EXHIBIT 10.11
EXECUTION COPY
CONTRIBUTION AGREEMENT
BY AND BETWEEN
CLARANT WORLDWIDE CORPORATION
AND
YOUNG & RUBICAM INC.
JUNE 7, 1999
TABLE OF CONTENTS
1. THE PURCHASE.............................................................................................2
1.1 PURCHASE AND CONTRIBUTION OF ASSETS.............................................................2
1.2 LIABILITIES RELATED TO THE BUSINESS.............................................................4
2. [INTENTIONALLY OMITTED]..................................................................................5
3. DELIVERY OF CONSIDERATION................................................................................5
3.1 TENDER OF CONSIDERATION.........................................................................5
3.2 ALLOCATION OF CONSIDERATION.....................................................................5
3.3 EARN-OUT........................................................................................5
4. PRECLOSING AND CLOSING...................................................................................5
4.1 PRE-CLOSING.....................................................................................5
4.2 THE CLOSING.....................................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR........................................................7
5.1 DUE ORGANIZATION................................................................................7
5.2 AUTHORIZATION...................................................................................7
5.3 [Intentionally Omitted].........................................................................7
5.4 AUTHORITY; NO CONFLICT..........................................................................7
5.5 [Intentionally Omitted].........................................................................8
5.6 [Intentionally Omitted].........................................................................8
5.7 [Intentionally Omitted].........................................................................8
5.8 [Intentionally Omitted].........................................................................8
5.9 [Intentionally Omitted].........................................................................8
5.10 FINANCIAL STATEMENTS............................................................................8
5.11 LIABILITIES AND OBLIGATIONS.....................................................................8
5.12 ACCOUNTS AND NOTES RECEIVABLE...................................................................9
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.........................................................9
5.14 TRADEMARKS......................................................................................9
5.15 LITIGATION AND LEGAL PROCEEDINGS...............................................................10
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.......................................................11
5.17 EMPLOYEE BENEFITS..............................................................................11
5.18 INSURANCE POLICIES.............................................................................13
5.19 ENVIRONMENT....................................................................................13
5.20 LABOR AND EMPLOYMENT MATTERS...................................................................13
5.21 PERSONAL PROPERTY..............................................................................14
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND
COMMITMENTS....................................................................................15
5.23 REAL PROPERTY..................................................................................15
5.24 TAXES..........................................................................................16
5.25 BUSINESS CONDUCT...............................................................................18
5.26 DEPOSIT ACCOUNTS...............................................................................19
5.27 YEAR 2000 COMPLIANCE...........................................................................19
5.28 RELATIONS WITH GOVERNMENTS.....................................................................20
5.29 DISCLOSURE.....................................................................................20
5.30 WARRANTIES; PRODUCTS...........................................................................20
5.31 AFFILIATE TRANSACTIONS.........................................................................20
5.32 [Intentionally Omitted.........................................................................20
5.33 BROKERS........................................................................................20
5.34 OWNERSHIP AND CONDITION OF ASSETS..............................................................21
6. REPRESENTATIONS OF CLARANT..............................................................................21
6.1 DUE ORGANIZATION...............................................................................21
6.2 AUTHORIZATION..................................................................................21
6.3 CAPITAL STOCK..................................................................................21
6.4 SUBSIDIARIES...................................................................................22
6.5 LIABILITIES AND OBLIGATIONS....................................................................22
6.6 NO VIOLATIONS..................................................................................22
6.7 MISREPRESENTATION..............................................................................23
6.8 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS...................................................23
6.9 CONFORMITY WITH LAW; LITIGATION................................................................23
6.10 CLARANT COMMON STOCK...........................................................................23
6.11 NO SIDE AGREEMENTS.............................................................................23
6.12 ABSENCE OF CHANGES.............................................................................24
6.13 TAXES..........................................................................................25
7. COVENANTS PRIOR TO CLOSING..............................................................................25
7.1 ACCESS AND COOPERATION; DUE DILIGENCE..........................................................25
7.2 CONDUCT OF BUSINESS PENDING CLOSING............................................................26
7.3 PROHIBITED ACTIVITIES..........................................................................26
7.4 NO SHOP........................................................................................27
7.5 [Intentionally Omitted]........................................................................27
7.6 AGREEMENTS.....................................................................................28
7.7 NOTIFICATION OF CERTAIN MATTERS................................................................28
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT...........................................28
7.9 FINAL FINANCIAL STATEMENTS.....................................................................29
7.10 FURTHER ASSURANCES.............................................................................29
7.11 THIRD PARTY APPROVALS..........................................................................29
7.12 BASIS..........................................................................................29
7.13 AMENDMENT OF SCHEDULES.........................................................................29
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7.14 AUTHORIZED CAPITAL STOCK.......................................................................30
7.15 HSR FILING.....................................................................................30
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CONTRIBUTOR..................................................31
8.1 REPRESENTATIONS AND WARRANTIES.................................................................31
8.2 PERFORMANCE OF OBLIGATIONS.....................................................................31
8.3 NO LITIGATION..................................................................................31
8.4 OPINION OF COUNSEL.............................................................................31
8.5 REGISTRATION STATEMENT.........................................................................31
8.6 CONSENTS AND APPROVALS.........................................................................32
8.7 GOOD STANDING CERTIFICATES.....................................................................32
8.8 SECRETARY'S CERTIFICATE........................................................................32
8.9 CLOSING OF IPO.................................................................................32
8.10 EMPLOYMENT AGREEMENTS..........................................................................32
8.11 DIRECTOR INDEMNIFICATION.......................................................................32
8.12 TRANSITION SERVICES AGREEMENT..................................................................32
8.13 LISTING........................................................................................32
8.14 DIRECTORS......................................................................................32
8.15 MATERIAL ADVERSE EFFECT........................................................................33
8.16 TAX OPINION....................................................................................33
8.17 HSR ACT........................................................................................33
8.18 OPTIONS........................................................................................33
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT..........................................................33
9.1 REPRESENTATIONS AND WARRANTIES.................................................................33
9.2 PERFORMANCE OF OBLIGATIONS.....................................................................34
9.3 NO LITIGATION..................................................................................34
9.4 SECRETARY'S CERTIFICATE........................................................................34
9.5 NO MATERIAL ADVERSE EFFECT.....................................................................34
9.6 CONSENTS AND APPROVALS.........................................................................34
9.7 OPINION OF COUNSEL.............................................................................35
9.8 REGISTRATION STATEMENT.........................................................................35
9.9 EMPLOYMENT AGREEMENTS..........................................................................35
9.10 CLOSING OF IPO.................................................................................35
9.11 SATISFACTION...................................................................................35
9.12 TRANSITION SERVICES AGREEMENT..................................................................35
9.13 CONTRIBUTOR REPRESENTATIONS....................................................................35
10. COVENANTS OF CLARANT AND THE CONTRIBUTOR AFTER CLOSING..................................................35
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT...................................................35
10.2 TAX MATTERS....................................................................................35
10.3 DIRECTORS AND OFFICERS.........................................................................36
10.4 FURTHER ASSURANCES.............................................................................37
10.5 TRANSFER TAXES.................................................................................37
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10.6 [Intentionally Omitted]........................................................................37
10.7 EMPLOYEE RELATIONS AND BENEFITS................................................................37
10.8 POST CLOSING SERVICES..........................................................................38
10.9 GRANT OF LICENSE...............................................................................41
11. INDEMNIFICATION.........................................................................................42
11.1 INDEMNIFICATION BY CONTRIBUTOR.................................................................42
11.2 INDEMNIFICATION BY CLARANT.....................................................................43
11.3 INDEMNIFICATION PROCEDURE THIRD PARTY CLAIMS...................................................43
11.4 [Intentionally Omitted]........................................................................45
11.5 INDEMNIFICATION PROCEDURE OTHER CLAIMS........................................................45
11.6 FAILURE TO GIVE TIMELY NOTICE..................................................................45
11.7 REDUCTION OF LOSS..............................................................................45
11.8 SUBROGATION....................................................................................45
11.9 ARBITRATION....................................................................................46
11.10 EXCLUSIVE REMEDIES.............................................................................46
11.11 LIMITATION AND EXPIRATION......................................................................46
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND
COVENANTS......................................................................................48
12. TERMINATION OF AGREEMENT................................................................................48
12.1 TERMINATION....................................................................................48
12.2 LIABILITIES IN EVENT OF TERMINATION............................................................48
13. NONCOMPETITION..........................................................................................48
13.1 PROHIBITED ACTIVITIES..........................................................................48
DAMAGES........................................................................................49
13.2 DAMAGES........................................................................................49
13.3 REASONABLE RESTRAINT...........................................................................49
13.4 SEVERABILITY; REFORMATION......................................................................49
13.5 INDEPENDENT COVENANT...........................................................................49
13.6 MATERIALITY....................................................................................50
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................50
14.1 CONTRIBUTOR....................................................................................50
14.2 CLARANT........................................................................................50
14.3 DAMAGES........................................................................................51
14.4 SURVIVAL.......................................................................................51
15. [INTENTIONALLY OMITTED].................................................................................51
16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................51
16.1 NONREGISTRATION OF CLARANT COMMON STOCK........................................................51
16.2 COMPLIANCE WITH LAW............................................................................51
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16.3 ECONOMIC RISK; SOPHISTICATION..................................................................52
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17. REGISTRATION RIGHTS.....................................................................................52
17.1 REGISTRATION RIGHTS............................................................................52
17.2 REGISTRATION PROCEDURES........................................................................54
17.3 UNDERWRITING AGREEMENT.........................................................................54
17.4 AVAILABILITY OF RULE 144.......................................................................54
17.5 MARKET STANDOFF................................................................................54
18. DEFINITIONS.............................................................................................55
19. GENERAL.................................................................................................61
19.1 COOPERATION....................................................................................61
19.2 SUCCESSORS AND ASSIGNS.........................................................................62
19.3 ENTIRE AGREEMENT...............................................................................62
19.4 COUNTERPARTS...................................................................................62
19.5 EXPENSES.......................................................................................62
19.6 NOTICES........................................................................................63
19.7 GOVERNING LAW..................................................................................64
19.8 EXERCISE OF RIGHTS AND REMEDIES................................................................64
19.9 TIME...........................................................................................64
19.10 REFORMATION AND SEVERABILITY...................................................................64
19.11 [Intentionally Omitted]........................................................................64
19.12 CAPTIONS.......................................................................................64
19.13 SURVIVAL.......................................................................................64
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EXHIBITS AND SCHEDULES
EXHIBITS:
3.1 Consideration
3.2 Allocation of Consideration
3.3 Contingent Consideration
4.1(b)(ii) Form of General Assignment and Xxxx of Sale
4.1(b)(iii) Form of Instrument of Assumption of
Liabilities
4.1(b)(iv) Form of Transition Services Agreement
8.10 Form of Employment Agreement
10.8(i) Form of Option Agreement
SCHEDULES:
1.1(a)(ii) Fixed Assets
1.1(a)(iii) Permits
1.1(a)(iv) Assigned Contracts
1.1(a)(v) Computer Software
1.1(b)(v) Logo
5.4 Consents
5.10 Financial Statements
5.11 Liabilities and Obligations
5.12 Accounts and Notes Receivable
5.13 Patents and Other Intellectual Property
5.14 Trademarks
5.15 Litigation
5.16 Compliance with Applicable Laws; Permits
5.18 Insurance Policies
5.19 Environment
5.20 Labor and Employment Matters
5.21 Personal Property
5.22 Significant Customers; Material Contracts
and Commitments
5.23 Real Property
5.24 Taxes
5.25 Business Conduct
5.26 Deposit Accounts
5.27 Year 2000 Compliance
5.30 Warranties; Products
5.31 Affiliate Transactions
6.3(a) Capital Stock
6.5 Liabilities and Obligations
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6.6 No Violations
6.8 Business; Real Property; Material Agreements
6.9 Conformity with Law; Litigation
7.6 Agreements
9.6 Consents and Approvals
9.9 Employment Agreements
10.8(b) Work Orders
10.8(c) Existing Clients of Contributor
10.8(g) Clients of Clarant
10.9(b) Licensed Material
11.1(d) Indemnification
13.1(a)(ii) Certain Companies
18.1 Draft Registration Statement
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CONTRIBUTION AGREEMENT
This Contribution Agreement (the "Agreement") is entered into as of
June 7, 1999 by and between Clarant Worldwide Corporation, a Delaware
corporation ("Clarant"), and Young & Rubicam Inc., a Delaware corporation (the
"Contributor").
WHEREAS, Brand Dialogue ("Brand Dialogue"), an unincorporated division
of the Contributor with operations in New York, and elsewhere in the United
States and the world, provides consulting services to businesses seeking to
market through the Internet;
WHEREAS, Clarant desires to acquire, and the Contributor desires to
contribute, certain of Brand Dialogue's assets located in New York, New York and
used principally in connection with Brand Dialogue's operations in New York, New
York (such operations hereinafter referred to as the "Business"), which assets
are more fully described in Section 1.1 below;
WHEREAS, Clarant has agreed to assume certain liabilities relating to
or arising out of the Business and the Acquired Assets (as defined in Section
1.1 below);
WHEREAS, Clarant plans to enter into other separate agreements (the
"Other Agreements") with Align Solutions Corp., a Delaware corporation, Free
Range Media, Inc., a Washington corporation, InterActive8, Inc., a New York
corporation, Multimedia Resources LLC, a New York limited liability company,
Potomac Partners Management Consulting LLC, a Delaware limited liability
company, RSI Group, Inc., a Texas corporation, and Integrated Consulting, Inc.,
d/b/a/ i.con interactive, a Texas corporation (collectively, the "Other Founding
Companies" and together with the Contributor, the "Founding Companies"), and
their respective principal owners in order to acquire additional Internet
consulting organizations;
WHEREAS, this Agreement and the Other Agreements and the transactions
contemplated thereby constitute the "Clarant Plan of Organization;"
WHEREAS, in consideration of the agreements of the Other Founding
Companies as set forth in the Other Agreements, the Board of Directors of the
Contributor has approved this Agreement and the transactions contemplated hereby
and thereby;
WHEREAS, in consideration of the agreements of the Other Founding
Companies as set forth in the Other Agreements, the Board of Directors and the
stockholders of Clarant have approved the Clarant Plan of Organization, this
Agreement and the transactions contemplated hereby and thereby; and
WHEREAS, the parties have approved this Agreement and the Plan of
Organization as an integrated plan to transfer the Acquired Assets (as defined
in Section 1.1 below) to Clarant under Section 351 of the Code.
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 PURCHASE
1.1 PURCHASE AND CONTRIBUTION OF ASSETS. Upon and subject to the terms
and conditions of this Agreement, the Contributor shall contribute, convey,
assign, transfer and deliver to Clarant, and Clarant shall purchase, acquire and
accept from Contributor, the assets described in subsection (a) hereof,
excluding however, the Excluded Assets, as they exist on the Closing Date, in
each case, whether such assets are real and personal, tangible and intangible,
absolute or contingent, and whether or not such assets are carried or reflected
on the books and records of the Contributor (collectively, the "Acquired
Assets").
(a) ACQUIRED ASSETS. The Acquired Assets shall include,
subject in each case to Section 1.1(b), the assets of the Business described in
clauses (i) through (viii) below:
(i) All of the Contributor's trade accounts
receivable allocated directly to the Business (collectively, the "Accounts
Receivable") and pre-paid expenses allocated directly to the Business, in each
case as existing on the Closing Date;
(ii) All of the Contributor's owned
machinery, equipment, tools, data processing equipment, computers and peripheral
equipment and other personal property, in each case, listed in SCHEDULE
1.1(a)(ii) (the "Fixed Assets");
(iii) Contributor's Permits (as defined in
Section 5.16(b)) listed on SCHEDULE 1.1(a)(iii) to the extent
the same may be lawfully sold or transferred;
(iv) All of Contributor's rights and
benefits pursuant to or arising from those Contracts listed on SCHEDULE
1.1(a)(iv) (collectively, the "Assigned Contracts"), including all deposits and
prepayments relating to any of the Assigned Contracts;
(v) all of Contributor's right to use, to the
extent such right is transferable, the computer software listed on SCHEDULE
1.1(a)(v) and used in connection with the Business, including, but not limited
to, data and related documentation (the "Computer Software");
(vi) all confidential or proprietary
business information and brand-building models and systems (including research
and development, know-how, formulas, compositions, principles and techniques,
technical data, designs, drawings, blueprints, specifications, certifications
and file reports) used solely in connection with the Business (the "Intellectual
Property");
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(vii) Copies of the Business's customer and
supplier lists, contacts and files, catalogues, brochures, pricing and other
marketing information and materials, supplies, form marketing literature and
videos, and all similar data and materials of all kinds in each case only to the
extent solely related to the Business; and
(viii) True copies of all of the books, records,
data and information relating solely to the Business (collectively, the "Books
and Records"), including, without limitation, all general, financial and
accounting records, purchase orders and invoices, sales orders and sales order
log books, personnel records, correspondence and miscellaneous records with
respect to customers and supply sources, and all other general correspondence,
records, books and files now owned or hereafter acquired by the Contributor with
respect to the Business.
(b) EXCLUDED ASSETS. Notwithstanding Section 1.1(a), all the
following assets (the "Excluded Assets") shall be retained by Contributor and
shall not be transferred pursuant to this Agreement:
(i) Cash on hand, cash equivalents (including
all amounts reflected as "Due from related parties, net" on the Balance Sheet),
investments (including stock, debt instruments, options and other instruments
and securities) and bank deposits as of the Closing Date;
(ii) Contributor's original corporate
minute books, stock records, tax returns, and any other books and records of the
Contributor PROVIDED, HOWEVER, that the Books and Records described in Section
1.1(a)(ix) above shall not be deemed Excluded Assets and PROVIDED FURTHER that
copies of any such books and records that are Excluded Assets and that relate to
the Business or the Acquired Assets shall be made available to Clarant in
accordance with Section 10.2(c) and any Books and Records acquired by Clarant
shall be made available to the Contributor in accordance with Section 10.2(c)
hereof;
(iii) All rights of Contributor under this
Agreement and the documents delivered in connection herewith; and
(iv) All accounts receivable of Contributor
not allocated to the Business or which have been written off or reserved
prior to Closing, and all collections associated therewith;
(v) All rights to the use of the name "Brand
Dialogue" and any variation or derivation thereof or confusingly similar term
and any trademarks, service marks, trade names, trade dress, logos, business and
product names, slogans and registrations and applications for registration
thereof incorporating, using or referring to the name "Brand Dialogue," or used
in connection with the Business prior to the Closing (including without
3
limitation, the logo attached hereto as SCHEDULE 1.1(b)(v)); PROVIDED, HOWEVER,
that Clarant shall, pursuant to Section 10.9, have certain rights with respect
to the foregoing;
(vi) All assets of the Contributor which are
not located in New York, New York, whether or not used principally in
connection with the Business;
(vii) All assets necessary in connection with
Brand Dialogue's operations in locations other than New York;
(viii) All rights of the Contributor to any refund
of Taxes (as defined in Section 5.24(c));
(ix) All Contributor Plans (as defined in
Section 5.17(a) and all assets relating to such plans;
(x) All claims, rights and causes of action to
the extent related to an Excluded Asset or Retained Liability
(as defined in Section 1.2(b));
(xi) All furniture and fixtures; and
(xii) Subject to the Transition Services
Agreement, all corporate services rendered to the Business by the Contributor,
including without limitation, services rendered by the accounting, payroll and
benefits departments of the Contributor.
1.2 LIABILITIES RELATED TO THE BUSINESS.
(a) ASSUMED LIABILITIES. Subject to Section 1.2(b), upon and
subject to the terms and conditions of this Agreement, Clarant shall assume,
perform and timely pay and discharge, from and after the Closing, all of the
following liabilities or obligations and no other liabilities or obligations
(collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations arising
under or relating to the Assigned Contracts, except for liabilities under any
Assigned Contract for any breach, act or omission by the Contributor prior to
the Closing;
(ii) Any current payables, accrued expenses
or other current liabilities incurred or accrued in the
ordinary course of operation of the Business;
(iii) Liabilities and obligations respecting
employees to the extent provided in Section 10.7 hereof;
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(iv) Any Encumbrances on the Acquired
Assets that would not, in the aggregate, cost more than $10,000 to satisfy or
have released;
(v) All liabilities for Taxes relating solely
to the Business or the Acquired Assets and that are incurred in or are
attributable to Post-Closing Periods, but not including any liability for Taxes
which are delinquent as of the Closing Date; and
(vi) Any liabilities or obligations relating
to or arising out of the conduct of the Business or ownership or use of the
Acquired Assets from and after the Closing Date.
(b) RETAINED LIABILITIES. Notwithstanding the foregoing or
anything to the contrary set forth herein, Clarant shall not assume or become
responsible for, and the Contributor shall remain solely liable for, any and all
liabilities or obligations (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated, whether accrued or unaccrued,
whether due or to become due, and whether claims with respect thereto are
asserted before or after the Closing) of the Contributor which are not Assumed
Liabilities (collectively, the "Retained Liabilities").
2. [INTENTIONALLY OMITTED]
3. DELIVERY OF CONSIDERATION
3.1 TENDER OF CONSIDERATION. On the Closing Date, Clarant shall deliver
to the Contributor, free and clear of all Encumbrances and claims of every kind,
the number of shares of Clarant Common Stock set forth on EXHIBIT 3.1 (the
"Consideration").
3.2 ALLOCATION OF CONSIDERATION. Clarant and the Contributor agree to
allocate the Consideration (and all other capitalizable costs) among the
Acquired Assets for all purposes (including financial accounting and Tax
purposes) in accordance with the allocation schedule attached hereto as EXHIBIT
3.2.
3.3 EARN-OUT. In addition to the Consideration tendered to Contributor
on the Closing Date in accordance with Section 3.1, and subject to the terms of
this Section 3.3, Clarant shall deliver contingent consideration determined
according to the formula and terms stated on EXHIBIT 3.3 (the "Contingent
Consideration") to the Contributor.
4. PRE-CLOSING AND CLOSING
4.1 PRE-CLOSING. At or prior to the Pre-Closing, the parties shall
cooperate and use their reasonable efforts to prepare to (a) effect the
transactions contemplated hereby and (b) deliver the Consideration; PROVIDED,
THAT, such actions shall not include the actual completion of
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such transactions for purposes of this Agreement or the delivery of such stock,
each of which actions shall only be taken upon the Closing Date as herein
provided. The actions described in clauses (a) and (b) above are hereinafter
referred to as the "Pre-Closing" and the day following the date that the
Registration Statement is declared effective by the Securities and Exchange
Commission is hereinafter referred to as the "Pre-Closing Date."
4.2 THE CLOSING.
(a) The Closing of the transactions contemplated by this
Agreement shall take place on such mutually agreeable date (the "Closing Date")
as soon as practicable after the satisfaction or waiver of the conditions to
Closing set forth in Articles 8 and 9 hereof, but in no event more than five (5)
business days after such satisfaction or waiver or more than fifteen (15)
business days after the Pre-Closing Date.
(b) At the Closing:
(i) all conditions to Closing as set forth in
Articles 8 and 9 of this Agreement shall have been satisfied;
(ii) the parties shall execute a General
Assignment and Xxxx of Sale in substantially the form attached hereto as EXHIBIT
4.2(b)(ii) and execute and deliver, as appropriate, such other instruments of
conveyance as Clarant may reasonably request in order to effect the sale,
transfer, conveyance and assignment to Clarant of valid ownership of the
Acquired Assets, including any required consents, approvals or permits;
PROVIDED, HOWEVER, that no such document shall expand in any way any of the
Contributor's representations, warranties or obligations hereunder;
(iii) the parties shall execute an Instrument of
Assumption of Liabilities substantially in the form attached hereto as EXHIBIT
4.2(b)(iii) and such other instruments as the Contributor may reasonably request
in order to effect the assumption by Clarant of the Assumed Liabilities;
(iv) the parties shall execute a transition
services agreement (the "Transition Services Agreement") substantially in the
form attached hereto as EXHIBIT 4.2(b)(iv);
(v) the Contributor shall deliver to Clarant,
or otherwise make available to Clarant, all of the Acquired Assets of a tangible
nature (including without limitation such electronic and hard copy
manifestations of the Intellectual Property and related documentation as Clarant
shall reasonably request). However, notwithstanding this or any other provision
of this Agreement, Clarant shall take possession of the Acquired Assets on the
Closing Date at the Contributor's address set forth in Section 19.6, at no cost
or expense to Contributor;
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(vi) the parties shall deliver all other
previously undelivered documents, instruments and writings required to be
delivered by the Contributor and Clarant at or prior to the Closing pursuant to
this Agreement or otherwise in connection herewith; and
(vii) Clarant shall deliver to the Contributor
stock certificates evidencing the number of shares of Clarant Common Stock set
forth on EXHIBIT 3.1.
5. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to Clarant that all of the
following representations and warranties in this Article 5 are true and correct
at the date of this Agreement, and further represents and warrants that such
representations and warranties shall survive the Closing Date in accordance with
Section 11.12. The representations and warranties in this Article, except for
those contained in Sections 5.17 (employee benefits) and 5.20 (labor and
employment matters), relate solely to the Business, the Acquired Assets and the
Assumed Liabilities, unless expressly stated otherwise.
5.1 DUE ORGANIZATION. The Contributor is duly organized, validly
existing, and in good standing under the laws of the state of its incorporation
and has all requisite power and authority to operate the Business as it is now
being conducted and to own or use the Acquired Assets, and to perform all of its
obligations under the Material Contracts. The Contributor is duly qualified as a
foreign corporation to conduct business, and is in good standing, under the laws
of each state in which the nature of the activities conducted by the Business
requires such qualification and where failure to do so would have a Material
Adverse Effect on the Business.
5.2 AUTHORIZATION. The officers of the Contributor executing this
Agreement are duly authorized to execute and deliver this Agreement. The
execution and delivery of this Agreement by the Contributor and performance by
the Contributor of its obligations under this Agreement and the consummation by
the Contributor of the transactions contemplated hereby have been duly
authorized by all necessary corporate action in accordance with applicable law
and the Articles of Incorporation and Bylaws ("Charter Documents") of the
Contributor. This Agreement constitutes the valid and binding obligation of the
Contributor, enforceable in accordance with its terms.
5.3 [Intentionally Omitted]
5.4 AUTHORITY; NO CONFLICT.
(a) Except to the extent consents, approvals, filings, notices
or other similar actions are required from or with third parties or Governmental
Authorities (the "Consents"), the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby will not:
7
(i) violate or conflict with or result in
a material breach of any provision of any Law, permit, judgment, or other
decision of any Governmental Authority binding on the Contributor, or conflict
with or result in the breach of any of the material terms, conditions or
provisions thereof;
(ii) violate, conflict with or constitute a
default under any of the Charter Documents of the Contributor or result in a
material breach of any Material Contract;
(iii) 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; or
(iv) result in the creation or imposition
of any material Encumbrance upon the Acquired Assets.
(b) SCHEDULE 5.4 sets forth and describes each Consent.
5.5 [Intentionally Omitted]
5.6 [Intentionally Omitted]
5.7 [Intentionally Omitted]
5.8 [Intentionally Omitted]
5.9 [Intentionally Omitted]
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Contributor has
delivered, on the date hereof, to Clarant (as SCHEDULE 5.10) copies of the
following financial statements relating to the Business (the "Financial
Statements"): audited balance sheet, statement of operations, and statement of
cash flows at and for the fiscal year ended December 31, 1998 and unaudited
balance sheet, statement of operations, and statement of cash flows at and for
the interim period ended March 31, 1999.
(b) Each of the Financial Statements fairly presents the
Business' 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 unaudited interim financial
statements which were or are subject to normal and recurring year-end
adjustments.
8
5.11 LIABILITIES AND OBLIGATIONS. The Contributor has delivered to
Clarant an accurate list relating solely to the Acquired Assets and the Business
(which is set forth on SCHEDULE 5.11) as at the Balance Sheet Date of (a) all
liabilities of the Business existing at the Balance Sheet Date which are not
reflected in the Financial Statements at the Balance Sheet Date, (b) any
material liabilities of the Business (including but not limited to all
liabilities in excess of $50,000) existing at the Balance Sheet Date, and (c)
all loan agreements, notes and other debt obligations (whether secured or
unsecured), indemnity or guaranty agreements, bonds or material Encumbrances
which encumber the Acquired Assets or which constitute an Assigned Contract or
Assumed Liability existing at the Balance Sheet Date. Except as set forth on
SCHEDULE 5.11, since the Balance Sheet Date, no material liabilities of any
kind, character and description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, relating to the Business have been incurred,
other than liabilities incurred in the Ordinary Course of Business that will not
have a Material Adverse Effect on the Business.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Contributor has delivered to
Clarant an accurate list relating to the Acquired Assets or the Business (which
is set forth on SCHEDULE 5.12) of the Accounts Receivable as at the Balance
Sheet Date (excluding all amounts reflected as "Due from related parties, net"
on the Balance Sheet) and any notes receivable included in the Acquired Assets
as at the Balance Sheet Date, and including receivables from and advances to
employees. Within ten (10) days prior to Closing, with respect to the Business,
the Contributor shall provide Clarant (a) an accurate list of all outstanding
receivables allocable directly to the Business and 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"). The
Contributor has no reason to believe that any such account receivable, to the
extent it is an Acquired Asset, is not or shall not be, collectible in the
amounts shown (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).
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) with respect to the Business, all material Intellectual
Property is described and set forth with particularity in SCHEDULE 5.13 along
with information as to the ownership thereof or licenses, rights or immunities
therein and registrations thereof;
(b) with respect to the Business, except as disclosed in
SCHEDULE 5.13:
(i) Contributor has not infringed on,
misappropriated, or otherwise conflicted with, and is not now, infringing on,
misappropriating or otherwise conflicting with, in any material way, any patent
or other intellectual property right belonging to any Person;
(ii) the Contributor has the right and
authority to use all Intellectual Property as is necessary to enable it to
conduct all phases of the Business in the manner presently
9
conducted and, to the Knowledge of the Contributor, such use does not and will
not conflict with, infringe on or misappropriate any intellectual property
rights of any Person; and
(iii) to the Knowledge of the Contributor, there
is no unauthorized use, infringement or misappropriation of any of the
Intellectual Property.
5.14 TRADEMARKS.
(a) With respect to the Business, all material trademarks,
service marks, trade dress, trade names, and copyrights used by the Contributor
in the conduct of the Business ("Trademarks") are described and set forth with
particularity in SCHEDULE 5.14, along with information as to the ownership
thereof.
(b) Except as disclosed in SCHEDULE 5.14, the Business has not
infringed on nor is it now infringing on, in any material way, any Trademark of
or belonging to another Person.
5.15 LITIGATION AND LEGAL PROCEEDINGS.
(a) Except as set forth in SCHEDULE 5.15, with respect to the
Acquired Assets, Assumed Liabilities or the Business:
(i) there is no suit, private proceeding,
action, liability or claim (collectively, "Actions") pending or, to the
Contributor's Knowledge, Threatened, which may have a Material Adverse Effect on
the Business;
(ii) to the Knowledge of the Contributor,
the Contributor has given all required notice of such Actions to the appropriate
insurance carrier(s) and/or all such Actions have been appropriately 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 matters (other than workers
compensation claims) directly affecting the Business were closed during the one
(1) year period preceding the date of this Agreement;
(iv) there is no pending Proceeding that has
been commenced that relates to and may adversely affect the Business, and, to
the Knowledge of the Contributor, no such Proceeding has been Threatened; and
10
(v) neither the Business nor the Acquired
Assets are subject to any judgment, Order, or decree of any Governmental
Authority and, to Contributor's Knowledge, none is Threatened which is
reasonably likely to have a Material Adverse Effect on the Business. Except as
disclosed in SCHEDULE 5.15, the Contributor is not engaged in any legal action
to recover money due to it for damages sustained by the Business.
(b) Matters disclosed in SCHEDULE 5.15 shall include the
following information:
(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
(3) name of claimant and, if known, all
other parties to the Action;
(ii) name of each court or agency before which
such Action is pending; and
(iii) date such Action was instituted.
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.
(a) Except as set forth on SCHEDULE 5.16, the Contributor has
complied in all material respects with all laws, rules, regulations, writs,
injunctions, decrees, and Orders (collectively, "Laws") applicable to the
operation of the Business and the Acquired Assets and has not received any
notice of any Threatened claim, violation of, liability or potential
responsibility under, any such Law which has not heretofore been cured and for
which there is no remaining liability other than those not having a Material
Adverse Effect.
(b) The Contributor holds all licenses, permits and other
governmental authorizations (the "Permits") necessary to the conduct of the
Business the absence of any of which would have a Material Adverse Effect, and
the Contributor 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 Contributor, the Permits listed on SCHEDULES 5.16 are valid,
and the Contributor has not received any notice that any Governmental Authority
intends to cancel, terminate or not renew any Permit. The Contributor conducted
and is conducting the Business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits listed on SCHEDULE 5.16 and is
not in violation of any of the foregoing except where such non-
11
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 Contributor by, any
of the Permits.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms have the
meanings set forth below:
"Contributor Other Benefit Obligation" means an Other Benefit
Obligation the Contributor sponsors or maintains or with respect to which the
Contributor has liability (whether actual or otherwise), in each case with
respect to any present or former directors, employees, or agents of the
Contributor with respect to the Business.
"Contributor Plan" means all Plans (including any multiemployer
plans as defined in ERISA Section 3(37)(A)) of which the Contributor or an
ERISA Affiliate of the Contributor is or was a Plan Sponsor, or to which the
Contributor or an ERISA Affiliate of the Contributor otherwise contributes or
has contributed or has or may have any liability, or in which the Contributor
or an ERISA Affiliate of the Contributor otherwise participates or has
participated.
"ERISA" means the Employee Retirement Income Security Act
of 1974 as amended.
"ERISA Affiliate" means, with respect to the Contributor, any other
Person that, together with the Contributor, would be treated as a single
employer under Section 414 of the Code or ERISA Section 4001 and any general
partnership of which the Contributor is or has been a general partner.
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, agents or independent contractors (other than obligations,
arrangements, and practices that are Plans). Other Benefit Obligations include
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 (including
arrangements under which the compensation paid does not depend upon the amount
of services rendered), workers' compensation, retirement, deferred compensation,
bonus, stock option or purchase, hospitalization, 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 (including all or substantially all) of the assets of any
business or portion
12
thereof, in each case with respect to any present or former employees or
directors excluding any arrangements that, in the aggregate, do not reflect
liability for more than $25,000.
"Plan" has the meaning given in ERISA Section 3(3), including plans
exempted by another provision of ERISA.
(b) Contributor has provided a list of all Contributor Plans
and all Contributor Other Benefit Obligations to Clarant and copies of all
material descriptive materials provided to employees of the Business with regard
to such plans and benefit obligations (all of which accurately and completely
describe the material terms of such plans and benefit obligations) and copies of
any personnel or employment manuals covering employees of the Business.
(c) Clarant has and will have no liability or obligation with
respect to any Contributor Plan or Contributor Other Benefit Obligation, except
as expressly assumed by Clarant under Section 10.7.
(d) No Contributor Plan or Contributor Other Benefit
Obligation contains any provision 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 Contributor
has not declared, paid, or promised any bonus or incentive compensation in
contemplation of the transactions contemplated by this Agreement.
5.18 INSURANCE POLICIES.
(a) With respect to the Business and the Acquired Assets, the
Contributor has made available to Clarant a summary of all policies of insurance
covering the Business or the Acquired Assets to which the Contributor is a party
or has been covered at any time within one (1) year preceding the date of this
Agreement, including, but not limited to, general liability, property, fire,
theft, automobile, all-risk, business interruption and workers' compensation
insurance. There are no outstanding claims relating to the Business or the
Acquired Assets under any such insurance policies.
(b) With respect to any insurance policy covering the Business
and the Acquired Assets, except as set forth in SCHEDULE 5.18, the Contributor
has not received (i) any refusal of coverage or (ii) any notice of cancellation,
in each case, as a result of the nature of Business or Acquired Assets.
5.19 ENVIRONMENT.
(a) With respect to the Business and the Acquired Assets,
except as set forth in SCHEDULE 5.19:
13
(i) the Business is in material compliance
with, and has not been, and is not now, in material violation
of, or materially liable under, any Environmental Law; and
(ii) the Business possesses all material Permits
required by Environmental Law.
(b) With respect to the Business to the knowledge of the
Contributor, except as disclosed in SCHEDULE 5.19:
(i) the Contributor has not received any
written notice of any Action or Threatened Action relating to the presence of
Hazardous Materials in, under, or upon any real estate currently used by the
Business;
(ii) there are no pending or, to the Knowledge of
the Contributor, Threatened, Actions or Proceedings from any Governmental
Authority or any other entity regarding any matter regulated by Environmental
Law which would have a Material Adverse Effect on the Business.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of the Business:
(a) the Contributor 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 Contributor's Knowledge, Threatened with respect to such
laws, either by private individuals or by Governmental Authority that, if
determined adversely, would have a Material Adverse Effect.
(b) the Contributor 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 Contributor pending or, to
the Contributor's Knowledge, Threatened, before the National Labor Relations
Board or any other comparable authority that, if determined adversely, would
have a Material Adverse Effect;
(c) no labor union represents or has represented in the last
three (3) years employees of the Business and no collective bargaining agreement
relating to employees of the Business is binding against the Contributor. The
Contributor is not currently negotiating to enter into such agreements. No
grievance or arbitration proceeding arising out of or under collective
14
bargaining agreements or employment relationships is pending, and no claims
therefor exist or have, to the Contributor's Knowledge, been Threatened;
(d) no labor strike, lock-out, slowdown, or work stoppage
directly affecting the Business is, or, within the last three (3) years, has
been, pending or Threatened against or directly affecting the Business; and
(e) SCHEDULE 5.20 hereto sets forth an accurate list, as of
the date hereof, of all employees of the Business together with their current
annual salaries, and lists all employment agreements with such employees 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) With respect to the Business, the Contributor has
delivered to Clarant an accurate list (which is set forth on SCHEDULE 5.21(a))
of (i) all personal property having a value greater than $10,000 included in the
Acquired Assets which is included (or that will be included) in "depreciable
plant, property and equipment" (or similarly named line item) on the Balance
Sheet, (ii) all other personal property included in the Acquired Assets which is
owned by the Contributor with a value individually in excess of $10,000 (A) at
the Balance Sheet Date and (B) acquired since the Balance Sheet Date and (iii)
all Assigned Contracts 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(a), (i) all of the
personal property listed on SCHEDULE 5.21(a) and included in the Acquired Assets
is in good working order and condition, ordinary wear and tear excepted and (ii)
all Assigned Contracts included on SCHEDULE 5.21 are in full force and effect
and constitute valid and binding agreements of the Contributor, and to the
Contributor's Knowledge, of the parties (and their successors) thereto in
accordance with their respective terms.
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) With respect to the Business, the Contributor 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 1998 annual revenues of the Business. Except to
the extent set forth on SCHEDULE 5.22, none of the Significant Customers has
canceled or substantially reduced or, to the Knowledge of the Contributor, is
currently attempting or Threatening to cancel a contract or substantially reduce
utilization of the services provided by the Business.
15
(b) The Contributor 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 Contributor 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
Contributor has performed all obligations relating to the Business required to
be performed by it under each Material Contract, and it is not, nor, to the
Knowledge of the Contributor, 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; and there exists no condition which,
to the Knowledge of the Contributor, would constitute a breach or default
thereunder. Except as set forth on SCHEDULE 5.22, to Contributor's Knowledge, no
party to a Material Contract intends to cancel, terminate, not renew, or fail to
exercise an option under any Material Contract, whether in connection with the
transactions contemplated hereby or otherwise.
5.23 REAL PROPERTY.
(a) SCHEDULE 5.23 contains a complete and accurate listing of
all real property owned by the Contributor and used by the Business, including
the street address.
(b) SCHEDULE 5.23 includes an accurate list of real property
leased by the Contributor and used by the Business and attached to SCHEDULE 5.23
are true, complete and correct copies of all such leases and agreements (the
"Leases"). Except as set forth on SCHEDULE 5.23, all of such Leases included on
SCHEDULE 5.23 are in full force and effect and constitute valid and binding
agreements of the Contributor and, to the Contributor's Knowledge, of the
parties (and their successors) thereto in accordance with their respective
terms. Except as set forth in SCHEDULE 5.23, none of the Leases requires the
consent or approval of any party thereto in connection with the consummation of
the transactions contemplated by this Agreement.
5.24 TAXES.
(a) (i) except as set forth on SCHEDULE 5.24, all
Returns required to have been filed by or with respect to the Contributor,
including Returns of any affiliated, combined, consolidated, unitary or similar
group including the Contributor (each a "Relevant Group") relating to the
Business or the Acquired Assets, have been duly filed, and each such Return
correctly and completely reports the Tax liability and all other information
required to be reported thereon in each case relating to the Business or the
Acquired Assets and, except as set forth on Schedule 5.24, all Taxes (whether or
not shown on any Return) owed by the Contributor with respect to the Business
and the Acquired Assets have been paid;
16
(ii) except as set forth on SCHEDULE 5.24, the
current liability accruals for Taxes (excluding reserves for deferred Taxes) on
the Financial Statements dated as of the Balance Sheet Date reflect all unpaid
Taxes owed by or with respect to the Business and the Acquired Assets;
(iii) except as set forth on SCHEDULE 5.24, no
deficiencies for any Taxes have been asserted in writing or assessed against
Contributor, or any Relevant Group which, if unpaid, might result in a Lien on
the Acquired Assets. No Tax Proceeding is presently pending with respect to
Taxes related to the Brand Dialogue Business or the Acquired Assets, no written
notice has been received of the expected commencement of a Tax Proceeding with
respect to Taxes related to the Business or the Acquired Assets;
(iv) except as set forth on Schedule 5.24 no
claim has ever been made by any Taxing Authority in any jurisdiction in which
the Contributor does not file Returns that it is or may be subject to taxation
by that jurisdiction with respect to the Business or the Acquired Assets;
(v) except as set forth on Schedule 5.24 the
Contributor has withheld and paid over all Taxes with respect to the Business or
the Acquired Assets required to have been withheld and paid over, and complied
with all information reporting and record-keeping requirements relating to the
Business and the Acquired Assets with respect to, any amounts paid or owing to
any employee, creditor, independent contractor or other third party;
(vi) [Intentionally omitted];
(vii) neither the Contributor 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 solely with
respect to the Business or the Acquired Assets;
(viii) none of the Acquired Assets constitutes tax
exempt bond financed property or tax-exempt use property within the meaning of
Section 168 of the Code;
(ix) there are no liens or other
encumbrances on the Acquired Assets relating or attributable
to Taxes (other than liens for Taxes not yet due and payable);
(x) none of the Acquired Assets is stock in a
corporation or an interest in a joint venture, partnership or
other arrangement that is treated as a partnership for federal
income tax purposes;
(xi) the Contributor is not a party to or
bound by any agreement or arrangement pursuant to which it will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by it
pursuant to this Agreement; and
17
(xii) the Contributor is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 351(e)(2) of the Code.
(b) For purposes of this Agreement, the following definitions
shall apply:
"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.
"PRE-CLOSING PERIOD" means any Taxable Period or portion thereof ending
on or before the Closing Date.
"POST-CLOSING PERIOD" means any Taxable Period or portion thereof
beginning after the Closing Date.
"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.
5.25 BUSINESS CONDUCT. Except as set forth on SCHEDULE 5.25, since the
Balance Sheet Date, the Contributor has conducted the Business in the Ordinary
Course of Business and has incurred no liabilities with respect to the Business
other than in the Ordinary Course of Business. Except as forth on SCHEDULE 5.25,
since the Balance Sheet Date, with respect to the Business, there has not been
any:
(a) Material Adverse Effect;
18
(b) damage, destruction or loss of any real or personal
property or assets to be included in the Acquired Assets 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 Contributor of any material
assets or property rights (real or personal, tangible or intangible) used in the
Business, 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 Business to any party
other than sales to customers on credit or travel advances to employees made in
the Ordinary Course of Business and other than intercompany payables;
(f) notice of any material liability, potential liability or
claimed liability relating to the Environment;
(g) 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);
(h) cancellation, waiver or release by the Contributor of any
debts, liabilities, obligations, rights or claims relating to the Business,
except in each case in the Ordinary Course of Business;
(i) amendment or termination of any Material Contract, other
than expiration of such contract in accordance with its terms;
(j) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the Contributor in connection with the Business;
(k) discharge or satisfaction of any material liability or
Encumbrance or payment of any material obligation or liability relating to the
Business other than current liabilities paid in the Ordinary Course of Business
or cancellation of any debts or claims;
19
(l) sale or assignment by the Contributor of any
properties or assets necessary to the Business other than in the Ordinary Course
of Business;
(m) capital expenditures or commitments therefor by the
Contributor relating to the Business other than in the Ordinary Course of
Business or in excess of $100,000 in the aggregate; or
(n) mortgage, pledge or other Encumbrance of any property or
asset to be included in the Acquired Assets other than in the Ordinary Course of
Business.
5.26 DEPOSIT ACCOUNTS. With respect to the Business, the Contributor
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 Contributor has accounts or safe deposit boxes which
relate solely to the Business;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of such account and its account
number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
5.27 YEAR 2000 COMPLIANCE. The Contributor has investigated and
reviewed the Acquired Assets and determined that, except as set forth on
SCHEDULE 5.27, all computer systems, software and hardware included in the
Acquired Assets are able to process accurately 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 Business, the Significant Customers, and any other customer,
vendor or business partner of the Business whose failure to perform under any
contract, agreement or other understanding could have a Material Adverse Effect
on the Business, are or will be Year 2000 Compliant before December 31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. To the Knowledge of the Contributor,
the Business has not 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 Business to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law
of similar effect.
20
5.29 DISCLOSURE. To the Knowledge of the Contributor, 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 Contributor as contemplated by any
provision hereof, as of their respective dates, 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.
5.30 WARRANTIES; PRODUCTS. With respect to the Business, SCHEDULE 5.30
sets forth a description of all the product and service warranties and
guarantees given by Contributor with respect to services provided by the
Business for any customer. Except as described on SCHEDULE 5.30, with respect to
the Business, (i) no claims have been made or are, to the Knowledge of the
Contributor, Threatened, under the Contributor's product or service warranties
and (ii) to the Knowledge of Contributor, there exists no event or circumstance,
which after notice or the passage of time or both, might create or result in
liabilities or obligations to Clarant under any product warranties.
5.31 AFFILIATE TRANSACTIONS. With respect to the Business, SCHEDULE
5.31 (to the extent such information is required to be disclosed under the
caption "Certain Transactions" in the Registration Statement) 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 Business
from, to, or for the benefit of any officer, director or family member thereof
or any other Affiliate or former Affiliate of the Contributor ("Affiliate
Transactions") during the period commencing January 1, 1996, through the date
hereof and (b) any existing commitments of the Business 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 [Intentionally Omitted.]
5.33 BROKERS. The Contributor has no 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 could become
liable or obligated.
5.34 OWNERSHIP AND CONDITION OF ASSETS.
(a) The Contributor is the true and lawful owner of, and has
good title to, all of the Acquired Assets, free and clear of all Encumbrances
other than those which would not have a Material Adverse Effect.
(b) Upon execution and delivery by the Contributor to Clarant
of the instruments of conveyance referred to in Section 4.2(b), Clarant will
become the true and lawful
21
owner of, and will receive good title to, the Acquired Assets, free and clear of
all Encumbrances other than those which would not have a Material Adverse Effect
6. REPRESENTATIONS OF CLARANT
Clarant represents and warrants to Contributor that all of the
following representations and warranties in this Article 6 are true and correct
at the date of this Agreement, and further represents that such representations
and warranties shall survive the Closing Date in accordance with Section 11.12.
6.1 DUE ORGANIZATION. Clarant is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to (i) carry on its operations as they are now
being conducted and (ii) to perform all of its obligations under this Agreement
and the Other Agreements. Clarant is duly qualified to conduct business as a
foreign corporation, and is in good standing, under the laws of each state in
which the operation of its business requires and the consummation of the
transactions under this Agreement and the Other Agreements requires, or will
require, such qualification.
6.2 AUTHORIZATION. The officers of Clarant executing this Agreement are
duly authorized to execute and deliver this Agreement and the Other Agreements,
and Clarant has the corporate right, power and authority to enter into this
Agreement and the Other Agreements and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Other
Agreements by Clarant and the performance by Clarant of its obligations under
this Agreement and the Other Agreements, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action in accordance with applicable law and the Clarant
Charter Documents. This Agreement and the Other Agreements constitute the valid
and binding obligations of Clarant, enforceable against Clarant in accordance
with their respective terms.
6.3 CAPITAL STOCK. As of the Closing Date and immediately following the
IPO, 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"). The number
of issued and outstanding shares of Clarant Common Stock and Clarant Preferred
Stock as of the date hereof, as of the Closing Date and immediately following
the IPO is set forth on SCHEDULE 6.3(a) (which Schedule reflects the issuance of
such shares in connection with this Agreement and each Other Agreement). All of
the shares of Clarant Common Stock issued and outstanding on the date hereof
have been duly authorized and validly issued and are fully paid and
non-assessable. All of the shares of Clarant Common Stock and Clarant Preferred
Stock to be issued as of the Closing Date and immediately following the IPO will
be duly authorized, validly issued, fully paid and non-assessable. Except as
specifically contemplated by
22
this Agreement and the Other Agreements, 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 or redemption of any equity securities of Clarant or
any securities convertible or exercisable directly or indirectly into equity
securities of Clarant, or evidencing the right to subscribe for any equity
securities of Clarant, or giving any Person 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). Other than agreements and commitments
specifically described in the Draft Registration Statement, as of the Closing
Date, there are no voting agreements, voting trusts, other agreements (including
cumulative voting rights), commitments or understandings with respect to the
capital stock of Clarant.
6.4 SUBSIDIARIES. Clarant has no subsidiaries except for the companies
identified as "ACQUISITION CORP." in the Other Agreements. Except as disclosed
in the Draft 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.
6.5 LIABILITIES AND OBLIGATIONS. Except as set forth on SCHEDULE 6.5,
or as disclosed in the Draft 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.
6.6 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 obligation, 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 neither the execution and
delivery of this Agreement and the Other Agreements, nor the consummation of the
transactions contemplated hereby and thereby will result in any material
violation or conflict or breach or constitute a default under, any of the terms
or provisions of the Clarant Documents or the Clarant Charter Documents or any
Law, Order or Permit. Except as set forth on SCHEDULE 6.6, 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.
23
6.7 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 Draft Registration
Statement) delivered, or to be delivered, to the Contributor 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.
6.8 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
incorporated in Delaware 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 6.8 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.
6.9 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
SCHEDULE 6.9 or disclosed in the Draft 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 or the Plan of
Reorganization and except to the extent set forth in SCHEDULE 6.9, there are no
material Actions or Proceedings 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 or
Proceeding 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 or the Plan of Reorganization.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof, the Clarant
Common Stock to be delivered to the Contributor pursuant to, or contemplated by,
this Agreement will constitute duly authorized, valid and legally issued shares
of Clarant Common Stock, fully paid and nonassessable, and 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. The shares of Clarant Common Stock to be issued to the Contributor
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Article 17 hereof.
6.11 NO SIDE AGREEMENTS. Clarant has not entered into and, as of the
Closing Date, will not have entered into any agreement with any of the Founding
Companies or any of the owners 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.
24
6.12 ABSENCE OF CHANGES. Since March 31, 1999, 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;
(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;
6.13 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
25
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. Clarant has
withheld and paid over to the proper governmental authority 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. Clarant has
not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency. None of the
assets of Clarant constitutes tax exempt bond financed property or tax-exempt
use property within the meaning of Section 168 of the Code.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing Date,
the Contributor will afford to the officers, directors and authorized
representatives of Clarant access during normal business hours and upon
reasonable notice to all of the Contributor's sites, properties, books and
records directly related to the Business and will furnish Clarant with such
additional financial and operating data and other information as to the Business
and the Acquired Assets as Clarant may from time to time reasonably request. The
Contributor 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 and the
Contributor 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 stockholders, 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
Contributor access during normal business hours and upon reasonable notice to
all of Clarant's (including the Founding Companies') sites, properties, books
and records and will furnish the Contributor with such additional financial and
operating data and other information as to the business and properties of
Clarant and the Founding Companies as the Contributor may from time to time
reasonably request. Clarant will cooperate with the Contributor, 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 Contributor will cause all information
26
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. With respect to the Business,
between the date of this Agreement and the Closing Date, the Contributor will:
(a) conduct the Business in the Ordinary Course of
Business substantially as conducted heretofore and not introduce any new method
of management, operation or accounting;
(b) maintain the Acquired Assets, in as good working
order and condition as at present, ordinary wear and tear excepted;
(c) perform in all material respects its
obligations under the Assigned Contracts to or affecting the
Business;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage covering the Business and the
Acquired Assets;
(e) use commercially reasonable efforts to maintain and
preserve the Acquired Assets intact and use its best efforts to retain its
present management, key employees of the Business and relationships with
suppliers, customers and others having business relations with the Business; and
(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.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the
Closing Date, the Contributor will not, without the prior written consent of
Clarant, with respect to the Business:
(a) enter into any contract or commitment on behalf of
the Business or incur or agree to incur any liability or make any capital
expenditure on behalf of the Business except if it is in the Ordinary Course of
Business (consistent with past practice) and involves an amount not in excess of
$50,000;
(b) create, assume or permit to exist any Encumbrance
upon any Acquired Asset, 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,
(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,
27
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;
(c) sell, assign, lease or otherwise transfer or dispose
of any Acquired Assets except in the Ordinary Course of Business;
(d) waive any material right or claim of the Business,
provided that the Contributor 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;
(e) commit a material breach or materially amend or
terminate any Material Contract to which the Contributor or any Subsidiary is a
party or as to which it is a beneficiary;
(f) enter into any other transaction on behalf of the
Business outside the Ordinary Course of Business or prohibited hereunder;
(g) 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, the Contributor will not (A) increase
in any manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the Business, (B)
pay or agree to pay any additional pension, retirement allowance or other
employee benefit to any such employee, whether past or present or (C) enter into
any new employment, severance, consulting, or other compensation agreement with
any existing employee engaged in the Business; or
(h) 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 for any Taxable Period ending after the Closing Date.
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 Contributor
agrees that neither it nor its 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 Business) any acquisition proposal relating to or
affecting the Business or the Acquired Assets, whether by purchase of assets or
stock, purchase of interests, merger or other transaction, and that the
Contributor will promptly advise Clarant of the terms of any
28
communications the Contributor may receive or become aware of relating to any
bid for all or any part of the Business or the Acquired Assets.
7.5 [Intentionally Omitted]
7.6 AGREEMENTS. The Contributor shall terminate the employment
agreements listed on SCHEDULE 7.6 hereto.
7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Contributor 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 Contributor contained herein to be untrue or inaccurate in any material
respect; and (ii) any material failure of the Contributor to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such Person hereunder;
(b) Clarant shall give prompt notice to the Contributor
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 contained herein to be untrue or inaccurate in any material respect
and (ii) any material failure of Clarant 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 7.13, (ii) modify the conditions set 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 Contributor shall furnish or cause to be
furnished to Clarant and the Underwriters all of the information concerning the
Contributor reasonably 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 Contributor agrees 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 Contributor 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
29
information relates solely to the Contributor, the Contributor represents and
warrants as to such information, 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 Contributor and its counsel copies of
drafts of the Registration Statement as they are prepared and to give the
Contributor a reasonable period of time to review and comment upon such
documents prior to filing with the SEC. Any objections posed by the Contributor
or its counsel shall be in writing and state with specificity the material in
question, the reason for the objection, and the Contributor's proposed
alternative.
7.9 FINAL FINANCIAL STATEMENTS. The Contributor shall provide prior to
the Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited Balance Sheets of the Business as of the end of all fiscal
quarters following the Balance Sheet Date, and the unaudited statements of
operations and statements of cash flows of the Business for all fiscal quarters
ended after the Balance Sheet Date. Such 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
Business for the periods indicated thereon. Clarant shall provide prior to the
Closing Date (promptly after being made available to Clarant), and the
Contributor shall have had at least 48 hours prior to Closing to review, all the
financial statements delivered to Clarant by the Other Founding Companies.
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 THIRD PARTY APPROVALS. Prior to the Closing Date, Clarant and the
Contributor shall satisfy any requirement for notice and approval of the
transactions contemplated by this Agreement under applicable agreements or Laws.
7.12 BASIS. Prior to the Closing Date, Contributor shall provide to
Clarant accurate and complete descriptions of the Contributor's basis in
Acquired Assets having a book basis in excess of Five Hundred Dollars ($500).
7.13 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
30
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 such party's 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(d), except that any Schedule supplement or amendment specifically
required by any Section of this Agreement shall not be included on Schedule
11.1(d) unless such supplement or amendment reflects matters outside of the
Ordinary Course of Business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Contributor that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on the Business may be made unless Clarant and a majority of the
Founding Companies other than the Contributor consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant that constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on Clarant 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 7.13. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to a
provision similar to this Section 7.13 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 Contributor notice promptly after it has Knowledge thereof and no
such amendment or supplement may be made unless a majority of the Founding
Companies and Clarant consent to such amendment or supplement. If a majority of
the Founding Companies consent to a Schedule amendment or supplement by Clarant,
which consent shall have been deemed given by any Founding Company if no
response is received within 72 hours following receipt of notice of such
amendment or supplement but the Contributor does not give its consent, the
Contributor may terminate this Agreement pursuant to Section 12.1(d). If Clarant
and a majority of the Founding Companies consent to a Schedule amendment or
supplement by any Other Founding Company, 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, but the
Contributor does not give its consent, the Contributor may terminate this
Agreement pursuant to Section 12.1(d). In the event that the Contributor seeks
to amend or supplement a Schedule pursuant to this Section 7.13, and Clarant or
a majority of the Other Founding Companies do not consent to such amendment or
supplement, Contributor may terminate this Agreement pursuant to Section
12.1(d). No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
Notwithstanding
31
anything herein to the contrary, Schedule 10.8(g) shall not be amended by
Clarant without the express written consent of the Contributor.
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 HSR FILING. To the extent the transaction contemplated hereunder
is a transaction subject to the filing requirements of the HSR Act, the
Contributor and Clarant shall use their 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.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CONTRIBUTOR
The obligations of the Contributor with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date, as the case may be, of all of the conditions set forth in this
Article 8. As of the Closing Date, all conditions not satisfied shall be deemed
to have been waived by the Contributor unless such parties have objected by
notifying Clarant in writing of such objection on or before the 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 contained in Article 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Clarant contained in Article 6 shall be true and correct in all material
respects on the date when made and shall be repeated at and as of the Closing
Date and shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality which shall be
true and correct in all respects) on the Closing Date as so made again (unless a
representation is made as of a specific date, and in such event it shall be true
and correct in all material respects as of such date); and a certificate to the
foregoing effect dated the Closing Date and signed by the President, any Vice
President or the Secretary of Clarant shall have been delivered to the
Contributors.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by Clarant on or
before the Closing Date shall have been duly complied with and performed in all
material respects on or before the Closing Date; and a certificate to the
foregoing effect dated the Closing Date and signed by the President, any Vice
President or the Secretary of Clarant shall have been delivered to the
Contributor.
32
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 this Agreement 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 Contributor 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 reasonably acceptable to
Clarant (and the Underwriters shall have received a copy of the same opinion
addressed to them), and at the Closing, the Contributor 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 3.1.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
required to be obtained or made by Clarant with any Governmental Authority or
agency relating to the consummation of the transactions contemplated herein
shall have been obtained and made and all Consents listed on SCHEDULE 5.4 shall
have been obtained.
8.7 GOOD STANDING CERTIFICATES. Clarant shall have delivered to the
Contributor a certificate, dated as of a date no earlier than ten (10) days
prior to the Closing Date, duly issued by the Delaware Secretary of State and in
each state in which Clarant is authorized to do business, showing that Clarant
is in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for Clarant, respectively, for all periods
prior to the Closing have been filed and paid.
8.8 SECRETARY'S CERTIFICATE. The Contributor shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Clarant, certifying the truth and correctness of attached copies of the
Clarant's respective Charter Documents (including amendments thereto) and
resolutions of the board of directors.
8.9 CLOSING OF IPO. The closing of the sale of the Clarant stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
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8.10 EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE 9.9
shall have been afforded the opportunity to enter into an employment agreement
in the form attached as EXHIBIT 8.10 hereto (the "Employment Agreements").
8.11 DIRECTOR INDEMNIFICATION. Clarant shall have obtained directors'
and officers' liability insurance from a reputable insurance company in type and
amount customary for businesses similar to Clarant and the Founding Companies
taken as a whole.
8.12 TRANSITION SERVICES AGREEMENT. Clarant shall have entered into
the Transition Services Agreement substantially in the form of EXHIBIT
4.1(b)(iv).
8.13 LISTING. Clarant shall cause the Clarant Common Stock to be listed
on the Nasdaq National Stock Market, subject to official notice of issuance.
8.14 DIRECTORS. As of the Closing Date, Clarant shall have caused one
Director (or two Directors, if the Board of Directors of Clarant has ten (10) or
more members immediately after the Closing), identified in writing by the
Contributor prior to the Closing, to be elected to the Board of Directors of
Clarant.
8.15 MATERIAL ADVERSE EFFECT. As of the Closing Date, no event or
circumstance shall have occurred or exist with respect to Clarant or any of the
Founding Companies which would constitute a Material Adverse Effect on Clarant
and the Founding Companies taken as a whole and, on or prior to the Closing
Date, there shall have been no waiver of any term, provision or condition set
forth in any Other Agreement or any of the agreements contemplated thereunder
which would materially adversely affect the value of the Consideration paid, or
the value of any stock or options to be issued, to Contributor under this
Agreement.
8.16 TAX OPINION. Contributor shall have received an opinion, addressed
to the Contributor upon which the Contributor 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 Contributor ("Tax
Counsel") that the Clarant Plan of Organization will qualify as a tax-free
transfer of property under Section 351(a) of Code and that the Contributor will
not recognize gain to the extent the Contributor exchanges assets which
constitute property for purposes of Section 351 of the Code 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, (ii) the Contributor, (iii) each Other Founding
Company, and (iv) each contributor, stockholder or member of the Other Founding
Companies who will receive Clarant Common Stock under the Clarant Plan of
Organization.
8.17 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.
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8.18 OPTIONS. Contributor shall have been granted the options described
in Section 10.8 pursuant to an option agreement in the form of EXHIBIT 10.8(i).
8.19 ISSUED AND OUTSTANDING CAPITAL STOCK. Clarant shall not have
issued or agreed to issue any capital stock, option or other security
exercisable or exchangeable for, or convertible into, capital stock of Clarant
other than the capital stock and options specifically set forth in the Draft
Registration Statement, and Contributor shall be the largest single stockholder
of Clarant.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT
The obligations of Clarant with respect to actions to be
taken on the Closing Date, are subject to the satisfaction or waiver on or prior
to the Closing Date, of all of the conditions set forth in this Article 9. As of
the Closing Date, all conditions not satisfied shall be deemed to have been
waived by Clarant unless such parties have objected by notifying the Contributor
in writing of such objection on or before the consummation of the transactions
on the Closing Date, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the Contributor contained in
Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of the Contributor contained in Article 5 shall be true and correct in all
material respects on the date when made and shall be repeated at and as of the
Closing Date and shall be true and correct in all material respects (except for
those representations and warranties that are qualified by materiality which
shall be true and correct in all respects) on the Closing Date as so made again
(unless a representation is made as of a specific date, and in such event it
shall be true and correct in all material respects as of such date); and a
certificate to the foregoing effect dated the Closing Date and signed by the
President, any Vice President or the Secretary of the Contributor shall have
been delivered to Clarant.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Contributor
on or before the Closing Date shall have been duly performed or complied with in
all material respects on or before the Closing Date.
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 this Agreement or the IPO.
9.4 SECRETARY'S CERTIFICATE. Clarant shall have received a certificate
or certificates, dated the Closing Date and signed by the secretary of the
Contributor, certifying the offices and signatures of the officers and directors
of the Contributor and including certified resolutions authorizing and approving
the transactions contemplated by this Agreement.
9.5 NO MATERIAL ADVERSE EFFECT. As of the Closing Date, no event or
circumstance shall have occurred which would constitute a Material Adverse
Effect on Clarant.
9.6 CONSENTS AND APPROVALS. All necessary Consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated
35
herein shall have been obtained and made and all Consents listed on SCHEDULE 9.6
shall have been obtained.
9.7 OPINION OF COUNSEL. Clarant shall have received an opinion from
counsel to the Contributor, 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 reasonably acceptable to the
Contributor (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 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.
9.9 EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE 9.9
shall have entered into an Employment Agreement.
9.10 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.
9.11 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.
9.12 TRANSITION SERVICES AGREEMENT. The Contributor shall have entered
into the Transition Services Agreement substantially in the form of EXHIBIT
4.1(b)(iv).
9.13 CONTRIBUTOR REPRESENTATIONS. The Contributor shall have provided
Tax Counsel with the written representations requested pursuant to Section 8.16.
10. COVENANTS OF CLARANT AND THE CONTRIBUTOR 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 organization
under Section 351 of the Code.
36
10.2 TAX MATTERS.
(a) The Contributor shall timely pay all Taxes relating to the
Business or the Acquired Assets and that were incurred in or are attributable to
any Pre-Closing Period and Clarant shall timely pay all Taxes relating to the
Business and the Acquired Assets and that are incurred in, or that are
attributable to, (a) the portion of any Taxable Period that begins on or before
but ends after the Closing Date (but only to the extent attributable to periods
after the Closing Date) and (b) any Taxable Period beginning on or after the
Closing Date.
(b) All real property, personal property and other similar
Taxes levied with respect to the Business or the Acquired Assets for a Taxable
Period that includes but does not end on the Closing Date shall be apportioned
between the Contributor and Clarant based on the number of days of such Taxable
Period up to and including the Closing Date and the number of days of such
Taxable Period after the Closing Date. The Contributor shall pay the
proportionate amount of such Taxes that is attributable to the portion of the
Taxable Period ending on the Closing Date, and Clarant shall pay the
proportionate amount of such Taxes that is attributable to the portion of the
Taxable Period beginning after the Closing Date.
(c) Each party hereto shall, and shall cause its 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. Neither party shall take
any action or position with respect to Taxes relating to the Business or the
Acquired Assets, including in any Tax Proceeding, if that action or position
could reasonably be expected to adversely affect the other party to this
Agreement or any of its respective Affiliates.
(e) The Contributor and Clarant shall comply with the tax
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and treat the transaction as a transfer of property
under Section 351(a) of the Code.
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10.3 DIRECTORS AND OFFICERS.
(a) 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.
(b) After the Closing Date, Contributor shall be entitled to
nominate one (1) Director to the Board of Directors of Clarant and, if the
number of Directors constituting the entire Board of Directors of Clarant equals
or exceeds ten (10), then Contributor shall be entitled to nominate two (2)
Directors to the Board of Directors of Clarant (the "Contributor Directors");
PROVIDED, THAT:
(i) any Directors elected to Clarant's Board of
Directors in accordance with Section 8.14 (Directors) shall be deemed to be the
Contributor Directors so long as they are members of the Board of Directors, and
Contributor (for so long as it has appropriate representation on the Board of
Directors as contemplated by this Schedule 10.3) shall have no right to nominate
additional Directors pursuant to this Section;
(ii) if Contributor disposes of more than
one-third (1/3) but less than two-thirds (2/3) of the total number of shares of
Clarant Common Stock acquired as Consideration and Contingent Consideration
pursuant to this Agreement, Contributor shall only have the right to nominate
one Director, notwithstanding the size of the Board of Directors of Clarant; and
(iii) if Contributor disposes of more than
two-thirds (2/3) of the total number of shares of Clarant Common Stock acquired
as Consideration and Contingent Consideration pursuant to this Agreement,
Contributor shall have no right to nominate any Directors to the Board of
Directors of Clarant.
10.4 FURTHER ASSURANCES. At any time and from time to time after the
Closing without further consideration, each party shall execute and deliver such
other instruments of sale, transfer, conveyance and assignment and take such
action as the other party may reasonably determine is necessary to transfer,
convey and assign to Clarant, to evidence and confirm Clarant's rights to, title
in and ownership of, the Business and the Acquired Assets, and to carry out the
purpose and intent of this Agreement.
10.5 TRANSFER TAXES. Any transfer, documentary, sales, use, excise or
other Taxes assessed upon or with respect to the transfer of the Business and
the Acquired Assets and any recording or filing fees with respect thereto shall
be borne by the party obligated to pay such Taxes under applicable Laws. The
Contributor and Clarant agree to cooperate in good faith with each other, and to
use their commercially reasonable efforts, to minimize such Taxes.
38
10.6 [Intentionally Omitted.]
10.7 EMPLOYEE RELATIONS AND BENEFITS.
(a) Clarant shall offer employment as of the Closing Date to
all of the employees of the Contributor exclusively engaged in the Business
(whether salaried or hourly, whether full-time or part-time), whether or not
actively employed on the Closing Date (E.G., including employees on vacation and
leave of absence, including maternity, family, sick or short-term disability
leave) on at least the same wage rates or cash salary levels as are in effect
immediately prior to the Closing Date. With respect to each such employee who
accepts Clarant's offer of employment (a "TRANSFERRED EMPLOYEE"), Clarant shall
(i) maintain such equivalent or higher cash salary levels, and (ii) to the
extent permitted by applicable plans, credit periods of service prior to the
Closing for purposes of determining eligibility and benefit accruals and vesting
under its Plans after the Closing and (iii) provide substantially similar
benefits (other than with respect to the Contributor's cash balance pension plan
and any post-retirement benefits for life or health coverage other than as
required by law) in the aggregate for 12 months after Closing.
(b) Without limiting the scope of Section 10.7(a), Clarant
shall cause each Transferred Employee (and his or her eligible dependents) to be
covered following the Closing by a group health plan that provides health
benefits (within the meaning of Section 5000(b)(1) of the Code) that (i) does
not limit or exclude coverage on the basis of any pre-existing condition of such
Transferred Employee or dependent who was not so limited by the Contributor's
plans and (ii) provides each Transferred Employee full credit, for the year
during which the Closing occurs, with any deductible already incurred by the
Transferred Employee under the Contributor's group health plan.
(c) With respect to any accrued but unused vacation time for
which any Transferred Employee is eligible as of the Closing Date, Clarant shall
allow such Transferred Employee to use such accrued vacation, provided that
Clarant shall not be required to allow use of vacation if and to the extent that
it accrued at a higher rate after December 31, 1998.
(d) The Contributor shall retain responsibility for making
long-term disability payments for employees who are receiving long-term
disability payments as of the Closing or who were on short-term disability but
become eligible for long-term disability.
(e) Without limiting the scope of Section 10.7(a), as soon as
practicable after the Closing, Clarant shall make available a tax-qualified
defined contribution plan or plans with a cash or deferred feature (a "CLARANT
401(k) PLAN") for the benefit of each Transferred Employee who was eligible to
participate in a tax-qualified defined contribution plan maintained by the
Contributor with a cash or deferred feature (a "CONTRIBUTOR 401(k) PLAN").
39
(f) Any severance payable on or after the consummation of the
transactions contemplated hereby to any Transferred Employee shall be the sole
responsibility of Clarant.
(g) Nothing herein, expressed or implied, shall confer upon
any employee or former employee of the Contributor or Clarant or any of their
affiliates (including, without limitation, the Transferred Employees), any
rights or remedies (including, without limitation, any right to employment or
continued employment for any specified period or benefits of any nature) of any
nature or kind whatsoever, under or by reason of this Agreement.
10.8 POST CLOSING SERVICES.
(a) The parties acknowledge that they intend to cooperate in
marketing their respective services to each others' clients in order to increase
the range, breadth and depth of services available to such clients.
(b) For a period of one (1) year from and after the Closing,
Clarant shall cause the Business (which, for purposes of this Section 10.8,
shall refer to the Business and the Acquired Assets and the employees of the
Business as operated by Clarant following the Closing) to continue to perform,
or commence performance of, the services (the "Current Services") contemplated
under the work orders listed on SCHEDULE 10.8(b) (the "Work Orders"). The
Current Services shall meet the specifications described in the applicable Work
Order and shall be performed in a workmanlike and professional manner by
employees of the Business.
(c) For a period of one (1) year from and after the Closing,
Contributor shall cause its Young & Rubicam Advertising (New York) division
("Y&R Advertising") and its Wunderman Cato Xxxxxxx (New York) division ("WCJ")
to enter into work orders with the Business (the "New Work Orders") with respect
to projects committed to by Existing Clients and Additional Clients for services
of a kind, quality and nature substantially similar to the work provided by the
Business prior to the Closing (the "New Services"); PROVIDED THAT Contributor
shall be under no obligation to cause Y&R Advertising or WCJ to enter into any
such New Work Order if, in the reasonable judgment of the Contributor, entering
into any such New Work Order is not in the best interests of the Existing
Clients or Additional Clients. Clarant shall cause the Business to enter into
the New Work Orders and to perform the New Services in accordance with the
specifications contained in the applicable New Work Order and in a workmanlike
and professional manner by employees of the Business. For purposes of this
Section 10.8, "Existing Clients" shall mean the clients of Contributor listed on
SCHEDULE 10.8(c) hereof and "Additional Clients" shall mean such additional
existing or future clients of Contributor that (i) the parties mutually agree to
add on a supplement to SCHEDULE 10.8(c) hereof, or (ii) that Contributor elects
to add on a supplement to SCHEDULE 10.8(c) hereof, provided, that, without the
prior consent of Clarant, Contributor may add no more than eight (8) clients
pursuant to this clause (ii) and such clients may be added if and only if, in
the reasonable judgment of Contributor, such clients will
40
generate $500,000 or more in revenues for Clarant and the Business collectively
in the next succeeding twelve (12) month period.
(d) The Contributor shall have the right to terminate any
particular Work Order or New Work Order, in whole or in part, if (i) Clarant or
the Business fails to satisfactorily perform its obligations under this Section
10.8 with respect to such work order, or (ii) Clarant, its Affiliates or the
Business commits any act, or fails to take any act, which results in a default
under such work order or any agreement between the Contributor and any client,
unless the terms of such contract or agreement were not known to Clarant or the
Business when the act or failure to act occurred, or (iii) any Existing Client
or Additional Client cancels or terminates, in whole or in part, its request for
services covered by any Work Orders or any New Work Order, or (iv) in the
reasonable judgment of the Contributor, the continued performance of any Current
Services or New Services by the Business is not in the best interests of any
Existing Client or Additional Client. Any such termination shall be effective
immediately upon delivery by the Contributor to Clarant or the Business of a
written notice respecting such termination. No such termination shall affect, in
any way, the obligations of Contributor or the client, as the case may be, for
amounts earned by the Business prior to the date of such termination.
(e) In full consideration for the provision of the Current
Services, the Contributor shall pay to the Business amounts actually received by
the Contributor from its clients and allocated by the Contributor to the
performance of the Current Services. The amount allocated to the Current
Services shall be calculated (i) as contemplated in the applicable Work Order,
or (ii) if the applicable Work Order does not specify an amount payable with
respect to such services, based on the rates which Contributor is charging such
client under the applicable agreement between Contributor and such client. The
payment terms relating to New Services which are provided to Existing Clients
listed on SCHEDULE 10.8(c) on the date hereof shall be set forth by Contributor
in the applicable New Work Order and, in each case, shall be based on the rates
which Contributor charges such clients for substantially similar projects under
the applicable agreement between Contributor and such client. The payment terms
relating to New Services which are provided to Additional Clients added to
SCHEDULE 10.8(c) pursuant to Sections 10.8(c)(i) or 10.8(c)(ii) shall be set
forth by Contributor in the applicable New Work Order and, in each case, shall
be based on the then-current market rates for such services. Each of Clarant and
the Business shall be responsible for all expenses incurred by it in connection
with providing the Current Services or any New Services (unless such expenses
are otherwise specifically approved in the respective work order), including,
without limitation, all travel, equipment, overhead and personnel expenses.
Clarant and the Business shall be responsible for all applicable taxes in
connection with providing the Current Services and any New Services. Clarant or
the Business shall render invoices (addressed to the applicable client) in
respect of a Work Order or a New Work Order to the Contributor at the times
provided in the applicable Work Order or New Work Order and in the detail
specified therein. Contributor shall include such invoices in its regular
billing to Existing Clients or Additional Clients in accordance with
41
the applicable contract with such client or in a Contributor's ordinary course
of business with such client.
(f) Clarant shall cause the Business to, and the Business
shall, perform the Current Services and any New Services in a manner (i) which
complies in all material respects with all applicable local, state and federal
laws and regulations, (ii) which is consistent with, and which will not violate
the terms of, any contract or agreement between the Contributor and the Existing
Clients and any Additional Clients of the Contributor, PROVIDED THAT the terms
of such contract or agreement have been made known to the Business by
(g) Except as set forth on SCHEDULE 10.8(g) and subject to the
terms of such Schedule, Clarant shall not, and shall cause the Business and its
other Affiliates not to, market, solicit, attempt to sell any services to, or
attempt (except as otherwise provided in this Section 10.8(g)) to collect any
accounts receivable arising out of a Work Order or New Work Order from, any
Existing Clients or Additional Clients for which the Contributor has engaged the
Business to perform services. If an invoice submitted to the Contributor by
Clarant or the Business pursuant to Section 10.8(e) has not been paid within the
time period required by the applicable contract between Contributor and such
Client or pursuant to the Contributor's ordinary course of business with such
Client, the Contributor shall, at the request of the Business, use its best
efforts to collect from the client such account receivable. If any account
receivable with respect to services performed by the Business for an Existing
Client or an Additional Client remains unpaid for more than one hundred eighty
(180) days, or thirty (30) days after a request by the Business to Contributor
to assist in collecting the account receivable, whichever is later, then -- at
the sole election of Clarant -- Contributor shall either: (x) authorize Clarant
and the Business to collect such account receivable directly from the client, or
(y) pay the Business a proportionate share of the accounts receivable collected
from such client by Contributor from the date on which the account receivable
became due and payable. Notwithstanding anything to the contrary contained in
this Section 10.8(g), at the request of either Clarant or the Contributor, (i)
any Existing Client listed on SCHEDULE 10.8(c) on the date hereof shall be
removed from SCHEDULE 10.8(c) if, for the twelve month period following the
Closing Date, Clarant and the Business collectively earned less than $500,000 in
revenues from such client or (ii) any Additional Client added to SCHEDULE
10.8(c) on or after the Closing Date shall be removed from SCHEDULE 10.8(c) if,
for the twelve month period following the addition of such client to SCHEDULE
10.8(c), Clarant and the Business collectively earned less than $500,000 in
revenues from such client; PROVIDED, THAT, the dollar thresholds stipulated in
the foregoing clauses shall, for any twelve-month period beginning on or after
the first anniversary of the Closing Date or the date on which such client was
added to SCHEDULE 10.8(c), as the case may be, be equal to the greater of (x)
$500,000 or (y) ninety percent (90%) of the revenues Clarant and the Business
collectively earned in the previous twelve-month period from the applicable
client. Commencing ninety (90) days after the removal of any client from
SCHEDULE 10.8(c) pursuant to the foregoing sentence, the restrictions set forth
in this Section 10.8(g) shall not apply with respect to such client.
42
(h) Contributor and Clarant shall each execute and deliver or
cause to be executed and delivered to the other at such times and places as
shall reasonably be agreed to, such subcontract agreements, work orders or other
instruments or agreements which the Contributor or Clarant reasonably deems
advisable for the purposes of memorializing the terms of the agreements set
forth in this Section 10.8.
(i) In consideration for this Section 10.8, Clarant shall
grant to the Contributor, at the Closing, an option to purchase one million
shares of Clarant Common Stock at an exercise price equal to the IPO price per
share of Clarant Common Stock, and subject to the terms and conditions set forth
in an option agreement, the form of which is attached as EXHIBIT 10.8(i).
10.9 GRANT OF LICENSE.
(a) Subject to the other provisions of this Agreement,
Contributor grants to Clarant, effective immediately following the Closing and
continuing for a period of sixty (60) days following the Closing Date (the
"Transition Period"), a non-exclusive, royalty-free, non-transferable license to
use the name and xxxx "Brand Dialogue" (the "Xxxx") solely for the purpose of
indicating that the Business was formerly operated under the name "Brand
Dialogue." Clarant acknowledges that Contributor owns all right, title and
interest in and to the Xxxx and the goodwill associated with it, and that any
use of the Xxxx by Clarant and any goodwill associated with such use will inure
to the benefit of Contributor. Upon termination of the Transition Period,
Clarant immediately will cease all use of the Xxxx and any similar versions of
the Xxxx.
(b) For a period of one (1) year from and after the Closing
Date (the "License Period"), Contributor grants to Clarant a non-exclusive,
royalty-free, non-transferable license to use the confidential or proprietary
business information and brand-building models and systems (including research
and development, know-how, formulas, compositions, principles and techniques,
technical data, designs, drawings, blueprints, specifications, certifications
and file reports) listed on SCHEDULE 10.9(b) (the "Licensed Materials"). Clarant
acknowledges that Contributor owns all right, title and interest in and to the
Licensed Materials and the goodwill associated with such materials, and that any
use of the Licensed Materials by Clarant and any goodwill associated with such
use will inure to the benefit of Contributor. Upon termination of the Transition
Period, Clarant immediately will cease all use of the Licensed Materials.
(c) Clarant will not use the Xxxx or the Licensed Materials in
a manner inconsistent with the past uses of the Xxxx or the Licensed Materials
by Contributor, and will not materially alter or modify the Xxxx or the Licensed
Materials except as Contributor, in its sole discretion, may authorize in
writing.
11. INDEMNIFICATION
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11.1 INDEMNIFICATION BY CONTRIBUTOR. The Contributor indemnifies,
defends and holds harmless Clarant and its respective officers, directors,
employees, agents, representatives and Affiliates (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,
reasonable costs and 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 (including 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 Contributor 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 Contributor 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 Contributor, and
provided in writing to Clarant or its counsel by the Contributor expressly 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 the Contributor required to be stated therein or necessary to make
the statements therein not misleading, (d) the matters disclosed on SCHEDULE
11.1(d); (e) any liability of the Contributor for Taxes and any liability for
Taxes relating to the Business or the Acquired Assets for any Pre-Closing
Period; (f) any liability for Taxes relating to any failure to comply with
applicable Tax or other commercial law concerning bulk sales or bulk transfers
in either case resulting from the transactions contemplated hereby; provided,
however, that in the case of any indemnity arising pursuant to clause (c) such
indemnity shall not inure to the benefit of Clarant, 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 Contributor
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.
11.2 INDEMNIFICATION BY CLARANT. Clarant covenants and agrees that it
will indemnify, defend, protect and hold harmless the Contributor and its
respective officers, directors, employees, agents, representatives and
Affiliates (each, a "Contributor Indemnified Party") at all times from and after
the date of this Agreement until the Clarant Expiration Date, from and against
any and all Losses sustained or incurred by any Contributor Indemnified Party
resulting from or arising out of (a) any breach by Clarant 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 under this Agreement, (c) any liability which
any Contributor Indemnified Party may incur due to Clarant's failure to be
responsible for the Assumed Liabilities, (except to the extent that Clarant has
claims against the Contributor by
44
reason of such liabilities), (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 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 any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading, or (e) any
liability of Clarant or its Affiliates for Taxes for any Post-Closing Period and
any liability for Taxes payable pursuant to Section 10.2 hereof related to the
Business or the Acquired Assets for any Post-Closing Period, except to the
extent that Contributor is obligated to indemnify Clarant for such Taxes
pursuant to this Agreement.
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.
45
(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 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. If the Indemnified Party
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 [Intentionally Omitted]
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party 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.
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11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an Indemnified Party
to give timely, complete or accurate notice as provided in this Article 11 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 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 other 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 and the Contributor
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 Washington, DC 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
47
procedural rules and statutes of the District of Columbia for civil litigation
and may enforce the right to obtain such discovery in the manner provided by
such rules and statutes.
11.10 EXCLUSIVE REMEDIES. 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 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 Contributor 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 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 Contributor
set forth in Sections 10.2, 10.5, 10.7 and 10.8, or the representations and
warranties made in Sections 5.17 (employee benefits) or 5.24 (taxes), (x) Losses
described in Section 11.1(c), (y) Losses arising out of intentional fraud by
Contributor or (z) any matters identified on Schedule 11.1(d); and
(ii) the aggregate amount of the Contributor's
liability under this Article 11 shall not exceed the Consideration;
(b) the indemnification obligations of the Contributor
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); or
(B) with respect to all claims other than
those referred to in clause (i)(A) of this Section 11.11(b),
eighteen (18) months after the Closing Date; or
48
(ii) the final resolution of claims or
demands made under Section 11.1 prior to the expiration of the survival period
specified 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
Contributor Indemnified Parties exceeds the Indemnification Threshold; PROVIDED,
HOWEVER, that the Indemnification Threshold shall not apply to Losses (x)
arising out of breaches of the covenants of Clarant set forth in Sections 7.14,
10.2, 10.5, 10.7, 10.8 and 10.9 or the representations and warranties made in
Sections 6.5 (capital stock) and 6.15 (taxes), (y) described in Section 11.2(c)
or (z) arising out of intentional fraud; and
(ii) the aggregate amount of Clarant's
liability under this Article 11 shall not exceed the
Consideration;
(d) the indemnification obligations of Clarant under
Section 11.2, 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 11.1(d):
(i) the Clarant Expiration Date; or
(ii) the final resolutions of claims or
demands made under Section 11.2 prior to the expiration of the survival period
specified in clause (i) of this Section 11.11(d).
(e) Contributor may satisfy indemnification obligations
hereunder 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 delivered by the Contributor pursuant to this Section 11.11(e),
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 (10) trading days ending two business days immediately prior
to the date of payment. For purposes of determining the Indemnification
Threshold or indemnification limits referred to in Sections 11.11(a)(ii) and
11.11(c)(ii), each share of Clarant Common Stock shall be valued at the IPO
price.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Contributor 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 Contributor and Clarant
will survive the Closing and will remain in effect until, and will expire upon,
the
49
termination of the indemnification obligations as provided in Section 11.11(b)
or 11.11(d), as the case may be.
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 of the boards of directors of
Clarant and the Contributor; (b) by the Contributor or by Clarant, 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 Contributor, or by Clarant after giving written notice
to the other party that a breach or default of any representation, warranty, or
covenant contained in this Agreement which breach has had or is reasonably
foreseeable as having a Material Adverse Effect on the Business or Clarant,
occurred and such breach has not been cured on or before the Closing Date, (d)
by the Contributor or Clarant pursuant to Section 7.13 or (e) by the Contributor
if, by June 30, 1999, Clarant shall not have filed the Registration Statement
with the SEC reflecting an IPO price for the 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) The Contributor will not, for any reason whatsoever,
directly or indirectly, for itself or on behalf of or in conjunction with any
other Person of whatever nature:
(i) for a period of two (2) years
following the Closing Date with respect to employees with an annual salary of
$100,000 or more, and for a period of one (1) year following the Closing Date
with respect to all other employees, call upon any such Person who is an
employee of Clarant (including the subsidiaries thereof) for the purpose or with
the intent of enticing such employee away from or out of the employ of Clarant
(including the subsidiaries thereof); or
50
(ii) for a period of two (2) years following the
Closing Date call upon any Founding Company or any company listed on SCHEDULE
13.1(a)(ii) on the Contributor's behalf or on behalf of any competitor of
Clarant, for the purpose of acquiring such entity.
(b) For a period of two (2) years following the Closing
Date with respect to employees with an annual salary of $100,000 or more, and
for a period of one (1) year following the Closing Date with respect to all
other employees, Clarant will not, for any reason whatsoever, directly or
indirectly, for itself or on behalf of or in conjunction with any such other
Person of whatever nature, call upon any Person who is an employee of
Contributor (or any division or subsidiary thereof) for the purpose or with the
intent of enticing such employee away from or out of the employ of Contributor
(or of any division or subsidiary thereof).
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Clarant or Contributor (as the case may be) as a result of a breach of the
foregoing covenants, and because of the immediate and irreparable damage that
could be caused for which the damaged party would have no other adequate remedy,
the parties hereto agree that, in the event of a breach of Section 13.1 hereof,
the foregoing covenant may be enforced 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 each of
the Contributor and Clarant in light of their respective activities and
businesses (and including their respective subsidiaries) on the date of the
execution of this Agreement.
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 separate claim or cause of action, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Clarant or the Contributor of such covenants. It is specifically
agreed that the period of one (1) year or two (2) years, as the case may be,
stated at the beginning of this Article 13, during which the agreements and
covenants of the Contributor and Clarant made in this Article 13 shall be
effective, shall be computed by excluding from such computation any time during
which there is a violation of any provision of Section 13.1. 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.
51
13.6 MATERIALITY. The parties 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 CONTRIBUTOR. The Contributor recognizes and acknowledges that it
has in the past, currently has, and in the future may have, access to certain
confidential information of 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 Other Founding Companies' and/or Clarant's
respective businesses. The Contributor agrees that it will not, and that it will
cause its Affiliates not to, 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 Contributor as is required in the course of performing its
duties 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 the Contributor or its Affiliates, (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
Contributor 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 the Contributor of the provisions of this Article 14,
Clarant shall be entitled to an injunction restraining the Contributor 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.
Notwithstanding the foregoing, to the extent the confidentiality provisions
contained herein relate to Evaluation Material, the terms of that certain letter
agreement regarding confidentiality from Integrated Interactive, Inc. dated
February 17, 1999 to Contributor shall govern the confidentiality obligations of
the parties.
14.2 CLARANT. Clarant recognizes and acknowledges that it has in the
past and currently has, and in the future may have, access to certain
confidential information of the Contributor, such as the Evaluation Material
provided in connection with this transaction, operational policies, and pricing
and cost policies that are valuable, special and unique assets of the
Contributor's business. Clarant agrees that it will not, and that it will cause
its Affiliates not to, 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 the Contributor 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
52
agreed to keep such information confidential as provided hereby, (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 its Affiliates, (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 shall give
prior written notice thereof to the Contributor and provide the Contributor 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 of the provisions of this Article 14, the
Contributor shall be entitled to an injunction restraining Clarant from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting the Contributor 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. [INTENTIONALLY OMITTED]
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. The Contributor
acknowledges that the shares of Clarant Common Stock delivered to the
Contributor 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 Contributor pursuant to this
Agreement is being acquired solely for its own account, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it; provided, however, that this covenant shall not prohibit any
disposition in accordance with the securities laws and this Agreement.
16.2 COMPLIANCE WITH LAW. The Contributor covenants, warrants and
represents that none of the shares of Clarant Common Stock issued to the
Contributor will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full
53
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:
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 WORLDWIDE CORPORATION,
DELIVERY BY THE HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO CLARANT WORLDWIDE CORPORATION STATING THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. The Contributor 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 has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investment in the Clarant Common Stock. The Contributor 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. The Contributor 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. The
Contributor represents and warrants that it 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 REGISTRATION RIGHTS.
(a) PIGGYBACK. 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 of Clarant,
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Clarant shall give the Contributor prompt written notice of its intent to do so.
Upon the written request of the Contributor 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 Contributor pursuant to this
Agreement, including any shares issued in accordance with Exhibit 3.3 or upon
the exercise of options issued to Contributor pursuant to Section 10.8(i), 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 and the stockholders of the Founding Companies
(collectively, the Contributor and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
(b) DEMAND.
(i) At any time (A) after the date that is
eighteen (18) months after the Closing Date, the Contributor may request in
writing that Clarant file a registration statement under the 1933 Act covering
the registration of shares of Clarant Common Stock issued to Contributor
pursuant to this Agreement (including any stock issued as Contingent
Consideration, a dividend or other distribution with respect to, or in exchange
for, or in replacement of such Clarant Common Stock or upon the exercise of
options issued to Contributor pursuant to Section 10.8(i)) then held by
Contributor (a "DEMAND REGISTRATION"). Within thirty (30) days after the date on
which Clarant receives such request, Clarant shall file and thereafter use its
best efforts to cause to become effective a registration statement covering all
shares that the Contributor has requested to be included in such registration.
Clarant will keep such Demand Registration current and effective for one hundred
twenty (120) days (or such shorter period as is required for the Contributor to
sell all of the shares registered thereon).
(ii) In the event such registration is
underwritten, Clarant shall select an underwriter reasonably
satisfactory to Contributor.
(iii) Clarant shall not be obligated to
effect more than one Demand Registration for Contributor
pursuant to this Section 17.1(b).
55
(iv) If the Board of Directors of Clarant,
in its good faith judgment, determines that any registration of shares of
Clarant Common Stock pursuant to this Section 17.1(b) should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporation reorganization, merger, or other transaction involving
Clarant or any of its subsidiaries (a "VALID BUSINESS REASON"), (A) Clarant may
postpone filing a registration statement relating to the Demand Registration
until such Valid Business Reason no longer exists, but in no event for more than
sixty (60) days, and (B) in case a registration statement has been filed
relating to a Demand Registration, Clarant may cause such registration statement
to be withdrawn and its effectiveness terminated or may postpone amending or
supplementing such registration statement until such Valid Business Reason no
longer exists, but in no event for more than sixty (60) days.
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(a) and 17.1(b), 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 the
Contributor and the Founding Stockholders 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(a) and (b) 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.
17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated to
register shares of Clarant Common Stock held by the Contributor at any time when
the resale provisions of Rule 144(k) (or any successor provision) promulgated
under the 1933 Act are available to the Contributor for such shares.
17.5 MARKET STANDOFF. In consideration of the granting to the
Contributor of the registration rights under this Article 17, the Contributor
agrees that it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares
56
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 Contributor 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:
"Accounts Receivable" has the meaning set forth in Section 1.1(a)(i).
"Acquired Assets" has the meaning set forth in Section 1.1(a).
"Action" has the meaning set forth in Section 5.15.
"Affiliate" means any Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the any other Person.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Agreement" means this Contribution Agreement.
"A/R Aging Reports" has the meaning set forth in Section 5.12.
"Assigned Contracts" has the meaning set forth in Section 1.1(a)(iv).
"Assumed Liabilities" has the meaning set forth in Section 1.2(a).
"Balance Sheet" means a balance sheet of the Business as at the Balance
Sheet Date.
57
"Balance Sheet Date" means March 31, 1999.
"Books and Records" has the meaning set forth in Section 1.1(a)(viii).
"Business" has the meaning set forth in the recitals of this Agreement.
"Charter Documents" has the meaning set forth in Section 5.2.
"Claim" has the meaning set forth in Section 11.3(a).
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Common Stock" has the meaning set forth in Section 6.3.
"Clarant Expiration Date" means the date that is one year from the
Closing Date.
"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 6.3.
"Clarant Stock" has the meaning set forth in Section 6.3.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
"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.
"Computer Software" has the meaning set forth in Section 1.1(a)(v).
"Consents" has the meaning set forth in Section 5.4.
"Consideration" has the meaning set forth in Section 3.1.
"Contingent Consideration" has the meaning set forth in Section 3.3.
58
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral)
"Contributor" has the meaning set forth in the first paragraph of this
Agreement.
"Contributor Indemnified Party" has the meaning set forth in
Section 11.2.
"Contributor Other Benefit Obligation" has the meaning set forth in
Section 5.17.
"Contributor Plan" has the meaning set forth in Section 5.17.
"Defense Counsel" has the meaning set forth in Section 11.3(a).
"Defense Notice" has the meaning set forth in Section 11.3(a).
"Demand Registration" has the meaning set forth in Section 17.1(b).
"Direct Claim" has the meaning set forth in Section 11.4.
"Draft Registration Statement" means the draft registration statement
on Form S-1 of Clarant dated June 7, 1999, prepared by Xxxxxxx Corporation
Network Composition System and attached hereto as SCHEDULE 18.1.
"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.
"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;
59
(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 natural resources, species, or
ecological amenities;
(f) transporting 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.
"Evaluation Material" shall mean any and all financial, technical,
commercial or other information concerning the business and affairs of the
Contributor that has been or may hereafter be provided or shown to Clarant or
its employees, officers, directors, representatives or agents, irrespective of
the form of the communication, all notes, analyses, compilations, studies or
other material prepared by Contributor or its representatives.
"Excluded Assets" has the meaning set forth in Section 1.1(b).
"Exhibit" means each Exhibit attached to this Agreement.
"Financial Statements" has the meaning set forth in Section 5.10(a).
"Fixed Assets" has the meaning set forth in Section 1.1(a)(iii).
"Founding Companies" has the meaning set forth in the recitals of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
"GAAP" means generally accepted accounting principles as in effect on
the date hereof.
60
"Governmental Authority" means the United States or any state, local,
or foreign government, or any subdivision, agency, authority, court or tribunal
of any thereof.
"Governmental Consents" has the meaning set forth in Section 5.4.
"Hazardous Material" means any waste or other substance that is listed,
defined, designated, or classified as, or by its characteristics determined to
be, hazardous, radioactive, or is defined as toxic or a pollutant or a
contaminant under or pursuant to any Environmental Law, 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(a).
"Indemnifying Party" has the meaning set forth in Section 11.3(a).
"Intellectual Property" has the meaning set forth in
Section 1.1(a)(vi).
"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 any individual who is serving as a
director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has Knowledge of such fact or other matter. For purposes of
this Agreement, "Knowledge of Contributor," "Contributor's Knowledge,"
"Knowledge of the Business," the "Business' Knowledge" or words of similar
import shall include the Knowledge of Xxxxxx X. Blondy and Xxxxx X. Xxxxx except
with respect to Section 10.8(d).
"Laws" has the meaning set forth in Section 5.16(a).
"Leases" has the meaning set forth in Section 5.23(b).
"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.
61
"Material Adverse Effect" means a material adverse change in (i) the
business operations, condition or prospects (financial or otherwise) of any
Person, (ii) the ability of such Person to consummate the transactions
contemplated by the Agreement, or (iii) with respect to the Business, the
condition or value of the Acquired Assets taken as a whole or (iv) with respect
to Clarant, the condition or value of the assets of Clarant taken as a whole.
"Material Contract" means any Assigned Contract or other Contract
solely relating to the Business that has a monetary obligation of at least
$25,000 per year and that is not cancelable by the Contributor without penalty
upon notice of six (6) months or less.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"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
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;
"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.
"Permits" has the meaning set forth in Section 5.16(b).
"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.
"Plans" has the meaning set forth in Section 5.17.
"Post-Closing Period" has the meaning set forth in Section 5.24.
"Pre-Closing Period" has the meaning set forth in Section 5.24.
62
"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 or investigative)
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Authority.
"Registration Statement" means that certain registration statement on
Form S-1 of Clarant Worldwide Corporation covering the shares of Clarant Common
Stock to be issued in the IPO.
"Reimbursement" has the meaning set forth in Section 11.7.
"Relevant Group" has the meaning set forth in Section 5.24.
"Retained Liabilities" has the meaning set forth in Section 1.2(b).
"Returns" has the meaning set forth in Section 5.24.
"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.
"SEC" means the United States Securities and Exchange Commission.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"Statutory Liens" has the meaning set forth in Section 7.3(b).
"Subsidiary" means any entity the majority of voting shares or
interests of which are owned by the Contributor and/or by one or more
Subsidiaries of the Contributor.
"Tax" or "Taxes" has the meaning set forth in Section 5.24.
"Tax Proceeding" has the meaning set forth in Section 5.24.
"Taxable Period" has the meaning set forth in Section 5.24.
"Taxing Authority" has the meaning set forth in Section 5.24.
"Third Party Claim" has the meaning set forth in Section 11.3.
63
"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 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.
"Trademarks" has the meaning set forth in Section 5.14.
"Transition Services Agreement" has the meaning set forth
in Section 4.2(b)(iv).
"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 Clarant in respect of the IPO.
"Year 2000 Compliant" has the meaning set forth in
Section 5.27.
19. GENERAL
19.1 COOPERATION. The Contributor and Clarant 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
Contributor will cooperate and use its reasonable efforts to have the present
officers, directors and employees of the Contributor 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 successors of the Contributor.
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 Contributor and Clarant and supersede any prior
agreement and understanding relating to the subject matter of this Agreement;
provided, however, that the terms of the letter agreement referred to in Section
14.1 shall not be superseded by this Agreement and shall survive pursuant to the
terms thereof. 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 Contributor
and Clarant, acting through their respective officers or
64
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 parties shall make a good faith effort to cross reference
disclosure, as necessary or advisable, between related Schedules and provided
further that any item disclosed or referred to in the Draft Registration
Statement shall not be deemed disclosed on any other Schedule unless such other
Schedule specifically refers to the applicable Section and page number of the
Draft Registration Statement.
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 Contributor shall pay the fees, expenses and disbursements of
the Contributor and its 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 Contributor under this
Agreement, including the reasonable fees and expenses of legal counsel to the
Contributor.
(c) If the transaction herein contemplated is consummated,
Clarant will pay the fees, expenses, and disbursements of the Contributor and
its agents, representatives, accountants and counsel as described in (b), above.
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 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
65
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, addressed to them at:
0000 Xxxxx Xxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
with copies to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
(b) If to the Contributor, addressed to it at:
Young & Rubicam Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: General Counsel
with copies to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxxxx, Esquire
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
66
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 [Intentionally Omitted].
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 after the Closing shall survive the
Closing and expire in accordance with their respective terms.
[Execution page following.]
67
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT WORLDWIDE CORPORATION
By: /s/ Xxxxxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxxxxx X. Xxxxxx
-------------------------------
Title: Chief Executive Officer
------------------------------
YOUNG & RUBICAM INC.
By: /s/ Xxxxxxxxx X. Xxxxxxxx
---------------------------------
Name: Xxxxxxxxx X. Xxxxxxxx
-------------------------------
Title: Executive Vice President,
General Counsel
------------------------------
EXHIBIT 3.1
CONSIDERATION
The Consideration shall be 4,609,091 shares of Clarant Common Stock.
The minimum IPO price per share of Clarant Common Stock is $9.90.
EXHIBIT 3.2
ALLOCATION OF CONSIDERATION
SCHEDULE 3.2
Item Value
---- -----
Accounts Receivable, book value thereof
Fixed Assets,
Permits,
Assigned Contracts, and
Computer Software
Intellectual Property, remainder of the Consideration
Books and Records,
goodwill, if any,
assets described in
1.1(a)(vii) and any other
intangibles
EXHIBIT 3.3
(a) Contingent Consideration will be paid to the Contributor contingent
on the financial performance of the Business 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 Contributor:
PROJECTIONS FOR DETERMINING CONTINGENT CONSIDERATION
Projected Projected Projected Projected
Measurement Business Business Pre- Combined Combined
Period Revenues Tax Income Revenues Pre-tax Income
------ -------- ---------- -------- --------------
Jul. 1, 1999- $8,470,000 $1,001,000 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 $78,700,000 $12,675,000
Multiple) x (Actual
Dec. 31, 1999 Business Revenues -
Projected Business
Revenues)
+
50% (Pre-Tax Income
Multiple) x (Actual
Pre-Tax Income -
Projected Pre-Tax
Income)
Jan. 1, 2000 - 3 15 16.1 (Pool Share) x 50% $78,700,000 $12,675,000
1% (Revenue Multiple) x
Jun. 30, 2000 (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 Contributor:
(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 or other charges incident to the
transactions contemplated by the Agreement;
(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 of 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; and provided further that in no event shall Clarant pay the
Contingent Consideration in shares of Clarant Common Stock if after giving
effect to such payment, the Contributor would own, directly or indirectly,
twenty percent (20%) or more of the issued and outstanding shares of Clarant
Common Stock. 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 Business'
actual revenues ("Actual Business Revenues") and actual Pre-Tax Income ("Actual
Business 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 Contributor setting forth (i) the
determination made by Xxxxxx Xxxxxxxx of the Actual Business Revenues, Actual
Business 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 Contributor for the Measurement Period and (iii) the amount of
cash and shares of Clarant Common Stock that will be paid to the Contributor 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 a bank designated by Clarant ("Clarant's Bank") to hold in escrow until final
resolution of any disputes regarding the Contingent Consideration.
(e) The Contributor 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 Contributor at the account identified on
EXHIBIT 4.2(b)(vii) (which will be provided to Clarant prior to the Closing) and
deliver the shares of Clarant Common Stock to the Contributor. If, however, the
Contributor has delivered notice of such a dispute to Clarant within such 15-day
period, then Clarant's chief financial officer and the chief financial officer
of the Contributor 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 chief financial
officer of the Contributor shall attempt to make a final determination of the
Contingent Consideration payable for the Measurement Period. If Clarant's chief
financial officer and the chief financial officer of the Contributor 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 chief financial officer of
Contributor 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
Contributor. 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 Contributor.
(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.
(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 Contributor for such imputed interest.
(h) The right to receive the Contingent Consideration shall not be
assignable by the Contributor.
(i) 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 or reasonably likely to prejudice the Contributor's rights
with respect to the 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 payable to the Contributor in accordance
with the Agreement and the terms set forth in this EXHIBIT 3.3.
(j) For purposes of calculating the Contingent Consideration during
the first Measurement Period, the Business' 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 of the Contributor that the
Contributor requests Clarant to assign to one of the Other Founding Companies
and which assignment request is accepted by such Other Founding Company.
