EXHIBIT 10.04
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
BY AND AMONG
CLARANT, INC.,
ALIGN SOLUTIONS ACQUISITION CORP.,
ALIGN SOLUTIONS CORP.
AND
THE STOCKHOLDERS NAMED HEREIN.
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
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5.17 EMPLOYEE BENEFITS.....................................................................14
5.18 INSURANCE POLICIES....................................................................18
5.19 ENVIRONMENT...........................................................................20
5.20 LABOR AND EMPLOYMENT MATTERS..........................................................21
5.21 PERSONAL PROPERTY.....................................................................22
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.............................23
5.23 REAL PROPERTY.........................................................................25
5.24 TAXES.................................................................................25
5.25 BUSINESS CONDUCT......................................................................28
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY..................................................30
5.27 YEAR 2000 COMPLIANCE..................................................................31
5.28 RELATIONS WITH GOVERNMENTS............................................................31
5.29 DISCLOSURE............................................................................31
5.30 WARRANTIES; PRODUCTS..................................................................32
5.31 AFFILIATE TRANSACTIONS................................................................33
5.32 MISREPRESENTATION.....................................................................33
5.33 BROKERS...............................................................................33
5.34 AUTHORITY; OWNERSHIP..................................................................33
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......................................................................34
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..................................................................36
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...................................................................38
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.................................................38
7.2 CONDUCT OF BUSINESS PENDING CLOSING...................................................39
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7.3 PROHIBITED ACTIVITIES.................................................................40
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.................................................................45
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................................................................46
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 BOARD OF DIRECTORS....................................................................47
8.14 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
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9.11 EMPLOYMENT AGREEMENTS.................................................................49
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 [RESERVED]............................................................................52
10.7 DIRECTORS' AND OFFICERS' INSURANCE....................................................52
10.8 OPTIONS AND CONVERTIBLE SECURITIES....................................................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
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13.3 REASONABLE RESTRAINT..................................................................62
13.4 SEVERABILITY; REFORMATION.............................................................62
13.5 INDEPENDENT COVENANT..................................................................62
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 STOCKHOLDERS' 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
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 Liabilities and Obligations
Schedule 5.12 Accounts and Notes Receivable
Schedule 5.13 Intellectual Property - 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) List of Tax Attributes
Schedule 5.24(w) Qualified Subsidiaries
Schedule 5.25 Material Adverse Change
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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 10.8 Company Options
Schedule 11.1(f) Certain Indemnified Matters
Schedule 13.1 Excepted Stockholders
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"),
ALIGN SOLUTIONS ACQUISITION CORP., a Delaware corporation ("Newco"), ALIGN
SOLUTIONS CORP., a Delaware corporation (the "Company"), and the stockholders of
the Company set forth on SCHEDULE 5.3 (the "Stockholders").
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on May 4, 1999, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of Clarant;
WHEREAS, the Company (together with its Subsidiaries) provides
information technology consulting, marketing consulting and systems integration
services to other Persons and is a provider to other Persons of business
re-engineering, information systems outsourcing, information systems facilities
management, advertising, public relations, multimedia and other collateral
material development services to businesses, including businesses wishing to
employ internet, multi-media and client server technologies (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 Delaware (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 Brand
Dialog, Free Range Media, Inc., Integrated Consulting, Inc. d/b/a i.con
interactive, Interactive 8, Inc., Multimedia Resources LLC, Potomac Partners
Management Consulting, LLC, RSI Group, Inc. (collectively, the "Other Founding
Companies" and together with the Company, the "Founding Companies"), and their
respective principal owners in order to acquire additional internet consulting
organizations.
WHEREAS, this Agreement, 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 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 Delaware and stamped receipt copies of each
such filing to be delivered to Clarant on or before the Closing Date.
1.2 EFFECTIVE TIME. At the Effective Time and subject to the terms and
conditions of this Merger and the applicable provisions of the applicable laws
governing mergers in the State of Delaware (the "State 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 Certificate of Incorporation of the Surviving Corporation
shall be amended and restated as permitted under the laws of the State of
Delaware 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 Company, the President of the Company immediately prior to the
Effective Time shall be a Vice President of the Surviving Company and the other
officers of the Company
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immediately prior to the Effective Time shall continue as officers of the
Surviving Corporation in the same capacity or capacities.
1.4 EFFECT OF MERGER. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of each Constituent 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 Non- Accredited 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:
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(i) each share of issued and outstanding Company Stock owned
by an Accredited Stockholder immediately prior to the Effective Time shall be
converted into the right to receive (A) that number of shares of Clarant Common
Stock as determined by the appropriate formula set forth on EXHIBIT 2.1(a), and
(B) the amount of cash as determined by the appropriate formula set forth on
EXHIBIT 2.1(a);
(ii) each 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).
3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER CONSIDERATION; TENDER. At the Closing Clarant shall deliver
to the stockholders of the Company and the holders of Convertible Securities and
Options of the
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Company the consideration allocable pro rata to each such holder (the "Merger
Consideration") as follows:
(a) 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 wire
transfer instructions to be provided to Clarant no later than fifteen (15) days
before the Closing. 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) The Merger Consideration shall be reduced by the amount equal
to the Retained Earnings Dividend as provided in Section 7.3(c).
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 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
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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 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
6
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 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.
7
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 and in
the amounts 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 the
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.
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;
8
(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.
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.
9
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 consolidated 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 and
unaudited consolidated 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 consolidated financial condition, assets and liabilities as of their
respective dates and the results of operations and cash flows for the periods
related thereto in accordance with GAAP, consistently applied among the periods
which are the subject of the Financial Statements, except unaudited interim
financial statements which were or are subject to normal and recurring year-end
adjustments which were not and are not expected to be material in amount or to
require the addition of required footnotes thereto.
5.11 LIABILITIES AND OBLIGATIONS. The Company has delivered to Clarant
an accurate list (which is set forth on SCHEDULE 5.11) as of the Balance Sheet
Date of (a) all liabilities of the Company in excess of $10,000 not reflected on
the Balance Sheet at the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date and (b) all loan
agreements, notes and other material debt obligations (whether secured or
unsecured), indemnity or guaranty agreements, bonds, mortgages, liens, pledges
or other security agreements to which the Company or any Subsidiary is a party.
Except as set forth on SCHEDULE 5.11, since the Balance Sheet Date, neither the
Company nor any Subsidiary has incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the Ordinary Course
of Business that will not have a Material Adverse Effect.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.12) of the accounts
and notes receivable of the Company as of the Balance Sheet Date, including any
such amounts which are not reflected 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
10
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 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];
(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:
11
(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 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;
12
(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.
(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
13
Company nor any Subsidiary has received any written notice that any Governmental
Authority intends to cancel, terminate or not renew any such Permit. The Company
and its Subsidiaries have conducted and are conducting their Business in
compliance with the requirements, standards, criteria and conditions set forth
in the Permits listed on SCHEDULE 5.16 and are not in violation of any of the
foregoing except where such non-compliance or violation would not have a
Material Adverse Effect. Except as specifically provided in SCHEDULE 5.16, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company and its Subsidiaries by, any of the Permits listed on
SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms have the
meanings set forth below:
"COBRA" means Sections 601-608 of ERISA and Section 4980(B)(8)
of the Code.
"Company Other Benefit Obligation" means an Other Benefit
Obligation the Company sponsors or maintains or with respect to which the
Company has or may have liability, in each case with respect to any present or
former employees or directors of the Company.
"Company Plan" means all Plans of which the Company is a Plan
Sponsor, or to which the Company otherwise contributes, or in which the
Company's employees have participated, or for which the Company has or may have
any liability (including with respect to previously terminated Plans).
"Company VEBA" means a VEBA whose members include employees of
the Company or any ERISA Affiliate.
"ERISA" means the Employee Retirement Income Security Act of 1974
as amended.
"ERISA Affiliate" means, with respect to the Company, any
other trade or business, whether or not incorporated, that, together with the
Company, would be or was at any time treated as a single employer under
Section 414 of the Code or ERISA Section 4001.
"Multiemployer Plan" has the meaning given in ERISA Section
3(37)(A).
"Other Benefit Obligations" means all obligations or arrangements
to provide benefits to present or former employees or directors (other than
obligations or arrangements that are Plans). Other Benefit Obligations include
(unless they are Plans) employment agreements, severance agreements, executive
compensation arrangements, incentive programs or arrangements, sick leave,
vacation pay, sabbaticals, severance pay policies, plant closing benefits,
14
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.
(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 except as set
forth on SCHEDULE 5.17:
15
(i) all the documents, if any, that set forth the terms of each
Company Plan and Company Other Benefit Obligation and of any related trust,
including (1) the most recent summary plan descriptions of Company Plans for
which the Company is required to distribute summary plan descriptions, (2) the
most recent, if any, summaries and descriptions furnished to participants and
beneficiaries regarding Company Plans and Company Other Benefit Obligations for
which a summary plan description is not required (and all forms of COBRA
notices), and (3) amendments, if any, to each of the foregoing;
(ii) all personnel and employment manuals and policies;
(iii) a written description of any Company Plan or Company Other
Benefit Obligation that is not otherwise in writing and that is listed on
SCHEDULE 5.17;
(iv) the Form 5500 or 5500 C/R, if any, filed in each of the most
recent two plan years (or three, if the most recent two 5500C/Rs do not include
a 5500C) with respect to each Company Plan, including all schedules thereto;
(v) all material notices that were given, with respect to a
Company Plan or Other Company Benefit Obligation, by the Service, Department of
Labor, or other governmental 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 qualificaiton and, if different, the most recent
determination letter that covered the qualification of the entire plan, or (ii)
if applicable, the most recent opinion letter issued by the Service with respect
to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its material obligations
under all Company Plans and Company Other Benefit Obligations;
(ii) except as disclosed on SCHEDULE 5.17, 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;
16
(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) except as disclosed on SCHEDULE 5.17, 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) except as disclosed on SCHEDULE 5.17, 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. Except as disclosed on SCHEDULE 5.17, 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) except as disclosed on SCHEDULE 5.17, 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) except as disclosed on SCHEDULE 5.17, no Company Plan or
Company Other Benefit Obligation contains any provision that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
acceleration or vesting of benefits, severance, termination or other payments or
liabilities as a result of the transactions contemplated by this Agreement; and
the Company has not declared or paid any bonus or incentive compensation in
contemplation of the transactions contemplated by this Agreement;
(xi) all group health plans of the Company and its ERISA
Affiliates have been operated in material compliance with the requirements of
COBRA and Section 5000 of the Code and the Health Insurance Portability and
Accountability Act.
17
(xii) 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) 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;
(xiv) no payment that is owed or may become due to any
director, officer, or employee 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.
(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).
18
(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;
(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
19
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, 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
20
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;
(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
21
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.
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.
22
(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).
(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,
23
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.
(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. Except as set
24
forth on SCHEDULE 5.23, none of the Leases requires the consent or approval of
any party thereto in connection with the consummation of the transactions
contemplated by this Agreement.
(c) the Leased Real Property and all present uses and operations of
the Leased Real Property by the Company comply with all applicable Laws,
covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the Leased Real Property and the Company has obtained
all approvals of Governmental Authorities (including certificates of use and
occupancy, licenses and permits) required in connection with the use, occupation
and operation of the Leased Real Property;
5.24 TAXES
(a) Neither the Company nor any Subsidiary is or has been a member of
any affiliated, consolidated, combined, unitary or similar group, other than a
group of which the Company is the common parent;
(b) All Returns required to have been filed by or with respect to the
Company and each of the Subsidiaries, including Returns of any affiliated,
combined, consolidated, unitary or similar group including the Company or any
Subsidiary (each a "Relevant Group"), have been 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) with respect to a tax period covered by such a Return which are owed
by the Company, each Subsidiary and each Relevant Group have been paid;
(c) The amount of the liability of the Company and the Subsidiaries
for unpaid Taxes as of the Balance Sheet Date did not exceed the 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 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;
25
(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;
(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
26
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 Section 301.7701-3, and (5)
any material change in method of accounting.
(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;
27
(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) The Company (and any predecessor of the Company) has been a
validly electing S corporation within the meaning of Code Sections 1361 and 1362
at all times since its formation; and
(w) SCHEDULE 5.24(w) identifies each Subsidiary that is a "qualified
subchapter S subsidiary" within the meaning of Code Section 1361(b)(3)(B). Each
subsidiary so identified has been a qualified subchapter S subsidiary at all
times since the date shown on such Schedule.
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;
(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;
28
(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;
(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;
29
(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.
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
30
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 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
31
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
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.
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
32
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
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
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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 and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and each is duly authorized and qualified to do business under all
applicable laws to carry on its business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect on Clarant. True, complete and correct copies of
the Certificate of Incorporation and By-laws, each as amended to date, of
Clarant and Newco (the "Clarant Charter Documents") are all attached hereto as
EXHIBIT 6.1.
6.2 AUTHORIZATION. The respective officers of Clarant and Newco executing
this Agreement are duly authorized to execute and deliver this Agreement, and
Clarant and Newco have the corporate right, power and authority to enter into
this Agreement and the Merger.
6.3 TRANSACTION NOT A BREACH. Neither the execution and delivery of this
Agreement or the Other Agreements, nor their performance will violate, conflict
with, or result in a breach of any provision of any Law, rule, regulation,
order, permit, judgment, injunction, decree or other decision of any court or
other tribunal or any Governmental Authority binding on Clarant or Newco or
conflict with or result in the breach of any of the terms, conditions or
provisions of the Clarant Charter Documents or of any contract, agreement,
mortgage or other instrument or obligation to which Clarant or Newco is a party
or by which Clarant or Newco is bound.
6.4 MISREPRESENTATION. None of the representations and warranties set forth
in this Agreement or in any of the certificates, schedules, exhibits, lists,
documents, or other instruments (including the most recent draft of the
Registration Statement) delivered, or to be delivered, to the Company or the
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.
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
34
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 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.
35
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 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:
36
(a) any change in the financial condition, assets, liabilities
(contingent or otherwise) income or business or Clarant that would have of
Material Adverse Effect on Clarant;
(b) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of Clarant;
(c) any change in the authorized capital of Clarant or its outstanding
securities or any change in its ownership interests or any grant of any options,
warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of Clarant;
(e) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the business
of Clarant;
(f) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Clarant to any person;
(g) any cancellation or agreement to cancel, any indebtedness or other
obligation owing Clarant;
(h) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of Clarant or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(i) any waiver of any material rights or claims of Clarant;
(j) any amendment or termination of any material contract, agreement,
license, permit or other right to which Clarant is a party;
(k) any transaction by Clarant outside the Ordinary Course of
Business; or
(l) any other distribution of property or assets by Clarant other than
in the Ordinary Course of Business;
6.15 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.
37
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 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;
38
(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;
(g) maintain compliance in all material respects with all Permits,
Laws, rules and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar Governmental Authorities; and
(h) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, except as disclosed on SCHEDULE 5.25, provided that debt and/or
lease instruments may be replaced if such replacement instruments are on terms
at least as favorable to the Company or Subsidiary as the instruments being
replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the Closing Date,
neither the Company nor any Subsidiary will, without the prior written consent
of Clarant:
(a) make any change in its Charter Documents;
(b) grant or issue any securities, Options, conversion rights or
commitments of any kind relating to its securities of any kind other than in
connection with the exercise of Options listed on SCHEDULE 5.3;
(c) declare or pay any dividend, or make any distribution in respect
of its securities whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any securities or engage in any
transaction that will significantly affect the cash reflected on the Balance
Sheet of the Company at the Balance Sheet Date, except that the Company may
declare and pay a dividend to the Stockholders before the Closing in an amount
not to exceed the retained earnings of the Company as of the Balance Sheet Date
and reflected on the applicable Financial Statements (the "Retained Earnings
Dividend") subject to the deduction in the Merger Consideration as provided in
Section 3.1 hereof.
(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;
39
(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, 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;
40
(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.
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
41
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 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
42
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 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
43
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 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
44
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.
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).
45
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 BOARD OF DIRECTORS. The Board of Directors of Clarant shall take
action prior to the Closing Date to cause the number of directors comprising the
full board of directors of Clarant to be eight, and Xxxxxxx X. Xxxxxxx shall be
elected to the board of directors of Clarant effective as of the Closing Date.
If prior to the Closing Date Xx. Xxxxxxx shall decline or be unable to serve as
a director of Clarant, the Company's board of directors shall designate another
person to serve in Xx. Xxxxxx'x xxxxx.
8.14 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 the Company ("Tax Counsel") that the
Clarant Plan of Organization will qualify as a tax-free
46
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.
9.4 [Reserved]
47
9.5 NO MATERIAL ADVERSE EFFECT. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred which would
constitute a Material Adverse Effect.
9.6 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the Company and the 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.
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.
48
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 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
49
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, (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.
(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
50
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.
10.8 OPTIONS AND CONVERTIBLE SECURITIES. The outstanding Options to
purchase Company Stock shall be treated as set forth in SCHEDULE 10.8.
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 (in-
51
cluding appeals, arbitration and mediation), judgments, environmental
analyses, remediations, settlements and compromises (in cluding reasonable fees
and expenses of attorneys, accountants and other experts) (individually and
collectively, the "Losses") sustained or incurred by any Clarant Indemnified
Party resulting from or arising out of (a) any breach of the representations and
warranties of the 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 Indemnifying Party such assistance and materials as may be
reasonably requested by it, all at the
53
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.
(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
54
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.
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
55
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.
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
56
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 each Stockholders' liability under
this Article 11 shall not exceed such Stockholders' pro rata share of 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);
(c) with respect to the indemnification obligations of Clarant under
Section 11.2 --
57
(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 (x) 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 Sections 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-day period ending two business 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
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 board of directors), on the one hand, or by Clarant
(acting through its board of directors), on the other hand, if the
58
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 Stockholders and specified permitted activities
set forth on SCHEDULE 13.1 (the "Excepted Stockholders"), 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;
(iii) call upon any Person which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of Clarant
(including the subsidiaries thereof), of the Company or any Subsidiary or of any
of the Other Founding Companies within
59
the Territory for the purpose of soliciting or selling products or services in
direct competition with Clarant within the Territory;
(iv) call upon any prospective acquisition candidate, on any
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 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
60
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 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
61
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 covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
62
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
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
63
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
INTEGRATED INTERACTIVE, 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
evaluating the merits and risks of this investment and is an "accredited
investor" as defined in Regulation D under the 1933 Act.
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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) take such other actions as are reasonable
and necessary to comply with the requirements of the 1933 Act and the
regulations thereunder.
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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.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Affiliates" has the meaning set forth in Section 5.9.
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"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or any
of its Subsidiaries has or may acquire any rights, (b) under which the Company
or any of its Subsidiaries has or may become subject to any obligation or
liability, or (c) by which the Company or any of its Subsidiaries or any of the
Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form 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.
"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.
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"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.
"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.
"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, 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:
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(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.
"Excepted Stockholder" has the meaning set forth in Section 13.1.
"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.
"Fully-Diluted" shall have the meaning given to such term in Section
3.1(b).
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"GAAP" means generally accepted accounting principles as in effect on the
date hereof.
"Governmental Authority" means the United States or any state, local, or
foreign government, or any subdivision, agency, or authority of any thereof.
"Governmental Consents" has the meaning set forth in Section 5.4.
"Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended.
"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,
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.
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"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
Delaware.
"Merger Consideration" shall have the meaning given to such term in Section
3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Xx. Xxxxxx" means Xxxxxxxxx X. Xxxxxx, the Chief Executive Officer of
Clarant.
"Multi-employer Plan" has the meaning set forth in Section 5.17.
"Newco" has the meaning set forth in the first paragraph of this Agreement.
"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.
"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.
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"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.
"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.
72
"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.
"Retained Earnings Dividend" has the meaning set forth in Section 7.3(c).
"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.
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"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 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.
19. GENERAL
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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 of any other Schedule required hereby, provided that the Company and
the Stockholders shall make a good faith effort to cross-reference disclosure,
as necessary or advisable, between related Schedules.
19.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. This Agreement may be
executed and delivered by facsimile signature which facsimile signature shall be
deemed an original.
19.5 EXPENSES.
(a) Whether or not the transactions herein contemplated shall be
consummated, Clarant will pay the fees, expenses and disbursements of Clarant
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Clarant under this Agreement, including the fees
and expenses of Clarant's public auditors, Xxxxxx Xxxxxx & Xxxxxxxxx, and any
other Person retained by Clarant, and the costs of preparing the Registration
Statement.
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(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 other communications made
in connection with this Agreement shall be in writing and shall be deemed to
have been duly given on the date of delivery, if delivered to the persons
identified below, or on the second business day, if delivered by a reputable
overnight carrier, or on the date of the return receipt acknowledgment after
mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, or on the date such transmission is made and confirmation of
receipt obtained if a business day, or if not, then on the next following
business day, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment, addressed as follows:
(a) If to Clarant, or Newco, addressed to them at:
0000 Xxxxx Xxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
Fax: 000-000-0000
with copies to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Fax: 000-000-0000
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(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:
Align Solutions Corp.
000 Xxxx Xxx Xxxxxxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000-0000
Attn: Mr. Xxxxxxx Xxxxxxx
Fax: 000-000-0000
and marked "Personal and Confidential"
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
00xx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxx X. Xxxx, Xx., Esq.
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, 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
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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 STOCKHOLDERS' REPRESENTATIVE.
(a) Each holder of Company Common Stock, by signing this Agreement,
designates Xxxxxxx X. Xxxxxxx or, in the event that Xxxxxxx X. Xxxxxxx is unable
or unwilling to serve, now or in the future, Xxxxxxx X. Xxxxx, 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 the death or
other event.
19.12 CAPTIONS. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
19.13 SURVIVAL. The representations and warranties set forth in this
Agreement shall survive the Closing and expire in accordance with Section 11.11.
The covenants of the parties to be performed 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.
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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: Chief Executive Officer & President
-----------------------------------
ALIGN SOLUTIONS ACQUISITION CORP.
By: /s/ Xxxxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxxxx X. Xxxxxx
-----------------------------------
Title: President
-----------------------------------
ALIGN SOLUTIONS CORP.
By: /s/ Xxxxxxx X. Xxxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxxx
-----------------------------------
Title: President
-----------------------------------
Stockholders:
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxx Xxxx
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Xxxx Xxxx
/s/ W. Xxxxx Xxxxx
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W. Xxxxx Xxxxx
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
/s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx
/s/ Xxxx X. Xxxxx
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Xxxx X. Xxxxx
/s/ Xxxxx Xxxxxxxxxx
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Xxxxx Xxxxxxxxxx
/s/ Xxx Xxxxxx
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Xxx Xxxxxx
/s/ Xxxxxxxxx X. Xxxxx
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Xxxxxxxx X. Xxxxx
/s/ Xxxx X. Xxxxxx
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Xxx X. Xxxxxx
/s/ Xxxx Xxxxx Xxxxxxxx
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Xxxx Xxxxx Xxxxxxxx
/s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx
/s/ Xxx Xxxxxxxx, Trustee
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The 1996 Xxxxx Issue Trusts
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
/s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
/s/ Xxxxx X. XxXxxxxx
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Xxxxx X. XxXxxxxx
/s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx
/s/ J. Xxxxxx Xxxxxxxx
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J. Xxxxxx Xxxxxxxx
/s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
/s/ K. Xxxxx Xxxxxxxxxxx
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K. Xxxxx Xxxxxxxxxxx
/s/ Xxxx Xxxxxxxxx
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Xxxx Xxxxxxxxx
/s/ Xxx Xxxxxxxx
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Xxx Xxxxxxxx
/s/ Xxxxxxxx X. XxXxxxxx, XX
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Xxxxxxxx X. XxXxxxxx, XX
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
/s/ Xxxxxxx X. Xxxxxxx
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Xxxxxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
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Xxxxxxx X. Xxxxxxx
/s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
/s/ B. Xxxxxx XxXxxxxx, III
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B. Xxxxxx XxXxxxxx, III
/s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
/s/ Xxxxx Xxxxx Trust
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Xxxxx Xxxxx Trust
/s/ Xxxx Xxxxx
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Xxxx Xxxxx
/s/ Xxxx Xxxxx
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Xxxx Xxxxx
/s/ Xxxxx Xxxxx
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Xxxxx Xxxxx
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
/s/ Xxx Xxxxxxx
---------------------------------------------
Xxx Xxxxxxx
/s/ Xxxxx Xxxxx
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Xxxxx Xxxxx
/s/ Xxx Xxxxx
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Xxx Xxxxx
/s/ Xxxx Xxxxxxxx Xxxxx
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Xxxx Xxxxxxxx Xxxxx
/s/ Xxxxx Xxx Xxxxxx
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Xxxxx Xxx Xxxxxx
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
EXHIBIT 2.1(a)
CONSIDERATION
(a) At Closing, Clarant will deliver as defined in paragraphs (c) and (d)
below to the Accredited Stockholders and Non-Accredited Stockholders an amount
(the "Merger Consideration") equal in value to 9,218,182 shares (the
"Theoretical Shares") of Clarant Common Stock valued at a price equal to the IPO
price per share.
(b) At Closing, the Company is being permitted to make the Retained
Earnings Dividend pursuant to Section 3.1 hereof.
(c) At Closing, Clarant will distribute the Merger Consideration among the
Non-accredited Stockholders in cash in an amount equal to his/her pro rata share
of the Theoretical Shares multiplied by the IPO price and reduced by his/her pro
rata share of the Retained Earnings Dividend. The aggregate amount of the Merger
Consideration distributed among the Non-accredited Stockholders in cash shall be
the product of 444,173.54 times the IPO Price (reduced by the Non-accredited
Stockholders' aggregate pro rata share of the Retained Earnings Dividend).
(d) At Closing, Clarant will distribute the Merger Consideration among the
Accredited Stockholders in cash and Clarant Common Stock. Each Accredited
Stockholder will receive an amount of cash equal to his/her pro rata share of
the Theoretical Shares multiplied by 0.3 and multiplied by the IPO price and
reduced by his/her pro rata share of the Retained Earnings Dividend. In
addition, each Accredited Stockholder will receive a number of shares of Clarant
Common Stock equal to his/her pro rata share of the Theoretical Shares
multiplied by 0.7. The aggregate amount of the Merger Consideration distributed
among the Accredited Stockholders in cash shall be the product of 2,632,202.48
times the IPO Price (reduced by the Accredited Stockholders' aggregate pro rata
share of the Retained Earnings Dividend) plus 6,141,806 shares of Clarant Common
Stock.
(e) The minimum IPO price per share of Clarant Common Stock for purposes of
this Agreement is $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 - $15,946,000 $1,385,000 n/a n/a
Dec. 31, 1999
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Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
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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 $25,350,000
Dec. 31, 1999 (Actual Company Revenues -
Projected Company Revenues)
+
50% (Pre-Tax Income
Multiple) x (Actual Pre-Tax
Income - Projected Pre-Tax
Income)
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Jan. 1, 2000 - 3 15 32.21% (Pool Share) x 50% (Revenue $78,700,000 $25,350,000
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)
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(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 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)
provided to Clarant and deliver the shares of Clarant Common Stock to the
Stockholder(s) at the address(es) set forth on SCHEDULE 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.
