EXHIBIT 10.08
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
by and among
CLARANT, INC.,
MULTIMEDIA ACQUISITION LLC,
MULTIMEDIA RESOURCES, LLC,
and
XXXXX XXXXXXXXX,
XXXX X. XXXXXXXX
and
XXXXXX X. XXXXXX
Dated: June 2, 1999
TABLE OF CONTENTS
1. THE MERGER...............................................................................................2
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER.......................................................2
1.2 EFFECTIVE TIME..................................................................................2
1.3 ARTICLES OF ORGANIZATION, SOLE MEMBER OF SURVIVING COMPANY......................................2
1.4 EFFECT OF MERGER................................................................................3
2. CONVERSION OF MEMBERS' INTERESTS.........................................................................3
2.1 MANNER OF CONVERSION............................................................................3
3. DELIVERY OF MERGER CONSIDERATION.........................................................................4
3.1 MERGER CONSIDERATION; TENDER....................................................................4
3.2 TENDER OF COMPANY INTERESTS.....................................................................5
3.3 EARN-OUT........................................................................................5
4. PRE-CLOSING AND CLOSING..................................................................................6
4.1 PRE-CLOSING.....................................................................................6
4.2 CLOSING.........................................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MEMBERS
........................................................................................................6
5.1 DUE ORGANIZATION................................................................................7
5.2 AUTHORIZATION. .................................................................................7
5.3 MEMBERSHIP INTERESTS OF THE COMPANY.............................................................7
5.4 AUTHORITY; NO CONFLICT..........................................................................8
5.5 TRANSACTIONS IN COMPANY INTERESTS; ORGANIZATION ACCOUNTING......................................8
5.6 [Reserved]......................................................................................9
5.7 SUBSIDIARIES....................................................................................9
5.8 PREDECESSOR STATUS; ETC.........................................................................9
5.9 SPIN-OFF BY THE COMPANY. ......................................................................9
5.10 FINANCIAL STATEMENTS............................................................................9
5.11 LIABILITIES AND OBLIGATIONS....................................................................9
5.12 ACCOUNTS AND NOTES RECEIVABLE..................................................................10
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY........................................................10
5.14 TRADEMARKS.....................................................................................11
5.15 LITIGATION AND LEGAL PROCEEDINGS...............................................................11
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.......................................................13
5.17 EMPLOYEE BENEFITS..............................................................................13
5.18 INSURANCE POLICIES.............................................................................17
5.19 ENVIRONMENT....................................................................................19
ii
5.20 LABOR AND EMPLOYMENT MATTERS...................................................................20
5.21 PERSONAL PROPERTY..............................................................................21
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS......................................22
5.23 REAL PROPERTY..................................................................................24
5.24 TAXES..........................................................................................24
5.25 BUSINESS CONDUCT...............................................................................27
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY...........................................................29
5.27 YEAR 2000 COMPLIANCE. .........................................................................30
5.28 RELATIONS WITH GOVERNMENTS.....................................................................30
5.29 DISCLOSURE.....................................................................................30
5.31 AFFILIATE TRANSACTIONS.........................................................................31
5.32 MISREPRESENTATION..............................................................................32
5.33 BROKERS........................................................................................32
5.34 AUTHORITY; OWNERSHIP...........................................................................32
5.35 PREEMPTIVE RIGHTS..............................................................................32
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK.......................................................32
5.37 TENDER.........................................................................................32
5.38 INVESTOR QUESTIONNAIRES........................................................................33
6. REPRESENTATIONS OF CLARANT AND NEWCO....................................................................33
6.1 DUE ORGANIZATION...............................................................................33
6.2 AUTHORIZATION..................................................................................33
6.3 TRANSACTION NOT A BREACH.......................................................................33
6.4 MISREPRESENTATION..............................................................................33
6.5 CAPITAL STOCK..................................................................................34
6.6 SUBSIDIARIES...................................................................................34
6.7 LIABILITIES AND OBLIGATIONS....................................................................34
6.8 CONFORMITY WITH LAW; LITIGATION................................................................34
6.9 VALIDITY OF OBLIGATIONS........................................................................35
6.10 CLARANT COMMON STOCK...........................................................................35
6.11 NO SIDE AGREEMENTS.............................................................................35
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS...................................................35
6.13 NO VIOLATIONS..................................................................................35
6.14 ABSENCE OF CHANGES.............................................................................36
6.15 TAXES..........................................................................................37
7. COVENANTS PRIOR TO CLOSING..............................................................................37
7.1 ACCESS AND COOPERATION; DUE DILIGENCE..........................................................37
7.2 CONDUCT OF BUSINESS PENDING CLOSING............................................................38
7.3 PROHIBITED ACTIVITIES..........................................................................38
7.4 NO SHOP........................................................................................40
7.5 NOTICE TO BARGAINING AGENTS....................................................................40
iii
7.6 AGREEMENTS....................................................................................40
7.7 NOTIFICATION OF CERTAIN MATTERS................................................................41
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT...........................................41
7.9 FINAL FINANCIAL STATEMENTS. ...................................................................42
7.10 FURTHER ASSURANCES.............................................................................42
7.11 AMENDMENT OF SCHEDULES.........................................................................42
7.12 THIRD PARTY APPROVALS..........................................................................43
7.13 HSR FILING.....................................................................................43
7.14 AUTHORIZED CAPITAL STOCK.......................................................................43
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND THE
COMPANY
.......................................................................................................44
8.1 REPRESENTATIONS AND WARRANTIES.................................................................44
8.2 PERFORMANCE OF OBLIGATIONS.....................................................................44
8.3 NO LITIGATION..................................................................................44
8.4 OPINION OF COUNSEL.............................................................................44
8.5 REGISTRATION STATEMENT.........................................................................45
8.6 CONSENTS AND APPROVALS.........................................................................45
8.7 GOOD STANDING CERTIFICATES.....................................................................45
8.8 SECRETARY'S CERTIFICATE........................................................................45
8.9 HSR ACT........................................................................................45
8.10 CLOSING OF THE IPO.............................................................................45
8.11 EMPLOYMENT AGREEMENTS..........................................................................45
8.12 LISTING........................................................................................45
8.13 TAX OPINION....................................................................................46
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO
.......................................................................................................46
9.1 REPRESENTATIONS AND WARRANTIES.................................................................46
9.2 PERFORMANCE OF OBLIGATIONS.....................................................................46
9.3 NO LITIGATION..................................................................................46
Company and Member Representations......................................................................47
9.5 NO MATERIAL ADVERSE EFFECT.....................................................................47
9.6 TERMINATION OF RELATED PARTY AGREEMENTS........................................................47
9.7 OPINION OF COUNSEL.............................................................................47
9.8 CONSENTS AND APPROVALS.........................................................................47
9.9 GOOD STANDING CERTIFICATES.....................................................................47
9.10 REGISTRATION STATEMENT.........................................................................47
9.11 EMPLOYMENT AGREEMENTS..........................................................................48
9.12 CLOSING OF IPO.................................................................................48
9.13 FIRPTA CERTIFICATE.............................................................................48
iv
9.14 [Reserved].....................................................................................48
9.15 SATISFACTION...................................................................................48
9.16 HSR ACT........................................................................................48
9.17 INVESTOR QUESTIONNAIRE.........................................................................48
10. COVENANTS OF CLARANT AND THE MEMBERS AFTER CLOSING......................................................48
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT...................................................48
10.2 TAX MATTERS....................................................................................48
10.3 DIRECTORS AND OFFICERS.........................................................................50
10.4 DIRECTORS' AND OFFICERS' INSURANCE.............................................................50
11. INDEMNIFICATION.........................................................................................50
11.1 INDEMNIFICATION BY MEMBERS.....................................................................50
11.2 INDEMNIFICATION BY CLARANT.....................................................................51
11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS.................................................52
11.4 TAX CONTESTS...................................................................................53
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS......................................................54
11.6 FAILURE TO GIVE TIMELY NOTICE..................................................................54
11.7 REDUCTION OF LOSS..............................................................................55
11.8 SUBROGATION....................................................................................55
11.9 ARBITRATION....................................................................................55
11.10 EXCLUSIVE REMEDY...............................................................................55
11.11 LIMITATION AND EXPIRATION......................................................................56
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS...........................................57
12. TERMINATION OF AGREEMENT................................................................................57
12.1 TERMINATION....................................................................................57
12.2 LIABILITIES IN EVENT OF TERMINATION............................................................58
13. NONCOMPETITION..........................................................................................58
13.1 PROHIBITED ACTIVITIES.........................................................................58
13.2 DAMAGES........................................................................................59
13.3 REASONABLE RESTRAINT...........................................................................59
13.4 SEVERABILITY; REFORMATION......................................................................60
13.5 INDEPENDENT COVENANT...........................................................................60
13.6 MATERIALITY....................................................................................60
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................60
14.1 MEMBERS........................................................................................60
14.2 CLARANT AND NEWCO..............................................................................61
14.3 DAMAGES........................................................................................61
14.4 SURVIVAL.......................................................................................61
v
15. TRANSFER RESTRICTIONS...................................................................................62
15.1 TRANSFER RESTRICTIONS..........................................................................62
16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................62
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK.......................................................62
16.2 COMPLIANCE WITH LAW............................................................................63
16.3 ECONOMIC RISK; SOPHISTICATION..................................................................63
17. REGISTRATION RIGHTS.....................................................................................63
17.1 PIGGYBACK REGISTRATION RIGHTS..................................................................63
17.2 REGISTRATION PROCEDURES........................................................................64
17.3 UNDERWRITING AGREEMENT.........................................................................64
17.4 AVAILABILITY OF RULE 144.......................................................................65
17.5 MARKET STANDOFF................................................................................65
18. DEFINITIONS.............................................................................................65
19. GENERAL................................................................................................74
19.1 COOPERATION....................................................................................74
19.2 SUCCESSORS AND ASSIGNS.........................................................................74
19.3 ENTIRE AGREEMENT...............................................................................74
19.4 COUNTERPARTS...................................................................................74
19.5 EXPENSES.......................................................................................74
19.6 NOTICES. ......................................................................................75
19.7 GOVERNING LAW..................................................................................76
19.8 EXERCISE OF RIGHTS AND REMEDIES................................................................76
19.9 TIME...........................................................................................76
19.10 REFORMATION AND SEVERABILITY...................................................................76
19.11 MEMBERS' REPRESENTATIVE........................................................................76
19.12 CAPTIONS.......................................................................................77
19.13 SURVIVAL.......................................................................................77
19.14 ACCOUNTING TERMS...............................................................................77
vi
EXHIBITS AND SCHEDULES
EXHIBIT 1.1 Articles of Merger
EXHIBIT 1.3 Surviving Company Charter Documents
EXHIBIT 2.1(a) Consideration
EXHIBIT 3.3 Contingent Consideration
EXHIBIT 5.2 Member and Manager Approvals
EXHIBIT 5.29(a) Investor Questionnaires
EXHIBIT 6.1 Clarant Charter Documents
EXHIBIT 8.11 Form of Employment Agreement
EXHIBIT 18 Knowledge
EXHIBIT 19.6 Members Addresses and Counsel
SCHEDULE 5.1 Charter Documents and Officers and Directors of the Company
SCHEDULE 5.3 Capital Structure of the Company
SCHEDULE 5.4 Consents
SCHEDULE 5.7 Subsidiaries
SCHEDULE 5.8 Predecessor Status
SCHEDULE 5.10 Financial Statements
SCHEDULE 5.11 Liabilities and Obligations
SCHEDULE 5.12 Accounts Receivable
SCHEDULE 5.13 Intellectual Property
SCHEDULE 5.14 Trademarks
SCHEDULE 5.15 Litigation
SCHEDULE 5.16 Compliance with Laws/Permits
SCHEDULE 5.17 Company Plans
SCHEDULE 5.18 Insurance
SCHEDULE 5.19 Environmental
SCHEDULE 5.20 Employees
SCHEDULE 5.21 Personal Property
SCHEDULE 5.22 Material Contracts
SCHEDULE 5.23 Real Property
SCHEDULE 5.24(g) List of Tax Returns
SCHEDULE 5.24(q) Tax Elections
SCHEDULE 5.25 Business Conduct
SCHEDULE 5.26 Deposit Accounts/Powers of Attorney
SCHEDULE 5.27 Y2K
SCHEDULE 5.30 Warranties
SCHEDULE 5.31 Affiliate Transactions
SCHEDULE 6.5 Clarant Securities
SCHEDULE 6.7 Liabilities & Obligations
SCHEDULE 6.8 Conformity with Law
vii
SCHEDULE 6.9 Litigation
SCHEDULE 6.12 Property
SCHEDULE 6.13 Consents
SCHEDULE 9.11 Employment Agreements
SCHEDULE 10.4 D&O Insurance
SCHEDULE 11.1(f) Additional Indemnification Matters
SCHEDULE 18.1 Registration Statement
viii
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as
of June 2, 1999, by and among CLARANT, INC., a Delaware corporation ("Clarant"),
MULTIMEDIA ACQUISITION LLC, a New York limited liability company ("Newco"),
MULTIMEDIA RESOURCES, LLC, a New York limited liability company (the "Company"),
XXXXX XXXXXXXXX, XXXX X. XXXXXXXX and XXXXXX X. XXXXXX, (collectively, the
"Members"). The Members are all the members of the Company.
WHEREAS, Newco is a limited liability company duly organized and
existing under the laws of the State of New York, having been formed on May 4,
1999, solely for the purpose of completing the transactions set forth herein,
and is a wholly-owned subsidiary of Clarant;
WHEREAS, the Company provides consulting services, involving strategic
planning, business development and marketing and program development and
implementation for the Internet (the "Business");
WHEREAS, the respective members of Newco and the Company (which
together are hereinafter collectively referred to as "Constituent Companies")
deem it advisable and in the best interests of the Constituent Companies and
their respective members that Newco merge with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of New
York (the "Merger"), and in furtherance thereof have approved the Merger;
WHEREAS, it is the intent of Clarant, Newco, the Company and each of
the Members that upon the completion of the Merger, the Company shall be the
Surviving Company existing as a wholly owned subsidiary of Clarant;
WHEREAS, Clarant plans to enter into other separate agreements
substantially similar to this Agreement (the "Other Agreements") with Align
Solutions Corp., Young & Rubicam, Inc., Free Range Media, Inc., Interactive8,
Inc., Integrated Consulting, Inc., Potomac Partners Management Consulting, LLC,
and RSI Group, Inc. (collectively, the "Other Founding Companies" and together
with the Other Founding Companies, the "Founding Companies"), and their
respective members in order to acquire additional Internet consulting
organizations.
WHEREAS, this Agreement, the IPO and the Other Agreements constitute
the "Clarant Plan of Organization";
WHEREAS, the Board of Directors of Clarant and Members of the Company
have approved and adopted the Clarant Plan of Organization as an integrated plan
to transfer the membership interests of the Company and the capital stock and
membership interests, as applicable, of the Other Founding Companies to Clarant
under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code");
1
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Members of the Company, the
members of Newco and the board of directors of Clarant have approved the Merger,
this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. Subject to satisfaction
of the terms and conditions of this Agreement, the Constituent Companies will
cause the Articles of Merger in substantially the form attached hereto as
EXHIBIT 1.1 to be signed, verified and filed with the Secretary of State of the
State of New York and stamped receipt copies of each such filing to be delivered
to Clarant on or before the Closing Date.
1.2 EFFECTIVE TIME. At the Effective Time and subject to the terms and
conditions of this Merger and the applicable provisions of the applicable laws
governing mergers in the State of New York (the "State LLC Law"), Newco shall be
merged with and into the Company in accordance with the Articles of Merger, the
separate existence of Newco shall cease, and the Company shall be the surviving
party in the Merger. At the Effective Time, the effect of the Merger otherwise
shall be as provided in the applicable provisions of the State LLC Law.
1.3 ARTICLES OF ORGANIZATION, SOLE MEMBER OF SURVIVING COMPANY. At the
Effective Time:
(a) the Articles of Organization of the Surviving Company
shall be amended and restated as permitted under the laws of New York and shall
read substantially in the form attached hereto as EXHIBIT 1.3;
(b) the operating agreement of Newco then in effect shall be
the operating agreement of the Surviving Company until amended as provided by
law;
(c) Xxxxxxxxx X. Xxxxxx, the Chief Executive Officer of
Clarant ("Xx. Xxxxxx") shall be the sole managing member of the Surviving
Company until his successor is elected or appointed and qualified in accordance
with the terms of the operating agreement of the Surviving Company; and
(d) Xx. Xxxxxx shall be the President and Chief Executive
Officer of the Surviving Company, the President of the Company immediately prior
to the Effective Time shall be a Vice President of the Surviving Company and the
other officers of the Company
2
immediately prior to the Effective Time shall continue as officers of the
Surviving Company in the same capacity or capacities.
1.4 EFFECT OF MERGER. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of each Constituent Company shall continue unaffected and
unimpaired by the Merger, and the Surviving Company shall be fully vested
therewith. At the Effective Time, the separate existence of Newco shall cease
and, in accordance with the terms of this Agreement, the Surviving Company shall
possess all the rights, privileges, immunities, powers and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all other choses in action, and all and every other interest of or belonging
to or due to the Company or Newco shall be taken and deemed to be transferred
to, and vested in, the Surviving Company without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Company as they were of the Company and Newco; and the title to any real estate,
or interest therein, whether by deed or otherwise, under the laws of the state
of organization vested in the Company and Newco, shall not revert or be in any
way impaired by reason of the Merger. The Surviving Company shall thenceforth be
responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Company may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Company, and may be enforced against it to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
2. CONVERSION OF MEMBERS' INTERESTS
2.1 MANNER OF CONVERSION. For purposes of converting the Members'
interests in the Company (each a "Company Interest" and collectively, the
"Company Interests") under this Agreement, the Members of the Company shall be
divided into two classes: (A) the first class being Members of the Company who
qualify as "accredited investors" under Rule 501(a) of Regulation D promulgated
under the 1933 Act ("Accredited Members") and (B) the second class being Members
of the Company who do not qualify as "accredited investors" under Rule 501(a) of
Regulation D promulgated under the 1933 Act ("Non-accredited Members"). Pursuant
to the provisions of this Section 2.1, each of the Accredited Members and
Non-accredited Members shall receive his or her pro rata share of the Merger
Consideration distributed according to the terms of this Section 2.1.
(a) At the Effective Time, by virtue of the Merger and without
any further action on the part of the holder thereof, each of the membership
interests of the Constituent Companies shall be automatically canceled,
extinguished and converted as follows:
3
(i) each Company Interest owned by an Accredited
Member immediately prior to the Effective Time shall be converted into the right
to receive (A) that number of shares of Clarant Common Stock as determined by
the appropriate formula set forth on EXHIBIT 2.1(a), and (b) the amount of cash
as determined by the appropriate formula set forth on EXHIBIT 2.1(a);
(ii) each Company Interest owned by an Non-accredited
Member immediately prior to the Effective Time shall be converted into the right
to receive the amount of cash as determined by the appropriate formula set forth
of EXHIBIT 2.1(a);
(iii) each Company Interest that is owned directly or
indirectly by the Company shall be canceled and retired and shall cease to exist
and no stock of Clarant or other consideration shall be delivered in exchange
therefor; and
(iv) each outstanding membership interest in the
Newco shall continue to be outstanding and shall be converted automatically into
a membership interest in the Surviving Company. Any certificate of Newco
evidencing ownership of any such interest shall continue to evidence ownership
of such interest in the Surviving Corporation converted pursuant to this
Agreement.
(b) [Reserved]
(c) All Clarant Common Stock received by the Members pursuant
to this Agreement shall, except for restrictions on resale or transfer described
in Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding Clarant Common Stock by reason of the provisions of the Certificate
of Incorporation of Clarant or as otherwise provided by the Delaware General
Corporation Law. All voting rights of Clarant Common Stock received by the
Members shall be fully exercisable by the Members, and the Members shall not be
deprived nor restricted in exercising those rights after the Effective Time of
the Merger.
(d) From and after the Effective Time, all Company Interests
shall no longer be outstanding and shall cease to exist, and any certificate or
agreement previously representing any such interests shall represent only the
right to receive the consideration determined according to the formulas provided
on EXHIBIT 2.1(a).
3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER CONSIDERATION; TENDER. At the Closing, Clarant shall deliver
to the Members of the Company the consideration allocable pro rata to each such
Member (the "Merger Consideration") as follows:
4
(a) upon the assignment by each of the Members of his or her
Company Interests, and any certificates representing such Company Interests, (i)
each of the Accredited Members shall receive (A) the number of shares of Clarant
Common Stock allocable to such Accredited Member pursuant to EXHIBIT 2.1(a) and
(B) the amount of cash allocable to such Accredited Member pursuant to EXHIBIT
2.1(a); and (ii) each of the Non-accredited Members shall receive the amount of
cash allocable to such Non-accredited Member pursuant to EXHIBIT 2.1(a); and
(b) The cash portion of the Merger Consideration allocable to
each Accredited Member or Non-accredited Member, as the case may be, shall be
paid by wire transfer to the accounts of each holder pursuant to the wire
transfer instructions given on EXHIBIT 19.6. For purposes of this Section 3.1, a
Member's pro rata share shall be determined with respect to the total amount of
outstanding Company Interests on a Fully-Diluted basis immediately prior to the
Effective Time. For purposes of calculating the Merger Consideration,
"Fully-Diluted" means the total amount of Company Interests that would be
outstanding assuming the exercise of all issued and outstanding rights, warrants
and options (whether vested or un-vested) and the conversion to Company
Interests of all issued and outstanding convertible bonds, debentures and
preferred interests.
3.2 TENDER OF COMPANY INTERESTS. The Members shall deliver in trust to
Xxxxxx, Xxxxxx & Xxxxxxxxx, counsel to Clarant, at the Pre-Closing assignments
of Company Interests, duly executed by the Members, or accompanied by assignment
powers duly endorsed in blank, and with all necessary transfer tax and other
revenue stamps, acquired at the Members' expense, affixed and canceled. The
Members agree promptly to cure any deficiencies with respect to the assignments
or other documents of assignment with respect to such Company Interests or with
respect to the powers accompanying any Company Interest.
3.3 EARN-OUT. In addition to the Merger Consideration and subject to
the terms of this Section 3.3, Clarant shall deliver contingent consideration
determined according to the formula stated in EXHIBIT 3.3 (the "Contingent
Consideration") to each Person who is a Member of the Company as of the Closing
Date such Member's pro rata share of the Contingent Consideration (such pro rata
share to be determined with respect to the total number of outstanding Company
Interests immediately prior to the Effective Time). Each Accredited Member as of
the Closing Date shall be eligible to receive his or her pro rata share of
Contingent Consideration in a combination of Clarant Common Stock and cash. Each
Non-accredited Member as of the Closing Date shall be eligible to receive his or
her pro rata share of Contingent Consideration in cash as provided in EXHIBIT
3.3.
5
4. PRE-CLOSING AND CLOSING
4.1 PRE-CLOSING. At or prior to the Pre-Closing, the parties shall take
all actions necessary to prepare to (a) effect the Merger (including, if
permitted by applicable state law, the advance filing with the appropriate state
authorities of the Certificate and Articles of Merger and/or Plan of Merger, as
applicable (collectively, the "Merger Documents"), which shall become effective
at the Effective Time) and (b) deliver the Clarant Common Stock and Company
Units, as the case may be, referred to in Article 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the delivery of such interests and the transmission of funds
by wire referred to in Article 3 hereof, each of which actions shall only be
taken upon the Closing Date as herein provided. In the event that there is no
Closing Date and this Agreement terminates, Clarant hereby covenants and agrees
to do all things required by the State LLC Law and all things which counsel for
the Company advise Clarant are required by the State LLC Law in order to rescind
actions effected by the advance filing of the Merger Documents as described in
this Section. The taking of the actions described in clauses (a) and (b) above
(the "Pre-Closing") shall take place the day following the date that the
Registration Statement shall be declared effective by the Securities and
Exchange Commission (the "Pre-Closing Date") at the offices of Xxxxxx, Xxxxxx &
Xxxxxxxxx, 0000 X Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000.
4.2 CLOSING. On the Closing Date: (a) the Merger Documents shall be or
shall have been filed with the appropriate state authorities so that they shall
be or, as of 8:00 a.m. New York City time on the Closing Date, shall become
effective and the Merger shall thereby be effected, (b) all transactions
contemplated by this Agreement, including the delivery of Clarant Common Stock
and Company Units, as the case may be, the transmission of funds by wire in an
amount equal to the cash portion of the consideration to be paid according to
EXHIBIT 2.1(a), and (c) all conditions to closing as set forth in Articles 8 and
9 of this Agreement shall have been satisfied. The date on which the actions
described in this Section 4.2 occur shall be referred to as the "Closing Date."
This Agreement shall terminate if the Closing Date has not occurred within
fifteen (15) business days of the Pre-Closing Date. Time is of the essence. The
"Effective Time" shall be the same date as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
MEMBERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
The Company and each of the Members jointly and severally represents
and warrants to Clarant and Newco that all of the following representations and
warranties in this Section 5(A) are true at the date of this Agreement, shall be
true, accurate and complete at the Pre-Closing Date and the Closing Date, in
each case as modified by any applicable Schedule amendments or supplements, and
each of the Members further represents and warrants that, except as
6
contemplated hereby or as affected by the transaction contemplated hereby, such
representations and warranties shall survive the Closing Date as provided in
Article 11:
5.1 DUE ORGANIZATION. The Company is duly organized, validly existing,
and in good standing under the laws of New York and has all requisite power and
authority to carry on its operations as they are now being conducted, to own or
use the properties and assets it purports to own or use, and to perform all of
its obligations under the Material Contracts. The Company is duly qualified to
conduct business and own its property and assets as a foreign entity in good
standing under the laws of each state in which either the ownership or use of
properties and assets owned or used by it, or the nature of the activities
conducted by it, requires such qualification and where failure to do so would
have a Material Adverse Effect on its Business taken as a whole. True and
complete copies of the Articles of Organization and Operating Agreement, each as
amended, of the Company (the "Charter Documents") are all attached to SCHEDULE
5.1. The Company is not in violation of any Charter Documents. The minute books
and capital account records of the Company, as heretofore made available to
Clarant, are complete in all material respects and reflect all transactions of
the Company. The most recent minutes of the Company, which are dated no earlier
than ten (10) business days prior to the date hereof, affirm and ratify all
prior acts of the Company and of its members and manager on behalf of the
Company in respect of the transactions contemplated hereby. SCHEDULE 5.1
contains a complete and accurate list of the members and manager of the Company.
5.2 AUTHORIZATION. The Persons executing this Agreement on behalf of
the Company are duly authorized to execute and deliver this Agreement and to
perform the obligations hereunder. The execution and delivery of this Agreement
by the Company and performance by the Company of its obligations under this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary company action in accordance
with applicable law and the Charter Documents on the part of the Company and the
Members and copies of the respective approvals of the manager and the Members
(certified by the Members of the Company to be true, accurate and complete) are
attached hereto as EXHIBIT 5.2. This Agreement constitutes the valid and binding
obligations of the Company and the Members, enforceable against the Company and
the Members in accordance with its terms, subject to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally and the
application of equitable principles.
5.3 MEMBERSHIP INTERESTS OF THE COMPANY. The respective designations
and numbers of outstanding membership interests and voting rights of each class
of outstanding membership interests and securities convertible, exercisable or
redeemable for membership interests (collectively, "Convertible Securities"), or
rights, warrants, puts, calls or options relating to membership interests
(collectively, "Options") of the Company as of the date of this Agreement are as
set forth on SCHEDULE 5.3 hereto. All of the issued and outstanding Units of
membership interests, Convertible Securities and Options of the Company are
owned by the Persons listed on SCHEDULE 5.3 and in the amounts set forth
thereon, and are owned free and clear of all
7
Encumbrances, and no other Person (other than Clarant) has any right to acquire
any membership interest in the Company or any of its Subsidiaries. All of the
issued and outstanding Units of membership interests of the Company have been
duly authorized and validly issued, are owned of record and beneficially by the
members of the Company and were offered, issued, sold and delivered by the
Company in compliance with all applicable state and Federal securities laws
concerning the offering and sale or grant of securities. All of the Options have
been duly authorized and validly issued, are held of record and beneficially by
the respective option holders set forth on SCHEDULE 5.3, and were granted in
compliance with all applicable state and Federal securities laws concerning the
grant of options. Set forth on SCHEDULE 5.3 is a complete list of all the
Company's unit holders' agreements, buy-sell agreements, security subscription
agreements, registration rights agreements, voting agreements, option plans and
agreements and other similar agreements (collectively, "Securities Agreements"),
and a copy of each such agreement is attached thereto. To the Knowledge of the
Company and the Members, there are no breaches or defaults by the Company or the
Members under any of the Company's Securities Agreements.
5.4 AUTHORITY; NO CONFLICT. Except to the extent consents or approvals
are required from third parties or Governmental Authorities (the "Consents"),
the execution, delivery or performance of this Agreement by the Company will
not:
(a) violate or conflict with or result in a breach of any
provision of any Law, permit, judgment, or other decision of any court or other
tribunal or any Governmental Authority binding on the Company or any Subsidiary,
or any of its respective Affiliates, or conflict with or result in the breach of
any of the terms, conditions or provisions thereof;
(b) violate, conflict with or constitute a default under any
of the Charter Documents of the Company or any Subsidiary or of any Material
Contract;
(c) constitute an event that would permit any Person to
terminate any Material Contract or accelerate the maturity of any material
indebtedness or other material obligation;
(d) result in the creation or imposition of any Encumbrance
upon the properties or assets of the Company or any Subsidiary; or
(e) require any authorization, consent, approval, exemption or
other action by, or notice to any court or other tribunal or Governmental
Authority (each a "Governmental Consent").
SCHEDULE 5.4 describes each third party and Governmental Authority Consent.
5.5 TRANSACTIONS IN COMPANY INTERESTS; ORGANIZATION ACCOUNTING. Except
as set forth on SCHEDULE 5.3, the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any Company Interests or
make any distribution in respect thereof.
8
5.6 [Reserved]
5.7 SUBSIDIARIES. The Company has no Subsidiaries. Except as set forth
on SCHEDULE 5.7, the Company does not presently own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation, association
or business entity nor is the Company, directly or indirectly, a participant in
any joint venture, partnership, limited liability company or other non-corporate
entity.
5.8 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 5.8 is a list of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from which the Company previously acquired material
assets. Except as disclosed on SCHEDULE 5.8, the Company has not been a
subsidiary or division of another company or a part of an acquisition that was
later rescinded.
5.9 SPIN-OFF BY THE COMPANY. There has not been any sale, spin-off, or
split-up of material properties or assets of either the Company or any other
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company ("Affiliates") since January 1, 1997.
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Company has
delivered to Clarant (as SCHEDULE 5.10) copies of the following financial
statements (the "Financial Statements"): audited Balance Sheets, income
statements, statements of Members' equity and statements of cash flows at and
for the fiscal years ended December 31, 1996, 1997 and 1998 and unaudited
Balance Sheets, income statements, statements of members' equity and statements
of cash flows at and for the interim period ended March 31, 1999.
(b) Each of the Financial Statements fairly presents the
Company's consolidated financial condition, assets and liabilities as of their
respective dates and the results of operations and cash flows for the periods
related thereto in accordance with GAAP, consistently applied among the periods
which are the subject of the Financial Statements, except unaudited interim
financial statements which were or are subject to normal and recurring year-end
adjustments which were not and are not expected to be material in amount or to
require the addition of required footnotes thereto.
5.11 LIABILITIES AND OBLIGATIONS. The Company has delivered to Clarant
an accurate list (which is set forth on SCHEDULE 5.11) as of the Balance Sheet
Date of (a) all liabilities of the Company in excess of $10,000) not reflected
on the Balance Sheet at the Balance Sheet Date or
9
otherwise reflected in the Company Financial Statements at the Balance Sheet
Date and (b) all loan agreements, notes and other material debt obligations
(whether secured or unsecured), indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the Company or
any Subsidiary is a party. Except as set forth on SCHEDULE 5.11, since the
Balance Sheet Date, neither the Company nor any Subsidiary has incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the Ordinary Course of Business that will not have a Material
Adverse Effect.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.12) of the accounts
and notes receivable of the Company as of the Balance Sheet Date, including any
such amounts which are not reflected in the Balance Sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
Members. Within ten (10) days prior to Closing, the Company shall provide
Clarant (a) an accurate list of all outstanding receivables obtained subsequent
to the Balance Sheet Date and (b) an aging of all such accounts and notes
receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on SCHEDULE 5.12 or as disclosed by
the Company to Clarant in a writing accompanying the A/R Aging Reports, as the
case may be, the Company and the Members have no reason to believe that any such
account, note or other receivable is not or shall not be, collectible in the
amounts shown on SCHEDULE 5.12 (in the case of the accounts and notes receivable
set forth on SCHEDULE 5.12, net of reserves reflected in the balance sheet at
the Balance Sheet Date) and as of the date of the A/R Aging Reports,
respectively.
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) The Company owns or licenses all Intellectual Property
necessary and desirable for the Company to conduct its business in the manner
presently conducted, and all material Intellectual Property (other than
Trademarks) owned or used by the Company and/or any Subsidiaries or in which or
to which it has any rights, licenses or immunities are described and set forth
with reasonable particularity in SCHEDULE 5.13 along with material information
as to the ownership thereof or licenses, rights or immunities therein and
registrations thereof;
(b) Except as disclosed in SCHEDULE 5.13:
(i) to the Knowledge of the Members and the Company,
the Company and its Subsidiaries have the right and authority to use all
Intellectual Property as is necessary to enable it to conduct and to continue to
conduct all phases of its business in the manner presently conducted and the
Company and any Subsidiary (in the conduct (or continuing conduct) of the
Company's business) has never infringed on, misappropriated, or otherwise
conflicted with, is not now infringing on, misappropriating or otherwise
conflicting with, and will not conflict with,
10
infringe on or misappropriate any patent or other intellectual property right
belonging to any Person;
(ii) neither the Company nor any Subsidiary is a
party to any license agreement or arrangement, not set forth in SCHEDULE 5.13,
whether as licensee, licensor or otherwise, with respect to any Intellectual
Property;
(iii) [Reserved];
(iv) none of the Members, or any of their Affiliates,
owns any of the Intellectual Property used by the Company or any Subsidiary; and
(v) to the Knowledge of the Members and the Company,
there is no unauthorized use, infringement or misappropriation by any third
party of any Intellectual Property owned by the Company or any Subsidiary.
5.14 TRADEMARKS. Except as disclosed in SCHEDULE 5.14:
(a) all trademarks, service marks, trade dress and trade names
(including computer software and data) ("Trademarks") used by the Company and/or
any Subsidiaries in the conduct of the Business are described and set forth with
reasonable particularity in SCHEDULE 5.14, along with material information as to
the ownership thereof;
(b) all such Trademarks are owned by the Company and/or any
Subsidiaries, except for such as are licensed under licenses referred to in
SCHEDULE 5.14;
(c) all such Trademarks are valid and in good standing, free
and clear of any Encumbrances other than in the Ordinary Course of Business and,
to the Knowledge of the Company and the Members, are not being overtly
challenged in any way;
(d) to the Knowledge of the Company and the Members, the
Company has not infringed on nor is it now infringing on any Trademark of or
belonging to another Person; and
(e) to the Knowledge of the Members and the Company, there is
no claim pending or Threatened against the Company with respect to alleged
infringement of any Trademark owned by any Person nor does the operation or any
aspect to its business in the manner in which it has heretofore been operated or
is presently operated give rise to any such infringement.
5.15 LITIGATION AND LEGAL PROCEEDINGS.
(a) Except as set forth in SCHEDULE 5.15:
11
(i) there is no suit, private proceeding, action,
liability or claim (collectively, "Actions") pending or, to the Company's or the
Members' Knowledge, Threatened, against the Company, any Subsidiary or any
Company Plan or any fiduciary of any such Company Plan or to which the Company
or any Subsidiary is otherwise a party or which may have a Material Adverse
Effect on the Company.
(ii) to the Knowledge of the Members and the Company,
each of the Company and its Subsidiaries has given all required notice of such
Actions to the appropriate insurance carrier(s) and/or all such Actions have in
the judgment of the Company's Chief Financial Officer, been fully reserved for
on the Financial Statements. SCHEDULE 5.15 lists the insurer for each Action
covered by insurance or designates each Action, or portion of each Action, as
uninsured and the individual and aggregate policy limits for the insurance
covering each insured Action and the applicable policy deductibles for each
insured Action;
(iii) no litigation matter (other than workers
compensation claims) to which the Company or any Subsidiary was a party was
resolved, settled or closed during the three years preceding the date of this
Agreement;
(iv) there is no pending Proceeding that has been
commenced by or against the Company or any Subsidiary that relates to or may
materially affect the Business, and, to the Knowledge of the Members and the
Company, no such Proceeding has been Threatened; and
(v) the Company is not subject to any judgment,
Order, or decree of any court or Governmental Authority and, to the Knowledge of
the Company and the Members, none is Threatened. Except as disclosed in SCHEDULE
5.15, neither the Company or any Subsidiary is engaged in any legal action to
recover money due it or for damages sustained by it.
(b) Matters disclosed in SCHEDULE 5.15 shall include the
following information, where applicable:
(i) a summary description of the Action together
with the following:
(1) a list of all relevant documentation
relating thereto;
(2) if known, amounts claimed and any
other action or relief sought; and
(3) name of claimant and, if known, all
other parties to the Action.
12
(ii) the name of each court or agency before which
such Action is pending; and
(iii) the date such Action was instituted.
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.
(a) Except as set forth on SCHEDULE 5.16, the Company and its
Subsidiaries have complied in all material respects with all laws, rules,
regulations, writs, injunctions, decrees, and Orders applicable to it or to the
operation of the Business (collectively, "Laws") and has not received any
written notice of any alleged claim or threatened claim, violation of, liability
or potential responsibility under, any such Law that has not heretofore been
cured and for which there is no remaining liability other than those not having
a Material Adverse Effect.
(b) The Company and its Subsidiaries hold all licenses,
permits and other governmental authorizations (the "Permits") the absence of any
of which could have a Material Adverse Effect, and the Company has delivered to
Clarant an accurate list and summary description (which is set forth on SCHEDULE
5.16) of all such Permits. To the Knowledge of the Company and the Members, the
Permits listed on SCHEDULES 5.16 are valid, and neither the Company nor any
Subsidiary has received any written notice that any Governmental Authority
intends to cancel, terminate or not renew any such Permit. The Company and its
Subsidiaries have conducted and are conducting their Business in compliance with
the requirements, standards, criteria and conditions set forth in the Permits
listed on SCHEDULE 5.16 and are not in violation of any of the foregoing except
where such non-compliance or violation would not have a Material Adverse Effect.
Except as specifically provided in SCHEDULE 5.16, the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company and its
Subsidiaries by, any of the Permits listed on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms have the
meanings set forth below:
"COBRA" means Sections 601-608 of ERISA and Section 4980(B)(8)
of the Code.
"Company Other Benefit Obligation" means an Other Benefit
Obligation the Company sponsors or maintains or with respect to which the
Company has or may have liability, in each case with respect to any present or
former employees or directors of the Company.
"Company Plan" means all Plans of which the Company is a Plan
Sponsor, or to which the Company otherwise contributes, or in which the
Company's employees have
13
participated, or for which the Company has or may have any liability (including
with respect to previously terminated Plans).
"Company VEBA" means a VEBA whose members include employees of
the Company or any ERISA Affiliate.
"ERISA" means the Employee Retirement Income Security Act of
1974 as amended.
"ERISA Affiliate" means, with respect to the Company, any
other trade or business, whether or not incorporated, that, together with the
Company, would be treated as a single employer under Section 414 of the Code or
ERISA Section 4001.
"Multiemployer Plan" has the meaning given in ERISA Section
3(37)(A).
"Other Benefit Obligations" means all obligations or
arrangements to provide benefits to present or former employees or directors
(other than obligations or arrangements that are Plans). Other Benefit
Obligations include (unless they are Plans) employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, sabbaticals, severance pay policies,
plant closing benefits, salary continuation for disability, consulting, or other
compensation arrangements, workers' compensation, retirement, deferred
compensation, bonus, stock option or purchase, medical insurance, life
insurance, tuition reimbursement or scholarship programs, employee discount
programs, meals, travel, or vehicle allowances, any plans subject to Section 125
of the Code, and any plans providing benefits or payments in the event of a
change of control, change in ownership or effective control, or sale of a
substantial portion of the assets of any business or portion thereof, in each
case with respect to any present or former employees or directors and excluding
any arrangements that, in the aggregate, do not reflect liability of the Company
for more than $25,000.
"Pension Plan" has the meaning given in ERISA Section 3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3), including
plans exempted by ERISA Section 4(b)(5) or excluded from coverage under ERISA by
29 CFR Section 2510.3-3(b) as a plan covering only partners, members, or sole
proprietors.
"Plan Sponsor" has the meaning given in ERISA Section
3(16)(B).
"Qualified Plan" means any Company Plan that is intended to
meet the requirements of Section 401(a) of the Code.
The "Service" means the Internal Revenue Service.
14
"VEBA" means a voluntary employees' beneficiary association
under Section 501(c)(9) of the Code.
(b) (i) There are no Company VEBAs; and
(ii) neither the Company nor any ERISA Affiliate
sponsors, maintains or contributes to or has any actual or potential liability
with respect to any now or formerly existing (1) Multiemployer Plan or (2)
Pension Plan subject to Title IV of ERISA or Section 412 of the Code.
(c) (i) SCHEDULE 5.17 contains a complete and accurate
list of all material Company Plans and material Company Other Benefit
Obligations; and
(ii) SCHEDULE 5.17 contains a complete and accurate
list of all ERISA Affiliates.
(d) Members have provided to Clarant all of the following
documents relating to Company Plans and Company Other Benefit Obligations:
(i) all the documents, if any, that set forth the
terms of each Company Plan and Company Other Benefit Obligation and of any
related trust, including (1) the most recent summary plan descriptions of
Company Plans for which the Company is required to distribute summary plan
descriptions, (2) the most recent, if any, summaries and descriptions furnished
to participants and beneficiaries regarding Company Plans and Company Other
Benefit Obligations for which a summary plan description is not required (and
all forms of COBRA notices), and (3) amendments, if any, to each of the
foregoing;
(ii) all personnel and employment manuals and
policies;
(iii) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in writing and that is
listed on SCHEDULE 5.17;
(iv) the Form 5500 or 5500 C/R, if any, filed in each
of the most recent two plan years (or three, if the most recent two 5500C/Rs do
not include a 5500C) with respect to each Company Plan, including all schedules
thereto;
(v) all material notices that were given, with
respect to a Company Plan or Other Company Benefit Obligation, by the Service,
Department of Labor, or other Governmental Authority to the Company or any
Company Plan within the two years preceding the date of this Agreement (and any
earlier material notices relating to matters not resolved as of the date of this
Agreement); and
15
(vi) with respect to Qualified Plans, (I) the most
recent determination regarding qualification and, if different, the most recent
determination letter that covered the qualification of the entire plan, or (II)
if applicable, the most recent opinion letter issued by the Service with respect
to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its material
obligations under all Company Plans and Company Other Benefit Obligations;
(ii) the Company, with respect to all Company Plans
and Company Other Benefit Obligations is, and each Company Plan and Company
Other Benefit Obligation is, in material compliance with ERISA, the Code,
federal and state securities laws and other applicable Laws and with the terms
of each Company Plan and Company Other Benefit Obligation;
(iii) no transaction prohibited by ERISA Section 406
and no "prohibited transaction" under Section 4975(c) of the Code have occurred
with respect to any Company Plan that could give rise to liability against the
Company in excess of $25,000;
(iv) the Company has no liability to the Service with
respect to any Plan that would have a Material Adverse Effect;
(v) the Company has no liability with respect to any
Plan under ERISA Section 502(i) that would have a Material Adverse Effect;
(vi) a determination letter, or, if applicable, an
opinion letter, has been issued by the Service with respect to each Qualified
Plan;
(vii) since December 31, 1998, there has been no
establishment or amendment of any Company Plan or Company Other Benefit
Obligation that would increase the liability of the Company by more than
$25,000;
(viii) other than routine claims for benefits
submitted by participants or beneficiaries, no claim against, or legal
proceeding involving, any Company Plan or Company Other Benefit Obligation is
pending or, to Members' or the Company's Knowledge, is Threatened. No Company
Plans or Company Other Benefit Obligations are, to the Company's Knowledge,
presently under audit or examination (nor has notice been received of a
potential audit or examination) by the Service, the Department of Labor, or any
other Governmental Authority, and no matters are pending with respect to any
Company Plan under the Service's Employee Plans Compliance Resolutions System or
any successor or predecessor program;
16
(ix) no Company Plan or Company Other Benefit
Obligation provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service other than (1) coverage
mandated by applicable law, (2) death benefits or retirement benefits under any
Company Plan that is a Pension Plan, (3) deferred compensation benefits in the
form of cash, (4) benefits, the full cost of which is borne by the current or
former employee (or his beneficiary), or (5) insured disability benefits;
(x) no Company Plan or Company Other Benefit
Obligation contains any provision that would prohibit the transactions
contemplated by this Agreement or that would give rise to any acceleration or
vesting of benefits, severance, termination or other payments or liabilities as
a result of the transactions contemplated by this Agreement; and the Company has
not declared or paid any bonus or incentive compensation in contemplation of the
transactions contemplated by this Agreement;
(xi) all group health plans of the Company and its
ERISA Affiliates have been operated in material compliance with the requirements
of COBRA and Section 5000 of the Code and the Health Insurance Portability and
Accountability Act.
(xii) the only Qualified Plans are as identified on
SCHEDULE 5.17. The Company has never maintained or contributed to other
Qualified Plans. No Company Plan contains any security issued by the Company or
any ERISA Affiliate; each Qualified Plan of the Company is and has always been
in substantial compliance with Section 401(a) of the Code; and
(xiii) the Company has paid all amounts it is
required to pay as contributions to the Company Plans as of the last day of the
most recent fiscal year of each of the plans ended before the date of this
Agreement; all benefits accrued under any unfunded Company Plan or Company Other
Benefit Obligation will have been paid, accrued, or otherwise adequately
reserved to the extent required by GAAP as of the date of this Agreement.
5.18 INSURANCE POLICIES.
(a) The Company has made available to Clarant:
(i) true and complete copies of all policies of
insurance to which the Company or any Subsidiary is a party or any manager or
director of the Company is or has been covered at the expense of the Company;
(ii) true, accurate and complete copies of all
pending applications by the Company for policies of insurance; and
17
(iii) any written statement by the auditor of the
Company's Financial Statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) SCHEDULE 5.18 describes:
(i) any self-insurance arrangement by the Company and
its Subsidiaries, including any reserves established thereunder;
(ii) any workers' compensation schemes applicable to
the Company or any subsidiary;
(iii) any contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk by the Company and
its Subsidiaries; and
(iv) all obligations of the Company and its
Subsidiaries to third parties with respect to insurance (including such
obligations under leases and service agreements).
(c) SCHEDULE 5.18 sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each
policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $50,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by
insurer, type of insurance, and period of coverage; and
(C) the amount and a brief description
of the claim; and
(iii) a statement describing the loss experience for
all claims that were self-insured, including the number and aggregate cost of
such claims.
(d) Except as set forth in SCHEDULE 5.18:
(i) all insurance policies to which the Company or
any Subsidiary is a party or that provide coverage to Members, or any director
or officer of the Company or any Subsidiary:
(A) are valid, outstanding, and enforceable;
18
(B) are issued by an insurer that the
Company believes is financially sound and reputable;
(C) taken together, in the Company's belief,
provide adequate insurance for the properties, assets and the Business and its
Subsidiaries for all risks normally insured against by a Person carrying on the
same or similar business or businesses as the Company;
(D) comply with the insurance requirements
of all Laws and Contracts to which the Company and/or any Subsidiary is a party
or by which it is bound; and
(E) do not provide for any retrospective
premium adjustment or other experience-based liability on the part of the
Company and/or any Subsidiary;
(ii) neither the Company nor any Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and its Subsidiaries has
paid all premiums due and has otherwise performed all of its obligations under
each policy to which the Company or any Subsidiary is a party or that provides
coverage to the Company, any Subsidiary, or director thereof; and
(iv) except as set forth in SCHEDULE 5.18 the Company
and each Subsidiary have given notice to the insurer of all material claims that
may be insured thereby.
5.19 ENVIRONMENT.
(a) Except as set forth in SCHEDULE 5.19:
(i) the Company is, and at all times has been, in
material compliance with, and has not been, and is not, in material violation
of, or materially liable under, any Environmental Law; and
(ii) with respect to Permits required by, and notices
or application required by, the Environmental Laws, the Company possesses all
such Permits and has filed all such notices and applications the absence of
which would have a Material Adverse Effect on the Company.
19
(b) Except as disclosed in SCHEDULE 5.19:
(i) the Company has not been subject to, or received
any, notice of any Action or intended Action relating to the presence or alleged
presence of Hazardous Materials in, under, or upon any real estate currently or
formerly owned, leased or used by (A) the Company, or (B) any other Person with
respect to Hazardous Materials disposed of by or on behalf of the Company;
(ii) the Company and Members have no Knowledge of any
basis for any such notice or Action; and
(iii) there are no pending or, to the Knowledge of
the Members and the Company Threatened, Actions (or notice of potential actions
or proceedings) from any Governmental Authority or any other entity against or
applicable to the Company regarding any matter relating to health or protection
of the Environment.
(c) To the Knowledge of the Company and the Members, there
are, and have been, no past or present events, conditions, circumstances,
activities, practices, incidents, or actions that could reasonably be expected
to interfere with or prevent the Company's or any Subsidiary's continued
compliance with any Environmental Law, give rise to any legal obligation or
liability, or otherwise form the basis of any Action, hearing or investigation
against or involving the Company or any Subsidiary or any real estate presently
or previously owned or used by the Company or any Subsidiary under any of the
Environmental Law or related common law theories, except as identified in
SCHEDULE 5.19.
(d) To the Knowledge of the Members and the Company, the
Company does not and never has disposed of any hazardous materials off-site, and
does not employ or use, and never has employed or used, any off-site waste
disposal organization, hauler, transporter or cartage organization to dispose of
Hazardous Materials to any off-site waste disposal location on behalf of the
Company or any Subsidiary.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of and service providers to the Company:
(a) [Reserved]
(b) the Company is complying and has complied in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including,
without limitation, any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements. No claims or
20
investigations are pending or, to the Company's Knowledge, Threatened with
respect to such laws, either by private individuals or by Governmental
Authority;
(c) the Company has not and is not engaged in any unfair labor
practice. There is not now, nor within the past three years has there been, any
unfair labor practice complaint against the Company pending or, to the Company's
Knowledge, Threatened, before the National Labor Relations Board or any other
comparable authority;
(d) no labor union represents or has ever represented the
Company's employees and no collective bargaining agreement is or had been
binding against the Company. The Company is not currently negotiating to enter
into such agreements. No grievance or arbitration proceeding arising out of or
under collective bargaining agreements or employment relationships is pending,
and no claims therefor exist or have, to the Company's Knowledge, been
Threatened;
(e) to the Knowledge of the Company and the Members, no labor
strike, lockout, slowdown, or work stoppage is or has ever been pending or
Threatened against or directly affecting the Company;
(f) all Persons who are or were performing services for the
Company and are or were classified as independent contractors do or did satisfy
and have satisfied the requirements of law to be so classified, and the Company
has fully and accurately reported their compensation on the Service's Form 1099
when required to do so; and
(g) SCHEDULE 5.20 hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who earned more than $75,000 in
1998 or are expected to earn that level in 1999, and lists all employment
agreements with such employees, and the officers and members of the Company the
rate of compensation (and the portions thereof attributable to salary, bonus,
and other compensation respectively) of each such Person as of (a) the Balance
Sheet Date and (b) the date hereof.
5.21 PERSONAL PROPERTY.
(a) The Company has delivered to Clarant (a) an accurate list
(which is set forth on SCHEDULE 5.21) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" (or
similarly named line item) on the balance sheet of the Company at the Balance
Sheet Date, (ii) all other personal property owned by the Company 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 leases and agreements in respect of
personal property, together with a listing of the capital costs of all such
properties and assets which are subject to capital leases.
21
(b) Except as set forth on SCHEDULE 5.21, (i) all personal
property with a value individually in excess of $10,000 used by the Company in
its business is either owned by the Company or leased by the Company pursuant to
a lease included on SCHEDULE 5.21, (ii) all of the personal property listed on
SCHEDULE 5.21 is in good working order and condition, ordinary wear and tear
excepted, and (iii) all leases and agreements included on SCHEDULE 5.21 are in
full force and effect and constitute valid and binding agreements of the
Company, and to the Company's and the Members' Knowledge, of the parties (and
their successors) thereto in accordance with their respective terms.
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) The Company has delivered to Clarant an accurate list
(which is set forth on SCHEDULE 5.22) of all Significant Customers, it being
understood and agreed that a "Significant Customer," for purposes of this
Agreement, means a customer (or Person) representing 5% or more of the Company's
annual revenues as of the Balance Sheet Date. Except to the extent set forth on
SCHEDULE 5.22, none of the Company's Significant Customers has canceled or
substantially reduced or, to the Knowledge of the Company or any Member, is
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company.
(b) The Company has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Company or its Subsidiaries enforceable against the
Company in accordance with its terms, and is in full force and effect, subject
to bankruptcy, reorganization, receivership and other laws affecting creditors'
rights generally and the application of equitable principles. Except as set
forth on SCHEDULE 5.22, the Company has performed all material obligations
required to be performed by it under each Material Contract, and it is not, nor,
to the Knowledge of the Company or any Member, is any other party to any
Material Contract (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder. Neither the
Company nor any Subsidiary has been notified that any party to a Material
Contract intends to cancel, terminate, not renew, or exercise an option under
any Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.
(c) Except as listed or described on SCHEDULE 5.22, the
Company has no Contracts of the types described below:
(i) any collective bargaining arrangement with any
labor union or any such agreements currently in negotiation or proposed;
22
(ii) any contract for capital expenditures or the
acquisition or construction of fixed assets for or in respect to real property
other than in the Ordinary Course of Business in excess of $50,000;
(iii) any contract with a term in excess of one year
for the purchase, maintenance, acquisition, sale or furnishing of materials,
supplies, merchandise, machinery, equipment, parts or other property or services
(except that the Company need not list any such contract made in the Ordinary
Course of Business which requires aggregate future payments of less than
$50,000, and in lieu of providing each individual contract, the Company has
provided to Clarant its standard subcontractor form and a list of each
subcontractor).
(iv) any contract relating to the borrowing of money,
or the guaranty of another Person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations, agreements
and other instruments for or relating to any lending or borrowing, including
assumed indebtedness;
(v) any contract granting any Person an Encumbrance
on any of the properties or assets of the Company , in whole or in part;
(vi) any contract for the cleanup, abatement or other
actions in connection with Hazardous Materials, the remediation of any existing
environmental liabilities, violation of Environmental Laws or relating to the
performance of any environmental audit or study;
(vii) any contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any material property or asset of the Business of the Company , other than in
the Ordinary Course of Business;
(viii) any contract having an original value in
excess of $50,000 under which the Company is:
(A) a lessee or sublessee of any machinery,
equipment, vehicle or other tangible personal property or real property, or
(B) a lessor of any real property or
machinery, equipment, vehicle or other tangible personal property owned by the
Company;
(ix) any contract providing for the indemnification
of any officer, director, employee or other Person where such indemnification
may exceed the sum of $50,000;
(x) except as disclosed on SCHEDULE 5.7 any joint
venture or partnership contract;
23
(xi) any agreement that prohibits the use or
publication by the Company, or could reasonably be expected to prohibit the use
or publication by Clarant or Newco, of the name of any other party to such
contract or prohibits or restricts the Company or any Subsidiary from freely
providing services to any other customer or potential customer of the Company or
any Subsidiary, Clarant, Newco or any Other Founding Company; or
(xii) a governmental contract subject to price
redetermination or renegotiation.
5.23 REAL PROPERTY.
(a) The Company does not own any real property.
(b) SCHEDULE 5.23 sets forth a complete and accurate list of
real property leased by the Company or its Subsidiaries (the "Leased Real
Property") and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by Members or Affiliates of the Company, any
Subsidiary, or a Stockholder. The Company has provided Clarant with true,
complete and correct copies of all leases and agreements (the "Leases") in
respect of such real property leased by the Company or its Subsidiaries.
SCHEDULE 5.23 sets forth the applicable monthly rental, expiration, and renewal
terms for each Lease. Except as set forth on SCHEDULE 5.23, all Leases are in
full force and effect and constitute valid and binding agreements of the Company
or its Subsidiaries and, to the Company's and the Members' Knowledge, of the
parties (and their successors) thereto in accordance with their respective
terms. Except as set forth on 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.
(c) the Leased Real Property and all present uses and
operations of the Leased Real Property by the Company comply with all applicable
Laws, covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the Leased Real Property and the Company has obtained
all approvals of Governmental Authorities (including certificates of use and
occupancy, licenses and permits) required in connection with the use, occupation
and operation of the Leased Real Property.
5.24 TAXES
(a) Neither the Company nor any Subsidiary is or has been a
member of any affiliated, consolidated, combined, unitary or similar group,
other than a group of which the Company is the common parent;
(b) All Returns required to have been filed by or with respect
to the Company and each of the Subsidiaries, including Returns of any
affiliated, combined, consolidated, unitary or similar group including the
Company or any Subsidiary (each a "Relevant Group"), have been
24
duly filed, and each such Return correctly and completely reports the Tax
liability and all other material information required to be reported thereon.
All Taxes (whether or not shown on any Return) owed by the Company, each
Subsidiary and each Relevant Group that are due and payable have been paid;
(c) The amount of the liability of the Company and the
Subsidiaries for unpaid Taxes as of the Balance Sheet Date did not exceed the
current liability accruals for Taxes (excluding any reserves for deferred Taxes)
set forth on the Company Financial Statements dated as of the Balance Sheet
Date. The amount of the liability of the Company and the Subsidiaries for unpaid
Taxes as of the date of any financial statements provided pursuant to Section
5.10 will not exceed the current liability accruals for Taxes (excluding any
reserves for deferred Taxes) set forth on such financial statements. The amount
of the liability of the Company and the Subsidiaries for unpaid Taxes as of the
Closing Date will not exceed the current liability accruals for Taxes (excluding
any reserves for deferred Taxes) set forth on the financial statements provided
pursuant to Section 5.10, or if there are no such financial statements, the
Company Financial Statements dated as of the Balance Sheet Date, as such
accruals are adjusted on the books and records of the Company and the
Subsidiaries through the Closing Date in accordance with past custom and
practice;
(d) Neither the Company, any Subsidiary nor any Relevant Group
is a party or subject to any agreement extending the time within which to file
any Return. No claim has ever been made by any Taxing Authority in any
jurisdiction in which the Company or any Subsidiary does not file Returns that
it is or may be subject to taxation by that jurisdiction;
(e) The Company and each Subsidiary has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and record-keeping requirements with respect to, any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(f) No Tax Proceedings are presently pending with regard to
any Tax Returns or Taxes of the Company, any Subsidiary or any Relevant Group,
and no notice has been received (whether in writing or verbally) of the expected
commencement of a Tax Proceeding. No issues have been raised in any audit or
examination by or with respect to the Company, any Subsidiary or any member of
any Relevant Group which, by application of similar principles, could reasonably
be expected to result in a proposed deficiency for any other period not so
examined;
(g) SCHEDULE 5.24(g) attached hereto lists all material
federal, state, local and foreign income and franchise Tax Returns filed by or
with respect to the Company, each Subsidiary and each Relevant Group for all
Taxable Periods ended on or after January 1, 1991. With respect to each Return,
SCHEDULE 5.24(g) indicates whether the Return that has been examined and closed,
is presently subject to examination or is a Return with respect to which the
25
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired. The Members have made available to Clarant complete and
correct copies of all federal, state, local and foreign income and franchise Tax
Returns filed by or with respect to, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, the Company, each
Company Subsidiary and each Relevant Group since January 1, 1991;
(h) Neither the Company nor any Subsidiary nor any Relevant
Group has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency;
(i) [Reserved]
(j) Neither the Company nor any Subsidiary (i) is a party to
any Tax allocation, Tax indemnity, tax sharing agreement, or any similar
arrangement pursuant to which it has agreed to be liable for Taxes of any other
Person or (ii) has any liability for Taxes of any other Person (A) as a
transferee or successor or (B) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law);
(k) None of the assets owned or used by the Company or any
Subsidiary constitutes tax exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code. Neither the Company nor
any Subsidiary is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax Reform
Act of 1986, or to any "long term contract" within the meaning of Section 460 of
the Code;
(l) Neither the Company nor any Subsidiary has disposed of any
property in a transaction being accounted for under the installment method
pursuant to Section 453 of the Code;
(m) [Reserved]
(n) The Company has been a partnership for U.S. federal income
tax purposes at all times since its formation up to and including the Closing
Date. No person has ever elected that the Company be treated as an association
for federal income tax purposes under Treasury Regulations Section 301.7701-3.
Except as stated in the preceding sentences of this subsection or as disclosed
SCHEDULE 5.7, neither the Company nor any Subsidiary is a party to any joint
venture or partnership;
(o) Neither the Company nor any Subsidiary will be required to
include any adjustment in taxable income in any Taxable Period ending after the
Closing Date under Section 481 of the Code (or any similar provision of the Tax
laws of any jurisdiction) as a result of any change in any method of accounting
occurring in a Taxable Period ending on or before the
26
Closing Date. No Taxing Authority has proposed any such change in any accounting
method. The Company and each Subsidiary presently use the cash method of
accounting for income Tax purposes;
(p) Neither the Company nor any Subsidiary nor any member of
any Relevant Group has received any written ruling of a Taxing Authority
relating to Taxes or has entered into any closing agreement or similar written
binding agreement with a Taxing Authority relating to Taxes;
(q) SCHEDULE 5.24(q) sets forth all elections affecting the
Company or any Subsidiary with respect to (1) the qualified subchapter S status
of the Company, (2) the qualified subchapter S subsidiary status of any
Subsidiary, (3) any election made under Section 338 of the Code, (4) the
classification of the Company or any Subsidiary under Treasury Regulations
Section 301.7701-3, (5) any material change in method of accounting, and (6) net
operating and loss limitations as a result of any member leaving a consolidated
group;
(r) There are no liens or other encumbrances on any of the
assets of the Company or any Subsidiary relating or attributable to Taxes (other
than liens for Taxes not yet delinquent);
(s) The Company is not an investment company as defined in
Section 721(b) of the Code;
(t) None of the Members is a party to or bound by any
agreement or arrangement pursuant to which such Member will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by such
Member pursuant to this Agreement; and
(u) None of the Members is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 351(e)(2) of the
Code.
5.25 BUSINESS CONDUCT. Except as set forth on SCHEDULE 5.25, since the
Balance Sheet Date, the Company has conducted the Business only in the Ordinary
Course of Business and have incurred no liabilities other than in the Ordinary
Course of Business. Except as forth on SCHEDULE 5.25, since the Balance Sheet
Date, there has not been any:
(a) change in the Company's business, operations, financial
condition, operating results, assets or liabilities that would have a Material
Adverse Effect on the Company;
(b) damage, destruction or loss of any real or personal
property or assets owned or leased by the Company or used in the operation of
the Business, whether or not covered by insurance, having a replacement cost in
excess of $50,000;
27
(c) voluntary or involuntary sale, transfer, surrender,
abandonment or other disposition of any kind by the Company of any assets or
property rights (real or personal, tangible or intangible), having a replacement
cost or fair market value in excess of $50,000, except in each case the sale of
inventory and collection of accounts in the Ordinary Course of Business;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might reasonably
be expected to have a Material Adverse Effect;
(e) material loan or advance by the Company to any party other
than sales to customers on credit in the Ordinary Course of Business or travel
advances to employees of the Company made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material liability,
potential liability or claimed liability relating to the Environment;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect to any Company Interest, any direct or indirect
redemption, purchase, or other acquisition of such Company Interest, or the
payment of principal or interest on any note, bond, debt instrument or debt
other than as required to be paid under the terms of such instrument;
(h) incurrence of debts, liabilities or obligations (except
current liabilities incurred in connection with or for services rendered or
goods supplied in the Ordinary Course of Business, liabilities on account of
Taxes and governmental charges (but not penalties, interest or fines in respect
thereof), and obligations or liabilities incurred by virtue of the execution of
this Agreement);
(i) issuance by the Company of any notes, bonds, or other debt
securities or instruments or any equity securities or securities convertible
into or exchangeable for any equity securities;
(j) cancellation, waiver or release by the Company of any
material debts, liabilities, obligations, rights or claims, except in each case
in the Ordinary Course of Business;
(k) amendment of the Company's Charter Documents;
(l) amendment or termination of any Material Contract, other
than expiration of such contract in accordance with its terms;
(m) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the Company;
28
(n) discharge or satisfaction of any material liability,
encumbrance or payment of any material obligation or liability, other than
current liabilities paid in the Ordinary Course of Business or cancellation of
any debts or claims;
(o) sale or assignment by the Company of any properties or
assets other than in the Ordinary Course of Business;
(p) capital expenditures or commitments therefor by the
Company other than in the Ordinary Course of Business or in excess of $100,000
in the aggregate;
(q) charitable contributions or pledges by the Company in
excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any property or
asset of the Company other than in the Ordinary Course of Business;
(s) adoption, amendment or termination of any employee benefit
or pension plan; or
(t) increase in the benefits provided under any employee
benefit pension plan.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.
(a) The Company has delivered to Clarant an accurate schedule
(which is set forth on SCHEDULE 5.26) as of the date of this Agreement of:
(i) the name of each financial institution in which
the Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of account and account number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
(b) SCHEDULE 5.26 also sets forth the name of each Person,
corporation, firm or other entity holding a general or special power of attorney
from the Company and a description of the terms of such power of attorney.
5.27 YEAR 2000 COMPLIANCE. The Company has investigated and reviewed
the areas within its business and operations and determined, after due inquiry,
that, except as set forth on
29
SCHEDULE 5.27, all computer systems, software and hardware used in or relied on
for the business and operations of the Company are able to accurately process
date data, including calculating, comparing and sequencing from, into and
between the twentieth century without human intervention (through year 1999),
the year 2000, and the twenty-first century, including leap year calculations
("Year 2000 Compliant"). To the Knowledge of the Company and the Members, the
Company's vendors whose failure to perform under any contract, agreement or
other understanding with the Company could have a Material Adverse Effect, are
or will be Year 2000 Compliant before December 31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. The Company 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 Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 DISCLOSURE.
(a) This Agreement, including the schedules hereto, together
with the completed Investor Questionnaires attached hereto as EXHIBIT 5.29(a)
and all other documents and information made available to Clarant and its
representatives in writing pursuant hereto or thereto, present fairly the
Business of the Company for the time periods with respect to which such
information was requested. The Company's rights under the documents delivered
pursuant hereto would not be materially adversely affected by, and no statement
made herein would be rendered untrue in any material respect by, any other
document to which the Company or any officer or Member is a party, or to which
its properties or assets are subject, or by any other fact or circumstance
regarding the Company (which fact or circumstance was, or should reasonably,
after due inquiry, have been known to the Company or a Member) that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of the final prospectus of Clarant utilized in connection with the IPO, the
Company or the Members become aware of any fact or circumstance which would
change (or, if after the Closing Date, would have changed) a representation or
warranty of the Company or the Members in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the Company and the
Members shall immediately give notice of such fact or circumstance to Clarant.
However, subject to the provisions of Section 7.11, such notification shall not
relieve either the Company or the Members of their respective obligations under
this Agreement, and, at the sole option of Clarant, the truth and accuracy of
any and all warranties and representations of the Company, or on behalf of the
Company and of the Members at the date of this Agreement by Clarant and Newco
and on the Pre-Closing Date and on the Closing Date, shall be a precondition to
the consummation of this transaction.
(b) The Company and the Members acknowledge and agree: (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective
30
or that the IPO pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all; (ii) that neither Clarant or any of
its officers, directors, agents or representatives nor any Underwriter shall
have any liability to the Company, the Members or any other Person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (iii) that the decision of the Members
to enter into this Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
agent of Clarant or the prospective IPO; provided however that the Company and
the Members retain the right to require as a condition to Closing that the price
of Clarant Common Stock sold in the IPO be no lower than the minimum price
specified on EXHIBIT 2.1(a).
5.30 WARRANTIES; PRODUCTS. SCHEDULE 5.30 sets forth a description of
all the product and service warranties and guarantees given by the Company to
any customer in connection with the sale or distribution of its products and
services. Except as described on SCHEDULE 5.30, (i) no claims have been made or
are, to the Knowledge of the Company, Threatened under the Company's product or
service warranties, (ii) to the Knowledge of the Company, there exists no event
or circumstance, which after notice or the passage of time or both, might create
or result in liabilities or obligations under the Company's product warranties
in excess of the liabilities and obligations incurred by the Company, on
average, during the past two years, and (iii) to the Knowledge of the Company,
there is no design or other defect in any type of product or service of the
Company, including, without limitation, any software programming that would
cause the products or services delivered by the Company to not be Year 2000
Compliant. The warranty reserves reflected on the Company Financial Statements
are set forth on SCHEDULE 5.30 and are reasonable for all warranty claims.
5.31 AFFILIATE TRANSACTIONS. SCHEDULE 5.31 sets forth the parties to
and the date, nature and amount of (a) each transaction involving the transfer
of any cash, securities, property, assets or rights in which the amount involved
individually or collectively exceeded $60,000 to or from the Company from, to,
or for the benefit of any Member or family member thereof or any other Affiliate
or former Affiliate of the Company ("Affiliate Transactions") during the period
commencing January 1, 1996, through the date hereof and (b) any existing
commitments of the Company to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms-length negotiation, except as
disclosed on SCHEDULE 5.31.
5.32 MISREPRESENTATION. To the Knowledge of the Company and the
Members, none of the representations and warranties set forth in this Agreement
or in any of the certificates, schedules, exhibits, lists, documents or other
instruments delivered, or to be delivered, by the Company or the Members as
contemplated by any provision hereof, contains any untrue
31
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
5.33 BROKERS. Neither the Company nor the Members have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Clarant,
Newco or the Surviving Company could become liable or obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
Each Member severally represents and warrants to Clarant and Newco that
the representations and warranties set forth in this Section 5(B) are true,
accurate and complete as of the date of this Agreement and, shall be true,
accurate and complete at the time of the Pre- Closing and on the Closing Date,
and, subject to Section 7.11, that the representations and warranties set forth
in Sections 5.34, 5.35 and 5.36 shall survive the Closing Date as provided in
Article 11:
5.34 AUTHORITY; OWNERSHIP. Such Member has the full legal right, power
and authority to enter into this Agreement which constitutes the valid and
binding obligation of each Member, enforceable in accordance with its terms.
Such Member owns beneficially and of record all of the Company Interests
identified on SCHEDULE 5.3 as being owned by such Member, and, except as set
forth on SCHEDULE 5.3, such Company Interests are owned free and clear of all
Encumbrances.
5.35 PREEMPTIVE RIGHTS. Such Member does not have, or hereby waives,
any preemptive or other right to acquire interests in the Company or Clarant
Stock that such Member has or may have had other than rights of any Member to
acquire Clarant Stock pursuant to (i) this Agreement or (ii) any Option granted
by Clarant.
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK. No Member has any
current plan or intention, or is under any binding commitment or contract, to
sell, exchange or otherwise dispose of Clarant Stock to be received or received
pursuant to Section 3.1 or 3.3.
5.37 TENDER. Such Member has full power and authority to tender, sell,
assign, and transfer the Company Interests owned by such Member to Clarant
pursuant to this Agreement, that there is no Person who holds any right of first
offer, right of first refusal, right under any agreement or otherwise that can
prevent, or otherwise delay, the transfer of Company Interests owned by the
Member to Clarant under this Agreement, and that, when the Company Interests are
accepted by Clarant, Clarant will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claims.
32
5.38 INVESTOR QUESTIONNAIRES. Such Member has executed and delivered to
Clarant an Investor Questionnaire in the form attached hereto as EXHIBIT
5.29(a), and such form is true, complete and accurate in all material respects.
6. REPRESENTATIONS OF CLARANT AND NEWCO
Clarant and Newco jointly and severally represent and warrant to the
Members that all of the following representations and warranties in this Article
6 are true, accurate and complete at the date of this Agreement and shall be
true, accurate and complete at the time of the Pre-Closing and on the Closing
Date, and that such representations and warranties shall survive the Closing
Date.
6.1 DUE ORGANIZATION. Clarant and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and each is duly authorized and qualified to do business under all
applicable laws to carry on its business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect on Clarant. True, complete and correct copies of
the Certificate of Incorporation and By-laws, each as amended to date, of
Clarant and Newco (the "Clarant Charter Documents") are all attached hereto as
EXHIBIT 6.1.
6.2 AUTHORIZATION. The respective officers of Clarant and Newco
executing this Agreement are duly authorized to execute and deliver this
Agreement, and Clarant and Newco have the corporate right, power and authority
to enter into this Agreement and the Merger.
6.3 TRANSACTION NOT A BREACH. Neither the execution and delivery of
this Agreement or the Other Agreements, nor their performance will violate,
conflict with, or result in a breach of any provision of any Law, rule,
regulation, order, permit, judgment, injunction, decree or other decision of any
court or other tribunal or any Governmental Authority binding on Clarant or
Newco or conflict with or result in the breach of any of the terms, conditions
or provisions of the Clarant Charter Documents or of any contract, agreement,
mortgage or other instrument or obligation to which Clarant or Newco is a party
or by which Clarant or Newco is bound.
6.4 MISREPRESENTATION. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, or other instruments (including the most recent draft of the
Registration Statement) delivered, or to be delivered, to the Company or the
Members as contemplated by any provision hereof, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
6.5 CAPITAL STOCK. As of the Effective Time, the authorized capital
stock of Clarant will consist of One Hundred Million (100,000,000) shares of
common stock, par value $.10 per share (the "Clarant Common Stock") and Ten
Million (10,000,000) shares of preferred stock,
33
par value $.10 per share ("Clarant Preferred Stock") (collectively, the "Clarant
Common Stock" and "Clarant Preferred Stock" referred to as "Clarant Stock"), and
the issued and outstanding Clarant Stock, Convertible Securities and Options of
Clarant will be as set forth on SCHEDULE 6.5. SCHEDULE 6.5 also sets forth the
authorized and outstanding Clarant Stock, Convertible Securities and Options as
of the date of this Agreement. As of the date of this Agreement, one hundred
percent of the membership interests in Newco are owned by Clarant. Except as
part of the IPO that will take place on the Closing Date as contemplated by this
Agreement and the Other Agreements and as disclosed in the Registration
Statement, there are no outstanding options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
to which Clarant is a party requiring issuance, sale or transfer of any equity
securities of Clarant or any securities convertible directly or indirectly into
equity securities of Clarant, or evidencing the right to subscribe for any
equity securities of Clarant, or giving any Person other than the Founding
Companies any rights with respect to the capital stock of Clarant. On the
Closing Date, Clarant will have outstanding only one class of capital stock (the
Clarant Common Stock), and the shares of Clarant Common Stock issued on the
Closing Date pursuant to this Agreement and the Other Agreements and to Persons
who purchase shares in the IPO will in the aggregate possess at least 80% of the
total voting power of the Clarant Common Stock that is entitled to vote and is
outstanding as of the Closing Date (after taking into account the dilution of
the holdings of Clarant Common Stock of the current Clarant stockholders).
Except as will be disclosed in the Registration Statement and as of the Closing
Date, there are no voting agreements, voting trusts, other agreements (including
cumulative voting rights), commitments or understandings with respect to the
capital stock of Clarant.
6.6 SUBSIDIARIES. Clarant has no subsidiaries except for the companies
identified as "ACQUISITION CORP." in the Other Agreements. Except as disclosed
in the Registration Statement, Clarant does not currently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and Clarant, directly or indirectly, is not a
participant in any joint venture, partnership or other non-corporate entity.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on SCHEDULE 6.7 or
disclosed in the Registration Statement, Clarant has no material liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement and the Other Agreements and except for fees incurred in connection
with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
SCHEDULE 6.8 or disclosed in the Registration Statement, Clarant is not in
violation of any Law or Order of any Governmental Authority having jurisdiction
over it which would have a Material Adverse Effect on Clarant; and except to the
extent set forth in SCHEDULE 6.9, there are no material Actions pending or, to
the Knowledge of Clarant, threatened, against or affecting Clarant, or before or
by any Governmental Authority having jurisdiction over it and no written notice
of any Action has been received by Clarant. Clarant has conducted and is
conducting its businesses in substantial
34
compliance with applicable Laws and is not in violation of any of the foregoing
which might have a Material Adverse Effect on Clarant.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by Clarant and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of Clarant and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of Clarant.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof, the Clarant
Common Stock to be delivered to the Members pursuant to this Agreement will
constitute valid and legally issued shares of Clarant, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Article 15 hereof, will be identical in all substantive respects (which do not
include the form of certificate upon which it is printed or the presence or
absence of a CUSIP number on any such certificate) to the Clarant Common Stock
issued and outstanding as of the date hereof. The shares of Clarant Common Stock
to be issued to the Members pursuant to this Agreement will not be registered
under the 1933 Act, except as provided in Article 17 hereof.
6.11 NO SIDE AGREEMENTS, Except as may be disclosed in the Registration
Statement, Clarant has not entered or, as of the Effective Date, will not have
entered into any material agreement with any of the Founding Companies or any of
the Members of the Founding Companies other than (i) the Other Agreements and
the agreements contemplated by the Other Agreements, including the employment
agreements referred to therein and (ii) other employment agreements entered into
in the ordinary course of business.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
organized on August 21, 1998, and has conducted limited operations since that
time. Clarant has not conducted any material business since the date of its
inception, except in connection with this Agreement, the Other Agreements and
the IPO. Clarant does not own and has not at any time owned any real property or
any material personal property and is not a party to any other material
agreement, except as listed on SCHEDULE 6.12 and except that Clarant is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be disclosed in, or filed as exhibits to, the Registration
Statement.
6.13 NO VIOLATIONS. Clarant is not in violation of any Clarant Charter
Document. None of Clarant, or, to the Knowledge of Clarant, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which Clarant is a party, or by which Clarant or any of its
properties, are bound (collectively, the "Clarant Documents"). The rights and
benefits of Clarant under the Clarant Documents will not be adversely affected
by the transactions contemplated hereby and will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Clarant Documents or the Clarant Charter Documents. Except as
set forth on SCHEDULE 6.13, none of the Clarant Documents
35
requires notice to, or the consent or approval of, any Governmental Authority or
other third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and the consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.14 ABSENCE OF CHANGES. Since March 31, 1999, except as set forth in
the Registration Statement, and except as contemplated by this Agreement and the
Other Agreements, there has not been:
(a) any change in the financial condition, assets, liabilities
(contingent or otherwise) income or business or Clarant that would have of
Material Adverse Effect on Clarant;
(b) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of Clarant;
(c) any change in the authorized capital of Clarant or its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(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
36
(l) any other distribution of property or assets by Clarant
other than in the Ordinary Course of Business;
6.15 TAXES. All Returns required to have been filed by or with respect
to Clarant have been duly filed. No Tax Proceedings are presently pending with
regard to any Tax Returns or Taxes of Clarant, and no notice has been received
(whether in writing or verbally) of the expected commencement of such a Tax
Proceeding. All Taxes (whether or not shown on any Return) owed by Clarant have
been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing Date,
the Company will afford to the officers, directors and authorized
representatives of Clarant reasonable access during normal business hours to all
of the Company's sites, properties, books and records and will furnish Clarant
with such additional financial and operating data and other information as to
the Business and properties and assets of the Company as Clarant may from time
to time reasonably request. The Company will cooperate with Clarant and its
representatives, including Clarant's auditors and counsel, in the preparation of
any documents or other material (including the Registration Statement) which may
be required in connection with the transactions contemplated by this Agreement.
Clarant, Newco, the Members and the Company will treat all information obtained
in connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Article 14 hereof. In
addition, Clarant will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its members, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date,
Clarant will afford to the officers and authorized representatives of the
Company access to all of Clarant's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the Business and properties of
Clarant and Newco as the Company may from time to time reasonably request.
Clarant and Newco will cooperate with the Company, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this Agreement. The
Company and the Members will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Article 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, the Company will:
37
(a) carry on in the Ordinary Course of Business substantially
as conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties, assets and facilities, including
those held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use its commercially reasonable best efforts to maintain
and preserve its business organization intact and use its commercially
reasonable best efforts to retain its present management, key employees and
relationships with suppliers, customers and others having business relations
with the Company;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(h) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or lease
instruments, except as disclosed on SCHEDULE 5.25, provided that debt and/or
lease instruments may be replaced if such replacement instruments are on terms
at least as favorable to the Company as the instruments being replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the Closing
Date, the Company will not, without the prior written consent of Clarant:
(a) make any change in its Charter Documents;
(b) grant or issue any securities, Options, conversion rights
or commitments of any kind relating to its capital or interests of any kind;
(c) declare or pay any dividend, or make any distribution in
respect of its capital interests whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any interests or
engage in any transaction that will significantly affect the cash reflected on
the Balance Sheet of the Company at the Balance Sheet Date; except that the
Company may make distributions to the Members in the Ordinary Course of Business
up to the amount of the Company's earnings provided that the aggregate amount of
such distributions shall not create a working capital deficit of the Company;
38
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in the
Ordinary Course of Business (consistent with past practice) and involves an
amount not in excess of $50,000;
(e) create, assume or permit to exist any Encumbrance upon any
assets or properties whether now owned or hereafter acquired, except (i) with
respect to purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $10,000 necessary or desirable
for the conduct of the Business of the Company , (ii) (1) liens for Taxes either
not yet delinquent or being contested in good faith and by appropriate
proceedings (and for which adequate reserves have been established and are being
maintained) or (2) materialmen's, mechanics', workers', repairmen's, employees'
or other like liens arising in the Ordinary Course of Business (the liens set
forth in clause (ii) being referred to herein as "Statutory Liens"), or (iii)
liens set forth on SCHEDULE 5.11 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of
any property, assets or equipment except in the Ordinary Course of Business;
(g) negotiate for the acquisition of any business or the
start-up of any new business;
(h) merge or consolidate or agree to merge or consolidate with
or into any other entity;
(i) waive any material right or claim of the Company, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included on SCHEDULE
5.12 unless specifically listed thereon;
(j) commit a material breach or amend or terminate any
Material Contract to which the Company is a party or as to which it is a
beneficiary;
(k) enter into any other transaction outside the Ordinary
Course of Business or prohibited hereunder;
(l) except in the Ordinary Course of Business or as required
by Law or contractual obligations or other understandings or arrangements
existing on the date hereof, the Company 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 officers, members or employees engaged in the
Company's 's Business, (B) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such officers, members or
employee, whether past or present, (C) enter into any new employment, severance,
consulting, or other compensation agreement with any existing officers, members
or employee engaged in the Company's 's Business, (D) amend or enter into a new
Plan or Other Benefit Obligation (except as required by Law) or amend or enter
into a new collective bargaining agreement (except as required by this
Agreement), or (E) engage in any Affiliate Transactions;
39
(m) make or change any Tax election, amend any Tax Return or
take or omit to take any other action not in the Ordinary Course of Business and
consistent with past practice that would have the effect of increasing any Taxes
of Clarant, the Company for any Taxable Period ending after the Closing Date;
(n) without the express prior written consent of Clarant,
amend, modify, repeal or otherwise alter the approvals by the Company's managing
member and Members attached hereto as EXHIBIT 5.2.
7.4 NO SHOP. In consideration of the substantial expenditure of time,
effort and expense undertaken by Clarant in connection with its due diligence
review and the preparation and execution of this Agreement, the Company and the
Members agree that neither they nor their representatives, agents or employees
will, after the execution of this Agreement until the earlier of (a) the
termination of this Agreement or (b) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the Company ) any acquisition proposal
relating to or affecting the Company or any part of it, or any direct or
indirect interests in the Company, whether by purchase of assets or stock,
purchase of interests, merger or other transaction, and that the Company will
promptly advise Clarant of the terms of any communications any of the Members or
the Company may receive or become aware of relating to any bid for all or any
part of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
deliver to Clarant at the Pre-Closing, any and all proof that any such required
notice has been sent.
7.6 AGREEMENTS. On or prior to the Closing Date and effective as of the
Effective Time, the Company shall cause the termination of and obtain a written
waiver of rights from any beneficiary under (and shall deliver evidence of such
terminations and waivers to Clarant prior to Closing) (a) all Securities
Agreements, (b) any employment agreements between the Company and any employee
who is listed on SCHEDULE 9.11 hereto, and (c) any existing agreement between
the Company and any Members or other security holders.
7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Members and the Company shall give prompt notice to
Clarant of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of the Company or the Members contained herein to be untrue or inaccurate in any
material respect; (ii) any material failure of any Member or the Company to
comply with or satisfy any covenant, condition or agreement to be complied
40
with or satisfied by such Person hereunder and (iii) the exercise by any Person
of any Option or Convertible Security listed on SCHEDULE 5.3 or any enforceable
request for the Company to purchase, redeem or otherwise acquire any of its
Company Interests, Convertible Securities or Options;
(b) Clarant and Newco shall give prompt notice to the Company
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Clarant or Newco contained herein to be untrue or inaccurate in any material
respect and (ii) any material failure of Clarant or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder;
(c) The delivery of any notice pursuant to this Section 7.7
shall not be deemed to (i) modify the representations or warranties hereunder of
the party delivering such notice, which modification may only be made pursuant
to Section 7.11, (ii) modify the conditions set forth in Articles 8 and 9, or
(iii) limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
(a) The Company and Members shall furnish or cause to be
furnished to Clarant and the Underwriters all of the information concerning the
Company and the Members requested by Clarant or the Underwriters for inclusion
in, and will cooperate with Clarant and the Underwriters in the preparation of,
the Registration Statement and the prospectus included therein (including
audited and unaudited financial statements, prepared in accordance with
generally accepted accounting principles, in form suitable for inclusion in the
Registration Statement). The Company and the Members agree promptly to advise
Clarant if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any information
contained in the prospectus concerning the Company or the Members contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Members, the Company represents
and warrants as to such information with respect to itself , and each Member
represents and warrants, as to such information with respect to the Company and
himself or herself, that the Registration Statement at its effective date, at
the date of the final Prospectus, each preliminary prospectus and each amendment
to the Registration Statement, and at each closing date with respect to the IPO
under the Underwriting Agreement (including with respect to any over-allotment
option) will not include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(b) Clarant agrees that it will use its commercially
reasonable best efforts to provide to the Company and its counsel copies of
drafts of the Registration Statement as they are prepared and to give the
Company or the Members sufficient time to review and comment upon
41
such documents prior to filing with the SEC. Any objections posed by the Company
or its counsel shall be in writing and state with specificity the material in
question, the reason for the objection, and the Company's and the Members'
proposed alternative. If the objection is founded upon a rule promulgated under
the Securities Act, the objection shall cite the rule. Notwithstanding the
foregoing, during the three business days immediately preceding the date
scheduled for the effective date of the IPO, the Company and the Members agree
that two hours from the time the proposed changes are transmitted to the
Company's counsel is sufficient time to review and respond to proposed changes.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited consolidated Balance Sheets of the Company as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
income statements, statements of cash flows and retained earnings of the Company
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 Company for the periods indicated thereon.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.11 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation, until 24 hours prior
to the anticipated effectiveness of the Registration Statement, to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules, provided
however, that supplements and amendments to Schedules 5.11 (Liabilities and
Obligations), 5.12 (Accounts and Notes Receivable) and 5.22 (Significant
Customers; Material Contracts and Commitments) must be delivered only at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the Ordinary Course of Business; and further provided
that all matters identified by the Company on any Schedule supplement or
amendment shall also be included on SCHEDULE 11.1(f). Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the Company may be made unless Clarant and a majority
of the Founding Companies other than the Company consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant or Newco that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on Clarant and Newco may be made
unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the
42
Schedules as amended or supplemented pursuant to this Section 7.11. In the event
that one of the Other Founding Companies seeks to amend or supplement a Schedule
pursuant to this Section 7.11 of one of the Other Agreements, and such amendment
or supplement constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on such Other Founding Company, Clarant shall give the
Company notice promptly after it has knowledge thereof. If Clarant and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Clarant or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(d). In the event
that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.11, and Clarant and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(a). No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.12 THIRD PARTY APPROVALS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice and approval of the transactions
contemplated by this Agreement under applicable agreements with third parties,
including any contract with any Governmental Authority.
7.13 HSR FILING. To the extent the Merger is a transaction subject to
the filing requirements of the HSR Act, each of the Company, the Members and
Clarant shall use its commercially reasonable best efforts to (a) file all
information required to be filed by it pursuant to the HSR Act and (b) provide
the other party with all information reasonably requested and required by it to
satisfy any filing requirements it may have under the HSR Act.
7.14 AUTHORIZED CAPITAL STOCK. Through the Closing Date, Clarant shall
maintain its authorized capital stock as set forth in the Registration Statement
filed with the SEC except for such changes as are made to respond to comments
made by the SEC or requirements of any exchange or automated trading system for
which application is made to register the Clarant Common Stock.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND
THE COMPANY
The obligations of the Members and the Company with respect to actions
to be taken on the Pre-Closing Date and, to the extent specified in this Article
8, on the Closing Date are subject to the satisfaction or waiver on or prior to
the Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Article 8. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been
43
waived by the Company and the Members unless such parties have objected by
notifying Clarant in writing of such objection on or before the Pre-Closing Date
or consummation of the transactions on the Closing Date, respectively, except
that no such waiver shall be deemed to affect the survival of the
representations and warranties of Clarant and Newco contained in Article 6
hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Clarant and Newco contained in Article 6 shall be true and correct in all
material respects as of the Pre- Closing Date and the Closing Date as though
such representations and warranties had been made as of that time; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President, any Vice President or the Secretary of Clarant
shall have been delivered to the Members.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by Clarant and
Newco on or before each of the Pre-Closing Date and the Closing Date shall have
been duly complied with and performed in all material respects on or before each
of the Pre-Closing Date and the Closing Date, as the case may be; and
certificates to the foregoing effect dated each of the Pre-Closing Date and the
Closing Date and signed by the President, any Vice President or the Secretary of
Clarant shall have been delivered to the Members.
8.3 NO LITIGATION. No Action or Proceeding before a court or any other
Governmental Authority or body shall have been instituted or Threatened to
restrain or prohibit the Merger or the IPO and no Governmental Authority shall
take any other action with respect to the transactions hereunder which would
have a Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Clarant, dated the Pre-Closing Date in form and substance of the
type customarily given by counsel to an acquiring company in transactions
similar to that contemplated by this Agreement and reasonably acceptable to the
Company (and the Underwriters shall have received a copy of the same opinion
addressed to them), and at the Closing the Company shall have received a
statement from such counsel that the opinion is true as of the Closing Date.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, shares of
Clarant Common Stock for a price no lower than the minimum price specified on
EXHIBIT 2.1(a).
44
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
required to be obtained or made by Clarant or Newco with any Governmental
Authority or agency relating to the consummation of the transactions
contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. Clarant and Newco each shall have
delivered to the Company a certificate, dated as of a date no earlier than ten
(10) days prior to the Pre-Closing Date, duly issued by the Delaware Secretary
of State and the New York Secretary of State, respectively, and in each state in
which Clarant or Newco is authorized to do business, showing that each of
Clarant and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for Clarant and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of Clarant and of Newco, certifying the truth and
correctness of attached copies of the Clarant's and Newco's respective
Certificates of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), Articles of Organization, Operating Agreement and
resolutions of the boards of directors and members, respectively, of Clarant and
Newco approving Clarant's and Newco's entering into this Agreement and the
consummation of the transactions contemplated hereby.
8.9 HSR ACT. The waiting period applicable to the consummation of the
transaction contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
8.10 CLOSING OF THE IPO. The Closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE 9.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of EXHIBIT 8.11.
8.12 LISTING. Clarant shall cause the Clarant Common Stock to be listed
on the Nasdaq National Stock Market, subject to official notice of issuance.
8.13 TAX OPINION. Clarant shall have received an opinion upon which the
Company and the Members will be entitled to rely (the "Tax Opinion") from
Xxxxxx, Xxxxxx & Xxxxxxxxx, tax counsel for Clarant, or such other national tax
counsel reasonably acceptable to Clarant and the Company ("Tax Counsel"), which
opinion shall be reasonably acceptable to the Members, that the Clarant Plan of
Organization will qualify as a tax-free transfer of property under Section
351(a) of the Code and that the Members will not recognize gain to the extent
the Members exchange Company Units for Clarant Common Stock (but not cash or
other property) pursuant to the Clarant Plan of Organization, and in rendering
such Tax Opinion, Tax Counsel shall be
45
entitled to rely on customary written representations acceptable to Tax Counsel
and received from (i) Clarant and (ii) the Company, (iii) each Other Founding
Company, and (iv) each Member and each contributor, stockholder or member of the
Other Founding Companies who will receive Clarant Common Stock under the Clarant
Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO
The obligations of Clarant and Newco with respect to actions to be
taken on the Pre- Closing Date and on the Closing Date, are subject to the
satisfaction or waiver on or prior to the Pre-Closing Date and/or the Closing
Date, as the case may be, of all of the conditions set forth in this Article 9.
As of the Pre-Closing Date or the Closing Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by Clarant and
Newco unless such parties have objected by notifying the Company and the Members
in writing of such objection on or before the Pre-Closing Date or consummation
of the transactions on the Closing Date, respectively, except that no such
waiver shall be deemed to affect the survival of the representations and
warranties of the Company and the Members contained in Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All the representations and
warranties of the Members and the Company contained in this Agreement shall be
true and correct in all material respects as of the Pre-Closing Date and the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; and the Members shall have delivered to
Clarant certificates dated the Pre-Closing Date and the Closing Date and signed
by them to such effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Members and
the Company on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
Members shall have delivered to Clarant certificates dated the Pre- Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 NO LITIGATION. No Action or Proceeding before a court or any other
Governmental Authority or body shall have been instituted or Threatened to
restrain or prohibit the Merger or the IPO and no Governmental Authority or body
shall have taken any other action or made any request of Clarant as a result of
which the management of Clarant deems it inadvisable to proceed with the
transactions hereunder.
9.4 COMPANY AND MEMBER REPRESENTATIONS. The Company and the Members
receiving Clarant Common Stock shall have provided Tax Counsel with the written
representations requested pursuant to Section 8.13.
46
9.5 NO MATERIAL ADVERSE EFFECT. As of the Pre-Closing Date and as of
the Closing Date, no event or circumstance shall have occurred which would
constitute a Material Adverse Effect.
9.6 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the Company and the Members shall have been canceled effective prior to
or as of the Closing Date and the Company shall have obtained all of the
terminations and waivers required under Section 7.6.
9.7 OPINION OF COUNSEL. Clarant shall have received an opinion from
counsel to the Company, dated the Pre-Closing Date, in form and substance of the
type customarily given by counsel to a founding company in transactions similar
to that contemplated by this Agreement and reasonably acceptable to Clarant (and
the Underwriters shall have received a copy of the same opinion addressed to
them), and at the Closing Clarant shall have received a statement from such
counsel that the opinion is true as of the Closing Date.
9.8 CONSENTS AND APPROVALS. All necessary Consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
Consents of third parties listed on SCHEDULE 5.4 shall have been obtained.
9.9 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Clarant a certificate, dated as of a date no earlier than ten (10) days prior to
the Pre-Closing Date, duly issued by the appropriate governmental authority in
the Company's state of organization and, unless waived by Clarant, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the date
of the certificate have been filed and paid.
9.10 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, shares of
Clarant Common Stock.
9.11 EMPLOYMENT AGREEMENTS. Each of the Persons listed on SCHEDULE 9.11
shall have entered into an employment agreement with Clarant substantially in
the form of EXHIBIT 8.11.
9.12 CLOSING OF IPO. The closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
47
9.13 FIRPTA CERTIFICATE. Each Member shall have delivered to Clarant a
certificate to the effect that he or she is not a foreign Person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.14 [Reserved]
9.15 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to Clarant.
9.16 HSR ACT. The waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have expired or been
terminated.
9.17 INVESTOR QUESTIONNAIRE. Each Member shall have provided an
executed Investor Questionnaire in the form of EXHIBIT 5.29(a).
10. COVENANTS OF CLARANT AND THE MEMBERS AFTER CLOSING
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Closing
Date, Clarant shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization.
10.2 TAX MATTERS.
(a) Clarant shall prepare or cause to be prepared and file or
cause to be filed all Returns that are required to be filed with respect to the
Company and the Subsidiaries (i) for Taxable Periods ending on or before the
Closing Date that are due after the Closing Date (other than Returns of any
Relevant Group of which the Company is not the common parent), and (ii) for
Taxable Periods beginning on or before and ending after the Closing Date
("Straddle Periods"). All such Returns shall be prepared on a basis consistent
with past Returns of the Company and the Subsidiaries unless otherwise required
by applicable law.
(b) Upon the later of (i) five (5) business days following the
receipt of a request therefor, (ii) five (5) business days prior to the due date
of any payment to the relevant Taxing Authority, or (iii) five (5) business days
following resolution of any dispute covered by Section 10.2(c), the Members
shall pay to Clarant all Taxes shown as due on the Tax Returns prepared and
filed pursuant to Section 10.2(a) that relate to a Pre-Closing Period to the
extent that such Taxes exceed the reserves for such Taxes (excluding any
reserves for deferred Taxes) set forth on the financial statements provided
pursuant to Section 5.10.
48
(c) Any federal or state income Tax Returns prepared by
Clarant pursuant to Section 10.2(a) shall be delivered to the Members at least
30 days before the due date of such Return including any extension. If the
Members reasonably object in writing to any material item on such Return at
least 10 days before their due date, the parties shall reasonably negotiate to
resolve such dispute. If such dispute cannot be resolved within 10 days of the
receipt by the Company of such written notice, (i) the Company may in its sole
discretion file such Return and (ii) the dispute shall be referred to a national
independent accounting firm agreeable to the parties for resolution. The party
whose position is not adopted in such resolution by an independent accounting
firm shall pay all expenses of the successful party in resolving the dispute.
(d) For purposes of apportioning any Taxes to the portion of a
Straddle Period that ends on the Closing Date, the determination shall be made
based on a closing of the books as of the close of the Closing Date; provided,
that real property, personal property and intangible property Taxes shall be
apportioned ratably on a daily basis between the portions of the Straddle Period
in question.
(e) Each party hereto shall, and shall cause 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.
(f) Each of the Company, Newco, Clarant and each Member shall
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction as a
transfer of property under Section 351(a) of the Code.
10.3 DIRECTORS AND OFFICERS. The Persons named in the Registration
Statement shall be elected as directors and elected as officers of Clarant, as
and to the extent set forth in the Registration Statement.
10.4 DIRECTORS' AND OFFICERS' INSURANCE. Clarant and the Surviving
Company shall use their commercially reasonable best efforts to maintain for not
less than four years from the Effective Time the policies of directors' and
officers' liability insurance maintained by the Company and its Subsidiaries as
of the date hereof to the extent set forth on SCHEDULE 10.4,
49
provided that Clarant and the Surviving Company may substitute policies of at
least equivalent coverage containing terms and conditions no less advantageous
to those covered in all material respects so long as no lapse in coverage occurs
as a result of such substitution, and covering the time period before and up to
the Effective Time. If a claim is asserted or made within the four year period
contemplated by this Section 10.4, Clarant and the Surviving Company shall use
their commercially reasonable best effects to cause such insurance to be
continued until final resolution of any such pending claim. SCHEDULE 10.4 sets
forth a summary description of all such policies, including premium rates.
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY MEMBERS. Subject to the limitations of Section
11.11, the Members shall jointly and severally indemnify, defend and hold
harmless Clarant, Newco, the Company, and the Surviving Company and their
respective officers, directors, employees, agents, representatives and
Affiliates (other than the Members) (each, a "Clarant Indemnified Party"), at
all times from and after this Agreement from and against, and to promptly pay to
a Clarant Indemnified Party or reimburse a Clarant Indemnified Party for, any
and all liabilities, obligations, deficiencies, demands, claims, suits, actions,
or causes of action, assessments, losses, costs, expenses, filing fees,
interest, fines, penalties, or damages or costs or expenses of any and all
investigations, proceedings (including appeals, arbitration and mediation),
judgments, environmental analyses, remediations, settlements and compromises
(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 Members or the Company set forth
herein or on the schedules, exhibits or certificates delivered in connection
herewith, (b) any breach of any covenant or agreement on the part of the Members
or the Company under this Agreement, (c) any liability under the 1933 Act, the
1934 Act, or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to the Company or the Members, and
provided to Clarant or its counsel by the Company or the Members (but in the
case of the Members, only if such statement was provided in writing) contained
in the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Members required to be stated therein or necessary to make the
statements therein not misleading, (d) any Claim or Action arising out of or
relating to any purchase or redemption of Company Interests by the Company prior
to the date of this Agreement; (e) except to the extent reserved for (other than
as a deferred Tax item) on the most recent financial statements provided
pursuant to Section 7.9, or if no such financial statements are provided, the
Company Financial Statements dated as of the Balance Sheet Date, any liability
of the Company or any Subsidiary for Taxes for any Pre-Closing Period; or (f)
any matter identified on SCHEDULE 11.1(f); provided, however, (i) that in the
case of any indemnity arising pursuant to clause (c)
50
such indemnity shall not inure to the benefit of Clarant, Newco, the Company or
the Surviving Company to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the Members provided in writing corrected
information to Clarant counsel and to Clarant for inclusion in the final
prospectus, and such information was not so included or properly delivered, (ii)
that no Member shall be liable for any indemnification obligation pursuant to
this Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other Member, and (iii)
that no Member shall be liable for any indemnification obligation attributable
to any Tax that Clarant may be required to pay because of the Surviving
Company's change from the cash method to the accrual method of accounting.
11.2 INDEMNIFICATION BY CLARANT. Clarant covenants and agrees that it
will indemnify, defend, protect and hold harmless the Members at all times from
and after the date of this Agreement until the Clarant Expiration Date, from and
against Losses sustained or incurred by any Member resulting from or arising out
of (a) any breach by Clarant or Newco of its representations and warranties set
forth herein or on the schedules, exhibits or certificates delivered in
connection herewith or given to Tax Counsel with respect to the Tax Opinion, (b)
any breach of any covenant or agreement on the part of Clarant or Newco under
this Agreement, (c) any liability which the Members may incur due to Clarant's
or Newco's failure to be responsible for the liabilities and obligations of the
Company as provided in Article 1 hereof (except to the extent that Clarant or
Newco has claims against the Members by reason of such liabilities); or (d) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to Clarant,
Newco or any of the Other Founding Companies in the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to Clarant or Newco or any of the Other
Founding Companies required to be stated therein or necessary to make the
statements therein not misleading. Provided the Closing occurs, each of the
Members waives any right of contribution or indemnification or other similar
right against Clarant, Newco or the Surviving Company arising out of the
Company's representations, warranties, covenants and agreements contained
herein, and each of the Members further agrees that any claims of Clarant and
any Clarant Indemnified Party or the Company hereunder, whether for
indemnification or otherwise, may be asserted directly and fully against the
Members without the need for any claim against or joinder of the Surviving
Company.
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
51
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 or delayed, and in the event
the Indemnifying Party shall propose an alternate Defense Counsel, which shall
be subject again to the Indemnified Party's approval.
(b) In the event that the Indemnifying Party shall fail to
give such notice, it shall be deemed to have elected not to conduct the defense
of the subject Claim, and in such event the Indemnified Party shall have the
right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
(c) In the event that the Indemnifying Party does elect to
conduct the defense of the subject Claim, the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the Indemnifying
Party, and the Indemnified Party shall have the right at its expense to
participate in the defense assisted by counsel of its own choosing, provided
that the Indemnified Party shall have the right to compromise and settle the
Claim only with the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. Without the prior written
consent of the Indemnified Party, the Indemnifying Party will not enter into any
settlement of any Third Party Claim or cease to defend against such Claim, if
pursuant to or as a result of such settlement or cessation, (i) injunctive or
other equitable relief would be imposed against the Indemnified Party, or (ii)
such settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder. The Indemnifying 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
52
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 TAX CONTESTS.
(a) If any party receives written notice from any governmental
authority of a Tax Proceeding with respect to any Tax for which the other party
is obligated to provide indemnification under this Agreement, such party shall
within sixty (60) days thereof give written notice to the other party (or within
such shorter time as may be necessary to give the Indemnifying Party a
reasonable opportunity to respond to such notice); provided, however, that the
failure to give such notice shall not affect the indemnification provided
hereunder except to the extent that the failure to give such notice materially
prejudices the Indemnifying Party as provided in Section 11.6.
(b) Upon written notice to Clarant within thirty (30) days
after receipt of notification pursuant to Section 11.4(a), the Members shall
have the right, at their own expense, to control and make all decisions with
respect to any Tax Proceeding relating to Taxes of the Company for any Taxable
Period ending on or before the Closing Date. Clarant shall have the right to
approve the counsel selected by the Members to conduct any such Tax Proceeding,
which approval shall not be unreasonably withheld or delayed, and to participate
fully at its own expense with counsel of its own choosing in all aspects of the
prosecution or defense of such Tax Proceeding. The Members shall not take any
action or position in any such Tax Proceeding if that action or position could
reasonably be expected to increase the past, present or future Tax liability of
Clarant or any of its Affiliates, or any Tax liability of the Company for any
Taxable Period or portion thereof beginning after the Closing Date without the
prior written consent of Clarant, which consent shall not be unreasonably
withheld. The Members shall not settle or otherwise terminate any such Tax
Proceeding without the prior written consent of Clarant, which consent shall not
be unreasonably withheld.
(c) Upon written notice to Clarant within thirty (30) days
after receipt of notification pursuant to Section 11.4(a), the Members shall
have the right, at their own expense, to jointly control and participate with
Clarant in the conduct of any Tax Proceeding relating to
53
Taxes of the Company for a Straddle Period. If Sellers exercise such right,
neither party shall settle or otherwise terminate any such Tax Proceeding
without the prior written consent of the other, which consent shall not be
unreasonably withheld.
(d) If the Members do not exercise their right to assume
control of or participate in any Tax Proceeding as provided under this Section
11.4, Clarant may defend or settle the same in such manner as it may deem
appropriate in its sole and absolute discretion, without in any way limiting its
rights of indemnification hereunder.
(e) Except as otherwise provided in this Section 11.4, Clarant
shall control all Tax Proceedings relating to Taxes and Tax Returns of the
Company and the Subsidiaries.
(f) In the event that the provisions of this Section 11.4 and
the provisions of Section 11.3 hereof conflict or otherwise each apply by their
terms, this Section 11.4 shall exclusively govern all matters concerning Tax
Proceedings.
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim (a "Direct
Claim") may be asserted by giving the Indemnifying Party reasonably prompt
written notice thereof, and the Indemnifying Party will have a period of thirty
(30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such Direct
Claim, in which event the Indemnified Party will be free to pursue such remedies
as may be available to the Indemnified Party under this Article 11.
11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an Indemnified Party
to give timely, complete or accurate notice as provided in Sections 11.3, 11.4
and 11.5 will not affect the rights or obligations of any party hereunder except
and only to the extent that, as a result of such failure, any party entitled to
receive such notice was deprived of its right to recover any payment 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
54
any Reimbursement is obtained subsequent to payment by an Indemnifying Party in
respect of a Loss, such Reimbursement shall be promptly paid over to the
Indemnifying Party.
11.8 SUBROGATION. The Indemnifying Party shall be subrogated to the
Indemnified Party's rights of recovery to the extent of any Loss satisfied by
the Indemnifying Party. The Indemnified Party shall execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records of the Acquired Party.
11.9 ARBITRATION. Excluding the right of a party to seek injunctive
relief, all claims (pursuant to Federal or state statutes or by common law),
controversies, differences or disputes between Clarant or Newco and the Members
arising out of or relating to this Agreement or related or referenced exhibits
or the alleged breach thereof including, but not limited to, indemnification
claims under Sections 11.1 and/or 11.2 shall be settled by arbitration in
accordance with the rules then in effect of the American Arbitration Association
at the time of the dispute. After an award is rendered by the arbitrator(s), a
judgment may be entered in any court of competent Jurisdiction. The arbitration
shall occur in Dallas, Texas to the exclusion of all other locations. The
arbitrators cannot add to or subtract from the terms of this Agreement. The
parties agree that the arbitrators may include provisions for the payment of
costs and expenses, including reasonable attorneys' fees as part of any ruling
or award made thereunder. The parties acknowledge that arbitration shall be the
sole, final, binding and exclusive remedy of the parties with respect to any
such matter for which arbitration is undertaken hereunder. In preparation for
the arbitration process described herein, the parties shall be given at least
one hundred twenty (120) days for discovery and each party may utilize all
methods of discovery authorized by the procedural rules and statutes of the
State of Texas for civil litigation and may enforce the right to obtain such
discovery in the manner provided by such rules and statutes.
11.10 EXCLUSIVE REMEDY. Except as provided in Section 11.11(d) or
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
Members under Section 11.1 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Clarant
Indemnified Parties exceeds one percent (1%) of the Merger Consideration (the
"Indemnification Threshold"), which Indemnification
55
Threshold shall be treated as a deductible: PROVIDED, HOWEVER, that the
Indemnification Threshold shall not apply to (w) Losses arising out of breaches
of the covenants of the Members set forth in this Agreement to be performed
after the Closing Date or the representations and warranties made in Sections
5.3 (capital stock of the Company), 5.17 (employee benefits), 5.24 (taxes), (x)
Losses described in Section 11.1(c), (y) Losses arising out of intentional
fraud, or (z) any matters identified on SCHEDULE 11.1(f); and
(ii) [Reserved]
(b) the indemnification obligations of the Members under
Section 11.1, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 11.11(b):
(i) (A) with respect to claims arising out of
breaches of the representations and warranties made in Sections 5.17 (employee
benefits), 5.19 (environment) and 5.24 (taxes), the date that is six (6) months
after the expiration of the longest applicable federal or state statute of
limitation (including extensions thereof);
(B) with respect to Losses described in
clause (c) of Section 11.1, the date that is six (6) months after the expiration
of the longest applicable federal or state statute of limitation (including
extensions thereof); or
(C) with respect to all claims other than
those referred to in clause (i)(A) or (B) of this Section 11.11(b), eighteen
(18) months after the Effective Time; or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section
11.11(b);
(c) with respect to the indemnification obligations of Clarant
under Section 11.2 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Members exceeds
the Indemnification Threshold; PROVIDED, HOWEVER, that the Indemnification
Threshold shall not apply to Losses arising out of breaches of the covenants of
Clarant set forth in this Agreement to be performed after the Closing Date or
the representations and warranties made in Section 6.5 (Capital Stock) and 6.15
(Taxes), (y) Losses described in Section 11.2(c), or (z) Losses arising out of
intentional fraud; and
(ii) the aggregate amount of Clarant's liability
under this Article 11 shall not exceed the Merger Consideration.
(d) [Reserved]
(e) Indemnity obligations hereunder may be satisfied through the
payment of cash or the delivery of Clarant Common Stock, or a combination
thereof. For purposes of calculating the value of the Clarant Common Stock
received or delivered by the Member (for purposes of
56
determining the Indemnification Threshold and the amount of any indemnity paid),
Clarant Common Stock shall be valued at its fair market value, which shall be
the average closing price for Clarant Common Stock on the Nasdaq national market
system for the ten trading days ending two business days immediately prior to
the date of payment.
(f) Notwithstanding any other term of this Agreement (except the
proviso to this sentence), a Member's liability under this Article 11 shall be
limited to the total amount of proceeds received or payable to the Member under
this Agreement, which total shall be equal to the sum of (i) the cash paid to
the Member at the Closing, (ii) the cash portion of Contingent Consideration, if
any, earned and payable to such Member and (iii) with respect to Clarant Common
Stock delivered to the Members as part of the Merger Consideration at Closing,
the value of such Clarant Common Stock at the initial public offering price, and
with respect to Clarant Common Stock delivered to the Members as part of the
Contingent Consideration, the value of such Clarant Common Stock at the price
issued.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Company, the Members and
Clarant in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) as of the Pre-Closing Date and, if a Closing
occurs, as of the Closing Date. The representations and warranties of the
Company and the Members will survive the Closing and will remain in effect
until, and will expire upon, the termination of the indemnification obligations
as provided in Section 11.11(b). The representations and warranties of Clarant
will survive the Closing and will remain in effect until, and will expire upon,
the Clarant Expiration Date.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely: (a) by mutual written consent of the boards of
directors of Clarant and the Company; (b) by either the Members or the Company
(acting through its members), on the one hand, or by Clarant (acting through its
board of directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1999, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date; (c) by the Members or the
Company, on the one hand, or by Clarant, on the other hand, after giving written
notice to the other party that a breach or default of any representation,
warranty, or covenant contained in this Agreement has occurred, which breach has
had or is reasonably foreseeable as having a Material Adverse Effect on the
Company or Clarant, as the case may be, and such breach has not been cured on or
before the Closing Date; (d) pursuant to Section 7.11; or (e) by the Company
(acting through the Members) if, by June 30, 1999, Clarant shall not have filed
an initial registration statement with the SEC reflecting an IPO price for
Clarant Common Stock of $11.00 per share.
57
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 Members will not, for a period of three (3) years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other Person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder,
option holder, lender, owner, partner, joint venturer, or in a managerial
capacity, whether as an employee, independent contractor, consultant or advisor,
or as a sales representative, in any business that is engaged in the Business
anywhere in the United States or Canada (the "Territory");
(ii) call upon any Person who is, at that time,
within the Territory, an employee of Clarant (including the subsidiaries
thereof) in a sales representative or managerial capacity for the purpose or
with the intent of enticing such employee away from or out of the employ of
Clarant (including the subsidiaries thereof), provided that each Member shall be
permitted to call upon and hire any member of his or her immediate family;
(iii) call upon any Person which is, at that time, or
which has been, within one (1) year prior to the Closing Date, a customer of
Clarant (including the subsidiaries thereof), of the Company or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with Clarant within the
Territory;
(iv) call upon any prospective acquisition candidate,
on any Member's behalf or on behalf of any competitor of Clarant, which
candidate, to the actual knowledge of such Member after due inquiry, was called
upon by Clarant (including the subsidiaries thereof) or for which, to the actual
knowledge of such Member after due inquiry, Clarant ( thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or
proposed, of the Company to any Person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
58
(b) Notwithstanding Section 13.1(a) the foregoing covenant
shall not be deemed to prohibit any Member from acquiring as an investment not
more than one percent (1%) of the capital stock of a competing business whose
stock is traded on a national securities exchange or over-the-counter so long as
the Member does not consult with or is not employed by such competitor.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Clarant as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Clarant for which it
would have no other adequate remedy, each Member agrees that, in the event of
breach by such Member, the foregoing covenant may be enforced by Clarant by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Article 13 impose a reasonable restraint on the
Members in light of the activities and business of Clarant (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Clarant; but it is also the intent of Clarant and the Members
that such covenants be construed and enforced in accordance with the changing
activities and business of Clarant (including the subsidiaries thereof)
throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Member who has entered into an employment agreement with Clarant and/ thereof as
set forth in Sections 8.11 and 9.11 hereto, shall thereafter cease to be
employed thereunder, and such Member shall enter into a business or pursue other
activities not in competition with Clarant and/ thereof, or similar activities
or business in locations the operations of which, under such circumstances, does
not violate this Article 13 and in any event such new business, activities or
location are not in violation of this Article 13 or such Member's obligations
under this Article 13, such Member shall not be chargeable with a violation of
this Article 13 if Clarant and/ thereof shall thereafter enter the same, similar
or a competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Article 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Article 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Member
against Clarant (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Clarant of such covenants. It is specifically agreed that the period of three
(3) years stated at the beginning of this Article 13, during which the
agreements and covenants of
59
each Member made in this Article 13 shall be effective, shall be computed by
excluding from such computation any time during which such Member is in
violation of any provision of this Article 13. The covenants contained in
Article 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Members hereby agree that this
covenant is a material and substantial part of this transaction and that it is
supported by adequate consideration.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 MEMBERS. The Members recognize and acknowledge that they had in
the past, currently have, and in the future may have, access to certain
confidential information of the Company, the Other Founding Companies, and/or
Clarant, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Clarant's respective businesses. The Members agree that they
will not disclose such confidential information to any Person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Clarant or the Other Founding
Companies who need to know information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby, (b) following the Closing, such information may be disclosed by
the Members as is required in the course of performing their duties for Clarant
or the Surviving Company and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such information becomes known to the public
generally through no fault of any such Members, (ii) disclosure is required by
law or the order of any governmental authority under color of law, provided,
that prior to disclosing any information pursuant to this clause (ii), the
Members shall give prior written notice thereof to Clarant and provide Clarant
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Members of the provisions of this Article 14,
Clarant shall be entitled to an injunction restraining such Members from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Clarant from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the Members shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
Company.
14.2 CLARANT AND NEWCO. Clarant and Newco recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
Clarant and Newco agree that, prior to the Closing, or if the transactions
contemplated by this Agreement are not consummated, they will not disclose such
60
confidential information to any Person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to the Members and to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2 and (c) to the Other Founding Companies and
their representatives pursuant to Section 7.1(a), unless (i) such information
becomes known to the public generally through no fault of Clarant or Newco, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), Clarant and Newco shall, if possible, give prior written
notice thereof to the Company and the Members and provide the Company and the
Members with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by Clarant or Newco of the provisions of this Section, the
Company and the Members shall be entitled to an injunction restraining Clarant
and Newco from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the Members
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Closing Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Subject in all cases to compliance with
applicable federal and state securities laws, and in no case earlier than twelve
(12) months following the Closing Date, unless Clarant in its sole discretion
shall consent otherwise, except pursuant to Article 17 hereof, gratuitous
transfers to not-for-profit third parties and transfers to immediate family
members, in each case who agree to be bound by the restrictions set forth in
this Section 15.1 (or trusts for the benefit of the Members or their immediate
family members, the trustees of which so agree) none of the Members shall (a)
sell, assign, exchange, transfer, Encumber, pledge, distribute, appoint or
otherwise dispose of (i) any shares of Clarant Common Stock received by the
Members in the Merger or (ii) any interest (including, without limitation, an
option to buy or sell) in any such shares of Clarant Common Stock, in whole or
in part, and no such attempted transfer shall be treated as effective for any
purpose; or (b) engage in any transaction, whether or not with respect to any
shares of Clarant Common Stock or any interest therein, the intent or
61
effect of which is to reduce the risk of owning the shares of Clarant Common
Stock acquired pursuant to Article 2 hereof (including, by way of example and
not limitation, engaging in put, call, short-sale, straddle or similar market
transactions). Notwithstanding the foregoing, the Members may encumber or pledge
any of such shares of Clarant Common Stock provided the pledgee or other
beneficiary of such encumbrance or pledge agrees to be bound by the provisions
of this Section as if a Member and party hereto. The certificates evidencing the
Clarant Common Stock delivered to the Members pursuant to Article 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as Clarant may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
[(PROVIDED, HOWEVER, THAT SUCH SHARES MAY BE ENCUMBERED OR PLEDGED
PROVIDED THE PLEDGEE OR OTHER BENEFICIARY OF SUCH ENCUMBRANCE OR PLEDGE
AGREES TO BE BOUND BY THE PROVISIONS OF THESE RESTRICTIONS TO THE SAME
EXTENT AS THE HOLDER THEREOF).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. Each Member acknowledges
that the shares of Clarant Common Stock delivered to the Member pursuant to this
Agreement have not been and will not be registered under the 1933 Act and
therefore may not be resold without compliance with the 1933 Act. The Clarant
Common Stock acquired by the Member pursuant to this Agreement is being acquired
solely for their own respective accounts, for investment purposes only, and with
no present intention of distributing, selling or otherwise disposing of it.
16.2 COMPLIANCE WITH LAW. Each Member covenants, warrants and
represents that none of the shares of Clarant Common Stock issued to the Member
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. The Clarant Common
Stock shall bear the following legend in addition to the legend required under
Article 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
62
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC., DELIVERY BY THE
HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CLARANT, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Member represents and warrants
that it is able to bear the economic risk of an investment in the Clarant Common
Stock acquired pursuant to this Agreement, can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the
investment in the Clarant Common Stock. Each Member represents and warrants that
it has had an adequate opportunity to ask questions and receive answers from the
officers of Clarant concerning any and all matters relating to the transactions
described herein including, without limitation, the background and experience of
the current and proposed officers and directors of Clarant, the plans for the
operations of the business of Clarant, the business, operations and financial
condition of the Other Founding Companies, and any plans for additional
acquisitions and the like. Each Member acknowledges that it has asked any and
all questions in the nature described in the preceding sentence and all
questions have been answered to its satisfaction. Each Member represents and
warrants that such Member has the requisite knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of this investment and is an "accredited investor" as defined in Regulation D
under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing
Date, whenever Clarant proposes to register any Clarant Common Stock for its own
or others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by Clarant, (ii) registrations relating to employee
benefit plans and (iii) registrations relating to rights offerings made to the
stockholders of Clarant, Clarant shall give each of the Members prompt written
notice of its intent to do so. Upon the written request of any of the Members
given within thirty (30) days after receipt of such notice, Clarant shall cause
to be included in such registration all of the Clarant Common Stock issued to
the Members pursuant to this Agreement which any such Member requests, provided
that Clarant shall have the right to reduce the number of shares included in
such registration to the extent that inclusion of such shares could, in the
opinion of tax counsel to Clarant or its independent auditors, jeopardize the
status of the transactions contemplated hereby and by the Registration Statement
as a tax-free organization. In addition, if Clarant is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 that the number of shares to be sold by Persons other than Clarant
is greater than the number of such shares which can be offered without adversely
affecting the offering, Clarant may reduce pro rata the number of shares offered
for the accounts of such Persons (based upon the number of shares proposed to
63
be sold by each such Person) to a number deemed satisfactory by such managing
underwriter, provided, that, for each such offering made by Clarant after the
IPO, such reduction shall be made first by reducing the number of shares to be
sold by Persons other than Clarant, the Members and the members and stockholders
of the Other Founding Companies (collectively, the Members and the members of
the other Founding Companies being referred to herein as the "Founding
Members"), and thereafter, if a further reduction is required, by reducing the
number of shares to be sold by the Founding Members.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Clarant. In connection with
registrations under Section 17.1, Clarant shall (i) use its commercially
reasonable best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement with respect to the Clarant Common Stock
and use its commercially reasonable best efforts to cause such registration to
promptly become and remain effective for a period of at least one hundred twenty
(120) days (or such shorter period during which Founding Members shall have sold
all Clarant Common Stock which they requested to be registered); (ii) use its
commercially reasonable best efforts to register and qualify the Clarant Common
Stock covered by such registration statement under applicable state securities
laws as the holders shall reasonably request for the distribution of the Clarant
Common Stock; and (iii) take such other actions as are reasonable and necessary
to comply with the requirements of the 1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, Clarant and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of Clarant's size and
investment stature, including indemnification provisions.
17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated to
register shares of Clarant Common Stock held by any Member at any time when the
resale provisions of Rule 144(k) (or any successor provision) promulgated under
the 1933 Act are available to such Member for such shares.
17.5 MARKET STANDOFF. In consideration of the granting to the Members
of the registration rights under this Article 17, the each of the Members agrees
that he or she will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of Clarant
Common Stock in the ten (10) days prior to the effectiveness of any registration
of Clarant Common Stock for sale to the public and for up to ninety (90) days
following the effectiveness of such registration; provided that all directors,
executive officers and holders of more than five percent (5%) of the outstanding
Clarant Common Stock agree to the same restrictions; and further provided that,
with respect to the first public offering of shares of the Clarant Common Stock
within three years following the IPO, the Members shall have been
64
afforded a meaningful opportunity to include shares in such registration after
any reduction by reason of underwriters' advice.
18. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Accredited Members" shall have the meaning given to such term in
Section 2.1.
"Acquired Party" means the Company, any Subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies wholly-owned by Clarant prior to the Closing Date.
"Action" has the meaning set forth in Section 5.15.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Affiliates" has the meaning set forth in Section 5.9.
"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or
any of its Subsidiaries has or may acquire any rights, (b) under which the
Company or any of its Subsidiaries has or may become subject to any obligation
or liability, or (c) by which the Company or any of its Subsidiaries or any of
the Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as EXHIBIT 1.1
hereto or with such changes therein as may be required by applicable state laws.
"Balance Sheet" means a consolidated balance sheet of the Company .
"Balance Sheet Date" means March 31, 1999.
"Business" has the meaning set forth in the recitals of this Agreement.
65
"Charter Documents" has the meaning set forth in Section 5.1.
"Claim" has the meaning set forth in Section 11.3.
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Charter Documents" has the meaning set forth in Section 6.1.
"Clarant Common Stock" has the meaning set forth in Section 6.5.
"Clarant Expiration Date" means the date that is one year from the
Effective Time.
"Clarant Indemnified Party" has the meaning set forth in Section
11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.5.
"Clarant Stock" has the meaning set forth in Section 6.5.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant to the Internal
Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Interest" has the meaning set forth in Section 2.1.
"Company Other Benefit Obligation" has the meaning set forth in Section
5.17.
"Company Plan" has the meaning set forth in Section 5.17.
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Constituent Companies" has the meaning set forth in the recitals of
this Agreement.
66
"Contingent Consideration" shall have the meaning given to such term in
Section 3.3.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Convertible Securities" has the meaning set forth in Section 5.3.
"Defense Counsel" has the meaning set forth in Section 11.3.
"Defense Notice" has the meaning set forth in Section 11.3.
"Direct Claim" has the meaning set forth in Section 11.5.
"Effective Time" means the time as of which the Merger becomes
effective, which the parties hereto contemplate to occur at the Closing.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencement of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
67
(f) reducing to acceptable levels the risks inherent in
transportation of hazardous substances or materials, pollutants, oil,
or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay a Governmental Authority or
private parties, or groups of them, for damages done to the
Environment, or permitting self- appointed representatives of the
public interest to recover for injuries done to public assets.
"ERISA Affiliate" has the meaning set forth in Section 5.17.
"Exhibit" means each Exhibit attached to this Agreement.
"Financial Statements" has the meaning set forth in Section 5.10(a).
"Founding Companies" has the meaning set forth in the recitals of this
Agreement.
"Founding Members" has the meaning set forth in Section 17.1.
"Fully-Diluted" shall have the meaning set forth in Section 3.1(b).
"GAAP" means generally accepted accounting principles as in effect on
the date hereof.
"Governmental Authority" means the United States or any state, local,
or foreign government, or any subdivision, agency, or authority of any thereof.
"Governmental Consents" has the meaning set forth in Section 5.4.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
68
"Intellectual Property" means all Trademarks, copyrights and patents
and any registration or application for any of the foregoing, and any trade
secret, invention, process, know-how, computer software, technology systems,
product design or product packaging.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Investor Questionnaire" means the form of document attached hereto as
EXHIBIT 5.29(a) and as completed and delivered to Clarant by the Members.
"IPO" means the initial public offering of Clarant Common Stock
pursuant to the Registration Statement.
"Knowledge": an individual will be deemed to have "Knowledge" of a
particular fact if such individual is actually aware of such fact or other
matter. A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual listed in EXHIBIT 18 has,
or any time had, Knowledge of such fact or other matter.
"Laws" means, as applicable (a) all applicable statutes, rules,
regulations, Orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped, (b)
all laws, rules, regulations, writs, injunctions, decrees, and Orders applicable
to the Company or to the operation of the Business, and (c) all statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property.
"Leased Real Property" has the meaning set forth in Section 5.23(b)
"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.
"Material Adverse Effect" means with respect to any Person that is a
party to this Agreement, a material adverse change in (i) the business
operations, condition or prospects (financial or otherwise) of such Person, (ii)
the ability of such Person to consummate the transactions contemplated by the
Agreement, or (iii) the condition or value of the properties and assets of such
Person.
69
"Material Contract" means any Contract affecting or pertaining to the
Business that has a monetary obligation of at least $25,000 per year and that is
not cancelable by the Company without penalty upon notice of six (6) months or
less.
"Members" has the meaning set forth in the first paragraph of this
Agreement.
"Merger" means the merger of Newco with and into the Company pursuant
to this Agreement and the applicable provisions of the laws of the State of New
York.
"Merger Consideration" shall have the meaning given to such term in
Section 3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Xx. Xxxxxx" means Xxxxxxxxx X. Xxxxxx, the Chief Executive Officer of
Clarant.
"Multi-Employer Plan" has the meaning set forth in Section 5.17.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Non-accredited Members" shall have the meaning given to such term in
Section 2.1.
"Options" has the meaning set forth in Section 5.3.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Authority or by an arbitrator.
"Ordinary Course of Business" means an action taken by a Person only
if:
a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person; or
(b) such action is similar in nature and magnitude to actions
customarily taken in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business as
such Person.
"Other Agreements" has the meaning set forth in the recitals of this
Agreement.
70
"Other Benefit Obligations" has the meaning set forth in Section 5.17.
"Other Founding Companies" has the meaning set forth in the recitals of
this Agreement.
"Pension Plan" has the meaning set forth in Section 5.17
"Permits" has the meaning set forth in Section 5.16(b).
"Person" means any individual, corporation (including non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Plan" has the meaning set forth in Section 5.17.
"Plan Sponsor" has the meaning set forth in Section 5.17
"Plans" has the meaning set forth in Section 5.17.
"Pre-Closing" has the meaning set forth in Section 4.1.
"Pre-Closing Date" has the meaning set forth in Section 4.1.
"Pre-Closing Period" means any Taxable Period or portion thereof ending
on or before the Closing Date.
"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Authority.
"Qualified Plan" has the meaning set forth in Section 5.17.
"Qualified Plans" has the meaning set forth in Section 5.17.
"Registration Statement" means that certain registration statement of
Clarant on Form S-1 covering the shares of Clarant Common Stock to be issued in
the IPO and attached as SCHEDULE 18.1.
"Reimbursement" has the meaning set forth in Section 11.7.
71
"Relevant Group" has the meaning set forth in Section 5.24.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"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.
"Securities Agreements" shall have the meaning given to such term in
Section 5.3.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"State LLC Law" has the meaning set forth in Section 1.2.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Straddle Period" has the meaning set forth in Section 10.2(a).
"Subsidiary" means any entity the majority of voting shares or
interests of which are owned by the Company and/or by one or more Subsidiaries
of the Company.
"Surviving Company" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, transfer, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Tax Proceeding" means any audit, examination, claim or other
administrative or judicial proceeding relating to Taxes or Returns.
"Taxable Period" means any taxable year or other period that is treated
as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
72
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
"Third Party Claim" has the meaning set forth in Section 11.3.
"Threatened" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice has been given in writing that such a claim,
Proceeding, dispute, action or other matter is likely to be asserted, commenced,
taken, or otherwise pursued in the future.
"Title IV Plans" has the meaning set forth in Section 5.17.
"Trademarks" has the meaning set forth in Section 5.14.
"Underwriters" means the underwriters of the IPO, as identified in the
Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement by and among
the Underwriters and the Company in respect of the IPO.
"VEBA" has the meaning set forth in Section 5.17.
"Welfare Plan" has the meaning set forth in Section 5.17.
"Year 2000 Compliant" has the meaning set forth in Section 5.27.
19. GENERAL
19.1 COOPERATION. The Company, the Members, Clarant and Newco shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Members will cooperate and use their reasonable efforts to
have the present officers, directors and employees of the Company cooperate with
Clarant on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the
73
benefit of the parties hereto, the successors of Clarant, and the heirs and
legal representatives of the Members.
19.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
Exhibits attached hereto which are incorporated by this reference) and the
documents delivered pursuant hereto constitute the entire agreement and
understanding among the Members, the Company, Newco and Clarant and supersede
any prior agreement and understanding relating to the subject matter of this
Agreement. This Agreement, upon execution, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and may
be modified or amended only by a written instrument executed by the Members, the
Company, Newco and Clarant, acting through their respective officers or
trustees, duly authorized by their respective boards of directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby, provided
that the Company and the Members shall make a good faith effort to cross
reference disclosure, as necessary or advisable, between related Schedules.
19.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. This Agreement may be
executed and delivered by facsimile signature which facsimile signature shall be
deemed an original.
19.5 EXPENSES.
(a) Whether or not the transactions herein contemplated shall
be consummated, Clarant will pay the fees, expenses and disbursements of Clarant
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Clarant under this Agreement, including the fees
and expenses of Clarant's public auditors, Xxxxxx Xxxxxx & Xxxxxxxxx, and any
other Person retained by Clarant, and the costs of preparing the Registration
Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of the
Members, the Company and their respective agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement and
any amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by the Company
and the Members under this Agreement, including the reasonable fees and expenses
of legal counsel to the Company and the Members.
(c) If the transaction herein contemplated is consummated,
Clarant will pay the fees, expenses, and disbursements of the Members and the
Company and their respective agents, representatives accountants and counsel.
74
(d) Each Member acknowledges that he, and not the Company or
Clarant, will pay all Taxes including, but not limited to, income and transfer
taxes due upon receipt of the consideration payable pursuant to Article 2
hereof, and will assume all Tax or as a result of risks and liabilities of such
Member in connection with the transactions contemplated hereby.
19.6 NOTICES. All notices, requests, demands and other communications
made in connection with this Agreement shall be in writing and shall be deemed
to have been duly given on the date of delivery, if delivered to the persons
identified below, or on the second business day, if delivered by a reputable
overnight carrier, or on the date of the return receipt acknowledgment after
mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, or on the date such transmission is made and confirmation of
receipt obtained if a business day, or if not, then on the next following
business day, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment, addressed as follows:
(a) If to Clarant, or Newco, addressed to them at:
0000 Xxxxx Xxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with copies to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
(b) If to the Members, addressed to them at their addresses
set forth on EXHIBIT 19.6, with copies to such counsel as is set forth with
respect to each Member on such EXHIBIT 19.6;
( c) If to the Company, addressed to it at:
0000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attn: Managing Member
Facsimile:
and marked "Personal and Confidential"
75
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
19.7 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without reference to conflicts of laws
principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
19.11 MEMBERS' REPRESENTATIVE.
(a) Each holder of Company Units, by signing this Agreement,
designates Xxxxx Xxxxxxxxx or, in the event that Xxxxx Xxxxxxxxx is unable or
unwilling to serve, now or in the future, Xxxx Xxxxxxxx, to be the Members'
Representative for purposes of this Agreement. The Members shall be bound by any
and all actions taken by the Members' Representative on their behalf.
(b) Clarant and Newco shall be entitled to rely upon any
communication or writings given or executed by the Members' Representative. All
notices to be sent to Members pursuant to this Agreement may be addressed to the
Members' Representative and any notice so sent shall be deemed notice to all of
the Members hereunder. The Members hereby consent and agree that the Members'
Representative is authorized to accept notice on behalf of the Members pursuant
hereto.
(c) The Members' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Member, with full power
in his or her name and on his or her behalf to act according to the terms of
this Agreement in the absolute discretion of the Members' Representative; and in
general to do all things and to perform all acts including, without limitation,
executing and delivering all agreements, certificates, receipts, instructions
and other
76
instruments contemplated by or deemed advisable in connection with this
Agreement. This power of attorney and all authority hereby conferred is granted
subject to the interest of the other Members hereunder and in consideration of
the mutual covenants and agreements made herein, and shall be irrevocable and
shall not be terminated by any act of either Member, by operation of law,
whether by the death or other event.
19.12 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
19.13 SURVIVAL. The representations and warranties set forth in this
Agreement shall survive the Closing and expire in accordance with Section 11.11.
The covenants of the parties to be performed offer the Closing shall survive the
Closing and expire in accordance with their respective terms.
19.14 ACCOUNTING TERMS. Except as otherwise expressly provided herein,
all accounting terms used in this Agreement shall be interpreted, and all
financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with U.S.
GAAP consistently applied.
[this space left intentionally blank]
77
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC.
By: /s/ Xxxxxxxxx X. Xxxxxx
-----------------------
Name: Xxxxxxxxx X. Xxxxxx
Title: President
MULTIMEDIA ACQUISITION LLC
By: /s/ Xxxxxxxxx X. Xxxxxx
-----------------------
Name: Xxxxxxxxx X. Xxxxxx
Title: Manager
MULTIMEDIA RESOURCES, LLC
By: /s/ Xxxx X. Xxxxxxxx
-----------------------
Name: Xxxx X. Xxxxxxxx
Title: Managing Partner
MEMBERS:
/s/ Xxxxx Xxxxxxxxx
--------------------------------
Xxxxx Xxxxxxxxx
/s/ Xxxx X. Xxxxxxxx
--------------------------------
Xxxx X. Xxxxxxxx
/s/ Xxxxxx X. Xxxxxx
--------------------------------
Xxxxxx X. Xxxxxx
Signature Page to Agreement and Plan of Organization
Multimedia Resources, LLC
EXHIBIT 2.1(a)
CONSIDERATION
(a) At Closing, Clarant will deliver Merger Consideration to the Members equal
to:
(i) Six Hundred Sixty-Eight Thousand One Hundred Eighty-Two (668,182)
shares of Clarant Common Stock (the "Stock Consideration") plus
(ii) cash of Two Hundred Eighty-Six Thousand Three Hundred Sixty-Three
and 63/100 U.S. Dollars ($286,363.63) times the IPO price per share of Clarant
Common Stock. For example, if the IPO price per share of Clarant Common Stock is
$11.00, then Clarant will deliver to the Members total cash of Three Million One
Hundred Fifty Thousand and 00/100 U.S. Dollars ($3,150,000.00).
(b) At Closing, the Merger Consideration shall be distributed among the Members
so that each of the Members shall receive his or her pro rata allocation of the
Merger Consideration in the ratio of seventy percent (70%) Clarant Common Stock
and thirty percent (30%) cash.
(c) The minimum IPO price per share of Clarant Common Stock is $9.90.
EXHIBIT 3.3
EARN-OUT
(a) Contingent Consideration will be paid to the Member(s) contingent
on the financial performance of the Company and Clarant during the periods July
1, 1999 through December 31, 1999, and January 1, 2000 through June 30, 2000
(each such period a "Measurement Period"). The following tables set forth the
projections and formulas for determining the Contingent Consideration payable to
the Member(s):
Projections for Determining Contingent Consideration
-------------------------------------------------------------------------------------------------------------
PROJECTED PROJECTED PROJECTED PROJECTED
MEASUREMENT COMPANY COMPANY PRE-TAX COMBINED COMBINED
PERIOD REVENUES INCOME REVENUES PRE-TAX INCOME
-------------------------------------------------------------------------------------------------------------
Jul. 1, 1999 - $2,431,000 $429,000 n/a n/a
Dec. 31, 1999
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
-------------------------------------------------------------------------------------------------------------
Formulas for Determining Contingent Consideration
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
--------------------------------------------------------------------------------------------------------------------------------
Jul. 1, 1999 - 3 15 n/a [50% (Revenue Multiple) x $78,700,000 $2,625,000
Dec. 31, 1999 (Actual Company Revenues -
Projected Company Revenues)]
+
[50% (Pre-Tax Income
Multiple) x (Actual Pre-Tax
Income - Projected Pre-Tax
Income)]
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Jan. 1, 2000 - 3 15 3.34% [(Pool Share) x 50% (Revenue $78,700,000 $2,625,000
Jun. 30, 2000 Multiple) x (Actual Combined
Revenues - Projected
Combined Revenues)]
+
[(Pool Share) x 50% (Pre-Tax
Income Multiple) x (Actual
Combined Pretax Income -
Projected Combined Pretax
Income)]
--------------------------------------------------------------------------------------------------------------------------------
(b) For purposes of determining the amount of Contingent Consideration
payable to the Member(s):
(i) Pre-Tax Income shall mean net revenues less direct costs
less indirect costs and expenses, but including all taxes other than Federal and
state income taxes, provided, that, Pre-Tax Income expressly excludes
amortization of acquisition goodwill incident to the transactions contemplated
by the Agreement;
(ii) Combined Revenues shall mean the total revenues of the
Founding Companies only, without giving effect to acquisitions by Clarant or any
Founding Company after the Closing Date, unless otherwise agreed to in writing
by Clarant;
(iii) Combined Pre-Tax Income shall mean the total Pre-Tax
Income of the Founding Companies only, without giving effect to acquisitions by
Clarant or any Founding Company after the Closing Date, unless otherwise agreed
to in writing by Clarant; and
(iv) except as otherwise expressly provided herein, all
accounting terms shall be interpreted in accordance with U.S. GAAP, based upon
consistent use of accounting principles and policies, revenue recognition
methods and reserve methodologies for the Measurement Period and the relevant
audited financial statements.
(c) The Contingent Consideration payable for a Measurement Period shall
be made in cash and shares of Clarant Common Stock, with the amount paid in cash
to be determined by Clarant in its sole and absolute discretion, PROVIDED, THAT,
such amount represents no less than twenty-five percent (25%), nor more than
fifty percent (50%), of the total amount of the Contingent Consideration for the
Measurement Period. For these purposes, each share of Clarant Common Stock will
be valued at the trailing 30-day average closing price, ending on the day before
the date of issuance.
(d) Within forty-five (45) days following the end of each Measurement
Period, Clarant shall cause Xxxxxx Xxxxxxxx to review Clarant's and each
Founding Company's books and records to determine, as applicable, the Company's
actual revenues ("Actual Company Revenues") and actual Pre-Tax Income ("Actual
Company Pre-Tax Income"), and the actual Combined Revenues ("Actual Combined
Revenues") and actual Combined Pre-Tax Income ("Actual Combined Pre-Tax
Income"), for the Measurement Period. Within sixty (60) days following the end
of each Measurement Period, Clarant shall deliver a written notice (a
"Contingent Consideration Notice") to the Member's Representative, as defined in
Section __, setting forth (i) the determination made by Xxxxxx Xxxxxxxx of the
Actual Company Revenues, Actual Company Pre-Tax Income, Actual Combined Revenues
and Actual Combined Pre-Tax Income, if applicable, (ii) the total amount of the
Contingent Consideration payable to the Member(s) for the Measurement Period and
(iii) the amount of cash and shares of Clarant Common Stock that will be paid to
the Member(s) as Contingent Consideration for the Measurement Period. As soon as
practicable after delivering the Contingent Consideration Notice, Clarant shall
issue the shares of Clarant Common Stock to be paid as Contingent Consideration
and deliver such shares, along with the cash to be paid as Contingent
Consideration, to [Clarant's Bank] to hold in escrow until final resolution of
any disputes regarding the Contingent Consideration.
(e) The Members' Representative shall have fifteen (15) days from the
receipt of the Contingent Consideration Notice to notify Clarant if there is a
dispute about such Contingent Consideration Notice. If Clarant has not received
notice of such a dispute within such 15-day period, Clarant shall direct
[Clarant's Bank] to pay the cash portion of the Contingent Consideration by wire
transfer of immediately available funds to the Member(s) at the account(s)
identified on SCHEDULE 19.6 and deliver the shares of Clarant Common Stock to
the Member(s) at the address(es) set forth on SCHEDULE 19.6. If, however, the
Members' Representative has delivered notice of such a dispute to Clarant within
such 15-day period, then Clarant's chief financial officer and the Members'
Representative shall meet (by conference telephone call or in person at a
mutually agreeable site) within one week after notice of a disagreement is given
as provided herein. Clarant's chief financial officer and the Members'
Representative shall attempt to make a final determination of the Contingent
Consideration payable for the Measurement Period. If Clarant's chief financial
officer and the Members' Representative do not reach agreement within a
reasonable time, either or both of them shall give notice of an impasse, in
which case they shall mutually agree on an independent accounting firm to review
the Contingent Consideration Notice (and related information) to determine the
amount of the Contingent Consideration. In the event that Clarant's chief
financial officer and the Members' Representative cannot agree on an independent
accounting firm, Xxxxxx Xxxxxxxx shall select such independent accounting firm.
The determination of such independent accounting firm shall be final and binding
on the parties hereto and promptly upon such determination Clarant shall direct
[Clarant's Bank] to deliver the Contingent Consideration to the Member(s). The
costs of the independent accounting firm shall be borne by the party whose
determination of the Contingent Consideration was furthest from the
determination of the independent accounting firm, or equally
by the parties in the event that the determination by the independent accounting
firm is equidistant between the Contingent Consideration as calculated by
Clarant and the Members' Representative.
(f) Any adjustments to the Contingent Consideration required to be made
as a result of the process described in paragraph (e) shall be made in either
cash or Clarant Common Stock, notwithstanding any other limitations contained
herein to the contrary.
(g) The amounts payable as Contingent Consideration shall be deemed to
include interest, if any, that would be imputed under the Code. No additional
payments shall be made to the Member(s) for such imputed interest.
(h) The right to receive the Contingent Consideration shall not be
assignable by the Member(s).
(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 maintain
the Company as a separate operating unit through the end of the first
Measurement Period and will not take any action intended or reasonably likely to
prejudice the Members' 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 Members 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 Company's Actual Pre-tax Income shall be increased
by ten percent (10%) of any revenues of any one of the Other Founding Companies
from any Referred Work. The term "Referred Work" means work relating to a
project obtained from a client by the Company that the Company requests Clarant
to assign to one of the Other Founding Companies and which assignment request is
approved by Xx. Xxxxxx (or an officer of Clarant designated by Xx. Xxxxxx)
according to procedures established by Clarant.
