EXHIBIT 10.06
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
BY AND AMONG
CLARANT, INC.,
ICON ACQUISITION CORP.,
AND
INTEGRATED CONSULTING, INC., D/B/A I.CON INTERACTIVE,
AND
XXXXXX X. XXXXXX
XXXXXX X. XXXXXX AND
XXXXX XXXX XXXXX
DATED: JUNE 2, 1999
TABLE OF CONTENTS
PAGE
1. THE MERGER..................................................................................... 2
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER............................................. 2
1.2 EFFECTIVE TIME........................................................................ 2
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF SURVIVING
CORPORATION........................................................................... 2
1.4 EFFECT OF MERGER...................................................................... 3
2. CONVERSION OF STOCK, CONVERTIBLE SECURITIES AND OPTIONS........................................ 3
2.1 MANNER OF CONVERSION.................................................................. 3
3. DELIVERY OF MERGER CONSIDERATION............................................................... 5
3.1 MERGER CONSIDERATION; TENDER.......................................................... 5
3.2 TENDER OF COMPANY STOCK............................................................... 5
3.3 EARN-OUT.............................................................................. 6
4. PRE-CLOSING AND CLOSING........................................................................ 6
4.1 PRE-CLOSING........................................................................... 6
4.2 CLOSING............................................................................... 7
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS................................................................................... 7
5.1 DUE ORGANIZATION...................................................................... 7
5.2 AUTHORIZATION......................................................................... 8
5.3 CAPITAL STOCK OF THE COMPANY.......................................................... 8
5.4 AUTHORITY; NO CONFLICT................................................................ 9
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING................................ 9
5.6 [Reserved]............................................................................ 9
5.7 SUBSIDIARIES.......................................................................... 9
5.8 PREDECESSOR STATUS; ETC............................................................... 10
5.9 SPIN-OFF BY THE COMPANY. ............................................................. 10
5.10 FINANCIAL STATEMENTS.................................................................. 10
5.11 LIABILITIES AND OBLIGATIONS.......................................................... 10
5.12 ACCOUNTS AND NOTES RECEIVABLE......................................................... 11
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY............................................... 11
5.14 TRADEMARKS............................................................................ 12
5.15 LITIGATION AND LEGAL PROCEEDINGS...................................................... 12
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.............................................. 14
5.17 EMPLOYEE BENEFITS..................................................................... 14
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5.18 INSURANCE POLICIES.................................................................... 19
5.19 ENVIRONMENT........................................................................... 21
5.20 LABOR AND EMPLOYMENT MATTERS.......................................................... 22
5.21 PERSONAL PROPERTY..................................................................... 23
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS............................. 23
5.23 REAL PROPERTY......................................................................... 25
5.24 TAXES................................................................................. 26
5.25 BUSINESS CONDUCT...................................................................... 29
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.................................................. 31
5.27 YEAR 2000 COMPLIANCE.................................................................. 31
5.28 RELATIONS WITH GOVERNMENTS............................................................ 31
5.29 DISCLOSURE............................................................................ 32
5.30 WARRANTIES; PRODUCTS.................................................................. 33
5.31 AFFILIATE TRANSACTIONS................................................................ 33
5.32 MISREPRESENTATION..................................................................... 33
5.33 BROKERS............................................................................... 33
5.34 AUTHORITY; OWNERSHIP.................................................................. 34
5.35 PREEMPTIVE RIGHTS..................................................................... 34
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK.............................................. 34
5.37 TENDER................................................................................ 34
5.38 INVESTOR QUESTIONNAIRES............................................................... 34
6. REPRESENTATIONS OF CLARANT AND NEWCO........................................................... 34
6.1 DUE ORGANIZATION...................................................................... 35
6.2 AUTHORIZATION......................................................................... 35
6.3 TRANSACTION NOT A BREACH.............................................................. 35
6.4 MISREPRESENTATION..................................................................... 35
6.5 CAPITAL STOCK......................................................................... 35
6.6 SUBSIDIARIES.......................................................................... 36
6.7 LIABILITIES AND OBLIGATIONS........................................................... 36
6.8 CONFORMITY WITH LAW; LITIGATION....................................................... 36
6.9 VALIDITY OF OBLIGATIONS............................................................... 36
6.10 CLARANT COMMON STOCK.................................................................. 37
6.11 NO SIDE AGREEMENTS.................................................................... 37
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS.......................................... 37
6.13 NO VIOLATIONS......................................................................... 37
6.14 ABSENCE OF CHANGES.................................................................... 37
6.15 TAXES................................................................................. 38
7. COVENANTS PRIOR TO CLOSING..................................................................... 39
7.1 ACCESS AND COOPERATION; DUE DILIGENCE................................................. 39
7.2 CONDUCT OF BUSINESS PENDING CLOSING................................................... 39
7.3 PROHIBITED ACTIVITIES................................................................. 40
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7.4 NO SHOP............................................................................... 42
7.5 NOTICE TO BARGAINING AGENTS........................................................... 42
7.6 AGREEMENTS............................................................................ 42
7.7 NOTIFICATION OF CERTAIN MATTERS....................................................... 42
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.................................. 43
7.9 FINAL FINANCIAL STATEMENTS............................................................ 44
7.10 FURTHER ASSURANCES.................................................................... 44
7.11 AMENDMENT OF SCHEDULES................................................................ 44
7.12 THIRD PARTY APPROVALS................................................................. 45
7.13 HSR FILING............................................................................ 45
7.14 AUTHORIZED CAPITAL STOCK.............................................................. 45
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY........................ 46
8.1 REPRESENTATIONS AND WARRANTIES........................................................ 46
8.2 PERFORMANCE OF OBLIGATIONS............................................................ 46
8.3 NO LITIGATION......................................................................... 46
8.4 OPINION OF COUNSEL.................................................................... 46
8.5 REGISTRATION STATEMENT................................................................ 47
8.6 CONSENTS AND APPROVALS................................................................ 47
8.7 GOOD STANDING CERTIFICATES............................................................ 47
8.8 SECRETARY'S CERTIFICATE............................................................... 47
8.9 HSR ACT............................................................................... 47
8.10 CLOSING OF THE IPO.................................................................... 47
8.11 EMPLOYMENT AGREEMENTS................................................................. 47
8.12 LISTING............................................................................... 47
8.13 TAX OPINION........................................................................... 47
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO....................................... 48
9.1 REPRESENTATIONS AND WARRANTIES........................................................ 48
9.2 PERFORMANCE OF OBLIGATIONS............................................................ 48
9.3 NO LITIGATION......................................................................... 48
9.4 [Reserved]............................................................................ 49
9.5 NO MATERIAL ADVERSE EFFECT............................................................ 49
9.6 TERMINATION OF RELATED PARTY AGREEMENTS............................................... 49
9.7 OPINION OF COUNSEL.................................................................... 49
9.8 CONSENTS AND APPROVALS................................................................ 49
9.9 GOOD STANDING CERTIFICATES............................................................ 49
9.10 REGISTRATION STATEMENT................................................................ 49
9.11 EMPLOYMENT AGREEMENTS................................................................. 50
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9.12 CLOSING OF IPO........................................................................ 50
9.13 FIRPTA CERTIFICATE.................................................................... 50
9.14 [Reserved]............................................................................ 50
9.15 SATISFACTION.......................................................................... 50
9.16 HSR ACT............................................................................... 50
9.17 INVESTOR QUESTIONNAIRE................................................................ 50
9.18 THE STOCKHOLDERS' RELEASE............................................................. 50
9.19 COMPANY AND STOCKHOLDER REPRESENTATIONS............................................... 50
10. COVENANTS OF CLARANT AND THE STOCKHOLDERS AFTER CLOSING........................................ 50
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT.......................................... 50
10.2 TAX MATTERS........................................................................... 50
10.3 DIRECTORS AND OFFICERS................................................................ 52
10.4 [Reserved]............................................................................ 52
10.5 RELEASE OF GUARANTEES. ............................................................... 52
10.6 ...................................................................................... 52
10.7 DIRECTORS' AND OFFICERS' INSURANCE.................................................... 52
11. INDEMNIFICATION................................................................................ 52
11.1 INDEMNIFICATION BY STOCKHOLDERS....................................................... 52
11.2 INDEMNIFICATION BY CLARANT............................................................ 53
11.3 INDEMNIFICATION PROCEDURE -- THIRD PARTY CLAIMS........................................ 54
11.4 TAX CONTESTS.......................................................................... 55
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS............................................. 56
11.6 FAILURE TO GIVE TIMELY NOTICE......................................................... 57
11.7 REDUCTION OF LOSS..................................................................... 57
11.8 SUBROGATION........................................................................... 57
11.9 ARBITRATION........................................................................... 57
11.10 EXCLUSIVE REMEDY...................................................................... 58
11.11 LIMITATION AND EXPIRATION............................................................. 58
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS.................................. 59
12. TERMINATION OF AGREEMENT....................................................................... 60
12.1 TERMINATION........................................................................... 60
12.2 LIABILITIES IN EVENT OF TERMINATION................................................... 60
13. NONCOMPETITION................................................................................. 60
13.1 PROHIBITED ACTIVITIES................................................................ 60
13.2 DAMAGES............................................................................... 61
13.3 REASONABLE RESTRAINT.................................................................. 62
13.4 SEVERABILITY; REFORMATION............................................................. 62
13.5 INDEPENDENT COVENANT.................................................................. 62
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13.6 MATERIALITY........................................................................... 62
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...................................................... 63
14.1 STOCKHOLDERS.......................................................................... 63
14.2 CLARANT AND NEWCO..................................................................... 63
14.3 DAMAGES............................................................................... 64
14.4 SURVIVAL.............................................................................. 64
15. TRANSFER RESTRICTIONS.......................................................................... 64
15.1 TRANSFER RESTRICTIONS................................................................. 64
16. FEDERAL SECURITIES ACT REPRESENTATIONS......................................................... 65
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK.............................................. 65
16.2 COMPLIANCE WITH LAW................................................................... 65
16.3 ECONOMIC RISK; SOPHISTICATION......................................................... 66
17. REGISTRATION RIGHTS............................................................................ 66
17.1 PIGGYBACK REGISTRATION RIGHTS......................................................... 66
17.2 REGISTRATION PROCEDURES............................................................... 67
17.3 UNDERWRITING AGREEMENT................................................................ 67
17.4 AVAILABILITY OF RULE 144.............................................................. 67
17.5 MARKET STANDOFF....................................................................... 67
18. DEFINITIONS.................................................................................... 68
19. GENERAL........................................................................................ 76
19.1 COOPERATION........................................................................... 76
19.2 SUCCESSORS AND ASSIGNS................................................................ 77
19.3 ENTIRE AGREEMENT...................................................................... 77
19.4 COUNTERPARTS.......................................................................... 77
19.5 EXPENSES.............................................................................. 77
19.6 NOTICES............................................................................... 78
19.7 GOVERNING LAW......................................................................... 79
19.8 EXERCISE OF RIGHTS AND REMEDIES....................................................... 79
19.9 TIME.................................................................................. 79
19.10 REFORMATION AND SEVERABILITY.......................................................... 79
19.11 STOCKHOLDER'S REPRESENTATIVE.......................................................... 80
19.12 CAPTIONS.............................................................................. 80
19.13 SURVIVAL.............................................................................. 80
19.14 ACCOUNTING TERMS...................................................................... 80
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EXHIBITS AND SCHEDULES
LIST OF EXHIBITS
Exhibit 1.1 Form of Articles of Merger
Exhibit 1.3 Certificate/Articles of Incorporation
Surviving Corporation
Exhibit 2.1(a) Merger Consideration
Exhibit 3.3 Contingent Consideration
Exhibit 5.2 Director and Shareholder Consents
Exhibit 5.29(a) Form of Director and Officer Questionnaire
Exhibit 5.29(b) Form of Investor Questionnaire
Exhibit 6.1 Clarant Charter Documents
Exhibit 8.11 Form of Employment Agreement
Exhibit 18 Knowledge
Exhibit 19.6 Stockholders' and Counsel Addresses;
Wire Transfer Instructions
LIST OF SCHEDULES
Schedule 5.1 Directors and Officers
Schedule 5.3 Ownership of Company Stock
Schedule 5.4 Consents
Schedule 5.7 Company Subsidiaries
Schedule 5.8 Predecessor Companies
Schedule 5.9 Spin-offs
Schedule 5.10 Financial Statements
Schedule 5.11 Company Liabilities and Obligations
Schedule 5.12 Accounts and Notes Receivable
Schedule 5.13 Intellectual Property IP - Ownership,
Licenses, Infringements
Schedule 5.14 Trademarks - Owned, Leased, Infringed
Schedule 5.15 Litigation
Schedule 5.16 Compliance with Laws; Permits and Licenses
Schedule 5.17 Employee Benefits
Schedule 5.18 Insurance
Schedule 5.19 Environmental
Schedule 5.20 Employees
Schedule 5.21 Personal Property
Schedule 5.22 Significant Customers/Material Contracts
Schedule 5.23 Leased Real Property
Schedule 5.24(g) List of Tax Returns
Schedule 5.24(q) Tax Elections
Schedule 5.24(x) List of Tax Attributes
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Schedule 5.25 Material Adverse Change
Schedule 5.26 Powers of Attorney
Schedule 5.27 Year 2000 Compliance
Schedule 5.30 Warranties and Guarantees
Schedule 5.31 Affiliate Transactions
Schedule 6.5 Clarant Capital Stock
Schedule 6.7 Liabilities and Obligations
Schedule 6.8 Conformity with Law; Litigation
Schedule 6.12 Business; Real Property; Material Agreements
Schedule 6.13 No Violations
Schedule 9.11 Employees of the Company
Schedule 10.7 Directors' and Officers' Insurance
Schedule 11.1(f) Certain Indemnified Matters
Schedule 13.1 Permitted Activities
Schedule 18.1 Registration Statement
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is
made as of June 2, 1999, by and among CLARANT, INC., a Delaware corporation
("Clarant"), ICON ACQUISITION CORP., a Texas corporation ("Newco"), INTEGRATED
CONSULTING, INC., d/b/a i.con interactive a Texas corporation (the "Company"),
and Xxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx, and Xxxxx Xxxx XxXxx (the
"Stockholders").
WHEREAS, Newco is a corporation duly organized and existing
under the laws of the State of Texas, having been incorporated on May 5, 1999,
solely for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of Clarant;
WHEREAS, the Company (together with its Subsidiaries) provides
high-level consulting services to businesses wishing to market through the
internet (the "Business");
WHEREAS, the respective Boards of Directors of Newco and the
Company (which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that Newco merge with and into
the Company pursuant to this Agreement and the applicable provisions of the laws
of the State of Texas (the "Merger"), and in furtherance thereof have approved
the Merger and to the extent required under applicable state laws have
recommended and submitted the Merger for approval to their constituent
stockholders;
WHEREAS, it is the intent of Clarant, Newco, the Company and
each of the Stockholders that upon the completion of the Merger, the Company
shall be the Surviving Corporation 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., Brand Dialog, Free Range Media, Inc., Interactive 8, Inc.,
Multimedia Resources LLC, Potomac Partners Management Consulting, LLC, and RSI
Group, Inc. (collectively, the "Other Founding Companies" and together with the
Company, the "Founding Companies"), and their principal owners 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 Boards of Directors of Clarant and the Company
have approved and adopted the Clarant Plan of Organization as an integrated plan
to transfer the capital stock of the Company and each of the Other Founding
Companies to Clarant under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the Stockholders and the
Board of Directors of the
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Company and the stockholders and the boards of directors of each of Clarant and
Newco have approved the Merger, this Agreement and the transactions contemplated
hereby.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations 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 Texas 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 Texas (the "State Corporation
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 Corporation Law.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF
DIRECTORS OF SURVIVING CORPORATION. At the Effective Time:
(a) the Articles of Incorporation of the Surviving
Corporation shall be amended and restated as permitted under the laws of the
State of Texas and shall read substantially in the form attached hereto as
EXHIBIT 1.3;
(b) the By-laws of Newco then in effect shall be the
By-laws of the Surviving Corporation until amended as provided by law;
(c) Xxxxxxxxx X. Xxxxxx, the Chief Executive Officer of
Clarant ("Xx. Xxxxxx") shall be the sole director of the Surviving Corporation
until his successor is elected or appointed and qualified in accordance with the
terms of the By-laws of the Surviving Corporation; and
(d) Xx. Xxxxxx shall be the President and Chief Executive
Officer of the Surviving Corporation, the President of the Company immediately
prior to the Effective Time shall be a Vice President of the Surviving
Corporation and the other officers of the Company immediately prior to the
Effective Time shall continue as officers of the Surviving Corporation in the
same capacity or capacities.
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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 Corporation shall continue unaffected
and unimpaired by the Merger, and the Surviving Corporation 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
Corporation 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 Corporation 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 Corporation 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 incorporation vested in the Company
and Newco, shall not revert or be in any way impaired by reason of the Merger.
The Surviving Corporation 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 Corporation
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 Corporation, 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 STOCK, CONVERTIBLE SECURITIES AND OPTIONS
2.1 MANNER OF CONVERSION. For purposes of converting the
issued and outstanding shares of capital stock of the Company ("Company Stock")
under this Agreement, the stockholders of the Company shall be divided into two
classes: (A) the first class being stockholders of the Company who qualify as
"accredited investors" under Rule 501(a) of Regulation D promulgated under the
1933 Act ("Accredited Stockholders") and (B) the second class being stockholders
of the Company who do not qualify as "accredited investors" under Rule 501(a) of
Regulation D promulgated under the 1933 Act ("Non-Accredited Stockholders").
Pursuant to the provisions of this Section 2.1, each of the Accredited
Stockholders and NonAccredited Stockholders 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 shares
of capital stock of the Constituent Corporations shall be automatically
canceled, extinguished and converted as follows:
(i) each share of issued and outstanding Company Stock
owned by an Accredited Stockholder immediately prior to the Effective Time shall
be converted
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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 share of issued and outstanding Company
Stock owned by a Non-Accredited Stockholder immediately prior to the Effective
Time shall be converted into the right to receive the amount of cash as
determined by the appropriate formula set forth on EXHIBIT 2.1(a);
(iii) each share Company Stock 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 share of issued and outstanding Newco Stock
shall continue to be issued and outstanding and shall be converted automatically
into one share of validly issued, fully paid and non-assessable common stock in
the Surviving Corporation. Each stock certificate of Newco evidencing ownership
of any such shares shall continue to evidence ownership of the shares of capital
stock of the Surviving Corporation converted pursuant to this Agreement.
(b) [Reserved]
(c) All Clarant Common Stock received by the Stockholders
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 Stockholders shall be fully exercisable by the Stockholders, and the
Stockholders 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 shares of
Company Stock, Convertible Securities and Options of the Company shall no longer
be outstanding and shall cease to exist, and each certificate or agreement
previously representing any such securities shall represent only the right to
receive the consideration determined according to the formulas provided on
EXHIBIT 2.1(a).
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3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER CONSIDERATION; TENDER.
(a) At the Closing Clarant shall deliver to the
stockholders of the Company and the holders of Convertible Securities and
Options of the Company the following consideration allocable pro rata to each
such holder (the "Merger Consideration") upon the surrender by each of the
Company's stockholders of his or her certificates for shares of Company Stock:
(i) each of the Accredited Stockholders shall receive (A) the number of shares
of Clarant Common Stock allocable to such Accredited Stockholder pursuant to
EXHIBIT 2.1(a) and (B) the amount of cash allocable to such Accredited
Stockholder pursuant to EXHIBIT 2.1(a); and (ii) each of the Non-Accredited
Stockholders shall receive the amount of cash allocable to such Non-Accredited
Stockholder pursuant to EXHIBIT 2.1(a).
(b) The cash portion of the Merger Consideration allocable
to each Accredited Stockholder or Non-Accredited Stockholder, 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 SCHEDULE 19.6. For purposes of this
Section 3.1, a holder's pro rata share shall be determined with respect to the
total number of issued and outstanding shares of Company Stock on a
Fully-Diluted basis immediately prior to the Effective Time. For purposes of
calculating the Merger Consideration, "Fully-Diluted" means the total number of
shares of Company Stock that would be issued and outstanding assuming the
exercise of all issued and outstanding rights, warrants and stock options
(whether vested or un-vested) and the conversion to Company Stock of all issued
and outstanding convertible bonds, debentures and preferred stock.
(c) At the Closing, Clarant shall make a capital
contribution to the Company by wire transfer of immediately available funds to
the account designated by the Company in an amount equal to 5% of the Merger
Consideration, subject to the limitation set forth in Section 5.17(e)(x), which
amount shall be deducted from the cash portion of the Merger Consideration
before the payments and transfers are made to the Stockholders pursuant to
EXHIBIT 2.1(a) and Section 3.1(a) hereof. Following the Closing, the Company
shall pay the amount so deducted to the employees pursuant to SCHEDULE 5.17(e),
in such form and amounts, and at such time, as the Company shall determine in
its sole discretion.
3.2 TENDER OF COMPANY STOCK.
(a) The Stockholders shall deliver in trust to Xxxxxx,
Xxxxxx & Xxxxxxxxx, counsel to Clarant, at the Pre-Closing the certificates
representing Company Stock, duly endorsed in blank by each of the Stockholders,
or accompanied by stock powers duly endorsed in blank, with signatures
guaranteed by a national or state chartered bank or other financial institution,
and with all necessary transfer tax and other revenue stamps, acquired at the
Stockholders' expense, affixed and canceled. The Stockholders agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of
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conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
(b) At the Pre-Closing, the Stockholders shall use
commercially reasonable efforts to cause all stockholders of the Company who are
not signatories to this Agreement to deliver in trust to Xxxxxx, Xxxxxx &
Xxxxxxxxx, counsel to Clarant, the certificates representing Company Stock held
by such stockholders, duly endorsed in blank by each of such stockholders, as
the case may be, or accompanied by stock powers duly endorsed in blank, with
signatures guaranteed by a national or state chartered bank or other financial
institution, and with all necessary transfer tax and other revenue stamps,
acquired at such stockholders' expense, affixed and canceled. The Stockholders
shall obtain from such other stockholders of the Company an agreement promptly
to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
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 stockholder of the Company
as of the Closing Date such stockholder's pro rata share of the Contingent
Consideration (such pro rata share to be determined with respect to the total
number of issued and outstanding shares of Company Stock immediately prior to
the Effective Time without regard to issued and outstanding Convertible
Securities and Options. Each Accredited Stockholder 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 Stockholder
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.
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 Stock, 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 stock and 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 Corporation Law and all things which
counsel for the Company advise Clarant are required by the State Corporation 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
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following the date that the Registration Statement is 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 Stock, 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 STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
The Company and each of the Stockholders 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 pursuant to Section 7.11, and each of the Stockholders further
represents and warrants that, except as contemplated hereby or as affected by
the transaction contemplated hereby, such representations and warranties shall
survive the Closing Date as provided in Article 11.
5.1 DUE ORGANIZATION. The Company is duly organized, validly
existing, and in good standing under the laws of the state of its incorporation
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. True and complete, copies of the
Certificate or Articles of Incorporation and By-laws, 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 stock 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
7
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 officers and directors on
behalf of the Company in respect of the transactions contemplated hereby.
SCHEDULE 5.1 contains a complete and accurate list of the directors and officers
of the Company.
5.2 AUTHORIZATION. The officers of the Company executing this
Agreement 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 corporate action in accordance
with applicable law and the Charter Documents on the part of the Company and the
stockholders of the Company and copies of the respective approvals of the board
of directors and the stockholders of the Company (certified by the Secretary of
the Company to be true, accurate and complete) are attached hereto as EXHIBIT
5.2. This Agreement constitutes the valid and binding obligations of the Company
and the Stockholders, enforceable against the Company 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 CAPITAL STOCK OF THE COMPANY. The respective designations
and numbers of outstanding shares and voting rights of each class of outstanding
capital stock and securities convertible, exercisable or redeemable for capital
stock (collectively, "Convertible Securities"), or rights, warrants, puts, calls
or options relating to capital stock (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 shares of capital stock, Convertible Securities and
Options of the Company are owned by the Persons listed on SCHEDULE 5.3 set forth
thereon, and, are owned free and clear of all Encumbrances, and no other Person
(other than Clarant) has any right to acquire any capital stock of the Company
or its Subsidiaries. All of the issued and outstanding shares of capital stock
of the Company have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the Stockholders 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 in the amounts and in the amounts and the applicable
exercise price and vesting set forth thereon, 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
stockholders' 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,
there are no breaches or defaults by the Company under any of the Company's
Securities Agreements.
8
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 CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on SCHEDULE 5.3, (a) no Option, Convertible Security, or
commitment of any kind exists which obligates the Company to issue any of its
authorized but unissued capital stock or its treasury stock; and (b) the Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its Company Stock, Convertible Securities or Options or any
interests therein or to pay any dividend or make any distribution in respect
thereof.
5.6 [Reserved]
5.7 SUBSIDIARIES. SCHEDULE 5.7 lists the name of each of the
Company's Subsidiaries and sets forth the number and class of the authorized
capital stock of each of the Company's Subsidiaries, the number of shares of
each of the Company's Subsidiaries which are issued and outstanding and the
holders of such stock, all of which shares (except as set forth on SCHEDULE 5.7)
are owned by the Company, free and clear of all Encumbrances and voting trusts
of every kind. 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.
9
5.8 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 5.8 is a
list of all names of all predecessor companies of the Company, including the
names of any entities acquired by the Company (by stock purchase, merger or
otherwise) or owned by the Company or from which the Company previously acquired
material assets. Except as disclosed on SCHEDULE 5.8, the Company has not been a
subsidiary or division of another company or a part of an acquisition that was
later rescinded.
5.9 SPIN-OFF BY THE COMPANY. Except as set forth on SCHEDULE
5.9, there has not been any sale, spin-off, or split-up of material properties
or assets of either the Company or any other person or entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Company ("Affiliates") since January 1, 1997.
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Company has
delivered to Clarant (as SCHEDULE 5.10) copies of the following financial
statements (the "Financial Statements"): audited Balance Sheets, income
statements, statements of stockholders' equity and statements of cash flows at
and for the fiscal years ended December 31, 1996, 1997 and 1998, except that the
Balance Sheet for the period ended December 31, 1996 is unaudited, and audited
Balance Sheets, income statements, statements of stockholders' 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 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 otherwise reflected
in the Company Financial Statements at the Balance Sheet Date, and (b) all loan
agreements, notes and other 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.
10
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 at the Balance Sheet Date,
and including receivables from and advances to employees and the Stockholders.
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 accounts,
notes and other receivables shown on SCHEDULE 5.12 and on the A/R Aging Reports
are and the Company and the Stockholders have no reason to believe that any such
account receivable is not or shall not be, collectible in the amounts shown (in
the case of the accounts and notes receivable set forth on SCHEDULE 5.12, net of
reserves reflected in the balance sheet at the Balance Sheet Date) 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 Stockholders 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 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 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];
11
(iv) none of the Stockholders, 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 Stockholders and the
Company, there is no unauthorized use, infringement or misappropriation by any
third party of any Intellectual Property owned by the Company or any Subsidiary.
5.14 TRADEMARKS. Except as disclosed in SCHEDULE 5.14:
(a) all trademarks, service marks, trade dress, and trade
names, ("Trademarks") used by the Company and/or any Subsidiaries in the conduct
of the Business are described and set forth with reasonable particularity in
SCHEDULE 5.14, along with material information as to the ownership thereof;
(b) all such Trademarks are owned by the Company and/or
any Subsidiaries, except for such as are licensed under licenses referred to in
SCHEDULE 5.14;
(c) 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 Stockholders, are not being overtly
challenged in any way;
(d) to the Knowledge of the Company and the Stockholders,
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 Stockholders 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:
(i) there is no suit, private proceeding, action,
liability or claim (collectively, "Actions") pending or, to the Company's or the
Stockholders' 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 Stockholders and the
Company, each of the Company and its Subsidiaries has given all required notice
of such Actions to the appropriate
12
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 Stockholders 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 Stockholders, 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;
(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.
13
(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 Stockholders,
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 Plan
Sponsor, or to which the Company otherwise contributes, or in which the
Company's employees have participated, or for which the Company has or may have
any liability (including with respect to previously terminated Plans).
"Company VEBA" means a VEBA whose members include employees of
the Company or any ERISA Affiliate.
"ERISA" means the Employee Retirement Income Security Act of
1974 as amended.
14
"ERISA Affiliate" means, with respect to the Company, any
other trade or business, whether or not incorporated, that, together with the
Company, would be or was at any time treated as a single employer under
Section 414 of the Code or ERISA Section 4001.
"Multi-Employer 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.
"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.
15
(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) The Company has 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, of any related
trust, including (1) 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 agency to the Company or any Company
Plan within the two years preceding the date of this Agreement (and any earlier
material notices relating to matters not resolved as of the date of this
Agreement); and
(vi) with respect to Qualified Plans, (i) the most
recent determination regarding qualification and, if different, the most recent
determination letter that covered the qualification of the entire plan, or (ii)
if applicable, the most recent opinion letter issued by the Service with respect
to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its material
obligations under all Company Plans, and Company Other Benefit Obligations;
16
(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 the Stockholders' 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;
(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
17
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, except that
the Company shall pay to its employees bonuses in accordance with EXHIBIT 2.1(a)
and SCHEDULE 5.3, provided that no such bonus will be an excess parachute
payment as defined in Section 280G(b)(1) of the Code.
(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) except as otherwise disclosed in SCHEDULE 5.17,
the Company has never maintained or contributed to any Qualified Plans. No
Company Plan contains any security issued by the Company or any ERISA Affiliate;
(xiii) each Qualified Plan of the Company is and has
always been qualified under Section 401 of the Code;
(xiv) 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; and
(xv) no payment that is owed or may become due to any
director, officer, employee, or agent of the Company will be non-deductible to
the Company or subject to tax under Section 280G or Section 4999 of the Code;
nor will the Company be required to "gross up" or otherwise compensate any
such Person because of the imposition of any excise or income tax on a
payment to such Person.
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 officer 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
(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.
18
(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 Stockholders, or any director
or officer of the Company or any Subsidiary:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that the Company
believes is financially sound and reputable;
19
(C) taken together, in the Company's belief,
provide adequate insurance for the properties, assets and the Business for all
risks normally insured against by a Person carrying on the same or similar
business or businesses as the Company;
(D) comply with the insurance requirements of all
Laws and Contracts to which the Company and/or any Subsidiary is a party or by
which it is bound; and
(E) do not provide for any retrospective premium
adjustment or other experience-based liability on the part of the Company and/or
any Subsidiary;
(ii) neither the Company nor any Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and 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.
(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,
20
or (B) any other Person with respect to Hazardous Materials disposed of by or on
behalf of the
Company;
(ii) the Company and Stockholders have no Knowledge of
any basis for any such notice or Action; and
(iii) there are no pending or, to the Knowledge of the
Stockholders and the Company, Threatened, Actions (or notice of potential
actions or proceedings) from any Governmental Authority or any other entity
against or applicable to the Company regarding any matter relating to health or
protection of the Environment.
(c) There are, and have been, no past or present events,
conditions, circumstances, activities, practices, incidents, or actions that
could reasonably be expected to interfere with or prevent the Company's or any
Subsidiary's continued compliance with any Environmental Law, give rise to any
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 Stockholders and the Company,
SCHEDULE 5.19 sets forth the name and principal place of business of every
off-site waste disposal organization, and each of the haulers, transporters or
cartage organizations engaged now or in the preceding three years by the
Business to dispose of Hazardous Materials to any off-site waste disposal
location on behalf of the Company or any Subsidiary.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of and service providers to the Company and
any Subsidiary:
(a) [Reserved]
(b) the Company is complying and has complied in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and no claims or investigations
are pending or, to the Company's Knowledge, Threatened with respect to such
laws, either by private individuals or by Governmental Authority;
(c) the Company has not and is not engaged in any unfair
labor practice, and there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Company pending or, to the
Company's Knowledge, Threatened, before the National Labor Relations Board or
any other comparable authority;
21
(d) no labor union represents or has ever represented the
Company's employees and no collective bargaining agreement is or had been
binding against the Company. The Company is not currently negotiating to enter
into such agreements. No grievance or arbitration proceeding arising out of or
under collective bargaining agreements or employment relationships is pending,
and no claims therefor exist or have, to the Company's Knowledge, been
Threatened;
(e) no labor strike, lock-out, slowdown, or work stoppage
is or has ever been pending or Threatened against or directly affecting the
Company;
(f) all Persons who are or were performing services for
the Company and are or were classified as independent contractors do or did
satisfy and have satisfied the requirements of law to be so classified, and the
Company has fully and accurately reported their compensation on the Service's
Form 1099 when required to do so; and
(g) SCHEDULE 5.20 hereto sets forth an accurate list, as
of the date hereof, of all employees of the Company and any Subsidiary 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
directors and the rate of compensation (and the portions thereof attributable to
salary, bonus, and other compensation respectively) of each such Person as of
(a) the Balance Sheet Date and (b) the date hereof.
5.21 PERSONAL PROPERTY.
(a) The Company has delivered to Clarant (a) an accurate
list (which is set forth on SCHEDULE 5.21) of (i) all personal property included
(or that will be included) in "depreciable plant, property and equipment" (or
similarly named line item) on the balance sheet of the Company at the Balance
Sheet Date, (ii) all other personal property owned by the Company or any
Subsidiary with a value individually in excess of $10,000 (A) at the Balance
Sheet Date and (B) acquired since the Balance Sheet Date, and (iii) all leases
and agreements in respect of personal property, together with a listing of the
capital costs of all such properties and assets which are subject to capital
leases.
(b) Except as set forth on SCHEDULE 5.21, (i) all personal
property with a value individually in excess of $10,000 used by the Company or
any Subsidiary in its business is either owned by the Company or any Subsidiary
or leased by the Company or any Subsidiary pursuant to a lease included on
SCHEDULE 5.21, (ii) all of the personal property listed on SCHEDULE 5.21 is in
good working order and condition, ordinary wear and tear excepted, and (iii) all
leases and agreements included on SCHEDULE 5.21 are in full force and effect and
constitute valid and binding agreements of the Company or any Subsidiary, and to
the Company's and the Stockholders' Knowledge, of the parties (and their
successors) thereto in accordance with their respective terms.
22
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 Stockholder, is
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company or any Subsidiary.
(b) The Company has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Company or its Subsidiaries enforceable in accordance
with its terms, and is in full force and effect, subject to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and the application of equitable principles. Except as set forth on
SCHEDULE 5.22, the Company or its Subsidiaries have performed all obligations
required to be performed by it under each Material Contract, and it is not, nor,
to the Knowledge of the Company or any Stockholder, 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;
(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).
23
(iv) any contract relating to the borrowing of money,
or the guaranty of another Person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations, agreements
and other instruments for or relating to any lending or borrowing, including
assumed indebtedness;
(v) any contract granting any Person an Encumbrance on
any of the properties or assets of the Company or any Subsidiary, in whole or in
part;
(vi) any contract for the cleanup, abatement or other
actions in connection with Hazardous Materials, the remediation of any existing
environmental liabilities, violation of Environmental Laws or relating to the
performance of any environmental audit or study;
(vii) any contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any material property or asset of the Business of the Company or any Subsidiary,
other than in the Ordinary Course of Business;
(viii) any contract having an original value in excess
of $50,000 under which the Company or any Subsidiary is:
(A) a lessee or sublessee of any machinery,
equipment, vehicle or other tangible personal property or real property, or
(B) a lessor of any real property or machinery,
equipment, vehicle or other tangible personal property owned by the Company or
any Subsidiary;
(ix) any contract providing for the indemnification of
any officer, director, employee or other Person where such indemnification may
exceed the sum of $50,000;
(x) any joint venture or partnership contract;
(xi) any contract that prohibits the use or
publication by the Company, 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) Neither the Company nor any Subsidiary owns any Real
Property.
24
(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 Stockholders 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 Stockholders' Knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms. 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 anyaffiliated, 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 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 or accrued on the
Financial Statements;
(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
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 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 liability accruals for Taxes (excluding any reserves
for deferred Taxes) set forth on the financial statements provided
25
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
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired. The Stockholders 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) Neither the Company nor any Subsidiary has made any
payments, is obligated to make any payments or is a party to any agreement that
could require it to make any payments that are not deductible pursuant to
Section 280G of the Code;
26
(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) Neither the Company nor any Subsidiary is a
"consenting corporation" within the meaning of Section 341(f)(1) of the Code or
comparable provisions of any state statutes, and none of the assets of the
Company or any Subsidiary is subject to an election under Section 341(f) of the
Code or comparable provisions of any state statutes;
(n) Neither the Company nor any Subsidiary is a party to
any joint venture, or partnership;
(o) Neither the Company nor any Subsidiary will be
required to include any adjustment in taxable income in any Taxable Period
ending after the Closing Date under Section 481 of the Code (or any similar
provision of the Tax laws of any jurisdiction) as a result of any change in any
method of accounting occurring in a Taxable Period ending on or before the
Closing Date. No Taxing Authority has proposed any such change in any accounting
method. The Company and each Subsidiary presently use the accrual 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
27
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 351(e)(1) of the Code;
(t) None of the Stockholders is a party to or bound by any
agreement or arrangement pursuant to which such Stockholder will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by such
Stockholder pursuant to this Agreement;
(u) None of the Stockholders 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;
(v) There is no intercorporate indebtedness among the
Company or any of the Subsidiaries;
(w) There are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, Tax credits or other similar
items of or allocable to the Company or any Subsidiary (collectively, the "Tax
Attributes") under (A) Section 382 of the Code, (B) Section 383 of the Code, (C)
Section 384 of the Code, (D) Section 269 of the Code, or the Federal
consolidated return regulations, in each case as in effect both prior to and
following the Tax Reform Act of 1986; and
(x) As of December 31, 1998, the Company and each
Subsidiary had Tax Attributes for federal income Tax purposes as described on
SCHEDULE 5.24(x) attached hereto.
5.25 BUSINESS CONDUCT. Except as set forth on SCHEDULE 5.25,
since the Balance Sheet Date, the Company and its Subsidiaries have conducted
the Business only in the Ordinary Course of Business. Except as forth on
SCHEDULE 5.25 or SCHEDULE 5.11, since the Balance Sheet Date, there has not been
any:
(a) Change in the Company's business, operations,
financial condition, operating results, assets or liabilities that would have a
Material Adverse Effect on the Company;
(b) damage, destruction or loss of any real or personal
property or assets owned or leased by the Company or any Subsidiary or used in
the operation of the Business, whether or not covered by insurance, having a
replacement cost in excess of $50,000;
28
(c) voluntary or involuntary sale, transfer, surrender,
abandonment or other disposition of any kind by the Company or any Subsidiary of
any assets or property rights (real or personal, tangible or intangible), having
a replacement cost or fair market value in excess of $50,000, except in each
case the sale of inventory and collection of accounts in the Ordinary Course of
Business;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might reasonably
be expected to have a Material Adverse Effect;
(e) material loan or advance by the Company or any
Subsidiary to any party other than sales to customers on credit or travel
advances to employees made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material
liability, potential liability or claimed liability relating to the Environment;
(g) declaration, setting aside, or payment of any dividend
or other distribution in respect to the Company's capital stock, Convertible
Securities or Options, any direct or indirect redemption, purchase, or other
acquisition of such stock, or the payment of principal or interest on any note,
bond, debt instrument or debt other than as required to be paid under the terms
of such instrument;
(h) incurrence of debts, liabilities or obligations
(except current liabilities incurred in connection with or for services rendered
or goods supplied in the Ordinary Course of Business, liabilities on account of
Taxes and governmental charges (but not penalties, interest or fines in respect
thereof), and obligations or liabilities incurred by virtue of the execution of
this Agreement);
(i) issuance by the Company or any Subsidiary of any
notes, bonds, or other debt securities or instruments or any equity securities
or securities convertible into or exchangeable for any equity securities;
(j) cancellation, waiver or release by the Company or any
Subsidiary of any material debts, liabilities, obligations, rights or claims,
except in each case in the Ordinary Course of Business;
(k) amendment of the Company's Charter Documents;
(l) amendment or termination of any Material Contract,
other than expiration of such contract in accordance with its terms;
29
(m) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the Company or any Subsidiary;
(n) discharge or satisfaction of any material liability,
encumbrance or payment of any material obligation or liability, other than
current liabilities paid in the Ordinary Course of Business or cancellation of
any debts or claims;
(o) sale or assignment by the Company or any Subsidiary of
any properties or assets other than in the Ordinary Course of Business;
(p) capital expenditures or commitments therefor by the
Company or any Subsidiary other than in the Ordinary Course of Business or in
excess of $100,000 in the aggregate;
(q) charitable contributions or pledges by the Company or
any Subsidiary in excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any property
or asset of the Company or any Subsidiary other than in the Ordinary Course of
Business;
(s) adoption, amendment or termination of any employee
benefit or pension plan; or
(t) increase in the benefits provided under any employee
benefit pension plan;
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.
(a) The Company has delivered to Clarant an accurate
schedule (which is set forth on SCHEDULE 5.26) as of the date of this Agreement
of:
(i) the name of each financial institution in which
the Company or any Subsidiary has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of account and account number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
(b) SCHEDULE 5.26 also sets forth the name of each Person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power
of attorney.
30
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 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 Stockholders, the Company's Significant
Customers, and any other customer, vendor or business partner of the Company
whose failure to perform under any contract, agreement or other understanding
with the Company could have a Material Adverse Effect, are or will be Year 2000
Compliant before December 31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. Neither the Company nor any
Subsidiary has made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would cause the Company or any
Subsidiary to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
5.29 DISCLOSURE.
(a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and Investor
Questionnaires attached hereto respectively as EXHIBIT 5.29(a) and EXHIBIT
5.29(b) and all other documents and information made available to Clarant and
its representatives in writing pursuant hereto or thereto, present fairly the
Business of the Company and its Subsidiaries for the time periods with respect
to which such information was requested. The Company's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no statement made herein would be rendered untrue in any material
respect by, any other document to which the Company, any Subsidiary or any
officer, director or Stockholder is a party, or to which its properties or
assets are subject, or by any other fact or circumstance regarding the Company
and its Subsidiaries (which fact or circumstance was, or should reasonably,
after due inquiry, have been known to the Company or a Stockholder) 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 Stockholders 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 Stockholders in this Agreement or would affect
any document delivered pursuant hereto in any material respect, the Company and
the Stockholders 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 Stockholders 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 Stockholders at the date of this Agreement by
Clarant and Newco and on the
31
Pre-Closing Date and on the Closing Date, shall be a precondition to the
consummation of this transaction.
(b) The Company and the Stockholders acknowledge and
agree: (i) that there exists no firm commitment, binding agreement, or promise
or other assurance of any kind, whether express or implied, oral or written,
that a Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of prices
or occur at all; (ii) that neither Clarant or any of its officers, directors,
agents or representatives nor any Underwriter shall have any liability to the
Company, the Stockholders 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 Stockholders 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 Stockholders retain
the right to require as a condition to Closing that the price of the Clarant
Common Stock sold in the IPO be no lower than the minimum price specified in
EXHIBIT 2.1(a).
5.30 WARRANTIES; PRODUCTS. SCHEDULE 5.30 sets forth a
description of all of 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 or
any Subsidiary from, to, or for the benefit of any officer, director or family
member thereof or any other Affiliate or former Affiliate of the Company
("Affiliate Transactions") during the period commencing January 1, 1996, through
the date hereof and (b) any existing commitments of the Company or any
Subsidiary to engage in the future in any Affiliate Transactions. Each Affiliate
Transaction was effected on terms equivalent to those which would have been
established in an arms-length negotiation, except as disclosed on SCHEDULE 5.31.
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5.32 MISREPRESENTATION. To the Knowledge of the Company and
the Stockholders 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
Stockholders 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.
5.33 BROKERS. Neither the Company nor the Stockholders 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 Corporation could become liable or
obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
Each Stockholder 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, in
each case as modified by any applicable Schedule amendments or supplements
pursuant to Section 7.11, and that the representations and warranties set forth
in Sections 5.34, 5.35 and 5.36 shall survive the Closing Date as provided in
Article 11:
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement and constitutes the
valid and binding obligation of each Stockholder, enforceable in accordance with
its terms. Such Stockholder owns beneficially and of record all of the shares of
the Company Stock identified on SCHEDULE 5.3 as being owned by such Stockholder,
and, except as set forth on SCHEDULE 5.3, such Company Stock is owned free and
clear of all Encumbrances.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or
hereby waives, any preemptive or other right to acquire shares of Company Stock
or Clarant Stock that such Stockholder has or may have had other than rights of
any Stockholder 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 Stockholder
has any current plan or intention, or is under any binding commitment or
contract, to sell, exchange or otherwise dispose of Company Stock, Convertible
Securities or Options or any Clarant Stock to be received or received pursuant
to Section 3.1 or 3.3.
5.37 TENDER. Such Stockholder has full power and authority to
tender, sell, assign, and transfer the Company Stock owned by such Stockholder
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 stockholder's
agreement or otherwise that can prevent, or otherwise delay, the transfer of
Company Stock owned by the Stockholder to Clarant under this Agreement, and
that, when the
33
Company Stock is accepted by Clarant, Clarant will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claims.
5.38 INVESTOR QUESTIONNAIRES. Such Stockholder has executed and
delivered to Clarant an Investor Questionnaire in the form attached hereto as
EXHIBIT 5.29(b) and such Investor Questionnaire as delivered by the Stockholder
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
Stockholders 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, in each case as modified by any applicable Schedule amendments or
supplements pursuant to Section 7.11, and that such representations and
warranties shall survive the Closing Date.
6.1 DUE ORGANIZATION. Clarant is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. Each of Clarant and Newco 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 Stockholders as contemplated by any provision hereof, contains
any untrue
34
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 CAPITAL STOCK. As of the Effective Time, the authorized
capital stock of Clarant will consist of one hundred million (100,000,000)
shares of common stock, par value $.10 per share (the "Clarant Common Stock")
and ten million (10,000,000) shares of preferred stock, par value $.10 per share
("Clarant Preferred Stock") (collectively, the "Clarant Common Stock" and
"Clarant Preferred Stock" referred to as "Clarant Stock") and the issued and
outstanding Clarant Stock, Convertible Securities and Options of Clarant will be
as set forth on SCHEDULE 6.5. SCHEDULE 6.5 also sets forth the issued and
outstanding Clarant Stock, Convertible Securities and Options as of the date of
this Agreement. As of the date of this Agreement, Clarant owns one hundred
percent of the issued and outstanding stock of Newco. Except as part of the IPO
that will take place on the Closing Date as contemplated by this Agreement and
the Other Agreements and as disclosed in the Registration Statement, there are
no outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which Clarant
is a party requiring issuance, sale or transfer of any equity securities of
Clarant or any securities convertible directly or indirectly into equity
securities of Clarant, or evidencing the right to subscribe for any equity
securities of Clarant, or giving any Person other than the Founding Companies
any rights with respect to the capital stock of Clarant. On the Closing Date,
Clarant shall have outstanding only one class of common 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 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
35
Governmental Authority having jurisdiction over it which would have a Material
Adverse Effect on Clarant and except to the extent set forth in SCHEDULE 6.8,
there are no material Actions pending or, to the Knowledge of Clarant,
threatened, against or affecting Clarant, or before or by any Governmental
Authority having jurisdiction over it and no written notice of any Action has
been received by Clarant. Clarant has conducted and is conducting its businesses
in substantial compliance with applicable Laws and is not in violation of any of
the foregoing which might have a Material Adverse Effect on Clarant.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of
this Agreement by Clarant and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of
Clarant and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of Clarant.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof,
the Clarant Common Stock to be delivered to the Stockholders 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 Stockholders 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 Stockholders of the Founding Companies other than (i)
the Other Agreements and the agreements contemplated by the Other Agreements,
including the employment agreements referred to therein and (ii) other
employment agreements entered into in the ordinary course of business.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
organized in August 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
36
or any of its properties, are bound (collectively, the "Clarant Documents"). The
rights and benefits of Clarant under the Clarant Documents will not be adversely
affected by the transactions contemplated hereby and will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the Clarant Documents or the Clarant Charter Documents. Except as
set forth on SCHEDULE 6.13, none of the Clarant Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and the consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
6.14 ABSENCE OF 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;
(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;
37
(j) any amendment or termination of any material contract,
agreement, license, permit or other right to which Clarant is a party;
(k) any transaction by Clarant outside the Ordinary Course
of Business; or
(l) any other distribution of property or assets by
Clarant other than in the Ordinary Course of Business;
6.15 TAXES. All Returns required to have been filed by or with
respect to Clarant have been duly filed. No Tax Proceedings are presently
pending with regard to any Tax Returns or Taxes of Clarant, and no notice has
been received (whether in writing or verbally) of the expected commencement of
such a Tax Proceeding. All Taxes (whether or not shown on any Return) owed by
Clarant have been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing
Date, the Company will afford to the officers, directors and authorized
representatives of Clarant reasonable access during normal business hours to all
of the Company's and its Subsidiaries' sites, properties, books and records and
will furnish Clarant with such additional financial and operating data and other
information as to the Business and properties and assets of the Company and its
Subsidiaries as Clarant may from time to time reasonably request. The Company
will cooperate with Clarant and its representatives, including Clarant's
auditors and counsel, in the preparation of any documents or other material
(including the Registration Statement) which may be required in connection with
the transactions contemplated by this Agreement. Clarant, Newco, the
Stockholders and the Company and its Subsidiaries will treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Article 14
hereof. In addition, Clarant will cause each of the Other Agreements, binding
each of the Other Founding Companies, to contain a provision similar to this
Section 7.1 requiring each such Other Founding Company, its stockholders,
directors, officers, representatives, employees and agents to keep confidential
any information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing
Date, Clarant will afford to the officers and authorized representatives of the
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
38
contemplated by this Agreement. The Company and the Stockholders 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
hereof and the Closing Date, the Company and its Subsidiaries will:
(a) carry on in the Ordinary Course of Business
substantially as conducted heretofore and not introduce any new method of
management, operation or accounting;
(b) maintain its properties, assets and facilities,
including those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage;
(e) use their commercially reasonable best efforts to
maintain and preserve its business organization intact and use its best efforts
to retain its present management, key employees and relationships with
suppliers, customers and others having business relations with the Company or
any Subsidiary;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in
accordance with their respective terms and not enter into new or amended debt or
lease instruments, except as disclosed on Schedule 5.25, provided that debt
and/or lease instruments may be replaced if such replacement instruments are on
terms at least as favorable to the Company or Subsidiary as the instruments
being replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the
Closing Date, neither the Company nor any Subsidiary will, without the prior
written consent of Clarant:
(a) make any change in its Charter Documents;
(b) grant or issue any securities, Options, conversion
rights or commitments of any kind relating to its securities of any kind other
than in connection with the exercise of Options listed on SCHEDULE 5.3;
39
(c) declare or pay any dividend, or make any distribution
in respect of its securities whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any securities or engage in any
transaction that will significantly affect the cash reflected on the Balance
Sheet of the Company at the Balance Sheet Date;
(d) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditure, except if it is in
the Ordinary Course of Business and involves an amount not in excess of $50,000;
(e) create, assume or permit to exist any Encumbrance upon
any assets or properties whether now owned or hereafter acquired, except (i)
with respect to purchase money liens incurred in connection with the acquisition
of equipment with an aggregate cost not in excess of $10,000 necessary or
desirable for the conduct of the Business of the Company and its Subsidiaries,
(ii) (1) liens for Taxes either not yet delinquent or being contested in good
faith and by appropriate proceedings (and for which adequate reserves have been
established and are being maintained) or (2) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the Ordinary
Course of Business (the liens set forth in clause (ii) being referred to herein
as "Statutory Liens"), or (iii) liens set forth on SCHEDULE 5.11 hereto;
(f) sell, assign, lease or otherwise transfer or dispose
of any property, assets or equipment except in the Ordinary Course of Business;
(g) negotiate for the acquisition of any business or the
start-up of any new business;
(h) merge or consolidate or agree to merge or consolidate
with or into any other entity;
(i) waive any material right or claim of the Company or
any Subsidiary, provided that the Company may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to be
included on SCHEDULE 5.12 unless specifically listed thereon;
(j) commit a material breach or amend or terminate any
Material Contract to which the Company or any Subsidiary is a party or as to
which it is a beneficiary;
(k) enter into any other transaction outside the Ordinary
Course of Business or prohibited hereunder;
(l) except in the Ordinary Course of Business or as
required by Law or contractual obligations or other understandings or
arrangements existing on the date hereof, neither the Company nor any Subsidiary
will (A) increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of the officers,
40
directors or employees engaged in the Company's or any Subsidiary's Business,
(B) pay or agree to pay any additional pension, retirement allowance or other
employee benefit to any such officers, directors or employee, whether past or
present, (C) enter into any new employment, severance, consulting, or other
compensation agreement with any existing officers, directors or employee engaged
in the Company's or any Subsidiary's Business, (D) amend or enter into a new
Plan or Other Benefit Obligation (except as required by Law) or amend or enter
into a new collective bargaining agreement (except as required by this
Agreement), or (E) engage in any Affiliate Transactions;
(m) make or change any Tax election, amend any Tax Return
or take or omit to take any other action not in the Ordinary Course of Business
and consistent with past practice that would have the effect of increasing any
Taxes of Clarant, the Company or any Subsidiary for any Taxable Period ending
after the Closing Date; or
(n) without the express prior written consent of Clarant,
amend, modify, repeal or otherwise alter the approvals of the Company's board of
directors or by the Company's stockholders 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
Stockholders 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 or any Subsidiary) any
acquisition proposal relating to or affecting the Company or any Subsidiary or
any part of it, or any direct or indirect interests in the Company, whether by
purchase of assets or stock, purchase of interests, merger or other transaction,
and further agree that the Company will promptly advise Clarant of the terms of
any communications any of the Stockholders or the Company may receive or become
aware of relating to any bid for all or any part of the Company or any
Subsidiary.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
deliver to Clarant at the Pre-Closing, any and all proof that any such required
notice has been sent.
7.6 AGREEMENTS. On or prior to the Closing Date and effective as of the
Effective Time, the Company shall cause the termination of and obtain a written
waiver of rights from any beneficiary under (and shall deliver evidence of such
terminations and waivers to Clarant prior to Closing) (a) all Securities
Agreements, (b) any employment agreements between the Company and any employee
who is listed on SCHEDULE 9.11 hereto, and (c) any existing agreement between
the Company and any Stockholders or other security holders.
41
7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Stockholders 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 Stockholders contained herein
to be untrue or inaccurate in any material respect; (ii) any material failure of
any Stockholder or the Company to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by such Person hereunder and (iii)
the exercise by any Person of any Option or Convertible Security listed on
SCHEDULE 5.3 or any enforceable request for the Company to purchase, redeem or
otherwise acquire any of its Company Stock, 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 Stockholders shall furnish or cause to
be furnished to Clarant and the Underwriters all of the information concerning
the Company and the Stockholders 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 Stockholders 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
Stockholders 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 Stockholders, the Company represents and warrants as to such
information with respect to itself and its Subsidiaries, and each Stockholder
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
42
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 and the Stockholders a reasonable period of time to review and comment
upon such documents prior to filing with the SEC. Any objections posed by the
Company or its counsel shall be in writing and state with specificity the
material in question, the reason for the objection, and the Company's and the
Stockholders' 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 Stockholders agree that two hours from the time the proposed changes are
transmitted to the Company's counsel is sufficient time to review and respond to
proposed changes.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited consolidated Balance Sheets of the Company as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated income statements, statements of cash flows and retained earnings
of the Company for all fiscal quarters ended after the Balance Sheet Date. Such
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
43
matters identified by the Company or the Stockholders on any Schedule supplement
or amendment shall also be included on Schedule 11.1(f). Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the Company may be made unless Clarant and a majority
of the Founding Companies other than the Company consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant or Newco that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on Clarant and Newco may be made
unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.11. In the event that one of
the Other Founding Companies seeks to amend or supplement a Schedule pursuant to
this Section 7.11 of one of the Other Agreements, and such amendment or
supplement constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on such Other Founding Company, Clarant shall give the
Company notice promptly after it has knowledge thereof. If Clarant and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Clarant or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(e). 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 and its Subsidiaries shall satisfy any requirement for notice and
approval of the transactions contemplated by this Agreement under applicable
agreements with third parties, including any contract with any Governmental
Authority.
7.13 HSR FILING. To the extent the Merger is a transaction
subject to the filing requirements of the HSR Act, each of the Company, the
Stockholders 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
44
exchange or automated trading system for which application is made to register
the Clarant Common Stock.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY
The obligations of the Stockholders 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 waived by the Company and the Stockholders 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 Stockholders.
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 Stockholders.
8.3 NO LITIGATION. No Action or Proceeding before a court or
any other governmental agency or body shall have been instituted or Threatened
to restrain or prohibit the Merger or the IPO and no Governmental Authority
shall have taken any other action with respect to the transactions hereunder
which would have a Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for Clarant, dated the Pre-Closing Date, in form and
substance of the type customarily given by counsel to an acquiring company in
transactions similar to that contemplated by this Agreement and acceptable to
the Company (and the Underwriters shall have received a copy of the same opinion
addressed to them) and at the Closing, the Company shall have received a
statement from such counsel that the opinion is true as of the Closing Date.
45
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 in EXHIBIT 2.1(a).
8.6 CONSENTS AND APPROVALS. All necessary consents of and
filings required to be obtained or made by Clarant or Newco with any
Governmental Authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. Clarant and Newco each shall
have delivered to the Company a certificate, dated as of a date no earlier than
ten (10) days prior to the Pre-Closing Date, duly issued by the Delaware
Secretary of State and in each state in which Clarant or Newco is authorized to
do business, showing that each of Clarant and Newco is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for Clarant and Newco, respectively, for all periods prior to the
Closing have been filed and paid.
8.8 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of Clarant and of Newco, certifying the truth and
correctness of attached copies of the Clarant's and Newco's respective
Certificates of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the boards of directors and, if
required, the Stockholders 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 Stockholders will be entitled to rely (the "Tax
Opinion") from Xxxxxx, Xxxxxx & Xxxxxxxxx, tax counsel for Clarant, or such
other tax counsel reasonably acceptable to Clarant and
46
the Company ("Tax Counsel") that the Clarant Plan of Organization will qualify
as a tax-free transfer of property under Section 351(a) of Code and that the
Stockholders will not recognize gain to the extent the Stockholders exchange
common stock of the Company for Clarant Common Stock (but not cash or other
property) pursuant to the Clarant Plan of Organization, and in rendering such
Tax Opinion Tax Counsel shall be entitled to rely on customary written
representations acceptable to Tax Counsel and received from (i) Clarant, (ii)
the Company, (iii) each Other Founding Company, and (iv) each Stockholder 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
Stockholders 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 Stockholders contained in Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All the representations
and warranties of the Stockholders 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 Stockholders 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
Stockholders 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 Stockholders 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.
47
9.4 [Reserved]
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 Stockholders 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 the Company's General Counsel and, with respect to the agreements
contemplated hereby, Fulbright & Xxxxxxxx L.L.P., in each case with respect to
the Company, dated the Pre-Closing Date, in form and substance of the type
customarily given by counsel in transactions similar to that contemplated by
this Agreement and acceptable to Clarant (and the Underwriters shall have
received a copy of the same opinion addressed to them) and at the Closing,
Clarant shall have received a statement from such counsel that the opinion is
true as of the Closing Date.
9.8 CONSENTS AND APPROVALS. All necessary Consents of and
filings with any Governmental Authority 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 incorporation and, unless waived by Clarant,
in each state in which the Company is authorized to do business, showing the
Company is in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes for the Company for all periods
prior to the date of the certificate have been filed and paid.
9.10 REGISTRATION STATEMENT. The Registration Statement shall
have been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
therefor shall have been instituted or shall be pending or contemplated under
the 1933 Act, and the Underwriters shall have agreed to acquire on a firm
commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of Clarant Common Stock.
9.11 EMPLOYMENT AGREEMENTS. Each of the Persons listed on
SCHEDULE 9.11 shall have entered into an employment agreement satisfactory to
Clarant.
48
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.
9.13 FIRPTA CERTIFICATE. Each Stockholder 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 Stockholder shall have
provided an executed Investor Questionnaire in the form of EXHIBIT 5.29(b).
9.18 THE STOCKHOLDERS' RELEASE. The Stockholders shall have
delivered to Clarant and the Company an instrument dated the Closing Date
releasing Clarant and the Company (including all subsidiaries) from (i) any and
all claims of the Stockholders against the Company and Clarant and (ii) any and
all obligations of the Company and Clarant to the Stockholders, except for (x)
any obligations arising after the Closing Date to a Stockholder relating to his
or her employment by the Company or Clarant and (y) obligations arising under
this Agreement or the transactions contemplated hereby.
9.19 COMPANY AND STOCKHOLDER REPRESENTATIONS. The Company and
the Stockholders receiving Clarant Common Stock shall have provided Tax Counsel
with the written representations requested pursuant to Section 8.14.
10. COVENANTS OF CLARANT AND THE STOCKHOLDERS 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
49
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 latter of (i) five (5) business days
following the receipt of a request therefor or (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 Stockholders shall pay to Clarant all Taxes shown as due on the Tax
Returns prepared and filed pursuant to Section 10.2(a) that relate to a
Pre-Closing Period to the extent that such Taxes exceed the reserves for such
Taxes (excluding any reserves for deferred Taxes) set forth on the financial
statements provided pursuant to Section 5.10.
(c) Any federal or state income Tax Returns prepared by
Clarant pursuant to Section 10.2(a) shall be delivered to the Stockholders at
least 30 days before the due date of such Return including any extension. If the
Stockholders 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.
50
(f) Each of the Company, Newco, Clarant and each
Stockholder 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 [Reserved]
10.5 RELEASE OF GUARANTEES. Clarant shall use its commercially
reasonable best efforts to effect the release promptly after the Closing Date of
the personal guarantees of the debt and leases of the Company reflected on the
Financial Statements made by the Stockholders.
10.6 [RESERVED]
10.7 DIRECTORS' AND OFFICERS' INSURANCE. Clarant and the
Surviving Corporation 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 10.7,
provided that Clarant and the Surviving Corporation 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 10.7, Clarant and the Surviving
Corporation shall use their commercially reasonable best effects to cause such
insurance to be continued until final resolution of any such pending claim.
Schedule 10.7 sets forth a summary description of all such policies, including
premium rates.
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY STOCKHOLDERS. Subject to the
limitations of Section 11.11, the Stockholders shall jointly and severally
indemnify, defend and hold harmless Clarant, Newco, the Company, and the
Surviving Corporation and their respective officers, directors, employees,
agents, representatives and Affiliates (other than the Stockholders) (each, a
"Clarant Indemnified Party"), at all times from and after this Agreement
harmless from and against, and promptly pay to a Clarant Indemnified Party or
reimburse a Clarant Indemnified Party for, any and all liabilities, obligations,
deficiencies, demands, claims, suits, actions, or causes of action, assessments,
losses, costs, expenses, filing fees, interest, fines, penalties, or damages or
costs or expenses of any and all investigations, proceedings (including appeals,
arbitration and mediation), judgments, environmental analyses, remediations,
settlements and compromises (in cluding reasonable fees and expenses of
attorneys, accountants and other experts) (individually
51
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 Stockholders 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 Stockholders 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 Stockholders, and provided to
Clarant or its counsel by the Company or the Stockholders (but in the case of
the Stockholders, 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 Stockholders 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 Stock, Convertible Securities
or Options by the Company prior to the date of this Agreement, (e) except to the
extent reserved for (other than as a deferred Tax item) on the most recent
financial statements provided pursuant to Section 7.9, or if no such financial
statements are provided, the Company Financial Statements dated as of the
Balance Sheet Date, any liability of the Company or any Subsidiary for Taxes for
any Pre-Closing Period; or (f) any matter identified on SCHEDULE 11.1(f):
provided, however, (i) that in the case of any indemnity arising pursuant to
clause (c) such indemnity shall not inure to the benefit of Clarant, Newco, the
Company or the Surviving Corporation 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 Stockholders provided in writing
corrected information to Clarant counsel and to Clarant for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and (ii) that no Stockholder 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 Stockholder.
11.2 INDEMNIFICATION BY CLARANT. Subject to the limitations in
Section 11.11, Clarant covenants and agrees that it will indemnify, defend,
protect and hold harmless the Stockholders 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 Stockholder; resulting from, or arising out of (a)
any breach by Clarant or Newco of its representations and warranties set forth
herein or on the schedules, exhibits or certificates delivered in connection
herewith, (b) any breach of any covenant or agreement on the part of Clarant or
Newco under this Agreement, (c) any liability which the Stockholders 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 Stockholders by reason of such
liabilities); or (d) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to Clarant, Newco or any of the Other Founding Companies for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any
52
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 Stockholders waives any right of contribution or
indemnification or other similar right against Clarant, Newco or the Surviving
Corporation arising out of the Company's representations, warranties, covenants
and agreements contained herein, and each of the Stockholders 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 Stockholders without the need for any claim against or
joinder of the Surviving Corporation.
11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS.
(a) In the event that subsequent to the Closing any Person
entitled to indemnification under this Agreement (an "Indemnified Party")
receives notice of the assertion of any claim , obligation, deficiency, demand,
suit, cause of action, assessment or expense of any kind (each, a "Claim") or of
the commencement of any action or proceeding by an entity who is not a party to
this Agreement or an Affiliate of such a party (including, but not limited to
any domestic or foreign court, government, or Governmental Authority or
instrumentality, federal state or local) (a "Third Party Claim") against such
Indemnified Party, against which a party to this Agreement is required to
provide indemnification under this Agreement (an "Indemnifying Party"), the
Indemnified Party shall give written notice together with a statement of any
available information regarding such claim to the Indemnifying Party within
sixty (60) days after learning of such Claim (or within such shorter time as may
be necessary to give the Indemnifying Party a reasonable opportunity to respond
to such Claim. The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such Claim, which notice by the
Indemnifying Party shall specify the counsel it will appoint to defend such
Claim ("Defense Counsel"), to conduct at its expense the defense against such
Claim in its own name, or if necessary in the name of the Indemnified Party;
provided, however, that the Indemnified Party shall have the right to approve
the Defense Counsel, which approval shall not be unreasonably withheld, and in
the event the Indemnifying Party shall propose an alternate Defense Counsel,
which shall be subject again to the Indemnified Party's approval.
(b) In the event that the Indemnifying Party shall fail to
give such notice, it shall be deemed to have elected not to conduct the defense
of the subject Claim, and in such event the Indemnified Party shall have the
right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
(c) In the event that the Indemnifying Party does elect to
conduct the defense of the subject Claim, the Indemnified Party will cooperate
with and make available to the
53
Indemnifying Party such assistance and materials as may be reasonably requested
by it, all at the expense of the Indemnifying Party, and the Indemnified Party
shall have the right at its expense to participate in the defense assisted by
counsel of its own choosing, provided that the Indemnified Party shall have the
right to compromise and settle the Claim only with the prior written consent of
the Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party Claim
or cease to defend against such Claim, if pursuant to or as a result of such
settlement or cessation, (i) injunctive or other equitable relief would be
imposed against the Indemnified Party, or (ii) such settlement or cessation
would lead to liability or create any financial or other obligation on the part
of the Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder. The Indemnifying Party shall not be entitled to
control, and the Indemnified Party shall be entitled to have sole control over,
the defense or settlement of any Claim to the extent that Claim seeks an order,
injunction or other equitable relief against the Indemnified Party which, if
successful, could materially interfere with the Business, assets, properties
condition (financial or otherwise) or prospects of the Indemnified Party (and
the cost of such defense shall constitute an Loss for which the Indemnified
Party is entitled to indemnification hereunder). If a firm decision is made to
settle a Third Party Claim, which offer the Indemnifying Party is permitted to
settle under this Section 11.3 and the Indemnifying Party desires to accept and
agree to such offer, the Indemnifying Party will give written notice to the
Indemnified Party to that effect. If the Indemnified Party fails to consent to
such firm offer within thirty (30) calendar days after its receipt of such
notice, the Indemnified Party may continue to contest or defend such Third Party
Claim and, in such event, the maximum liability of the Indemnifying Party as to
such Third Party Claim will not exceed the amount of such settlement offer, plus
costs and expenses paid or incurred by the Indemnified Party through the end of
such thirty (30) day period.
(d) Any judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
11.4 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.
54
(b) Upon written notice to Clarant within thirty (30) days
after receipt of notification pursuant to Section 11.4(a), the Stockholders
shall have the right, at their own expense, to control and make all decisions
with respect to any Tax Proceeding relating to Taxes of the Company or any
Subsidiary for any Taxable Period ending on or before the Closing Date. Clarant
shall have the right to approve the counsel selected by the Stockholders to
conduct any such Tax Proceeding, which approval shall not be unreasonably
withheld, and to participate fully at its own expense with counsel of its own
choosing in all aspects of the prosecution or defense of such Tax Proceeding.
The Stockholders shall not take any action or position in any such Tax
Proceeding if that action or position could reasonably be expected to increase
the past, present or future Tax liability of Clarant or any of its Affiliates,
or any Tax liability of the Company or any Subsidiary for any Taxable Period or
portion thereof beginning after the Closing Date without the prior written
consent of Clarant, which consent shall not be unreasonably withheld. The
Stockholders 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 Stockholders
shall have the right, at their own expense, to jointly control and participate
with Clarant in the conduct of any Tax Proceeding relating to Taxes of the
Company or any Subsidiary for a Straddle Period. If 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 Stockholders 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 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 Indemnitee will
be free to pursue such remedies as may be available to the Indemnitee under this
Article 11.
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11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an
Indemnified Party to give timely, complete or accurate notice as provided in
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 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 Stockholders 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.
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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
Stockholders under Section 11.1 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Clarant
Indemnified Parties exceeds one percent (1%) of the Merger Consideration (the
"Indemnification Threshold"); which Indemnification Threshold shall be treated
as a deductible; PROVIDED, HOWEVER, that the Indemnification Threshold shall not
apply to (w) Losses arising out of breaches of the covenants of the Stockholders
set forth in this Agreement to be performed after the Closing Date or the
representations and warranties made in Sections 5.3 (capital stock of the
Company), 5.17 (employee benefits), and 5.24 (taxes), (x) Losses described in
Section 11.1(c), (y) Losses arising out of intentional fraud; or (z) any matters
identified on SCHEDULE 11.1(f); and
(ii) the aggregate amount of the Stockholders'
liability under this Article 11 shall not exceed the Merger Consideration; and
(b) the indemnification obligations of the Stockholders
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) or 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);
(B) with respect to all claims other than those
referred to in clause (i)(A) of this Section 11.11(b), eighteen (18) months
after the 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);
57
(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 Stockholders
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) 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 Stockholder (for purposes of determining the
Indemnification Threshold and the amount of any indemnity paid), Clarant Common
Stock shall be valued at its fair market value, which shall be the average
closing price for Clarant Common Stock on the Nasdaq National Market System for
the ten days immediately prior to the date of payment.
(e) Notwithstanding any other term of this Agreement, a
Stockholder's liability under this Article 11 shall be limited to the total
amount of proceeds received or payable to the Stockholder under this Agreement,
which total shall be equal to the sum of (i) the cash paid to the Stockholder
(ii) the Contingent Consideration, if any, earned and payable to such
Stockholder (iii) the Additional Contingent Consideration, if any, earned and
payable to such Stockholder and (iv) the value of the Clarant Common Stock
delivered to such Stockholder on the Closing Date at the IPO price.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS.
All representations, warranties and covenants made by the Company, the
Stockholders 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 Stockholders 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
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12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date solely: (a) by mutual consent written consent of the
boards of directors of Clarant and the Company; (b) by either the Stockholders
or the Company (acting through its Stockholders), 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
Stockholders 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 which breach
has had or is reasonably foreseeable as having a Material Adverse Effect on the
Company or Clarant, as the case may be, has occurred and such breach has not
been cured on or before the Closing Date; (d) by the Company (acting through its
board of directors) 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; or (e) pursuant to Section 7.11 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. The termination of
this Agreement will in no way limit any obligation or liability of any party
based on or arising from a breach or default by such party with respect to any
of its representations, warranties, covenants or agreements contained in this
Agreement including, but not limited to, legal and audit costs and out of pocket
expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES.
(a) Except for those specified permitted activities set forth
on SCHEDULE 13.1, the Stockholders 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 Stockholder shall be permitted to
call upon and hire any member of his or her immediate family;
59
(iii) call upon any Person which is, at that time, or
which has been, within one (1) year prior to the Closing Date, a customer of
Clarant (including the subsidiaries thereof), of the Company or any Subsidiary
or of any of the Other Founding Companies within 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 Stockholder's behalf or on behalf of any competitor of Clarant, which
candidate, to the actual knowledge of such Stockholder after due inquiry, was
called upon by Clarant (including the subsidiaries thereof) or for which, to the
actual knowledge of such Stockholder after due inquiry, Clarant (or any
subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
(v) disclose customers, whether in existence or
proposed, of the Company to any Person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
(b) Notwithstanding Section 13.1(a) the foregoing covenant shall not be
deemed to prohibit any Stockholder 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
Stockholder 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 Stockholder agrees that, in
the event of breach by such Stockholder, 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 Stockholders 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
Stockholders 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
Stockholder who has entered into an employment agreement with Clarant and/or any
subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto, shall
thereafter cease to be employed thereunder, and such Stockholder shall enter
into a business or pursue other activities not in competition with Clarant
and/or any subsidiary thereof, or similar activities or business in locations
the operations of
60
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 Stockholder's obligations under this Article 13, such
Stockholder shall not be chargeable with a violation of this Article 13 if
Clarant and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
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
Stockholder against Clarant (including the subsidiaries thereof), whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Clarant of such covenants. It is specifically agreed that the
period of three (3) years stated at the beginning of this Article 13, during
which the agreements and covenants of each Stockholder made in this Article 13
shall be effective, shall be computed by excluding from such computation any
time during which such Stockholder 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 Stockholders 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 STOCKHOLDERS. The Stockholders 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 Stockholders 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 Stockholders as is required in the course of performing their duties for
Clarant or the Surviving Corporation and (c) to counsel
61
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 Stockholders,
(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 Stockholders 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 Stockholders of the
provisions of this Article 14, Clarant shall be entitled to an injunction
restraining such Stockholders 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 Stockholders shall have
none of the above-mentioned restrictions on their ability to disseminate
confidential information with respect to the Company.
14.2 CLARANT AND NEWCO. Clarant and Newco recognize and
acknowledge that they had in the past and currently have access to certain
confidential information of the Company, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
Company's business. Clarant and Newco agree that, prior to the Closing, or if
the transactions contemplated by this Agreement are not consummated, they will
not disclose such confidential information to any Person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the Stockholders 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
Stockholders and provide the Company and the Stockholders 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
Stockholders 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 Stockholders 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
62
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 Stockholders or their
immediate family members, the trustees of which so agree), none of the
Stockholders shall (a) sell, assign, exchange, transfer, Encumber, pledge,
distribute, appoint or otherwise dispose of (i) any shares of Clarant Common
Stock received by the Stockholders in the Merger or (ii) any interest
(including, without limitation, an option to buy or sell) in any such shares of
Clarant Common Stock, in whole or in part, and no such attempted transfer shall
be treated as effective for any purpose; or (b) engage in any transaction,
whether or not with respect to any shares of Clarant Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of Clarant Common Stock acquired pursuant to Article 2 hereof
(including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the Stockholders 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 Stockholder
and party hereto. The certificates evidencing the Clarant Common Stock delivered
to the Stockholders 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
63
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. Each
Stockholder acknowledges that the shares of Clarant Common Stock delivered to
the Stockholder 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 Stockholder 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 Stockholder covenants, warrants
and represents that none of the shares of Clarant Common Stock issued to the
Stockholder will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC. The Clarant
Common Stock shall bear the following legend in addition to the legend required
under Article 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC., DELIVERY BY THE
HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CLARANT, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder
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
Stockholder 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
Stockholder 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 Stockholder represents and warrants that such Stockholder has
the requisite knowledge and experience in financial and business matters to be
capable of
64
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 Stockholders
prompt written notice of its intent to do so. Upon the written request of any of
the Stockholders 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 Stockholders pursuant to this Agreement which any
such Stockholder requests, provided that Clarant shall have the right to reduce
the number of shares included in such registration to the extent that inclusion
of such shares could, in the opinion of tax counsel to Clarant or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if Clarant is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by Persons other than Clarant is greater than the number of such
shares which can be offered without adversely affecting the offering, Clarant
may reduce pro rata the number of shares offered for the accounts of such
Persons (based upon the number of shares proposed to be sold by each such
Person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by Clarant after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by Persons other than
Clarant, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
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
Stockholders shall have sold all Clarant Common Stock which they requested to be
registered); (ii) use its commercially reasonable best efforts to register and
qualify the Clarant Common Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the Clarant Common Stock; and (iii)
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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 Stockholder at any time
when the resale provisions of Rule 144(k) (or any successor provision)
promulgated under the 1933 Act are available to such Stockholder for such
shares.
17.5 MARKET STANDOFF. In consideration of the granting to the
Stockholders of the registration rights under this Article 17, each of the
Stockholders 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 Stockholders
shall have been 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 Stockholders" 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.
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"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 and
its Subsidiaries.
"Balance Sheet Date" means March 31, 1999.
"Business" has the meaning set forth in the recitals of this Agreement.
"Charter Documents" has the meaning set forth in Section 5.1.
"Claim" has the meaning set forth in Section 11.3.
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Charter Documents" has the meaning set forth in Section 6.1.
"Clarant Common Stock" has the meaning set forth in Section 6.5.
"Clarant Expiration Date" means the date that is one year from the
Effective Time.
"Clarant Indemnified Party" has the meaning set forth in
Section 11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.5.
"Clarant Stock" has the meaning set forth in Section 6.5.
67
"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 Other Benefit Obligation" has the meaning set forth in
Section 5.17.
"Company Plan" has the meaning set forth in Section 5.17.
"Company Stock" has the meaning set forth in Section 2.1.
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Contingent Consideration" shall have the meaning given to such term in
Section 3.3.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Constituent Corporations" has the meaning set forth in the recitals
of this Agreement.
"Convertible Securities" has the meaning set forth in Section 5.3.
"Defense Counsel" has the meaning set forth in Section 11.3.
"Defense Notice" has the meaning set forth in Section 11.3.
"Discharged Debt" has the meaning set forth in Section 10.5
"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,
68
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;
(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 Stockholders" has the meaning set forth in Section 17.1.
69
"Fully-Diluted" shall have the meaning given to such term 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.
"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" has the meaning set forth in Section 5.29(a).
"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,
70
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.
"Leases" has the meaning set forth in Section 5.23.
"Legal Requirement" means any federal, state, local, municipal,
foreign, or other administrative order, constitution, law, ordinance, principle
of common law, regulation, statute, or treaty.
"Losses" has the meaning set forth in Section 11.1.
"Material Adverse Effect" means with respect to any Person that is a
party to this Agreement a material adverse change in (i) the business
operations, condition or prospects (financial or otherwise) of such Person, (ii)
the ability of such Person to consummate the transactions contemplated by the
Agreement, or (iii) the condition or value of the properties and assets of such
Person.
"Material Contract" means any Contract affecting or pertaining to the
Business that has a monetary obligation of at least $25,000 per year and that is
not cancelable by the Company without penalty upon notice of six (6) months or
less.
"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
Texas and other applicable state laws.
"Merger Consideration" shall have the meaning given to such term in
Section 3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Xx. Xxxxxx" means Xxxxxxxxx X. Xxxxxx, the Chief Executive Officer of
Clarant.
"Multiemployer Plan" has the meaning set forth in Section 5.17.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" has the meaning set forth in Section 1.4(c).
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
71
"Non-accredited Stockholders" 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;
(b) such action is similar in nature and magnitude to actions
customarily taken in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business as
such Person.
"Other Agreements" has the meaning set forth in the recitals of this
Agreement.
"Other Benefit Obligations" has the meaning set forth in Section 5.17.
"Other Founding Companies" has the meaning set forth in the recitals of
this Agreement.
"Pension Plan" has the meaning set forth in Section 5.17
"Permits" has the meaning set forth in Section 5.16(b).
"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.
72
"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 hereto as SCHEDULE 18.1.
"Reimbursement" has the meaning set forth in Section 11.7.
"Relevant Group" has the meaning set forth in Section 5.24.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"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 Corporation Law" has the meaning set forth in Section 1.2.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"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.
73
"Surviving Corporation" 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 Attributes" has the meaning set forth in Section 5.24.
"Tax Proceeding" means any audit, examination, claim or other
administrative or judicial proceeding relating to Taxes or Returns.
"Taxable Period" means any taxable year or other period that is treated
as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
"Third Party Claim" has the meaning set forth in Section 11.3.
"Threatened" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice 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.
74
19. GENERAL
19.1 COOPERATION. The Company, the Stockholders, 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 Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with Clarant on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any Tax
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Closing
Date.
19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of
the parties hereunder may not be assigned (except by operation of law) and shall
be binding upon and shall inure to the benefit of the parties hereto, the
successors of Clarant, and the heirs and legal representatives of the
Stockholders.
19.3 ENTIRE AGREEMENT. This Agreement (including the Schedules
and Exhibits attached hereto which are incorporated by this reference) and the
documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, 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
Stockholders, 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 or any other Schedule required hereby, provided
that the Company and the Stockholder's 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 &
75
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
Stockholders, 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 Stockholders under this Agreement, including the reasonable fees
and expenses of legal counsel to the Company and the Stockholders.
(c) If the transaction herein contemplated is consummated,
Clarant will pay the fees, expenses, and disbursements of the Stockholders and
the Company and their respective agents, representatives, accountants and
counsel as described in (b), above.
(d) Each Stockholder 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 Stockholder in connection with the transactions contemplated hereby.
19.6 NOTICES. All notices requests, demands and others
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
Fax: 000-000-0000
76
with copies to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Fax: 000-000-0000
(b) If to the Stockholders, 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 Stockholder on such EXHIBIT 19.6;
(c) If to the Company, addressed to it at:
Integrated Consulting, Inc.
0000 Xxxxxxxx Xxxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xx. Xxxxxx X. Xxxxxx
Fax: 000-000-0000
and marked "Personal and Confidential"
with a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxxx, Xxxxx Xxxxxxx & Xxxxxxx, P.C.
000 Xxxxxxx Xxxxxxx Xxxx
0000 Xxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Fax: 000-000-0000
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
19.7 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Delaware without reference to conflicts
of laws principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay of or omission in the exercise of any right, power or
remedy accruing to any party as a result of any breach or default by any other
party under this Agreement shall impair any such right, power or remedy, nor
shall it be construed as a waiver of or acquiescence in any such breach or
default,
77
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 STOCKHOLDER'S REPRESENTATIVE.
(a) Each holder of Company Common Stock, by signing this
Agreement, designates Xxxxxx X. Xxxxxx or, in the event that Xxxxxx X. Xxxxxx is
unable or unwilling to serve, now or in the future, Xxxxxx X. Xxxxxx, to be the
Stockholders' Representative for purposes of this Agreement. The Stockholders
shall be bound by any and all actions taken by the Stockholders' Representative
on their behalf.
(b) Clarant and Newco shall be entitled to rely upon any
communication or writings given or executed by the Stockholders' Representative.
All notices to be sent to Stockholders pursuant to this Agreement may be
addressed to the Stockholders' Representative and any notice so sent shall be
deemed notice to all of the Stockholders hereunder. The Stockholders hereby
consent and agree that the Stockholders' Representative is authorized to accept
notice on behalf of the Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed
and constituted the true and lawful attorney-in-fact of each Stockholder, 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 Stockholders'
Representative; and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with this Agreement. This power of attorney and
all authority hereby conferred is granted subject to the interest of the other
Stockholders 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 Stockholder, by operation of law, whether by 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
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be performed after the Closing shall survive the Closing and expire in
accordance with their respective terms.
19.14 ACCOUNTING TERMS. Except as otherwise expressly provided
herein, all accounting terms used in this Agreement shall be interpreted, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with U.S.
GAAP consistently applied.
[this space left intentionally blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC.
By: /s/ Xxxxxxxxx X. Xxxxxx
------------------------
Name: Xxxxxxxxx X. Xxxxxx
----------------------
Title: President
---------------------
ICON ACQUISITION CORP.
By: /s/ Xxxxxxxxx X. Xxxxxx
------------------------
Name: Xxxxxxxxx X. Xxxxxx
----------------------
Title: Manager
---------------------
INTEGRATED CONSULTING, INC.
d/b/a i.con interactive
Stockholders:
By: /s/ Xxxxxx X. Xxxxxx
------------------------
Name: Xxxxxx X. Xxxxxx
----------------------
Title: President
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/s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
/s/ Xxxxx Xxxx XxXxx
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Xxxxx Xxxx XxXxx
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Icon Acquisition Corp.,
Integrated Consulting, Inc., and Xxxxxx X. Xxxxxx,
Xxxxxxx X. Xxxxxx, and Xxxxx Xxxx XxXxx
EXHIBIT 2.1(a)
CONSIDERATION
1. MERGER CONSIDERATION. At Closing, Clarant will deliver to the Stockholders
Merger Consideration equal to the sum of the following:
(a) 810,091 shares of Clarant Common Stock (the "Stock Consideration");
plus
(b) cash equivalent to the product of 347,182 x the IPO price per share
of Clarant Common Stock (the "Cash Consideration").
2. DISTRIBUTION. At Closing, Clarant will distribute the Stock Consideration and
the Cash Consideration to the Stockholders pro rata as their interests in the
Company appear on SCHEDULE 5.3 in the ratio of 70% Clarant Common Stock and 30%
cash.
3. PHANTOM STOCK PLAN. At Closing, Clarant shall make an additional distribution
in an aggregate cash amount equal to the product of 60,900 x IPO price per share
of Clarant Common Stock (the "Other Consideration"). Clarant shall distribute
the Other Consideration as follows:
(a) To the extent the Other Consideration does not exceed $670,000,
Clarant shall make a capital contribution to the Company equal to the amount of
the Other Consideration, which shall then be distributed to certain employees of
the Company pursuant to the phantom stock plan described on SCHEDULE 5.3;
(b) To the extent the Other Consideration exceeds $670,000 (by virtue
of the IPO price per share exceeding $11.00), Clarant shall distribute any such
excess amount directly to the Stockholders as additional merger consideration in
the form of cash pro rata as their interests in the Company appear on SCHEDULE
5.3;
4. MINIMUM IPO PRICE. The minimum IPO price per share of Clarant Common Stock
for purposes of this Agreement shall be $9.90.
EXHIBIT 3.3
(a) Contingent Consideration will be paid to the Stockholder(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 Stockholder(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 - $3,404,000 $374,000 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 $3,350,000
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 4.26% (Pool Share) x 50% (Revenue $78,700,000 $3,350,000
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 Stockholder(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 or other charges incident to the
transactions contemplated by the Agreement;
(ii) Combined Revenues shall mean the total revenues of the
Founding Companies only, without giving effect to acquisitions by Clarant or any
Founding Company after the Closing Date, unless otherwise agreed to in writing
by Clarant;
(iii) Combined Pre-Tax Income shall mean the total Pre-Tax Income
of the Founding Companies only, without giving effect to acquisitions by Clarant
or any Founding Company after the Closing Date, unless otherwise agreed to in
writing by Clarant; and
(iv) except as otherwise expressly provided herein, all accounting
terms shall be interpreted in accordance with U.S. GAAP, based upon consistent
use of accounting principles and policies, revenue recognition methods and
reserve methodologies for the Measurement Period and the relevant audited
financial statements.
(c) The Contingent Consideration payable for a Measurement Period shall
be made in cash and shares of Clarant Common Stock, with the amount 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, and provided further, that such amount may be payable in
cash only to any Non-Accredited Stockholder. 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
Stockholder's Representative, as defined in Section 19.11, setting forth (i) the
determination made by Xxxxxx Xxxxxxxx of the Actual Company Revenues, Actual
Company Pre-Tax Income, Actual Combined Revenues and Actual Combined Pre-Tax
Income, if applicable, (ii) the total amount of the Contingent Consideration
payable to the Stockholder(s) for the Measurement Period and (iii) the amount of
cash and shares of Clarant Common Stock that will be paid to the Stockholder(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 Stockholders' 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 Stockholder(s) at the
account(s) identified on EXHIBIT 19.6 and deliver the shares of Clarant Common
Stock to the Stockholder(s) at the address(es) set forth on EXHIBIT 19.6. If,
however, the Stockholders' Representative has delivered notice of such a dispute
to Clarant within such 15-day period, then Clarant's chief financial officer and
the Stockholders' 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 Stockholders' 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 Stockholders' 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 Stockholders' 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 Stockholder(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 Stockholders' 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 Stockholder(s) for such imputed interest.
(h) The right to receive the Contingent Consideration shall not be
assignable by the Stockholder(s).
(i) 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.
