EXHIBIT 10.09
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
BY AND AMONG
CLARANT, INC.,
POTOMAC PARTNERS ACQUISITION LLC,
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
AND
XXXXX X. XXXXXX
XXXXX X. XXXXX
XXXXXX X. XXXXXXXX
XXXXX X. XXXXXXX
XXXX XXXXXXXX
XXXXXX X. XXXXXXX
XXXXX X. XXXXXX
XXXX X. XXXXXXX
XXXXXX XXXXXXX
XXXXXXX XXXXX
DATED: JUNE 1, 1999
TABLE OF CONTENTS
1. THE MERGER.................................................................2
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER.........................2
1.2 EFFECTIVE TIME....................................................2
1.3 CERTIFICATE OF FORMATION, SOLE MEMBER OF SURVIVING COMPANY........2
1.4 EFFECT OF MERGER..................................................3
2. CONVERSION OF MEMBERSHIP INTERESTS, CONVERTIBLE SECURITIES AND OPTIONS.....3
2.1 MANNER OF CONVERSION..............................................3
3. DELIVERY OF MERGER CONSIDERATION...........................................5
3.1 MERGER CONSIDERATION; TENDER......................................5
3.2 TENDER OF COMPANY UNITS...........................................5
3.3 EARN-OUT..........................................................6
3.4 ADDITIONAL CONTINGENT CONSIDERATION...............................6
4. PRE-CLOSING AND CLOSING....................................................7
4.1 PRE-CLOSING.......................................................7
4.2 CLOSING...........................................................7
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MEMBERS..................7
5.1 DUE ORGANIZATION..................................................8
5.2 AUTHORIZATION.....................................................8
5.3 MEMBERSHIP INTERESTS OF THE COMPANY...............................8
5.4 AUTHORITY; NO CONFLICT............................................9
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING...........10
5.6 [RESERVED].......................................................10
5.7 SUBSIDIARIES.....................................................10
5.8 PREDECESSOR STATUS; ETC..........................................10
5.9 SPIN-OFF BY THE COMPANY..........................................10
5.10 FINANCIAL STATEMENTS.............................................10
5.11 LIABILITIES AND OBLIGATIONS......................................11
5.12 ACCOUNTS AND NOTES RECEIVABLE....................................11
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY..........................11
5.14 TRADEMARKS.......................................................12
5.15 LITIGATION AND LEGAL PROCEEDINGS.................................13
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5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.........................14
5.17 EMPLOYEE BENEFITS................................................14
5.18 INSURANCE POLICIES...............................................18
5.19 ENVIRONMENT......................................................20
5.20 LABOR AND EMPLOYMENT MATTERS.....................................21
5.21 PERSONAL PROPERTY................................................22
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS........23
5.23 REAL PROPERTY....................................................25
5.24 TAXES............................................................25
5.25 BUSINESS CONDUCT.................................................28
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.............................30
5.28 RELATIONS WITH GOVERNMENTS.......................................30
5.29 DISCLOSURE.......................................................31
5.31 AFFILIATE TRANSACTIONS...........................................32
5.32 MISREPRESENTATION................................................32
5.33 BROKERS..........................................................32
5.34 AUTHORITY; OWNERSHIP.............................................33
5.35 PREEMPTIVE RIGHTS................................................33
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK.........................33
5.37 TENDER...........................................................33
5.38 INVESTOR QUESTIONNAIRES..........................................33
6. REPRESENTATIONS OF CLARANT AND NEWCO......................................33
6.1 DUE ORGANIZATION.................................................33
6.2 AUTHORIZATION....................................................34
6.3 TRANSACTION NOT A BREACH.........................................34
6.4 MISREPRESENTATION................................................34
6.5 CAPITAL STOCK....................................................34
6.6 SUBSIDIARIES.....................................................35
6.7 LIABILITIES AND OBLIGATIONS......................................35
6.8 CONFORMITY WITH LAW; LITIGATION..................................35
6.9 VALIDITY OF OBLIGATIONS..........................................35
6.10 CLARANT COMMON STOCK.............................................35
6.11 NO SIDE AGREEMENTS...............................................36
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS.....................36
6.13 NO VIOLATIONS....................................................36
6.14 ABSENCE OF CHARGES...............................................36
6.15 TAXES............................................................37
7. COVENANTS PRIOR TO CLOSING................................................38
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7.1 ACCESS AND COOPERATION; DUE DILIGENCE............................38
7.2 CONDUCT OF BUSINESS PENDING CLOSING..............................38
7.3 PROHIBITED ACTIVITIES............................................39
7.4 NO SHOP..........................................................41
7.5 NOTICE TO BARGAINING AGENTS......................................41
7.6 AGREEMENTS.......................................................41
7.7 NOTIFICATION OF CERTAIN MATTERS..................................41
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.............42
7.9 FINAL FINANCIAL STATEMENTS.......................................43
7.10 FURTHER ASSURANCES...............................................43
7.11 AMENDMENT OF SCHEDULES...........................................43
7.12 THIRD PARTY APPROVALS............................................44
7.13 HSR FILING.......................................................44
7.14 AUTHORIZED CAPITAL STOCK.........................................44
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND THE COMPANY........44
8.1 REPRESENTATIONS AND WARRANTIES...................................45
8.2 PERFORMANCE OF OBLIGATIONS.......................................45
8.3 NO LITIGATION....................................................45
8.4 OPINION OF COUNSEL...............................................45
8.5 REGISTRATION STATEMENT...........................................45
8.6 CONSENTS AND APPROVALS...........................................46
8.7 GOOD STANDING CERTIFICATES.......................................46
8.8 SECRETARY'S CERTIFICATE..........................................46
8.9 HSR ACT..........................................................46
8.10 CLOSING OF THE IPO...............................................46
8.11 EMPLOYMENT AGREEMENTS............................................46
8.12 LISTING..........................................................46
8.13 TAX OPINION......................................................46
8.14 BOARD OF DIRECTORS...............................................47
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO..................47
9.1 REPRESENTATIONS AND WARRANTIES...................................47
9.2 PERFORMANCE OF OBLIGATIONS.......................................47
9.3 NO LITIGATION....................................................47
9.4 COMPANY AND MEMBER REPRESENTATIONS...............................48
9.5 NO MATERIAL ADVERSE EFFECT.......................................48
9.6 TERMINATION OF RELATED PARTY AGREEMENTS..........................48
9.7 OPINION OF COUNSEL...............................................48
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9.8 CONSENTS AND APPROVALS...........................................48
9.9 GOOD STANDING CERTIFICATES.......................................48
9.10 REGISTRATION STATEMENT...........................................48
9.11 EMPLOYMENT AGREEMENTS............................................49
9.12 CLOSING OF IPO...................................................49
9.13 FIRPTA CERTIFICATE...............................................49
9.14 [RESERVED].......................................................49
9.15 SATISFACTION.....................................................49
9.16 HSR ACT..........................................................49
9.17 INVESTOR QUESTIONNAIRE...........................................49
9.18 THE MEMBERS' RELEASE.............................................49
10. COVENANTS OF CLARANT AND THE MEMBERS AFTER CLOSING........................49
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT.....................49
10.2 TAX MATTERS......................................................49
10.3 DIRECTORS AND OFFICERS...........................................51
10.4 [RESERVED].......................................................51
10.5 OPTIONS AND CONVERTIBLE SECURITIES...............................51
11. INDEMNIFICATION...........................................................51
11.1 INDEMNIFICATION BY MEMBERS.......................................51
11.2 INDEMNIFICATION BY CLARANT.......................................52
11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS...................53
11.4 TAX CONTESTS.....................................................54
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS........................55
11.6 FAILURE TO GIVE TIMELY NOTICE....................................56
11.7 REDUCTION OF LOSS................................................56
11.8 SUBROGATION......................................................56
11.9 ARBITRATION......................................................56
11.10 EXCLUSIVE REMEDY.................................................57
11.11 LIMITATION AND EXPIRATION........................................57
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS.............58
12. TERMINATION OF AGREEMENT..................................................59
12.1 TERMINATION......................................................59
12.2 LIABILITIES IN EVENT OF TERMINATION..............................59
13. NONCOMPETITION............................................................59
13.1 PROHIBITED ACTIVITIES............................................59
13.2 DAMAGES..........................................................60
13.3 REASONABLE RESTRAINT.............................................60
13.4 SEVERABILITY; REFORMATION........................................61
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13.5 INDEPENDENT COVENANT.............................................61
13.6 MATERIALITY......................................................61
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.................................61
14.1 MEMBERS..........................................................61
14.2 CLARANT AND NEWCO................................................62
14.3 DAMAGES..........................................................63
14.4 SURVIVAL.........................................................63
15. TRANSFER RESTRICTIONS.....................................................63
15.1 TRANSFER RESTRICTIONS............................................63
16. FEDERAL SECURITIES ACT REPRESENTATIONS....................................64
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK.........................64
16.2 COMPLIANCE WITH LAW..............................................64
16.3 ECONOMIC RISK; SOPHISTICATION....................................64
17. REGISTRATION RIGHTS.......................................................65
17.1 PIGGYBACK REGISTRATION RIGHTS....................................65
17.2 REGISTRATION PROCEDURES..........................................65
17.3 UNDERWRITING AGREEMENT...........................................66
17.4 AVAILABILITY OF RULE 144.........................................66
17.5 MARKET STANDOFF..................................................66
18. DEFINITIONS...............................................................66
19. GENERAL...................................................................76
19.1 COOPERATION......................................................76
19.2 SUCCESSORS AND ASSIGNS...........................................76
19.3 ENTIRE AGREEMENT.................................................76
19.4 COUNTERPARTS.....................................................76
19.5 EXPENSES.........................................................76
19.6 NOTICES..........................................................77
19.7 GOVERNING LAW....................................................78
19.8 EXERCISE OF RIGHTS AND REMEDIES..................................78
19.9 TIME.............................................................79
19.10 REFORMATION AND SEVERABILITY.....................................79
19.11 MEMBERS' REPRESENTATIVE..........................................79
19.12 CAPTIONS.........................................................79
19.13 SURVIVAL.........................................................79
19.14 ACCOUNTING TERMS.................................................80
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EXHIBITS AND SCHEDULES
EXHIBIT 1.1 Articles of Merger
EXHIBIT 1.3 Surviving Company Charter Documents
EXHIBIT 2.1(a) Consideration
EXHIBIT 3.3 Contingent Consideration
EXHIBIT 5.2 Member and Manager Approvals
EXHIBIT 5.29(a) Directors and Officers Questionnaire
EXHIBIT 5.29(b) Investor Questionnaires
EXHIBIT 6.1 Clarant Charter Documents
EXHIBIT 8.11 Form of Employment Agreement
EXHIBIT 19.6 Members Addresses and Counsel
SCHEDULE 5.1 Charter Documents and Manager of the Company
SCHEDULE 5.3 Capital Structure of the Company
SCHEDULE 5.4 Consents
SCHEDULE 5.8 Predecessor Status
SCHEDULE 5.9 Spin-Offs
SCHEDULE 5.10 Financial Statements
SCHEDULE 5.11 Liabilities and Obligations
SCHEDULE 5.12 Accounts Receivable
SCHEDULE 5.13 Intellectual Property
SCHEDULE 5.14 Trademarks
SCHEDULE 5.15 Litigation
SCHEDULE 5.16 Compliance with Laws/Permits
SCHEDULE 5.17 Company Plans
SCHEDULE 5.18 Insurance
SCHEDULE 5.19 Environmental
SCHEDULE 5.20 Employees
SCHEDULE 5.21 Personal Property
SCHEDULE 5.22 Material Contracts
SCHEDULE 5.24(g) List of Tax Returns
SCHEDULE 5.24(q) Tax Elections
SCHEDULE 5.25 Business Conduct
SCHEDULE 5.26 Deposit Accounts/Powers of Attorney
SCHEDULE 5.27 Y2K
SCHEDULE 5.31 Affiliate Transactions
SCHEDULE 6.5 Clarant Securities
SCHEDULE 6.7 Liabilities & Obligations
SCHEDULE 6.8 Conformity with Law
SCHEDULE 6.9 Litigation
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SCHEDULE 6.12 Property
SCHEDULE 6.13 Consents
SCHEDULE 9.11 Employment Agreements
SCHEDULE 11.1(f) Additional Indemnification Matters
SCHEDULE 18.1 Registration Statement
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as
of June 1, 1999, by and among CLARANT, INC., a Delaware corporation ("Clarant"),
POTOMAC PARTNERS ACQUISITION LLC, a Delaware limited liability company
("Newco"), POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC, a Delaware limited
liability company (the "Company"), and XXXXX X. XXXXXX, XXXXX X. XXXXX, XXXXXX
X. XXXXXXXX, XXXX XXXXXXXX, XXXXX X. XXXXXXX, XXXXXX X. XXXXXXX, XXXXX X.
XXXXXX, XXXX X. XXXXXXX, XXXXXX XXXXXXX and XXXXXXX XXXXX (the "Members").
WHEREAS, Newco is a limited liability company duly organized and
existing under the laws of the State of Delaware, having been formed on April
30, 1999, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Clarant;
WHEREAS, the Company provides consulting services on e-commerce
strategy, including business planning, organizational design, process redesign,
program management and change management to businesses who, among other things,
conduct commerce through the Internet (the "Business");
WHEREAS, the respective members of Newco and the Company (which
together are hereinafter collectively referred to as "Constituent Companies")
deem it advisable and in the best interests of the Constituent Companies and
their respective members that Newco merge with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware (the "Merger"), and in furtherance thereof have approved the Merger;
WHEREAS, it is the intent of Clarant, Newco, the Company and each of
the Members that upon the completion of the Merger, the Company shall be the
Surviving Company existing as a wholly owned subsidiary of Clarant;
WHEREAS, Clarant plans to enter into other separate agreements
substantially similar to this Agreement (the AOther "greements") with Align
Solutions Corp., Young & Rubicam, Inc., Free Range Media, Inc., Interactive8,
Inc., Integrated Consulting, Inc., Multimedia Resources, LLC, and RSI Group,
Inc. (collectively, the "Other Founding Companies" and together with the
Company, the "Founding Companies"), and their respective principal owners in
order to acquire additional Internet consulting organizations.
WHEREAS, this Agreement and the Other Agreements constitute the
"Clarant Plan of Organization"; Agreement and Plan of Organization
WHEREAS, the Board of Directors of Clarant and Members of the Company
have approved and adopted the Clarant Plan of Organization as an integrated plan
to transfer the
membership interests of the Company and the capital stock and membership
interests, as applicable, of the Other Founding Companies to Clarant under
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Members of the Company and the
members and the boards of directors of each of Clarant and Newco have approved
the Merger, this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. Subject to
satisfaction of the terms and conditions of this Agreement, the Constituent
Companies will cause the Articles of Merger in substantially the form attached
hereto as EXHIBIT 1.1 to be signed, verified and filed with the Secretary of
State of the State of Delaware and stamped receipt copies of each such filing to
be delivered to Clarant on or before the Closing Date.
1.2 EFFECTIVE TIME. At the Effective Time and subject to the terms
and conditions of this Merger and the applicable provisions of the applicable
laws governing mergers in the State of Delaware (the "State LLC Law"), Newco
shall be merged with and into the Company in accordance with the Articles of
Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. At the Effective Time, the effect of the
Merger otherwise shall be as provided in the applicable provisions of the State
LLC Law.
1.3 CERTIFICATE OF FORMATION, SOLE MEMBER OF SURVIVING COMPANY. At
the Effective Time:
(a) the Certificate of Formation of the Surviving Company
shall be amended and restated as permitted under the laws of Delaware and shall
read substantially in the form attached hereto as EXHIBIT 1.3;
(b) the operating agreement of Newco then in effect shall
be the operating agreement of the Surviving Company until amended as provided by
law;
(c) Xxxxxxxxx X. Xxxxxx, the Chief Executive Officer of
Clarant ("Xx. Xxxxxx") shall be the manager of the Surviving Company until his
successor is elected or appointed and qualified in accordance with the terms of
the operating agreement of the Surviving Company; and
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(d) Xxxxx X. Xxxxx shall be the President and Chief
Executive Officer of the Surviving Company, and the other officers of the
Company immediately prior to the Effective Time shall continue as officers of
the Surviving Company in the same capacity or capacities.
1.4 EFFECT OF MERGER. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of each Constituent Company shall continue unaffected and
unimpaired by the Merger, and the Surviving Company shall be fully vested
therewith. At the Effective Time, the separate existence of Newco shall cease
and, in accordance with the terms of this Agreement, the Surviving Company shall
possess all the rights, privileges, immunities, powers and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all other choses in action, and all and every other interest of or belonging
to or due to the Company or Newco shall be taken and deemed to be transferred
to, and vested in, the Surviving Company without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Company as they were of the Company and Newco; and the title to any real estate,
or interest therein, whether by deed or otherwise, under the laws of the state
of organization vested in the Company and Newco, shall not revert or be in any
way impaired by reason of the Merger. The Surviving Company shall thenceforth be
responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Company may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Company, and may be enforced against it to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
2. CONVERSION OF MEMBERSHIP INTERESTS, CONVERTIBLE SECURITIES AND OPTIONS
2.1 MANNER OF CONVERSION. For purposes of converting the issued
and outstanding units of membership interests in the Company ("Company Units")
under this Agreement, the unit holders of the Company shall be divided into two
classes: (A) the first class being unit holders of the Company who qualify as
"accredited investors" under Rule 501(a) of Regulation D promulgated under the
1933 Act ("Accredited Holders") and (B) the second class being unit holders of
the Company who do not qualify as "accredited investors" under Rule 501(a) of
Regulation D promulgated under the 1933 Act ("Non-accredited Holders"). Pursuant
to the provisions of this Section 2.1, each of the Accredited Holders and
Non-accredited Holders shall receive his or her pro rata share of the Merger
Consideration distributed according to the terms of this Section 2.1.
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(a) At the Effective Time, by virtue of the Merger and
without any further action on the part of the holder thereof, each of the
membership interests of the Constituent Corporations shall be automatically
canceled, extinguished and converted as follows:
(i) each issued and outstanding Company Unit
owned by an Accredited Holder immediately prior to the Effective Time shall be
converted into the right to receive (A) that number of shares of Clarant Common
Stock as determined by the appropriate formula set forth on EXHIBIT 2.1(A), and
(B) the amount of cash as determined by the appropriate formula set forth on
EXHIBIT 2.1(A);
(ii) each issued and outstanding Company Unit
owned by a Non-accredited Holder immediately prior to the Effective Time shall
be converted into the right to receive the amount of cash as determined by the
appropriate formula set forth on EXHIBIT 2.1(A);
(iii) each Company Unit that is owned directly or
indirectly by the Company shall be canceled and retired and shall cease to exist
and no stock of Clarant or other consideration shall be delivered in exchange
therefor; and
(iv) each issued and outstanding membership
interest of Newco shall continue to be issued and outstanding and shall be
converted automatically into an equivalent validly issued, fully paid and
non-assessable membership interest in the Surviving Company. Each certificate of
Newco evidencing ownership of any such membership interests shall evidence
ownership of the membership interests of the Surviving Company converted
pursuant to this Agreement.
(b) [Reserved]
(c) All Clarant Common Stock received by the Members
pursuant to this Agreement shall, except for restrictions on resale or transfer
described in Sections 15 and 16 hereof, have the same rights as all the other
shares of outstanding Clarant Common Stock by reason of the provisions of the
Certificate of Incorporation of Clarant or as otherwise provided by the Delaware
General Corporation Law. All voting rights of Clarant Common Stock received by
the Members shall be fully exercisable by the Members, and the Members shall not
be deprived nor restricted in exercising those rights after the Effective Time
of the Merger.
(d) From and after the Effective Time, all Company Units,
Convertible Securities and Options of the Company shall no longer be outstanding
and shall cease to exist, and each certificate or agreement previously
representing any such securities shall represent only the right to receive the
consideration determined according to the formulas provided on EXHIBIT 2.1(A).
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3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER CONSIDERATION; TENDER. At the Closing Clarant shall
deliver to the members of the Company and the holders of Convertible Securities
and vested Options of the Company and the holders of the Company's participation
rights the following consideration (the "Merger Consideration"):
(a) upon the surrender by each of the Company's members
of his or her certificates for Company Units (i) each of the Accredited Holders
shall receive (A) the number of shares of Clarant Common Stock allocable to such
Accredited Holder pursuant to EXHIBIT 2.1(A) and (B) the amount of cash
allocable to such Accredited Holder pursuant to EXHIBIT 2.1(A); and (ii) each of
the Non-accredited Holders shall receive the amount of cash allocable to such
Non-accredited Holder pursuant to EXHIBIT 2.1(A);
(b) The cash portion of the Merger Consideration
allocable to each Accredited Holder or Non-accredited Holder, as the case may
be, shall be paid by wire transfer to the accounts of each holder pursuant to
the wire transfer instructions given on EXHIBIT 19.6. For purposes of this
Section 3.1, a holder's pro rata share shall be determined with respect to the
total number of issued and outstanding Company Units on a Fully-Diluted basis
immediately prior to the Effective Time. For purposes of calculating the Merger
Consideration, "Fully-Diluted" means the total number of Company Units that
would be issued and outstanding assuming the exercise of all issued and
outstanding rights, warrants and vested options and the conversion to Company
Units of all issued and outstanding convertible bonds, debentures and preferred
units.
3.2 TENDER OF COMPANY UNITS.
(a) The Members shall deliver in trust to Xxxxxx, Xxxxxx
& Xxxxxxxxx, counsel to Clarant, at the Pre-Closing the certificates of Company
Units, duly endorsed in blank by each of the Members, or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed by a national or state
chartered bank or other financial institution, and with all necessary transfer
tax and other revenue stamps, acquired at the Members' expense, affixed and
canceled. The Members agree promptly to cure any deficiencies with respect to
the assignments or other documents of assignment with respect to such Company
Units or with respect to the powers accompanying any Company Units.
(b) At the Pre-Closing, the Members shall use
commercially reasonable efforts to cause all members of the Company who are not
signatories to this Agreement to deliver all unit certificates in trust to
Xxxxxx, Xxxxxx & Xxxxxxxxx, counsel to Clarant, the unit certificates
representing Company Units held by such members, duly endorsed in blank by each
of such members, as the case may be, or accompanied by stock powers duly
endorsed in blank, with signatures guaranteed by a national or state chartered
bank or other financial institution, and with all necessary transfer tax and
other revenue stamps, acquired at such members' expense, affixed
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and canceled. The Members shall obtain from such other members of the Company an
agreement promptly to cure any deficiencies with respect to the endorsement of
the unit certificates or other documents of conveyance with respect to such
Company Units or with respect to the stock powers accompanying any Company
Units.
3.3 EARN-OUT. In addition to the Merger Consideration and subject
to the terms of this Section 3.3, Clarant shall deliver contingent consideration
determined according to the formula stated in EXHIBIT 3.3 (the "Contingent
Consideration") to each Person who is a member of the Company as of the Closing
Date, which shall be distributed among the Members as determined by Xxxxx X.
Xxxxx. Each Accredited Holder as of the Closing Date shall be eligible to
receive his or her allocated share of Contingent Consideration in a combination
of Clarant Common Stock and cash. Each Non-accredited Holder as of the Closing
Date shall be eligible to receive his or her allocated share of Contingent
Consideration in cash as provided in EXHIBIT 3.3.
3.4 ADDITIONAL CONTINGENT CONSIDERATION. In addition to the
Contingent Consideration, Clarant will pay to each person who is a member of the
Company as of the Closing Date Additional Contingent Consideration, the amount
of each payment of Additional Contingent Consideration to be determined
according to the following formula, and which shall be distributed among the
Members as determined by Xxxxx X. Xxxxx:
(a) 1.5 times the UAL Revenues earned by Clarant or the
Surviving Company for New Consulting Services performed by Clarant or the
Surviving Company for UAL Corp., PLUS
(b) 0.4 times the UAL Revenues earned by Clarant or the
Surviving Company for New Other Services performed by Clarant or the Surviving
Company for UAL Corp.
Payments of Additional Contingent Consideration will be made within thirty (30)
business days after the completion of Clarant's annual audit for the fiscal
years 1999, 2000, 2001 and 2002. For all purposes under this Agreement, the UAL
Revenues shall not constitute any portion of the revenues of the Company for
purposes of determining the Contingent Consideration, except that for purposes
of determining the Company's payments of Contingent Consideration and Additional
Contingent Consideration, all UAL Revenues from New Consulting Services during
the period of the first tranche of the Contingent Consideration shall be deemed
part of the Contingent Consideration and not part of the Additional Contingent
Consideration. Payments of the Additional Contingent Consideration shall be made
consistently with the principles established in EXHIBIT 3.3 for the payment of
the Contingent Consideration.
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4. PRE-CLOSING AND CLOSING
4.1 PRE-CLOSING. At or prior to the Pre-Closing, the parties shall
take all actions necessary to prepare to (a) effect the Merger (including, if
permitted by applicable state law, the advance filing with the appropriate state
authorities of the Certificate and Articles of Merger and/or Plan of Merger, as
applicable (collectively, the "Merger Documents"), which shall become effective
at the Effective Time) and (b) deliver the Clarant Common Stock and Company
Units, as the case may be, referred to in Article 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the delivery of such interests and the transmission of funds
by wire referred to in Article 3 hereof, each of which actions shall only be
taken upon the Closing Date as herein provided. In the event that there is no
Closing Date and this Agreement terminates, Clarant hereby covenants and agrees
to do all things required by the State LLC Law and all things which counsel for
the Company advise Clarant are required by the State LLC Law in order to rescind
actions effected by the advance filing of the Merger Documents as described in
this Section. The taking of the actions described in clauses (a) and (b) above
(the "Pre-Closing") shall take place the day following the date that the
Registration Statement shall be declared effective by the Securities and
Exchange Commission (the "Pre-Closing Date") at the offices of Xxxxxx, Xxxxxx &
Xxxxxxxxx, 0000 X Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000.
4.2 CLOSING. On the Closing Date: (a) the Merger Documents shall
be or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (b) all transactions
contemplated by this Agreement, including the delivery of Clarant Common Stock
and Company Units, as the case may be, the transmission of funds by wire in an
amount equal to the cash portion of the consideration to be paid according to
EXHIBIT 2.1(A), and (c) all conditions to closing as set forth in Articles 8 and
9 of this Agreement shall have been satisfied. The date on which the actions
described in this Section 4.2 occur shall be referred to as the "Closing Date."
This Agreement shall terminate if the Closing Date has not occurred within
fifteen (15) business days of the Pre-Closing Date. Time is of the essence. The
"Effective Time" shall be the same date as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
MEMBERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
The Company and each of the Members (except for Xxxxxx X. Xxxxxxx,
Xxxxx X. Xxxxxx, Xxxx X. Xxxxxxx, Xxxxxx Xxxxxxx and Xxxxxxx Xxxxx) jointly and
severally represents and warrants to Clarant and Newco that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement, shall be true, accurate and complete at the Pre-Closing Date and the
Closing Date, in each case as modified by any applicable Schedule
7
amendments or supplements pursuant to Section 7.11, and each of the Members
further represents and warrants that, except as contemplated hereby or as
affected by the transaction contemplated hereby, such representations and
warranties shall survive the Closing Date as provided in Article 11:
5.1 DUE ORGANIZATION. The Company is duly organized, validly
existing, and in good standing under the laws of Delaware and has all requisite
power and authority to carry on its operations as they are now being conducted,
to own or use the properties and assets it purports to own or use, and to
perform all of its obligations under the Material Contracts. The Company is duly
qualified to conduct business and own its property and assets as a foreign
entity in good standing under the laws of each state in which either the
ownership or use of properties and assets owned or used by it, or the nature of
the activities conducted by it, requires such qualification and where failure to
do so would have a Material Adverse Effect on its Business taken as a whole.
True and complete copies of the Certificate of Formation and Operating
Agreement, each as amended, of the Company (the "Charter Documents") are all
attached to SCHEDULE 5.1. The Company is not in violation of any Charter
Documents. The minute books and capital account records of the Company, as
heretofore made available to Clarant, are complete in all material respects and
reflect all transactions of the Company. The most recent minutes of the Company,
which are dated no earlier than ten (10) business days prior to the date hereof,
affirm and ratify all prior acts of the Company and of its members and manager
on behalf of the Company in respect of the transactions contemplated hereby.
SCHEDULE 5.1 contains a complete and accurate list of the members and manager of
the Company.
5.2 AUTHORIZATION. The Persons executing this Agreement on behalf
of the Company are duly authorized to execute and deliver this Agreement and to
perform the obligations hereunder. The execution and delivery of this Agreement
by the Company and performance by the Company of its obligations under this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary company action in accordance
with applicable law and the Charter Documents on the part of the Company and the
Members and copies of the respective approvals of the manager and the Members
(certified by the Secretary of the Company to be true, accurate and complete)
are attached hereto as EXHIBIT 5.2. This Agreement constitutes the valid and
binding obligations of the Company and the Members, enforceable against the
Company and the Members in accordance with its terms, subject to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and the application of equitable principles.
5.3 MEMBERSHIP INTERESTS OF THE COMPANY. The respective
designations and numbers of outstanding membership interests and voting rights
of each class of outstanding membership interests and securities convertible,
exercisable or redeemable for membership interests (collectively, "Convertible
Securities"), or rights, warrants, puts, calls or options relating to membership
interests (collectively, "Options") of the Company as of the date of this
Agreement are as set forth on SCHEDULE 5.3 hereto. All of the issued and
outstanding Company Xxxxx,
0
Convertible Securities and Options of the Company are owned by the
Persons listed on SCHEDULE 5.3 and in the amounts and at the applicable exercise
prices set forth thereon, and are owned free and clear of all Encumbrances, and
no other Person (other than Clarant) has any right to acquire any membership
interest in the Company or any of its Subsidiaries. All of the issued and
outstanding Company Units have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Members and were offered, issued, sold and delivered by the Company in
compliance with all applicable state and Federal securities laws concerning the
offering and sale or grant of securities. All of the Options have been duly
authorized and validly issued, are held of record and beneficially by the
respective option holders set forth on SCHEDULE 5.3, and were granted in
compliance with all applicable state and Federal securities laws concerning the
grant of options. Set forth on SCHEDULE 5.3 is a complete list of all the
Company's unit holders' agreements, buy-sell agreements, security subscription
agreements, registration rights agreements, voting agreements, option plans and
agreements and other similar agreements (collectively, "Securities Agreements"),
and a copy of each such agreement is attached thereto. To the Knowledge of the
Company and the Members, there are no breaches or defaults by the Company or the
Members under any of the Company's Securities Agreements.
5.4 AUTHORITY; NO CONFLICT. Except to the extent consents or
approvals are required from third parties or Governmental Authorities (the
"Consents"), the execution, delivery or performance of this Agreement by the
Company will not:
(a) violate or conflict with or result in a breach of any
provision of any Law, permit, judgment, or other decision of any court or other
tribunal or any Governmental Authority binding on the Company or any Subsidiary,
or any of its respective Affiliates, or conflict with or result in the breach of
any of the terms, conditions or provisions thereof;
(b) violate, conflict with or constitute a default under
any of the Charter Documents of the Company or any Subsidiary or of any Material
Contract;
(c) constitute an event that would permit any Person to
terminate any Material Contract or accelerate the maturity of any material
indebtedness or other material obligation;
(d) result in the creation or imposition of any
Encumbrance upon the properties or assets of the Company or any Subsidiary; or
(e) require any authorization, consent, approval,
exemption or other action by, or notice to any court or other tribunal or
Governmental Authority (each a "Governmental Consent").
SCHEDULE 5.4 describes each third party and Governmental Authority Consent.
9
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except
as set forth on SCHEDULE 5.3, (a) no Option, Convertible Security, or commitment
of any kind exists which obligates the Company to issue any of its authorized
but unissued membership interests or its treasury membership interests; and (b)
the Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its Company Units, Convertible Securities or Options or
any interests therein or to pay any dividend or make any distribution in respect
thereof.
5.6 [Reserved]
5.7 SUBSIDIARIES. The Company has no Subsidiaries. The Company
does not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership, limited liability company or other non-corporate entity.
5.8 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 5.8 is a list
of all names of all predecessor companies of the Company, including the names of
any entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from which the Company previously acquired material
assets. Except as disclosed on SCHEDULE 5.8, the Company has not been a
subsidiary or division of another company or a part of an acquisition that was
later rescinded.
5.9 SPIN-OFF BY THE COMPANY. Except as set forth on SCHEDULE 5.9,
there has not been any sale, spin-off, or split-up of material properties or
assets of either the Company or any other person or entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Company ("Affiliates") since January 1, 1997.
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Company has
delivered to Clarant (as SCHEDULE 5.10) copies of the following financial
statements (the "Financial Statements"): audited Balance Sheets, income
statements, statements of members' equity and statements of cash flows at and
for the fiscal years ended December 31, 1997 and 1998 and unaudited Balance
Sheets, income statements, statements of members' equity and statements of cash
flows at and for the interim periods ended March 31, 1999.
(b) Each of the Financial Statements fairly presents
the Company's consolidated financial condition, assets and liabilities as of
their respective dates and the results of operations and cash flows for the
periods related thereto in accordance with GAAP, consistently applied among
the periods which are the subject of the Financial Statements, except
10
unaudited interim financial statements which were or are
subject to normal and recurring year-end adjustments which were not and are not
expected to be material in amount or to require the addition of required
footnotes thereto.
5.11 LIABILITIES AND OBLIGATIONS. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.11) as of the Balance
Sheet Date of (a) all liabilities of the Company in excess of $10,000 not
reflected on the Balance Sheet as of the Balance Sheet Date or otherwise
reflected in the Company Financial Statements at the Balance Sheet Date and (b)
all loan agreements, notes and other material debt obligations (whether secured
or unsecured), indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements to which the Company or any Subsidiary is a
party. Except as set forth on SCHEDULE 5.11, since the Balance Sheet Date,
neither the Company nor any Subsidiary has incurred any material liabilities of
any kind, character and description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
Ordinary Course of Business that will not have a Material Adverse Effect.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.12) of the accounts
and notes receivable of the Company as of the Balance Sheet Date, including any
such amounts which are not reflected on the Balance Sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
Members. Within ten (10) days prior to Closing, the Company shall provide
Clarant (a) an accurate list of all outstanding receivables obtained subsequent
to the Balance Sheet Date and (b) an aging of all such accounts and notes
receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on SCHEDULE 5.12 or as disclosed by
the Company to Clarant in a writing accompanying the A/R Aging Reports, as the
case may be, the Company and the Members have no reason to believe that any such
account, note or other receivable is not or shall not be, collectible in the
amounts shown on SCHEDULE 5.12 (in the case of the accounts and notes receivable
set forth on SCHEDULE 5.12, net of reserves reflected in the balance sheet at
the Balance Sheet Date) and as of the date of the A/R Aging Reports,
respectively.
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) The Company owns or licenses all Intellectual
Property necessary for the Company to conduct its business in the manner
presently conducted, and all material Intellectual Property (other than
Trademarks) owned or used by the Company and/or any Subsidiaries or in which or
to which it has any rights, licenses or immunities are described and set forth
with reasonable particularity in SCHEDULE 5.13 along with material information
as to the ownership thereof or licenses, rights or immunities therein and
registrations thereof;
(b) Except as disclosed in SCHEDULE 5.13:
11
(i) to the Knowledge of the Members and the
Company, the Company and any Subsidiaries have the right and authority to use
all Intellectual Property as is necessary to enable it to conduct and to
continue to conduct all phases of its business in the manner presently conducted
and to the Knowledge of the Company and the Members, the Company and any
Subsidiary has never infringed on, misappropriated, or otherwise conflicted
with, and is not now infringing on, misappropriating or otherwise conflicting
with, any patent or other intellectual property right belonging to any Person;
(ii) neither the Company nor any Subsidiary is a
party to any license agreement or arrangement, not set forth in SCHEDULE 5.13,
whether as licensee, licensor or otherwise, with respect to any Intellectual
Property;
(iii) [Reserved];
(iv) none of the Members, or any of their
Affiliates, owns any of the Intellectual Property used by the Company or any
Subsidiary; and
(v) to the Knowledge of the Members and the
Company, there is no unauthorized use, infringement or misappropriation by any
third party of any Intellectual Property owned by the Company or any Subsidiary.
5.14 TRADEMARKS. Except as disclosed in SCHEDULE 5.14:
(a) all trademarks, service marks, trade dress and trade
names ("Trademarks") used by the Company and/or any Subsidiaries in the conduct
of the Business are described and set forth with reasonable particularity in
SCHEDULE 5.14, along with material information as to the ownership thereof;
(b) all such Trademarks are owned by the Company and/or
any Subsidiaries, except for such as are licensed under licenses referred to in
SCHEDULE 5.14;
(c) to the Knowledge of the Company and the Members, no
such Trademarks are being overtly challenged in any way;
(d) to the Knowledge of the Company and the Members, the
Company has not infringed on nor is it now infringing on any Trademark of or
belonging to another Person; and
(e) to the Knowledge of the Members and the Company,
there is no claim pending or Threatened against the Company with respect to
alleged infringement of any Trademark owned by any Person nor does the operation
or any aspect to its business in the manner in which it has heretofore been
operated or is presently operated give rise to any such infringement.
12
5.15 LITIGATION AND LEGAL PROCEEDINGS.
(a) Except as set forth in SCHEDULE 5.15:
(i) there is no suit, private proceeding,
action, liability or claim (collectively, "Actions") pending or, to the
Company's or the Members' Knowledge, Threatened, against the Company, any
Subsidiary or any Company Plan or any fiduciary of any such Company Plan or to
which the Company or any Subsidiary is otherwise a party or which may have a
Material Adverse Effect on the Company.
(ii) to the Knowledge of the Members and the
Company, each of the Company and any Subsidiaries has given all required notice
of such Actions to the appropriate insurance carrier(s) and/or all such Actions
have in the judgment of the Company's Chief Financial Officer, been fully
reserved for on the Financial Statements. SCHEDULE 5.15 lists the insurer for
each Action covered by insurance or designates each Action, or portion of each
Action, as uninsured and the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy deductibles for
each insured Action;
(iii) no litigation matter (other than workers
compensation claims) to which the Company or any Subsidiary was a party was
resolved, settled or closed during the three years preceding the date of this
Agreement;
(iv) there is no pending Proceeding that has been
commenced by or against the Company or any Subsidiary that relates to or may
materially affect the Business, and, to the Knowledge of the Members and the
Company, no such Proceeding has been Threatened; and
(v) the Company is not subject to any judgment,
Order, or decree of any court or Governmental Authority and, to the Knowledge of
the Company and the Members, none is Threatened. Except as disclosed in SCHEDULE
5.15, neither the Company or any Subsidiary is engaged in any legal action to
recover money due it or for damages sustained by it.
(b) Matters disclosed in SCHEDULE 5.15 shall include the
following information, where applicable:
(i) a summary description of the Action together
with the following:
(1) a list of all relevant
documentation relating thereto;
(2) if known, amounts claimed and any
other action or relief sought; and
13
(3) name of claimant and, if known, all
other parties to the Action.
(ii) the name of each court or agency before
which such Action is pending; and
(iii) the date such Action was instituted.
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.
(a) Except as set forth on SCHEDULE 5.16, the Company and
any Subsidiaries have complied in all material respects with all laws, rules,
regulations, writs, injunctions, decrees, and Orders applicable to it or to the
operation of the Business (collectively, "Laws") and has not received any
written notice of any alleged claim or threatened claim, violation of, liability
or potential responsibility under, any such Law that has not heretofore been
cured and for which there is no remaining liability other than those not having
a Material Adverse Effect.
(b) The Company and any Subsidiaries hold all licenses,
permits and other governmental authorizations (the "Permits") the absence of any
of which could have a Material Adverse Effect, and the Company has delivered to
Clarant an accurate list and summary description (which is set forth on SCHEDULE
5.16) of all such Permits. To the Knowledge of the Company and the Members, the
Permits listed on SCHEDULES 5.16 are valid, and neither the Company nor any
Subsidiary has received any written notice that any Governmental Authority
intends to cancel, terminate or not renew any such Permit. The Company and any
Subsidiaries have conducted and are conducting their Business in compliance with
the requirements, standards, criteria and conditions set forth in the Permits
listed on SCHEDULE 5.16 and are not in violation of any of the foregoing except
where such non-compliance or violation would not have a Material Adverse Effect.
Except as specifically provided in SCHEDULE 5.16, the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company and any
Subsidiaries by, any of the Permits listed on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms
have the meanings set forth below:
"COBRA" means Sections 601-608 of ERISA and Section
4980(B)(8) of the Code.
"Company Other Benefit Obligation" means an Other Benefit
Obligation the Company sponsors or maintains or with respect to which the
Company has or may have liability, in each case with respect to any present or
former employees or manager of the Company.
14
"Company Plan" means all Plans of which the Company is a Plan
Sponsor, or to which the Company otherwise contributes, or in which the
Company's employees have participated, or for which the Company has or may have
any liability (including with respect to previously terminated Plans).
"Company VEBA" means a VEBA whose members include employees of
the Company or any ERISA Affiliate.
"ERISA" means the Employee Retirement Income Security Act of
1974 as amended.
"ERISA Affiliate" means, with respect to the Company, any
other trade or business, whether or not incorporated, that, together with the
Company, would be treated as a single employer under Section 414 of the Code
or ERISA Section 4001.
"Multiemployer Plan" has the meaning given in ERISA Section
3(37) (A).
"Other Benefit Obligations" means all obligations or
arrangements to provide benefits to present or former employees or manager
(other than obligations or arrangements that are Plans). Other Benefit
Obligations include (unless they are Plans) employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, sabbaticals, severance pay policies,
plant closing benefits, salary continuation for disability, consulting, or
other compensation arrangements, workers' compensation, retirement, deferred
compensation, bonus, stock option or purchase, medical insurance, life
insurance, tuition reimbursement or scholarship programs, employee discount
programs, meals, travel, or vehicle allowances, any plans subject to Section
125 of the Code, and any plans providing benefits or payments in the event of
a change of control, change in ownership or effective control, or sale of a
substantial portion of the assets of any business or portion thereof, in each
case with respect to any present or former employees or managers and
excluding any arrangements that, in the aggregate, do not reflect liability
of the Company for more than $25,000.
"Pension Plan" has the meaning given in ERISA Section
3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3),
including plans exempted by ERISA ss. 4(b)(5) or excluded from coverage under
ERISA by 29 CFR Section 2510.3-3(b) as a plan covering only partners,
members, or sole proprietors.
"Plan Sponsor" has the meaning given in ERISA Section
3(16)(B).
15
"Qualified Plan" means any Company Plan that is intended to
meet the requirements of Section 401(a) of the Code.
The "Service" means the Internal Revenue Service.
"VEBA" means a voluntary employees' beneficiary association
under Section 501(c)(9) of the Code.
(b) (i) There are no Company VEBAs; and
(ii) neither the Company nor any ERISA
Affiliate sponsors, maintains or contributes to or has any actual or
potential liability with respect to any now or formerly existing (1)
Multiemployer Plan or (2) Pension Plan subject to Title IV of ERISA or
Section 412 of the Code.
(c) (i) SCHEDULE 5.17 contains a complete and
accurate list of all material Company Plans and material Company Other Benefit
Obligations; and
(ii) SCHEDULE 5.17 contains a complete and
accurate list of all ERISA Affiliates.
(d) Members have provided to Clarant all of the following
documents relating to Company Plans and Company Other Benefit Obligations:
(i) all the documents, if any, that set forth
the terms of each Company Plan and Company Other Benefit Obligation and of any
related trust, including (1) the most recent summary plan descriptions of
Company Plans for which the Company is required to distribute summary plan
descriptions, (2) the most recent, if any, summaries and descriptions furnished
to participants and beneficiaries regarding Company Plans and Company Other
Benefit Obligations for which a summary plan description is not required (and
all forms of COBRA notices), and (3) amendments, if any, to each of the
foregoing;
(ii) all personnel and employment manuals and
policies;
(iii) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in writing and that is
listed on SCHEDULE 5.17;
(iv) the Form 5500 or 5500 C/R, if any, filed in
each of the most recent two plan years (or three, if the most recent two
5500C/Rs do not include a 5500C) with respect to each Company Plan, including
all schedules thereto;
16
(v) all material notices that were given, with
respect to a Company Plan or Other Company Benefit Obligation, by the Service,
Department of Labor, or other governmental agency to the Company or any Company
Plan within the two years preceding the date of this Agreement (and any earlier
material notices relating to matters not resolved as of the date of this
Agreement); and
(vi) with respect to Qualified Plans, (I) the
most recent determination regarding qualification and, if different, the most
recent determination letter that covered the qualification of the entire plan,
or (II) if applicable, the most recent opinion letter issued by the Service with
respect to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its
material obligations under all Company Plans and Company Other Benefit
Obligations;
(ii) the Company, with respect to all Company
Plans and Company Other Benefit Obligations is, and each Company Plan and
Company Other Benefit Obligation is, in material compliance with ERISA, the
Code, federal and state securities laws and other applicable Laws and with the
terms of each Company Plan and Company Other Benefit Obligation;
(iii) no transaction prohibited by ERISA
Section 406 and no "prohibited transaction" under Section 4975(c) of the Code
have occurred with respect to any Company Plan that could give rise to
liability against the Company in excess of $25,000;
(iv) the Company has no liability to the Service
with respect to any Plan that would have a Material Adverse Effect;
(v) the Company has no liability with respect to
any Plan under ERISA Section 502(i) that would have a Material Adverse Effect;
(vi) a determination letter, or, if applicable,
an opinion letter, has been issued by the Service with respect to each Qualified
Plan;
(vii) since December 31, 1998, there has been no
establishment or amendment of any Company Plan or Company Other Benefit
Obligation that would increase the liability of the Company by more than
$25,000;
(viii) other than routine claims for benefits
submitted by participants or beneficiaries, no claim against, or legal
proceeding involving, any Company Plan or Company Other Benefit Obligation is
pending or, to Members' or the Company's Knowledge, is
17
Threatened. No Company Plans or Company Other Benefit Obligations are, to the
Company's Knowledge, presently under audit or examination (nor has notice been
received of a potential audit or examination) by the Service, the Department of
Labor, or any other governmental agency, and no matters are pending with respect
to any Company Plan under the Service's Employee Plans Compliance Resolutions
System or any successor or predecessor program;
(ix) no Company Plan or Company Other Benefit
Obligation provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service other than (1) coverage
mandated by applicable law, (2) death benefits or retirement benefits under any
Company Plan that is a Pension Plan, (3) deferred compensation benefits in the
form of cash, (4) benefits, the full cost of which is borne by the current or
former employee (or his beneficiary), or (5) insured disability benefits;
(x) no Company Plan or Company Other Benefit
Obligation contains any provision that would prohibit the transactions
contemplated by this Agreement or that would give rise to any acceleration or
vesting of benefits, severance, termination or other payments or liabilities as
a result of the transactions contemplated by this Agreement; and the Company has
not declared or paid any bonus or incentive compensation in contemplation of the
transactions contemplated by this Agreement;
(xi) all group health plans of the Company and
its ERISA Affiliateshave been operated in material compliance with the
requirements of COBRA and Section 5000 of the Code and the Health Insurance
Portability and Accountability Act.
(xii) the only Qualified Plan is the Potomac
Partners 401(k) Plan. The Company has never maintained or contributed to other
Qualified Plans. No Company Plan contains any security issued by the Company or
any ERISA Affiliate; each Qualified Plan of the Company is and has always been
in substantial compliance with Section 401(a) of the Code; and
(xiii) the Company has paid all amounts it is
required to pay as contributions to the Company Plans as of the last day of the
most recent fiscal year of each of the plans ended before the date of this
Agreement; all benefits accrued under any unfunded Company Plan or Company Other
Benefit Obligation will have been paid, accrued, or otherwise adequately
reserved to the extent required by GAAP as of the date of this Agreement.
5.18 INSURANCE POLICIES.
(a) The Company has made available to Clarant:
18
(i) true and complete copies of all policies of
insurance to which the Company or any Subsidiary is a party or any manager of
the Company is or has been covered at the expense of the Company;
(ii) true, accurate and complete copies of all
pending applications by the Company for policies of insurance; and
(iii) any written statement by the auditor of the
Company's Financial Statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) The Company does not have any of the following
insurance arrangements:
(i) any self-insurance arrangement by or
affecting the Company;
(ii) any monopolistic workers' compensation
schemes applicable to the Company;
(iii) any contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk by the Company; and
(iv) any obligations of the Company to third
parties with respect to insurance (including such obligations under leases and
service agreements).
(c) SCHEDULE 5.18 sets forth, by year, for the current
policy year and each of the preceding two policy years:
(i) a summary of the loss experience under each
policy; and
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $50,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by
insurer, type of insurance, and period of coverage; and
(C) the amount and a brief description
of the claim.
(d) Except as set forth in SCHEDULE 5.18:
19
(i) all insurance policies to which the Company
or any Subsidiary is a party or that provide coverage to Members, or any
director or officer of the Company or any Subsidiary:
(A) are valid, outstanding, and
enforceable;
(B) are issued by an insurer that the
Company believes is financially sound and reputable;
(C) taken together, in the Company's
belief, provide adequate insurance for the properties, assets and the Business
for all risks normally insured against by a Person carrying on the same or
similar business or businesses as the Company;
(D) comply with the insurance
requirements of all Laws and Contracts to which the Company and/or any
Subsidiary is a party or by which it is bound; and
(E) do not provide for any
retrospective premium adjustment or other experience-based liability on the part
of the Company and/or any Subsidiary;
(ii) neither the Company nor any Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and any Subsidiaries has
paid all premiums due and has otherwise performed all of its obligations under
each policy to which the Company or any Subsidiary is a party or that provides
coverage to the Company, any Subsidiary, or member thereof; and
(iv) except as set forth in SCHEDULE 5.18 the
Company and each Subsidiary have given notice to the insurer of all claims that
may be insured thereby.
5.19 ENVIRONMENT.
(a) Except as set forth in SCHEDULE 5.19:
(i) the Company is, and at all times has been,
in material compliance with, and has not been, and is not, in material violation
of, or materially liable under, any Environmental Law; and
20
(ii) with respect to Permits required by, and
notices or application required by, the Environmental Laws, the Company
possesses all such Permits and has filed all such notices and applications the
absence of which would have a Material Adverse Effect on the Company.
(b) Except as disclosed in SCHEDULE 5.19:
(i) the Company has not been subject to, or
received any, notice of any Action or intended Action relating to the presence
or alleged presence of Hazardous Materials in, under, or upon any real estate
currently or formerly owned, leased or used by (A) the Company, or (B) any other
Person with respect to Hazardous Materials disposed of by or on behalf of the
Company;
(ii) the Company and Members have no Knowledge of
any basis for any such notice or Action; and
(iii) there are no pending or, to the Knowledge of
the Members and the Company Threatened, Actions (or notice of potential actions
or proceedings) from any Governmental Authority or any other entity against or
applicable to the Company regarding any matter relating to health or protection
of the Environment.
(c) There are, and have been, no past or present events,
conditions, circumstances, activities, practices, incidents, or actions that
could reasonably be expected to interfere with or prevent the Company's or any
Subsidiary's continued compliance with any Environmental Law, give rise to any
material legal obligation or material liability, or otherwise form the basis of
any Action, hearing or investigation against or involving the Company or any
Subsidiary or any real estate presently or previously owned or used by the
Company or any Subsidiary under any of the Environmental Law or related common
law theories, except as identified in SCHEDULE 5.19.
(d) To the Knowledge of the Members and the Company, the
Company does not and never has disposed of any hazardous materials off-site, and
does not employ or use, and never has employed or used, any off-site waste
disposal organization, hauler, transporter or cartage organization to dispose of
Hazardous Materials to any off-site waste disposal location on behalf of the
Company or any Subsidiary.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of and service providers to the Company and
any Subsidiary:
(a) [Reserved]
21
(b) the Company is complying and has complied in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and no claims or investigations
are pending or, to the Company's Knowledge, Threatened with respect to such
laws, either by private individuals or by Governmental Authority;
(c) the Company has not and is not engaged in any unfair
labor practice, and there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Company pending or, to the
Company's Knowledge, Threatened, before the National Labor Relations Board or
any other comparable authority;
(d) no labor union represents or has ever represented the
Company's employees and no collective bargaining agreement is or had been
binding against the Company. The Company is not currently negotiating to enter
into such agreements. No grievance or arbitration proceeding arising out of or
under collective bargaining agreements or employment relationships is pending,
and no claims therefor exist or have, to the Company's Knowledge, been
Threatened;
(e) no labor strike, lock-out, slowdown, or work stoppage
is or has ever been pending or Threatened against or directly affecting the
Company;
(f) all Persons who are or were performing services for
the Company and are or were classified as independent contractors do or did
satisfy and have satisfied the requirements of law to be so classified, and the
Company has fully and accurately reported their compensation on the Service's
Form 1099 when required to do so; and
(g) SCHEDULE 5.20 hereto sets forth an accurate list, as
of the date hereof, of all employees of the Company who earned more than $75,000
in 1998 or are expected to earn that level in 1999, and lists all employment
agreements with such employees, and the officers and members of the Company and
the rate of compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such Person as of (a) the
Balance Sheet Date and (b) the date hereof.
5.21 PERSONAL PROPERTY.
(a) The Company has delivered to Clarant (a) an accurate
list (which is set forth on SCHEDULE 5.21) of (i) all personal property included
(or that will be included) in "depreciable plant, property and equipment" (or
similarly named line item) on the balance sheet of the Company at the Balance
Sheet Date, (ii) all other personal property owned by the Company or any
Subsidiary with a value individually in excess of $10,000 (A) at the Balance
22
Sheet Date and (B) acquired since the Balance Sheet Date, and (iii) all leases
and agreements in respect of personal property, together with a listing of the
capital costs of all such properties and assets which are subject to capital
leases.
(b) Except as set forth on SCHEDULE 5.21, (i) all personal
property with a value individually in excess of $10,000 used by the Company or
any Subsidiary in its business is either owned by the Company or any Subsidiary
or leased by the Company or any Subsidiary pursuant to a lease included on
SCHEDULE 5.21, (ii) all of the personal property listed on SCHEDULE 5.21 is in
good working order and condition, ordinary wear and tear excepted, and (iii) all
leases and agreements included on SCHEDULE 5.21 are in full force and effect and
constitute valid and binding agreements of the Company or any Subsidiary, and to
the Company's and the Members' Knowledge, of the parties (and their successors)
thereto in accordance with their respective terms.
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) The Company has delivered to Clarant an accurate list
(which is set forth on SCHEDULE 5.22) of all Significant Customers, it being
understood and agreed that a "Significant Customer," for purposes of this
Agreement, means a customer (or Person) representing 5% or more of the Company's
annual revenues as of the Balance Sheet Date. Except to the extent set forth on
SCHEDULE 5.22, none of the Company's Significant Customers has canceled or
substantially reduced or, to the Knowledge of the Company or any Member, is
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company or any Subsidiary.
(b) The Company has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Company or any Subsidiaries enforceable in accordance
with its terms, and is in full force and effect, subject to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and the application of equitable principles. Except as set forth on
SCHEDULE 5.22, the Company has performed all obligations required to be
performed by it under each Material Contract, and it is not, nor, to the
Knowledge of the Company or any Member, is any other party to any Material
Contract (with or without the lapse of time or the giving of notice, or both) in
breach or default in any material respect thereunder. Neither the Company nor
any Subsidiary has been notified that any party to a Material Contract intends
to cancel, terminate, not renew, or exercise an option under any Material
Contract, whether in connection with the transactions contemplated hereby or
otherwise.
(c) Except as listed or described on SCHEDULE 5.22, the
Company has no Contracts of the types described below:
23
(i) any collective bargaining arrangement with
any labor union or any such agreements currently in negotiation or proposed;
(ii) any contract for capital expenditures or the
acquisition or construction of fixed assets for or in respect to real property
other than in the Ordinary Course of Business in excess of $50,000;
(iii) any contract with a term in excess of one
year for the purchase, maintenance, acquisition, sale or furnishing of
materials, supplies, merchandise, machinery, equipment, parts or other property
or services (except that the Company need not list any such contract made in the
Ordinary Course of Business which requires aggregate future payments of less
than $50,000, and in lieu of providing each individual contract, the Company has
provided to Clarant its standard subcontractor form and a list of each
subcontractor).
(iv) any contract relating to the borrowing of
money, or the guaranty of another Person's borrowing of money, including,
without limitation, all notes, mortgages, indentures and other obligations,
agreements and other instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(v) any contract granting any Person an
Encumbrance on any of the properties or assets of the Company or any Subsidiary,
in whole or in part;
(vi) any contract for the cleanup, abatement or
other actions in connection with Hazardous Materials, the remediation of any
existing environmental liabilities, violation of Environmental Laws or relating
to the performance of any environmental audit or study;
(vii) any contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any material property or asset of the Business of the Company or any Subsidiary,
other than in the Ordinary Course of Business;
(viii) any contract having an original value in
excess of $50,000 under which the Company or any Subsidiary is:
(A) a lessee or sublessee of any
machinery, equipment, vehicle or other tangible personal property or real
property, or
(B) a lessor of any real property or
machinery, equipment, vehicle or other tangible personal property owned by the
Company or any Subsidiary;
(ix) any contract providing for the
indemnification of any officer, director, employee or other Person where such
indemnification may exceed the sum of $50,000;
24
(x) any joint venture or partnership contract;
(xi) any agreement that prohibits the use or
publication by the Company, or could prohibit the use or publication by Clarant
or Newco, of the name of any other party to such contract or prohibits or
restricts the Company or any Subsidiary from freely providing services to any
other customer or potential customer of the Company or any Subsidiary, Clarant,
Newco or any Other Founding Company; or
(xii) a governmental contract subject to price
redetermination or renegotiation.
5.23 REAL PROPERTY. The Company does not now, and never has before,
own or lease any real property anywhere, and does not now, and never has before,
lease any office space anywhere.
5.24 TAXES
(a) Neither the Company nor any Subsidiary is or has been
a member of any affiliated, consolidated, combined, unitary or similar group,
other than a group of which the Company is the common parent;
(b) Except as set forth on SCHEDULE 5.24(G), all Returns
required to have been filed by or with respect to the Company and each of the
Subsidiaries, including Returns of any affiliated, combined, consolidated,
unitary or similar group including the Company or any Subsidiary (each a
"Relevant Group"), have been duly filed, and each such Return correctly and
completely reports the Tax liability and all other material information required
to be reported thereon. Except as set forth on SCHEDULE 5.24(G), all Taxes
(whether or not shown on any Return) owed by the Company, each Subsidiary and
each Relevant Group that are due and payable have been paid;
(c) Except as set forth on SCHEDULE 5.24(G), (i)the
amount of the liability of the Company and the Subsidiaries for unpaid Taxes as
of the Balance Sheet Date did not exceed the current liability accruals for
Taxes (excluding any reserves for deferred Taxes) set forth on the Company
Financial Statements dated as of the Balance Sheet Date; (ii) the amount of the
liability of the Company and the Subsidiaries for unpaid Taxes as of the date of
any financial statements provided pursuant to Section 5.10 will not exceed the
current liability accruals for Taxes (excluding any reserves for deferred Taxes)
set forth on such financial statements; and (iii) the amount of the liability of
the Company and the Subsidiaries for unpaid Taxes as of the Closing Date will
not exceed the current liability accruals for Taxes (excluding any reserves for
deferred Taxes) set forth on the Company Financial Statements dated as of the
Balance Sheet Date, as such accruals are adjusted on the books and records of
the Company and the Subsidiaries through the Closing Date in accordance with
past custom and practice;
25
(d) Neither the Company, any Subsidiary nor any Relevant
Group is a party or subject to any agreement extending the time within which to
file any Return. Except as set forth on SCHEDULE 5.24(G), no claim has ever been
made by any Taxing Authority in any jurisdiction in which the Company or any
Subsidiary does not file Returns that it is or may be subject to taxation by
that jurisdiction;
(e) The Company and each Subsidiary has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and record-keeping requirements with respect to, any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(f) Except as set forth on SCHEDULE 5.24(G), no Tax
Proceedings are presently pending with regard to any Tax Returns or Taxes of the
Company, any Subsidiary or any Relevant Group, and no notice has been received
by the Company or the Members (whether in writing or verbally) of the expected
commencement of a Tax Proceeding. Except as set forth on SCHEDULE 5.24(G), no
issues have been raised in any audit or examination by or with respect to the
Company, any Subsidiary or any member of any Relevant Group which, by
application of similar principles, could be reasonably expected to result in a
proposed deficiency for any other period not so examined;
(g) SCHEDULE 5.24(G) attached hereto lists all material
federal, state, local and foreign income and franchise Tax Returns filed by or
with respect to the Company, each Subsidiary and each Relevant Group for all
Taxable Periods ended on or after January 1, 1991. With respect to each Return,
SCHEDULE 5.24(G) indicates whether the Return that has been examined and closed,
is presently subject to examination or is a Return with respect to which the
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired. The Members have made available to Clarant complete and
correct copies of all federal, state, local and foreign income and franchise Tax
Returns filed by or with respect to, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, the Company, each
Subsidiary and each Relevant Group since January 1, 1991;
(h) Neither the Company nor any Subsidiary nor any
Relevant Group has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency;
(i) [Reserved]
(j) Neither the Company nor any Subsidiary (i) is a party
to any Tax allocation, Tax indemnity, tax sharing agreement, or any similar
arrangement pursuant to which it has agreed to be liable for Taxes of any other
Person or (ii) has any liability for Taxes of any other Person (A) as a
transferee or successor or (B) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law);
26
(k) None of the assets owned or used by the Company or
any Subsidiary constitutes tax exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code. Neither the Company nor
any Subsidiary is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax Reform
Act of 1986, or to any "long term contract" within the meaning of Section 460 of
the Code;
(l) Neither the Company nor any Subsidiary has disposed
of any property in a transaction being accounted for under the installment
method pursuant to Section 453 of the
Code;
(m) [Reserved]
(n) The Company has been a partnership for U.S. federal
income tax purposes at all times since its formation up to and including the
Closing Date. No person has ever elected that the Company be treated as an
association for federal income tax purposes under Treasury Regulations Section
301.7701-3. Except as stated in the preceding sentences of this subsection,
neither the Company nor any Subsidiary is a party to any joint venture or
partnership;
(o) Neither the Company nor any Subsidiary will be
required to include any adjustment in taxable income in any Taxable Period
ending after the Closing Date under Section 481 of the Code (or any similar
provision of the Tax laws of any jurisdiction) as a result of any change in any
method of accounting occurring in a Taxable Period ending on or before the
Closing Date. No Taxing Authority has proposed any such change in any accounting
method. The Company and each Subsidiary presently use the cash method of
accounting for income Tax purposes;
(p) Neither the Company nor any Subsidiary nor any member
of any Relevant Group has received any written ruling of a Taxing Authority
relating to Taxes or has entered into any closing agreement or similar written
binding agreement with a Taxing Authority relating to Taxes;
(q) SCHEDULE 5.24(Q) sets forth all elections affecting
the Company or any Subsidiary with respect to (1) the qualified subchapter S
status of the Company, (2) the qualified subchapter S subsidiary status of any
Subsidiary, (3) any election made under Section 338 of the Code, (4) the
classification of the Company or any Subsidiary under Treasury Regulations
Section 301.7701-3, (5) any material change in method of accounting, and (6) net
operating and loss limitations as a result of any member leaving a consolidated
group;
(r) There are no liens or other encumbrances on any of
the assets of the Company or any Subsidiary relating or attributable to Taxes
(other than liens for Taxes not yet delinquent);
27
(s) The Company is not an investment company as defined
in Section 721(b) of the Code;
(t) None of the Members is a party to or bound by any
agreement or arrangement pursuant to which such Member will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by such
Member pursuant to this Agreement; and
(u) None of the Members is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code.
5.25 BUSINESS CONDUCT. Except as set forth on SCHEDULE 5.25, since
the Balance Sheet Date, the Company and any Subsidiaries have conducted the
Business only in the Ordinary Course of Business. Except as forth on SCHEDULE
5.25, since the Balance Sheet Date, there has not been any:
(a) change in the Company's business, operations,
financial condition, operating results, assets or liabilities that would have
a Material Adverse Effect on the Company;
(b) damage, destruction or loss of any real or
personal property or assets owned or leased by the Company or any Subsidiary
or used in the operation of the Business, whether or not covered by
insurance, having a replacement cost in excess of $50,000;
(c) voluntary or involuntary sale, transfer,
surrender, abandonment or other disposition of any kind by the Company or any
Subsidiary of any assets or property rights (real or personal, tangible or
intangible), having a replacement cost or fair market value in excess of
$50,000, except in each case the sale of inventory and collection of accounts
in the Ordinary Course of Business;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might
reasonably be expected to have a Material Adverse Effect;
(e) material loan or advance by the Company or any
Subsidiary to any party other than sales to customers on credit in the
Ordinary Course of Business or travel advances to employees of the Company
made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material
liability, potential liability or claimed liability relating to the
Environment;
(g) declaration, setting aside, or payment of any
dividend or other distribution in respect to the Company's capital stock,
Convertible Securities or Options, any direct or indirect redemption,
purchase, or other acquisition of such stock, or the payment of principal or
28
interest on any note, bond, debt instrument or debt other than as required to be
paid under the terms of such instrument;
(h) incurrence of debts, liabilities or obligations
(except current liabilities incurred in connection with or for services
rendered or goods supplied in the Ordinary Course of Business, liabilities on
account of Taxes and governmental charges (but not penalties, interest or
fines in respect thereof), and obligations or liabilities incurred by virtue
of the execution of this Agreement);
(i) issuance by the Company or any Subsidiary of any
notes, bonds, or other debt securities or instruments or any equity
securities or securities convertible into or exchangeable for any equity
securities;
(j) cancellation, waiver or release by the Company or
any Subsidiary of any material debts, liabilities, obligations, rights or
claims, except in each case in the Ordinary Course of Business;
(k) amendment of the Company's Charter Documents;
(l) amendment or termination of any Material Contract,
other than expiration of such contract in accordance with its terms;
(m) change in accounting principles, methods or
practices (including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company or any Subsidiary;
(n) discharge or satisfaction of any material
liability, encumbrance or payment of any material obligation or liability,
other than current liabilities paid in the Ordinary Course of Business or
cancellation of any debts or claims;
(o) sale or assignment by the Company or any
Subsidiary of any properties or assets other than in the Ordinary Course of
Business;
(p) capital expenditures or commitments therefor by
the Company or any Subsidiary other than in the Ordinary Course of Business
or in excess of $100,000 in the aggregate;
(q) charitable contributions or pledges by the Company
or any Subsidiary in excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any
property or asset of the Company or any Subsidiary other than in the Ordinary
Course of Business;
29
(s) adoption, amendment or termination of any employee
benefit or pension plan; or
(t) increase in the benefits provided under any employee
benefit pension plan
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.
(a) The Company has delivered to Clarant an accurate
schedule (which is set forth on SCHEDULE 5.26) as of the date of this Agreement
of:
(i) the name of each financial institution in
which the Company or any Subsidiary has accounts or safe
deposit boxes;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of account and account number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
(b) SCHEDULE 5.26 also sets forth the name of each
Person, corporation, firm or other entity holding a general or special power of
attorney from the Company or any Subsidiary and a description of the terms of
such power of attorney.
5.27 YEAR 2000 COMPLIANCE. The Company has investigated and
reviewed the areas within its business and operations and determined, to the
Knowledge of the Company, after due inquiry of the Company's vendors, that,
except as set forth on SCHEDULE 5.27, all computer systems, software and
hardware used in or relied on for the business and operations of the Company are
able to accurately process date data, including calculating, comparing and
sequencing from, into and between the twentieth century without human
intervention (through year 1999), the year 2000, and the twenty-first century,
including leap year calculations ("Year 2000 Compliant"). To the Knowledge of
the Company and the Members, the Company's vendors whose failure to perform
under any contract, agreement or other understanding with the Company could have
a Material Adverse Effect, are or will be Year 2000 Compliant before December
31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. Neither the Company nor any
Subsidiary has made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would cause the Company or any
Subsidiary to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
30
5.29 DISCLOSURE.
(a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and Investor
Questionnaires attached hereto respectively as EXHIBIT 5.29(a) and EXHIBIT
5.29(b) and all other documents and information made available to Clarant and
its representatives in writing pursuant hereto or thereto, present fairly the
Business of the Company and any Subsidiaries for the time periods with respect
to which such information was requested. The Company's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no statement made herein would be rendered untrue in any material
respect by, any other document to which the Company, any Subsidiary or any
officer, manager or Member is a party, or to which its properties or assets are
subject, or by any other fact or circumstance regarding the Company and any
Subsidiaries (which fact or circumstance was known to the Company or a Member)
that is not disclosed pursuant hereto or thereto. If, prior to the 25th day
after the date of the final prospectus of Clarant utilized in connection with
the IPO, the Company or the Members become aware of any fact or circumstance
which would change (or, if after the Closing Date, would have changed) a
representation or warranty of the Company or the Members in this Agreement or
would affect any document delivered pursuant hereto in any material respect, the
Company and the Members shall immediately give notice of such fact or
circumstance to Clarant. However, subject to the provisions of Section 7.11,
such notification shall not relieve either the Company or the Members of their
respective obligations under this Agreement, and, subject to Section 7.11, the
truth and accuracy of any and all warranties and representations of the Company,
or on behalf of the Company and of the Members at the date of this Agreement by
Clarant and Newco and on the Pre-Closing Date and on the Closing Date, shall be
a precondition to the consummation of this transaction.
(b) The Company and the Members acknowledge and agree:
(i) that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither Clarant or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Members or any other Person affiliated or associated with the Company for any
failure of the Registration Statement to become effective, the IPO to occur at a
particular price or within a particular range of prices or to occur at all; and
(iii) that the decision of the Members to enter into this Agreement, or to vote
in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, agent of Clarant or the prospective
IPO; provided however that the Company and the Members retain the right to
require as a condition to Closing that the price of Clarant Common Stock sold in
the IPO be no lower than the minimum IPO price specified on EXHIBIT 2.1(a).
31
5.30 WARRANTIES; PRODUCTS. The Company has never given to any
customer or client any warranty or guaranty of any kind in connection with the
sale, distribution, or providing of its services and no customer or client of
the Company has raised any claim against the Company relating to the Company's
services.
5.31 AFFILIATE TRANSACTIONS. SCHEDULE 5.31 sets forth the parties
to and the date, nature and amount of (a) each transaction involving the
transfer of any cash, securities, property, assets or rights in which the amount
involved individually or collectively exceeded $60,000 to or from the Company or
any Subsidiary from, to, or for the benefit of any officer, director or family
member thereof or any other Affiliate or former Affiliate of the Company
("Affiliate Transactions") during the period commencing January 1, 1996, through
the date hereof and (b) any existing commitments of the Company or any
Subsidiary to engage in the future in any Affiliate Transactions. Each Affiliate
Transaction was effected on terms equivalent to those which would have been
established in an arms-length negotiation, except as disclosed on SCHEDULE 5.31.
5.32 MISREPRESENTATION. To the Knowledge of the Company and the
Members, none of the representations and warranties set forth in this Agreement
or in any of the certificates, schedules, exhibits, lists, documents or other
instruments delivered, or to be delivered, by the Company or the Members as
contemplated by any provision hereof, taken as a whole, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
5.33 BROKERS. Neither the Company nor the Members have any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
Clarant, Newco or the Surviving Company could become liable or obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
Each Member individually and severally represents and warrants to
Clarant and Newco that the representations and warranties set forth in this
Section 5(B) are true, accurate and complete as of the date of this Agreement
and, subject to Section 7.11, shall be true, accurate and complete at the time
of the Pre-Closing and on the Closing Date, and that the representations and
warranties set forth in Sections 5.34, 5.35 and 5.36 shall survive the Closing
Date as provided in Article 11:
5.34 AUTHORITY; OWNERSHIP. Such Member has the full legal right,
power and authority to enter into this Agreement and constitutes the valid and
binding obligation of each Member, enforceable in accordance with its terms.
Such Member owns beneficially and of record all of the Company Units identified
on SCHEDULE 5.3 as being owned by such Member, and, except as set forth on
SCHEDULE 5.3, such Company Units is owned free and clear of all Encumbrances.
32
5.35 PREEMPTIVE RIGHTS. Such Member does not have, or hereby
waives, any preemptive or other right to acquire Company Units or Clarant
Stock that such Member has or may have had other than rights of any Member to
acquire Clarant Stock pursuant to (i) this Agreement or (ii) any Option
granted by Clarant.
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK. No Member has any
current plan or intention, or is under any binding commitment or contract, to
sell, exchange or otherwise dispose of Company Units, Convertible Securities or
Options or any Clarant Stock to be received or received pursuant to Section 3.1
or 3.3.
5.37 TENDER. Such Member has full power and authority to tender,
sell, assign, and transfer the Company Units owned by such Member to Clarant
pursuant to this Agreement, that there is no Person who holds any right of
first offer, right of first refusal, right under any membership agreement or
otherwise that can prevent, or otherwise delay, the transfer of Company Units
owned by the Member to Clarant under this Agreement, and that, when the
Company Units is accepted by Clarant, Clarant will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claims.
5.38 INVESTOR QUESTIONNAIRES. Such Member has executed and
delivered to Clarant an Investor Questionnaire in the form attached hereto as
EXHIBIT 5.29(b), and such form is true, complete and accurate in all material
respects.
6. REPRESENTATIONS OF CLARANT AND NEWCO
Clarant and Newco jointly and severally represent and warrant to the
Members that all of the following representations and warranties in this Article
6 are true, accurate and complete at the date of this Agreement and shall be
true, accurate and complete at the time of the Pre-Closing and on the Closing
Date, and that such representations and warranties shall survive the Closing
Date.
6.1 DUE ORGANIZATION. Clarant is a corporation, and Newco is a
limited liability company, duly organized, validly existing and in good standing
under the laws of the State of Delaware and each is duly authorized and
qualified to do business under all applicable laws to carry on its business in
the places and in the manner as now conducted, except where the failure to be so
authorized or qualified would not have a Material Adverse Effect on Clarant.
True, complete and correct copies of the Certificate of Incorporation and
By-laws, each as amended to date, of Clarant and Newco (the "Clarant Charter
Documents") are all attached hereto as EXHIBIT 6.1.
33
6.2 AUTHORIZATION. The respective officers of Clarant and Newco
executing this Agreement are duly authorized to execute and deliver this
Agreement, and Clarant and Newco have the corporate right, power and authority
to enter into this Agreement and the Merger.
6.3 TRANSACTION NOT A BREACH. Neither the execution and delivery
of this Agreement or the Other Agreements, nor their performance will violate,
conflict with, or result in a breach of any provision of any Law, rule,
regulation, order, permit, judgment, injunction, decree or other decision of any
court or other tribunal or any Governmental Authority binding on Clarant or
Newco or conflict with or result in the breach of any of the terms, conditions
or provisions of the Clarant Charter Documents or of any contract, agreement,
mortgage or other instrument or obligation to which Clarant or Newco is a party
or by which Clarant or Newco is bound.
6.4 MISREPRESENTATION. None of the representations and warranties
set forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, or other instruments (including the most recent draft of the
Registration Statement) delivered, or to be delivered, to the Company or the
Members as contemplated by any provision hereof, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
6.5 CAPITAL STOCK. As of the Effective Time, the authorized
capital stock of Clarant will consist of One Hundred Million (100,000,000)
shares of common stock, par value $.10 per share (the "Clarant Common Stock")
and Ten Million (10,000,000) shares of preferred stock, par value $.10 per share
("Clarant Preferred Stock") (collectively, the "Clarant Common Stock" and
"Clarant Preferred Stock" referred to as "Clarant Stock"), and the issued and
outstanding Clarant Stock, Convertible Securities and Options of Clarant will be
as set forth on SCHEDULE 6.5. SCHEDULE 6.5 also sets forth the authorized and
outstanding Clarant Stock, Convertible Securities and Options as of the date of
this Agreement. As of the date of this Agreement, one hundred percent of the
membership interests in Newco are owned by Clarant. Except as part of the IPO
that will take place on the Closing Date as contemplated by this Agreement and
the Other Agreements and as disclosed in the Registration Statement, there are
no outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which Clarant
is a party requiring issuance, sale or transfer of any equity securities of
Clarant or any securities convertible directly or indirectly into equity
securities of Clarant, or evidencing the right to subscribe for any equity
securities of Clarant, or giving any Person other than the Founding Companies
any rights with respect to the capital stock of Clarant. On the Closing Date,
Clarant shall have outstanding only one class of capital stock (the Clarant
Common Stock), and the shares of Clarant Common Stock issued on the Closing Date
pursuant to this Agreement and the Other Agreements and to Persons who purchase
shares in the IPO will in the aggregate possess at least 80% of the total voting
power of the Clarant Common Stock that is entitled to vote and is outstanding as
of the Closing Date (after taking into account the dilution of the holdings of
Clarant Common Stock of the current Clarant stockholders). Except as will be
disclosed in the Registration Statement and as of the Closing Date, there are no
34
voting agreements, voting trusts, other agreements (including cumulative voting
rights), commitments or understandings with respect to the capital stock of
Clarant.
6.6 SUBSIDIARIES. Clarant has no subsidiaries except for the
companies identified as "ACQUISITION CORP." in the Other Agreements. Except as
disclosed in the Registration Statement, Clarant does not currently own, of
record or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and Clarant, directly or
indirectly, is not a participant in any joint venture, partnership or other
non-corporate entity.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on SCHEDULE
6.7 or disclosed in the Registration Statement, Clarant has no material
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement and the Other Agreements and except for fees incurred in
connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on SCHEDULE 6.8 or disclosed in the Registration Statement, Clarant is not
in violation of any Law or Order of any Governmental Authority having
jurisdiction over it which would have a Material Adverse Effect on Clarant; and
except to the extent set forth in SCHEDULE 6.9, there are no material Actions
pending or, to the Knowledge of Clarant, threatened, against or affecting
Clarant, or before or by any Governmental Authority having jurisdiction over it
and no written notice of any Action has been received by Clarant. Clarant has
conducted and is conducting its businesses in substantial compliance with
applicable Laws and is not in violation of any of the foregoing which might have
a Material Adverse Effect on Clarant.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by Clarant and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of Clarant and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of Clarant.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof, the
Clarant Common Stock to be delivered to the Members pursuant to this Agreement
will constitute valid and legally issued shares of Clarant, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Article 15 hereof, will be identical in all substantive respects (which do not
include the form of certificate upon which it is printed or the presence or
absence of a CUSIP number on any such certificate) to the Clarant Common Stock
issued and outstanding as of the date hereof and to the Clarant Common Stock to
be issued in the IPO, provided, however, that the shares of Clarant Common Stock
to be issued to the Members pursuant to this Agreement will not be registered
under the 1933 Act, except as provided in Article 17 hereof.
35
6.11 NO SIDE AGREEMENTS, Except as may be disclosed in the
Registration Statement, Clarant has not entered or, as of the Effective Time,
will not have entered into any material agreement with any of the Founding
Companies or any of the members or stockholders of the Founding Companies other
than (i) the Other Agreements and the agreements contemplated by the Other
Agreements, including the employment agreements referred to therein and (ii)
other employment agreements entered into in the ordinary course of business.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
organized on August 21, 1998, and has conducted limited operations since that
time. Clarant has not conducted any material business since the date of its
inception, except in connection with this Agreement, the Other Agreements and
the IPO. Clarant does not own and has not at any time owned any real property or
any material personal property and is not a party to any other material
agreement, except as listed on SCHEDULE 6.12 and except that Clarant is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be disclosed in, or filed as exhibits to, the Registration
Statement.
6.13 NO VIOLATIONS. Clarant is not in violation of any Clarant
Charter Document. None of Clarant, or, to the Knowledge of Clarant, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which Clarant is a party, or by which Clarant or any of its
properties, are bound (collectively, the "Clarant Documents"). The rights and
benefits of Clarant under the Clarant Documents will not be adversely affected
by the transactions contemplated hereby and will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Clarant Documents or the Clarant Charter Documents. Except as
set forth on SCHEDULE 6.13, none of the Clarant Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and the consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
6.14 ABSENCE OF CHARGES. Since March 31, 1999, except as set forth
in the Registration Statement, and except as contemplated by this Agreement and
the Other Agreements, there has not been:
(a) any change in the financial condition, assets,
liabilities (contingent or otherwise) income or business or Clarant that would
have of Material Adverse Effect on Clarant;
(b) any damage destruction or loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of Clarant;
(c) any change in the authorized capital of Clarant or
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
36
(d) any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of
Clarant;
(e) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, materially adversely
affecting the business of Clarant;
(f) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Clarant to any person;
(g) any cancellation or agreement to cancel, any
indebtedness or other obligation owing Clarant;
(h) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of Clarant or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(i) any waiver of any material rights or claims of
Clarant;
(j) any amendment or termination of any material
contract, agreement, license, permit or other right to which Clarant is a party;
(k) any transaction by Clarant outside the Ordinary
Course of Business; or
(l) any other distribution of property or assets by
Clarant other than in the Ordinary Course of Business;
6.15 TAXES. All Returns required to have been filed by or with
respect to Clarant have been duly filed. No Tax Proceedings are presently
pending with regard to any Tax Returns or Taxes of Clarant, and no notice has
been received (whether in writing or verbally) of the expected commencement of
such a Tax Proceeding. All Taxes (whether or not shown on any Return) owed by
Clarant have been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
37
(a) Between the date of this Agreement and the Closing Date, the
Company will afford to the officers, directors and authorized representatives of
Clarant reasonable access during normal business hours to all of the Company's
and any Subsidiaries' sites, properties, books and records and will furnish
Clarant with such additional financial and operating data and other information
as to the Business and properties and assets of the Company and any Subsidiaries
as Clarant may from time to time reasonably request. The Company will cooperate
with Clarant and its representatives, including Clarant's auditors and counsel,
in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. Clarant, Newco, the Members and the
Company and any Subsidiaries will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Article 14 hereof. In
addition, Clarant will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its members, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date,
Clarant will afford to the officers and authorized representatives of the
Company access to all of Clarant's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the Business and properties of
Clarant and Newco as the Company may from time to time reasonably request.
Clarant and Newco will cooperate with the Company, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this Agreement. The
Company and the Members will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Article 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, the Company and any Subsidiaries will:
(a) carry on in the Ordinary Course of Business
substantially as conducted heretofore and not introduce any new method of
management, operation or accounting;
(b) maintain its properties, assets and facilities,
including those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(c) perform in all material respects its obligations
under agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage;
38
(e) use their commercially reasonable best efforts to
maintain and preserve its business organization intact and use its best efforts
to retain its present management, key employees and relationships with
suppliers, customers and others having business relations with the Company or
any Subsidiary;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(h) maintain present debt and lease instruments in
accordance with their respective terms and not enter into new or amended debt or
lease instruments, except as disclosed on SCHEDULE 5.25, provided that debt
and/or lease instruments may be replaced if such replacement instruments are on
terms at least as favorable to the Company or Subsidiary as the instruments
being replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the Closing
Date, neither the Company nor any Subsidiary will, without the prior written
consent of Clarant:
(a) make any change in its Charter Documents;
(b) grant or issue any securities, Options, conversion
rights or commitments of any kind relating to its securities of any kind;
(c) declare or pay any dividend, or make any distribution
in respect of its securities whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any securities or engage in any
transaction that will significantly affect the cash reflected on the Balance
Sheet of the Company at the Balance Sheet Date, except for distributions to the
Members in the Ordinary Course of Business or which are otherwise reserved for
on the Company's Balance Sheet as of the Balance Sheet Date;
(d) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditure, except if it is in
the Ordinary Course of Business and involves an amount not in excess of $50,000;
(e) create, assume or permit to exist any Encumbrance
upon any assets or properties whether now owned or hereafter acquired, except
(i) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $10,000
necessary or desirable for the conduct of the Business of the Company and any
Subsidiaries, (ii) (1) liens for Taxes either not yet delinquent or being
contested in good faith and by appropriate proceedings (and for which adequate
reserves have been established and are being maintained) or (2) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens arising in the
Ordinary Course of Business (the liens set forth in clause (ii) being referred
to herein as "Statutory Liens"), or (iii) liens set forth on SCHEDULE 5.11
hereto;
39
(f) sell, assign, lease or otherwise transfer or dispose
of any property, assets or equipment except in the Ordinary Course of Business;
(g) negotiate for the acquisition of any business or the
start-up of any new business;
(h) merge or consolidate or agree to merge or consolidate
with or into any other entity;
(i) waive any material right or claim of the Company or
any Subsidiary, provided that the Company may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to be
included on SCHEDULE 5.12 unless specifically listed thereon;
(j) commit a material breach or amend or terminate any
Material Contract to which the Company or any Subsidiary is a party or as to
which it is a beneficiary;
(k) enter into any other transaction outside the Ordinary
Course of Business or prohibited hereunder;
(l) except in the Ordinary Course of Business or as
required by Law or contractual obligations or other understandings or
arrangements existing on the date hereof, neither the Company nor any Subsidiary
will (A) increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of the officers, members
or employees engaged in the Company's or any Subsidiary's Business, (B) pay or
agree to pay any additional pension, retirement allowance or other employee
benefit to any such officers, members or employees, whether past or present, (C)
enter into any new employment, severance, consulting, or other compensation
agreement with any existing officers, members or employees engaged in the
Company's or any Subsidiary's Business, (D) amend or enter into a new Plan or
Other Benefit Obligation (except as required by Law) or amend or enter into a
new collective bargaining agreement (except as required by this Agreement), or
(E) engage in any Affiliate Transactions;
(m) make or change any Tax election, amend any Tax Return
or take or omit to take any other action not in the Ordinary Course of Business
and consistent with past practice that would have the effect of increasing any
Taxes of Clarant, the Company or any Subsidiary for any Taxable Period ending
after the Closing Date; or
(n) without the express prior written consent of Clarant,
amend, modify, repeal or otherwise alter the approvals by the Company manager or
by the Members attached hereto as EXHIBIT 5.2.
7.4 NO SHOP. In consideration of the substantial expenditure of
time, effort and expense undertaken by Clarant in connection with its due
diligence review and the preparation and execution of this Agreement, the
Company and the Members agree that neither they nor their
40
representatives, agents or employees will, after the execution of this Agreement
until the earlier of (a) the termination of this Agreement or (b) the Closing,
directly or indirectly, solicit, encourage, negotiate or discuss with any third
party (including by way of furnishing any information concerning the Company or
any Subsidiary) any acquisition proposal relating to or affecting the Company or
any Subsidiary or any part of it, or any direct or indirect interests in the
Company, whether by purchase of assets or stock, purchase of interests, merger
or other transaction, and further agree that the Company will promptly advise
Clarant of the terms of any communications any of the Members or the Company may
receive or become aware of relating to any bid for all or any part of the
Company or any Subsidiary.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall deliver to Clarant at the Pre-Closing, any and all proof
that any such required notice has been sent.
7.6 AGREEMENTS. On or prior to the Closing Date and effective as
of the Effective Time, the Company shall cause the termination of and obtain a
written waiver of rights from any beneficiary under (and shall deliver evidence
of such terminations and waivers to Clarant prior to Closing) (a) all Securities
Agreements, (b) any employment agreements between the Company and any employee
who is listed on SCHEDULE 9.11 hereto, and (c) any existing agreement between
the Company and any Members or other security holders.
7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Members and the Company shall give prompt notice
to Clarant of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty of the Company or the Members contained herein to be untrue or
inaccurate in any material respect; (ii) any material failure of any Member or
the Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such Person hereunder and (iii) the exercise by
any Person of any Option or Convertible Security listed on SCHEDULE 5.3 or any
enforceable request for the Company to purchase, redeem or otherwise acquire any
of its Company Units, Convertible Securities or Options;
(b) Clarant and Newco shall give prompt notice to the
Company of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Clarant or Newco contained herein to be untrue or inaccurate in any material
respect and (ii) any material failure of Clarant or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder;
(c) The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.11, (ii) modify the conditions set
41
forth in Articles 8 and 9, or (iii) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
(a) The Company and Members shall furnish or cause to be
furnished to Clarant and the Underwriters all of the information concerning the
Company and the Members requested by Clarant or the Underwriters for inclusion
in, and will cooperate with Clarant and the Underwriters in the preparation of,
the Registration Statement and the prospectus included therein (including
audited and unaudited financial statements, prepared in accordance with
generally accepted accounting principles, in form suitable for inclusion in the
Registration Statement). The Company and the Members agree promptly to advise
Clarant if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any information
contained in the prospectus concerning the Company or the Members contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Members, the Company represents
and warrants as to such information with respect to itself and any Subsidiaries,
and each Member represents and warrants, as to such information with respect to
the Company and himself or herself, that the Registration Statement at its
effective date, at the date of the final prospectus, each preliminary prospectus
and each amendment to the Registration Statement, and at each closing date with
respect to the IPO under the Underwriting Agreement (including with respect to
any over-allotment option) will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(b) Clarant agrees that it will use its commercially
reasonable best efforts to provide to the Company and its counsel copies of
drafts of the Registration Statement as they are prepared and give the Company
or the Members a reasonable period of time to review and comment upon such
documents prior to filing with the SEC. Any objections posed by the Company or
its counsel shall be in writing and state with specificity the material in
question, the reason for the objection, and the Company's and the Members'
proposed alternative. If the objection is founded upon a rule promulgated under
the Securities Act, the objection shall cite the rule. Notwithstanding the
foregoing, during the three business days immediately preceding the date
scheduled for the effective date of the IPO, the Company and the Members agree
that two hours from the time the proposed changes are transmitted to the
Company's counsel is sufficient time to review and respond to proposed changes.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to
the Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited consolidated Balance Sheets of the Company as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated income statements, statements of cash flows and retained earnings
of the Company for all fiscal quarters ended after the Balance Sheet Date. Such
42
Financial Statements shall have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated and in a manner consistent
with the Financial Statements (except as noted therein). Except as noted in such
Financial Statements, all of such Financial Statements will present fairly the
results of operations of the Company for the periods indicated thereon.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.11 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation, until 24 hours prior
to the anticipated effectiveness of the Registration Statement, to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules, provided
however, that supplements and amendments to Schedules 5.11 (Liabilities and
Obligations), 5.12 (Accounts and Notes Receivable) and 5.22 (Significant
Customers; Material Contracts and Commitments) must be delivered only at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the Ordinary Course of Business; and further provided
that all matters identified by the Company on any Schedule supplement or
amendment shall also be included on SCHEDULE 11.1(f). Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the Company may be made unless Clarant and a majority
of the Founding Companies other than the Company consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant or Newco that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on Clarant and Newco may be made
unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.11. In the event that one of
the Other Founding Companies seeks to amend or supplement a Schedule pursuant to
this Section 7.11 of one of the Other Agreements, and such amendment or
supplement constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on such Other Founding Company, Clarant shall give the
Company notice promptly after it has knowledge thereof. If Clarant and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Clarant or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(d). In the event
that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.11, and Clarant and a majority of the Other Founding Companies do
43
not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(a). No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.12 THIRD PARTY APPROVALS. Prior to the Closing Date, the Company
and any Subsidiaries shall satisfy any requirement for notice and approval of
the transactions contemplated by this Agreement under applicable agreements with
third parties, including any contract with any Governmental Authority.
7.13 HSR FILING. To the extent the Merger is a transaction subject
to the filing requirements of the HSR Act, each of the Company, the Members and
Clarant shall use its commercially reasonable best efforts to (a) file all
information required to be filed by it pursuant to the HSR Act and (b) provide
the other party with all information reasonably requested and required by it to
satisfy any filing requirements it may have under the HSR Act.
7.14 AUTHORIZED CAPITAL STOCK. Through the Closing Date, Clarant
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes as are made to respond to
comments made by the SEC or requirements of any exchange or automated trading
system for which application is made to register the Clarant Common Stock.
7.15 UNIT APPRECIATION RIGHTS. Prior to the Pre-Closing, the
Company will cause to be paid in full and will have terminated all unit
appreciation rights that may have been issued by the Company to any of the
members of its Board of Advisors or other persons. At the Pre-Closing, the
Company shall deliver to Clarant evidence satisfactory to Clarant that the
Company's unit appreciation rights have been paid in full and terminated.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND THE COMPANY
The obligations of the Members and the Company with respect to actions
to be taken on the Pre-Closing Date and on the Closing Date are subject to the
satisfaction or waiver on or prior to the Pre-Closing Date and/or the Closing
Date, as the case may be, of all of the conditions set forth in this Article 8.
As of the Pre-Closing Date or the Closing Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by the Company and
the Members unless such parties have objected by notifying Clarant in writing of
such objection on or before the Pre-Closing Date or consummation of the
transactions on the Closing Date, respectively, except that no such waiver shall
be deemed to affect the survival of the representations and warranties of
Clarant and Newco contained in Article 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Clarant and Newco contained in Article 6 shall be true and correct
in all material respects (except for the representation and warranty set forth
in Section 6.11, which shall be true and correct in all respects) as of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made as of that time; and a certificate to the foregoing
effect dated the Pre-Closing Date and the Closing Date and signed by the
President, any Vice President or the Secretary of Clarant shall have been
delivered to the Members.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by Clarant and
Newco on or before each of the Pre-Closing Date and the Closing Date shall have
been duly complied with and performed in all material respects on or before each
of the Pre-Closing Date and the Closing Date, as the case may be; and
certificates to the foregoing effect dated each of the Pre-Closing Date and the
Closing Date and signed by the President, any Vice President or the Secretary of
Clarant shall have been delivered to the Members.
8.3 NO LITIGATION. No Action or Proceeding before a court or any
other governmental agency or body shall have been instituted or Threatened to
restrain or prohibit the Merger or the IPO and no Governmental Authority shall
take any other action with respect to the transactions hereunder which would
have a Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion
from counsel for Clarant, dated the Pre-Closing Date in form and substance of
the type customarily given by counsel to an acquiring company in transactions
similar to that contemplated by this Agreement and acceptable to the Company
(and the Underwriters shall have received a copy of the same opinion addressed
to them), and at the Closing the Company shall have received a statement from
such counsel that the opinion is true as of the Closing Date.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
therefor shall have been instituted or shall be pending or contemplated under
the 1933 Act, and the Underwriters shall have agreed to acquire on a firm
commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of Clarant Common Stock for a price no lower than the minimum
price specified on EXHIBIT 2.1(a).
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
required to be obtained or made by Clarant or Newco with any Governmental
Authority or agency relating to the consummation of the transactions
contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. Clarant and Newco each shall have
delivered to the Company a certificate, dated as of a date no earlier than ten
(10) days prior to the Pre-Closing
45
Date, duly issued by the Delaware Secretary of State and in each state in which
Clarant or Newco is authorized to do business, showing that each of Clarant and
Newco is in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes for Clarant and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of Clarant and of Newco, certifying the truth and
correctness of attached copies of the Clarant's and Newco's respective
Certificates of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the boards of directors and, if
required, the members of Clarant and Newco approving Clarant's and Newco's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
8.9 HSR ACT. The waiting period applicable to the consummation of
the transaction contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
8.10 CLOSING OF THE IPO. The Closing of the sale of the Clarant
Common Stock to the Underwriters in the IPO shall have occurred simultaneously
with the Closing Date hereunder.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on
SCHEDULE 9.11 shall have been afforded the opportunity to enter into an
employment agreement substantially in the form of EXHIBIT 8.11.
8.12 LISTING. Clarant shall cause the Clarant Common Stock to be
listed on the Nasdaq National Stock Market, subject to official notice of
issuance.
8.13 TAX OPINION. Clarant shall have received an opinion upon which
the Company and the Members will be entitled to rely (the "Tax Opinion") from
Xxxxxx, Xxxxxx & Xxxxxxxxx, tax counsel for Clarant, or such other tax counsel
reasonably acceptable to Clarant and the Company ("Tax Counsel") that the
Clarant Plan of Organization will qualify as a tax-free transfer of property
under Section 351(a) of the Code and that the Members will not recognize gain to
the extent the Members exchange Company Units for Clarant Common Stock (but not
cash or other property) pursuant to the Clarant Plan of Organization, and in
rendering such Tax Opinion, Tax Counsel shall be entitled to rely on customary
written representations acceptable to Tax Counsel and received from (i) Clarant
and (ii) the Company, (iii) each Other Founding Company, and (iv) each Member
and each contributor, stockholder or member of the Other Founding Companies who
will receive Clarant Common Stock under the Clarant Plan of Organization.
8.14 BOARD OF DIRECTORS. The Board of Directors of Clarant shall
take action prior to the Closing Date to cause the number of directors
comprising the full board of directors of Clarant to be nine, and Xxxxx X. Xxxxx
shall be elected to the board of directors of Clarant effective as of the
Closing Date. If prior to the Closing Date Xx. Xxxxx shall decline or be unable
46
to serve as a director of Clarant, the Company's board of directors shall
designate another person to serve in Xx. Xxxxx'x stead.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO
The obligations of Clarant and Newco with respect to actions to be
taken on the Pre-Closing Date and on the Closing Date, are subject to the
satisfaction or waiver on or prior to the Pre-Closing Date and/or the Closing
Date, as the case may be, of all of the conditions set forth in this Article 9.
As of the Pre-Closing Date or the Closing Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by Clarant and
Newco unless such parties have objected by notifying the Company and the Members
in writing of such objection on or before the Pre-Closing Date or consummation
of the transactions on the Closing Date, respectively, except that no such
waiver shall be deemed to affect the survival of the representations and
warranties of the Company and the Members contained in Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All the representations and
warranties of the Members and the Company contained in this Agreement, and as
reflected on the Schedules as modified pursuant to Section 7.11, shall be true
and correct in all material respects as of the Pre-Closing Date and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; and the Members shall have delivered to Clarant
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Members and
the Company on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
Members shall have delivered to Clarant certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 NO LITIGATION. No Action or Proceeding before a court or any
other Governmental Authority or body shall have been instituted or Threatened to
restrain or prohibit the Merger or the IPO and no Governmental Authority or body
shall have taken any other action or made any request of Clarant as a result of
which the management of Clarant deems it inadvisable to proceed with the
transactions hereunder.
9.4 COMPANY AND MEMBER REPRESENTATIONS. The Company and the
Members receiving Clarant Common Stock shall have provided Tax Counsel with the
written representations requested pursuant to Section 8.13.
47
9.5 NO MATERIAL ADVERSE EFFECT. As of the Pre-Closing Date and as
of the Closing Date, no event or circumstance shall have occurred which would
constitute a Material Adverse Effect.
9.6 TERMINATION OF RELATED PARTY AGREEMENTS. All existing
agreements between the Company and the Members shall have been canceled
effective prior to or as of the Closing Date and the Company shall have obtained
all of the terminations and waivers required under Section 7.6.
9.7 OPINION OF COUNSEL. Clarant shall have received an opinion
from counsel to the Company, dated the Pre-Closing Date, in form and substance
of the type customarily given by counsel to a founding company in transactions
similar to that contemplated by this Agreement and acceptable to Clarant (and
the Underwriters shall have received a copy of the same opinion addressed to
them), and at the Closing Clarant shall have received a statement from such
counsel that the opinion is true as of the Closing Date.
9.8 CONSENTS AND APPROVALS. All necessary Consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
Consents of third parties listed on SCHEDULE 5.4 shall have been obtained.
9.9 GOOD STANDING CERTIFICATES. The Company shall have delivered
to Clarant a certificate, dated as of a date no earlier than ten (10) days prior
to the Pre-Closing Date, duly issued by the appropriate governmental authority
in the Company's state of organization and, unless waived by Clarant, in each
state in which the Company is authorized to do business, showing the Company is
in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for the Company for all periods prior to the
date of the certificate have been filed and paid.
9.10 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
therefor shall have been instituted or shall be pending or contemplated under
the 1933 Act, and the Underwriters shall have agreed to acquire on a firm
commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of Clarant Common Stock.
9.11 EMPLOYMENT AGREEMENTS. Each of the Persons listed on SCHEDULE
9.11 shall have entered into an employment agreement satisfactory to Clarant.
9.12 CLOSING OF IPO. The closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
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9.13 FIRPTA CERTIFICATE. Each Member shall have delivered to
Clarant a certificate to the effect that he or she is not a foreign Person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
9.14 [Reserved]
9.15 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to Clarant.
9.16 HSR ACT. The waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have expired or been
terminated.
9.17 INVESTOR QUESTIONNAIRE. Each Member shall have provided an
executed Investor Questionnaire in the form of EXHIBIT 5.29(b).
9.18 THE MEMBERS' RELEASE. The Members shall have delivered to
Clarant and the Company an instrument dated the Closing Date releasing Clarant
and the Company (including all subsidiaries) from (i) any and all claims of the
Members against the Company and Clarant and (ii) any and all obligations of the
Company and Clarant to the Members, except for (x) any obligations arising after
the Closing Date to a Member relating to his or her employment by the Company or
Clarant and (y) obligations arising under this Agreement or the transactions
contemplated hereby.
10. COVENANTS OF CLARANT AND THE MEMBERS AFTER CLOSING
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Closing
Date, Clarant shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the Clarant Plan
of Organization.
10.2 TAX MATTERS.
(a) Clarant shall prepare or cause to be prepared and
file or cause to be filed all Returns that are required to be filed with respect
to the Company and the Subsidiaries (i) for Taxable Periods ending on or before
the Closing Date that are due after the Closing Date (other than Returns of any
Relevant Group of which the Company is not the common parent and partnership
income information Tax Returns), and (ii) for Taxable Periods beginning on or
before and ending after the Closing Date ("Straddle Periods"). The Members shall
permit Clarant to review and comment on each partnership income information Tax
Return of the Company that is filed after the Closing Date and shall make such
revisions to such Tax Returns
49
as are reasonably requested by Clarant. All such Returns, including without
limitation, any partnership income information Tax Return prepared by or caused
to be prepared by the Company or the Members, shall be prepared on a basis
consistent with past Returns of the Company and the Subsidiaries unless
otherwise required by applicable law.
(b) Upon the latter of (i) five (5) business days
following the receipt of a request therefor, (ii) five (5) business days prior
to the due date of any payment to the relevant Taxing Authority, or (iii) five
(5) business days following resolution of any dispute covered by Section
10.2(c), the Members shall pay to Clarant all Taxes shown as due on the Tax
Returns prepared and filed pursuant to Section 10.2(a) that relate to a
Pre-Closing Period to the extent that such Taxes exceed the reserves for such
Taxes (excluding any reserves for deferred Taxes) set forth on the financial
statements provided pursuant to Section 5.10.
(c) Any federal or state income Tax Returns prepared by
Clarant pursuant to Section 10.2(a) shall be delivered to the Members at least
30 days before the due date of such Return including any extension. If the
Members reasonably object in writing to any material item on such Return at
least 10 days before their due date, the parties shall reasonably negotiate to
resolve such dispute. If such dispute cannot be resolved within 10 days of the
receipt by the Company of such written notice, (i) the Company may in its sole
discretion file such Return and (ii) the dispute shall be referred to a national
independent accounting firm agreeable to the parties for resolution. The party
whose position is not adopted in such resolution by an independent accounting
firm shall pay all expenses of the successful party in resolving the dispute.
(d) For purposes of apportioning any Taxes for a Straddle
Period to the portion thereof ending on the Closing Date, the determination
shall be made based on a closing of the books as of the close of the Closing
Date; provided, that real property, personal property and intangible property
Taxes shall be apportioned ratably on a daily basis between the portions of the
Straddle Period in question.
(e) Each party hereto shall, and shall cause any
Subsidiaries and Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for Taxes or
a right to refund of Taxes or in conducting any Tax Proceeding. Such cooperation
and information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and relevant
work papers, relevant documents relating to rulings or other determinations by
Taxing Authorities and relevant records concerning the ownership and Tax basis
of property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
50
(f) Each of the Company, Newco, Clarant and each Member
shall comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and shall treat the
transactions contemplated in this Agreement as part of the Clarant Plan of
Organization and as a transfer of property under Section 351(a) of the Code.
10.3 DIRECTORS AND OFFICERS. The Persons named in the Registration
Statement shall be elected as directors and elected as officers of Clarant, as
and to the extent set forth in the Registration Statement.
10.4 [Reserved]
10.5 OPTIONS AND CONVERTIBLE SECURITIES. The parties hereto agree
that (a) at the Closing, all employees of the Company who are holders of the
Company's participation rights (as shown on SCHEDULE 5.3) shall receive their
pro rata share of the Merger Consideration as provided on EXHIBIT 2.1(a) and (b)
all unvested Options shall be terminated as of the Effective Time and at the
Closing the holders of Options that are vested as of the Effective Time (as
shown on EXHIBIT 5.3) shall receive their pro rata share of the Merger
Consideration as provided on EXHIBIT 2.1(a).
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY MEMBERS. Subject to the limitations of
Section 11.11, the Members (except for Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxxx, Xxxx
X. Xxxxxxx, Xxxxxx Xxxxxxx and Xxxxxxx Xxxxx) shall jointly and severally
indemnify, defend and hold harmless Clarant, Newco, the Company, and the
Surviving Company and their respective officers, directors, employees, agents,
representatives and Affiliates (other than the Members) (each, a "Clarant
Indemnified Party"), at all times from and after this Agreement harmless from
and against, and to promptly pay to a Clarant Indemnified Party or reimburse a
Clarant Indemnified Party for, any and all liabilities, obligations,
deficiencies, demands, claims, suits, actions, or causes of action, assessments,
losses, costs, expenses, filing fees, interest, fines, penalties, or damages or
costs or expenses of any and all investigations, proceedings (including appeals,
arbitration and mediation), judgments, environmental analyses, remediations,
settlements and compromises (in cluding reasonable fees and expenses of
attorneys, accountants and other experts) (individually and collectively, the
"Losses") sustained or incurred by any Clarant Indemnified Party resulting from,
or arising out of (a) any breach of the representations and warranties of the
Members or the Company set forth herein or on the schedules, exhibits or
certificates delivered in connection herewith, (b) any breach of any covenant or
agreement on the part of the Members or the Company under this Agreement, (c)
any liability under the 1933 Act, the 1934 Act, or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to the
Company or the Members, and provided to Clarant or its counsel by the Company or
the Members (but in the case
51
of the Members, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Members required to be stated therein or necessary to make the
statements therein not misleading, (d) any Claim or Action arising out of or
relating to any purchase or redemption of Company Units, Convertible Securities
or Options by the Company prior to the date of this Agreement; (e) except to the
extent reserved for (other than as a deferred Tax item) on the most recent
financial statements provided pursuant to Section 7.9, or if no such financial
statements are provided, the Company Financial Statements dated as of the
Balance Sheet Date, any liability of the Company or any Subsidiary for Taxes for
any Pre-Closing Period; or (f) any matter identified on SCHEDULE 11.1(f);
provided, however, (i) that in the case of any indemnity arising pursuant to
clause (c) such indemnity shall not inure to the benefit of Clarant, Newco, the
Company or the Surviving Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Members provided in writing
corrected information to Clarant counsel and to Clarant for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and (ii) that no Member shall be liable for any indemnification
obligation pursuant to this Section 11.1 to the extent attributable to a breach
of any representation, warranty or agreement made herein individually by any
other Member.
11.2 INDEMNIFICATION BY CLARANT. Clarant covenants and agrees that
it will indemnify, defend, protect and hold harmless the Members at all times
from and after the date of this Agreement until the Clarant Expiration Date,
from and against Losses sustained or incurred by any Member resulting from or
arising out of (a) any breach by Clarant or Newco of its representations and
warranties set forth herein or on the schedules, exhibits or certificates
delivered in connection herewith, (b) any breach of any covenant or agreement on
the part of Clarant or Newco under this Agreement, (c) any liability which the
Members may incur due to Clarant's or Newco's failure to be responsible for the
liabilities and obligations of the Company as provided in Article 1 hereof
(except to the extent that Clarant or Newco has claims against the Members by
reason of such liabilities); or (d) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to Clarant, Newco or any of the Other Founding
Companies for inclusion in the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to Clarant or Newco or any of the Other Founding Companies
required to be stated therein or necessary to make the statements therein not
misleading. Provided the Closing occurs, each of the Members waives any right of
contribution or indemnification or other similar right against Clarant, Newco or
the Surviving Company arising out of the Company's representations, warranties,
covenants and agreements contained herein, and each of the Members further
agrees that any claims of Clarant and any Clarant Indemnified Party or the
Company hereunder, whether for indemnification or otherwise, may be asserted
directly and fully against the Members without the need for any claim against or
joinder of the Surviving Company.
52
11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS.
(a) In the event that subsequent to the Closing any
Person entitled to indemnification under this Agreement (an "Indemnified Party")
receives notice of the assertion of any claim , obligation, deficiency, demand,
suit, cause of action, assessment or expense of any kind (each, a "Claim") or of
the commencement of any action or proceeding by an entity who is not a party to
this Agreement or an Affiliate of such a party (including, but not limited to
any domestic or foreign court, government, or Governmental Authority or
instrumentality, federal state or local) (a "Third Party Claim") against such
Indemnified Party, against which a party to this Agreement is required to
provide indemnification under this Agreement (an "Indemnifying Party"), the
Indemnified Party shall give written notice together with a statement of any
available information regarding such claim to the Indemnifying Party within
sixty (60) days after learning of such Claim (or within such shorter time as may
be necessary to give the Indemnifying Party a reasonable opportunity to respond
to such Claim. The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such Claim, which notice by the
Indemnifying Party shall specify the counsel it will appoint to defend such
Claim ("Defense Counsel"), to conduct at its expense the defense against such
Claim in its own name, or if necessary in the name of the Indemnified Party;
provided, however, that the Indemnified Party shall have the right to approve
the Defense Counsel, which approval shall not be unreasonably withheld, and in
the event the Indemnifying Party shall propose an alternate Defense Counsel,
which shall be subject again to the Indemnified Party's approval.
(b) In the event that the Indemnifying Party shall fail
to give such notice, it shall be deemed to have elected not to conduct the
defense of the subject Claim, and in such event the Indemnified Party shall have
the right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
(c) In the event that the Indemnifying Party does elect
to conduct the defense of the subject Claim, the Indemnified Party will
cooperate with and make available to the Indemnifying Party such assistance and
materials as may be reasonably requested by it, all at the expense of the
Indemnifying Party, and the Indemnified Party shall have the right at its
expense to participate in the defense assisted by counsel of its own choosing,
provided that the Indemnified Party shall have the right to compromise and
settle the Claim only with the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed. Without the prior
written consent of the Indemnified Party, the Indemnifying Party will not enter
into any settlement of any Third Party Claim or cease to defend against such
Claim, if pursuant to or as a result of such settlement or cessation, (i)
injunctive or other equitable relief would be imposed against the Indemnified
Party, or (ii) such settlement or cessation would lead to liability or create
any financial or other obligation on the part of the Indemnified Party for which
the Indemnified Party is not entitled to indemnification hereunder. The
Indemnifying
53
Party shall not be entitled to control, and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement of any Claim to
the extent that Claim seeks an order, injunction or other equitable relief
against the Indemnified Party which, if successful, could materially interfere
with the Business, assets, properties condition (financial or otherwise) or
prospects of the Indemnified Party (and the cost of such defense shall
constitute an Loss for which the Indemnified Party is entitled to
indemnification hereunder). If a firm decision is made to settle a Third Party
Claim, which offer the Indemnifying Party is permitted to settle under this
Section 11.3 and the Indemnifying Party desires to accept and agree to such
offer, the Indemnifying Party will give written notice to the Indemnified Party
to that effect, who will have an opportunity to consent to the firm offer. If
the Indemnified Party rejects or fails to consent to such firm offer within
thirty (30) calendar days after its receipt of such notice, the Indemnified
Party may continue to contest or defend such Third Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to such Third Party
Claim will not exceed the amount of such settlement offer, plus costs and
expenses paid or incurred by the Indemnified Party through the end of such
thirty (30) day period.
(d) Any judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
11.4 TAX CONTESTS.
(a) If any party receives written notice from any
governmental authority of a Tax Proceeding with respect to any Tax for which the
other party is obligated to provide indemnification under this Agreement, such
party shall within sixty (60) days thereof give written notice to the other
party (or within such shorter time as may be necessary to give the Indemnifying
Party a reasonable opportunity to respond to such notice); provided, however,
that the failure to give such notice shall not affect the indemnification
provided hereunder except to the extent that the failure to give such notice
materially prejudices the Indemnifying Party as provided in Section 11.6.
(b) The Members shall have the right, at their own
expense, to control and make all decisions with respect to any Tax Proceeding
relating to Taxes of the Company or any Subsidiary for any Taxable Period ending
on or before the Closing Date, provided, however, that the Members may exercise
this right ONLY IF (i) either (A) such Members receive a notice pursuant to
Section 11.4(a) or (B) written notice is or has been received before and the
Closing Date by the Company, any Subsidiary or any Member from a Governmental
Authority of a Tax Proceeding, AND (ii) the Members provide written notice of
the exercise of this right to Clarant within thirty (30) days of the later of
(A) the date of this Agreement for any Tax Proceeding described on SCHEDULE
5.24(g) or (B) the date of the receipt of the notice described in (i)(A) or
(i)(B). Clarant shall have the right to approve the counsel selected by the
Members to conduct
54
any such Tax Proceeding, which approval shall not be unreasonably withheld, and
to participate fully at its own expense with counsel of its own choosing in all
aspects of the prosecution or defense of such Tax Proceeding. The Members shall
not take any action or position in any such Tax Proceeding if that action or
position could reasonably be expected to increase the past, present or future
Tax liability of Clarant or any of its Affiliates, or any Tax liability of the
Company or any Subsidiary for any Taxable Period or portion thereof beginning
after the Closing Date without the prior written consent of Clarant, which
consent shall not be unreasonably withheld. The Members shall not settle or
otherwise terminate any such Tax Proceeding without the prior written consent of
Clarant, which consent shall not be unreasonably withheld.
(c) Upon written notice to Clarant within thirty (30)
days after receipt of notification pursuant to Section 11.4(a), the Members
shall have the right, at their own expense, to jointly control and participate
with Clarant in the conduct of any Tax Proceeding relating to Taxes of the
Company or any Subsidiary for a Straddle Period. If the Members exercise such
right, neither party shall settle or otherwise terminate any such Tax Proceeding
without the prior written consent of the other, which consent shall not be
unreasonably withheld.
(d) If the Members do not exercise their right to assume
control of or participate in any Tax Proceeding as provided under this Section
11.4, Clarant may defend or settle the same in such manner as it may deem
appropriate in its sole and absolute discretion, without in any way limiting its
rights of indemnification hereunder.
(e) Except as otherwise provided in this Section 11.4, Clarant
shall control all Tax Proceedings relating to Taxes and Tax Returns of the
Company and the Subsidiaries.
(f) In the event that the provisions of this Section 11.4 and
the provisions of Section 11.3 hereof conflict or otherwise each apply by their
terms, this Section 11.4 shall exclusively govern all matters concerning Tax
Proceedings.
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim (a "Direct
Claim") may be asserted by giving the Indemnifying Party reasonably prompt
written notice thereof, and the Indemnifying Party will have a period of thirty
(30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such Direct
Claim, in which event the Indemnified Party will be free to pursue such remedies
as may be available to the Indemnified Party under this Article 11.
11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an Indemnified
Party to give timely, complete or accurate notice as provided in Sections 11.3,
11.4 and 11.5 will not affect the rights or obligations of any party hereunder
except and only to the extent that, as a result of such failure, any party
entitled to receive such notice was deprived of its right to recover any payment
55
under its applicable insurance coverage or was otherwise directly and materially
damaged as a result of such failure to give timely notice.
11.7 REDUCTION OF LOSS. To the extent any Loss of an Indemnified
Party is reduced by receipt of payment (a) under insurance policies which are
not subject to retroactive adjustment or other reimbursement to the insurer in
respect of such payment, or (b) from third parties not Affiliated with the
Indemnified Party, such payments (net of the expenses of the recovery thereof)
(such net payment being referred to herein as a "Reimbursement") shall be
credited against such Loss; provided, however, (x) the pendency of such payments
shall not delay or reduce the obligation of the Indemnifying Party to make
payment to the Indemnified Party in respect of such Loss, and (y) the
Indemnified Party shall have no obligation, hereunder or otherwise, to pursue
payment under or from any insurer or third party in respect of such loss. If any
Reimbursement is obtained subsequent to payment by an Indemnifying Party in
respect of a Loss, such Reimbursement shall be promptly paid over to the
Indemnifying Party.
11.8 SUBROGATION. The Indemnifying Party shall be subrogated to the
Indemnified Party's rights of recovery to the extent of any Loss satisfied by
the Indemnifying Party. The Indemnified Party shall execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records of the Acquired Party.
11.9 ARBITRATION. Excluding the right of a party to seek injunctive
relief, all claims (pursuant to Federal or state statutes or by common law),
controversies, differences or disputes between Clarant or Newco and the Members
arising out of or relating to this Agreement or related or referenced exhibits
or the alleged breach thereof including, but not limited to, indemnification
claims under Sections 11.1 and/or 11.2 shall be settled by arbitration in
accordance with the rules then in effect of the American Arbitration Association
at the time of the dispute. After an award is rendered by the arbitrator(s), a
judgment may be entered in any court of competent Jurisdiction. The arbitration
shall occur in Dallas, Texas to the exclusion of all other locations. The
arbitrators cannot add to or subtract from the terms of this Agreement. The
parties agree that the arbitrators may include provisions for the payment of
costs and expenses, including reasonable attorneys' fees as part of any ruling
or award made thereunder. The parties acknowledge that arbitration shall be the
sole, final, binding and exclusive remedy of the parties with respect to any
such matter for which arbitration is undertaken hereunder. In preparation for
the arbitration process described herein, the parties shall be given at least
one hundred twenty (120) days for discovery and each party may utilize all
methods of discovery authorized by the procedural rules and statutes of the
State of Texas for civil litigation and may enforce the right to obtain such
discovery in the manner provided by such rules and statutes.
11.10 EXCLUSIVE REMEDY. Except as provided in Section 14.3 of this
Agreement, the indemnification provided for in this Article 11 shall (except as
prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by
56
any party to this Agreement against another party; provided, however, that
nothing herein shall be construed to limit the right of a party, in a proper
case, to seek injunctive relief for a breach of this Agreement or to seek relief
for a breach of any employment agreement with, or any security issued by,
Clarant.
11.11 LIMITATION AND EXPIRATION. Notwithstanding the foregoing
provisions of this Article 11:
(a) with respect to the indemnification obligations of
the Members under Section 11.1 --
(i) there shall be no liability unless, and
solely to the extent that, the aggregate amount of Losses sustained by the
Clarant Indemnified Parties exceeds one percent (1%) of the Merger Consideration
(the "Indemnification Threshold"), which Indemnification Threshold shall be
treated as a deductible; PROVIDED, HOWEVER, that the Indemnification Threshold
shall not apply to (w) Losses arising out of breaches of the covenants of the
Members set forth in this Agreement to be performed after the Closing Date or
the representations and warranties made in Sections 5.3 (capital stock of the
Company), 5.17 (employee benefits), and 5.24 (taxes), (x) Losses described in
Section 11.1(c), (y) Losses arising out of intentional fraud, or (z) any matters
identified on SCHEDULE 11.1(f); and
(ii) [Reserved]
(b) the indemnification obligations of the Members under
Section 11.1, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 11.11(b):
(i) (A) with respect to claims arising out
of breaches of the representations and warranties made in Sections 5.17
(employee benefits) and 5.24 (taxes), the date that is six (6) months after the
expiration of the longest applicable federal or state statute of limitation
(including extensions thereof);
(B) with respect to Losses described in
clause (c) of Section 11.1, the date that is six (6) months after the expiration
of the longest applicable federal or state statute of limitation (including
extensions thereof); or
(C) with respect to all claims other
than those referred to in clause (i)(A) or (B) of this Section 11.11(b),
eighteen (18) months after the Effective Time; or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section
11.11(b);
(c) with respect to the indemnification obligations of
Clarant under Section 11.2 --
(i) there shall be no liability unless, and
solely to the extent that, the aggregate amount of Losses sustained by the
Members exceeds the Indemnification Threshold;
57
PROVIDED, HOWEVER, that the Indemnification Threshold shall not apply to Losses
arising out of breaches of the covenants of Clarant set forth in this Agreement
to be performed after the Closing Date or the representations and warranties
made in Section 6.5 (Capital Stock) and 6.15 (Taxes), (y) Losses described in
Section 11.2(c), or (z) Losses arising out of intentional fraud; and
(ii) the aggregate amount of Clarant's liability
under this Article 11 shall not exceed the Merger Consideration.
(d) [Reserved]
(e) Indemnity obligations hereunder may be satisfied, at
the discretion of the Indemnifying Party, through the payment of cash or the
delivery of Clarant Common Stock, or a combination thereof. For purposes of
calculating the value of the Clarant Common Stock received or delivered by the
Member (for purposes of determining the Indemnification Threshold and the amount
of any indemnity paid), Clarant Common Stock shall be valued at its fair market
value, which shall be the average closing price for Clarant Common Stock on the
Nasdaq national market system for the ten trading days ending two business days
immediately prior to the date of payment.
(f) Notwithstanding any other term of this Agreement
(except the proviso to this sentence), a Member's liability under this Article
11 shall be limited to the total amount of proceeds received or payable to the
Member under this Agreement, which total shall be equal to the sum of (i) the
cash paid to the Member, (ii) the Contingent Consideration, if any, earned and
payable to such Member, (iii) the Additional Contingent Consideration, if any,
earned and payable to such Member and (iv) the value of the Clarant Common Stock
delivered to such Member on the Closing Date at the initial public offering
price.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Company, the Members and
Clarant in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein), as of the Pre-Closing Date and, if a Closing
occurs, as of the Closing Date. The representations and warranties of the
Company and the Members will survive the Closing and will remain in effect
until, and will expire upon, the termination of the indemnification obligations
as provided in Section 11.11(b). The representations and warranties of Clarant
will survive the Closing and will remain in effect until, and will expire upon,
the Clarant Expiration Date.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date solely: (a) by mutual consent written consent of the
boards of directors of Clarant and the Company; (b) by either the Members or the
Company (acting through its Members), on the one
58
hand, or by Clarant (acting through its board of directors), on the other hand,
if the transactions contemplated by this Agreement to take place at the Closing
shall not have been consummated by December 31, 1999, unless the failure of such
transactions to be consummated is due to the willful failure of the party
seeking to terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date; (c) by the Members or the Company, on the one hand, or by Clarant,
on the other hand, after giving written notice to the other party that a breach
or default of any representation, warranty, or covenant contained in this
Agreement has occurred, which breach has had or is reasonably foreseeable as
having a Material Adverse Effect on the Company or Clarant, as the case may be,
and such breach has not been cured on or before the Closing Date, (d) pursuant
to Section 7.11; or (e) by the Company (acting through its members) if, by June
30, 1999, Clarant shall not have filed an initial registration statement with
the SEC reflecting an IPO price for Clarant Common Stock of $11.00 per share.
12.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES.
(a) Except for Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxxx, and
Xxxx X. Xxxxxxx who shall not be subject to this Article 13, and further except
for Xxxxxx Xxxxxxx and Xxxxxxx Xxxxx for whom this Article 13 shall apply for a
period of one (1) year, the Members will not, for a period of three (3) years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other Person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director,
shareholder, option holder, lender, owner, partner, joint venturer, or in a
managerial capacity, whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in any business that is engaged in the
Business anywhere in the United States or Canada (the "Territory");
(ii) call upon any Person who is, at that time,
within the Territory, an employee of Clarant (including the subsidiaries
thereof) in a sales representative or managerial capacity for the purpose or
with the intent of enticing such employee away from or out of the employ of
Clarant (including the subsidiaries thereof), provided that each Member shall be
permitted to call upon and hire any member of his or her immediate family;
(iii) call upon any Person which is, at that time,
or which has been, within one (1) year prior to the Closing Date, a customer of
Clarant (including the subsidiaries thereof), of the Company or any Subsidiary
or of any of the Other Founding Companies within
59
the Territory for the purpose of soliciting or selling products or services in
direct competition with Clarant within the Territory;
(iv) call upon any prospective acquisition
candidate, on any Member's behalf or on behalf of any competitor of Clarant,
which candidate, to the actual knowledge of such Member after due inquiry, was
called upon by Clarant (including the subsidiaries thereof) or for which, to the
actual knowledge of such Member after due inquiry, Clarant (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) disclose customers, whether in existence or
proposed, of the Company to any Person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
(b) Notwithstanding Section 13.1(a) the foregoing
covenant shall not be deemed to prohibit any Member from acquiring as an
investment not more than one percent (1%) of the capital stock of a competing
business whose stock is traded on a national securities exchange or
over-the-counter so long as the Member does not consult with or is not employed
by such competitor.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to Clarant as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Clarant for
which it would have no other adequate remedy, each Member agrees that, in the
event of breach by such Member, the foregoing covenant may be enforced by
Clarant by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Article 13 impose a reasonable restraint on the
Members in light of the activities and business of Clarant (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Clarant; but it is also the intent of Clarant and the Members
that such covenants be construed and enforced in accordance with the changing
activities and business of Clarant (including the subsidiaries thereof)
throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Member who has entered into an employment agreement with Clarant and/or any
subsidiary thereof as set forth in Sections 8.11 and 9.11 hereto, shall
thereafter cease to be employed thereunder, and such Member shall enter into a
business or pursue other activities not in competition with Clarant and/or any
subsidiary thereof, or similar activities or business in locations the
operations of which, under such circumstances, does not violate this Article 13
and in any event such new business, activities or location are not in violation
of this Article 13 or such Member's obligations under this Article 13, such
Member shall not be chargeable with a violation of this Article 13 if Clarant
and/or any subsidiary thereof shall thereafter enter the same, similar or a
competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
60
13.4 SEVERABILITY; REFORMATION. The covenants in this Article 13
are severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Article 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Member
against Clarant (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Clarant of such covenants. It is specifically agreed that the period of three
(3) years stated at the beginning of this Article 13, during which the
agreements and covenants of each Member made in this Article 13 shall be
effective, shall be computed by excluding from such computation any time during
which such Member is in violation of any provision of this Article 13. The
covenants contained in Article 13 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Members hereby agree that
this covenant is a material and substantial part of this transaction and that
it is supported by adequate consideration.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 MEMBERS. The Members recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the Company, the Other Founding Companies, and/or
Clarant, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Clarant's respective businesses. The Members agree that they
will not disclose such confidential information to any Person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Clarant or the Other Founding
Companies who need to know information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby, (b) following the Closing, such information may be disclosed by
the Members as is required in the course of performing their duties for Clarant
or the Surviving Company and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such information becomes known to the public
generally through no fault of any such Members, (ii) disclosure is required by
law or the order of any governmental authority under color of law, provided,
that prior to disclosing any information pursuant to this clause (ii), the
Members shall give prior written notice thereof to Clarant and provide Clarant
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Members
61
of the provisions of this Article 14, Clarant shall be entitled to an injunction
restraining such Members from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Clarant from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, the Members shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 CLARANT AND NEWCO. Clarant and Newco recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
Clarant and Newco agree that, prior to the Closing, or if the transactions
contemplated by this Agreement are not consummated, they will not disclose such
confidential information to any Person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to the Members and to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2 and (c) to the Other Founding Companies and
their representatives pursuant to Section 7.1(a), unless (i) such information
becomes known to the public generally through no fault of Clarant or Newco, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), Clarant and Newco shall, if possible, give prior written
notice thereof to the Company and the Members and provide the Company and the
Members with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by Clarant or Newco of the provisions of this Section, the
Company and the Members shall be entitled to an injunction restraining Clarant
and Newco from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the Members
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Sections 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Closing Date.
15. TRANSFER RESTRICTIONS
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15.1 TRANSFER RESTRICTIONS. Subject in all cases to compliance with
applicable federal and state securities laws, and in no case earlier than twelve
(12) months following the Closing Date, unless Clarant in its sole discretion
shall consent otherwise, except pursuant to Article 17 hereof, gratuitous
transfers to not-for-profit third parties and transfers to immediate family
members, in each case who agree to be bound by the restrictions set forth in
this Section 15.1 (or trusts for the benefit of the Members or their immediate
family members, the trustees of which so agree) none of the Members shall (a)
sell, assign, exchange, transfer, Encumber, pledge, distribute, appoint or
otherwise dispose of (i) any shares of Clarant Common Stock received by the
Members in the Merger or (ii) any interest (including, without limitation, an
option to buy or sell) in any such shares of Clarant Common Stock, in whole or
in part, and no such attempted transfer shall be treated as effective for any
purpose; or (b) engage in any transaction, whether or not with respect to any
shares of Clarant Common Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning the shares of Clarant Common Stock
acquired pursuant to Article 2 hereof (including, by way of example and not
limitation, engaging in put, call, short-sale, straddle or similar market
transactions). Notwithstanding the foregoing, the Members may encumber or pledge
any of such shares of Clarant Common Stock provided the pledgee or other
beneficiary of such encumbrance or pledge agrees to be bound by the provisions
of this Section as if a Member and party hereto. The certificates evidencing the
Clarant Common Stock delivered to the Members pursuant to Article 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as Clarant may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
[(PROVIDED, HOWEVER, THAT SUCH SHARES MAY BE ENCUMBERED OR PLEDGED
PROVIDED THE PLEDGEE OR OTHER BENEFICIARY OF SUCH ENCUMBRANCE OR PLEDGE
AGREES TO BE BOUND BY THE PROVISIONS OF THESE RESTRICTIONS TO THE SAME
EXTENT AS THE HOLDER THEREOF).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. Each Member
acknowledges that the shares of Clarant Common Stock delivered to the Member
pursuant to this Agreement have not been and will not be registered under the
1933 Act and therefore may not be resold without compliance with the 1933 Act.
The Clarant Common Stock acquired by the Member pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it.
63
16.2 COMPLIANCE WITH LAW. Each Member covenants, warrants and
represents that none of the shares of Clarant Common Stock issued to the Member
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. The Clarant Common
Stock shall bear the following legend in addition to the legend required under
Article 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC., DELIVERY BY THE
HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CLARANT, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Member represents and
warrants that it is able to bear the economic risk of an investment in the
Clarant Common Stock acquired pursuant to this Agreement, can afford to sustain
a total loss of such investment and have such knowledge and experience in
financial and business matters that they are capable of evaluating the merits
and risks of the investment in the Clarant Common Stock. Each Member represents
and warrants that it has had an adequate opportunity to ask questions and
receive answers from the officers of Clarant concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
Clarant, the plans for the operations of the business of Clarant, the business,
operations and financial condition of the Other Founding Companies, and any
plans for additional acquisitions and the like. Each Member acknowledges that it
has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction. Each Member
represents and warrants that such Member has the requisite knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of this investment and is an "accredited investor" as defined
in Regulation D under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Closing Date, whenever Clarant proposes to register any Clarant Common Stock for
its own or others' account under the 1933 Act for a public offering, other than
(i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Clarant, (ii) registrations relating to
employee benefit plans and (iii) registrations relating to rights offerings made
to the stockholders
64
of Clarant, Clarant shall give each of the Members prompt written notice of its
intent to do so. Upon the written request of any of the Members given within
thirty (30) days after receipt of such notice, Clarant shall cause to be
included in such registration all of the Clarant Common Stock issued to the
Members pursuant to this Agreement which any such Member requests, provided that
Clarant shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares could, in the opinion
of tax counsel to Clarant or its independent auditors, jeopardize the status of
the transactions contemplated hereby and by the Registration Statement as a
tax-free organization. In addition, if Clarant is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 17.1
that the number of shares to be sold by Persons other than Clarant is greater
than the number of such shares which can be offered without adversely affecting
the offering, Clarant may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares proposed to be sold by
each such Person) to a number deemed satisfactory by such managing underwriter,
provided, that, for each such offering made by Clarant after the IPO, such
reduction shall be made first by reducing the number of shares to be sold by
Persons other than Clarant, the Members and the members of the Other Founding
Companies (collectively, the Members and the members of the other Founding
Companies being referred to herein as the "Founding Members"), and thereafter,
if a further reduction is required, by reducing the number of shares to be sold
by the Founding Members.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 17 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by Clarant. In
connection with registrations under Section 17.1, Clarant shall (i) use its
commercially reasonable best efforts to prepare and file with the SEC as soon as
reasonably practicable, a registration statement with respect to the Clarant
Common Stock and use its commercially reasonable best efforts to cause such
registration to promptly become and remain effective for a period of at least
one hundred twenty (120) days (or such shorter period during which Founding
Members shall have sold all Clarant Common Stock which they requested to be
registered); (ii) use its commercially reasonable best efforts to register and
qualify the Clarant Common Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the Clarant Common Stock; and (iii) take such other actions as
are reasonable and necessary to comply with the requirements of the 1933 Act and
the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, Clarant and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of Clarant's size and
investment stature, including indemnification provisions.
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17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated to
register shares of Clarant Common Stock held by any Member at any time when the
resale provisions of Rule 144(k) (or any successor provision) promulgated under
the 1933 Act are available to such Member for such shares.
17.5 MARKET STANDOFF. In consideration of the granting to the
Members of the registration rights under this Article 17, each of the Members
agrees that he or she will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of Clarant
Common Stock in the ten (10) days prior to the effectiveness of any registration
of Clarant Common Stock for sale to the public and for up to ninety (90) days
following the effectiveness of such registration; provided that all directors,
executive officers and holders of more than five percent (5%) of the outstanding
Clarant Common Stock agree to the same restrictions; and further provided that,
with respect to the first public offering of shares of the Clarant Common Stock
within three years following the IPO, the Members shall have been afforded a
meaningful opportunity to include shares in such registration after any
reduction by reason of underwriters' advice. Notwithstanding the foregoing, the
obligations of this Section 17.5 shall not apply to a registration relating
solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that
may be promulgated in the future, or a registration relating solely to a
Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future.
18. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Accredited Holders" shall have the meaning given to such term in
Section 2.1.
"Acquired Party" means the Company, any Subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies wholly-owned by Clarant prior to the Closing Date.
"Action" has the meaning set forth in Section 5.15.
"Additional Contingent Consideration" means contingent consideration
not to exceed Twenty-Five Million and 00/100 U.S. Dollars ($25,000,000) based
solely on UAL Revenues.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Affiliates" has the meaning set forth in Section 5.9.
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"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or
any of its Subsidiaries has or may acquire any rights, (b) under which the
Company or any of its Subsidiaries has or may become subject to any obligation
or liability, or (c) by which the Company or any of its Subsidiaries or any of
the Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as EXHIBIT 1.1
hereto or with such changes therein as may be required by applicable state laws.
"Balance Sheet" means a consolidated balance sheet of the Company and
any Subsidiaries.
"Balance Sheet Date" means March 31, 1999.
"Business" has the meaning set forth in the recitals of this Agreement.
"Charter Documents" has the meaning set forth in Section 5.1.
"Claim" has the meaning set forth in Section 11.3.
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Charter Documents" has the meaning set forth in Section 6.1.
"Clarant Common Stock" has the meaning set forth in Section 6.5.
"Clarant Expiration Date" means the date that is one year from the
Effective Time.
"Clarant Indemnified Party" has the meaning set forth in Section
11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.5.
"Clarant Stock" has the meaning set forth in Section 6.5.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
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"Closing Date" has the meaning set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant to the Internal
Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Other Benefit Obligation" has the meaning set forth in Section
5.17.
"Company Plan" has the meaning set forth in Section 5.17.
"Company Stock" has the meaning set forth in Section 2.1(a).
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Contingent Consideration" shall have the meaning given to such term in
Section 3.3.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Constituent Companies" has the meaning set forth in the recitals of
this Agreement.
"Convertible Securities" has the meaning set forth in Section 5.3.
"Defense Counsel" has the meaning set forth in Section 11.3.
"Defense Notice" has the meaning set forth in Section 11.3.
"Direct Claim" has the meaning set forth in Section 11.5.
"Effective Time" means the time as of which the Merger becomes
effective, which the parties hereto contemplate to occur at the Closing.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
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"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencement of activities, such as resource extraction or construction, that
could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the
release of pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated,
packaged, and used so that they do not present unreasonable risks to human
health or the Environment when used or disposed of;
(e) protecting resources, species, or ecological
amenities;
(f) reducing to acceptable levels the risks inherent in
transportation of hazardous substances or materials, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released,
preventing the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay a Governmental
Authority or private parties, or groups of them, for damages done to the
Environment, or permitting self-appointed representatives of the public interest
to recover for injuries done to public assets.
"ERISA Affiliate" has the meaning set forth in Section 5.17.
"Exhibit" means each Exhibit attached to this Agreement.
"Financial Statements" has the meaning set forth in Section 5.10(a).
"Founding Companies" has the meaning set forth in the recitals of this
Agreement.
"Founding Members" has the meaning set forth in Section 17.1.
"Fully-Diluted" shall have the meaning given to such term in Section
3.1(b).
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"GAAP" means generally accepted accounting principles as in effect on
the date hereof.
"Governmental Authority" means the United States or any state, local,
or foreign government, or any subdivision, agency, or authority of any thereof.
"Governmental Consents" has the meaning set forth in Section 5.4.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all Trademarks, copyrights, and patents
and any registration or application for any of the foregoing, and any trade
secret, invention, process, know-how, computer software, technology systems,
product design or product packaging.
"Investor Questionnaire" means the form of document attached as EXHIBIT
5.29(b) and as completed and delivered to Clarant by the Members.
"IPO" means the initial public offering of Clarant Common Stock
pursuant to the Registration Statement.
"Knowledge": an individual will be deemed to have "Knowledge" of a
particular fact if such individual is actually aware of such fact or other
matter. A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if Xxxxx X. Xxxxx, Xxxxx X. Xxxxxx, Xxxxx
X. Xxxxxxx, Xxxxxx X. Xxxxxxxx, Xxxx Xxxxxxxx, or Xxxxxxx Xxxxxxxxx has, or any
time had, Knowledge of such fact or other matter.
"Laws" means, as applicable (a) all applicable statutes, rules,
regulations, Orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped, (b)
all laws, rules, regulations, writs, injunctions, decrees, and Orders applicable
to the Company or to the operation of the Business, and (c) all statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property.
70
"Legal Requirement" means any federal, state, local, municipal,
foreign, or other administrative order, constitution, law, ordinance, principle
of common law, regulation, statute, or treaty.
"Losses" has the meaning set forth in Section 11.1.
"Material Adverse Effect" means with respect to any Person that is a
party to this Agreement, a material adverse change in (i) the business
operations, condition or prospects (financial or otherwise) of such Person, (ii)
the ability of such Person to consummate the transactions contemplated by the
Agreement, or (iii) the condition or value of the properties and assets of such
Person.
"Material Contract" means any Contract affecting or pertaining to the
Business that has a monetary obligation of at least $25,000 per year and that is
not cancelable by the Company without penalty upon notice of six (6) months or
less.
"Members" has the meaning set forth in the first paragraph of this
Agreement.
"Merger" means the merger of Newco with and into the Company pursuant
to this Agreement and the applicable provisions of the laws of the State of
[Delaware] [and other applicable state laws].
"Merger Consideration" shall have the meaning given to such term in
Section 3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Xx. Xxxxxx" means Xxxxxxxxx X. Xxxxxx, the Chief Executive Officer of
Clarant.
"Multi-Employer Plan" has the meaning set forth in Section 5.17.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"New Services" means any services that Clarant or the Surviving Company
performs for UAL Corp. pursuant to any new contract or agreement between the
Surviving Company or Clarant and UAL Corp., or pursuant to any engagement letter
agreeable to UAL Corp. and signed by the Surviving Company or Clarant, that is
executed and delivered by the parties thereto after May 25, 1999 and before June
30, 2002, but in any event excluding revenues received by Clarant or the
Surviving Company relating to the following projects for UAL Corp.: Middle
Market Business Plan (services expected to be completed on June 30, 1999); Mass
Market Plan (services expected to be completed on June 30, 1999); Portfolio
Management Project for Air Operations and Administration (services expected to
be completed on May 30, 1999); Portfolio Management
71
Project for Sales, Marketing and Planning (services expected to be completed by
August 15, 1999).
"New Consulting Services" means any New Services related to consulting
on e-commerce strategy, including business planning, organizational design,
process redesign, program management and change management, and any consulting
services of the type performed by the Company for UAL Corp. prior to the Closing
Date.
"New Other Services" means any New Services other than New Consulting
Services.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Non-accredited Holders" shall have the meaning given to such term in
Section 2.1.
"Options" has the meaning set forth in Section 5.3.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Authority or by an arbitrator.
"Ordinary Course of Business" means an action taken by a Person only
if:
a) such action is consistent with the past practices of
such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person; or
(b) such action is similar in nature and magnitude to
actions customarily taken in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of
business as such Person.
"Other Agreements" has the meaning set forth in the recitals of this
Agreement.
"Other Benefit Obligations" has the meaning set forth in Section 5.17.
"Other Founding Companies" has the meaning set forth in the recitals of
this Agreement.
"Pension Plan" has the meaning set forth in Section 5.17
"Permits" has the meaning set forth in Section 5.16(b).
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"Person" means any individual, corporation (including non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Plan" has the meaning set forth in Section 5.17.
"Plan Sponsor" has the meaning set forth in Section 5.17
"Plans" has the meaning set forth in Section 5.17.
"Pre-Closing" has the meaning set forth in Section 4.1.
"Pre-Closing Date" has the meaning set forth in Section 4.1.
"Pre-Closing Period" means any Taxable Period or portion thereof ending
on or before the Closing Date.
"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Authority.
"Qualified Plan" has the meaning set forth in Section 5.17.
"Qualified Plans" has the meaning set forth in Section 5.17.
"Real Property" has the meaning set forth in Section 5.23(a).
"Registration Statement" means that certain registration statement of
Clarant on Form S-1 covering the shares of Clarant Common Stock to be issued in
the IPO and attached hereto as SCHEDULE 18.1.
"Reimbursement" has the meaning set forth in Section 11.7.
"Relevant Group" has the meaning set forth in Section 5.24.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
73
"Schedule" means each Schedule attached hereto and identified as a
Schedule, which shall reference the relevant sections of this Agreement, on
which parties hereto disclose information as part of their respective
representations, warranties and covenants.
"Securities Agreements" shall have the meaning given to such term in
Section 5.3.
"SEC" means the United States Securities and Exchange Commission.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"State LLC Law" has the meaning set forth in Section 1.2.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Straddle Period" has the meaning set forth in Section 10.2(a).
"Subsidiary" means any entity the majority of voting shares or
interests of which are owned by the Company and/or by one or more Subsidiaries
of the Company.
"Surviving Company" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, transfer, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Tax Proceeding" means any audit, examination, claim or other
administrative or judicial proceeding relating to Taxes or Returns.
"Taxable Period" means any taxable year or other period that is treated
as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
"Third Party Claim" has the meaning set forth in Section 11.3.
"Threatened" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice
74
has been given in writing that such a claim, Proceeding, dispute, action or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.
"Title IV Plans" has the meaning set forth in Section 5.17.
"Trademarks" has the meaning set forth in Section 5.14.
"UAL Revenues" means revenues from New Services provided by Clarant to
UAL Corp. that are billed by Clarant between July 1, 1999, and June 30, 2002,
and collected by Clarant before completion of Clarant's 2002 fiscal year audit.
"Underwriters" means the underwriters of the IPO, as identified in the
Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement by and among
the Underwriters and the Company in respect of the IPO.
"VEBA" has the meaning set forth in Section 5.17.
"Welfare Plan" has the meaning set forth in Section 5.17.
"Year 2000 Compliant" has the meaning set forth in Section 5.27.
19. GENERAL
19.1 COOPERATION. The Company, the Members, Clarant and Newco shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Members will cooperate and use their reasonable efforts to
have the present officers, directors and employees of the Company cooperate with
Clarant on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Clarant, and the heirs and legal representatives of the Members.
19.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
Exhibits attached hereto which are incorporated by this reference) and the
documents delivered pursuant hereto constitute the entire agreement and
understanding among the Members, the Company, Newco
75
and Clarant and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance with
its terms and may be modified or amended only by a written instrument executed
by the Members, the Company, Newco and Clarant, acting through their respective
officers or trustees, duly authorized by their respective boards of directors.
Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby, provided
that the Company and the Members shall make a good faith effort to cross
reference disclosure, as necessary or advisable, between related Schedules.
19.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. This Agreement may be
executed and delivered by facsimile signature, which facsimile signature shall
be deemed an original.
19.5 EXPENSES.
(a) Whether or not the transactions herein contemplated
shall be consummated, Clarant will pay the fees, expenses and disbursements of
Clarant and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed by Clarant under this Agreement, including the
fees and expenses of Clarant's public auditors, Xxxxxx Xxxxxx & Xxxxxxxxx, and
any other Person retained by Clarant, and the costs of preparing the
Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of the
Members, the Company and their respective agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement and
any amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by the Company
and the Members under this Agreement, including the reasonable fees and expenses
of legal counsel to the Company and the Members.
(c) If the transaction herein contemplated is
consummated, Clarant will pay the fees, expenses, and disbursements of the
Members and the Company and their respective agents, representatives accountants
and counsel.
(d) Each Member acknowledges that he, and not the Company
or Clarant, will pay all Taxes including, but not limited to, income and
transfer taxes due upon receipt of the consideration payable pursuant to Article
2 hereof, and will assume all Tax or as a result of risks and liabilities of
such Member in connection with the transactions contemplated hereby.
19.6 NOTICES. All notices, requests, demands and other
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given
76
on the date of delivery, if delivered to the persons identified below, or on the
second business day, if delivered by a reputable overnight carrier, or on the
date of the return receipt acknowledgment after mailing if mailed by certified
or registered mail, postage prepaid, return receipt requested, or on the date
such transmission is made and confirmation of receipt obtained if a business
day, or if not, then on the next following business day, if sent by facsimile,
telecopy, telegraph, telex or other similar telegraphic communications
equipment, addressed as follows:
(a) If to Clarant, or Newco, addressed to them at:
0000 Xxxxx Xxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with copies to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
(b) If to the Members, addressed to them at their
addresses set forth on EXHIBIT 19.6, with copies to such counsel as is set forth
with respect to each Member on such EXHIBIT 19.6;
(c) If to the Company, addressed to it at:
Xxxxx X. Xxxxx
000 Xxxxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxxxxx 00000
Facsimile:
and marked "Personal and Confidential"
with a copy to:
Xxxxx X. Xxxxxxxx, Esq.
Xxxxxx & Xxxxxx
77
000 00xx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Facsimile: (000) 000-0000
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
19.7 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without reference to conflicts of laws
principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
19.11 MEMBERS' REPRESENTATIVE.
(a) Each holder of Company Units, by signing this
Agreement, designates Xxxxx X. Xxxxx or, in the event that Xxxxx X. Xxxxx is
unable or unwilling to serve, now or in the future, Xxxxx Xxxxxxx, to be the
Members' Representative for purposes of this Agreement. The Members shall be
bound by any and all actions taken by the Members' Representative on their
behalf.
(b) Clarant and Newco shall be entitled to rely upon any
communication or writings given or executed by the Members' Representative. All
notices to be sent to Members pursuant to this Agreement may be addressed to the
Members' Representative and any notice so sent shall be deemed notice to all of
the Members hereunder. The Members hereby consent and agree that the Members'
Representative is authorized to accept notice on behalf of the Members pursuant
hereto.
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(c) The Members' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Member, with full power
in his or her name and on his or her behalf to act according to the terms of
this Agreement in the absolute discretion of the Members' Representative; and in
general to do all things and to perform all acts including, without limitation,
executing and delivering all agreements, certificates, receipts, instructions
and other instruments contemplated by or deemed advisable in connection with
this Agreement. This power of attorney and all authority hereby conferred is
granted subject to the interest of the other Members hereunder and in
consideration of the mutual covenants and agreements made herein, and shall be
irrevocable and shall not be terminated by any act of either Member, by
operation of law, whether by the death or other event.
19.12 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
19.13 SURVIVAL. The representations and warranties set forth in this
Agreement shall survive the Closing and expire in accordance with Section 11.11.
The covenants of the parties to be performed offer the Closing shall survive the
Closing and expire in accordance with their respective terms.
19.14 ACCOUNTING TERMS. Except as otherwise expressly provided
herein, all accounting terms used in this Agreement shall be interpreted, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with U.S.
GAAP consistently applied.
[this space left intentionally blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC. POTOMAC PARTNERS ACQUISITION LLC
By: /s/ Xxxxxxxxx X. Xxxxxx By: /s/ Xxxxxxxxx X. Xxxxxx
Name: Xxxxxxxxx X. Xxxxxx Name: Xxxxxxxxx X. Xxxxxx
Title: President Title: Manager
POTOMAC PARTNERS MANAGEMENT
CONSULTING, LLC
By: /s/ Xxxxx X. Xxxxx
Name: Xxxxx X. Xxxxx
Title: Managing Partner
MEMBERS:
/s/ Xxxxx X. Xxxxxx /s/ Xxxx Xxxxxxxx
Xxxxx X. Xxxxxx Xxxx Xxxxxxxx
/s/ Xxxxx X. Xxxxx /s/ Xxxxx X. Xxxxxx
Xxxxx X. Xxxxx Xxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxxxx /s/ Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxxx Xxxxxx X. Xxxxxxx
/s/ Xxxxx X. Xxxxxxx /s/ Xxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx Xxxx X. Xxxxxxx
/s/ Xxxxxx Xxxxxxx /s/ Xxxxxxx Xxxxx
Xxxxxx Xxxxxxx Xxxxxxx Xxxxx
EXHIBIT 2.1(a)
Consideration
(a) At Closing, Clarant will deliver Merger Consideration to the Members,
holders of vested Options and Convertible Securities and holders of the
Company's participation rights equal to:
(i) Three Million Four Hundred Seventy Thousand One Hundred
Ninety-Seven (3,470,197) shares of Clarant Common Stock (the "Stock
Consideration") plus
(ii) cash of Two Million Fifty-Seven Thousand Seventy-Five and
72/100 U.S. Dollars ($2,057,075.72) times the IPO price per share of Clarant
Common Stock (the "Cash Consideration"); for example, if the IPO price per share
of Clarant Common Stock is $11.00, then Clarant will deliver to the Members and
holders of vested Options and Convertible Securities total Cash Consideration of
Twenty-Two Million Six Hundred Twenty-Seven Thousand Eight Hundred Thirty-Two
and 99/100 U.S. Dollars ($22,627,832.99).
(b) At Closing, the Merger Consideration shall be distributed among the
Members and the holders of vested Options and Convertible Securities and holders
of the Company's participation rights as follows:
(i) first, the holders of the Company's participation rights shall
receive their pro rata share of the Cash Consideration allocated according to
SCHEDULE 5.3C (with the exercise price of such participation rights being
retained by the Members for distribution pro rata among the Members and holders
of vested Options); and
(ii) second, the Members and holders of vested Options shall
receive their share (determined pro rata with respect to each other) of the
Stock Consideration and the portion of the Cash Consideration remaining after
distribution to the participation rights holders under subsection (b)(i) in the
ratio of seventy percent (70%) Clarant Common Stock and thirty percent (30%)
cash (with the exercise price of any vested Options to be paid into the
Surviving Company and to be retained by the Surviving Company as working
capital).
(c) The minimum IPO price per share of Clarant Common Stock is $9.90.
EXHIBIT 3.3
(a) Contingent Consideration will be paid to the Persons who are
Members as of the Closing Date contingent on the financial performance of the
Company and Clarant during the periods July 1, 1999 through December 31, 1999,
and January 1, 2000 through June 30, 2000 (each such period a "Measurement
Period"). The following tables set forth the projections and formulas for
determining the Contingent Consideration payable to the Member(s):
PROJECTIONS FOR DETERMINING CONTINGENT CONSIDERATION
PROJECTED
PROJECTED PROJECTED PROJECTED COMBINED
MEASUREMENT COMPANY COMPANY PRE- COMBINED PRE-TAX
PERIOD REVENUES TAX INCOME REVENUES INCOME
Jul. 1, 1999 - $7,980,000 $1,476,000 n/a n/a
Dec. 31, 1999
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
FORMULAS FOR DETERMINING CONTINGENT CONSIDERATION
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
Jul. 1, 1999 - 3 15 n/a [50% (Revenue Multiple) $78,700,000 $15,200,000
Dec. 31, 1999 x (Actual Company
Revenues - Projected
Company Revenues)]
+
[50% (Pre-Tax Income
Multiple) x (Actual Pre-
Tax Income - Projected
Pre-Tax Income)]
Jan. 1, 2000 - 3 15 19.31 [(Pool Share) x 50% $78,700,000 $15,200,000
Jun. 30, 2000 % (Revenue Multiple) x
(Actual Combined
Revenues - Projected
Combined Revenues)]
+
[(Pool Share) x 50% (Pre-
Tax Income Multiple) x
(Actual Combined Pretax
Income - Projected
Combined Pretax
Income)]
(b) For purposes of determining the amount of Contingent
Consideration payable to the Members:
(i) Pre-Tax Income shall mean net revenues less direct
costs less indirect costs and expenses, but including all taxes other than
Federal and state income taxes, provided, that, Pre-Tax Income expressly
excludes amortization of acquisition goodwill incident to the transactions
contemplated by the Agreement and in no event shall overhead and general and
administrative expenses of Clarant be deducted from the foregoing to arrive at
the determination of Pre-Tax Income;
(ii) Combined Revenues shall mean the total revenues of
the Founding Companies only, without giving effect to acquisitions by Clarant or
any Founding Company after the Closing Date, unless otherwise agreed to in
writing by Clarant;
(iii) Combined Pre-Tax Income shall mean the total Pre-Tax
Income of the Founding Companies only, without giving effect to acquisitions by
Clarant or any Founding Company after the Closing Date, unless otherwise agreed
to in writing by Clarant; and
(iv) except as otherwise expressly provided herein, all
accounting terms shall be interpreted in accordance with U.S. GAAP, based upon
consistent use of accounting principles and policies, revenue recognition
methods and reserve methodologies for the Measurement Period and the relevant
audited financial statements.
(c) The Contingent Consideration payable for a Measurement Period
shall be made in cash and shares of Clarant Common Stock, with the amount paid
in cash to be determined by Clarant in its sole and absolute discretion,
PROVIDED, THAT, such amount represents no less than twenty-five percent (25%),
nor more than fifty percent (50%), of the total amount of the Contingent
Consideration for the Measurement Period. For these purposes, each share of
Clarant Common Stock will be valued at the trailing 30-day average closing
price, ending on the day before the date of issuance.
(d) Within forty-five (45) days following the end of each
Measurement Period, Clarant shall cause Xxxxxx Xxxxxxxx to review Clarant's and
each Founding Company's books and records to determine, as applicable, the
Company's actual revenues ("Actual Company Revenues") and actual Pre-Tax Income
("Actual Company Pre-Tax Income"), and the actual Combined Revenues ("Actual
Combined Revenues") and actual Combined Pre-Tax Income ("Actual Combined Pre-Tax
Income"), for the Measurement Period. Within sixty (60) days following the end
of each Measurement Period, Clarant shall deliver a written notice (a
"Contingent Consideration Notice") to the Members' Representative, as defined in
Section 19.11, setting forth (i) the determination made by Xxxxxx Xxxxxxxx of
the Actual Company Revenues, Actual Company Pre-Tax Income, Actual Combined
Revenues and Actual Combined Pre-Tax Income, if applicable, (ii) the total
amount of the Contingent Consideration payable to the Members for the
Measurement Period and (iii) the amount of cash and shares of Clarant Common
Stock that will be paid to the Member(s) as Contingent Consideration for the
Measurement Period. As soon as practicable after delivering the Contingent
Consideration Notice, Clarant shall issue the shares of Clarant Common Stock to
be paid as Contingent Consideration and deliver such shares, along with the cash
to be paid as Contingent Consideration, to [CLARANT'S BANK] to hold in escrow
until final resolution of any disputes regarding the Contingent Consideration.
(e) The Members' Representative shall have fifteen (15) days from
the receipt of the Contingent Consideration Notice to notify Clarant if there is
a dispute about such Contingent Consideration Notice. If Clarant has not
received notice of such a dispute within such 15-day period, Clarant shall
direct [Clarant's Bank] to pay the cash portion of the Contingent Consideration
by wire transfer of immediately available funds to the Member(s) at the
account(s) identified on EXHIBIT 19.6 and deliver the shares of Clarant Common
Stock to eligible Members at the address(es) set forth on EXHIBIT 19.6. If,
however, the Members' Representative has delivered notice of such a dispute to
Clarant within such 15-day period, then Clarant's chief financial officer and
the Members' Representative shall meet (by conference telephone call or in
person at a mutually agreeable site) within one week after notice of a
disagreement is given as provided herein. Clarant's chief financial officer and
the Members' Representative shall attempt to make a final determination of the
Contingent Consideration payable for the Measurement Period. If Clarant's chief
financial officer and the Members' Representative do not reach agreement within
a reasonable time, either or both of them shall give notice of an impasse, in
which case they shall mutually agree on an independent accounting firm to review
the Contingent Consideration Notice (and related information) to determine the
amount of the Contingent Consideration. In the event that Clarant's chief
financial officer and the Members' Representative cannot agree on an independent
accounting firm, Xxxxxx Xxxxxxxx shall select such independent accounting firm.
The determination of such independent accounting firm shall be final and binding
on the parties hereto and promptly upon such determination Clarant shall direct
[Clarant's Bank] to deliver the Contingent Consideration to the Member(s). The
costs of the independent accounting firm shall be borne by the party whose
determination of the Contingent Consideration was furthest from the
determination of the independent accounting firm, or equally by the parties in
the event that the determination by the independent accounting firm is
equidistant between the Contingent Consideration as calculated by Clarant and
the Members' Representative.
(f) Any adjustments to the Contingent Consideration required to be
made as a result of the process described in paragraph (e) shall be made in
either cash or Clarant Common Stock, notwithstanding any other limitations
contained herein to the contrary.
(g) The amounts payable as Contingent Consideration shall be
deemed to include interest, if any, that would be imputed under the Code. No
additional payments shall be made to the Members for such imputed interest.
(h) The right to receive the Contingent Consideration shall not be
assignable by the Members.
(i) It is understood and agreed by all parties hereto that only
members of the Company as of the Effective Time who qualify as Accredited
Holders may receive Clarant Common Stock as part of the Contingent
Consideration.
(j) The parties acknowledge that Clarant intends to integrate the
businesses of the Founding Companies and implement policies applicable to
Clarant and its subsidiaries as a whole after the Closing Date. In integrating
the Founding Companies and implementing such policies, Clarant shall not take
any action intended to prejudice the Members' rights with respect to the
Contingent Consideration (or the Additional Contingent Consideration). In the
event that Clarant merges, consolidates, reorganizes, restructures or disposes
of a material portion of the assets of, or takes any similar action with respect
to, any one or more of the Founding Companies, Clarant shall maintain sufficient
records and recordkeeping procedures as is commercially practicable and
reasonably necessary to calculate the amount of Contingent Consideration and the
Additional Contingent Consideration payable to the Members in accordance with
the Agreement and the terms set forth in this EXHIBIT 3.3 or Section 3.4, as the
case may be.
(k) For purposes of calculating the Contingent Consideration during the
first Measurement Period, the Company's Actual Pre-tax Income shall be increased
by ten percent (10%) of any revenues of any one of the Other Founding Companies
from any Referred Work. The term "Referred Work" means work relating to a
project obtained from a client by the Company that the Company requests Clarant
to assign to one of the Other Founding Companies and which assignment request is
approved by Xx. Xxxxxx (or an officer of Clarant designated by Xx. Xxxxxx)
according to procedures established by Clarant.
