Tax Period or the portion of any Straddle Period ending on the Closing Date.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1 Survival of Representations and Warranties. Each of the representations and warranties made by the parties in this Agreement shall terminate on March 31, 2006; provided, however, that (i) the representations and warranties contained in Sections 3.5(j), 3.12 and 3.13 (but only with respect to compliance by the Company and the Seller (with respect to the Business) with ERISA) shall survive the Closing until thirty (30) days following the expiration of the applicable statute of limitations (taking into account all valid extensions), (ii) the representations and warranties contained in Section 3.19, which shall survive until three years after the Closing Date, and (iii) the representations and warranties contained in Sections 3.1, 3.2, 3.10(c), 3.21, 4.1, 4.2, 4.6, 4.7 and the third sentence of Section 3.6(a) (with respect to title to assets) shall survive the Closing and remain in full force and effect without termination. In the event notice of any claim for indemnification under Sections 7.2(i) or 7.3(i)
of this Agreement shall have been given (within the meaning of Section 9.1) within the applicable survival period, the representations and warranties that are the subject of such indemnification claim shall survive with respect to such claims until such time as such claim is finally resolved. The covenants and agreements of the parties set forth in this Agreement and the indemnification obligations of the parties hereunder shall survive indefinitely until their final fulfillment except as expressly provided herein.
Section 7.2 Indemnification by the Seller.
Subject to the other provisions of this Article VII, the Seller shall indemnify, defend and hold harmless the Purchaser, the Company, and their respective Affiliates, the representatives and agents thereof, and each of the successors and assigns of any of the foregoing (collectively, the "Purchaser Indemnified Parties") from and against any and all costs, expenses, losses, damages and liabilities other than costs, expenses, losses, damages and liabilities relating to Taxes which shall be governed solely by Section 6.3 (but including reasonable attorneys' fees and expenses) ("Damages") suffered by any of the Purchaser Indemnified Parties, to the extent resulting from or arising out of, relating to or incurred with respect to (without duplication of any amounts paid pursuant to Article VI hereof or Article XIII of the License Agreement):
(i) without duplication of any amounts paid pursuant to clauses
(iii), (iv) or (v) of Section 7.2, any breach of any representation or warranty
of the Seller contained in this Agreement (other than with respect to any
representation or warranty set forth in Section 3.5(e) (relating solely to
Taxes), Section 3.5(j) or Section 3.12);
(ii) any breach of any covenant or agreement of the Seller contained in this Agreement other than any covenant or agreement contained in Article VI;
(iii) without duplication of any amounts paid pursuant to clause
(i) of Section 7.2 or Section 6.3, any liabilities to the extent arising out of
or resulting from the Mortgage LLC, the Mortgage LLC Contracts or the
termination thereof, except for any liabilities to the extent arising out of any
action taken or omitted to be taken by the Purchaser Indemnified Parties or any
of their Affiliates not in compliance with the provisions of Section 5.10(a);
(iv) without duplication of any amounts paid pursuant to clauses
(i) or (v) of Section 7.2, any Indemnified Benefits Liabilities and the Plans;
(v) without duplication of any amounts paid pursuant to clauses
(i), (iii) or (iv) of Section 7.2 and subject to Schedule 7.2(v), any
liabilities with respect to any litigation, legal action, arbitration,
proceeding, demand or claim or known investigation arising out of or resulting
from the conduct of the Business or any other action or failure to act by the
Company at or prior to the Closing, excluding any such liabilities (A) included
in the final calculation of the Closing Date Indebtedness or the Closing Date
Working Capital or (B) arising out (1) the failure of the Company or Seller to
obtain any consent or approval or provide notice under any agreement or Permit
to which the Company or the Business is a party or by which any of the
Company's assets are bound or (2) the loss of a benefit under any agreement or
Permit to which the Company or the Business is a party or by which any of the
Company's assets are bound, in each case in connection with the consummation of
the transactions contemplated hereby or compliance by the Seller with any of the
provisions hereof (none of which liabilities under clause (B) of this clause
(v), whether or not related to Litigation, shall be indemnifiable by Seller
under this clause (v));
(vi) the Excluded Business; and
(vii) without duplication of any amounts paid pursuant to clauses
(i) or (v) of Section 7.2 or Section 6.3, the Excluded Companies.
Notwithstanding anything in this Agreement to the contrary, it is hereby understood that for purposes of this Section 7.2, (i) all Seller Material Adverse Effect exceptions and qualifications set forth in any representation or warranty (except Section 3.5(a)) of the Seller in this Agreement and (ii) the knowledge qualifications included in (A) the second sentence of Section 3.6(a), (B) the first sentence of Section 3.10(a) and (C) Section 3.19 and (iii) the exception contained in Section 3.19(c) for information included in Schedule 3.19(a), shall be disregarded.
Section 7.3 Indemnification by the Purchaser.
Subject to the other provisions of this Article VII, the Purchaser shall indemnify, defend and hold harmless the Seller and its Affiliates, the representatives and agents thereof, and each of the successors and assigns of any of the foregoing (collectively, the "Seller Indemnified Parties"), from and against any Damages suffered by the Seller Indemnified Parties resulting from, arising out of, relating to or incurred with respect to (without duplication of any amounts paid pursuant to Article VI of this Agreement or Article XIII of the License Agreement):
(i) any breach of any representation or warranty of the Purchaser contained in this Agreement;
(ii) any breach of any covenant or agreement of the Purchaser contained in this Agreement other than any covenant or agreement contained in Article VI; and
(iii) subject to Schedule 7.3(iii), the conduct of the Purchaser
Business after the Closing or any action, omission or condition existing with
respect thereto at any time after the Closing (except to the extent that the
Purchaser Indemnified Parties are entitled to indemnification therefor under
Section 7.2 without giving effect to the limitations included in Section 7.4,
and except to the extent Seller is responsible for any such Damages under the
Transition Services Agreement).
Notwithstanding anything in this Agreement to the contrary, it is hereby understood that for purposes of this Section 7.3, all Purchaser Material Adverse Effect exceptions and qualifications
set forth in any representation or warranty of the Purchaser in this Agreement shall be disregarded.
Section 7.4 Limitations on Indemnification. Anything contained in this Agreement to the contrary notwithstanding:
(a) in no event shall the Seller be liable for, or required to make any payment:
(i) pursuant to clause (i) of Section 7.2 (other than with
respect to any breach of any of the representations and warranties of Seller set
forth in Sections 3.1, 3.2, 3.10(c), 3.19, 3.21 and 3.22, which shall not be
subject to the Seller Deductible Amount (as defined below)) for any
indemnifiable Damages suffered by the Purchaser Indemnified Parties unless and
until the aggregate dollar amount of all such Damages, taken together with the
aggregate dollar amount of all indemnifiable Damages suffered by the Licensee
Indemnified Parties (as such term is defined in the License Agreement) under
Section 13.2(i) with respect to breaches of representation or warranties of the
License Agreement, exceeds $1,000,000 (the "Seller Deductible Amount"), and then
only to the extent of such excess, provided that Damages indemnified hereunder
in respect of claims made by the Purchaser Indemnified Parties with respect to
breaches of any of the representations and warranties set forth in set forth in
Sections 3.1, 3.2, 3.10(c), 3.19, 3.21 and 3.22 and in Section 8.1(a) of the
License Agreement shall be disregarded for purposes of determining whether the
aggregate Damages exceed the Seller Deductible Amount as described above.
(ii) pursuant to clause (i) of Section 7.2 (other than with
respect to breaches of any of the representations and warranties set forth in
Section 3.1, 3.2, 3.21 and 3.22, which shall not be subject to the limitation
set forth in this Section 7.4(a)(ii)) for any indemnifiable Damages suffered by
the Purchaser Indemnified Parties in excess of $30,000,000 (the "Seller Cap
Amount");
(iii) pursuant to clause (i) of Section 7.2 for any indemnifiable Damages suffered by the Purchaser Indemnified Parties to the extent such Damages are also indemnifiable under any of clauses (iii), (iv), (v) and (vi) of Section 7.2;
(iv) with respect to any item or amount to the extent a reduction in the Share Purchase Price was made because such item or amount was included in the definition of "Indebtedness" for purposes of calculating the Estimated Indebtedness or the Closing Date Indebtedness or was included in the definition of "Current Liabilities" for purposes of calculating the Estimated Working Capital or the Closing Date Working Capital, and any such items or amounts shall be excluded in determining whether the aggregate Damages exceed the Seller Deductible Amount pursuant to Section 7.4(a)(i) or the Seller Cap Amount for purposes of Section 7.4(a)(ii);
(v) pursuant to clause (i) of Section 7.2 with respect to any breach of any representation or warranty of the Sellers contained in Sections 3.1, 3.2, 3.21 and 3.22 for any
indemnifiable Damages suffered by the Purchaser Indemnified Parties in excess of one hundred percent (100%) of the Share Purchase Price;
(vi) pursuant to Section 7.2 for any indemnifiable Damages suffered by the Purchaser Indemnified Parties (A) to the extent arising out of any indemnifiable matter unless a claim therefor is asserted specifying in good faith, in reasonable detail and in writing by the applicable Purchaser Indemnified Parties within the time period that such indemnifiable matter survives in accordance with Section 7.1, failing which such claim shall be waived and extinguished, (B) to the extent arising out of any legislation not in force at Closing or any change of Law or administrative practice, which takes effect retroactively to periods prior to the Closing, (C) which are merely estimates of Damages and not actual Damages or (D) to the extent that the indemnifiable Damages have been incurred as a result of any failure by the Purchaser Indemnified Parties to mitigate such Damages as required by applicable law;
(b) in no event shall the Purchaser be liable for, or required to make any payment pursuant to,
(i) clause (i) of Section 7.3 (other than with respect to any
breach any of the representations and warranties of the Purchaser set forth in
Section 4.1, 4.2, 4.6 and 4.7 which shall not be subject to the Purchaser
Deductible Amount (as defined below)) for any indemnifiable Damages suffered by
the Seller Indemnified Parties unless and until the aggregate dollar amount of
all such Damages, taken together with the aggregate dollar amount of all
indemnifiable Damages suffered by the Licensor Indemnified Parties (as such term
is defined in the License Agreement) under Section 13.1(i) with respect to
breaches of representation or warranties of the License Agreement, exceeds
$1,000,000 (the "Purchaser Deductible Amount"), and then only to the extent of
such excess, provided that Damages indemnified hereunder in respect of claims
made by the Seller Indemnified Parties with respect to breaches of any of the
representations or warranties set forth in Section 4.1, 4.2, 4.6 and 4.7, and in
Section 8.2(a) of the License Agreement shall be disregarded for purposes of
determining whether the aggregate Damages exceed the Purchaser Deductible Amount
as described above; and
(ii) clause (i) of Section 7.3 (other than with respect to
breaches of any of the representations and warranties set forth in Section 4.1,
4.2, 4.6 and 4.7, which shall not be subject to the limitation set forth in this
Section 7.4(b)(ii)) for any indemnifiable Damages suffered by the Seller
Indemnified Parties in excess of $30,000,000.
(iii) pursuant to clause (i) of Section 7.3 with respect to any breach of any representation or warranty of the Sellers contained in Sections 4.1, 4.2, 4.6 and 4.7 for any indemnifiable Damages suffered by the Seller Indemnified Parties in excess of one hundred percent (100%) of the Share Purchase Price;
(iv) pursuant to Section 7.3 for any indemnifiable Damages suffered by the Seller Indemnified Parties (A) which are merely estimates of Damages and not actual Damages or (B) to the extent that the indemnifiable Damages have been incurred as a result of
any failure by the Purchaser Indemnified Parties to mitigate such Damages as required by applicable law;
(c) In connection with this Section 7.4, the Seller hereby (i) waives any right of contribution or indemnification or similar right they may have against the Company any amounts paid by the Seller hereunder and (ii) waives any defense based on fault of the Company, in each case solely to the extent arising out of or resulting from events, circumstances, actions or failures to act occurring or existing prior to the Closing.
Section 7.5 Notice and Resolution of Claim
(a) The Seller Indemnified Parties or the Purchaser Indemnified Parties to be indemnified hereunder (each, an "Indemnified Party"), as the case may be, shall promptly give written notice to the indemnifying party (the "Indemnifying Party") after obtaining knowledge of any third party claim against the Indemnified Party (including, in the case of the Purchaser, any such claim against the Company of the type generally covered by errors and omissions insurance policies) as to which recovery may be sought against the Indemnifying Party because of the indemnities set forth in Sections 7.2 or 7.3, specifying in good faith and in reasonable detail the third party claim including, to the extent reasonably practicable, an estimate of Damages claimed, and the basis for indemnification; provided, that the failure of an Indemnified Party promptly to notify the Indemnifying Party of any such matter shall not release the Indemnifying Party, in whole or in part, from its obligations under this Article VII except to the extent the Indemnified Party's failure to so notify in breach of this Section 7.5 actually prejudices the Indemnifying Party. The Indemnifying Party shall have the right to assume the defense of any such third party claim at its own cost and expense with counsel selected by the Indemnifying Party (as to which the Indemnified Party has not promptly and reasonably objected) by giving written notice to the Indemnified Party of its intention to assume such defense within the lesser of (i) thirty (30) days after notice thereof has been given to the Indemnifying Party, and (ii) five (5) Business Days prior to the date required to answer or respond to any such claim (the "Election Period"). Commencing on the beginning of and during the Election Period, the Indemnified Party agrees to make available to the Indemnifying Party and its authorized representatives the information relied upon by the Indemnified Party to substantiate the third party claim, as well as any other information bearing thereon reasonably requested by the Indemnifying Party. If the Indemnifying Party fails to notify the Indemnified Party of its election to assume the defense of any such third party claim within the Election Period, then the Indemnified Party shall defend or settle such third party claim in a diligent and commercially reasonable manner and in good faith and may settle such third party claim on such terms as the Indemnified Party may deem appropriate; provided, however, that such Indemnified Party shall not, in defense of such a third party claim, be permitted to admit any liability with respect to, or consent to the entry of any judgment or enter into any settlement with respect to, any such third party claim without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed), and the Indemnifying Party will not be subject to any liability for any such admission, settlement, compromise, discharge or consent to judgment made by an Indemnified Party without such prior written consent of the Indemnifying Party. An
Indemnifying Party may participate in (but not control) any defense assumed by an Indemnified Party pursuant to this Section 7.5(a), and an Indemnifying Party will bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, an Indemnifying Party shall have the right to assume the defense of such third party claim at any time prior to settlement, compromise or final determination thereof; provided, however, that an Indemnifying Party shall pay all fees and expenses incurred by an Indemnified Party prior to such Indemnifying Party's assumption of such defense.
(b) If the Indemnifying Party assumes the defense of any such third party claim, the obligations of the Indemnifying Party under this Article VII shall include taking all steps deemed necessary by the Indemnifying Party, acting in good faith, in the investigation, defense or settlement of such third party claim (including the retention of legal counsel) and the Indemnifying Party shall, as a condition to assuming such defense, acknowledge that it will hold the Indemnified Party harmless from and against any and all Damages caused by or arising out of any settlement approved by the Indemnifying Party or any judgment in such claim (subject to the applicable deductibles, caps and limitations set forth in Section 7.4). The Indemnifying Party shall notify the Indemnified Party as to the existence of any offers to settle such third party claim, and the Indemnifying Party shall not settle a third party claim if to the knowledge of the Indemnifying Party (after notifying and consulting with the Indemnified Party) such action would reasonably be expected to have a materially adverse impact on the Indemnified Party or the Business; otherwise the Indemnifying Party shall have full control of such defense and settlement, including any compromise or settlement thereof; provided, however, that such Indemnifying Party shall permit the Indemnified Party to participate in (but not control) such defense or settlement through separate counsel chosen by such Indemnified Party, with the fees and expenses of such participation and separate counsel borne solely by such Indemnified Party. The Indemnifying Party shall not, in the defense of a third party claim, make any payment of any of such claims, consent to the entry of any judgment or enter into any settlement with respect to any third party claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed) unless the judgment or proposed settlement (i) involves only the payment of money damages and does not involve any finding or admission of any violation of law, (ii) includes, as an unconditional term thereof, a release of such Indemnified Party given by the claimant or the plaintiff from any liabilities arising from such third party claim, and (iii) does not impose an injunction or other equitable relief, directly or indirectly, upon such Indemnified Party or result in an admission of any wrongdoing by the Indemnified Party. The Indemnified Party shall cooperate with the Indemnifying Party in the defense or settlement thereof, and the Indemnifying Party shall reimburse the Indemnified Party for all its reasonable out-of-pocket expenses in connection therewith.
(c) Indemnified Parties and Indemnifying Parties shall cooperate reasonably in all aspects of any investigation, defense, pre-trial activities, trial compromise, settlement or discharge of any third party claim, including, without limitation, by providing the other party with reasonable access to employees, directors and officers (as witnesses) and other information.
(d) With respect to any Damages as to which an Indemnified Party has the right to receive Recoveries, the Indemnified Party shall at its option either: (i) use commercially reasonable efforts to collect, at the Indemnifying Party's expense, any such Recoveries or (ii) assign any such right to receive Recoveries to the Indemnifying Party, to the extent any such claim is capable of assignment and without making any representation as to or bearing any responsibility for the effectiveness of such assignment. To the extent the Indemnified Party collects any Recoveries with respect to Damages, the amount of Damages to be paid by the Indemnifying Party shall be reduced by the amount of Recoveries so collected. In the event that the Indemnified Party collects any Recoveries with respect to Damages as to which the Indemnified Party previously received payments from the Indemnifying Party pursuant to this Article VII, the Indemnified Party shall transfer to the Indemnifying Party the amount of such Recoveries collected, up to the amount of Damages paid in connection therewith by the Indemnifying Party.
(e) Notwithstanding anything to the contrary in this Agreement,
Section 6.5 shall apply exclusively to all third party claims with regard to
Taxes of or relating to the Company.
Section 7.6 Indemnity Payments. All indemnity payments owed under this Article VII ("Indemnity Payments"), shall be paid in immediately available funds within ten (10) Business Days after final determination (which is final in the sense that it is no longer subject to appeal) and written request therefor by the Indemnified Party. All such Indemnity Payments shall be made to the accounts and in the manner specified in writing by the party entitled to such Indemnity Payments. Any amounts that are not paid within such ten day period shall accrue interest at an annual rate of three percent (3%).
Section 7.7 Exclusive Remedy. Subject to Article VI, except to the extent
arising from any fraud, the indemnification provided by this Article VII shall
be the sole and exclusive remedy in respect of (i) any breach of any
representation, warranty, agreement or covenant contained in this Agreement and
(ii) the transactions contemplated by this Agreement (other than the License
Agreement and the transactions contemplated thereby). The forgoing shall not
limit the parties' right to obtain specific performance in accordance with
Section 9.10 hereof with respect to breaches of agreement or covenant contained
in this Agreement. In furtherance of the foregoing, each party hereby waives, to
the fullest extent permissible under applicable Law, and agrees in any case not
to assert in any action or proceeding of any kind, any and all rights, claims
and causes of action it may now or hereafter have (including any such rights,
claims or causes of action arising under or based upon common law or other Law)
against any Indemnifying Party for any matter described in the previous sentence
other than claims for indemnification asserted as permitted by and in accordance
with the provisions set forth in this Article VI and Article VII.
ARTICLE VIII
GUARANTEE
Section 8.1 Guarantee. Purchaser Guarantor hereby unconditionally and absolutely guarantees (this "Guarantee"), as a primary obligor and not merely as surety, the full and punctual payment and performance of all debts, obligations and liabilities, whether such
obligations are direct or indirect, absolute or contingent, now existing or subsequently arising, primary or secondary, now due or hereafter falling due, monetary or otherwise, of Purchaser or any Permitted Assignee under this Agreement, together with all costs of collection, compromise or enforcement, including reasonable attorneys' fees, incurred with respect to any such debt, obligations or liabilities, or with respect to this or any other guaranty of any of them, or with respect to a proceeding under the federal bankruptcy laws or any moratorium, insolvency, receivership, arrangement or reorganization law or an assignment for the benefit of creditors concerning Purchaser Guarantor, Purchaser or any Permitted Assignee, together with interest on all such costs of collection, compromise or enforcement from the date arising (collectively, the "Obligations"). Purchaser Guarantor further agrees that its liability under this Guarantee shall not be discharged, impaired, diminished or otherwise affected by any (i) extension, settlement, modification, compromise, waiver, release or renewal of any Obligation, in whole or in part or (ii) any modification or amendment or supplement to this Agreement. This Guarantee is a continuing guarantee, which shall apply to all Obligations which now exist or subsequently arise, whether or not notice of such Obligations is given to Purchaser Guarantor, whether or not any or all prior Obligations had been fully paid, performed and observed before any such Obligation arose, and notwithstanding Purchaser Guarantor's dissolution
Section 8.2 Waiver of Notices, Etc. Purchaser Guarantor agrees that Seller
shall not be required to give Purchaser Guarantor any notice pursuant to this
Guarantee, and that no failure to give any notice shall discharge, impair,
diminish or otherwise affect the liability which Purchaser Guarantor would have
had under this Guarantee if notice had been given. Purchaser Guarantor waives:
(i) notice of acceptance of this Guarantee, (ii) notice of the incurring of
additional or increased Obligations, (iii) notice of the application of any
payment, transfer or recovery from security, (iv) presentment, demand and
protest of any instrument, and notice thereof, (v) notice of nonpayment or other
default under this Guarantee or under any Obligation, (vi) any right to demand
public foreclosure sale of any security, (vii) notice of foreclosure, (viii)
notice of any release, discharge, modification or failure to obtain any security
for any of the Obligations, (ix) notice of any waiver by Seller of any of the
terms, covenants or conditions of any of the Obligations, (x) notice of the
granting of any indulgence or extension of time to Purchaser or any Permitted
Assignee, (xi) notice of any modification, supplement or extension of any of the
Obligations, (xii) notice of any agreement or arrangement with Purchaser, any
Permitted Assignee or any other Person, (xiii) any right to exoneration or to
require election of remedies, (xiv) all suretyship defenses and (xv) any other
defenses or notice requirements which may exist at law or in equity. The
obligations of Purchaser Guarantor under this Article VIII shall not be affected
by (A) the failure of Seller to assert any claim or demand or to enforce any
right or remedy against Purchaser or any Permitted Assignee under the provisions
of this Agreement or (B) any rescission, waiver, amendment or modification of
any of the terms or provisions of this Agreement. Purchaser Guarantor further
agrees that this Guarantee constitutes a guarantee of payment and performance
when due and not of collection and waives any right to require that any resort
be had by Seller to any other guarantee or any security held for payment or
performance of the Obligations.
Section 8.3 Reinstatement. Purchaser Guarantor agrees that this Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance, or any part thereof, on any Obligation (including any payment pursuant to this Guarantee) is rescinded or must otherwise be restored by Seller upon the bankruptcy or reorganization of Purchaser or any Permitted Assignee or otherwise.
Section 8.4 Waiver of Subrogation; Subordination. Purchaser Guarantor shall have no right of subrogation, reimbursement or indemnity whatsoever, nor any right of recourse to security for the Obligations, except when and so long as all of the Obligations have been fully paid, performed and observed, and have not been reinstated by reason of the avoidance of any transfer, the return of any payment, or otherwise. All present and future debts, obligations and liabilities of Purchaser or any Permitted Assignee to Purchaser Guarantor are hereby waived and postponed in favor of and subordinated to the full payment, performance and observance of the Obligations, and Purchaser Guarantor agrees to assign and deliver to Seller on request, as security for this Guarantee, (a) any such debts, obligations or liabilities, (b) any instruments or documents evidencing the same, (c) any security therefor and (d) any payments or transfers with respect thereto, or recoveries on security therefor, received by Purchaser Guarantor after default under any of the Obligations.
Section 8.5 Successors and Assigns. The benefit of this Guarantee shall run to Seller and its heirs, personal representatives, successors and assigns. The burden of this Guarantee shall bind Purchaser Guarantor and its heirs, personal representatives, successors and assigns. This Guarantee shall apply to the Obligations of Purchaser and any Permitted Assignee and of such Person's heirs, personal representatives, successors and assigns, including the successor to any such Person upon any merger, consolidation, liquidation or dissolution of such Person and, including any transferee of all or substantially all of the assets of Purchaser or any Permitted Assignee to any Person which carries on the business of Purchaser or any such Permitted Assignee.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices. All notices or other communications hereunder shall be deemed to have been duly given and made if in writing and if served by personal delivery upon the party for whom it is intended, if delivered by registered or certified mail, return receipt requested, or by a national courier service, or if sent by facsimile. Any such notice shall be deemed delivered (a) on the date delivered if by personal delivery, (b) on the date upon which receipt is signed or delivery is made, (c) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed by registered or certified mail, (d) on the next succeeding Business Day if sent by national courier service, or (e) on the date sent by facsimile if the appropriate facsimile confirmation is received by the sender.
To the Seller:
Sotheby's Holdings, Inc.
1334 York Avenue
New York, NY 10021
Attention: Donaldson Pillsbury Telephone: (212) 606-7533 Facsimile: (212) 606-7574
With a copy to:
Covington & Burling
1330 Avenue of the Americas
New York, NY 10019
Attention: J.D. Weinberg, Esq.
Telephone: (212) 841-1037
Facsimile: (646) 441-9037
To the Purchaser or Purchaser Guarantor:
Cendant Corporation
9 West 57th Street, 37th Floor
New York, NY 10019
Attention: Eric J. Bock
Telephone: (212) 413-1836
Facsimile: (212) 413-1922
and
NRT Incorporated
339 Jefferson Road
P.O. Box 259
Parsippany, New Jersey 07054
Attention: Kenneth D. Hoffert, Esq.
Telephone: 973-240-5052
Facsimile: 973-240-5059
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: David Fox, Esq.
Thomas W. Greenberg, Esq.
Telephone: 212-735-3000
Facsimile: 212-735-2000
Section 9.2 Amendment; Waiver. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Purchaser and the Seller or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 9.3 Assignment. No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other parties; provided that the either party may assign any of its rights and obligations hereunder (other than the right to purchase any of the Shares), in whole or in part, to any Subsidiary for so long as it remains a Subsidiary, without obtaining the consent of the other party, and any such assignment shall not relieve the assigning party of its obligations hereunder; provided, further, that any such assignment shall not increase the indemnifiable Damages to which such assignee may seek indemnifications or otherwise increase any obligations hereunder of the non-assigning party.
Section 9.4 Entire Agreement. This Agreement (including all Exhibits and Disclosure Schedules which are an integral part hereof), the Related Agreements and the other agreements, documents and instruments delivered in connection herewith contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters.
Section 9.5 Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the Purchaser, the Purchaser Indemnified Parties, the Seller, the Seller Indemnified Parties, or their successors or permitted assigns, any rights or remedies under or by reason of this Agreement.
Section 9.6 Expenses. All costs and expenses incurred by the Purchaser in connection with this Agreement and the transactions contemplated hereby shall be borne by the Purchaser, and all costs and expenses incurred by the Seller shall be borne by the Seller. Notwithstanding the foregoing, the filing costs incurred in connection with any filing under the
HSR Act and any other required antitrust filings with any Governmental Authority shall be shared equally between the Purchaser and the Seller.
Section 9.7 Governing Law; Jurisdiction; Service of Process. THIS AGREEMENT
HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF NEW YORK AND SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTIONS
5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW). EACH PARTY HEREBY
IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MUST BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK CITY OR OF
THE UNITED STATE OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND HEREBY
EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE
PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM
THAT SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS BY NOTICE
IN THE MANNER SPECIFIED IN SECTION 9.1. EACH PARTY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY SUCH ACTION
OR PROCEEDING.
Section 9.8 Limitations of Remedies. None of the parties hereto shall be liable to any other party for indirect, special, incidental, consequential, exemplary or punitive damages, or for lost profits, unrealized expectations or other similar terms, claimed by such other party resulting from such first party's breach of its obligations, agreements, representations or warranties hereunder, provided that nothing in this Section 9.8 shall preclude any recovery by an Indemnified Party against an Indemnifying Party for third party claims.
Section 9.9 No Implied Warranties. In connection with the transactions contemplated hereby, except as expressly provided in Article III, THE SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED OR STATUTORY, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE. The Seller shall not be liable in respect of the accuracy or completeness of any information provided to the Purchaser or its Affiliates in connection with this Agreement. Without limiting the foregoing, the Purchaser acknowledges that the Purchaser or its Affiliates, together with their advisors, have made their own investigation of the Company and the Business (including the Excluded Assets) and are not relying on any representation or warranty whatsoever as to the prospects (financial or otherwise), or the viability or likelihood of success, of the Business, or upon any projections provided or represented by the Seller or any of the information furnished in any "data room" assembled by or on behalf of the Seller or in any management presentation or interview or in any other materials
provided by or on behalf of the Seller, except in each case as expressly provided in this Agreement.
Section 9.10 Specific Performance. The parties agree that if any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, irreparable damage could reasonably be expected to occur, no adequate remedy at Law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms of this Agreement.
Section 9.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which, when taken together, shall constitute one and the same agreement.
Section 9.12 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.
Section 9.13 Headings. The heading references herein and in the table of contents hereto are for convenience purposes only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed or caused this Agreement to be executed as of the date first written above.
NRT INCORPORATED
By: /s/ Thomas J. Freeman
-----------------------------------
Name: Thomas J. Freeman
Title: Senior Vice President
|
CENDANT CORPORATION
By: /s/ C. Patterson Cardwell, IV
-----------------------------------
Name: C. Patterson Cardwell, IV
Title: Senior Vice President
|
SOTHEBY'S HOLDINGS, INC.
By: /s/ William S. Sheridan
-----------------------------------
Name: William S. Sheridan
Title: Executive Vice President and
Chief Financial Officer
|
EXHIBIT 99.3
TRADEMARK LICENSE AGREEMENT
among
SPTC, INC.
as Licensor,
and
SOTHEBY'S HOLDINGS, INC.
as Guarantor
MONTICELLO LICENSEE CORPORATION
as Licensee,
and
CENDANT CORPORATION
as Guarantor
Dated as of February 17, 2004
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS AND TERMS............................................................................1
Section 1.1. Definitions..........................................................................1
Section 1.2. Other Interpretive Provisions.......................................................12
ARTICLE II GRANT OF RIGHTS................................................................................12
Section 2.1. Grant of License....................................................................12
Section 2.2. License of Domain Names.............................................................13
Section 2.3. Authorized Ancillary Services.......................................................14
ARTICLE III BRANDING AND MARKETING........................................................................15
Section 3.1. Combined Names and Marks............................................................15
Section 3.2. Positioning of Brand................................................................16
Section 3.3. Alliance Marketing..................................................................16
Section 3.4. Trademark Usage Guidelines..........................................................17
Section 3.5. Promotional Materials...............................................................18
Section 3.6. Government Filings and Investor Relations...........................................18
Section 3.7. Branded Franchise Marketing.........................................................18
Section 3.8. Licensor's Publications.............................................................19
Section 3.9. Modification of Sotheby's Name......................................................19
Section 3.10. Advertising and Marketing Agents....................................................19
ARTICLE IV TERM...........................................................................................20
Section 4.1. Initial Term........................................................................20
Section 4.2. Renewal Term........................................................................20
ARTICLE V FEES............................................................................................20
Section 5.1. Fees................................................................................20
Section 5.2. Other Matters Relating to the Determination of Covered Revenue......................22
Section 5.3. Payment of Fees.....................................................................23
Section 5.4. Late Payment........................................................................23
Section 5.5. Method of Payment...................................................................23
Section 5.6. Minimum Fees........................................................................24
ARTICLE VI MUTUAL REFERRALS...............................................................................24
Section 6.1. Referrals by Licensor...............................................................24
Section 6.2. Referrals by Licensee...............................................................25
Section 6.3. Payment of Referral Fees............................................................25
ARTICLE VII QUALITY CONTROL...............................................................................25
Section 7.1. Eligible Markets....................................................................25
Section 7.2. Sublicensee Eligibility Guidelines..................................................26
Section 7.3. Quality Control Standards With Respect To Owned Operations..........................28
|
Section 7.4. Quality Control Standards With Respect To Affiliated and Franchised Operations......29
Section 7.5. Excluded Services by Branded Operators; Prohibition on Co-Mingling Marks............30
Section 7.6. Uniform Franchise Offering Circular.................................................30
Section 7.7. Termination of Relationship.........................................................30
Section 7.8. Notice of Breach....................................................................31
Section 7.9. Sample Uses of Licensed Marks.......................................................31
ARTICLE VIII REPRESENTATIONS AND WARRANTIES...............................................................31
Section 8.1. Representation and Warranties of Holdings and Licensor..............................31
Section 8.2. Representations and Warranties of Parent and Licensee...............................33
ARTICLE IX RECORDS; AUDITS AND INSPECTIONS................................................................34
Section 9.1. Maintenance of Records..............................................................34
Section 9.2. Right of Inspection and Audit.......................................................34
Section 9.3. Payment Deficiency..................................................................35
ARTICLE X SPECIAL COVENANTS AND AGREEMENTS................................................................35
Section 10.1. Registration of Marks...............................................................35
Section 10.2. Compliance with Laws................................................................36
Section 10.3. Right of First Offer With Respect To Timeshare Brokerage Services...................36
Section 10.4. Right of First Offer With Respect To Licensee Brokerage Business....................37
Section 10.5. Certain Trademark Filings...........................................................37
Section 10.6. Further Assurances..................................................................38
Section 10.7. Prohibition on Auction House Business...............................................38
Section 10.8. Acknowledgement of SIR Rights.......................................................38
Section 10.9. Establishment of SPV; Transfers and Pledge..........................................38
Section 10.10. Synthesis Acknowledgement...........................................................39
ARTICLE XI EXCLUSIVITY; NON-COMPETITION...................................................................39
Section 11.1. Exclusivity.........................................................................39
Section 11.2. Non-Competition.....................................................................40
ARTICLE XII OWNERSHIP AND PROTECTION OF MARKS.............................................................41
Section 12.1. Ownership of Marks..................................................................41
Section 12.2. Proprietary Materials...............................................................41
Section 12.3. Protection of Marks.................................................................41
Section 12.4. No Registration by Licensee.........................................................42
Section 12.5. Infringement Actions................................................................42
Section 12.6. Licensee Estoppel...................................................................44
ARTICLE XIII INDEMNIFICATION..............................................................................45
Section 13.1. Indemnification by Licensee.........................................................45
Section 13.2. Indemnification by Licensor.........................................................46
Section 13.3. Limitations on Indemnification......................................................46
Section 13.4. Survival of Representations and Warranties..........................................48
|
Section 13.5. Notice and Resolution of Claim......................................................48
ARTICLE XIV DEFAULT AND TERMINATION.......................................................................50
Section 14.1. Termination.........................................................................50
Section 14.2. Effect of Termination...............................................................51
ARTICLE XV REVIEW COMMITTEE AND LIAISONS..................................................................52
Section 15.1. Formation...........................................................................52
Section 15.2. Responsibilities....................................................................53
Section 15.3. Liaisons............................................................................53
Section 15.4. Winding Down........................................................................54
Section 15.5. Non-Exclusive Role..................................................................54
ARTICLE XVI CERTAIN REMEDIES..............................................................................54
Section 16.1. Specific Performance................................................................54
Section 16.2. Limitation of Remedies..............................................................54
Section 16.3. DISCLAIMER OF WARRANTIES............................................................54
ARTICLE XVII ASSIGNMENT...................................................................................55
Section 17.1. Assignments Generally...............................................................55
Section 17.2. Permitted Assignment................................................................55
Section 17.3. Deemed Assignment...................................................................55
Section 17.4. Assignment of Rights to Fees........................................................55
Section 17.5. Effect of Assignment................................................................56
ARTICLE XVIII OPTION RELATING TO FOREIGN TRADEMARKS.......................................................56
Section 18.1. Grant of Option.....................................................................56
Section 18.2. Maintenance of Registration; Limitation.............................................56
Section 18.3. Exercise of Option..................................................................56
Section 18.4. Covenant of Licensor Following Exercise.............................................58
Section 18.5. Negative Covenants of Licensor With Respect to Option Territory.....................58
Section 18.6. Ownership of Marks..................................................................58
ARTICLE XIX GUARANTEE.....................................................................................59
Section 19.1. Guarantees..........................................................................59
Section 19.2. Waiver of Notices, Etc..............................................................60
Section 19.3. Reinstatement.......................................................................61
Section 19.4. Waiver of Subrogation; Subordination................................................61
Section 19.5. Successors and Assigns..............................................................61
ARTICLE XX MISCELLANEOUS..................................................................................62
Section 20.1. Information Transmission............................................................62
Section 20.2. Notices.............................................................................62
Section 20.3. Amendment; Waiver...................................................................62
Section 20.4. Expenses............................................................................62
Section 20.5. GOVERNING LAW; JURISDICTION; VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL........62
Section 20.6. Relationship of the Parties.........................................................63
|
Section 20.7. Severability........................................................................63 Section 20.8. Headings............................................................................63 Section 20.9. Entire Agreement....................................................................64 Section 20.10. Counterparts........................................................................64 |
TRADEMARK LICENSE AGREEMENT, dated as of February 17, 2004 (this "Agreement"), among SPTC, Inc., a Nevada corporation, and Sotheby's Holdings, Inc., a Michigan corporation ("Holdings"), on the one hand, and Cendant Corporation, a Delaware corporation ("Parent"), and Monticello Licensee Corporation, a Delaware corporation and an indirect wholly-owned Subsidiary of Parent (the "Licensee"), on the other hand.
W I T N E S S E T H :
WHEREAS, Holdings, Parent and NRT Incorporated, a Delaware corporation and an indirect Subsidiary of Parent ("Buyer"), are parties to the Stock Purchase Agreement dated as of the date hereof (the "Purchase Agreement"), with respect to the purchase and sale of all of the issued and outstanding shares of capital stock of Sotheby's International Realty, Inc., a Michigan corporation and a wholly-owned Subsidiary of Holdings ("SIR"), upon the terms and conditions set forth therein;
WHEREAS, in connection with the execution and delivery and closing of the Purchase Agreement, the parties hereto are entering into this Agreement;
WHEREAS, in connection with the preparation of this Agreement, the parties have reviewed, together and independently, their respective operations of residential real estate brokerage services, and in particular the operations of the Licensee Group with respect to the high quality of services that it provides, both directly and through its franchisees, the manner in which it operates its franchise systems, and the nature and scope of the quality control standards contained in its franchise agreements;
WHEREAS, Licensor's determination to enter into this Agreement is based in significant part upon the particular nature and manner of the business operations of the Licensee Group as described above, its highly secure financial condition, its high quality professional management and reputation as a leading provider of residential real estate brokerage services, and the distinct compatibility of the Licensed Marks and the high quality services and reputation of the Licensee Group in the residential real estate brokerage industry;
NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1. Definitions. The following terms as used in this Agreement shall have the following meanings:
"Acquiror" is defined in Section 11.2(c).
"Acquiror Group" is defined in Section 11.2(c).
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in effect as of the Effective Date.
"Agreement" is defined in the initial caption of this Agreement.
"Appearance" shall mean, with respect to a Mark, the color, font (or typography), and the style of such Mark itself, but excluding for the avoidance of doubt and without limitation, (i) the size of such Mark (including with respect to its use in advertising, signage, business cards, letterhead and other similar presentations), (ii) layout and (iii) order or placement in combination or presentation with other Marks (subject to Section 3.1).
"Applicable Registered Country" shall mean, with respect to a Registered Mark, the country in the Territory in which such Registered Mark is registered.
"Applicable Registered Services" shall mean, with respect to a Registered Mark, each specific Authorized Service covered by the certificate of registration for such Registered Mark.
"Artistically Significant Residence" shall mean Residential Real Estate that is reasonably considered to constitute a work of art or that otherwise has important historical, artistic, cultural or architectural significance (whether with respect to architecture, design or materials) or includes or is substantially related to a collection of fine art, antiques, objet d'art or other collectibles or an estate sale.
"Artwork" is defined in Section 12.2.
"ASP" is defined in Section 7.2(a)(i)(A).
"Auction House" shall mean a Person that, directly or indirectly, engages in an Auction House Business.
"Auction House Business" shall mean the business of conducting and sponsoring auctions of property, including antiques, fine art, objet d'art, collectibles, Artistically Significant Residences, and the performance of services and operations relating and incidental thereto, including appraisals and valuation of property, and by way of illustration and not of limitation, the auction business and related services and operations conducted by Holdings as of the Effective Date; provided that the term "Auction House Business" shall be deemed to exclude (i) the sale of real estate (other than Artistically Significant Residences) in auction brokerage format by real estate brokers, (ii) auctions conducted on the Internet for products that (A) are not principally composed of items of property constituting antiques, fine art and objet d'art and (B) are marketed to a broad cross section of consumers and (iii) Authorized Ancillary Services.
"Authorized Ancillary Services" is defined in Section 2.3(b).
"Authorized Brokerage Services" shall mean real estate brokerage services for Residential Real Estate.
"Authorized Services" is defined in Section 2.1(a).
"Branded Broker Affiliate" shall mean a Broker Affiliate of Licensee or any Company Affiliate for so long as it offers and sells Authorized Brokerage Services under the Licensed Marks (whether or not combined with any other Mark pursuant to this Agreement).
"Branded Franchise" shall mean a franchise granted to a Franchisee pursuant to a Branded Franchise Agreement.
"Branded Franchise Agreement" shall mean any agreement between a Branded Franchisee and Licensee or a Company Affiliate, pursuant to which such Branded Franchisee is granted a sublicense to any Licensed Mark.
"Branded Franchisee" shall mean a Person that is a licensed provider of Authorized Brokerage Services and that is a Franchisee, for so long as it offers and sells Authorized Brokerage Services under the Licensed Marks (whether or not combined with any other Mark pursuant to this Agreement).
"Branded Operator" shall mean Licensee and any sublicensee of any Licensed Mark, including any Company Affiliate, Branded Owned Office, Branded Broker Affiliate or Branded Franchisee.
"Branded Owned Office" shall mean an Owned Office for so long as it provides Authorized Brokerage Services under the Licensed Marks (whether or not combined with any other Mark pursuant to this Agreement).
"Broker Affiliate" shall mean, with respect to any Person, a Person that is a licensed provider of Authorized Brokerage Services and who provides such Authorized Brokerage Services pursuant to or in connection with a real estate brokerage affiliation agreement or other similar agreement (other than a franchise agreement) with such first Person, or who is otherwise a member of a real estate brokerage affiliate network of such first Person or its Affiliates, with respect to the offering and provision of Authorized Brokerage Services.
"Broker Affiliate Agreement" shall mean (i) an agreement between any Pre-Existing Broker Affiliate, on the one hand, and any of SIR, Licensee or any Company Affiliate, as assignee of SIR or any Licensor Affiliate, on the other hand, that is in effect as of the Effective Date or (ii) any agreement between a Branded Broker Affiliate and Licensee or any Company Affiliate pursuant to which such Branded Broker Affiliate is granted a sublicense to any Licensed Mark.
"Brokerage Service Provider Claim" is defined in Section 12.5(b)(i).
"Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banks in New York City are authorized or obligated by law or executive order to close.
"Buyer" is defined in the introduction of this Agreement.
"Co-Marketer" is defined in Section 3.3.
"Company Affiliate" shall mean any Affiliate of Licensee.
"Computer Art" is defined in Section 12.2.
"Concierge Service" shall mean a service provided by a Residential Real Estate broker to a client home buyer or seller as a service ancillary to such brokerage service and pursuant to which the broker provides referrals to, or assists in making logistical arrangements on behalf of the client with, third-party providers of services associated with moving into or out of, or maintaining, a residence, provided that such moving or maintenance services (or services associated therewith) into or out of a residence are provided by a third party and not by the real estate broker or any Person under the Licensed Marks.
"Confidential Information" is defined in Section 9.2(d).
"Control" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in effect as of the Effective Date.
"Corcoran Legacy Office" shall mean any Owned Office offering or selling Authorized Brokerage Services under the Corcoran Mark or any derivative thereof, as of the Effective Date, including any subsequent Relocation thereof.
"Corcoran Mark" shall mean the CORCORAN trademark and service mark.
"Covered Books and Records" is defined in Section 9.1(a).
"Covered Geographic Area" is defined in Section 7.2(a)(i).
"Covered Revenue" means Franchisee Covered Revenue or Owned Covered Revenue, as applicable.
"Damages" is defined in Section 13.1.
"Derivative Works" is defined in Section 12.2.
"Domain Names" shall mean the domain names set forth in Part I of Schedule A attached hereto and any similar or successor electronic address mechanism or system, whether now known or hereafter devised from any form, consisting of any Licensed Marks and set forth in Part I of Schedule A, as such Part I of Schedule A may be amended by the parties from time to time.
"Earned" shall mean, with respect to revenue or other income, income or revenue that is earned and accrued.
"Effective Date" shall mean the date hereof.
"Election Period" is defined in Section 13.5(a).
"Eligible Market" is defined in Section 7.1(b).
"Eligible Marks" is defined in Section 3.1(c)(i).
"Eligible SPV" shall mean a Person that (i) is a Subsidiary of Holdings and (ii) has in its Organizational Documents provisions substantially similar to or having a substantially similar effect as, the provisions set forth on Exhibit A.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, as in effect as of the date hereof.
"Excluded Services" shall mean (i) commercial real estate brokerage services, (ii) Timeshare Brokerage Services, (iii) Residential Real Estate management and management services, other than as specifically included in the definition of "Residential Real Estate" in this Agreement, (iv) real estate development services or products (whether as a developer or as an advisor or consultant or other service provider with respect to real estate developments), other than advice and consultation related to sales of Residential Real Estate within any development and (v) any other services related to the foregoing or to any real estate brokerage services, in each case other than the Authorized Services.
"Existing Auction Client" is defined in Section 6.2(a).
"Existing Brokerage Lead" is defined in Section 6.1(a).
"Extension Right" is defined in Section 4.1.
"Fee Statement" is defined in Section 5.3(b).
"Fees" shall mean the royalties due to Licensor pursuant to the terms and conditions of Article 5.
"First Offer Notice" is defined in Section 10.3(a).
"Foreign Operations Sale" is defined in Section 18.1.
"Former Branded Franchisee-Affiliate" means, as of any date, a Person that was a Branded Franchisee or Branded Broker Affiliate in the 12-months immediately proceeding such date.
"Franchise Wind-Down Period" is defined in Section 14.2(a)(iii).
"Franchisee" is defined in Section 2.1(b).
"Franchisee Claim" is defined in Section 12.5(a)(i).
"Franchised Mark" is defined in Section 3.1(b).
"Franchisee Covered Revenue" shall mean, with respect to any Branded Franchisee or Branded Broker Affiliate, all royalty or equivalent revenue Earned on gross commission income (or, in the event gross commission income is replaced in whole or in part by revenue of another or an equivalent type after the Effective Date in the Residential Real Estate brokerage industry generally, such other or equivalent revenue) of such Branded Franchisee or
Branded Broker Affiliate, as applicable, which royalty or equivalent revenue Earned on gross commission income (or such other or equivalent revenue, as applicable) shall not include: (i) payments by any Branded Franchisee or Branded Broker Affiliate for advertising charges and marketing fees (including by way of example and not of limitation, the National Advertising Fund or NAF, currently maintained by the Licensee Group as of the Effective Date); (ii) initial franchise fees paid by any Branded Franchisee that are up front fees not related to actual Residential Real Estate transactions; (iii) royalties or equivalent revenue Earned on revenue from the provision of any Authorized Ancillary Services by such Branded Franchisee or Branded Broker Affiliate; and (iv) other payments by any Branded Franchisee or Branded Broker Affiliate in connection with charges by Licensee or any Company Affiliate for administrative or ancillary services provided by Licensee or any Company Affiliate in its capacity as a franchisor or licensor and which payments are not calculated as a percentage or function of the revenues of the Branded Franchisee or Branded Broker Affiliate.
"Governmental Authority" shall mean any national, federal, state, local or foreign judicial, legislative, executive, regulatory or administrative authority, self-regulatory organization or arbitrator having legally binding authority.
"Guarantee" is defined in Section 19.1.
"Guidelines" is defined in Section 7.2(a).
"Holdings" is defined in the introduction of this Agreement.
"Holdings Change of Control" is defined in Section 11.2(c).
"Holdings Guarantee" is defined in Section 19.1(b).
"Holdings Obligations" is defined in Section 19.1(b).
"Indemnified Party" is defined in Section 13.5(a).
"Indemnifying Party" is defined in Section 13.5(a).
"Indemnity Payments" is defined in Section 13.5(d).
"Initial Termination Date" is defined in Section 4.1.
"Laws" shall mean any federal, state, foreign or local law, common law, statute, ordinance, rule, regulation, order, judgment, administrative order, decree, administrative or judicial decision and any other executive, legislative, regulatory or administrative proclamation in each case having binding legal effect.
"Licensed Marks" shall mean, collectively, (i) the SIR Mark, (ii) the Domain Names, (iii) any Unregistered Mark and (iv) in any Option Territory in which the Option is exercised, any of the foregoing (i) - (iii) transliterated into the applicable local language or languages of such Option Territory effective upon grant of the license pursuant to the terms and conditions of Article 18.
"Licensee Brokerage Business" shall mean the real estate brokerage business of Licensee and the Company Affiliates, including their company-owned, licensed and franchised businesses.
"Licensee Deductible Amount" is defined in Section 13.3(a).
"Licensee Group" shall mean, individually and collectively, Licensee and each Company Affiliate.
"Licensee Indemnified Parties" is defined in Section 13.2.
"Licensee Liaison" shall mean, individually and collectively, the liaisons designated by Licensee pursuant to Section 15.3.
"Licensee" is defined in the initial caption of this Agreement.
"Licensee Group Marks" is defined in Section 3.1(d).
"Licensor" shall mean (i) SPTC, Inc., a Nevada corporation, and upon an assignment of the Licensed Marks and Licensor's rights and obligations under this Agreement to an Eligible SPV pursuant to Section 10.9(a) or 11.1(b), such Eligible SPV, together with (ii) any Eligible SPV that becomes a Licensor hereunder pursuant to Section 18.3(e)(v).
"Licensor Affiliate" shall mean Holdings and each of its Subsidiaries, provided that following a Holdings Change of Control, "Licensor Affiliate" shall further include any Affiliate of Holdings.
"Licensor Deductible Amount" is defined in Section 13.3(b).
"Licensor Indemnified Parties" is defined in Section 13.1.
"Licensor Liaison" shall mean the liaison designated by Licensor pursuant to Section 15.3.
"Licensor Offer Notice" is defined in Section 10.4(a).
"Litigation" shall mean any litigation, action, suit, proceeding, claim, arbitration or investigation before any Governmental Authority or before any arbitrator or mediator or similar party, or any investigation or review by any Governmental Authority.
"Mark" shall mean any name, brand, design, trademark, service mark, trade dress, logo, domain name, corporate, trade or business name.
"Measurement Period" is defined in Section 7.1(b).
"Minimum Amount" is defined in Section 5.6(b).
"Model Code of Ethics" shall mean the International Franchise Association Code of Principles and Standards of Conduct as set forth on Exhibit B hereto.
"Model Co-Mingling Provisions" shall mean the "Model Co-Mingling Provisions" set forth on Exhibit C hereto.
"Model Provisions" shall mean, collectively, the Model Co-Mingling Provisions, the Model Quality Control Provisions and the Model Code of Ethics.
"Model Quality Control Provisions" shall mean the "Model Quality Control Provisions" set forth on Exhibit D hereto.
"MSP" is defined in Section 7.1(b).
"New Broker Affiliate" shall mean any Branded Broker Affiliate that is not a Pre-Existing Broker Affiliate.
"New Market" shall mean a Covered Geographic Area in which a Sold Owned Office or a Corcoran Legacy Office, as applicable, performs or offers for sale Authorized Brokerage Services, other than the Covered Geographic Area in which the Sold Owned Office or Corcoran Legacy Office, as applicable, performed the Authorized Brokerage Services as of the Effective Date.
"New Owned Office" shall mean any Branded Owned Office that is not a Sold Office or a Corcoran Legacy Office.
"New Style Date" is defined in Section 3.9.
"New Style Notice" is defined in Section 3.9.
"Non-Compete Period" is defined in Section 11.2(a).
"Obligations" is defined in Section 19.1(a).
"Offer" is defined in Section 10.4(b).
"Offer Period" is defined in Section 10.4(b).
"Option" is defined in Section 18.1.
"Option Consents and Filings" is defined in Section 18.3(c).
"Option Period" is defined in Section 18.1.
"Option Territory" shall mean any country in the world other than (i) the Territory, (ii) Australia and (iii) New Zealand.
"Organizational Documents" shall mean, as to any Person, the certificate of incorporation and bylaws or memorandum and articles of association or other organizational documents of such Person.
"Original Territory" shall mean each of the following countries: (i) Canada, (ii) Barbados, (iii) Israel, (iv) Mexico, (v) Nassau, The Bahamas, (vi) St. Barthelemy, (vii) St. Martin, (viii) Turks and Caicos and (ix) the United States of America (including the U.S. Virgin Islands).
"Other Licensed Mark Claim" is defined in Section 12.5(c)(i).
"Owned Covered Revenue" shall mean, with respect to any Branded Owned
Office, 6% of gross commission income (or, in the event gross commission income
is replaced in whole or in part by revenue of another or an equivalent type
after the Effective Date in the Residential Real Estate brokerage industry
generally, such other or equivalent revenue) of such Branded Owned Office, which
gross commission income (or such other or equivalent revenue, as applicable)
shall not include (i) payments by any Company Affiliate or Branded Owned Office
for advertising charges and marketing fees (including by way of example and not
of limitation, the National Advertising Fund or NAF, currently maintained by the
Licensee Group as of the Effective Date), (ii) any revenue Earned from the
provision of Authorized Ancillary Services by any such Branded Owned Office and
(iii) revenue earned by any Branded Owned Office for "principal basis" sales of
Residential Real Estate where no commission is earned.
"Owned Office" shall mean a business unit or Person, as applicable, organized as a Residential Real Estate brokerage office, that is owned or held (directly or indirectly) by Licensee or by a Company Affiliate.
"Parent" is defined in the initial caption of this Agreement.
"Parent Mark" shall mean the CENDANT trademark and service mark.
"Percentage Increase" is defined in Section 5.6(b).
"Person " shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, firm, Governmental Authority or other entity (governmental or private).
"Photographs" is defined in Section 12.2.
"Pre-Existing Broker Affiliate" shall mean a Broker Affiliate of SIR or its Affiliates as of the time immediately prior to the Effective Date.
"Prime Rate" shall mean, at any given time, the prime rate most recently reported by J.P. Morgan Chase, New York, New York (or any successor entity).
"Proprietary Materials" is defined in Section 12.2.
"Purchase Agreement" is defined in the introduction of this Agreement.
"Real Estate Referral Services" shall mean the service of providing a referral with respect to a provider of Authorized Brokerage Services.
"Redirection Domain Names" shall mean the domain names set forth in Part II of Schedule A attached hereto.
"Registered Ancillary Services" shall mean any one or more Authorized Ancillary Services for which Licensor has obtained a certificate of registration of the Licensed Marks from the applicable Governmental Authority in the Territory.
"Registered Marks" shall mean any Licensed Mark that is registered for one or more of the Authorized Services, as set forth in the applicable certificate of registration.
"Relocation" shall mean, with respect to any Sold Owned Office or Corcoran Legacy Office, the relocation of the office facility from which its sales associates and brokers offered and sold Authorized Brokerage Services to another office facility located in the same Covered Geographic Area or a New Market and in which same Covered Geographic Area or New Market the sales associates and brokers of such Sold Owned Office or Corcoran Legacy Office offer and sell Authorized Brokerage Services thereafter.
"Residential Real Estate" shall mean real estate consisting of a residential dwelling (including an apartment within a multi-family building), including leaseholds of dwellings (including the rental and management of properties in vacation and resort markets), cooperatives, condominiums, fractional ownership, manufactured homes, panelized or pre-fabricated housing, undeveloped land, resort, farm and ranch real estate and any other form of real estate for which a residential real estate brokerage license is required under applicable Law, excluding Timeshares.
"Review Committee" is defined in Section 15.1.
"Sale Transaction" is defined in Section 10.4(a).
"SIR" is defined in the introduction of this Agreement.
"SIR Legacy Affiliate" is defined in Section 7.1(e).
"Sold Owned Office" shall mean a residential real estate brokerage office the fee title, leasehold interest or subleasehold interest of which was transferred (directly or indirectly) to Buyer pursuant to the Purchase Agreement.
"SIR Mark" shall mean the SOTHEBY'S INTERNATIONAL REALTY trademark and service mark.
"Sotheby's Mark" shall mean the SOTHEBY'S trademark and service mark.
"Subsidiary" shall mean, with respect to any Person, any Person in which such first Person, directly or indirectly, holds stock or other ownership interests representing (a) more than 50% of the voting power of all outstanding stock or ownership interests of such Person or (b) the right to receive more than 50% of the net assets of such Person available for distribution to the holders of outstanding stock or ownership interests upon a liquidation or dissolution of such Person.
"Superior Offer" is defined in Section 10.4(c).
"Synthesis Agreement" shall mean the Strategic Partnership Agreement dated as of November 1, 2000, between SIR and Synthesis Realty, LLC.
"Taubman Family Member" shall mean (i) A. Alfred Taubman, (ii) any of
A. Alfred Taubman's lineal descendants, spouses, lineal descendants of spouses,
adopted children or grandchildren, mothers- and fathers-in-law, sons- and
daughters-in-law or brothers- and sisters-in-law, (iii) the estate of any Person
described in clauses (i) and (ii), (iv) any trust for the benefit of any Person
described in clauses (i), (ii) and (iii) (including the A. Alfred Taubman
Restated Revocable Trust (as the same may be amended)), (v) any charity,
charitable trust or other charitable organization of which any Person described
in clauses (i) or (ii) is a director, trustee or officer or (vi) any Person,
more than 50% of the voting stock, voting securities, partnership interests,
limited liability company interests or other beneficial ownership and Control of
which is and remains owned and Controlled by one or more Persons described in
clauses (i), (ii), (iii) or (iv).
"Territory" shall mean the Original Territory and any country set forth in Schedule C following any exercise of the Option and upon (and subject to) the grant of the license thereunder pursuant to the terms and conditions of Article 18.
"Timeshare" shall mean a commercial arrangement under which a purchaser receives an interest in real property or the right to use an accommodation or amenities related to real properties, or both, for a specified period and on a recurring basis, including in connection with residential and vacation properties.
"Timeshare Brokerage Services" is defined in Section 10.3(a).
"Timeshare License" is defined in Section 10.3(a).
"Trademark Usage Guidelines" shall mean the Trademark Usage Guidelines set forth on Exhibit G hereto.
"Transaction Value" is defined in Section 7.2(a)(i)(B).
"UFOC" shall mean any Uniform Franchise Offering Circular or such other franchise offering documents or circulars that any Person prepares or otherwise uses in connection with the grant of or proposed grant of or offer to grant any franchise.
"Unregistered Marks" shall mean, collectively, the following marks:
(i) SOTHEBY'S REALTY, (ii) SOTHEBY'S REAL ESTATE, (iii) SOTHEBY'S REALTOR, (iv)
SOTHEBY'S REALTORS, and (v) SOTHEBY'S in combination with words (A) denoting
realty or real estate and (B) words denoting any of the Authorized Ancillary
Services (e.g., SOTHEBY'S REALTY TITLE or SOTHEBY'S REALTY MORTGAGE).
Section 1.2. Other Interpretive Provisions.
(a) Except where expressly stated otherwise in this Agreement, the
following rules of interpretation apply to this Agreement: (i) "either" and "or"
are not exclusive and "include", "includes" and "including" are not limiting;
(ii) "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar
import when used in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement; (iii) "date hereof" refers to the
date set forth in the initial caption of this Agreement; (iv) "extent" in the
phrase "to the extent" shall mean the degree to which a subject or other thing
extends, and such phrase does not mean simply "if"; (v) definitions contained in
this Agreement are applicable to the singular as well as the plural forms of
such terms; (vi) references to an agreement or instrument mean such agreement or
instrument as from time to time amended, modified or supplemented, in each case
to the extent not prohibited by such agreement or instrument; (vii) references
to a Person are also to its permitted successors and assigns; (viii) references
to an "Article", "Section", "Subsection", "Exhibit" or "Schedule" refer to an
Article of, a Section or Subsection of, or an Exhibit or Schedule to, this
Agreement; (ix) words importing the masculine gender include the feminine or
neuter and, in each case, vice versa; (x) references to "$" or otherwise to
dollar amounts refer to the lawful currency of the United States; (xi)
references to a Law include any amendment or modification to such Law and any
rules, regulations and delegated legislation issued thereafter, whether such
amendment or modification is made, or issuance of such rules, regulations or
delegated legislation occurs, before or after the date of this Agreement and
(xii) any consent or approval of any Person may be granted or withheld in such
Person's sole and absolute discretion.
(b) The parties waive the application of any Law or rule of construction providing that ambiguities in an agreement will be construed against the party drafting such agreement.
ARTICLE II
GRANT OF RIGHTS
Section 2.1. Grant of License.
(a) Pursuant to the terms and conditions of this Agreement, Licensor
hereby grants to Licensee the exclusive right and license, during the term of
this Agreement, to use the Licensed Marks (other than the Domain Names) in the
Territory solely for the offer and sale of (i) Authorized Brokerage Services and
(ii) subject to Section 2.3, Authorized Ancillary Services (collectively,
"Authorized Services"), and not in connection with any other product or service
of any kind (including any related product or service).
(b) Pursuant to the terms and conditions of this Agreement, including
Section 2.3, Licensor hereby grants to Licensee the exclusive right and license
to grant sublicenses, none for a term that extends beyond the then-current term
of this Agreement, of the rights and licenses granted pursuant to the terms and
conditions of Section 2.1(a) solely to any (i) Company Affiliate only for so
long as it is a Company Affiliate, (ii) Owned Office only for so long as it is
an Owned Office, (iii) Broker Affiliate of Licensee only for so long as it is a
Broker Affiliate of
Licensee and (iv) franchisee of Licensee or any Company Affiliate (other than any franchisee that is a Company Affiliate) that offers and sells Authorized Brokerage Services ("Franchisee") only for so long as it is a Franchisee, but in each case only for the offer and sale of Authorized Services in the Territory. For the avoidance of doubt, a Company Affiliate that has received a sublicense hereunder may in turn further sublicense the Licensed Marks to any Owned Office, Broker Affiliate or Franchisee set forth in clauses (ii), (iii) or (iv) of the preceding sentence, subject to the terms and conditions of this Agreement.
(c) Pursuant to the terms and conditions of this Agreement, including
Section 2.4, Licensor hereby grants to Licensee the exclusive right to use the
Licensed Marks (other than the Domain Names) in its or its Affiliates'
corporate, trade or assumed name during the term of this Agreement, and to grant
sublicenses of such right to any (i) Company Affiliate only for so long as it is
a Company Affiliate, (ii) Owned Office only for so long as it is an Owned
Office, (iii) Broker Affiliate of Licensee only for so long as it is a Broker
Affiliate of Licensee and (iv) Franchisee only for so long as it is a franchisee
of Licensee, but in each case only for the offer and sale of Authorized Services
in the Territory.
(d) The parties acknowledge that the rights of Licensor in and to the SIR Mark in Israel are pursuant to a sublicense from Sotheby's (UK), a Licensor Affiliate, for the period from the Effective Date until such time as the registration for the SIR Mark in Israel is transferred to an Eligible SPV pursuant to the terms and conditions of Section 10.9.
Section 2.2. License of Domain Names.
(a) Pursuant to the terms and conditions of this Agreement, Licensor hereby grants to Licensee a license to use, and to sublicense to a Company Affiliate the right to use, during the term of this Agreement, the Domain Names, solely in connection with marketing and promoting the Authorized Services being provided in the Territory by any Branded Operator.
(b) Pursuant to the terms and conditions of this Agreement, Licensor hereby grants to Licensee a license to use, during the term of this Agreement, the Redirection Domain Names solely for the limited purpose of redirecting users of the Internet who misspell a domain name in a Uniform Resource Locator to another Uniform Resource Locator that is a Domain Name.
(c) The parties acknowledge and agree that insofar as Domain Names are Licensed Marks, any use of the Domain Names, including in connection with any website or other advertising or promotional materials (including electronic mail sent from an electronic mail address associated with the Domain Names) or other content available through the Domain Names, must comply with all restrictions in this Agreement relating to the Licensed Marks, to the extent applicable.
(d) Licensor shall maintain a link on the www.sothebys.com website, to the website at www.sothebysrealty.com. Licensor may include such disclaimers on the www.sothebys.com website or include such intermediary screens to the extent it reasonably considers necessary or advisable under applicable Law to indicate that the www.sothebysrealty.com website is that of the Licensee. Licensee shall reimburse Licensor's
reasonable out-of-pocket expenses resulting from the maintenance of such link, but shall not otherwise be required to compensate Licensor therefor. Unless Licensor shall request the discontinuation thereof, Licensee shall maintain a link on the www.sothebysrealty.com website, to the website www.sothebys.com. Licensee may include such disclaimers on the www. sothebysrealty.com website or include such intermediary screens to the extent it reasonably considers necessary or advisable under applicable Law to indicate that the www.sothebys.com website is that of the Licensor. Licensor shall reimburse Licensee's reasonable out-of-pocket expenses resulting from the maintenance of such link, but shall not otherwise be required to compensate Licensee therefor. The Review Committee shall regularly, and not less than once every five years, review this Section 2.2(d) with respect to its practical application to the parties' businesses and in light of changes in technology, and the Review Committee may propose such amendments to this Section 2.2(d) as it shall deem reasonable and appropriate, such amendments to be subject to the terms and conditions of Section 20.3. For the avoidance of doubt, (i) the content included in the www.sothebysrealty.com website shall be owned by Licensee and its Affiliates and (ii) Licensor shall remain the owner and registrant with respect to the Domain Names; provided, however, that during the term of this Agreement, Licensee or one of its Affiliates shall be the administrator and administrative, technical and billing contact with the relevant Internet registrar for all purposes with respect to the Domain Names and shall have the right to alter the content of the relevant websites in its sole and absolute discretion, subject to the terms of this Agreement.
(e) With respect to any domain name (if any) registered in the name of SIR as of the time immediately prior to the Effective Date that has not be transferred to a Licensor Affiliate as of, or prior to the Effective Date, Parent shall cause Buyer to execute, acknowledge and deliver all documents, agreements and instruments necessary to transfer to Licensor, and to act in good faith and cooperate with Licensor in connection with the transfer to Licensor of, any such domain name.
Section 2.3. Authorized Ancillary Services.
(a) Pursuant to the terms and conditions of this Agreement, Authorized Ancillary Services may be provided under the Licensed Marks by a Branded Operator only to the extent offered as a service ancillary to the provision of Authorized Brokerage Services, and subject to the condition that such Branded Operator does not hold itself out as providing such Authorized Ancillary Services as its principal business or as being a stand-alone provider solely of such Authorized Ancillary Services. Licensee shall cause any materials describing or otherwise relating to the offer or sale of Authorized Ancillary Services by any Branded Operator to include a disclaimer providing that such Authorized Ancillary Services are not provided by Holdings or any Licensor Affiliate.
(b) For purposes of this Agreement, "Authorized Ancillary Services" shall mean only the following services: (i) relocation, (ii) Residential Real Estate title search, (iii) Residential Real Estate title insurance, (iv) Residential Real Estate appraisal, (v) Residential Real Estate closing and Residential Real Estate escrow services and Residential Real Estate mortgage origination, (vi) Residential Real Estate mortgage brokerage, (vii) Residential Real Estate mortgage banking, (viii) home warranties, (ix) Real Estate Referral Services, (x) Concierge Services and (xi) with the consent of Licensor (such consent not to be
unreasonably withheld), such additional services that are or become commonly offered or promoted by high-quality brokers of Residential Real Estate as a service ancillary to the provision of Authorized Brokerage Services.
ARTICLE III
BRANDING AND MARKETING
Section 3.1. Combined Names and Marks.
(a) Generally. Except as expressly permitted by this Agreement, Licensee shall not, and shall cause each of its sublicensees not to, and the licenses and sublicenses granted hereunder and pursuant hereto shall not be deemed to permit, the use of the Sotheby's Mark or any Licensed Mark, or any derivative thereof, or any confusingly similar Mark, as a Mark by itself or with any other Mark.
(b) Franchise Marks. Notwithstanding anything to the contrary in this
Section 3.1, Licensee shall not, and shall cause each of its sublicensees not
to, use any Licensed Mark in combination with any other Mark (other than any
Licensed Mark) that is (i) offered for use by, offered for license (or
sublicense) to, or licensed (or sublicensed) to, any Franchisee, or (ii) offered
for use by, or offered for license (or sublicense) to, any prospective
Franchisee, by (in the case of both clauses (i) and (ii)) Licensee or any
Company Affiliate (including pursuant to a UFOC) (a "Franchised Mark").
(c) Permitted Combinations of Marks.
(i) Subject to the terms and conditions of this Agreement, including Section 3.1(c)(ii) and (iii), Licensee and each sublicensee of any Licensed Mark shall be permitted to use any Licensed Mark in combination with any other Mark of Licensee or Company Affiliate or any sublicensee of any Licensed Mark, solely (x) in connection with the Authorized Services in the Territory and (y) as follows (each such Mark described in (A) and (B) below, an "Eligible Mark"):
(A) in certain associations with the Parent Mark as set forth in Exhibit E (and for so long as the Parent Mark is not a Franchised Mark or combined with or embodied in a Franchised Mark); and
(B) subject to Section 3.1(c)(ii), in combination with any Mark of any sublicensee of any Licensed Mark, including any Company Affiliate sublicensee or any Branded Franchisee, that is not the Parent Mark or a Franchised Mark (or combined with or embodied in a Franchised Mark).
(ii) Licensee shall not, and Licensee shall cause each Company Affiliate not to, register, or take any action to effect registration of, any Mark that combines any Licensed Mark with any other Mark; provided, however, that, subject to Section 2.1(c), this clause (ii) shall not be interpreted to prevent Licensee and any Company Affiliate from making such filings with a secretary of state or similar Governmental Authority to establish, or qualify to
do business using, a corporate or trade name or assumed name (or d/b/a) consisting of any Licensed Mark.
(iii) With respect to any domain name consisting of any
combination of any Licensed Mark with any Eligible Mark pursuant to the terms of
Section 3.1(c)(i), the parties acknowledge and agree that (A) such domain name
shall be subject to Section 2.2(c) with respect to registration and maintenance
and (B) the respective rights of Licensor and the Licensor Affiliates, on the
one hand, and Licensee, the Company Affiliates and their respective
sublicensees, on the other hand, to such domain name shall be limited to each of
their respective rights, in the case of Licensor and the Licensor Affiliates, in
the Licensed Marks, and in the case of Licensee, the Company Affiliates and
their respective sublicensees, in the Eligible Marks.
(d) With respect to any use of any Licensed Mark in combination with the Parent Mark, the Corcoran Mark or any other Mark of Licensee or any Company Affiliate (collectively, "Licensee Group Marks") as a combined Mark pursuant to the terms and conditions of this Agreement, the size of such Licensed Mark (taken as a whole) shall not be smaller relative to the size of such Licensee Group Mark (taken as a whole) with which it is combined as part of a combined Mark.
Section 3.2. Positioning of Brand.
(a) Licensee shall, and shall cause each Company Affiliate and Branded Owned Office, and shall use reasonable efforts to cause each Branded Broker Affiliate and Branded Franchisee, to, (i) market, hold out and otherwise position the Authorized Brokerage Services offered under the Licensed Marks, as a leading luxury brand of Residential Real Estate brokerage services. Licensee shall not, and shall not permit any Company Affiliate to, market, hold out or otherwise position any other Mark of the Licensee Group, including any franchise system owned or operated, directly or indirectly, by the Licensee Group, as being associated with more luxurious Residential Real Estate brokerage services or more luxurious Residential Real Estate properties than those offered and sold under the Licensed Marks.
(b) Licensee shall not, and Licensee shall cause each Branded Operator not to, segment or distinguish any Licensed Mark from any other Licensed Mark, or for any Licensed Mark, on the basis of luxury, quality, pre-eminence or similar categorizations, distinctions or brand layering (e.g., "Sotheby's International Realty Premier" shall be prohibited). The use of a trade or corporate name (including an assumed name or d/b/a) by a Branded Franchisee or Branded Broker Affiliate that contains a word or name that would be reasonably likely to be interpreted to denote brand segmentation shall not be prohibited by this Section 3.2(b), including by way of example and not of limitation, a Branded Franchisee whose trade name is PREMIER PROPERTIES SOTHEBY'S INTERNATIONAL REALTY. No Branded Owned Office or Company Affiliate may have a corporate or trade name or use an assumed name or d/b/a that includes any word or name that, when combined with any Licensed Mark, could be interpreted to denote any brand segmentation prohibited by this Section 3.2(b).
Section 3.3. Alliance Marketing. Subject to Section 3.4, in connection with any proposed agreements between Licensee or any Company Affiliate and any third party pursuant to which Licensee or any Branded Operator would co-market with third-party providers of products
or services offered or marketed to home owners or home buyers (or prospective home buyers) (any such Person, a "Co-Marketer") the products or services of such Co-Marketer, including in connection with the Licensee Group's "alliance marketing program," Licensee shall only have the right to include any Licensed Mark in any co-marketing materials created in connection with such agreement with any Co-Marketer if (a) the products or services relating to such co-marketing arrangements shall be performed by the Co-Marketer and not by the Licensee or any Branded Operator and (b) Licensor has approved such Co-Marketer in advance of any such agreement as provided below. In the event that Licensee or any Company Affiliate proposes to enter into an agreement with any Co-Marketer involving any use of any Licensed Mark, Licensee shall submit to Licensor a written request for approval of such Co-Marketer including a template or mock-up or representative sample demonstrating such intended use, whereupon Licensor may request such additional information as it may reasonably deem relevant to evaluating such request. If Licensor does not object to any proposed Co-Marketer within ten Business Days following receipt of all information requested pursuant to the preceding sentence, Licensor shall be deemed to have approved the proposed Co-Marketer. Licensee shall cause any co-marketing materials to include a disclaimer providing that such Co-Marketer's products or services are not provided by Holdings, any Licensor Affiliate or any Branded Operator, as applicable, and the use of the Licensed Marks in any co-marketing materials shall comply with the terms and conditions of this Agreement. The right under this Section 3.3 is a right to co-market the Authorized Services with the services or products of an approved Co-Marketer and in no event shall this Section 3.3 be interpreted to expand the scope of the Authorized Services that may be offered and sold under the Licensed Marks.
Section 3.4. Trademark Usage Guidelines.
(a) Any use of a Licensed Mark, including in combination with any other Mark of Licensee, must comply with the Trademark Usage Guidelines (i) in all respects relating to the Appearance of any Licensed Mark and (ii) otherwise in all material respects, including with respect to the inclusion of all appropriate trademark notices, including the use of the designations (R) and sm, as applicable, with the Licensed Marks; provided, however, that solely to the extent that any Licensed Mark is used in a media that does not reasonably permit use in conformity with such Trademark Usage Guidelines (including by way of illustration and not of limitation, use of the Licensed Marks in EDGAR filings with the Securities and Exchange Commission), such use shall not be prohibited by this Section 3.4(a).
(b) Subject to Section 3.4(a) above:
(i) Licensee shall provide Licensor a draft of Licensee's first Identity Standards Manual that it proposes to include in a UFOC with respect to prospective Branded Franchisees, and which the parties acknowledge may be in a form comparable to the forms of the identity standards manuals that the Licensee Group uses in connection with its other franchisee systems, but must comply with the Trademark Usage Guidelines with respect to the Appearance of any Licensed Mark. Licensor shall review such draft Identity Standards Manual promptly upon receipt, and Licensee acknowledges and agrees that the final Identity Standards Manual included in such UFOC shall be subject to Licensor's prior approval, such approval not to be unreasonably withheld. To the extent that the Identity Standards Manual approved by Licensor pursuant to the foregoing differs from the Trademark Usage Guidelines, Licensee shall have the
right to rely upon and comply with such Identity Standards Manual approved by Licensor as provided herein.
(ii) The Identity Standards Manual approved by Licensor may be amended or supplemented in good faith by Licensee from time to time, provided that any such amendment or supplement complies with the Trademark Usage Guidelines with respect to the Appearance of any Licensed Mark and contains or proposes a change to the Identity Standards Manual that is of a quality equal to or higher, or as or more strict, than the Identity Standards Manual approved by Licensor pursuant to Section 3.4(b)(i).
(c) The words contained in or comprising any Licensed Mark other than the word "Sotheby's" shall not be smaller in proportion to the word "Sotheby's" than the approximate proportion of the word "Sotheby's" with the words "International Realty" as such words appear together in the SIR Mark in the Trademark Usage Guidelines.
(d) This Section 3.4 shall not be deemed to limit or modify any other provision of this Agreement, including with respect to any use of the Licensed Marks.
Section 3.5. Promotional Materials. Subject to Section 3.4, Licensee and their permitted sublicensees shall be permitted to use the Licensed Marks in connection with internal promotional materials for the Authorized Services (examples include clothing, hats, writing implements, mugs and other similar customary marketing materials) that are (i) distributed free of charge to any existing or prospective customer of the Authorized Brokerage Services or distributed or sold to any sales associate or employee of any Branded Operator for subsequent distribution free of charge to any existing or prospective customer of the Authorized Brokerage Services, (ii) not sold or offered for sale to any person that is not a sales associate or employee of any Branded Operator and (iii) subject to the Trademark Usage Guidelines, the Model Provisions and other quality control provisions no less strict than those contained in the Licensee Group's franchise agreements for Authorized Brokerage Services as in effect on the Effective Date with respect to the use of marks on or in connection with marketing and promotional materials used by Franchisees.
Section 3.6. Government Filings and Investor Relations. Subject to Section 3.4, Licensee and each Company Affiliate is permitted to use any Licensed Mark in or in connection with any filing with any Governmental Authority or stock exchange or any disclosure or materials provided to investors or prospective investors or financial analysts or any materials used for corporate or business matters (including presentation materials) used by Parent, in each case only to the extent that the use permitted by this Section 3.6 is incidental to the operation of the business of providing Authorized Brokerage Services under the Licensed Marks.
Section 3.7. Branded Franchise Marketing
(a) Licensee covenants and agrees that it shall, and it shall cause the applicable Company Affiliates, to spend all advertising charges and marketing payments received from any Branded Franchisees on advertising and marketing promoting the business of such Branded Franchisees. For purposes of the foregoing, the parties acknowledge and agree that such spending of advertising charges and marketing fees is deemed to include spending of
such charges and fees for the Licensee Group's administrative and personnel costs associated with administering the marketing program of the Branded Franchisee franchise system.
(b) Independent of, and without regard to, amounts collected by Licensee or any Company Affiliate from Branded Franchisees for advertising and marketing, Licensee covenants and agrees that it will spend $10,000,000 in cash in calendar year 2005, and that it is its intent to spend $10,000,000 and $5,000,000 in cash in calendar years 2006 and 2007, respectively, in connection with the marketing of the Branded Franchisee system.
Section 3.8. Licensor's Publications. Licensor covenants and agrees that it will, or will cause the applicable Licensor Affiliates to, accept for publication in its proprietary Preview publication an advertisement from Licensee or from Company Affiliates for Authorized Brokerage Services under any Licensed Mark, which advertisements will be purchased and sold at the then-prevailing rates charged by Licensor to third-party advertisers. The form and presentation of such advertising shall be in Licensor's sole discretion, including with respect to matters of good taste and the appearance (including as to color, size and other matters) of the Licensed Marks.
Section 3.9. Modification of Sotheby's Name. In the event that Licensor desires to modify the Sotheby's Mark or its stylized design with respect to Licensor's and its Affiliates businesses, Licensor shall provide Licensee with not less than six months' advance written notice of such change (the "New Style Notice") and the effective date of such change (the "New Style Date"), and on the New Style Date each Licensed Mark (including as it is sublicensed by Licensee hereunder) shall be automatically modified accordingly and Licensor's and its Affiliates use of the Sotheby's Mark shall also be modified accordingly; provided that modification of the Licensed Marks shall not be required to the extent that the name SOTHEBY'S is changed to include descriptive terms inconsistent with real estate brokerage services (e.g., "Sotheby's Auction Houses"). Notwithstanding the foregoing, if the Licensor and its Affiliates discontinue all use of the Sotheby's Mark for a period of at least 12 consecutive months, then Licensee shall have the right to use the Sotheby's Mark to the extent embodied in each Licensed Mark during the term of this Agreement and pursuant to the terms and conditions of this Agreement. As of the New Style Date, all new advertising, marketing materials, signage and any other new representation of each Licensed Mark shall conform to the noticed modifications, provided that for a period of three years from the New Style Date, Licensee and each Branded Operator shall be permitted to use its inventory of marketing materials, signage and other similar materials to the extent in existence as of date of the New Style Notice. The right of Licensor to cause a change to any Licensed Mark pursuant to this Section 3.9 shall be exercisable not more than once in any five-year period during the term.
Section 3.10. Advertising and Marketing Agents. The parties acknowledge and agree that Licensee's rights hereunder include the right to allow its agents and the agents of its permitted sublicensees to use the Licensed Marks in the ordinary course of business for the sole and limited purpose of creating and placing marketing and advertising on behalf of Licensee or such permitted sublicensee for the marketing and sale of Authorized Services, subject to the terms and conditions of this Agreement.
ARTICLE IV
TERM
Section 4.1. Initial Term. Except as otherwise provided in Sections 4.2 and 4.3, this Agreement shall commence on the Effective Date and continue, unless earlier terminated, for a term of fifty years ending at 11:59 p.m. on February 16, 2054 (the "Initial Termination Date").
Section 4.2. Renewal Term. Except as otherwise provided in Section 4.3,
Licensee shall have the right, exercisable in its sole discretion and subject to
Section 4.3, to extend the term of this Agreement for a single additional term
of fifty years (the "Extension Right"), which Extension Right shall be
exercisable at any time on or after February 17, 2049 and prior to the date 180
days prior to the Initial Termination Date, by written notice from Licensee to
Licensor. Unless this Agreement has been terminated prior to the date of
exercise of such Extension Right, upon timely exercise of the Extension Right,
the term of this Agreement shall not terminate as provided in Section 4.1, and
shall continue after the Initial Termination Date until 11:59 p.m. on February
16, 2104.
ARTICLE V
FEES
Section 5.1. Fees.
(a) Licensee shall pay to Licensor royalties equal to 9.5% of, without duplication:
(i) Franchisee Covered Revenue Earned by the Licensee Group from the performance of Authorized Brokerage Services by any Branded Franchisee (without regard to whether such Branded Franchisee was previously a Broker Affiliate (including a Pre-Existing Broker Affiliate that was terminated or converted into a Branded Franchisee) or Franchisee of Licensee or any Company Affiliate) during the term of this Agreement and during any Franchisee Wind-Down Period pursuant to Section 14.2(a)(iii);
(ii) Franchisee Covered Revenue Earned by the Licensee Group from the performance of Authorized Brokerage Services by any Pre-Existing Broker Affiliate during the period commencing on January 1, 2006 (but only to the extent that such Pre-Existing Broker Affiliate has not been terminated or converted into a Branded Franchisee prior to such date) and, thereafter, for the remainder of the term of this Agreement;
(iii) Franchisee Covered Revenue Earned by the Licensee Group from the performance of Authorized Brokerage Services by any New Broker Affiliate during the term of this Agreement;
(iv) Owned Covered Revenue Earned by the Licensee Group (excluding the Owned Office referenced in this paragraph) from the performance of Authorized Brokerage Services by any Branded Owned Office (or otherwise by Licensee
or any Company Affiliate performing Authorized Brokerage Services under the Licensed Marks) during the term of this Agreement, exclusive of (A) any Corcoran Legacy Office that is a Branded Owned Office (except to the extent clause (C) of Section 5.1(a)(vi) applies) and (B) any Sold Owned Office;
(v) Owned Covered Revenue Earned by the Licensee Group (excluding the Owned Office referenced in this paragraph) from the performance of Authorized Brokerage Services by any Sold Owned Office during the term of this Agreement, solely to the extent Earned by the Licensee Group (excluding the Owned Office referenced in this paragraph) from the performance of the Authorized Brokerage Services (A) by any sales associates or brokers of a Sold Owned Office added after the Effective Date pursuant to a direct or indirect merger, combination or acquisition by or with such Sold Owned Office or (B) in New Markets (excluding any Relocation to a New Market); and
(vi) Owned Covered Revenue Earned by the Licensee Group
(excluding the Owned Office referenced in this paragraph) from the
performance of Authorized Brokerage Services by any Corcoran Legacy Office
that is a Branded Owned Office during the term of this Agreement, solely to
the extent Earned by the Licensee Group (excluding the Owned Office
referenced in this paragraph) from the performance of the Authorized
Brokerage Services (A) by any sales associates or brokers of a Corcoran
Legacy Office added after the Effective Date pursuant to a direct or
indirect merger, combination or acquisition by or with such Corcoran Legacy
Office, (B) in New Markets (excluding any Relocation to a New Market) or
(C) following the date such Branded Owned Office ceases to use the Corcoran
Mark for Authorized Services.
(b) With respect to any Corcoran Legacy Office that is a Branded Owned Office, unless and until any royalties are owed pursuant to Section 5.1(a)(iv) or (vi), Licensee shall pay to Licensor royalties equal to 5% of all Owned Covered Revenue Earned by the Licensee Group (excluding the Owned Office referenced in this paragraph) from the performance of Authorized Brokerage Services by such Corcoran Legacy Office that is a Branded Owned Office during the term of this Agreement.
(c) For the avoidance of doubt, with respect to Section 5.1, Owned Covered Revenue or Franchisee Covered Revenue "Earned by the Licensee Group from the performance of Authorized Brokerage Services" refers to the royalty fees payable to a member of the Licensee Group with respect to Authorized Brokerage Services by any Branded Franchisee, Branded Broker Affiliate or Branded Owned Office, as the case may be, not the underlying gross commission income (or other or equivalent revenue) itself of such Branded Franchisee, Branded Broker Affiliate or Branded Owned Office, as the case may be.
(d) Examples of the basic calculation of the Fee payable to Licensor with respect to Covered Revenue from the performance of Authorized Brokerage Services under Section 5.1 are set forth immediately below, for purposes of illustration only:
Branded Owned Offices:
Example 1: Broker of Branded Owned Office on both sides of transaction*
House price sale: $500,000
Commission Rate: 6%(1)
Total Commission (or gross commission income): $ 30,000
Royalty Rate: 6%
Total Royalty Recorded by Parent ("Owned Covered Revenue"): $ 1,800
License Agreement Rate: 9.5%(2)
Fee payable to Licensor: $ 171
|
Example 2: Broker of Branded Owned Office on single side of transaction
House price sale: $500,000
Commission Rate: 3%(1)
Total Commission (or gross commission income): $ 15,000
Royalty Rate: 6%
Total Royalty Recorded by Parent ("Owned Covered Revenue"): $ 900
License Agreement Rate: 9.5%(2)
Fee payable to Licensor: $ 85.50
|
Branded Franchisee:
Example 3: Franchisee Royalty
Total Royalty Recorded by Parent ("Franchisee Covered Revenue"): $ 900
License Agreement Rate: 9.5%
Fee payable to Licensor: $ 85.50
|
Section 5.2. Other Matters Relating to the Determination of Covered Revenue.
(a) Covered Revenue shall include the franchise, broker affiliation or Owned Office royalty or fee payable (in each case net of the amounts included in the definition of "Franchisee Covered Revenue" or "Owned Covered Revenue", as applicable) with respect to
* Example assumes that the broker is on both the listing and buying side of the relevant transaction.
(1) Example only, by Law all commissions are negotiable.
(2) Assumes that the applicable Branded Owned Office is not a Corcoran Legacy Office that is a Branded Owned Office that is subject to the 5% license fee under Section 5.1(b).
sales of personal property made in connection with real estate sales except where such sale of personal property is covered in a transaction separate from the applicable sale of real property (including sales covered under separate bills of sale), which shall be deemed to be excluded from Covered Revenue.
(b) Covered Revenue shall be deemed to include the franchise, broker affiliation or Owned Office royalty or fee payable (in each case net of the amounts included in the definition of "Franchisee Covered Revenue" or "Owned Covered Revenue", as applicable) with respect to transactions entered into, or sales contracts made, prior to the date of termination of this Agreement irrespective of whether such Covered Revenue is received after the date of termination of this Agreement; provided that, for avoidance of doubt, revenues shall be deemed included in Covered Revenue pursuant to the preceding clause only to the extent such revenues would have constituted Covered Revenue prior to the termination of this Agreement.
(c) In the event that the Licensee Group shall be awarded any damages or shall be paid consideration in settlement of any claim of the Licensee Group, and all or any portion of such award or payment constitutes or is otherwise characterized as being a type of payment that would otherwise constitute Franchisee Covered Revenue (or which is in lieu of, or as compensation for, a payment that would constitute Franchisee Covered Revenue), including any award of damages in lieu of Franchisee royalties or future Franchisee royalties, such portion of such award or payment shall be treated as Franchisee Covered Revenue subject to Section 5.1.
Section 5.3. Payment of Fees.
(a) Fees on Covered Revenue Earned for each calendar quarter (prorated for any shorter period) shall be due and payable on the 15th Business Day after the end of such calendar quarter, in arrears.
(b) Each payment of Fees to Licensor shall be accompanied by a statement, certified by the chief financial officer of the Licensee Brokerage Business, setting forth a reasonably detailed calculation of the Fees and the Covered Revenue corresponding thereto, which statement shall be in substantially the form the parties have agreed to and attached hereto as Exhibit F (the "Fee Statement"), with such changes to the form thereof as the parties may agree upon in writing from time to time; provided, however, that in no event shall the form of such Fee Statement be deemed to modify in any respect the terms and conditions of Article 5 or otherwise of this Agreement.
Section 5.4. Late Payment. Any payments of Fees which are not paid by the date such payments are due and payable shall bear interest to the extent permitted by applicable Law at the Prime Rate on the date such payment is due, calculated based on the number of months (pro rated, as necessary) such payment is delinquent; provided that the foregoing shall not limit or otherwise modify any other remedies available to Licensor whether pursuant to this Agreement or at law or equity.
Section 5.5. Method of Payment. All payments to Licensor under this Agreement shall be made by wire transfer of same day funds or check in United States dollars in the requisite amount to such bank account as Licensor may from time to time designate by notice to
Licensee. Payments shall be net of any withholding taxes required by applicable Law. With respect to Fees calculated on Covered Revenue Earned outside the United States upon exercise of the Option, payments shall be calculated based on currency exchange rates for the calendar quarter for which remittance is made for Fees. For each month and each currency, such exchange rate shall equal the arithmetic average of the daily exchange rates (obtained as described below) during the Calendar Quarter; each daily exchange rate shall be obtained from the Reuters Daily Rate Report or, if not so available, from The Wall Street Journal, Eastern United States Edition, or, if not so available, as otherwise agreed by the parties.
Section 5.6. Minimum Fees.
(a) In any case and notwithstanding the foregoing, Licensee shall pay, for each calendar year beginning with the calendar year starting January 1, 2009 (and, at the end of the term for the prorated period, a prorated amount), aggregate Fees (including any true-up payment by Licensee paid by the applicable due dates described in this Section 5.6(a), as needed, to ensure that the Minimum Amount has been satisfied) in an amount not less than the Minimum Amount calculated as of the end of such calendar year. Payment of such minimum Fees shall be made no later than the date on which Fees are due for the last calendar quarter of such calendar year. The final payment of any minimum Fees pursuant to this Section 5.6 shall be due within 60 days following the date of termination of this Agreement (pro rated for the period of the year in which such termination occurs).
(b) "Minimum Amount" shall mean $1,500,000, provided that such amount shall be increased as of December 31, 2010 and each December 31 of each subsequent year during the term of this Agreement, by an amount equal to the Percentage Increase of the then-applicable Minimum Amount; provided that such amount shall not exceed $2,000,000. The "Percentage Increase" shall be the percentage, if any, by which the Consumer Price Index -- All Urban Consumers (or if such ceases to be published, the most reasonably comparable index published by the United States government) increased by the end of the then applicable calendar year from the prior calendar year.
ARTICLE VI
MUTUAL REFERRALS
Section 6.1. Referrals by Licensor.
(a) Licensee agrees to pay to Licensor (or to a Licensor Affiliate designated by Licensor) a fee equal to 30% of any gross commission income per transaction side earned by Licensee or any Company Affiliate from the provision of Authorized Brokerage Services to a third party referred by Licensor or any Licensor Affiliate to the Licensee Group for such Authorized Brokerage Services, provided that such third party is not an Existing Brokerage Lead (it being understood that Licensee shall give first preference in transmitting any such referral to Branded Operators). Any such referral by Licensor or any Licensor Affiliate shall be communicated to Licensee, or to such Company Affiliate as Licensee may from time to time designate to receive such referrals, by written notice to Licensor. An "Existing Brokerage Lead" shall mean a Person with whom a broker of a Branded Operator has an existing client
relationship providing Authorized Brokerage Services as of the time Licensor or any Licensor Affiliate made such referral.
(b) Nothing contained in this Section 6.1 shall obligate Licensor or any Licensor Affiliate to make any referral or affirmatively promote the Authorized Brokerage Services of any Branded Operator.
Section 6.2. Referrals by Licensee.
(a) Licensor agrees to pay to Licensee a fee equal to 10% of the gross commission income earned by a Licensor Affiliate from the sale of any property at auction by Holdings, which property is referred to such Licensor Affiliate by Licensee or any Company Affiliate, provided that the property referred to auction by Licensee or a Company Affiliate, as applicable, is not the property of an Existing Auction Client; provided further, that no such fee shall be due to Licensee unless the gross sale price of such property, or such property together with other related properties referred to such Licensor Affiliate in accordance with this Section 6.2(a), is in excess of $100,000. An "Existing Auction Client" shall mean a Person with whom a Licensor Affiliate has an existing client relationship with respect to the purchase or sale of property at auction as of the time Licensee or any Company Affiliate made such referral.
(b) Nothing contained herein shall obligate Licensee or any Company Affiliate to make any referral or affirmatively promote the Auction House Business of the Licensor Affiliates.
Section 6.3. Payment of Referral Fees. Payments of any fees under this Article 6 shall be made within 30 days of the payment of the commission or other payment giving rise to a referral fee hereunder and such payment shall be accompanied by a statement setting forth in reasonable detail the calculation of such referral fee, including the amount of the applicable gross commission or other payment and the corresponding referral, and attaching any reasonably requested supporting documentation, which shall be treated confidentially.
ARTICLE VII
QUALITY CONTROL
Section 7.1. Eligible Markets.
(a) Licensee shall have the right to offer and sell the Authorized Services under the Licensed Marks, and to sublicense such right or grant a franchise to a Broker Affiliate, Franchisee or Company Affiliate, including for any Owned Office, in each case only for a geographic area qualifying as an Eligible Market; provided, that in the case of any exercise of the Option, the foregoing requirement shall not apply to any country in the Option Territory for which a license is granted pursuant to such Option exercise.
(b) For purposes hereof, an "Eligible Market" shall mean a geographic area in which the median sales price ("MSP") for homes sold in such area during the most recent 12 full calendar months for which data is available immediately prior to (i) entering into a Branded Franchise Agreement with a proposed Branded Franchisee or (ii) branding the Authorized
Services of a Branded Owned Office with the Licensed Marks, as applicable (the "Measurement Period"), is at least 1.5 times the MSP for the United States during the Measurement Period.
(c) The MSPs for the United States shall be determined by Licensee based on data to the extent available provided by a recognized independent publisher of home sale price information (e.g. the National Association of Realtors or Federal National Mortgage Association (Fannie Mae)). The MSP for each Covered Geographic Area shall be determined by Licensee based upon data provided by the same source as Licensee used for the foregoing determination with respect to the United States to the extent such data is available from such source and, to the extent that such data is not available from such source, Licensee shall use data that is in Licensee's good faith business judgment the most comparable to the data used with respect to Licensee's determination of the MSP for the United States.
(d) Before Licensee shall grant any franchise to a prospective Branded Franchisee, Licensee's franchise review committee shall, at a minimum, review and consider the following in determining whether to grant such franchise: (i) a full and complete franchise application from the prospective franchisee, (ii) to the extent available, relevant market data provided by an independent third party, (iii) to the extent available, relevant data provided by the Multiple Listing Service covering the applicable geographic area and (iv) an on site inspection report submitted by Licensee's representative.
(e) Each (i) Sold Owned Office, (ii) Corcoran Legacy Office, (iii) Pre-Existing Broker Affiliate and (iv) Person that was a broker affiliate of SIR that was terminated by SIR other than for cause, or that exercised a right of termination, during the two years prior to the Effective Date (an "SIR Legacy Affiliate") is deemed to be in an Eligible Market and to satisfy the Guidelines described in Section 7.2 below solely with respect to the Covered Geographic Area in which it offered and sold Authorized Services as of the Effective Date (or in the case of an SIR Legacy Affiliate, as of the time of termination of its broker affiliate agreement with SIR); provided that any Branded Franchise to be granted to an SIR Legacy Affiliate or Pre-Existing Broker Affiliate shall not cover a Covered Geographic Area larger than the Covered Geographic Area provided in such prospective franchisee's broker affiliate agreement, as in effect as of the Effective Time or as in effect at the time of such termination, as applicable, with SIR, including as modified by any oral agreement or authorized course of dealing.
Section 7.2. Sublicensee Eligibility Guidelines.
(a) In addition to the requirements set forth in Section 7.1, (x) prior to granting any franchise to any prospective Branded Franchisee, (y) prior to executing any Broker Affiliate Agreement with any prospective Branded Broker Affiliate and (z) prior to any Owned Office being branded with any Licensed Mark (including pursuant to any sublicense), Licensee, in determining whether to make such grant or effect such branding, shall take into account the guidelines set forth in clauses (i) and (ii) below (the "Guidelines"). Determinations as to whether the Guidelines have been satisfied shall be made by Licensee, in their good faith business judgment, based on such available data as Licensee reasonably deems appropriate. The Guidelines apply to offices of Branded Franchisees, Branded Broker Affiliates and Branded Owned Offices on a company-by-company basis rather than on an office-by-office basis, so that multiple offices operated by a single Person are tested as a whole. Once a Branded Franchisee,
Branded Broker Affiliate or Branded Owned Office has satisfied the Guidelines it shall be deemed to have satisfied the Guidelines for the term of the License Agreement. The parties acknowledge that the Owned Offices of Buyer and its Subsidiaries and the Pre-Existing Broker Affiliates satisfy the Guidelines for the term of this Agreement. Notwithstanding the foregoing, in connection with any exercise of the Option, the Guidelines shall not apply to any prospective Branded Franchisee, Branded Broker Affiliate and Branded Owned Office located outside of the United States, which Branded Franchisee, Branded Broker Affiliate and Branded Owned Office shall be chosen in Licensee's sole discretion, provided that, with respect to any Branded Franchisee located outside of the United States, Licensee grants the Branded Franchises pursuant to a master franchisee agreement with a master franchisor the material terms of which master franchise agreement have been presented to Licensor, and such materials terms and such master franchisor are acceptable to Licensor as indicated by it in writing (such approval not to be unreasonably withheld).
A prospective Branded Franchisee, Branded Broker Affiliate or Branded Owned Office shall satisfy the Guidelines if:
(i) it satisfies any one of the following guidelines for the geographic area (as determined by Licensee) to be covered (the "Covered Geographic Area") by the prospective Branded Franchisee, Branded Broker Affiliate or Branded Owned Office:
(A) the average selling price ("ASP") for homes sold or purchased by the customers of such prospective Branded Franchisee, Branded Broker Affiliate or Branded Owned Office in transactions brokered by such prospective Branded Franchisee, Branded Broker Affiliate or Branded Owned Office in the Covered Geographic Area during the Measurement Period is in the top 40% of selling prices for all homes sold in the Covered Geographic Area; or
(B) during the Measurement Period, such prospective Branded Franchisee, Branded Broker Affiliate or Branded Owned Office ranked in the top 40% in terms of home purchases or sales brokered in the Covered Geographic Area based on the aggregate sales price of residential real estate transactions actually closed (the "Transaction Value"); or
(C) such prospective Branded Franchisee, Branded Broker Affiliate or Branded Owned Office is ranked first, second or third in the Covered Geographic Area in terms of (1) highest ASP for homes sold or purchased during the Measurement Period in the Covered Geographic Area or (2) highest Transaction Value for homes sold or purchased in the Covered Geographic Area during the Measurement Period; or
(D) such prospective Branded Franchisee, Branded Broker Affiliate or Branded Owned Office owns or operates a newly formed residential brokerage office, which office is or will be composed of agents substantially all of whom, immediately prior to the time the office would become a Branded Franchisee, Branded Broker Affiliate or Branded Owned Office, were affiliated with a licensed broker that would have satisfied the guidelines in one of clauses (A), (B) or (C) of this Section 7.2(a)(i) with respect to the Measurement Period; or
(ii) it does not satisfy any of the guidelines set forth in
Section 7.2(a)(i) but such prospective Branded Franchisee, Branded Broker
Affiliate or Branded Owned Office, together with all Franchisees that became
Branded Franchisees, all Broker Affiliates that became Branded Broker Affiliates
and all Owned Offices that became Branded Owned Offices during the immediately
preceding Measurement Period and who became eligible pursuant this clause (ii)
(and not pursuant to Section 7.2(a)(i)), would not represent more than 10% of
the total number of all prospective Branded Franchisees, Branded Broker
Affiliates or Branded Owned Offices, taken together, that became Branded
Franchisees, Branded Broker Affiliates or Branded Owned Offices, respectively,
during the Measurement Period.
(b) With respect to the renewal by Licensee or its sublicensee of any
Branded Franchise Agreement with a then-existing Branded Franchisee or any
Broker Affiliate Agreement with a then-existing Branded Broker Affiliate, in
each case during the term of this Agreement, Licensee shall use reasonable
efforts to apply the Guidelines; provided, however, that any renewals of such
existing Branded Franchisee or Branded Broker Affiliate shall be at Licensee's
sole discretion; and provided further, that in the event a then existing Branded
Franchisee or Branded Broker Affiliate (other than a Pre-Existing Broker
Affiliate) was granted a franchise pursuant to Section 7.2(a)(ii), the renewal
of any such Branded Franchisee or Branded Broker Affiliate shall be subject to
the satisfaction of the Guidelines pursuant to the terms and conditions of
Section 7.2, including Section 7.2(a)(ii).
(c) If the Covered Geographic Area covered by the Branded Franchisee changes to include new offices of such Branded Franchisee located outside of the Eligible Market, then Licensee shall be permitted to expand the Covered Geographic Area to include such new offices if such expanded Covered Geographic Area satisfies the requirements of an Eligible Market at the time of such expansion.
(d) Licensee shall provide to Licensor, on a quarterly basis, a report
containing (i) the number of Branded Franchises granted and the number of
sublicenses granted to Branded Owned Offices and Branded Broker Affiliates
during the prior quarter and the corresponding Covered Geographic Area and (ii)
brief general descriptive information with respect to the business of each such
new Branded Franchisee, Branded Broker Affiliate and Branded Owned Office and
(iii) such other information as Licensor reasonably requests. Semiannually for
the first three years of the term of this Agreement, and thereafter on an annual
basis, at Licensor's option, the parties shall meet in person to discuss the
general process by which Licensee determines prospective Branded Franchisee,
Branded Broker Affiliate or Branded Owned Office eligibility and related
matters.
Section 7.3. Quality Control Standards With Respect To Owned Operations.
(a) Licensee shall, and shall cause any Company Affiliate that is a sublicensee hereunder (including any Branded Owned Office) to:
(i) not make or publish any statement or advertisement which would reasonably be expected to be construed to demean the image, value, identity, reputation or goodwill associated with the Sotheby's Mark or any Licensed Mark;
(ii) advertise only in a manner that is professional, dignified and not intentionally misleading;
(iii) conduct its business in a manner that complies with (A) the terms of this Agreement, (B) the Code of Ethics of the National Association of REALTORS and (C) the provisions of the Model Code of Ethics; and
(iv) not provide any Excluded Service under any Licensed Mark.
(b) Licensee shall, and shall cause each Company Affiliate who is a sublicensee of any Licensed Mark to, comply with the terms of this Agreement.
Section 7.4. Quality Control Standards With Respect To Affiliated and Franchised Operations.
(a) In connection with the development of certain supplemental quality control standards established by this Article 7 and elsewhere in this Agreement, the parties acknowledge and express their respective intentions that the provision of the Authorized Services under the Licensed Marks, whether by Licensee or any of its sublicensees (including any Branded Operator), conform to the standards currently employed by Licensor and the Licensor Affiliates and the expectations of the prospective customers of Authorized Services offered and sold under the Licensed Marks as to consistency and quality of the residential real estate brokerage services. The parties have reviewed together their respective operations in the residential real estate brokerage business with respect to the maintenance of quality control. In connection with the foregoing, Licensor has identified and developed Model Provisions for the purpose of maintaining the quality of the Authorized Services provided under the Licensed Marks pursuant to this Agreement at a high-level of quality commensurate with Licensor's standards of quality existing as of the Effective Date and the standards applicable to the Licensee Brokerage Business pursuant to Section 7.3. Licensee covenants and agrees that any sublicense to use any Licensed Mark granted by Licensee or any Company Affiliate, as sublicensees, to any Branded Broker Affiliate or Branded Franchisee (including as contained in any affiliation agreement or Franchise Agreement) shall:
(i) include a code of ethics no less strict than the Model Code of Ethics;
(ii) include specific provisions with respect to the maintenance of the high quality of the Authorized Services provided under the Licensed Marks, which provisions shall be no less strict than the Model Quality Control Provisions; and
(iii) not include any provision in conflict with any term of this Agreement applicable to Branded Broker Affiliates or Branded Franchisees.
(b) Licensee covenants and agrees to enforce diligently, in its reasonable judgment and in good faith, each agreement granting a sublicense to any Licensed Mark to any Branded Broker Affiliate or Branded Franchisee, including any Broker Affiliate Agreement or Branded Franchise Agreement.
(c) Licensee acknowledges that its compliance, and the compliance of each of its sublicensees, including any Branded Operator, with the quality control provisions of Section 7.3 and this Section 7.4, is essential to preserve the goodwill of the Licensed Marks and the integrity of the Authorized Services.
Section 7.5. Excluded Services by Branded Operators; Prohibition on Co-Mingling Marks.
(a) Licensee is not prohibited by this Agreement from authorizing or permitting any Branded Operator to provide any Excluded Service provided that such Excluded Service is not (i) provided or offered to the public under any Licensed Mark, (ii) provided or offered to the public in any way inconsistent with the terms of the Model Co-Mingling Provisions or (iii) otherwise provided or offered to the public in any way that could reasonably be expected to cause confusion that any Excluded Service is designated as being provided under any Licensed Mark.
(b) Licensee covenants and agrees that any agreement between Licensee or any Company Affiliate, on the one hand, and any Branded Franchisee or Branded Broker Affiliate, on the other hand, and any sublicense of any Licensed Mark to any Branded Owned Office, will contain terms and conditions requiring standards for the separation of any Excluded Service from the offer and sale of any Authorized Service under any Licensed Mark, which provisions will be no less strict than the Model Co-Mingling Provisions.
Section 7.6. Uniform Franchise Offering Circular. With respect to any UFOC that includes or is proposed to include or otherwise relate to a sublicense of any Licensed Mark, such UFOC shall state that such sublicense is granted pursuant to and as authorized by this Agreement, and Licensee shall reference in such UFOC the terms and conditions of this Agreement to the extent Licensee determines to be reasonably necessary or appropriate under applicable Law.
Section 7.7. Termination of Relationship.
(a) Any sublicense to any Branded Owned Office granted pursuant to
Section 2.1(b) shall automatically and immediately terminate in the event that
the sublicensee ceases to be an Owned Office of Licensee; provided that the
foregoing shall not prohibit the Person constituting, owning or acquiring any
such Branded Owned Office from offering and selling Authorized Services under
the Licensed Marks thereafter pursuant to a Branded Franchise Agreement or any
other sublicense of the Licensed Marks, including a Branded Broker Affiliate
Agreement, pursuant to this Agreement. For the avoidance of doubt, this Section
7.7(a) is not intended by the parties to limit the terms and conditions of
Section 17.2.
(b) Any sublicense to any Branded Franchisee or Broker Affiliate granted pursuant to Section 2.1(b) shall automatically and immediately terminate upon termination of each Branded Franchise Agreement between such Branded Franchisee or Branded Broker Affiliate and Licensee or any Company Affiliate, except to the extent of any post-termination wind-down period provided in the terms of the applicable Branded Franchise or Broker Affiliate Agreement and then solely for the duration of such wind-down period (during which time, for
the avoidance of doubt, the Franchisee Covered Revenue Earned from the performance of the Authorized Brokerage Services by such Branded Franchisee or Branded Broker Affiliate shall be subject to Article 5).
Section 7.8. Notice of Breach. Licensee shall promptly deliver to Licensor notice of any material breach with respect to breaches of the quality control standards contained herein by (a) any Licensee of the terms and conditions of this Agreement or (b) to the extent known to Licensee, any sublicensee of any Licensed Mark of the terms and conditions of any such sublicensee's agreement, including any Branded Franchise Agreement and Branded Broker Affiliate Agreement, that are contemplated by this Article 7 to be included therein.
Section 7.9. Sample Uses of Licensed Marks.
(a) Licensee shall periodically deliver to Licensor, upon Licensor's request, representative samples of promotional materials, including those produced by or on behalf of Licensee or any Company Affiliate, that embody Licensed Marks.
(b) Licensee shall periodically submit to the Licensor Liaison, upon Licensor's request, representative samples in all applicable media of uses of any Licensed Mark, including labels, signs and advertising and promotional materials embodying any Licensed Mark (including television and radio advertising, print advertising, on-line advertising (including home pages)).
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.1. Representation and Warranties of Holdings and Licensor. Holdings and Licensor represents and warrants to Licensee as follows:
(a) Authority; Validity. Each of Holdings and Licensor is a corporation validly existing and in good standing under the laws of the state of its incorporation. Each of Holdings and Licensor has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereunder. The execution, delivery and performance of this Agreement by Holdings and Licensor and the consummation by Holdings and Licensor of the transactions contemplated hereunder, have been duly and validly authorized by Holdings and Licensor, and no other corporate proceedings on the part of Holdings or Licensor are necessary to authorize this Agreement or the consummation of the transactions contemplated hereunder. This Agreement has been duly executed and delivered by Holdings and Licensor, and, assuming due execution and delivery by Parent and Licensee, constitutes a valid and binding obligations of Holdings and Licensor enforceable against Holdings and Licensor in accordance with its terms, except as may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(b) No Conflict; Government Consents.
(i) Neither the execution, delivery or performance by Holdings and Licensor of this Agreement nor the consummation of the transactions contemplated hereby and compliance by Holdings and Licensor with any of the provisions hereof will: (x) violate any provision of any Organizational Document of Holdings or Licensor, (y) require any consent, approval or notice under, violate or result in the violation of, conflict with or result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time or both, could reasonably be expected to constitute a default) under, result in the termination of, result in a right of termination of, any material contractual obligation of Holdings or Licensor (other than such consents as have already been obtained), or (z) violate any material Law of the United States applicable to Holdings or Licensor.
(ii) No material consent, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by Licensor in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby that has not been obtained or made.
(c) Litigation. There is no Litigation brought by or against Holdings or Licensor or any Licensor Affiliate or any of their respective assets or businesses pending or, to the knowledge of Licensor, threatened against Holdings, Licensor or any Licensor Affiliate which seeks to prevent consummation of the transactions contemplated hereby or which seeks damages in connection with the transactions contemplated hereby, and no temporary restraining order, preliminary or permanent injunction or other order or decree which prevents consummation of the transactions contemplated hereby has been issued against Holdings, Licensor or any Licensor Affiliate.
(d) SIR Mark. Licensor is the sole and exclusive owner of the SIR Mark in the United States. Licensor has the valid right to use the SIR Mark in the Domain Names in the United States. To the knowledge of Licensor, the use of the SIR Mark by Licensee for the offer and sale of Authorized Brokerage Services in the United States and Israel will not infringe on the intellectual property rights of any third party. Schedule 8.1(d) sets forth a complete and accurate list of all registrations as of the Effective Date of the Licensed Marks in the United States and Israel and such registrations are valid and subsisting and in full force and effect as of the Effective Date. Except as set forth in Schedule 3.11(b) to the Purchase Agreement, there is no material Litigation pending or, to the knowledge of Licensor, threatened, and Licensor has not received or sent any written notice of a claim or suit, (x) alleging that the SIR Mark infringes upon or otherwise violates any intellectual property rights of any third party in the Original Territory or (y) challenging the ownership, use, validity or enforceability of, or application or registration for, the SIR Mark in the Original Territory. Licensor has the full power to license the SIR Mark in the United States, and to sublicense the SIR Mark in Israel, for use in connection with the Authorized Brokerage Services pursuant to the terms and conditions of this Agreement. Except with respect to (i) any license of any Licensed Mark pursuant to any agreement with a Pre-Existing Broker Affiliate, (ii) any license or sublicense of any Licensed Mark granted to any agent of any Licensor Affiliate in the ordinary course of business for the sole and limited purpose of creating and placing marketing and advertising on behalf of such
Licensor Affiliate and (iii) the Synthesis Agreement, Licensor has not licensed the Licensed Marks to any Person as of the Effective Date other than pursuant to this Agreement.
Section 8.2. Representations and Warranties of Parent and Licensee. Parent and Licensee jointly and severally represent and warrant to Licensor as follows:
(a) Authority; Validity. Each of Parent and Licensee is a corporation validly existing and in good standing under the laws of the state of its incorporation. Each of Parent and Licensee has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereunder. The execution, delivery and performance of this Agreement by Parent and Licensee and the consummation by Parent and Licensee of the transactions contemplated hereunder, have been duly and validly authorized by Parent and Licensee, and no other corporate proceedings on the part of Parent or Licensee are necessary to authorize this Agreement or the consummation of the transactions contemplated hereunder. This Agreement has been duly executed and delivered by Parent and Licensee, and, assuming due execution and delivery by Holdings and Licensor, constitutes a valid and binding obligation of Parent and Licensee enforceable against Parent and Licensee in accordance with its terms, except as may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(b) No Conflict; Government Consents.
(i) Neither the execution, delivery or performance by Parent and Licensee of this Agreement nor the consummation of the transactions contemplated hereby and compliance by Parent and Licensee with any of the provisions hereof will: (x) violate any provision of any Organizational Document of Parent or Licensee, (y) require any consent, approval or notice under, violate or result in the violation of, conflict with or result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time or both, could reasonably be expected to constitute a default) under, result in the termination of, result in a right of termination of, any material contractual obligation of Parent or Licensee (other than such consents as have already been obtained), or (z) violate any material Law of the United States applicable to Parent or Licensee.
(ii) No material consent, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by Parent or Licensee in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby that has not been obtained or made.
(c) Litigation. There is no Litigation brought by or against Parent or Licensee or any Company Affiliate or any of their respective assets or businesses pending or, to the knowledge of Parent or Licensee, threatened against Parent or Licensee or any Company Affiliate (i) which seeks to prevent consummation of the transactions contemplated hereby or which seeks damages in connection with the transactions contemplated hereby or (ii) which was required by applicable Law to be described in Parent's most recent Annual Report on Form 10-K
filed with the Securities Exchange Commission or in any registration statement, report, schedule, form, statement or other document filed by Parent with the Securities Exchange Commission since the filing of such Form 10-K, and was not so described therein. There is no temporary restraining order, preliminary or permanent injunction or other order or decree which prevents consummation of the transactions contemplated hereby has been issued against Parent, License or any Company Affiliate.
ARTICLE IX
RECORDS; AUDITS AND INSPECTIONS
Section 9.1. Maintenance of Records.
(a) Licensee shall, and shall cause the Company Affiliates to, maintain accurate books, records and accounts, including financial and accounting records (including by using commercially reasonable efforts to cause each of their independent accountants to retain their working papers) relating to the offer and sale of the Authorized Services, directly or indirectly, by Licensee or any Company Affiliate, including any Branded Owned Office and any Branded Broker Affiliate and Branded Franchisee, the determination of any Fees and referral fees pursuant to this Agreement, and the general process followed by Licensee to confirm compliance by Licensee and any sublicensee of any Licensed Mark with the quality control provisions set forth in Article 7 (such books, records and accounts, collectively, the "Covered Books and Records").
(b) The Covered Books and Records shall be maintained in accordance with Parent's applicable document retention policy (including as to length of retention).
Section 9.2. Right of Inspection and Audit.
(a) Licensor shall be permitted, during the term of this Agreement and for a period of three years following any termination of this Agreement (or longer to the extent of any applicable statute of limitations or any dispute hereunder), no more than twice in any twelve-month period, to inspect and conduct an audit of the Covered Books and Records relating to the determination of the Fees and referral fees due hereunder. During an inspection or audit, at Licensor's expense, Licensor shall have the right to make copies or extracts of the Covered Books and Records.
(b) Licensor shall be permitted, during the term of this Agreement and for a period of two years following any termination of this Agreement (or longer to the extent of any applicable statute of limitations or any dispute hereunder), no more than twice in any twelve month period, to meet with Licensee's officers, employees and applicable agents and representatives for the purpose of reviewing Licensee's compliance with the quality control provisions of this Agreement, including Sections 7.3 and 7.4.
(c) Licensor shall provide Licensee with not less than 20 days' advance written notice of any inspection and audit or meeting conducted pursuant to this Section 9.2. Access to Licensee's facilities in connection with any inspection and audit or meeting conducted pursuant to this Section 9.2 shall be during regular business hours. Licensee shall reasonably
cooperate with, and shall not cause any interference with, any inspection and audit or meeting conducted pursuant to this Section 9.2.
(d) Licensor shall, and cause each Licensor Affiliate and each of their representatives and agents to, keep confidential all proprietary and confidential information that is obtained by Licensor pursuant to this Section 9.2 other than information (i) which is generally available to the public at the time it is provided to Licensor or thereafter becomes generally available to the public (other than as a result of disclosure by Licensor or any Licensor Affiliate or any of their representatives or agents), (ii) which was available to Licensor or any Licensor Affiliate prior to it being furnished to Licensor pursuant to this Section 9.2, (iii) is or becomes available to Licensor or any Licensor Affiliate from a Person other than Licensee or any Company Affiliate or any of their representatives or agents, provided such Person shall not be known by Licensor to be in breach of its obligations to keep confidential such information or (iv) was or is independently developed by Licensor or any Licensor Affiliate or others on any of their behalf without recourse to or reliance upon Confidential Information (the "Confidential Information"); provided, however, that Licensor and any Licensor Affiliate and any of their representatives and agents may disclose any Confidential Information to the extent such disclosure is required by applicable Law or stock market rule, subject (other than in the case of disclosure pursuant to applicable corporation or securities Laws or regulations of any securities exchange) to prior written notice to Licensee and cooperation with Licensee to obtain a protective order or similar confidentiality arrangement, if available. The covenant set forth in this Section 9.2(d) shall terminate with respect to any Confidential Information one year after the disclosure of such Confidential Information to Licensor under this Section 9.2.
Section 9.3. Payment Deficiency.
(a) Except as otherwise provided in Section 9.3(b), the expenses of any inspection and audit conducted pursuant to Section 9.2 shall be borne by Licensor (which shall not include reimbursement of Licensee's internal or third-party expenses).
(b) If the aggregated Fees and referral fees actually paid by Licensee pursuant to Articles 5 and 6 are less than the aggregated Fees and referral fees that Licensee was required to pay pursuant to Articles 5 and 6, then Licensee shall promptly (and in no event later than five days following such determination of such payment deficiency) pay to Licensor the amount of such payment deficiency (together with interest from the date originally due to the extent permitted by applicable Law at the Prime Rate on the date such payment was originally due).
ARTICLE X
SPECIAL COVENANTS AND AGREEMENTS
Section 10.1. Registration of Marks.
(a) At the request of Licensee, from time to time during the term of this Agreement, Licensor shall use commercially reasonable efforts to file a trademark or domain name registration (or similar or successor electronic address mechanism or system) application for:
(i) the use of any Licensed Mark solely for Authorized Services (as designated by Licensee) in the Territory, in each case in accordance with the terms and conditions of this Agreement, to the extent not already expressly covered by any existing registration of such Licensed Mark; or
(ii) the use of any Licensed Mark or Unregistered Mark solely for Authorized Services (as designated by Licensee) in any country in the Option Territory (as designated by Licensee).
(b) Upon or following any such request by Licensee, Licensee shall prepare (at Licensee's expense) and deliver to Licensor a trademark registration application in a form suitable for filing by Licensor with the applicable Governmental Authority in connection with such requested registration.
(c) Subject to the ultimate control and authority of Licensor with respect to the form and content of the registration application in all respects, within 10 days following receipt of such trademark application from Licensee, Licensor shall file a trademark registration application with respect to such requested registration, with such changes to such trademark registration application as Licensor determines appropriate in its reasonable discretion. Licensee shall promptly reimburse Licensor for all filing fees and expenses (including reasonable attorneys' fees) incurred in connection with the preparation, filing and prosecution of any such trademark registration application.
(d) Licensor shall promptly forward to Licensee copies of all communications received from the applicable Governmental Authority with whom the trademark registration application was filed and shall otherwise reasonably cooperate with Licensee (at Licensee's expense) with respect to the prosecution and maintenance of all applications and registrations for Licensed Marks.
Section 10.2. Compliance with Laws. Licensee shall, and shall cause each sublicensee and Branded Owned Office and Company Affiliate to, comply in all material respects with all Laws applicable to the Authorized Services conducted under any Licensed Mark, including all Laws relating to franchisors and franchisees. Licensee shall be responsible for complying with all requirements of Law relating to required franchise disclosure statements (including their preparation) and applicable filing requirements and shall ensure that such franchise disclosure statements (and any oral or written statements made in connection therewith) comply in all material respects with applicable Laws.
Section 10.3. Right of First Offer With Respect To Timeshare Brokerage Services.
(a) Prior to licensing the Sotheby's Mark to any third party for use in marketing and selling real estate brokerage services in connection with Timeshares in the Territory ("Timeshare Brokerage Services"), Licensor shall deliver to Licensee a notice (the "First Offer Notice") advising Licensee that it may make an offer to Licensor to acquire a license to offer and sell Timeshare Brokerage Services under the Licensed Marks in the Territory (a "Timeshare License").
(b) Upon receipt of a First Offer Notice, Licensee shall have 60 days to make such an offer. Licensor shall not be under any obligation to accept or negotiate any offer so received from Licensee and may reject any such offer in its sole discretion. Licensor shall be free, for a period of one year after giving such opportunity to make an offer to Licensee, to enter into any arrangement with any third party on any terms with respect to a Timeshare License.
Section 10.4. Right of First Offer With Respect To Licensee Brokerage Business.
(a) Prior to selling all or substantially all of the business of Licensee and the Company Affiliates with respect to this Agreement and of any Company Affiliate that is a Branded Operator (such business all taken as a whole) (as it exists on the date of such sale), directly or indirectly, in one or more related transactions, to any Person who is not a Company Affiliate, whether by asset sale, stock sale, merger or combination of any entity with any entity Controlled by a Person who is not a Company Affiliate, or any similar transaction, or any combination of any such transactions (a "Sale Transaction"), or offering, directly or indirectly, a Sale Transaction to any Person who is not a Company Affiliate, Parent shall deliver to Licensor a notice (the "Licensor Offer Notice") advising Licensor that it may make an offer to Parent to acquire the Licensee Brokerage Business.
(b) Upon receipt of a Licensor Offer Notice, Licensor shall have 120 days (the "Offer Period") to make a bona fide offer to acquire the Licensee Brokerage Business pursuant to a Sale Transaction (the "Offer"), which shall include the proposed consideration and other material terms and conditions of Licensor's proposed acquisition of the Licensee Brokerage Business. If Licensor does not deliver a Offer during the Offer Period, then, during the 120 days following the last day of the Offer Period, Parent may offer a Sale Transaction to any Person who is not a Company Affiliate, and during such 120-day period consummate any such Sale Transaction.
(c) If Licensor delivers a Offer within the Offer Period, then Parent shall have 120 days following the date of receipt of such Offer to solicit offers from third parties to acquire the Licensee Brokerage Business pursuant to a Sale Transaction. If, by the end of such 120-day period, Parent has not received a bona fide firm and binding written offer from a third party that Parent reasonably determines in its good faith judgment to have a higher value and to be otherwise more favorable for Parent than the value of the Offer, then Parent may accept the Offer and use its reasonable best efforts to consummate a Sale Transaction on the terms of the Offer as soon as reasonably practicable. If, during such 120-day period, Parent receives a bona fide firm and binding written offer from a third party that Parent reasonably determines in its good faith judgment to have a higher value and to be otherwise more favorable for Parent than the value of the Offer (a "Superior Offer"), then Parent may, only during the 120 day period following receipt of such offer, consummate a Sale Transaction on the terms of the Superior Offer only with the third party who made such Superior Offer. If Parent does not consummate a Sale Transaction during such 120-day period, then Parent may not consummate any Sale Transaction or offer any Sale Transaction to any Person who is not a Company Affiliate without first complying anew with this Section 10.4.
Section 10.5. Certain Trademark Filings. Following the Effective Date, Licensor shall have the right to make any filings related to this Agreement and the performance of the
parties' obligations and rights hereunder that are required or advisable pursuant to applicable Law in any jurisdiction within the Territory, and Licensee shall cooperate with and reasonably assist Licensor in connection therewith, including in connection with withdrawing any filings upon termination of this Agreement.
Section 10.6. Further Assurances. From and after the Effective Date, upon the terms of this Agreement and subject to applicable Law, Licensor and Licensee shall act in good faith and shall cooperate with each other and use their commercially reasonable efforts to, as soon as reasonably practicable, (i) take, or cause to be taken, all actions, (ii) execute, acknowledge and deliver all documents, agreements and instruments and (iii) perform such other acts and do, or cause to be done, all things necessary, proper or advisable, in each case to confer on each party the rights, benefits and obligations provided by, and to consummate and make effective the transactions contemplated by, this Agreement as soon as practicable.
Section 10.7. Prohibition on Auction House Business.
(a) Licensee shall not, and Licensee shall cause each Branded Owned Office and Company Affiliate not to enter into an affiliation, license or similar agreement with respect to real estate brokerage services with a third party Auction House, in each case in the Territory or any other country in the world, other than Licensor or any Licensor Affiliate.
(b) Licensee shall not, and Licensee shall cause each Company Affiliate not to, use any Licensed Mark in combination with the word "auction" or any word denoting an auction, or any derivation of the word "auction", in any corporate or trade name or assumed name or d/b/a or in any Mark under which any Authorized Service is offered or sold.
(c) Licensee shall require, in each Branded Franchise Agreement and each Broker Affiliate Agreement with a Branded Broker Affiliate, that the Branded Franchisee or Branded Broker Affiliate, as applicable, will not use any Licensed Mark in combination with the word "auction" or any word denoting an auction, or any derivation of the word "auction", in any corporate or trade name or assumed name or d/b/a or in any Mark under which any Authorized Service is offered or sold.
Section 10.8. Acknowledgement of SIR Rights. It is understood and agreed by the parties, and Parent and Licensee acknowledge, that any license or sublicense of the Sotheby's Mark, any Licensed Mark or any other trademark or service mark from any Licensor Affiliate to SIR, or any agreement relating to any such matter, is hereby terminated and of no further force and effect, effective as of the Effective Date, and each of Parent and Licensee agree that they will, and will cause the Company Affiliates to, execute such further documents and take such further actions as may be necessary to further evidence or give further effect to the termination of any such license, sublicense or agreement.
Section 10.9. Establishment of SPV; Transfers and Pledge.
(a) Licensor shall, within 60 days of the Effective Date, have (i) established an Eligible SPV, (ii) assigned to such Eligible SPV (A) all registrations for any Licensed Marks for which registration has been obtained by Licensor or any Licensor Affiliate in the Original Territory, (B) all sublicenses of any Licensed Mark for which Licensor is a
sublicensee in the Original Territory and (C) all other rights that Licensor has
in and to the Licensed Marks in the Original Territory, and (iii) assigned its
rights and obligations under this Agreement to such Eligible SPV (and such
Eligible SPV shall have executed and delivered to Licensee an instrument
acknowledging its assumption of Licensor's rights and obligations under this
Agreement and its agreement to be bound by the terms and conditions of this
Agreement as Licensor); provided, however, that with respect to the registration
for the SIR Mark in Israel, Licensor shall have the right to establish an
Eligible SPV to hold such registration in any jurisdiction permitted under
Section 18(d), provided further that such Eligible SPV executes and delivers to
Licensee the instrument contemplated in the preceding clause (iii).
(b) During such 60-day period, Licensor and Licensee, negotiating in good faith with each other, shall prepare and execute a pledge agreement providing for the grant by the Eligible SPV of a first priority security interest in the Licensed Marks, which agreement shall secure the performance by Licensor of its obligation under this Agreement to license the Licensed Marks to Licensee in the Territory and providing that that the pledgee will be able to exercise its remedies under the lien only upon the occurrence of, "any material failure of Licensor, in breach of the provisions of the License Agreement, to license the Licensed Marks to the Licensee in the Territory, which failure prevents the Licensee from being able to use the Licensed Marks in the Territory as contemplated under the License Agreement."
(c) In connection with any assignment of this Agreement to an Eligible SPV, Holdings covenants and agrees that it will cause such Eligible SPV to maintain appropriate corporate formalities.
Section 10.10. Synthesis Acknowledgement. It is understood and agreed by the parties that the Synthesis Agreement is in effect as of the Effective Date and that, notwithstanding anything to the contrary herein, neither the existence of the Synthesis Agreement, nor the performance of the obligations by either party thereunder pursuant to the terms and conditions thereof, including the grant of the sublicense of the SIR Mark thereunder, shall constitute a breach of the terms and conditions of this Agreement or otherwise be prohibited by this Agreement.
ARTICLE XI
EXCLUSIVITY; NON-COMPETITION
Section 11.1. Exclusivity. (a) During the period commencing on the Effective Date and ending on the date of termination of this Agreement (and not extending into any Franchise Wind-Down Period), Holdings and Licensor shall not, and shall cause the Licensor Affiliates (for so long as they remain Licensor Affiliates) not to, use, or grant to any other Person, the right or license to use, anywhere in the Territory or in the Option Territory, (i) the Sotheby's Mark or the name "Sotheby's" or any derivative thereof or any confusingly similar Mark (other than any Licensed Mark), for any Authorized Brokerage Services, Authorized Ancillary Services or any service described in the definition of Excluded Services, other than Timeshare Brokerage Services and sales of Artistically Significant Residences in auction format, which shall not be prohibited by this Section 11.1 or (ii) any Licensed Mark.
(b) During the period commencing on the Effective Date and ending on
the date of termination of this Agreement, Holdings and Licensor shall not, and
Holdings shall cause the Licensor Affiliates (for so long as they remain
Licensor Affiliates) not to, sell, dispose or otherwise transfer to any Person
any Licensed Mark; provided, however, that the Licensed Marks may, at any time
and from time to time, be transferred to an Eligible SPV, provided that (i)
Licensor's rights and obligations under this Agreement are assigned to such
Eligible SPV, (ii) such Eligible SPV shall execute an instrument acknowledging
its assumption of Licensor's rights and obligations under this Agreement and its
agreement to be bound by the terms and conditions of this Agreement as Licensor
and (iii) such Eligible SPV executes and delivers to Licensee a pledge agreement
substantially similar to the pledge agreement executed by Licensor pursuant to
Section 10.9(b).
Section 11.2. Non-Competition.
(a) During the period commencing on the Effective Date and ending on the date that is 10 years following the Effective Date (the "Non-Compete Period"), neither Licensor nor Holdings shall, and Holdings shall cause its Subsidiaries (for so long as they remain its Subsidiaries) not to, directly or indirectly, engage, in the Territory, in the Authorized Brokerage Services, other than (i) sales of Artistically Significant Residences in auction format and (ii) in the performance of its obligations under this Agreement. If the foregoing, or any portion thereof, shall for any reason be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions thereof shall not be affected or impaired thereby and such remaining portions shall remain in full force and effect. Moreover, if any provision shall be held to be excessively broad as to duration, activity or subject, such provision shall be construed by limiting and reducing it so as to be enforceable to the maximum extent allowable by applicable Law.
(b) During the period commencing on the Effective Date and ending on the date that is three years following the Effective Date, neither Licensor nor Holdings shall, and Holdings shall cause its Subsidiaries (for so long as they remain Subsidiaries) not to, directly or indirectly:
(i) cause or attempt to cause any employee of Licensee and any of its Affiliates, in each case who was an employee of SIR as of the Effective Date to terminate his or her employment with the Licensee and any of its Affiliates or otherwise engage or participate in any effort to induce any such employee to terminate his or her employment with the Licensee and any of its Affiliates; or
(ii) hire, or solicit or attempt to hire (other than by general advertising), any employee of the Licensee and any of its Affiliates, in each case who was an employee of SIR as of the Effective Date, provided that nothing in this Section 11.2(b) shall prohibit Licensor or any Licensor Affiliate from hiring any such employee whose employment by Licensee or any of its Affiliates has been terminated for at least six months and who initiates, directly or indirectly, discussions with such Licensor or Licensor Affiliate regarding possible employment.
(c) In the event that Holdings becomes Controlled by any Person who is not a Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) who Controls Holdings as of the Effective Date or a Taubman Family Member or such a group of Taubman Family Members (an "Acquiror") (such event, a "Holdings Change of Control"), then such Acquiror and such Acquiror's Affiliates (other than Holdings and its Subsidiaries) (the "Acquiror Group") shall neither provide nor offer any Authorized Brokerage Services under the Licensed Marks or the Sotheby's Mark. It is understood that the Acquiror Group is not prohibited from offering and providing Authorized Brokerage Services other than under any Licensed Mark or the Sotheby's Mark.
ARTICLE XII
OWNERSHIP AND PROTECTION OF MARKS
Section 12.1. Ownership of Marks. Licensee shall not (and no sublicense granted by Licensee shall represent or suggest otherwise) acquire any ownership interest in the Licensed Marks throughout the term of this Agreement or otherwise. Licensee acknowledges, and shall caused each sublicensee to acknowledge, that Licensor exclusively owns, and will continue to own, the Licensed Marks and all copyrights, trademarks, services marks, trade names and other intellectual property rights in and to them and all registrations relating to the foregoing. Licensee acknowledges, and shall cause each sublicensee to acknowledge, (a) the great value of the goodwill associated with the Licensed Marks and the Sotheby's Mark; (b) that all goodwill associated with the Licensed Marks and the Sotheby's Mark will inure to the benefit of Licensor; (c) that the Licensed Marks and the Sotheby's Mark have secondary meaning in the minds of the public and (d) that the nature of the businesses of Licensor requires public respect for and trust in the reputation and integrity of Licensor and the Licensor Affiliates.
Section 12.2. Proprietary Materials. Licensor acknowledges that Licensee shall own worldwide in perpetuity the following materials (collectively "Proprietary Materials") created by or on behalf of Licensee or any Company Affiliate holding a sublicense for any Licensed Mark: (i) all artwork produced that bears any Licensed Mark ("Artwork"); (ii) all computer artwork incorporating graphic descriptions of any Licensed Mark ("Computer Art"); (iii) all photographs incorporating graphic descriptions of any Licensed Mark ("Photographs"); (iv) all derivative works based on any of the Licensed Marks, Computer Art, Photographs, or Artwork ("Derivative Works"); and (v) all copyrights and other intellectual property rights in, and all duplicates and copies of, the Artwork, Computer Art, Photographs and Derivative Works described in clauses (i) through (iv) except with respect to any Licensed Mark contained or embodied in any such Proprietary Materials. All Proprietary Materials, and the creation and any use thereof, shall be subject to the terms and conditions of this Agreement in all respects. Nothing contained in this Section 12.2 shall be construed to alter or modify the rights and interests of Licensor in and to the Licensed Marks.
Section 12.3. Protection of Marks. Licensor will take all reasonable steps to maintain all registrations of the Licensed Marks, including any such registrations obtained pursuant to Section 10.1, in the Territory during the term hereof, to the extent such Licensed Mark is used by Licensee throughout the term hereof. Licensee will fully cooperate with Licensor, at Licensee's expense, in efforts to obtain, perfect and enforce Licensor's rights in the Licensed Marks.
Section 12.4. No Registration by Licensee. Licensee shall not, and Licensee shall cause each Branded Owned Office and Company Affiliate not to, on its own behalf or on behalf of any other Person, in any jurisdiction in the Territory or any other country in the world, register or attempt to register as trademarks or service marks any of the Licensed Marks, any trademark or service mark that consists of or includes the Sotheby's Mark or any trademark or service mark that is confusingly similar thereto.
Section 12.5. Infringement Actions.
(a) Franchisee-Related Claims. In the event that any Branded Franchisee, Branded Broker Affiliate, or a Former Branded Franchisee-Affiliate, imitates, infringes, uses without authorization or dilutes, in the Territory, any Licensed Mark in connection with the offer or sale of Authorized Services or Excluded Services by such Branded Franchisee, Branded Broker Affiliate or Former Branded Franchisee-Affiliate:
(i) Licensee shall have the sole right (subject to Section 12.5(a)(ii)) to commence or prosecute and control the disposition of any claims or suits against such Branded Franchisee, Branded Broker Affiliate or Former Branded Franchisee-Affiliate relative to such imitation, infringement, use without authorization or dilution (a "Franchisee Claim"). Holdings shall, and shall cause each Licensor Affiliate to, reasonably cooperate with and provide reasonable assistance to Licensee in connection with such Franchisee Claim, at Licensee's expense. Subject to Section 12.5(a)(ii), Licensee shall determine whether to take action and the type of action, if any, to take against such imitation, infringement, use without authorization or dilution.
(ii) If Licensee determines that it will not commence or prosecute such Franchisee Claim within 60 days after Licensee has become aware thereof, (A) Licensee shall deliver to Licensor notice thereof, accompanied by a reasonable description of such Franchisee Claim and (B) Licensor shall have the right to compel Licensee to commence and prosecute such Franchisee Claim. The right to compel prosecution hereunder shall be exercisable by written notice to Licensee, and Licensee shall commence with reasonable diligence prosecute such claim within 60 days following receipt of notice of such demand from Licensor.
(iii) Licensee shall be solely responsible for the fees and expenses (including attorneys' fees but not including any fees of co-counsel hired pursuant to the terms and conditions of Section 12.5(d)) incurred in connection with such Franchisee Claim.
(iv) Licensee shall receive the full amount of any settlement made or damages awarded in or for such Franchisee Claim (it being understood that to the extent any such settlement or damages awarded is characterized as or deemed or otherwise treated as royalties and to the extent that Licensee has not previously paid Licensor a Fee with respect to such royalties pursuant to the terms and conditions of Section 5.1, then such amount shall be treated as Franchisee Covered Revenue and a Fee shall be paid thereon pursuant to the terms and conditions of Section 5.1).
(b) Brokerage Service Provider Claims. In the event that any third party imitates, infringes, uses without authorization or dilutes, in the Territory, any Licensed Mark and
such third party (x) is not then a Branded Franchisee, Branded Broker Affiliate or Former Branded Franchisee-Affiliate and (y) is in the business of offering and selling Authorized Services:
(i) Licensee shall have the sole initial right (subject to
Section 12.5(b)(ii)) to commence or prosecute and control the disposition of a
claim or suit relative to such imitation, infringement, use without
authorization or dilution (a "Brokerage Service Provider Claim"). Holdings
shall, and shall cause each Licensor Affiliate to, reasonably cooperate with and
provide reasonable assistance to Licensee in connection with such Brokerage
Service Provider Claim, at Licensee's expense. Subject to Section 12.5(b)(ii),
Licensee shall determine whether to take action and the type of action, if any,
to take against such imitation, infringement, use without authorization or
dilution.
(ii) If Licensee determines that it will not commence or prosecute such Brokerage Service Provider Claim within 30 days after Licensee has become aware thereof, (A) Licensee shall deliver to Licensor notice thereof accompanied by a reasonable description of such Brokerage Service Provider Claim and (B) Licensor shall have the right (but not the obligation) to commence or prosecute and control the disposition of such Brokerage Service Provider Claim. Parent shall, and shall cause each of its Affiliates to, reasonably cooperate with and provide reasonable assistance to Licensor in connection with such Brokerage Service Provider Claim, at Licensee's expense.
(iii) Licensee shall be solely responsible for the fees and expenses (including attorneys' fees but not including any fees of co-counsel hired pursuant to the terms and conditions of Section 12.5(d)) incurred in connection with any Brokerage Service Provider Claim, whether commenced and prosecuted by Licensee or Licensor. In the case of any Brokerage Service Provider Claim commenced and prosecuted by Licensor, Licensee shall reimburse Licensor for such fees and expenses as incurred.
(iv) Any settlement made or damages awarded in or for such Brokerage Service Provider Claim shall be applied first to reimburse Licensee for its fees and expenses paid pursuant to the terms and conditions of Section 12.5(b)(iii), and the remainder of such settlement or damages shall be divided equally between Licensee and Licensor.
(c) Other Licensed Mark Claims. In the event that any third party imitates, infringes, uses without authorization or dilutes any Licensed Mark in the Territory and such third party (x) is not then a Branded Franchisee, Branded Broker Affiliate or Former Branded Franchisee-Affiliate and (y) is not in the business of offering and selling Authorized Services:
(i) Licensor shall have the sole initial right (subject to
Section 12.5(c)(ii)), in its sole discretion, to commence or prosecute and
control the disposition of a claim or suit relative to such imitation,
infringement, use without authorization or dilution (an "Other Licensed Mark
Claim"). Parent shall, and shall cause each of its Affiliates to, reasonably
cooperate with and provide reasonable assistance to Licensor in connection with
such Other Licensed Mark Claim, at Licensor's expense. Subject to Section
12.5(c)(ii), Licensor shall determine whether to take action and the type of
action, if any, to take against such imitation, infringement, use without
authorization or dilution.
(ii) If Licensor does not commence or prosecute such Other Licensed Mark Claim within 60 days after Licensor has become aware thereof, (A) Licensor shall deliver to Licensee written notice thereof accompanied by a reasonable description of such Other Licensed Mark Claim and (B) Licensee shall have the right to compel Licensor to commence and prosecute such Other Licensed Mark Claim. The right to compel prosecution hereunder shall be exercisable by written notice to Licensor, and Licensor shall commence and with reasonable diligence prosecute such claim within 60 days following receipt of notice of such demand from Licensee.
(iii) Licensor shall be solely responsible for the fees and expenses (including attorneys' fees but not including any fees of co-counsel hired pursuant to the terms and conditions of Section 12.5(d)) incurred in connection with such Other Licensed Mark Claim.
(iv) Licensor shall receive the full amount of any settlement made or damages awarded in or for such Other Licensed Mark Claim.
(d) Retention of Co-Counsel. Each of Licensor and Licensee shall have the right to hire co-counsel at its sole expense in connection with, and to participate in the prosecution of, any claim or suit that it is not controlling and prosecuting and that is subject to Sections 12.5(a), (b) or (c).
(e) Diligent Prosecution. In the event that Licensor or Licensee has
commenced prosecution of any claim that is subject to Sections 12.5(a), (b) or
(c), and such Licensor or Licensee does not, or ceases to, conduct the
prosecution of such claim or suit with reasonable diligence, then the other of
Licensor or Licensee may apply to the court having jurisdiction over such claim
or suit to assume control of the prosecution of such claim or suit.
(f) Notice of Infringement. Each of Licensee and Licensor shall notify the other in writing reasonably promptly (and in no event later than 30 days) after becoming aware of any imitation, infringement, use without authorization or dilution of any Licensed Mark by any Person.
(g) Reservation of Rights. Licensor reserves all rights with respect to any claim with respect to the imitation, infringement, use without authorization or dilution of any Mark owned by a Licensor Affiliate or in which any Licensor Affiliate holds rights or interests, whether or not a Licensed Mark or owned by Licensor, that is not expressly described in Sections 12.5(a), (b) or (c). It is understood and agreed by the parties that Licensor shall have the sole right to commence or prosecute and control the disposition of any claims or suits with respect to any such imitation, infringement, use without authorization or dilution, or choose not to so commence or prosecute, without any limitation hereunder, and Licensee shall not have any rights with respect to any such imitation, infringement, use without authorization or dilution or any such claim or suit.
Section 12.6. Licensee Estoppel. Licensee shall not, and Licensee shall cause each Company Affiliate not to, at any time do, or permit to be done, any acts or things which would in any way challenge or impair the rights of Licensor in and to the Licensed Marks or which would be reasonably likely to adversely affect the validity of the Licensed Marks.
ARTICLE XIII
INDEMNIFICATION
Section 13.1. Indemnification by Licensee. Licensee shall indemnify, defend
and hold harmless Licensor, Holdings and the Licensor Affiliates, the
representatives and agents thereof, and each of the successors and assigns of
any of the foregoing (but excluding for the avoidance of doubt any Broker
Affiliate or franchisee or any sublicensee of Licensor other than an Affiliate
thereof) (collectively, the "Licensor Indemnified Parties"), from and against
any and all costs, expenses, losses, damages and liabilities (including
reasonable attorneys' fees and expenses) ("Damages") suffered by any of the
Licensor Indemnified Parties resulting from, arising out of, relating to or
incurred with respect to (without duplication of any amounts paid pursuant to
Section 7.3 of the Purchase Agreement):
(i) any breach by Licensee of this Agreement (including in respect of any representation or warranty of Licensee as of the Effective Date); and
(ii) any claim, suit, demand, investigation, proceeding, arbitration or litigation by a third party against any Licensor Indemnified Party resulting from, arising out of, relating to or incurred with respect to the business, operations, conduct, acts or omissions of Licensee or any Company Affiliate or any of their agents, Subsidiaries, Franchisees or sublicensees or any of their directors, officers, employees, sales agents, independent contractors or representatives, including (t) the offer and sale by any such Person or provision of or offer to provide by any such Person any Authorized Services and any matter relating thereto, (u) any other Mark of Licensee or any Company Affiliate or other Branded Operator that is combined with any Licensed Mark, to the extent of the portion of the combined Mark that is not the Licensed Mark, (v) any failure by any such Person to comply with any applicable Law (including any franchise Law and all Laws relating to the preparation, offering and contents of a Uniform Franchise Offering Circular and any other franchise disclosure or offering documents and any representations made to franchisees or prospective franchisees), (w) acts or omissions by any such Person after the Effective Date constituting fraud, tortious conduct, unfair trade practices, negligence or willful misconduct, or resulting in damage or destruction of property, injury, death, loss or other damages of any kind, (x) any agreement by or among Licensee or any Company Affiliate or any of their agents, Subsidiaries, Franchisees or sublicensees and any Owned Office, Branded Broker Affiliate (other than a Pre-Existing Broker Affiliate), Branded Franchisee or any other Person (other than a Pre-Existing Broker Affiliate) with respect to any Licensed Mark, including in each case any termination thereof after the Effective Date or breach thereof, (y) any agreement by or among Licensee or any Company Affiliate and any Pre-Existing Broker Affiliate (A) in existence prior to the Effective Date, including any termination thereof or breach thereof, except for any Damages described on Schedule D or (B) entered into after the Effective Date, including any termination thereof or breach thereof and (z) any co-marketing agreement between a Co-Marketer and Licensee or any Company Affiliate, or the offer or sale of any product or service of such Co-Marketer pursuant thereto or in connection therewith, except with respect to all of the foregoing clauses in this Section 13.1(ii), for those Losses for which Licensor has an obligation to indemnify a Licensee Indemnified Party pursuant to the terms of Section 13.2 (without giving effect to Section 13.3) or pursuant to the Purchase Agreement (without giving effect to Section 7.4 thereof).
Section 13.2. Indemnification by Licensor. Licensor shall indemnify, defend and hold harmless Licensee and the Company Affiliates, the representatives and agents thereof, and each of the successors and assigns of any of the foregoing (but excluding for the avoidance of doubt any Broker Affiliate or Franchisee or any other sublicensee of Licensee other than a Company Affiliate) (collectively, the "Licensee Indemnified Parties"), from and against any and all Damages suffered by any of the Licensee Indemnified Parties resulting from, arising out of, relating to or incurred with respect to (without duplication of any amounts paid pursuant to Section 7.2 of the Purchase Agreement):
(i) any breach by Licensor of this Agreement (including in respect of any representation or warranty of Licensor as of the Effective Date, or with respect to the exercise of the Option with respect to any Option Territory, as of the date of license to the extent applicable);
(ii) any third-party claim, suit, demand, investigation,
proceeding, arbitration or litigation against any Licensee Indemnified
Party that the use of any Registered Mark for the Applicable Registered
Services in the Applicable Registered Country violates or infringes the
trademark, copyright, right of publicity or privacy or other intellectual
property rights of such third party except to the extent resulting from,
arising out of, relating to or incurred with respect to (x) any use of any
Licensed Mark by any Person in breach of this Agreement or any sublicense,
(y) any combination of any Licensed Mark with any other Mark or (z) the
provision of any service or product other than the Applicable Registered
Services in the Applicable Registered Country under the Registered Mark
corresponding thereto; and
(iii) any claim, suit, demand, investigation, proceeding, arbitration or litigation by a third party against any Licensee Indemnified Party resulting from, arising out of, relating to or incurred with respect to the business, operations, conduct, acts or omissions of Licensor, any Licensor Affiliate or any of their agents, Subsidiaries, Affiliates, franchisees or sublicensees conducting business under the Sotheby's Mark in connection with any service other than the Authorized Services (which shall not include the business, operations, conduct, acts or omissions of any Licensee Indemnified Party or any direct or indirect sublicensee, franchisee, Affiliate or agent of Licensee), and any matter relating thereto, including (x) any failure of any such Person to comply with any applicable Law and (y) acts or omissions of any such Person constituting fraud, tortious conduct, unfair trade practices, negligence or willful misconduct, or resulting in damage or destruction of property, injury, death, loss or other damages of any kind, except with respect to all of the foregoing for those Damages for which Licensee has an obligation to indemnify a Licensor Indemnified Party pursuant to the terms of clause (i) of Section 13.1 (without giving effect to Section 13.3).
Section 13.3. Limitations on Indemnification. Anything contained in this Agreement to the contrary notwithstanding:
(a) in no event shall Licensee be liable for, or required to make any payment pursuant to, clause (i) of Section 13.1, with respect to any breach of any representation or warranty of Parent and Licensee (other than with respect to any breach or inaccuracy in any of
the representations and warranties of Parent and Licensee set forth in Section 8.2(a) which shall not be subject to the Licensee Deductible Amount), for any indemnifiable Damages suffered by the Licensor Indemnified Parties unless and until the aggregate dollar amount of all such Damages, taken together with the aggregate dollar amount of all indemnifiable Damages suffered by the Seller Indemnified Parties (as such term is defined in the Purchase Agreement) under clause (i) of Section 7.2 of the Purchase Agreement exceeds $1,000,000 (the "Licensee Deductible Amount"), and then only to the extent of such excess, provided that Damages indemnified hereunder in respect of claims made by the Licensor Indemnified Parties with respect to breaches or inaccuracies in the representations or warranties set forth in Section 8.2(a), and Damages indemnified under the Purchase Agreement in respect of claims made by the Purchaser Indemnified Parties (as defined in the Purchase Agreement) with respect to breaches or inaccuracies in the representations or warranties of Sellers (as defined in the Purchase Agreement) set forth in Sections 4.1, 4.2, and 4.6 and 4.7 of the Purchase Agreement, shall be disregarded for purposes of determining whether the aggregate Damages exceed the Licensee Deductible Amount as described above;
(b) in no event shall Licensor be liable for, or required to make any
payment pursuant to, clause (i) of Section 13.2, with respect to any breach of
any representation or warranty of Licensor (other than with respect to any
breach or inaccuracy in any of the representations and warranties of Licensor
set forth in Section 8.1(a)) which shall not be subject to the Licensor
Deductible Amount), for any indemnifiable Damages suffered by the Licensee
Indemnified Parties unless and until the aggregate dollar amount of all such
Damages, taken together with the aggregate dollar amount of all indemnifiable
Damages suffered by the Purchaser Indemnified Parties (as such term is defined
in the Purchase Agreement) under clause (i) of Section 7.3 of the Purchase
Agreement exceeds $1,000,000 (the "Licensor Deductible Amount"), and then only
to the extent of such excess, provided that Damages indemnified hereunder in
respect of claims made by the Licensee Indemnified Parties with respect to
breaches or inaccuracies in the representations or warranties set forth in
Section 8.1(a), and Damages indemnified under the Purchase Agreement in respect
of claims made by the Seller Indemnified Parties (as defined in the Purchase
Agreement) with respect to breaches or inaccuracies in the representations or
warranties set forth in Section 3.1, 3.2, 3.10(c), 3.19, 3.21 and 3.22 of the
Purchase Agreement, shall be disregarded for purposes of determining whether the
aggregate Damages exceed the Licensor Deductible Amount as described above;
(c) in no event shall Licensor or Licensee be liable for, or required to make any payment pursuant to, Sections 13.1 or 13.2 (i) to the extent arising out of any indemnifiable matter unless a claim therefor is asserted specifying in good faith, in reasonable detail and in writing by the applicable Licensor Indemnified Party or Licensee Indemnified Party, as the case may be, within the time period that such indemnifiable matter survives in accordance with Section 13.4, failing which such claim shall be waived and extinguished, (ii) to the extent arising out of any legislation not in force as of the Effective Date or any change of Law or administrative practice, which takes effect retroactively to periods prior to the Effective Date, (iii) which are merely estimates of Damages and not actual Damages or (iv) to the extent that the indemnifiable Damages have been incurred as a result of any failure by the Licensor Indemnified Party or Licensee Indemnified Party, as the case may be, to mitigate such Damages as required by applicable law; and
(d) in no event shall Licensor or Licensee be liable for any damages of the type described in Section 16.2.
Section 13.4. Survival of Representations and Warranties. Each of the representations and warranties made by the parties in this Agreement shall terminate on March 31, 2006; provided, however, that (i) the representations and warranties contained in Sections 8.1(a) and (d) and Section 8.2(a) shall remain in full force and effect without termination. In the event notice of any claim for indemnification under Sections 13.1(i) or 13.2(i) of this Agreement shall have been given (within the meaning of Section 13.5) within the applicable survival period, the representations and warranties that are the subject of such indemnification claim shall survive with respect to such claims until such time as such claim is finally resolved.
Section 13.5. Notice and Resolution of Claim.
(a) The Licensor Indemnified Parties or the Licensee Indemnified Parties to be indemnified hereunder (each, an "Indemnified Party"), as the case may be, shall promptly give written notice to the indemnifying party (the "Indemnifying Party") after obtaining knowledge of any third party claim against the Indemnified Party as to which recovery may be sought against the Indemnifying Party because of the indemnities set forth in Sections 13.1 or 13.2, specifying in good faith and in reasonable detail the third party claim including, to the extent reasonably practicable, an estimate of Damages claimed, and the basis for indemnification; provided, that the failure of an Indemnified Party promptly to notify the Indemnifying Party of any such matter shall not release the Indemnifying Party, in whole or in part, from its obligations under this Article 13 except to the extent the Indemnified Party's failure to so notify in breach of this Section 13.5 actually prejudices the Indemnifying Party. The Indemnifying Party shall have the right to assume the defense of any such third party claim at its own cost and expense with counsel selected by the Indemnifying Party (as to which the Indemnified Party has not promptly and reasonably objected) by giving written notice to the Indemnified Party of its intention to assume such defense within the lesser of (i) thirty (30) days after notice thereof has been given to the Indemnifying Party, and (ii) five (5) Business Days prior to the date required to answer or respond to any such claim (the "Election Period"). Commencing on the beginning of and during the Election Period, the Indemnified Party agrees to make available to the Indemnifying Party and its authorized representatives the information relied upon by the Indemnified Party to substantiate the third party claim, as well as any other information bearing thereon reasonably requested by the Indemnifying Party. If the Indemnifying Party fails to notify the Indemnified Party of its election to assume the defense of any such third party claim within the Election Period, then the Indemnified Party shall defend or settle such third party claim in a diligent and commercially reasonable manner and in good faith and may settle such third party claim on such terms as the Indemnified Party may deem appropriate; provided, however, that such Indemnified Party shall not, in defense of such a third party claim, be permitted to admit any liability with respect to, or consent to the entry of any judgment or enter into any settlement with respect to, any such third party claim without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed), and the Indemnifying Party will not be subject to any liability for any such admission, settlement, compromise, discharge or consent to judgment made by an Indemnified Party without such prior written consent of the Indemnifying Party. An Indemnifying Party may participate in (but not control) any defense assumed by an Indemnified Party pursuant to this Section 13.5(a), and an Indemnifying Party will bear its own
costs and expenses with respect to such participation. Notwithstanding the foregoing, an Indemnifying Party shall have the right to assume the defense of such third party claim at any time prior to settlement, compromise or final determination thereof; provided, however, that an Indemnifying Party shall pay all fees and expenses incurred by an Indemnified Party prior to such Indemnifying Party's assumption of such defense.
(b) If the Indemnifying Party assumes the defense of any such third party claim, the obligations of the Indemnifying Party under this Article 13 shall include taking all steps deemed necessary by the Indemnifying Party, acting in good faith, in the investigation, defense or settlement of such third party claim (including the retention of legal counsel) and the Indemnifying Party shall, as a condition to assuming such defense, acknowledge that it will hold the Indemnified Party harmless from and against any and all Damages caused by or arising out of any settlement approved by the Indemnifying Party or any judgment in such claim (subject to the applicable deductibles and limitations set forth in Section 13.4). The Indemnifying Party shall notify the Indemnified Party as to the existence of any offers to settle such third party claim, and the Indemnifying Party shall not settle a third party claim if to the knowledge of the Indemnifying Party (after notifying and consulting with the Indemnified Party) such action would reasonably be expected to have a materially adverse impact on the Indemnified Party; otherwise the Indemnifying Party shall have full control of such defense and settlement, including any compromise or settlement thereof; provided, however, that such Indemnifying Party shall permit the Indemnified Party to participate in (but not control) such defense or settlement through separate counsel chosen by such Indemnified Party, with the fees and expenses of such participation and separate counsel borne solely by such Indemnified Party. The Indemnifying Party shall not, in the defense of a third party claim, make any payment of any of such claims, consent to the entry of any judgment or enter into any settlement with respect to any third party claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed) unless the judgment or proposed settlement (i) involves only the payment of money damages and does not involve any finding or admission of any violation of law, (ii) includes, as an unconditional term thereof, a release of such Indemnified Party given by the claimant or the plaintiff from any liabilities arising from such third party claim, and (iii) does not impose an injunction or other equitable relief, directly or indirectly, upon such Indemnified Party or result in an admission of any wrongdoing by the Indemnified Party. The Indemnified Party shall cooperate with the Indemnifying Party in the defense or settlement thereof, and the Indemnifying Party shall reimburse the Indemnified Party for all its reasonable out-of-pocket expenses in connection therewith.
(c) Indemnified Parties and Indemnifying Parties shall cooperate reasonably in all aspects of any investigation, defense, pre-trial activities, trial compromise, settlement or discharge of any third party claim, including, without limitation, by providing the other party with reasonable access to employees, directors and officers (as witnesses) and other information.
(d) All indemnity payments owed under this Article 13 ("Indemnity Payments"), shall be paid in immediately available funds within ten (10) Business Days after final determination (which is final in the sense that it is no longer subject to appeal) and written request therefor by the Indemnified Party. All such Indemnity Payments shall be made to the accounts and in the manner specified in writing by the party entitled to such Indemnity
Payments. Any amounts that are not paid within such ten day period shall accrue interest at the Prime Rate on the date such payment is due.
(e) In the event of any conflict between Section 12.5 and this Article 13, Article 13 shall govern.
ARTICLE XIV
DEFAULT AND TERMINATION
Section 14.1. Termination. Licensor, at its option and in its sole discretion, may immediately terminate this Agreement, upon or at any time after the occurrence of any of the following events:
(a) Licensee attempts to assign any of its rights under this Agreement or any interest herein knowingly in contravention of Article 17 hereof;
(b) Licensee or Parent files a petition in bankruptcy, is adjudicated a bankrupt or files a petition or otherwise seeks relief under or pursuant to any bankruptcy, insolvency or reorganization statute or proceeding, or if a petition in bankruptcy is filed against it or it becomes insolvent or makes an assignment for the benefit of its creditors or a custodian, receiver or trustee is appointed for it or a substantial portion of its business or assets;
(c) a court of competent jurisdiction issues a non-appealable, final judgment that either Licensee or Parent is in breach of any payment obligation hereunder, and has failed to cure such breach within 60 days following the date of issuance of such non-appealable, final judgment;
(d) a court of competent jurisdiction issues a non appealable, final judgment that Licensee has committed a pattern of multiple material breaches, that Licensee knew or should have known about at the time of committing such breaches, of Section 7.1(a), 7.1(b) or 7.1(c) of this Agreement, that collectively have had a material adverse effect on the goodwill associated with the Sotheby's Mark, which breaches shall not have been cured within 60 days after the date of issuance of such non-appealable, final judgment;
(e) any Licensee or any Company Affiliate (i) begins to offer or sell services as, or enters into an affiliation, license or similar agreement with respect to real estate brokerage services with, an Auction House in the Territory or any other country in the world, other than Licensor or any Licensor Affiliate or (ii) is or becomes, in part or in whole, an Auction House (whether operating in the Territory or any other country in the world), or any Licensee or any Company Affiliate enters into any arrangement which would effect any of the foregoing, and has failed to either (x) terminate any agreement, or cease offering or selling services, referenced in clause (i) of this Section 14.1(e) within 60 days following Licensee's or Parent's notice (whether constructive or actual) that such agreement has been entered into, or such services have begun to be offered or sold or (y) use reasonable best efforts to divest as soon as reasonably practicable any of its assets constituting, individually or collectively, an Auction House referred to in clause (ii)
(Licensee to use and to cause each Company Affiliate to use reasonable best efforts to cause any such divestiture to occur within six months of the event described in clause (ii));
(f) Parent, Licensee, any Company Affiliate or any other Person acting in the name of or on behalf of Parent, Licensee or any Company Affiliate, or the estate of any of the foregoing, including any receiver, custodian, trustee (including any trustee in bankruptcy) and any successor in interest or assignee of any of the foregoing, disclaims the enforceability of the Guarantee or otherwise asserts a defense to the enforceability of the Guarantee (and such assertion is not withdrawn prior to the earlier of (i) the time at which a responsive pleading is due to be filed under applicable law or (ii) 10 days); or
(g) Licensee discontinues all use of all of the Licensed Marks for a period of twelve consecutive months.
Section 14.2. Effect of Termination.
(a) Upon termination of this Agreement:
(i) except as otherwise provided in Section 14.2(a)(iii) below, the right of Licensee and each Company Affiliate and sublicensee to use the Licensed Marks shall immediately terminate, provided that Licensee shall have a reasonable period of time (not to exceed 180 days) to de-identify each Branded Owned Office and Company Affiliate, and the services offered thereby and by it, with respect to the Licensed Marks, and Licensee shall, and shall cause each Company Affiliate to, promptly take and cause to be taken all actions reasonably necessary to effect such de-identification;
(ii) Licensee shall, and shall cause each Company Affiliate to, and shall use commercially reasonable efforts to cause any other sublicensee of any Licensed Mark to, promptly cease using any Licensed Mark in any corporate or trade name and shall take all actions required to effect a change in such corporate or trade name;
(iii) other than in the case of termination of this Agreement pursuant to Article 4, each sublicense granted by a Licensee to a Branded Broker Affiliate or Branded Franchisee pursuant to the terms of this Agreement shall continue to be valid and in effect (and a non-exclusive license of the Licensed Marks to Licensee shall remain in effect solely to the extent necessary to allow such sublicense to remain in effect) for the remainder of the term of each Branded Franchise Agreement or Broker Affiliate Agreement in effect (such period, the "Franchise Wind-Down Period"), it being understood that all Franchisee Covered Revenue relating to the Franchise Wind-Down Period shall be subject to Fees pursuant to the terms and conditions of Article 5 as if during the term of this Agreement and that all other applicable terms and conditions in this Agreement, including Sections 7.4 and 7.5, shall continue in effect for the duration of the Franchise Wind-Down Period; and provided that, during such Franchise Wind-Down Period, Licensee and its Affiliates may seek to re-affiliate any such Branded Franchisees or Broker Affiliate in its discretion with any other franchise brands of Licensee and its Affiliates (but such Branded Franchisee's or Branded Broker Affiliate's sublicense to any Licensed Mark shall nevertheless terminate upon the later of termination of the respective Branded Franchise
Agreement or Broker Affiliate Agreement or termination of any post-termination wind-down period (including mandatory renewal periods) required by applicable Law or provided for in any such Branded Franchise Agreement or Broker Affiliate Agreement);
(iv) Licensee shall, and shall cause each Company Affiliate to, cause the non-renewal of each Branded Franchise Agreement, except and solely to the extent prohibited by applicable Law;
(v) the registration for any domain name consisting of both a Licensed Mark and an Eligible Mark shall be cancelled within 60 days following termination of this Agreement; and
(vi) except to the extent expressly provided otherwise by Sections 14.2(a)(i) through (iv), all rights and obligations of any party under this Agreement shall terminate and be of no further force and effect, except that (A) the agreements and covenants of the parties contained in Articles 5, 9, 13, 15, 16, 19 and 20 and Sections 12.1, 12.2, 12.4 and 12.6 shall survive termination of this Agreement for the period stated therein (or indefinitely if no such period is set forth) and (B) the agreements and covenants of Licensee set forth in Section 7.3(a)(i) shall survive for ten years from the end of the Franchise Wind-Down Period.
(b) Termination of this Agreement for any reason shall be without prejudice to any rights that shall have accrued to the benefit of any party prior to such termination.
(c) In the event of termination of this Agreement as a result of the occurrence of an event described in Section 14.1(b), no assignee for the benefit of creditors, custodian, receiver, trustee in bankruptcy, sheriff or any other officer of the court or official charged with taking over custody of Licensee's assets or business may continue this Agreement or exploit or in any way use any Licensed Mark.
(d) Notwithstanding any other provision of this Agreement, Licensor acknowledges and agrees that this Agreement may not be terminated except as expressly set forth in Section 14.1.
ARTICLE XV
REVIEW COMMITTEE AND LIAISONS
Section 15.1. Formation. Licensee, on the one hand, and Licensor, on the other, shall establish a committee (the "Review Committee") for the purpose of discussing the parties' respective businesses conducted in connection with this Agreement, those certain other matters contemplated hereby, including as set forth in Section 15.2, and such other matters relating to this Agreement, including disputes hereunder, as the parties may desire to raise with one another. Licensee and Licensor shall have the right to appoint an equal number of representatives to the Review Committee, which shall not exceed two representatives, respectively, unless the parties agree otherwise. The parties' representatives to the Review Committee shall be officers who (a) have responsibility for, and familiarity with, in the case of Licensee, Licensee's business and operations under the Licensed Marks and, in the case of Licensor, Licensor and the Licensor Affiliates' business as it relates to matters contemplated by this Agreement and (b) the requisite
authority within their respective organizations to make decisions with respect to those business and non-legal matters customarily addressed by the Review Committee. Licensee, on the one hand, and Licensor, on the other, may replace its respective representatives to the Review Committee from time to time by giving notice to the other party.
Section 15.2. Responsibilities. The Review Committee shall meet once approximately every six months until December 31, 2006, and annually thereafter during the term of this Agreement. Without limiting the generality of the foregoing, in connection with and in view of the long-term nature of the License Agreement and changes which may occur in Law or in the marketplace in the future, in the event that either party proposes amendments in good faith to this Agreement to address any such change to the extent the change would or does result in a material diminishment of the benefits of this Agreement from those that would have been realized by such party without such change, the Review Committee shall discuss and consider such changes and proposed amendments in good faith and the Review Committee shall serve as a non-exclusive forum in which the parties shall negotiate in good faith regarding any such proposed changes; provided that no party hereto shall be obligated to agree to any change to this Agreement and nothing in this Section 15.2 shall modify or limit the terms and conditions of Section 20.3. The Review Committee shall also discuss ways in which each party may benefit from the client base of the other party in marketing or cross-marketing their respective services. The Review Committee shall establish its own procedures with respect to the conduct of its meetings, provided that Licensee, on the one hand, and Licensor, on the other, shall propose any matters for the agenda of each meeting of the Review Committee reasonably in advance by notice to the members of the Review Committee. The parties shall in good faith coordinate with one another to establish the schedule of meetings for the Review Committee as contemplated by this Section 15.2.
Section 15.3. Liaisons. In supplement to, and without limiting the scope and purposes of, the Review Committee, the parties desire that Licensor and Licensee each designate an officer thereof to act as a liaison to the other parties for purposes of facilitating communications by and among the parties in connection with matters relating to this Agreement and addressing business issues and disputes between the parties and issues involving mutual clients that may arise during the term. Licensor and Licensee covenant and agree that its liaison under this Section 15.3 shall have the requisite authority to address the issues and disputes that may be communicated to such liaison, including direct access to senior-level management of Licensee and Licensor, as applicable, as necessary. Licensor and Licensee shall each designate their respective liaisons under this Section 15.3 by written notice to the other parties, which notice shall include the relevant contact information for such liaison. Licensor and Licensee shall have the right to replace its liaison from time to time and designate a replacement liaison who meets the criteria for a liaison contemplated by this Section 5.13, upon notice to the other parties. Licensor shall and shall cause each Licensor Affiliate and the Licensor Liaison, and Licensee shall and shall cause each Company Affiliate and the Licensee Liaison, to cooperate with one another to ensure that they each respond to any matter raised by another party hereunder, including by its liaison, with due regard for the magnitude and time requirements of such matter and, with respect to matters relating to any mutual client regarded by Licensor or Licensee as a very important client, on an extremely expedited basis.
Section 15.4. Winding Down. This Article 15 shall survive termination of this Agreement, for the purpose of monitoring, and otherwise coordinating with respect to, the matters contemplated in Section 14.2, and shall thereafter terminate when the obligations of the parties under Section 14.2 have been fulfilled.
Section 15.5. Non-Exclusive Role. Nothing in this Article 15, including the formation of the Review Committee, its purposes or the designation of the liaisons hereunder, shall in any way limit or modify Section 16.1.
ARTICLE XVI
CERTAIN REMEDIES
Section 16.1. Specific Performance.
(a) The parties agree that if any of the material provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, irreparable damage would occur, no adequate remedy at Law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms of this Agreement, in addition to any other remedy at law or equity.
(b) With respect to any material breach or default under this Agreement by Licensee and without limiting in any way the obligation of Licensor to establish such breach, Licensee hereby waives any defense to (other than as to Licensor's ability to establish its likelihood of success on the merits), and to that extent consents to, the order of specific performance and the entry of preliminary and permanent injunctive relief against Licensee barring such nonperformance or breach and imposing reasonable measures to prevent further nonperformance or breach.
(c) This Section 16.1 shall not in any way limit any remedy that any party may have at law or in equity, and no party shall be required to pursue its rights under this Section 16.1 prior to pursuit of any other remedy at law or in equity. The remedies provided for in this Agreement are cumulative and not exclusive.
Section 16.2. Limitation of Remedies. None of the parties hereto shall be liable to any other party for any indirect, special, incidental, consequential, exemplary or punitive damages, or for lost profits, unrealized expectations or other similar terms, claimed by such other party resulting from such first party's breach of its obligations, agreements, representations or warranties hereunder, provided that nothing in this Section 16.2 shall preclude any recovery by a party entitled to indemnification pursuant to Article XIII for such Damages payable to any third party as a result of a third party claim.
Section 16.3. DISCLAIMER OF WARRANTIES. OTHER THAN AS EXPRESSLY SET FORTH IN SECTION 8.1, LICENSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED MARKS AND THE OTHER MATTERS CONTEMPLATED BY THIS AGREEMENT, INCLUDING (A) ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, (B) ANY WARRANTY WITH RESPECT TO THE VALIDITY OR
ENFORCEABILITY OF, OR OF ANY NON-INFRINGEMENT RELATING TO, THE USE OF ANY LICENSED MARK IN CONNECTION WITH ANY AUTHORIZED ANCILLARY SERVICE AND (C) ANY WARRANTY ARISING THROUGH COURSE OF DEALING OR USAGE OF TRADE.
ARTICLE XVII
ASSIGNMENT
Section 17.1. Assignments Generally. The rights granted to Licensee hereunder are personal in nature. Licensee may not assign, sublicense or otherwise transfer any of its rights under this Agreement or other interests herein other than as expressly provided by Article II and 17.2, and any such attempted assignment, sublicense or other transfer, whether voluntary or by operation of law, directly or indirectly, shall be void and of no further force and effect.
Section 17.2. Permitted Assignment. Licensee may assign its rights and obligations under this Agreement in their entirety (but not in part) to (a) a Company Affiliate or (b) a Person who (i) acquires (whether by stock purchase, merger, asset purchase, reorganization, consolidation or in any other form of transaction) all or substantially all of (x) the business of Licensee and the Company Affiliates with respect to this Agreement and of any Company Affiliate that is a Branded Operator (such business all taken as a whole) (as it exists on the date of such assignment), (y) the Licensee Brokerage Business or (z) Licensee's Residential Real Estate franchise business and (ii) agrees with Licensor, in writing, to be bound as a "Licensee" under this Agreement; provided that any assignment to any Person that primarily operates an Auction House Business (whether or not in the United States) or is an Affiliate of any such Person shall require the prior written consent of Licensor.
Section 17.3. Deemed Assignment. For purposes of this Agreement, the following events shall be deemed to be an "assignment" (provided that a permitted assignment shall have not theretofore occurred pursuant to the provisions of Section 17.2):
(a) Licensee ceases to be, directly or indirectly, wholly-owned by Parent; and
(b) Licensee sells or otherwise disposes of or transfers all or substantially all of its assets to any Person.
Section 17.4. Assignment of Rights to Fees. Following the twelfth anniversary of the Effective Date and at any time thereafter during the term, Licensor shall have the right to assign to any Person, Licensor's right to receive payment of all Fees due and payable thereafter (including any Minimum Amount if applicable); provided, that, only in the case of any proposed assignment to a Person that is not a Licensor Affiliate, not less than 30 days prior to any such proposed assignment, Licensor shall deliver notice to Licensee of Licensor's intention to assign such right to receive License Fees hereunder, and during such 30-day period Licensee shall have the right to make an offer to be the assignee of such right. Licensor shall not be under any obligation to accept any offer so received from Licensee and may reject any such offer in its sole discretion. At any time following the expiration of the 30-day period following notice from
Licensor, Licensor shall be free to enter into any arrangement with any third party on any terms with respect to the assignment of rights referenced above.
Section 17.5. Effect of Assignment. No assignment by any party hereto of any rights or interests hereunder shall increase the indemnifiable Damages for which an Indemnifying Party may seek indemnification hereunder, or otherwise increase any obligations hereunder of the non-assigning party (it being understood that no such rights or interests may be assigned except as expressly permitted by this Agreement).
ARTICLE XVIII
OPTION RELATING TO FOREIGN TRADEMARKS
Section 18.1. Grant of Option. Pursuant to the terms and conditions of this Agreement, during the five-year period commencing on the Effective Date (the "Option Period"), Licensee shall have the option (the "Option") to (i) license the Licensed Marks for use solely for the offer and sale of Authorized Services, on the terms provided herein, in the Option Territory and (ii) to the extent permitted by applicable Law and Licensor's obligations under applicable agreements of Licensor and the Licensor Affiliates, acquire (a "Foreign Operations Sale") on an "as is, where is" basis and without warranties, either Licensor's brokerage operations (to the extent not then shut down) in the Option Territory or the franchise and affiliation agreements, if any, to which Licensor is a party at the time of such exercise of the Option.
Section 18.2. Maintenance of Registration; Limitation.
(a) Licensor shall have no obligation to maintain (i) its business operations relating to any Licensed Mark in any country in the Option Territory or (ii) its use of any Licensed Mark in any country in the Option Territory except with respect to the filings contemplated under Section 18.2(b). In connection with the foregoing, the parties acknowledge that Licensor and the Licensor Affiliates intend to cease conducting residential real estate brokerage services in the Option Territory, and nothing in this Agreement is intended by the parties, nor shall it be interpreted to prevent, Licensor or any Licensor Affiliate from reducing the scope of or ceasing such operations in any country or otherwise restrict the conduct of such operations, except as provided herein.
(b) Subject to Section 18.2(a), if requested by Licensee at any time during the Option Period, Licensor shall make any filing and pay any filing fee in connection with the maintenance of the Licensed Marks, to the extent permitted by applicable Law, provided that Licensee shall reimburse Licensor for its expenses in connection therewith, including all filing fees and attorneys' fees.
Section 18.3. Exercise of Option.
(a) The exercise price to be paid by Licensee upon any exercise of the Option shall be $1.00 for each country in the Option Territory covered by such exercise.
(b) Each exercise of the Option shall be in writing, accompanied by payment in full of the applicable exercise price. Licensee shall have the right to exercise the Option from
time to time during the Option Period, with respect to one or more countries in any single exercise. Licensee shall retain the right to any additional partial exercise during the Option Period, or any exercise of the Option with respect to the remainder of the countries in the Option Territory, for the remaining balance of the Option Period.
(c) Following any exercise of the Option, Licensor and Licensee shall use commercially reasonable efforts to obtain (at Licensee's expense) any consents, authorizations, approvals, permits or licenses and submission of all filings, declarations, registrations or notices as are necessary or advisable under applicable Law, including antitrust Laws ("Option Consents and Filings"). With respect to any exercise of the Option with respect to Germany, the approval of the German Federal Cartel Office or the confirmation by the German Federal Cartel Office that no filing is required shall be among the Option Consents and Filings.
(d) Following any exercise of the Option, Licensor shall use commercially reasonable efforts to file (at Licensee's expense) a trademark registration application with respect to the Licensed Marks in each country with respect to which the Option is being exercised, to the extent not already registered (including at Licensee's request prior to such time). The procedures for preparing, filing and prosecuting each such trademark registration application shall be those applicable to the registration of Licensed Marks in the Option Territory. Licensor will establish (at Licensee's expense) an Eligible SPV in (i) the United States, (ii) in the country with respect to which the Option has been exercised (to the extent permitted by applicable Law), (iii) the country in which the Licensed Marks with respect to which the Option is being exercised are held at the time of exercise or (iv) such other jurisdiction as Licensor reasonably determines, and shall file such trademark registration application in the name of such Eligible SPV (after effecting any necessary transfers of rights to such Eligible SPV).
(e) Following (x) the receipt by Licensor of a certificate of registration from the applicable Governmental Authority with respect to each such trademark registration application and (y) the receipt or submission of any Option Consents and Filings as are necessary or advisable under applicable Law, the parties will in good faith prepare and enter into an addendum or joinder agreement to this Agreement:
(i) reflecting the application of the terms and conditions of this Agreement to the use of the Licensed Marks in the country or countries with respect to which the Option is being exercised, including with respect to quality control matters and the representations and warranties of each of the parties with respect to the Licensed Marks as of the date of the entering into of such addendum or joinder agreement, and the survival of such representations and warranties for a period of two years thereafter;
(ii) amending Schedule C to reflect as part of the Territory under this Agreement the addition of such country with respect to which the Option has been exercised;
(iii) providing that Fees shall accrue with respect to Covered Revenue Earned from Authorized Brokerage Services in such country or countries, as provided herein;
(iv) containing such other modification to the terms of this Agreement and additional terms and conditions as may be reasonably necessary to comport with the
applicable Law of the country or countries with respect to which the Option is being exercised, to permit Licensor and its Affiliates to comply with any remaining contractual obligations of Licensor and the Licensor Affiliates with respect to the Licensed Marks in such country or countries (including any then-existing broker affiliate agreements) and to accomplish the purposes of this Article 18 and the intentions of the parties without affecting the financial and legal substance of the matters contemplated by this Agreement in a way that is materially adverse to any party; and
(v) otherwise evidencing the agreement of such Eligible SPV to be bound by the terms and conditions of this Agreement as a Licensor hereunder, subject to the foregoing clauses (i) through (iv), including with respect to modifications and additions to the terms and conditions of this Agreement.
(f) In the event that Licensee exercises the Option with respect to any Foreign Operations Sale, following the receipt by Licensor of any Option Consents and Filings as are necessary or advisable under applicable Law with respect to such Foreign Operations Sale, the parties will in good faith prepare and enter into a separate agreement effecting such Foreign Operations Sale on an "as is, where is" basis and without warranties, and as otherwise contemplated by this Section 18.3; provided that any Foreign Operations Sale shall be conditioned upon the simultaneous or prior grant of the license for the Licensed Marks (pursuant to Section 18.3(e)) in the country in which the assets covered by such Foreign Operations Sale are located.
Section 18.4. Covenant of Licensor Following Exercise. Following each exercise of the Option, Licensor shall (unless otherwise agreed by Licensor and Licensee), wind-up as promptly as practicable (and in any event within 180 days) all residential real-estate brokerage operations in the country with respect to which the Option is being exercised, including termination of then-existing broker affiliate agreements and franchise agreements to the extent not being assigned to Licensee pursuant to a separate agreement, with respect to such country, subject to the requirements of applicable Law in such country and the contractual and legal obligations of Licensor and the Licensor Affiliates in such country.
Section 18.5. Negative Covenants of Licensor With Respect to Option Territory. During the term of this Agreement, Holdings and Licensor shall not, and Holdings shall cause the Licensor Affiliates (for so long as they remain Licensor Affiliates) not to, without the consent of Licensee, (a) enter into any new master franchise agreement or affiliation agreement with respect to the use of (i) any Licensed Mark or (ii) the Sotheby's Mark for the offer and sale of Authorized Services in any country in the Option Territory, other than Timeshare Brokerage Services and sales of Artistically Significant Residences in auction format and (b) sell, dispose or otherwise transfer to any Person, other than to an Eligible SPV, or grant a license to any Person to use, (x) any Licensed Mark or (y) the Sotheby's Mark for the offer and sale of Authorized Services, in any country in the Option Territory, other than Timeshare Brokerage Services and sales of Artistically Significant Residences in auction format.
Section 18.6. Ownership of Marks. Licensee acknowledges that the direct ownership of any Licensed Mark with respect to any country in the Option Territory may be held by a Licensor Affiliate. In the event that Licensee shall exercise the Option with respect to a country
in the Option Territory for which the Licensed Marks are held by a Licensor Affiliate, Licensor shall cause such Licensor Affiliate to execute the respective addendum and/or joinder agreement for the purpose of effecting the grant of the license of the Licensed Marks as contemplated herein.
ARTICLE XIX
GUARANTEE
Section 19.1. Guarantees. (a) Parent hereby unconditionally and absolutely guarantees (this "Guarantee"), as a primary obligor and not merely as surety, the full and punctual payment and performance of all debts, obligations and liabilities (including in respect of Fees and referral fees), whether such obligations are direct or indirect, absolute or contingent, now existing or subsequently arising, primary or secondary, now due or hereafter falling due, monetary or otherwise, of Licensee under this Agreement, together with all costs of collection, compromise or enforcement, including reasonable attorneys' fees, incurred with respect to any such debt, obligations or liabilities, or with respect to this or any other guaranty of any of them, or with respect to a proceeding under the federal bankruptcy laws or any moratorium, insolvency, receivership, arrangement or reorganization law or an assignment for the benefit of creditors concerning Licensee or Parent, together with interest on all such costs of collection, compromise or enforcement from the date arising (collectively, the "Obligations"). Parent further agrees that its liability under the Guarantee shall not be discharged, impaired, diminished or otherwise affected by any (a) extension, settlement, modification, compromise, waiver, release or renewal of any Obligation, in whole or in part or (b) any modification or amendment or supplement to this Agreement. The Guarantee is a continuing guarantee, which shall apply to all Obligations which now exist or subsequently arise, whether or not notice of such Obligations is given to Parent, whether or not any or all prior Obligations had been fully paid, performed and observed before any such Obligation arose, and notwithstanding Holdings' dissolution.
(b) Holdings hereby unconditionally and absolutely guarantees (this "Holdings Guarantee"), as a primary obligor and not merely as surety, the full and punctual payment and performance of all debts, obligations and liabilities (including in respect of referral fees), whether such obligations are direct or indirect, absolute or contingent, now existing or subsequently arising, primary or secondary, now due or hereafter falling due, monetary or otherwise, of Licensor under this Agreement, together with all costs of collection, compromise or enforcement, including reasonable attorneys' fees, incurred with respect to any such debt, obligations or liabilities, or with respect to this or any other guaranty of any of them, or with respect to a proceeding under the federal bankruptcy laws or any moratorium, insolvency, receivership, arrangement or reorganization law or an assignment for the benefit of creditors concerning Licensor or Holdings, together with interest on all such costs of collection, compromise or enforcement from the date arising (collectively, the "Holdings Obligations"). Holdings further agrees that its liability under the Holdings Guarantee shall not be discharged, impaired, diminished or otherwise affected by any (a) extension, settlement, modification, compromise, waiver, release or renewal of any Holdings Obligation, in whole or in part or (b) any modification or amendment or supplement to this Agreement. The Holdings Guarantee is a continuing guarantee, which shall apply to all Holdings Obligations which now exist or subsequently arise, whether or not notice of such Holdings Obligations is given to Holdings,
whether or not any or all prior Holdings Obligations had been fully paid, performed and observed before any such Holdings Obligation arose, and notwithstanding Parent's dissolution.
Section 19.2. Waiver of Notices, Etc. (a) Parent agrees that Licensor shall
not be required to give Parent any notice pursuant to the Guarantee, and that no
failure to give any notice shall discharge, impair, diminish or otherwise affect
the liability which Parent would have had under the Guarantee if notice had been
given. Parent waives: (a) notice of acceptance of the Guarantee, (b) notice of
the incurring of additional or increased Obligations, (c) notice of the
application of any payment, transfer or recovery from security, (d) presentment,
demand and protest of any instrument, and notice thereof, (e) notice of
nonpayment or other default under the Guarantee or under any Obligation, (f) any
right to demand public foreclosure sale of any security, (g) notice of
foreclosure, (h) notice of any release, discharge, modification or failure to
obtain any security for any of the Obligations, (i) notice of any waiver by
Licensor of any of the terms, covenants or conditions of any of the Obligations,
(j) notice of the granting of any indulgence or extension of time to Licensee,
(k) notice of any modification, supplement or extension of any of the
Obligations, (l) notice of any agreement or arrangement with Licensee or anyone
else, (m) any right to exoneration or to require election of remedies, (n) all
suretyship defenses and (o) any other defenses or notice requirements which may
exist at law or in equity. The obligations of Parent under this Article 19 shall
not be affected by (x) the failure of Licensor to assert any claim or demand or
to enforce any right or remedy against Licensee under the provisions of this
Agreement or (y) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Agreement. Parent further agrees that the Guarantee
constitutes a guarantee of payment and performance when due and not of
collection and waives any right to require that any resort be had by Licensor to
any other guarantee or any security held for payment or performance of the
Obligations.
(b) Holdings agrees that Licensee shall not be required to give
Holdings any notice pursuant to the Holdings Guarantee, and that no failure to
give any notice shall discharge, impair, diminish or otherwise affect the
liability which Holdings would have had under the Guarantee if notice had been
given. Holdings waives: (a) notice of acceptance of the Holdings Guarantee, (b)
notice of the incurring of additional or increased Holdings Obligations, (c)
notice of the application of any payment, transfer or recovery from security,
(d) presentment, demand and protest of any instrument, and notice thereof, (e)
notice of nonpayment or other default under the Holdings Guarantee or under any
Holdings Obligation, (f) any right to demand public foreclosure sale of any
security, (g) notice of foreclosure, (h) notice of any release, discharge,
modification or failure to obtain any security for any of the Holdings
Obligations, (i) notice of any waiver by Licensee of any of the terms, covenants
or conditions of any of the Holdings Obligations, (j) notice of the granting of
any indulgence or extension of time to any Licensor, (k) notice of any
modification, supplement or extension of any of the Holdings Obligations, (l)
notice of any agreement or arrangement with any Licensor or anyone else, (m) any
right to exoneration or to require election of remedies, (n) all suretyship
defenses and (o) any other defenses or notice requirements which may exist at
law or in equity. The obligations of Holdings under this Article 19 shall not be
affected by (x) the failure of Licensee to assert any claim or demand or to
enforce any right or remedy against Licensor under the provisions of this
Agreement or (y) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Agreement. Holdings further agrees that the Holdings
Guarantee constitutes a guarantee of payment and performance when due and not of
collection and waives any right to
require that any resort be had by Licensee to any other guarantee or any security held for payment or performance of the Holdings Obligations.
Section 19.3. Reinstatement. (a) Parent agrees that the Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance, or any part thereof, on any Obligation (including any payment pursuant to the Guarantee) is rescinded or must otherwise be restored by Licensor upon the bankruptcy or reorganization of Licensee or otherwise.
(b) Holdings agrees that the Holdings Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance, or any part thereof, on any Holdings Obligation (including any payment pursuant to the Holdings Guarantee) is rescinded or must otherwise be restored by Licensee upon the bankruptcy or reorganization of any Licensor or otherwise.
Section 19.4. Waiver of Subrogation; Subordination. (a) Parent shall have no right of subrogation, reimbursement or indemnity whatsoever, nor any right of recourse to security for the Obligations, except when and so long as all of the Obligations have been fully paid, performed and observed, and have not been reinstated by reason of the avoidance of any transfer, the return of any payment, or otherwise. All present and future debts, obligations and liabilities of Licensee to Parent are hereby waived and postponed in favor of and subordinated to the full payment, performance and observance of the Obligations, and Parent agrees to assign and deliver to Licensor on request, as security for the Guarantee, (a) any such debts, obligations or liabilities, (b) any instruments or documents evidencing the same, (c) any security therefor and (d) any payments or transfers with respect thereto, or recoveries on security therefor, received by Parent after default under any of the Obligations.
(b) Holdings shall have no right of subrogation, reimbursement or indemnity whatsoever, nor any right of recourse to security for the Holdings Obligations, except when and so long as all of the Holdings Obligations have been fully paid, performed and observed, and have not been reinstated by reason of the avoidance of any transfer, the return of any payment, or otherwise. All present and future debts, obligations and liabilities of Licensor to Holdings are hereby waived and postponed in favor of and subordinated to the full payment, performance and observance of the Holdings Obligations, and Holdings agrees to assign and deliver to Licensee on request, as security for the Holdings Guarantee, (a) any such debts, obligations or liabilities, (b) any instruments or documents evidencing the same, (c) any security therefor and (d) any payments or transfers with respect thereto, or recoveries on security therefor, received by Holdings after default under any of the Holdings Obligations.
Section 19.5. Successors and Assigns. (a) The benefit of the Guarantee shall run to Licensor and its heirs, personal representatives, successors and assigns. The burden of the Guarantee shall bind Parent and its heirs, personal representatives, successors and assigns. The Guarantee shall apply to the Obligations of Licensee and of Licensee's heirs, personal representatives, successors and assigns, including the successor to Licensee upon any merger, consolidation, liquidation or dissolution of Licensee and, including any transferee of all or substantially all of the assets of Licensee to any Person which carries on the business of Licensee.
(b) The benefit of the Holdings Guarantee shall run to Licensee and its heirs, personal representatives, successors and assigns. The burden of the Holdings Guarantee shall bind Holdings and its heirs, personal representatives, successors and assigns. The Holdings Guarantee shall apply to the Holdings Obligations of Licensor and of Licensor's heirs, personal representatives, successors and assigns, including the successor to any Licensor upon any merger, consolidation, liquidation or dissolution of Licensor and, including any transferee of all or substantially all of the assets of any Licensor to any Person which carries on the business of any Licensor.
ARTICLE XX
MISCELLANEOUS
Section 20.1. Information Transmission. Each party shall use commercially reasonable efforts to provide all statements and other information required to be provided to the other party pursuant to this Agreement in the format and medium reasonably requested by the other party.
Section 20.2. Notices. All notices, requests, claims, demands, waivers and
other communications under this Agreement shall be in writing and shall be by
facsimile, courier services or personal delivery to the applicable addresses set
forth on Schedule B, or at such other address as may be designated from time to
time by a party in accordance with this Section 20.2 (in which case Schedule B
shall be updated to reflect such new address and an updated copy of Schedule B
shall be attached hereto). All notices and communications under this Agreement
shall be deemed to have been duly given (a) when delivered by hand, if
personally delivered, (b) when sent, if sent by facsimile, with an
acknowledgement of sending being produced by the sending facsimile machine or
(c) by one Business Day after when delivered to a courier, if delivered by
commercial one-day overnight courier service and sent only within the United
States.
Section 20.3. Amendment; Waiver. Any provision of this Agreement may be amended, supplemented, modified or waived if, and only if, such amendment, supplement, modification or waiver is in writing and signed, in the case of an amendment, supplement or modification, by Licensee and Licensor or, in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 20.4. Expenses. Except as otherwise expressly provided herein, each party will bear its own fees and expenses incident to this Agreement and the transactions contemplated hereby.
Section 20.5. GOVERNING LAW; JURISDICTION; VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY PRINCIPLES OR
RULES OF CONFLICTS OF LAW THAT WOULD CAUSE THE APPLICATION OF ANOTHER LAW. EACH
PARTY HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MUST BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK CITY OR OF
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND HEREBY
EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE
PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM
THAT SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS BY NOTICE
IN THE MANNER SPECIFIED IN SECTION 20.2. EACH PARTY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY SUCH ACTION
OR PROCEEDING.
Section 20.6. Relationship of the Parties.
(a) The parties acknowledge that none of Licensee or any sublicensee has been asked by Licensor to pay a direct or indirect franchise fee to Licensor or any Licensor Affiliate. The parties further acknowledge that is not the intent of the parties that Licensor enter into a franchise relationship with Licensee, any Company Affiliate or any of their respective sublicensees, and such rights as Licensor is provided by this Agreement are for the purpose of maintaining the integrity and value of the Licensed Marks, and such rights do not, and are not intended to, permit Licensor to control the business operations of Licensee, any Company Affiliate or any of their sublicensees, notwithstanding that some sublicensees may be Franchisees of Licensee or any Company Affiliate.
(b) The parties further acknowledge and agree that this Agreement does not create a fiduciary relationship between the parties, and each party hereto shall be an independent contractor. The parties are not partners, joint venturers, or agents or in a franchisor-franchisee relationship and nothing in this Agreement is intended by the parties to create, nor shall be construed to place them in, any such relationship.
Section 20.7. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.
Section 20.8. Headings. The headings herein and in the table of contents hereto are for convenience purposes only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions of this Agreement.
Section 20.9. Entire Agreement. This Agreement and the Purchase Agreement, together with the exhibits and schedules referenced herein and therein, the Transition Services Agreement (as defined in the Purchase Agreement) and the other agreements, documents and instruments delivered in connection herewith and therewith, contain the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters.
Section 20.10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which, when taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed or caused this Agreement to be executed as of the date first written above.
SPTC, INC.
By: /s/ William S. Sheridan
-----------------------------------
Name: William S. Sheridan
Title: Vice President
|
SOTHEBY'S HOLDINGS, INC.
By: /s/ William S. Sheridan
-----------------------------------
Name: William S. Sheridan
Title: Executive Vice President and
Chief Financial Officer
|
CENDANT CORPORATION
By: /s/ C. Patterson Cardwell, IV
-----------------------------------
Name: C. Patterson Cardwell, IV
Title: Senior Vice President
|
MONTICELLO LICENSEE CORPORATION
By: /s/ C. Patterson Cardwell, IV
-----------------------------------
Name: C. Patterson Cardwell, IV
Title: Senior Vice President
|