<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1999
REGISTRATION NO. 333-81061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
LUMINANT WORLDWIDE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 75-2783690
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
4100 SPRING VALLEY ROAD, SUITE 750
DALLAS, TEXAS 75244
(972) 404-5167
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
GUILLERMO G. MARMOL
CHIEF EXECUTIVE OFFICER AND PRESIDENT
LUMINANT WORLDWIDE CORPORATION
4100 SPRING VALLEY ROAD, SUITE 750
DALLAS, TEXAS 75244
(972) 404-5167
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH A COPY TO:
<TABLE>
<S> <C>
JOHN B. WATKINS, ESQUIRE R.W. SMITH, JR., ESQUIRE
WILMER, CUTLER & PICKERING PIPER & MARBURY L.L.P.
2445 M STREET, N.W. 36 SOUTH CHARLES STREET
WASHINGTON, D.C. 20037 BALTIMORE, MARYLAND 21201
(202) 663-6000 (410) 539-2530
</TABLE>
------------------------------
APPROXIMATE DATE THE REGISTRANT PROPOSES TO BEGIN SELLING SECURITIES TO THE
PUBLIC: From time to time after the effective date of this registration
statement.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF SECURITIES AMOUNT OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED TO BE REGISTERED PER SHARE (1) PRICE REGISTRATION FEE (2)
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share $190,000,000 $ $ $52,820
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933. The proposed maximum
offering price includes amounts attributable to shares that may be purchased
by the underwriters to cover over-allotments.
(2) The Company has previously paid to the Securities and Exchange Commission
the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
IS TO BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR
UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE ON THE DATE THE SEC, ACTING
UNDER SECTION 8(A), DETERMINES.
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<PAGE>
Subject to Completion,
Dated July 26, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
[LOGO]
12,575,000 SHARES
COMMON STOCK
This is Luminant Worldwide Corporation's initial public offering. We are
offering 12,575,000 shares of common stock.
We expect that the public offering price will be between $11 and $13 per
share.
We have filed an application for the common stock to be quoted on the Nasdaq
National Market under the symbol "LUMT."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS,
BEFORE
EXPENSES,
PRICE TO UNDERWRITING TO LUMINANT
PUBLIC DISCOUNT WORLDWIDE CORPORATION
<S> <C> <C> <C>
Public Offering Price $ $ $
Underwriting Discounts and Commissions $ $ $
Proceeds, Before Expenses, to Luminant $ $ $
</TABLE>
Luminant has granted the underwriters the right to purchase up to 1,886,250
shares to cover any over-allotments, at any time until 30 days after the date
of this prospectus.
DEUTSCHE BANC ALEX. BROWN
HAMBRECHT & QUIST
SOUNDVIEW TECHNOLOGY GROUP
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
[graphics showing old, digital business model
and new, Luminant integrated solution model]
THIS PROSPECTUS INCLUDES TRADEMARKS AND TRADE NAMES OF OTHER PARTIES.
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO LEARN ABOUT
THIS OFFERING AND OUR BUSINESS YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING
THE HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS AND THE RELATED NOTES
BEGINNING ON PAGE F-1. WE WERE FORMED IN AUGUST 1998 TO ACQUIRE EIGHT INTERNET
AND ELECTRONIC COMMERCE BUSINESSES WITH THE PROCEEDS OF THIS OFFERING. PRIOR TO
THE CLOSING OF THIS OFFERING AND THE SIMULTANEOUS ACQUISITION OF THE EIGHT
COMPANIES, WE HAVE NOT CONDUCTED ANY OPERATIONS. SIMULTANEOUSLY WITH THE
COMPLETION OF THIS OFFERING, WE WILL ACQUIRE EIGHT BUSINESSES IN EXCHANGE FOR
CASH AND SHARES OF OUR COMMON STOCK. WE WILL REFER TO THE EIGHT BUSINESSES WE
ARE ACQUIRING AS THE "COMPANIES" OR THE "EIGHT COMPANIES". IN THIS PROSPECTUS,
WE SPEAK AS IF WE HAVE ALREADY ACQUIRED THESE COMPANIES. UNLESS OTHERWISE
INDICATED:
- ALL REFERENCES TO "LUMINANT WORLDWIDE CORPORATION," "LUMINANT," "US," "WE"
AND "OUR" REFER TO LUMINANT WORLDWIDE CORPORATION AND THE EIGHT BUSINESSES
THAT WE WILL ACQUIRE SIMULTANEOUSLY WITH THE CLOSING OF THIS OFFERING:
- THE INFORMATION PRESENTED ASSUMES:
(1) THE UNDERWRITERS' OVERALLOTMENT IS NOT EXERCISED;
(2) THE CLOSING OF THE ACQUISITIONS OF THE EIGHT COMPANIES
SIMULTANEOUSLY WITH THE CLOSING OF THIS OFFERING; AND
(3) THE COMPLETION OF A 71,387-FOR-ONE STOCK SPLIT.
LUMINANT WORLDWIDE CORPORATION
OUR BUSINESS
We are a leading provider of professional services to Fortune 500 companies,
Internet and electronic commerce-based companies and other organizations which
use or want to use the Internet and electronic commerce in their business. We
provide the following Internet and electronic commerce professional services:
- strategy consulting, which helps clients understand how to use the
Internet and electronic commerce to operate their businesses more
competitively and interact with their customers and suppliers more
effectively;
- creative solutions, which involves the design of Internet sites and
development of a "look and feel" that projects a client's identity and
serves a client's business goals;
- technology solutions, which involves the actual building and installation
of the technological systems required to operate an Internet and
electronic commerce business; and
- value-added services, which are on-going services we provide that support
and complement our clients' Internet and electronic commerce businesses,
such as ongoing management of Internet site content.
3
<PAGE>
We perform services for more than 100 clients, including the following, each
of which contributed at least $1.0 million to, and accounted for at least one
percent of, our pro forma combined revenues for the 15 months ended March 31,
1999:
- A&E Television Networks
- Bell Atlantic Network Services, Inc.
- International Business Machines Corporation
- MasterCard International Incorporated
- Mars, Incorporated
- United Airlines, Inc.
- Wells Fargo Bank, N.A.
Our clients are diversified across many industries, including technology,
financial, retailing, media and communications. We also work with companies that
do business primarily over the Internet.
As of July 1, 1999, our 681 employees were located throughout the U.S. in:
- California
- Colorado
- the District of Columbia
- Florida
- Georgia
- Illinois
- Maryland
- Massachusetts
- Missouri
- Nebraska
- New York
- North Carolina
- Pennsylvania
- Texas
- Virginia
- Washington
- Wisconsin
On a pro forma combined basis, we had $54.8 million of revenues for the 12
months ended December 31, 1998 and $18.4 million of revenues for the three
months ended March 31, 1999. As of March 31, 1999, the total retained deficit of
Luminant and the eight companies was $16.4 million, without considering any pro
forma adjustments.
OUR MARKET OPPORTUNITY
The Internet is continuing to develop as an interactive platform through
which companies market, operate and manage their businesses and conduct
transactions. The explosive growth of the Internet and its potential to create
new opportunities and pose fundamental threats to the competitive positions of
traditional businesses present enormous challenges for the managers of
companies. This is leading to the rapid growth of, and demand for, professional
services relating to the Internet and electronic commerce.
The need for organizations to quickly and effectively act has led to the
demand for coordinated strategic, creative and technology solutions. Many
traditional professional services firms can provide expert services in strategy
consulting, creative solutions or in technology solutions. The need to integrate
these disciplines exceeds the capabilities of most traditional service firms,
however, especially given the rapid time frames needed for developing Internet
and electronic commerce businesses. As a result, we believe there is great
demand for professional services firms that can effectively and timely provide
integrated services and client focus in all three disciplines.
4
<PAGE>
OUR STRATEGY
We intend to expand our position as a leading provider of Internet and
electronic commerce professional services to Fortune 500 companies,
Internet-based companies and other organizations. Our strategy for achieving
this objective is to:
- Leverage our three main practice areas;
- Expand long-term client relationships;
- Operate as a single, fully-integrated firm;
- Maintain leading edge professional capabilities and technologies;
- Expand our breadth of services and geographic scope; and
- Provide value-added services.
OUR OFFICES AND HISTORY
We have leased offices located in:
- Atlanta, Georgia
- Chicago, Illinois
- Dallas, Texas
- Houston, Texas
- Herndon, Virginia
- Larchmont, New York
- New York, New York
- San Francisco, California
- Seattle, Washington
Our principal business office is currently located at 4100 Spring Valley Road,
Suite 750, Dallas, Texas 75244, and our telephone number is 972-404-5167. We
were incorporated in Delaware on August 21, 1998.
5
<PAGE>
THE OFFERING
The following table presents a summary of this offering. Following this
offering and the acquisition of the eight companies, there will be outstanding
options to purchase 7,803,917 shares of common stock, including options to
purchase 1,983,316 shares that will be exercisable immediately following this
offering and the acquisition of the eight companies.
<TABLE>
<S> <C>
Stock offered by Luminant.................... 12,575,000 shares of common stock, assuming
the underwriters do not exercise their over-
allotment option; or 14,461,250 shares,
assuming the underwriters exercise their
overallotment option in full.
Stock outstanding after this offering........ 40,909,091 shares of common stock, assuming
the underwriters do not exercise their over-
allotment option; or 42,795,341 shares,
assuming the underwriters exercise their
over-allotment option in full.
Use of proceeds.............................. We will use the proceeds of this offering to
pay the cash portion of the purchase prices
payable in the acquisitions of eight
companies, repay indebtedness and for general
corporate purposes, including working
capital, as well as future acquisitions.
Proposed Nasdaq symbol....................... "LUMT"
Dividend policy.............................. We do not anticipate paying dividends on our
common stock.
</TABLE>
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
We were incorporated in August 1998 and have not conducted any operations as
yet, except for negotiating and documenting the acquisitions of the eight
companies we will acquire simultaneously with the closing of this offering,
preparing this prospectus and the related documents for this offering and
developing our management team and corporate structure. Each of our eight
companies has been operating for at least 18 months. We present below our
summary unaudited pro forma combined financial data based on historical data for
the 12 months ended December 31, 1998 and the three months ended March 31, 1998
and 1999, considering our combined historical results and those of the companies
we will acquire. We also present below the unaudited pro forma combined balance
sheet data as of March 31, 1999 based on historical data and as adjusted for the
eight acquisitions and this offering. The unaudited pro forma combined statement
of operations data for the 12 months ended December 31, 1998 and the three
months ended March 31, 1998 and 1999 assume that the eight acquisitions and this
offering were closed on January 1, 1998. The unaudited pro forma combined
balance sheet data assume that the eight acquisitions and this offering were
closed on March 31, 1999.
The unaudited summary pro forma financial data do not necessarily indicate
the operating results or financial position that would have resulted from our
operation on a combined basis during the period presented, nor do these
unaudited pro forma data necessarily represent any future operating results or
financial position. In addition to these unaudited summary pro forma combined
financial data, you should also refer to the more complete financial information
included elsewhere in this prospectus, including more complete historical
results for the eight companies that we will acquire and our unaudited pro forma
combined financial statements and the accompanying notes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED ----------------------------
DECEMBER 31, 1998 1998 1999
-------------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 54,846 $ 11,563 $ 18,415
Cost of services(1)..................................... 36,268 7,673 11,245
----------- ------------- -------------
Gross profit............................................ 18,578 3,890 7,170
Selling, general and administrative expenses(1)(2)...... 26,014 6,148 7,394
Equity based compensation expense(3).................... 8,186 7,361 284
Intangibles amortization(4)............................. 83,775 20,936 20,947
----------- ------------- -------------
Loss from operations.................................... (99,397) (30,555) (21,455)
Interest and other income, net.......................... 149 (49) (73)
----------- ------------- -------------
Loss before income taxes................................ (99,248) (30,604) (21,528)
Income taxes(5)......................................... -- -- --
----------- ------------- -------------
Net loss................................................ $ (99,248) $ (30,604) $ (21,528)
----------- ------------- -------------
----------- ------------- -------------
Net loss per share...................................... $ (2.43) $ (0.75) $ (0.53)
Shares used in computing pro forma net loss per
share(6).............................................. 40,909,091 40,909,091 40,909,091
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------
PRO FORMA PRO FORMA
COMBINED AS ADJUSTED(7)
----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
UNAUDITED PRO FORMA COMBINED
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 2,230 $ 37,882
Working capital (deficit)........................................................... (94,743 (8) 38,549
Total assets........................................................................ 270,438 306,040
Long-term debt, net of current maturities........................................... 1,405 1,405
Stockholders' equity................................................................ 158,424 291,716
</TABLE>
7
<PAGE>
- ------------------------
(1) Excludes compensation expense related to issuances of equity and equity
appreciation rights of four of our companies. Compensation expense was
reduced by $1.9 million for the year ended December 31, 1998, and $8.0
million for the three months ended March 31, 1999.
(2) Includes adjustments to increase expenses related to additional compensation
expense to our new corporate management and the estimated incremental costs
associated with being a public company. Selling, general and administrative
expense was increased by $5.5 million for the year ended December 31, 1998,
$1.4 million for the three months ended March 31, 1998 and $1.4 million for
the three months ended March 31, 1999.
(3) Consists of compensation expense related to shares of common stock issued to
the management of Luminant at less than fair market value, equity based
compensation of Align Solutions Corp., the accounting acquiror, and the
reclassification of compensation expense related to shares sold to Luminant
management at less than fair market value in 1998.
(4) Consists of amortization over a three-year period of $243.6 million of
goodwill and $7.5 million of other intangible assets to be recorded as a
result of the acquisitions and the granting of options. The amortization is
computed on the basis described in the notes to the unaudited pro forma
combined financial statements. No amounts have been included for contingent
consideration that may be payable to the former owners of our eight
companies. None of this contingent consideration is expected to be
compensatory.
(5) We have not demonstrated that we will generate future taxable income;
therefore, a net deferred tax asset for the pro forma loss before income
taxes has not been recognized.
(6) Includes:
- 20,481,520 shares of common stock we will issue to the former owners of
the eight companies we are acquiring;
- 7,852,571 shares issued to our initial stockholder and an executive
officer; and
- 12,575,000 shares sold in this offering.
(7) Adjusted to reflect the sale of the 12,575,000 shares of common stock
offered by this prospectus at an assumed initial public offering price of
$12 per share and the application of the estimated net proceeds of this
offering. See "Use of Proceeds."
(8) Includes the effect of liabilities in the amount of $97.6 million payable to
the former owners of the eight companies we are acquiring for the
acquisition of common equity, for other equity securities and the repayment
of shareholder debt of a company representing the cash portion of the
initial purchase prices to be paid from a portion of the net proceeds of
this offering.
8
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS AND THE OTHER INFORMATION
IN THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. AN INVESTMENT IN
OUR COMMON STOCK INVOLVES RISK. THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
SOME OF OUR COMPANIES HAVE A HISTORY OF OPERATING LOSSES. IF THESE LOSSES
CONTINUE, WE MAY NOT BE PROFITABLE IN THE FUTURE.
If we do not consistently generate higher revenues, we may not be profitable
in the future. Our companies incurred historical combined net losses of
approximately $5.7 million for the 12 months ended December 31, 1998 and $11.0
million for the three months ended March 31, 1999. After this offering and
closing of the acquisitions, we will have significantly increased expenses
compared to those of the individual companies. We expect to incur increasing
sales and marketing, infrastructure development and general and administrative
expenses until we have integrated the companies. As a result, we will need to
generate substantially higher revenues to achieve profitability. Even if we do
achieve profitability, we may not be able to sustain or increase it in the
future. See "Selected Unaudited Pro Forma Combined Financial Data," "Selected
Historical Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE EACH OF THE COMPANIES WE ACQUIRE, OUR
FINANCIAL RESULTS WILL SUFFER.
We will combine eight independent Internet and electronic commerce
professional services providers into a single company. Our future profitability
will depend heavily on our ability to integrate the operations and management of
our eight companies. Failure to successfully integrate any of the companies we
acquire may cause significant operating inefficiencies and adversely affect our
profitability. Our professional services providers have generally not worked
together before and in some cases have previously served the same clients and
provided duplicative services and may have competed against each other. We plan
to spend substantial resources to integrate these businesses. In particular, to
successfully integrate our newly acquired companies, we must:
- install and standardize adequate operational, financial and control
systems;
- deploy common equipment and telecommunications facilities;
- implement and integrate new and existing marketing and sales efforts; and
- create a unified brand identity.
We have no current plans or agreements to acquire any specific companies or
businesses other than the eight businesses to be acquired in connection with
this offering. If we acquire additional companies in the future as expected,
however, we will face integration risks similar to those described above.
In addition, during our beginning stage of development and operation, we may
encounter expenses and difficulties that we may not expect or are beyond our
control. We may not be able to achieve or maintain profitability for any of the
companies we are acquiring or for ourselves as a whole.
WE MAY NOT BE ABLE TO HIRE, TRAIN AND RETAIN SKILLED EMPLOYEES, WHICH COULD
IMPEDE OUR ABILITY TO COMPETE SUCCESSFULLY.
9
<PAGE>
As a services company, our future profitability and growth depends in large
part on our ability to hire, train and retain skilled consulting, creative,
technical and other professionals. If we cannot hire, train and retain a
sufficient number of qualified employees, we may not be able to adequately staff
projects, our expenses could increase and we may be unable to expand our
business as quickly as we would like. Skilled personnel are in short supply and
competition for these people is intense. In addition, to maintain our
competitive position and to grow our business, we must make sure our employees
maintain and develop their technical expertise and business skills to satisfy
the increasingly sophisticated needs of our clients. This process could be time
consuming and expensive and may not be successful.
We plan to grant stock options to attract and retain qualified employees.
The trading price of our stock after this offering will affect the incentive
value of these stock options. We cannot determine whether prospective employees
will consider our stock options a valuable incentive. If they do not, we may
face more difficulty and expense in hiring qualified personnel.
WE DEPEND ON THE SERVICES OF OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL. THE
LOSS OF SENIOR MANAGERS OR OTHER KEY PERSONNEL COULD ADVERSELY AFFECT OUR
BUSINESS.
The loss of management personnel, other key personnel or client
relationships could seriously harm our business and adversely affect our growth.
We believe that our ability to effectively serve our clients and expand our
business in the future will depend on our continued employment of senior
management and key strategic, creative and technical personnel. Competition for
qualified management personnel and other key personnel is intense. In addition,
personal relationships are critical in obtaining and maintaining client
engagements in our industry. Our personnel could join with a competitor or start
a new business and compete with us, which may result in the loss of client
relationships or business opportunities.
IF WE HAVE TO PAY ADDITIONAL CONSIDERATION TO THE FORMER OWNERS OF OUR
PROFESSIONAL SERVICES PROVIDERS, YOUR INVESTMENT IN US MAY BE DILUTED.
We have agreed to pay the former owners of our professional services
providers additional consideration upon satisfaction of certain financial and
operational conditions. Payment of these obligations in cash may substantially
deplete our cash reserves or require us to borrow funds. Payment of these
obligations in our common stock will dilute the value of your investment in us.
Regardless of the form of payment, the additional consideration will create
additional goodwill and increase the related amortization expense. We cannot
predict the amount of additional consideration that we will have to pay to the
former owners of our eight companies, although the total amount of this
additional consideration will not exceed $196.7 million. For a more detailed
discussion of these contingent consideration arrangements, see "About Luminant
Worldwide Corporation."
OUR REVENUES ARE DIFFICULT TO PREDICT AND WE MAY NOT BE ABLE TO REDUCE EXPENSES
IF REVENUES DECLINE.
Our operating expenses are relatively fixed and we incur costs based on our
expectation of future revenues. We generally cannot reduce our expenses on short
notice to compensate for unanticipated variations in the number or size of
engagements in progress. As a result, our failure to accurately predict our
revenues may result in unnecessary expenses and adversely affect our
profitability and financial condition.
Most of our client engagements are under short-term contracts. If a client
defers, modifies or cancels an engagement or chooses not to retain us for
additional phases of a project, we may not be able to rapidly redeploy our
employees or other resources to other engagements. Under these engagements, the
client can generally reduce the scope of or cancel our services without penalty
and with little or no notice. A number of factors unrelated to our work product
or the
10
<PAGE>
progress of the project, such as general business conditions or the client's
financial state, could cause cancellations or delays.
WE MAY LOSE MONEY ON FIXED FEE CONTRACTS IF WE MISCALCULATE THE RESOURCES
REQUIRED TO COMPLETE A PROJECT.
We have generally entered into contracts with our clients on a fixed-fee,
fixed timeframe, basis. A miscalculation of the resources or time needed to
complete fixed-fee engagements could substantially reduce our profitability. The
risk of these miscalculations for us is high because we work with complex
technologies in compressed time frames.
UNDERUTILIZATION OF OUR EMPLOYEE RESOURCES MAY ALSO ADVERSELY AFFECT OUR
OPERATING REVENUES.
We generally establish our personnel levels based on our expectations of
client demand. If we hire more employees than our engagements require, or if we
are unable to effectively redeploy our employees from project to project, our
operating margins may decline and we may suffer losses. We have hired a large
number of administrative and support personnel to support our anticipated
growth. These personnel costs and expenses constitute the substantial majority
of our operating expenses.
WE MAY NOT SUCCESSFULLY DEVELOP BRAND AWARENESS OF OUR SERVICES, AND OUR BRAND
REPUTATION MAY DEPEND UPON THE SUCCESS OR FAILURE OF OUR CLIENTS.
Developing and maintaining widespread awareness of the "Luminant Worldwide
Corporation" brand name is an important element of our business strategy. If we
do not successfully promote and maintain our brand name without significant
expense, our operating margins and growth may decline. We plan to increase our
marketing expenses to promote our brand name, which may reduce our operating
margins. In addition, our brand name will replace the current brand names of our
eight companies, which may disrupt our business and adversely affect our
revenues and profitability. The public may closely associate our brand with the
business success or failure of some of our high-profile clients, many of whom
are pursuing unproven business models in competitive markets. As a result, the
failure or difficulties of one of our high-profile clients may damage our brand
name.
OUR LACK OF COMBINED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT HOW THE
COMBINED OPERATIONS OF OUR EIGHT COMPANIES WILL PERFORM IN THE FUTURE.
We have no combined operating history upon which you can evaluate our
business and prospects. We will combine the operations of eight businesses into
a new company, and we may not be able to achieve or maintain profitability of
any of our businesses or overall. The pro forma financial information included
in this prospectus is based on the separate pre-acquisition financial
information of the eight companies. As a result, our historical results of
operations and pro forma financial information may not give you an accurate
indication of our future results of operations or prospects. In addition,
companies like us in an early stage of development frequently encounter risks,
expenses and difficulties associated with starting a new business, many of which
may be unexpected or beyond our control.
WE ARE AFFECTED BY SEASONAL FACTORS THAT COULD CAUSE OUR REVENUES TO FLUCTUATE
FROM QUARTER TO QUARTER.
Our industry is affected by seasonal factors. Our revenues and income are
generally higher in the first and second calendar quarters, and lower during the
third and fourth calendar quarters as a result of the summer and end-of-year
holiday seasons. As a result of these factors, we believe that period-to-period
comparisons of our results of operations will not reliably indicate our future
performance. It is likely that in some future quarter or quarters our operating
results
11
<PAGE>
will be below the expectations of public market analysts or investors. These
shortfalls may significantly affect the market price of our common stock.
Several other factors may cause our revenues and operating results to vary
from quarter-to-quarter, including:
- the number, size and type of client engagements we commence and complete
during a quarter;
- modification or termination of material contracts;
- the amount and timing of expenditures by our clients for Internet and
electronic commerce professional services;
- our ability to adequately staff our projects and effectively utilize our
employees;
- the fixed personnel and other costs we incur in advance of the quarter;
- the number, type, timing and costs of acquisitions completed during a
quarter;
- our ability to manage costs, including personnel costs and support
services costs; and
- our introduction of new services.
WE MAY INCUR UNEXPECTED OR UNQUANTIFIABLE LIABILITIES AND EXPENSES ARISING FROM
THE OPERATION OF A COMPANY BEFORE WE ACQUIRED IT.
When we acquire companies, we may acquire liabilities and expenses that we
did not know about at the time we negotiated these acquisitions. We may also
acquire contingent liabilities that become realized, or liabilities that prove
to be larger than anticipated. Because our recourse against the former owners of
the companies for these liabilities is limited as described below, the
realization of any of these liabilities may increase our expenses and reduce our
cash reserves.
THE INDEMNIFICATION PROVISIONS OF THE ACQUISITION AGREEMENTS MAY NOT FULLY
PROTECT US AND MAY RESULT IN UNEXPECTED LIABILITIES.
Some of the former owners of each company will be required to indemnify us
against liabilities related to the operation of their company before we acquired
it. These indemnities limit the liability of each former owner to the total
amount of the purchase price, including contingent consideration, that each
former owner receives. The liability of the former owners is also subject to a
deductible equal to one percent of the aggregate purchase price, excluding
contingent consideration, paid to the former owners. Additionally, in some cases
these former owners may not have the financial ability to meet their
indemnification responsibilities. The acquisition agreements include provisions
for the indemnification of Luminant by the former owners of each company for
breaches of their representations and warranties in the acquisition agreements,
and inaccuracy of the information provided by them for use in this prospectus.
We indemnify the former owners of each company for liabilities arising out of
breaches of each other party's representations and warranties, and inaccuracy of
information provided by any other party for use in this prospectus and other
matters traditionally covered under the indemnification terms of similar
contracts. There is no assurance that any party will meet its obligations to
indemnify any other party. In addition, the Securities and Exchange Commission's
position is that indemnification for securities law violations is against public
policy.
WE INTEND TO EXPAND OUR BUSINESS ABROAD. INTERNATIONAL EXPANSION COULD RESULT IN
FINANCIAL LOSSES DUE TO SEVERAL FACTORS, INCLUDING FAILURE TO COMPLY WITH
FOREIGN REGULATORY REQUIREMENTS, CHANGES IN FOREIGN ECONOMIC CONDITIONS AND
FLUCTUATIONS IN FOREIGN CURRENCIES.
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We intend to expand our business by providing Internet and electronic
commerce professional services to companies operating outside of the U.S. An
inability to successfully establish and expand our international operations
could seriously harm our growth and place us at a competitive disadvantage. We
intend to acquire existing companies and open offices in foreign markets and
otherwise market our business abroad. We may be unable to successfully market,
sell, deliver and support our services internationally. In addition to other
risks described in this section, international expansion poses additional risks,
including:
- intense competition for qualified personnel outside of the U.S.;
- international legal and regulatory requirements;
- problems in collecting accounts receivable and longer payment cycles;
- the impact of recessions in economies outside the U.S.;
- higher marketing costs;
- fluctuations in currency exchange rates;
- restrictions on the import and export of certain technologies;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences; and
- increases in tariffs, duties, price controls, restrictions on foreign
currencies and other trade barriers.
THE NATURE OF THE SERVICES WE PROVIDE COULD EXPOSE US TO SIGNIFICANT LIABILITY
TO CLIENTS THAT ARE NOT SATISFIED WITH OUR SERVICES.
We create, implement and maintain Internet and electronic commerce systems
and other applications that are critical to our clients' businesses. Any defects
or errors in these systems or applications or failure to meet clients'
expectations could result in:
- delayed or lost client revenues;
- rendering additional services to a client at no charge;
- negative publicity regarding us and our services; and
- claims for substantial damages against us, regardless of fault.
The successful assertion of a large claim against us could seriously harm
our business, financial condition and operating results. Our contracts generally
limit our damages arising from negligent acts, errors, mistakes or omissions in
rendering services to our clients. However, we cannot be sure that these
contractual provisions will protect us from liability for damages in the event
we are sued. Our general liability insurance coverage may not cover one or more
large claims, or the insurer may disclaim coverage as to any future claim. In
addition, our general liability insurance coverage may not continue to be
available on reasonable terms or at all.
OUR FAILURE TO PROTECT OR MAINTAIN OUR INTELLECTUAL PROPERTY RIGHTS COULD COST
US MONEY, PLACE US AT A COMPETITIVE DISADVANTAGE AND RESULT IN LOSS OF REVENUE
AND HIGHER EXPENSES.
The steps we have taken to protect our proprietary intellectual property
rights may not prevent or deter someone else from using or claiming rights to
our intellectual property. Third party infringement or misappropriation of our
trade secrets, copyrights, trademarks or other proprietary information could
seriously harm our business. We also cannot assure you that we will be able to
prevent the unauthorized disclosure or use of our proprietary knowledge,
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<PAGE>
practices and procedures if our senior managers or other key personnel leave us.
In addition, although we believe that our proprietary rights do not infringe on
the intellectual property rights of others, other parties may claim that we have
violated their intellectual property rights. These claims, even if not true,
could result in significant legal and other costs and may distract our
management.
WE CANNOT ASSURE YOU THAT WE CAN CONTINUE TO LICENSE IMPORTANT TECHNOLOGIES FROM
THIRD PARTIES ON REASONABLE TERMS OR AT ALL.
We license technologies from third parties. We cannot assure you that these
licenses will continue on reasonable terms or at all, or that we will
successfully license new technologies developed by third parties. Our failure to
do so could result in loss of revenues and higher expenses. Under our
acquisition agreement relating to the Brand Dialogue-New York business of Young
& Rubicam, we have a limited license to use the name "Brand Dialogue" for a
period of six months after the closing of this acquisition solely for the
purpose of identifying "Brand Dialogue-New York" as the name of the business
when it was owned by Young & Rubicam.
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING.
Our management has significant flexibility in using the net proceeds we
receive from this offering remaining after payment of the aggregate purchase
price for the eight companies we will acquire. You cannot determine the
propriety of management's use of the proceeds from this offering because the
proceeds are not required to be allocated to any specific investment or
transaction. See "Use of Proceeds" for a more detailed description of how
management intends to apply the proceeds of this offering.
WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS WHICH
COULD REDUCE THE NUMBER OF OUR PROSPECTIVE CLIENTS.
Many of the engagements we perform for clients are competitively sensitive.
As a result, we sometimes agree not to perform services for our clients'
competitors or in a particular field for limited periods of time. For example,
Multimedia Resources, LLC has entered into (1) an agreement with MasterCard
International Incorporated which prohibits Multimedia Resources from accepting
assignments or conducting work for competitors of MasterCard and (2) an
agreement with Societe Europrenne des Satellites S.A. which prohibits Multimedia
Resources from providing consulting services to competing satellite-based
network companies. Similarly, Interactive8, Inc. has entered into (1) an
agreement with BFC, Inc. (dba GetSmart.com) which prohibits Interactive8 from
providing consulting services to any other competitive mortgage, debt
consolidation, credit card or auto financing search sites that provide access to
multiple lenders and (2) an agreement with Mars, Incorporated which prohibits
Interactive8 from providing web site development services to companies that
compete with the confectionery, pet care and rice/sauces divisions of Mars that
engaged Interactive8 for the provision of services. We may enter into similar
agreements in the future. These agreements could preclude or reduce
opportunities from prospective clients and reinforce the importance of our
client selection.
WE MAY NEED, BUT NOT BE ABLE, TO OBTAIN ADDITIONAL FINANCING ON REASONABLE TERMS
OR AT ALL.
We cannot be certain that we will be able to obtain additional financing on
favorable terms, if at all, which could adversely affect our ability to continue
operations. We expect that the net proceeds from this offering, after paying the
cash portion of the purchase price for our companies, will meet our working
capital and capital expenditure needs for at least the next 12 months. After
that, we may need to raise additional funds. Our lack of combined operating
history makes it difficult to predict whether our future financial condition,
revenues and profitability will be sufficient to obtain financing on reasonable
terms or at all. If we need additional capital and cannot raise it on acceptable
terms, we may not be able to acquire additional companies, open or expand
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<PAGE>
offices in the U.S. and abroad, make capital expenditures, hire and train
additional personnel or otherwise expand our business.
A SIGNIFICANT PORTION OF OUR ASSETS ARE INTANGIBLE. WE MUST AMORTIZE OUR
INTANGIBLE ASSETS OVER A FIXED PERIOD EVEN IF WE NEVER REALIZE THEIR FULL VALUE.
THE AMORTIZATION CHARGES WE INCUR IN EACH PERIOD WILL REDUCE OUR NET INCOME.
The acquisition of our companies simultaneously with the closing of this
offering will create significant goodwill on our financial statements. We will
amortize this goodwill over a period of three years, which will negatively
affect our operating results in those periods. At March 31, 1999, after giving
pro forma effect to the acquisition of our companies, we would have had goodwill
net of accumulated amortization of approximately $243.3 million. We have agreed
to pay the former owners of our companies additional consideration if specified
conditions are met, payable in the form of cash and/or stock. Regardless of the
form of payment, any additional consideration will create additional goodwill
and increase the related amortization expense.
WE MAY EXPERIENCE PROBLEMS RELATED TO THE YEAR 2000 ISSUE THAT COULD ADVERSELY
AFFECT OUR BUSINESS.
Many currently installed computer systems and software products are coded to
accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of these systems could fail or malfunction because they
may not be able to distinguish 21st century dates from 20th century dates.
Although we believe that our principal internal systems are Year 2000 compliant,
some systems are not yet certified. We have relied on representations in the
acquisition agreements for each of our eight companies for much of our
assessment of our Year 2000 readiness. Because we depend substantially upon the
proper functioning of our computer systems, a failure of our systems to
correctly recognize dates beyond December 31, 1999 could materially disrupt our
operations and seriously harm our ability to compete.
The Year 2000 problem could also adversely affect our business by causing
the systems of our clients, potential clients, vendors or other business
partners to fail. The Year 2000 problem could result in systemic failures or
miscalculations. The Year 2000 problem may also affect third parties that
license software products which we incorporate into the business systems that we
create for our clients. We generally discuss Year 2000 issues with these
suppliers and sometimes perform internal testing on their products, but we
cannot guarantee that the software licensed by these suppliers is Year 2000
compliant. Any failure on our part to provide Year 2000 compliant systems to our
clients could result in financial loss, harm to our reputation and liability to
others and could seriously harm our business, financial condition and operating
results. For information on our efforts to handle the Year 2000 issue, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness Disclosure Statement."
PREPARATION FOR OR CORRECTION OF YEAR 2000 PROBLEMS COULD CAUSE CLIENTS TO DEFER
OR REDUCE DEMAND FOR OUR SERVICES.
Our clients and prospective clients may have to devote considerable time and
resources in preparing for or correcting problems related to the Year 2000
issue. The demands posed by these Year 2000 problems may reduce the time and
resources clients have to devote to the projects and services we offer and may
reduce demand for our services.
THE SALE OR AVAILABILITY FOR SALE OF ADDITIONAL SHARES OF OUR COMMON STOCK AFTER
THIS OFFERING COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock. A reduction in the
price of our common stock could reduce the value of your investment in us,
impair our ability to raise capital through the
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<PAGE>
sale of additional equity securities or our ability to use shares as a currency
to make acquisitions. For a description of the shares of our common stock that
will be available for sale following this offering, see "Shares Eligible for
Future Sales."
Upon completion of this offering and the simultaneous acquisition of the
eight companies, 40,909,091 shares of our common stock will be outstanding and
will be tradeable as follows:
- 28,334,091 of these shares will be "restricted securities." Additional
shares that we may issue as contingent consideration in connection with
the acquisitions of our companies and shares underlying the 1,000,000
options to be granted to Young & Rubicam at the closing of the acquisition
of assets of Brand Dialogue-New York will also be "restricted securities."
Holders of restricted securities may generally sell their shares in the
public market without registration in accordance with the holding period,
volume, and other restrictions of Rule 144 or under any other applicable
exemption under the Securities Act. See "Shares Available For Future
Sale--Rule 144." Most of these restricted shares are also subject to
lock-up provisions under agreements with the underwriters. See "Shares
Available For Future Sale--Lock-Up Agreements."
- Except for shares purchased by our affiliates, the 12,575,000 shares of
common stock sold in this offering will be freely tradeable without
further restriction or registration under the Securities Act.
- After the closing of this offering and the simultaneous acquisition of the
eight companies, we intend to file one or more registration statements
under the Securities Act to register 12,838,602 shares of common stock
underlying stock options and reserved for issuance under our long-term
incentive plan, options for 6,803,917 of which will be outstanding upon
the closing. See "Shares Available For Future Sale--Common Stock and
Options Issuable Under Our Equity Compensation Plans."
Upon completion of this offering, holders of 28,334,091 shares of common
stock and Young & Rubicam's 1,000,000 options to purchase shares of common stock
will be entitled to piggyback registration rights to register their shares
whenever we propose to register shares for our own or another's account under
the Securities Act. Young & Rubicam will also have one demand registration
right, exercisable no earlier than 18 months after the closing of the sale of
the assets of Brand Dialogue-New York, to register any or all of the shares it
receives in connection with the sale of Brand Dialogue-New York, including
shares issued as contingent consideration and shares issued upon exercise of
Young & Rubicam's option. See "Shares Available For Future Sale--Registration
Rights."
WE FACE INTENSE COMPETITION IN OUR INDUSTRY AND LOW BARRIERS TO ENTRY MAY
ENCOURAGE ADDITIONAL COMPETITORS IN THE FUTURE, WHICH MAY NEGATIVELY IMPACT OUR
OPERATING RESULTS.
In light of the resources of our existing competitors and the likelihood
that new competitors will enter the market, we cannot assure you that we will
compete successfully in the Internet and electronic commerce services market.
Our failure to compete successfully could reduce our revenues and our
profitability.
Competition in the Internet and electronic commerce professional services
market is intense. We expect competition to persist and intensify in the future.
We compete against companies selling Internet and electronic commerce software
and services, and the in-house development efforts of companies seeking to
engage in electronic commerce. Our current competitors include, and may in the
future include, the following:
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- Internet consulting firms and online agencies, including AGENCY.COM,
AppNet, iXL Enterprises, Modem Media . Poppe Tyson, Organic Online,
Proxicom, Razorfish, Scient, US Interactive, USWeb/CKS and Viant;
- general management consulting firms, including Bain & Company, Boston
Consulting Group, Booz Allen & Hamilton and McKinsey & Company, Inc.;
- the professional services groups of computer equipment companies,
including Compaq, Hewlett-Packard and IBM;
- systems integrators, including Andersen Consulting, Cambridge Technology
Partners, Sapient, and consulting arms of the "Big Five" accounting firms;
and
- internally developed solutions of current and potential clients.
Because barriers to entry in our market are low, we also expect other companies
to enter our market. In addition, current and potential competitors have
established, or may establish, cooperative relationships among themselves or
with vendors. Accordingly, new competitors or alliances among competitors may
emerge and rapidly acquire significant market share.
Most of our current competitors have longer operating histories than us.
Many of our competitors have larger client bases, larger professional staffs,
greater brand recognition and greater financial, technical, marketing and other
resources than us. Many of our competitors also have well-established
relationships with our current and potential clients and vendors and may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements. Each of these factors may place us at a disadvantage in responding
to our competitors' pricing strategies, technological advances, marketing
campaigns, strategic partnerships and other initiatives.
TECHNOLOGY IN THE INTERNET AND ELECTRONIC COMMERCE INDUSTRY CHANGES RAPIDLY. IF
WE FAIL TO KEEP UP WITH THESE CHANGES, WE WILL NOT BE ABLE TO MEET OUR CLIENTS'
NEEDS AND OUR BUSINESS WILL SUFFER.
Rapid technological change and frequent introductions of new products and
services characterize our market and the technologies our clients use. Our
failure to successfully respond to these technological developments or to
respond in a timely or cost-effective way could substantially reduce our
revenues and adversely affect our profitability. Our success will depend on our
ability to rapidly master and develop an evolving set of capabilities and to
offer services that keep pace with continuing changes in technology, industry
standards and client preferences.
OUR GROWTH AND PROFITABILITY DEPEND ON CONTINUED AND EXPANDING DEMAND FOR OUR
SERVICES. THE DEMAND FOR OUR SERVICES DEPENDS ON THE CONTINUED GROWTH OF THE
INTERNET AND ELECTRONIC COMMERCE INDUSTRY.
If a viable and sustainable market for our Internet and electronic commerce
services does not continue to develop, or if we cannot differentiate our
services from those of our competitors, our revenue and operating margins may
decline and we may experience losses. We cannot be certain that the market for
Internet and electronic commerce services will continue to grow. Consumers and
businesses may reject the Internet or electronic commerce as viable commercial
mediums for a number of reasons, including:
- inadequate network infrastructure;
- insufficiency of telecommunications services to support electronic
commerce and the Internet;
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<PAGE>
- delays in the development of technologies that facilitate use, and improve
the security, of the Internet and electronic commerce;
- delays in the development of new conventions to handle increased levels of
Internet activity;
- increased governmental regulation;
- changes in sales tax laws; and
- failure of companies to meet their customers' expectations and service
requirements in delivering goods and services via electronic commerce and
over the Internet.
NEW LAWS OR REGULATIONS AFFECTING THE INTERNET, ELECTRONIC COMMERCE OR COMMERCE
IN GENERAL COULD REDUCE OUR REVENUES AND ADVERSELY AFFECT OUR GROWTH.
Congress and other domestic and foreign governmental authorities have
adopted and are considering legislation affecting use of the Internet, including
laws relating to the use of the Internet for commerce and distribution. The
adoption or interpretation of laws regulating the Internet, or of existing laws
governing such things as consumer protection, libel, property rights and
personal privacy, could hamper the growth of the Internet and its use as a
communications and commercial medium. If this occurs, companies may decide not
to use our services and our business and operating results would suffer.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH MAY NOT PROVE TO BE
ACCURATE OR COMPLETE.
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology. These statements are
only predictions. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of such statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus to conform such statements to actual results and do not intend
to do so.
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ABOUT LUMINANT WORLDWIDE CORPORATION
We formed Luminant Worldwide Corporation in August 1998 for the purpose of
acquiring a group of existing Internet and electronic commerce professional
services businesses that provide a wide range of interactive services throughout
the United States. Simultaneously with the closing of this offering, we will
close the acquisitions of eight businesses as required by the terms of written
agreements negotiated with the current owners of these businesses. Except in the
case of Brand Dialogue-New York, the acquisitions have been structured as
mergers with the companies surviving as our wholly-owned subsidiaries. We will
acquire the assets of Brand Dialogue-New York at the closing of this offering
and will immediately contribute those assets to a newly formed subsidiary. The
acquisition consideration and the terms of the acquisition agreements have been
negotiated at arms-length.
The closings of the acquisitions of our eight companies are subject to
customary closing conditions, including that:
- this offering close by December 31, 1999;
- the representations and warranties made by the parties in the acquisition
agreements are accurate at the closing;
- the parties perform all of their covenants and obligations under the terms
of the acquisition agreements;
- no material adverse change has occurred in the financial condition or
business of the eight companies or in the financial condition, business or
prospects of Luminant Worldwide Corporation;
- employment agreements with the principal employees and owners of the eight
companies have been entered into on terms acceptable to us; and
- the initial public offering price is not less than $9.90 per share.
We cannot assure you that the conditions to the closing of the acquisition of
all of the eight companies will be satisfied or waived or that each acquisition
will close. If any of the acquisitions does not close for any reason, we will
not close this offering on the terms described in this prospectus.
OUR COMPANIES
The purchase price for the eight companies will consist of an initial
payment at the time of closing and the ability to earn contingent payments, as
follows:
PURCHASE PRICE
The initial purchase price for each company we will acquire has been
determined based upon a variety of factors, including that company's revenue and
pre-tax income. The initial purchase price will consist of a fixed number of
shares of common stock and a cash payment, except that the initial purchase
price for Brand Dialogue-New York will consist entirely of stock. The purchase
price for all of the eight companies, based on an assumed initial public
offering price of $12.00 per share, will be $343.4 million. An aggregate of
20,481,520 shares of common stock will be issued for all of the eight companies.
The number of shares of common stock payable for each company is fixed, except
in the case of RSI Group, Inc. and its subsidiaries, or RSI, where the number of
shares payable will increase if the initial public offering price is between
$9.90 and $11.00. If Luminant Worldwide Corporation issues any additional shares
to the stockholders of RSI, Commonwealth Principals II, LLC will forfeit an
equal number of shares to Luminant Worldwide Corporation under a forfeiture
agreement we expect to enter into with Commonwealth Principals II, LLC prior to
the closing of this offering and the simultaneous acquisition of the eight
companies. Commonwealth Principals II, LLC, a Virginia limited liability
company, is one of our shareholders. Based on a $12.00 price per share, the
aggregate cash consideration for all eight companies will be $97.6 million. The
cash portion of the purchase
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price will adjust so that it will always equal approximately 39.7% of the market
value of the share portion of the purchase price as of the closing of this
offering.
CONTINGENT CONSIDERATION
The former owners of each company will be eligible to receive two payments
of contingent consideration: one based on the financial results of the
individual company and one based on the consolidated financial results of the
eight companies. The contingent consideration for each company will be based on
a percentage of the amount, if any, by which the actual revenues and actual
pre-tax income of the company for the period beginning July 1, 1999, and ending
December 31, 1999, exceeds the targeted revenue and targeted pre-tax income,
respectively, of the company for that period. The contingent consideration based
on the financial results of the combined companies will be a percentage of the
amount, if any, by which the combined actual revenue and combined actual pre-tax
income of the eight companies for the period beginning January 1, 2000, and
ending June 30, 2000, exceeds our targeted revenues and our targeted pre-tax
income, respectively, for that same period. The targeted revenues for the six
months ending December 31, 1999 for purposes of calculating the individual
company contingent considerations vary from company to company and on average
represent an increase over revenues for the six months ended December 31, 1998
of 134%. The targeted pre-tax incomes for the six months ending December 31,
1999 on average represent an increase over pre-tax incomes for the six months
ended December 31, 1998 of 334%. For purposes of calculating the combined
company contingent consideration, the targeted revenues for the combined
companies for the six months ending June 30, 2000 represent an 88% increase over
revenues for the six months ended June 30, 1999. The targeted pre-tax income for
the combined companies for the six months ending June 30, 2000 represents an
increase of 218% over the pre-tax income for the six months ended June 30, 1999
and does not take into consideration the impact of corporate overhead charges or
the additional costs of being a public company.
The maximum aggregate contingent consideration that each company can earn
for individual company contingent consideration and combined company contingent
consideration is 50% of the initial purchase price for that company or total
contingent consideration of $171.7 million. In addition, the former owners of
Potomac Partners Management Consulting, LLC will be eligible to earn up to an
additional $25.0 million in contingent consideration as described below.
The payment of the contingent consideration based on each company's
performance and on combined company performance will be made within 30 days
after the contingent consideration amount is finally determined, using a
combination of cash and stock. The portion of the contingent consideration to be
paid in stock will be determined by us, in our sole discretion, provided that
cash will comprise no less than 25% and no more than 50% of the contingent
consideration amount. The actual number of shares of common stock will be
determined based on the average closing price of our common stock for the 30
trading days prior to the day before these shares are issued.
In addition to the contingent consideration described above, former owners
of Potomac Partners will be eligible to receive contingent consideration based
on revenues derived from contracts entered into by us or Potomac Partners with
one of its clients after the date of the Potomac Partners' acquisition
agreement. The former owners of Potomac Partners will receive amounts equal to
150% of the revenues received for electronic commerce strategy, business
planning and design services provided to this client, excluding such revenues
generated between July 1, 1999 and December 31, 1999, and 40% of the revenues
received for other services, rendered pursuant to contracts entered into between
July 1, 1999 and June 30, 2002, up to a maximum amount of $25.0 million. We will
pay the contingent consideration within 30 days after completion of our annual
audit for each of our fiscal years ending December 31, 1999, December 31, 2000,
December 31, 2001 and December 31, 2002.
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For purposes of calculating the individual company contingent consideration
as described above that may be earned by the former owners of Potomac Partners
between July 1, 1999 and December 31, 1999, the revenues received by Potomac
Partners for management consulting services pursuant to these contracts will be
included in the actual revenue amounts used in that calculation. For purposes of
calculating the portion of the combined company contingent consideration that
may be earned by the former owners of Potomac Partners, we will not include any
revenues earned from these contracts in determining Potomac Partners' portion of
the combined company contingent consideration. In determining the portion of
combined company contingent consideration that may be earned by the former
owners of the other companies, we will include all revenues earned from these
contracts.
INDIVIDUAL COMPANY INFORMATION
The following shows the consideration to be paid in stock and cash for each
company based on an assumed initial public offering price of $12.00 per share:
<TABLE>
<CAPTION>
MAXIMUM
CONTINGENT
INITIAL PURCHASE PRICE CONSIDERATION
-------------------------------------- ------------------------
VALUE TOTAL COMPANY COMBINED
NAME HEADQUARTERS CASH OF STOCK CONSIDERATION PORTION PORTION
- ------------------------------------- ------------- --------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Align Solutions Corp. Houston, TX $ 36,917 $ 73,702 $ 110,619 $ 27,655 $ 27,655
Brand Dialogue-New York New York, NY -- 55,309 55,309 13,827 13,827
Free Range Media, Inc. Seattle, WA 10,156 23,007 33,163 8,291 8,291
Integrated Consulting, Inc. dba i.con Dallas, TX 4,897 9,721 14,618 3,654 3,654
interactive
InterActive8, Inc. New York, NY 11,920 21,244 33,164 8,291 8,291
MultiMedia Resources, LLC Larchmont, 3,436 8,018 11,454 2,864 2,864
NY
Potomac Partners Management Reston, VA 24,685 41,642 66,327 16,582 16,582
Consulting, LLC
RSI Group, Inc. and subsidiaries Dallas, TX 5,629 13,135 18,764 4,691 4,691
--------- ----------- -------------- ----------- -----------
Total $ 97,640 $ 245,778 $ 343,418 $ 85,855 $ 85,855
--------- ----------- -------------- ----------- -----------
--------- ----------- -------------- ----------- -----------
<CAPTION>
ASSUMED
DEBT
AS OF MARCH
NAME 31, 1999
- ------------------------------------- -------------
<S> <C>
Align Solutions Corp. $ 2,054
Brand Dialogue-New York --
Free Range Media, Inc. --
Integrated Consulting, Inc. dba i.con 222
interactive
InterActive8, Inc. 997
MultiMedia Resources, LLC --
Potomac Partners Management --
Consulting, LLC
RSI Group, Inc. and subsidiaries 873
-------------
Total $ 4,146
-------------
-------------
</TABLE>
In addition, the former owners of Potomac Partners are eligible to receive
up to $25.0 million in additional contingent consideration, as described above.
OPTION GRANTS
Preceding the trading of our common stock, we will grant to Young & Rubicam
Inc. an immediately exercisable ten year option to purchase 1,000,000 shares of
common stock at an exercise price equal to the initial public offering price.
In addition, immediately preceding the trading of our common stock, we
intend to grant options for an aggregate of 2,205,000 shares of common stock
exercisable at the initial public offering price to employees and officers of
the companies who will become our employees at the closing of the acquisitions.
One-sixth of the options will become exercisable every six months over 36 months
from the date of grant. We also intend to grant options for an aggregate of
3,028,141 shares of common stock exercisable at the initial public offering
price to our executive officers, directors and employees and a former officer,
983,316 of which options will be immediately exercisable, with one-sixth of the
remainder becoming exercisable every six months over 36 months from the date of
grant.
CONVERSION OF EXISTING OPTIONS
At the closing of the acquisitions, we will grant to some former owners,
employees and affiliates of one of our companies on conversion of outstanding
options issued by that company, options for 1,570,776 shares of our common
stock.
21
<PAGE>
USE OF PROCEEDS
We estimate that we will receive approximately $133.3 million in net
proceeds, or $153.4 million net proceeds if the underwriters' over-allotment
option is exercised in full, from this offering assuming an initial public
offering price of $12.00 per share. This amount reflects deductions from the
gross proceeds of the offering of approximately $10.6 million, which will be
retained by the underwriters as discounts and commissions and $7.0 million,
representing our estimated expenses for this offering and the acquisitions of
our companies.
We expect to use approximately $4.5 million of the proceeds to repay
advances made to us prior to closing by Commonwealth Principals II, LLC to fund
a portion of the estimated $7 million of expenses for this offering and the
acquisition of the eight companies. These advances earn interest at the prime
rate, which was 8% at July 1, 1999.
We expect to use approximately $97.6 million of the net proceeds from the
offering to pay the cash portion of the purchase prices payable for the
acquisition of our companies based on an assumed initial public offering price
of $12.00 per share, of which $4.1 million will be used to repay assumed notes
payable to several former owners of our companies which are due on demand with
open maturity dates and accrue interest at rates ranging from 9.25% to prime
plus 1%. Prime plus 1% was equal to 9% at July 1, 1999. We will also assume
another $4.1 million of indebtedness in connection with closing of the
acquisition of the eight companies, which we do not expect to repay immediately
after the closing.
We will use the remainder of the net proceeds of approximately $35.7 million
for general corporate purposes, which may include future acquisitions, working
capital and the payment of any additional amounts payable to former owners of
our eight companies under the contingent consideration provisions of the
acquisition agreements. We have no current plans or agreements to acquire any
specific companies or businesses, other than the eight businesses we are
acquiring simultaneously with the closing of this offering. This use of proceeds
does not include the net proceeds from the exercise of the underwriters'
over-allotment option. Until we use the net proceeds of this offering, we intend
to invest these net proceeds in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have not paid, and do not intend to pay, dividends on our common stock in
the foreseeable future. Instead, we will retain our earnings to finance the
expansion of our business and for general corporate purposes. Our Board of
Directors will have the authority to declare and pay dividends on the common
stock at any time, in its discretion, as long as there are funds legally
available for that distribution.
22
<PAGE>
CAPITALIZATION
The following table shows our capitalization at March 31, 1999 on an actual
basis, a pro forma combined basis and on a pro forma as adjusted basis assuming
an initial public offering price of $12.00 per share. The pro forma combined
presentation considers the combined historical balance sheets for Luminant and
the eight companies we will acquire simultaneously with the closing of this
offering, and applies pro forma adjustments to the historical information. The
pro forma as adjusted presentation reflects the pro forma adjustments and also
the closing of this offering, the acquisition of the eight companies
simultaneously with this offering and the application of the estimated net
proceeds we will receive in this offering. The pro forma as adjusted column
below assumes that we will issue 20,481,520 shares of common stock in connection
with the acquisitions of our eight companies. See "Use of Proceeds," and
"Selected Unaudited Pro Forma Combined Financial Data." For a description of the
pro forma adjustments, you should refer to our unaudited pro forma combined
financial statements and notes included elsewhere in this prospectus.
The pro forma as adjusted column does not include 1,886,250 shares to be
issued if the underwriters exercise their over-allotment option in full;
7,803,917 shares of common stock issuable on exercise of stock options to be
outstanding at closing; and an indeterminable number of shares that may be
issued in payment of contingent consideration under the acquisition agreements
as described under "About Luminant Worldwide Corporation." See "Shares Available
for Future Sale."
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
<S> <C> <C> <C>
PRO FORMA PRO FORMA
ACTUAL COMBINED AS ADJUSTED
--------- ----------- ------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current portion of long-term debt........................ $ 50 $ 3,651 $ 3,601
Due to affiliates/stockholders and other acquisition-related obligations..... -- 97,640 --
Long-term debt, less current portion......................................... -- 1,405 1,405
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value per share:
10,000,000 shares authorized; no shares issued and outstanding on an actual
basis; no shares issued and outstanding on a pro forma combined basis; no
shares issued and outstanding on a pro forma as adjusted basis........... -- -- --
Common stock, $0.01 par value per share:
100,000,000 shares authorized; 7,852,571 shares issued and outstanding on
an actual basis; 28,334,091 shares issued and outstanding on a pro forma
combined basis; 40,909,091 shares issued and outstanding on a pro forma
as adjusted basis........................................................ 79 283 409
Additional paid-in capital................................................... 328 199,949 333,115
Retained earnings (deficit).................................................. (477) (41,808) (41,808)
--------- -----------
Total stockholders' equity................................................. (70) 158,424 291,716
--------- -----------
Total capitalization..................................................... $ (20) $ 261,120 $ 296,722
--------- -----------
--------- -----------
</TABLE>
23
<PAGE>
DILUTION
Our pro forma net tangible book value at March 31, 1999 was a negative $92.3
million, or a negative $3.26 per share of common stock. Pro forma net tangible
book value per share of common stock is calculated by dividing the pro forma net
tangible book value of our company by the number of shares of common stock
outstanding on a pro forma basis after giving effect to the acquisitions of our
companies. Our pro forma as adjusted net tangible book value at March 31, 1999
would have been $41.0 million, or $1.00 per share of common stock, based on an
assumed initial public offering price of $12.00 per share, no exercise of the
underwriters' over-allotment option, no payments under the contingent
consideration provisions of the acquisition agreements for our companies, no
exercise of stock options outstanding at closing and no changes in the pro forma
net tangible book value of our company, other than to give effect to the sale of
the shares of common stock offered by this prospectus, and the application of
the net offering proceeds as described under "Use of Proceeds."
This pro forma as adjusted net tangible book value represents an immediate
increase in net tangible book value of $3.89 per share to our existing
stockholders, including the former owners of our companies who will receive
shares of our common stock as partial payment for their equity interests in the
companies upon completion of this offering, and an immediate dilution in pro
forma as adjusted net tangible book value of $10.09 per share to new investors
purchasing shares in this offering. The following table illustrates this pro
forma per share dilution as of March 31, 1999:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....... $ 12.00
Pro forma net tangible book value per share at March
31, 1999............................................ $ (3.26)
Pro forma increase per share attributable to investors
who buy shares in this offering..................... 4.26
---------
Pro forma as adjusted net tangible book value per
share after the offering............................ $ 1.00
---------
Pro forma dilution per share to investors who buy
shares in this offering............................. $ 11.00
---------
---------
</TABLE>
If all our options to purchase 7,803,917 shares of common stock expected to
be outstanding at closing of this offering and the simultaneous acquisition of
the eight companies were exercised in accordance with their terms as of March
31, 1999, our pro forma net tangible book value, as adjusted, based on the
assumptions described above, would have been $2.41 per share of common stock,
representing immediate dilution of $9.59 per share to investors purchasing
shares in this offering.
The following table summarizes, as of March 31, 1999, on a pro forma as
adjusted basis, based upon the above assumptions:
- the number of shares of our common stock purchased by existing
stockholders, including the former owners of the eight companies who will
receive shares of common stock as a partial payment for their equity
interests in the eight companies upon completion of this offering and the
simultaneous acquisition of the eight companies;
- the number of shares of common stock purchased by investors who buy shares
in this offering;
- the total consideration paid to us;
- the average price paid to us; and
24
<PAGE>
- the percentage ownership held by existing stockholders, including the
former owners of the eight acquired companies, and by new investors in
this offering:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
------------------------- --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- --------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 7,852,571 19.19% $ 200,001 .05% $ .03
Former owners of our companies................ 20,481,520 50.07 245,778,240 61.93 12.00
Investors who buy shares in this offering..... 12,575,000 30.74 150,900,000 38.02 12.00
-------------- --------- ---------------- ---------
Total................................... 40,909,091 100.00% $ 396,878,241 100.00%
-------------- --------- ---------------- ---------
-------------- --------- ---------------- ---------
</TABLE>
25
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
We will acquire eight companies simultaneously with and as a condition to
the closing of this offering. Align Solutions Corp., or Align, one of the eight
companies, has been identified as the accounting acquiror for financial
statement presentation purposes.
Our balance sheet data as of December 31, 1998 and the statement of
operations data for the period from our inception on August 21, 1998 to December
31, 1998 have been derived from our audited financial statements included
elsewhere in this prospectus.
The selected historical financial data of our companies are derived in part
from the more detailed historical financial statements and the related notes of
our companies included elsewhere in this prospectus. The balance sheet data as
of December 31, 1997 and 1998 and the statement of operations data for the years
ended December 31, 1996, 1997 and 1998 for Free Range Media, Inc.; Integrated
Consulting, Inc. dba i.con interactive; InterActive8, Inc.; Multimedia
Resources, LLC; and RSI Group, Inc. and subsidiaries have been derived from the
audited financial statements included elsewhere in this prospectus.
The balance sheet data as of December 31, 1997 and 1998 and the statement of
operations data for the period from its inception on October 16, 1996 to
December 31, 1996 and the years ended December 31, 1997 and 1998 for Align
Solutions Corp. have been derived from the audited financial statements included
elsewhere in this prospectus.
The balance sheet data as of December 31, 1997 and 1998 and the statement of
operations data for the period from its inception on November 10, 1997 to
December 31, 1997 and the year ended December 31, 1998 for Potomac Partners
Management Consulting, LLC, have been derived from the audited financial
statements included elsewhere in this prospectus.
The balance sheet data as of December 31, 1997 and 1998 and the statement of
operations data for the period from its inception on April 1, 1996 to December
31, 1996 and the years ended December 31, 1997 and 1998 for Brand Dialogue-New
York have been derived from the audited financial statements included elsewhere
in this prospectus.
26
<PAGE>
The following selected historical financial data should be read together
with the historical financial statements and notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus. All our companies have fiscal years ending
December 31.
The following table shows selected historical financial data for Luminant
and our companies for the stated periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
LUMINANT WORLDWIDE CORPORATION
Revenues........................................ $ -- $ -- $ -- $ -- $ --
Gross profit.................................... -- -- -- -- --
Operating loss.................................. -- -- (245) -- (232)
ALIGN SOLUTIONS CORP.
Revenues........................................ $ 112 $ 3,268 $ 9,226 $ 1,299 $ 4,341
Gross profit.................................... 32 1,485 4,098 542 1,974
Operating income (loss)......................... (201) (149) 1 (152) (3,318)
BRAND DIALOGUE-NEW YORK
Revenues........................................ $ 1,922 $ 4,011 $ 7,237 $ 1,410 $ 2,701
Operating income................................ 577 1,171 964 24 441
FREE RANGE MEDIA, INC.
Revenues........................................ $ 2,940 $ 1,982 $ 3,521 $ 338 $ 2,211
Gross profit (loss)............................. 924 341 272 (180) 749
Operating loss.................................. (1,081) (2,644) (4,650) (1,270) (426)
INTEGRATED CONSULTING, INC., DBA I.CON INTERACTIVE
Revenues........................................ $ 443 $ 849 $ 2,140 $ 456 $ 825
Gross profit.................................... 311 582 1,424 343 575
Operating income (loss)......................... (4) 32 41 127 120
INTERACTIVE8, INC.
Revenues........................................ $ 1,713 $ 2,818 $ 4,097 $ 737 $ 1,613
Gross profit (loss)............................. 657 1,184 2,064 304 (1,489)
Operating income (loss)......................... 197 (198) (355) (386) (1,953)
MULTIMEDIA RESOURCES, LLC
Revenues........................................ $ 1,928 $ 3,476 $ 2,068 $ 652 $ 742
Gross profit.................................... 943 1,039 312 213 428
Operating income................................ 523 502 37 132 336
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
Revenues........................................ $ -- $ 372 $ 4,886 $ 976 $ 2,060
Gross profit (loss)............................. -- 82 (200) 322 (4,171)
Operating income (loss)......................... -- (4) (1,076) 142 (4,660)
RSI GROUP, INC. AND SUBSIDIARIES
Revenues........................................ $ 16,133 $ 15,724 $ 16,927 $ 4,338 $ 3,253
Gross profit.................................... 4,470 4,074 4,656 1,188 889
Operating income (loss)......................... 365 329 403 227 (825)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
LUMINANT WORLDWIDE CORPORATION
Total assets................................................................ $ -- $ 162 $ 56
Long-term debt.............................................................. -- -- 50
Total equity (deficit)...................................................... -- 162 (70)
ALIGN SOLUTIONS CORP.
Total assets................................................................ $ 1,328 $ 3,066 $ 13,489
Long-term debt.............................................................. 297 227 254
Total equity................................................................ 601 1,468 10,797
BRAND DIALOGUE-NEW YORK
Total assets................................................................ $ 1,449 $ 2,127 $ 4,427
Long-term debt.............................................................. -- -- --
Total equity................................................................ 833 1,058 2,350
FREE RANGE MEDIA, INC.
Total assets................................................................ $ 900 $ 1,696 $ 2,772
Long-term debt.............................................................. -- -- --
Total equity (deficit)...................................................... 577 (2,583) (3,059)
INTEGRATED CONSULTING, INC., DBA I.CON INTERACTIVE
Total assets................................................................ $ 248 $ 498 $ 772
Long-term debt.............................................................. -- 64 124
Total equity................................................................ 63 103 204
INTERACTIVE8, INC.
Total assets................................................................ $ 793 $ 1,439 $ 1,835
Long-term debt.............................................................. 178 723 947
Total deficit............................................................... (43) (246) (2,199)
MULTIMEDIA RESOURCES, LLC
Total assets................................................................ $ 804 $ 346 $ 795
Long-term debt.............................................................. -- -- --
Total equity................................................................ 455 174 461
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
Total assets................................................................ $ 427 $ 2,072 $ 2,133
Long-term debt.............................................................. -- -- --
Total equity (deficit)...................................................... 297 (246) (5,135)
RSI GROUP, INC. AND SUBSIDIARIES
Total assets................................................................ $ 3,533 $ 3,936 $ 3,109
Long-term debt.............................................................. 89 98 84
Total equity................................................................ 1,076 1,098 1,002
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Financial Data," "Pro Forma Selected Unaudited Combined Financial
Data," our unaudited pro forma combined financial statements and the related
notes and the historical financial statements and the related notes of our
companies appearing elsewhere in this prospectus. A number of statements in this
prospectus address activities, events or developments that we expect may occur
in the future, including such matters as our strategy for internal growth;
additional capital expenditures, including the amount and nature of the
expenditures; acquisitions of assets and businesses; industry trends; and other
similar matters. These statements are based on assumptions and analyses made in
light of our perception of historical trends, current business and economic
conditions, and expected future developments, as well as other factors we
believe are reasonable or appropriate. Whether actual results and developments
will conform with our expectations and predictions, however, is subject to a
number of risks and uncertainties, including those set forth in "Risk Factors;"
general economic, market or business conditions; the business opportunities we
may pursue; changes in laws or regulations; and other factors, many of which are
beyond our control. Consequently, we can not assure you that our actual results
or developments will be realized or, even if substantially realized, that they
will have the expected consequences to, or effects on, our business or
operations.
OVERVIEW
Luminant was established to provide one source of integrated Internet and
electronic commerce services to clients on a local and national level. Luminant
was formed in August 1998 to consolidate the operations of eight Internet and
electronic commerce businesses into a nationally recognized Internet and
electronic commerce services firm. Prior to the closing of this offering and the
simultaneous acquisition of the eight companies, we have not conducted any
material operations. The information relating to our clients, business and other
operations set forth under "Summary," "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," "Business" and other places in
this prospectus assumes the closing of this offering and the acquisition of the
eight companies. Our services focus on strategy consulting and creative and
technology solutions. We also provide value-added services that assist clients
in establishing, developing and maintaining their Internet and electronic
commerce-related businesses. Our companies and their principal business
locations are:
<TABLE>
<S> <C>
Align Solutions Corp. Houston, Texas
Brand Dialogue-New York New York, New York
Free Range Media, Inc. Seattle, Washington
Integrated Consulting, Inc. dba i.con Dallas, Texas
interactive
InterActive8, Inc. New York, New York
Multimedia Resources, LLC Larchmont, New York
Potomac Partners Management Consulting, LLC Reston, Virginia
RSI Group, Inc. and subsidiaries Dallas, Texas
</TABLE>
Our customers generally retain us on a project-by-project basis. We
typically do not have material contracts that commit a customer to use our
services on a long-term basis. Revenue is recognized primarily using the
percentage of completion method on a contract-by-contract basis. Our use of the
percentage of completion method of revenue recognition requires management to
estimate the degree of completion of each project. To the extent these estimates
prove to be inaccurate, the revenues and gross profits reported for periods
during which work on the project is ongoing may not accurately reflect the final
financial results of the project. We make
29
<PAGE>
provisions for estimated losses on uncompleted contracts on a
contract-by-contract basis and recognize these provisions in the period in which
the losses are determined.
We provide our services primarily on a fixed-price, fixed-time frame basis.
We use internally developed processes to estimate and propose fixed prices for
our projects. The estimation process accounts for standard billing rates
particular to each project based upon the level of expertise and number of
consultants required, the technology environment, the overall technical
complexity and whether strategic, creative or technology solutions or
value-added services are being provided to the client. We also provide services
on a time and materials basis.
Align has been identified as the "accounting acquiror" for our financial
statement presentation, and its assets and liabilities are being recorded at
historical cost levels. Each of the remaining acquisitions of our companies will
be accounted for using the purchase method of accounting. Accordingly, the
purchase prices for those companies have been allocated based on preliminary
estimates of the fair value of the tangible assets and liabilities to be
assumed, as of March 31, 1999. The excess of the fair value of the consideration
paid over the fair value of the net assets to be acquired, other than those of
Align, totals approximately $228.5 million and is recorded as goodwill on our
pro forma balance sheet. Because the Internet and electronic commerce industries
are in the early stage of development and are continuing to evolve rapidly, the
recorded goodwill from the acquisitions will be amortized on a straight line
basis over three years, the estimated period of benefit. The pro forma impact of
this amortization expense is approximately $76.2 million per year. See the notes
to our unaudited pro forma combined financial statements. In addition, pro forma
amortization expense includes approximately $2.5 million per year related to the
estimated fair value of options to be granted to the owners of Brand
Dialogue-New York.
Subsequent to December 31, 1998, Align has acquired three businesses in
exchange for Align common stock. The Align acquisitions will be accounted for
using the purchase method of accounting. The excess of fair value of the
consideration paid over the fair value of the net assets to be acquired for
Fifth Gear Media Corporation, inmedia, inc. and Synapse Group, Inc. totals
approximately $15.1 million and is recorded as goodwill on our pro forma balance
sheet. Goodwill from the acquisitions will be amortized on a straight line basis
over three years, the estimated period of benefit. The pro forma impact of
amortization expense for Align's acquisitions is approximately $5.0 million per
year.
PRO FORMA COMBINED RESULTS OF OPERATIONS
Our pro forma combined results of operations for the periods presented do
not represent combined results of operations presented in accordance with
generally accepted accounting principles, but are only a summation of the
revenues, operating expenses and general and administrative expenses of our
companies on a pro forma basis. The pro forma combined results may not be
comparable to, and may not be indicative of, our post-combination results of
operations because:
- our companies were not under common control or management during the
periods presented;
- we will incur incremental costs related to our new corporate management
and the costs of being a public company; and
- the combined data do not reflect potential benefits and cost savings we
may realize when operating as a combined entity.
The following discussion should be read in conjunction with our unaudited pro
forma combined financial statements and the related notes and the historical
financial statements and the related notes of the eight companies we will
acquire appearing elsewhere in this prospectus. The
30
<PAGE>
following table sets forth the combined results of operations of the companies
we will acquire on a pro forma basis:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MARCH
DECEMBER 31, 31,
------------- ------------------------
1998 1998 1999
------------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues.............................................. $ 54,846 $ 11,563 $ 18,415
Cost of services...................................... 36,268 7,673 11,245
------------- ----------- -----------
Gross profit.......................................... 18,578 3,890 7,170
Selling, general and administrative................... 26,014 6,148 7,394
Equity based compensation expense..................... 8,186 7,361 284
Intangibles amortization.............................. 83,775 20,936 20,947
------------- ----------- -----------
Loss from operations.................................. $ (99,397) $ (30,555) $ (21,455)
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
LUMINANT WORLDWIDE CORPORATION--UNAUDITED PRO FORMA COMBINED RESULTS OF
OPERATIONS-- THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1999
REVENUES. Revenues increased approximately $6.9 million, or 59%. This
increase resulted from an increase in the number and size of client projects
offset by a $1.1 million decline in revenues at RSI due to a decrease in
staffing related to a decrease in business with a major client. No client
contributed in excess of 10% of our revenues during the period.
COST OF SERVICES. Cost of services increased approximately $3.6 million, or
47%. The increase resulted from direct costs related to the increased number of
client projects. Gross profit margins increased from 34% for the three months
ended March 1998 to 39% for the same period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $1.2 million, or 20%. The increase resulted
from additional expenses needed to support sales growth. Selling, general and
administrative expenses as a percentage of revenues decreased from 53% for the
three months ended March 31, 1998 to 40% for the three months ended March 31,
1999.
EQUITY BASED COMPENSATION EXPENSE. Equity based compensation expense
decreased approximately $7.1 million, or 87%. The March 31, 1998 expense is
related to vested options granted at less than fair market value in connection
with Align's 1999 acquisitions. A significant number of options immediately
vested upon grant. The March 31, 1999 expense is related to the continued
vesting of the options granted at less than fair market value in connection with
Align's 1999 acquisitions. Included in the three months ended March 31, 1998,
equity based compensation expense are provisions for stock issuances at less
than fair market value to Luminant management.
LUMINANT WORLDWIDE CORPORATION--UNAUDITED PRO FORMA COMBINED RESULTS OF
OPERATIONS FOR 1998
REVENUES. Pro forma consolidated revenues for the year ended December 31,
1998 were $54.8 million and cost of services for the same period were $36.3
million with a gross profit margin of 34%.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $26 million, for the year ended December 31, 1998, or 47% of
revenues.
EQUITY BASED COMPENSATION EXPENSE. Equity based compensation expense is
comprised of charges related to vested options granted at less than fair market
value related to Align's 1999 acquisitions and for stock issuances at less than
fair market value to Luminant management.
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<PAGE>
SEASONALITY AND CYCLICALITY; POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING
RESULTS
We believe that the market for Internet and electronic commerce related
professional services is influenced by general economic conditions and
particularly by the level of technological change in the industry. Increased
levels of technological change drive the need for professional services we
provide. We also believe that the industry tends to experience periods of
decline and recession during economic downturns. If the industry does experience
sustained periods of economic recessions, any decline may have a material
adverse effect on our operating results. We plan our operating expenditures
based on revenue forecasts, and a revenue shortfall below forecasts in any
quarter would likely adversely affect our operating results for that quarter.
For other factors which could cause quarterly fluctuations and influence
operating results, please see "Risk Factors--We are affected by seasonal factors
that could cause our revenues to fluctuate from quarter to quarter."
ALIGN SOLUTIONS CORP.--RESULTS OF OPERATIONS
Align has offices in Houston and Dallas, Texas and Atlanta, Georgia and has
214 employees. The following table sets forth certain selected financial data
for Align on a historical basis for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1996(1) 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues................................................... $ 112 $ 3,268 $ 9,226 $ 1,299 $ 4,341
Cost of services........................................... 80 1,783 5,128 757 2,367
--------- --------- --------- --------- ---------
Gross profit............................................... 32 1,485 4,098 542 1,974
Selling, general and administrative........................ 233 1,634 4,097 694 5,292
--------- --------- --------- --------- ---------
Operating income (loss).................................... $ (201) $ (149) $ 1 $ (152) $ (3,318)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Inception - October 1996
ALIGN SOLUTIONS CORP.--THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased approximately $3.0 million, or 234%. This
increase resulted from an increase in the number and size of client projects.
For the three months ended March 31, 1999, Enron Energy Services contributed 29%
of total revenues. No other client contributed 10% or more of Align's revenues
during the period.
32
<PAGE>
COST OF SERVICES. Cost of services increased approximately $1.6 million, or
213%. The increase resulted from costs related to the addition of 61
consultants. Gross profit margin increased from 42% for the three months ended
March 31, 1998 to 45% for the same period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $4.6 million, or 663%. The increase resulted
from compensation charges of $3.2 million for stock options issued below fair
market value during the three months ended March 31, 1999 and an increase in
personnel costs related to the addition of nine employees.
ALIGN SOLUTIONS CORP.--1997 COMPARED TO 1998
REVENUES. Revenues increased approximately $6.0 million, or 182%. This
increase resulted from an increase in the number and size of client projects.
For the year ended December 31, 1998, Enron Energy Services contributed 19% of
total revenues and Administaff contributed 21% of total revenues. No other
client contributed 10% or more of Align's revenues during the period.
COST OF SERVICES. Cost of services increased approximately $3.3 million, or
188%. The increase resulted from costs related to the addition of 60 consultants
due to the increased number of client projects. Gross profit margin decreased
from 45% for the year ended December 31, 1997 to 44% for the same period in
1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $2.5 million, or 151%. The increase resulted
from the addition of personnel to support revenue growth targets.
ALIGN SOLUTIONS CORP.--1996 COMPARED TO 1997
REVENUES. Revenues increased approximately $3.2 million, or 2,818%. Align
was founded in October 1996 and thus 1996 reflects only three months of
operations.
For the period ended December 31, 1996, revenues from Chevron and Internet
Commerce Corporation accounted for 60% of total revenues. For the year ended
December 31, 1997, Nitro contributed 12% of total revenues and Chevron
contributed 14% of total revenues. No other client accounted for 10% or more of
Align's revenues in these periods.
COST OF SERVICES. Cost of services increased approximately $1.7 million, or
2,129%. The increase resulted from a full year's operations and expenses in 1997
compared to three months of operations in 1996. Gross profit margin increased
from 29% for the year ended December 31, 1996 to 45% for the same period in
1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $1.4 million, or 601%. The increase resulted
from 1997 being the first full year of Align's operations.
ALIGN SOLUTIONS CORP.--LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, Align had approximately $209,000 in cash and cash
equivalents compared to $0 at December 31, 1998. Cash used in operations was
$243,000 for the year ended December 31, 1998 and $234,000 for the three months
ended March 31, 1999. In all periods, the net cash used in operating activities
was due to a net loss, offset by adjustments for non-cash equity related
compensation charges, and growth in the business, resulting in increases in
accounts receivable and unbilled revenue.
33
<PAGE>
Cash used in investing activities was $767,000 for the year ended December
31, 1998 and $208,000 for the three months ended March 31, 1999. In all periods
cash used in financing activities was for capital expenditures for the purchase
of computer equipment, furniture and fixtures and leasehold improvements.
Cash from financing activities was $999,000 for the year ended December 31,
1998 and $652,000 for the three months ended March 31, 1999. Financing was
provided by borrowings on Align's line of credit and long-term debt during the
year ended $125,000 December 31, 1998 and $670,000 for the three months ended
March 31, 1999. Proceeds from the issuance of common stock were $944,000 during
the year ended December 31, 1998. At March 31, 1999, the Company's revolving
credit facilities provided for borrowings up to $1.2 million. At March 31, 1999,
approximately $225,000 remained available for borrowing under the credit
facilities.
In February 1999, Align acquired all of the capital stock of Synapse Group,
Inc., an Internet consulting company. The purchase was completed by the issuance
of 805,736 shares of Align's stock and 472,744 options, and resulted in goodwill
of approximately $9.4 million, which is being amortized on a straight-line basis
over an estimates useful life of three years.
Unbilled revenues increased approximately $795,000 from $11,000 on December
31, 1998 to $806,000 on March 31, 1999, due to the addition of new customer
accounts. Approximately $417,000 in unbilled revenues is due to a single
customer, Merrill Lynch.
Accrued bonus increased to approximately $668,000 at December 31, 1998 from
$0 at December 31, 1997. During 1998, Align accrued a monthly bonus based on
each employee's performance and paid it during 1999. Align has an accrued bonus
of approximately $327,000 at March 31, 1999.
Total stockholders' equity increased approximately $9.3 million from $1.5
million on December 31, 1998 to $10.8 million on March 31, 1999, due to the
additional paid-in capital from the purchase of Synapse Group Inc.
BRAND DIALOGUE-NEW YORK, THE NEW YORK BRANCH OF A YOUNG & RUBICAM
DIVISION,--RESULTS OF OPERATIONS
Brand Dialogue-New York, a wholly-owned business of Young & Rubicam Inc., is
located in New York City and has 87 employees. The following table shows certain
selected financial data for Brand Dialogue-New York on a historical basis for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
-------------------- --------------------
1996(1) 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.................................................... $ 1,922 $ 4,011 $ 7,237 $ 1,410 $ 2,701
Compensation expense, including employee benefits........... 943 1,842 4,596 1,005 1,560
General and administrative expenses......................... 402 998 1,677 381 700
--------- --------- --------- --------- ---------
Operating income............................................ $ 577 $ 1,171 $ 964 $ 24 $ 441
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Inception-April 1996
34
<PAGE>
BRAND DIALOGUE-NEW YORK--THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased approximately $1.3 million, or 92%. This
increase resulted from an increase in the number and size of client projects.
For the three months ended March 31, 1999, the United States Postal Service
contributed 19% of total revenues, Citibank contributed 14% of total revenues,
GeoCities contributed 17% of total revenues and Pfizer contributed 11% of total
revenues. No other client contributed 10% or more of Brand Dialogue-New York's
revenues during the period.
COMPENSATION EXPENSE, INCLUDING EMPLOYEE BENEFITS. Compensation expense
increased approximately $555,000, or 55%. The increase resulted from additional
costs associated with 33 employees hired during the period to support new
business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by approximately $319,000, or 84%. This increase was a result of
additional overhead necessary to support Brand Dialogue-New York's growth.
BRAND DIALOGUE-NEW YORK--1997 COMPARED TO 1998
REVENUES. Revenues increased approximately $3.2 million, or 80%. This
increase resulted from an increase in the number and size of client projects.
For the year ended December 31, 1998, AT&T contributed 29% of total revenues,
Pfizer contributed 13% of total revenues, the United States Postal Service
contributed 12% of total revenues and Citibank contributed 11% of total
revenues. No other client contributed 10% or more of Brand Dialogue-New York's
revenues during the period.
COMPENSATION EXPENSE, INCLUDING EMPLOYEE BENEFITS. Compensation expense
increased approximately $2.8 million, or 150%. The increase resulted from the
addition of 31 employees and employee-related costs associated with the overall
growth in business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by approximately $679,000, or 68%. The increase resulted from
additional costs associated with an increase in personnel.
BRAND DIALOGUE-NEW YORK--1996 COMPARED TO 1997
REVENUES. Revenues increased approximately $2.1 million, or 109%. This
increase was due to 1997 being the first full year of operations. Brand
Dialogue-New York was started in April 1996. Further, this increase was due to
an increase in the number and size of client projects. For the year ended
December 31, 1997, AT&T contributed 23% of total revenues, Cadbury Schweppes
contributed 15% of total revenues, Ford Motor Company contributed 11% of total
revenues and Whitehall contributed 10% of total revenues. No other client
contributed 10% or more of Brand Dialogue-New York's revenues during the period.
COMPENSATION EXPENSE, INCLUDING EMPLOYEE BENEFITS. Compensation expense
increased approximately $899,000, or 95%. The increase was proportionate with
revenue growth and the result of the addition of 20 personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by approximately $596,000, or 148%. The increase resulted from higher
overhead associated with a 100% increase in personnel.
35
<PAGE>
BRAND DIALOGUE-NEW YORK--LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $724,000 for the year ended December 31,
1998 due to a growth in the business offset by fluctuations in working capital.
Cash used in operations was $1.0 million for the three months ended March 31,
1999 due primarily to an increase in accounts receivable of $2.1 million offset
by an increase in accounts payable and accrued expenses of $1.0 million.
Cash used in investing activities was $388,000 for the year ended December
31, 1998 and $28,000 for the three months ended March 31, 1999. In all periods
cash used in financing activities was for capital expenditures.
Cash used in financing activities was $336,000 for the year ended December
31, 1998 due to the return of cash received from Young & Rubicam. Cash flows
provided by financing activities was $1 million for the three months ended March
31, 1999 due to payments received from Young & Rubicam.
FREE RANGE MEDIA, INC.--RESULTS OF OPERATIONS
Free Range Media, Inc., or Free Range, is located in Seattle, Washington and
has 79 employees. The following table shows certain selected financial data for
Free Range on a historical basis for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 2,940 $ 1,982 $ 3,520 $ 338 $ 2,211
Cost of services.......................................... 2,016 1,641 3,248 518 1,462
--------- --------- --------- --------- ---------
Gross profit.............................................. 924 341 272 (180) 749
Selling, general and administrative....................... 2,005 2,985 4,922 1,090 1,175
--------- --------- --------- --------- ---------
Operating loss............................................ $ (1,081) $ (2,644) $ (4,650) $ (1,270) $ (426)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
FREE RANGE MEDIA, INC.--THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased approximately $1.9 million, or 554%. This
increase resulted from an increase in the number and size of client projects.
For the three months ended March 31, 1999, Key Bank contributed 25% of total
revenues. No other client contributed 10% or more of Free Range's revenues
during the period.
COST OF SERVICES. Cost of services increased approximately $944,000, or
182%. The increase resulted from direct costs related to the increased number
and size of client projects. Gross profit margin increased from a negative 53%
for the three months ended March 31, 1998 to 34% for the same period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $85,000, or 8%. The increase resulted from
compensation expense recognized under the equity incentive plan.
36
<PAGE>
FREE RANGE MEDIA, INC.--1997 COMPARED TO 1998
REVENUES. Revenues increased approximately $1.5 million, or 78%. This
increase resulted from an increase in the number and size of client projects. No
client contributed 10% or more of Free Range's revenues during the period.
COST OF SERVICES. Cost of services increased approximately $1.6 million, or
98%. The increase resulted from costs associated with the hiring of 11
consultants. Gross profit margin decreased from 17% for the year ended December
31, 1997, to 8% for the same period in 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $1.9 million, or 65%. This increase resulted
from opening sales offices throughout the U.S. to support anticipated growth.
Selling, general and administrative expenses as a percentage of revenues
decreased from 151% for the year ended December 31, 1997 to 140% for the year
ended December 31, 1998.
FREE RANGE MEDIA, INC.--1996 COMPARED TO 1997
REVENUES. Revenues decreased approximately $958,000, or 33%. No client
accounted for 10% or more of Free Range's revenues in these periods. This
decrease was due to Free Range's focus on fewer clients, rather than single
projects from multiple clients.
COST OF SERVICES. Cost of services decreased approximately $375,000, or
19%. The decrease resulted from a decrease in direct costs associated with fewer
client projects. Gross profit margin decreased from 31% for the year ended
December 31, 1996 to 17% for the same period in 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $980,000, or 49%. The increase was
attributable to additional personnel necessary to support anticipated growth.
FREE RANGE MEDIA, INC.--LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, Free Range had approximately $48,000 in cash and cash
equivalents compared to $30,000 at December 31, 1998. Cash used in operations
was $4.1 million and $815,000 for the period ended December 31, 1998 and March
31, 1999. In all periods, the net cash used in operating activities was due to a
net loss.
Cash used in investing activities was $247,000 for the year ended December
31, 1998 and $69,000 for the three months ended March 31, 1999. In all periods
cash used in financing activities was for capital expenditures for the purchase
of computer equipment, furniture and fixtures and leasehold improvements.
Additionally, in 1998, Free Range sold their interest in FreeZone, LLC for
$680,000.
Cash provided by financing activities was $4.5 million for the year ended
December 31, 1998 and $902,000 for the three months ended March 31, 1999. In
1998, cash was provided by borrowings of $3.2 million and issuance of $1.2
million aggregate liquidation preference of preferred stock to a related party.
In 1999, $902,000 of cash was provided from borrowings on a note payable with a
related party.
37
<PAGE>
INTEGRATED CONSULTING, INC.--RESULTS OF OPERATIONS
Integrated Consulting, Inc. dba i.con interactive, or i.con, is
headquartered in Dallas, Texas, and has 40 employees. The following table sets
forth certain selected financial data for i.con on a historical basis for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues....................................................... $ 443 $ 849 $ 2,140 $ 456 $ 825
Cost of services............................................... 132 267 716 113 250
--------- --------- --------- --------- ---------
Gross profit................................................... 311 582 1,424 343 575
Selling, general and administrative............................ 315 550 1,383 216 455
--------- --------- --------- --------- ---------
Operating income (loss)........................................ $ (4) $ 32 $ 41 $ 127 $ 120
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
INTEGRATED CONSULTING, INC.--THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased approximately $369,000 or 81%. This increase
resulted primarily from an increase in the number of clients and the size of
engagements. i.con earned a portion of its revenue under barter arrangements
with certain customers for website development and maintenance services in
exchange for advertising. Barter revenues increased approximately $92,000, or
168% from $55,000 for the three months ended March 31, 1998 to $147,000 for the
same period in 1999. This increase resulted primarily from an increase in web
development services for the Texas Rangers Baseball Club and Dallas Stars Hockey
Club. For the three months ended March 31, 1999, Ericsson contributed 13% of
total revenues and the Texas Rangers contributed 12% of total revenues. No other
client contributed 10% or more of i.con's revenues during the period.
COST OF SERVICES. Cost of services increased approximately $137,000, or
121%. The increase resulted from costs associated with the hiring of 11
consultants due to the increased number of client projects. Gross profit margin
decreased from 75% for the three months ended March 31, 1998 to 70% for the same
period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $239,000, or 111%. The increase resulted
from the addition of five personnel.
INTEGRATED CONSULTING, INC.--1997 COMPARED TO 1998
REVENUES. Revenues increased approximately $1.3 million, or 152%. This
increase resulted primarily from an increase in the number, size and scope of
engagements. i.con earned a portion of its 1998 revenue under barter
arrangements with certain customers for website development and maintenance
services in exchange for advertising. Barter revenues were $425,000 for the year
ended December 31, 1998 and were $0 for the year ended December 31, 1997. This
increase related primarily to the recording of revenue for transactions with the
Texas Rangers Baseball Club and Dallas Stars Hockey Club. Barter revenue was not
recorded for year end December 31, 1997, as i.con had not entered into a
formalized plan with the Texas Rangers or Dallas Stars and did not meet
requirements for recording barter revenue in that period. For the year ended
December 31, 1998, the Dallas Stars contributed 12% of total revenues. No other
client contributed 10% or more of i.con's revenues during the period.
COST OF SERVICES. Cost of services increased approximately $449,000, or
168%. The increase resulted from costs associated with a 70% increase in the
number of consultants. Gross
38
<PAGE>
profit margin decreased from 69% for the year ended December 31, 1997 to 67% for
the same period in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $833,000, or 151%. The
increase resulted from the addition of seven personnel.
INTEGRATED CONSULTING, INC.--1996 COMPARED TO 1997
REVENUES. Revenues increased approximately $406,000, or 92%. This increase
resulted from an increase in the number and size of client projects. For the
year ended December 31, 1997, S2 Systems contributed 13% of total revenues and
Alcatel Network Systems contributed 10% of total revenues. No other client
contributed 10% or more of i.con's revenues during the period.
COST OF SERVICES. Cost of services increased approximately $135,000, or
102%. This increase was due to a 67% increase in the number of consultants.
Gross profit margin decreased from 70% for the year ended December 31, 1996 to
69% for the same period in 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $235,000, or 75%. The increase resulted from
the addition of personnel.
INTEGRATED CONSULTING, INC.--LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, i.con had approximately $16,000 in cash and cash
equivalents compared to $9,000 at December 31, 1998. Cash provided by operations
was $49,000 in 1998, which was due to net income and other working capital
changes due to the overall growth in the Company. Cash used in operations was
$29,000 for the three months ended March 31, 1999, which was due to fluctuations
in working capital changes due to the growth in the business.
Cash used in investing activities was $147,000 for the year ended December
31, 1998 and $122,000 for the three months ended March 31, 1999. In all periods
cash used in financing activities was for capital expenditures for the purchase
of computer equipment, furniture and fixtures and leasehold improvements.
In 1998, cash provided from financing activities was $64,000 from proceeds
from long-term debt. For the three months ended March 31, 1999, cash of $97,000
was provided from borrowings on i.con's line of credit and proceeds from
long-term debt. At March 31, 1999, i.con's revolving credit facilities provided
for borrowings up to $100,000. There was no borrowing available under the credit
facility.
39
<PAGE>
INTERACTIVE8, INC.--RESULTS OF OPERATIONS
InterActive8, Inc., or InterActive8, is located in New York, New York, and
has 64 employees. The following table sets forth certain selected financial data
for InterActive8 on a historical basis for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 1,713 $ 2,818 $ 4,097 $ 737 $ 1,613
Cost of services........................................... 1,056 1,634 2,033 433 3,102
--------- --------- --------- --------- ---------
Gross profit............................................... 657 1,184 2,064 304 (1,489)
Selling, general and administrative........................ 460 1,382 2,419 690 464
--------- --------- --------- --------- ---------
Operating income (loss).................................... $ 197 $ (198) $ (355) $ (386) $ (1,953)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
INTERACTIVE8, INC.--THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS
ENDED MARCH 31, 1999
REVENUES. Revenues increased approximately $876,000, or 118%. This increase
resulted from an increase in the number and size of client projects, including
Maybelline. For the three months ended March 31, 1999, A&E Television Networks
contributed 33% of total revenues and M&M/Mars contributed 15% of total
revenues. No other client contributed 10% or more of InterActive8's revenues
during the period.
COST OF SERVICES. Cost of services increased approximately $2.7 million, or
616%. The increase resulted from direct costs related to the hiring of 22
consultants as well as the recognition of compensation expense for equity
appreciation rights in the amount of $2.2 million. Gross profit margin decreased
from 41% for the three months ended March 31, 1998 to a negative 92% for the
same period in 1999. However, excluding equity related compensation expense, the
gross profit margin would have been 50%.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased by approximately $226,000, or 33%. The decrease resulted from
a reduction in personnel.
INTERACTIVE8, INC.--1997 COMPARED TO 1998
REVENUES. Revenues increased approximately $1.3 million, or 45%. This
increase was due to an increase in the number and size of client projects. For
the year ended December 31, 1998, A&E Television Networks contributed 35% of
total revenues and M&M/Mars contributed 10% of total revenues. No other client
contributed 10% or more of InterActive8's revenues during the period.
COST OF SERVICES. Cost of services increased approximately $399,000, or
24%. The increase resulted from costs related to the hiring of nine consultants
due to the increased number of client projects. Gross profit margin increased
from 42% for the year ended December 31, 1997 to 50% for the same period in
1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $1.0 million, or 75%. The increase resulted
from an increase in overhead associated with the increased volume of business.
40
<PAGE>
INTERACTIVE 8, INC.--1996 COMPARED TO 1997
REVENUES. Revenues increased approximately $1.1 million, or 65%. This
increase resulted from an increase in the number and size of client projects.
For the year ended December 31, 1997, A&E Television Networks contributed 31% of
total revenues, AT&T contributed 14% of total revenues and M&M/Mars contributed
21% of total revenues. No other client contributed 10% or more of InterActive8's
revenues during the period.
COST OF SERVICES. Cost of services increased approximately $578,000, or
55%. The increase resulted from the addition of professional consulting
personnel. Gross profit margin increased from 38% for the year ended December
31, 1996 to 42% for the same period in 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $922,000, or 200%. The increase resulted
from increased personnel costs.
INTERACTIVE8, INC.--LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, InterActive8, Inc. had approximately $461,000 in cash and
cash equivalents compared to $130,000 at December 31, 1998. Cash provided by
operations was $648,000 for the three months ended March 31, 1999. Cash used in
operations was $549,000 for the year ended December 31, 1998. In all periods,
cash from/used in operations was due to InterActive8, Inc.'s net loss offset by
working capital changes due to the growth of the business. Additionally, for the
three months ended March 31, 1999, the net loss of $2.0 million was offset by a
non-cash compensation charge of $2.2 million.
Cash used in investing activities was $151,000 for the year ended December
31, 1998 and $278,000 for the three months ended March 31, 1999. In all periods
cash used in financing activities was for capital expenditures for the purchase
of computer equipment and leasehold improvements.
Cash used in financing activities was $37,000 for the three months ended
March 31, 1999 due to payment on InterActive8, Inc.'s line of credit and
long-term debt. Cash provided by financing activities for the period ended
December 31, 1998 was $738,000, due to borrowings on InterActive8, Inc.'s credit
facility and long-term debt of $746,000 and the issuance of common stock for
$50,000. At March 31, 1999, InterActive8, Inc.'s revolving credit facilities
provided for borrowings up to $250,000. There was no borrowing available under
the credit facility.
41
<PAGE>
MULTIMEDIA RESOURCES, LLC--1996 COMPARED TO 1997
REVENUES. Revenue increased approximately $1.5 million, or 80%. This
increase resulted from Internet development projects for MasterCard
International, MSNBC and the Society of European Satellites, or SES. For the
year ended December 31, 1997, MasterCard International contributed 63% of total
revenues and SES contributed 14% of total revenues. No other clients contributed
10% or more of Multimedia's revenues during the period.
COST OF SERVICES. Cost of services increased approximately $1.5 million, or
147%. The increase resulted from additional personnel and $1.3 million for
contract employees to support Internet development work for MasterCard
International. Gross profit margin decreased from 49% for the year ended
December 31, 1996 to 30% for the same period in 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $117,000, or 28%.
MULTIMEDIA RESOURCES, LLC--LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, Multimedia had approximately $344,000 in cash and cash
equivalents compared to $121,000 at December 31, 1998. Cash provided by
operations was $348,000 for the year ended December 31, 1998 and $273,000 for
the three months ended March 31, 1999. In all periods, the net cash provided by
operating activities was due to Multimedia generating net income and
fluctuations in working capital changes due to the growth in the business.
Cash used in investing activities was $4,000 for the year ended December 31,
1998 and was used for capital expenditures.
Cash from financing activities was $324,000 for the year ended December 31,
1998 and $50,000 for the three months ended March 31, 1999 representing
distributions to members.
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC--RESULTS OF OPERATIONS
Potomac Partners Management Consulting, LLC, or Potomac Partners, is located
in Reston, Virginia, has operations in eight states, and has 41 employees. The
following table sets forth certain selected financial data for Potomac Partners
on a historical basis for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------- --------------------
1997(1) 1998 1998 1999
----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues.............................................. $ 372 $ 4,886 $ 976 $ 2,060
Cost of services...................................... 290 5,086 654 6,231
----- ------------- --------- ---------
Gross profit.......................................... 82 (200) 322 (4,171)
Selling, general and administrative................... 86 876 180 489
----- ------------- --------- ---------
Operating income (loss)............................... $ (4) $ (1,076) $ 142 $ (4,660)
----- ------------- --------- ---------
----- ------------- --------- ---------
</TABLE>
- ------------------------
(1) Inception--November 1997
42
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC--THREE MONTHS ENDED MARCH 31, 1998
COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased approximately $1.1 million, or 111%. This
increase resulted from an increase in the number and size of client projects.
For the three months ended March 31, 1999, United Airlines contributed 39% of
total revenues and Wells Fargo contributed 39% of total revenues. No other
client contributed 10% or more of Potomac Partners' revenues during the period.
COST OF SERVICES. Cost of services increased approximately $5.6 million, or
853%. Approximately $5.0 million, or 88%, of the increase was due to
compensation expense for the value of equity participation rights. The remaining
portion of the increase is attributable to the hiring of 10 consultants. Gross
profit margin decreased from 33% for the three months ended March 31, 1998 to a
negative 202% for the same period in 1999. However, excluding equity related
compensation expense, the gross profit margin would have been 35% for 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $309,000, or 172%. The increase resulted
from a $160,000 increase in bad debt expense and $53,000 increase in personnel
costs. No other individual expense items comprised a significant portion of the
remaining charge.
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC--1997 COMPARED TO 1998
REVENUES. Revenues increased approximately $4.5 million, or 1,213%. The
increase resulted from having a full year of operations for the year ended
December 31, 1998, during which there was an increase in the number of clients.
For the year ended December 31, 1998, Norwest contributed 18% of total revenues,
United Airlines contributed 26% of total revenues, Japan Malls contributed 17%
of total revenues and Western Development contributed 13% of total revenues. No
other client contributed 10% or more of Potomac Partners' revenues during the
period.
COST OF SERVICES. Cost of services increased approximately $4.8 million, or
1,654%. Approximately $1.5 million of the increase was due to compensation
expense related to the value of equity participation rights. The remaining
increase resulted from costs associated with the hiring of 14 consultants due to
the increased number of projects. Gross profit margin decreased from 22% for the
year ended December 31, 1997 to a negative 4% for the same period in 1998.
However, excluding equity related compensation expense, the gross profit margin
would have been 27% for 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $790,000, or 919%. The increase was due to a
full year's operations in 1998 compared with two months in 1997.
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC--LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, Potomac Partners had approximately $971,000 in cash and
cash equivalents compared to $892,000 at December 31, 1998. Cash provided by
operations was $278,000 for the year ended December 31, 1998 due to a
fluctuation in working capital due to the growth of the business. Cash used in
operations was $127,000 for the three months ended March 31, 1999 due to a net
loss of $4.7 million offset by a $4.9 million non-cash compensation charge and
other working capital changes due to the growth of the business.
Cash used in investing activities was $53,000 in December 31, 1998 for
capital expenditures. There was no capital expenditures in the year ended
December 31, 1999.
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Cash from financing activities was $502,000 for the year ended December 31,
1998 and $205,000 for the three months ended March 31, 1999 due to the capital
contributions by the members. In January 1999, Potomac Partners redeemed the
interests of several members, resulting in a distribution of Potomac Partners
assets including cash of $184,000.
RSI GROUP, INC. AND SUBSIDIARIES--RESULTS OF OPERATIONS
RSI Group, Inc., or RSI, is headquartered in Dallas, Texas, and has four
additional offices in Omaha, Nebraska; Poughkeepsie, New York; Herndon, Virginia
and Research Triangle Park, North Carolina. RSI has 138 employees. The following
table sets forth certain selected financial data for RSI on a historical basis
for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues................................................. $ 16,133 $ 15,724 $ 16,927 $ 4,338 $ 3,253
Cost of services......................................... 11,663 11,650 12,271 3,150 2,364
--------- --------- --------- --------- ---------
Gross profit............................................. 4,470 4,074 4,656 1,188 889
Selling, general and administrative...................... 4,105 3,745 4,253 961 1,714
--------- --------- --------- --------- ---------
Operating income (loss).................................. $ 365 $ 329 $ 403 $ 227 $ (825)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
RSI GROUP, INC. AND SUBSIDIARIES--THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues decreased approximately $1.1 million, or 25%. This
decrease resulted from a decrease in staffing related to a decrease in business
with a major client. For the three months ended March 31, 1999, IBM contributed
44% of total revenues and MCI contributed 11% of total revenues. No other client
contributed 10% or more of RSI's revenues during the period.
COST OF SERVICES. Cost of services decreased approximately $786,000, or
25%. The decrease resulted from a reduction of costs associated with a 16%
decrease in the number of consultants. Gross profit margin remained unchanged at
27% for the three months ended March 31, 1998 and the same period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased approximately $753,000, or 78%. The increase resulted from an
equity based compensation charge in 1999.
RSI GROUP, INC. AND SUBSIDIARIES--1997 COMPARED TO 1998
REVENUES. Revenues increased approximately $1.2 million, or 8%. This
increase resulted from an increase in the number and size of client projects.
For the year ended December 31, 1998, IBM contributed 34% of total revenues and
First Data Resources contributed 13% of total revenues. No other client
contributed 10% or more of RSI's revenues during the period.
COST OF SERVICES. Cost of services increased approximately $621,000, or 5%.
The increase resulted from a slight increase in the average number on staff in
1998. Gross profit margin increased from 26% for the year ended December 31,
1997 to 28% for the same period in 1998.
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SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by approximately $508,000, or 14%. The increase resulted from
the addition of personnel necessary to support higher volume of business.
RSI GROUP, INC. AND SUBSIDIARIES--1996 COMPARED TO 1997
REVENUES. Revenues decreased approximately $409,000, or 3%. This decrease
resulted primarily from a decline in staffing to First Data Resources. For the
year ended December 31, 1997, IBM contributed 28% of total revenues, First Data
Resources contributed 17% of total revenues and Computer Associates contributed
10% of total revenues. No other client contributed 10% or more of RSI's revenues
during the period.
COST OF SERVICES. Cost of services decreased approximately $13,000 or less
than 1%, which was a direct result of the slight decrease in the volume of
business. Gross profit margin decreased from 28% for the year ended December 31,
1996 to 26% for the same period in 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased by approximately $360,000, or 9%. The decrease was primarily
due to a reduction in staffing.
RSI GROUP, INC. AND SUBSIDIARIES--LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, RSI had approximately $31,000 in cash and cash
equivalents compared to $30,000 at December 31, 1998. Cash provided by
operations was $38,000 for the year ended December 31, 1998 and $981,000 for the
three months ended March 31, 1999. In 1998, the net cash used in operating
activities was due to fluctuations in working capital due to growth of the
business. For the three months ended March 31, 1999, the cash provided by
operating activities was due to a $854,000 reduction in accounts receivable.
Cash used in investing activities was $199,000 for the year ended December
31, 1998 and $5,000 for the three months ended March 31, 1999. In all periods
cash used in financing activities was for capital expenditures for the purchase
of computer equipment and furniture fixtures.
Cash used in financing activities was $976,000 for the three months ended
March 31, 1999 due to repayments on the line of credit of $961,000. Cash
provided by financing activities was $179,000 in 1998 due to borrowing under the
line of credit of $220,000. At March 31, 1999, RSI's revolving credit facilities
provided for borrowings up to $2.4 million. At March 31, 1999, approximately
$1.6 million remained available for borrowing under the credit facility.
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
On a historical basis the eight companies and Luminant used $3,300,000 and
$500,000 of cash in its operations for the year ended December 31, 1998 and the
three months ended March 31, 1999.
One company--Free Range Media--used $4,200,000 and $815,000 for the year
ended December 31, 1998 and the three months ended March 31, 1999 of cash by
itself. We believe that the use of standard treasury methods and normal
budgetary controls will reduce those uses of cash to essentially breakeven,
which would allow the entire group to be breakeven or positive in operating cash
flows.
For the period ended March 31, 1999 Brand Dialogue used $1,000,000 of cash
in its operations. This was the first use of cash by Brand Dialogue in any of
the periods presented and
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was the result of a temporary increase in accounts receivables and faster than
normal payment of short term liabilities.
Luminant intends to implement a unified budgetary system to ensure that
unexpected uses of cash flows in operations are kept to a minimum.
After the closing of the acquisitions and this offering, we will have
approximately $37.9 million in cash and cash equivalents and approximately $5.0
million of indebtedness outstanding, on a pro forma basis.
Upon completion of this offering and the simultaneous acquisition of the
eight companies, we intend to consolidate any assumed debt of our companies into
a new credit arrangement. We have initiated preliminary discussions with First
Union Corporation to obtain a senior credit facility sufficient to provide
working capital for all our companies and to finance potential acquisitions, but
we cannot assure you that we will obtain a credit facility. If a credit facility
can be obtained, it is likely that it would require us to comply with various
loan covenants including maintenance of specified financial ratios; restrictions
on additional indebtedness; and restrictions on liens, guarantees, advances and
dividends. The facility would be intended to be used for working capital and
general corporate purposes, including the contingent consideration from the
current acquisitions and any future acquisitions. We cannot assure you that we
will obtain a credit facility on advantageous terms, if at all.
On a pro forma basis, we made capital expenditures of approximately $2.6
million during the year-ended December 31, 1998 and approximately $694,000
during the three months ended March 31, 1999. These capital expenditures were
primarily for computer equipment, internally used software purchases and
leasehold improvements. We expect to make capital expenditures of approximately
$3.2 million for hardware, software, and leasehold improvements during the next
12 months. No assurance can be made with respect to the actual timing and amount
of these expenditures.
The cash available from our companies after the changes above and as a
result of this offering should be sufficient for operations and normal capital
expenditures. As part of the acquisition agreements, targets were established
that would provide additional purchase consideration. If the companies achieve
the targets that would cause contingent consideration to be paid, we believe
that the operating cash flows that would result directly from those increases
would provide approximately 20% of the cash needed to satisfy those liabilities.
If all targets were met the company would be required to pay $49.1 million in
the first quarter of 2000 and $49.1 million in the third quarter of 2000.
We intend to pursue acquisition opportunities. The timing, size or success
of any acquisition and the associated potential capital expenditures and
commitments are unpredictable. We believe that cash flow from operations,
borrowings under the proposed line of credit and the unallocated net proceeds of
this offering will be sufficient to fund our capital requirements for at least
the next 12 months, excluding potential acquisitions. To the extent that we are
successful in closing acquisitions, it may be necessary to finance the
acquisitions through the issuance of additional equity securities, incurrence of
indebtedness, or both. In addition, we cannot assure you that our working
capital needs will not exceed anticipated levels or working capital generated
will be sufficient to fund our operations. As a result, we may be required to
obtain additional financing from bank borrowings or debt or equity offerings.
YEAR 2000 READINESS DISCLOSURE STATEMENT
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. As a result, date-sensitive
software may recognize a date using "00"
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as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
business activities. Although we have discussed the Year 2000 readiness of each
company with the management of the eight companies, we will not conduct an
independent investigation of the Year 2000 readiness of the eight companies
prior to the closing of the offering and the simultaneous acquisition of the
eight companies. In connection with the acquisitions of our eight companies,
however, we have received a representation from the former owners of each
company that their company does not face material unresolved Year 2000 issues.
To the extent these representations are breached and we suffer damages, our
operating results and financial condition may be adversely affected.
Additionally, many of our companies have contacted their major clients and
vendors to assess their Year 2000 readiness.
We depend on smooth and timely interactions with our vendors, clients and
other third parties. Any unexpected costs or disruption in the operations or
activities of such vendors, clients or other third parties as a result of Year
2000 compliance issues within such entities could materially adversely affect
our business, operating results or financial condition. We intend to continue
identifying Year 2000 problems related to our clients and vendors and to
formulate a system of working with key third parties to understand their ability
to continue providing services and products through the change to Year 2000. We
intend to work directly with our key vendors, including financial institutions
and utility providers, and partner with them if necessary, to avoid any business
interruptions.
We believe the most likely worst case scenario related to Year 2000 risks is
a material business interruption that leads to client dissatisfaction and the
termination of an engagement or engagements by dissatisfied clients. Such an
interruption in services could occur due to a breakdown in any number of our
computer systems and applications on other systems, or the systems of third
parties. Examples are failures in our application software, computer chips
embedded in equipment, supply of materials from our suppliers, or lack of
adequate telecommunications, power, or other utilities. Any such failure could
prevent us from being able to deliver our services as expected, which could
materially adversely affect our business, operating results and financial
condition.
Based upon the representations made and information supplied by the former
owners of the eight companies, we do not anticipate costs associated with the
Year 2000 issue to have a material adverse financial impact on us. There may,
however, be interruptions or other limitations of financial and operating
systems' functionality, and we may incur additional costs to avoid these
interruptions or limitations. Our expectations about future costs associated
with the Year 2000 issue are limited by uncertainties that could cause actual
results to have a greater financial impact than currently anticipated. Factors
that could influence the amount and timing of future costs include:
- our success in identifying systems and programs that contain two-digit
year codes;
- the nature and amount of programming required to upgrade or replace each
of the affected programs;
- the rate and magnitude of related labor and consulting costs; and
- our success in addressing Year 2000 issues with our clients, vendors and
other third parties with which we do business.
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RECENT ACCOUNTING PRONOUNCEMENT
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use", or SOP 98-1. SOP 98-1 requires companies to capitalize
qualifying computer software costs that are incurred during the application
development stage and amortize them over the software's estimated useful life.
The adoption of SOP 98-1 is not expected to have a material adverse impact on
our financial position or results of operations.
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BUSINESS
OVERVIEW
We are a leading provider of professional services to Fortune 500 companies,
Internet and electronic commerce-based companies and other organizations that
use or want to use the Internet and electronic commerce in their businesses. We
help traditional businesses incorporate the Internet and electronic commerce
into their businesses. We also help primarily Internet-based businesses conduct
their business more effectively. We provide the following Internet and
electronic commerce professional services:
- strategy consulting, which helps clients understand how to use the
Internet and electronic commerce to operate their businesses more
competitively and interact with their customers and suppliers more
effectively;
- creative solutions, which involves the design of Internet sites and
development of a "look and feel" that projects a client's identity and
serves a client's business goals;
- technology solutions, which involves the actual building and installation
of the technological systems required to operate an Internet and
electronic commerce business; and
- value-added services, which are on-going services we provide that support
and complement our clients' Internet and electronic commerce businesses,
such as ongoing management of Internet site content.
Our services are designed to rapidly improve a client's competitive position
in their field. We provide a wide range of services from assisting our clients
conceive how to use the Internet and electronic commerce in their business, to
expanding their Internet and electronic commerce capabilities. We believe that
our approach, which integrates our strategy consulting services, creative
solutions and technology solutions, allows us to deliver in a timely manner
reliable, comprehensive, secure and expandable Internet and electronic commerce
business solutions.
We perform services for more than 100 clients, including A&E Television
Network, Bell Atlantic, IBM, Mars, Incorporated, MasterCard, United Airlines and
Wells Fargo Bank. Our clients are diversified across many industries, including
technology, financial, media and communications. We also work with companies who
do business primarily over the Internet.
As of July 1, 1999, our 681 employees were located throughout the U.S. in
- California
- Colorado
- the District of Columbia
- Florida
- Georgia
- Illinois
- Maryland
- Massachusetts
- Missouri
- Nebraska
- New York
- North Carolina
- Pennsylvania
- Texas
- Virginia
- Washington
- Wisconsin
On a pro forma combined basis, we had $54.8 million of revenues for the 12
months ended December 31, 1998 and $18.4 million of revenues for the three
months ended March 31, 1999.
INDUSTRY BACKGROUND
The Internet is continuing its rapid development from primarily an
information delivery medium to an interactive platform through which companies
market, operate and manage their businesses and conduct transactions. As a
result of its widespread adoption, the Internet has
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been the catalyst for an evolution of business to business, business to consumer
and employer to employee relationships and communications. The explosive growth
of the Internet and its potential to create new opportunities and pose
fundamental threats to the competitive positions of traditional businesses
presents enormous challenges for the managers of companies. This is leading to
the rapid growth of, and demand for, professional services relating to the
Internet and electronic commerce.
Companies are using the Internet to restructure the way they conduct their
businesses. The Internet provides new ways for companies to market their
products and services, manage their operations and employees, and improve their
financial results. Through the Internet, companies have the ability to improve
their competitive positions, reduce operating, transaction and overhead costs;
shorten product and marketing cycle times; create and strengthen business
alliances; and improve and accelerate the flow of information both internally
and externally. Through electronic commerce and the Internet, organizations are
identifying, developing and expanding product and service offerings and creating
new innovative strategies and operating models. This ability has led to the
emergence of new businesses.
The emergence of the Internet and electronic commerce creates significant
challenges for virtually all companies regardless of industry or location. In
many industries traditional barriers to entry, such as physical or capital
assets, are becoming less important, and the traditional competitive advantages
and business models that companies relied on to sustain their profitability are
diminishing. The Internet and other technologies reduce the effect of geographic
barriers, price discrimination and other factors and are changing the way many
businesses have historically competed. Forrester Research, an industry research
firm, estimates the revenues generated from Internet commerce will grow from $55
billion in 1998 to $1.4 trillion in 2003. This represents a compound annual
growth rate of 91%.
In order to successfully develop Internet businesses and conduct electronic
commerce, companies need to understand how the Internet will fit in with their
overall long and short term business plans, and how business over the Internet
differs from conventional business operations to be successful. Internet sites
must be distinctive, attractive, engaging and easy to use. Companies need to use
the right tools to successfully achieve their goals and develop effective
technology systems.
Generally, companies do not have the internal resources necessary to
establish an electronic commerce presence on the Internet in the rapid time
frames needed to meet their business goals. We believe that companies will focus
on their core competencies and will not make the time or financial commitment
necessary to hire and train the professionals needed to build in-house
capabilities. International Data Corporation, IDC, an industry research firm,
forecasts that the market for Internet and electronic commerce professional
services worldwide will grow from $7.8 billion in 1998 to $78.5 billion by 2003.
These projections represent a compound annual growth rate of more than 59% over
this period. IDC predicts that the Internet will be one of the fastest-growing
areas within the information technology services industry.
The need for organizations to act quickly and effectively has led to the
demand for coordinated strategic, creative and technology services. Many
traditional professional services firms can provide services in strategy
consulting, creative solutions or in technology solutions. The need to integrate
these disciplines is beyond the capabilities of most traditional service firms,
however, especially given the rapid time frames for developing Internet and
electronic commerce businesses. As a result, we believe there is great demand
for professional services firms that can effectively provide services in all
three disciplines in the rapid time frame and focus that the Internet and
electronic commerce business environment demands.
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THE LUMINANT SOLUTION
We are a leading provider of Internet and electronic commerce solutions for
clients in diversified industries located throughout the U.S. and abroad. We are
able to provide the combination of strategy consulting, creative solutions and
technology solutions that clients need to create and expand their Internet and
electronic commerce businesses. We also provide on-going value-added services
needed to manage and operate our clients' Internet businesses.
We concentrate on providing clients with a broad range of capabilities which
blend the disciplines of strategy consulting, creative solutions and technology
solutions. Our work is focused on:
- LEADING INDUSTRY SOLUTIONS. We believe that we provide clients with
leading edge solutions critical to their success. Our strategy consulting
practice helps clients develop and sharpen their strategic vision in order
to capitalize on Internet and electronic commerce opportunities. Our
creative solutions practice then provides creative design and marketing
services. Our technology solutions practice designs and builds the
systems, processes and
elements necessary to successfully operate Internet businesses. In
addition, we provide value-added services that support and complement our
clients' Internet and electronic commerce businesses.
- INTEGRATED DELIVERY MODEL. We are able to deliver strategy consulting,
creative solutions and technology solutions in a coordinated manner that
addresses our clients' Internet and electronic commerce-related business
challenges in rapid time frames. We design, build and support these
solutions using our interactive approach, and expect to increasingly do so
on a basis that fully integrates our three practice areas.
- LONG-TERM CLIENT RELATIONSHIPS. Our extensive understanding of our
clients' needs and objectives allows us to provide integrated Internet and
electronic commerce professional services that add significant and
measurable value to our clients. Our strategy consulting, creative and
technology services and skills are geared to establishing integrated,
multi-year and multi-project relationships with our clients.
- STRONG MANAGEMENT TEAMS. We have a highly experienced group of Internet
and electronic commerce professionals throughout all three of our practice
areas. These professionals combine to form a knowledgeable client
management team with many years of professional experience. These teams
offer seamless client solutions that address a client's strategic vision,
sales and marketing objectives. Our breadth of experience and skills
allows us to provide multifaceted assistance to our clients.
STRATEGY
We intend to strengthen our position as a leading provider of professional
services to Fortune 500 companies, Internet and electronic commerce-based
companies and other organizations who use or want to use the Internet and
electronic commerce in their business. Our strategy for achieving this objective
is based on the following key elements:
- LEVERAGE OUR THREE MAIN PRACTICE AREAS. Through our three main practice
areas, strategy consulting, creative solutions and technology solutions,
we are able to develop strong functional expertise. These practice areas
allow us to fully capture our collective expertise and channel those
skills to deliver our value-added solutions in an effective, consistent,
disciplined and integrated manner to our clients. In addition, given the
need for rapid business development in the Internet arena, our ability to
integrate the various disciplines will be an important feature of our
services and a key point of differentiation in the marketplace.
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- EXPAND LONG-TERM CLIENT RELATIONSHIPS. We have a number of established
long-term client relationships and we intend to develop and sustain
additional client relationships over time. Our client service teams are
able to integrate strategic solutions, creative solutions and technology
solutions at each stage of our client engagements. We believe that by
offering our clients coordinated strategy consulting, creative and
technology services we are able to create measurable value for the client.
Furthermore, we believe that maintaining a reputation for being an
innovative Internet and electronic commerce professional services firm
will increase our ability to attract new clients, including by referral
from our existing clients.
- OPERATE AS A SINGLE, FULLY INTEGRATED FIRM. We are creating a strong,
dynamic, united platform for our business based on an integrated firm
concept. We intend to leverage our strong executive leadership to project
a unified mission and integrated operating model. All of our businesses
are adopting a single corporate vision, name, identity and brand. Our
management and our employees will be provided incentives that are based on
overall corporate performance. We believe it is critical to establish
strong management systems and processes in order to maintain a high,
consistent level of client service and efficient utilization of the skills
of our people. The key management infrastructure will be centered on
financial and management information, communications, incentives,
recruiting, training and knowledge management.
- MAINTAIN LEADING EDGE PROFESSIONAL CAPABILITIES AND TECHNOLOGY SOLUTIONS.
In order to provide our clients with the industry's leading edge solutions
and our integrated approach to their Internet and electronic commerce
professional services needs, we place a strong focus on attracting,
hiring, developing and retaining outstanding personnel. We focus on
keeping the creative and technology skills of our employees in-line with
the industry's most current standards, and on developing management and
leadership skills among a broad cross-section of our people. To facilitate
ongoing professional development and innovation, we focus on several key
skill sets: problem solving, analysis, communications, creativity, team
work and effectiveness with our clients.
- EXPAND OUR BREADTH OF SERVICE AND GEOGRAPHIC SCOPE. As our clients' needs
broaden and expand, we intend to enhance our set of service capabilities,
improve our geographic reach and strengthen our management team. We intend
to build our capabilities through organic growth and through selective
strategic acquisitions in the U.S. and internationally.
- PROVIDE VALUE-ADDED SERVICES. As part of our comprehensive, integrated
approach to our long-term client relationships, we provide clients with
ongoing services which enhance a clients' ability to expand their Internet
and electronic commerce businesses. Those services include managing the
content of Internet sites and providing placement of advertising media. We
believe that these ongoing value-added services are critical to seamlessly
providing a client with the best possible Internet and electronic commerce
professional services and are a principal factor that enables us to
attract and retain our clients.
SERVICES
We offer a wide range of Internet and electronic commerce professional
services to traditional businesses as well as new Internet-based businesses.
These services fall into a
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number of categories, including strategy consulting, creative solutions,
technology solutions and value-added services, which involve the following
activities:
STRATEGY CONSULTING
Strategy consulting includes services that help our clients understand how
to use the Internet and electronic commerce to achieve operating efficiencies,
open new and more effective ways to communicate with customers and suppliers,
enhance competitive advantages and otherwise incorporate the Internet and
electronic commerce into their businesses. Our strategy consulting practice area
includes:
- BUSINESS STRATEGY: We analyze the economic structures of industries and
particular businesses and help our clients establish financial and
non-financial goals. We also screen alliance and acquisition choices,
analyze customers and markets, conduct competitive and pricing analyses
and advise clients regarding pricing.
- MARKETING STRATEGY: We provide profiles and advice about the make-up of
our clients' markets and suggest ways to promote and distribute a client's
products and services. We also identify and construct opportunities for
partnering with other businesses, and develop ways to increase Internet
site traffic.
- TECHNOLOGY STRATEGY: We provide advice regarding technology systems,
development of tools for managing an Internet site, ways to communicate
with customers and suppliers, and technology-related partnerships and
alliances.
- BRANDING AND IDENTITY: We identify branding goals and analyze market
positioning for our clients and plan for the development, testing and
establishment of their brands. We also coordinate the Internet and
non-Internet branding efforts of our clients, and develop plans for
communicating to consumers. We also provide comprehensive creative plans
and graphic design plans.
CREATIVE SOLUTIONS
Creative solutions involve developing Internet sites that visually engage
the targeted end-user and are consistent with a client's branding, identity and
overall business strategy. Our creative practice area includes:
- INTELLECTUAL PRODUCT DEVELOPMENT: We create designs, graphics and Internet
site plans. We also help clients develop and install the content on their
Internet sites.
- INTERNET MARKETING. We create marketing programs for our clients' Internet
sites which focus on increasing customers and improving revenues, market
positions and profitability.
- CUSTOMER DEVELOPMENT, MEASUREMENTS AND ANALYSIS: We develop systems to
measure and analyze the effectiveness of the client's Internet enterprise.
We design and install systems to help clients target, acquire and retain
customers, expand customer relationships and generate new business and
demand for services. We also design and install systems to measure sales
cycles, manage the life cycle of a customer relationship, analyze pricing
and tactics and evaluate sales force efficiency and effectiveness.
TECHNOLOGY SOLUTIONS
We use our proprietary and leading existing technologies to deliver
solutions that fulfill our clients' strategic objectives. Our technology
solutions involve integration of our clients' existing systems as well as the
building of new systems. Our technology practice area includes:
- TECHNOLOGY DEVELOPMENT. We develop and create the technology needed to
achieve our client's marketplace goals. We provide the process maps which
set forth all requirements
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for building and maintaining an Internet site. We also develop and update
software, and design technology interfaces to accommodate flexible,
adaptable systems.
- INTERNET INTEGRATION: We provide technology to integrate the Internet
enterprise with other areas of the client's business. We integrate back
office systems relating to customer service, pricing, purchasing,
shipping, inventory, order fulfillment and information systems. We also
integrate corporate intranets and extranets.
- ELECTRONIC COMMERCE MANAGEMENT: We help clients install systems for
handling order management and transaction processing.
- CONTENT AND PRODUCT DEVELOPMENT MANAGEMENT TOOLS: We build and install the
technology needed to run our clients' Internet and electronic commerce
businesses. We provide software and systems that help clients create,
support and manage their Internet sites and electronic commerce systems,
perform quality control on, and automatically update, electronic content,
and develop databases to support current and archived electronic content.
- SECURITY: We plan, implement and audit security practices to protect our
clients' systems from unauthorized access and intrusion.
VALUE-ADDED SERVICES
Our clients engage us to perform ongoing services, which enables us to
maintain long-term client relationships and to support their Internet and
electronic commerce business operations. The value-added services that we
provide include:
- CONTENT SERVICES: We manage some or all of the content on our clients'
Internet sites, including static or continuously updated content for
entire sites or subsections of sites.
- RESEARCH SERVICES AND MARKET ANALYSIS: We prepare ongoing studies of the
effectiveness of the Internet site. We provide focus groups, surveys, and
analyses comparing our clients' sites with those of their competitors
using sophisticated research and analysis techniques.
- PLACEMENT OF ADVERTISING MEDIA: We help clients place their advertising
media by designing and creating advertisements, identifying where to place
advertisements and procuring space for the media.
- BUSINESS PROCESSES: We assess the various business processes of an
electronic enterprise and advise cleints how the processes should be
performed or improved. The areas we assess include order fulfillment,
billing, human resources, customer order flow, public relations and
warehousing.
EXAMPLES OF OUR SERVICES AND SOLUTIONS
The following examples illustrate the kinds of services and solutions that
we have developed for specific clients:
M&M/MARS
M&M/Mars is one of the leading candy and confectionery firms, and owns a
number of established consumer brands. In 1996, M&M/Mars retained us to bring
the M&M's Brand to the World Wide Web. Since then, we have provided the company
with a wide range of Internet solutions, cutting across multiple brands and
divisions, that opened up new avenues of business.
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From creating brand-building sites that provide rich interactive media
experiences, such as the M&M Studios site and the SKITTLES-Registered Trademark-
Portal, to electronic commerce solutions like the newly relaunched M&M's Network
Online Store, to online recruiting sites and beyond, we have helped M&M/Mars do
business in countries around the world faster and more flexibly than before. As
a result, M&M/Mars has discovered new business opportunities and new ways to
communicate with the world, helping it to remain a world leader in a competitive
industry.
MASTERCARD INTERNATIONAL
MasterCard International Incorporated retained us to help build its
electronic commerce business. Our development of several new interactive
programs, games and partnerships for the MasterCard.com web site has helped
increase site traffic by over 425%. We conceived and implemented a
brand-building program entitled "See the Future Now" and an educational program
called "Shopping Now? Here's How," to educate consumers about the benefits of
shopping in stores and online with MasterCard. Features of the program include
an "instant win game" that showcases MasterCard benefits that can be realized
now and in the future, and a "ShopSmart" program that educates consumers how to
shop effectively and safely on the Internet.
We have also worked on MasterCard International's behalf with other sites to
create custom-developed media partnerships. We worked with Excite, Inc. to
create a "ShopSmart" decal awareness program. The program helped MasterCard
secure decal participation relationships with over 100 merchants. We have also
worked to develop media partnerships with key commerce merchants, including
Preview Travel, Netscape, ZDNet's, NetBuyer and GolfWeb.
STERLING SOFTWARE, INC.
Sterling Software, Inc. engaged us late in 1998 to redesign their current
Internet site. Sterling sought a site that pulled together all of its existing
Internet sites into a common look and feel, offered common, shared databases
among the sites, allowed for local content updates and reflected Sterling's
quality and progressiveness. We began to redesign Sterling's Internet sites in
early 1999. Over the span of several months, our team redesigned, reorganized
and rebuilt thousands of pages from more than a dozen different product lines
and international Internet sites.
The look and feel of the revised site reflects the state-of-the-art
technology that underlies Sterling's solution-based products. The site now
features a consistent overall design and common navigation and data structures
throughout all of its sections. Each main section in the site incorporates
custom photography, marketing information and background color elements.
Sterling's new site also incorporates state-of-the-art Web technology such as
Dynamic HTML, Flash animation, a dynamic menu system, mechanisms for local
content providers to input and update dynamic content and a central
administration system for reviewing and posting new content.
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<PAGE>
CLIENTS
Our companies have provided professional services for a variety of clients
in many industries. The following is a partial list of our clients that we
believe is representative of our overall client base:
<TABLE>
<CAPTION>
MEDIA AND TRAVEL AND
COMMUNICATIONS TECHNOLOGY FINANCIAL TRANSPORTATION
- ----------------------- ----------------------- ----------------------------- ------------------------
<S> <C> <C> <C>
A&E Television International Business First Data Resources United Airlines, Inc.
Networks Machines Corporation MasterCard International
AT&T Corp. Microsoft Corporation Incorporated
Bell Atlantic Network Sterling Software, Inc. National Association of
Services, Inc. Securities Dealers, Inc.
MCI Worldcom, Inc. Wells Fargo
</TABLE>
<TABLE>
<CAPTION>
INTERACTIVE CONSUMER ENERGY
- ------------------------------ -------------------- --------------------
<S> <C> <C>
JuniorNet Corporation Maybelline, Inc. Chevron U.S.A. Inc.
Mars, Incorporated Enron Corp.
Office Depot, Inc. Halliburton Company
</TABLE>
For the 12 months ended December 31, 1998, IBM, our largest client,
accounted for approximately 12.4% of our pro forma combined revenues. No other
client accounted for 10% or more of our pro forma combined revenues for the 12
months ended December 31, 1998 and no client accounted for 10% or more of our
pro forma combined revenues for the three months ended March 31, 1999.
OUR COMPANY
Simultaneously with the closing of this offering we expect to acquire the
following eight companies:
ALIGN SOLUTIONS CORP.'S services include creating Internet site content and
advertisements; multimedia presentations; Internet site design; document
services, maintenance of databases and workflow automation; and systems
integration services. Align has special expertise in the energy and financial
services industries.
BRAND DIALOGUE-NEW YORK is presently the New York branch of a Young &
Rubicam division. The services offered by the Brand Dialogue-New York business
that we intend to acquire include strategic consulting in the technology and
marketing areas, Internet site development and on-going Internet site
management, on-line media strategy and planning, on-line advertising campaigns
and development of Internet-based branding applications. Brand Dialogue-New York
has provided services to customers in the financial, pharmaceuticals, media and
communications industries.
FREE RANGE MEDIA, INC. provides strategic consulting and creative solutions
that address a client's overall business objectives. Free Range has special
expertise in the financial services, health care and communications industries.
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE, offers creative
solutions, online brand development and ongoing maintenance of Internet site
content. i.con has special expertise in the entertainment, hospitality,
technology and telecommunications industries.
INTERACTIVE8, INC.'S services include strategic consulting, development of
Internet site content, applications development, database and electronic
commerce integration, account management, Internet site hosting, tracking and
analysis, and Internet marketing. InterActive8 has special expertise in the
media and communications and consumer products industries.
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MULTIMEDIA RESOURCES, LLC'S services include strategic consulting, business
development, and development of Internet marketing programs. Multimedia has
special expertise in media, retailing and financial services industries.
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC'S professional services include
the formulation of electronic commerce strategy, program management, development
of strategic partnerships, and business process design. Potomac Partners has
special industry expertise in the financial services, retailing, media,
entertainment, communications and transportation industries.
RSI GROUP, INC. AND SUBSIDIARIES' services include the distribution and
decentralization of computing systems, including the integration of electronic
commerce systems, providing mission-critical Internet process services,
application development, and professional staffing and technology support. RSI
has special expertise in the technology, transportation, telecommunications,
financial and consumer goods industries.
SALES AND MARKETING
Our sales approach is based on developing long-term consultative
relationships with our clients. We intend to integrate the sales and marketing
functions of the companies we acquire to provide for client focused professional
marketing organization targeted toward developing existing client relationships
by expanding the services provided to those clients as well as adding new
clients. In addition to our direct sales force which will market our service
along those lines, our management will actively market to companies with which
they have a relationship. We will employ a team selling approach, whereby our
sales people collaborate with our business unit professionals and management to
identify prospects, conduct sales and manage client relationships, particularly
at core client relationships. We and Young & Rubicam intend to cooperate in
marketing our respective services to each others' clients in order to increase
the range, breadth and depth of services available to these clients.
In addition, we integrate the discipline of strategic, creative and
technical solutions into our clients' sale processes. We assign senior
executives to each account to ensure the multi-disciplinary sales approach. This
process identifies major cross-disciplinary client issues early in the process,
thereby saving the client time and money and allowing us to provide more
effective services to our clients. Most of our senior executives are involved in
the sales process.
COMPETITION
The market for our services is highly fragmented and can be characterized by
intense competition and rapid technological change. We have many competitors
including large and well-established firms, new entrants attracted by low
barriers to entry and prospective clients who have used their internal resources
to develop an Internet presence.
Our current competitors include, and may in the future include, the
following:
- Internet consulting firms and online agencies, including AGENCY.COM,
AppNet, iXL Enterprises, Modem Media . Poppe Tyson, Organic Online,
Proxicom, Razorfish, Scient, US Interactive, USWeb/CKS and Viant;
- general management consulting firms, including Bain & Company, Boston
Consulting Group, Booz Allen & Hamilton and McKinsey & Company;
- the professional services groups of computer equipment companies,
including Compaq, Hewlett-Packard and IBM;
- systems integrators, including Andersen Consulting, Cambridge Technology
Partners, Sapient, and consulting arms of the "Big Five" accounting firms;
and
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- internally developed solutions of current and potential clients.
The principal competitive factors in the Internet professional services
market include Internet expertise and talent, client references, integrated
strategy, technology and creative design services, quality, pricing and speed of
service delivery and vertical industry knowledge. We believe we compete
favorably with respect to these factors and are in a good position to attract
talent with our growth and entrepreneurial culture. We believe we have
established ourselves as a leader in Internet-specific industry and domain
expertise. Through our solutions and our attention to client satisfaction, we
have created a strong track record of customer successes. We believe the market
will continue to offer significant opportunity for multiple players on the short
and medium-term.
INTELLECTUAL PROPERTY
We utilize intellectual property in our business, some of which we consider
proprietary. We generally rely on trade secret law to protect our proprietary
interests. We cannot guarantee that the steps we have taken to protect our
proprietary rights will be adequate to deter misappropriation of our
intellectual property, and we may not be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights. If third
parties infringe or misappropriate our trade secrets, copyrights, trademarks or
other proprietary information, our business could be seriously harmed. In
addition, although we believe that our proprietary rights do not infringe on the
intellectual property rights of others, other parties may assert infringement
claims against us or claim that we have violated their intellectual property
rights. These claims, even if not true, could result in significant legal and
other costs and may be a distraction to management. Protection of intellectual
property in many foreign countries is weaker and less reliable than in the
United States, so if our business expands into foreign countries, risks
associated with protecting our intellectual property will increase.
EMPLOYEES
As of July 1, 1999, we had a total of 681 employees, of which 36 were in
management, 541 in professional services, 41 in sales and marketing and 63 in
administration. Success will depend in part on our ability to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. None of our employees are represented by labor unions.
We believe our relationship with our employees is good.
To succeed, we must continue to hire, retain and train outstanding
professionals. We believe that our success retaining these individuals will
depend significantly on our ability to provide a rich learning environment, to
provide a one-firm culture and to offer continued professional development as
well as economic incentives.
We believe that developing our one-firm concept with a shared culture is
critical to our ability to attract top management, strategic, technology,
design, sales, marketing and support professionals. Our core values include a
dedication to maintaining an innovative and team-based environment in order to
achieve total client satisfaction and provide our employees with personal and
professional growth opportunities.
FACILITIES
We lease offices located in Atlanta, Georgia; Chicago, Illinois; Dallas,
Texas; Houston, Texas; Herndon, Virginia; Larchmont, New York; New York City,
New York; San Francisco, California; and Seattle, Washington. Our headquarters
are located in Dallas, Texas consisting of approximately 2,000 square feet of
office space under a month to month lease.
LEGAL PROCEEDINGS
We and our companies are not parties to any pending material legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of July 1, 1999 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- -----------------------------------------------
<S> <C> <C>
Michael H. Jordan (1)(2)(3)......... 63 Chairman and Director
Guillermo G. Marmol (4)............. 46 Chief Executive Officer, President and Director
Derek R. Reisfield.................. 36 Vice Chairman and Executive Vice President
Thomas G. Bevivino.................. 44 Vice President of Finance
George P. Stamas.................... 48 Director
Randolph Austin (2)(3)(5)........... 35 Director
Michael J. Dolan (5)................ 52 Director
James R. Corey (5).................. 45 Director
Richard M. Scruggs (5).............. 43 Director
</TABLE>
- ------------------------
(1) Mr. Jordan will be elected a director and Chairman effective on the closing
of this offering.
(2) Member of the Board of Directors' audit committee.
(3) Member of the Board of Directors' compensation committee.
(4) Mr. Marmol will serve as Chairman until the closing of this offering. Mr.
Marmol will remain as a director following his resignation as Chairman.
(5) Messrs. Austin, Dolan, Corey and Scruggs will be appointed as directors
effective on the closing of this offering.
MICHAEL H. JORDAN will be our Chairman effective upon the closing of this
offering and the simultaneous acquisition of the eight companies, having served
as an advisor to us since January 1, 1999. Mr. Jordan retired in December 1998
as Chairman and Chief Executive Officer of CBS Corporation, formerly
Westinghouse Electric Corporation, positions he held since June 1993. Prior to
joining Westinghouse, he was a principal with the investment firm of Clayton,
Dubilier & Rice, Inc. from September 1992 through June 1993. From 1974 until
1992, Mr. Jordan held various management positions at PepsiCo, Inc., his last
position being Chief Executive Officer of PepsiCo International. From 1964 to
1974, Mr. Jordan held various positions, including Partner at McKinsey &
Company, Inc., an international management consulting firm. Mr. Jordan is also a
member of the Boards of Directors of Aetna, Inc., Dell Computer Corp. and
Marketwatch.com. Mr. Jordan is a member of the President's Export Council; is
the Chairman of the U.S.-Japan Business Council; Chairman of The College
Fund/UNCF; and Chairman of the Policy Board of the Americans for the Arts.
GUILLERMO G. MARMOL has been our Chief Executive Officer and President since
August 1998 and a director since June, 1999. Previously, Mr. Marmol was a Vice
President of Perot Systems, Inc., Chairman of its Operating Committee and
responsible for corporate development from January 1996 to May 1998. Prior to
joining Perot Systems, Mr. Marmol held a variety of positions during an 18-year
career with McKinsey & Company, Inc. He was elected a director and senior
partner in 1991 and most recently held leadership positions in the firm's senior
partner election committee, its Dallas, Texas office and its global organization
practice.
DEREK R. REISFIELD has been our non-director Vice Chairman and Executive
Vice President since April 1999, having served as an advisor since January 1999.
Mr. Reisfield held a variety of positions with CBS Corporation, formerly
Westinghouse Electric Corporation, from May 1996 to January 1999, where he held
the positions of Vice President, Business Development and then President of the
CBS New Media Group. While at CBS, Mr. Reisfield created CBS.Marketwatch.com and
served as the Chairman of the Board of Marketwatch.com, LLC. He was also
responsible for the development of CBS.Sportsline.com, and served on the Board
of Directors of Sportsline USA, Inc. From May 1995 to April 1996, Mr. Reisfield
was a Partner of
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Mitchell Madison Group, a management consulting company, where he was a
co-founder and co-leader of the firm's Media and Telecommunications Practice.
From August 1987 to June 1995, Mr. Reisfield served in various capacities,
including Senior Manager, at McKinsey & Company, Inc. Mr. Reisfield serves on
the board of directors of Pictet & Cie. Global Leisure Fund, S.A., a Swiss based
mutual fund.
THOMAS G. BEVIVINO has been our Vice President of Finance since July, 1999.
In March, 1999, Mr. Bevivino formed ARC Group LLC, a specialist financial
advisory and transactions support firm, and since that date he has been engaged
full-time in supervising our financial due diligence efforts and preparing our
financial statements. From June 1986 to June 1988, Mr. Bevivino served as a
staff accountant at Kreischer Miller & Co., an accounting, auditing and
financial advisory firm. After receiving his CPA in June 1988, Mr. Bevivino
served as a Senior Accountant at Kreischer Miller from June 1988 to August 1990.
From August 1990 to December, 1991, Mr. Bevivino served as the corporate
controller of Realen Homes, a real estate developer. In December, 1991, Mr.
Bevivino rejoined Kreischer Miller where he worked until March 1999, departing
as a Senior Engagement Manager. Mr. Bevivino is a member of the American
Institute of Certified Public Accountants and the Pennsylvania Institute of
Certified Public Accountants.
GEORGE P. STAMAS has been a director since May 1999. Mr. Stamas is a partner
with the law firm of Wilmer, Cutler & Pickering and Co-Chairman of that firm's
Corporate Department. Prior to joining Wilmer, Cutler & Pickering as a partner
in April 1996, he was a partner at Piper & Marbury L.L.P. since 1983. Mr. Stamas
is counsel to, and a limited partner of, the Washington Capitals hockey team and
the Baltimore Orioles baseball team. Mr. Stamas also serves on the Board of
Directors of FTI Consulting, Inc., a provider of litigation support services.
RANDOLPH AUSTIN will become a director effective upon the closing of this
offering and the simultaneous acquisition of the eight companies. From January
1999 until present Mr. Austin has been an advisor to Bertelsmann Ventures. From
January 1998 to December 1998, Mr. Austin was President and Chief Executive
Officer of BOL, Bertelsmann Online, Bertelsmann's global electronic commerce
business. From November 1995 to December 1997, Mr. Austin held various positions
with Prodigy, Inc., his last position being Senior Vice President, Sales &
Business Development. From September 1990 to November 1995, Mr. Austin served in
various capacities, including Senior Engagement Manager, at McKinsey & Company,
Inc.
MICHAEL J. DOLAN will become a director effective upon the closing of this
offering and the simultaneous acquisition of the eight companies. Since July
1996, Mr. Dolan has served as Vice Chairman, Chief Financial Officer and a
director of Young & Rubicam Inc., an international marketing and communications
services firm. From August 1991 to July 1996, Mr. Dolan was President and Chief
Executive Officer of the joint venture, Snack Ventures Europe, between PepsiCo
Foods International and General Mills.
JAMES R. COREY will become a director effective upon the closing of this
offering and the simultaneous acquisition of the eight companies. Mr. Corey has
served as Managing Director of Potomac Partners since September 1997. Prior to
joining Potomac Partners, Mr. Corey served as Co-Chief Operating Officer of AT&T
Solutions and Managing Partner of their Consulting Division from June 1995 until
September 1997. From June 1994 to June 1995, Mr. Corey served as President of
the Worldwide Services Organization of Unisys Corporation. From December 1989
until June 1994 Mr. Corey was a partner in the Los Angeles office of McKinsey &
Company, Inc. Previously, Mr. Corey was a Partner at Andersen Consulting in
Chicago.
RICHARD M. SCRUGGS will become a director effective upon the closing of this
offering and the simultaneous acquisition of the eight companies. Mr. Scruggs
has served as President, Chief Executive Officer and Chairman of the Board of
Align since October 1996. From January 1996 until October 1996, Mr. Scruggs
served as Chief Operating Officer of Rothwell Systems, which
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was later purchased by Perot Systems,. From May 1990 until January 1996, Mr.
Scruggs served in a variety of capacities at BSG Alliance/IT, including Managing
Director of Business Development and Managing Director of the Houston office.
At the closing of this offering and the simultaneous acquisition of the
eight companies, our Board of Directors will consist of seven directors, which
number may be changed by the Board of Directors. Mr. Dolan is being appointed to
our Board of Directors pursuant to an agreement between us and Young & Rubicam.
If the size of the Board is increased to ten or more, Young & Rubicam will have
the right to nominate an additional director to our Board. Messrs. Corey and
Scruggs are being appointed to our Board of Directors pursuant to the agreements
we have entered into to acquire their companies. In addition, we currently
expect that Mr. Corey will be appointed our President, and Mr. Scruggs will be
appointed a Vice Chairman, following the closing of this offering and the
simultaneous acquisition of the eight companies.
KEY PRACTICE LEADERS
The following persons held the positions indicated opposite their names in
the companies that we will acquire:
<TABLE>
<CAPTION>
NAME FORMER POSITION IN ACQUIRED COMPANY
- ------------------------ ---------------------------------------------------------
<S> <C>
Lynn J. Branigan........ Managing Partner, Multimedia
Calvin W. Carter........ President and Chief Executive Officer, i.con
James R. Corey.......... Managing Director, Potomac Partners
John B. Dimmer.......... President, Free Range
Bruce D. Grant.......... President, RSI
Henry Heilbrunn......... Managing Partner, Multimedia
William Markel.......... Managing Partner, InterActive8
Andreas Panayi.......... President, Brand Dialogue-New York
Douglas Rice............ President and Chief Executive Officer, InterActive8
Richard M. Scruggs...... President, Chief Executive Officer and Chairman of the
Board, Align
</TABLE>
LYNN J. BRANIGAN has served as Managing Partner of Multimedia since she
co-founded the company with Henry Heilbrunn in 1993. Ms. Branigan specializes in
marketing, media and business development at Multimedia. Prior to forming
Multimedia, Ms. Branigan served as Director, Sales and Marketing for the
commercial unit of Prodigy Services Company, Inc. from February 1985 until
January 1993.
CALVIN W. CARTER has served as the President and Chief Executive Officer of
i.con since he co-founded the company in August 1994. From May 1993 until August
1994, Mr. Carter served as a management consultant for PricewaterhouseCoopers
LLP.
JAMES R. COREY will become a director of Luminant effective upon the closing
of this offering and the simultaneous acquisition of the eight companies. Mr.
Corey has served as Managing Director of Potomac Partners since September 1997.
Prior to joining Potomac Partners, Mr. Corey served as Co-Chief Operating
Officer of AT&T Solutions and Managing Partner of their Consulting Division from
June 1995 until September 1997. From June 1994 to June 1995, Mr. Corey served as
President of the Worldwide Services Organization of Unisys Corporation. From
December 1989 until June 1994, Mr. Corey was a partner in the Los Angeles office
of McKinsey & Company, Inc. Previously, Mr. Corey was a Partner at Andersen
Consulting in Chicago.
JOHN B. DIMMER has served as President of Free Range since May 1998. From
June 1995 until May 1998, Mr. Dimmer served as Vice President and Chief
Financial Officer of Free Range.
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From March 1986 until June 1995, Mr. Dimmer served as Assistant Secretary and
Manager of Commercial Surety at Reliance Surety Company.
BRUCE D. GRANT has served as President of RSI since January 1999. From
January 1997 until December 1998, Mr. Grant served as President of RSI East, and
from January 1992 until December 1996, Mr. Grant served as Vice President of RSI
East. From 1984 until January 1992, Mr. Grant served in various capacities with
RSI and its affiliates.
HENRY HEILBRUNN has served as Managing Partner of Multimedia since he
co-founded the company with Ms. Branigan in 1993. Mr. Heilbrunn specializes in
business planning and product development at Multimedia Resources. Prior to
forming Multimedia, Mr. Heilbrunn served as Senior Vice President, Product
Management and Retention Marketing at Prodigy Services Company, Inc. from
September 1990 until January 1993, and in various other capacities with Prodigy
from February 1984 until August 1990.
WILLIAM MARKEL has served as Managing Partner of InterActive8 since 1998.
From February 1995 until 1997, Mr. Markel provided business development
consulting for InterActive8, and from 1994 until February 1995 he served as a
sales executive for Harrington Righter and Parsons, a television sales division
of Cox Broadcasting.
ANDREAS PANAYI has served as President of Brand Dialogue-New York, Young &
Rubicam's digital interactive branding unit, since 1998. From 1989 until 1998,
Mr. Panayi worked in various capacities at Poppe Tyson, the global interactive
marketing arm of True North, including most recently as Senior Partner, Director
of International Operations.
DOUGLAS RICE has served as InterActive8's President and Chief Executive
Officer since he founded the company in 1994. From 1994 to 1997, Mr. Rice also
served as the Creative Director for InterActive8.
RICHARD M. SCRUGGS will become a director of Luminant effective upon the
closing of this offering and the simultaneous acquisition of the eight
companies. Mr. Scruggs has served as President, Chief Executive Officer and
Chairman of the Board of Align since October 1996. From January 1996 until
October 1996, Mr. Scruggs served as Chief Operating Officer of Rothwell Systems
(which was later purchased by Perot Systems). From May 1990 until January 1996,
Mr. Scruggs served in a variety of capacities at BSG Alliance/IT, including
Managing Director of Business Development and Managing Director of the Houston
office.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors intends to establish an audit committee which will be
comprised solely of independent directors. The responsibilities of the audit
committee will include: (1) recommending to our board of directors the
independent public accountants to conduct the annual audit of our books and
records; (2) reviewing the proposed scope of the audit; (3) approving the audit
fees to be paid; (4) reviewing accounting and financial controls with the
independent public accountants and our financial and accounting staff; and (5)
reviewing and approving transactions between us and our directors, officers and
affiliates. Messrs. Jordan and Austin will be members of the audit committee as
of the closing of this offering and the simultaneous acquisition of the eight
companies.
Our Board of Directors also intends to establish a compensation committee to
consist solely of non-employee directors. The compensation committee will (1)
provide a general review of our compensation plans to ensure that they meet
corporate objectives and (2) administer our stock plans. Messrs. Jordan and
Austin will be members of the compensation committee as of the closing of this
offering and the simultaneous acquisition of the eight companies.
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DIRECTOR COMPENSATION Directors who are also our employees will not receive
additional compensation for serving as directors. Each person serving or who has
agreed to serve as a non-employee director as of the closing of this offering
and the simultaneous acquisition of the eight companies will be automatically
granted an option to purchase 15,000 shares of common stock under our long-term
incentive plan. In addition, under the long-term incentive plan each
non-employee director will be granted an annual option to purchase 10,000 shares
at each annual meeting of our stockholders at which the director is re-elected
or remains a director. Each of these options will have an exercise price equal
to the market value per share of common stock on the date of grant. Directors
will also be reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees of the Board of Directors, in
their capacity as directors. Mr. Jordan will also be granted options to purchase
200,000 shares of common stock in consideration for services to be rendered
exercisable at a price equal to the initial public offering price per share. The
options will become exercisable one-sixth every six months over 36 months from
the date of grant.
EXECUTIVE COMPENSATION We were founded in August 1998, did not conduct any
operations in 1998 and, accordingly, did not pay any compensation to our
executive officers for the year ended December 31, 1998. The following table
sets forth the annual base salary rates and other compensation expected to be
paid in 1999 to our chief executive officer and our two most highly compensated
officers. Joseph W. Autem served as our chief financial officer from January
1999 until July 1999 and has entered into an agreement to provide consulting
services to us in the future. We expect to pay Mr. Autem in 1999 an aggregate of
approximately $150,000 and grant options to purchase 20,833 shares of our common
stock, assuming an initial offering price of $12 per share, exercisable at $.01
per share, for services rendered by Mr. Autem to us in 1999 as chief financial
officer and as a consultant.
Each of the officers listed in the table below is entitled to an annual
bonus up to an amount equal to his base salary based on our performance measured
against annual objectives to be determined by the compensation committee of the
Board of Directors. See "--Employment Agreements."
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------- ----------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SARS (#) COMPENSATION
- ------------------------------------ ----------- ----------- -------------- ---------------------- --------------
<S> <C> <C> <C> <C> <C>
Guillermo G. Marmol,................ $ 300,000 $ 300,000 $ -- 2,139,767 $ --
Chief Executive Officer
and President
Derek R. Reisfield,................. 250,000 250,000 -- 427,541 --
Vice Chairman and
Executive Vice President
Thomas G. Bevivino,................. 150,000 150,000 -- 100,000 --
Vice President of Finance
</TABLE>
EMPLOYMENT AGREEMENTS
On September 1, 1998, we entered into an employment agreement with Mr.
Marmol as our Chief Executive Officer and President for a term of three years
and four months. The agreement will automatically renew for successive one-year
periods beginning January 1, 2002, unless we or Mr. Marmol provides the other
with written notice that the Agreement will not renew within 90 days of the
expiration date. This agreement provides that Mr. Marmol will devote
substantially all of his time to the operation of our business. The agreement
establishes the initial base salary
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set forth in the table above and eligibility for up to an equal annual bonus. We
have also agreed to grant options immediately before trading begins to purchase
2,139,767 shares of common stock, at an exercise price equal to the initial
public offering price, of which 25% will be immediately exercisable and the
remainder will become exercisable at the rate of 25% on the first, second and
third anniversaries of the date of grant and will remain exercisable for up to
10 years after the date of grant. We may terminate the agreement for cause or
upon death or disability. Cause means a final non-appealable conviction for, or
plea of no contest to, a charge of commission of a felony, the good faith
determination by the Board of Directors that Mr. Marmol has committed any act in
the course of employment constituting fraud or dishonesty on 20 days' notice, or
a determination by a court of competent jurisdiction that Mr. Marmol has
breached his non-compete agreement; his confidentiality agreement; or interfered
with our relationship with any client, supplier or other person. In the case of
a termination due to disability we will continue to pay Mr. Marmol his salary
and benefits for a period of six months. Mr. Marmol has the right to terminate
his employment with us at any time for any reason. If we terminate Mr. Marmol's
agreement for any reason other than for cause, or Mr. Marmol terminates his
employment for good reason, Mr. Marmol will be entitled to receive severance pay
equal to his base salary and maximum bonus for the period remaining under the
term of the agreement, continuation of benefits for that period and automatic
vesting of all stock options. Good reason includes a change of control; material
breach of the employment agreement by us; relocation of our principal business
office to more than 35 miles outside Dallas; or Mr. Marmol's duties are
diminished or he is not elected Chairman, unless he consents otherwise. Mr.
Marmol has consented in writing to the election of Michael H. Jordan as our
Chairman and a director upon the closing of this offering. Mr. Marmol will be
subject to covenants intended to bar his competition and solicitation of clients
or employees through one year after his employment ends for any reason.
As of June 28, 1999, we entered into an employment agreement with Thomas G.
Bevivino as our Vice President, Finance for the period through June 28, 2002.
Mr. Bevivino will receive an annual salary of $150,000 plus a bonus of up to the
same amount. We will grant Mr. Bevivino options to acquire 100,000 shares of
common stock under the long-term incentive plan, exercisable at the initial
public offering price. The options will become exercisable in sixths every sixth
months after the date we grant them and will remain exercisable for up to 10
years after the date of the grant. Mr. Bevivino will receive the same benefits
as our other employees. We may terminate Mr. Bevivino's agreement for cause or
upon death or disability. Cause includes a material breach of Mr. Bevivino's
obligations or Mr. Bevivino's gross negligence, conviction for, or plea of no
contest to, a charge of commission of a felony, a breach by Mr. Bevivino of his
non-compete or confidentiality agreement, or if Mr. Bevivino interfered with our
relationship with any client, supplier or other person. Mr. Bevivino may
terminate his employment with us with or without good reason. Good reason means
if we materially violate the employment agreement or if within the first
anniversary of the initial public offering we relocate his primary office by
more than 35 miles from Horsham, Pennsylvania. If Mr. Bevivino resigns or we
terminate his employment with or without cause or because of death or
disability, we will pay Mr. Bevivino any unpaid portion of his salary pro-rated
through the date of actual termination, reimburse business expenses, pay accrued
vacation and pay health insurance premiums for that period. In addition, if we
terminate Mr. Bevivino's employment without cause or he resigns for good reason,
Mr. Bevivino will receive a severance payment equal to his base salary and the
pro rata share of the bonus for the year of his termination, continuation of his
benefits and acceleration of the next sixth of his options. Mr. Bevivino will be
subject to covenants intended to bar his competition and solicitation of clients
or employees during his employment and for one year after his employment ends
for any reason.
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On July 23, 1999, we entered into an employment agreement with Derek
Reisfield to serve as our Vice Chairman and Executive Vice President through
July 23, 2002. Until the closing of this offering and the simultaneous
acquisition of the eight companies, Mr. Reisfield is receiving a monthly salary
of $20,000, with a special bonus at the closing equal to $333 per day between
February 15, 1999 and closing plus reimbursement of limited expenses incurred
during this period. Beginning with the closing of this offering, Mr. Reisfield
will have an annual salary of $250,000 and be eligible for an annual bonus of up
to the same amount. We have also agreed to grant options, immediately before
trading begins, to purchase 1% of the shares of common stock outstanding
immediately after the offering. The exercise price for the options will be the
initial public offering price. The options will be immediately exercisable and
will remain exercisable for up to 10 years after the date of grant or until we
terminate all options under the long-term incentive plan if earlier than 10
years after the date of grant. During the term of his employment, Mr. Reisfield
may not engage in activities that would interfere with the performance of his
duties for us but may engage in other business ventures. We may terminate Mr.
Reisfield's agreement for cause or upon death or disability. Cause includes a
material breach of Mr. Reisfield's obligations, Mr. Reisfield's gross
negligence, or his conviction for, or plea of no contest to a charge of
commission of a felony. If we terminate Mr. Reisfield's agreement for any reason
other than for cause or Mr. Reisfield terminates his employment for good reason,
Mr. Reisfield will be entitled to receive severance pay for 18 months equal to
his base salary as well as his pro rata share of his bonus for the year of his
termination and health insurance premium for that period. Good reason includes a
material breach of the employment agreement by us or relocation of his principal
business location outside Dallas, Texas and surrounding counties or New York
City, New York if Mr. Reisfield relocates back to New York City. Mr. Reisfield
is subject to covenants that bar his competition and solicitation of clients or
employees for the earliest of nine months after his employment ends, our failure
to complete the initial public offering by December 31, 1999, and the date of
termination of employment by disability.
SEVERANCE AGREEMENT
Joseph Autem resigned as our Chief Financial Officer effective as of July
23, 1999. In connection with Mr. Autem's resignation, we entered into a
severance agreement with him effective July 23, 1999. Under the severance
agreement, Mr. Autem is entitled to the following:
- Mr. Autem will serve as a financial consultant to the Company for a period
of six years. He will be compensated at the rate of $13,888.89 per month.
Mr. Autem will receive an acquisition fee if we acquire any company Mr.
Autem refers to us as an acquisition candidate after July 23, 1999.
- Upon the closing of this offering, we will grant Mr. Autem immediately
exercisable and fully vested options for shares of our common stock in an
amount equal to the quotient of $250,000 divided by the initial public
offering price per share. The exercise price for these options will be
$0.01 per share. These options will remain exercisable until the earlier
of the tenth anniversary of the date of the grant or the termination date
of all other options under our long-term incentive plan.
- Payment of $56,249.75 as reimbursement of Mr. Autem's fees and expenses
incurred in furtherance of our business, and an additional $25,000 in
deferred consulting fees is payable within 15 days of the closing of this
offering provided that the closing occurs on or before June 30, 2000.
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1999 LONG-TERM INCENTIVE PLAN
We intend to adopt and to submit to our stockholders prior to the offering a
long-term incentive plan to promote our long-term growth and profitability,
improve stockholder value, and attract, retain and reward highly motivated and
qualified employees and directors. The compensation committee of our Board of
Directors will administer the long-term incentive plan unless the Board of
Directors specifies another committee of the Board of Directors or chooses to
act itself as administrator.
Under the long-term incentive plan, we can grant options for approximately
12,838,602 shares of common stock, which number will adjust automatically to be
30% of our outstanding common stock from time to time. We can grant options to
employees in the form of incentive stock options for up to 6,000,000 shares, but
may choose not to do so. Any options we grant that are not incentive stock
options will be nonqualified stock options.
All of our employees, directors, and certain service providers are eligible
to receive options under the long-term incentive plan. For tax reasons, the
long-term incentive plan limits the number of shares covered by options that an
individual can receive in a calendar year to 50% of the total initial pool. The
administrator will determine the prices, exercise schedules, expiration dates,
and other material conditions under which optionees other than non-employee
directors may exercise their options. Except with respect to replacement
options, which we grant to replace options at companies we acquire, the exercise
price of these options may not be less than the fair market value of the common
stock on the date of grant. The long-term incentive plan also provides for
formula option grants for 15,000 shares to each person serving or who has agreed
to serve as a non-employee director as of the closing of this offering and for
10,000 shares annually thereafter at each annual meeting of our stockholders,
that happens at least six months after the closing of the offering, at which the
director is re-elected or remains a director. A director who receives formula
options can generally exercise them beginning six months after receipt, as to
one-sixth of the shares and as to an additional one-sixth every following six
months.
All options will become exercisable if we have a change of control. In
general, we will have a change of control if, after our initial public offering,
- anyone acquires or holds more than 50% of our voting securities, excluding
holdings by our benefit plans and certain other related parties;
- we complete a merger or consolidation, unless, in general, our pre-merger
shareholders own at least 50% of the voting securities of the merged
companies; or
- if, with shareholder approval, we complete a liquidation or dissolution or
sell or otherwise dispose of all or substantially all of our assets.
In addition, unless we provide otherwise, the long-term incentive plan and all
options will terminate in certain circumstances if
- we are not the surviving company in a merger, consolidation, or
reorganization;
- we complete a liquidation or dissolution or sell substantially all our
assets; or
- our board approves and we complete a transaction that results in a person
or entity's owning all of our stock, unless the person or entity is
related to us in certain specified ways.
However, before the long-term incentive plan would terminate for one of those
reasons, we would either agree that our successor would assume the options
and/or the long-term incentive plan, allow optionees to exercise the options, or
cancel the options by paying the amount, if any,
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by which the value determined with respect to that transaction exceed the
exercise price of the options.
The long-term incentive plan limits the time during which an optionee can
exercise an option to no more than 10 years. In addition, an optionee who leaves
employment will generally have no more than ninety days to exercise an option,
reduced to no days after employment in terminations for cause, and certain
additional rules apply to death and disability. The compensation committee may,
however, override the plan's rules, other than the 10 year limit. We cannot
grant additional options under the long-term incentive plan after the tenth
anniversary of its adoption.
SENIOR BONUS PLAN
We expect to adopt a senior bonus plan and to obtain approval of that plan
from our shareholders prior to the closing of this offering. A special tax rule
in Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
compensation that we can deduct for payments to our chief executive officer and
the four other most highly compensated executive officers to $1 million per
officer per year. We intend the senior bonus plan to provide incentive
compensation that does not count against each executive's deduction limit. We
may choose to use the senior bonus plan, or we may pay bonuses under some other
future plan to which the tax deduction limits will apply, as long as we do not
use the other payments to make up bonuses a participant loses under the senior
bonus plan.
Unless our board of directors selects another committee, the compensation
committee will administer the senior bonus plan and select participants from our
key employees and those of our subsidiaries, although we expect that most
participants will be executive officers. When we refer to the "compensation
committee" in discussing the senior bonus plan, we also mean any other committee
that administers this plan. Only "outside directors" under the tax rules can
determine the participants, set the performance goals, and certify that we or
the participants have met those goals. The compensation committee will either
consist solely of two or more outside directors or those members who do not
satisfy the definition of an outside director will either abstain from voting or
refrain from serving on a subcommittee that then administers this plan. The
compensation committee has broad administrative authority to, among other
things, designate participants, establish performance goals and performance
periods, determine the effect of participant termination of employment and
"change in control' transactions before paying an award, and generally interpret
and administer the senior bonus plan. Neither we nor the Board has designated
any participants or established any performance goals under the senior bonus
plan.
The compensation committee will select participants for any given time
period based primarily on its judgment as to which executive officers are likely
to be named in our proxy statement as the chief executive officer or one of our
other four most highly compensated executive officers as of the end of such
performance period and that the compensation committee reasonably expects to
have compensation in excess of $1 million. We do not expect any of our employees
or those of our subsidiaries to exceed that limit in 1999.
In setting performance goals, the compensation committee will specify the
applicable performance criteria and targets it will use for such performance
period, which may vary from participant to participant. The performance criteria
and targets will measure one or more of the following Luminant, subsidiary,
operating unit, or division financial performance measures:
- pre-tax or after-tax net income;
- operating income or gross revenue;
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- profit margin;
- stock price;
- cash flows; or
- strategic business criteria consisting of one or more objectives based
upon meeting specified revenue, market penetration, geographic business
expansion goals, cost targets, and goals relating to acquisitions or
divestitures.
The compensation committee may set these goals (1) on an absolute or
stand-alone basis, or on a relative basis in comparison to others, (2) based on
internal targets, (3) based on comparison with prior performance, (4) based on
comparison to capital, shareholders' equity, shares outstanding, assets or net
assets, and/or (5) based on comparison to the performance of other companies.
For example, the compensation committee could express an income-based
performance measure in a number of ways, such as net earnings per share, or
return on equity, or with reference to meeting or exceeding a specific target,
or with reference to growth above a specified level, such as prior year's
performance or peer group performance. The compensation committee can also
ignore certain unusual or nonrecurring accounting effects. The senior bonus plan
provides that achieving such goals must be substantially uncertain at the time
the goals are established and are subject to the committee's right to reduce the
amount of any award payable as a result of such performance as discussed below.
The compensation committee may set a participant's target bonus, that is,
the amount the participant will receive if the targets are met, as a dollar
amount or in a formula, such as a percentage share of a bonus pool, provided
that, if the committee uses a pool approach, the total bonus opportunity for all
participants who are part of the pool may not total more than 100% of the pool.
The committee has the sole discretion to reduce, but not increase, the actual
bonus awarded under the plan. The committee must determine the extent to which
the performance goals are met and the participant becomes entitled to a bonus.
The maximum bonus payable under the senior bonus plan to any one individual
in any one calendar year is $3 million, although we have no plans or
expectations at this time to pay bonuses of that size.
Our Board or the committee may at any time amend the senior bonus plan, and
our Board may terminate the plan. However, without a participant's written
consent, no such amendment or termination may adversely affect the annual bonus
rights, if any, of any already designated participant for a given performance
period after the participants and targets are set. Our Board may make any
amendments necessary to comply with applicable regulatory requirements,
including the tax deduction limit for senior executives. If necessary to
preserve the intended tax treatment, the Board may submit future amendments of
the senior bonus plan to our shareholders for approval.
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CERTAIN TRANSACTIONS WITH RELATED PARTIES
On August 22, 1998, we issued 7,138,701 shares of common stock to
Commonwealth Principals II LLC, a Virginia based merchant banking firm, in
exchange for $1.00. Commonwealth Principals will own approximately 17.45% of
Luminant after this offering, which shares are indirectly held by its members,
including Messrs. Jordan, Marmol and Reisfield and their affiliates as described
below. In September 1998, Guillermo G. Marmol, who is our Chief Executive
Officer and President, acquired a limited liability company interest in
Commonwealth Principals equating to an indirect pecuniary interest in 738,856
shares of Luminant for a purchase price of $1.00. In December 1998, Michael H.
Jordan, who will be our Chairman and a director at the closing of this offering,
acquired a limited liability company interest in Commonwealth Principals
equating to an indirect pecuniary interest in 314,103 shares of Luminant for a
purchase price of $400,000. In April 1999, Derek R. Reisfield, our Vice Chairman
and Executive Vice President, acquired a limited liability company interest in
Commonwealth Principals equating to an indirect pecuniary interest in 157,051
shares of Luminant for a purchase price of $200,000. In addition, in May 1999,
R4 Venture Partners I, of which Mr. Reisfield is a general partner and holds a
31.25% pecuniary interest, acquired a limited liability company interest in
Commonwealth Principals equating to an indirect pecuniary interest in 157,051
shares of Luminant for a purchase price of $200,000.
The following table shows the number and percentage of outstanding shares of
our common stock that were indirectly owned by our affiliates through other
entities as of July 1, 1999 and that will be indirectly owned by our affiliates
through other entities following the closing of this offering and the
simultaneous acquisition of the eight companies.
<TABLE>
<CAPTION>
AFTER OFFERING
(FULL EXERCISE
AFTER OFFERING OF OVER-
(NO EXERCISE OF OVER- ALLOTMENT
BEFORE OFFERING ALLOTMENT OPTION) OPTION)
----------------------------- ----------------------------- ---------------
NUMBER OF NUMBER OF NUMBER OF
SHARES OWNED SHARES OWNED SHARES OWNED
THROUGH ANOTHER PERCENTAGE THROUGH ANOTHER PERCENTAGE THROUGH ANOTHER
NAME AND ADDRESS ENTITY OWNERSHIP ENTITY OWNERSHIP ENTITY
- ---------------------------------------------- --------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Michael H. Jordan............................. 314,103 4.00% 314,103 .77% 314,103
Guillermo G. Marmol........................... 738,856 9.41 738,856 1.81 738,856
Derek R. Reisfield............................ 314,102 4.00 314,102 .77 314,102
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OWNERSHIP
- ---------------------------------------------- ------------
<S> <C>
Michael H. Jordan............................. .73%
Guillermo G. Marmol........................... 1.73
Derek R. Reisfield............................ .73%
</TABLE>
Commonwealth Principals secured, for our benefit, loans for an aggregate of
$3.0 million to pay expenses of this offering and the acquisition of the eight
companies. The loans secured by Commonwealth Principals accrue interest at the
prime rate, which was 8% at July 1, 1999, are payable on demand and will be
repaid from the proceeds of this offering. At March 31, 1999, Commonwealth
Principals had advanced a total of $50,000. By closing of the offering and the
simultaneous acquisition of the eight companies, Commonwealth Principals expects
to advance a total of approximately $4.5 million, which includes the $3.0
million loan secured for our benefit, in order to pay expenses of this offering
and the acquisition of the eight companies.
In September 1998, we entered into a management services agreement with
Commonwealth Principals to provide us with consulting and financial advisory
services. The agreement terminates at the earlier of the closing of our initial
public offering or 24 months after the date of the agreement. For the period
ended December 31, 1998, we paid $49,000 to Commonwealth Principals under that
agreement. No amounts have been paid for the six months ended June 30, 1999.
On September 1, 1998, Mr. Marmol purchased 713,870 shares of our common
stock for a purchase price of $200,000 in cash.
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We have entered into employment agreements with each of Messrs. Marmol,
Reisfield and Bevivino. For the details of these agreements, please refer to
"Management--Employment Agreements."
James R. Corey will be appointed a director effective on the closing of this
offering and the simultaneous acquisition of the eight companies. Mr. Corey is a
Managing Director and owner of Potomac Partners. We will acquire Potomac
Partners simultaneously with the closing of this offering and the acquisition of
the other seven companies. Mr. Corey will receive 2,015,367 shares of common
stock and $10.2 million in cash, based on an assumed initial public offering
price of $12.00 per share, for his ownership interest in Potomac Partners.
On February 1, 1998, Potomac Partners loaned $150,000 to Mr. Corey pursuant
to a note that bore interest at the rate of 6% per annum and was payable on
demand. This note was paid in full on December 31, 1998.
Richard M. Scruggs will be appointed a director effective on the closing of
this offering and the simultaneous acquisition of the eight companies. Mr.
Scruggs is President, Chief Executive Officer and Chairman of the Board of
Align. We will acquire Align simultaneously with the closing of this offering
and the acquisition of the other seven companies. Mr. Scruggs will receive
971,216 shares of common stock and $5.5 million in cash, based on an initial
public offering price of $12.00 per share, for his ownership interest in Align.
In addition, Mr. Scruggs will receive options to purchase 61,833 shares of our
common stock at exercise prices ranging from $0.18 to $2.03 per share in
exchange for outstanding options for Align shares.
Mr. Scruggs is the guarantor of $550,000 of indebtedness of Align under its
bank line of credit. The line of credit is due on demand, matures in July 1999
and accrues interest at the rate of prime plus 1%, which was equal to 9% at July
1, 1999. Mr. Scruggs will be released from his guaranty upon the closing of this
offering and the simultaneous acquisition of the eight companies.
Mr. Corey and Scruggs are also eligible to receive an indeterminable number
of shares of common stock under the contingent consideration provisions of the
acquisition agreement for their respective company. See "About Luminant
Worldwide Corporation."
We entered into an agreement with ARC Group LLC and Commonwealth Principals,
dated March 8, 1999, under which ARC Group agreed to provide consulting services
to us in exchange for a payment of $80,000, an additional payment of $240,000
upon closing of our initial public offering and reimbursement of their fees and
expenses. Commonwealth Principals agreed to guarantee our performance under this
agreement. Mr. Bevivino, our Vice President of Finance, is a managing member of
ARC Group.
The Company has retained the law firm of Wilmer, Cutler & Pickering,
Washington, D.C., as its outside legal counsel in connection with this offering
and the acquisition of the eight companies. George P. Stamas, a director of
Luminant, is a partner with Wilmer, Cutler & Pickering.
YOUNG & RUBICAM
Simultaneously with the closing of this offering and the acquisition of the
other seven companies, we will acquire assets of Brand Dialogue-New York from
Young & Rubicam for a purchase price of approximately $55.3 million, which will
be paid through the issuance of 4,609,091 shares of common stock. We will also
grant to Young & Rubicam an option immediately exercisable for 1,000,000 shares
of our common stock at an exercise price equal to the initial public offering
price. Young & Rubicam will own approximately 11.27% of Luminant after this
offering, or 13.38% assuming the option is exercised in full. Michael J. Dolan
will
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become a director effective upon the closing of this offering and the
acquisition of the other seven companies under an agreement with Young &
Rubicam. Mr. Dolan is Vice Chairman, Chief Financial Officer and a director of
Young & Rubicam.
We have entered into an agreement with Young & Rubicam to acquire some
assets of Brand Dialogue-New York, the New York branch of a Young & Rubicam
division. Young & Rubicam has agreed that it will ask AT&T, the United States
Postal Service, Citigroup, Dr. Pepper/7-Up, Inc., Sony Corporation, Showtime
Networks, Inc., Phillip Morris Companies Inc. and Pfizer Inc., as well as other
clients who may be identified in the future by the Company and Young & Rubicam
together or by Young & Rubicam under the procedures set forth in the Brand
Dialogue-New York acquisition agreement, to select us to perform services in
connection with on-going engagements and future engagements substantially
similar to the type of work performed by Brand Dialogue-New York prior to the
closing of this offering and the acquisition of the assets of Brand Dialogue-New
York. Young & Rubicam has the right not to recommend us or to terminate our
involvement in an existing engagement if in its judgment recommending or
retaining us is not in the best interests of its clients or if we fail to
perform our obligations or default under the terms of any client engagement. A
Young & Rubicam client can also cancel the engagement. We and Young & Rubicam
intend to cooperate in marketing our respective services to each others' clients
in order to increase the range, breadth and depth of services available to such
clients.
In addition, upon the closing of this offering and the acquisition of the
assets of Brand Dialogue-New York, we will enter into a Transition Services
Agreement with Young & Rubicam under which Young & Rubicam will grant us a
license to use, for a term not to exceed 12 months, office space used by Brand
Dialogue-New York prior to the closing of this offering and the acquisition of
the assets of Brand Dialogue-New York. Young & Rubicam will also agree to
provide us with specified services in connection with our use of this space. In
consideration for providing the space, we will pay to Young & Rubicam $33,072
per month plus expenses. Additional fees will be paid to Young & Rubicam for the
provision of specified services.
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PRINCIPAL STOCKHOLDERS
The table at the end of this section shows the number and percentage of
outstanding shares of our common stock that were owned as of July 1, 1999 and
that will be owned following the closing of this offering and the simultaneous
acquisition of the eight companies:
- all persons known by us to own beneficially more than 5% of the common
stock;
- each director, director nominee and executive officer; and
- all directors, director nominees and executive officers as a group.
As of July 1, 1999, there were 7,852,571 shares of common stock outstanding.
Following the closing of this offering and the simultaneous acquisition of the
eight companies, we will have outstanding 40,909,091 shares of common stock,
assuming the underwriters do not exercise their over-allotment option, and
42,795,341 shares assuming the underwriters exercise their over-allotment option
in full, including 20,481,520 shares of common stock we will issue as a portion
of the initial purchase prices for the acquisitions of our companies. At the
time of the closing of this offering and the simultaneous acquisition of the
eight companies we will also have outstanding options to purchase 7,803,917
shares of common stock, including options to purchase 1,983,316 shares of common
stock which will be exercisable immediately following this offering. No other
options, warrants or rights to acquire shares of common stock will become
exercisable within 60 days of this offering.
On August 22, 1998, Commonwealth Principals acquired 7,138,701 shares of our
common stock, which are beneficially held by its members, including Messrs.
Jordan, Marmol and Reisfield and their affiliates. The beneficial ownership of
Commonwealth Principals shown in the table at the end of this section does not
include the shares of Luminant that are held indirectly through Commonwealth
Principals by Messrs. Jordan, Marmol and Reisfield and their affiliates, as
those shares will be distributed to those individuals as soon as practicable
after closing of this offering:
- The number of shares of common stock owned by Mr. Jordan includes 314,103
shares of common stock indirectly owned through his ownership of a limited
liability company interest in Commonwealth Principals.
- The number of shares of common stock owned by Mr. Marmol includes 738,856
shares of common stock indirectly owned through his ownership of a limited
liability company interest in Commonwealth Principals and options to
purchase 534,942 shares that will be exercisable on the closing of this
offering.
- The number of shares of common stock owned by Mr. Reisfield includes
options to purchase 427,541 shares of common stock, that will be
exercisable on the closing of this offering; 157,051 shares indirectly
owned through his ownership of a limited liability company interest in
Commonwealth Principals; and 157,051 shares indirectly owned by R4 Venture
Partners I through its ownership of a limited liability company interest
in Commonwealth Principals. Mr. Reisfield is a general partner of R4
Venture Partners I.
Other members of Commonwealth Principals who will indirectly own shares of
Luminant through their ownership interest in Commonwealth Principals do not
include any officers or directors of Luminant or any persons who would have an
indirect ownership interest in Luminant after completion of the offering equal
to 5% or more of its outstanding shares. The management committee of
Commonwealth Principals, which has the power to vote and make decisions
regarding the disposition of the Luminant shares, consists of J. Marshall
Coleman, Sean Coleman, and Santanu Sarkar.
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The number of shares of common stock owned by Young & Rubicam includes
options for 1,000,000 shares of common stock that will be exercisable on the
closing of this offering and the simultaneous acquisition of assets of
Brand-Dialogue-New York.
The shares beneficially owned by Richard M. Scruggs include 1,000,000 shares
owned by Commonwealth Principals as to which Mr. Scruggs has voting power under
the terms of an Agreement and Irrevocable Proxy by and between Commonwealth
Principals and Mr. Scruggs, dated July 23, 1999.
We originally issued 7,852,571 shares of common stock to our initial
stockholder and an executive officer after giving effect to the 71,387-for-one
stock split.
Following this offering, the former owners of our eight companies may be
entitled to contingent consideration under the terms of the acquisition
agreements that we entered into with them. The number of shares that could be
issued as payment of contingent consideration are not now determinable and no
assumptions regarding those issuances have been included in the pro forma
financial statements included in this prospectus.
The address for our officers and directors is c/o Luminant Worldwide
Corporation, 4100 Spring Valley Road, Suite 750 Dallas, Texas 75244.
An asterisk indicates ownership of less than 1%.
<TABLE>
<CAPTION>
AFTER OFFERING AFTER OFFERING
(NO EXERCISE OF OVER- (FULL EXERCISE OF OVER-
BEFORE OFFERING ALLOTMENT OPTION) ALLOTMENT OPTION)
------------------------ ------------------------ ------------------------
NUMBER NUMBER NUMBER
OF SHARES OF SHARES OF SHARES
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OWNED OWNERSHIP OWNED OWNERSHIP OWNED OWNERSHIP
- ----------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael H. Jordan........................ 314,103 4.00% 314,103 *% 314,103 *%
Guillermo G. Marmol...................... 1,987,668 23.70 1,987,668 4.80 1,987,668 4.59
Derek R. Reisfield....................... 741,644 8.96 741,644 1.79 741,644 1.72
Thomas G. Bevivino....................... -- -- -- -- -- --
George P. Stamas......................... -- -- -- -- -- --
James R. Corey........................... -- -- 2,015,367 4.93 2,015,367 4.71
Richard M. Scruggs....................... -- -- 1,971,216 4.82 1,971,216 4.61
Randolph Austin.......................... -- -- -- -- -- --
Michael J. Dolan......................... -- -- -- -- -- --
Young & Rubicam Inc. -- -- 5,609,091 13.38 5,609,091 12.81
285 Madison Avenue
New York, New York 10017................
Commonwealth Principals II LLC 5,221,960 66.50 5,221,960 12.76 5,221,960 12.20
1650 Tysons Blvd.
McLean, Va 22102........................
All executive officers, directors and 3,043,415 34.53% 7,029,998 16.79% 7,029,998 16.07%
director nominees as a group (nine
persons)................................
</TABLE>
73
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 100,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. As of July 1, 1999, there were 7,852,571 shares of our common
stock outstanding, held by two holders of record, and no shares of preferred
stock outstanding.
Following the closing of this offering and the simultaneous acquisition of
our eight companies, we will have outstanding 40,909,091 shares of common stock,
including 20,481,520 shares issued as part of the purchase price for our eight
companies, assuming the underwriters do not exercise their over-allotment
option. In addition, we may issue additional shares of common stock to the
former owners of our companies as contingent consideration under the terms of
the acquisition agreements that we entered into with them. The number of shares
that could be issued as payment of contingent consideration are not now
determinable and no assumptions regarding those issuances have been included in
the pro forma financial statements included in this prospectus. Following
completion of this offering, no shares of preferred stock will be outstanding.
The following is a description of our capital stock.
COMMON STOCK
We are authorized to issue, without further stockholder approval, up to
100,000,000 shares of common stock. Holders of record of common stock are
entitled to one vote for each share held on all matters properly submitted to a
vote of stockholders. Holders of our common stock do not have cumulative voting
rights. As a result, holders of a plurality of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled ratably to any
dividend declared by the Board of Directors out of funds legally available for
this purpose, subject to any preferential dividend rights of any
then-outstanding preferred stock. Upon our liquidation, dissolution or winding
up, holders of common stock are entitled to receive ratably our remaining net
assets available after payment of or provision for all debts and other
liabilities, subject the prior rights of any then-outstanding preferred stock.
Holders of common stock have no redemption or conversion rights and no
preemptive right to subscribe for or purchase additional shares of any class of
our capital stock. The outstanding shares of common stock are, and the shares of
common stock offered in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
common stock may be adversely affected by the rights of the holders of shares of
any series of preferred stock that we may designate and issue in the future. See
"--Preferred Stock."
PREFERRED STOCK
We are authorized to issue, without further stockholder approval, up to
10,000,000 shares of preferred stock in one or more series, which can have
rights senior to those of the common stock. Our Board of Directors may fix or
alter the powers, designation, dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption, including sinking fund
provisions, redemption price or prices, liquidation and other preferences, and
other special rights of any wholly unissued series of preferred stock, and the
number of shares constituting any such series.
Our issuance of preferred stock could adversely affect holders of common
stock. These effects could include the following:
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<PAGE>
- if dividends on the preferred stock have not been made, dividends on the
common stock may be restricted;
- to the extent the preferred stock has voting rights, the voting rights of
the common stock will be diluted;
- if holders of preferred stock are entitled to preferred dividends or
liquidation preferences, the amount of earnings and assets available for
distribution to holders of common stock may be reduced; and
- the issuance of preferred stock could decrease the market price of the
common stock.
In addition, our issuance of preferred stock may have the effect of delaying or
preventing a change in control. We currently have no plans to issue any shares
of preferred stock.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors will not be personally liable to us or
our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (1) for any breach of the director's duty of
loyalty to us or our stockholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (3) under
Section 174 of the Delaware General Corporation Law, relating to unlawful
dividends or unlawful stock purchases or redemptions, or (4) for any transaction
from which the director derives an improper personal benefit. As a result of
this provision, we and our stockholders may be unable to obtain monetary damages
from a director for breach of his or her duty of care.
Our certificate of incorporation and by-laws provide for the indemnification
of our directors and officers to the fullest extent authorized by the Delaware
General Corporation Law, except that we will indemnify a director or officer in
connection with an action initiated by that person only if the action was
authorized by our Board of Directors. The indemnification provided under our
certificate of incorporation and by-laws includes the right to be paid expenses
in advance of any proceeding for which indemnification may be had, provided that
such advance payment may be made only if the director or officer seeking such
advance payment delivers to us an undertaking to repay all amounts paid in
advance if it is ultimately determined that the director or officer is not
entitled to be indemnified. Under our by-laws, if we do not pay a claim for
indemnification within 60 days after we have received a written claim, the
director or officer may bring an action to recover the unpaid amount of the
claim and, if successful, the director or officer also will be entitled to be
paid the expense of prosecuting the action to recover these unpaid amounts.
Under our by-laws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee,
limited partner, general partner, manager, trustee or agent of another
corporation or of a partnership, joint venture, limited liability company, trust
or other enterprise, against any liability asserted against the person or
incurred by the person in any of these capacities, or arising out of the
person's fulfilling one of these capacities, and related expenses, whether or
not we would have the power to indemnify the person against the claim under the
provisions of the Delaware General Corporation Law. We intend to purchase
director and officer liability insurance on behalf of our directors and
officers.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation and by-laws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our Board of Directors and in the
75
<PAGE>
policies formulated by our Board of Directors. In addition, provisions of
Delaware law may hinder or delay an attempted takeover of Luminant other than
through negotiation with our Board of Directors. These provisions could have the
effect of discouraging attempts to acquire us or remove incumbent management
even if some or a majority of our stockholders believe this action to be in
their best interest, including attempts that might result in the stockholders'
receiving a premium over the market price for the shares of common stock held by
stockholders.
REMOVAL AND REPLACEMENT OF DIRECTORS. Under the certificate of
incorporation, directors may only be removed, with or without cause, by the
affirmative vote of two-thirds of the outstanding voting stock. In addition, a
majority of the directors then in office can fill board vacancies and
newly-created directorships resulting from any increase in the size of the Board
of Directors, even if those directors do not constitute a quorum or only one
director is left in office. These provisions could prevent stockholders,
including parties who want to take over or acquire us, from removing incumbent
directors without cause and filling the resulting vacancies with their own
nominees.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER
NOMINATIONS OF DIRECTORS. The by-laws establish an advance notice procedure
regarding stockholder proposals and nominations for director. The advance notice
procedure will not apply to proposals by our Board of Directors or management.
Any stockholder that wishes to make a proposal, or nominate a director for
election, at an annual meeting must deliver us notice of the proposal or the
nomination not less than 90 days nor more than 120 days before the first
anniversary of the preceding year's annual meeting. The stockholder must put
information in the notice regarding:
- the stockholder and its holdings;
- the background of any nominee for director;
- any business desired to be brought before the meeting;
- the reasons for conducting the business at the meeting; and
- any material interest of the stockholder in the business proposed.
SPECIAL MEETINGS OF STOCKHOLDERS. Our certificate of incorporation and
by-laws permit special meetings of the stockholders to be called only by the
Board of Directors, the Chairman of the Board or the President or holders of at
least 75% of our securities that are outstanding and entitled to vote generally
in an election of directors. This provision may make it more difficult for
stockholders to take actions opposed by the Board of Directors.
PROHIBITION ON STOCKHOLDER ACTION BY WRITTEN CONSENT. Our certificate of
incorporation and by-laws prohibit stockholders from taking action by written
consent. By requiring stockholders to take actions at an annual or special
meeting, rather than by written consent, our certificate of incorporation and
by-laws may discourage stockholder actions that are opposed by our board of
directors.
AUTHORIZED BUT UNISSUED SHARES. Without further stockholder approval, we can
issue shares of common stock and preferred stock up to the number of shares
authorized for issuance in our certificate of incorporation, except as limited
by Nasdaq rules. We could use these additional shares for a variety of corporate
purposes. These purposes include future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. Our ability to issue
these shares of common stock and preferred stock could make it more difficult or
discourage an attempt to obtain control of Luminant by means of a proxy contest,
tender offer, merger or otherwise.
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<PAGE>
SECTION 203 OF DELAWARE LAW. In addition to the foregoing provisions of our
certificate of incorporation and by-laws, we will be subject to the provisions
of Section 203 of the Delaware General Corporation Law. Section 203 prohibits
publicly-held Delaware corporations from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock. These
provisions could have the effect of delaying, deferring or preventing a change
in control of Luminant or reducing the price that investors might be willing to
pay in the future for shares of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
SHARES AVAILABLE FOR FUTURE SALE
Following the closing of this offering and the simultaneous acquisition of
the eight companies, we will have 40,909,091 shares of common stock outstanding,
assuming no exercise of the underwriters' over-allotment option, or 42,795,341
shares, assuming the underwriters' over-allotment option is exercised in full.
All the shares we sell in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by our affiliates, as that term is defined in Rule 144, may
generally only be sold in compliance with the limitations of Rule 144 described
below.
28,334,091 shares of common stock outstanding following the closing of this
offering and the simultaneous acquisition of the eight companies, including
20,481,520 shares of common stock we issue to former owners of our companies
under the acquisition agreements we entered into with them, will be restricted
securities under the terms of the Securities Act. Sales of a portion of the
restricted shares to be outstanding upon completion of this offering will be
limited by lock-up agreements with the underwriters and with us as described
below.
We may also issue an indeterminable number of shares of common stock under
the contingent consideration provisions of the acquisition agreements which
would be "restricted securities," and which may be resold if registered under
applicable registration rights or if an exemption from registration is
available. See "About Luminant Worldwide Corporation."
RULE 144
In general, under Rule 144, a stockholder who owns restricted shares that
have been outstanding for at least one year is entitled to sell, within any
three-month period, a number of these restricted shares that does not exceed the
greater of:
- one percent of the then outstanding shares of common stock, or
approximately 409,091 shares immediately after this offering; or
- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, to
sell shares of common stock which are not restricted securities unless we
register those securities for resale by the affiliate.
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<PAGE>
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours and who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The one-
and two-year holding periods described above do not begin to run until the full
purchase price is paid by the person acquiring the restricted shares from us or
an affiliate of ours.
REGISTRATION RIGHTS
The former owners of the companies that we acquire at the closing of this
offering and the simultaneous acquisition of the eight companies will have
piggyback registration rights to register the shares of common stock that they
receive pursuant to the acquisition agreements, including those issued as
contingent consideration, whenever we propose to register any shares of common
stock for our own or another's account under the Securities Act for a public
offering, other than:
- any shelf registration of shares of common stock to be used as
consideration for acquisitions of additional businesses;
- registrations relating to employee benefit plans; and
- registrations relating to rights offerings made to our stockholders.
Under a registration rights agreement we expect to enter into prior to the
closing of this offering, Commonwealth Principals and Mr. Marmol will also have
piggyback registration rights to register the shares of common stock which they
hold or which they have a right to acquire under options granted in connection
with this offering, whenever we propose to register any shares of common stock
for our own or another's account under the Securities Act for public offering,
other than:
- any shelf registration of shares of common stock to be used as
consideration for acquisitions of additional businesses;
- registrations relating to employee benefit plans; and
- registrations relating to rights offerings made to our stockholders.
In addition, Young & Rubicam will have the right, on one occasion that can
be no earlier than 18 months after the closing of this offering and the
simultaneous acquisition of the eight companies, to require that we register
under the Securities Act any or all of the shares of common stock they receive
in connection with their aquisition, including shares issued as contingent
consideration and shares issued upon exercise of options granted to Young &
Rubicam. We have agreed to pay all costs of this registration and to keep the
registration effective for at least 120 days, or whatever shorter period may be
required to sell the registered shares.
COMMON STOCK AND OPTIONS ISSUABLE UNDER OUR EQUITY COMPENSATION PLANS
Before the closing of this offering and the simultaneous acquisition of the
eight companies, we will issue options to acquire 7,803,917 shares of common
stock, of which options to acquire 1,570,776 shares will be issued to employee
participants in Align's option plan on conversion of outstanding Align options,
and options to purchase 1,000,000 shares to Young & Rubicam.
We intend to file one or more registration statements under the Securities
Act after the closing of the initial public offering to register 12,838,602
shares of common stock underlying outstanding stock options or reserved for
issuance under our long-term incentive plan. We
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<PAGE>
expect these registration statements will become effective upon filing, and
shares covered by these registration statements will be eligible for sale in the
public market immediately after the effective dates of these registration
statements.
LOCK-UP AGREEMENTS
We have agreed with the underwriters that we will not issue any additional
shares of common stock or securities convertible into, exercisable for or
exchangeable for shares of common stock for 180 days following the date of this
prospectus, except that we may grant options or warrants to purchase shares of
common stock under the long-term incentive plan or in connection with the
acquisitions of companies, and issue shares of common stock upon the exercise of
outstanding options and warrants and in connection with the acquisition of
companies.
Our executive officers, directors and our large stockholders have agreed
with the underwriters that they will not offer, sell, contract to sell or
otherwise dispose of or enter into any transaction which is designed to or could
be expected to result in the disposition of any common stock for a period of 180
days after the date of this prospectus without the prior written consent of
Deutsche Bank Securities Inc., except that nothing will prevent any of them from
exercising outstanding options or warrants.
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<PAGE>
UNDERWRITING
The underwriters named below, through their representatives Deutsche Bank
Securities Inc., Hambrecht & Quist LLC and SoundView Technology Group, Inc.,
have severally agreed to purchase from us the following numbers of shares of
common stock at the public offering price less the underwriting discounts and
commissions shown on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Deutsche Bank Securities Inc.....................................................
Hambrecht & Quist LLC............................................................
SoundView Technology Group, Inc..................................................
-----------
Total..........................................................................
-----------
-----------
</TABLE>
We have entered into an underwriting agreement with the underwriters which
provides that the underwriters are obligated to purchase all of the shares of
common stock we are offering to sell in this offering, other than shares covered
by the over-allotment option described below, if any of the shares are
purchased. We expect to issue these shares on , 1999.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover page of this prospectus and
to dealers at a price that represents a concession not in excess of $
per share under the public offering price. The underwriters may allow, and
dealers may re-allow, a concession not in excess of $ per share to
other dealers. After the initial offering, the offering price and other selling
terms may be changed by the representatives of the underwriters.
We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to 1,886,250 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock in this offering. To the extent
that the underwriters exercise this option, each of the underwriters will become
obligated to purchase approximately the same percentage of additional shares of
common stock as the number of shares of common stock to be purchased by it in
the above table bears to 40,909,091, and we will be obligated to sell these
shares to the underwriters to the extent they exercise the option. If any
additional shares of common stock are purchased, the underwriters will offer
these additional shares on the same terms as those on which the 40,909,091
shares are being offered.
At our request the underwriters have reserved for sale at the initial public
offering price up to shares of common stock for our officers,
directors, employees, clients, friends and related persons who express an
interest in purchasing these shares. The number of shares of our common stock
available for sale to the general public will be reduced to the extent these
persons purchase these reserved shares. The underwriters will offer any reserved
shares not so purchased by these persons to the general public on the same basis
as the other shares in this initial public offering.
We have agreed to indemnify the underwriters against liabilities in
connection with this initial public offering, including liabilities under the
Securities Act.
We have agreed with the underwriters that we will not issue any additional
shares of common stock or securities convertible into, exercisable for or
exchangeable for shares of common stock for 180 days following the date of this
prospectus, except that we may grant options or warrants to purchase shares of
common stock under the long-term incentive plan or in connection with the
acquisitions of companies, and issue shares of common stock upon the
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<PAGE>
exercise of outstanding options and warrants, and in connection with the
acquisition of companies.
Each of our executive officers and directors and our large stockholders have
agreed with the underwriters that they will not offer, sell, contract to sell or
otherwise dispose of or enter into any transaction which is designed to or could
be expected to result in the disposition of any common stock for a period of 180
days after the date of this prospectus without the prior written consent of
Deutsche Bank Securities Inc., except that nothing will prevent any of them from
exercising outstanding options or warrants.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the common stock. Specifically, the underwriters may over-allot shares of the
common stock in connection with this offering by creating a short position in
the common stock for their own accounts. Additionally, to cover these
over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation between us and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be:
- the history and prospects of our business and the industry in which we
compete;
- an assessment of our management and the present state of our development;
- prevailing market conditions in the U.S. economy and the industry in which
we compete;
- our revenues, operating cash flow and earnings in recent periods;
- the market capitalizations and stages of development of other companies
which the representatives of the underwriters believe to be comparable to
us; and
- estimates of our business potential.
LEGAL MATTERS
The validity of the shares of our common stock offered by this prospectus
will be passed upon for us by Wilmer, Cutler & Pickering, Washington, D.C. The
underwriters have been represented by Piper & Marbury L.L.P., Baltimore,
Maryland.
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<PAGE>
EXPERTS
The audited financial statements and schedules of Luminant Worldwide
Corporation; Align Solutions Corp.; Free Range Media Inc.; Integrated Consulting
Inc.; InterActive8, Inc.; Multimedia Resources, LLC; Potomac Partners Management
Consulting, LLC; RSI Group, Inc. and subsidiaries, Fifth Gear Media Corporation,
inmedia, inc. and Synapse Group, Inc. included in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of Arthur
Andersen LLP as experts in giving these reports.
The financial statements of Brand Dialogue-New York (a wholly-owned business
of Young & Rubicam Inc.) as of December 31, 1997 and 1998 and for the period
from April 1, 1996 (inception) through December 31, 1996, and for each of the
two years in the period ended December 31, 1998 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
You may rely on the information contained in this prospectus. Neither we nor
the underwriters has authorized anyone to provide information different from
that contained in this prospectus. When you make a decision about whether to
invest in our common stock, you should not rely upon any information other than
the information in this prospectus. Neither the delivery of this prospectus nor
sale of common stock means that information contained in this prospectus is
correct after the date of this prospectus. This prospectus is not an offer to
sell or solicitation of an offer to buy these shares of our common stock in any
circumstances under which the offer or solicitation is unlawful.
We have filed with the Securities and Exchange Commission a registration
statement, which includes exhibits, schedules and amendments. This prospectus is
a part of the registration statement and includes all of the information which
we believe is material to an investor considering whether to make an investment
in our common stock. We refer you to the registration statement for additional
information about Luminant, our common stock and this offering, including the
full texts of the exhibits, some of which have been summarized in this
prospectus. The registration statement is available for inspection and copying
at Securities and Exchange Commission's following locations:
1. Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549;
2. New York Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048; and
3. Chicago Regional Officer, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511
You may obtain copies by mail from the Public Reference Room by calling the
SEC at 1-800-SEC-0330. In addition, the Securities and Exchange Commission
maintains an Internet site that contains the registration statement. The address
of the Securities and Exchange Commission's Internet site is
"http://www.sec.gov."
We intend to furnish our stockholders annual reports containing financial
statements audited by our independent accountants.
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LUMINANT WORLDWIDE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements.................................... F-4
Unaudited Pro Forma Combined Balance Sheets.......................................................... F-5
Unaudited Pro Forma Combined Statements of Operations................................................ F-6
Unaudited Historical Balance Sheets Excluding Align Solutions Corp................................... F-9
Unaudited Historical Statements of Operations Excluding Align Solutions Corp......................... F-10
Notes to Unaudited Pro Forma Combined Financial Statements........................................... F-13
ALIGN SOLUTIONS CORP.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Financial Statements............................................. F-20
Unaudited Pro Forma Balance Sheets................................................................... F-21
Unaudited Pro Forma Statements of Operations......................................................... F-22
Notes to Unaudited Pro Forma Financial Statements.................................................... F-25
LUMINANT WORLDWIDE CORPORATION
Report of Independent Public Accountants............................................................. F-26
Balance Sheets....................................................................................... F-27
Statements of Operations............................................................................. F-28
Statements of Stockholders' Equity................................................................... F-29
Statements of Cash Flows............................................................................. F-30
Notes to Financial Statements........................................................................ F-31
OUR EIGHT COMPANIES
ALIGN SOLUTIONS CORP.
Report of Independent Public Accountants............................................................. F-36
Balance Sheets....................................................................................... F-37
Statements of Operations............................................................................. F-38
Statements of Stockholders' Equity................................................................... F-39
Statements of Cash Flows............................................................................. F-40
Notes to Financial Statements........................................................................ F-41
BRAND DIALOGUE-NEW YORK
Report of Independent Accountants.................................................................... F-49
Balance Sheets....................................................................................... F-50
Statements of Operations............................................................................. F-51
Statements of Cash Flows............................................................................. F-52
Notes to Financial Statements........................................................................ F-53
FREE RANGE MEDIA, INC.
Report of Independent Public Accountants............................................................. F-58
Consolidated Balance Sheets.......................................................................... F-59
Consolidated Statements of Operations................................................................ F-60
Consolidated Statements of Stockholders' Equity...................................................... F-61
Consolidated Statements of Cash Flows................................................................ F-62
Notes to Consolidated Financial Statements........................................................... F-63
</TABLE>
F-1
<PAGE>
LUMINANT WORLDWIDE CORPORATION
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INTEGRATED CONSULTING, INC. dba I.CON INTERACTIVE
Report of Independent Public Accountants............................................................. F-71
Balance Sheets....................................................................................... F-72
Statements of Operations............................................................................. F-73
Statements of Stockholders' Equity................................................................... F-74
Statements of Cash Flows............................................................................. F-75
Notes to Financial Statements........................................................................ F-76
INTERACTIVE8, INC.
Report of Independent Public Accountants............................................................. F-82
Balance Sheets....................................................................................... F-83
Statements of Operations............................................................................. F-84
Statements of Stockholders' Equity................................................................... F-85
Statements of Cash Flows............................................................................. F-86
Notes to Financial Statements........................................................................ F-87
MULTIMEDIA RESOURCES, LLC
Report of Independent Public Accountants............................................................. F-94
Balance Sheets....................................................................................... F-95
Statements of Operations............................................................................. F-96
Statements of Members' Equity........................................................................ F-97
Statements of Cash Flows............................................................................. F-98
Notes to Financial Statements........................................................................ F-99
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
Report of Independent Public Accountants............................................................. F-103
Balance Sheets....................................................................................... F-104
Statements of Operations............................................................................. F-105
Statements of Members' Equity........................................................................ F-106
Statements of Cash Flows............................................................................. F-107
Notes to Financial Statements........................................................................ F-108
RSI GROUP, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................................. F-116
Consolidated Balance Sheets.......................................................................... F-117
Consolidated Statements of Operations................................................................ F-118
Consolidated Statements of Stockholders' Equity...................................................... F-119
Consolidated Statements of Cash Flows................................................................ F-120
Notes to Consolidated Financial Statements........................................................... F-121
ACQUISITIONS OF ALIGN SOLUTIONS CORP. SUBSEQUENT TO DECEMBER 31, 1998
FIFTH GEAR MEDIA CORPORATION
Report of Independent Public Accountants............................................................. F-127
Balance Sheets....................................................................................... F-128
Statements of Operations............................................................................. F-129
Statements of Stockholders' Equity................................................................... F-130
Statements of Cash Flows............................................................................. F-131
Notes to Financial Statements........................................................................ F-132
</TABLE>
F-2
<PAGE>
LUMINANT WORLDWIDE CORPORATION
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INMEDIA, INC.
Report of Independent Public Accountants............................................................. F-139
Balance Sheets....................................................................................... F-140
Statements of Operations............................................................................. F-141
Statements of Stockholders' Equity................................................................... F-142
Statements of Cash Flows............................................................................. F-143
Notes to Financial Statements........................................................................ F-144
SYNAPSE GROUP INC.
Report of Independent Public Accountants............................................................. F-152
Balance Sheets....................................................................................... F-153
Statements of Operations............................................................................. F-154
Statements of Stockholders' Equity................................................................... F-155
Statements of Cash Flows............................................................................. F-156
Notes to Financial Statements........................................................................ F-157
</TABLE>
F-3
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Luminant Worldwide Corporation ("Luminant") of the
outstanding capital stock of Align Solutions Corp.; Free Range Media, Inc.;
Integrated Consulting, Inc.; InterActive8, Inc; Multimedia Resources, LLC;
Potomac Partners Management Consulting, LLC; and RSI Group, Inc. and the assets
and certain liabilities of Brand Dialogue-New York (a wholly owned subsidiary of
Young and Rubicam Inc.) (the "eight companies"). These acquisitions will occur
simultaneously with the closing of this offering and will be accounted for using
the purchase method of accounting. Align, one of the eight companies we will
acquire, has been identified as the "accounting acquiror."
The unaudited pro forma combined balance sheet gives effect to the
acquisitions and the offering as if they had occurred on March 31, 1999. The
unaudited pro forma combined statements of operations gives effect to these
transactions as if they had occurred on January 1, 1998. Certain
reclassifications to the historical statements of operations for Brand
Dialogue-New York have been made in order to present information that is
consistent with the Luminant statement of operations presentation.
Luminant has preliminarily analyzed the savings or increases that it expects
to realize from changes in salaries and certain benefits to the stockholders and
management of the eight companies. To the extent the stockholders and management
of the eight companies have agreed prospectively to reductions or increases in
salary, bonuses and benefits, these changes have been reflected in the pro forma
combined statements of operations. With respect to other potential cost savings,
Luminant has not and cannot quantify these savings until completion of the
acquisition of the eight companies. It is anticipated that these savings will be
partially offset by the costs of being a publicly held company and the
incremental increase in costs related to Luminant's new management. The
anticipated savings have not been included in the unaudited pro forma combined
financial statements of Luminant.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what
Luminant's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and are not necessarily
representative of Luminant's financial position or results of operations for any
future period. Since the eight companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in this prospectus. See "Risk Factors" included
elsewhere in this prospectus.
F-4
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
TOTAL PRO FORMA ACQUISITION PRO FORMA OFFERING PRO FORMA
W/O ALIGN ALIGN ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 1,878 $ 352 $ -- $ 2,230 $ 35,652(d)(e) $ 37,882
Accounts receivable, net................... 8,796 2,649 -- 11,445 -- 11,445
Unbilled revenues.......................... 637 816 -- 1,453 -- 1,453
Employee and other receivables............. 1,352 35 (1,138)(a) 249 -- 249
Deferred income taxes...................... 33 125 (68)(a) 90 -- 90
Deferred income tax valuation.............. (21) (125) 56(a) (90) -- (90)
Prepaid expenses and other assets.......... 403 86 -- 489 (50)(d) 439
---------- --------- ----------- --------- ----------- -----------
Total current assets..................... 13,078 3,938 (1,150) 15,866 35,602 51,468
PROPERTY AND EQUIPMENT, net.................. 2,517 1,033 -- 3,550 -- 3,550
OTHER ASSETS:
Goodwill, net.............................. 28 14,688 228,545(a) 243,261 -- 243,261
Other Intangible........................... -- -- 7,470(c) 7,470 -- 7,470
Deferred income taxes...................... 3,081 92 55(a) 3,228 -- 3,228
Deferred income tax valuation.............. (3,067) (92) (69)(a) (3,228) -- (3,228)
Other...................................... 263 28 -- 291 -- 291
---------- --------- ----------- --------- ----------- -----------
Total assets............................. $ 15,900 $19,687 $234,851 $270,438 $ 35,602 $306,040
---------- --------- ----------- --------- ----------- -----------
---------- --------- ----------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................... $ 3,010 $ 1,139 $ -- $ 4,149 $ -- $ 4,149
Payable for eight companies' stock and
other acquisition-related obligations.... -- -- 97,640(b) 97,640 (97,640)(e) --
Customer deposits.......................... 455 146 -- 601 -- 601
Accrued liabilities........................ 12,408 742 (8,670)(b) 4,480 -- 4,480
Unearned revenues.......................... 88 -- -- 88 -- 88
Notes payable.............................. 5,101 1,111 (4,114)(b) 2,098 (50)(d) 2,048
Current maturities of long-term debt....... 703 722 128(b) 1,553 -- 1,553
---------- --------- ----------- --------- ----------- -----------
Total current liabilities................ 21,765 3,860 84,984 110,609 (97,690) 12,919
LONG-TERM LIABILITIES:
Long-term debt, net of current
maturities............................... 452 221 732(b) 1,405 -- 1,405
Deferred income taxes...................... 9 -- (9)(a) -- -- --
---------- --------- ----------- --------- ----------- -----------
Total liabilities........................ 22,226 4,081 85,707 112,014 (97,690) 14,324
---------- --------- ----------- --------- ----------- -----------
MINORITY INTEREST............................ 119 -- (119) -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock............................ 3,728 -- (3,728)(b) -- -- --
Members' equity............................ (4,674) -- 4,674(a) -- -- --
Common stock............................... 125 68 90(a) 283 126(d) 409
Additional paid-in capital................. 4,285 19,319 176,345 (a)(b)(c 199,949 133,166(d) 333,115
Young & Rubicam Inc. investment............ 2,350 -- (2,350)(a) -- -- --
Subscription receivable from officers...... (10) -- 10(a) -- -- --
Retained earnings (deficit)................ (11,819) (3,781) (26,208)(a)(b) (41,808) -- (41,808)
Treasury stock............................. (430) -- 430(a) -- -- --
---------- --------- ----------- --------- ----------- -----------
Total stockholders' equity............... (6,445) 15,606 149,263 158,424 133,292 291,716
---------- --------- ----------- --------- ----------- -----------
Total liabilities and stockholders'
equity................................. $ 15,900 $19,687 $234,851 $270,438 $ 35,602 $306,040
---------- --------- ----------- --------- ----------- -----------
---------- --------- ----------- --------- ----------- -----------
</TABLE>
F-5
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA ACQUISITION PRO FORMA
TOTAL W/O ALIGN ALIGN ADJUSTMENTS COMBINED
--------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
REVENUES...................................... $ 40,877 $ 14,188 $ (219)(e) $ 54,846
COST OF SERVICES.............................. 29,297 8,582 (1,611) (e) 36,268
--------------- ----------- ------------ --------------
GROSS PROFIT.................................. 11,580 5,606 1,392 18,578
SELLING, GENERAL AND ADMINISTRATIVE........... 16,425 5,631 3,958 )(h 26,014
EQUITY BASED COMPENSATION EXPENSE............. -- 4,562 3,624(h) 8,186
INTANGIBLES AMORTIZATION...................... 35 5,068 78,672(a) 83,775
OTHER INCOME (EXPENSE):
Interest income............................. 37 -- -- 37
Interest expense............................ (351) (155) 182(f) (324)
Gain on sale of affiliate................... 430 -- -- 430
Loss on disposition of assets............... -- (28) 5(e) (23)
Other, net.................................. 28 1 -- 29
--------------- ----------- ------------ --------------
LOSS BEFORE INCOME TAXES...................... (4,736) (9,837) (84,675) (99,248)
INCOME TAXES.................................. 481 -- (481)(b) --
MINORITY INTEREST............................. 162 -- (162)(d) --
--------------- ----------- ------------ --------------
NET LOSS...................................... $ (5,379) $ (9,837) $ (84,032) $ (99,248)
--------------- ----------- ------------ --------------
--------------- ----------- ------------ --------------
NET LOSS PER SHARE............................ $ (2.43)
SHARES USED IN COMPUTING PRO FORMA NET LOSS
PER SHARE (see note 5):..................... 40,909,091
</TABLE>
F-6
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
TOTAL PRO FORMA ACQUISITION PRO FORMA
W/O ALIGN ALIGN ADJUSTMENTS COMBINED
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
REVENUES............................................... $ 13,405 $ 5,051 $ (41)(f) $ 18,415
COST OF SERVICES....................................... 15,415 3,037 (7,207) (d) 11,245
---------- ----------- ------------ --------------
GROSS PROFIT........................................... (2,010) 2,014 7,166 7,170
SELLING, GENERAL AND ADMINISTRATIVE.................... 5,181 2,025 188 )(h 7,394
EQUITY BASED COMPENSATION EXPENSE...................... -- 244 40(d) 284
INTANGIBLES AMORTIZATION............................... 9 1,270 19,668(a) 20,947
OTHER INCOME (EXPENSE):
Interest income...................................... 1 4 -- 5
Interest expense..................................... (116) (38) 89(g) (65)
Net transactions with affiliate...................... -- -- -- --
Loss on disposition of assets........................ -- -- -- --
Other, net........................................... (17) 4 -- (13)
---------- ----------- ------------ --------------
LOSS BEFORE INCOME TAXES............................... (7,332) (1,555) (12,641) (21,528)
INCOME TAXES........................................... 57 -- (57)(b) --
MINORITY INTEREST...................................... (24) -- 24(e) --
---------- ----------- ------------ --------------
NET LOSS............................................... $ (7,365) $ (1,555) $ (12,608) $ (21,528)
---------- ----------- ------------ --------------
---------- ----------- ------------ --------------
NET LOSS PER SHARE..................................... $ (0.53)
SHARES USED IN COMPUTING PRO FORMA
NET LOSS PER SHARE (see note 5):..................... 40,909,091
</TABLE>
F-7
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA ACQUISITION PRO FORMA
TOTAL W/O ALIGN ALIGN ADJUSTMENTS COMBINED
--------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES......................................................... $ 8,907 $ 2,659 $ (3)(d) $ 11,563
COST OF SERVICES................................................. 6,099 1,594 (20)(d) 7,673
--------------- --------- ----------- -----------
GROSS PROFIT..................................................... 2,808 1,065 17 3,890
SELLING, GENERAL AND ADMINISTRATIVE.............................. 3,813 1,125 1,210(d)(f) 6,148
EQUITY BASED COMPENSATION EXPENSE................................ -- 3,737 3,624(g) 7,361
INTANGIBLES AMORTIZATION......................................... -- 1,268 19,668(a) 20,936
OTHER INCOME (EXPENSE):
Interest income................................................ 4 -- -- 4
Interest expense............................................... (50) (34) 9(e) (75)
Net transactions with affiliate................................ -- -- -- --
Loss on disposition of assets.................................. -- -- -- --
Other, net..................................................... 22 -- -- 22
--------------- --------- ----------- -----------
LOSS BEFORE INCOME TAXES......................................... (1,029) (5,099) (24,476) (30,604)
INCOME TAXES..................................................... 115 -- (115)(b) --
MINORITY INTEREST................................................ 33 -- (33)(c) --
--------------- --------- ----------- -----------
NET LOSS......................................................... $(1,177) $(5,099) $(24,328) $(30,604)
--------------- --------- ----------- -----------
--------------- --------- ----------- -----------
NET LOSS PER SHARE............................................... $ (0.75)
SHARES USED IN COMPUTING PRO FORMA NET LOSS PER SHARE
(see note 5):.................................................. 40,909,091
</TABLE>
F-8
<PAGE>
LUMINANT WORLDWIDE CORPORATION
UNAUDITED HISTORICAL BALANCE SHEETS
EXCLUDING ALIGN SOLUTIONS CORP.
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BRAND POTOMAC
LUMINANT DIALOGUE FREE RANGE I.CON INTERACTIVE8 MULTIMEDIA PARTNERS
------------- ----------- ------------- ----- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents............. $ 6 $ -- $ 48 $ 16 $ 462 $ 344 $ 971
Accounts receivable, net.. -- 2,867 1,477 377 532 369 879
Unbilled revenues......... -- -- 404 -- -- -- 171
Employee and other
receivables............. -- 1,138 -- -- 110 -- --
Deferred income taxes..... -- -- 21 12 -- -- --
Deferred income tax
valuation............... -- -- (21) -- -- -- --
Prepaid expenses and other
assets.................. 50 -- 76 5 62 14 66
----- ----------- ------------- ----- ------------- ----- -----------
Total current assets.... 56 4,005 2,005 410 1,166 727 2,087
PROPERTY AND EQUIPMENT,
net....................... -- 408 768 345 597 55 46
OTHER ASSETS:
Goodwill, net............. -- -- -- -- -- -- --
Deferred income taxes..... -- 14 3,067 -- -- -- --
Deferred income tax
valuation............... -- -- (3,067) -- -- -- --
Other..................... -- -- -- 17 72 13 --
----- ----------- ------------- ----- ------------- ----- -----------
Total assets............ $ 56 $ 4,427 $ 2,773 $ 772 $ 1,835 $ 795 $ 2,133
----- ----------- ------------- ----- ------------- ----- -----------
----- ----------- ------------- ----- ------------- ----- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......... $ 76 $ 1,274 $ 383 $ 48 $ 274 $ 96 $ 322
Customer deposits......... 425 30 --
Accrued liabilities....... -- 803 909 259 2,763 150 6,946
Unearned revenues......... 88 --
Notes payable............. 50 -- 4,114 98 50 -- --
Current maturities of
long-term debt.......... -- -- -- 17 617 -- --
----- ----------- ------------- ----- ------------- ----- -----------
Total current
liabilities............. 126 2,077 5,831 452 3,704 334 7,268
----- ----------- ------------- ----- ------------- ----- -----------
LONG TERM LIABILITIES:
Long-term debt, net of
current maturities...... -- -- -- 107 330 -- --
Deferred income taxes..... -- -- -- 9 -- -- --
----- ----------- ------------- ----- ------------- ----- -----------
Total liabilities....... 126 2,077 5,831 568 4,034 334 7,268
----- ----------- ------------- ----- ------------- ----- -----------
MINORITY INTEREST........... -- -- -- -- -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock........... -- -- 3,728 -- -- -- --
Members' equity........... -- -- -- -- -- 461 (5,135)
Common stock.............. 79 -- -- 10 1 -- --
Additional paid-in
capital................. 328 -- 2,806 14 185 -- --
Young & Rubicam Inc.
investment.............. -- 2,350 -- -- -- -- --
Subscription receivable
from officers........... -- -- -- (10) -- -- --
Retained earnings
(deficit)............... (477) -- (9,369) 190 (2,385) -- --
Treasury stock............ -- -- (223) -- -- -- --
----- ----------- ------------- ----- ------------- ----- -----------
Total stockholders'
equity.................. (70) 2,350 (3,058) 204 (2,199) 461 (5,135)
----- ----------- ------------- ----- ------------- ----- -----------
Total liabilities and
stockholders' equity.... $ 56 $ 4,427 $ 2,773 $ 772 $ 1,835 $ 795 $ 2,133
----- ----------- ------------- ----- ------------- ----- -----------
----- ----------- ------------- ----- ------------- ----- -----------
<CAPTION>
HISTORICAL
RSI TOTAL
--------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents............. $ 31 $ 1,878
Accounts receivable, net.. 2,295 8,796
Unbilled revenues......... 62 637
Employee and other
receivables............. 104 1,352
Deferred income taxes..... -- 33
Deferred income tax
valuation............... -- (21)
Prepaid expenses and other
assets.................. 130 403
--------- -----------
Total current assets.... 2,622 13,078
PROPERTY AND EQUIPMENT,
net....................... 298 2,517
OTHER ASSETS:
Goodwill, net............. 28 28
Deferred income taxes..... -- 3,081
Deferred income tax
valuation............... -- (3,067)
Other..................... 161 263
--------- -----------
Total assets............ $ 3,109 $ 15,900
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS
CURRENT LIABILITIES:
Accounts payable.......... $ 537 $ 3,010
Customer deposits......... 455
Accrued liabilities....... 578 12,408
Unearned revenues......... -- 88
Notes payable............. 789 5,101
Current maturities of
long-term debt.......... 69 703
--------- -----------
Total current
liabilities............. 1,973 21,765
--------- -----------
LONG TERM LIABILITIES:
Long-term debt, net of
current maturities...... 15 452
Deferred income taxes..... -- 9
--------- -----------
Total liabilities....... 1,988 22,226
--------- -----------
MINORITY INTEREST........... 119 119
STOCKHOLDERS' EQUITY:
Preferred stock........... -- 3,728
Members' equity........... -- (4,674)
Common stock.............. 35 125
Additional paid-in
capital................. 952 4,285
Young & Rubicam Inc.
investment.............. -- 2,350
Subscription receivable
from officers........... -- (10)
Retained earnings
(deficit)............... 222 (11,819)
Treasury stock............ (207) (430)
--------- -----------
Total stockholders'
equity.................. 1,002 (6,445)
--------- -----------
Total liabilities and
stockholders' equity.... $ 3,109 $ 15,900
--------- -----------
--------- -----------
</TABLE>
F-9
<PAGE>
LUMINANT WORLDWIDE CORPORATION
UNAUDITED HISTORICAL STATEMENTS OF OPERATIONS
EXCLUDING ALIGN SOLUTIONS CORP.
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BRAND POTOMAC
LUMINANT DIALOGUE FREE RANGE I.CON INTERACTIVE8 MULTIMEDIA PARTNERS RSI
----------- ----------- ----------- --------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $ -- $ 7,237 $ 3,521 $ 2,140 $ 4,097 $ 2,068 $ 4,887 $ 16,927
COST OF SERVICES........ -- 4,186 3,248 716 2,033 1,756 5,087 12,271
----------- ----------- ----------- --------- ------------- ------------- ----------- -----------
GROSS PROFIT............ -- 3,051 273 1,424 2,064 312 (200) 4,656
SELLING, GENERAL AND
ADMINISTRATIVE........ 245 2,087 4,922 1,383 2,419 275 876 4,218
INTANGIBLES
AMORTIZATION.......... -- -- -- -- -- -- -- 35
OTHER INCOME (EXPENSE):
Interest income....... -- -- -- -- -- 6 31 --
Interest expense...... -- -- (182) -- -- -- -- (169)
Gain on sale of
affiliate........... -- -- 430 -- -- -- -- --
Loss on disposition of
assets.............. -- -- -- -- -- -- -- --
Other, net............ -- -- 28 -- -- -- -- --
----------- ----------- ----------- --------- ------------- ------------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES.......... (245) 964 (4,373) 41 (355) 43 (1,045) 234
INCOME TAXES............ -- 403 -- 6 33 10 -- 29
MINORITY INTEREST....... -- -- -- -- -- -- -- 162
----------- ----------- ----------- --------- ------------- ------------- ----------- -----------
NET INCOME (LOSS)....... $ (245) $ 561 $ (4,373) $ 35 $ (388) $ 33 $ (1,045) $ 43
----------- ----------- ----------- --------- ------------- ------------- ----------- -----------
----------- ----------- ----------- --------- ------------- ------------- ----------- -----------
<CAPTION>
HISTORICAL
TOTAL
-----------
<S> <C>
REVENUES................ $ 40,877
COST OF SERVICES........ 29,297
-----------
GROSS PROFIT............ 11,580
SELLING, GENERAL AND
ADMINISTRATIVE........ 16,425
INTANGIBLES
AMORTIZATION.......... 35
OTHER INCOME (EXPENSE):
Interest income....... 37
Interest expense...... (351)
Gain on sale of
affiliate........... 430
Loss on disposition of
assets.............. --
Other, net............ 28
-----------
INCOME (LOSS) BEFORE
INCOME TAXES.......... (4,736)
INCOME TAXES............ 481
MINORITY INTEREST....... 162
-----------
NET INCOME (LOSS)....... $ (5,379)
-----------
-----------
</TABLE>
F-10
<PAGE>
LUMINANT WORLDWIDE CORPORATION
UNAUDITED HISTORICAL STATEMENTS OF OPERATIONS
EXCLUDING ALIGN SOLUTIONS CORP.
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BRAND POTOMAC
LUMINANT DIALOGUE FREE RANGE I.CON INTERACTIVE8 MULTIMEDIA PARTNERS
----------- ----------- ------------- ----- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES.................... $ -- $ 2,701 $ 2,211 $ 825 $ 1,613 $ 742 $ 2,060
COST OF SERVICES............ -- 1,692 1,462 250 3,102 314 6,231
----------- ----------- ------------- ----- ------------- ----- -----------
GROSS PROFIT................ -- 1,009 749 575 (1,489) 428 (4,171)
SELLING, GENERAL AND
ADMINISTRATIVE............ 232 568 1,176 455 464 92 489
INTANGIBLES AMORTIZATION.... -- -- -- -- -- -- --
OTHER INCOME (EXPENSE):
Interest income........... -- -- -- -- -- 1 --
Interest expense.......... -- -- (89) (3) -- -- --
Net transactions with
affiliate............... -- -- -- -- -- -- --
Loss on disposition of
assets.................. -- -- -- -- -- -- --
Other, net................ -- -- (7) -- -- -- (10)
----------- ----------- ------------- ----- ------------- ----- -----------
INCOME (LOSS) BEFORE INCOME
TAXES..................... (232) 441 (523) 117 (1,953) 337 (4,670)
INCOME TAXES................ -- 184 -- 16 -- 135 --
MINORITY INTEREST........... -- -- -- -- -- -- --
----------- ----------- ------------- ----- ------------- ----- -----------
NET INCOME (LOSS)........... $ (232) $ 257 $ (523) $ 101 $ (1,953) $ 202 $ (4,670)
----------- ----------- ------------- ----- ------------- ----- -----------
----------- ----------- ------------- ----- ------------- ----- -----------
<CAPTION>
HISTORICAL
RSI TOTAL
--------- -----------
<S> <C> <C>
REVENUES.................... $ 3,253 $ 13,405
COST OF SERVICES............ 2,364 15,415
--------- -----------
GROSS PROFIT................ 889 (2,010)
SELLING, GENERAL AND
ADMINISTRATIVE............ 1,705 5,181
INTANGIBLES AMORTIZATION.... 9 9
OTHER INCOME (EXPENSE):
Interest income........... -- 1
Interest expense.......... (24) (116)
Net transactions with
affiliate............... -- --
Loss on disposition of
assets.................. -- --
Other, net................ -- (17)
--------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES..................... (849) (7,332)
INCOME TAXES................ (278) 57
MINORITY INTEREST........... (24) (24)
--------- -----------
NET INCOME (LOSS)........... $ (547) $ (7,365)
--------- -----------
--------- -----------
</TABLE>
F-11
<PAGE>
LUMINANT WORLDWIDE CORPORATION
UNAUDITED HISTORICAL STATEMENTS OF OPERATIONS
EXCLUDING ALIGN SOLUTIONS CORP.
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BRAND FREE POTOMAC
LUMINANT DIALOGUE RANGE I.CON INTERACTIVE8 MULTIMEDIA PARTNERS
------------- ----------- --------- ----- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................... $ -- $ 1,410 $ 338 $ 456 $ 737 $ 652 $ 976
COST OF SERVICES........... -- 791 518 113 433 440 654
--- ----------- --------- ----- ------ ----- -----
GROSS PROFIT............... -- 619 (180) 343 304 212 322
SELLING, GENERAL AND
ADMINISTRATIVE........... -- 595 1,090 216 690 81 180
INTANGIBLES AMORTIZATION... -- -- -- -- -- -- --
OTHER INCOME (EXPENSE):
Interest income.......... -- -- -- -- -- 4 --
Interest expense......... -- -- (9) -- -- -- --
Other, net............... -- -- 20 -- -- -- 2
--- ----------- --------- ----- ------ ----- -----
INCOME (LOSS) BEFORE INCOME
TAXES.................... -- 24 (1,259) 127 (386) 135 144
INCOME TAXES............... -- 7 -- 16 -- 31 --
MINORITY INTEREST.......... -- -- -- -- -- -- --
--- ----------- --------- ----- ------ ----- -----
NET INCOME (LOSS).......... $ -- $ 17 $ (1,259) $ 111 $ (386) $ 104 $ 144
--- ----------- --------- ----- ------ ----- -----
--- ----------- --------- ----- ------ ----- -----
<CAPTION>
HISTORICAL
RSI TOTAL
--------- -----------
<S> <C> <C>
REVENUES................... $ 4,338 $ 8,907
COST OF SERVICES........... 3,150 6,099
--------- -----------
GROSS PROFIT............... 1,188 2,808
SELLING, GENERAL AND
ADMINISTRATIVE........... 961 3,813
INTANGIBLES AMORTIZATION... -- --
OTHER INCOME (EXPENSE):
Interest income.......... -- 4
Interest expense......... (41) (50)
Other, net............... -- 22
--------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES.................... 186 (1,029)
INCOME TAXES............... 61 115
MINORITY INTEREST.......... 33 33
--------- -----------
NET INCOME (LOSS).......... $ 92 $ (1,177)
--------- -----------
--------- -----------
</TABLE>
F-12
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
Luminant was established to create a leading single-source Internet service
company that provides electronic commerce professional services to Fortune 1000
companies, Internet based companies and other organizations. Luminant has
conducted no operations to date and will acquire its eight companies
concurrently with and as a condition to the closing of the offering.
The historical financial statements reflect the financial position and
results of operations of Luminant and the eight companies it will acquire on the
consummation of this offering. The audited historical financial statements of
Luminant and the eight companies are included elsewhere in this prospectus.
2. ACQUISITION OF THE EIGHT COMPANIES:
Concurrent with and as a condition to the closing of the offering, Luminant
will acquire eight companies. Seven companies will be acquired by merging each
into newly formed subsidiaries of Luminant. In addition, Luminant will acquire
the assets of Brand Dialogue-New York and will contribute those assets to a
newly formed subsidiary. The acquisitions will be accounted for using the
purchase method of accounting with Align Solutions Corp. the accounting
acquiror.
The following table sets forth the consideration to be paid in cash and
shares of common stock to the stockholders of each company. For purposes of
computing the estimated purchase price, the value of shares is determined using
the assumed initial public offering price of $12.00 per share. Adjusted net
assets represent the stockholders equity of each company adjusted for: 1) the
note payable of $4,114,000 at Free Range repaid as a part of the transaction, 2)
the accrued liabilities of $2,205,000 at InterActive8 and $6,465,000 at Potomac
funded as part of the transaction, 3) establishment of valuation allowances for
historical deferred tax assets, and 4) the receivable from related parties at
Brand Dialogue retained by the seller. In addition to the purchase price, the
purchase agreements include provisions for contingent consideration based on
achievement of financial goals of the individual companies and consolidated
results of the eight companies. Maximum contingent consideration is $196.7
million and will be accounted for as additional purchase price when payment is
probable. Payments made to the shareholders of Align will be treated as
dividends. Payments to the shareholders of the other eight companies will result
in additional goodwill and will be amortized over the remaining life of goodwill
associated with the acquisition of the company. The estimated purchase prices
for the acquisitions are based upon preliminary estimates and are subject to
certain purchase price
F-13
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION OF THE EIGHT COMPANIES: (CONTINUED)
adjustments at and following the closing. Luminant does not anticipate that the
final allocation of purchase price between tangible assets and goodwill will
differ significantly from that presented.
<TABLE>
<CAPTION>
NUMBER VALUE OF TOTAL ADJUSTED
CASH OF SHARES SHARES CONSIDERATION NET ASSETS GOODWILL LIFE
--------- ----------- --------- -------------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Align......... $ 36,917 6,142 $ 73,702 $ 110,619 $ 15,606 N/A N/A
Brand
Dialogue.... -- 4,609 55,309 55,309 1,198 $ 54,111 3 years
Free Range.... 10,156 1,917 23,007 33,163 1,056 32,107 3 years
i.con......... 4,897 810 9,721 14,618 201 14,417 3 years
InterActive8.. 11,920 1,770 21,244 33,164 6 33,158 3 years
Multimedia.... 3,436 668 8,018 11,454 461 10,993 3 years
Potomac
Partners.... 24,685 3,470 41,642 66,327 1,330 64,997 3 years
RSI........... 5,629 1,095 13,135 18,764 1,002 17,762 3 years
--------- ----------- --------- -------------- ----------- -----------
$ 97,640 20,481 $ 245,778 $ 343,418 $ 20,860 227,545
--------- ----------- --------- -------------- -----------
--------- ----------- --------- -------------- -----------
Acquisition-
related
fees........ 1,000
-----------
$ 228,545
-----------
-----------
</TABLE>
F-14
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
OFFERING ADJUSTMENTS
ACQUISITION ADJUSTMENTS PRO FORMA POST
------------------------------- ACQUISITION -------------------- ACQUISITION
(A) (B) (C) ADJUSTMENTS (D) (E) ADJUSTMENTS
--------- --------- --------- ------------ --------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............. $ -- $ -- $ -- $ -- $ 133,292 $ (97,640) $ 35,652
Accounts receivable, net............... -- -- -- -- -- -- --
Unbilled revenues...................... -- -- -- -- -- -- --
Employee and other receivables......... (1,138) -- -- (1,138) -- -- --
Deferred income taxes.................. (68) -- -- (68) -- -- --
Deferred income tax valuation.......... 56 56
Prepaid expenses and other assets...... -- -- -- -- (50) -- (50)
--------- --------- --------- ------------ --------- --------- ------------
Total current assets..................... (1,150) -- -- (1,150) 133,242 (97,640) 35,602
PROPERTY AND EQUIPMENT, net.............. -- -- -- -- -- -- --
OTHER ASSETS:
Goodwill, net.......................... 228,545 -- -- 228,545 -- -- --
Other Intangible....................... -- -- 7,470 7,470 -- -- --
Deferred income taxes.................. 55 55
Deferred income tax valuation.......... (69) (69)
Other.................................. -- -- -- -- -- -- --
--------- --------- --------- ------------ --------- --------- ------------
Total assets............................. $ 227,381 $ -- $ 7,470 $ 234,851 $ 133,242 $ (97,640) $ 35,602
--------- --------- --------- ------------ --------- --------- ------------
--------- --------- --------- ------------ --------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Payable for eight companies' common
stock and other acquisition-related
obligations.......................... -- 97,640 -- 97,640 -- (97,640) (97,640)
Customer deposits...................... -- -- -- -- -- -- --
Accrued liabilities.................... -- (8,670) -- (8,670) -- -- --
Unearned revenues...................... -- -- -- -- -- -- --
Notes payable.......................... -- (4,114) -- (4,114) (50) -- (50)
Current maturities of long-term debt... -- 128 -- 128 -- -- --
--------- --------- --------- ------------ --------- --------- ------------
Total current liabilities................ -- 84,984 -- 84,984 (50) (97,640) (97,690)
LONG-TERM LIABILITIES:
Long-term debt, net of current
maturities........................... -- 732 -- 732 -- -- --
Deferred income taxes.................. (9) -- -- (9) -- -- --
--------- --------- --------- ------------ --------- --------- ------------
Total liabilities........................ (9) 85,716 -- 85,707 (50) (97,640) (97,690)
--------- --------- --------- ------------ --------- --------- ------------
MINORITY INTEREST........................ (119) -- -- (119) -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock........................ -- (3,728) -- (3,728) -- -- --
Members' equity........................ 4,674 -- -- 4,674 -- -- --
Common stock........................... 90 -- -- 90 126 -- 126
Additional paid-in capital............. 212,836 (43,961) 7,470 176,345 133,166 -- 133,166
Young & Rubicam Inc. investment........ (2,350) -- -- (2,350) -- -- --
Subscription receivable from
officers............................. 10 -- -- 10 -- -- --
Retained earnings (deficit)............ 11,819 (38,027) -- (26,208) -- -- --
Treasury stock......................... 430 -- -- 430 -- -- --
--------- --------- --------- ------------ --------- --------- ------------
Total stockholders' equity............... 227,509 (85,716) 7,470 149,263 133,292 -- 133,292
--------- --------- --------- ------------ --------- --------- ------------
Total liabilities and stockholders'
equity................................. $ 227,381 $ -- $ 7,470 $ 234,851 $ 133,242 $ (97,640) $ 35,602
--------- --------- --------- ------------ --------- --------- ------------
--------- --------- --------- ------------ --------- --------- ------------
</TABLE>
F-15
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
- ------------------------
(a) Reflects the acquisitions of the eight companies and the elimination of
equity balances of the companies. The purchase price in excess of estimated
fair market value of assets acquired has been allocated to goodwill. The
seller of Brand Dialogue is retaining the Young & Rubicam receivable of
$1,138,000 that represents Brand Dialogue funds advanced to the seller.
Deferred income taxes have been recorded for LLC and S Corporation entities
and a valuation allowance has been increased due to the lack of history of
combined income.
(b) Records the liabilities for the cash portion of the consideration to be paid
for the common stock of the eight companies in connection with the
acquisitions, payments to Align shareholders of $36,917,000 (accounted for
as a dividend from retained earnings), payments to redeem $4,114,000 of
notes payable and $3,728,000 of preferred stock related to Free Range, and
payments for the accrued liabilities related to equity compensation rights
of Potomac Partners and Interactive8 of $6,465,000 and $2,205,000,
respectively. Additionally records $250,000 as the effect of a non-cash,
non-recurring compensation charge for the issuance of 20,833 options to a
former officer and a liability and non-recurring charge of $860,000 related
to an agreement to end the former officer's employment.
(c) Represents the estimated value of stock options granted to Young & Rubicam,
Inc. using the Modified Black-Scholes European Model. The following
assumptions were used: exercise price of $12.00, five-year life, 5.26%
interest rate, and 70% volatility factor.
(d) Records the cash proceeds from the issuance of shares of Luminant common
stock net of estimated offering costs and the repayment of advances from a
stockholder (based on an assumed initial public offering price of $12.00 per
share). Offering costs primarily consist of underwriting discounts and
commissions, accounting fees, legal fees and printing expenses.
(e) Records the cash portion of the acquisition consideration to be paid for the
stock of the eight companies and acquisition-related obligations from
proceeds of the offering as described in adjustment (b).
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
The following tables summarize unaudited adjustments to the pro forma
combined statements of operations:
For the year ended December 31, 1998:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G)
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................................. $ -- $ -- $ -- $ -- $ (219) $ -- $ --
COST OF SERVICES..................................... -- -- (1,533) -- (78) -- --
SELLING, GENERAL AND ADMINISTRATIVE.................. -- -- (383) -- (924) -- 5,472
EQUITY BASED COMPENSATION EXPENSE.................... -- -- -- -- -- -- --
INTANGIBLES AMORTIZATION............................. 78,672 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS........................ (78,672) -- 1,916 -- 783 -- (5,472)
OTHER INCOME (EXPENSE):
Interest expense..................................... -- -- -- -- -- 182 --
Net transactions with affiliate...................... -- -- -- -- -- -- --
Loss on disposition of assets........................ -- -- -- -- 5 -- --
--------- --------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.................... (78,672) -- 1,916 -- 788 182 (5,472)
INCOME TAXES......................................... -- (481) -- -- -- -- --
MINORITY INTEREST.................................... -- -- -- (162) -- -- --
--------- --------- --------- --------- --------- --------- ---------
NET INCOME (LOSS).................................... $ (78,672) $ 481 $ 1,916 $ 162 $ 788 $ 182 $ (5,472)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
PRO FORMA
(H) ADJUSTMENTS
--------- -------------
<S> <C> <C>
REVENUES............................................. $ -- $ (219)
COST OF SERVICES..................................... -- (1,611)
SELLING, GENERAL AND ADMINISTRATIVE.................. (207) 3,958
EQUITY BASED COMPENSATION EXPENSE.................... 3,624 3,624
INTANGIBLES AMORTIZATION............................. -- 78,672
--------- -------------
INCOME (LOSS) FROM OPERATIONS........................ (3,417) (84,862)
OTHER INCOME (EXPENSE):
Interest expense..................................... -- 182
Net transactions with affiliate...................... --
Loss on disposition of assets........................ -- 5
--------- -------------
INCOME (LOSS) BEFORE INCOME TAXES.................... (3,417) (84,675)
INCOME TAXES......................................... -- (481)
MINORITY INTEREST.................................... -- (162)
--------- -------------
NET INCOME (LOSS).................................... $ (3,417) $ (84,032)
--------- -------------
--------- -------------
</TABLE>
- ------------------------------
(a) Reflects the amortization of goodwill and other intangible to be recorded as
a result of these acquisitions over a period of three years. These
amortization periods were determined based on an analysis of the
characteristics of the combined company.
(b) Reflects the reversal of the eight companies' income tax provision. Luminant
has not demonstrated that it will generate future taxable income; therefore,
an asset for the pro forma loss before taxes has not been recorded.
(c) Reflects the reduction in compensation expense related to the non-recurring,
non-cash compensation charges of $248,000, $30,000 and $1,503,000 recorded
by Free Range, InterActive8 and Potomac Partners, respectively, in the
fourth quarter of 1998
F-16
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(CONTINUED)
related to equity appreciation rights issued to employees and owners of
those entities and the non-recurring, non-cash charge of $135,000 recorded
by InterActive8 related to the below fair market value issuance of equity.
The rights become exercisable upon the consummation of the acquisitions.
(d) Reflects elimination of minority interest in one of the eight companies.
(e) Reflects the elimination of revenues and expenses related to a division of
Free Range that will be distributed to Free Range's stockholders concurrent
with the acquisitions. It is estimated that the assets distributed will
equal the liabilities assumed.
(f) Reflects the elimination of interest expense for Free Range's note payable
that is to be redeemed as part of the acquisition.
(g) Includes adjustments to increase expenses related to additional compensation
expense of $1,996,000, board of directors' expense of $432,000,
administrative and other expense of $2,044,000 and additional expense
associated with being a public entity of $1,000,000. These adjustments were
based on budgeted amounts that have been annualized. These additional costs
are a direct result of the combination of these companies and the offering
of the securities to the public.
(h) Reflects a compensation charge for shares sold subsequent to March 31, 1999
to Luminant management at less than fair market value and the
reclassification of compensation expense related to shares sold to Luminant
management at less than fair market value in 1998.
For the three months ended March 31, 1999:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
REVENUES........................................... $ -- $ -- $ -- $ -- $ -- $ (41) $ --
COST OF SERVICES................................... -- -- (7,167) (40) -- -- --
SELLING, GENERAL AND ADMINISTRATIVE................ -- -- (863) -- -- (317) --
EQUITY BASED COMPENSATION EXPENSE.................. -- -- -- 40 -- -- --
INTANGIBLES AMORTIZATION........................... 19,668 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS...................... (19,668) -- 8,030 -- -- 276 --
OTHER INCOME (EXPENSE):
Interest expense................................... -- -- -- -- -- -- 89
Net transactions with affiliate.................... -- -- -- -- -- -- --
Loss on disposition of assets...................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.................. (19,668) -- 8,030 -- -- 276 89
INCOME TAXES....................................... -- (57) -- -- -- -- --
MINORITY INTEREST.................................. -- -- -- -- 24 -- --
--------- --------- --------- --------- --------- --------- ---------
NET INCOME (LOSS).................................. $ (19,668) $ 57 $ 8,030 $ -- $ (24) $ 276 $ 89
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
PRO FORMA
(H) ADJUSTMENTS
--------- -------------
<S> <C> <C>
REVENUES........................................... $ -- $ (41)
COST OF SERVICES................................... -- (7,207)
SELLING, GENERAL AND ADMINISTRATIVE................ 1,368 188
EQUITY BASED COMPENSATION EXPENSE.................. -- 40
INTANGIBLES AMORTIZATION........................... -- 19,668
--------- -------------
INCOME (LOSS) FROM OPERATIONS...................... (1,368) (12,730)
OTHER INCOME (EXPENSE):
Interest expense................................... -- 89
Net transactions with affiliate.................... -- --
Loss on disposition of assets...................... -- --
--------- -------------
INCOME (LOSS) BEFORE INCOME TAXES.................. (1,368) (12,641)
INCOME TAXES....................................... -- (57)
MINORITY INTEREST.................................. -- 24
--------- -------------
NET INCOME (LOSS).................................. $ (1,368) $ (12,608)
--------- -------------
--------- -------------
</TABLE>
- ------------------------------
(a) Reflects the amortization of goodwill and other intangible to be recorded as
a result of these acquisitions over a period of three years. These
amortization periods were determined based on an analysis of the
characteristics of the combined company.
(b) Reflects the reversal of the eight companies' income tax provision. Luminant
has not demonstrated that it will generate future taxable income; therefore,
a net deferred tax asset for the pro forma loss before taxes has not been
recognized.
(c) Reflects the reduction in 1999 compensation expense related to the
non-recurring, non-cash charges of $133,000, $2,205,000 and $4,962,000
recorded by Free Range, InterActive8 and Potomac Partners, respectively, in
the first quarter of 1999 related to equity appreciation rights issued to
employees and owners of those entities and the non-recurring, non-cash
compensation charge of $730,000 recorded by RSI in the first quarter of 1999
related to the issuance of additional minority interest. The rights become
exercisable upon the consummation of the acquisitions.
(d) Reflects the reclassification of compensation expense related to stock
options granted at prices below fair market value for the accounting
acquiror Align.
(e) Reflects the elimination of minority interest in one of the eight companies.
(f) Reflects the elimination of revenues and expenses related to a division of
Free Range that will be distributed to Free Range's stockholders concurrent
with the acquisitions. It is estimated that the assets distributed will
equal the liabilities assumed.
(g) Reflects the elimination of interest expense for Free Range's note payable
that is to be redeemed as part of the acquisition.
F-17
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(CONTINUED)
(h) Includes adjustments to increase expenses related to additional compensation
expense of $499,000, board of directors' expense of $108,000, administrative
and other expense of $511,000 and additional expense associated with being a
public entity of $250,000. These adjustments were based on budgeted amounts
that have been annualized. These additional costs are a direct result of the
combination of these companies and the offering of the securities to the
public.
For the three months ended March 31, 1998:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
REVENUES................................................... $ -- $ -- $ -- $ (3) $ -- $ --
COST OF SERVICES........................................... -- -- -- (20) -- --
SELLING, GENERAL AND ADMINISTRATIVE........................ -- -- -- (158) -- 1,368
EQUITY BASED COMPENSATION EXPENSE.......................... -- -- -- -- -- --
INTANGIBLES AMORTIZATION................................... 19,668 -- -- -- -- --
--------- --------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS.............................. (19,668) -- -- 175 -- (1,368)
OTHER INCOME (EXPENSE):
Interest expense........................................... -- -- -- -- 9 --
Net transactions with affiliate............................ -- -- -- -- -- --
Loss on disposition of assets.............................. -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.......................... (19,668) -- -- 175 9 (1,368)
INCOME TAXES............................................... -- (115) -- -- -- --
MINORITY INTEREST.......................................... -- -- (33) -- -- --
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS).......................................... $ (19,668) $ 115 $ 33 $ 175 $ 9 $ (1,368)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
PRO FORMA
(G) ADJUSTMENTS
--------- ----------------
<S> <C> <C>
REVENUES................................................... $ -- $ (3)
COST OF SERVICES........................................... -- (20)
SELLING, GENERAL AND ADMINISTRATIVE........................ -- 1,210
EQUITY BASED COMPENSATION EXPENSE.......................... 3,624 3,624
INTANGIBLES AMORTIZATION................................... -- 19,668
--------- --------
INCOME (LOSS) FROM OPERATIONS.............................. (3,624) (24,485)
OTHER INCOME (EXPENSE):
Interest expense........................................... -- 9
Net transactions with affiliate............................ -- --
Loss on disposition of assets.............................. -- --
--------- --------
INCOME (LOSS) BEFORE INCOME TAXES.......................... (3,624) (24,476)
INCOME TAXES............................................... -- (115)
MINORITY INTEREST.......................................... -- (33)
--------- --------
NET INCOME (LOSS).......................................... $ (3,624) $ (24,328)
--------- --------
--------- --------
</TABLE>
- ------------------------------
(a) Reflects the amortization of goodwill and other intangible to be recorded as
a result of these acquisitions over a period of three years. These
amortization periods were determined based on an analysis of the
characteristics of the combined company.
(b) Reflects the reversal of the eight companies' income tax provision. Luminant
has not demonstrated that it will generate future taxable income; therefore,
an asset for the pro forma loss before taxes has not been recorded.
(c) Reflects the elimination of minority interest in one of the eight companies.
(d) Reflects the elimination of revenues and expenses related to a division of
Free Range that will be distributed to Free Range's stockholders concurrent
with the acquisitions. It is estimated that the assets distributed will
equal the liabilities assumed.
(e) Reflects the elimination of interest expense for Free Range's note payable
that is to be redeemed as part of the acquisition.
(f) Includes adjustments to increase expense related to additional compensation
expense of $499,000, board of director's expense of $108,000, administrative
and other expense of $511,000 and additional expense associated with being a
public entity of $250,000. These adjustments were based on budgeted amounts
that have been annualized. These additional costs are a direct result of the
combination of these companies and the offering of the securities to the
public.
(g) Reflects a compensation charge for options granted and shares sold to
Luminant management at less than fair market value.
5. SHARES USED IN COMPUTING PRO FORMA NET INCOME PER SHARE:
Includes (i) 7,852,571 shares issued to the initial stockholders and
management of Luminant; (ii) 20,481,520 shares issued to the former owners of
the eight companies; and (iii) 12,575,000 shares sold in the offering, without
regard to exercise of underwriters' overallotment option and payment of any
contingent consideration.
6. SUPPLEMENTAL PRO FORMA DATA
The Company has excluded charges of $248,000, $30,000, and $1,503,000 for
the year ended December 31, 1998, reflected in the historical financial
statements of Free Range, InterActive8 and Potomac
F-18
<PAGE>
LUMINANT WORLDWIDE CORPORATION AND OUR EIGHT COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL PRO FORMA DATA (CONTINUED)
Partners, respectively, related to equity appreciation rights issued to
employees and owners of those entities.
The Company has excluded non-cash charges of $135,000 for the year ended
December 31, 1998, related to the below fair market value issuance of equity,
reflected in the historical financial statements of InterActive8.
The Company has excluded charges of $133,000, $2,205,000, and $4,962,000 for
the three months ended March 31, 1999, reflected in the historical financial
statements of Free Range, InterActive8 and Potomac Partners, respectively,
related to equity appreciation rights issued to employees and owners of those
entities.
The Company has excluded non-cash charges of $730,000 for the three months
ended March 31, 1999, related to the issuance of additional minority interest,
reflected in the historical financial statements of RSI.
Before completion of the acquisition, the Company will record a charge of
$250,000 related to the issuance of 20,833 options to a former officer and a
liability and non-recurring charge of $860,000 related to an agreement to end
the former officer's employment.
F-19
<PAGE>
ALIGN SOLUTIONS CORP.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
acquisitions by Align Solutions Corp. (Align) of the outstanding capital stock
of Fifth Gear Media Corporation (Fifth Gear) and Synapse Group Inc. (Synapse),
and the assets and certain liabilities of inmedia, inc. (inmedia) (the three
companies). The acquisition of Synapse occurred on February 15, 1999, the
acquisition of Fifth Gear occurred on May 26, 1999 and the acquisition of
inmedia occurred on May 27, 1999.
The unaudited pro forma balance sheet gives effect to the acquisition of
Fifth Gear and inmedia as if they had occurred on March 31, 1999. Synapse is
included in Align's historical balance sheet at March 31, 1999. The unaudited
pro forma statements of operations gives effect to these transactions as if they
had occurred on January 1, 1998.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what Align's
financial position or results of operations would actually have been if such
transactions in fact had occurred on those dates and are not necessarily
representative of Align's financial position or results of operations for any
future period. Since the companies were not under common control or management,
historical combined results may not be comparable to, or indicative of, future
performance. The unaudited pro forma financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this prospectus. See "Risk Factors" included elsewhere in this
prospectus.
F-20
<PAGE>
ALIGN SOLUTIONS CORP.
UNAUDITED PRO FORMA BALANCE SHEETS
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------------------------------ --------------------------
ALIGN FIFTH GEAR INMEDIA TOTAL FIFTH GEAR(A) INMEDIA(B) PRO FORMA
--------- ------------- ----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 209 $ 143 $ -- $ 352 $ -- $ -- $ 352
Accounts receivable, net.......... 2,397 127 125 2,649 -- -- 2,649
Unbilled revenues................. 806 -- 10 816 -- -- 816
Employee and other receivables.... 35 -- -- 35 -- -- 35
Deferred income taxes............. -- 9 125 134 (9) -- 125
Deferred income tax valuation..... -- -- (125) (125) -- -- (125)
Prepaid expenses and other
assets.......................... 81 -- 5 86 -- -- 86
--------- ----- ----------- --------- ------------- ----------- -----------
Total current assets............ 3,528 279 140 3,947 (9) -- 3,938
PROPERTY AND EQUIPMENT, net......... 908 91 73 1,072 (23) (16) 1,033
OTHER ASSETS:
Goodwill, net..................... 9,040 -- - 9,040 3,469 2,179 14,688
Deferred income taxes............. -- -- 103 103 (11) -- 92
Deferred income tax valuation..... -- -- (103) (103) 11 -- (92)
Other............................. 14 10 12 36 -- (8) 28
--------- ----- ----------- --------- ------------- ----------- -----------
Total assets.................... $ 13,490 $ 380 $ 225 $ 14,095 $ 3,437 $ 2,155 $ 19,687
--------- ----- ----------- --------- ------------- ----------- -----------
--------- ----- ----------- --------- ------------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................. $ 896 $ 25 $ 218 $ 1,139 $ -- $ -- $ 1,139
Customer deposits................. -- -- 265 265 -- (119) 146
Accrued liabilities............... 431 103 108 642 50 50 742
Notes payable..................... 1,111 -- -- 1,111 -- -- 1,111
Current maturities of long-term
debt............................ 112 57 553 722 -- -- 722
--------- ----- ----------- --------- ------------- ----------- -----------
Total current liabilities....... 2,550 185 1,144 3,879 50 (69) 3,860
LONG-TERM LIABILITIES:
Long-term debt, net of current
maturities...................... 143 78 -- 221 -- -- 221
Deferred income taxes............. -- 11 -- 11 (11) -- --
--------- ----- ----------- --------- ------------- ----------- -----------
Total liabilities............... 2,693 274 1,144 4,111 39 (69) 4,081
--------- ----- ----------- --------- ------------- ----------- -----------
STOCKHOLDERS' EQUITY:...............
Common stock...................... $ 64 $ 2 $ 3 $ 69 $ 1 $ (2) $ 68
Additional paid-in capital........ 14,514 -- 30 14,544 3,501 1,274 19,319
Retained earnings (deficit)....... (3,781) 104 (952) (4,629) (104) 952 (3,781)
--------- ----- ----------- --------- ------------- ----------- -----------
Total stockholders' equity...... 10,797 106 (919) 9,984 3,398 2,224 15,606
--------- ----- ----------- --------- ------------- ----------- -----------
Total liabilities and
stockholders' equity.......... $ 13,490 $ 380 $ 225 $ 14,095 $ 3,437 $ 2,155 $ 19,687
--------- ----- ----------- --------- ------------- ----------- -----------
--------- ----- ----------- --------- ------------- ----------- -----------
</TABLE>
F-21
<PAGE>
ALIGN SOLUTIONS CORP.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------- PRO FORMA
ALIGN FIFTH GEAR INMEDIA SYNAPSE TOTAL ADJUSTMENTS PRO FORMA
--------- ----------- ----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................ $ 9,226 $ 1,227 $ 1,195 $ 2,540 $ 14,188 $ -- $ 14,188
COST OF SERVICES.................... 5,128 603 943 1,908 8,582 -- 8,582
--------- ----------- ----------- ----------- --------- ------------ -----------
GROSS PROFIT........................ 4,098 624 252 632 5,606 -- 5,606
SELLING, GENERAL AND
ADMINISTRATIVE..................... 4,047 402 512 670 5,631 -- 5,631
EQUITY BASED COMPENSATION EXPENSE... -- -- -- -- -- 4,562(c) 4,562
INTANGIBLES AMORTIZATION............ 50 -- -- -- 50 5,018(d) 5,068
OTHER INCOME (EXPENSE):
Interest expense.................. (50) (6) (83) (16) (155) -- (155)
Loss on disposition of assets..... (28) -- -- -- (28) -- (28)
Other, net........................ -- -- -- 1 1 -- 1
--------- ----------- ----------- ----------- --------- ------------ -----------
LOSS BEFORE INCOME TAXES............ (77) 216 (343) (53) (257) (9,580) (9,837)
INCOME TAXES........................ -- 71 -- -- 71 (71)(e) --
--------- ----------- ----------- ----------- --------- ------------ -----------
NET INCOME (LOSS)................... $ (77) $ 145 $ (343) $ (53) $ (328) $ (9,509) $ (9,837)
--------- ----------- ----------- ----------- --------- ------------ -----------
--------- ----------- ----------- ----------- --------- ------------ -----------
</TABLE>
F-22
<PAGE>
ALIGN SOLUTIONS CORP.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------- PRO FORMA
ALIGN FIFTH GEAR INMEDIA SYNAPSE TOTAL ADJUSTMENTS PRO FORMA
--------- ----------- ----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................ $ 4,341 $ 277 $ 154 $ 279 $ 5,051 $ -- $ 5,051
COST OF SERVICES.................... 2,367 204 206 263 3,040 (3)(c) 3,037
--------- ----- ----------- ----- --------- ------------ -----------
GROSS PROFIT........................ 1,974 73 (52) 16 2,011 3 2,014
SELLING, GENERAL AND
ADMINISTRATIVE.................... 4,884 90 145 111 5,230 (3,205)(c) 2,025
EQUITY BASED COMPENSATION EXPENSE... -- -- -- -- -- 244(c) 244
INTANGIBLES AMORTIZATION............ 407 -- -- -- 407 863(d) 1,270
OTHER INCOME (EXPENSE):
Interest income................... -- 1 3 -- 4 -- 4
Interest expense.................. (13) (3) (21) (1) (38) -- (38)
Other, net........................ -- 4 -- -- 4 -- 4
--------- ----- ----------- ----- --------- ------------ -----------
LOSS BEFORE INCOME TAXES............ (3,330) (15) (215) (96) (3,656) 2,101 (1,555)
INCOME TAXES........................ -- (5) -- -- (5) 5(e) --
--------- ----- ----------- ----- --------- ------------ -----------
NET INCOME (LOSS)................... $ (3,330) $ (10) $ (215) $ (96) $ (3,651) $ 2,096 $ (1,555)
--------- ----- ----------- ----- --------- ------------ -----------
--------- ----- ----------- ----- --------- ------------ -----------
</TABLE>
F-23
<PAGE>
ALIGN SOLUTIONS CORP.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------- PRO FORMA
ALIGN FIFTH GEAR INMEDIA SYNAPSE TOTAL ADJUSTMENTS PRO FORMA
--------- ----------- ----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES..................... $ 1,300 $ 263 $ 449 $ 647 $ 2,659 $ -- $ 2,659
COST OF SERVICES............. 757 115 252 470 1,594 -- 1,594
--------- ----- ----- ----- --------- ------------ -----------
GROSS PROFIT................. 543 148 197 177 1,065 -- 1,065
SELLING, GENERAL AND
ADMINISTRATIVE............. 681 75 123 246 1,125 -- 1,125
EQUITY BASED COMPENSATION
EXPENSE.................... -- -- -- -- -- 3,737(c) 3,737
INTANGIBLES AMORTIZATION..... 13 -- -- -- 13 1,255(d) 1,268
OTHER INCOME (EXPENSE):
Interest expense........... (13) (1) (18) (2) (34) -- (34)
--------- ----- ----- ----- --------- ------------ -----------
LOSS BEFORE INCOME TAXES..... (164) 72 56 (71) (107) (4,992) (5,099)
INCOME TAXES................. -- 24 -- -- 24 (24)(e) --
--------- ----- ----- ----- --------- ------------ -----------
NET INCOME (LOSS)............ $ (164) $ 48 $ 56 $ (71) $ (131) $ (4,968) $ (5,099)
--------- ----- ----- ----- --------- ------------ -----------
--------- ----- ----- ----- --------- ------------ -----------
</TABLE>
F-24
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS:
The following summarizes the unaudited pro forma balance sheet adjustments:
(a) Align has entered into an agreement to acquire Fifth Gear. The
acquisition is to be accounted for as a purchase business combination.
The purchase price, including acquisition costs and using a share value
for Align common stock derived from the pending Luminant acquisition of
Align, is estimated to be $3.6 million and has been allocated as follows
(in thousands):
<TABLE>
<S> <C>
Tangible assets purchased.................................................. $ 85
Purchase price in excess of net tangible assets (goodwill)................. 3,469
</TABLE>
(b) Align has entered into an agreement to acquire inmedia. The acquisition
is to be accounted for as a purchase business combination. The purchase
price, including acquisition costs and using a share value for Align
common stock derived from the pending Luminant acquisition of Align, is
estimated to be $1.7 million and has been allocated as follows (in
thousands):
<TABLE>
<S> <C>
Tangible assets purchased.................................................. $ 563
Liabilities assumed........................................................ 1,057
Purchase price in excess of net tangible assets (goodwill)................. 2,179
</TABLE>
2. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS:
The following summarizes the unaudited pro forma statements of operations
adjustments:
(c) Reflects a compensation charge for options granted to Synapse and
inmedia at less than fair market value upon the consummation of the
acquisition. The adjustment also changes the timing of the Synapse
compensation charge recorded in the three months ended March 31, 1999
historical Align statements of operations.
(d) Reflects the amortization of goodwill to be recorded as a result of
Align's acquisitions over a period of three years. These amortization
periods were determined based on an analysis of the characteristics of
the combined company.
(e) Reflects the reversal of Fifth Gear's income tax provision. Align has
not demonstrated that it will generate future taxable income; therefore,
an asset for the pro forma loss before taxes has not been recorded.
F-25
<PAGE>
AFTER THE STOCK SPLIT AND INCREASE IN THE NUMBER OF AUTHORIZED COMMON STOCK
DISCUSSED IN NOTE 5 TO THE COMPANY'S FINANCIAL STATEMENTS IS EFFECTED, WE EXPECT
TO BE IN A POSITION TO RENDER THE FOLLOWING AUDIT REPORT.
ARTHUR ANDERSEN LLP
Dallas, Texas,
July 23, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Luminant Worldwide Corp.:
We have audited the accompanying balance sheet of Luminant Worldwide Corp.
as of December 31, 1998, and the related statements of operations, stockholders'
equity, and cash flows for the period from inception (August 21, 1998), to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Luminant Worldwide Corp. as
of December 31, 1998, and the results of its operations and its cash flows for
the period from inception (August 21, 1998), to December 31, 1998, in conformity
with generally accepted accounting principles.
F-26
<PAGE>
LUMINANT WORLDWIDE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CASH AND CASH EQUIVALENTS........................................................... $ 111,919 $ 6,261
DEFERRED COSTS...................................................................... 49,729 49,729
------------- ------------
Total assets.................................................................... $ 161,648 $ 55,990
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE.................................................................... $ -- $ 76,250
NOTES PAYABLE....................................................................... -- 50,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock: $.01 par value, 100,000,000 shares authorized; 7,852,571 shares
issued and outstanding as of 1998 and 1999 (unaudited).......................... 78,526 78,526
Additional paid-in capital........................................................ 328,475 328,475
Retained deficit.................................................................. (245,353) (477,261)
------------- ------------
Total stockholders' equity...................................................... 161,648 (70,260)
------------- ------------
Total liabilities and stockholders' equity...................................... $ 161,648 $ 55,990
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
LUMINANT WORLDWIDE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(AUGUST 21, 1998) THREE MONTHS
TO ENDED
DECEMBER 31, MARCH 31,
1998 1999
----------------- --------------
<S> <C> <C>
(UNAUDITED)
REVENUES....................................................................... $ -- $ --
COST OF SERVICES............................................................... -- --
----------------- --------------
GROSS PROFIT................................................................... -- --
SELLING, GENERAL AND ADMINISTRATIVE............................................ 245,353 231,908
----------------- --------------
LOSS BEFORE INCOME TAXES....................................................... (245,353) (231,908)
INCOME TAXES................................................................... -- --
----------------- --------------
NET LOSS....................................................................... $ (245,353) $ (231,908)
----------------- --------------
----------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
LUMINANT WORLDWIDE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, August 21, 1998 (inception)......................... -- $ -- $ -- $ --
Issuance of common stock................................... 7,852,571 78,526 121,475 --
Equity related compensation................................ -- -- 207,000 --
Net loss................................................... -- -- -- (245,353)
------------ --------- ----------- ------------
BALANCE, December 31, 1998................................... 7,852,571 78,526 328,475 (245,353)
Net loss (unaudited)....................................... -- -- -- (231,908)
------------ --------- ----------- ------------
BALANCE, March 31, 1999 (unaudited).......................... 7,852,571 $ 78,526 $ 328,475 $ (477,261)
------------ --------- ----------- ------------
------------ --------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
LUMINANT WORLDWIDE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(AUGUST 21, 1998) THREE MONTHS
TO ENDED
DECEMBER 31, MARCH 31,
1998 1999
----------------- --------------
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $ (245,353) $ (231,908)
Equity related compensation.................................................. 207,000 --
Adjustments to reconcile net loss to net cash used in operating activities-
Changes in assets and liabilities-
Deferred costs........................................................... (49,729) --
Accounts payable......................................................... -- 76,250
----------------- --------------
Net cash used in operating activities.................................. (88,082) (155,658)
----------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.................................................. -- 50,000
Proceeds from issuance of common stock....................................... 200,001 --
----------------- --------------
Net cash provided by financing activities.............................. 200,001 50,000
----------------- --------------
NET INCREASE (DECREASE) IN CASH................................................ 111,919 (105,658)
CASH AND CASH EQUIVALENTS, beginning of period................................. -- 111,919
----------------- --------------
CASH AND CASH EQUIVALENTS, end of period....................................... $ 111,919 $ 6,261
----------------- --------------
----------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
LUMINANT WORLDWIDE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Luminant Worldwide Corporation, a Delaware corporation (the "Company"), was
founded in August 1998, to provide a new category of professional services
called Internet-centric professional services, enabling businesses centered
primarily or exclusively on the Internet to conduct their business.
The Company's operations to date have consisted primarily of identifying and
negotiating for the acquisition of existing Internet consulting companies. The
Company plans to make an initial public offering and simultaneously exchange
cash and shares of its common stock for the acquisition of eight Internet
consulting companies (the "Companies").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
DEFERRED COSTS
As of December 31, 1998, costs of $49,729 have been incurred in connection
with this offering. Such costs will be recorded as a reduction to equity upon
consummation of this offering.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach which
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets is based on
provisions of the enacted tax law. The effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefit that, based on available evidence,
is not expected to be realized. Due to the uncertainty of the ability of the
Company to generate future taxable income, the tax benefit of the Company's loss
has been fully reserved.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to their relative short maturity and/or their variable interest
rates.
F-31
<PAGE>
LUMINANT WORLDWIDE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCOUNTING FOR EQUITY BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows either adoption of a fair value
based method of accounting for stock-based compensation or continuation under
Accounting Principles Board opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company has chosen to account for stock-based
compensation using the intrinsic value based method prescribed in APB 25 and to
provide the pro forma disclosure provision of SFAS 123. Accordingly,
compensation cost for stock options and other equity related transactions is
measured as the excess, if any, of the fair market value of the Company's stock
over the exercise price at the date of the grant.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS No. 130"), "REPORTING
COMPREHENSIVE INCOME," which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
3. DEBT:
The Company has a line of credit with a maximum availability of $3 million,
with its largest stockholder, Commonwealth Principals II LLC ("Commonwealth").
Interest is at prime (7.75% at December 31, 1998), and the line of credit
matures on the closing of this offering. There are no outstanding borrowings as
of December 31, 1998.
4. EQUITY INCENTIVE PLANS:
Under the terms of an employment agreement, the Company's Chief Executive
Officer will be issued on the effective date of a public offering options to
purchase 5% of the total outstanding shares of common stock at the offering
price. One-fourth of the options will vest immediately and the remainder will
vest at a rate of 25% per year. The options will have a term of six years.
As of December 31, 1998, there are no options outstanding.
In January 1999, under the terms of an employment agreement, the Company's
former Chief Financial Officer was to be issued certain options to purchase
common stock at $.01 per share (See Note 7).
In February 1999, under the terms of an employment agreement, as of the
effective date of the offering, the Company's Executive Vice President, will be
issued options to purchase 1% of the total outstanding shares of common stock at
the offering price. The options will become exercisable upon the Offering and
have a term of ten years.
F-32
<PAGE>
LUMINANT WORLDWIDE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. EQUITY:
The Company intends to effect a stock split and increase the number of
authorized common stock effective on the day preceding the completion of the
offering. The effects of the common stock split and the increase in the shares
of authorized common stock have been retroactively reflected in the balance
sheet and the accompanying notes.
In connection with the organization of the Company, 7,138,701 shares of
common stock were issued to Commonwealth. Upon signing his employment agreement
in September 1998, 713,870 shares of common stock were issued to the President
of the Company for $200,000. The Board of Directors has determined that these
shares were issued at fair market value. In addition in September 1998,
Commonwealth transferred 738,856 shares to the President resulting in an equity
related compensation expense of approximately $207,000.
6. RELATED-PARTY TRANSACTIONS:
In September 1998, the Company entered into a management services agreement
with Commonwealth to provide consulting and financial advisory services. The
agreement terminates at the earlier of the closing of the offering or September
2000. For the period ended December 31, 1998, approximately $49,000 was paid to
Commonwealth for providing services. These costs are related to the offering and
are included in deferred costs in the accompanying balance sheet. In addition,
Commonwealth has provided the Company with a line of credit as discussed in Note
3.
7. SUBSEQUENT EVENTS:
The Company has signed definitive agreements to acquire all of the common
stock and ownership interests of the Companies to be consummated simultaneously
with the closing of the offering. The companies to be acquired are Align
Solutions Corp., Brand Dialogue New York, Free Range Media, Inc., Integrated
Consulting, Inc. (dba as i.con interactive), Interactive8, Inc., Multimedia
Resources, LLC, Potomac Partners Management Consulting, LLC, and RSI Group, Inc.
In April and May 1999, the former Chief Financial Officer and a current
officer of the Company purchased 549,680 shares and 314,103 shares of common
stock for $500,000 and $400,000. The former Chief Financial Officer committed to
the purchase of shares in January of 1999 and the Board of Directors determined
the fair market value of the shares to be $3.67 which was in excess of the
issuance price. The current officer committed to the purchase of shares in April
and May of 1999 and the Board of Directors determined the fair market value of
the shares to be $7.33 which was in excess of the issuance price. As the actual
transactions occurred subsequent to March 31, 1999, the Company will recognize
compensation expense of approximately $3,400,000 in the second quarter of 1999
related to these issuances.
In July of 1999, the Company and the former Chief Financial Officer entered
into an agreement to end the Chief Financial Officer's employment with the
Company. The former Chief Financial Officer will receive options to purchase
20,833 shares of common stock at $.01 per share. The options will become
exerciseable upon the Offering and have a term of ten years. In addition, the
former Chief Financial Officer will be paid $1,000,000 over six years in equal
monthly installments for financial consulting services. The Company will record
the liability for the net present value of these payments of $860,000 assuming a
discount rate of 5.26%, and record a non-recurring charge of the same amount in
the third quarter of 1999.
F-33
<PAGE>
LUMINANT WORLDWIDE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS: (CONTINUED)
The following pro forma information shows the Company's revenues and net
income as if the transaction referred to above had occurred on January 1, 1998.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------- ---------------
Pro forma revenues (unaudited).......................... $ 54,846 $ 18,415
Pro forma net loss (unaudited).......................... (93,238) (20,960)
</TABLE>
F-34
<PAGE>
LUMINANT WORLDWIDE CORP.
NOTES TO THE UNAUDITED MARCH 31, 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition as of March 31, 1999, the results of its operations and its cash flows
for the three-month period ended March 31, 1999. These financial statements
should be read in conjunction with the Company's audited 1998 financial
statements, including the notes thereto. Operating results for the three-month
period ended March 31, 1999, are not necessarily indicative of the operating
results that may be expected for the year ending December 31, 1999.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Align Solutions Corp.:
We have audited the accompanying balance sheets of Align Solutions Corp. (a
Delaware S Corporation) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1998, and for the period from
inception (October 16, 1996), to December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Align Solutions Corp. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998, and for the
period from inception (October 16, 1996), to December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 4, 1999
F-36
<PAGE>
ALIGN SOLUTIONS CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1997 1998 1999
------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 10,977 $ -- $ 208,700
Accounts receivable, net of allowance for doubtful accounts of
$71,229, $115,068, and $145,068 (unaudited).................... 880,085 2,161,521 2,396,769
Note receivable.................................................. -- -- 35,000
Unbilled revenues................................................ 43,860 10,520 805,559
Prepaid expenses and other....................................... 37,778 74,219 81,174
------------- ------------- --------------
Total current assets........................................... 972,700 2,246,260 3,527,202
PROPERTY AND EQUIPMENT, net........................................ 259,901 776,185 908,405
OTHER ASSETS:
Goodwill, net of amortization of $58,333, $108,333, and $515,186
(unaudited).................................................... 91,667 41,667 9,040,419
Other............................................................ 3,500 1,673 13,910
------------- ------------- --------------
Total assets................................................... $ 1,327,768 $ 3,065,785 $ 13,489,936
------------- ------------- --------------
------------- ------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, including cash overdraft of $0, $105,191, and
$0 (unaudited)................................................. $ 144,994 $ 332,021 $ 895,962
Accrued liabilities.............................................. 85,343 713,842 431,263
Notes payable.................................................... 200,000 325,000 1,111,274
Current maturities of long-term debt............................. 64,191 70,870 111,851
------------- ------------- --------------
Total current liabilities...................................... 494,528 1,441,733 2,550,350
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities........................ 232,573 155,791 142,618
------------- ------------- --------------
Total liabilities.............................................. 727,101 1,597,524 2,692,968
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock: $.01 par value, 1,000,000 shares authorized,
none issued and outstanding as of 1997, 1998 and 1999.......... -- -- --
Common stock: $.01 par value, 10,000,000 shares authorized,
4,875,000, 5,584,804 and 6,390,540 (unaudited) shares issued
and outstanding as of 1997, 1998, and 1999..................... 48,750 55,848 63,905
Additional paid-in capital....................................... 926,250 1,863,192 14,514,270
Retained deficit................................................. (374,333) (450,779) (3,781,207)
------------- ------------- --------------
Total stockholders' equity..................................... 600,667 1,468,261 10,796,968
------------- ------------- --------------
Total liabilities and stockholders' equity..................... $ 1,327,768 $ 3,065,785 $ 13,489,936
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
ALIGN SOLUTIONS CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE
FROM INCEPTION FOR THE YEAR ENDED THREE MONTHS ENDED
(OCTOBER 16, 1996) DECEMBER 31, MARCH 31,
TO DECEMBER 31, ---------------------------- ------------------------------
1996 1997 1998 1998 1999
------------------ ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES....................... $ 111,858 $ 3,268,071 $ 9,226,127 $ 1,299,492 $ 4,341,077
COST OF SERVICES............... 79,702 1,783,336 5,128,460 757,071 2,366,986
---------- ------------- ------------- -------------- --------------
GROSS PROFIT................... 32,156 1,484,735 4,097,667 542,421 1,974,091
SELLING, GENERAL AND
ADMINISTRATIVE............... 233,104 1,634,220 4,096,638 693,862 5,291,795
OTHER INCOME (EXPENSE):
Interest expense............. -- (26,145) (49,825) (12,750) (12,724)
Loss on disposition of
assets..................... -- -- (27,650) -- --
Other income................. 399 1,846 -- -- --
---------- ------------- ------------- -------------- --------------
NET LOSS....................... $ (200,549) $ (173,784) $ (76,446) $ (164,191) $ (3,330,428)
---------- ------------- ------------- -------------- --------------
---------- ------------- ------------- -------------- --------------
PRO FORMA INCOME TAX
(UNAUDITED).................. -- -- -- -- --
---------- ------------- ------------- -------------- --------------
PRO FORMA NET LOSS
(UNAUDITED).................. $ (200,549) $ (173,784) $ (76,446) $ (164,191) $ (3,330,428)
---------- ------------- ------------- -------------- --------------
---------- ------------- ------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
ALIGN SOLUTIONS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT
------------ --------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE, October 16, 1996 (inception).................. -- $ -- $ -- $ --
Issuance of common stock............................. 3,845,200 38,452 730,588 --
Net loss............................................. -- -- -- (200,549)
------------ --------- -------------- --------------
BALANCE, December 31, 1996............................. 3,845,200 38,452 730,588 (200,549)
Issuance of common stock............................. 1,029,800 10,298 195,662 --
Net loss............................................. -- -- -- (173,784)
------------ --------- -------------- --------------
BALANCE, December 31, 1997............................. 4,875,000 48,750 926,250 (374,333)
Issuance of common stock............................. 709,804 7,098 936,942 --
Net loss............................................. -- -- -- (76,446)
------------ --------- -------------- --------------
BALANCE, December 31, 1998............................. 5,584,804 55,848 1,863,192 (450,779)
Issuance of common stock (unaudited)................. 805,736 8,057 9,402,939 --
Equity related compensation (unaudited).............. -- -- 3,248,139 --
Net loss (unaudited)................................. -- -- -- (3,330,428)
------------ --------- -------------- --------------
BALANCE, March 31, 1999 (unaudited).................... 6,390,540 $ 63,905 $ 14,514,270 $ (3,781,207)
------------ --------- -------------- --------------
------------ --------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
ALIGN SOLUTIONS CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE
(OCTOBER 16, 1996) FOR THE YEAR ENDED THREE MONTHS ENDED
TO DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------- ----------------------
1996 1997 1998 1998 1999
------------------ --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................. $ (200,549) $(173,784) $ (76,446) $(164,191) $(3,330,428)
Equity related compensation.............. -- -- -- -- 3,248,139
Adjustments to reconcile net loss to net
cash used in operating activities--
Depreciation and amortization.......... 14,816 129,184 272,588 47,297 505,747
Loss on disposition of assets.......... -- -- 27,650 -- --
Changes in assets and liabilities--
Accounts receivable.................. (60,615) (819,470) (1,281,436) (163,821) 142,450
Unbilled revenues.................... (43,288) (572) 33,340 43,860 (608,871)
Prepaid expenses and other........... (16,051) (21,727) (36,441) (32,802) 9,623
Other assets......................... -- (3,500) 1,827 (1,498) (124,875)
Accounts payable, including cash
overdraft.......................... 17,351 127,643 187,027 (9,713) 332,521
Accrued liabilities.................. 8,862 76,481 628,499 98,842 (408,537)
---------- --------- ----------- --------- -----------
Net cash used in operating
activities....................... (279,474) (685,745) (243,392) (182,026) (234,231)
---------- --------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable.......................... -- -- -- -- (35,000)
Capital expenditures..................... (122,072) (158,211) (766,522) (238,841) (173,655)
---------- --------- ----------- --------- -----------
Net cash used in investing
activities....................... (122,072) (158,211) (766,522) (238,841) (208,655)
---------- --------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.............. 48,602 151,398 125,000 201,294 629,998
Proceeds from long-term debt............. -- 300,000 -- -- 39,619
Payments on long-term debt............... -- (18,521) (70,103) (17,330) (18,031)
Proceeds from issuance of common stock... 569,040 205,960 944,040 240,000 --
---------- --------- ----------- --------- -----------
Net cash provided by financing
activities....................... 617,642 638,837 998,937 423,964 651,586
---------- --------- ----------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 216,096 (205,119) (10,977) 3,097 208,700
CASH AND CASH EQUIVALENTS,
beginning of period...................... -- 216,096 10,977 10,977 --
---------- --------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS,
end of period............................ $ 216,096 $ 10,977 $ -- $ 14,074 $ 208,700
---------- --------- ----------- --------- -----------
---------- --------- ----------- --------- -----------
SUPPLEMENTAL INFORMATION:
Cash paid for interest..................... $ -- $ 24,931 $ 48,813 $ 12,525 $ 12,724
---------- --------- ----------- --------- -----------
---------- --------- ----------- --------- -----------
NON-CASH TRANSACTIONS:
Common stock issued for tangible and
intangible assets........................ $ 200,000 $ -- $ -- $ -- $ --
---------- --------- ----------- --------- -----------
---------- --------- ----------- --------- -----------
Capital expenditures financed with
long-term debt........................... $ -- $ 15,285 $ -- $ -- $ --
---------- --------- ----------- --------- -----------
---------- --------- ----------- --------- -----------
Acquisition of Synapse through issuance of
common stock............................. $ -- $ -- $ -- $ -- $ 9,402,939
---------- --------- ----------- --------- -----------
---------- --------- ----------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Align Solutions Corp. (the "Company") is an interactive services and
information technology consulting firm focused on helping companies achieve
their Internet and e-commerce business objectives through the use of enabling
technologies. The areas of focus include Internet and intranet applications,
document management, system integration, and creative/new media. The Company was
incorporated in the State of Delaware in October 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the assets. The costs
and related accumulated depreciation of property and equipment sold, retired, or
disposed of are removed from the accounts and any gains or losses are reflected
in the statements of operations. Expenditures for major acquisitions and
improvements are capitalized while expenditures for maintenance and repairs are
expensed as incurred.
GOODWILL
Goodwill represents the excess of the aggregate consideration paid by the
Company over the fair value of assets acquired. Goodwill is amortized on a
straight-line basis over three years. Amortization expense totaled $8,667,
$50,000, and $50,000 for the periods ended December 31, 1996, 1997, and 1998,
respectively.
INCOME TAXES
As an S corporation, the Company pays no federal income tax but rather the
stockholders are taxed individually on the Company's taxable income or loss.
Accordingly, no provisions for federal income taxes are reflected in the
accompanying financial statements.
The unaudited pro forma tax information included in the accompanying
statements of operations reflect estimates of the Company's tax provision or
benefit as if it had been a C corporation in fiscal years 1996, 1997, and 1998.
In accordance with SFAS No. 109, "Accounting for Income Taxes," no pro forma tax
benefit was reflected due to the Company's recurring losses and the uncertainty
related to the realization of any tax assets.
REVENUE RECOGNITION
Revenues are recognized for time and materials-based arrangements as
services are performed and fixed fee arrangements on the
percentage-of-completion method. Under this approach, revenues and gross profit
are recognized as the work is performed, based on the ratio of costs incurred to
total estimated costs. Unbilled revenues on contracts are comprised of labor
costs incurred, plus earnings on certain contracts which have not been billed.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
F-41
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COST OF SERVICES
Cost of services is comprised primarily of salaries, employee benefits,
incentive compensation of billable employees, and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
ACCOUNTING FOR STOCK BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows either adoption of a fair value
based method of accounting for stock-based compensation or continuation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company has chosen to account for stock-based
compensation using the intrinsic value based method prescribed in APB 25 and
provide the pro forma disclosure provision of SFAS 123. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market value of the Company's stock over the exercise price at the date of
the grant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to their relative short maturity and/or their variable interest
rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS No. 130"), "REPORTING
COMPREHENSIVE INCOME" which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
3. SIGNIFICANT CUSTOMERS:
During the year ended December 31, 1997, sales to the Company's two largest
customers accounted for 14% and 12% of revenues. During the year ended December
31, 1998, sales to the Company's two largest customers accounted for 21% and 19%
of revenue.
As of December 31, 1998, accounts receivable from two customers accounted
for 17% and 30% of total accounts receivable.
F-42
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
Furniture and fixtures....................................................... 5-7 $ 55,656 $ 140,781
Computers and equipment...................................................... 2-4 289,912 781,505
Leasehold improvements....................................................... 3-4 -- 63,497
Construction-in-progress..................................................... -- -- 75,278
----------- -------------
345,568 1,061,061
Less--Accumulated depreciation............................................... (85,667) (284,876)
----------- -------------
Property and equipment, net.................................................. $ 259,901 $ 776,185
----------- -------------
----------- -------------
</TABLE>
Depreciation expense was $6,483, $79,184 and $222,588 for the periods ended
December 31, 1996, 1997, and 1998, respectively.
5. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Accrued bonus............................................................................ $ -- $ 667,870
Accrued salaries......................................................................... 33,775 --
Accrued legal............................................................................ 4,602 38,822
Accrued property and sales taxes......................................................... 9,610 7,150
Other.................................................................................... 37,356 --
--------- -----------
Accrued liabilities...................................................................... $ 85,343 $ 713,842
--------- -----------
--------- -----------
</TABLE>
6. DEBT:
NOTES PAYABLE
The Company has a bank line of credit with a maximum availability of
$550,000. Interest is at prime plus 1% (8.75% at December 31, 1998), and is
payable monthly. The line of credit is due on demand, matures in July 1999, and
is secured by accounts receivable and the personal guarantees of certain
stockholders. The terms of the line of credit agreement include customary
covenants that limit the Company's ability to incur further debt and require the
Company to maintain certain minimum levels of tangible net worth and liquidity
ratios. Subsequent to year-end, the Company renewed the line of credit with a
new maturity date of March 2000.
F-43
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. DEBT: (CONTINUED)
LONG-TERM DEBT
Long-term debt is comprised of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Note payable to a bank bearing interest at prime plus 1% (8.75% at December 31, 1998),
payable in monthly installments of principal and interest of $7,557, maturing October
2001; secured by accounts receivable, equipment, and the personal guarantees of
certain stockholders.................................................................. $ 284,489 $ 217,982
Equipment financing, non-interest bearing, payable in monthly installments of $384,
maturing February 2001, secured by certain equipment 12,275 8,679
----------- -----------
296,764 226,661
Less--Current portion................................................................... (64,191) (70,870)
----------- -----------
Long-term debt.......................................................................... $ 232,573 $ 155,791
----------- -----------
----------- -----------
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ---------------------------------------------------------------------------------
<S> <C>
1999......................................................................... $ 70,870
2000......................................................................... 84,085
2001......................................................................... 71,706
-----------
$ 226,661
-----------
-----------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
The Company leases office space in Houston and Dallas, Texas, under
operating lease agreements.
Future minimum annual lease payments under these leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999......................................................................... $ 182,739
2000......................................................................... 181,241
2001......................................................................... 120,827
2002......................................................................... --
2003 and thereafter.......................................................... --
-----------
Total future minimum lease payments.......................................... $ 484,807
-----------
-----------
</TABLE>
Rent expense for the periods ended December 31, 1996, 1997, and 1998 under
these agreements was $7,898, $42,130 and $107,194, respectively.
In the ordinary course of business, the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on financial position or results of operations.
F-44
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY INCENTIVE PLANS:
Effective August 26, 1997, the Company approved the 1997 Stock Option Plan
(the "1997 Plan") authorizing the Board of Directors to grant incentive or
nonqualified options to purchase common stock of the Company. The total number
of shares of common stock that may be issued under the 1997 Plan is 2,500,000.
The 1997 Plan is administered by the Compensation Committee of the Board of
Directors which determines the number of stock options to be granted, the
exercise or purchase price, vesting terms, and expiration date. Nonqualified
stock options may be granted at exercise prices which are greater than or equal
to 80% of the fair market value of the common stock on the grant date.
The exercise price of options qualifying as incentive stock options under
Section 422 of the Internal Revenue Code may not be less than the fair market
value of the common stock on the grant date. Incentive stock options granted to
any 10% stockholder may not be less than 110% of the fair market value of the
common stock on the grant date. Stock options granted under the 1997 Plan are
nontransferable and generally expire ten years after the date of grant, except
in the case of a 10% stockholder whose incentive stock options shall expire five
years from the date of grant. Upon certain events in which all of the
outstanding shares of common stock of the Company are acquired by an unrelated
party, the optionee's schedule shall be accelerated to provide that optionee
with immediate exercisability of the unexercisable options granted. All options
granted become exercisable over a five-year period of continued employment.
Options outstanding at December 31, 1996, 1997, and 1998, and granted,
exercised and cancelled during those years were as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -------------------
<S> <C> <C>
Options outstanding at December 31, 1996......................................... -- $ --
Granted........................................................................ 613,000 .20
Exercised...................................................................... -- --
Canceled....................................................................... -- --
-----------
Options outstanding at December 31, 1997......................................... 613,000 .20
Granted........................................................................ 393,800 1.19
Exercised...................................................................... -- --
Canceled....................................................................... (53,200) .25
-----------
Options outstanding at December 31, 1998......................................... 953,600 $ .61
-----------
-----------
</TABLE>
Following is summary information about stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE
RANGE OF NUMBER OF REMAINING WEIGHTED AVERAGE NUMBER OF
EXERCISE PRICES SHARES CONTRACT LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------- ----------- --------------------- ------------------- --------------- ---------------
$0.20 to $0.22 622,000 9.00 $ 0.20 -- $ --
$1.33 to $2.50 331,600 9.45 $ 1.37 -- $ --
</TABLE>
F-45
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY INCENTIVE PLANS: (CONTINUED)
Pro forma information regarding net income has been determined as if the
Company has accounted for its stock options under the fair value method of SFAS
123. The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions used for 1997:
an exercisable event occurring in five years; a risk-free interest rate of
6.25%; a dividend yield of 0%; and an expected option life with graded vesting.
The assumptions used to price options granted during 1998 were: an exercisable
event occurring in four years; risk-free interest rates ranging from 4.38% to
5.72%; a dividend yield of 0%; and an expected option life with graded vesting.
The average Black-Scholes fair values at date of grant for options granted
during the years ended December 31, 1997 and 1998, were $0.05 and $0.25 per
option, respectively.
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date consistent with the provisions of SFAS
123, the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
1997 1998
------------ ----------
<S> <C> <C>
Net loss--as reported............................................... $ (173,784) $ (76,446)
Net loss--pro forma................................................. (176,734) (90,143)
</TABLE>
9. RELATED-PARTY TRANSACTIONS:
The Company uses a third party to administer the Company's payroll and
related benefits. The Company also provides consulting services to its payroll
and benefits provider. The Company provided services of $1,908,278 to this
entity during the year ended December 31, 1998 (included in revenues for the
year ended December 31, 1998). The Company believes these services are stated at
fair market value.
The Company has an outstanding accounts receivable balance of $375,008 at
December 31, 1998, from its payroll and benefits provider for services provided.
10. SUBSEQUENT EVENTS:
On February 16, 1999, the Company acquired Synapse Group, Inc. ("Synapse")
in a business combination accounted for as a purchase. Synapse engages in
Internet consulting and was purchased by the Company through the issuance of
805,736 shares of the Company's common stock.
On April 30, 1999, the Company signed a letter of intent to acquire Fifth
Gear Media Corporation ("Fifth Gear") for 300,000 shares of common stock. Fifth
Gear engages in Internet consulting. The Company anticipates this transaction
will be completed by May 31, 1999.
On April 28, 1999, the Company signed a letter of intent to acquire inmedia,
inc ("inmedia") for 140,000 shares of common stock and approximately $660,000 in
cash. inmedia is a provider of interactive multimedia training. The Company
anticipates this transaction will be completed by May 31, 1999.
The Company has entered into an agreement to be acquired by Luminant. This
acquisition is subject to successful completion of an initial public offering of
the common stock of Luminant.
F-46
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS:
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to and Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition as of March 31, 1999, the results of its operations and its cash flows
for the three-month periods ended March 31, 1998 and 1999. These financial
statements should be read in conjunction with the Company's audited 1998
financial statements, including the notes thereto. Operating results for the
three-month period ended March 31, 1999, are not necessarily indicative of the
operating results that may be expected for the year ending December 31, 1999.
B. BUSINESS COMBINATION:
On February 16, 1999, the Company acquired Synapse in a business combination
accounted for as a purchase. Synapse engages in Internet consulting and was
purchased by the Company through the issuance of 805,736 shares of the Company's
common stock. The estimated fair market value of the shares of common stock used
to purchase Synapse was $11.68. The Company issued 472,744 options to Synapse
option holders as part of the consideration of this acquisition, which were
valued under the Modified Black Scholes Model. Goodwill of approximately
$9,406,000 was recorded in connection with this transaction, and is being
amortized on a straight-line basis with a useful life of three years.
C. NOTE RECEIVABLE:
The Company advanced $35,000 to inmedia, inc. during the period ended March
31, 1999. The note is due on February 18, 2000. Interest is payable on September
1, 1999 and at maturity at a rate of 8%.
D. DEBT:
The Company renewed its bank line of credit during the first quarter. The
bank line of credit has a maximum availability of $1,200,000, is due on demand,
and matures in March 2000. Interest is at prime plus 1% (8.75% at March 31,
1999) and is payable monthly.
E. EQUITY INCENTIVE PLANS:
During the three months ended March 31, 1999, 728,124 options were granted
with an exercise price less than the estimated fair market value of $11.68 on
the date of grant. The Company recognized $3,243,968 of compensation expense in
connection with these stock option grants in 1999.
F. SUBSEQUENT EVENTS:
On May 26, 1999, the Company acquired Fifth Gear Media Corporation ("Fifth
Gear") in a business combination accounted for as a purchase. Fifth Gear engages
in Internet consulting and was purchased by the Company through the issuance of
300,000 shares of the Company's
F-47
<PAGE>
ALIGN SOLUTIONS CORP.
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS: (CONTINUED)
common stock. The estimated fair market value of each share of common stock used
to purchase Fifth Gear was $11.68. The Company estimates that goodwill of
approximately $3,471,000 will be recorded in connection with this transaction,
and will be amortized on a straight-line basis with a useful life of three
years.
On May 27, 1999, the Company acquired inmedia, inc. ("inmedia") in a
business combination accounted for as a purchase. inmedia engages in Internet
consulting and the assets were purchased and certain liabilities assumed by the
Company through the issuance of 140,000 shares of the Company's common stock.
The estimated fair market value of each share of common stock used to purchase
inmedia was $11.68. The Company estimates that goodwill of approximately
$2,179,000 will be recorded in connection with this transaction, and will be
amortized on a straight-line basis with a useful life of three years.
F-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Young & Rubicam Inc.
In our opinion, the accompanying balance sheets and related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Brand Dialogue - New York (a wholly owned business of
Young & Rubicam Inc.), at December 31, 1997 and 1998 and the results of its
operations and its cash flows for the period April 1, 1996 (inception) through
December 31, 1996, and for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Brand Dialogue - New York's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Brand Dialogue - New York is a wholly owned business of Young & Rubicam Inc.,
and as further described in the notes to the financial statements, has extensive
transactions with Young & Rubicam Inc., its subsidiaries, affiliates, and
clients. Because of these relationships, it is possible that the terms of these
transactions are not the same as those that would result from transactions among
unrelated parties.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
May 24, 1999, except for Note 8 which
is as of June 3, 1999
F-49
<PAGE>
BRAND DIALOGUE - NEW YORK
(A WHOLLY OWNED BUSINESS OF YOUNG & RUBICAM INC.)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Accounts receivable............................................................ $ 645 $ 683 $ 2,867
Costs billable to clients...................................................... 21 17
Due from related parties, net.................................................. 546 973 1,138
--------- --------- ------------
TOTAL CURRENT ASSETS....................................................... 1,212 1,673 4,005
--------- --------- ------------
Computer equipment, net of accumulated depreciation of $109, $288, and $350,
respectively................................................................. 233 442 408
Deferred income taxes.......................................................... 4 12 14
--------- --------- ------------
TOTAL ASSETS............................................................... $ 1,449 $ 2,127 $ 4,427
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND INVESTMENT
Accounts payable............................................................... $ 206 $ 820 $ 1,274
Accrued expenses............................................................... 410 249 803
--------- --------- ------------
TOTAL CURRENT LIABILITIES.................................................. 616 1,069 2,077
--------- --------- ------------
Young & Rubicam Inc. Investment................................................ 833 1,058 2,350
--------- --------- ------------
TOTAL LIABILITIES AND YOUNG & RUBICAM INC. INVESTMENT...................... $ 1,449 $ 2,127 $ 4,427
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
BRAND DIALOGUE-NEW YORK
(A WHOLLY OWNED BUSINESS OF YOUNG & RUBICAM INC.)
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
PERIOD FROM ENDED
APRIL 1, 1996 DECEMBER 31, MARCH 31,
(INCEPTION) THROUGH -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues........................................... $ 1,922 $ 4,011 $ 7,237 $ 1,410 $ 2,701
Compensation expense, including employee
benefits.......................................... 943 1,842 4,596 1,005 1,560
General and administrative expenses................ 402 998 1,677 381 700
------- --------- --------- --------- ---------
OPERATING EXPENSES................................. 1,345 2,840 6,273 1,386 2,260
------- --------- --------- --------- ---------
Income before income taxes......................... 577 1,171 964 24 441
Income tax provision............................... 243 492 403 7 184
------- --------- --------- --------- ---------
NET INCOME......................................... $ 334 $ 679 $ 561 $ 17 $ 257
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
BRAND DIALOGUE - NEW YORK
(A WHOLLY OWNED BUSINESS OF YOUNG & RUBICAM INC.)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
PERIOD FROM FOR THE YEAR ENDED ENDED
APRIL 1, 1996 DECEMBER 31, MARCH 31,
(INCEPTION) THROUGH --------------------- ---------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income..................................... $ 334 $ 679 $ 561 $ 17 $ 257
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense......................... 26 83 179 22 62
Change in assets and liabilities:
Accounts receivable.......................... (548) (97) (38) (627) (2,184)
Costs billable to clients.................... (132) 111 4 21 17
Due from related parties, net................ (327) (219) (427) 21 (165)
Accounts payable and accrued expenses........ 695 (79) 453 710 1,008
Deferred income taxes........................ (1) (3) (8) (3) (2)
------ --------- ---------- --------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... 47 475 724 161 (1,007)
------ --------- ---------- --------- ----------
Cash flows from investing activities:
Purchases of computer equipment.............. (156) (186) (388) -- (28)
------ --------- ---------- --------- ----------
NET CASH USED IN INVESTING ACTIVITIES...... (156) (186) (388) -- (28)
------ --------- ---------- --------- ----------
Cash flows from financing activities:
Cash receipts and cash disbursements, net...... (165) (808) (1,232) (341) 627
Amounts paid by Young & Rubicam Inc............ 274 519 896 180 408
------ --------- ---------- --------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES............................... 109 (289) (336) (161) 1,035
------ --------- ---------- --------- ----------
Net change in cash............................... -- -- -- -- --
Cash at beginning of year........................ -- -- -- -- --
------ --------- ---------- --------- ----------
Cash at end of year.............................. $ -- $ -- $ -- $ -- $ --
------ --------- ---------- --------- ----------
------ --------- ---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-52
<PAGE>
BRAND DIALOGUE - NEW YORK
(A WHOLLY OWNED BUSINESS OF YOUNG & RUBICAM INC.)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Brand Dialogue - New York (a wholly owned business of Young & Rubicam Inc.)
(the "Company") was organized on April 1, 1996 and provides digital interactive
branding services and digital commerce solutions to its clients. The Company's
primary offerings consist of:
- Web advertising, including the design, creation and production of
websites, banners, home pages and comprehensive interactive campaigns;
- Digital commerce applications;
- The development of corporate intranets to improve communications and
productivity within and among a defined set of users; and
- Interactive marketing consulting services.
The accompanying financial statements include the accounts of Brand Dialogue
- - New York and reflect the historical results of operations, financial position
and cash flows of Brand Dialogue - New York. These financial statements,
however, may not be indicative of the results that would have occurred if Brand
Dialogue - New York operated as a stand-alone entity during the periods
presented, the future results of Brand Dialogue - New York or the costs which
may be incurred by an unaffiliated entity to achieve similar results.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues earned and expenses incurred
during the reporting period. While actual results could differ from these
estimates, management believes that the estimates are reasonable. The
significant estimates that affect the financial statements include, but are not
limited to, revenues earned pursuant to Young & Rubicam Inc. multi-disciplinary
global client contracts and corporate overhead allocations.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
In the opinion of management, the March 31, 1998 and 1999 unaudited interim
financial statements include all adjustments, consistency of normal recurring
adjustments, necessary for a fair presentation of such financial statements. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
REVENUE RECOGNITION
Revenues from interactive branding and digital commerce solutions are
derived from billings to clients for media and production activities, generally
on the basis of negotiated fees. Revenues are recognized in the period when the
underlying services are rendered.
F-53
<PAGE>
BRAND DIALOGUE - NEW YORK
(A WHOLLY OWNED BUSINESS OF YOUNG & RUBICAM INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation is computed using the straight-line method over the estimated
useful life of three years. During the period from April 1, 1996 (inception)
through December 31, 1996, and for the years ended December 31, 1997 and 1998,
depreciation expense amounted to $26, $83, and $179, respectively.
FINANCIAL INSTRUMENTS
The fair values of accounts receivable, trade accounts payable and accrued
expenses are equal to their carrying amounts as reported at December 31, 1996,
1997, and 1998.
CONCENTRATION OF CREDIT RISK
The Company's clients are engaged in various businesses and the Company
performs ongoing credit evaluations of its clients. Additionally, consistent
with the Young & Rubicam Inc. strategy, the Company is dependent upon a
relatively small number of clients who purchase services under short-term
contracts and contribute a significant percentage of revenues. Significant
client revenues as a percentage of total Company revenues are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
PERIOD FROM
APRIL 1, 1996 DECEMBER 31,
(INCEPTION) THROUGH --------------------
DECEMBER 31, 1996 1997 1998
--------------------- --------- ---------
<S> <C> <C> <C>
Client A......................................... 33% 23% 29%
Client B......................................... 0% 0% 13%
Client C......................................... 0% 5% 12%
Client D......................................... 0% 5% 11%
Client E......................................... 28% 15% 6%
Client F......................................... 16% 10% 5%
Client G......................................... 0% 11% 0%
----- --------- ---------
77% 69% 76%
----- --------- ---------
----- --------- ---------
</TABLE>
SEGMENT REPORTING
The Company is centrally managed and operates in one business segment:
digital interactive branding services and digital commerce solutions.
3. CORPORATE OVERHEAD ALLOCATIONS
Young & Rubicam Inc. and its subsidiaries and affiliates provide certain
administrative and corporate services which have been charged to Brand Dialogue
- - New York and are included in the results of operations for the periods
presented. Such services include executive management, information technology,
facilities and key client account management. Costs are allocated on a
proportionate basis as a function of revenues or headcount. These corporate
F-54
<PAGE>
BRAND DIALOGUE - NEW YORK
(A WHOLLY OWNED BUSINESS OF YOUNG & RUBICAM INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. CORPORATE OVERHEAD ALLOCATIONS (CONTINUED)
overhead allocations do not necessarily reflect the amount of expenses that
would have been incurred by Brand Dialogue - New York on a stand-alone basis.
The costs of certain financing activities, administrative, and other corporate
functions, which did not benefit Brand Dialogue - New York, were absorbed by
Young & Rubicam Inc.
Management believes that the methodologies used to allocate charges for the
services described above from Young & Rubicam Inc. are reasonable. However, it
is impractical to determine whether such costs are comparable to those that
would have been incurred by the Company on a stand-alone basis.
Charges allocated to Brand Dialogue - New York are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
PERIOD FROM
APRIL 1, 1996 DECEMBER 31,
(INCEPTION) THROUGH --------------------
DECEMBER 31, 1996 1997 1998
--------------------- --------- ---------
<S> <C> <C> <C>
Compensation, including employee benefits.............. $ 64 $ 133 $ 269
General and administrative............................. 210 386 627
----- --------- ---------
$ 274 $ 519 $ 896
----- --------- ---------
----- --------- ---------
</TABLE>
4. YOUNG & RUBICAM INC. INVESTMENT
Brand Dialogue - New York participates in Young & Rubicam Inc.'s centralized
treasury and cash management system. Cash generated from operations is
transferred to Young & Rubicam Inc. on a daily basis. Cash disbursements for
operations are funded as needed from Young & Rubicam Inc. No interest was
charged or earned on the Company's outstanding balance with Young & Rubicam Inc.
An analysis of the Young & Rubicam Inc. investment activity is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
PERIOD FROM
APRIL 1, 1996 DECEMBER 31,
(INCEPTION) THROUGH --------------------
DECEMBER 31, 1996 1997 1998
------------------- --------- ---------
<S> <C> <C> <C>
Balance at the beginning of the period............. $ -- $ 443 $ 833
Net income......................................... 334 679 561
Corporate overhead allocations..................... 274 519 896
Cash receipts and cash disbursements, net.......... (165) (808) (1,232)
------ --------- ---------
Balance at the end of the period................... $ 443 $ 833 $ 1,058
------ --------- ---------
------ --------- ---------
</TABLE>
5. EMPLOYEE BENEFITS
Substantially all employees of Brand Dialogue - New York are eligible to
participate in the Young & Rubicam Inc. Career Cash Balance Plan (the "Plan").
The benefits under the Plan are
F-55
<PAGE>
BRAND DIALOGUE - NEW YORK
(A WHOLLY OWNED BUSINESS OF YOUNG & RUBICAM INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. EMPLOYEE BENEFITS (CONTINUED)
based on, among other things, age at retirement, years of service and salary
levels. Upon retirement, these benefits will be based upon the benefit formula
of the Plan. Benefits are generally paid from funds previously provided to
trustees. Funds are contributed to a trustee as necessary to provide for current
service and for any unfunded projected benefit obligation. To the extent that
these requirements are fully covered by assets on hand, a contribution may not
be made in a particular year. At December 31, 1996, 1997 and 1998, assets were
held in equity securities and fixed income-type securities.
The Plan's net periodic pension cost and the Plan's funded status and
related amounts recognized are determined on a consolidated basis by Young &
Rubicam Inc. and allocated to its subsidiaries and affiliates based on the
number of participants as determined by an actuary. As a result, the components
of the Plan's net periodic pension cost and the actuarial present value of
benefit obligations are not determinable on a subsidiary or affiliate basis and,
therefore, not disclosed separately. The difference between the fair value of
the Plan assets and the projected benefit obligation was ($446), ($615), and
$784 at December 31, 1996, 1997 and 1998, respectively. The Plan's net periodic
pension cost was $5,920, $2,779, and 4,127 for the years ended December 31,
1996, 1997 and 1998, respectively.
The Company provides healthcare benefits to certain active employees. The
cost of providing these benefits, compiled by Young & Rubicam Inc. on an
aggregate basis, is recognized when incurred and has been allocated to Brand
Dialogue - New York as a function of headcount.
Employees of Brand Dialogue - New York participate in an employee savings
plan, sponsored by Young & Rubicam Inc., that qualifies as a defined
contribution plan under section 401(k) of the Internal Revenue Code. Under the
plan, participating employees may defer a portion of their pre-tax earnings up
to the Internal Revenue Service annual contribution limits. The Company matches
100% of each employee's contribution up to a maximum of 5% of the employee's
earnings up to $150.
Certain employees of Brand Dialogue - New York participate in various stock
compensation programs sponsored by Young & Rubicam Inc. Young & Rubicam Inc.
measures compensation cost using the method prescribed by Accounting Principles
Board Opinion No 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its stock plans as the exercise price on the date of
grant approximated the fair value of the common stock.
Charges associated with employee benefits, which are included as a component
of compensation expense, are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
PERIOD FROM
APRIL 1, 1996 DECEMBER 31,
(INCEPTION) THROUGH --------------------
DECEMBER 31, 1996 1997 1998
--------------------- --------- ---------
<S> <C> <C> <C>
Medical and dental................................. $ 29 $ 58 $ 153
Employee savings plan.............................. 29 58 118
Career cash balance plan........................... 9 17 53
Other.............................................. 25 49 86
----- --------- ---------
$ 92 $ 182 $ 410
----- --------- ---------
----- --------- ---------
</TABLE>
F-56
<PAGE>
BRAND DIALOGUE - NEW YORK
(A WHOLLY OWNED BUSINESS OF YOUNG & RUBICAM INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. INCOME TAXES
Brand Dialogue--New York has been included in the consolidated federal
income tax returns and certain state and local income tax returns filed by Young
& Rubicam Inc. or its subsidiaries.
Income taxes have been provided on a separate return basis for all periods
presented. Income taxes payable of $243, $653, and $1,186 as of December 31,
1996, 1997, and 1998, respectively, are included in due from related parties,
net.
The reconciliation of the United States statutory rate to the effective tax
rate is as follows:
<TABLE>
<CAPTION>
PERIOD FROM FOR THE YEARS ENDED
APRIL 1, 1996 DECEMBER 31,
(INCEPTION) THROUGH --------------------
DECEMBER 31, 1996 1997 1998
------------------- --------- ---------
<S> <C> <C> <C>
Percent of Income
Before Income Taxes
United States statutory rate............... 35.0% 35.0% 35.0%
State and local income taxes............... 7.0 7.0 7.0
Travel, entertainment and other
non-deductible expenses.................. 0.3 0.3 0.7
Excess of book over tax
depreciation expense..................... (0.2) (0.4) (0.8)
------ --------- ---------
Effective tax rate............................. 42.1% 41.9% 41.9%
------ --------- ---------
</TABLE>
Brand Dialogue - New York's deferred income tax asset arises from temporary
differences which represent the cumulative deductible or taxable amounts
recorded in the financial statements in different years than recognized in the
tax returns and relate to the excess book over tax depreciation of computer
equipment.
7. ACCRUED EXPENSES
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
PERIOD FROM
APRIL 1, 1996 DECEMBER 31,
(INCEPTION) THROUGH --------------------
DECEMBER 31, 1996 1997 1998
--------------------- --------- ---------
<S> <C> <C> <C>
Compensation, including benefits............... $ 21 $ 131 $ 165
Information technology services................ -- 35 --
Professional services.......................... -- 118 --
Travel expenses................................ 40 20 --
Deferred income................................ 136 -- --
Other.......................................... -- 106 84
----- --------- ---------
$ 197 $ 410 $ 249
----- --------- ---------
----- --------- ---------
</TABLE>
8. SUBSEQUENT EVENT
The Company has agreed upon the terms of a transaction whereby Young &
Rubicam Inc. will sell certain net assets, as defined, to Luminant Worldwide
Corporation. This transaction is subject to the successful completion of an
initial public offering of the common stock of Luminant.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Free Range Media, Inc.:
We have audited the accompanying consolidated balance sheets of Free Range
Media, Inc. (a Washington corporation) and subsidiary as of December 31, 1997
and 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Free Range Media, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 7, 1999
F-58
<PAGE>
FREE RANGE MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31,
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 5,963 $ 30,397 $ 47,893
Accounts receivable, net of allowance for doubtful accounts of
$47,008, $0, and $60,360 (unaudited).......................... 294,232 734,416 1,477,129
Unbilled revenues............................................... 31,713 96,753 403,785
Prepaid expenses and other...................................... 121,541 36,479 76,046
-------------- -------------- --------------
Total current assets.......................................... 453,449 898,045 2,004,853
PROPERTY AND EQUIPMENT, net....................................... 446,389 798,234 767,599
-------------- -------------- --------------
Total assets.................................................. $ 899,838 $ 1,696,279 $ 2,772,452
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 207,627 $ 118,682 $ 383,300
Customer deposits............................................... 76,061 335,038 424,933
Accrued liabilities............................................. 38,777 613,159 908,737
Notes payable................................................... -- 3,212,273 4,114,464
-------------- -------------- --------------
Total liabilities............................................. 322,465 4,279,152 5,831,434
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock: $2.75 par value, 2,400,000 shares authorized,
908,923, 1,359,460, and 1,359,460 (unaudited) shares issued
and outstanding as of 1997, 1998, and 1999.................... 2,488,538 3,727,514 3,727,514
Common stock, voting: no par value, 6,400,000 shares authorized,
6,400,000 shares issued as of 1997 and 1998 and 6,243,408,
6,238,808, and 6,238,808 (unaudited) shares outstanding as of
1997, 1998, and 1999.......................................... 2,424,760 2,672,536 2,805,872
Retained deficit................................................ (4,116,186) (8,759,879) (9,369,324)
Less--Treasury stock at cost, 152,192, 156,792 and 156,792
(unaudited) shares as of 1997, 1998 and 1999.................. (219,739) (223,044) (223,044)
-------------- -------------- --------------
Total stockholders' equity.................................... 577,373 (2,582,873) (3,058,982)
-------------- -------------- --------------
Total liabilities and stockholders' equity.................... $ 899,838 $ 1,696,279 $ 2,772,452
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE>
FREE RANGE MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- -----------------------------
1996 1997 1998 1998 1999
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES.......................... $ 2,939,746 $ 1,982,288 $ 3,520,514 $ 337,684 $ 2,210,752
COST OF SERVICES.................. 2,016,218 1,641,493 3,248,161 517,653 1,462,020
-------------- -------------- -------------- -------------- -------------
GROSS PROFIT...................... 923,528 340,795 272,353 (179,969) 748,732
SELLING, GENERAL AND
ADMINISTRATIVE.................. 2,005,332 2,984,957 4,922,329 1,090,388 1,175,341
OTHER INCOME (EXPENSE):
Interest expense................ (45,196) (107,475) (181,673) (8,928) (89,233)
Gain on sale of affiliate....... -- -- 429,996 -- --
Other (expense) income.......... (48,792) (34,581) 28,422 19,732 (7,196)
-------------- -------------- -------------- -------------- -------------
LOSS BEFORE INCOME TAXES.......... (1,175,792) (2,786,218) (4,373,231) (1,259,553) (523,038)
INCOME TAXES...................... -- -- -- -- --
-------------- -------------- -------------- -------------- -------------
NET LOSS.......................... $ (1,175,792) $ (2,786,218) $ (4,373,231) $ (1,259,553) $ (523,038)
-------------- -------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
<PAGE>
FREE RANGE MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------------- --------------------------- RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT DEFICIT STOCK
------------ ------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995...... -- $ -- 3,700,000 $ 240,000 $ (154,176) $ (2,487,149)
Issuance of common stock...... -- -- 3,073,940 2,079,759 -- 3,126,357
Exercise of stock options..... -- -- 4,800 (5,506) -- 9,570
Purchase of treasury stock.... -- -- (533,332) -- -- (850,665)
Equity related compensation... -- -- -- 10,797 -- --
Net loss...................... -- -- -- -- (1,175,792) --
------------ ------------- ------------ ------------- -------------- --------------
BALANCE, December 31, 1996...... -- -- 6,245,408 2,325,050 (1,329,968) (201,887)
Issuance of preferred stock... 908,923 2,488,538 -- -- -- --
Exercise of stock options..... -- -- 2,400 (6,674) -- 8,932
Purchase of treasury stock.... -- -- (4,400) -- -- (26,784)
Equity related compensation... -- -- -- 106,384 -- --
Net loss...................... -- -- -- -- (2,786,218) --
------------ ------------- ------------ ------------- -------------- --------------
BALANCE, December 31, 1997...... 908,923 2,488,538 6,243,408 2,424,760 (4,116,186) (219,739)
Issuance of preferred stock... 450,537 1,238,976 -- -- -- --
Purchase of treasury stock.... -- -- (4,600) -- -- (3,305)
Equity related compensation... -- -- -- 247,776 -- --
Dividends..................... -- -- -- -- (270,462) --
Net loss...................... -- -- -- -- (4,373,231) --
------------ ------------- ------------ ------------- -------------- --------------
BALANCE, December 31, 1998...... 1,359,460 3,727,514 6,238,808 2,672,536 (8,759,879) (223,044)
Equity related compensation
(unaudited)................. -- -- -- 133,336 -- --
Dividends (unaudited)......... -- -- -- -- (86,407) --
Net loss (unaudited).......... -- -- -- -- (523,038) --
------------ ------------- ------------ ------------- -------------- --------------
BALANCE, March 31, 1999
(unaudited)................... 1,359,460 $ 3,727,514 6,238,808 $ 2,805,872 $ (9,369,324) $ (223,044)
------------ ------------- ------------ ------------- -------------- --------------
------------ ------------- ------------ ------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-61
<PAGE>
FREE RANGE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ----------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $(1,175,792) $(2,786,218) $(4,373,231) $(1,259,553) $(523,038)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation................................ 119,271 210,064 324,982 63,623 99,952
Equity related compensation................. 10,797 106,384 247,776 61,944 133,336
Gain on sale of affiliate................... -- -- (429,996) -- --
Changes in assets and liabilities-
Accounts receivable....................... (61,879) 176,562 (440,184) 65,299 (742,713)
Unbilled revenues......................... 73,519 3,835 (65,040) 15,214 (307,032)
Prepaid expenses and other................ 5,990 235,604 85,061 106,948 (39,567)
Accounts payable.......................... (13,120) 76,342 (88,944) 101,981 264,618
Customer deposits......................... 6,268 (108,186) 258,977 71,342 89,895
Accrued liabilities....................... (597,289) (23,111) 303,920 8,501 209,171
----------- ----------- ----------- ----------- ---------
Net cash used in operating activities..... (1,632,235) (2,108,724) (4,176,679) (764,701) (815,378)
----------- ----------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (187,003) (282,085) (676,827) (175,436) (69,317)
Investment in affiliate (disposed of in
1998)....................................... -- -- (250,000) -- --
Proceeds from disposition of affiliate........ -- -- 679,996 -- --
----------- ----------- ----------- ----------- ---------
Net cash used in investing activities..... (187,003) (282,085) (246,831) (175,436) (69,317)
----------- ----------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments on) proceeds from notes payable... (2,534,413) (73,104) 3,212,273 934,174 902,191
Proceeds from issuance of preferred stock..... -- 2,488,538 1,238,976 -- --
Proceeds from issuance of common stock........ 2,074,253 -- -- -- --
Proceeds from issuance of treasury stock...... 3,135,927 2,258 -- -- --
Purchases of treasury stock................... (850,665) (26,784) (3,305) -- --
----------- ----------- ----------- ----------- ---------
Net cash provided by financing
activities.............................. 1,825,102 2,390,908 4,447,944 934,174 902,191
----------- ----------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 5,864 99 24,434 (5,963) 17,496
CASH AND CASH EQUIVALENTS, beginning of
period........................................ -- 5,864 5,963 5,963 30,397
----------- ----------- ----------- ----------- ---------
CASH AND CASH EQUIVALENTS, end of period........ $ 5,864 $ 5,963 $ 30,397 $ -- $ 47,893
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
SUPPLEMENTAL INFORMATION:
Cash paid for interest........................ $ 935 $ 101,667 $ 179,032 $ -- $ --
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-62
<PAGE>
FREE RANGE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Free Range Media, Inc. and its subsidiary (the "Company") specializes in the
design of World Wide Web pages on the Internet. The Company is a full service
developer of Internet and intranet sites, offering services in four areas:
website design and implementation, hosting, consulting, and maintenance. The
Company's wholly owned subsidiary is Lariat, Inc. The Company was incorporated
in the State of Washington in March 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the assets. The costs
and related accumulated depreciation of property and equipment sold, retired, or
disposed of are removed from the accounts and any gains or losses reflected in
the consolidated statements of operations. Expenditures for major acquisitions
and improvements are capitalized while expenditures for maintenance and repair
costs are expensed as incurred.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets is based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
is not expected to be realized.
REVENUE RECOGNITION
Revenues are recognized for time and materials-based arrangements as
services are performed and fixed fee arrangements on the
percentage-of-completion method. Under this approach, revenues and gross profit
are recognized as the work is performed, based on the ratio of costs incurred to
total estimated costs. Unbilled revenues on contracts are comprised of labor
costs incurred, plus earnings on certain contracts which have not been billed.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Customer deposits represent the amount of
customer payments received in advance of services being performed.
COST OF SERVICES
Cost of services is comprised primarily of salaries, employee benefits, and
incentive compensation of billable employees and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
F-63
<PAGE>
FREE RANGE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
GAIN ON SALE OF AFFILIATE
On September 17, 1998, the Company sold its interest in Free Zone, LLC
("Free Zone") to an unrelated third party for $679,996 and recognized a gain of
$429,996.
ACCOUNTING FOR STOCK BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows either adoption of a fair value
based method of accounting for stock-based compensation or continuation under
Accounting Principles Board Option No. 25, "Accounting for Stock Issued to
Employees ("APB 25")." The Company has chosen to account for stock-based
compensation using the intrinsic value based method prescribed in APB 25 and
provides the pro forma disclosure provision of SFAS 123. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market value of the Company's stock over the exercise price at the date of
the grant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to their relatively short maturity and/or their variable interest
rates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. An investment in a company that is
50% owned is accounted for using the equity method. All significant intercompany
transactions and balances have been eliminated.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS No. 130"), "REPORTING
COMPREHENSIVE INCOME," which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
F-64
<PAGE>
FREE RANGE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
------ ------------ -------------
<S> <C> <C> <C>
Computers and equipment................................. 3 $ 646,966 $ 1,253,290
Furniture and fixtures.................................. 5 195,678 256,777
Leasehold improvements.................................. 5 20,108 29,512
------------ -------------
862,752 1,539,579
Less- Accumulated depreciation.......................... (416,363) (741,345)
------------ -------------
Property and equipment, net...................... $ 446,389 $ 798,234
------------ -------------
------------ -------------
</TABLE>
Depreciation expense was $119,271, $210,064, and $324,982 for the periods
ended December 31, 1996, 1997, and 1998, respectively.
4. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Accrued compensation................................................. $ 36,587 $ 141,385
Accrued dividends.................................................... -- 270,462
Accrued interest..................................................... -- 179,844
Other................................................................ 2,190 21,468
--------- -----------
Accrued liabilities.................................................. $ 38,777 $ 613,159
--------- -----------
--------- -----------
</TABLE>
5. DEBT:
The Company has two notes payable of $3,212,273 as of December 31, 1998,
with related parties with interest at 9.25% and prime plus 1% (8.75% at December
31, 1998). The notes payable are due on demand, have an "open ended" maturity,
and are general obligations of the Company.
6. INCOME TAXES:
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to the effective income tax
rate is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Tax at U.S. statutory rates....................................... (35)% (35 )% (35 )%
Meals and entertainment........................................... 1% 1% 1%
Net operating loss carryforward................................... 34% 34% 34%
-- -- --
Effective income tax rate......................................... --% --% --%
-- -- --
-- -- --
</TABLE>
F-65
<PAGE>
FREE RANGE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1997 and 1998, are shown below.
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets-
Book depreciation in excess of tax depreciation............. $ 12,293 $ 40,883
Accruals.................................................... 26,268 26,268
Net operating loss carryforward............................. 1,332,143 2,832,630
-------------- --------------
Total deferred tax assets..................................... 1,370,704 2,899,781
Deferred tax liabilities-
Other....................................................... (9,293) (9,293)
-------------- --------------
Net deferred tax assets....................................... 1,361,411 2,890,488
Valuation allowance........................................... (1,361,411) (2,890,488)
-------------- --------------
Net deferred tax assets....................................... $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The Company's net operating loss carryforwards expire in years 2009 through
2018.
Management periodically reviews the expected realization of the Company's
deferred tax assets and records a valuation allowance, as appropriate, when
existing conditions impact the probability of ultimate realization of the
deferred tax asset. Due to the Company's recurring losses before income taxes,
management believes it is more likely than not that the Company will not realize
the net deferred tax asset. Accordingly, the Company has recorded a valuation
allowance to reflect uncertainties associated with the ultimate realization of
certain deferred tax assets.
7. COMMITMENTS AND CONTINGENCIES:
The Company sponsors 401(k) cash or deferred retirement plans that cover
substantially all of its ongoing employees. The Company has not made matching
contributions.
The Company leases its office facilities under noncancelable operating
leases that expire in January 2005. The leases require the payment of property
taxes, insurance, and maintenance. The Company also has operating lease
agreements related to certain equipment which expire at various dates.
F-66
<PAGE>
FREE RANGE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Future minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-------------
<S> <C>
1999........................................................................... $ 263,994
2000........................................................................... 274,860
2001........................................................................... 288,512
2002........................................................................... 294,216
2003........................................................................... 297,570
Thereafter..................................................................... 338,834
-------------
Total future minimum lease payments............................................ $ 1,757,986
-------------
-------------
</TABLE>
Rent expense for the years ended December 1996, 1997, and 1998 totaled
$146,212, $255,285, and $279,510, respectively.
In the ordinary course of business, the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on the Company's financial condition or results of operations.
8. EQUITY INCENTIVE PLANS:
Effective November 1, 1995, the Company approved the 1995 Stock Option Plan
(the "Plan") authorizing the Board of Directors to grant incentive or
nonqualified options to purchase common stock of the Company. Effective April 1,
1998, the Plan was converted into a nonqualified option plan. The Board of
Directors has authorized shares to be issued under the Plan. The Plan is
administered by the Board of Directors, which determines the number of stock
options to be granted, the exercise or purchase price, exercise schedule, and
expiration date of such options.
The exercise price of options qualifying as incentive stock options under
Section 422 of the Internal Revenue Code may not be less than the grant date
fair market value of the common stock. Incentive stock options granted to any
10% stockholder may not be less than 110% of the fair market value of the common
stock on the grant date. Stock options granted under the Plan are
nontransferable and generally expire ten years after the date of grant. Upon the
event that all of the outstanding shares of common stock of the Company are
acquired by an unrelated party, the optionee's exercise schedule shall be
accelerated to provide that optionee with immediate exercisability of fifty
percent of the options granted. All options granted become exercisable over a
five-year period of continued employment.
F-67
<PAGE>
FREE RANGE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY INCENTIVE PLANS: (CONTINUED)
Options outstanding at December 31, 1996, 1997, and 1998, were as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ---------------------
<S> <C> <C>
Options outstanding at December 31, 1995..................... 135,550 $ .25
Granted.................................................... 181,750 .25
Exercised.................................................. (4,800) .25
Canceled................................................... (49,250) .25
----------- ---
Options outstanding at December 31, 1996..................... 263,250 .25
Granted.................................................... 336,250 .25
Exercised.................................................. (2,400) .25
Canceled................................................... (205,750) .25
----------- ---
Options outstanding at December 31, 1997..................... 391,350 .25
Granted.................................................... 465,250 .25
Exercised.................................................. -- --
Canceled................................................... (279,450) .25
----------- ---
Options outstanding at December 31, 1998..................... 577,150 $ .25
----------- ---
----------- ---
</TABLE>
The following is summary information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE
NUMBER OF REMAINING WEIGHTED AVERAGE NUMBER OF
EXERCISE PRICES SHARES CONTRACT LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------- ----------- ------------------------- --------------------- ----------- -----------------
$ .25 577,150 5 $ .25 4,890 $ .25
</TABLE>
Additionally, the Company had 680 and 1,260 options exercisable at December
31, 1996 and 1997. Included in the above options granted during the three years
ended December 31, 1998, were options granted with an exercise price less than
fair market value on the grant date. The Company recognized $10,797, $106,384,
and $247,776 in connection with these stock option grants in compensation
expense for 1996, 1997, and 1998, respectively.
Pro forma information regarding net income has been determined as if the
Company accounted for its stock options under the fair value method of SFAS 123.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option-pricing model with the following assumptions used for 1996:
an exercisable event occurring in five years; risk-free interest rates ranging
from 5.42% to 6.71%; a dividend yield of 0%; a volatility factor of zero; a
weighted-average expected life of five years; and an average Black-Scholes fair
value at the date of grant of $2.44 per option. The assumptions used to price
options granted during 1997 were: an exercisable event occurring in five years;
risk-free interest rates ranging from 5.42% to 5.83%; dividend yield of 0%; a
volatility factor of zero; a weighted-average expected life of five years; and
average Black-Scholes fair value at the date of grant of $2.56 per option. The
assumptions used to price options granted during 1998 were: an exercisable event
occurring in five years; risk-free interest rates ranging from 4.68% to 5.63%; a
dividend yield of 0%; a
F-68
<PAGE>
FREE RANGE MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY INCENTIVE PLANS: (CONTINUED)
volatility factor of zero; a weighted-average expected life of five years; and
an average Black-Scholes fair value at the date of grant of $2.56 per option.
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the date of grant consistent with SFAS 123, the
Company's net loss would have been as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Net loss--As reported......................... $ (1,175,792) $ (2,786,218) $ (4,373,231)
Net loss--Pro forma........................... (1,237,468) (2,819,098) (4,417,297)
</TABLE>
9. EQUITY:
PREFERRED STOCK
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 2,400,000 shares of convertible Class A Preferred Stock ("Preferred
Stock"). In the event of liquidation, each holder of Preferred Stock will be
entitled to receive, as a preferential distribution, $2.75 for each outstanding
share and an amount equal to the accumulated but unpaid dividends, if any, on
such share. If the assets of the Company are insufficient to permit the payment
of full preferential amounts previously described, then all assets of the
Company legally available for distribution to its stockholders will be
distributed ratably among the holders of Preferred Stock.
The holders of Preferred Stock will be entitled to receive, when declared by
the Board of Directors, cumulative preferred dividends in the amount of a
percentage which is equal to the prime lending rate for Key Bank of Washington
multiplied by the par value per year on each share.
Each share of Preferred Stock is convertible into the number of shares of
Common Stock which is equal to $2.75 divided by the conversion price in effect
at the time of the conversion.
The Company has recognized cumulative dividends for the Preferred Stock in
the amount of $270,462.
COMMON STOCK
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 6,400,000 shares of Common Stock having no par value.
10. RELATED-PARTY TRANSACTIONS:
At December 31, 1998, the Company had notes payable to two stockholders
totaling $3,212,273 at December 31, 1998. The notes payable are "open-ended"
loans without set maturity dates.
11. AGREEMENT TO MERGE WITH LUMINANT:
The Company intends to enter into an agreement to be acquired by Luminant.
This acquisition is subject to successful completion of an initial public
offering of the common stock of Luminant.
F-69
<PAGE>
FREE RANGE MEDIA, INC.
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Rule 10-01 of Regulation S-X. Accordingly,
they do not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying unaudited financial statements reflect all
adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation of the Company's financial condition as of
March 31, 1999, the results of its operations and its cash flows for the
three-month periods ended March 31, 1998 and 1999. These financial statements
should be read in conjunction with the Company's audited 1998 financial
statements, including the notes thereto. Operating results for the three-month
period ended March 31, 1999, are not necessarily indicative of the operating
results that may be expected for the year ending December 31, 1999.
B. DEBT:
The Company has notes payable amounting to $4,114,464 as of March 31, 1999,
with related parties, with interest at 9.25% and prime plus 1% (8.75% at March
31, 1999). The notes payable are due on demand, have an "open-ended" maturity,
and are general obligations of the Company.
C. RELATED-PARTY TRANSACTIONS:
In the three months ended March 31, 1999, approximately 25% of the Company's
revenues were with a customer of which the Company's Chairman of the Board is a
director.
F-70
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Integrated Consulting, Inc.:
We have audited the accompanying balance sheets of Integrated Consulting,
Inc., dba i.con interactive (a Texas corporation) as of December 31, 1997 and
1998, and the related statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Integrated Consulting, Inc.
as of December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 7, 1999
F-71
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 42,566 $ 8,968 $ 15,717
Accounts receivable, net of allowance for doubtful accounts of $0,
$9,000, and $17,000 (unaudited)....................................... 39,842 209,198 376,972
Deferred income taxes................................................... 11,609 11,886 11,886
Prepaid expenses and other.............................................. 10,677 10,992 5,043
----------- ----------- ------------
Total current assets.................................................. 104,694 241,044 409,618
PROPERTY AND EQUIPMENT, net............................................... 135,453 239,382 344,662
OTHER ASSETS.............................................................. 7,622 17,367 17,367
----------- ----------- ------------
Total assets.......................................................... $ 247,769 $ 497,793 $ 771,647
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, including cash overdraft of $0, $74,810, and $0
(unaudited)........................................................... $ 10,762 $ 145,979 $ 47,543
Customer deposits....................................................... 83,164 57,946 29,900
Accrued liabilities..................................................... 86,240 119,872 259,319
Notes payable........................................................... -- -- 97,889
Current maturities of long-term debt.................................... -- 7,568 16,579
----------- ----------- ------------
Total current liabilities............................................. 180,166 331,365 451,230
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities............................... -- 56,453 107,459
Deferred income taxes................................................... 4,970 7,034 8,524
----------- ----------- ------------
Total liabilities..................................................... 185,136 394,852 567,213
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, Class A, voting: $.01 par value, 10,000,000 shares
authorized, 900,000, 1,000,000, and 1,000,000 (unaudited) issued and
outstanding as of 1997, 1998 and 1999................................. 9,000 10,000 10,000
Common stock, Class B, nonvoting: $.01 par value, 10,000,000 and 0
shares authorized, no shares issued and outstanding as of 1997, 1998
and 1999.............................................................. -- -- --
Additional paid-in capital.............................................. -- 14,000 14,000
Subscription receivable from officers................................... -- (10,000) (10,000)
Retained earnings....................................................... 53,633 88,941 190,434
----------- ----------- ------------
Total stockholders' equity............................................ 62,633 102,941 204,434
----------- ----------- ------------
Total liabilities and stockholders' equity............................ $ 247,769 $ 497,793 $ 771,647
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Trade revenues.............................. $ 442,924 $ 848,584 $ 1,715,591 $ 400,665 $ 678,660
Barter revenues............................. -- -- 424,900 55,000 146,713
----------- ----------- ------------- ----------- -----------
Total revenues............................ 442,924 848,584 2,140,491 455,665 825,373
COST OF SERVICES.............................. 132,172 266,774 716,209 112,711 250,301
----------- ----------- ------------- ----------- -----------
GROSS PROFIT.................................. 310,752 581,810 1,424,282 342,954 575,072
SELLING, GENERAL AND ADMINISTRATIVE........... 314,829 550,312 1,382,744 215,860 454,898
OTHER INCOME (EXPENSE):
Interest expense............................ -- -- -- -- (3,025)
Other income................................ -- 8,563 -- -- --
----------- ----------- ------------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............. (4,077) 40,061 41,538 127,094 117,149
INCOME TAXES.................................. (612) 6,009 6,230 16,242 15,656
----------- ----------- ------------- ----------- -----------
NET INCOME (LOSS)............................. $ (3,465) $ 34,052 $ 35,308 $ 110,852 $ 101,493
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL SUBSCRIPTION
NUMBER OF PAR PAID-IN RECEIVABLE RETAINED
SHARES VALUE CAPITAL FROM OFFICERS EARNINGS
------------ --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995..................... 900,000 $ 9,000 $ -- $ -- $ 23,046
Net loss..................................... -- -- -- -- (3,465)
------------ --------- ----------- ------------- -----------
BALANCE, December 31, 1996..................... 900,000 9,000 -- -- 19,581
Net income................................... -- -- -- -- 34,052
------------ --------- ----------- ------------- -----------
BALANCE, December 31, 1997..................... 900,000 9,000 -- -- 53,633
Issuance of common stock..................... 100,000 1,000 14,000 (10,000) --
Net income................................... -- -- -- -- 35,308
------------ --------- ----------- ------------- -----------
BALANCE, December 31, 1998..................... 1,000,000 10,000 14,000 (10,000) 88,941
Net income (unaudited)....................... -- -- -- -- 101,493
------------ --------- ----------- ------------- -----------
BALANCE, March 31, 1999 (unaudited)............ 1,000,000 $ 10,000 $ 14,000 $ (10,000) $ 190,434
------------ --------- ----------- ------------- -----------
------------ --------- ----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- ----------- ------------ ----------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ (3,465) $ 34,052 $ 35,308 $ 110,852 $ 101,493
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Depreciation and amortization.............. 14,890 28,696 43,547 10,886 16,833
Equity related compensation................ -- -- 5,000 5,000 --
Deferred income taxes...................... (7,605) 966 1,787 523 1,490
Changes in assets and liabilities-
Accounts receivable...................... 9,597 (38,173) (169,356) (68,561) (167,774)
Prepaid expenses and other............... (1,093) (1,119) (315) (431) 5,949
Other assets............................. (6,222) -- (9,745) -- --
Accounts payable, including cash
overdraft.............................. 9,309 (2,464) 135,217 (4,114) (98,436)
Customer deposits........................ 63,711 19,453 (25,218) (55,041) (28,046)
Accrued liabilities...................... 18,454 62,111 33,632 17,999 139,447
--------- ----------- ------------ ----------- ------------
Net cash provided by (used in)
operating activities................. 97,576 103,522 49,857 17,113 (29,044)
--------- ----------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................... (69,569) (81,745) (147,476) (10,519) (122,113)
--------- ----------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments on) notes
payable.................................... -- -- -- -- 97,889
Proceeds from long-term debt................. -- -- 64,021 -- 64,137
Payments on long-term debt................... -- -- -- -- (4,120)
--------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities........................... -- -- 64,021 -- 157,906
--------- ----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 28,007 21,777 (33,598) 6,594 6,749
CASH AND CASH EQUIVALENTS, beginning of
period....................................... (7,218) 20,789 42,566 42,566 8,968
--------- ----------- ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of period....... $ 20,789 $ 42,566 $ 8,968 $ 49,160 $ 15,717
--------- ----------- ------------ ----------- ------------
--------- ----------- ------------ ----------- ------------
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes................... $ 7,500 $ 6,500 $ 3,800 $ -- $ --
--------- ----------- ------------ ----------- ------------
--------- ----------- ------------ ----------- ------------
Cash paid for interest....................... $ -- $ -- $ -- $ -- $ 3,025
--------- ----------- ------------ ----------- ------------
--------- ----------- ------------ ----------- ------------
NON-CASH TRANSACTIONS:
Issuance of stock for notes receivable....... $ -- $ -- $ 10,000 $ 10,000 $ --
--------- ----------- ------------ ----------- ------------
--------- ----------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Integrated Consulting, Inc. ("i.con") specializes in electronic marketing on
the Internet under the trade name "i.con interactive." i.con is a full service
Internet and multimedia development firm focusing on the corporate market
specializing in Internet, extranet, and intranet solutions, corporate
communications, marketing and sales tools, computer-based training, and on-line
marketing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
i.con considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. The
costs and related accumulated depreciation of property and equipment sold,
retired, or disposed of are removed from the accounts and any gains or losses
reflected in the statements of operations. Expenditures for major acquisitions
and improvements are capitalized while expenditures for maintenance and repairs
are expensed as incurred.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in i.con's financial statements or tax returns. The
measurement of current and deferred tax liabilities and assets are based on
provisions of the enacted tax law. The effects of future changes in tax laws or
rates are not anticipated.
REVENUE RECOGNITION
Revenues are recognized for time and materials-based arrangements as
services are performed and fixed fee arrangements on the
percentage-of-completion method. Under this approach, revenues are recognized as
the work is performed, based on the ratio of costs incurred to total estimated
costs. Customer deposits represent the amount of customer payments received in
advance of services being performed.
Revenues associated with hosting services are recognized when the services
are performed.
The Company earned a portion of its 1998 revenue under barter arrangements
with certain customers for website development and maintenance services in
exchange for advertising. The barter transactions are valued at the normal rates
per hour including a minimal discount provision in some instances and with
consideration of the costs of advertising and promotion that would have been
paid to the customers in an ordinary cash transaction. Advertising
F-76
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
expense equal to the amount of barter revenue is recorded in selling, general
and administrative expense.
COST OF SERVICES
Cost of services are comprised primarily of salaries, employee benefits, and
incentive compensation of billable employees, and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
i.con's financial instruments have carrying amounts which approximate fair
value due to the relatively short maturity of these instruments.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS No. 130"), "REPORTING
COMPREHENSIVE INCOME," which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
3. SIGNIFICANT CUSTOMERS:
During the year ended December 31, 1996, sales to five customers accounted
for approximately 19%, 19%, 16%, 14%, and 14% of revenues. During the year ended
December 31, 1997, sales to two customers accounted for approximately 13% and
10% of revenues. During the year ended December 31, 1998, sales to one customer
accounted for approximately 12% of revenues.
As of December 31, 1997, accounts receivable from four customers accounted
for approximately 52%, 18%, 13%, and 12% of accounts receivable. As of December
31, 1998, accounts receivable from three customers accounted for approximately
12%, 10%, and 10% of accounts receivable.
F-77
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Computers and equipment.................................... 3-5 $ 145,520 $ 191,149
Furniture and fixtures..................................... 7 28,040 54,248
Autos...................................................... 5 -- 64,021
Leasehold improvements..................................... 7 -- 9,000
Other equipment............................................ 5-7 10,768 13,386
----------- -----------
184,328 331,804
Less--Accumulated depreciation............................. (48,875) (92,422)
----------- -----------
Property and equipment, net.............................. $ 135,453 $ 239,382
----------- -----------
----------- -----------
</TABLE>
Depreciation expense was $14,890, $28,696, and $43,547 for the periods ended
December 31, 1996, 1997, and 1998, respectively.
5. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Sales tax payable.................................................... $ 15,134 $ 59,374
Franchise tax payable................................................ -- 1,097
Accrued compensation................................................. -- 57,062
Other................................................................ 71,106 2,339
--------- -----------
Total accrued liabilities.......................................... $ 86,240 $ 119,872
--------- -----------
--------- -----------
</TABLE>
6. DEBT:
Long-term debt is comprised of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Note payable bearing interest at 10.05%, payable in monthly installments
of principal and interest of $1,138 with a balloon payment of $40,007,
maturing December 2001.................................................. $ -- $ 64,021
Less--Current maturities.................................................. -- (7,568)
--------- ---------
Long-term debt............................................................ $ -- $ 56,453
--------- ---------
--------- ---------
</TABLE>
F-78
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. DEBT: (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------------------------------------------------------------------------
<S> <C>
1999............................................................................... $ 7,568
2000............................................................................... 8,357
2001............................................................................... 48,096
---------
$ 64,021
---------
---------
</TABLE>
7. INCOME TAXES:
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current........................................................ $ 6,993 $ 5,043 $ 4,443
Deferred....................................................... (7,605) 966 1,787
--------- --------- ---------
Total current and deferred..................................... $ (612) $ 6,009 $ 6,230
--------- --------- ---------
--------- --------- ---------
</TABLE>
i.con's effective tax rate is equivalent to the statutory tax rate.
Significant components of i.con's deferred tax liabilities and assets as of
December 31, 1997 and 1998, are shown below:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets--
Accruals and reserves.................................................................... $ 11,609 $ 11,886
--------- ---------
Deferred tax liabilities--
Tax depreciation in excess of book value................................................. 4,970 7,034
--------- ---------
Net deferred tax assets.................................................................... $ 6,639 $ 4,852
--------- ---------
--------- ---------
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
i.con sponsors a 401(k) profit sharing plan that covers eligible employees.
Company discretionary contributions to the plan were $22,575, $31,747, and
$39,732 during 1996, 1997, and 1998, respectively.
On January 1, 1999, i.con amended the plan to provide for Company matching
of employee 401(k) contributions in the amount of 50% of employee contributions
up to 6% of an employee's salary. In addition, employees now participate in the
plan after six months of service and vest over a period of four years.
i.con leases its office facility under a noncancelable operating lease which
expires in January 2003. The lease requires the payment of property taxes,
insurance, and maintenance.
F-79
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
i.con also has operating lease agreements related to certain equipment which
expire at various dates.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999............................................................................. $ 180,180
2000............................................................................. 180,000
2001............................................................................. 186,000
2002............................................................................. 186,000
2003............................................................................. 7,000
Thereafter....................................................................... --
-----------
Total future minimum lease payments.............................................. $ 739,180
-----------
-----------
</TABLE>
Rent expense for the years ended December 1996, 1997, and 1998 totaled
$18,213, $87,234, and $121,669, respectively.
In the ordinary course of business, i.con may be subject to legal actions
and claims. Management does not believe litigation or claims will have a
material effect on financial position or results of operations.
9. EQUITY INCENTIVE PLAN:
In March 1998, an officer of i.con purchased 100,000 shares of common stock
for $10,000 cash or $.10 per share. At the time of the purchase, i.con
determined the fair market value of the stock to be $.15 per share. A
compensation charge of $5,000 was recorded in conjunction with the purchase of
the common stock.
10. RELATED-PARTY TRANSACTIONS:
At December 31, 1998, i.con had a $5,000 receivable included in prepaid
expenses and other, from one of its stockholders. This receivable bears no
interest and has no stated maturity.
11. AGREEMENT TO MERGE WITH LUMINANT WORLDWIDE CORPORATION:
i.con intends to enter into an agreement to be acquired by Luminant
Worldwide Corporation. This acquisition is subject to successful completion of
an initial public offering of the common stock of Luminant Worldwide
Corporation.
F-80
<PAGE>
INTEGRATED CONSULTING, INC. DBA I.CON INTERACTIVE
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Rule10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of i.con's financial condition as
of March 31, 1999, the results of its operations, and its cash flows for the
three-month periods ended March 31, 1998 and 1999. These financial statements
should be read in conjunction with i.con's audited 1998 financial statements,
including the notes thereto. Operating results for the three-month period ended
March 31, 1999, are not necessarily indicative of the operating results that may
be expected for the year ending December 31, 1999.
B. DEBT:
NOTES PAYABLE
i.con has a bank line of credit with a maximum availability of $100,000,
upon which $97,889 was outstanding at March 31, 1999. Interest is at prime plus
1.75% (9.5% at March 31, 1999), and is payable monthly. The line of credit is
automatically renewable annually and is not restricted by any covenants, but is
guaranteed by certain stockholders.
LONG-TERM DEBT
Long-term debt is comprised of the following as of March 31, 1999:
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
Note payable bearing interest at 10.05%, payable in monthly installments of
principal and interest of $1,138 with a balloon payment of $40,007, maturing
December 2001.................................................................. $ 62,194
Note payable bearing interest at 8.80%, payable in monthly installments of
principal and interest of $1,227 with a balloon payment of $34,322, maturing
January 2002................................................................... 61,844
-----------
124,038
Less--Current portion............................................................ (16,579)
-----------
Long-term debt................................................................... $ 107,459
-----------
-----------
</TABLE>
F-81
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InterActive8, Inc.:
We have audited the accompanying balance sheets of InterActive8, Inc. (a New
York S corporation) as of December 31, 1997 and 1998, and the related statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InterActive8, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 14, 1999
F-82
<PAGE>
INTERACTIVE8, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
----------- ------------- ----------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 90,321 $ 129,573 $ 461,836
Accounts receivable, net of allowance for doubtful accounts of
$30,000, $80,000, and $80,000 (unaudited)...................... 403,949 724,963 531,974
State and local tax receivables.................................. 23,000 110,300 110,300
Prepaid expenses and other....................................... 15,296 88,315 62,153
----------- ------------- ----------------
Total current assets........................................... 532,566 1,053,151 1,166,263
PROPERTY AND EQUIPMENT, net........................................ 252,710 314,533 596,600
OTHER ASSETS:
Deposits and other............................................... 8,072 71,806 71,851
----------- ------------- ----------------
Total assets................................................... $ 793,348 $ 1,439,490 $ 1,834,714
----------- ------------- ----------------
----------- ------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 91,122 $ 183,698 $ 274,005
Accrued liabilities.............................................. 567,011 500,970 2,763,218
Customer deposits................................................ -- 45,130 --
Notes payable.................................................... -- 232,505 49,739
Current maturities of long-term debt............................. 164,080 700,709 616,439
----------- ------------- ----------------
Total current liabilities...................................... 822,213 1,663,012 3,703,401
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities........................ 13,968 22,599 330,371
----------- ------------- ----------------
Total liabilities.............................................. 836,181 1,685,611 4,033,772
----------- ------------- ----------------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, voting: $0.001 par value, 2,000,000 shares
authorized, 641,567, 962,350 and 962,350 (unaudited) shares
issued and outstanding as of 1997, 1998 and 1999............... 642 962 962
Additional paid-in capital....................................... 358 185,038 185,038
Retained deficit................................................. (43,833) (432,121) (2,385,058)
----------- ------------- ----------------
Total stockholders' equity..................................... (42,833) (246,121) (2,199,058)
----------- ------------- ----------------
Total liabilities and stockholders' equity..................... $ 793,348 $ 1,439,490 $ 1,834,714
----------- ------------- ----------------
----------- ------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
INTERACTIVE8, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- -----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES............................ $ 1,713,303 $ 2,817,894 $ 4,097,448 $ 736,854 $ 1,613,124
COST OF SERVICES.................... 1,056,158 1,633,538 2,033,451 433,256 3,102,053
------------- ------------- ------------- ------------- --------------
GROSS PROFIT........................ 657,145 1,184,356 2,063,997 303,598 (1,488,929)
SELLING, GENERAL AND
ADMINISTRATIVE.................... 460,300 1,381,853 2,418,844 690,044 464,008
------------- ------------- ------------- ------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES... 196,845 (197,497) (354,847) (386,446) (1,952,937)
STATE AND LOCAL INCOME TAXES........ 18,063 43,900 33,441 -- --
------------- ------------- ------------- ------------- --------------
NET INCOME (LOSS)................... $ 178,782 $ (241,397) $ (388,288) $ (386,446) $ (1,952,937)
------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- --------------
PRO FORMA INCOME TAXES
(UNAUDITED)....................... 52,975 (52,975) -- -- --
------------- ------------- ------------- ------------- --------------
PRO FORMA NET INCOME (LOSS)
(UNAUDITED)....................... $ 125,807 $ (188,422) $ (388,288) $ (386,446) $ (1,952,937)
------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
INTERACTIVE8, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS
NUMBER AMOUNT CAPITAL (DEFICIT)
--------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................................... 641,567 $ 642 $ 358 $ 18,782
Net income................................................. -- -- -- 178,782
--------- ----- ----------- ---------------
BALANCE, December 31, 1996................................... 641,567 642 358 197,564
Net loss................................................... -- -- -- (241,397)
--------- ----- ----------- ---------------
BALANCE, December 31, 1997................................... 641,567 642 358 (43,833)
Net loss................................................... -- -- -- (388,288)
Issuance of Common Stock................................... 320,783 320 184,680 --
--------- ----- ----------- ---------------
BALANCE, December 31, 1998................................... 962,350 962 185,038 (432,121)
Net loss (unaudited)....................................... -- -- -- (1,952,937)
--------- ----- ----------- ---------------
BALANCE, March 31, 1999 (unaudited).......................... 962,350 $ 962 $ 185,038 $ (2,385,058)
--------- ----- ----------- ---------------
--------- ----- ----------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
INTERACTIVE8, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ 178,782 $ (241,397) $ (388,288) $ (386,446) $ (1,952,937)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Depreciation and amortization................ 59,598 125,765 178,001 39,278 74,705
Equity related compensation.................. -- -- 135,000 135,000 2,205,000
Changes in assets and liabilities-
Accounts receivable........................ 12,998 (293,714) (321,014) (40,860) 192,989
State and local tax receivable............. (23,000) -- (87,300) -- --
Prepaid expenses and other................. (47,025) 31,729 (73,019) (1,803) 26,162
Deposits and other......................... (9,413) 1,341 (63,734) -- (45)
Accounts payable........................... (1,846) 24,625 92,576 (45,216) 90,307
Accrued liabilities........................ (35,581) 551,979 (66,041) 8,834 57,248
Customer deposits.......................... -- -- 45,130 -- (45,130)
------------ ------------ ------------ ------------ --------------
Net cash provided by (used in) operating
activities............................... 134,513 200,328 (548,689) (291,213) 648,299
------------ ------------ ------------ ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................... (233,722) (70,620) (150,875) (6,388) (278,079)
------------ ------------ ------------ ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.................... -- -- 232,505 -- 95,126
Proceeds from long-term debt................... 64,392 (37,246) 514,471 243,064 --
Payments on long-term debt..................... (16,570) (32,176) (58,160) (10,306) (133,083)
Proceeds from issuance of common stock......... -- -- 50,000 50,000 --
------------ ------------ ------------ ------------ --------------
Net cash provided by (used in) financing
activities............................... 47,822 (69,422) 738,816 282,758 (37,957)
------------ ------------ ------------ ------------ --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (51,387) 60,286 39,252 (14,843) 332,263
CASH AND CASH EQUIVALENTS,
beginning of period............................ 81,422 30,035 90,321 90,321 129,573
------------ ------------ ------------ ------------ --------------
CASH AND CASH EQUIVALENTS,
end of period.................................. $ 30,035 $ 90,321 $ 129,573 75,478 461,836
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
SUPPLEMENTAL INFORMATION:
Cash paid for state and local income taxes..... $ 40,796 $ 44,225 $ 120,741 $ -- $ --
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Cash paid for interest......................... $ 2,392 $ 4,112 $ 7,457 $ -- $ 2,815
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
NONCASH TRANSACTIONS:
Capital expenditures financed with long-term
debt......................................... $ 39,768 $ 63,838 $ 88,949 $ -- $ 78,693
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Noncash ownership donation..................... $ -- $ -- $ 135,000 $ -- $ --
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE>
INTERACTIVE8, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
InterActive8, Inc. (the "Company") was formed in 1994 for the purpose of
developing and maintaining Internet websites. The Company is a full-service
interactive marketing agency providing strategy, creative, technical, and media
services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. The
costs and related accumulated depreciation of property and equipment sold,
retired or disposed of are removed from the accounts and any gains or losses
reflected in the statements of operations. Expenditures for major acquisitions
and improvements are capitalized while expenditures for maintenance and repairs
are expensed as incurred.
INCOME TAXES
As a S corporation, the Company pays no federal income tax, but rather the
stockholders are taxed individually on the Company's taxable income or loss.
Accordingly, no provisions for federal income taxes are reflected in the
accompanying financial statements. Provision has been made for state and local
income taxes.
The unaudited pro forma tax information included in the accompanying
statements of operations reflect estimates of the Company's tax provision or
benefit as if it had been a C corporation in fiscal years 1996, 1997, and 1998.
In accordance with SFAS No. 109, "Accounting for Income Taxes," no pro forma
benefit was reflected in 1998 due to the Company's losses and the uncertainty
related to the realization of any tax assets.
REVENUE RECOGNITION
Revenues are recognized for time and materials-based arrangements as
services are performed and fixed fee arrangements on the
percentage-of-completion method. Under this approach, revenues and gross profit
are recognized as the work is performed, based on the ratio of costs incurred to
total estimated costs. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Customer deposits
represent the amount of customer payments received in advance of services being
performed.
COST OF SERVICES
Cost of services is comprised primarily of salaries, employee benefits and
incentive compensation of billable employees and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported
F-87
<PAGE>
INTERACTIVE8, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to their relative short maturity and/or their variable interest
rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS No. 130"), "REPORTING
COMPREHENSIVE INCOME," which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
3. SIGNIFICANT CUSTOMERS:
During the year ended December 31, 1996, sales to three customers accounted
for 26%, 16%, and 12% of revenue. During the year ended December 31, 1997, sales
to three customers accounted for 31%, 21%, and 14% of revenue. During the year
ended December 31, 1998, sales to two customers accounted for 35% and 10% of
revenue. At December 31, 1998, four customers accounted for 43%, 11%, 11%, and
11% of accounts receivable.
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Computers and equipment.................................... 3-7 $ 326,930 $ 494,049
Leasehold improvements..................................... 10 140,455 213,160
----------- -----------
467,385 707,209
Less--Accumulated depreciation............................. (214,675) (392,676)
----------- -----------
Property and equipment, net.............................. $ 252,710 $ 314,533
----------- -----------
----------- -----------
</TABLE>
Depreciation and amortization expense was $59,599, $135,499, and $178,001
for the years ended December 31, 1996, 1997, and 1998, respectively.
F-88
<PAGE>
INTERACTIVE8, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Accrued payroll..................................................... $ 37,679 $ --
Accrued payroll taxes............................................... 15,658 1,414
Consulting agreement................................................ 478,442 414,650
Accrued bonuses..................................................... 2,025 --
Accrued vacation.................................................... 15,825 29,906
Accrued professional fees........................................... 15,751 --
Accrued interest.................................................... -- 55,000
Other............................................................... 1,631 --
----------- -----------
Accrued liabilities............................................... $ 567,011 $ 500,970
----------- -----------
----------- -----------
</TABLE>
6. DEBT:
NOTES PAYABLE
As of December 31, 1998, the Company has available a $250,000 revolving line
of credit (of which $232,505 has been drawn) with a bank. The agreement provides
for interest at a rate of prime plus 1% (8.75% at December 31, 1998). The line
of credit is secured by certain defined assets of the stockholders, including
all personal property and fixtures, and matures during November 1999. In the
event that the line of credit is not renewed, it converts at maturity into an
installment note with a two-year maturity.
At December 31, 1998, the Company negotiated for a term loan of $300,000 to
help finance construction. The term loan has a fixed rate of 8% per annum. There
were no borrowings against this loan as of December 31, 1998. The term loan will
be repayable in 48 monthly installments commencing January 30, 2000. The term
loan is secured by certain defined assets of the stockholders, including all
personal property and fixtures.
LOANS PAYABLE TO STOCKHOLDERS
Loans payable to stockholders are demand obligations and bear interest at 8%
per annum.
Long-term debt is comprised of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Loans payable to stockholders....................................... $ 123,188 $ 637,659
Equipment financing, non-interest bearing payable in monthly
installments ranging from $175 to $1,695, maturing March 1999
through March 2001, secured by certain equipment.................. 54,860 85,649
----------- -----------
178,048 723,308
Less--Current maturities............................................ (164,080) (700,709)
----------- -----------
$ 13,968 $ 22,599
----------- -----------
----------- -----------
</TABLE>
F-89
<PAGE>
INTERACTIVE8, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. DEBT: (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<S> <C> <C>
1999.................................................. $ 700,709
2000.................................................. 22,599
---------
$ 723,308
---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
The Company adopted a 401(k) plan during 1997. The Company matches employees
contributions up to 2%. During 1998, the Company contributed $23,287. No
contributions were made during 1997.
At December 31, 1998, the Company had entered into a noncancelable operating
lease, expiring October 2008, to lease new office facilities. The leases require
the payment of property taxes, insurance, and maintenance.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-------------
<S> <C>
1999........................................................................... $ 184,000
2000........................................................................... 252,000
2001........................................................................... 231,000
2002........................................................................... 252,000
2003........................................................................... 232,500
Thereafter..................................................................... 1,428,750
-------------
Total future minimum lease payments........................................ $ 2,580,250
-------------
-------------
</TABLE>
Rent expense for the years ended December 1996, 1997, and 1998 totaled
$47,274, $39,132, and $49,007, respectively.
In the ordinary course of business, the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on its financial condition or results of operations.
8. EQUITY INCENTIVE PLANS:
Effective July 1, 1998, the Company approved the 1998 Nonqualified Stock
Option Plan (the "1998 Plan"), authorizing the Board of Directors to grant
nonqualified options to purchase common stock of the Company. The total number
of shares of common stock which may be issued under the 1998 Plan is 237,650.
Under the terms of the 1998 Plan, the Company can offer certain
non-stockholder employees the right to share in the Company's value in the event
the Company goes public or is sold to a third party. These are effectively,
appreciation rights (the "Rights") that do not represent ownership or voting
interests in the Company. Employees, officers, and directors become eligible to
receive Rights six months after the commencement of their employment with the
Company. Rights vest 50% after six months from the grant date and a further 50%
after twelve months from the grant date. Upon a defined event, such as an
initial public offering of stock or a
F-90
<PAGE>
INTERACTIVE8, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY INCENTIVE PLANS: (CONTINUED)
sale of the Company, Rights will be converted into a new combination of cash
and/or stock dependent upon the structure of the defined event. Prior to such an
event, the holders of the Rights cannot exercise the appreciation right. The
Rights are nontransferable, and will be forfeited immediately upon an employee's
departure from the Company prior to any defined event.
No Rights were issued prior to 1998. Rights outstanding during 1998, were as
follows:
<TABLE>
<CAPTION>
GRANT NUMBER OF
PRICE RIGHTS
--------- -----------
<S> <C> <C>
Rights outstanding at December 31, 1997................................. --
Granted............................................................... $ 2.50 94,500
Exercised............................................................. --
Canceled.............................................................. --
-----------
Rights outstanding at December 31, 1998................................. 94,500
-----------
-----------
</TABLE>
The Rights are considered compensatory equity instruments. As the Rights
will be exercisable only upon the occurrence of a defined event, compensation
expense is deferred under fixed plan accounting. The date the event is first
considered likely to occur, a compensation charge for the cumulative
appreciation in the Rights should be recognized. The Company believes that the
condition for recognition has been met but has not recognized a charge during
1998 as the fair market value of the Company stock as determined by capital
transactions in 1998 at year-end was less than the grant price.
In February 1998, the Company issued 320,783 shares of common stock to a new
stockholder, for cash consideration of $50,000. The Company estimated the fair
value of this stock at the date of the transaction and recorded compensation
expense of $135,000 for the excess of the fair value over the consideration
received, with a corresponding increase to additional paid-in capital.
9. RELATED-PARTY TRANSACTIONS:
The Company has a consulting agreement with a former stockholder that
provides for monthly payments of $7,000 commencing July 1, 1997, and ending June
30, 2005.
10. AGREEMENT TO MERGE WITH LUMINANT:
The Company intends to enter into an agreement to be acquired by Luminant.
This acquisition is subject to successful completion of an initial public
offering of the common stock of Luminant.
F-91
<PAGE>
INTERACTIVE8, INC.
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Rule 10-01 of Regulation S-X. Accordingly,
they do not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying unaudited financial statements reflect all
adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation of the Company's financial condition as of
March 31, 1999, the results of its operations and its cash flows for the three
month periods ended March 31, 1998 and 1999. These financial statements should
be read in conjunction with the Company's audited 1998 financial statements,
including the notes thereto. Operating results for the three month period ended
March 31, 1999 are not necessarily indicative of the operating results that may
be expected for the year ending December 31, 1999. The following discussions may
contain forward-looking statements, which are subject to the risk factors set
forth in "Risk Factors" contained in Item 2.
B. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of March 31, 1999:
<TABLE>
<CAPTION>
MARCH 31,
1999
-------------
<S> <C>
Accrued payroll................................................................ $ 41,755
Accrued payroll taxes.......................................................... 5,256
Consulting agreement........................................................... 398,702
Accrued participation rights................................................... 2,205,000
Accrued vacation............................................................... 42,089
Accrued interest............................................................... 68,750
Other.......................................................................... 1,666
-------------
Accrued liabilities.......................................................... $ 2,763,218
-------------
-------------
</TABLE>
C. DEBT:
The Company has a term loan of $300,000 which bears interest at a fixed rate
of 8% per annum payable monthly. Borrowing against this loan was $277,892 at
March 31, 1999. The loan will be repayable in 48 monthly installments commencing
January 2000. The loan is secured by certain defined assets of the stockholders,
including all personal property and fixtures.
D. EQUITY INCENTIVE PLANS:
Effective July 1, 1998, the Company approved the 1998 Nonqualified Stock
Option Plan (the "1998 Plan"), authorizing the Board of Directors to grant
nonqualified options to purchase common stock of the Company. The total number
of shares of common stock that may be issued under the 1998 Plan is 237,650.
Under the terms of the 1998 Plan, the Company can offer certain
non-stockholder employees the right to share in the Company's value in the event
the Company goes public or is
F-92
<PAGE>
INTERACTIVE8, INC.
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS (CONTINUED)
D. EQUITY INCENTIVE PLANS: (CONTINUED)
sold to a third party. These are effectively, appreciation rights (the "Rights")
that do not represent ownership or voting interests in the Company. Employees,
officers, and directors become eligible to receive Rights grants six months
after the commencement of their employment with the Company. Rights vest 50%
after six months from the grant date and a further 50% after twelve months from
the grant date. Upon a defined event, such as an initial public offering of
stock or a sale of the Company, these rights will be converted into a new
combination of cash and/or stock dependent upon the structure of the defined
event. Prior to such an event, the holders of the Rights cannot exercise the
appreciation right. The Rights are nontransferable, and will be forfeited
immediately upon an employee's departure from the Company prior to any defined
event.
Rights outstanding at March 31, 1999, were as follows:
<TABLE>
<CAPTION>
GRANT NUMBER OF
PRICE RIGHTS
--------- -----------
<S> <C> <C>
Rights outstanding at December 31, 1998................................. 94,500
Granted............................................................... $ 7.00 6,550
Exercised............................................................. --
Canceled.............................................................. --
-----------
Rights outstanding at March 31, 1999.................................... 101,050
-----------
-----------
</TABLE>
The Rights are considered compensatory equity instruments. As the Rights
will be exercisable only upon the occurrence of a defined event, compensation
expense is deferred under fixed plan accounting. The date the event is first
considered likely to occur, a compensation charge for the cumulative
appreciation in the Rights should be recognized. The Company believes that the
condition for recognition has been met and has recognized a $2,205,000 cost of
services charge during the three months ended March 31, 1999, for the cumulative
appreciation in the Rights. Compensation expense recognized during the three
months ended March 31, 1999, is equal to the difference between the estimated
fair market value of the Company stock at March 31, 1999, and the exercise
price. The estimated fair market value is based on the per share value to be
received from the Luminant transaction.
F-93
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Multimedia Resources, LLC:
We have audited the accompanying balance sheets of Multimedia Resources, LLC
(a New York limited liability company) as of December 31, 1997 and 1998, and the
related statements of operations, members' equity, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Multimedia Resources, LLC as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 30, 1999
F-94
<PAGE>
MULTIMEDIA RESOURCES, LLC
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 100,824 $ 120,903 $ 343,926
Accounts receivable..................................................... 581,346 125,998 369,434
Unbilled revenues....................................................... 21,450 22,502 --
Prepaid expenses and other.............................................. 16,293 5,044 13,710
----------- ----------- ------------
Total current assets.................................................. 719,913 274,447 727,070
PROPERTY AND EQUIPMENT, net............................................... 72,206 58,886 54,512
OTHER ASSETS.............................................................. 12,315 13,045 13,045
----------- ----------- ------------
Total assets.......................................................... $ 804,434 $ 346,378 $ 794,627
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................ $ 118,652 $ 17,136 $ 96,127
Accrued liabilities..................................................... 231,021 155,202 150,344
Customer deposits....................................................... -- -- 87,500
----------- ----------- ------------
Total liabilities......................................................... 349,673 172,338 333,971
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY........................................................... 454,761 174,040 460,656
----------- ----------- ------------
Total liabilities and members' equity................................. $ 804,434 $ 346,378 $ 794,627
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
MULTIMEDIA RESOURCES, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES................................. $ 1,928,189 $ 3,476,221 $ 2,068,255 $ 652,099 $ 742,253
COST OF SERVICES......................... 985,282 2,437,132 1,755,896 439,372 314,397
------------- ------------- ------------- ----------- -----------
GROSS PROFIT............................. 942,907 1,039,089 312,359 212,727 427,856
SELLING, GENERAL AND ADMINISTRATIVE...... 420,406 536,503 275,199 81,386 91,950
INTEREST INCOME.......................... 737 4,576 6,319 3,888 810
------------- ------------- ------------- ----------- -----------
NET INCOME............................... $ 523,238 $ 507,162 $ 43,479 $ 135,229 $ 336,716
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
PRO FORMA INCOME TAX (UNAUDITED)......... 209,295 202,865 9,847 30,629 134,686
------------- ------------- ------------- ----------- -----------
PRO FORMA NET INCOME (UNAUDITED)......... $ 313,943 $ 304,297 $ 33,632 $ 104,600 $ 202,030
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
MULTIMEDIA RESOURCES, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<S> <C>
BALANCE, December 31, 1995....................................................... $ 125,626
Distributions to members....................................................... (201,265)
Net income..................................................................... 523,238
---------
BALANCE, December 31, 1996....................................................... 447,599
Distributions to members....................................................... (500,000)
Net income..................................................................... 507,162
---------
BALANCE, December 31, 1997....................................................... 454,761
Distributions to members....................................................... (324,200)
Net income..................................................................... 43,479
---------
BALANCE, December 31, 1998....................................................... 174,040
Distributions to members (unaudited)........................................... (50,100)
Net income (unaudited)......................................................... 336,716
---------
BALANCE, March 31, 1999 (unaudited).............................................. $ 460,656
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
MULTIMEDIA RESOURCES, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 523,238 $ 507,162 $ 43,479 $ 135,229 $ 336,716
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation.............................. 4,939 10,521 17,496 4,256 4,374
Changes in assets and liabilities-
Accounts receivable..................... (516,353) (11,784) 455,348 330,158 (243,436)
Unbilled revenues....................... -- 2,118 (1,052) 21,450 22,502
Prepaid expenses and other.............. (2,720) (13,573) 11,249 13,583 (8,666)
Other assets............................ (5,045) (6,875) (730) -- --
Accounts payable........................ 131,311 (12,659) (101,516) 3,520 78,991
Accrued liabilities..................... 62,882 167,477 (75,819) (104,399) (4,858)
Customer deposits....................... -- -- -- -- 87,500
----------- ----------- ---------- ----------- -----------
Net cash provided by operating
activities............................ 198,252 642,387 348,455 403,797 273,123
----------- ----------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (13,212) (68,732) (4,176) -- --
----------- ----------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to members...................... (201,265) (500,000) (324,200) (30,000) (50,100)
----------- ----------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (16,225) 73,655 20,079 373,797 223,023
CASH AND CASH EQUIVALENTS,
beginning of period........................... 43,394 27,169 100,824 100,824 120,903
----------- ----------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period........ $ 27,169 $ 100,824 $ 120,903 $ 474,621 $ 343,926
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
MULTIMEDIA RESOURCES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Multimedia Resources, LLC (the "Company"), a New York limited liability
company, was organized effective March 31, 1995. Using the Internet as its
primary platform, the company specializes in business development, relationship
building, development and implementation of marketing and media programs, and
technology innovation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the assets. The costs
and related accumulated depreciation of property and equipment sold, retired, or
disposed of are removed from the accounts and any gains or losses reflected in
the statements of operations. Expenditures for major acquisitions and
improvements are capitalized while expenditures for maintenance and repairs are
expensed as incurred.
INCOME TAXES
As a limited liability company, the Company pays no federal income tax, but
rather its members are taxed individually on the Company's taxable income or
loss. Accordingly, no provisions for federal income taxes are reflected in the
accompanying financial statements.
The unaudited pro forma tax information included in the accompanying
statements of operations reflect estimates of the Company's tax provision or
benefit as if it had been a C corporation in fiscal years 1996, 1997, and 1998.
REVENUE RECOGNITION
Revenues are recognized for time and materials-based arrangements as
services are performed and fixed fee arrangements on the
percentage-of-completion method. Under this approach, revenues and gross profit
are recognized as the work is performed, based on the ratio of costs incurred to
total estimated costs. Unbilled revenues on contracts are comprised of labor
costs incurred, plus earnings on certain contracts which have not been billed.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
COST OF SERVICES
Cost of services is comprised primarily of salaries, employee benefits, and
incentive compensation of billable employees and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
F-99
<PAGE>
MULTIMEDIA RESOURCES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts that approximate
fair value due to their relative short maturity and/or their variable interest
rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS No. 130"), "REPORTING
COMPREHENSIVE INCOME," which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
3. SIGNIFICANT CUSTOMERS:
During the year ended December 31, 1996, sales to one customer accounted for
52% of revenue. During the year ended December 31, 1997, sales to two customers
accounted for 77% of revenue. During the year ended December 31, 1998, sales to
one customer accounted for 34% of revenue.
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Computers and equipment....................................................... 3-5 $ 47,930 $ 52,106
Furniture and fixtures........................................................ 5-7 41,301 41,301
---------- ----------
89,231 93,407
Less--Accumulated depreciation................................................ (17,025) (34,521)
---------- ----------
Property and equipment, net................................................. $ 72,206 $ 58,886
---------- ----------
---------- ----------
</TABLE>
Depreciation expense was $4,939, $10,521, and $17,496 for the years ended
December 31, 1996, 1997, and 1998, respectively.
F-100
<PAGE>
MULTIMEDIA RESOURCES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Profit sharing plan contribution........................................................ $ 116,010 $ 150,344
Accrued bonuses......................................................................... 104,400 --
Other................................................................................... 10,611 4,858
----------- -----------
Accrued liabilities................................................................... $ 231,021 $ 155,202
----------- -----------
----------- -----------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
The Company sponsors a profit sharing and money purchase plan that covers
employees who are at least 21 years old and have at least one year of service
with the Company. Contributions to the profit sharing plan are at the discretion
of the Company. The Company contributes 4.8% of employees' compensation to the
money purchase plan. Contributions to the plans were $63,744, $116,010, and
$150,344 during 1996, 1997, and 1998, respectively.
The Company leases its office facilities under noncancelable operating
leases which expire in January 2002. The leases require the payment of property
taxes, insurance, and maintenance. The Company also has operating lease
agreements related to certain equipment which expire at various dates. Rent
expense for the years ended December 1996, 1997, and 1998, totaled $2,945,
$54,939, and $77,468, respectively. Future minimum lease payments are as
follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999............................................................................. $ 78,401
2000............................................................................. 82,242
2001............................................................................. 85,538
2002............................................................................. 7,203
2003............................................................................. --
Thereafter....................................................................... --
-----------
Total future minimum lease payments.............................................. $ 253,384
-----------
-----------
</TABLE>
In the ordinary course of business, the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on its financial condition or results of operations.
7. AGREEMENT TO MERGE WITH LUMINANT:
The Company intends to enter into an agreement to be acquired by Luminant.
This acquisition is subject to successful completion of an initial public
offering of the common stock of Luminant.
F-101
<PAGE>
MULTIMEDIA RESOURCES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to and Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition as of March 31, 1999, the results of its operations and its cash flows
for the three-month periods ended March 31, 1998 and 1999. These financial
statements should be read in conjunction with the Company's audited 1998
financial statements, including the notes thereto. Operating results for the
three-month period ended March 31, 1999, are not necessarily indicative of the
operating results that may be expected for the year ending December 31, 1999.
F-102
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Potomac Partners Management Consulting, LLC:
We have audited the accompanying balance sheets of Potomac Partners
Management Consulting, LLC (a Delaware limited liability company) as of December
31, 1997 and 1998, and the related statements of operations, members' equity,
and cash flows for the period from inception (November 10, 1997), to December
31, 1997, and for the year ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Potomac Partners Management
Consulting, LLC as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from inception (November 10, 1997),
to December 31, 1997, and for the year ended December 31, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 5, 1999
F-103
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
----------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 164,503 $ 892,336 $ 970,794
Accounts receivable, net of allowance for doubtful accounts of
$37,400, $132,400, and $225,880 (unaudited)....................... 51,437 683,797 878,979
Unbilled revenues................................................... 185,300 420,353 170,777
Prepaid expenses and other.......................................... 934 24,015 66,530
----------- ------------- -------------
Total current assets.............................................. 402,174 2,020,501 2,087,080
PROPERTY AND EQUIPMENT, net........................................... 24,523 51,288 45,928
----------- ------------- -------------
Total assets...................................................... $ 426,697 $ 2,071,789 $ 2,133,008
----------- ------------- -------------
----------- ------------- -------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ -- $ 175,170 $ 322,794
Accrued liabilities................................................. 129,699 2,142,854 6,945,587
----------- ------------- -------------
Total liabilities................................................. 129,699 2,318,024 7,268,381
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY....................................................... 296,998 (246,235) (5,135,373)
----------- ------------- -------------
Total liabilities and members' equity............................. $ 426,697 $ 2,071,789 $ 2,133,008
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE
(NOVEMBER 10, 1997) FOR THE THREE MONTHS ENDED
TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------------
1997 1998 1998 1999
-------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
REVENUES...................................... $ 372,600 $ 4,886,543 $ 975,950 $ 2,059,514
COST OF SERVICES.............................. 290,360 5,086,176 653,628 6,230,720
---------- -------------- ----------- --------------
GROSS PROFIT.................................. 82,240 (199,633) 322,322 (4,171,206)
SELLING, GENERAL AND ADMINISTRATIVE........... 86,239 876,226 180,086 489,038
OTHER INCOME (EXPENSE)........................ 997 30,618 1,743 (10,033)
---------- -------------- ----------- --------------
NET INCOME (LOSS)............................. $ (3,002) $ (1,045,241) $ 143,979 $ (4,670,277)
---------- -------------- ----------- --------------
---------- -------------- ----------- --------------
PRO FORMA INCOME TAX (UNAUDITED).............. -- -- -- --
---------- -------------- ----------- --------------
PRO FORMA NET INCOME (LOSS) (UNAUDITED)....... $ (3,002) $ (1,045,241) $ 143,979 $ (4,670,277)
---------- -------------- ----------- --------------
---------- -------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<S> <C>
BALANCE, November 10, 1997 (inception)......................................... $ --
Capital contributions-
Issuance of member units at stated value................................... 600,000
Members' notes in lieu of cash contributions............................... (300,000)
-----------
Net capital contributions................................................ 300,000
Net loss..................................................................... (3,002)
-----------
BALANCE, December 31, 1997..................................................... 296,998
Capital contributions-
Issuance of member units at stated value................................... 337,500
Members' notes in lieu of cash contributions............................... (100,000)
Payments on notes from members............................................. 300,000
-----------
Net capital contributions................................................ 537,500
Redemption of member units................................................... (35,492)
Net loss..................................................................... (1,045,241)
-----------
BALANCE, December 31, 1998..................................................... (246,235)
Capital contributions-
Issuance of member units at stated value (unaudited)....................... 375,500
Members' notes in lieu of cash contributions (unaudited)................... (86,249)
Payments on notes from members (unaudited)................................. 100,000
-----------
Net capital contributions (unaudited).................................... 389,251
Redemption of member units (unaudited)....................................... (608,112)
Net loss (unaudited)......................................................... (4,670,277)
-----------
BALANCE, March 31, 1999 (unaudited)............................................ $(5,135,373)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE
(NOVEMBER 10, 1997) FOR THE THREE MONTHS ENDED
TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------------
1997 1998 1998 1999
-------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ (3,002) $ (1,045,241) $ 143,979 $ (4,670,277)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities-
Depreciation and amortization............. 205 25,528 5,885 4,031
Equity related compensation............... -- 1,503,000 -- 4,962,103
Changes in assets and liabilities-
Accounts receivable..................... (51,437) (632,360) (415,112) (660,377)
Unbilled revenues....................... (185,300) (235,053) (38,800) 249,576
Prepaid expenses and other.............. (934) (23,082) (26,976) (56,639)
Disposal of equipment................... -- -- -- --
Accounts payable........................ -- 175,170 -- 196,673
Accrued liabilities..................... 129,699 510,155 218,936 (151,592)
---------- -------------- ----------- --------------
Net cash provided by (used in)
operating activities................ (110,769) 278,117 (112,088) (126,502)
---------- -------------- ----------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (24,728) (52,292) (26,106) --
---------- -------------- ----------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions....................... 300,000 537,500 138,562 389,251
Redemption of member units.................. -- (35,492) -- (184,291)
---------- -------------- ----------- --------------
Net cash provided by financing
activities.......................... 300,000 502,008 138,562 204,960
---------- -------------- ----------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS..... 164,503 727,833 368 78,458
CASH AND CASH EQUIVALENTS, beginning of
period...................................... -- 164,503 164,503 892,336
---------- -------------- ----------- --------------
CASH AND CASH EQUIVALENTS, end of period...... $ 164,503 $ 892,336 $ 164,871 $ 970,794
---------- -------------- ----------- --------------
---------- -------------- ----------- --------------
SUPPLEMENTAL INFORMATION:
Issuance of member units for notes
receivable.................................. $ 300,000 $ 100,000 $ -- $ 86,249
---------- -------------- ----------- --------------
---------- -------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Potomac Partners Management Consulting, LLC (the "Company") specializes in
electronic commerce and Internet related consulting services. The Company offers
consulting services in three primary areas: business and strategy, program
management, and application design. The Company was formed in the State of
Delaware on November 10, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the assets. The costs
and related accumulated depreciation of property and equipment sold, retired, or
disposed of are removed from the accounts and any gains or losses are reflected
in the statement of operations. Expenditures for major acquisitions and
improvements are capitalized while expenditures for maintenance and repairs are
expensed as incurred.
INCOME TAXES
As a limited liability company, the Company pays no federal income tax, but
rather the members are taxed individually on the Company's taxable income.
Accordingly, no provisions for federal income taxes are reflected in the
accompanying financial statements.
The unaudited pro forma tax information included in the accompanying
statements of operations reflect estimates of the Company's tax provision or
benefit as if it had been a C corporation in fiscal years 1997 and 1998. In
accordance with SFAS No. 109, "Accounting for Income Taxes," no pro forma tax
benefit was reflected due to the Company's recurring losses and the uncertainty
related to the realization of any tax assets.
REVENUE RECOGNITION
Revenues are recognized on the percentage-of-completion method. Under this
approach, revenues and gross profit are recognized as the work is performed,
based on the ratio of costs incurred to total estimated costs. Unbilled revenues
on contracts are comprised of labor costs incurred, plus earnings on certain
contracts which have not been billed. Provisions for losses are recorded in the
period such items are identified.
COST OF SERVICES
Cost of services are comprised primarily of salaries, employee benefits, and
incentive compensation of billable employees and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
ACCOUNTING FOR PARTICIPATION APPRECIATION RIGHTS AND MEMBER APPRECIATION RIGHTS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows
F-108
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
either adoption of a fair value based method of accounting for stock-based
compensation or continuation under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company has chosen to
account for stock-based compensation using the intrinsic value based method
prescribed in APB 25 and to provide the pro forma disclosure provision of SFAS
123.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to the relatively short maturity of these instruments.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "REPORTING
COMPREHENSIVE INCOME," which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
3. SIGNIFICANT CUSTOMERS:
During the period from inception (November 10, 1997) through December 31,
1997, sales to two customers accounted for 48% and 46% of revenue. During the
year ended December 31, 1998, sales to the Company's four largest customers
accounted for 26%, 18%, 17%, and 13% of revenue.
As of December 31, 1998, accounts receivable from the Company's four largest
customers accounted for 26%, 24%, 17%, and 15% of total accounts receivable.
F-109
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
----------- --------- ---------
<S> <C> <C> <C>
Computers and equipment........................................................... 1-3 $ 24,728 $ 76,342
Furniture and fixtures............................................................ 3 -- 679
--------- ---------
24,728 77,021
Less- Accumulated depreciation.................................................... (205) (25,733)
--------- ---------
Property and equipment, net................................................ $ 24,523 $ 51,288
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $205 and $25,528 for the periods ended December 31,
1997 and 1998.
5. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -------------
<S> <C> <C>
Member bonus payable.............................................. $ 72,300 $ 485,332
Employee bonus payable............................................ 3,100 100,000
Participation appreciation rights................................. -- 1,503,000
Other............................................................. 54,299 54,522
----------- -------------
Accrued liabilities........................................... $ 129,699 $ 2,142,854
----------- -------------
----------- -------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
The Company sponsors a profit sharing plan (the "Plan") that covers
employees who are at least 21 years old and have at least one hour of service
with the Company. Contributions to the Plan are at the discretion of the
Company. There were no contributions to the Plan during 1997 and 1998.
In the ordinary course of business, the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on financial position or results of operations.
7. EQUITY INCENTIVE PLANS:
PARTICIPATION APPRECIATION RIGHTS
The Company offers all non-member professionals the right to share in the
Company's value in the event the Company consummates an initial public offering
or is sold to a third party. These appreciation rights (the "Non-Member Rights")
do not represent ownership or voting interests or membership in the Company. The
Non-Member Rights are awarded at the time an employee signs an employment offer
letter from the Company and at various points during employment based on
performance. Upon a defined event, such as an initial public offering of stock
or a sale of the Company, these rights will be converted into a new combination
of cash
F-110
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EQUITY INCENTIVE PLANS: (CONTINUED)
and/or securities (options, stock, restricted stock) dependent upon the
structure of the defined event. Prior to such an event, the holders of the
rights have no rights to exercise the instruments. The Non-Member Rights are
nontransferable, and will be forfeited immediately upon an employee's departure
from the Company prior to any defined event.
<TABLE>
<CAPTION>
RANGE OF NUMBER OF
GRANT PRICES RIGHTS
--------------- -----------
<S> <C> <C>
Rights outstanding at inception (November 10, 1997)................................ --
Granted.......................................................................... $0.33 90,000
Exercised........................................................................ --
Canceled......................................................................... --
-----------
Rights outstanding at December 31, 1997............................................ 90,000
Granted.......................................................................... $1.00-$4.05 223,500
Exercised........................................................................ --
Canceled......................................................................... --
-----------
Rights outstanding at December 31, 1998............................................ 313,500
-----------
-----------
</TABLE>
The Non-Member Rights are considered compensatory equity instruments. As the
Non-Member Rights will be exercisable only upon the occurrence of a defined
event, compensation expense is deferred under fixed plan accounting. The date
the event is first considered likely to occur, a compensation charge for the
cumulative appreciation in the Non-Member Rights should be recognized. The
Company believes that the condition for recognition has been met and has
recognized a $1,503,000 cost of services charge during 1998 for the cumulative
appreciation in the Non-Member Rights.
Compensation expense recognized during 1998 is equal to the increase in the
estimated fair market value of the Company's units since date of grant
multiplied by the total number of rights outstanding. The estimated fair market
value was based upon capital transactions during 1998.
MEMBER APPRECIATION RIGHTS
The Company grants member appreciation rights ("Member Rights") to its
members upon the acquisition of a membership interest in the Company and during
the year based on performance. The Member Rights vest ratably over a three-year
period. The grant price of each Member Right is equal to the estimated fair
market value of each member unit on the date of grant. Upon a defined event,
such as an initial public offering of stock or a sale of the Company, these
Member Rights will be converted into a new combination of cash and/or securities
(options, stock, restricted stock) dependent upon the structure of the defined
event. Prior to such an event, the holders of the rights have no rights to
exercise the instruments. The Member Rights are nontransferable, and will be
forfeited upon a member's departure from the Company prior to any defined event.
F-111
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EQUITY INCENTIVE PLANS: (CONTINUED)
Member Rights outstanding during 1997 and 1998, were as follows:
<TABLE>
<CAPTION>
RANGE OF NUMBER OF
GRANT PRICES RIGHTS
------------- -----------
<S> <C> <C>
Rights outstanding at inception (November 10, 1997)................ --
Granted.......................................................... --
Exercised........................................................ --
Canceled......................................................... --
-----------
Rights outstanding at December 31, 1997............................ --
Granted.......................................................... $ 6.50 33,716
Exercised........................................................ --
Canceled......................................................... --
-----------
Rights outstanding at December 31, 1998............................ 33,716
-----------
-----------
</TABLE>
The Member Rights are considered compensatory equity instruments. As the
vested Member Rights will be exercisable only upon the occurrence of a defined
event, compensation expense is deferred under fixed plan accounting. The date
the event is first considered likely to occur, a compensation charge for the
cumulative appreciation in the Member Rights should be recognized. The Company
recognized no charge during 1998 as these Member Rights were granted in December
1998 and none were vested.
8. RELATED-PARTY TRANSACTIONS:
At December 31, 1997, the Company had interest-bearing notes receivable from
two of its members totaling $150,000 each. At December 31, 1998, the Company had
a $100,000 interest-bearing note receivable from one of its members. All notes
bear interest at 6% annually and have a term of twelve months. All notes were
related to members' capital contributions and have been recorded as an offset to
members' equity. The Company recognized interest income of $18,000 during 1998.
At December 31, 1997 and 1998, the Company's accrued expenses included
employee expenses of $53,236 and $4,646, respectively.
9. SUBSEQUENT EVENTS:
Effective January 1, 1999, certain of the Company's Members (the "Exiting
Members") dissolved their interest in the Company to form a new Limited
Liability Company called Potomac Ventures, LLC. Their interest was dissolved by
the transfer of 45% of the aggregate net assets of the Company to the Exiting
Members in exchange for the Exiting Member's units in the Company. There is no
co-ownership between the companies; however, they share the same Advisory Board
(as defined).
The Company and Potomac Ventures, LLC, entered into a cross services
agreement during 1999, whereby the two companies agree to share certain
administrative services.
10. AGREEMENT TO MERGE WITH LUMINANT:
The Company intends to enter into an agreement to be acquired by Luminant.
This acquisition is subject to the successful completion of an initial public
offering of the common stock of Luminant.
F-112
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to and Rule10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition as of March 31, 1999, the results of its operations and its cash flows
for the three-month periods ended March 31, 1998 and 1999. These financial
statements should be read in conjunction with the Company's audited 1998
financial statements, including the notes thereto. Operating results for the
three-month period ended March 31, 1999 are not necessarily indicative of the
operating results that may be expected for the year ending December 31, 1999.
B. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of March 31, 1999:
<TABLE>
<CAPTION>
MARCH 31,
1999
-------------
<S> <C>
Member bonus payable........................................................... $ 263,665
Employee bonus payable......................................................... 134,265
Participation appreciation rights.............................................. 6,465,103
Other.......................................................................... 82,554
-------------
Accrued liabilities........................................................ $ 6,945,587
-------------
-------------
</TABLE>
C. EQUITY INCENTIVE PLANS:
PARTICIPATION APPRECIATION RIGHTS
The Company offers all non-member professionals the right to share in the
Company's value in the event the Company consummates an initial public offering
or is sold to a third party. These appreciation rights (the "Non-Member Rights")
do not represent ownership or voting interests or membership in the Company. The
Non-Member Rights are awarded at the time an employee signs an employment offer
letter from the Company and at various points during employment based on
performance. Upon a defined event, such as an initial public offering of stock
or a sale of the Company, these rights will be converted into a new combination
of cash and/or securities (options, stock, restricted stock) dependent upon the
structure of the defined event. Prior to such an event, the holders of the
rights have no rights to exercise the
F-113
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
C. EQUITY INCENTIVE PLANS: (CONTINUED)
instruments. The Non-Member Rights are nontransferable, and will be forfeited
immediately upon an employee's departure from the Company prior to any defined
event.
<TABLE>
<CAPTION>
RANGE OF NUMBER OF
GRANT PRICES RIGHTS
-------------- -----------
<S> <C> <C>
Rights outstanding at December 31, 1998.......................... 313,500
Granted........................................................ $ 6.84-$7.58 8,950
Exercised...................................................... --
Canceled....................................................... $ 1.00-$2.85 (144,000)
-------------- -----------
Rights outstanding at March 31, 1999............................. 178,450
-----------
-----------
</TABLE>
The Non-Member Rights are considered compensatory equity instruments. As the
Non-Member Rights will be exercisable only upon the occurrence of a defined
event, compensation expense is deferred under fixed plan accounting. The date
the event is first considered likely to occur, a compensation charge for the
cumulative appreciation in the Non-Member Rights should be recognized. The
Company believes that the condition for recognition has been met and has
recognized $4,369,335 as a cost of services charge during 1999 for the
cumulative appreciation in the Non-Member Rights.
Compensation expense recognized during 1999 is equal to the increase in the
estimated fair market value of the Company's units since date of grant
multiplied by the total number of rights outstanding. The estimated fair market
value is based on the per share value to be received from the Luminant
transaction.
MEMBER APPRECIATION RIGHTS
The Company grants member appreciation rights ("Member Rights") to its
members on admission into the Company ownership and during the year based on
performance. The Member Rights vest ratably over a three-year period. The grant
price of each Member Right is equal to the estimated fair market value of each
member unit on the date of grant. Upon a defined event, such as an initial
public offering of stock or a sale of the Company, these Member Rights will be
converted into a new combination of cash and/or securities (options, stock,
restricted stock) dependent upon the structure of the defined event.
Prior to such an event, the holders of the rights have no rights to exercise
the instruments. The Member Rights are nontransferable, and will be forfeited
immediately upon a member's departure from the Company prior to any defined
event.
<TABLE>
<CAPTION>
RANGE OF NUMBER OF
GRANT PRICES RIGHTS
-------------- -----------
<S> <C> <C>
Rights outstanding at December 31, 1998.............................................. 33,716
Granted............................................................................ $ 6.50-$7.58 171,422
Exercised.......................................................................... --
Canceled........................................................................... --
-----------
Rights outstanding at March 31, 1999................................................. 205,138
-----------
-----------
</TABLE>
F-114
<PAGE>
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
C. EQUITY INCENTIVE PLANS: (CONTINUED)
The Member Rights are considered compensatory equity instruments. As the
vested Member Rights will be exercisable only upon the occurrence of a defined
event, compensation expense is deferred under fixed plan accounting. The date
the event is first considered likely to occur, a compensation charge for the
cumulative appreciation in the Member Rights should be recognized. The Company
believes that the condition for recognition has been met and has recognized
$592,768 cost of service charge during 1999 for the cumulative appreciation in
Member Rights. Compensation expense recognized during 1999 is equal to the
increase in the estimated fair market value of the Company's units since the
date of the grant multiplied by the total number of rights outstanding. The
estimated fair market value is based on the per share value to be received from
the Luminant transaction.
D. EQUITY:
Effective January 1, 1999, certain of the Company's members (the "Exiting
Members") dissolved their interest in the Company to form a new Limited
Liability Company called Potomac Venturers LLC. Their interest was dissolved by
the transfer of 45% of the aggregate net assets of the Company (approximately
$600,000) to the Exiting Members in exchange for the Exiting Members' units in
the Company. There is no co-ownership between the companies; however, they share
the same Advisory Board (as defined).
The Company and Potomac Ventures, LLC entered into a cross services
agreement during 1999, whereby the two companies agree to share certain
administrative services.
E. RELATED-PARTY TRANSACTIONS:
At March 31, 1999, the Company had a $86,249 interest-bearing note
receivable from one of its members. The note bears interest at 6% annually and
has a term of twelve months. The note relates to members' capital contributions
and has been recorded as an offset to members' equity.
F-115
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RSI Group, Inc.:
We have audited the accompanying consolidated balance sheets of RSI Group,
Inc. (a Texas S corporation) and subsidiaries as of December 31, 1997 and 1998,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RSI Group, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 8, 1999
F-116
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 13,726 $ 30,495 $ 31,117
Accounts receivable, net of allowance for doubtful accounts of
$129,978, $199,065, and $191,460 (unaudited).................... 2,880,383 3,147,714 2,294,438
Unbilled revenues................................................. 40,868 76,542 62,299
Employee and other receivables.................................... 83,860 58,047 104,253
Prepaid expenses and other........................................ 99,773 112,739 129,764
------------- ------------- -------------
Total current assets............................................ 3,118,610 3,425,537 2,621,871
PROPERTY AND EQUIPMENT, net......................................... 248,942 325,377 298,380
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,950, $38,250 and
$47,100 (unaudited)............................................. 67,671 36,967 28,117
Other............................................................. 97,549 148,280 160,744
------------- ------------- -------------
Total assets.................................................... $ 3,532,772 $ 3,936,161 $ 3,109,112
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, including cash overdraft of $299,751, $429,461,
and $270,960 (unaudited)........................................ $ 492,088 $ 540,866 $ 536,847
Accrued liabilities............................................... 254,403 279,997 577,946
Notes payable..................................................... 1,530,990 1,750,712 788,715
Current maturities of long-term debt.............................. 82,512 62,184 68,878
------------- ------------- -------------
Total current liabilities....................................... 2,359,993 2,633,759 1,972,386
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities......................... 6,693 36,259 15,546
------------- ------------- -------------
Total liabilities............................................... 2,366,686 2,670,018 1,987,932
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST................................................... 90,183 168,310 118,832
STOCKHOLDERS' EQUITY:
Common stock, voting: $.20 par value, 175,000 shares authorized
and issued, 162,351 shares outstanding as of 1997, 1998 and 1999
(unaudited)..................................................... 35,000 35,000 35,000
Additional paid-in capital........................................ 222,268 222,268 952,268
Retained earnings................................................. 1,026,028 1,047,958 222,473
Less--Treasury stock; at cost, 12,649 shares at 1997, 1998 and
1999 (unaudited)................................................ (207,393) (207,393) (207,393)
------------- ------------- -------------
Total stockholders' equity...................................... 1,075,903 1,097,833 1,002,348
------------- ------------- -------------
Total liabilities and stockholders' equity...................... $ 3,532,772 $ 3,936,161 $ 3,109,112
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-117
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
-------------- -------------- -------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES......................... $ 16,133,004 $ 15,723,685 $ 16,926,779 $ 4,337,584 $ 3,252,823
COST OF SERVICES................. 11,663,140 11,649,968 12,271,093 3,149,641 2,364,442
-------------- -------------- -------------- ------------- -------------
GROSS PROFIT..................... 4,469,864 4,073,717 4,655,686 1,187,943 888,381
SELLING, GENERAL AND
ADMINISTRATIVE................. 4,104,567 3,744,606 4,252,682 961,249 1,713,755
INTEREST EXPENSE................. 122,043 142,773 169,178 41,114 24,248
MINORITY INTEREST................ -- 108,767 161,896 33,181 (24,137)
-------------- -------------- -------------- ------------- -------------
NET INCOME (LOSS)................ $ 243,254 $ 77,571 $ 71,930 $ 152,399 $ (825,485)
-------------- -------------- -------------- ------------- -------------
-------------- -------------- -------------- ------------- -------------
PRO FORMA INCOME TAXES (BENEFIT)
(UNAUDITED).................... 87,109 27,716 28,477 60,335 (278,106)
-------------- -------------- -------------- ------------- -------------
PRO FORMA NET INCOME
(UNAUDITED).................... $ 156,145 $ 49,855 $ 43,453 $ 92,064 $ (547,379)
-------------- -------------- -------------- ------------- -------------
-------------- -------------- -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-118
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
--------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995.................................. $ 35,000 $ 50,083 $ 1,015,203 $ (196,370)
Purchase of treasury stock................................ -- -- -- (11,023)
Equity related compensation............................... -- 172,185 -- --
Dividends................................................. -- -- (90,000) --
Net income................................................ -- -- 243,254 --
--------- ----------- ------------- ------------
BALANCE, December 31, 1996.................................. 35,000 222,268 1,168,457 (207,393)
Dividends................................................. -- -- (220,000) --
Net income................................................ -- -- 77,571 --
--------- ----------- ------------- ------------
BALANCE, December 31, 1997.................................. 35,000 222,268 1,026,028 (207,393)
Dividends................................................. -- -- (50,000) --
Net income................................................ -- -- 71,930 --
--------- ----------- ------------- ------------
BALANCE, December 31, 1998.................................. 35,000 222,268 1,047,958 (207,393)
Equity related compensation (unaudited)................... -- 730,000 -- --
Net loss (unaudited)...................................... -- -- (825,485) --
--------- ----------- ------------- ------------
BALANCE, March 31, 1999 (unaudited)......................... $ 35,000 $ 952,268 $ 222,473 $ (207,393)
--------- ----------- ------------- ------------
--------- ----------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-119
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 243,254 $ 77,571 $ 71,930 $ 152,399 $ (825,485)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities-
Depreciation and amortization........... 56,754 84,884 158,148 39,538 40,689
Minority interest, net of payments
made.................................. -- 108,767 78,127 (26,784) (49,478)
Equity related compensation............. 172,185 -- -- -- 730,000
Changes in assets and liabilities-
Accounts receivable................... (270,359) (137,137) (267,331) (279,867) 853,276
Unbilled revenues..................... 13,364 (11,085) (35,674) 1,554 14,243
Employee and other receivables........ 8,969 (37,701) 25,813 12,320 (46,206)
Prepaid expenses and other............ (48,644) 30,276 (12,966) (8,981) (17,025)
Other assets.......................... (27,481) (47,186) (55,327) (12,362) (12,464)
Accounts payable, including cash
overdraft........................... 174,865 96,991 48,778 (44,138) (4,019)
Accrued liabilities................... 10,473 81,795 25,594 44,613 297,949
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities.............. 333,380 247,175 37,092 (121,708) 981,480
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................... (66,472) (178,754) (199,283) (68,767) (4,842)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) from notes payable,
net..................................... (59,548) 176,857 219,722 132,931 (961,997)
Proceeds from long-term debt.............. -- -- 124,403 81,543 --
Payments on long-term debt................ (64,260) (53,629) (115,165) (22,301) (14,019)
Purchases of treasury stock............... (11,023) -- -- -- --
Dividends................................. (90,000) (220,000) (50,000) -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities.............. (224,831) (96,772) 178,960 192,173 (976,016)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 42,077 (28,351) 16,769 1,698 622
CASH AND CASH EQUIVALENTS, beginning of
period.................................... -- 42,077 13,726 13,726 30,495
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.... $ 42,077 $ 13,726 $ 30,495 $ 15,424 $ 31,117
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest.................... $ 122,043 $ 130,773 $ 170,229 $ 12,958 $ 35,197
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-120
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
RSI Group, Inc. (the "Company") is a professional data processing services
company incorporated in the State of Texas on October 26, 1984. The primary
activity of the Company is to provide data processing personnel to other
companies on a consulting and contract staffing basis. The Company is an S
corporation for federal income tax purposes and, accordingly, acts as a
flow-through entity for the Company's stockholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. At December 31, 1998, the Company owns 80% of
a Texas limited liability company, Resource Solutions International ("RSI")
East, LLC, and has three other wholly owned subsidiaries.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the assets' estimated useful lives. The costs and
related accumulated depreciation of property and equipment sold, retired, or
disposed of are removed from the accounts and any gains or losses reflected in
the consolidated statements of operations. Repair and maintenance costs that do
not extend the useful life of the asset are charged to expense as incurred.
GOODWILL
Goodwill represents the excess of the aggregate consideration paid by the
Company in excess of the carrying value of the minority interests acquired.
Goodwill is amortized on a straight-line basis over two years. Amortization
expense totaled $2,950 and $35,300 in 1997 and 1998, respectively.
INCOME TAXES
As an S corporation, the Company pays no federal income tax, but rather the
stockholders are taxed individually on the Company's taxable income or loss.
Accordingly, no provision for federal income tax is reflected in the
accompanying consolidated financial statements.
The unaudited pro forma federal income tax information included in the
accompanying consolidated statements of operations reflect estimates of the
Company's tax provision as if it had been a C corporation in fiscal years 1996,
1997, and 1998.
F-121
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
MINORITY INTEREST
Minority interest represents the accumulated undistributed earnings
attributable to the minority owners of consolidated subsidiaries.
REVENUE RECOGNITION
Revenue for professional services is recognized at the time such services
are rendered.
COST OF SERVICES
Cost of services are comprised primarily of salaries, employee benefits, and
incentive compensation of billable employees.
ACCOUNTING FOR EQUITY BASED COMPENSATION
The Company has granted minority interests in its consolidated subsidiaries
to certain management personnel. At the time of grant, the Company recorded
compensation expense for the fair value of the minority interest with
corresponding credits to additional paid-in capital. In addition, in 1996 the
Company had an equity participation plan, which has been replaced with the
minority interest participation discussed above. Compensation expense was
recorded in 1996 for the appreciation in equity value under this plan.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to their relative short maturity and/or their variable interest
rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS No. 130"), "REPORTING
COMPREHENSIVE INCOME," which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
F-122
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT CUSTOMERS:
During 1996, sales to two customers accounted for 21% and 18% of revenues.
During 1997, sales to three customers accounted for 28%, 17%, and 10% of
revenues. During 1998, sales to two customers accounted for 34% and 13% of
revenues.
As of December 31, 1998, two customers accounted for approximately 39% and
11% of trade accounts receivable.
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
------ ------------ ------------
<S> <C> <C> <C>
Computers and equipment...................................................... 3 $ 366,261 $ 544,743
Furniture and fixtures....................................................... 5 356,511 377,312
------------ ------------
722,772 922,055
Less- Accumulated depreciation............................................... (473,830) (596,678)
------------ ------------
Property and equipment, net........................................... $ 248,942 $ 325,377
------------ ------------
------------ ------------
</TABLE>
Depreciation expense during 1996, 1997, and 1998 was $56,754, $81,934, and
$122,848, respectively.
5. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Accrued vacation.................................................... $ 153,851 $ 184,076
Other............................................................... 100,552 95,921
----------- -----------
Accrued liabilities........................................... $ 254,403 $ 279,997
----------- -----------
----------- -----------
</TABLE>
6. DEBT:
The Company's note payable consists of a bank line of credit, in the amount
of $2,400,000, upon which $1,530,990 and $1,750,712 was drawn at December 31,
1997 and 1998. The line of credit is renewable annually on June 15, and contains
several restrictive covenants, the most restrictive of which requires the
Company to maintain certain financial ratios related to total debt, tangible net
worth, and working capital. At December 31, 1998, the Company was in compliance
with or had obtained waivers for all debt covenants. Management believes that
the Company will be able to refinance the line of credit under similar terms.
Advances on the line of credit are limited to 75% of the accounts receivable
that are less than 90 days past the invoice date, and are secured by accounts
receivable and other assets of the Company. Certain stockholders have guaranteed
the line of credit. Interest is payable monthly at 1.25% above prime, or 9.0% at
December 31, 1998. Commitment fees of one-half of one percent (.5%) per annum of
the average unused line of credit for the preceding quarter are paid quarterly.
F-123
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT: (CONTINUED)
The Company's long-term debt consists of a term loan from a bank and debt
payable to former minority interest holder. The term loan was obtained on July
8, 1998, to finance certain equipment and furniture purchases. The note is
secured by all equipment and furniture owned by the Company and is guaranteed by
certain stockholders. Principle and interest is payable monthly with the final
payment due on July 8, 2000. Interest is at 1.25% above prime, or 9.0% at
December 31, 1998.
Debt related to the former minority interest holder originated on November
30, 1997, in connection with the repurchase of a minority interest in a
subsidiary by the Company. The debt was non-interest bearing and was paid in
1998.
Debt at December 31, 1997 and 1998, are comprised of the following:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Term loan.............................................................. $ -- $ 98,443
Loan from former minority interest holder.............................. 89,205 --
--------- ---------
Total debt....................................................... 89,205 98,443
Less- Current maturities............................................... (82,512) (62,184)
--------- ---------
Long-term debt................................................... $ 6,693 $ 36,259
--------- ---------
--------- ---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
The Company maintains a defined contribution retirement plan for employees
who have at least one year of continuous service. The Plan entitles employees to
make pre-tax contributions to the Plan and the Company to make contributions at
the discretion of the Board of Directors. No Company contributions were made in
1996, 1997, or 1998.
The Company leases office space and equipment under several different
operating lease arrangements for terms ranging from one to five years. At
December 31, 1998, the Company was committed under noncancelable operating
leases which extend beyond 1998 as follows:
<TABLE>
<S> <C>
1999............................................................. $ 230,298
2000............................................................. 173,088
2001............................................................. 69,345
2002............................................................. 40,337
2003............................................................. 25,496
Thereafter....................................................... --
---------
Total future minimum lease payments.............................. $ 538,564
---------
---------
</TABLE>
Rental expense related to operating leases was $192,238, $272,567, and
$295,351 in 1996, 1997, and 1998, respectively.
In the ordinary course of business the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on the financial position or results of operations.
F-124
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY INCENTIVE PLANS:
During 1996, certain management personnel participated in the Company's
Equity Sharing Unit Plan (the "Equity Plan"). Under the Equity Plan employees
were given the opportunity to participate in the earnings and appreciation of
the Company through periodic cash distributions and increases in the value of
their equity units. In 1996, the Company recorded expense related to the plan of
$273,435. The non-cash portion of this expense related to the appreciation of
the equity units was recorded as a credit to additional paid-in capital. The
Equity Plan was terminated on December 31, 1996, and the participants exchanged
their units in the Equity Plan for minority interests in the Company's
subsidiaries.
In 1997, the Company reacquired certain minority interests in exchange for a
loan payable in the amount of $89,205. In 1998, the Company reacquired certain
minority interests for $7,400.
9. SUBSEQUENT EVENT:
In January 1999, the Company merged all of its subsidiaries into a single
legal entity and provided a minority shareholder and employee with a 20%
interest in the resulting subsidiary. The Company recorded compensation expense
of approximately $730,000 related to this event in 1999. Concurrent with the
minority interest grant, the buyout provisions of the minority interest
agreement were amended such that upon a sale of the Company, the minority owner
will exchange his minority interest for 20% of the sale proceeds.
10. AGREEMENT TO MERGE WITH LUMINANT:
The Company intends to enter into an agreement to be acquired by Luminant.
This acquisition is subject to the successful completion of an initial public
offering of the common stock of Luminant.
F-125
<PAGE>
RSI GROUP, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to and Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition as of March 31, 1999, the results of its operations and its cash flows
for the three-month periods ended March 31, 1998 and 1999. These financial
statements should be read in conjunction with the Company's audited 1998
financial statements, including the notes thereto. Operating results for the
three-month period ended March 31, 1999, are not necessarily indicative of the
operating results that may be expected for the year ending December 31, 1999.
B. DEBT:
The Company's note payable consists of a bank line of credit, in the amount
of $2,400,000, upon which $788,715 was drawn at March 31, 1999. The line of
credit is renewable annually on June 15, and contains several restrictive
covenants, the most restrictive of which requires the Company to maintain
certain financial ratios related to total debt, tangible net worth, and working
capital. At March 31, 1999, the Company was in compliance with or had obtained
waivers for all debt covenants. Management believes that the Company will be
able to refinance the line of credit under similar terms. Advances on the line
of credit are limited to 75% of the accounts receivable that are less than 90
days past the invoice date, and are secured by accounts receivable and other
assets of the Company. Certain stockholders have guaranteed the line of credit.
Interest is payable monthly at 1.25% above prime, or 9.0% at March 31, 1999.
Commitment fees of one-half of one percent (.5%) per annum of the average unused
line of credit for the preceding quarter are paid quarterly.
C. EQUITY INCENTIVE PLANS:
In January 1999, the Company merged all of its subsidiaries into a single
legal entity and provided a minority shareholder and employee with a 20%
interest in the resulting subsidiary. The Company recorded compensation expense
of approximately $730,000 related to this event in 1999. Concurrent with the
minority interest grant, the buyout provisions of the minority interest
agreement were amended such that upon a sale of the Company, the minority owner
will exchange his minority interest for 20% of the sale proceeds.
F-126
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Fifth Gear Media Corporation:
We have audited the accompanying balance sheets of Fifth Gear Media
Corporation (a Delaware corporation) as of December 31, 1997 and 1998, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fifth Gear Media Corporation
as of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 21, 1999
F-127
<PAGE>
FIFTH GEAR MEDIA CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 22,796 $ 153,031 $ 142,597
Accounts receivable, net of allowance for doubtful accounts of $5,694,
$12,283, and $12,283 (unaudited)...................................... 39,074 202,120 127,398
Deferred income taxes................................................... 1,936 4,176 9,196
----------- ----------- ------------
Total current assets................................................ 63,806 359,327 279,191
PROPERTY AND EQUIPMENT, net............................................... 22,649 77,723 90,696
DEFERRED INCOME TAXES..................................................... 19,641 -- --
OTHER ASSETS.............................................................. 3,004 3,020 9,500
----------- ----------- ------------
Total assets........................................................ $ 109,100 $ 440,070 $ 379,387
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................ $ 535 $ 2,692 $ 25,253
Customer deposits....................................................... 12,000 -- --
Accrued liabilities..................................................... 27,837 168,927 103,130
Current portion of long-term debt....................................... 98,662 59,070 56,651
----------- ----------- ------------
Total current liabilities........................................... 139,034 230,689 185,034
LONG-TERM DEBT, net of current portion.................................... -- 83,214 77,932
DEFERRED INCOME TAXES..................................................... -- 10,818 10,818
----------- ----------- ------------
Total liabilities................................................... 139,034 324,721 273,784
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock: $.001 par value, 5,000,000 shares authorized, 1,942,293
shares issued and outstanding as of December 31, 1997 and 1998........ 1,942 1,942 1,942
Retained (deficit) earnings............................................. (31,876) 113,407 103,661
----------- ----------- ------------
Total liabilities and stockholders' equity.......................... $ 109,100 $ 440,070 $ 379,387
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-128
<PAGE>
FIFTH GEAR MEDIA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ------------------------
1997 1998 1998 1999
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
REVENUES................................................... $ 289,450 $ 1,226,989 $ 262,560 $ 277,051
COST OF SERVICES........................................... 138,784 602,572 114,628 204,142
----------- ------------- ----------- -----------
GROSS PROFIT............................................... 150,666 624,417 147,932 72,909
SELLING, GENERAL AND ADMINISTRATIVE........................ 127,012 401,688 74,723 89,534
OTHER INCOME (EXPENSE):
Interest expense......................................... (6,077) (6,103) (1,441) (3,036)
Interest income.......................................... -- -- -- 1,201
Other income............................................. -- -- -- 3,694
----------- ------------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.......................... 17,577 216,626 71,768 (14,766)
INCOME TAXES............................................... 5,994 71,343 24,401 (5,020)
----------- ------------- ----------- -----------
NET INCOME (LOSS).......................................... $ 11,583 $ 145,283 $ 47,367 $ (9,746)
----------- ------------- ----------- -----------
----------- ------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-129
<PAGE>
FIFTH GEAR MEDIA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- RETAINED
NUMBER OF (DEFICIT)
SHARES PAR VALUE EARNINGS
------------ ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1996................................................. 1,899,901 $ 1,900 $ (43,459)
Issuance of stock........................................................ 42,392 42 --
Net income............................................................... -- -- 11,583
------------ ----------- -----------
BALANCE, December 31, 1997................................................. 1,942,293 1,942 (31,876)
Net income............................................................... -- -- 145,283
------------ ----------- -----------
BALANCE, December 31, 1998................................................. 1,942,293 1,942 113,407
Net loss (unaudited)..................................................... -- -- (9,746)
------------ ----------- -----------
BALANCE, March 31, 1999 (unaudited)........................................ 1,942,293 $ 1,942 $ 103,661
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<PAGE>
FIFTH GEAR MEDIA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ -----------------------
1997 1998 1998 1999
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 11,583 $ 145,283 $ 47,367 $ (9,746)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation........................................... 5,320 25,460 6,365 5,168
Deferred income taxes.................................. 5,994 28,219 -- (5,020)
Changes in assets and liabilities--
Accounts receivable.................................. (39,074) (163,046) (54,828) 74,722
Other assets......................................... (3,004) (16) (1,045) (6,480)
Accounts payable..................................... 535 2,157 6,770 22,561
Customer deposits.................................... 12,000 (12,000) (12,000) --
Accrued liabilities.................................. 21,691 141,090 80,064 (65,797)
---------- ------------ ---------- -----------
Net cash provided by operating activities............ 15,045 167,147 72,693 15,408
---------- ------------ ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (19,687) (80,534) (34,805) (18,141)
---------- ------------ ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock................................. 42 -- -- --
Payments on long-term debt................................. (19,737) (56,378) (21,531) (7,701)
Proceeds from long-term debt............................... 14,000 100,000 -- --
---------- ------------ ---------- -----------
Net cash (used in) provided by financing
activities......................................... (5,695) 43,622 (21,531) (7,701)
---------- ------------ ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (10,337) 130,235 16,357 (10,434)
CASH AND CASH EQUIVALENTS, beginning of period............... 33,133 22,796 22,796 153,031
---------- ------------ ---------- -----------
CASH AND CASH EQUIVALENTS, end of period..................... $ 22,796 $ 153,031 $ 39,153 $ 142,597
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes................................. $ -- $ 7,500 $ -- $ --
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
Cash paid for interest..................................... $ 8,546 $ 6,103 $ 1,441 $ 3,036
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-131
<PAGE>
FIFTH GEAR MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Fifth Gear Media Corporation (the "Company"), a Delaware corporation, was
organized effective May 17, 1995. Using the Internet as its primary platform,
the Company designs, develops, and maintains complex electronic commerce
websites. The areas of focus include business-to-consumer and
business-to-business applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. The
costs and related accumulated depreciation of property and equipment sold,
retired, or disposed of are removed from the accounts and any gains or losses
reflected in the statement of operations. Expenditures for major acquisitions
and improvements are capitalized while expenditures for maintenance repairs are
expensed as incurred.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach which
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated.
REVENUE RECOGNITION
Revenues are recognized for time and materials based arrangements as
services are performed and fixed fee arrangements on the
percentage-of-completion method. Under this approach, revenues are recognized as
the work is performed, based on the ratio of costs incurred to total estimated
costs. Customer deposits represent the amount of customer payments received in
advance of services being performed.
COST OF SERVICES
Cost of services are comprised primarily of salaries, employee benefits, and
incentive compensation of billable employees, and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
ACCOUNTING FOR STOCK BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows either adoption of a fair value
based method of accounting for stock-based compensation or
F-132
<PAGE>
FIFTH GEAR MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
continuation under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). The Company has chosen to account for
stock-based compensation using the intrinsic value based method prescribed in
APB 25 and provide the pro forma disclosure provision of SFAS 123. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market value of the Company's stock over the exercise price at the date of
the grant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to their relative short maturity and/or their variable interest
rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130") "Reporting Comprehensive
Income," which is required to be adopted in the period ended December 31, 1998.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements, and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
3. SIGNIFICANT CUSTOMERS:
During the year ended December 31, 1997, sales to three customers accounted
for approximately 53%, 21%, and 11% of revenues. During the year ended December
31, 1998, sales to one customer accounted for approximately 67% of revenues.
As of December 31, 1998, accounts receivable from two customers accounted
for 70% and 14% of accounts receivable.
F-133
<PAGE>
FIFTH GEAR MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
----------- --------- -----------
<S> <C> <C> <C>
Computers and equipment..................................... 3-5 $ 27,414 $ 105,808
Furniture and fixtures...................................... 5 1,623 3,763
--------- -----------
29,037 109,571
Less-- Accumulated depreciation............................. (6,388) (31,848)
--------- -----------
Property and equipment, net............................. $ 22,649 $ 77,723
--------- -----------
--------- -----------
</TABLE>
Depreciation expense was $5,320 and $25,460 for the years ended December 31,
1997 and 1998.
5. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Payroll tax payable.................................................. $ 4,517 $ 14,631
Sales tax payable.................................................... 2,603 18,688
Employee payable..................................................... 10,397 49,632
Accrued payroll...................................................... -- 35,273
Accrued bonuses...................................................... -- 10,213
Other................................................................ 10,320 40,490
--------- -----------
Total accrued liabilities........................................ $ 27,837 $ 168,927
--------- -----------
--------- -----------
</TABLE>
6. DEBT:
Long-term debt is comprised of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- -----------
<S> <C> <C>
Note payable to a stockholder, bearing interest at 6%, due on
demand............................................................ $ 98,662 $ 43,444
Note payable to a bank bearing interest at prime plus 1.25%, (9% at
December 31,1998) payable in monthly installments of principal and
interest of $2,085, maturing December 2003; secured by personal
guaranty of the majority owner.................................... -- 98,840
---------- -----------
98,662 142,284
Less-- Current maturities........................................... (98,662) (59,070)
---------- -----------
Long-term debt...................................................... $ -- $ 83,214
---------- -----------
---------- -----------
</TABLE>
F-134
<PAGE>
FIFTH GEAR MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. DEBT: (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ---------------------------------------------------------------------------------
<S> <C>
1999............................................................................. $ 59,070
2000............................................................................. 18,404
2001............................................................................. 20,130
2002............................................................................. 22,019
2003............................................................................. 22,661
-----------
Total............................................................................ $ 142,284
-----------
-----------
</TABLE>
Total interest expense on the debt obligations was $6,077 and $6,103 for the
years ended December 31, 1997 and 1998, respectively.
7. INCOME TAXES:
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Current................................................................. $ -- $ 43,124
Deferred................................................................ 5,994 28,219
--------- ---------
Total current and deferred.............................................. $ 5,994 $ 71,343
--------- ---------
--------- ---------
</TABLE>
The Company's effective tax rate is equivalent to the statutory tax rate.
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1997 and 1998, are shown below:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Deferred tax assets--
Bad debt reserve.................................................... $ 1,936 $ 4,176
Net operating loss carryforward..................................... 19,641 --
--------- ----------
Total deferred tax assets............................................. 21,577 4,176
Deferred tax liabilities--
Tax depreciation in excess of book.................................. -- (10,818)
--------- ----------
Net deferred tax assets (liabilities)................................. $ 21,577 $ (6,642)
--------- ----------
--------- ----------
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facility under a noncancelable operating lease
which expires in September 1999. The Company also has operating lease agreements
related to certain
F-135
<PAGE>
FIFTH GEAR MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
equipment which expire at various dates. Rent expense for the years ended
December 1997 and 1998, totaled $18,968 and $46,603, respectively. Future
minimum lease payments are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999.............................................................................. $ 45,741
2000.............................................................................. 19,362
2001.............................................................................. 10,182
2002.............................................................................. 3,366
2003.............................................................................. 1,964
Thereafter........................................................................ --
-----------
Total minimum lease payments...................................................... $ 80,615
-----------
-----------
</TABLE>
In the ordinary course of business, the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on the Company's financial condition or results of operations.
9. EQUITY INCENTIVE PLAN:
Effective January 1, 1998, the Company authorized the Board of Directors to
grant incentive options to purchase common stock of the Company. The Board of
Directors determines the number of stock options to be granted, the exercise or
purchase price, vesting schedule, and expiration date of such options.
The exercise price of options qualifying as Incentive Stock Options under
Section 422 of the Internal Revenue Code may not be less than the grant date
fair market value of the common stock. Incentive Stock Options granted to any
10% stockholder may not be less than 110% of the grant date fair market value of
the common stock. Stock options granted during 1998, are immediately exercisable
and have a maximum term of ten years from the date of grant, subject to earlier
termination following the optionee's cessation of service with the Company.
Shares purchased under each option shall be subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in those shares. Such repurchase rights
shall lapse as the options vest over a specified period up to four years. No
options were granted prior to January 1, 1998.
Options outstanding at December 31, 1997 and 1998, were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE
SHARES PER SHARE EXERCISE PRICE
----------- -------------- ---------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1997..... -- $ -- $ --
Granted.................................... 479,925 .001-.11 .09
Exercised.................................. -- -- --
Canceled................................... (20,000) .04 .04
-----------
Options outstanding at December 31, 1998..... 459,925 $ .09
-----------
-----------
</TABLE>
F-136
<PAGE>
FIFTH GEAR MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. EQUITY INCENTIVE PLAN: (CONTINUED)
The following is summary information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED WEIGHTED OPTIONS VESTED
AVERAGE AVERAGE ---------------------------
NUMBER OF REMAINING EXERCISE NUMBER OF
EXERCISE PRICES SHARES CONTRACT LIFE PRICE SHARES EXERCISE PRICE
- --------------- ----------- ------------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
.001-.11 459,925 5 $ .09 201,300 .02-.11
</TABLE>
Pro forma information regarding net income has been determined as if the
Company accounted for its stock options under the fair value method of SFAS 123.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions: an
exercisable event occurring in five years; risk-free interest rates ranging from
4.66% to 5.66%; dividend yield of 0%; a volatility factor of zero; and a
weighted average expected life of five years. The average fair value at date of
grant for options granted during the year ended December 31, 1998, was $0.02 per
option.
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the date of grant consistent with SFAS 123, the
Company's net income would have been as follows:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Net income--as reported.............................................. $ 11,583 $ 145,283
Net income--pro forma................................................ $ 11,583 $ 142,101
</TABLE>
11. RELATED-PARTY TRANSACTIONS:
The Company has notes payable with a stockholder totaling $98,662 and
$43,444 as of December 31, 1997 and 1998.
12. AGREEMENT TO MERGE WITH ALIGN SOLUTIONS CORP.:
The Company has signed a letter of intent to merge with Align Solutions
Corp.
F-137
<PAGE>
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition as of March 31, 1999, the results of its operations and its cash flows
for the three-month periods ended March 31, 1999 and 1998, and the results of
its cash flows for the three months ended March 31, 1999 and 1998. These
financial statements should be read in conjunction with the Company's audited
1998 and 1997 financial statements, including the notes thereto. Operating
results for the three-month period ended March 31, 1999, are not necessarily
indicative of the operating results that may be expected for the year ending
December 31, 1999.
F-138
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To inmedia, inc.:
We have audited the accompanying balance sheets of inmedia, inc. (a Texas
corporation) as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of inmedia, inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
is in default on a significant portion of its debt and has a net capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 12. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 21, 1999 (except with respect to
the matter discussed in Note 12, as
to which the date is May 27, 1999)
F-139
<PAGE>
INMEDIA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------ MARCH 31,
1999
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 13,377 $ -- $ --
Accounts receivable................................................... 189,103 177,179 125,047
Unbilled revenue...................................................... -- 14,180 10,416
Prepaid expenses and other............................................ -- 24,868 5,090
------------ ------------ ------------
Total current assets................................................ 202,480 216,227 140,553
PROPERTY AND EQUIPMENT, net............................................. 93,924 84,266 73,027
OTHER ASSETS............................................................ 4,169 11,851 11,651
------------ ------------ ------------
Total assets........................................................ $ 300,573 $ 312,344 $ 225,231
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, including cash overdraft of $0, $25,700, and $35,600
(unaudited)......................................................... $ 64,418 $ 230,010 $ 217,790
Accrued liabilities................................................... 57,194 103,992 108,450
Customer deposits..................................................... 99,005 250,938 264,641
Current maturities of long-term debt.................................. 383,250 456,358 553,046
------------ ------------ ------------
Total current liabilities........................................... 603,867 1,041,298 1,143,927
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities............................. 88,801 5,712 93
------------ ------------ ------------
Total liabilities................................................... 692,668 1,047,010 1,144,020
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock; no par value, 1,000,000 shares authorized, 787,032,
787,032, and 790,032, shares issued and outstanding as of 1997,
1998, and 1999...................................................... 1,000 1,000 2,500
Additional paid-in capital............................................ -- -- 30,000
Retained deficit...................................................... (393,095) (735,666) (951,289)
------------ ------------ ------------
Total stockholders' equity.......................................... (392,095) (734,666) (918,789)
------------ ------------ ------------
Total liabilities and stockholders' equity.......................... $ 300,573 $ 312,344 $ 225,231
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-140
<PAGE>
INMEDIA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- -------------------------
1997 1998 1998 1999
------------- ------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................................ $ 1,531,561 $ 1,194,961 $ 448,746 $ 154,164
COST OF SERVICES........................................ 1,283,810 943,027 252,476 205,921
------------- ------------- ----------- ------------
GROSS PROFIT............................................ 247,751 251,934 196,270 (51,757)
SELLING, GENERAL AND ADMINISTRATIVE..................... 464,649 511,785 122,673 145,132
OTHER INCOME (EXPENSE):
Interest income....................................... 4 99 93 2,524
Interest expense...................................... (82,943) (82,906) (17,812) (21,258)
Other income.......................................... 51 87 -- --
------------- ------------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES....................... (299,786) (342,571) 55,878 (215,623)
INCOME TAXES............................................ -- -- -- --
------------- ------------- ----------- ------------
NET INCOME (LOSS)....................................... $ (299,786) $ (342,571) $ 55,878 $ (215,623)
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-141
<PAGE>
INMEDIA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996....................................... 787,032 $ 1,000 $ -- $ (93,309)
Net loss....................................................... -- -- -- (299,786)
--------- --------- ----------- ------------
BALANCE, December 31, 1997....................................... 787,032 1,000 -- (393,095)
Net loss....................................................... -- -- -- (342,571)
--------- --------- ----------- ------------
BALANCE, December 31, 1998....................................... 787,032 1,000 -- (735,666)
Issuance of common stock (unaudited)........................... 3,000 1,500 -- --
Equity related compensation (unaudited)........................ -- -- 30,000 --
Net loss (unaudited)........................................... -- -- -- (215,623)
--------- --------- ----------- ------------
BALANCE, March 31, 1999 (unaudited).............................. 790,032 $ 2,500 $ 30,000 $ (951,289)
--------- --------- ----------- ------------
--------- --------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-142
<PAGE>
INMEDIA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $(299,786) $(342,571) $ 55,878 $(215,623)
Depreciation and amortization................. 62,086 44,957 11,239 11,239
Equity related compensation................... -- -- -- 30,000
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating
activities--
Changes in assets and liabilities--
Accounts receivable....................... (69,325) 11,924 (97,468) 52,132
Unbilled revenue.......................... -- (14,180) (4,496) 3,764
Prepaid expenses and other................ -- (24,868) (5,867) 19,778
Other assets.............................. (1,503) (7,682) (107) 200
Accounts payable, including cash
overdraft............................... 49,842 165,592 9,111 (12,220)
Accrued liabilities....................... (1,594) 46,798 12,339 4,458
Customer deposits......................... 49,905 151,933 24,255 13,703
--------- --------- --------- ---------
Net cash (used in) provided by operating
activities.............................. (210,375) 31,903 4,884 (92,569)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (33,721) (35,299) (5,569) --
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.................. 142,509 69,954 -- 97,880
Payments on long-term debt.................... (15,066) (79,935) (12,692) (6,811)
Proceeds from issuance of common stock........ -- -- -- 1,500
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities.............................. 127,443 (9,981) (12,692) 92,569
--------- --------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS....... (116,653) (13,377) (13,377) --
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 130,030 13,377 13,377 --
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period........ $ 13,377 $ -- $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
SUPPLEMENTAL INFORMATION:
Cash paid for interest........................ $ 78,684 $ 74,188 $ 12,383 $ 2,806
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-143
<PAGE>
INMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
inmedia, inc. (the "Company") specializes in electronic marketing on the
Internet. The Company is a full service developer of Internet and intranet
sites, offering services in three areas: website design, promotion, and
training. The Company was incorporated in the state of Texas in November 1992.
2. GOING CONCERN MATTERS:
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the years ended December 31, 1997 and 1998, the Company
incurred losses of $299,786 and $342,571, respectively, and is in default on a
significant portion of its debt. These factors among others indicate that the
Company may be unable to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. As described in Note 7,
the Company is currently in default of its installment note payable. As a result
of the default, the Company has classified the balance of its installment note
payable ($413,343 at December 31, 1998) as a current liability.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the assets. The costs
and related accumulated depreciation of property and equipment sold, retired, or
disposed of are removed from the accounts and any gains or losses reflected in
the statements of operations. Expenditures for major acquisitions and
improvements are capitalized while expenditures for maintenance and repair costs
are expensed as incurred.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets is based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.
F-144
<PAGE>
INMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized for time and materials-based arrangements as
services are performed and fixed fee arrangements on the
percentage-of-completion method. Under this approach, revenues and gross profit
are recognized as the work is performed, based on the ratio of costs incurred to
total estimated costs. Unbilled revenues on contracts are comprised of labor
costs incurred, plus earnings on certain contracts which have not been billed.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Customer deposits represent the amount of
customer payments received in advance of services being performed.
COST OF SERVICES
Cost of services is comprised primarily of salaries, employee benefits, and
incentive compensation of billable employees, and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
ACCOUNTING FOR STOCK BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows either adoption of a fair value
based method of accounting for stock-based compensation or continuation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company has chosen to account for stock-based
compensation using the intrinsic value based method prescribed in APB 25 and
provides the pro forma disclosure provision of SFAS 123. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market value of the Company's stock over the exercise price at the date of
the grant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to their relative short maturity and/or their variable interest
rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS 130"), "Reporting Comprehensive
Income" which is required to be adopted in the period ended December 31, 1998.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements, and (b)
display the accumulated balance of other comprehensive income separately
F-145
<PAGE>
INMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
4. SIGNIFICANT CUSTOMERS:
During the year ended December 31, 1997, sales to three customers accounted
for approximately 14%, 14%, and 11% of revenues. During the year ended December
31, 1998, sales to four customers accounted for approximately 35%, 24%, 18%, and
10% of revenues. As of December 31, 1998, accounts receivable from two customers
accounted for approximately 41% and 28% of accounts receivable.
5. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
------ ------------ ------------
<S> <C> <C> <C>
Computers and equipment.................................. 3 $ 216,938 $ 239,873
Furniture and fixtures................................... 5 13,235 14,025
Leasehold improvements................................... 5 -- 11,574
------------ ------------
230,173 265,472
Less- Accumulated depreciation........................... (136,249) (181,206)
------------ ------------
Property and equipment, net.............................. $ 93,924 $ 84,266
------------ ------------
------------ ------------
</TABLE>
Depreciation expense was $62,086 and $44,957 for the periods ended December
31, 1997 and 1998.
6. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Accrued sales tax.................................................... $ 57,194 $ 67,980
Accrued salaries..................................................... -- 36,012
--------- -----------
Accrued liabilities.................................................. $ 57,194 $ 103,992
--------- -----------
--------- -----------
</TABLE>
7. DEBT:
The Company has an installment note with equal installment payments due each
month. All interest on the note is accrued and capitalized into the note
balance. As of December 31, 1998, the Company has not made the required monthly
payments and is currently in default of this loan. As a result of the default,
the Company has classified the balance of its installment note payable as a
current liability.
Additionally, the Company has a term loan, amount not to exceed $70,000,
from a bank with interest at 1% over the bank's borrowing rate (9.25% at
December 31, 1998), not to exceed
F-146
<PAGE>
INMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DEBT: (CONTINUED)
10%. The loan has a maturity of October 1, 1999, is secured by accounts
receivable of the Company, and is guaranteed by certain stockholders.
Debt at December 31, 1997 and 1998, is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Installment note, bearing interest at 16%, payable in monthly installments of $8,089,
maturing January 1, 2001, secured by all assets of the Company and guaranteed by
certain stockholders................................................................ $ 343,889 $ 413,343
Loan from a related party, bearing interest at 18%, due on demand and guaranteed by
certain stockholders................................................................ 20,117 20,617
Term loan............................................................................. 65,467 4,776
Equipment financing, bearing interest at rates ranging from 13% to 16%, payable in
monthly installments ranging from $85 to $485, maturing January 1999 through January
2001, secured by certain equipment.................................................. 42,578 23,334
------------ ------------
472,051 462,070
Less--Current maturities.............................................................. (383,250) (456,358)
------------ ------------
Long-term debt........................................................................ $ 88,801 $ 5,712
------------ ------------
------------ ------------
</TABLE>
Maturities on long-term debt at December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 456,358
2000............................................................. 5,619
2001............................................................. 93
2002............................................................. --
2003............................................................. --
---------
$ 462,070
---------
---------
</TABLE>
8. INCOME TAXES:
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to the effective income tax is
as follows:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Tax at U.S. statutory rates.................................................. (35)% (35 )%
Meals and entertainment...................................................... 1% 1%
Net operating loss carryforward.............................................. 34% 34%
-- --
Effective income tax rate.................................................... --% --%
-- --
-- --
</TABLE>
F-147
<PAGE>
INMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES: (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1997 and 1998, are shown below.
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets--
Net operating loss carryforward................................. $ 114,576 $ 102,646
Accrual to cash difference...................................... 9,571 124,902
------------ ------------
Total deferred tax assets......................................... 124,147 227,548
Valuation allowance............................................... (124,147) (227,548)
------------ ------------
Net deferred tax assets........................................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
The Company's net operating loss carryforward expires in years 2010 through
2018.
Management periodically reviews the expected realization of the Company's
deferred tax assets and records a valuation allowance, as appropriate, when
existing conditions impact the probability of ultimate realization of the
deferred tax asset. Due to the Company's recurring losses before income taxes,
management believes it is more likely than not that the Company will not realize
the net deferred tax asset. Accordingly, the Company has recorded a valuation
allowance to reflect uncertainties associated with the ultimate realization of
certain deferred tax assets.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facility under a noncancelable operating lease
which expires in November 2003. The lease requires the payment of property
taxes, insurance, and maintenance. The Company also has operating lease
agreements related to certain equipment which expire at various dates. Future
minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999............................................................................. $ 108,189
2000............................................................................. 108,189
2001............................................................................. 106,935
2002............................................................................. 100,669
2003............................................................................. 83,891
Thereafter....................................................................... --
-----------
$ 507,873
-----------
-----------
</TABLE>
Rent expense for the years ended 1997 and 1998 totaled $49,580 and $57,855,
respectively.
In the ordinary course of business, the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on the Company's financial condition or results of operations.
F-148
<PAGE>
INMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. EQUITY INCENTIVE PLANS:
Effective May 9, 1996, the Company approved the inmedia, inc. Stock
Compensation Plan (the "Plan") authorizing the Board of Directors to grant
incentive or nonqualified options to purchase common stock of the Company. The
Board of Directors has authorized shares to be issued under the Plan. The Plan
is administered by the Board of Directors, which determines the number of stock
options to be granted, the exercise or purchase price, exercise schedule, and
expiration date of such options.
The exercise price of options qualifying as incentive stock options under
Section 422 of the Internal Revenue Code may not be less than the grant date
fair market value of the common stock. Incentive stock options granted to any
10% stockholder may not be less than 110% of the fair market value of the common
stock on the grant date. Stock options granted under the Plan are
nontransferable and generally expire ten years after the date of grant. Upon the
event that all of the outstanding shares of common stock of the Company are
acquired by an unrelated party, the optionee's exercise schedule shall be
accelerated to provide that optionee with exercisability of 100% of the options
granted. All options granted become exercisable over a four-year period of
continued employment.
Options outstanding at December 31, 1997 and 1998, were as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ---------------------
<S> <C> <C>
Options outstanding at December 31, 1996..................... 80,000 $ .50
Granted.................................................... 40,000 .50
Exercised.................................................. -- --
Canceled................................................... -- --
----------- ---
Options outstanding at December 31, 1997..................... 120,000 .50
Granted.................................................... -- --
Exercised.................................................. -- --
Canceled................................................... -- --
----------- ---
Options outstanding at December 31, 1998..................... 120,000 $ .50
----------- ---
----------- ---
</TABLE>
The following is summary information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
NUMBER OF REMAINING WEIGHTED AVERAGE NUMBER OF
EXERCISE PRICES SHARES CONTRACT LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------- ----------- --------------------------- --------------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$ .50 120,000 8 $ .50 50,000 $ .50
</TABLE>
Pro forma information regarding net income has been determined as if the
Company accounted for its stock options under the fair value method of SFAS 123.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option-pricing model with the following assumptions used for 1997:
an exercisable event occurring in five years; risk-free interest rates ranging
from 4.90% to 5.10%; dividend yield of 0%; a volatility factor of zero and a
weighted average expected life of 5 years. The weighted average fair value at
date of grant for
F-149
<PAGE>
INMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. EQUITY INCENTIVE PLANS: (CONTINUED)
options granted during the year ended December 31, 1997, was $.11 per option.
There were no additional options granted during the year ended December 31,
1998.
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the date of grant consistent with SFAS 123, the
Company's net loss would have been as follows:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Net loss--As reported............................................. $ (299,786) $ (342,571)
Net loss--Pro forma............................................... (301,458) (344,763)
</TABLE>
11. RELATED-PARTY TRANSACTIONS:
The Company has a loan payable to a related party totaling $20,117 and
$20,617 as of December 31, 1997, and 1998, respectively. The loan payable is due
on demand and is guaranteed by certain stockholders.
12. SUBSEQUENT EVENTS:
On May 27, 1999, the Company entered into an asset purchase agreement with
Align Solutions Corp. ("Align") whereby the Company will receive Align stock in
exchange for substantially all the assets and certain liabilities of the
Company. The agreement provides that the Company will retain a portion of the
installment note, certain accounts payable and the office facility lease
obligation.
F-150
<PAGE>
NOTES TO THE UNAUDITED MARCH 31, 1998 AND 1999 FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Rule 10-01 of Regulation S-X. Accordingly,
they do not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying unaudited financial statements reflect all
adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation of the Company's financial condition as of
March 31, 1999, and the results of its operations and its cash flows for the
three-month periods ended March 31, 1998 and 1999. These financial statements
should be read in conjunction with the Company's audited 1998 financial
statements, including the notes thereto. Operating results for the three-month
period ended March 31, 1999, are not necessarily indicative of the operating
results that may be expected for the year ending December 31, 1999.
B. DEBT
As of March 31, 1999, the Company has an additional loan payable for $35,000
to a related party with a rate of interest equal to 8%. This loan matures on
February 18, 2000, and is guaranteed by certain stockholders.
C. EQUITY INCENTIVE PLANS
The Company granted 24,000 options during the three months ended March 31,
1999, at an exercise price of $.50 per share. The Company recognized $30,000 of
compensation expense in connection with these stock option grants.
F-151
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Synapse Group, Inc.:
We have audited the accompanying balance sheets of Synapse Group, Inc. (a
Texas S corporation) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Synapse Group, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 28, 1999
F-152
<PAGE>
SYNAPSE GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1998
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 23,944 $ --
Accounts receivable, net of allowance for doubtful accounts of $7,200 and $9,003...... 463,646 368,502
Unbilled revenues..................................................................... 10,731 171,512
Prepaid expenses and other............................................................ 25,784 13,993
----------- -----------
Total current assets.............................................................. 524,105 554,007
PROPERTY AND EQUIPMENT, net............................................................. 189,774 139,519
OTHER ASSETS............................................................................ 13,665 13,800
----------- -----------
Total assets...................................................................... $ 727,544 $ 707,326
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, including cash overdraft of $0 and $33,733.......................... $ 86,544 $ 100,606
Customer deposits..................................................................... 154,589 122,091
Accrued liabilities................................................................... 115,410 21,893
Notes payable......................................................................... 32,900 159,093
Current maturities of long-term debt.................................................. 13,062 3,558
----------- -----------
Total current liabilities......................................................... 402,505 407,241
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities............................................. 1,907 4,773
----------- -----------
Total liabilities................................................................. 404,412 412,014
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock: $.01 par value, 10,000,000 shares authorized, 692,700 and 715,000 shares
issued and outstanding as of 1997 and 1998.......................................... 6,927 7,150
Additional paid-in capital............................................................ 102,377 126,837
Retained earnings..................................................................... 213,828 161,325
----------- -----------
Total liabilities and stockholders' equity........................................ $ 727,544 $ 707,326
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-153
<PAGE>
SYNAPSE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
REVENUES............................................................................ $ 2,086,172 $ 2,540,402
COST OF SERVICES.................................................................... 1,532,652 1,907,913
------------- -------------
GROSS PROFIT........................................................................ 553,520 632,489
SELLING, GENERAL AND ADMINISTRATIVE................................................. 766,163 669,531
OTHER INCOME (EXPENSE):
Interest expense.................................................................. (5,812) (16,039)
Other income...................................................................... 7,317 578
------------- -------------
NET LOSS............................................................................ $ (211,138) $ (52,503)
------------- -------------
------------- -------------
PRO FORMA INCOME TAXES (UNAUDITED).................................................. -- --
------------- -------------
PRO FORMA NET LOSS (UNAUDITED)...................................................... $ (211,138) $ (52,503)
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-154
<PAGE>
SYNAPSE GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996...................................... 692,700 $ 6,927 $ 102,377 $ 547,917
Distributions................................................. -- -- -- (122,951)
Net loss...................................................... -- -- -- (211,138)
--------- --------- ----------- ------------
BALANCE, December 31, 1997...................................... 692,700 6,927 102,377 213,828
Issuance of common stock...................................... 22,300 223 24,460 --
Net loss...................................................... -- -- -- (52,503)
--------- --------- ----------- ------------
BALANCE, December 31, 1998...................................... 715,000 $ 7,150 $ 126,837 $ 161,325
--------- --------- ----------- ------------
--------- --------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-155
<PAGE>
SYNAPSE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................ $ (211,138) $ (52,503)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities--
Depreciation and amortization................................................... 135,072 138,669
Loss on disposition of assets................................................... -- 856
Changes in assets and liabilities--
Accounts receivable........................................................... (35,989) 95,144
Unbilled revenues............................................................. (10,731) (171,512)
Prepaid expenses and other.................................................... (4,306) 11,791
Other assets.................................................................. 6,556 (135)
Accounts payable, including cash overdraft.................................... (32,853) 14,062
Customer deposits............................................................. 125,093 (21,768)
Accrued liabilities........................................................... 60,331 (93,517)
------------ ------------
Net cash provided by (used in) operating activities......................... 32,035 (78,913)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................ (55,060) (89,269)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments on) notes payable......................................... 27,075 126,193
Proceeds from issuance of common stock.............................................. -- 24,683
Proceeds from long-term debt........................................................ -- 8,158
Payments on long-term debt.......................................................... (20,418) (14,796)
Distributions to owners............................................................. (122,951) --
------------ ------------
Net cash provided by (used in) financing activities......................... (116,294) 144,238
NET DECREASE IN CASH AND CASH EQUIVALENTS............................................. (139,319) (23,944)
CASH AND CASH EQUIVALENTS,
beginning of period................................................................. 163,263 23,944
------------ ------------
CASH AND CASH EQUIVALENTS,
end of period....................................................................... $ 23,944 $ --
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest.............................................................. $ 5,812 $ 16,039
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-156
<PAGE>
SYNAPSE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Synapse Group, Inc. (the "Company") performs Internet and intranet
consulting services, Internet hosting, and related hardware sales for a variety
of customers utilizing the Internet for on-line marketing. The Company was
incorporated in the state of Texas in April 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the assets. The costs
and related accumulated depreciation of property and equipment sold, retired, or
disposed of are removed from the accounts and any gains or losses are reflected
in the statements of operations. Expenditures for major acquisitions and
improvements are capitalized while expenditures for maintenance and repairs are
expensed as incurred.
INCOME TAXES
As an S corporation, the Company pays no federal income tax but rather the
stockholders are taxed individually on the Company's taxable income or loss.
Accordingly, no provisions for federal income taxes are reflected in the
accompanying financial statements.
The unaudited pro forma tax information included in the accompanying
statements of operations reflect estimates of the Company's tax provision or
benefit as if it had been a C corporation in fiscal years 1997 and 1998. In
accordance with SFAS No. 109, "Accounting for Income Taxes," no pro forma tax
benefit was reflected due to the Company's recurring losses and the uncertainty
related to the realization of any tax assets.
REVENUE RECOGNITION
Revenues are recognized for time and materials-based arrangements as
services are performed and fixed fee arrangements on the
percentage-of-completion method. Under this approach, revenues and gross profit
are recognized as the work is performed, based on the ratio of costs incurred to
total estimated costs. Unbilled revenues on contracts are comprised of labor
costs incurred, plus earnings on certain contracts which have not been billed.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Customer deposits represent the amount of
customer payments received in advance of services being performed.
COST OF SERVICES
Cost of services is comprised primarily of salaries, employee benefits,
incentive compensation of billable employees, and a proportionate share of
depreciation and facilities costs based on the ratio of billable employees to
total employees.
F-157
<PAGE>
SYNAPSE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCOUNTING FOR EQUITY BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows either adoption of a fair value
based method of accounting for stock-based compensation or continuation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company has chosen to account for stock-based
compensation using the intrinsic value based method prescribed in APB 25 and
provides the pro forma disclosure provision of SFAS 123. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market value of the Company's stock over the exercise price at the date of
the grant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments have carrying amounts which approximate
fair value due to the relative short maturity of these instruments and/or their
variable interest rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, ("SFAS No. 130") "Reporting
Comprehensive Income," which is required to be adopted in the period ended
December 31, 1998. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in the financial statements, and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the Statement of
Stockholders' Equity. The adoption of SFAS 130 did not have any effect on the
Company's financial statements as the Company does not have any elements of
comprehensive income other than net income.
3. SIGNIFICANT CUSTOMERS:
During the year ended December 31, 1997, sales to two customers accounted
for approximately 51% and 11% of revenue. During the year ended December 31,
1998, sales to three customers accounted for approximately 53%, 15%, and 10% of
revenue.
As of December 31, 1998, accounts receivable from two customers accounted
for 63% and 10% of total accounts receivable.
F-158
<PAGE>
SYNAPSE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Furniture and fixtures................................... 5 $ 53,189 $ 58,173
Computers and equipment.................................. 2-5 340,856 415,710
Leasehold improvements................................... 1-5 10,224 18,273
------------ ------------
404,269 492,156
Less--Accumulated depreciation........................... (214,495) (352,637)
------------ ------------
Property and equipment, net.......................... $ 189,774 $ 139,519
------------ ------------
------------ ------------
</TABLE>
Depreciation expense was $135,072 and $138,669 for the years ended December
31, 1997 and 1998.
5. ACCRUED LIABILITIES:
Accrued liabilities is comprised of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Accrued bonus........................................................ $ 58,750 $ --
Accrued benefits..................................................... 26,046 --
Accrued payroll taxes................................................ 17,410 --
Accrued legal........................................................ -- 3,661
Accrued property and sales taxes..................................... 9,624 13,307
Accrued other........................................................ 3,580 4,925
----------- ---------
Total accrued liabilities........................................ $ 115,410 $ 21,893
----------- ---------
----------- ---------
</TABLE>
6. DEBT:
NOTES PAYABLE
The Company has a bank line of credit with a maximum availability of
$300,000. Interest is at the 30-day commercial paper rate plus 3.5% (8.37% at
December 31, 1998), and is payable monthly. The agreement is collateralized by a
security interest in substantially all of the assets of the Company and is
personally guaranteed by two of the Company's stockholders.
F-159
<PAGE>
SYNAPSE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. DEBT: (CONTINUED)
LONG-TERM DEBT
Long-term debt is comprised of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Equipment financing, bearing interest at 10%, payable in monthly
installments of $278, maturing March 2002, secured by certain
equipment........................................................... $ -- $ 6,424
Equipment financing, bearing interest at 13%, payable in monthly
installments of $656, maturing March 1999, secured by certain
equipment........................................................... 8,709 1,907
Equipment financing, bearing interest at 11%, payable in monthly
installments of $660, maturing March 1998, secured by certain
equipment........................................................... 1,940 --
Equipment financing, bearing interest at 11%, payable in monthly
installments of $758, maturing June 1998, secured by certain
equipment........................................................... 4,320 --
---------- ---------
14,969 8,331
Less--Current portion................................................. (13,062) (3,558)
Long-term debt........................................................ $ 1,907 $ 4,773
---------- ---------
---------- ---------
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------------------------------------------------------------------
<S> <C>
1999................................................................................ $ 3,558
2000................................................................................ 1,919
2001................................................................................ 2,214
2002................................................................................ 640
---------
$ 8,331
---------
---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
The Company leases office space in Dallas, Texas, and computer hardware
equipment with lease terms through September 2001.
Future minimum annual lease payments under these leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999............................................................................. $ 101,124
2000............................................................................. 83,612
2001............................................................................. 56,880
2002 and thereafter.............................................................. --
-----------
Total minimum lease payments..................................................... $ 241,616
-----------
-----------
</TABLE>
F-160
<PAGE>
SYNAPSE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Rent expense for the periods ended December 31, 1997 and 1998, under these
agreements was $118,791 and $157,432, respectively.
In the ordinary course of business, the Company may be subject to legal
actions and claims. Management does not believe litigation or claims will have a
material effect on the Company's financial condition or results of operations.
8. RETIREMENT PLAN:
During the year ended December 31, 1996, the Company established a
discretionary 401(k) plan (the "Plan") that covers all full-time employees.
Contributions to the Plan are discretionary. The Company made no contributions
to the Plan for the year ended December 31, 1997 or 1998.
9. EQUITY INCENTIVE PLANS:
Effective August 20, 1998, the Company approved the 1998 Stock Option Plan
("the 1998 Plan") authorizing the Board of Directors to grant incentive or
nonqualified options to purchase common stock of the Company. The total number
of shares of common stock which may be issued under the 1998 Plan is 70,100. The
1998 Plan is administered by the Compensation Committee of the Board of
Directors which determines the number of stock options to be granted, the
exercise or purchase price, exercise schedule and expiration date of such
options. Nonqualified stock options may be granted at exercise prices which are
greater than or equal to 80% of the grant date fair market value of the common
stock.
The exercise price of options qualifying as incentive stock options under
Section 422 of the Internal Revenue Code may not be less than the grant date
fair market value of the common stock. Incentive stock options granted to any
10% stockholder may not be less than 110% of the fair market value of the common
stock on the grant date. Stock options granted under the 1998 Plan are
nontransferable and generally expire ten years after the date of grant. Upon the
event that all of the outstanding shares of common stock of the Company are
acquired by an unrelated party, the optionee's exercise schedule shall be
accelerated to provide that optionee with immediate exercisability of the
unvested options granted. All options granted become exercisable over a
five-year period of continued employment.
Options outstanding at December 31, 1997 and 1998 and granted, exercised,
and canceled during those years were as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -------------------
<S> <C> <C>
Options outstanding at December 31, 1997..................... -- $ --
Granted...................................................... 29,325 7.00
Exercised.................................................... -- --
Canceled..................................................... (800) 7.00
-----------
Options outstanding at December 31, 1998..................... 28,525 $ 7.00
-----------
-----------
</TABLE>
F-161
<PAGE>
SYNAPSE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. EQUITY INCENTIVE PLANS: (CONTINUED)
Following is summary information about stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED OPTIONS EXERCISABLE
NUMBER OF SHARES REMAINING EXERCISE ------------------------
UNDER OPTION CONTRACT LIFE PRICE NUMBER AMOUNT
- ------------------ --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
28,525 9.94 $ 7.00 -- $ --
</TABLE>
Pro forma information regarding net income has been determined as if the
Company accounted for its stock options under the fair value method of SFAS 123.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions used for 1998:
an exercisable event occurring in five years; risk-free interest rate of 4.38%;
dividend yield of 0%; a volatility factor of zero; and a weighted average
expected life of five years. The average Black-Scholes fair value at date of
grant for options granted during the year ended December 31, 1998 was $7.02 per
option.
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date consistent with the provisions of SFAS
123, the Company's net loss for the year ended December 31, 1998, would have
been as follows:
<TABLE>
<S> <C>
Net loss--as reported............................................ $ (52,503)
Net loss--pro forma.............................................. (54,837)
</TABLE>
10. RELATED PARTY TRANSACTIONS:
A stockholder of the Company is a partner in a law firm which the Company
uses for legal services. There were approximately $30,000 in legal fees paid to
this law firm for each of the years ended December 31, 1997 and 1998.
11. AGREEMENT TO MERGE WITH ALIGN SOLUTIONS CORP.:
On February 15, 1999, the Company was acquired by Align Solutions Corp.
F-162
<PAGE>
[GRAPHIC OMITTED]
Sterling Software
Luminant has worked with Sterling Software to redesign Sterling's
Internet site. The look and feel of Sterling's site reflects the
state-of-the-art technology which underlies Sterling's solution-based
products. Sterling's systems allow dynamic content from their global offices
to be posted to their site with ease.
[GRAPHIC OMITTED]
MasterCard
Luminant developed several new interactive programs for MasterCard which
increased site traffic by over 425%. We have also worked with MasterCard to
develop custom media partnerships and secure participation relationships with
over 100 merchants.
[GRAPHIC OMITTED]
M&M/Mars
Luminant has worked with M&M/Mars to extend their brands onto the
Internet by developing rich interactive media environments. We helped to
conceive, create and maintain the M&M Network as well as several brand-
specific Web sites. The M&M/Mars interactive advertising campaign has won
numerous industry awards.
<PAGE>
YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER WE NOR ANY
OF THE UNDERWRITERS HAVE AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. WHEN YOU MAKE A DECISION ABOUT WHETHER TO
INVEST IN OUR COMMON STOCK, YOU SHOULD NOT RELY UPON ANY INFORMATION OTHER THAN
THE INFORMATION IN THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
SALE OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY
CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary......................................... 3
Summary Unaudited Pro Forma Combined Financial
Data.......................................... 7
Risk Factors.................................... 9
About Luminant Worldwide Corporation............ 19
Use of Proceeds................................. 22
Dividend Policy................................. 22
Capitalization.................................. 23
Dilution........................................ 24
Selected Historical Financial Data.............. 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 29
Business........................................ 49
Management...................................... 59
Certain Transactions With Related Parties....... 69
Principal Stockholders.......................... 72
Description of Capital Stock.................... 74
Shares Available for Future Sale................ 77
Underwriting.................................... 80
Legal Matters................................... 81
Experts......................................... 82
Where You Can Find Additional Information....... 82
Index to Financial Statements................... F-1
</TABLE>
DEALER PROSPECTUS DELIVERY OBLIGATIONS:
Until , 1999 (25 days after the commencement of this offering), all
dealers that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligations to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
[LOGO]
12,575,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
HAMBRECHT & QUIST
SOUNDVIEW TECHNOLOGY GROUP
Prospectus
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the common stock being registered. All amounts shown are
estimates, except for the Hart-Scott-Rodino filing fee, the registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Hart-Scott-Rodino filing fee................................... $ 45,000
Securities and Exchange Commission registration fee............ 52,820
NASD filing fee................................................ 18,000
Nasdaq National Market listing fee............................. 90,000
Accounting fees and expenses................................... 3,000,000
Legal fees and expenses........................................ 2,750,000
Printing and engraving expenses................................ 600,000
Transfer agent and registrar fees.............................. 50,000
Miscellaneous expenses......................................... 439,180
----------
Total........................................................ $7,045,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-laws of the Registrant provide for
the indemnification of the Registrant's directors and officers to the fullest
extent authorized by, and subject to the conditions set forth in the General
Corporation Law of the State of Delaware (the "DGCL"), except that the
Registrant will indemnify a director or officer in connection with a proceeding
(or part thereof) initiated by the person only if the proceeding (or part
thereof) was authorized by the Registrant's Board of Directors. The
indemnification provided under the Certificate of Incorporation and By-laws
includes the right to be paid by the Registrant the expenses (including
attorneys' fees) in advance of any proceeding for which indemnification may be
had in advance of its final disposition, provided that the payment of such
expenses (including attorneys' fees) incurred by a director or officer in
advance of the final disposition of a proceeding may be made only upon delivery
to the Registrant of an undertaking by or on behalf of the director or officer
to repay all amounts so paid in advance if it is ultimately determined that the
director or officer is not entitled to be indemnified.
As permitted by the DGCL, the Registrant's Certificate of Incorporation, as
amended, restated and supplemented, provides that directors of the Registrant
shall not be liable to the Registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Registrant or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
relating to unlawful payment of dividends or unlawful stock purchase or
redemption or (iv) for any transaction from which the director derived an
improper personal benefit. As a result of this provision, the Registrant and its
stockholders may be unable to obtain monetary damages from a director for breach
of his or her duty of care.
Under the By-laws, the Registrant has the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Registrant, or is
II-1
<PAGE>
or was serving at the request of the Registrant as a director, officer,
employee, partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, against any liability asserted against the person or incurred by the
person in any such capacity, or arising out of the person's status as such, and
related expenses, whether or not the Registrant would have the power to
indemnify the person against such liability under the provisions of the DGCL.
The Registrant intends to purchase director and officer liability insurance on
behalf of its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth certain information as to all securities sold by us
within the last three years that were not registered under the Securities Act of
1933, as amended (the "Securities Act").
On August 22, 1998, Commonwealth Principals II LLC purchased 7,138,701
shares of common stock for an aggregate purchase price of $1.00. An exemption is
claimed under Section 4(2) of the Securities Act.
On September 1, 1998, we sold 713,870 shares to Guillermo G. Marmol, our
Chief Executive Officer and President, for an aggregate purchase price of
$200,000. An exemption is claimed under Section 4(2) of the Securities Act.
Simultaneously with the completion of the offering and the acquisition of
the seven other companies, we will issue 6,141,806 shares of common stock to
certain former owners of Align Solutions Corp. for their respective interests in
that company. An indeterminate number of shares of common stock may be issued in
payment of contingent consideration, if earned. An exemption is claimed under
Rule 506 of Regulation D promulgated under the Securities Act.
Simultaneously with the completion of the offering and the acquisition of
the seven other companies, we will issue 4,609,091 shares of common stock to the
former owner of Brand Dialogue-New York for certain assets of Brand Dialogue. An
indeterminate number of shares of common stock may be issued in payment of
contingent consideration, if earned. An exemption is claimed under Rule 506 of
Regulation D promulgated under the Securities Act.
Simultaneously with the completion of the offering and the acquisition of
the seven other companies, we will issue 1,917,272 shares of common stock to
certain former owners of Free Range Media, Inc. for their respective interests
in that company. An indeterminate number of shares of common stock may be issued
in payment of contingent consideration, if earned. An exemption is claimed under
Rule 506 of Regulation D promulgated under the Securities Act.
Simultaneously with the completion of the offering and the acquisition of
the seven other companies, we will issue 810,091 shares of common stock to
certain former owners of Integrated Consulting, Inc., dba i.con interactive, for
their respective interests in that company. An indeterminate number of shares of
common stock may be issued in payment of contingent consideration, if earned. An
exemption is claimed under Rule 506 of Regulation D promulgated under the
Securities Act.
Simultaneously with the completion of the offering and the acquisition of
the seven other companies, we will issue 1,770,336 shares of common stock to
certain former owners of InterActive8, Inc. for their respective interests in
that company. An indeterminate number of shares of common stock may be issued in
payment of contingent consideration, if earned. An exemption is claimed under
Rule 506 of Regulation D promulgated under the Securities Act.
Simultaneously with the completion of the offering and the acquisition of
the seven other companies, we will issue 668,182 shares of common stock to
certain former owners of
II-2
<PAGE>
Multimedia Resources, LLC for their respective interests in that company. An
indeterminate
number of shares of common stock may be issued in payment of contingent
consideration, if earned. An exemption is claimed under Rule 506 of Regulation D
promulgated under the Securities Act.
Simultaneously with the completion of the offering and the acquisition of
the seven other companies, we will issue 3,470,197 shares of common stock to
certain former owners of Potomac Partners Management Consulting, LLC for their
respective interests in that company. An indeterminate number of shares of
common stock may be issued in payment of contingent consideration, if earned. An
exemption is claimed under Rule 506 of Regulation D promulgated under the
Securities Act.
Simultaneously with the completion of the offering and the acquisition of
the seven other companies, we will issue 1,094,545 shares of common stock to
certain former owners of RSI Group, Inc. for their respective interests in that
company. An indeterminate number of shares of common stock may be issued in
payment of contingent consideration, if earned. An exemption is claimed under
Rule 506 of Regulation D promulgated under the Securities Act.
We will grant options exercisable for a total of 1,570,776 shares of common
stock to former option holders of Align Solutions Corp in exchange for
outstanding options of Align. We have relied on no sale to grant those options.
Before completion of the offering and the acquisition of the eight
companies, we will grant options exercisable for a total of 3,028,141 shares of
common stock under our 1999 Long-Term Incentive Plan to our executive officers,
directors and employees. An exemption is claimed under Section 4(2) of the
Securities Act.
Before completion of the offering and the acquisition of the eight companies
we will grant options exercisable for a total of 1,000,000 shares of common
stock to Young & Rubicam outside of the 1999 Long-Term Incentive Plan. An
exemption is claimed under Section 4(2) of the Securities Act.
Before completion of the offering and the acquisition of the eight companies
we will grant options exercisable for a total of 2,205,000 shares of common
stock to persons who will become our employees upon the closing of the offering.
We have relied on no-sale to grant those options.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation of Registrant
3.2+ Amendment to Certificate of Incorporation of Registrant
3.3+ Second Amendment to Certificate of Incorporation of Registrant
3.4+ Third Amendment to Certificate of Incorporation of Registrant
3.5 Fourth Amendment to Certificate of Incorporation of Registrant
3.6 Form of Amended and Restated Certificate of Incorporation of the Registrant to be in
effect upon closing of the offering made under this Registration Statement
3.7+ By-Laws of Registrant
3.8 Form of Amended and Restated By-Laws of the Registrant to be in effect upon closing
of the offering made under this Registration Statement
4.1* Form of Common Stock Certificate
5.1* Opinion of Wilmer, Cutler & Pickering
9.1 Agreement and Irrevocable Proxy by and between Commonwealth Principals II, LLC and
Richard M. Scruggs, dated as of July 23, 1999.
10.1 1999 Long-Term Incentive Plan
10.2 Employment Agreement of Guillermo G. Marmol
10.3 Form of Transition Services Agreement by and among Clarant Worldwide Corporation and
Young & Rubicam Inc.
10.4 Agreement and Plan of Reorganization by and among Clarant, Inc., Align Solutions
Acquisition Corp., Align Solutions Corp. and the Stockholders named therein, dated
as of June 2, 1999.
10.5 Agreement and Plan of Reorganization by and among Clarant, Inc., Free Range Media
Acquisition Corp., Free Range Media, Inc., John C. Dimmer, John B. Dimmer and Andrew
L. Fry, dated as of June 2, 1999.
10.6 Agreement and Plan of Reorganization by and among Clarant, Inc., Icon Acquisition
Corp., Integrated Consulting, Inc. (d/b/a i.con interactie), Calvin W. Carter,
Elliot W. Hawkes and David Todd McGee, dated as of June 2, 1999.
10.7 Agreement and Plan of Reorganization by and among Clarant, Inc. Interactive8
Acquisition Corp., Interactive8, Inc. and the Stockholders named therein, dated as
of June 1, 1999.
10.8 Agreement and Plan of Reorganization by and among Clarant, Inc., Multimedia
Acquisition Corp., Multimedia Resources, LLC, Henry Heilbrunn, Lynn J. Branigan and
Norman L. Dawley, dated as of June 2, 1999.
10.9 Agreement and Plan of Reorganization by and among Clarant, Inc., Potomac Partners
Acquisition LLC, Potomac Partners Management Consulting, LLC and the Members named
therein, dated as of June 1, 1999.
10.10 Agreement and Plan of Reorganization by and among Clarant, Inc., RSI I Acquisition
Corp., RSI Group, Inc., Resource Solutions International, LLC, Charles Harrison,
Carolyn Brown and Bruce Grant, dated as of June 1, 1999.
10.11 Contribution Agreement by and between Clarant Worldwide Corporation and Young &
Rubicam Inc., dated as of June 7, 1999.
10.12 Credit Agreement by and between Integrated Interacitve, Inc. and Commonwealth
Principals II, LLC, dated as of September 2, 1998.
10.13 Form of Forfeiture Agreement by and between Commonwealth Principals II, LLC and
Luminant Worldwide Corporation.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.14 Form of Registration Rights Agreement by and among Luminant Worldwide Corporation,
Commonwealth Principals II, LLC and Guillermo G. Marmol.
10.15 Management Services Agreement by and between Webone, Inc. and Commonwealth
Principals II, LLC, dated as of September 2, 1998.
10.16 Employment Agreement of Derek Reisfield
10.17 Luminant Worldwide Corporation Senior Bonus Plan
10.18 Employment Agreement of Thomas G. Bevivino
10.19 Agreement by and among Commonwealth Principals II, LLC, Integrated Interactive,
Inc., Chris Meshginpoosh and Tom Bevivino, dated as of March 8, 1999.
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3* Consent of Wilmer, Cutler & Pickering (included in Exhibit 5.1)
23.4+ Consent of Michael H. Jordan to be named in Registration Statement.
23.5+ Consent of Randolph Austin to be named in Registration Statement.
23.6+ Consent of Michael Dolan to be named in Registration Statement.
23.7+ Consent of Lynn J. Branigan to be named in Registration Statement.
23.8+ Consent of Calvin W. Carter to be named in Registration Statement.
23.9+ Consent of James R. Corey to be named in Registration Statement.
23.10+ Consent of John B. Dimmer to be named in Registration Statement.
23.11+ Consent of Bruce D. Grant to be named in Registration Statement.
23.12+ Consent of Henry Heilbrunn to be named in Registration Statement.
23.13+ Consent of Morris W. Markel to be named in Registration Statement.
23.14+ Consent of Andreas Panayi to be named in Registration Statement.
23.15+ Consent of Douglas Rice to be named in Registration Statement.
23.16+ Consent of Richard M. Scruggs to be named in Registration Statement.
24.1+ Power of Attorney (included on signature page to this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules
None.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as may be required by the underwriter
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
District of Columbia, on the 23rd day of July 1999.
LUMINANT WORLDWIDE CORPORATION
By: /s/ GUILLERMO G. MARMOL
-----------------------------------------
Guillermo G. Marmol
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ GUILLERMO G. MARMOL Chief Executive Officer,
- ------------------------------ President and director July 23, 1999
Guillermo G. Marmol (chief executive officer)
*
- ------------------------------ Vice Chairman and Executive July 23, 1999
Derek R. Reisfield Vice President
Vice President of Finance
/s/ THOMAS G. BEVIVINO (principal financial
- ------------------------------ officer and principal July 23, 1999
Thomas G. Bevivino accounting officer)
*
- ------------------------------ Director July 23, 1999
George P. Stamas
</TABLE>
* By power of attorney
<TABLE>
<C> <S> <C>
/s/ GUILLERMO G. MARMOL
- ------------------------------
Guillermo G. Marmol
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
Exhibit 1.1
Shares
- ------------------------
Luminant Worldwide Corporation
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
, 1999
----------
Deutsche Bank Securities Inc.
Hambrecht & Quist LLC
SoundView Technology Group, Inc.
As Representatives of the
several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Luminant Worldwide Corporation, a Delaware corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of ____________ shares of the Company's Common
Stock, $.01 par value (the "Firm Shares"). The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Company also proposes to sell at the
Underwriters' option an aggregate of up to ______________ additional shares of
the Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
Simultaneously with the closing with respect to the purchase of the
Firm Shares by the Underwriters, the Company will acquire each of the Acquired
Assets (as hereinafter defined) (collectively, the "Acquisitions"), the
consideration for which will be as described in the Registration Statement.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1.REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as
follows:
-1-
<PAGE>
(a) A registration statement on Form S-1 (File No. 333-80161) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated thereunder and has been filed
with the Commission. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement as amended at the
time it becomes effective, together with any registration statement filed by the
Company pursuant to Rule 462(b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has become effective under the Act and no post-effective
amendment to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means (a) the form of prospectus first filed with the
Commission pursuant to Rule 424(b) or (b) the last preliminary prospectus
included in the Registration Statement filed prior to the time it becomes
effective or filed pursuant to Rule 424(a) under the Act that is delivered by
the Company to the Underwriters for delivery to purchasers of the Shares,
together with any term sheet or abbreviated term sheet filed with the Commission
pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included
in the Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Each of the entities which
will become a subsidiary of the Company upon the consummation of the
Acquisitions as listed in Exhibit A hereto (collectively, the "Acquired
Companies") has been duly organized and is validly existing as a corporation or
limited liability company, as applicable, in good standing under the laws of the
jurisdiction of its incorporation or formation, as the case may be, with
corporate or limited liability company, as applicable, power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement. As of the date hereof, the Company has no subsidiaries.
The Company and each of the Acquired Companies are duly qualified to transact
business in all jurisdictions in which the conduct of their business requires
such qualification except where the failure to qualify would not have a material
adverse effect on the Company and the Acquired Companies taken as a whole. The
outstanding shares of capital stock of each of the Acquired Companies that are
corporations have been duly authorized and validly issued, and are fully paid
and non-
-2-
<PAGE>
assessable. The outstanding membership interests of each of the Acquired
Companies that are limited liability companies have been duly authorized and
validly issued and are fully paid and non-assessable. As of the Closing Date (as
hereinafter defined), after giving effect to the Acquisitions, all of the
outstanding shares of capital stock and membership interests, as applicable, of
each of the Acquired Companies will be owned by the Company free and clear of
all liens, encumbrances, equities and claims; and except as described in the
Registration Statement, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in the Acquired
Companies will be outstanding.
(c) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Shares to be issued and sold by the Company pursuant to this Agreement have been
duly authorized and when issued and paid for as contemplated herein will be
validly issued, fully paid and non-assessable; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock. Upon completion of the Acquisitions
in the manner described in the Registration Statement, the shares of Common
Stock of the Company to be issued in the Acquisitions will be duly authorized,
validly issued, fully paid and non-assessable, and no preemptive rights of
stockholders exist with respect to any of such shares or the issuance and sale
thereof.
(d) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms, in all material respects, to the corporate law of the
jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform in all
material respects, to the requirements of the Act and the Rules and Regulations.
The Registration Statement and any amendment thereto do not contain, and will
not contain, any untrue statement of a material fact and do not omit, and will
not omit, to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the
-3-
<PAGE>
Company by or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(f) The financial statements of the Company and the separate financial
statements of the Acquired Companies, in each case together with related notes
and schedules as set forth in the Registration Statement, present fairly the
financial position and the results of operations and cash flows of the Company
and the Acquired Companies, respectively, at the indicated dates and for the
indicated periods. Such financial statements and related schedules have been
prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and operating data included
in the Registration Statement present fairly the information shown therein and
such data has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company and each of the
Acquired Companies. The pro forma combined financial statements of the Company
and the Acquired Companies and other pro forma financial information included in
the Registration Statement and the Prospectus present fairly the information
shown therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, have been properly
compiled on the pro forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(g) Arthur Andersen LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(h) PricewaterhouseCoopers LLP, who have certified the financial
statements of Brand Dialogue - New York, filed with the Commission as part of
the Registration Statement, are independent public accountants as required by
the Act and the Rules and Regulations.
(i) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the Acquired
Companies before any court or administrative agency or otherwise which if
determined adversely to the Company or any of the Acquired Companies would
result in any material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and of the Acquired Companies taken as a whole or
prevent the consummation of the transactions contemplated hereby, except as set
forth in the Registration Statement.
(j) Each of the Company and the Acquired Companies has good title to
all of the properties and assets reflected as owned by them in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except those reflected in such financial statements (or as described in the
Registration Statement) or which are not material in amount. Each of the Company
and the
-4-
<PAGE>
Acquired Companies occupies its leased properties under valid and binding leases
conforming in all material respects to the description thereof set forth in the
Registration Statement.
(k) Each of the Company and the Acquired Companies has filed or
obtained an extension to file all Federal, State, local and foreign income tax
returns which have been required to be filed and has paid all taxes indicated by
said returns and all assessments received by it to the extent that such taxes
have become due and are not being contested in good faith. All tax liabilities
incurred by the Company and the Acquired Companies but not yet due have been
adequately provided for in the financial statements of the Company.
(l) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any material adverse change or any development involving a prospective material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations, financial condition, or prospects of the Company and
the Acquired Companies taken as a whole, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company or the Acquired Companies, other than transactions in the
ordinary course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. Neither the
Company nor any of the Acquired Companies have any material contingent
obligations which are not disclosed in the Company's or such Acquired Company's
financial statements which are included in the Registration Statement.
(m) Neither the Company nor any of the Acquired Companies is, or with
the giving of notice or lapse of time or both, will be, in violation of or in
default under its Certificate of Incorporation or By-Laws or operating agreement
or under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default is of material significance in respect of the business,
management, properties, assets, rights, operations, financial condition or
prospects of the Company and the Acquired Companies taken as a whole. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Acquired Company is a party,
or of the Certificate of Incorporation or By-Laws of the Company or any order,
rule or regulation applicable to the Company or any Acquired Company of any
court or of any regulatory body or administrative agency or other governmental
body having jurisdiction except for such conflicts, breaches or defaults as
would not have a material adverse effect on the Company and the Acquired
Companies, taken as a whole.
(n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the
-5-
<PAGE>
execution and delivery by the Company of this Agreement and the consummation of
the transactions herein contemplated (except such additional steps as may be
required by the Commission or the National Association of Securities Dealers,
Inc. (the "NASD")) has been obtained or made and is in full force and effect
except for such approvals, consents, orders, authorizations, designations,
declarations or filings which the failure to obtain or make would not have a
material adverse effect on the Company and the Acquired Companies, taken as a
whole.
(o) The Company and each of the Acquired Companies holds all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their businesses; and neither the Company nor any of
the Acquired Companies has infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of the
Company and the Acquired Companies taken as a whole. The Company knows of no
material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company or any Acquired
Company.
(p) Neither the Company, nor to the Company's best knowledge, any of
its affiliates or any of the Acquired Companies or any of their affiliates, has
taken or may take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Shares.
(q) Neither the Company nor any of the Acquired Companies is, or upon
the consummation of the transactions contemplated by the Registration Statement
will be, an "investment company" within the meaning of such term under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations of the Commission thereunder.
(r) The Company and each of the Acquired Companies maintains a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) The Company and each of the Acquired Companies carry, or are
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(t) The Company and each of the Acquired Companies are in compliance in
all material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any
-6-
<PAGE>
"pension plan" (as defined in ERISA) for which the Company or any Acquired
Company would have any liability; neither the Company nor any of the Acquired
Companies has incurred nor expects to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company or any of the Acquired Companies
would have any liability that is intended to be qualified under Section 401(a)
of the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification.
(u) The Company has provided the Representatives true and correct
copies of the material agreements entered into in connection with the
Acquisitions (the "Acquisition Agreements"); the Company expects that the
Acquisitions will close on or about the Closing Date in accordance with the
terms of the Acquisition Agreements.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
same day funds via wire transfer to the order of the Company against delivery of
the Firm Shares to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of
Deutsche Bank Securities, Inc., 1 South Street, Baltimore, Maryland, at 10:00
a.m., Baltimore time, on the third business day after the date of this Agreement
or at such other time and date not later than five business days thereafter as
you and the Company shall agree upon, such time and date being herein referred
to as the "Closing Date." (As used herein, "business day" means a day on which
the New York Stock Exchange is open for trading and on which banks in New York
are open for business and are not permitted by law or executive order to be
closed.) The certificates for the Firm Shares will be delivered in such
denominations and in such registrations as the Representatives request in
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection by the Representatives at least one
business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in paragraph (a) of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the
-7-
<PAGE>
Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which the Option Shares
are to be delivered shall be determined by the Representatives but shall not be
earlier than three nor later than 10 full business days after the exercise of
such option, nor in any event prior to the Closing Date (such time and date
being herein referred to as the "Option Closing Date"). If the date of exercise
of the option is three or more days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to ___________, adjusted
by you in such manner as to avoid fractional shares. The option with respect to
the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment for the
Option Shares shall be made on the Option Closing Date in same day funds via
wire transfer to the order of the Company against delivery of certificates
therefor at the offices of Deutsche Bank Securities, Inc., 1 South Street,
Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (i) use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the Rules and
Regulations is followed, to prepare and timely file with the Commission under
Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the
Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and
-8-
<PAGE>
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations.
(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of receipt of any comments from the Commission, (iii) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(d) The Company will comply with the Act and the Rules and Regulations,
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not misleading, or, if it
is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(e) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earning statement
(which need not be audited) in reasonable detail,
-9-
<PAGE>
covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earnings statement shall
satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules
and Regulations and will advise you in writing when such statement has been so
made available.
(f) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all other
documents, reports and information furnished by the Company to its stockholders
or filed with any securities exchange pursuant to the requirements of such
exchange or with the Commission pursuant to the Act or the Exchange Act. The
Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in Regulation S-X promulgated
by the Commission, which are not consolidated in the Company's financial
statements.
(g) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other securities convertible into or exchangeable
or exercisable for shares of Common Stock or derivative of Common Stock (or
agreement for such) will be made for a period of 180 days after the date of this
Agreement, directly or indirectly, by the Company without the prior written
consent of Deutsche Bank Securities, Inc., except for shares of Common Stock
issued pursuant to the terms of the Acquisition Agreements (including, without
limitation, shares issued upon exercise of options granted in accordance with
the Acquisition Agreements), the grant of employee stock options (up to a
maximum of __________ shares) under the 1999 Long-Term Incentive Plan, or the
issuance of shares in connection with acquisitions of businesses, provided that
future acquisition agreements contain lock-up arrangements prohibiting
dispositions of Common Stock prior to the expiration of the aforementioned 180
day period.
(h) The Company will use its best efforts to arrange for the quotation
of, subject to notice of issuance, the Shares on the Nasdaq National Market.
(i) The Company has caused each officer and director, certain
stockholders and certain persons who will become shareholders of the Company
upon the consummation of the Acquisitions to furnish to you, on or prior to the
date of this Agreement, a letter or letters, in form and substance satisfactory
to the Underwriters, pursuant to which each such person has agreed not to offer,
sell, sell short, pledge or otherwise dispose of any shares of Common Stock of
the Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or derivative of
Common Shares owned by such person (or as to which such person has the right to
direct the disposition of) or request the registration for the offer or sale of
any of the foregoing, for a period of 180 days after the date of this Agreement,
directly or indirectly, except with the prior written consent of Deutsche Bank
Securities, Inc. ("Lockup Agreements").
(j) The Company will (i) use its reasonable best efforts to close the
Acquisitions in accordance with the terms of the Acquisition Agreements and (ii)
will promptly notify the
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Representatives of the occurrence of any event which may result in the
non-consummation of or material change in the terms of any of the Acquisitions
on the Closing Date.
(k) The Company shall apply the net proceeds of its sale of the Shares
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Shares and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest or otherwise use the proceeds received
by the Company from its sale of the Shares in such a manner as would require the
Company or any of the Acquired Companies to register as an investment company
under the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of its obligations under this Agreement and in connection with the
Acquisitions, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of counsel
for the Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Invitation Letter; the filing fees
of the Commission; the filing fee of the NASD; and the Listing Fee of the Nasdaq
Stock Market. The Company shall not, however, be required to pay for any of the
Underwriter's expenses (other than the NASD fee) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11(b)(i) or 11(b)(vi) hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms is due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy, as of
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the Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company contained herein, and to the
performance by the Company of its covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Wilmer, Cutler &
Pickering, counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters (and stating that it may
be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware. The Company has
corporate power and corporate authority to own, lease and operate its properties
and conduct its business as described in the Registration Statement; the Company
is duly qualified to transact business as a foreign corporation in each state in
which the failure to be so qualified would result in a material adverse affect
on the Company; each of the Acquired Companies has been duly incorporated or
organized and is validly existing and in good standing under the laws of the
state of its incorporation or organization, as the case may be; each of the
Acquired Companies is duly qualified to transact business as a foreign
corporation in each state in which the failure to be so qualified would result
in a material adverse affect on it.
(ii) The authorized, issued and outstanding capital stock of the
Company, as of [March 31, 1999] was set forth under the caption "Capitalization"
in the Prospectus and except as set forth in the Prospectus, no change there to
has occurred since that date; the outstanding shares of the Company's Common
Stock have been duly authorized and are validly issued, fully paid and
non-assessable; all of the Shares conform in all material respects to the
description thereof set forth in the Prospectus; the certificates evidencing the
Shares comply with the requirements of Section 158 of the DGCL; when issued in
accordance with the terms of this Agreement and the Acquisition Agreements,
respectively, the Shares, and the shares of Common Stock to be issued in
connection with the Acquisitions will be duly authorized, validly issued, fully
paid and non-assessable when issued and paid for as contemplated by this
Agreement or the Acquisition
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<PAGE>
Agreements, as the case may be; and no holder of outstanding shares of Common
Stock has any statutory preemptive right under the DGCL, the certificate of
incorporation or bylaws of the Company, or to the knowledge of such counsel, any
contractual right to subscribe for any of the Shares or the shares of Common
Stock to be issued in connection with the Acquisitions.
(iii) The outstanding shares of capital stock or limited liability
company interests, as the case may be, of each of the Acquired Companies have
been duly authorized and are validly issued, fully paid and non-assessable; upon
consummation of the Acquisitions in accordance with the terms of the Acquisition
Agreements, all of the outstanding shares of capital stock and membership
interests, as applicable, of each of the Acquired Companies will be owned by the
Company free and clear of all liens, encumbrances, equities and claims; and
except as described in the Registration Statement, no options, warrants or other
rights to purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests in
the Acquired Companies will be outstanding.
(iv) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, the Company has not issued any outstanding securities
convertible into or exchangeable for, or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company, outstanding or
authorized options, warrants or other rights to purchase or subscribe for any
shares of its capital stock or any securities convertible or exchangeable into
or evidencing the right to purchase or subscribe for any shares of such stock;
and except as described in the Prospectus, to the knowledge of such counsel, the
Company has not granted to any holder of any securities of the Company or any
other person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of the Shares or the
right to have any shares of Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(v) The Registration Statement has become effective under the Act and,
to the best knowledge of such counsel, no stop order proceedings with respect
thereto have been instituted or are pending or threatened under the Act.
(vi) The Registration Statement, the Prospectus comply as to form in
all material respects with the requirements of the Act and the applicable rules
and regulations thereunder (except that such counsel need express no opinion as
to the financial statements and related schedules therein).
(vii) The statements in the Prospectus under the captions "About
Clarant Worldwide Corporation," "Management - Employment Agreements," "- 1999
Long-Term Incentive Plan," "Certain Transactions with Related Parties,"
"Description of Capital Stock" and "Shares Available for Future Sale," insofar
as such statements constitute a summary of documents referred to therein or
matters of law, fairly summarize in all material respects the information
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<PAGE>
called for with respect to such documents and matters.
(viii) Each of the Acquisition Agreements has been duly authorized,
executed and delivered by the Company and the Acquired Company party to it. Each
Acquisition Agreement constitutes a valid and binding obligation of the Company
and the Acquired Company party to it, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and by general principles of equity regardless of whether
enforceability is considered in a proceeding in equity or at law.
(ix) The execution, delivery and performance of this Agreement do not
and will not (a) violate the Certificate of Incorporation or By-Laws of the
Company, or (ii) conflict or result in a breach of any of the terms or
provisions of, or constitute a default under, any Acquisition Agreement or any
agreement or contract filed as an exhibit to the Registration Statement.
(x) This Agreement has been duly authorized, executed and delivered by
the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD and state securities or "blue sky"
laws, as to which such counsel need express no opinion) except such as have been
obtained or made, specifying the same.
(xii) The Company is not, and will not become as a result of the
consummation of the transactions contemplated by this Agreement and the
Acquisition Agreements, required to register as an investment company under the
1940 Act.
In rendering such opinion Wilmer Cutler & Pickering may rely as to
matters governed by the laws of states other than Delaware or Federal laws and
on local counsel in such jurisdictions and may rely on counsel (such counsel
having been deemed acceptable by the Underwriters) to one or more of the
Acquired Companies with respect to matters relating to the Acquired Companies,
provided that in each case Wilmer Cutler & Pickering shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel and the opinion of such other counsel shall confirm the entitlement of
Wilmer Cutler & Pickering and the Underwriters to rely thereon. In addition to
the matters set forth above, such opinion shall also include a statement to the
effect that no facts have come to the attention of such counsel which causes
them to believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
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statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading or (ii) there are any legal or governmental proceedings pending or
threatened against the Company or the Acquired Companies that are required to be
disclosed in the Registration Statement or the Prospectus, other than those
disclosed therein, or (iii) there are any contracts or documents of a character
required to be disclosed in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or
referred to therein or so filed; provided that in making the foregoing
statements (which shall not constitute an opinion) such counsel need not express
any views as to financial statements and supporting schedules and other
financial and statistical information and data included in or omitted from the
Registration Statement or the Prospectus. With respect to such statement, Wilmer
Cutler & Pickering may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(c) The Representatives shall have received on the Closing Date the
opinion of counsel for each of the Acquired Companies dated the Closing Date,
addressed to the Underwriters (and stating that it may be relied upon by counsel
to the Underwriters) in substantially the form attached hereto as Exhibit A.
(d) The Representatives shall have received from Piper & Marbury
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii), (iv), (v) and (x) of Paragraph (b) of this Section 6, and
that the Company is a duly organized and validly existing corporation under the
laws of the State of Delaware. In rendering such opinion, Piper & Marbury L.L.P.
may rely as to all matters governed other than by the laws of the State of
Delaware or Federal laws on the opinion of counsel referred to in Paragraph (b)
of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective under
the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Piper &
Marbury L.L.P. may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
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<PAGE>
(e) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of Arthur Andersen LLP confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules of the Company and the Acquired
Companies examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(f) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of PricewaterhouseCoopers LLP, confirming
that they are independent public accountants within the meaning of the Act and
the applicable published Rules and Regulations thereunder and stating that in
their opinion the financial statements and schedules of the Brand Dialogue - New
York examined by them and included in the Registration Statement comply in form
in all material respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(g) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents in his capacity as an officer of the
Company as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and
the Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements
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<PAGE>
contained in the Registration Statement were true and correct, and such
Registration Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set forth
in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the financial condition, of the Company and the
Acquired Companies taken as a whole or the earnings, business, management,
properties, assets, rights, operations, financial condition or prospects of the
Company and the Acquired Companies taken as a whole, whether or not arising in
the ordinary course of business.
(h) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(i) The Firm Shares and Option Shares, if any, shall have been approved
for designation upon notice of issuance on the Nasdaq Stock Market.
(j) The Lockup Agreements described in Section 4(i) shall be in full
force and effect.
(k) Each of the Acquisitions shall have been completed upon terms which
are in all material respects consistent with the terms set forth in the
Prospectus simultaneously with the closing of the purchase of the Firm Shares by
the Underwriters.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Piper & Marbury
L.L.P., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
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(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances in which
they were made; and will reimburse each Underwriter and each such controlling
person upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company will not be liable in
any such case (x) to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement,
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof, or (y) with respect to any Preliminary Prospectus to the
extent that any such loss, claim, damage or liability (or any actions or
proceedings in respect thereof) results from such Underwriter's sale of Shares
to a person as to whom it shall be established that there was not sent or given,
at or prior to the written confirmation of such sale, a copy of the Prospectus
as then amended or supplemented in any case where such delivery is required by
the Act if the Company has previously furnished copies thereof to such
Underwriter and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus which was corrected in the Prospectus or in the
Prospectus as then amended or supplemented. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, mages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or
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supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse upon demand any legal or other expenses
reasonably incurred by the Company or any such director, officer, or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not the
Company or any such director, officer or controlling person is a party to any
action or proceeding; provided, however, that each Underwriter will be liable in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
is instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 8, such person (the "indemnified party") shall promptly
notify each person against whom such indemnity may be sought (the "indemnifying
party") in writing. No indemnification provided for in Section 8(a) or (b) shall
be available to any party who shall fail to give notice as provided in this
Section 8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially prejudiced
by the failure to give such notice, but the failure to give such notice shall
not relieve the indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of the provisions of Section 8(a) or (b). In case any such proceeding is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it may elect, by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party and shall pay as incurred the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the indemnified
party in the event (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel, (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests
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<PAGE>
between them or (iii) the indemnifying party shall have failed to assume the
defense and employ counsel acceptable to the indemnified party within a
reasonable period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 8(a) and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent,
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knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
reimbursement, indemnification and contribution agreements contained in this
Agreement and the representations, warranties and covenants in this Agreement
shall remain operative in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement. A successor to any Underwriter, or to the Company, its directors
or officers, or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the
-21-
<PAGE>
Company), you, as Representatives of the Underwriters, shall use your reasonable
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon and upon the terms set forth herein, the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 36 hours you, as such Representatives, shall
not have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company except to the extent provided
in Section 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or Option Closing
Date, as the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities,
Inc., 1 South Street, Baltimore, Maryland 21202, Attention: Scott Wieler; with a
copy to Deutsche Bank Securities, Inc., 1 South Street, Baltimore, Maryland
21202. Attention: General Counsel; if to the Company, to OneMain.com, Inc., 50
Hawthorne Road, Southampton, NY 11968, Attention: Stephen E. Smith; with a copy
to Hogan & Hartson L.L.P., 555 Thirteenth Street, N.W., Washington, D.C. 20004,
Attention Steven A. Museles.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale
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<PAGE>
by notice to the Underwriters, or (ii) 11:30 a.m. on the first business day
following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
earnings, business, management, properties, assets, rights, operations,
financial condition or prospects of the Company and the Acquired Companies taken
as a whole, whether or not arising in the ordinary course of business; (ii) any
outbreak or escalation of hostilities or declaration of war or national
emergency or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial markets of
the United States would, in your reasonable judgment, make it impracticable to
market the Shares or to enforce contracts for the sale of the Shares; (iii)
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market; (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company;
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) the suspension of trading of the Company's common stock on the
Nasdaq Stock Market or (vii) the taking of any action by any governmental body
or agency in respect of its monetary or fiscal affairs which in your reasonable
opinion has a material adverse effect on the securities markets in the United
States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
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<PAGE>
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
LUMINANT WORLDWIDE CORPORATION
By
--------------------------------
Derek Reisfield
Vice Chairman and ExecutiveVice President
-24-
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
DEUTSCHE BANK SECURITIES, INC.
HAMBRECHT & QUIST LLC
SOUNDVIEW TECHNOLOGY GROUP, INC.
As Representatives of the several
Underwriters listed on Schedule I
By: Deutsche Bank Securities, Inc.
By:
----------------------------------
Authorized Officer
-25-
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
UNDERWRITER to be Purchased************
- ----------- ------------------------------
<S> <C>
Deutsche Bank Securities, Inc.
Hambrecht & Quist LLC
SoundView Technology Group, Inc. *********************
---------------------
Total *******************************
-------------------------------
</TABLE>
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<PAGE>
EXHIBIT A
Acquired Companies
Align Solutions Corp.
Brand Dialogue - New York
Free Range Media, Inc.
Integrated Consulting, Inc. dba i.con interactive
InterActive8, Inc.
MultiMedia Resources, LLC
Potomac Partners Management Consulting, LLC
RSI Group, Inc. and subsidiaries
-27-
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
CLARANT WORLDWIDE CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is:
Clarant Worldwide Corporation.
2. The certificate of incorporation of the corporation is hereby amended by
striking out the First Article thereof and by substituting in lieu of said
Article the following new Article:
"FIRST: The name of the corporation is Luminant Worldwide Corporation (the
"Corporation")".
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228(a) and 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Clarant Worldwide Corporation has caused this
certificate to be signed by Guillermo G. Marmol, its authorized officer, this
22nd day of July, 1999.
/s/ Guillermo G. Marmol
--------------------------------------------
Guillermo G. Marmol
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT 3.6
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
LUMINANT WORLDWIDE CORPORATION
a Delaware corporation
Luminant Worldwide Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law").
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on August 21,
1998, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Certificate of Incorporation of this corporation,
declaring said amendment and restatement to be advisable and in the best
interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the written consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of this corporation,
as amended, be amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation is Luminant Worldwide Corporation (the
"Corporation").
ARTICLE II
The address of the registered office of this Corporation in the State
of Delaware is 1209 Orange Street, Wilmington, Delaware 19801 in the county of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which the Corporation may be
organized under the General Corporation Law of Delaware.
ARTICLE IV
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is one hundred ten million
(110,000,000), of which one hundred million
1
<PAGE>
(100,000,000) of such shares shall be designated common stock, having a par
value of $.01 per share ("Common Stock"), and ten million (10,000,000) of such
shares shall be designated preferred stock, having a par value of $.01 per share
("Preferred Stock").
Except as otherwise provided in respect of any class of stock
hereafter classified or reclassified or any series thereof hereafter authorized,
the exclusive voting power for all purposes shall be vested in the holders of
the Common Stock; each holder of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Corporation and to cast
one vote for each outstanding share of Common Stock so held upon any matter or
thing (including without limitation the election of one or more directors)
properly submitted to a vote of, and acted upon by, the stockholders; each share
of Common Stock shall share ratably in any dividends if or when declared by the
Board of Directors of the Corporation and paid by the Corporation; in the event
of liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, each share of Common Stock shall be entitled, after payment or
provision for payment of the amount to which any class or series hereafter
authorized shall have a preference on such distributions shall be entitled,
together with any class or series not having a preference, to share ratably in
the remaining net assets of the corporation; and each share of Common Stock
shall have the same relative rights as and be identical in all respects to all
other shares of Common Stock.
Any other class or series of stock of the Corporation shall be subject
to all of the rights, privileges, preferences and priorities of such class or
series as set forth in the certificate of designations filed to establish such
class or series.
The Board of Directors is authorized to provide for the issuance from
time to time of Common Stock or Preferred Stock, whether now or hereafter
authorized, in one or more class or series, or securities convertible into
shares of its stock, in one or more class or series, for such consideration as
may be determined by the Board of Directors, without further stockholder
approval. As provided by law and within the limitations and restrictions set
forth in the Company's Certificate of Incorporation, the Board of Directors is
empowered to fix or alter the powers, dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, liquidation and other preferences,
and other special rights of any class or series of Common Stock or Preferred
Stock, whether now or hereafter authorized, and the number of shares
constituting any such class or series and the designation thereof, and to
increase or decrease the number of shares of any class or series subsequent to
the issue of shares of that class or series, but not below the number of shares
of such class or series then outstanding. In case the number of shares of any
class or series shall be so decreased, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such class or series.
ARTICLE V
2
<PAGE>
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by the Bylaws or by amendment thereof duly adopted by the Board of
Directors.
ARTICLE VII
Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in the Certificate of Incorporation of
the Corporation, any matter required to be voted on by stockholders of the
Corporation or any action required or permitted to be taken by the stockholders
of the Corporation must be voted on or taken at an annual or special meeting of
the stockholders of the Corporation, and may not be effected by any consent in
writing of such stockholders, except that such matter or action may be effected
by the unanimous written consent all stockholders entitled to vote on such
matter or take such action.
ARTICLE IX
To the full extent permitted by the General Corporation Law or any
other applicable law currently or hereafter in effect, no director of the
Corporation will be personally liable to the Corporation or its stockholders for
or with respect to any acts or omissions in the performances of his or her
duties as a director of the Corporation. Any repeal or modification of this
Article Sixth will not adversely affect any right or protection of a director of
the Corporation existing immediately prior to such repeal or modification.
ARTICLE X
Each person who is or was or had agreed to become a director or
officer of the Corporation, or each such person who is or was serving or who had
agreed to serve at the request of the Board or an officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other entity
(including heirs, executors, administrators, or estate of such person) will be
indemnified by the Corporation to the full extent permitted by the General
Corporation Law or any other applicable law as currently or hereafter in effect.
The right of indemnification provided in this Article Seventh will not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled, and will be applicable to matters otherwise within its
scope whether or not such matters arose or arise before or after the adoption of
this Article Seventh. Any amendment, or repeal of, or adoption of any provision
inconsistent with, this
3
<PAGE>
Article Seventh will not adversely affect any right or protection existing
hereunder immediately prior to such amendment, repeal, or adoption.
ARTICLE XI
No holder of any of the shares of stock of the Corporation, securities
convertible into shares of stock of the Corporation, or options, warrants or
other rights to purchase shares of stock of the Corporation, or of any class or
series thereof, whether now or hereafter authorized, shall have any preemptive
right to subscribe for or purchase any stock or other securities of the
Corporation, or any class or series thereof, whether now or hereafter authorzed,
other than such, if any, as the Board of Directors, in its sole discretion, may
authorize, and at such price, upon such terms, and to such holders as the Board
of Directors, in its sole discretion, shall fix.
ARTICLE XII
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE XIII
In addition to any vote of the holders of any class or series of the
stock of this Corporation required by law or by this Amended and Restated
Certificate, the affirmative vote of the holders of a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal the provisions of Article I,
Article II, Article III and Article IV of the Certificate of Incorporation of
the Corporation. Notwithstanding any other provision of the Certificate of
Incorporation of the Corporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any vote of the holders of
any class or series of the stock of this Corporation required by law or by the
Certificate of Incorporation of the Corporation, the affirmative vote of the
holders of at least seventy-five
4
<PAGE>
percent (75%) of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or
repeal any provision of the Certificate of Incorporation not specified in the
preceding sentence.
* * * *
THIRD: The foregoing Amended and Restated Certificate of Incorporation
has been duly adopted by the Corporation's Board of Directors in accordance with
the applicable provisions of Section 245 of the General Corporation Law of the
State of Delaware.
FOURTH: The foregoing Amended and Restated Certificate of
Incorporation has been duly authorized by the stockholders of the Corporation by
unanimous written consent.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Amended and
Restated Certificate this _____ day of ________ 1999.
------------------------------------------------
Guillermo G. Marmol
President and Chief Executive Officer
ATTEST:
------------------------------------------------
------------------------
Secretary
6
<PAGE>
Exhibit 3.8
AMENDED AND RESTATED
BYLAWS OF
LUMINANT WORLDWIDE CORPORATION
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I OFFICES AND RECORDS.................................................................................2
Section 1.1 Name...........................................................................................2
Section 1.2 Delaware Office................................................................................2
Section 1.3 Other Offices..................................................................................2
Section 1.4 Books and Records..............................................................................2
ARTICLE II STOCKHOLDERS........................................................................................2
Section 2.1 Annual Meeting.................................................................................2
Section 2.2 Special Meeting................................................................................2
Section 2.3 Place of Meeting...............................................................................2
Section 2.4 Notice of Meeting..............................................................................2
Section 2.5 Quorum and Adjournment.........................................................................3
Section 2.6 Voting and Proxies.............................................................................3
Section 2.7 Required Vote..................................................................................3
Section 2.8 Notice of Stockholder Business.................................................................4
(a) Annual Meeting of Stockholders.......................................................... 4
(b) Special Meetings of Stockholders........................................................ 5
(c) General................................................................................. 5
Section 2.9 List of Stockholders...........................................................................6
Section 2.10 Inspectors of Elections; Opening and Closing the Polls.........................................6
Section 2.11 Consent of Stockholders in Lieu of Meeting.....................................................7
Section 2.12 Ratification of Acts of Directors and Officers.................................................7
ARTICLE III BOARD OF DIRECTORS..................................................................................7
Section 3.1 General Powers.................................................................................7
Section 3.2 Number, Tenure and Qualifications..............................................................7
Section 3.3 Regular Meetings...............................................................................7
Section 3.4 Special Meetings...............................................................................8
Section 3.5 Notice.........................................................................................8
Section 3.6 Conference Telephone Meetings..................................................................8
Section 3.7 Quorum.........................................................................................8
Section 3.8 Vacancies......................................................................................8
Section 3.9 Committee......................................................................................9
Section 3.10 Removal........................................................................................9
Section 3.11 Informal Action of Directors...................................................................9
ARTICLE IV OFFICERS...........................................................................................10
Section 4.1 Elected Officers..............................................................................10
Section 4.2 Election and Term of Office...................................................................10
Section 4.3 Chairman of the Board.........................................................................10
Section 4.4 President and Chief Executive Officer.........................................................10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 4.5 Secretary.....................................................................................10
Section 4.6 Treasurer.....................................................................................11
Section 4.7 Removal.......................................................................................11
Section 4.8 Vacancies.....................................................................................11
Section 4.9 Duties of Officer May be Delegated............................................................11
Section 4.10 Compensation..................................................................................11
ARTICLE V STOCK CERTIFICATES AND TRANSFERS...................................................................12
Section 5.1 Stock Certificates and Transfers..............................................................12
ARTICLE VI RECORD DATE........................................................................................12
Section 6.1 Actions by Stockholders.......................................................................12
Section 6.2 Payments......................................................................................13
Section 6.3 Stockholders of Record........................................................................13
ARTICLE VII INDEMNIFICATION AND INSURANCE......................................................................13
Section 7.1 Right to Indemnification......................................................................13
Section 7.2 Prepayment of Expenses........................................................................14
Section 7.3 Claims........................................................................................14
Section 7.4 Authorization.................................................................................14
Section 7.5 Nonexclusivity of Rights......................................................................14
Section 7.6 Amendment or Repeal...........................................................................14
Section 7.7 Other Indemnification and Prepayment of Expenses..............................................14
Section 7.8 Survival of Indemnification Rights............................................................15
Section 7.9 Insurance.....................................................................................15
ARTICLE VIII MISCELLANEOUS PROVISIONS...........................................................................15
Section 8.1 Fiscal Year...................................................................................15
Section 8.2 Dividends.....................................................................................15
Section 8.3 Seal..........................................................................................15
Section 8.4 Waiver of Notice..............................................................................15
Section 8.5 Audits........................................................................................15
Section 8.6 Resignations..................................................................................16
Section 8.7 Contracts.....................................................................................16
Section 8.8 Proxies.......................................................................................16
ARTICLE IX AMENDMENTS.........................................................................................16
Section 9.1 Amendments....................................................................................16
</TABLE>
ii
<PAGE>
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1 NAME. The name of the corporation is Luminant Worldwide
Corporation
SECTION 1.2 DELAWARE OFFICE. The registered office of the Corporation in
the State of Delaware shall be located in the City of Wilmington and County of
New Castle.
SECTION 1.3 OTHER OFFICES. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
SECTION 1.4 BOOKS AND RECORDS. The books and records of the Corporation may
be kept at the Corporation's headquarters in Dallas, Texas or at such other
locations outside the State of Delaware as may from time to time be designated
by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.
SECTION 2.2 SPECIAL MEETING. A special meeting of the stockholders of the
corporation may be called only by the President, the Chairman of the Board or by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies (the "Whole Board"), or at the request in writing of stockholders
owning at least seventy-five percent (75%) in amount of the entire capital stock
of the corporation issued and outstanding and entitled to vote generally in the
election of directors.
SECTION 2.3 PLACE OF MEETING. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
SECTION 2.4 NOTICE OF MEETING. Written or printed notice, stating the
place, day and hour of the meeting and the purposes for which the meeting is
called, shall be prepared and delivered by the Corporation not less than ten
days nor more than sixty days before the date of the meeting, either personally,
or by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation. Such
further notice shall be given as may be required by law. Meetings may be held
without notice if all stockholders entitled to vote are present (except
3
<PAGE>
as otherwise provided by law), or if notice is waived by those not present. Any
previously scheduled meeting of the stockholders may be postponed and (unless
the Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be canceled, by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for such meeting of
stockholders.
SECTION 2.5 QUORUM AND ADJOURNMENT. Except as otherwise provided by law or
by the Certificate of Incorporation, the holders of a majority of the voting
power of the outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting separately as a
class or series, the holders of a majority of the voting power of the shares of
such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the shares of Voting
Stock so represented may adjourn the meeting from time to time, whether or not
there is such a quorum (or, in the case of specified business to be voted on by
a class or series, the chairman or a majority of the shares of such class or
series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum. At any adjourned
meeting at which a quorum is present any business may be transacted which might
have been transacted at the original meeting.
SECTION 2.6 VOTING AND PROXIES. Unless otherwise provided in the Delaware
General Corporation Law or in the Certificate of Incorporation, and subject to
the other provisions of these Bylaws, each stockholder shall be entitled to one
vote on each matter for each share of the Corporation's capital stock that has
voting power and that is held by such stockholder. At all meetings of
stockholders, a stockholder may vote by proxy executed in writing by the
stockholder or as may be permitted by law, or by his duly authorized
attorney-in-fact. Such proxy must be filed with the Secretary of the Corporation
or his representative at or before the time of the meeting. No proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period. A duly executed appointment of proxy shall be irrevocable
if the appointment form states that it is irrevocable and if, and only as long
as, it is coupled with an interest sufficient in law to support an irrevocable
power. Persons holding stock in a fiduciary capacity shall be entitled to vote
the shares so held. Persons whose stock is pledged shall be entitled to vote
such stock unless the pledgor in a transfer on the books of the corporation has
expressly empowered the pledgee to vote the pledged shares, in which case only
the pledgee or his or her proxy shall be entitled to vote.
SECTION 2.7 REQUIRED VOTE. Election of directors at all meetings of the
stockholders at which directors are to be elected shall be by written ballot.
Except as otherwise set forth in the Certificate of Incorporation with respect
to the right of the holders of any series of Preferred Stock or any other series
or class of stock to elect additional directors under specified circumstances,
directors shall be elected by a plurality of the votes of the shares present in
person
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or represented by proxy at the meeting and entitled to vote on the election of
directors. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all matters other than the election of directors submitted to
the stockholders at any meeting shall be decided by the affirmative vote of a
majority of the voting power of the outstanding Voting Stock present in person
or represented by proxy at the meeting and entitled to vote thereon.
SECTION 2.8 NOTICE OF STOCKHOLDER BUSINESS.
(a) ANNUAL MEETING OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board of Directors
of the Corporation and the proposal of any other business to be considered at an
annual meeting of the stockholders may be made only (a) by or at the direction
of the Board of Directors, or (b) by any stockholder of record of the
Corporation who gives notice in accordance with the procedures set forth in
clauses (2) and (3) of this paragraph 2.8(a) of this Bylaw, and who is a
stockholder of record both on the date of giving such notice and on the record
date for determination of stockholders entitled to vote at such annual meeting.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (b) of paragraph
2.8(a)(1) of this Bylaw, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than ninety days nor more than one
hundred and twenty days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the one hundred and twentieth day prior to such
annual meeting and not later than the close of business on the later of the
ninetieth day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder,
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; (b) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder,
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as they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such stockholder and such beneficial owner. In no event shall
the public announcement of an adjournment of an annual meeting commence a new
time period for the giving of a stockholder's notice as described above.
(3) Notwithstanding anything in the second sentence of paragraph
2.8(a)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as are specified in the Corporation's Notice of Meeting, if the
stockholder's notice as required by paragraph 2.8(a)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the ninetieth day prior to such special meeting and not later
than the close of business on the later of the seventieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
(c) GENERAL.
(1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in
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accordance with the procedures set forth in this Bylaw. Except as otherwise
provided by law, the Certificate of Incorporation or these Bylaws, the chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Bylaw and, if any proposed nomination or
business is not in compliance with this Bylaw, to declare that such defective
proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act (or their successor provisions), or in a notice
of meeting or proxy statement mailed generally to the Corporation's
stockholders.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 (or its successor
provision) under the Exchange Act.
SECTION 2.9 LIST OF STOCKHOLDERS. After the record date for a meeting of
stockholders has been fixed, at least ten days before such meeting, the officer
or other agent of the Corporation who has charge of the stock ledger of the
Corporation shall make a list of all stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place in the city where the meeting
is to be held, which place is to be specified in the notice of the meeting, or
at the place where the meeting is to be held. Such list shall also, for the
duration of the meeting, be produced and kept open to the examination of any
stockholder who is present at the time and place of the meeting.
SECTION 2.10 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
(a) The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are
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unable to act, at a meeting of stockholders, the chairman of the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
discharging his or her duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his or her ability. The inspectors shall have the duties prescribed by the
General Corporation Law of the State of Delaware.
(b) The chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
SECTION 2.11 CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. The stockholders
of the Corporation may not take action by written consent without a meeting but
must take any such actions at a duly called annual or special meeting.
SECTION 2.12 RATIFICATION OF ACTS OF DIRECTORS AND OFFICERS. Except as
otherwise provided by law or by the Certificate of Incorporation of the
Corporation, any transaction or contract or act of the Corporation or of the
directors or the officers of the Corporation may be ratified by the affirmative
vote of the holders of the number of shares of Voting Stock which would have
been necessary to approve such transaction, contract or act at a meeting of
stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law, by the Certificate of
Incorporation or by these Bylaws required to be exercised or done by the
stockholders. Except as otherwise provided in the Certificate of Incorporation,
each director of the Corporation shall be entitled to one vote per director on
all matters voted or acted upon by the Board of Directors.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights of the
holders of any series of Preferred Stock, or any other series or class of stock
as set forth in the Certificate of Incorporation, to elect directors under
specified circumstances, the number of directors shall initially be eight and
shall be fixed from time to time thereafter by a majority of the Board of
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Directors. Except as provided in Section 3.10 of these bylaws, directors shall
be elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal.
SECTION 3.3 REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without notice other than this Bylaw immediately after, and at the
same place as, each annual meeting of stockholders. The Board of Directors may,
by resolution, provide the time and place for the holding of additional regular
meetings without notice other than such resolution.
SECTION 3.4 SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors. The person or persons authorized to call
special meetings of the Board of Directors may fix the place and time of the
meetings.
SECTION 3.5 NOTICE. Notice of any special meeting shall be given to each
director at his business or residence in writing or by facsimile or by telephone
communication. If mailed, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon prepaid,
at least five days before such meeting. If by facsimile transmission, such
notice shall be transmitted at least twenty-four hours before such meeting. If
by telephone, the notice shall be given at least twelve hours prior to the time
set for the meeting. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice of such meeting, except for amendments to these Bylaws as provided
under Section 8.1 of Article VIII hereof. A meeting may be held at any time
without notice if all the directors are present (except as otherwise provided by
law) or if those not present waive notice of the meeting in writing, either
before or after such meeting.
SECTION 3.6 CONFERENCE TELEPHONE MEETINGS. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.7 QUORUM. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
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SECTION 3.8 VACANCIES. Subject to the rights of the holders of any series
of Preferred Stock, or any other series or class of stock as set forth in the
Certificate of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, or by a sole remaining director. Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the Whole Board shall shorten the term of any incumbent director.
SECTION 3.9 COMMITTEE.
(a) The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; PROVIDED, however, that no such committee shall
have the power or authority to approve or adopt, or recommend to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or to adopt, amend
or repeal any Bylaw of the Corporation; and unless the resolution designating
the committee, these Bylaws or the Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board.
(b) Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. Each committee shall keep regular minutes of its
meetings and report the same to the Board, when required. Unless otherwise
specified in the Board resolution appointing the Committee, all provisions of
the Delaware General Corporation Law and these Bylaws relating
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to meetings, action without meetings, notice (and waiver thereof) and quorum and
voting requirements of the Board apply, as well, to such committees and their
members.
SECTION 3.10 REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, or any other series or class of stock as set forth in the
Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, with or without cause, only by the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3 %) of the
voting power of the then outstanding Voting Stock, voting together as a single
class.
SECTION 3.11 INFORMAL ACTION OF DIRECTORS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
ARTICLE IV
OFFICERS
SECTION 4.1 ELECTED OFFICERS. The elected officers of the Corporation shall
be a Chairman of the Board, a President, a Secretary, a Treasurer, and such
other officers as the Board of Directors from time to time may deem proper,
including without limitation one or more Vice Presidents, Assistant Secretaries
or Assistant Treasurers. The Chairman of the Board shall be chosen from the
directors. All officers chosen by the Board of Directors shall each have such
powers and duties as generally pertain to their respective offices, subject to
the specific provisions of this Article IV. Such officers shall also have powers
and duties as from time to time may be conferred by the Board of Directors or by
any committee thereof. Any number of offices may be held by the same person.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.7 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign. Election or appointment of an officer or agent shall not of itself
create contract rights.
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SECTION 4.3 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
at all meetings of the Board.
SECTION 4.4 PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President and Chief
Executive Officer shall be the general manager of the Corporation, subject to
the control of the Board of Directors, and as such shall preside at all meetings
of shareholders, shall have general supervision of the affairs of the
Corporation, shall sign or countersign or authorize another officer to sign all
certificates, contracts, and other instruments of the Corporation as authorized
by the Board of Directors, shall make reports to the Board of Directors and
shareholders, and shall perform all such other duties as are incident to such
office or are properly required by the Board of Directors. If the Board of
Directors creates the office of Chief Executive Officer as a separate office
from President, the President shall be the chief operating officer of the
corporation and shall be subject to the general supervision, direction, and
control of the Chief Executive Officer unless the Board of Directors provides
otherwise.
SECTION 4.5 SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these Bylaws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board or the President, or by the Board of Directors,
upon whose request the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the Board of Directors, any
committees thereof and the stockholders of the Corporation in a book to be kept
for that purpose, and shall perform such other duties as may be assigned to him
by the Board of Directors, the Chairman of the Board or the President. He shall
have custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the Board of Directors, the
Chairman of the Board or the President, and attest to the same.
SECTION 4.6 TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond for the faithful discharge of his duties in such amount
and with such surety as the Board of Directors shall prescribe.
SECTION 4.7 REMOVAL. Any officer elected by the Board of Directors may be
removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would
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be served thereby. No elected officer shall have any contractual rights against
the Corporation for compensation by virtue of such election beyond the date of
the election of his successor, his death, his resignation or his removal,
whichever event shall first occur, except as otherwise provided in an employment
contract or an employee plan.
SECTION 4.8 VACANCIES. A newly created office and a vacancy in any office
because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
SECTION 4.9 DUTIES OF OFFICER MAY BE DELEGATED. In the event of an absence
of any officer of the Corporation, or for any other reason the Board of
Directors may deem sufficient, the Board of Directors may delegate the powers or
duties, or any of such powers or duties, of any officers or officer to any other
officer or to any director.
SECTION 4.10 COMPENSATION. The Board of Directors shall have the authority
to establish reasonable compensation of all officers for services to the
Corporation.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1 STOCK CERTIFICATES AND TRANSFERS.
(a) The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The certificates of
stock shall be signed in the name of the Corporation by the Chairman of the
Board, Chief Executive Officer, President or any Vice President, and by the
Treasurer, Secretary or any Assistant Treasurer or Assistant Secretary of the
Corporation. Any or all signatures on the certificate may be facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
(b) The shares of the stock of the Corporation shall be transferred on
the books of the Corporation by the holder thereof in person or by his attorney,
upon surrender for cancellation of certificates for the same number of shares,
with an assignment and power of transfer endorsed thereon or attached thereto,
duly executed, and with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require.
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(c) The Board of Directors, Chairman of the Board, Chief Executive
Officer, President or Secretary may direct a new certificate of stock to be
issued in place of any certificate theretofore issued by the Corporation and
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming that the certificate of stock has been lost,
stolen or destroyed. When authorizing such issuance of a new certificate, the
Board or any such officer may, as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or such owner's legal representative, to advertise the same in such manner as
the Board or such officer shall require and/or to give the Corporation a bond or
indemnity, in such sum or on such terms and conditions as the Board or such
officer may direct, as indemnity against any claim that may be made against the
Corporation on account of the certificate alleged to have been lost, stolen or
destroyed or on account of the issuance of such new certificate or
uncertificated shares.
ARTICLE VI
RECORD DATE
SECTION 6.1 ACTIONS BY STOCKHOLDERS. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board, and which record date shall not be more than 60 days nor less than
ten days before the date of such meeting. If no record date is fixed by the
Board, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting,
unless the Board fixes a new record date for the adjourned meeting.
SECTION 6.2 PAYMENTS. In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto.
SECTION 6.3 STOCKHOLDERS OF RECORD. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, to receive notifications, to vote as such owner
and to exercise all the rights and powers of an owner.
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The Corporation shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise may be
provided by the Delaware General Corporation Law.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
SECTION 7.1 RIGHT TO INDEMNIFICATION. The Corporation (and any successor to
the Corporation by merger or otherwise) shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that he
or she, or a person for whom he or she is the legal representative, is or was a
director or officer of the Corporation or, while a director or officer of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a partnership, limited
liability company, joint venture, trust, enterprise or nonprofit entity,
including service with respect to an employee benefit plan, against all
liability, expense and loss (including attorneys' fees, judgments, fines, ERISA
taxes or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by such Indemnitee, but only if such Indemnitee
acted in good faith and in a manner such Indemnitee reasonably believed to be in
or not opposed to the best interests of the Corporation, and with respect to any
criminal proceeding, had no reasonable cause to believe such Indemnitee's
conduct was unlawful. Notwithstanding the preceding sentence, except for a suit
or action brought under Section 7.3 hereof, the Corporation shall be required to
indemnify an Indemnitee in connection with a Proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board of Directors of the
Corporation.
SECTION 7.2 PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred by an Indemnitee in defending any
Proceeding in advance of its final disposition; PROVIDED, however, that to the
extent required by law, such payment of expenses in advance of the final
disposition of the Proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VII or otherwise.
SECTION 7.3 CLAIMS. If a claim for indemnification or payment of expenses
under this Article VII is not paid in full within sixty days after a written
claim therefor by the Indemnitee has been received by the Corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
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prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
SECTION 7.4 AUTHORIZATION. Any indemnification under Section 7.1 (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in Section 7.1. Such determination shall be made
(a) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (c) by the stockholders.
SECTION 7.5 NONEXCLUSIVITY OF RIGHTS. The rights conferred on any
Indemnitee by this Article VII shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.
SECTION 7.6 AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
SECTION 7.7 OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES. This Article
VII shall not limit the right of the Corporation, to the extent and in the
manner permitted by law, to indemnify and to advance expenses to persons other
than Indemnitees when and as authorized by the Board.
SECTION 7.8 SURVIVAL OF INDEMNIFICATION RIGHTS. The rights to
indemnification and advance payment of expenses provided by Section 7.1 and 7.2
hereof shall continue as to a person who has ceased to be a director, officer,
employee or agent of the Corporation and shall inure to the benefit of the
personal representatives, heirs, executors and administrators of such person.
SECTION 7.9 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, partner (limited or general),
manager, trustee or agent of another corporation or of a partnership, joint
venture, limited liability company, trust or other enterprise, against any
liability asserted against such person or incurred by such person in any such
capacity, or arising out of
16
<PAGE>
such person's status as such, and related expenses, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of applicable law.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 FISCAL YEAR. The fiscal year of the Corporation shall begin on
the first day of January and end on the thirty-first day of December of each
year.
SECTION 8.2 DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
SECTION 8.3 SEAL. The corporate seal shall have inscribed the name of the
Corporation thereon and shall be in such form as may be approved from time to
time by the Board of Directors.
SECTION 8.4 WAIVER OF NOTICE. Whenever any notice is required to be given
to any stockholder or director of the Corporation under the provisions of the
General Corporation Law of the State of Delaware, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at, nor the purpose of, any annual
or special meeting of the stockholders of the Board of Directors need be
specified in any waiver of notice of such meeting.
SECTION 8.5 AUDITS. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
SECTION 8.6 RESIGNATIONS. Any director or any officer, whether elected or
appointed, may resign at any time by serving written notice of such resignation
on the Chairman of the Board, the President or the Secretary, and such
resignation shall be deemed to be effective as of the close of business on the
date said notice is received by the Chairman of the Board, the President, or the
Secretary or at such later date as is stated therein. No formal action shall be
required of the Board of Directors or the stockholders to make any such
resignation effective.
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SECTION 8.7 CONTRACTS. Except as otherwise required by law, the Certificate
of Incorporation or these Bylaws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the Corporation by such
officer or officers of the Corporation as the Board of Directors may from time
to time direct. Such authority may be general or confined to specific instances
as the Board may determine. The Chairman of the Board, the President or any Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed for or on behalf of the Corporation. Subject to any
restrictions imposed by the Board of Directors or the Chairman of the Board, the
President or any Vice President of the Corporation may delegate contractual
powers to others under his jurisdiction, it being understood, however, that any
such delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 8.8 PROXIES. Unless otherwise provided by resolution adopted by the
Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint any attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock and other securities of such other corporation or other entity, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE IX
AMENDMENTS
SECTION 9.1 AMENDMENTS. These Bylaws may be amended, altered, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
that, notwithstanding any other provisions of these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least 75 percent of the voting power of
the then outstanding Voting Stock, voting together as a single class, shall be
required in order for stockholders to alter, amend or repeal any provision of
these Bylaws or to adopt any additional bylaw.
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Exhibit 9.1
AGREEMENT AND IRREVOCABLE PROXY
THIS AGREEMENT AND IRREVOCABLE PROXY (this "Agreement") dated this 20th
day of July, 1999, is made by and between Commonwealth Principals II, LLC, a
Delaware limited liability company (the "Stockholder") and Richard M. Scruggs
(the "Proxy Holder").
RECITALS
A. The Stockholder is the owner, beneficially and of record, of shares of common
stock of Luminant Worldwide Corporation, a Delaware corporation (the "Company"),
with full power to vote these shares on all matters upon which Stockholders of
the Company are entitled to vote.
B. Pursuant to an agreement styled Agreement and Plan of Organization dated June
2, 1999 (the "Plan"), by and among the Company, Align Solutions Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of the Company (the
"Subsidiary"), Align Solutions Corp., a Delaware corporation ("Align"), and the
stockholders of Align, the parties to the Plan have agreed to merge Align with
and into the Subsidiary (the "Merger"). Simultaneously with the closing of the
Merger, the Company intends to close the initial public offering of its shares
of common stock and close the acquisition of seven other companies (collectively
the Merger and these other closings being the "AIPO").
C. The Proxy Holder is currently a stockholder of Align and, upon the closing of
the Merger, the Proxy Holder will become the owner, beneficially and of record,
of shares of common stock of the Company.
D. With respect to a portion of the shares of common stock of the Company owned
by the Stockholder, the Stockholder desires to grant an irrevocable proxy (the
"Proxy") to Proxy Holder on the terms contained herein in order to facilitate
the orderly corporate governance of the Company and for the mutual benefit of
the Stockholder the Company, and the other participants in the IPO.
NOW THEREFORE, in consideration of the premises, one hundred dollars
($100.00) paid in hand, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Stockholder and the Proxy
Holder agree as follows:
1. REVOCATION OF PREVIOUS PROXIES. The Stockholder hereby revokes all
previous proxies granted with respect to any shares of common stock of the
Company owned by the Stockholder.
2. GRANT OF IRREVOCABLE PROXY AND APPOINTMENT OF PROXY. During the term
of this Agreement, the Stockholder hereby irrevocably grants to, constitutes and
appoints the Proxy Holder its true and lawful proxy and attorney-in-fact with
respect to one million (1,000,000)
<PAGE>
shares of common stock of the Company now owned, beneficially and of record, by
the Stockholder (the "Shares"), with full power to vote the Shares on all
matters, to call and attend any and all meetings of the stockholders of the
Company and any adjournments thereof, to execute any and all written consents of
stockholders of the Company, and to represent and otherwise act as the
Stockholder could act, in the same manner and with the same effect as if the
Stockholder were personally present, at any annual, special or other meeting of
the stockholders of the Company, and at any adjournment thereof or pursuant to
any written consent in lieu of meeting or otherwise.
3. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder
represents and warrants to the Proxy Holder that:
a. Stockholder has full power and authority to enter into this
Agreement and to grant the Proxy, and to perform its obligations hereunder;
b. this Agreement has been duly executed and delivered by and
constitutes a valid and binding obligation of Stockholder;
c. as of the date hereof, the Shares consist of one million
(1,000,000) shares of common stock of the Company, and all of the Shares are
owned beneficially and of record by Stockholder;
d. Stockholder owns the Shares free and clear of all liens,
charges, claims, encumbrances and security interests of any nature whatsoever;
e. Stockholder has the present power and right to vote all of
the Shares;
f. Stockholder has not (i) granted any proxy,
power-of-attorney or other authorization or interest with respect to any of such
Shares, (ii) deposited any of the Shares into a voting trust or (iii) entered
into any voting agreement or other arrangement with respect to the voting of any
of the Shares; and
g. the execution and delivery of, and the performance of the
obligations under, this Agreement by Stockholder do not require the consent,
approval or authorization of, or filing with, any person or public authority and
will not violate or conflict with, result in the acceleration or termination of,
or constitute a default under, any term or provision of any charter or by-law,
indenture, license, approval, agreement, understanding or other instrument, or
any statute, rule, regulation, judgment, order or other restriction binding upon
or applicable to Stockholder other than a term, provision, statute, rule,
regulation, judgment, order or other restriction the violation of, or conflict
with, which would not have a material adverse effect on Stockholder.
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<PAGE>
4. COVENANTS. The Stockholder hereby covenants and agrees
a. that it will not vote or take any action by written consent
of stockholders in lieu of meeting on any matter which is subject to the Proxy
without the prior written consent of Proxy Holder; and
b. that it will promptly provide Proxy Holder with copies of
any stockholder notices relating to the Shares given by the Company and received
by the Stockholder.
5. CONSIDERATION. The Stockholder and the Proxy Holder each acknowledge
that the Proxy is granted in consideration in order to facilitate the orderly
closing of the IPO, to achieve certain accounting goals and for the mutual
benefit of the Stockholder the Company, and the other participants in the IPO.
STOCKHOLDER AGREES THAT THE PROXY AND ALL OTHER POWER AND AUTHORITY INTENDED TO
BE CONFERRED HEREBY IS COUPLED WITH AN INTEREST SUFFICIENT IN LAW TO SUPPORT AN
IRREVOCABLE POWER AND SHALL NOT BE TERMINATED BY ANY ACT OF STOCKHOLDER, BY LACK
OF APPROPRIATE POWER OR AUTHORITY OR BY THE OCCURRENCE OF ANY OTHER EVENT OR
EVENTS; PROVIDED, HOWEVER, THAT THE PROXY SHALL EXPIRE AS PROVIDED IN SECTION 6.
6. EXPIRATION OF PROXY. This Irrevocable Proxy shall expire and be of
no effect upon the earliest to occur of (a) the sale or other disposition of the
Shares by Stockholder (other than a disposition which is a distribution by the
Stockholder, as a holder, to its partners or beneficial owners or a transfer to
a related party of the Stockholder, as a holder (as "holder" is defined in
Sections 267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986), (b)
the acquisition by any person of beneficial ownership of 15% or more of the
outstanding shares of common stock of the Company, (c) the offer by any person
to acquire 15% or more of the outstanding shares of common stock of the Company,
or (d) the third anniversary of the date of the closing of the IPO.
7. GOVERNING LAW. The terms and provisions of this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to the provisions thereof relating to conflicts of law.
8. SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by the
successors and assigns of the parties to this Agreement.
9. SPECIFIC PERFORMANCE. The Stockholder acknowledges and agrees that
performance of its obligations under this Agreement will confer a unique benefit
on the Proxy Holder and that a failure of performance will result in irreparable
harm to the Proxy Holder and will not be compensable by money damages.
Therefore, the parties agree that this Agreement, including the Proxy, shall be
specifically enforceable and that specific enforcement and
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<PAGE>
injunctive relief shall be a remedy properly available to each party for any
breach of any agreement, covenant or representation of the other party under
this Agreement.
10. FURTHER ASSURANCES. Stockholder will, upon request, execute and
deliver any additional documents and take such further actions as may reasonably
be deemed by the Proxy Holder to be necessary or desirable to complete the Proxy
granted in this Agreement or to carry out the provisions of this Agreement.
11. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement, or the application thereof to any circumstance, shall, to any
extent, be held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement or the application thereof to any other
circumstance, shall remain in full force and effect, shall not in any way be
affected, impaired or invalidated and shall be enforced to the fullest extent
permitted by law.
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties on the subject matter contained in this Agreement and
supersedes all prior and contemporaneous agreements and understandings, oral or
written, between the parties on the subject matter contained in this Agreement.
13. NOTICES. All notices, requests, demands and other communications
provided for in this Agreement shall be in writing, shall be delivered by hand,
mailed by registered or certified first-class mail, return receipt requested,
postage prepaid or by facsimile (with machine confirmation) or overnight courier
(with proof of delivery requested), shall be deemed given when received and
shall be addressed to the parties at their respective address listed below or to
other persons or addresses that a party may designate after delivering an
appropriate notice to the other party in the manner in this Section 13:
if to the Proxy Holder, to it at: if to Stockholder, to it at:
Richard M. Scruggs Commonwealth Principals II, LLC
c/o Align Solutions Corp. 8500 Leesburg Pike
520 Post Oak Boulevard Suite 601
Suite 400 Vienna, Virginia 22182
Houston, Texas 77027 Facsimile No.: (703) 288-3085
Facsimile No.: (713) 479-7102 Attention: J. Marshall Coleman
14. MODIFICATIONS. This Agreement may not be changed, amended or
modified orally, but only by an agreement in writing signed by the party against
whom any waiver, change, amendment, modification or discharge may be sought.
15. INTERPRETATION. The section headings herein are for convenience
only and shall not
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<PAGE>
affect the meaning or interpretation of this Agreement. No provision of this
Agreement shall be interpreted or construed against either party solely because
that party or its legal representative drafted the provision.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same document. This Agreement may be executed and
delivered by facsimile signature, which signature shall be deemed an original.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first above written.
COMMONWEALTH PRINCIPALS II LLC,
a Delaware limited liability company
By: /s/ J. Marshall Coleman
------------------------------------
Name: J. Marshall Coleman
Dated: July 23, 1999 Title: Chairman
--------------------
PROXY HOLDER
By: /s/ Richard M. Scruggs
-----------------------------------
Dated: July 23, 1999 Richard M. Scruggs
--------------------
<PAGE>
EXHIBIT 10.1
FORM OF LUMINANT WORLDWIDE CORPORATION
1999 LONG-TERM INCENTIVE PLAN
PURPOSE Luminant Worldwide Corporation, a Delaware corporation
(the "COMPANY"), wishes to recruit, reward, and retain
employees and outside directors. To further these objectives,
the Company hereby sets forth the Luminant Worldwide
Corporation 1999 Long-Term Incentive Plan (the "PLAN"),
effective as of __________, 1999 (the "EFFECTIVE DATE"), to
provide options ("OPTIONS") to employees and outside directors
of the Company and its subsidiaries to purchase shares of the
Company's common stock (the "COMMON STOCK").
PARTICIPANTS All Employees of the Company and any Eligible Subsidiaries are
eligible for Options under this Plan. Eligible employees become
"OPTIONEES" when the Administrator grants them an option under
this Plan. The Administrator may also grant options to
consultants and certain other service providers. The term
OPTIONEE also includes, where appropriate, a person authorized
to exercise an Option in place of the original recipient.
EMPLOYEE means any person employed as a common law employee of
the Company or an Eligible Subsidiary.
ADMINISTRATOR The ADMINISTRATOR will be the Compensation Committee
of the Board of Directors, unless the Board specifies another
committee of the Board, but the Board may still act under the
Plan as though it were the Compensation Committee.
The Administrator is responsible for the general operation and
administration of the Plan and for carrying out its provisions
and has full discretion in interpreting and administering the
provisions of the Plan. Subject to the express provisions of
the Plan, the Administrator may exercise such powers and
authority of the Board as the Administrator may find necessary
or appropriate to carry out its functions. The Administrator
may delegate its functions (other than those described in the
GRANTING OF OPTIONS section) to officers or other employees of
the Company.
The Administrator's powers will include, but not be limited to,
the power to amend, waive, or extend any provision or
limitation of any Option. The Administrator may act through
meetings of a majority of its members or by unanimous consent.
GRANTING OF Subject to the terms of the Plan, the Administrator will, in
its sole
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Luminant Worldwide Corporation
1999 Long-Term Incentive Plan
Page 1 of 15
<PAGE>
OPTIONS discretion, determine
the persons who receive Options,
the terms of such Options,
the schedule for exercisability (including
any requirements that the optionee or the
Company satisfy performance criteria),
the time and conditions for expiration of the
Option, and
the form of payment due upon exercise.
The Administrator's determinations under the Plan need not be
uniform and need not consider whether possible recipients are
similarly situated.
Options granted to employees may be "incentive stock options"
("ISOS") within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "CODE"), or the corresponding
provision of any subsequently enacted tax statute, or
nonqualified stock options ("NQSOS"), and the Administrator
will specify which form of option it is granting. (If the
Administrator fails to specify the form, it will be an ISO.)
Options granted to outside directors, including Formula
Options, must be nonqualified stock options.
SUBSTITUTIONS The Administrator may also grant Options
in substitution for options or other
equity interests held by individuals who
become Employees of the Company or of an
Eligible Subsidiary as a result of the
Company's or Subsidiary's acquiring or
merging with the individual's employer or
acquiring its assets. In addition, the
Administrator may provide for the Plan's
assumption of options granted outside the
Plan to persons who would have been
eligible under the terms of the Plan to
receive a grant, including both persons
who provided services to any acquired
company or business and persons who
provided services to the Company or any
Subsidiary. If necessary to conform the
Options to the interests for which they
are substitutes, the Administrator may
grant substitute Options under terms and
conditions that vary from those the Plan
otherwise requires.
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Luminant Worldwide Corporation
1999 Long-Term Incentive Plan
Page 2 of 15
<PAGE>
DIRECTOR Each director who is not an employee of the Company will
FORMULA receive a formula stock option ("FORMULA OPTION") as of
OPTIONS effective date of the Company's initial public offering with
respect to 15,000 shares of Common Stock, as will each
non-employee director later appointed or elected to the
Board (with the grant made as of the date of his first
election or appointment). Each such non-employee director
serving on the Board at each annual meeting of the Company's
stockholders (beginning with the meeting at least six months
after the Effective Date and excluding directors who leave
the Board on the day of the annual meeting) will receive a
Formula Option as of that meeting with respect to 10,000
shares of Common Stock. The Exercise Price for Formula
Options will be the Fair Market Value on the Date of Grant.
EXERCISE Unless the Administrator specifies otherwise, each Formula
SCHEDULE Option will become exercisable as to one-sixth every six
months over the three years following the Date of Grant. A
Formula Option will become exercisable in its entirety upon the
director's death, disability, or attainment of age 70.
DATE OF GRANT The DATE OF GRANT will be the date as of which this Plan (for
Formula Options) or the Administrator grants an Option to a
participant, as specified in the Plan or in the Administrator's
minutes.
EXERCISE PRICE The EXERCISE PRICE is the value of the consideration that an
optionee must provide in exchange for one share of Common
Stock. The Administrator will determine the Exercise Price
under each Option and may set the Exercise Price without regard
to the Exercise Price of any other Options granted at the same
or any other time. The Company may use the consideration it
receives from the optionee for general corporate purposes.
The Exercise Price per share for NQSOs may not be less than
100% of the Fair Market Value of a share on the Date of Grant.
For ISOs, the Exercise Price per share must be at least 100% of
the Fair Market Value (on the Date of Grant) of a share of
Common Stock covered by the Option; PROVIDED, HOWEVER, that if
the Administrator decides to grant an ISO to someone covered by
Code Sections 422(b)(6) and 424(d) (as a more-than-10%-stock-
owner), the Exercise Price must be at least 110% of the Fair
Market Value.
FAIR MARKET FAIR MARKET VALUE of a share of Common Stock for purposes
VALUE of the Plan will be determined as follows:
if the Company has no publicly-traded stock,
the Administrator will determine the Fair
Market Value for purposes of the Plan using
any
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Luminant Worldwide Corporation
1999 Long-Term Incentive Plan
Page 3 of 15
<PAGE>
measure of value it determines in good
faith to be appropriate; if the Common Stock
trades on a national securities exchange, the
closing sale price on that date;
if the Common Stock does not trade on any such
exchange, the closing sale price as reported
by the National Association of Securities
Dealers, Inc. Automated Quotation System
("NASDAQ") for such date;
if no such closing sale price information is
available, the average of the closing bid and
asked prices that Nasdaq reports for such
date; or
if there are no such closing bid and asked
prices, the average of the closing bid and
asked prices as reported by any other
commercial service for such date.
For any date that is not a trading day, the Fair
Market Value of a share of Common Stock for
such date will be determined by using the
closing sale price or the average of the
closing bid and asked prices, as
appropriate, for the immediately preceding
trading day. The Administrator can
substitute a particular time of day or other
measure of "closing sale price" if
appropriate because of changes in exchange
or market procedures.
The Fair Market Value will be treated as
equal to the price established in an IPO for
any Options granted as of the IPO if they
are granted on or before the date on which
the IPO's underwriters price the IPO or
granted on the following day before trading
opens in the Common Stock.
The Administrator has sole discretion to
determine the Fair Market Value for purposes
of this Plan, and all Options are conditioned
on the optionees' agreement that the
Administrator's determination is conclusive
and binding even though others might make a
different and also reasonable determination.
EXERCISABILITY The Administrator will determine the times and conditions for
exercise of each Option.
Options will become exercisable at such times and in such
manner as the Administrator determines and the Option Agreement
indicates; PROVIDED, HOWEVER, that the Administrator may, on
such terms and conditions as it determines appropriate,
accelerate the time at which the optionee may exercise
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Luminant Worldwide Corporation
1999 Long-Term Incentive Plan
Page 4 of 15
<PAGE>
any portion of an Option.
If the Administrator does not specify otherwise, Options will
become exercisable as to one sixth of the covered shares six
months following the Date of Grant and one sixth after each
following six months.
No portion of an Option that is unexercisable at an optionee's
termination of employment will thereafter become exercisable,
unless the Option Agreement provides otherwise, either
initially or by amendment.
CHANGE OF Upon a Change of Control (as defined below), all
CONTROL Options will become fully exercisable. A CHANGE
OF CONTROL for this purpose means the occurrence
of any one or more of the following events after
the Company's IPO:
a person, entity, or group (other than the
Company, any Company subsidiary, any Company
benefit plan, or any underwriter temporarily
holding securities for an offering of such
securities) acquires ownership of more than
50% of the undiluted total voting power of
the Company's then-outstanding securities
eligible to vote to elect members of the
Board ("COMPANY VOTING SECURITIES");
consummation of a merger or consolidation of
the Company with or into any other entity --
unless the holders of the Company Voting
Securities outstanding immediately before
such consummation, together with any trustee
or other fiduciary holding securities under a
Company benefit plan, hold securities that
represent immediately after such merger or
consolidation at least 50% of the combined
voting power of the then outstanding voting
securities of either the Company or the other
surviving entity or its parent; or
the stockholders of the Company approve (i) a
plan of complete liquidation or dissolution
of the Company or (ii) an agreement for the
Company's sale or disposition of all or
substantially all the Company's assets, AND
such liquidation, dissolution, sale, or
disposition is consummated.
Even if other tests are met, a Change of Control has not
occurred under any circumstance in which the Company files for
bankruptcy protection or is reorganized following a bankruptcy
filing. [CHECK WITH ACCOUNTANTS: In addition, unless the Board
determines otherwise, the acceleration will not occur if it
would render unavailable "pooling of interest" accounting for
any reorganization, merger, or consolidation of the Company.]
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Luminant Worldwide Corporation
1999 Long-Term Incentive Plan
Page 5 of 15
<PAGE>
The ADJUSTMENT UPON CHANGES IN CAPITAL STOCK provisions will
also apply if the Change of Control is a SUBSTANTIAL CORPORATE
CHANGE (as defined in those provisions). If a Change in Control
is also a Substantial Corporate Change, the Change in Control
provision will apply before the application of the Substantial
Corporate Change provision.
LIMITATION ON An Option granted to an employee will be an ISO only to the
ISOS extent that the aggregate Fair Market Value (determined at
the Date of Grant) of the stock with respect to which ISOs are
exercisable for the first time by the optionee during any
calendar year (under the Plan and all other plans of the
Company and its subsidiary corporations, within the meaning of
Code Section 422(d)), does not exceed $100,000. This limitation
applies to Options in the order in which such Options were
granted. If, by design or operation, the Option exceeds this
limit, the excess will be treated as an NQSO.
METHOD OF To exercise any exercisable portion of an Option, the optionee
EXERCISE must:
Deliver notice of exercise to the Secretary
of the Company (or to whomever the
Administrator designates), in a form
complying with any rules the Administrator
may issue, signed or otherwise authenticated
by the optionee, and specifying the number of
shares of Common Stock underlying the portion
of the Option the optionee is exercising;
Pay the full Exercise Price by cash or a
cashier's or certified check for the shares
of Common Stock with respect to which the
Option is being exercised, unless the
Administrator consents to another form of
payment (which could include loans from the
Company or the use of Common Stock); and
Deliver to the Administrator such
representations and documents as the
Administrator, in its sole discretion, may
consider necessary or advisable.
After an IPO, payment in full of the Exercise Price need not
accompany the written notice of exercise if the exercise
complies with a previously-approved cashless exercise method,
including, for example, that the notice directs that the stock
certificates (or other indicia of ownership) for the shares
issued upon the exercise be delivered to a licensed broker
acceptable to the Company as the agent for the individual
exercising the option and at the time the stock certificates
(or
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Luminant Worldwide Corporation
1999 Long-Term Incentive Plan
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<PAGE>
other indicia) are delivered to the broker, the broker will
tender to the Company cash or cash equivalents acceptable to
the Company and equal to the Exercise Price and any required
withholding taxes.
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<PAGE>
If the Administrator agrees to allow an optionee to pay through
tendering shares of Common Stock to the Company, the individual
can only tender stock he has held for at least six months at
the time of surrender. Shares of stock offered as payment will
be valued, for purposes of determining the extent to which the
optionee has paid the Exercise Price, at their Fair Market
Value on the date of exercise. The Administrator may also, in
its discretion, accept attestation of ownership of Common Stock
and issue a net number of shares upon Option exercise, or,
after an IPO, by having a broker tender to the Company cash
equal to the exercise price and any withholding taxes.
OPTION No one may exercise an Option more than ten years after its
EXPIRATION (or five years for ISOs granted to 10% owners covered by Code
Date of Grant Sections 422(b)(6) and 424(d)). Unless the
Option Agreement provides otherwise, either initially or by
amendment, no one may exercise an Option after the first to
occur of:
EMPLOYMENT The 90th day after the date of termination of
TERMINATION employment (other than for death or Disability),
where termination of employment means the time
when the employer-employee or other
service-providing relationship between the
employee and the Company ends for any reason,
including retirement. The Administrator may
provide that Options terminate immediately
upon termination of employment for "cause"
under an employee's employment or consultant's
services agreement or under another definition
specified in the Option Agreement. Unless the
Option Agreement provides otherwise,
termination of employment does not include
instances in which the Company immediately
rehires a common law employee as an
independent contractor. The Administrator, in
its sole discretion, will determine all
questions of whether particular terminations
or leaves of absence are terminations of
employment.
GROSS MISCONDUCT For the Company's termination of the optionee's
employment as a result of the optionee's Gross
Misconduct, the time of such termination. For
purposes of this Plan, "GROSS MISCONDUCT"
means the optionee has
committed fraud, misappropriation,
embezzlement, or willful misconduct that has
resulted or is likely to result in material
harm to the Company;
committed or been indicted for or convicted
of, or pled guilty or no contest to, any
misdemeanor (other than for minor infractions
or traffic violations) involving fraud, breach
of trust, misappropriation, or other similar
activity, or any
felony; or
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Luminant Worldwide Corporation
1999 Long-Term Incentive Plan
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<PAGE>
committed an act of gross negligence or
otherwise acted with willful disregard for the
Company's best interests in a manner that has
resulted or is likely to result in material
harm to the Company.
If the optionee has a written employment agreement
in effect at the time of his termination that
specifies "cause" for termination, "Gross
Misconduct" for purposes of his termination
will refer to "cause" under the employment
agreement, rather than to the foregoing
definition.
DISABILITY For disability, the earlier of (i) the first
anniversary of the optionee's termination of
employment for disability and (ii) 60 days
after the optionee no longer has a disability,
where "DISABILITY" means the inability to
engage in any substantial gainful activity
because of any medically determinable physical
or mental impairment that can be expected to
result in death or that has lasted or can be
expected to last for a continuous period of
not less than 12 months; or
DEATH The date 12 months after the optionee's death.
If exercise is permitted after termination of employment, the
Option will nevertheless expire as of the date that the former
service provider violates any covenant not to compete or other
post-employment covenant in effect between the Company and the
former service provider. In addition, an optionee who exercises
an Option more than 90 days after termination of employment
with the Company and/or Eligible Subsidiaries will only receive
ISO treatment to the extent the law permits, and becoming or
remaining an employee of another related company (that is not
an Eligible Subsidiary) or an independent contractor will not
prevent loss of ISO status because of the formal termination of
employment.
Nothing in this Plan extends the term of an Option beyond the
tenth anniversary of its Date of Grant, nor does anything in
this OPTION EXPIRATION section make an Option exercisable that
has not otherwise become exercisable.
OPTION Option Agreements (which could be certificates) will set forth
AGREEMENT the terms of each Option and will include such terms and
conditions, consistent with the Plan, as the Administrator may
determine are necessary or advisable. To the extent the
agreement is inconsistent with the Plan, the Plan will govern.
The Option Agreements may contain special rules.
PUT AND CALL The Administrator may provide in Option Agreements that the
RIGHTS Company has the right (or obligation) to purchase outstanding
Options, or the shares
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<PAGE>
received from exercising an Option, under certain
circumstances, including termination of employment for any
reason or death and may provide for rights of first refusal.
The Administrator may distinguish between unexercisable and
exercisable Options.
STOCK SUBJECT Except as adjusted below under CORPORATE CHANGES,
TO PLAN
the aggregate number of shares of Common
Stock that may be issued under Options may
not exceed 12,838,602 (which will be
automatically adjusted to equal 30% of the
sum of the shares of Common Stock outstanding
immediately after the IPO plus any shares
reserved for underwriter over-allotments),
the maximum number of shares that may be
granted under Options for a single individual
in a calendar year may not exceed 50% of the
preceding number (The individual maximum
applies only to Options first made under this
Plan and not to Options made in substitution
of a prior employer's options or other
incentives, except as Code Section 162(m)
otherwise requires.), and
the aggregate number of shares of Common
Stock that may be issued under incentive
stock options may not exceed 6,000,000.
The Common Stock will come from either authorized but unissued
shares or from previously issued shares that the Company
reacquires, including shares it purchases on the open market or
treasury shares. If any Option expires, is canceled, or
terminates for any other reason, the shares of Common Stock
available under that Option will again be available for the
granting of new Options (but will be counted against that
calendar year's limit for a given individual).
No adjustment will be made for a dividend or other right for
which the record date precedes the date of exercise.
The optionee will have no rights of a stockholder with respect
to the shares of stock subject to an Option except to the
extent that the Company has issued certificates for, or
otherwise confirmed ownership of, such shares upon the exercise
of the Option.
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<PAGE>
The Company will not issue fractional shares pursuant to the
exercise of an Option, but the Administrator may, in its
discretion, direct the Company to make a cash payment in lieu
of fractional shares.
PERSON WHO During the optionee's lifetime and except as provided under
MAY EXERCISE TRANSFERS, ASSIGNMENTS, AND PLEDGES, only the optionee or his
duly appointed guardian or personal representative may exercise
the Options. After his death, his personal representative or
any other person authorized under a will or under the laws of
descent and distribution may exercise any then exercisable
portion of an Option. If someone other than the original
recipient seeks to exercise any portion of an Option, the
Administrator may request such proof as it may consider
necessary or appropriate of the person's right to exercise the
Option.
ADJUSTMENTS Subject to any required action by the Company (which it agrees
UPON CHANGES to promptly take) or its stockholders, and subject to the
IN CAPITAL provisions of applicable corporate law, if, after the Date of
STOCK Grant of an Option,
the outstanding shares of Common Stock
increase or decrease or change into or are
exchanged for a different number or kind of
security because of any recapitalization,
reclassification, stock split, reverse stock
split, combination of shares, exchange of
shares, stock dividend, or other distribution
payable in capital stock, or
some other increase or decrease in such
Common Stock occurs without the Company's
receiving consideration (excluding, unless
the Administrator determines otherwise, stock
repurchases),
the Administrator must make a proportionate and appropriate
adjustment in the number of shares of Common Stock underlying
each Option, so that the proportionate interest of the optionee
immediately following such event will, to the extent
practicable, be the same as immediately before such event.
(This adjustment does not apply to Common Stock that the
optionee has already purchased.) Unless the Administrator
determines another method would be appropriate, any such
adjustment to an Option will not change the total price with
respect to shares of Common Stock underlying the unexercised
portion of the Option but will include a corresponding
proportionate adjustment in the Option's Exercise Price.
The Administrator will make a commensurate change to the
maximum number and kind of shares provided in the STOCK SUBJECT
TO PLAN section.
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<PAGE>
Any issue by the Company of any class of preferred stock, or
securities convertible into shares of common or preferred stock
of any class, will not affect, and no adjustment by reason
thereof will be made with respect to, the number of shares of
Common Stock subject to any Option or the Exercise Price except
as this ADJUSTMENTS section specifically provides. The grant of
an Option under the Plan will not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure, or to merge or to consolidate, or to dissolve,
liquidate, sell, or transfer all or any part of its business or
assets.
SUBSTANTIAL Upon a SUBSTANTIAL CORPORATE CHANGE, the Plan and any
CORPORATE unexercised Options will TERMINATE unless provision is made in
CHANGE writing in connection with such transaction for
the assumption or continuation of outstanding
Options, or
the substitution for such options or grants
of any options or grants covering the stock
or securities of a successor employer
corporation, or a parent or subsidiary of
such successor, with appropriate adjustments
as to the number and kind of shares of stock
and prices, in which event the Options will
continue in the manner and under the terms so
provided.
If an Option would otherwise terminate under the preceding
sentence and the Fair Market Value indicated by the Substantial
Corporate Change exceeds or is likely to exceed the Exercise
Price, the Administrator will either provide that
optionees will have the right, at such time
before the consummation of the transaction
causing such termination as the Board
reasonably designates, to exercise any
unexercised portions of the Option, whether
or not they had previously become
exercisable, or
cause the Company, or agree to allow the
successor, to cancel each Option after
payment to the optionee of an amount in cash,
cash equivalents, or successor equity
interests equal to the Fair Market Value
under the transaction minus the Exercise
Price for the shares covered by the Option.
The Board or other Administrator may take any actions described
in ADJUSTMENTS UPON CHANGES IN CAPITAL STOCK section, including
the Substantial Corporate Changes section, without any
requirement to seek optionee consent. [PENDING
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<PAGE>
COMMENTS FROM ACCOUNTANTS: However, unless the Board determines
otherwise, the acceleration will not occur if it would render
unavailable "pooling of interest" accounting for any
reorganization, merger, or consolidation of the Company.]
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<PAGE>
A SUBSTANTIAL CORPORATE CHANGE means the
dissolution or liquidation of the Company,
merger, consolidation, or reorganization of
the Company with one or more corporations or
other entities in which the Company is not the
surviving corporation,
the sale of substantially all of the assets of the
Company to another entity or an individual, or
any transaction (including a merger or
reorganization in which the Company survives)
approved by the Board that results in any
person or entity (other than any affiliate of
the Company as defined in Rule 144(a)(1)
under the Securities Act, any Company
Subsidiary, any Company benefit plan, or any
underwriter temporarily holding securities
for an offering of such securities) owning
100% of the combined voting power of all
classes of stock of the Company.
SUBSIDIARY Employees of Company Subsidiaries will be entitled to
EMPLOYEES participate in the Plan, except as otherwise designated by the
Board of Directors or the Administrator.
Eligible Subsidiary means each of the Company's Subsidiaries,
except as the Administrator otherwise specifies. For ISO
grants, SUBSIDIARY means any corporation (other than the
Company) in an unbroken chain of corporations beginning with
the Company if, at the time an Option is granted to a
Participant under the Plan, each corporation (other than the
last corporation in the unbroken chain) owns stock possessing
50% or more of the total combined voting power of all classes
of stock in another corporation in such chain. For ISOs,
Subsidiary also includes a single-member limited liability
company included within the chain described in the preceding
sentence. The Board or the Administrator may use a different
definition of Subsidiary for NQSOs.
LEGAL The Company will not issue any shares of Common Stock under an
COMPLIANCE Option until all applicable requirements imposed by Federal and
state securities and other laws, rules, and regulations, and by
any applicable regulatory agencies or stock exchanges, have
been fully met. To that end, the Company may require the
optionee to take any reasonable action to comply with such
requirements before issuing such shares. No provision in the
Plan or action taken under it authorizes
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<PAGE>
any action that Federal or state laws otherwise prohibit.
The Plan is intended to conform to the extent necessary with
all provisions of the Securities Act of 1933 ("SECURITIES ACT")
and the Securities Exchange Act of 1934 and all regulations and
rules the Securities and Exchange Commission issues under those
laws. Notwithstanding anything in the Plan to the contrary, the
Administrator must administer the Plan, and Options may be
granted and exercised, only in a way that conforms to such
laws, rules, and regulations. To the extent permitted by
applicable law, the Plan and any Options will be treated as
amended to the extent necessary to conform to such laws, rules,
and regulations.
PURCHASE FOR Unless a registration statement under the Securities Act covers
INVESTMENT the shares of Common Stock an optionee receives upon exercising
AND OTHER his Option, the Administrator may require, at the time of
RESTRICTIONS such exercise, that the optionee agree in writing to acquire
such shares for investment and not for public resale or
distribution, unless and until the shares subject to the Option
are registered under the Securities Act. Unless the shares are
registered under the Securities Act, the optionee must
acknowledge:
that the shares purchased on exercise of the
Option are not so registered,
that the optionee may not sell or otherwise transfer
the shares unless
the shares have been registered under the
Securities Act in connection with the sale or
transfer thereof, or
counsel satisfactory to the Company
has issued an opinion satisfactory
to the Company that the sale or
other transfer of such shares is
exempt from registration under the
Securities Act, and
such sale or transfer complies with
all other applicable laws, rules,
and regulations, including all
applicable Federal and state
securities laws, rules, and
regulations.
Additionally, the Common Stock, when issued upon the exercise
of an Option, will be subject to any other transfer
restrictions, rights of first refusal, and rights of repurchase
set forth in or incorporated by reference into other applicable
documents, including the Option Agreements, or the Company's
articles or certificate of incorporation, by-laws, or generally
applicable stockholders' agreements.
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<PAGE>
The Administrator may, in its sole discretion, take whatever
additional actions it deems appropriate to comply with such
restrictions and applicable laws, including placing legends on
certificates and issuing stop-transfer orders to transfer
agents and registrars.
TAX WITHHOLDING The optionee must satisfy all applicable Federal, state, and
local income and employment tax withholding requirements before
the Company will deliver stock certificates or otherwise
recognize ownership upon the exercise of an Option. The Company
may decide to satisfy the withholding obligations through
additional withholding on salary or wages. If the Company does
not or cannot withhold from other compensation, the optionee
must pay the Company, with a cashier's check or certified
check, the full amounts required for withholding. Payment of
withholding obligations is due at the same time as is payment
of the Exercise Price. If the Administrator so determines, the
optionee may instead satisfy the withholding obligations by
directing the Company to retain shares from the Option
exercise, by tendering previously owned shares, or by attesting
to his ownership of shares (with the distribution of net
shares), or, after an IPO, by having a broker tender to the
Company cash equal to the withholding taxes.
TRANSFERS, Unless the Administrator otherwise approves in advance in
ASSIGNMENTS, writing for estate planning or other purposes, an Option may
AND PLEDGES not be assigned, pledged, or otherwise transferred in any way,
whether by operation of law or otherwise or through any legal
or equitable proceedings (including bankruptcy), by the
optionee to any person, except by will or by operation of
applicable laws of descent and distribution. If necessary to
comply with Rule 16b-3, the optionee may not transfer or pledge
shares of Common Stock acquired upon exercise of an Option
until at least six months have elapsed from (but excluding) the
Date of Grant, unless the Administrator approves otherwise in
advance in writing. The Administrator may, in its discretion,
expressly provide that an optionee may transfer his Option,
without receiving consideration, to (i) members of his
immediate family (children, grandchildren, or spouse), (ii)
trusts for the benefit of such family members, or (iii)
partnerships whose only partners are such family members.
AMENDMENT OR The Board may amend, suspend, or terminate the Plan at any
TERMINATION time, without the consent of the optionees or their
OF PLAN AND beneficiaries; PROVIDED, HOWEVER, that no amendment will
OPTIONS deprive any optionee or beneficiary of any previously
declared Option. Except as required by law or by the
Substantial Corporate Changes section, the Administrator may
not, without the optionee's or
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Luminant Worldwide Corporation
1999 Long-Term Incentive Plan
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<PAGE>
beneficiary's consent, modify the terms and conditions of an
Option so as to adversely affect the optionee. No amendment,
suspension, or termination of the Plan will, without the
optionee's or beneficiary's consent, terminate or adversely
affect any right or obligations under any outstanding Options,
except as provided in the SUBSTANTIAL CORPORATE CHANGES
Section.
PRIVILEGES OF No optionee and no beneficiary or other person claiming under
STOCK or through such optionee will have any right, title, or
OWNERSHIP interest in or to any shares of Common Stock allocated or
reserved under the Plan or subject to any Option except as to
such shares of Common Stock, if any, already issued to such
optionee.
EFFECT ON Whether exercising an Option causes the optionee to accrue or
OTHER PLANS receive additional benefits under any pension or other plan is
governed solely by the terms of such other plan.
LIMITATIONS ON Notwithstanding any other provisions of the Plan, no individual
LIABILITY acting as a director, officer, other employee, or agent of the
Company will be liable to any optionee, former optionee,
spouse, beneficiary, or any other person for any claim, loss,
liability, or expense incurred in connection with the Plan, nor
will such individual be personally liable because of any
contract or other instrument he executes in such other
capacity. The Company will indemnify and hold harmless each
director, officer, other employee, or agent of the Company to
whom any duty or power relating to the administration or
interpretation of the Plan has been or will be delegated,
against any cost or expense (including attorneys' fees) or
liability (including any sum paid in settlement of a claim with
the Board's approval) arising out of any act or omission to act
concerning this Plan unless arising out of such person's own
fraud or bad faith.
NO EMPLOYMENT Nothing contained in this Plan constitutes an employment
CONTRACT contract between the Company and the optionees. The Plan does
not give any optionee any right to be retained in the Company's
employ, nor does it enlarge or diminish the Company's right to
end the optionee's employment or other relationship with the
Company.
APPLICABLE LAW The laws of the State of Delaware (other than its
choice of law provisions) govern this Plan and its
interpretation.
DURATION OF Unless the Board extends the Plan's term, the Administrator may
PLAN not grant Options after_________, 2009. The Plan will then
terminate but will continue to govern unexercised and unexpired
Options.
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1999 Long-Term Incentive Plan
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<PAGE>
APPROVAL OF The Plan must be submitted to Company stockholders for their
THE PLAN approval within 12 months after the Board adopts the Plan to
qualify any Options designated as ISOs for treatment as such.
If the stockholders do not so approve the Plan, the Plan and
any outstanding Options will be treated as void and of no
effect.
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Page 18 of 15
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of 1st day
of September, 1998, by and between WebOne, Inc. (the "Company") a Delaware
corporation and Guillermo G. Marmol ("Employee").
PRELIMINARY RECITALS
A. The Company has been formed to execute a consolidation of a
group of firms in the business of providing high level consulting services for
businesses wishing to market through the internet (the "Business") and
contemporaneous initial public offering ("IPO") of its public stock (the
"Plan").
B. Employee has extensive knowledge and a unique understanding
of the Business.
C. The Company desires to employ Employee as its Chief
Executive Officer, and Employee desires to be employed by the Company as such
all under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants of the parties hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. EMPLOYMENT.
1.1 ENGAGEMENT OF EMPLOYEE. The Company agrees to employ
Employee as President and Chief Executive Officer of the Company, and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement, effective August 25, 1998.
1.2 DUTIES AND POWERS. At all times during the Employment
Period (as defined herein), the Company agrees that Employee will serve as
President and Chief Executive Officer of the Company. He shall have such other
responsibilities, duties and authorities. and will render such services for the
Company and its affiliates as the Board of Directors of the Company (the
"Board") shall from time to time reasonably direct; provided, however, such
duties and responsibilities shall be commensurate with his position in the
Company. The Employee agrees primarily to devote his time to the affairs of the
Company and to carry out his duties and responsibilities faithfully. It is
acknowledged that effective with the execution of this Agreement, the
stockholders of the Company have elected Employee to the Board of Directors. It
is the further understanding of the parties and a condition subsequent to
Employee's duty to perform, that upon the Closing of the IPO, currently expected
in the first quarter, 1999, Employee will be elected the Chairman of the Board.
1.3 EMPLOYMENT PERIOD. Employees employment under this
Agreement shall be for a period of three years, four months commencing September
1, 1998 (the "Initial Employment Period"). This Agreement shall automatically
renew for successive one-year periods (each one-
<PAGE>
year period shall be referred to herein as a "Renewal Period") beginning January
1, 2002, unless either the Company or Employee. as the case may be, provides
written notice within ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to herein
together as the "Employment Period." Notwithstanding anything to the contrary
contained herein, the Employment Period is subject to termination pursuant to
Section 1.4 below.
1.4 TERMINATION OF EMPLOYMENT
(a) TERMINATION BY THE COMPANY FOR CAUSE. The
Company has the right to terminate Employee's employment under this Agreement,
by notice to Employee in writing at any time, (i) for "Cause" or (ii) due to the
death or the Disability of Employee. In the case of a termination for
Disability, Company shall continue Employee's salary and insurance benefits for
a minimum period of six (6) months after termination. Any such termination shall
be effective upon the date of service of such notice pursuant to Section 7.7
hereof, except in the case of the death, in which such termination shall become
effective immediately upon the death of Employee.
"Cause," as used herein, means the occurrence of any of the
following events:
(i) final non-appealable conviction for, or plea of
nolo contendere to, a charge of commission of felony;
(ii) the good faith determination by the Board in the
exercise of its reasonable judgment that Employee has
committed an act or acts in the course of his employment
constituting fraud or dishonesty, provided Employee is given
an opportunity, with at least 20 business days notice, to
reasonably disprove the allegation; and
(iii) a determination pursuant to the provisions of
Section 6, below, that Employee has materially breached any of
the terms, conditions or covenants set forth in Section 3.2,
3.3, or 3.4 of this Agreement.
Employee shall be deemed to have a "Disability" for purposes
of this Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, for a total
period of 180 days in any 360-day period. The Board shall reasonably determine,
according to the facts then available, whether and when the Disability of the
Employee has occurred and how long it has lasted. Such determination shall not
be arbitrary or unreasonable and the Board will take into consideration the
expert medical opinion of a qualified physician chosen by the Company, after
such physician has completed an examination of Employee and issued a report to
both Employee and the Company. Employee agrees to make himself available for
such examination upon the reasonable request of the Company. At the request of
Employee the Company will retain a second qualified physician chosen by Employee
to render a second opinion, and the Board shall reasonably consider that opinion
as well as the opinion of the qualified physician of its selection.
(b) TERMINATION FOR GOOD REASON. Employee shall have the right
at any time to terminate
<PAGE>
his employment with the Company for any reason. For purposes of this Agreement
and subject to the Company's opportunity to cure as provided in Section 1.4(c)
below, the Employee shall have "Good Reason" to terminate his employment
hereunder if:
(i) the Company materially breaches the compensation, benefit,
or any other material provision of this Agreement;
(ii) the Company undergoes a Change of Control,
(iii) if following the IPO the Company's offices are moved
more than thirty-five miles outside the Dallas, Texas metropolitan area;
(iv) if Employee's duties are diminished in scope to a level
not commensurate with his position in the Company as CEO and Chairman; provided,
Good Reason will not exist if someone other than Employee is elected Chairman
during the Employment Period with the written consent and approval of Employee.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the foregoing, it
shall be a condition precedent to the Company's right to terminate the
Employee's employment for "Cause" and the Employee's right to terminate for
"Good Reason" that (1) the party seeking the termination shall first have given
the other party written notice stating with specificity the reason for the
termination ("Breach") and (2) if such Breach is susceptible of cure or remedy,
a period of 30 days from and after the giving of such notice shall have elapsed
without the breaching party having effectively cured or remedied such breach
during such 30 day period, unless such Breach cannot be cured or remedied within
30 days, in which case the period for remedy or cure shall be extended for a
reasonable time (not to exceed an additional 30 days), provided the breaching
party has made and continues to make a diligent effort to effect such remedy or
cure and has so informed the other party with reasonable documentation of such
efforts.
2. COMPENSATION AND BENEFITS.
2.1 SALARY. In consideration of Employee performing his duties under
this Agreement, commencing on the earlier of January 1, 1999 or the Closing of
the IPO, the Company will pay Employee a base salary at a rate of $300,000 per
annum (the "Base Salary') payable in accordance with the Company's regular
payroll policy for salaried employees. The Base Salary may be increased (but not
decreased), from time to time during the Employment Period, as determined by the
Board, in its sole discretion. Following an increase, the "Base Salary" for
purposes of this Agreement shall be the increased amount. If the Employment
Period is terminated pursuant to Section 1.4(a) above, then the Base Salary for
any partial year will be prorated based on the number of days elapsed in such
year prior to the termination.
2.2 BONUS. Employee shall be entitled to an annual bonus equal to an
amount up to his Base Salary based upon performance measured against annual
objectives reasonably established by the Compensation Committee of the Board of
Directors. The determination of whether Employee merits a bonus shall be in the
sole reasonable discretion of and made by the Compensation Committee of the
Board of Directors.
<PAGE>
2.3 STOCK OPTIONS. Subject to approval of the lead underwriter of the
IPO, which the Company shall use its best efforts to secure, as of the effective
date of the IPO Employee shall be granted options to purchase up to 5% of the
total outstanding shares of common stock of tile Company at the offering price
of the Company's common stock in the IPO. Twenty-five percent of the options
will vest upon the grant and twenty-five percent on each of the 1st, 2nd, and
3rd anniversaries of the IPO, provided he remains an employee of the Company, or
as otherwise provided in this Agreement.
2.4 BENEFITS. Commencing on the earlier of January 1, 1999 or the
Closing of the IPO, the Company agrees to provide to Employee such vacation and
life, health, disability, officer's and director's insurance benefits as are
generally provided, from time to time, to executive officers of the Company,
consistent with industry standards, at a level commensurate with the Employee's
responsibility and office.
2.5 RETIREMENT PLANS. Commencing on the earlier of January 1, 1999 or
the Closing of the IPO, Employee will be entitled to participate in any
retirement plans adopted by the Company, at a level commensurate with the
Employee's responsibility and office.
2.6 EXPENSES. The Company shall reimburse Employee for those reasonable
and necessary out-of-pocket expenses, which he incurs during the Employment
Period in connection with the rendering of services on behalf of it, including
reasonable attorney fees incurred since August 20, 1998, not to exceed $4,000.
Any reimbursement pursuant to this Section 2.6 shall be made following
submission of reasonable documentation of the expenses incurred.
2.7 COMPENSATION AFTER TERMINATION DURING EMPLOYMENT PERIOD.
(a) If the Company terminates Employee's employment during the
Employment Period for any reason (other than for "Cause" pursuant to
Section 1.4(a) of this Agreement) or Employee shall terminate his
employment for Good Reason, Employee shall be entitled to receive his
accrued benefits and as severance ("Severance Pay").
(i) the greater of (x) his Base Salary plus Bonus at the
maximum amount for the period of time which would have been remaining
in the Initial Employment Period or any Renewal Period and (y) a sum of
money equal to one times this Base Salary plus maximum bonus at the
time;
(ii) a continuation of the benefits provided under Section
2.4 for the greater of (x) the period of time, which would have been
remaining in the Initial Employment Period or any Renewal Period and
(y) one year;
(iii) immediate vesting of stock options granted pursuant
to Section 2.3 not yet vested,
(b) If the Company shall terminate Employee's employment
during the Employment Period for "Cause" pursuant to Section 1.4(a), the
Company shall have no further
<PAGE>
obligations hereunder or otherwise with respect to Employee's employment from
and after the termination or expiration date (except payment of Employee's Base
Salary accrued through the date of termination or expiration and any other
obligations imposed by law or in equity, including statutorily required
continuation of insurance benefits), and the Company shall continue to have all
other rights available hereunder (including, without limitation, all rights
under Section 3 hereof at law or in equity).
3. COVENANTS.
3.1 EMPLOYEE'S ACKNOWLEDGMENT. Employee acknowledges that:
(a) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(b) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during such period and
Employees employment under this Agreement, Employee will become familiar with
the Company's proprietary and confidential information concerning the Company
and the Business;
(c) the agreements and covenants contained in this Section 3
are essential to protect the Company and the goodwill of the Business and are a
condition precedent to the Company entering into this Agreement;
(d) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be irreparably
damaged if Employee were to provide services to any person or entity in
violation of the provisions of this Agreement.
3.2 NON-COMPETE.
(a) Employee hereby agrees that during the Employment Period
(the "Restrictive Period"), he shall not, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, in any business, which
competes with the Company ("Territory").
(ii) call upon any person who is, at that time,
within the Territory, an employee of the Company in a managerial capacity for
the purpose or with the intent of enticing such employee away from or out of the
employ of the Company; provided, that the Employee shall be permitted to call
upon and hire any member of his or her immediate family.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Employee from acquiring as an investment of not more than one (1%)
percent of the capital stock of a competing business whose stock is traded on a
national securities exchange or over-the-counter
<PAGE>
so long as the Employee does not consult with or is not employed by such
competitor.
3.3 INTERFERENCE WITH RELATIONSHIPS. Other than in the performance of
his duties hereunder, during the Restrictive Period, Employee shall not.
directly or indirectly, as employee, agent, consultant, stockholder, director,
co-partner or in any other individual or representative capacity solicit or
encourage any present or future customer, supplier or other third party to
terminate or otherwise alter his, her or its relationship with the Company with
respect to the Business engaged in by the Company,
3.4 CONFIDENTIAL INFORMATION. Other than in the performance of his
duties hereunder, during the Restrictive Period and thereafter, Employee shall
keep secret and retain in strictest confidence, and shall not, without the prior
written consent of the Company, furnish, make available or disclose to any third
party or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information" shall mean
any information relating to the business or affairs of the Company or the
Business, including, but not limited to, information relating to financial
statements, employees, suppliers, construction, manufacturing and servicing
methods, equipment, programs, strategies and information. analyses, profit
margins, or other proprietary information used by the Company or subsidiary of
the Company in connection with the Business to give Company a competitive
advantage, provided, however, that Confidential Information shall not include
any information which is in the public domain or becomes known in the industry
through no wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary to
the Company.
3.5 BLUE-PENCIL. If any court of competent jurisdiction shall at any
time deem the term of this Agreement or any particular Restrictive Covenant (as
defined) too lengthy or the territory too extensive, the other provisions of
this Section 3 shall nevertheless survive, the Restrictive Period herein shall
be deemed to be the longest period permissible by law under the circumstances
and the territory herein shall be deemed to comprise the largest territory
permissible by law under the circumstances. The court in each case shall reduce
the time period and/or territory to permissible duration or size.
3.6 REMEDIES. Employee acknowledges and agrees that the Covenants set
forth in this Section 3 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Employee breaches any of
the terms of said Restrictive Covenants, and that in the event Employee breaches
or threatens to breach any such Restrictive Covenants, the Company will have no
adequate remedy at law. Employee accordingly agrees that in the event Employee
breaches or threatens to breach any of the Restrictive Covenants, the Company
shall be entitled to pursue temporary injunctive and other equitable relief.
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or the threat of
such a breach by Employee, including the recovery of any damages which it is
able to prove.
4. EFFECT OF TERMINATION.
4.1 FOR CAUSE OR VOLUNTARY QUITTING. If the Employee terminates
employee's
<PAGE>
employment during the Employment Period other than for Good Reason as defined in
Section 1.4(b) or the Company terminates Employee's employment for Cause
pursuant to Sections 1.4(a) (not including Disability) then, notwithstanding
such termination, the provisions contained in Section 3 hereof shall remain in
full force and effect.
4.2 OTHER REASONS. If the Company terminates Employee's employment
during the Employment Period other than for Cause or Employee terminates his
employment for Good Reason during the Employment Period, then, INTER ALIA, the
provisions and covenants of Sections 3.2 and 3.3 shall have no effect and shall
be unenforceable. Furthermore, if Employee's employment is terminated pursuant
to this Section 4.2, the right to receive Severance Pay as defined above shall
be the exclusive remedy in any action arising out of Employee's employment and
grounded in contract, which seeks contractually based damages.
5. INCOME TAX TREATMENT. Employee and the Company acknowledge that it
is the intention of the Company to deduct all amounts paid under Section 2
hereof as ordinary and necessary business expenses for income tax purposes.
Employee agrees and represents that he will treat all such amounts as required
pursuant to all applicable tax laws and regulations, and should he fail to
report such amounts as required, he will indemnify and hold the Company harmless
from and against any and all taxes, penalties, interest, costs and expenses,
including reasonable attorneys' and accounting fees and costs, which are
incurred by Company directly or indirectly as a result thereof.
6. DISPUTES. All claims (pursuant to Federal or State statute or by.
common law), controversies, differences, or disputes between Company and
Employee arising out of or relating to this Agreement, the breach thereof, or
any aspect of the employment relationship, including the termination of such
relationship or the Company's business (a "Claim") shall be submitted to the
proper State or Federal court in the State of Texas, Dallas County. In the case
of a Claim brought by Employee following a Change of Control, the Company shall
pay Employee all reasonable, and necessary legal fees and expenses incurred by
Employee in reasonably contesting or disputing termination or in seeking to
obtain or enforce a right or benefit provided by this Agreement.
7. MISCELLANEOUS.
7. 1. DEFINITION. For purposes of this Agreement, the following terms
have the meanings referred to in this Section 7.1
"Affiliate" and "Associate" - mean the respective meanings ascribed
to such terms in Rule 12-2 of the of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") as in
effect on the date of this Agreement.
"Beneficial Ownership" - a Person shall be deemed to have Beneficial
Ownership of any securities which the Person or any or the Person's Affiliates
or Associates is deemed to beneficially own, directly or indirectly, within the
meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange
Act as in effect on the date of this Agreement.
"Board" - means the Board of Directors of the Company.
<PAGE>
"Change in Control" -- shall be deemed to have occurred upon the first
to occur of the following:
(a) The acquisition, other than from the Company, by any
individual, entity, or group (within the meaning of Section 13(d)(3) of
14(d)(2) of the Exchange Act) of Beneficial Ownership of thirty-five
(35%) percent or more of either (1) the then-outstanding shares of
common stork of the Company (the "Outstanding Company Common Stock") or
(2) the combined voting power of the then-outstanding voting securities
of the Company entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities");
(b) Individuals who, as of the date of the IPO, constitute the
Board cease for any reason to constitute at least a majority of the
Board; and
(c) Consummation of a reorganization, merger, or consolidation
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination the individuals and entities who
were the Beneficial Owners of the Outstanding Company Common Stock
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than fifty (50%) percent of the
Outstanding Company Common Stock.
7.2 ASSIGNMENT. No party hereto may assign or delegate any of its
rights or obligations hereunder without the prior written consent of the other
party hereto', provided, however, that the Company shall have the right to
assign all or any pan of its rights and obligations under this Agreement (i) to
any affiliate of the Company to which the Business of the Company is assigned at
any time, any subsidiary or affiliate of the Company or any surviving entity
following any merger or consolidation of any of those entities with any entity
other than the Company or (ii) in connection with the sale of the Business by
the Company. Except as otherwise expressly provided herein all covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective legal
representatives, heirs, successors and assigns of the parties hereto whether so
expressed or not.
7.3 ENTIRE AGREEMENT. Except for the parties' agreement pursuant to
which Employee will be issued 10 shares of its common stock, implemented
simultaneously with the execution of this Agreement, or as otherwise expressly
set forth herein, this Agreement and all other agreements entered into by the
parties hereto on the date hereof set forth the entire understanding of the
parties, and supersede and preempt all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
7.4 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement, so long as said invalid provision does not deprive either
party of substantial rights under the Agreement.
<PAGE>
7.5 AMENDMENT MODIFICATION. No amendment or modification of this
Agreement and no waiver by any party of the breach of any covenant contained
herein shall be binding unless executed in writing by the party against whom
enforcement of such amendment, modification or waiver is sought. No waiver shall
be deemed a continuing waiver or a waiver in respect of any subsequent breach or
default, either of a similar or different nature, unless expressly so stated in
writing.
7.6 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Texas, without giving effect to provisions thereof regarding
conflict of laws. To the extent that any provision of this Agreement is
inconsistent with the laws of the State of Texas the parties agree to be
governed and abide by the laws of the State of Texas.
7.7 NOTICES. All notices, demands or other communications to be given
or delivered hereunder or by reason of the provisions of this Agreement shall be
in writing and shall be deemed to have been properly served if (a) delivered
personally, (b) delivered by a recognized overnight courier service, (c) sent by
certified or registered mail, return receipt requested and first class postage
prepaid, or (d) sent by facsimile transmission followed by a confirmation copy
delivered by a recognized overnight courier service the next day. Such notices,
demands and other communications shall be sent to the addresses indicated below:
(a) If to Employee:
Guillermo G. Marmol
6123 Deloache Drive
Dallas, TX 75225
(b) If to the Company:
WebOne, Inc.
c/o Commonwealth Principals
8500 Leesburg Pike, Suite 601
Vienna, VA 22182
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. Date
of service of such notice shall be (i) the date such notice is personally
delivered or sent by facsimile transmission (with issuance by the transmitting
machine of a confirmation of successful transmission, (ii) three days after the
date of mailing if sent by certified or registered mail or (iii) one day after
date of delivery to the overnight courier if sent by overnight courier.
7.8 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement and shall become effective
when one or more counterparts have been executed by each of the parties hereto
and delivered to the other.
<PAGE>
7.9 DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings in
this Agreement am inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
7.10 NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties hereto to express their
mutual interest and no rule of strict construction will be applied against any
party hereto.
7.11 EXCISE TAX. If the total payments under this Agreement and any
other agreement, plan, or arrangement would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any successor provision) or any interest or penalties with respect to such
excise tax (which excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-up Payment") in an amount such that
after payment by Employee or withholding by Company of such Excise Tax,
including any Excise Tax imposed upon the Gross-up Payment, Employee shall be in
the same after-tax position under this Agreement that Employee would have been
in if Code Section 4999 (or any successor provision) did not apply.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
WEBONE, INC.
By: /s/ J. Marshall Coleman
----------------------------------------------
Its:
----------------------------------------------
EMPLOYEE:
/s/ Guillermo G. Marmol
---------------------------------------------------
Guillermo G. Marmol
<PAGE>
EXHIBIT 10.3
FORM OF TRANSITION SERVICES AGREEMENT
THIS TRANSITION SERVICES AGREEMENT dated July __, 1999 (the
"Agreement"), is entered into among Clarant Worldwide Corporation ("Parent"),
___________________ [to be the entity owning the Acquired Assets and directly
operating the Business], a Delaware corporation ("Occupant"), and Young &
Rubicam Inc., a Delaware corporation (the "Contributor").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Contributor has, as of the date hereof, contributed
certain assets relating to that portion of the Contributor's Brand Dialogue
business located and operated in New York, New York (the "Business") to Parent
pursuant to the terms of the Contribution Agreement, dated June __, 1999, by and
between Parent and Contributor (the "Contribution Agreement") (capitalized terms
used herein without definition shall have the meanings set forth in the
Contribution Agreement);
WHEREAS, Contributor owns the real property commonly known as
285 Madison Ave, New York, New York (the "Building");
WHEREAS, Section 4.2(b)(iv) of the Contribution Agreement
provides that Contributor shall enter into a transition services agreement to
provide services to Occupant pursuant to which Contributor will (i) allow
Occupant to continue to occupy, for a period of 12 months from the date hereof,
a portion of the 2nd and 19th Floors of the Building more fully described in
Schedule A hereto (such portion being referred to herein as the "Space") and
(ii) provide the services described on Schedule B hereto (the "Scheduled
Services") and certain additional services as the parties may from time to time
agree upon (the "Additional Services," and together with the Scheduled Services,
the "Services") to Occupant in connection with its operation of the Business
after the Closing Date; and
WHEREAS, the parties hereby desire to set forth the terms and
conditions upon which Contributor will provide the Space and Services to
Occupant following the Closing Date;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein the parties hereto agree as
follows:
1. SPACE AND SERVICES
<PAGE>
1.1 PROVISION OF SPACE AND SERVICES.
(a) From and after the Closing Date, Contributor
shall provide to Occupant the non-exclusive right to use the Space and, in
connection therewith, Contributor shall provide the services listed under
"Facilities" and "Repairs and Maintenance" under "Other Facilities Costs" on
Schedule B hereto, in each case at the cost set forth thereon. At the request of
the Occupant, Contributor shall provide the Scheduled Services at the rates and
upon the terms and subject to the conditions of this Agreement. The parties may
from time to time agree upon the provision of Additional Services, but, in no
event shall this Agreement or the Contribution Agreement or the agreements or
transactions contemplated hereby or thereby entitle Occupant to Additional
Services.
(b) Contributor shall use its reasonable efforts to
provide the Services in a manner substantially similar and consistent with past
practices during the twelve-month period preceding the date hereof. In providing
the Services hereunder, Contributor may use such personnel of Contributor (or
its Affiliates) as it deems necessary or appropriate, or Contributor may employ
the services of third parties.
(c) For purposes of this Agreement, "Affiliate" shall
mean any person that directly or indirectly controls, is controlled by or under
common control with, a person or entity.
1.2 TERM. Contributor shall provide the Space, Scheduled
Services and the Additional Services, if any, until the earlier of (i)
Occupant's departure from the Space provided Contributor has received at least
ninety (90) days' prior written notice of Occupant's intended date of departure
and (ii) twelve (12) months from the date hereof (the "Term").
1.3 ACCESS. Occupant shall make available on a timely basis to
Contributor all information and materials reasonably requested by Contributor in
connection with the provision of the Space or Services. At the request of the
Contributor, Occupant shall provide Contributor personnel, or any third parties
engaged by the Contributor, with access to the Space and any equipment used in
connection with providing the Space or Services.
1.4 MAINTENANCE OF RECORDS. Subject to Article 5 hereof,
Contributor shall make available for inspection by Occupant or its
representatives and agents, during regular business hours and upon reasonable
written request by Occupant, records that Contributor prepares or maintains in
providing the Space or Services; PROVIDED, HOWEVER, that any such inspection by
Occupant or its representatives or agents shall be conducted in a manner which
does not unreasonably interfere with the operation of the day-to-day business
affairs of Contributor and provided, further, that Contributor shall have no
obligation to keep, prepare or present the records in any particular form or
format other than as routinely and historically kept,
<PAGE>
prepared or presented. Occupant shall pay its own costs and any out-of-pocket
costs of Contributor relating to any such inspection.
1.5 COOPERATION. Each of Occupant and Contributor shall
cooperate with and assist the other party in connection with any filings or
other actions reasonably requested by such party, in each case, only to the
extent such actions or filings arise as a direct result of this Agreement, in
order to comply with the requirements of the United States Securities and
Exchange Commission, any state securities commission or any equivalent foreign
authority, any U.S. federal, state, local or foreign tax authority. All
reasonable costs incurred by a party in providing such cooperation and
assistance shall be paid by the party requesting such cooperation and assistance
in accordance with Section 2 hereof.
1.6 COVENANTS REGARDING USE OF SPACE.
(a) Subject to the terms and conditions set forth
herein, Contributor hereby grants to Occupant a license permitting solely the
employees of the Business (the "Permitted Employees") to use and occupy the
Space during the Term. Contributor also grants Occupant a license permitting the
Permitted Employees to use (in common with the Contributor and any other
occupants of the Building), during the Term, (i) certain common facilities
located within the Building which service the Space, including, without
limitation, restrooms, conference rooms located within the Space, reception
areas, kitchenettes, hallways and entrance ways; and (ii) those portions of the
sidewalks, driveways, hallways, entrances, doorways and other facilities serving
the Space and the Building as are necessary for the Permitted Employees to
obtain pedestrian ingress and egress to and from the Space.
(b) Provided Occupant is not in default of this
Agreement or the Contribution Agreement, Contributor agrees, on at least ninety
(90) days' prior written notice of Occupant, to use reasonable efforts to permit
the Permitted Employees (as defined above) to use and occupy additional space
("Additional Space") which may be available or become available in properties
owned or leased by Contributor, on terms and conditions acceptable to
Contributor (and at the sole cost and expense of Occupant) and subject to the
terms and conditions of all present and future ground, master, operating and
space leases and all other encumbrances affecting such Additional Space. If
Contributor agrees to permit the Permitted Employees to use and occupy any
Additional Space, the parties shall execute and deliver an amendment to this
Agreement reflecting the license of the Additional Space by Contributor to
Occupant, which amendment shall be executed and delivered prior to the
commencement date of the term with respect to the Additional Space. Prior to
such commencement date, Occupant shall reimburse Contributor for all incidental
expenses (including without limitation, moving, relocation, alteration and legal
fees and expenses and any other costs or expenses incurred in connection with
the preparation of the Additional Space for occupancy by Occupant) incurred by
Contributor in the course of or on account of the licensing of any Additional
Space by
<PAGE>
Contributor to Occupant.
(c) Occupant may use, during the Term, all furniture,
fixtures, equipment and other property located in the Space on the date hereof
(the "FF&E"). Contributor makes no covenant, warranty or representation, express
or implied, in connection with the condition or suitability of the FF&E, and
Occupant agrees to use and accept such FF&E "as is where is" and in its current
condition and location. Occupant agrees to take good care of and maintain the
FF&E during the term of this Agreement; and, all such FF&E shall be returned to
Contributor in its current condition and location, reasonable wear and tear
excepted, on the expiration or earlier termination of this Agreement.
(d) At the request of Occupant, Contributor shall
install, at the sole cost and expense of Occupant, one sign (using materials and
of a size and quality reasonably acceptable to Contributor) on or near the door
providing access to the Space from the elevator lobby on the second floor of the
Building. Occupant shall have no right, and Contributor shall have no
obligation, to install or permit the installation of any additional signs,
including without limitation, signs in the main lobby of the Building and
listings in the building directory.
(e) Occupant shall not make or permit any
improvements, additions, alterations, fixed decorations, substitutions,
replacements or modifications, structural or otherwise, to the Space without the
prior written consent of Contributor.
(f) Upon the expiration of the Term or earlier
termination of this Agreement, Occupant shall vacate and surrender the Space
broom clean and shall remove all of its furniture, furnishings and equipment
excluding FF&E, shall repair all damage resulting from such removal or its use
of the Space, and shall surrender the Space, as so required, in the same or
substantially the same condition as it exists on the date of this Agreement,
subject only to reasonable wear and tear.
(g) Occupant shall use and occupy the Space solely
for general office purposes and in the same manner as the Space has been used
during the twelve months preceding the date hereof. Without limiting the
generality of the foregoing, Occupant shall not use or permit the Space to be
used in any manner which would (i) violate any laws, including, without
limitation, any environmental laws, (ii) make void or voidable any insurance
policy then in force with respect to the Space or the Building, (iii) cause
physical damage to the Space or the Building, (iv) constitute a nuisance, (v)
impair the appearance, character or reputation of the Space or the Building,
(vi) materially impair or materially interfere with the proper operation of any
of the Building's or Space's services or systems, or (vii) impair or interfere
with the use of any area of the Building by any of the other occupants of the
Building.
(h) Occupant acknowledges that it has inspected the
Space and shall
<PAGE>
take the same "as is" as of the date hereof with no representations or
warranties by Contributor.
(i) Occupant shall maintain commercial general
liability insurance with reputable companies authorized to write insurance in
the State of New York, naming Occupant and Contributor as insureds, with
coverage limits of not less than $3,000,000 with respect of any one person and
$3,000,000 in respect of any number of persons in any one accident and
$1,000,000 in respect of Building damage. Occupant shall also be solely
responsible for insuring its own property contained in the Space. All such
liability insurance shall provide that the same shall not be modified or
canceled without at least ten (10) days' prior written notice to Contributor.
Upon request of Contributor, Occupant shall deliver to Contributor evidence,
reasonably satisfactory to Contributor, that such insurance is in full force and
effect.
(j) If Occupant fails to perform any of its
obligations hereunder, Contributor may perform such obligations. All reasonable
costs and expenses incurred by Contributor in connection with such performance
shall be paid by Occupant upon demand therefor by Contributor. Contributor may
at reasonable times and upon reasonable notice enter the Space to (a) inspect
the Space, (b) perform any repair or other work reasonably required to maintain
the Space in its current condition and to maintain its value, or (c) show the
Space to prospective buyers, lenders, lessees and licensees, provided, however,
Contributor shall use its reasonable efforts (without having to incur any
additional expenses or hire overtime labor) to minimize any interference with
Occupant's use of the Space.
(k) This Agreement, and all rights of Occupant
hereunder, are subject and subordinate to all present and future ground, master
or operating leases, mortgages now or hereafter placed upon the Building, and
all other encumbrances and matters of public record applicable to the Building.
The provisions of this paragraph shall be self-operative and no further
instrument of subordination shall be required.
(l) The parties recognize and agree that the damage
to Contributor resulting from any failure by Occupant to timely surrender
possession of the Space will be substantial, will exceed the amount of the
monthly installments of the Occupancy Fee theretofore payable hereunder, and
will be impossible to accurately measure. Occupant therefore agrees that if
possession of the Space is not surrendered to Contributor by Occupant within
twenty-four (24) hours after the expiration of the Term or earlier termination
of this Agreement, in addition to any other rights or remedy Contributor may
have hereunder or at law, Contributor may, at its option, require Occupant to
pay Contributor a sum equal to 200% of the amount of the Occupancy Fee then
applicable to the Space, prorated on a per diem basis for each day Occupant
shall fail to vacate or surrender possession of the Space, together with all
damages (direct and consequential) sustained by Contributor on account thereof.
Occupant shall pay such amounts on demand, and, in the absence of demand,
monthly in advance. The foregoing provisions, and Contributor's acceptance of
any such amounts, shall not serve as permission for Occupant to hold-over, nor
serve to extend the Term (although Occupant shall remain a tenant-at-sufferance
bound to
<PAGE>
comply with all provisions of this Agreement until Occupant properly vacates the
Space). Occupant hereby waives notice to vacate or quit the Space and agrees
that Contributor shall be entitled to the benefit of all laws respecting the
summary recovery of the Space from a tenant holding over to the same extent as
if statutory notice had been given. Contributor shall have the right, at any
time after expiration of the Term or earlier termination of this Agreement, to
reenter and possess the Space and remove all property and persons therefrom and
Contributor shall have such other remedies for holdover as may be available to
Contributor under other provisions of this Agreement or applicable law. Occupant
hereby indemnifies Contributor against loss, cost, injury, damage, claim,
expense, or liability (including attorneys' fees and disbursements) resulting
from delay by Occupant in so surrendering the Space, including any claims made
by any succeeding tenant or prospective tenant founded upon such delay.
2. PAYMENT
2.1 FEES AND EXPENSES. In consideration for the Space and
Services, Parent and Occupant agree to:
(a) pay Contributor the fees (the "Service Fees") set
forth on Schedule B, relating to the Services, and such other fees as the
parties mutually agree upon with respect to Additional Services, if any; and
(b) reimburse Contributor for all other reasonable
expenses (the "Service Expenses") incurred by Contributor (and, for each expense
exceeding $5,000, approved in advance in writing by Occupant) in the course or
on account of providing the Services hereunder. Contributor shall provide
written documentation, to the extent available, of the amount and nature of all
Service Expenses.
(c) In consideration for the use of the Space,
Occupant shall pay to Contributor an amount equal to $33,072 per month, plus an
amount equal to that portion of the Building Expenses allocated by the
Contributor to the Space (such fixed amount together with allocated expenses,
the "Occupancy Fee"). For purposes hereof, the term "Building Expenses" shall
include, without limitation, to the extent not listed on Exhibit B: (i) real
estate taxes and assessments, (ii) fees and expenses for water, gas,
electricity, sewage and other utility services furnished to the Building, (iii)
premiums for insurance maintained by Contributor for the benefit of the Building
and (iv) costs and expenses incurred by Contributor for security, maintenance
and other services furnished to the Building and all other costs and expenses
incurred by Contributor in the ownership, maintenance, repair and operations of
the premises, except that if any capital improvement is made to the Building
during the term, Occupant shall pay only its proportionate share of the
reasonable annual amortization of the cost of such improvement in each calendar
year during the Term during which such amortization occurs.
<PAGE>
2.2 INVOICING AND PAYMENT. (a) Within fifteen days following
the end of each month, Parent or Occupant shall pay Contributor the Service Fees
for the Services provided during such month. Within fifteen days following the
end of each month, Contributor shall submit to Occupant an invoice for Service
Expenses, if any, incurred during such month in connection with its performance
hereunder. Parent or Occupant shall pay all Service Expenses within fifteen (15)
days of receipt of such invoice.
(b) Parent or Occupant shall pay to Contributor the
Occupancy Fee in advance on the first day of each month during the Term. The
Occupancy Fee shall be paid promptly when due, without notice or demand
therefor, and without deduction, abatement, counterclaim or set off of any
amount or for any reason whatsoever.
(c) Contributor's failure to render any invoice,
estimate, statement or the like on a timely basis with respect to any month
shall not prejudice Contributor's right thereafter to render a statement with
respect to such month, nor shall the rendering of a statement in any instance
prejudice Contributor's right thereafter to render a corrected Contributor's
statement for any such month.
(d) All amounts due hereunder shall be paid to
Contributor in lawful money of the United States at the address of Contributor
set forth in this Agreement or to such other person and/or at such other address
as Contributor may from time to time designate by notice to Parent or Occupant.
2.3 TAXES. Subject to Section 2.1(c) of this Agreement, each
party shall be responsible for the taxes required to be paid by such party.
3. LIMITATIONS ON LIABILITY
3.1 FORCE MAJEURE. No liability shall result from any delay or
failure in performance by either party resulting from any cause, condition or
event beyond the reasonable control of the party affected, including but not
limited to Acts of God, fire, flood, war, government action (including eminent
domain), accident, labor trouble or shortage, or inability to obtain material,
utilities, equipment or transportation (each a "Force Majeure Event"). A party
claiming the benefit of this Section 3.1 shall promptly notify the other party
upon learning of the occurrence of the Force Majeure Event. Upon the cessation
of such Force Majeure Event, such party shall resume its performance.
Notwithstanding the foregoing, if such party cannot perform any obligation under
this Agreement for a period of thirty (30) days due to such Force Majeure Event,
either party may terminate such obligation under this Agreement by providing
three (3) days advance written notice to the other party.
<PAGE>
3.2 LIABILITY OF THE PARTIES.
(a) Except in the event of reckless or willful
misconduct or gross negligence on Contributor's part, Contributor shall not be
liable for any claims, liabilities, damages, losses, costs, expenses (including,
but not limited to, settlements, judgments, court costs and reasonable legal
fees), fines and penalties, arising out of any actual or alleged injury, loss or
damage of any nature whatsoever in providing or failing to provide the Space or
Services to Occupant.
(b) In no event shall Contributor be liable for any
damages caused by Occupant's failure to perform Occupant's responsibilities
hereunder.
(c) Notwithstanding anything to the contrary
contained herein or at law or in equity, in no event shall Contributor be liable
for punitive, special, indirect, incidental or consequential damages (including,
without limitation, damages for loss of business profits, business interruption
or any other loss) arising from or relating to any claim made under this
agreement or regarding the provision of or the failure to provide the Space or
Services, even if Contributor has been advised of the possibility of such
damages.
3.3 INDEMNITY
(a) Subject to the limitations set forth in Paragraph
3.2 above, Contributor shall indemnify, defend and hold Occupant and its
employees, agents and affiliates harmless against any and all claims,
liabilities, damages, losses, costs, expenses (including, but not limited to,
settlements, judgments, court costs and reasonable attorney's fees), fines and
penalties arising out of any actual injury, loss or damage of any nature
whatsoever (including, without limitation, loss of or damage to property, or
damage to the environment) ("Claims") due or relating to the provision of or
failure to provide the Space or Services, but ONLY to the extent that such
Claims are a direct result of the gross negligence, reckless or willful
misconduct of the personnel of Contributor or Contributor's agents or
representatives in providing the Space or Services.
(b) Without affecting any provision of the
Contribution Agreement, Parent and Occupant jointly and severally agree to
indemnify, defend and hold Contributor, its employees, agents and affiliates
harmless against any and all Claims due or relating to the operations and
activities of Occupant after the date hereof relating in any way to the Space or
the Services (except to the extent any such claims are the direct result of
Contributor's negligence or reckless or willful misconduct).
(c) The indemnities contained in this Section shall
survive for a period of two (2) years after the termination of the use of the
Space or Services at issue for any reason.
<PAGE>
(d) The indemnification provided for in this Section
3.3 shall be the exclusive remedy in any action seeking damages or any other
form of monetary relief brought by any party to this Agreement against another
party, provided 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.
4. TERMINATION
4.1 TERMINATION. The Agreement shall terminate on (i) the
expiration of the Term or any extension thereof, or (ii) upon ninety (90) days'
prior written notice by Occupant to Contributor or (iii) upon notice by
Contributor to Occupant if (a) Occupant shall fail to pay the Occupancy Fee, the
Services Fee or the Service Expenses as required hereby or (b) if Occupant shall
default in performing or observing any of the other material provisions of this
Agreement and the same is not cured within ten (10) business days after notice
thereof shall have been given to Occupant.
4.2 EFFECT OF TERMINATION. Sections 1.6(c), 2.1, 2.2, 3.2,
3.3, 4.2, and 5.1 shall survive the termination of this Agreement.
5. CONFIDENTIAL INFORMATION
5.1 CONFIDENTIALITY. In addition to any obligations of
confidentiality set forth in the Contribution Agreement neither Parent, Occupant
nor Contributor shall disclose or use in any way except to the extent necessary
to perform contractual obligations under this Agreement, without the written
consent of the other, any information or documents which either receives from,
or in respect of, the other in connection with this Agreement unless such
information: (i) was generally known to the public prior to the date it was
disclosed, or becomes generally known to the public subsequent to such
disclosure through no fault of the receiving party or its Affiliates and
representatives; (ii) was properly received by the receiving party after the
date hereof free of any obligation of confidentiality; (iii) was required to be
disclosed by law or governmental order; or (iv) was independently developed by
the receiving party.
6. GENERAL PROVISIONS
6.1 INDEPENDENT CONTRACTOR. Contributor is an independent
contractor and, during the term hereof, the relationship between Contributor and
Occupant is that of vendor and vendee. Neither party (nor its agents or
employees) shall under any circumstances be deemed agents, partners, joint
venturers or representatives of the other party. Neither party shall have the
<PAGE>
right to bind the other party in any respect except as expressly provided
herein.
6.2 NOTICES. All notices, requests, instructions, approvals
and other communications pursuant to this Agreement shall be in writing and
shall be given by hand delivery, facsimile transmission, registered or certified
United States mail or by a nationally recognized overnight courier addressed:
If to Parent or Occupant, to:
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attn: Guillermo G. Marmol
Facsimile: (972) 488-7299
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: George P. Stamas
Facsimile: (202) 663-6363
or to such other person or address as Parent or Occupant shall furnish to
Contributor in writing.
If to Contributor, to:
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017
Attn: General Counsel
Facsimile: (212) 210-5544
With a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attn: Christopher T. Jensen
Facsimile: (212) 309-6273
or to such other person or address as Contributor shall furnish to Occupant in
writing.
<PAGE>
All such notices, requests, instructions, approvals and other
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof.
6.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
6.4 ENTIRE AGREEMENT. This Agreement, together with the
Schedules, constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
6.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
6.6 APPLICABLE LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the principles of conflict of laws thereof.
6.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
6.8 ASSIGNMENT; DELEGATION. Subject to Section 1.1, neither
this Agreement nor the rights and duties under this Agreement shall be
assignable by either party hereto without the prior written consent of the
other, provided, that Contributor may assign this Agreement to any subsidiary or
affiliate. No assignment hereunder shall in any way affect the parties'
obligations or liabilities under this Agreement. Any purported assignment in
violation of this Section 6.8 shall be void. Parent or Occupant shall not sublet
the Space or any part thereof; permit the use of the Space by any persons other
than Occupant and its employees, whether for desk space, mailing privileges or
otherwise.
6.9 AMENDMENT; WAIVER. No amendment, modification or discharge
of this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. 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.
<PAGE>
6.10 SEVERABILITY. In the event that any provision of this
Agreement shall be found to be void or unenforceable, such findings shall not be
construed to render any other provision of this Agreement either void or
unenforceable, and all other provisions shall remain in full force and effect
unless the provisions which are invalid or unenforceable shall substantially
affect the rights or obligations granted to or undertaken by either party, in
which case the parties shall negotiate in good faith in an effort to agree upon
suitable and equitable substitute provisions to effect the original intent of
the parties.
[Execution Page Following]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CLARANT WORLDWIDE CORPORATION
By
-----------------------------
Name:
Title:
[OCCUPANT]
By
-----------------------------
Name:
Title:
YOUNG & RUBICAM INC.
By
-----------------------------
Name:
Title:
<PAGE>
SCHEDULE A
Floor Plan
<PAGE>
SCHEDULE B
<PAGE>
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
vi
<PAGE>
vii
<PAGE>
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
viii
<PAGE>
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
ix
<PAGE>
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");
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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) Guillermo G. Marmol, the Chief Executive Officer of Clarant
("Mr. Marmol") 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) Mr. Marmol 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 Wilmer, Cutler &
Pickering, 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 Wilmer, Cutler & Pickering,
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 Wilmer, Cutler &
Pickering, 2445 M Street, N.W., Washington, D.C. 20037.
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
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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.
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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;
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(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.
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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
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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:
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(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;
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(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
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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,
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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:
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(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;
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(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.
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(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).
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(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
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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
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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
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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.
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(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,
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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
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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;
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(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
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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;
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(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;
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(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;
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(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
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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
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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
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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
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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.
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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:
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(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.
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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;
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(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;
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(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;
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(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
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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
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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
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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
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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).
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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 Richard M. Scruggs shall be
elected to the board of directors of Clarant effective as of the Closing Date.
If prior to the Closing Date Mr. Scruggs 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 Mr. Scrugg's stead.
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
Wilmer, Cutler & Pickering, 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
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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]
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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 & Jaworski 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.
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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
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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
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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-
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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
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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
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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
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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
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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
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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 --
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(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
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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
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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
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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
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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.
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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
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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 Hart-Scott-Rodino 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.
"Mr. Marmol" means Guillermo G. Marmol, 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.
71
<PAGE>
"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
<PAGE>
"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.
73
<PAGE>
"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
74
<PAGE>
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, Wilmer Cutler & Pickering, and any
other Person retained by Clarant, and the costs of preparing the Registration
Statement.
75
<PAGE>
(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:
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attention: Guillermo G. Marmol
Fax: 972-488-7299
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
Fax: 202-663-6363
76
<PAGE>
(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.
520 Post Oak Boulevard
Suite 400
Houston, Texas 77027-9405
Attn: Mr. Richard Scruggs
Fax: 713-479-7109
and marked "Personal and Confidential"
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney
50th Floor
Houston, Texas 77010-3095
Attn: Robert F. Gray, Jr., Esq.
Fax: 713-651-5246
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
77
<PAGE>
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 Richard M. Scruggs or, in the event that Richard M. Scruggs is unable
or unwilling to serve, now or in the future, Michael R. Alsup, 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.
78
<PAGE>
[this space left intentionally blank]
79
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CLARANT, INC.
By: /s/ Guillermo G. Marmol
-----------------------------------
Name: Guillermo G. Marmol
-----------------------------------
Title: Chief Executive Officer & President
-----------------------------------
ALIGN SOLUTIONS ACQUISITION CORP.
By: /s/ Guillermo G. Marmol
-----------------------------------
Name: Guillermo G. Marmol
-----------------------------------
Title: President
-----------------------------------
ALIGN SOLUTIONS CORP.
By: /s/ Richard M. Scruggs
-----------------------------------
Name: Richard M. Scruggs
-----------------------------------
Title: President
-----------------------------------
Stockholders:
/s/ Richard M. Scruggs
---------------------------------------------
Richard M. Scruggs
/s/ Eric Reed
---------------------------------------------
Eric Reed
/s/ W. David Debbs
---------------------------------------------
W. David Debbs
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
<PAGE>
/s/ Kristie J. Trice
---------------------------------------------
Kristie J. Trice
/s/ John R. Crabb
---------------------------------------------
John R. Crabb
/s/ Scott Williamson
---------------------------------------------
Scott Williamson
/s/ Amy Looper
---------------------------------------------
Amy Looper
/s/ Elizabeth B. Carls
---------------------------------------------
Elizbeth B. Carls
/s/ Todd E. Knight
---------------------------------------------
Tod E. Knight
/s/ John Perry Scroggie
---------------------------------------------
John Perry Scroggie
/s/ Michael R. Alsup
---------------------------------------------
Michael R. Alsup
/s/ Kay Mayberry, Trustee
---------------------------------------------
The 1996 Alsup Issue Trusts
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
<PAGE>
/s/ Nancy S. Bratic
---------------------------------------------
Nancy S. Bratic
/s/ Wylie W. McDonald
---------------------------------------------
Wylie W. McDonald
/s/ Micahel J. Secor
---------------------------------------------
Michael J. Secor
/s/ J. Benton Mayberry
---------------------------------------------
J. Benton Mayberry
/s/ Larry D. Pierce
---------------------------------------------
Larry D. Pierce
/s/ K. David Quackenbush
---------------------------------------------
K. David Quackenbush
/s/ Judy Cloninger
---------------------------------------------
Judy Cloninger
/s/ Tim Phillips
---------------------------------------------
Tim Phillips
/s/ Benjamin R. McLemore, IV
---------------------------------------------
Benjamin R. McLemore, IV
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
<PAGE>
/s/ Michael J. Marolda
---------------------------------------------
Michael J. Marolda
/s/ Stephen P. Crozier
---------------------------------------------
Stephen P. Crozier
/s/ Edward W. Wagner
---------------------------------------------
Edward W. Wagner
/s/ B. Reagan McLemore, III
---------------------------------------------
B. Reagan McLemore, III
/s/ David A. Ayers
---------------------------------------------
David A. Ayers
/s/ Ralph Perri Trust
---------------------------------------------
Ralph Perri Trust
/s/ Todd Perri
---------------------------------------------
Todd Perri
/s/ Mark Smith
---------------------------------------------
Mark Smith
/s/ Brian Stone
---------------------------------------------
Brian Stone
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
<PAGE>
/s/ Joe Claborn
---------------------------------------------
Joe Claborn
/s/ Kevin Hyman
---------------------------------------------
Kevin Hyman
/s/ Joe Ochoa
---------------------------------------------
Joe Ochoa
/s/ Gail Alderson Smith
---------------------------------------------
Gail Alderson Smith
/s/ James Wes Wright
---------------------------------------------
James Wes Wright
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Align Solutions Acquisition Corp.,
Align Solutions Corp. and the Stockholders named herein.
<PAGE>
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.
<PAGE>
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
<TABLE>
<CAPTION>
PROJECTED PROJECTED PROJECTED PROJECTED
MEASUREMENT COMPANY COMPANY PRE- TAX COMBINED COMBINED
PERIOD REVENUES INCOME REVENUES PRE-TAX INCOME
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jul. 1, 1999 - $15,946,000 $1,385,000 n/a n/a
Dec. 31, 1999
- --------------------------------------------------------------------------------------------------------
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
- --------------------------------------------------------------------------------------------------------
</TABLE>
FORMULAS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
- -----------------------------------------------------------------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(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 Arthur Andersen 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 Arthur
Andersen 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
<PAGE>
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, Arthur Andersen 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).
<PAGE>
(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 Mr. Marmol (or an officer of Clarant designated by Mr. Marmol)
according to procedures established by Clarant.
<PAGE>
EXHIBIT 10.05
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
BY AND AMONG
CLARANT, INC.,
FREE RANGE MEDIA ACQUISITION CORP.,
FREE RANGE MEDIA, INC.
AND
JOHN C. DIMMER,
JOHN B. DIMMER,
ANDREW L. FRY
DATED: JUNE 2, 1999
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TABLE OF CONTENTS
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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 OF CONSIDERATION; TENDER........................................................5
3.2 TENDER OF COMPANY STOCK................................................................6
3.3 EARN-OUT...............................................................................7
3.4 SATISFACTION OF THE PAYMENT OBLIGATIONS................................................7
4. PRE-CLOSING AND CLOSING..................................................................................7
4.1 PRE-CLOSING............................................................................7
4.2 CLOSING................................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS.............................................................................................8
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.......................................8
5.1 DUE ORGANIZATION.......................................................................8
5.2 AUTHORIZATION..........................................................................9
5.3 CAPITAL STOCK OF THE COMPANY...........................................................9
5.4 AUTHORITY; NO CONFLICT................................................................10
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING................................10
5.6 [RESERVED]............................................................................11
5.7 SUBSIDIARIES..........................................................................11
5.8 PREDECESSOR STATUS; ETC...............................................................11
5.9 SPIN-OFF BY THE COMPANY...............................................................11
5.10 FINANCIAL STATEMENTS..................................................................11
5.11 LIABILITIES AND OBLIGATIONS...........................................................12
5.12 ACCOUNTS AND NOTES RECEIVABLE.........................................................12
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY...............................................13
5.14 TRADEMARKS............................................................................13
5.15 LITIGATION AND LEGAL PROCEEDINGS......................................................14
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5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS. ............................................15
5.17 EMPLOYEE BENEFITS.....................................................................16
5.18 INSURANCE POLICIES. ..................................................................20
5.19 ENVIRONMENT...........................................................................22
5.20 LABOR AND EMPLOYMENT MATTERS..........................................................23
5.21 PERSONAL PROPERTY. ..................................................................24
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. ..........................25
5.23 REAL PROPERTY.........................................................................27
5.24 TAXES ................................................................................27
5.25 BUSINESS CONDUCT......................................................................30
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. ...............................................32
5.27 YEAR 2000 COMPLIANCE..................................................................33
5.28 RELATIONS WITH GOVERNMENTS............................................................33
5.29 DISCLOSURE. .........................................................................33
5.30 WARRANTIES; PRODUCTS..................................................................34
5.31 AFFILIATE TRANSACTIONS................................................................34
5.32 MISREPRESENTATION.....................................................................35
5.33 BROKERS...............................................................................35
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS .....................................................35
5.34 AUTHORITY; OWNERSHIP..................................................................35
5.35 PREEMPTIVE RIGHTS.....................................................................35
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK..............................................35
5.37 TENDER................................................................................35
5.38 INVESTOR QUESTIONNAIRES...............................................................36
6. REPRESENTATIONS OF CLARANT AND NEWCO....................................................................36
6.1 DUE ORGANIZATION......................................................................36
6.2 AUTHORIZATION.........................................................................36
6.3 TRANSACTION NOT A BREACH..............................................................36
6.4 MISREPRESENTATION.....................................................................37
6.5 CAPITAL STOCK.........................................................................37
6.6 SUBSIDIARIES...................................................................................37
6.7 LIABILITIES AND OBLIGATIONS....................................................................38
6.8 CONFORMITY WITH LAW; LITIGATION................................................................38
6.9 VALIDITY OF OBLIGATIONS........................................................................38
6.10 CLARANT COMMON STOCK...........................................................................38
6.11 NO SIDE AGREEMENTS.............................................................................38
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS...................................................38
6.13 NO VIOLATIONS..................................................................................39
6.14 ABSENCE OF CHANGES.............................................................................39
6.15 TAXES..........................................................................................40
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7. COVENANTS PRIOR TO CLOSING..............................................................................40
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. ............................................40
7.2 CONDUCT OF BUSINESS PENDING CLOSING...................................................41
7.3 PROHIBITED ACTIVITIES.................................................................41
7.4 NO SHOP...............................................................................43
7.5 NOTICE TO BARGAINING AGENTS...........................................................43
7.6 AGREEMENTS............................................................................44
7.7 NOTIFICATION OF CERTAIN MATTERS. ....................................................44
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. ...............................44
7.9 FINAL FINANCIAL STATEMENTS............................................................45
7.10 FURTHER ASSURANCES....................................................................45
7.11 AMENDMENT OF SCHEDULES................................................................46
7.12 THIRD PARTY APPROVALS.................................................................46
7.13 HSR FILING............................................................................47
7.14 REDEMPTION OF PREFERRED STOCK.........................................................47
7.15 [Reserved]............................................................................47
7.16 AUTHORIZED CAPITAL STOCK..............................................................47
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.........................................................................................47
8.1 REPRESENTATIONS AND WARRANTIES........................................................48
8.2 PERFORMANCE OF OBLIGATIONS............................................................48
8.3 NO LITIGATION.........................................................................48
8.4 OPINION OF COUNSEL....................................................................48
8.5 REGISTRATION STATEMENT................................................................48
8.6 CONSENTS AND APPROVALS................................................................49
8.7 GOOD STANDING CERTIFICATES............................................................49
8.8 SECRETARY'S CERTIFICATE...............................................................49
8.9 HSR ACT...............................................................................49
8.10 CLOSING OF THE IPO....................................................................49
8.11 EMPLOYMENT AGREEMENTS. ..............................................................49
8.12 LISTING. ............................................................................49
8.13 TAX OPINION...........................................................................49
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO................................................50
9.1 REPRESENTATIONS AND WARRANTIES........................................................50
9.2 PERFORMANCE OF OBLIGATIONS............................................................50
9.3 NO LITIGATION.........................................................................50
9.4 [Reserved]............................................................................50
9.5 NO MATERIAL ADVERSE EFFECT............................................................50
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9.6 TERMINATION OF RELATED PARTY AGREEMENTS...............................................50
9.7 OPINION OF COUNSEL....................................................................51
9.8 CONSENTS AND APPROVALS................................................................51
9.9 GOOD STANDING CERTIFICATES............................................................51
9.10 REGISTRATION STATEMENT................................................................51
9.11 EMPLOYMENT AGREEMENTS.................................................................51
9.12 CLOSING OF IPO........................................................................51
9.13 FIRPTA CERTIFICATE....................................................................51
9.14 [Reserved]............................................................................51
9.15 SATISFACTION..........................................................................52
9.16 HSR ACT...............................................................................52
9.17 INVESTOR QUESTIONNAIRE................................................................52
9.18 CROSS RECEIPT.........................................................................52
9.19 REDEMPTION OF PREFERRED STOCK AND CONTRIBUTION TO CAPITAL. ..........................52
9.20 THE STOCKHOLDERS' RELEASE AND CERTIFICATION. ........................................52
9.21 [Reserved]............................................................................53
9.22 COMPANY AND STOCKHOLDER REPRESENTATIONS...............................................53
10. COVENANTS OF CLARANT AND THE STOCKHOLDERS AFTER CLOSING.................................................53
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT..........................................53
10.2 TAX MATTERS. ........................................................................53
10.3 DIRECTORS AND OFFICERS................................................................54
10.4 [Reserved]............................................................................54
10.5 [Reserved]............................................................................55
10.6 [Reserved]............................................................................55
10.7 [Reserved]............................................................................55
11. INDEMNIFICATION.........................................................................................55
11.1 INDEMNIFICATION BY STOCKHOLDERS.......................................................55
11.2 INDEMNIFICATION BY CLARANT............................................................56
11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS. .....................................57
11.4 TAX CONTESTS. .......................................................................58
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS.............................................59
11.6 FAILURE TO GIVE TIMELY NOTICE.........................................................59
11.7 REDUCTION OF LOSS.....................................................................59
11.8 SUBROGATION...........................................................................60
11.9 ARBITRATION...........................................................................60
11.10 EXCLUSIVE REMEDY......................................................................60
11.11 LIMITATION AND EXPIRATION.............................................................60
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS..................................62
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12. TERMINATION OF AGREEMENT................................................................................62
12.1 TERMINATION...........................................................................62
12.2 LIABILITIES IN EVENT OF TERMINATION...................................................63
13. NONCOMPETITION..........................................................................................63
13.1 PROHIBITED ACTIVITIES. ..............................................................63
13.2 DAMAGES...............................................................................64
13.3 REASONABLE RESTRAINT..................................................................64
13.4 SEVERABILITY; REFORMATION.............................................................64
13.5 INDEPENDENT COVENANT..................................................................65
13.6 MATERIALITY...........................................................................65
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................65
14.1 STOCKHOLDERS..........................................................................65
14.2 CLARANT AND NEWCO.....................................................................66
14.3 DAMAGES...............................................................................66
14.4 SURVIVAL..............................................................................66
15. TRANSFER RESTRICTIONS...................................................................................66
15.1 TRANSFER RESTRICTIONS.................................................................67
16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................67
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK..............................................67
16.2 COMPLIANCE WITH LAW...................................................................68
16.3 ECONOMIC RISK; SOPHISTICATION.........................................................68
17. REGISTRATION RIGHTS.....................................................................................69
17.1 PIGGYBACK REGISTRATION RIGHTS.........................................................69
17.2 REGISTRATION PROCEDURES...............................................................69
17.3 UNDERWRITING AGREEMENT................................................................70
17.4 AVAILABILITY OF RULE 144..............................................................70
17.5 MARKET STANDOFF.......................................................................70
18. DEFINITIONS.............................................................................................70
19. GENERAL.................................................................................................80
19.1 COOPERATION...........................................................................80
19.2 SUCCESSORS AND ASSIGNS................................................................80
19.3 ENTIRE AGREEMENT......................................................................80
19.4 COUNTERPARTS..........................................................................81
19.5 EXPENSES. ............................................................................81
19.6 NOTICES...............................................................................81
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19.7 GOVERNING LAW.........................................................................83
19.8 EXERCISE OF RIGHTS AND REMEDIES.......................................................83
19.9 TIME..................................................................................83
19.10 REFORMATION AND SEVERABILITY..........................................................83
19.11 STOCKHOLDERS' REPRESENTATIVE..........................................................83
19.12 CAPTIONS..............................................................................84
19.13 SURVIVAL..............................................................................84
19.14 ACCOUNTING TERMS......................................................................84
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EXHIBITS AND SCHEDULES
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EXHIBIT 1.1 Articles of Merger
EXHIBIT 1.3 Surviving Corporation Charter Documents
EXHIBIT 2.1(a) Consideration
EXHIBIT 2.1(e) Payment Obligations
EXHIBIT 3.3 Contingent Consideration
EXHIBIT 5.2 Stockholders and Board of Directors Approvals
EXHIBIT 5.29(a) Directors and Officers Questionnaires
EXHIBIT 5.29(b) Investor Questionnaires
EXHIBIT 6.1 Clarant Charter Documents
EXHIBIT 8.11 Form of Employment Agreement
EXHIBIT 18 Knowledge
EXHIBIT 19.6 Stockholders Addresses and Counsel
SCHEDULE 5.1 Charter Documents and Officers and Directors of the Company
SCHEDULE 5.3 Capital Structure of the Company
SCHEDULE 5.4 Consents
SCHEDULE 5.7 Subsidiaries
SCHEDULE 5.8 Predecessor Status
SCHEDULE 5.9 Spin Off by Company
SCHEDULE 5.10 Financial Statements
SCHEDULE 5.11 Liabilities and Obligations
SCHEDULE 5.12 Accounts Receivable
SCHEDULE 5.13 Intellectual Property
SCHEDULE 5.14 Trademarks
SCHEDULE 5.15 Litigation
SCHEDULE 5.16 Compliance with Laws/Permits
SCHEDULE 5.17 Company Plans
SCHEDULE 5.18 Insurance
SCHEDULE 5.19 Environmental
SCHEDULE 5.20 Employees
SCHEDULE 5.21 Personal Property
SCHEDULE 5.22 Significant Customers and Material Contracts
SCHEDULE 5.23 Leased Real Property
SCHEDULE 5.24(g) List of Tax Returns
SCHEDULE 5.24(r) Tax Attributes and Elections
SCHEDULE 5.25 Business Conduct
SCHEDULE 5.26 Deposit Accounts/Powers of Attorney
SCHEDULE 5.27 Year 2000 Compliance
SCHEDULE 5.30 Warranties
SCHEDULE 5.31 Affiliate Transactions
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SCHEDULE 5.33 Brokers
SCHEDULE 6.5 Capital Stock
SCHEDULE 6.7 Liabilities and Obligations
SCHEDULE 6.8 Conformity with Law and Litigation
SCHEDULE 6.12 Property
SCHEDULE 6.13 Consents
SCHEDULE 7.3(c) Distributions and Dividends
SCHEDULE 7.3(f) Sale of Subsidiary
SCHEDULE 9.11 Employment Agreements
SCHEDULE 11.1(f) Additional Indemnification Matters
SCHEDULE 13.1 Excepted Stockholders and Permitted Activities
SCHEDULE 18.1 Registration Statement
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made
as of June 2, 1999, by and among CLARANT, Inc., a Delaware corporation
("Clarant"), FREE RANGE MEDIA ACQUISITION CORP., a Washington corporation
("Newco"), FREE RANGE MEDIA, INC., a Washington corporation (the "Company"),
and John C. Dimmer, John B. Dimmer, and Andrew L. Fry (the "Stockholders").
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Washington, 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
comprehensive strategic planning and customized internet solutions that support
corporate objectives and increase business competitiveness and Return on
Internet Investment (ROI2) by combining business strategy, innovative design,
and technological expertise with client partnerships and an expertise in
strategic consulting, blueprinting, building and implementation as well as the
reselling of software and hardware and offering partnerships with hosting
services (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 Washington (the "Merger"), and in furtherance thereof have
approved the Merger and to the extent required under applicable state laws have
recommended and submitted the Merger for approval to their constituent
stockholders;
WHEREAS, it is the intent of Clarant, Newco, the Company and each of
the Stockholders that upon the completion of the Merger, the Company shall be
the Surviving Corporation existing as a wholly owned subsidiary of Clarant;
WHEREAS, Clarant plans to enter into other separate agreements
substantially similar to this Agreement (the "Other Agreements") with Align
Solutions Corp., a Delaware corporation, Young & Rubicam, Inc., a Delaware
corporation (with respect to Brand Dialog, a business division of Young &
Rubicam), Integrated Consulting, Inc. d/b/a i.con interactive, a Texas
Corporation, Interactive 8, Inc., a New York corporation, Multimedia Resources
LLC, a New York limited liability company, Potomac Partners Management
Consulting, LLC, a Delaware limited liability company, RSI Group, Inc., a Texas
Corporation (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.
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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 Washington 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 Washington (the "State Corporation Law"),
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. At the Effective Time, the effect of the
Merger otherwise shall be as provided in the applicable provisions of the State
Corporation Law.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time:
(a) the Articles of Incorporation of the Surviving Corporation
shall be amended and restated as permitted under the laws of the State of
Washington 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;
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(c) Guillermo G. Marmol, the Chief Executive Officer of
Clarant ("Mr. Marmol") 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) Mr. Marmol shall be the President and Chief Executive
Officer of the Surviving Corporation, the President of the Company immediately
prior to the Effective Time shall be a Vice President of the Surviving
Corporation and the other officers of the Company immediately prior to the
Effective Time shall continue as officers of the Surviving Corporation in the
same capacity or capacities.
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
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501(a) of Regulation D promulgated under the 1933 Act ("Non-accredited
Stockholders"). Pursuant to the provisions of this Section 2.1, each of the
Accredited Stockholders and Nonaccredited Stockholders shall receive his or her
pro rata share of the Merger Consideration distributed according to the terms of
this Section 2.1.
(a) At the Effective Time, by virtue of the Merger and without
any further action on the part of the holder thereof, each of the shares of
capital stock of the Constituent Corporations shall be automatically canceled,
extinguished and converted as follows:
(i) each share of issued and outstanding Company
Stock owned by an Accredited Stockholder immediately prior to the Effective Time
shall be converted 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) At the Effective Time, as required by the Company's Option
Plan, each of the Options shall be treated as follows: (i) each exercisable
Option, as set forth on SCHEDULE 5.3, 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) and (ii) each Option not exercisable shall be automatically
canceled and extinguished and shall cease to exist and no option of Clarant
stock or other consideration shall be delivered in exchange therefor.
(c) All Clarant Common Stock received by the Accredited
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
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otherwise provided by the Delaware General Corporation Law. All voting rights of
Clarant Common Stock received by the Accredited Stockholders shall be fully
exercisable by the Accredited Stockholders, and the Accredited 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).
(e) At the Closing, Clarant shall withhold from Cash
Consideration payable to the Accredited Stockholders and Non-Accredited
Stockholders as follows:
(i) The amount of set forth on EXHIBIT 2.1(e)
necessary to satisfy in full the broker fee obligation ("Broker Fee") set forth
on SCHEDULE 5.33;
(ii) The amount of cash the Preferred Stockholder is
entitled to receive immediately prior to the Effective Time, as determined
according to on EXHIBIT 2.1(e), in satisfaction of the Redemption;
(iii) The amount of cash the Lender is entitled to
receive immediately prior to the Effective Time, as determined according to on
EXHIBIT 2.1(e), in satisfaction of all outstanding debt and accrued interest
owed to the Lender pursuant to the that certain Master Borrowing Agreement by
and between Free Range Media, Inc. and John C. Dimmer (the "Lender") dated March
4, 1997 (the "Promissory Note").
The Redemption, the Promissory Note, and the Broker Fee are referred to
collectively as the "Payment Obligations". At or prior to the Closing, the
Company may reallocate the amounts withheld from the Cash Consideration among
the categories specified in clauses (i) - (iii) of this Section 2.1(e) as
necessary; PROVIDED, HOWEVER, that the Broker Fee and the Promissory Note shall
be paid in full and all shares of the preferred stock shall be redeemed;
PROVIDED FURTHER, HOWEVER, that in no event shall any changes to the application
of the Cash Consideration increase the amount of the Cash Consideration.
(f) At the Closing, Clarant shall deliver to the Surviving
Corporation the amount of cash equal to the Payment Obligations.
3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER OF CONSIDERATION; TENDER. At the Closing, Clarant shall
deliver to the stockholders of the Company and the holders of Options of the
Company the consideration
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allocable pro rata to each such holder (the "Merger Consideration"), less the
amount of cash to be withheld in satisfaction of the Payment Obligations in
accordance with the formulas set forth on EXHIBIT 2.1(e), 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) each of the holders of exercisable Options shall receive
the amount of cash allocable to such holders of exercisable (vested and
accelerated) Options pursuant to EXHIBIT 2.1(a);
(c) The cash portion of the Merger Consideration allocable to
each Accredited Stockholder, Non-accredited Stockholder or Option Holder, 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) business 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.
3.2 TENDER OF COMPANY STOCK.
(a) The Stockholders shall deliver in trust to Wilmer, Cutler
& Pickering, 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 Wilmer, Cutler &
Pickering, counsel to Clarant, the certificates representing Company Stock held
by such stockholders, duly endorsed in blank by each of such stockholders,
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as the case may be, or accompanied by stock powers duly endorsed in blank, with
signatures guaranteed by a national or state chartered bank or other financial
institution, and with all necessary transfer tax and other revenue stamps,
acquired at such stockholders' expense, affixed and canceled. The Stockholders
shall obtain from such other stockholders of the Company an agreement promptly
to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
3.3 EARN-OUT. In addition to the Merger Consideration and subject to
the terms of this Section 3.3, Clarant shall deliver contingent consideration
determined according to the formula stated in EXHIBIT 3.3 (the "Contingent
Consideration") to each Person who is a stockholder of the Company as of the
Closing Date such stockholder's pro rata share of the Contingent Consideration
(such pro rata share to be determined with respect to the total number of issued
and outstanding shares of Company Stock immediately prior to the Effective Time
without regard to issued and outstanding Convertible Securities and Options).
Each Accredited Stockholder as of the Closing Date shall be eligible to receive
his or her pro rata share of Contingent Consideration in a combination of
Clarant Common Stock and cash. Each Nonaccredited 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.
3.4 SATISFACTION OF THE PAYMENT OBLIGATIONS. The Payment Obligations
shall be paid by the Surviving Corporation immediately after the Effective Time
by wire transfer to the Preferred Stockholder, the Lender, and the Broker
respectively pursuant to wire instructions to be provided to Clarant no later
than fifteen (15) days before the Closing. Upon receipt of funds in
satisification of the Redemption, the Preferred Stockholder shall deliver to the
Surviving Corporation, with a copy to Clarant, the acknowledgement referred to
in Section 7.14. Upon receipt of funds in satisfaction of the Promissory Note,
the Lender shall deliver to the Surviving Corporation, with a copy to Clarant, a
written release of any and all obligations under the Promissory Note. Upon
receipt of funds in satisfaction of the Broker Fee, the Broker shall deliver to
the Surviving Corporation, with a copy to Clarant, a written release of any and
all obligations under the Broker Agreement. In the event that the Cash
Consideration is not sufficient to satisfy in full the Payment Obligations, the
Stockholders shall pay any and all remaining amounts owed under such Payment
Obligations.
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
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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 Wilmer, Cutler &
Pickering, 2445 M Street, N.W., Washington, D.C. 20037.
4.2 CLOSING. On the Closing Date: (a) the Merger Documents shall be or
shall have been filed with the appropriate state authorities so that they shall
be or, as of 8:00 a.m. New York City time on the Closing Date, shall become
effective and the Merger shall thereby be effected, (b) all transactions
contemplated by this Agreement, including the delivery of Clarant Common Stock
and Company Stock, as the case may be, the transmission of funds by wire in an
amount equal to the cash portion of the consideration to be paid according to
EXHIBIT 2.1(a), and (c) all conditions to closing as set forth in Articles 8 and
9 of this Agreement shall have been satisfied. The date on which the actions
described in this Section 4.2 occur shall be referred to as the "Closing Date."
This Agreement shall terminate if the Closing Date has not occurred within
fifteen (15) business days of the Pre-Closing Date. Time is of the essence. The
"Effective Time" shall be the same date as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
The Company and each of the Stockholders jointly and severally
represents and warrants to Clarant and Newco that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement, shall be true, accurate and complete at the Pre-Closing Date and the
Closing Date, in each case as modified by any applicable Schedule amendments or
supplements pursuant to Section 7.11, and each of the Stockholders further
represents and warrants, except as contemplated hereby or as affected by the
transaction contemplated hereby, that 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
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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. 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 and at the applicable exercise price and vesting set forth thereon,
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 of the
Company and were offered, issued, sold and delivered by the Company in
compliance with all applicable state and Federal securities laws concerning the
offering and sale or grant of securities. All of the Options have been duly
authorized and validly issued, are held of record and beneficially by the
respective option holders set forth on SCHEDULE 5.3, and in the amounts set
forth thereon and at the applicable exercise
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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. There are no breaches or defaults under any
of the Company's Securities Agreements nor do the actions contemplated by this
Agreement cause such a breach or default.
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 and the consummation of
the transactions contemplated hereby will not:
(a) violate or conflict with or result in a breach of any
provision of any Law, permit, judgment, or other decision of any court or other
tribunal or any Governmental Authority binding on the Company or any Subsidiary,
or any of its respective Affiliates, or conflict with or result in the breach of
any of the terms, conditions or provisions thereof;
(b) violate, conflict with or constitute a default under any
of the Charter Documents of the Company or any Subsidiary or of any Material
Contract;
(c) constitute an event that would permit any Person to
terminate any Material Contract or accelerate the maturity of any material
indebtedness or other material obligation;
(d) result in the creation or imposition of any Encumbrance
upon the properties or assets of the Company or any Subsidiary; or
(e) require any authorization, consent, approval, exemption or
other action by, or notice to any court or other tribunal or Governmental
Authority (each a "Governmental Consent").
SCHEDULE 5.4 describes each third party and Governmental Authority Consent.
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as
set forth on SCHEDULE 5.3, (a) no Option, Convertible Security, or commitment of
any kind exists which obligates the Company to issue any of its authorized but
unissued capital stock or its treasury stock; and (b) the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its Company Stock, Convertible Securities or Options or any interests
therein or to pay any dividend or make any distribution in respect thereof.
5.6 [RESERVED]
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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.
5.9 SPIN-OFF BY THE COMPANY. Except as set forth on SCHEDULE 5.9, there
has not been any sale, spin-off, or split-up of material properties or assets of
either the Company or any other person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company ("Affiliates") since January 1, 1997.
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Company has
delivered to Clarant (as SCHEDULE 5.10) copies of the following financial
statements (the "Financial Statements"): audited Balance Sheets, income
statements, statements of stockholders' equity and statements of cash flows at
and for the fiscal years ended December 31, 1996, 1997 and 1998 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.
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5.11 LIABILITIES AND OBLIGATIONS.
(a) 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.
(b) SCHEDULE 5.11 sets forth the terms of all loan agreements,
notes and other debt obligations (whether secured or unsecured), indemnity or
guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements to which the Company or any Subsidiary is a party. Except as set
forth on SCHEDULE 5.11, the Company is not directly or indirectly (i) liable, by
guarantee or otherwise, upon or with respect to, (ii) obligated by discount or
repurchase agreement or in any other way to provide funds with respect to, or
(iii) obligated to guarantee or assume any indebtedness, dividend or other
obligation of any Person, except endorsements made in the ordinary course of
business in connection with the deposit of items for collection.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.12) of the accounts
and notes receivable of the Company as of the Balance Sheet Date, including any
such amounts which are not reflected on the Balance Sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
Stockholders. Within ten (10) days prior to Closing, the Company shall provide
Clarant (a) an accurate list of all outstanding receivables obtained subsequent
to the Balance Sheet Date and (b) an aging of all such accounts and notes
receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on SCHEDULE 5.12 or as disclosed by
the Company to Clarant in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on SCHEDULE 5.12
and on the A/R Aging Reports are and shall be, 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.
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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 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 not set forth in SCHEDULE 5.13;
(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:
(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;
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(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;
(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
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(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;
(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 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
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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,
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,
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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 another provision of 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.
"Welfare Plan" has the meaning given in ERISA Section 3(l).
(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 new 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; and
(d) The Company has provided to Clarant all of the following
documents relating to Company Plans and Company Other Benefit Obligations:
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(i) all the documents, if any, that set forth the
terms of each Company Plan, 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 5500 C/Rs do
not include a 5500 C) 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 ERISA
Affiliate of the Company or any Company Plan within the two years preceding the
date of this Agreement (and any earlier material notices relating to matters not
resolved as of the date of this Agreement); and
(vi) with respect to Qualified Plans (I) the most
recent determination regarding qualification and, if different, the most recent
determination letter that covered the qualification of the entire plan, or (II)
if applicable, the most recent opinion letter issued by the Service with respect
to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its material
obligations under all Company Plans and Company Other Benefit Obligations;
(ii) the Company, with respect to all Company Plans
and Company Other Benefit Obligations is, and each Company Plan and Company
Other Benefit Obligation is, in material compliance with ERISA, the Code,
federal and state securities laws and other applicable Laws and with the terms
of each Company Plan and Company Other Benefit Obligation;
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(iii) no transaction prohibited by ERISA Section 406
and no "prohibited transaction" under Section 4975(c) of the Code have occurred
with respect to any Company Plan that could give rise to liability against the
Company in excess of $25,000;
(iv) the Company has no liability to the Service with
respect to any Plan that would have a Material Adverse Effect;
(v) the Company has no liability with respect to any
Plan under ERISA Section 502(i), that would have a Material Adverse Effect;
(vi) a determination letter, or, if applicable, an
opinion letter, has been issued by the Service with respect to each Qualified
Plan;
(vii) since December 31, 1998, there has been no
establishment or amendment of any Company Plan or Company Other Benefit
Obligation that would increase the liability of the Company by more than
$25,000;
(viii) other than routine claims for benefits
submitted by participants or beneficiaries, no claim against, or legal
proceeding involving, any Company Plan or Company Other Benefit Obligation is
pending or, to the Stockholders' or the Company's Knowledge, is Threatened. No
Company Plans or Company Other Benefit Obligations are, to the Company's
Knowledge, presently under audit or examination (nor has notice been received of
a potential audit or examination) by the Service, the Department of Labor, or
any other Governmental Authority, and no matters are pending with respect to any
Company Plan under the Service's Employee Plans Compliance Resolutions System or
any successor or predecessor program;
(ix) no Company Plan or Company Other Benefit
Obligation provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service other than (1) coverage
mandated by applicable law, (2) death benefits or retirement benefits under any
Company Plan that is a Pension Plan, (3) deferred compensation benefits in the
form of cash, (4) benefits, the full cost of which is borne by the current or
former employee (or his beneficiary), or (5) insured disability benefits;
(x) except as set forth 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;
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(xi) all group health plans of the Company and its
ERISA Affiliates have been operated in material compliance with the requirements
of COBRA and Section 5000 of the Code and the Health Insurance Portability and
Accountability Act;
(xii) the only Qualified Plan is the Free Range
Media, Inc. Plan (Fidelity Institutional Prototype Plan). The Company has never
maintained or contributed to other Qualified Plans. No Company Plan contains any
security issued by the Company or any ERISA Affiliate; each Qualified Plan of
the Company is and has always been in substantial compliance with Section 401(a)
of the Code;
(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;
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(ii) any workers' compensation schemes applicable to
the Company or any subsidiary;
(iii) any contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk by the Company and
its Subsidiaries; and
(iv) all obligations of the Company and its
Subsidiaries to third parties with respect to insurance (including such
obligations under leases and service agreements).
(c) SCHEDULE 5.18 sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each
policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $50,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer,
type of insurance, and period of coverage; and
(C) the amount and a brief description of
the claim; and
(iii) a statement describing the loss experience for
all claims that were self-insured, including the number and aggregate cost of
such claims.
(d) Except as set forth in SCHEDULE 5.18:
(i) all insurance policies to which the Company or
any Subsidiary is a party or that provide coverage to Stockholders, or any
director or officer of the Company or any Subsidiary:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that the
Company believes is financially sound and reputable;
(C) taken together, in the Company's belief,
provide adequate insurance for the properties, assets and the Business of the
Company and its Subsidiaries for all risks normally insured against by a Person
carrying on the same or similar business or businesses as the Company;
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(D) comply with the insurance requirements
of all Laws and Contracts to which the Company and/or any Subsidiary is a party
or by which it is bound; and
(E) do not provide for any retrospective
premium adjustment or other experience-based liability on the part of the
Company and/or any Subsidiary;
(ii) neither the Company nor any Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and its Subsidiaries has
paid all premiums due and has otherwise performed all of its obligations under
each policy to which the Company or any Subsidiary is a party or that provides
coverage to the Company, any Subsidiary, or director thereof; and
(iv) except as set forth in SCHEDULE 5.18 the Company
and each Subsidiary have given notice to the insurer of all material claims that
may be insured thereby.
5.19 ENVIRONMENT.
(a) Except as set forth in SCHEDULE 5.19:
(i) the Company is, and at all times has been, in
material compliance with, and has not been, and is not, in material violation
of, or materially liable under, any Environmental Law; and
(ii) with respect to Permits required by, and notices
or application required by, the Environmental Laws, the Company possesses all
such Permits and has filed all such notices and applications the absence of
which would have a Material Adverse Effect on the Company.
(b) Except as disclosed in SCHEDULE 5.19:
(i) the Company has not been subject to, or received
any, notice of any Action or intended Action relating to the presence or alleged
presence of Hazardous Materials in, under, or upon any real estate currently or
formerly owned, leased or used by (A) the Company, or (B) any other Person with
respect to Hazardous Materials disposed of by or on behalf of the Company;
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(ii) the Company and Stockholders have no Knowledge
of any basis for any such notice or Action; and
(iii) there are no pending or, to the Knowledge of
the Stockholders and the Company, Threatened, Actions (or notice of potential
actions or proceedings) from any Governmental Authority or any other entity
against or applicable to the Company regarding any matter relating to health or
protection of the Environment.
(c) There are, and have been, no past or present events,
conditions, circumstances, activities, practices, incidents, or actions that
could reasonably be expected to interfere with or prevent the Company's or any
Subsidiary's continued compliance with any Environmental Law, give rise to any
legal obligation or liability, or otherwise form the basis of any Action,
hearing or investigation against or involving the Company or any Subsidiary or
any real estate presently or previously owned or used by the Company or any
Subsidiary under any of the Environmental Law or related common law theories,
except as identified in SCHEDULE 5.19.
(d) To the Knowledge of the Stockholders and the Company,
SCHEDULE 5.19 sets forth the name and principal place of business of every
off-site waste disposal organization, and each of the haulers, transporters or
cartage organizations engaged now or in the preceding three years by the
Business to dispose of Hazardous Materials to any off-site waste disposal
location on behalf of the Company or any Subsidiary.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of and service providers to the Company and
any Subsidiary:
(a) [Reserved];
(b) the Company is complying and has complied in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and no claims or investigations
are pending or, to the Company's Knowledge, Threatened with respect to such
laws, either by private individuals or by Governmental Authority;
(c) the Company has not and is not engaged in any unfair labor
practice, and there is not now, nor within the past three years has there been,
any unfair labor practice complaint against the Company pending or, to the
Company's Knowledge, Threatened, before the National Labor Relations Board or
any other comparable authority;
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(d) no labor union represents or has ever represented the
Company's employees and no collective bargaining agreement is or had been
binding against the Company. The Company is not currently negotiating to enter
into such agreements. No grievance or arbitration proceeding arising out of or
under collective bargaining agreements or employment relationships is pending,
and no claims therefor exist or have, to the Company's Knowledge, been
Threatened;
(e) no labor strike, lock-out, slowdown, or work stoppage is
or has ever been pending or Threatened against or directly affecting the
Company;
(f) all Persons who are or were performing services for the
Company and are or were classified as independent contractors do or did satisfy
and have satisfied the requirements of law to be so classified, and the Company
has fully and accurately reported their compensation on the Service's Form 1099
when required to do so; and
(g) SCHEDULE 5.20 hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company and any Subsidiary who earned
more than $75,000 in 1998 or are expected to earn that level in 1999, and lists
all employment agreements with such employees, and the officers and directors
and the rate of compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such Person as of (a) the
Balance Sheet Date and (b) the date hereof.
5.21 PERSONAL PROPERTY.
(a) The Company has delivered to Clarant (a) an accurate list
(which is set forth on SCHEDULE 5.21) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" (or
similarly named line item) on the balance sheet of the Company at the Balance
Sheet Date, (ii) all other personal property owned by the Company or any
Subsidiary with a value individually in excess of $10,000 (A) at the Balance
Sheet Date and (B) acquired since the Balance Sheet Date, and (iii) all leases
and agreements in respect of personal property, together with a listing of the
capital costs of all such properties and assets which are subject to capital
leases.
(b) Except as set forth on SCHEDULE 5.21, (i) all personal
property with a value individually in excess of $10,000 used by the Company or
any Subsidiary in its business is either owned by the Company or any Subsidiary
or leased by the Company or any Subsidiary pursuant to a lease included on
SCHEDULE 5.21, (ii) all of the personal property listed on SCHEDULE 5.21 is in
good working order and condition, ordinary wear and tear excepted, and (iii) all
leases and agreements included on SCHEDULE 5.21 are in full force and effect and
constitute valid and binding agreements of the Company or any Subsidiary, and to
the Company's and the Stockholders' Knowledge, of the parties (and their
successors) thereto in accordance with their respective terms.
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5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) The Company has delivered to Clarant an accurate list
(which is set forth on SCHEDULE 5.22) of all Significant Customers, it being
understood and agreed that a "Significant Customer," for purposes of this
Agreement, means a customer (or Person) representing 5% or more of the Company's
annual revenues as of the Balance Sheet Date. Except to the extent set forth on
SCHEDULE 5.22, none of the Company's Significant Customers has canceled or
substantially reduced or, to the Knowledge of the Company or any Stockholder, is
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company or any Subsidiary.
(b) The Company has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Company or its Subsidiaries enforceable in accordance
with its terms, and is in full force and effect, subject to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and the application of equitable principles. Except as set forth on
SCHEDULE 5.22, the Company or its Subsidiaries have performed all obligations
required to be performed by it under each Material Contract, and it is not, nor,
to the Knowledge of the Company or any Stockholder, is any other party to any
Material Contract (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder. Neither the
Company nor any Subsidiary has been notified that any party to a Material
Contract intends to cancel, terminate, not renew, or exercise an option under
any Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.
(c) Except as listed or described on SCHEDULE 5.22, the
Company has no Contracts of the types described below:
(i) any collective bargaining arrangement with any
labor union or any such agreements currently in negotiation or proposed;
(ii) any contract for capital expenditures or the
acquisition or construction of fixed assets for or in respect to real property
other than in the Ordinary Course of Business in excess of $50,000;
(iii) any contract with a term in excess of one year
for the purchase, maintenance, acquisition, sale or furnishing of materials,
supplies, merchandise, machinery, equipment, parts or other property or services
(except that the Company need not list any such contract made in the Ordinary
Course of Business which requires aggregate future payments of
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less than $50,000, and in lieu of providing each individual contract, the
Company has provided to Clarant its standard subcontractor form and a list of
each subcontractor).
(iv) any contract relating to the borrowing of money,
or the guaranty of another Person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations, agreements
and other instruments for or relating to any lending or borrowing, including
assumed indebtedness;
(v) any contract granting any Person an Encumbrance
on any of the properties or assets of the Company or any Subsidiary, in whole or
in part;
(vi) any contract for the cleanup, abatement or other
actions in connection with Hazardous Materials, the remediation of any existing
environmental liabilities, violation of Environmental Laws or relating to the
performance of any environmental audit or study;
(vii) any contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any material property or asset of the Business of the Company or any Subsidiary,
other than in the Ordinary Course of Business;
(viii) any contract having an original value in
excess of $50,000 under which the Company or any Subsidiary is:
(A) a lessee or sublessee of any machinery,
equipment, vehicle or other tangible personal property or real property, or
(B) a lessor of any real property or
machinery, equipment, vehicle or other tangible personal property owned by the
Company or any Subsidiary;
(ix) any contract providing for the indemnification
of any officer, director, employee or other Person where such indemnification
may exceed the sum of $50,000;
(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.
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5.23 REAL PROPERTY.
(a) Neither the Company nor any Subsidiary owns any real
property.
(b) SCHEDULE 5.23 sets forth a complete and an accurate list
of real property leased by the Company or its Subsidiaries (the "Leased Real
Property") and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by Stockholders or Affiliates of the Company, any
Subsidiary or a Stockholder. The Company has provided Clarant with true,
complete and correct copies of all leases and agreements (the "Leases") in
respect of such real property leased by the Company or its Subsidiaries.
SCHEDULE 5.23 sets forth the applicable monthly rental, expiration, and renewal
terms for each Lease. Except as set forth on SCHEDULE 5.23, all Leases are in
full force and effect and constitute valid and binding agreements of the Company
or its Subsidiaries and, to the Company's and the Stockholders' Knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms. None of the Leases requires the consent or approval of any party thereto
in connection with the consummation of the transactions contemplated by this
Agreement.
(c) the Leased Real Property and all present uses and
operations of the Leased Real Property by the Company comply with all applicable
Laws, covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the Leased Real Property and the Company has obtained
all approvals of Governmental Authorities (including certificates of use and
occupancy, licenses and permits) required in connection with the use, occupation
and operation of the Leased Real Property.
5.24 TAXES
(a) Neither the Company nor any Subsidiary is or has been a
member of 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) owed by the Company, each Subsidiary and each
Relevant Group that are due and payable have been paid;
(c) The amount of the liability of the Company and the
Subsidiaries for unpaid Taxes as of the Balance Sheet Date did not exceed the
current liability accruals for Taxes (excluding any reserves for deferred Taxes)
set forth on the Company Financial Statements dated as of the Balance Sheet
Date. The amount of the liability of the Company and the Subsidiaries for unpaid
Taxes as of the date of any financial statements provided pursuant to Section
5.10 will not exceed the current liability accruals for Taxes (excluding any
reserves for deferred Taxes) set
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forth on such financial statements. The amount of the liability of the Company
and the Subsidiaries for unpaid Taxes as of the Closing Date will not exceed the
current liability accruals for Taxes (excluding any reserves for deferred Taxes)
set forth on the financial statements provided pursuant to Section 5.10, or if
there are no such financial statements, the Company Financial Statements dated
as of the Balance Sheet Date, as such accruals are adjusted on the books and
records of the Company and the Subsidiaries through the Closing Date in
accordance with past custom and practice;
(d) Neither the Company, any Subsidiary nor any Relevant Group
is a party or subject to any agreement extending the time within which to file
any Return. No claim has ever been made by any Taxing Authority in any
jurisdiction in which the Company or any Subsidiary does not file Returns that
it is or may be subject to taxation by that jurisdiction;
(e) The Company and each Subsidiary has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and record-keeping requirements with respect to, any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(f) No Tax Proceedings are presently pending with regard to
any Tax Returns or Taxes of the Company, any Subsidiary or any Relevant Group,
and no notice has been received (whether in writing or verbally) of the expected
commencement of a Tax Proceeding. No issues have been raised in any audit or
examination by or with respect to the Company, any Subsidiary or any member of
any Relevant Group which, by application of similar principles, could reasonably
be expected to result in a proposed deficiency for any other period not so
examined;
(g) SCHEDULE 5.24(g) attached hereto lists all material
federal, state, local and foreign income and franchise Tax Returns filed by or
with respect to the Company, each Subsidiary and each Relevant Group for all
Taxable Periods ended on or after January 1, 1991. With respect to each Return,
SCHEDULE 5.24(g) indicates whether the Return that has been examined and closed,
is presently subject to examination or is a Return with respect to which the
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;
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(j) Neither the Company nor any Subsidiary (i) is a party to
any Tax allocation, Tax indemnity, tax sharing agreement or any similar
agreement 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
Company Subsidiary constitutes tax exempt bond financed property or tax-exempt
use property within the meaning of Section 168 of the Code. Neither the Company
nor any Subsidiary is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax Reform
Act of 1986, or to any "long term contract" within the meaning of Section 460 of
the Code;
(l) Neither the Company nor any Subsidiary has disposed of any
property in a transaction being accounted for under the installment method
pursuant to Section 453 of the Code;
(m) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code or comparable
provisions of any state statutes, and none of the assets of the Company or any
Subsidiary is subject to an election under Section 341(f) of the Code or
comparable provisions of any state statutes;
(n) Neither the Company nor any Subsidiary is a party to any
joint venture or partnership;
(o) Neither the Company nor any Subsidiary will be required to
include any adjustment in taxable income in any Taxable Period ending after the
Closing Date under Section 481 of the Code (or any similar provision of the Tax
laws of any jurisdiction) as a result of any change in any method of accounting
occurring in a Taxable Period ending on or before the Closing Date. No Taxing
Authority has proposed any such change in any accounting method. The Company and
each Subsidiary presently use the accrual method of accounting for income Tax
purposes;
(p) Neither the Company nor any Subsidiary nor any member of
any Relevant Group has received any written ruling of a Taxing Authority
relating to Taxes or has entered into any closing agreement or similar binding
written agreement with a Taxing Authority relating to Taxes;
(q) There are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, Tax credits or other similar
items of or allocable to the Company or any Subsidiary (collectively, the "Tax
Attributes") under (A) Section 382 of the Code, (B) Section 383 of the Code, (C)
Section 384 of the Code, (D) Section 269 of the Code, or the Federal
consolidated return regulations, in each case as in effect both prior to and
following the Tax Reform Act of 1986;
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(r) As of December 31, 1998, the Company and each Subsidiary
had Tax Attributes for federal income Tax purposes as described on SCHEDULE
5.24(r) attached hereto. SCHEDULE 5.24(r) sets forth all elections affecting the
Company or any Subsidiary with respect to (1) the qualified subchapter S status
of the Company, (2) the qualified subchapter S subsidiary status of any
Subsidiary, (3) any election made under Section 338 of the Code, (4) the
classification of the Company or any Subsidiary under Treasury Regulations
Section 301.7701-3, (5) any material change in method of accounting, and (6) net
operating and loss limitations as a result of any member leaving a consolidated
group;
(s) 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);
(t) The Company is not an investment company as defined in
Section 351(e)(1) of the Code;
(u) 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;
(v) 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; and
(w) There is no intercorporate indebtedness, among the Company
or any of the Subsidiaries.
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, 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;
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(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might reasonably
be expected to have a Material Adverse Effect;
(e) material loan or advance by the Company or any Subsidiary
to any party other than sales to customers on credit or travel advances to
employees made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material liability,
potential liability or claimed liability relating to the Environment;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect to the Company's capital stock, Convertible
Securities or Options, any direct or indirect redemption, purchase, or other
acquisition of such stock, or the payment of principal or interest on any note,
bond, debt instrument or debt other than as required to be paid under the terms
of such instrument;
(h) incurrence of debts, liabilities or obligations (except
current liabilities incurred in connection with or for services rendered or
goods supplied in the Ordinary Course of Business, liabilities on account of
Taxes and governmental charges (but not penalties, interest or fines in respect
thereof), and obligations or liabilities incurred by virtue of the execution of
this Agreement);
(i) issuance by the Company or any Subsidiary of any notes,
bonds, or other debt securities or instruments or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) cancellation, waiver or release by the Company or any
Subsidiary of any material debts, liabilities, obligations, rights or claims,
except in each case in the Ordinary Course of Business;
(k) amendment of the Company's Charter Documents;
(l) amendment or termination of any Material Contract, other
than expiration of such contract in accordance with its terms;
(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;
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(o) sale or assignment by the Company or any Subsidiary of any
properties or assets other than in the Ordinary Course of Business;
(p) capital expenditures or commitments therefor by the
Company or any Subsidiary other than in the Ordinary Course of Business or in
excess of $100,000 in the aggregate;
(q) charitable contributions or pledges by the Company or any
Subsidiary in excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any property or
asset of the Company or any Subsidiary other than in the Ordinary Course of
Business;
(s) adoption, amendment or termination of any employee benefit
or pension plan; or
(t) increase in the benefits provided under any employee
benefit pension plan.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.
(a) The Company has delivered to Clarant an accurate schedule
(which is set forth on SCHEDULE 5.26) as of the date of this Agreement of:
(i) the name of each financial institution in which
the Company or any Subsidiary has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of account and account number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
(b) SCHEDULE 5.26 also sets forth the name of each Person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power
of attorney.
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,
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the Company's Significant Customers, and any other customer, vendor or business
partner of the Company whose failure to perform under any contract, agreement or
other understanding with the Company could have a Material Adverse Effect, are
or will be Year 2000 Compliant before December 31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. Neither the Company nor any Subsidiary
has made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause the Company or any Subsidiary to be
in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any
law of similar effect.
5.29 DISCLOSURE.
(a) This Agreement, including the schedules hereto, together
with the completed Directors and Officers Questionnaires and Investor
Questionnaires attached hereto respectively as EXHIBIT 5.29(a) and EXHIBIT
5.29(b) and all other documents and information made available to Clarant and
its representatives in writing pursuant hereto or thereto, present fairly the
Business of the Company and its Subsidiaries for the time periods with respect
to which such information was requested. The Company's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no statement made herein would be rendered untrue in any material
respect by, any other document to which the Company, any Subsidiary or any
officer, director or Stockholder is a party, or to which its properties or
assets are subject, or by any other fact or circumstance regarding the Company
and its Subsidiaries (which fact or circumstance was, or should reasonably,
after due inquiry, have been known to the Company or a Stockholder) that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of the final prospectus of Clarant utilized in connection with the IPO, the
Company or the Stockholders become aware of any fact or circumstance which would
change (or, if after the Closing Date, would have changed) a representation or
warranty of the Company or the Stockholders in this Agreement or would affect
any document delivered pursuant hereto in any material respect, the Company and
the Stockholders shall immediately give notice of such fact or circumstance to
Clarant. However, subject to the provisions of Section 7.11, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement, and subject to Section 7.11, 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
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representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other Person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of the Stockholders to enter into this Agreement, or
to vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, agent of Clarant or the prospective
IPO; provided however that the Company and the Stockholders retain the right to
require as a condition to Closing that the price of 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.
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5.33 BROKERS. Except as set forth on SCHEDULE 5.33, neither the Company
nor the Stockholders have any liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Clarant, Newco or the Surviving
Corporation could become liable or obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder severally represents and warrants to Clarant and Newco
that the representations and warranties set forth in this Section 5(B) are true,
accurate and complete as of the date of this Agreement and, shall be true,
accurate and complete at the time of the PreClosing 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. Each stockholder of the Company 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. The stockholders of the Company do not have, or
hereby waive, any preemptive or other right to acquire shares of Company Stock
or Clarant Stock that each stockholder of the Company has or may have had other
than rights of any stockholder of the Company 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 of the
Company 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. Each stockholder of the Company 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 any stockholder of the Company 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. Each stockholder of the Company has
executed and delivered to Clarant an Investor Questionnaire in the form attached
hereto as EXHIBIT 5.29(b) and
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such Investor Questionnaire as delivered by the stockholder is true complete and
accurate in all material respects.
6. REPRESENTATIONS OF CLARANT AND NEWCO
Clarant and Newco jointly and severally represent and warrant to the
Stockholders that all of the following representations and warranties in this
Article 6 are true, accurate and complete at the date of this Agreement and
shall be true, accurate and complete at the time of the Pre-Closing and on the
Closing Date, in each case as modified by any applicable Schedule amendments or
supplements pursuant to Section 7.11, and that such representations and
warranties shall survive the Closing Date.
6.1 DUE ORGANIZATION. Clarant is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Newco is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Washington. Clarant and Newco are each 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.
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6.5 CAPITAL STOCK. As of the Effective Time, the authorized capital
stock of Clarant will consist of One Hundred Million (100,000,000) shares of
common stock, par value $.10 per share (the "Clarant Common Stock") and Ten
Million (10,000,000) shares of preferred stock, par value $.10 per share
("Clarant Preferred Stock") (collectively, the "Clarant Common Stock" and
"Clarant Preferred Stock" referred to as "Clarant Stock"), and the issued and
outstanding Clarant Stock, Convertible Securities and Options of Clarant will be
as set forth on SCHEDULE 6.5. SCHEDULE 6.5 also sets forth the authorized and
outstanding Clarant Stock, Convertible Securities and Options as of the date of
this Agreement. As of the date of this Agreement, one hundred percent of the
stockholder interests in Newco are owned by Clarant. Except as part of the IPO
that will take place on the Closing Date as contemplated by this Agreement and
the Other Agreements and as disclosed in the Registration Statement, there are
no outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which Clarant
is a party requiring issuance, sale or transfer of any equity securities of
Clarant or any securities convertible directly or indirectly into equity
securities of Clarant, or evidencing the right to subscribe for any equity
securities of Clarant, or giving any Person other than the Founding Companies
any rights with respect to the capital stock of Clarant. On the Closing Date,
Clarant shall have outstanding only one class of capital stock (the Clarant
Common Stock), and the shares of Clarant Common Stock issued on the Closing Date
pursuant to this Agreement and the Other Agreements and to Persons who purchase
shares in the IPO will in the aggregate possess at least 80% of the total voting
power of the Clarant Common Stock that is entitled to vote and is outstanding as
of the Closing Date (after taking into account the dilution of the holdings of
Clarant Common Stock of the current Clarant stockholders). Except as 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
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any Governmental Authority having jurisdiction over it and no written notice of
any Action has been received by Clarant. Clarant has conducted and is conducting
its businesses in substantial compliance with applicable Laws and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
Clarant.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by Clarant and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of Clarant and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of Clarant.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof, the Clarant
Common Stock to be delivered to the Stockholders pursuant to this Agreement will
constitute valid and legally issued shares of Clarant, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Article 15 hereof, will be identical in all substantive respects (which do not
include the form of certificate upon which it is printed or the presence or
absence of a CUSIP number on any such certificate) to the Clarant Common Stock
issued and outstanding as of the date hereof. The shares of Clarant Common Stock
to be issued to the Accredited 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 Time, will not have
entered into any material agreement with any of the Founding Companies or any of
the stockholders or members of the Founding Companies other than (i) the Other
Agreements and the agreements contemplated by the Other Agreements, including
the employment agreements referred to therein and (ii) other employment
agreements entered into in the ordinary course of business.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
organized on August 21, 1998 and has conducted limited operations since that
time. Clarant has not conducted any material business since the date of its
inception, except in connection with this Agreement, the Other Agreements and
the IPO. Clarant does not own and has not at any time owned any real property or
any material personal property and is not a party to any other material
agreement, except as listed on SCHEDULE 6.12 and except that Clarant is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be disclosed in, or filed as exhibits to, the Registration
Statement.
6.13 NO VIOLATIONS. Clarant is not in violation of any Clarant Charter
Document. None of Clarant, or, to the Knowledge of Clarant, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which Clarant is a party, or by which Clarant or any of its
properties, are bound (collectively, the "Clarant Documents"). The rights and
benefits of Clarant under the Clarant Documents will not be adversely affected
by the transactions contemplated hereby and will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Clarant Documents or the Clarant
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Charter Documents. Except as set forth on SCHEDULE 6.13, none of the Clarant
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect, and the consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.14 ABSENCE OF CHANGES. Since March 31, 1999, except as set forth in
the Registration Statement, and except as contemplated by this Agreement and the
Other Agreements, there has not been:
(a) any change in the financial condition, assets, liabilities
(contingent or otherwise) income or business or Clarant that would have of
Material Adverse Effect 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;
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6.15 TAXES. All Returns required to have been filed by or with respect
to Clarant have been duly filed. No Tax Proceedings are presently pending with
regard to any Tax Returns or Taxes of Clarant, and no notice has been received
(whether in writing or verbally) of the expected commencement of such a Tax
Proceeding. All Taxes (whether or not shown on any Return) owed by Clarant have
been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing Date,
the Company will afford to the officers, directors and authorized
representatives of Clarant reasonable access during normal business hours to all
of the Company's and its Subsidiaries' sites, properties, books and records and
will furnish Clarant with such additional financial and operating data and other
information as to the Business and properties and assets of the Company and its
Subsidiaries as Clarant may from time to time reasonably request. The Company
will cooperate with Clarant and its representatives, including Clarant's
auditors and counsel, in the preparation of any documents or other material
(including the Registration Statement) which may be required in connection with
the transactions contemplated by this Agreement. Clarant, Newco, the
Stockholders and the Company and its Subsidiaries will treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Article 14
hereof. In addition, Clarant will cause each of the Other Agreements, binding
each of the Other Founding Companies, to contain a provision similar to this
Section 7.1 requiring each such Other Founding Company, its stockholders,
directors, officers, representatives, employees and agents to keep confidential
any information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date,
Clarant will afford to the officers and authorized representatives of the
Company access to all of Clarant's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the Business and properties of
Clarant and Newco as the Company may from time to time reasonably request.
Clarant and Newco will cooperate with the Company, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
required in connection with the transactions 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:
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(a) carry on in the Ordinary Course of Business substantially
as conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties, assets and facilities, including
those held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use their commercially reasonable best efforts to maintain
and preserve its business organization intact and use its best efforts to retain
its present management, key employees and relationships with suppliers,
customers and others having business relations with the Company or any
Subsidiary;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or lease
instruments, except as disclosed on SCHEDULE 5.25, provided that debt and/or
lease instruments may be replaced if such replacement instruments are on terms
at least as favorable to the Company or Subsidiary as the instruments being
replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the Closing
Date, neither the Company nor any Subsidiary will, without the prior written
consent of Clarant:
(a) make any change in its Charter Documents;
(b) grant or issue any securities, Options, conversion rights
or commitments of any kind relating to its securities of any kind other than in
connection with the exercise of Options listed on SCHEDULE 5.3;
(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, in the amounts and terms as set forth on SCHEDULE 7.3(c), a (i)
distribution to the stockholders before the Closing with respect to the sale of
Lariat Software, Inc. and (ii) a dividend Preferred Stock in Ordinary Course of
Business;
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(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in the
Ordinary Course of Business and involves an amount not in excess of $50,000;
(e) create, assume or permit to exist any Encumbrance upon any
assets or properties whether now owned or hereafter acquired, except (i) with
respect to purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $10,000 necessary or desirable
for the conduct of the Business of the Company and its Subsidiaries, (ii) (1)
liens for Taxes either not yet delinquent or being contested in good faith and
by appropriate proceedings (and for which adequate reserves have been
established and are being maintained) or (2) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the Ordinary
Course of Business (the liens set forth in clause (ii) being referred to herein
as "Statutory Liens"), or (iii) liens set forth on SCHEDULE 5.11 hereto;
(f) except as set forth on SCHEDULE 7.3(f) with respect to the
sale of the Company's wholly-owned subsidiary, Lariat Software, Inc. which shall
close prior to the PreClosing Date, 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
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employee engaged in the Company's or any Subsidiary's Business, (D) amend or
enter into a new Plan or Other Benefit Obligation (except as required by Law) or
amend or enter into a new collective bargaining agreement (except as required by
this Agreement), or (E) engage in any Affiliate Transactions;
(m) make or change any Tax election, amend any Tax Return or
take or omit to take any other action not in the Ordinary Course of Business and
consistent with past practice that would have the effect of increasing any Taxes
of Clarant, the Company or any Subsidiary for any Taxable Period ending after
the Closing Date; or
(n) without the express prior written consent of Clarant,
amend, modify, repeal or otherwise alter the approvals of the Company's board of
directors or by the Company's stockholders attached hereto as EXHIBIT 5.2.
7.4 NO SHOP. In consideration of the substantial expenditure of time,
effort and expense undertaken by Clarant in connection with its due diligence
review and the preparation and execution of this Agreement, the Company and the
Stockholders agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (a)
the termination of this Agreement or (b) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the Company or any Subsidiary) any
acquisition proposal relating to or affecting the Company or any Subsidiary or
any part of it, or any direct or indirect interests in the Company, whether by
purchase of assets or stock, purchase of interests, merger or other transaction,
and further agree that the Company will promptly advise Clarant of the terms of
any communications any of the Stockholders or the Company may receive or become
aware of relating to any bid for all or any part of the Company or any
Subsidiary.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
deliver to Clarant at the Pre-Closing, any and all proof that any such required
notice has been sent.
7.6 AGREEMENTS. On or prior to the Closing Date and effective as of the
Effective Time, the Company shall cause the termination of and obtain a written
waiver of rights from any beneficiary under (and shall deliver evidence of such
terminations and waivers to Clarant prior to Closing) (a) all Securities
Agreements, (b) any employment agreements between the Company and any employee
who is listed on SCHEDULE 9.11 hereto, and (c) any existing agreement between
the Company and any stockholders of the Company 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
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contained herein to be untrue or inaccurate in any material respect; (ii) any
material failure of any stockholder of the Company or the Company to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such Person hereunder and (iii) the exercise by any Person of any Option or
Convertible Security listed on SCHEDULE 5.3 or any enforceable request for the
Company to purchase, redeem or otherwise acquire any of its Company Stock,
Convertible Securities or Options;
(b) Clarant and Newco shall give prompt notice to the Company
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Clarant or Newco contained herein to be untrue or inaccurate in any material
respect and (ii) any material failure of Clarant or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder;
(c) The delivery of any notice pursuant to this Section 7.7
shall not be deemed to (i) modify the representations or warranties hereunder of
the party delivering such notice, which modification may only be made pursuant
to Section 7.11, (ii) modify the conditions set forth in Articles 8 and 9, or
(iii) limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
(a) The Company and Stockholders shall furnish or cause to be
furnished to Clarant and the Underwriters all of the information concerning the
Company and the Stockholders or such other stockholders of the Company requested
by Clarant or required by 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.
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(b) Clarant agrees that it will use its commercially
reasonable best efforts to provide to the Company and its counsel copies of
drafts of the Registration Statement as they are prepared and to give the
Company and the Stockholders a reasonable period of time to review and comment
upon such documents prior to filing with the SEC. Any objections posed by the
Company or its counsel shall be in writing and state with specificity the
material in question, the reason for the objection, and the Company's and the
Stockholders' proposed alternative. If the objection is founded upon a rule
promulgated under the Securities Act, the objection shall cite the rule.
Notwithstanding the foregoing, during the three business days immediately
preceding the date scheduled for the effective date of the IPO, the Company and
the Stockholders agree that two hours from the time the proposed changes are
transmitted to the Company's counsel is sufficient time to review and respond to
proposed changes.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited consolidated Balance Sheets of the Company as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated income statements, statements of cash flows and retained earnings
of the Company for all fiscal quarters ended after the Balance Sheet Date. Such
Financial Statements shall have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated and in a manner consistent
with the Financial Statements (except as noted therein). Except as noted in such
Financial Statements, all of such Financial Statements will present fairly the
results of operations of the Company for the periods indicated thereon.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.11 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation, until 24 hours prior
to the anticipated effectiveness of the Registration Statement, to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules, provided
however, that supplements and amendments to Schedules 5.11 (Liabilities and
Obligations), 5.12 (Accounts and Notes Receivable) and 5.22 (Significant
Customers; Material Contracts and Commitments) must be delivered only at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the Ordinary Course of Business; and further provided
that all 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
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Schedule prepared by Clarant or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on Clarant and Newco may be
made unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.11. In the event that one of
the Other Founding Companies seeks to amend or supplement a Schedule pursuant to
this Section 7.11 of one of the Other Agreements, and such amendment or
supplement constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on such Other Founding Company, Clarant shall give the
Company notice promptly after it has knowledge thereof. If Clarant and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Clarant or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(e). In the event
that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.11, and Clarant and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(a). No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.12 THIRD PARTY APPROVALS. Prior to the Closing Date, the Company and
its Subsidiaries shall satisfy any requirement for notice and approval of the
transactions contemplated by this Agreement under applicable agreements with
third parties, including any contract with any Governmental Authority.
7.13 HSR FILING. To the extent the Merger is a transaction subject to
the filing requirements of the HSR Act, each of the Company, the Stockholders
and Clarant shall use its commercially reasonable best efforts to (a) file all
information required to be filed by it pursuant to the HSR Act and (b) provide
the other party with all information reasonably requested and required by it to
satisfy any filing requirements it may have under the HSR Act.
7.14 REDEMPTION OF PREFERRED STOCK. Simultaneously with the Closing,
the Company shall redeem, and the Stockholders shall cause to be redeemed, all
issued and outstanding preferred stock of the Company on or before the Effective
Time in exchange for a portion of the Cash Consideration (the "Redemption").
Such Redemption shall be in accordance with the Charter Documents of the Company
and only after the applicable consent and authorization of the Board of
Directors of the Company and the stockholders of the Company. The Preferred
Stockholder shall execute and deliver a written consent to the Redemption and
full waiver of any of his rights under the Charter Documents of the Company or
other instruments or agreements relating to his preferred stock of the Company.
As of the date of the Redemption, the Preferred Stockholder shall cease to
accrue dividends or hold any other rights associated with the preferred
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stock and the Preferred Stockholder shall only be entitled to receive the amount
of the Redemption price without any interest. A written acknowledgement of the
Redemption shall (i) set forth the number of shares of preferred stock of the
Company redeemed, (ii) acknowledge the cancellation and extinguishment thereby
of all issued and outstanding shares of preferred stock, and (iii) set forth the
terms of repayment (including any accrued dividends) such terms to be in
accordance with the terms set forth on EXHIBIT 2.1(E). Upon the Redemption of
the preferred stock of the Company, (i) the preferred stock shall thereby be
automatically cancelled and extinguished and no longer deemed outstanding for
any purpose, and (ii) there shall be no other issued and outstanding capital
stock of the Company other than the common stock of the Company.
7.15 [Reserved]
7.16 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 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 PreClosing 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.
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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).
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
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Stockholders of Clarant and Newco approving Clarant's and Newco's entering into
this Agreement and the consummation of the transactions contemplated hereby.
8.9 HSR ACT. The waiting period applicable to the consummation of the
transaction contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
8.10 CLOSING OF THE IPO. The Closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE 9.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of EXHIBIT 8.11.
8.12 LISTING. Clarant shall cause the Clarant Common Stock to be listed
on the NASDAQ National Stock Market, subject to official notice of issuance.
8.13 TAX OPINION. Clarant shall have received an opinion upon which the
Company and the Accredited Stockholders will be entitled to rely (the "Tax
Opinion") from Wilmer, Cutler & Pickering, tax counsel for Clarant, or such
other tax counsel reasonably acceptable to Clarant and the Company ("Tax
Counsel") that the Clarant Plan of Organization will qualify as a tax-free
transfer of property under Section 351(a) of the Code and that the Accredited
Stockholders will not recognize gain to the extent the Accredited 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 Accredited
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 PreClosing 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.
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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 PreClosing 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]
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 any stockholder of the Company shall have been canceled
effective prior to or as of the Closing Date and the Company shall have obtained
all of the terminations and waivers required under Section 7.6.
9.7 OPINION OF COUNSEL. Clarant shall have received an opinion from
counsel to the Company and the Stockholders, dated the Pre-Closing Date, in form
and substance of the type customarily given by counsel to a founding company in
transactions similar to that contemplated by this Agreement and acceptable to
Clarant (and the Underwriters shall have received a copy of the same opinion
addressed to them), and at the Closing, Clarant shall have received a statement
from such counsel that the opinion is true as of the Closing Date.
9.8 CONSENTS AND APPROVALS. All necessary Consents of and filings with
any Governmental Authority 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
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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.
9.13 FIRPTA CERTIFICATE. Each Accredited 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 of the Company has
provided an executed Investor Questionnaire in the form of EXHIBIT 5.29(b).
9.18 CROSS RECEIPT. Each Accredited Stockholder shall have delivered to
Clarant and the Company an instrument dated the Closing Date (the "Cross
Receipt"), in form and substance acceptable to Clarant and its counsel,
certifying (i) such Accredited Stockholder's acknowledgment of the exchange and
cancellation of his respective Company Stock and receipt of his respective share
of Clarant Stock pursuant to the formula set forth on EXHIBIT 2.1(a), (ii)
certifying that such Accredited Stockholder acknowledges and agrees to comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, (iii) certifying that such Accredited
Stockholder acknowledges and agrees to comply with the transfer and restrictions
as set forth in Sections 15, 16, and 17 of this Agreement, and (iv) provides
representations requested under Section 8.13 with respect to the Tax Opinion.
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9.19 REDEMPTION OF PREFERRED STOCK AND CONTRIBUTION TO CAPITAL. At the
Closing, the Company shall deliver to Clarant, (i) evidence of the written
consent and authorization of the Board of Directors of the Company for the
Redemption, (ii) evidence of the consent as necessary and applicable of the
stockholders of the Company, and (iii) evidence of the consent and waiver of the
Preferred Stockholder in accordance with Section 7.14; and (iv) evidence of the
contribution to the capital of the Company made by the Lender, if any, in
accordance with EXHIBIT 2.1(e).
9.20 THE STOCKHOLDERS' RELEASE AND CERTIFICATION.
(a) The stockholders of the Company 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 of the Company against the Company and Clarant and (ii) any an all
obligations of the Company and Clarant to the stockholders of the Company,
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;
(b) The stockholders of the Company shall have delivered to
Clarant an instrument dated the Closing Date, in form and substance acceptable
to Clarant and its counsel, which certifies that (i) such stockholder of the
Company 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 such Company
Stock is owned free and clear of all Encumbrances; (ii) such stockholder of the
Company does not have, or waives, any preemptive or other right to acquire
shares of Company Stock or Clarant Stock that each stockholder of the Company
has or may have had other than rights of any stockholder of the Company to
acquire Clarant Stock pursuant to (A) this Agreement or (B) any option granted
by Clarant; (iii) such stockholder does not have 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; (iv) each stockholder
of the Company 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 any
stockholder of the Company 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.
9.21 [Reserved]
9.22 COMPANY AND STOCKHOLDER REPRESENTATIONS. The Company and the
Accredited Stockholders shall have provided Tax Counsel with the written
representations requested pursuant to Section 8.13.
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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 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 an
independent accounting firm agreeable to the parties for resolution. The party
whose position is not adopted in such resolution by a national 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
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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 and cause all other Accredited Stockholders to comply with the tax
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as a transfer of
property under Section 351(a) of the Code.
10.3 DIRECTORS AND OFFICERS. The Persons named in the Registration
Statement shall be elected as directors and elected as officers of Clarant, as
and to the extent set forth in the Registration Statement.
10.4 [Reserved]
10.5 [Reserved]
10.6 [Reserved]
10.7 [Reserved].
10.8 SATISFACTION OF CERTAIN PAYMENT OBLIGATIONS. Immediately after the
Effective Time, the Surviving Corporation shall pay in full, pursuant to Section
3.4, the amount set forth on EXHIBIT 2.1(e) in satisfaction of the Promissory
Note and the Broker Fee. All obligations of the Company under the Promissory
Note shall be released in full by the Lender upon receipt of such payment. The
Lender upon receipt of such payment shall immediately deliver to the Surviving
Corporation, with a copy to Clarant, a written release of all obligations of the
Company under the Promissory Note. All obligations of the Company under the
Broker Agreement described on SCHEDULE 5.33 shall be released in full by the
Broker upon receipt of such payment. The Stockholders shall cause the Broker,
upon receipt of his respective payment, to immediately deliver to the Surviving
Corporation, with a copy to Clarant, a written release of all obligations of the
Company under the Broker Agreement.
11. INDEMNIFICATION
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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 to
promptly pay to a Clarant Indemnified Party or reimburse a Clarant Indemnified
Party for, any and all liabilities, obligations, deficiencies, demands, claims,
suits, actions, or causes of action, assessments, losses, costs, expenses,
filing fees, interest, fines, penalties, or damages or costs or expenses of any
and all investigations, proceedings (including appeals, arbitration and
mediation), judgments, environmental analyses, remediations, settlements and
compromises (in cluding reasonable fees and expenses of attorneys, accountants
and other experts) (individually and collectively, the "Losses") sustained or
incurred by any Clarant Indemnified Party, resulting from or arising out of (a)
any breach of the representations and warranties of the 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
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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 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
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event the Indemnifying Party shall propose an alternate Defense Counsel, which
shall be subject again to the Indemnified Party's approval.
(b) In the event that the Indemnifying Party shall fail to
give such notice, it shall be deemed to have elected not to conduct the defense
of the subject Claim, and in such event the Indemnified Party shall have the
right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
(c) In the event that the Indemnifying Party does elect to
conduct the defense of the subject Claim, the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the Indemnifying
Party, and the Indemnified Party shall have the right at its expense to
participate in the defense assisted by counsel of its own choosing, provided
that the Indemnified Party shall have the right to compromise and settle the
Claim only with the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. Without the prior written
consent of the Indemnified Party, the Indemnifying Party will not enter into any
settlement of any Third Party Claim or cease to defend against such Claim, if
pursuant to or as a result of such settlement or cessation, (i) injunctive or
other equitable relief would be imposed against the Indemnified Party, or (ii)
such settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder. The Indemnifying Party shall
not be entitled to control, and the Indemnified Party shall be entitled to have
sole control over, the defense or settlement of any Claim to the extent that
Claim seeks an order, injunction or other equitable relief against the
Indemnified Party which, if successful, could materially interfere with the
Business, assets, properties condition (financial or otherwise) or prospects of
the Indemnified Party (and the cost of such defense shall constitute an Loss for
which the Indemnified Party is entitled to indemnification hereunder). If a firm
decision is made to settle a Third Party Claim, which offer the Indemnifying
Party is permitted to settle under this 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.
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(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 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 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 (a "Direct
Claim") may be asserted by giving the
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Indemnifying Party reasonably prompt written notice thereof, and the
Indemnifying Party will have a period of thirty (30) calendar days within which
to satisfy such Direct Claim. If the Indemnifying Party does not so respond
within such thirty (30) calendar day period, the Indemnifying Party will be
deemed to have rejected such Direct Claim, in which event the Indemnified Party
will be free to pursue such remedies as may be available to the Indemnified
Party under this Article 11.
11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an Indemnified Party
to give timely, complete or accurate notice as provided in Sections 11.3, 11.4
and 11.5 will not affect the rights or obligations of any party hereunder except
and only to the extent that, as a result of such failure, any party entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise directly and materially damaged
as a result of such failure to give timely notice.
11.7 REDUCTION OF LOSS. To the extent any Loss of an Indemnified Party
is reduced by receipt of payment (a) under insurance policies which are not
subject to retroactive adjustment or other reimbursement to the insurer in
respect of such payment, or (b) from third parties not Affiliated with the
Indemnified Party, such payments (net of the expenses of the recovery thereof)
(such net payment being referred to herein as a "Reimbursement") shall be
credited against such Loss; provided, however, (x) the pendency of such payments
shall not delay or reduce the obligation of the Indemnifying Party to make
payment to the Indemnified Party in respect of such Loss, and (y) the
Indemnified Party shall have no obligation, hereunder or otherwise, to pursue
payment under or from any insurer or third party in respect of such loss. If 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
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the parties with respect to any such matter for which arbitration is undertaken
hereunder. In preparation for the arbitration process described herein, the
parties shall be given at least one hundred twenty (120) days for discovery and
each party may utilize all methods of discovery authorized by the procedural
rules and statutes of the State of Texas for civil litigation and may enforce
the right to obtain such discovery in the manner provided by such rules and
statutes.
11.10 EXCLUSIVE REMEDY. Except as provided in Section 14.3 of this
Agreement, the indemnification provided for in this Article 11 shall (except as
prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by 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) [Reserved]; 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); or
(B) with respect to all claims other than
those referred to in clause (i)(A) of this Section 11.11(b), eighteen (18)
months after the Effective Time; or
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(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section
11.11(b);
(c) with respect to the indemnification obligations of Clarant
under Section 11.2 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the 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 Section 6.5
(Capital Stock) and 6.15(Taxes), (y) Losses described in Section 11.2(c), or (z)
Losses arising out of intentional fraud; and
(ii) the aggregate amount of Clarant's liability
under this Article 11 shall not exceed the Merger Consideration.
(d) Indemnity obligations hereunder may be satisfied through
the payment of cash or the delivery of Clarant Common Stock, or a combination
thereof. For purposes of calculating the value of the Clarant Common Stock
received or delivered by the Stockholder (for purposes of determining the
Indemnification Threshold and the amount of any indemnity paid), Clarant Common
Stock shall be valued at its fair market value, which shall be the average
closing price for Clarant Common Stock on the Nasdaq National Market System for
the ten 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, and (iii) the value of the Clarant Common Stock delivered to such
Stockholder on the Closing Date at the IPO price.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Company, the Stockholders
and Clarant in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein), as of the Pre-Closing Date, and, if a
Closing occurs, as of the Closing Date. The representations and warranties of
the Company and the Stockholders will survive the Closing and will remain in
effect until, and will expire upon, the termination of the indemnification
obligations as provided in Section 11.11(b). The representations and warranties
of Clarant will survive the Closing and will remain in effect until, and will
expire upon, the Clarant Expiration Date.
12. TERMINATION OF AGREEMENT
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12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely: (a) by mutual consent written consent of the boards of
directors of Clarant and the Company; (b) by either the Stockholders or the
Company (acting through its board of directors), on the one hand, or by Clarant
(acting through its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not have been
consummated by December 31, 1999, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date; (c) by the
Stockholders or the Company, on the one hand, or by Clarant, on the other hand,
after giving written notice to the other party that a breach or default of any
representation, warranty, or covenant contained in this Agreement which breach
has had or is reasonably foreseeable as having a Material Adverse Effect on the
Company or Clarant, as the case may be, has occurred and such breach has not
been cured on or before the Closing Date; (d) by the Company (acting through its
board of directors) if, by June 30, 1999, Clarant shall not have filed an
initial registration statement with the SEC reflecting an estimated minimum
price for Clarant Common Stock of at least $11.00 per share; or (e) pursuant to
Section 7.11.
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 for the 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;
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(iii) call upon any Person which is, at that time, or
which has been, within one (1) year prior to the Closing Date, a customer of
Clarant (including the subsidiaries thereof), of the Company or any Subsidiary
or of any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with Clarant
within the Territory;
(iv) call upon any prospective acquisition candidate,
on any Stockholder's behalf or on behalf of any competitor of Clarant, which
candidate, to the actual knowledge of such Stockholder after due inquiry, was
called upon by Clarant (including the subsidiaries thereof) or for which, to the
actual knowledge of such Stockholder after due inquiry, Clarant (or any
subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
(v) disclose customers, whether in existence or
proposed, of the Company to any Person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
(b) Notwithstanding Section 13.1(a) the foregoing covenant
shall not be deemed to prohibit any Stockholder from acquiring as an investment
not more than one percent (1%) of the capital stock of a competing business
whose stock is traded on a national securities exchange or over-the-counter so
long as the Stockholder does not consult with or is not employed by such
competitor.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Clarant as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Clarant for which it
would have no other adequate remedy, each Stockholder agrees that, in the event
of breach by such Stockholder, the foregoing covenant may be enforced by Clarant
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Article 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Clarant (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Clarant; but it is also the intent of Clarant and the
Stockholders that such covenants be construed and enforced in accordance with
the changing activities and business of Clarant (including the subsidiaries
thereof) throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Stockholder who has entered into an employment agreement with Clarant and/or any
subsidiary thereof as set forth in Sections 8.11 and 9.11 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
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obligations under this Article 13, such Stockholder shall not be chargeable with
a violation of this Article 13 if Clarant and/or any subsidiary thereof shall
thereafter enter the same, similar or a competitive (i) business (ii) course of
activities, or (iii) location, as applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Article 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Article 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Clarant (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Clarant of such covenants. It is specifically agreed that the period of three
(3) years stated at the beginning of this Article 13, during which the
agreements and covenants of each Stockholder made in this Article 13 shall be
effective, shall be computed by excluding from such computation any time during
which such Stockholder is in violation of any provision of this Article 13. The
covenants contained in Article 13 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that
this covenant is a material and substantial part of this transaction and that it
is supported by adequate consideration.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that the
stockholders of the Company 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, and the Stockholders will cause
all other stockholders of the Company to 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
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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 stockholder of the Company, (ii) disclosure is required by law
or the order of any Governmental Authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall give prior written notice thereof to Clarant and provide
Clarant with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by any of the stockholders of the provisions of this
Article 14, Clarant shall be entitled to an injunction restraining such
stockholder 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, neither the Stockholders nor any other stockholder of the Company
shall have any 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
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covenants, the covenant may be enforced against the other parties by injunctions
and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Closing Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Subject in all cases to compliance with
applicable federal and state securities laws, and in no case earlier than twelve
(12) months following the Closing Date, unless Clarant in its sole discretion
shall consent otherwise, except pursuant to Article 17 hereof, gratuitous
transfers to not-for-profit third parties and transfers to immediate family
members, in each case who agree to be bound by the restrictions set forth in
this Section 15.1 (or trusts for the benefit of the Accredited Stockholders or
their immediate family members, the trustees of which so agree), none of the
Accredited 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 Accredited 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 Accredited 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).
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16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. Each Stockholder
acknowledges, and cause each Accredited Stockholder to acknowledge, that the
shares of Clarant Common Stock delivered to each Accredited Stockholder pursuant
to this Agreement have not been and will not be registered under the 1933 Act
and therefore may not be resold without compliance with the 1933 Act. The
Clarant Common Stock acquired by the Accredited 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 any
Accredited Stockholder will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. The Clarant Common Stock shall bear the following legend in addition to the
legend required under Article 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC., DELIVERY BY THE
HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CLARANT, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder represents and
warrants that each of the Accredited Stockholders are 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 and each of the other
Accredited Stockholders have 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 each Accredited Stockholder
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has the requisite knowledge and experience in financial and business matters to
be capable of evaluating the merits and risks of this investment and is an
"accredited investor" as defined in Regulation D under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing
Date, whenever Clarant proposes to register any Clarant Common Stock for its own
or others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by Clarant, (ii) registrations relating to employee
benefit plans and (iii) registrations relating to rights offerings made to the
stockholders of Clarant, Clarant shall give each of the Accredited Stockholders
prompt written notice of its intent to do so. Upon the written request of any of
the Accredited 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 Accredited Stockholders pursuant to this
Agreement which any such Accredited 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 Accredited Stockholders and the stockholders of
the Other Founding Companies (collectively, the Accredited 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
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be registered); (ii) use its commercially reasonable best efforts to register
and qualify the Clarant Common Stock covered by such registration statement
under applicable state securities laws as the holders shall reasonably request
for the distribution of the Clarant Common Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, Clarant and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of Clarant's size and
investment stature, including indemnification provisions.
17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated to
register shares of Clarant Common Stock held by any Accredited 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 Accredited Stockholder for
such shares.
17.5 MARKET STANDOFF. In consideration of the granting to the
Accredited Stockholders of the registration rights under this Article 17, the
each of the Stockholders agrees that he or she will not and will cause all other
Accredited Shareholders to 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.
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"Acquisition Companies" means Newco and each of the other Delaware
companies wholly-owned by Clarant prior to the Closing Date.
"Action" has the meaning set forth in Section 5.15.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Affiliates" has the meaning set forth in Section 5.9.
"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or
any of its Subsidiaries has or may acquire any rights, (b) under which the
Company or any of its Subsidiaries has or may become subject to any obligation
or liability, or (c) by which the Company or any of its Subsidiaries or any of
the Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as EXHIBIT 1.1
hereto or with such changes therein as may be required by applicable state laws.
"Balance Sheet" means a consolidated balance sheet of the Company and
its Subsidiaries.
"Balance Sheet Date" means March 31, 1999.
"Broker" means Dain, Rauscher Wessels, a division of Dain Rauscher
Incorporated.
"Broker Agreement" means the broker agreement as set forth on SCHEDULE
5.33.
"Business" has the meaning set forth in the recitals of this Agreement.
"Cash Consideration" has the meaning set forth in EXHIBIT 2.1(a).
"Charter Documents" has the meaning set forth in Section 5.1.
"Claim" has the meaning set forth in Section 11.3.
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Charter Documents" has the meaning set forth in Section 6.1.
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"Clarant Common Stock" has the meaning set forth in Section 6.5.
"Clarant Expiration Date" means the date that is one year from the
Effective Time.
"Clarant Indemnified Party" has the meaning set forth in Section
11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.5.
"Clarant Stock" has the meaning set forth in Section 6.5.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant to the Internal
Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Option Plan" means the 1995 Stock Option Plan of the Company,
as amended.
"Company Other Benefit Obligation" has the meaning set forth in Section
5.17.
"Company Plan" has the meaning set forth in Section 5.17.
"Company Stock" has the meaning set forth in Section 2.1.
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Contingent Consideration" shall have the meaning given to such term in
Section 3.3.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Constituent Corporations" has the meaning set forth in the recitals of
this Agreement.
"Convertible Securities" has the meaning set forth in Section 5.3.
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"Cross Receipt" has the meaning set forth in Section 9.18.
"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.
"Direct Claim" has the meaning set forth in Section 11.5.
"Effective Time" means the time as of which the Merger becomes
effective, which the parties hereto contemplate to occur at the Closing.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencement of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
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(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 selfappointed 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(c).
"GAAP" means generally accepted accounting principles as in effect on
the date hereof.
"Governing Agreement" shall have the meaning given to such term in
Section 2.1(b).
"Governmental Authority" means the United States or any state, local,
or foreign government, or any subdivision, agency, or authority of any thereof.
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"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 Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all Trademarks, copyrights and patents
(including computer software and data) and any registration or application for
any of the foregoing, and any trade secret, invention, process, know-how,
computer software, technology systems, product design or product packaging.
"Investor Questionnaire" means the form of document attached hereto as
EXHIBIT 5.29(b) and completed and delivered to Clarant by the stockholders of
the Company.
"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.
"Leases" has the meaning set forth in Section 5.23(b).
"Leased Real Property" has the meaning set forth in Section 5.23(b).
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"Legal Requirement" means any federal, state, local, municipal,
foreign, or other administrative order, constitution, law, ordinance, principle
of common law, regulation, statute, or treaty.
"Lender" has the meaning set forth in Section 2.1(e).
"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 taken as a whole.
"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 and State of Washington.
"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.
"Mr. Marmol" means Guillermo G. Marmol, the Chief Executive Officer of
Clarant.
"Multiemployer Plan" has the meaning set forth in Section 5.17.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means capital stock of Newco.
"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.
"Payment Obligations" has the meaning set forth in Section 2.1(e).
"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.
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"Preferred Stockholder" means John C. Dimmer.
"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Authority.
"Promissory Note" has the meaning set forth in Section 2.1(e).
"Qualified Plan" has the meaning set forth in Section 5.17.
"Qualified Plans" has the meaning set forth in Section 5.17.
"Redemption" has the meaning set forth in Section 7.14.
"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.
77
<PAGE>
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Stock Consideration" has the meaning set forth on EXHIBIT 2.1(a).
"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.
"Surviving Corporation" shall mean the Company as the surviving party
in the Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, transfer, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Tax Attributes" has the meaning set forth in Section 5.24.
"Tax Proceeding" means any audit, examination, claim or other
administrative or judicial proceeding relating to Taxes or Returns.
"Taxable Period" means any taxable year or other period that is treated
as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States Federal, state or local
jurisdiction or any foreign jurisdiction having jurisdiction with respect to any
Tax.
"Third Party Claim" has the meaning set forth in Section 11.3.
"Threatened" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice has been given in writing that such a claim,
Proceeding, dispute, action or other matter is likely to be asserted, commenced,
taken, or otherwise pursued in the future.
"Title IV Plans" has the meaning set forth in Section 5.17.
"Trademarks" has the meaning set forth in Section 5.14.
78
<PAGE>
"Underwriters" means the underwriters of the IPO, as identified in the
Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement by and among
the Underwriters and the Company in respect of the IPO.
"VEBA" has the meaning set forth in Section 5.17.
"Welfare Plan" has the meaning set forth in Section 5.17.
"Year 2000 Compliant" has the meaning set forth in Section 5.27.
19. GENERAL
19.1 COOPERATION. The Company, the 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 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.
79
<PAGE>
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, Wilmer Cutler & Pickering, and any
other Person retained by Clarant, and the costs of preparing the Registration
Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of the
Stockholders, the Company and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by the
Company and the Stockholders under this Agreement, including the reasonable fees
and expenses of legal counsel to the Company and the Stockholders.
(c) If the transaction herein contemplated is consummated,
Clarant will pay the fees, expenses, and disbursements of the Stockholders and
the Company and their respective agents, representatives, accountants and
counsel as described in (b), above.
(d) Each Stockholder acknowledges that he and all other
stockholders of the Company, and not the Company or Clarant, will pay all Taxes
including, but not limited to, income and transfer taxes due upon receipt of
their respective consideration payable pursuant to Article 2 hereof, and such
Stockholder will assume, and cause each stockholder of the Company to 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:
80
<PAGE>
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Facsimile: (972) 488 - 7299
Attention: Guillermo G. Marmol
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Facsimile: (202) 663-6363
Attention: George P. Stamas, Esq.
(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:
Free Range Media, Inc.
100 South King Street
Suite 600
Seattle, WA 98104
Facsimile: (206) 340-0509
Attention: Mr. John B. Dimmer
and marked "Personal and Confidential"
with a copy to:
Bonneville, Viert, Morton & McGoldrick
820 "A" Street
Suite 600
P.O. Box 1533
Tacoma, WA 98401
Facsimile: (253) 272 - 4338
Attention: Mr. James H. Morton, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
81
<PAGE>
19.7 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without reference to conflicts of laws
principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
19.11 STOCKHOLDERS' REPRESENTATIVE.
(a) Each holder of Company Common Stock, by signing this
Agreement, designates John B. Dimmer or, in the event that he is unable or
unwilling to serve, now or in the future, John C. Dimmer, 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
82
<PAGE>
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.
[this space left intentionally blank]
83
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC.,
a Delaware corporation
By: /s/ GUILLERMO G. MARMOL
-----------------------
Name: Guillermo G. Marmol
-----------------------
Title: President
-----------------------
FREE RANGE MEDIA ACQUISITION CORP.,
a Washington corporation
By: /s/ GUILLERMO G. MARMOL
-----------------------
Name: Guillermo G. Marmol
-----------------------
Title: President
-----------------------
FREE RANGE MEDIA, INC.,
a Washington corporation
By: /s/ JOHN B. DIMMER
-----------------------
Name: John B. Dimmer
-----------------------
Title: President
-----------------------
Stockholders:
Signature Page 1 to the Agreement and Plan of Organization by and among
Clarant, Inc., Free Range Acquisition Corp., Free Range Media, Inc., and John C.
Dimmer, John B. Dimmer and Andrew L. Fry
<PAGE>
JOHN C. DIMMER
/s/ JOHN C. DIMMER
------------------------------
By: /s/ JAMES H. MORTON
James H. Morton by Power of Attorney
JOHN B. DIMMER
/s/ JOHN B. DIMMER
------------------------------
ANDREW L. FRY
/s/ ANDREW L. FRY
------------------------------
EXHIBIT 2.1(a)
<PAGE>
CONSIDERATION
(a) At Closing, Clarant will deliver, subject to paragraph (b) below, Merger
Consideration to the Accredited Stockholders, Non-Accredited Stockholders, and
holders of vested and exercisable Options equal to the sum of the following:
(i) One Million Nine Hundred Seventeen Thousand Two Hundred Seventy Two
(1,917,272) shares of Clarant Common Stock (the "Stock Consideration")
plus
(ii) The product of (x) Nine Million Three Hundred Ten Thousand U.S.
Dollars ($9,310,000.00) multiplied by (y) the fraction the numerator of
which is IPO price per share of Clarant Common Stock and the
denominator of which is Eleven Dollars ($11.00) (such product, the
"Cash Consideration"); for example, if the IPO price per share of
Clarant Common Stock is $11.00, then Clarant will deliver, subject to
paragraph (b) below, to the stockholders and holders of vested and
exercisable Options a total Cash Consideration of Nine Million Three
Hundred Ten Thousand U.S. Dollars ($9,310,000.00).
(iii) The total consideration delivered at Closing shall be the sum of
(x) Stock Consideration multiplied by the IPO price plus (y) the Cash
Consideration (the "Effective Consideration").
(b) At Closing, the sum of the Redemption, the Promissory Note, and Broker Fee
as set forth on EXHIBIT 2.1(e) shall be withheld from the Cash Consideration and
Clarant shall deliver to the Surviving Corporation such amount to satisfy the
Payment Obligations. The Effective Consideration less the Payment Obligations
shall be the "Net Effective Consideration."
(c) At Closing, the Merger Consideration shall be distributed among the
Stockholders and the holders of vested Options as follows:
(i) first, the holders of vested and accelerated Options shall receive
in cash an amount equal to the value of the shares represented by the
holder's vested and accelerated options less the exercise price as set
forth on SCHEDULE 5.3;
(ii) second, the Non-accredited Stockholders shall receive in cash
their pro rata share on a Fully-Diluted basis according to SCHEDULE 5.3
of the Net Effective Consideration; and
(iii) third, the Accredited Stockholders shall receive (A) in cash
their pro rata shares of the Cash Consideration remaining after the
withholding pursuant to paragraph (b) above and the distributions
pursuant to clauses (i) and (ii) of this paragraph (c) above and (B)
<PAGE>
their pro rata share of the Stock Consideration, in either case, on the
basis of the holdings of the Accredited Stockholders.
(d) The minimum IPO price per share of Clarant Common Stock for purposes of this
Agreement shall be $9.90.
<PAGE>
EXHIBIT 2.1(e)
Payment Obligations
As of the date hereof, it is anticipated that the amount of cash to be
withheld from the Cash Consideration will be as follows:
(i) first, cash in the amount of One Hundred Ninety-Thousand U.S.
Dollars ($190,000.00) required to pay the Broker Fee and release all obligations
under the Broker Agreement;
(ii) second, cash in the amount of the Redemption price as required for
the Redemption, such amount shall equal the amount of the value of the preferred
stock plus all accrued dividends as of June 30, 1999 (such is estimated to be
$4,107,543.00); and
(iii) third, cash in the amount of the principal outstanding balance on
the Promissory Note as of the Closing Date plus any interest accrued in
accordance with the terms of the Promissory Note (such sum is estimated to be
$3,578,951.00);
If immediately prior to Closing it is determined that Payment Obligation would
exceed the Cash Consideration, the Lender shall, prior to Closing, contribute
that amount of the Promissory Note to the capital of the Company which equals
the excess of the Payment Obligation over the Cash Consideration. At or prior to
the Closing, the Company may reallocate the amounts withheld from the Cash
Consideration among the categories specified in clauses (i) - (iii) of this
Exhibit as necessary; PROVIDED, HOWEVER, that the Broker Fee and the Promissory
Note shall be paid in full and all shares of the preferred stock shall be
redeemed; PROVIDED FURTHER, HOWEVER, that in no event shall any changes to the
application of the Cash Consideration increase the amount of the Cash
Consideration.
<PAGE>
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
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PROJECTED PROJECTED PROJECTED PROJECTED
MEASUREMENT COMPANY COMPANY PRE- TAX COMBINED COMBINED
PERIOD REVENUES INCOME REVENUES PRE-TAX INCOME
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jul. 1, 1999 - $5,200,000 $700,000 n/a n/a
Dec. 31, 1999
- -----------------------------------------------------------------------------------------------------------
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
FORMULAS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jul. 1, 1999 - 3 15 n/a [50% (Revenue Multiple) x $78,700,000 $7,600,000
Dec. 31, 1999 (Actual Company Revenues -
Projected Company Revenues)]
+
[50% (Pre-Tax Income
Multiple) x (Actual Pre-Tax
Income - Projected Pre-Tax
Income)]
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Jan. 1, 2000 - 3 15 9.66% [(Pool Share) x 50% (Revenue $78,700,000 $7,600,000
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)]
</TABLE>
(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.
<PAGE>
(d) Within forty-five (45) days following the end of each Measurement
Period, Clarant shall cause Arthur Andersen 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 Arthur
Andersen 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) as identified in the wire instructions provided to Clarant pursuant
to Section 3.1(c) and deliver the shares of Clarant Common Stock to the
stockholder(s) at the address(es) set forth on SCHEDULE 5.3. 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, Arthur Andersen 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
<PAGE>
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 Mr. Marmol (or an officer of Clarant designated by Mr. Marmol)
according to procedures established by Clarant.
<PAGE>
<PAGE>
EXHIBIT 10.06
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
BY AND AMONG
CLARANT, INC.,
ICON ACQUISITION CORP.,
AND
INTEGRATED CONSULTING, INC., D/B/A I.CON INTERACTIVE,
AND
CALVIN W. CARTER
ELLIOT W. HAWKES AND
DAVID TODD MCGEE
DATED: JUNE 2, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. THE MERGER..................................................................................... 2
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER............................................. 2
1.2 EFFECTIVE TIME........................................................................ 2
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF SURVIVING
CORPORATION........................................................................... 2
1.4 EFFECT OF MERGER...................................................................... 3
2. CONVERSION OF STOCK, CONVERTIBLE SECURITIES AND OPTIONS........................................ 3
2.1 MANNER OF CONVERSION.................................................................. 3
3. DELIVERY OF MERGER CONSIDERATION............................................................... 5
3.1 MERGER CONSIDERATION; TENDER.......................................................... 5
3.2 TENDER OF COMPANY STOCK............................................................... 5
3.3 EARN-OUT.............................................................................. 6
4. PRE-CLOSING AND CLOSING........................................................................ 6
4.1 PRE-CLOSING........................................................................... 6
4.2 CLOSING............................................................................... 7
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS................................................................................... 7
5.1 DUE ORGANIZATION...................................................................... 7
5.2 AUTHORIZATION......................................................................... 8
5.3 CAPITAL STOCK OF THE COMPANY.......................................................... 8
5.4 AUTHORITY; NO CONFLICT................................................................ 9
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING................................ 9
5.6 [Reserved]............................................................................ 9
5.7 SUBSIDIARIES.......................................................................... 9
5.8 PREDECESSOR STATUS; ETC............................................................... 10
5.9 SPIN-OFF BY THE COMPANY. ............................................................. 10
5.10 FINANCIAL STATEMENTS.................................................................. 10
5.11 LIABILITIES AND OBLIGATIONS.......................................................... 10
5.12 ACCOUNTS AND NOTES RECEIVABLE......................................................... 11
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY............................................... 11
5.14 TRADEMARKS............................................................................ 12
5.15 LITIGATION AND LEGAL PROCEEDINGS...................................................... 12
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.............................................. 14
5.17 EMPLOYEE BENEFITS..................................................................... 14
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5.18 INSURANCE POLICIES.................................................................... 19
5.19 ENVIRONMENT........................................................................... 21
5.20 LABOR AND EMPLOYMENT MATTERS.......................................................... 22
5.21 PERSONAL PROPERTY..................................................................... 23
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS............................. 23
5.23 REAL PROPERTY......................................................................... 25
5.24 TAXES................................................................................. 26
5.25 BUSINESS CONDUCT...................................................................... 29
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.................................................. 31
5.27 YEAR 2000 COMPLIANCE.................................................................. 31
5.28 RELATIONS WITH GOVERNMENTS............................................................ 31
5.29 DISCLOSURE............................................................................ 32
5.30 WARRANTIES; PRODUCTS.................................................................. 33
5.31 AFFILIATE TRANSACTIONS................................................................ 33
5.32 MISREPRESENTATION..................................................................... 33
5.33 BROKERS............................................................................... 33
5.34 AUTHORITY; OWNERSHIP.................................................................. 34
5.35 PREEMPTIVE RIGHTS..................................................................... 34
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK.............................................. 34
5.37 TENDER................................................................................ 34
5.38 INVESTOR QUESTIONNAIRES............................................................... 34
6. REPRESENTATIONS OF CLARANT AND NEWCO........................................................... 34
6.1 DUE ORGANIZATION...................................................................... 35
6.2 AUTHORIZATION......................................................................... 35
6.3 TRANSACTION NOT A BREACH.............................................................. 35
6.4 MISREPRESENTATION..................................................................... 35
6.5 CAPITAL STOCK......................................................................... 35
6.6 SUBSIDIARIES.......................................................................... 36
6.7 LIABILITIES AND OBLIGATIONS........................................................... 36
6.8 CONFORMITY WITH LAW; LITIGATION....................................................... 36
6.9 VALIDITY OF OBLIGATIONS............................................................... 36
6.10 CLARANT COMMON STOCK.................................................................. 37
6.11 NO SIDE AGREEMENTS.................................................................... 37
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS.......................................... 37
6.13 NO VIOLATIONS......................................................................... 37
6.14 ABSENCE OF CHANGES.................................................................... 37
6.15 TAXES................................................................................. 38
7. COVENANTS PRIOR TO CLOSING..................................................................... 39
7.1 ACCESS AND COOPERATION; DUE DILIGENCE................................................. 39
7.2 CONDUCT OF BUSINESS PENDING CLOSING................................................... 39
7.3 PROHIBITED ACTIVITIES................................................................. 40
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7.4 NO SHOP............................................................................... 42
7.5 NOTICE TO BARGAINING AGENTS........................................................... 42
7.6 AGREEMENTS............................................................................ 42
7.7 NOTIFICATION OF CERTAIN MATTERS....................................................... 42
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.................................. 43
7.9 FINAL FINANCIAL STATEMENTS............................................................ 44
7.10 FURTHER ASSURANCES.................................................................... 44
7.11 AMENDMENT OF SCHEDULES................................................................ 44
7.12 THIRD PARTY APPROVALS................................................................. 45
7.13 HSR FILING............................................................................ 45
7.14 AUTHORIZED CAPITAL STOCK.............................................................. 45
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY........................ 46
8.1 REPRESENTATIONS AND WARRANTIES........................................................ 46
8.2 PERFORMANCE OF OBLIGATIONS............................................................ 46
8.3 NO LITIGATION......................................................................... 46
8.4 OPINION OF COUNSEL.................................................................... 46
8.5 REGISTRATION STATEMENT................................................................ 47
8.6 CONSENTS AND APPROVALS................................................................ 47
8.7 GOOD STANDING CERTIFICATES............................................................ 47
8.8 SECRETARY'S CERTIFICATE............................................................... 47
8.9 HSR ACT............................................................................... 47
8.10 CLOSING OF THE IPO.................................................................... 47
8.11 EMPLOYMENT AGREEMENTS................................................................. 47
8.12 LISTING............................................................................... 47
8.13 TAX OPINION........................................................................... 47
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO....................................... 48
9.1 REPRESENTATIONS AND WARRANTIES........................................................ 48
9.2 PERFORMANCE OF OBLIGATIONS............................................................ 48
9.3 NO LITIGATION......................................................................... 48
9.4 [Reserved]............................................................................ 49
9.5 NO MATERIAL ADVERSE EFFECT............................................................ 49
9.6 TERMINATION OF RELATED PARTY AGREEMENTS............................................... 49
9.7 OPINION OF COUNSEL.................................................................... 49
9.8 CONSENTS AND APPROVALS................................................................ 49
9.9 GOOD STANDING CERTIFICATES............................................................ 49
9.10 REGISTRATION STATEMENT................................................................ 49
9.11 EMPLOYMENT AGREEMENTS................................................................. 50
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9.12 CLOSING OF IPO........................................................................ 50
9.13 FIRPTA CERTIFICATE.................................................................... 50
9.14 [Reserved]............................................................................ 50
9.15 SATISFACTION.......................................................................... 50
9.16 HSR ACT............................................................................... 50
9.17 INVESTOR QUESTIONNAIRE................................................................ 50
9.18 THE STOCKHOLDERS' RELEASE............................................................. 50
9.19 COMPANY AND STOCKHOLDER REPRESENTATIONS............................................... 50
10. COVENANTS OF CLARANT AND THE STOCKHOLDERS AFTER CLOSING........................................ 50
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT.......................................... 50
10.2 TAX MATTERS........................................................................... 50
10.3 DIRECTORS AND OFFICERS................................................................ 52
10.4 [Reserved]............................................................................ 52
10.5 RELEASE OF GUARANTEES. ............................................................... 52
10.6 ...................................................................................... 52
10.7 DIRECTORS' AND OFFICERS' INSURANCE.................................................... 52
11. INDEMNIFICATION................................................................................ 52
11.1 INDEMNIFICATION BY STOCKHOLDERS....................................................... 52
11.2 INDEMNIFICATION BY CLARANT............................................................ 53
11.3 INDEMNIFICATION PROCEDURE -- THIRD PARTY CLAIMS........................................ 54
11.4 TAX CONTESTS.......................................................................... 55
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS............................................. 56
11.6 FAILURE TO GIVE TIMELY NOTICE......................................................... 57
11.7 REDUCTION OF LOSS..................................................................... 57
11.8 SUBROGATION........................................................................... 57
11.9 ARBITRATION........................................................................... 57
11.10 EXCLUSIVE REMEDY...................................................................... 58
11.11 LIMITATION AND EXPIRATION............................................................. 58
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS.................................. 59
12. TERMINATION OF AGREEMENT....................................................................... 60
12.1 TERMINATION........................................................................... 60
12.2 LIABILITIES IN EVENT OF TERMINATION................................................... 60
13. NONCOMPETITION................................................................................. 60
13.1 PROHIBITED ACTIVITIES................................................................ 60
13.2 DAMAGES............................................................................... 61
13.3 REASONABLE RESTRAINT.................................................................. 62
13.4 SEVERABILITY; REFORMATION............................................................. 62
13.5 INDEPENDENT COVENANT.................................................................. 62
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13.6 MATERIALITY........................................................................... 62
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...................................................... 63
14.1 STOCKHOLDERS.......................................................................... 63
14.2 CLARANT AND NEWCO..................................................................... 63
14.3 DAMAGES............................................................................... 64
14.4 SURVIVAL.............................................................................. 64
15. TRANSFER RESTRICTIONS.......................................................................... 64
15.1 TRANSFER RESTRICTIONS................................................................. 64
16. FEDERAL SECURITIES ACT REPRESENTATIONS......................................................... 65
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK.............................................. 65
16.2 COMPLIANCE WITH LAW................................................................... 65
16.3 ECONOMIC RISK; SOPHISTICATION......................................................... 66
17. REGISTRATION RIGHTS............................................................................ 66
17.1 PIGGYBACK REGISTRATION RIGHTS......................................................... 66
17.2 REGISTRATION PROCEDURES............................................................... 67
17.3 UNDERWRITING AGREEMENT................................................................ 67
17.4 AVAILABILITY OF RULE 144.............................................................. 67
17.5 MARKET STANDOFF....................................................................... 67
18. DEFINITIONS.................................................................................... 68
19. GENERAL........................................................................................ 76
19.1 COOPERATION........................................................................... 76
19.2 SUCCESSORS AND ASSIGNS................................................................ 77
19.3 ENTIRE AGREEMENT...................................................................... 77
19.4 COUNTERPARTS.......................................................................... 77
19.5 EXPENSES.............................................................................. 77
19.6 NOTICES............................................................................... 78
19.7 GOVERNING LAW......................................................................... 79
19.8 EXERCISE OF RIGHTS AND REMEDIES....................................................... 79
19.9 TIME.................................................................................. 79
19.10 REFORMATION AND SEVERABILITY.......................................................... 79
19.11 STOCKHOLDER'S REPRESENTATIVE.......................................................... 80
19.12 CAPTIONS.............................................................................. 80
19.13 SURVIVAL.............................................................................. 80
19.14 ACCOUNTING TERMS...................................................................... 80
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EXHIBITS AND SCHEDULES
LIST OF EXHIBITS
Exhibit 1.1 Form of Articles of Merger
Exhibit 1.3 Certificate/Articles of Incorporation
Surviving Corporation
Exhibit 2.1(a) Merger Consideration
Exhibit 3.3 Contingent Consideration
Exhibit 5.2 Director and Shareholder Consents
Exhibit 5.29(a) Form of Director and Officer Questionnaire
Exhibit 5.29(b) Form of Investor Questionnaire
Exhibit 6.1 Clarant Charter Documents
Exhibit 8.11 Form of Employment Agreement
Exhibit 18 Knowledge
Exhibit 19.6 Stockholders' and Counsel Addresses;
Wire Transfer Instructions
LIST OF SCHEDULES
Schedule 5.1 Directors and Officers
Schedule 5.3 Ownership of Company Stock
Schedule 5.4 Consents
Schedule 5.7 Company Subsidiaries
Schedule 5.8 Predecessor Companies
Schedule 5.9 Spin-offs
Schedule 5.10 Financial Statements
Schedule 5.11 Company Liabilities and Obligations
Schedule 5.12 Accounts and Notes Receivable
Schedule 5.13 Intellectual Property IP - Ownership,
Licenses, Infringements
Schedule 5.14 Trademarks - Owned, Leased, Infringed
Schedule 5.15 Litigation
Schedule 5.16 Compliance with Laws; Permits and Licenses
Schedule 5.17 Employee Benefits
Schedule 5.18 Insurance
Schedule 5.19 Environmental
Schedule 5.20 Employees
Schedule 5.21 Personal Property
Schedule 5.22 Significant Customers/Material Contracts
Schedule 5.23 Leased Real Property
Schedule 5.24(g) List of Tax Returns
Schedule 5.24(q) Tax Elections
Schedule 5.24(x) List of Tax Attributes
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Schedule 5.25 Material Adverse Change
Schedule 5.26 Powers of Attorney
Schedule 5.27 Year 2000 Compliance
Schedule 5.30 Warranties and Guarantees
Schedule 5.31 Affiliate Transactions
Schedule 6.5 Clarant Capital Stock
Schedule 6.7 Liabilities and Obligations
Schedule 6.8 Conformity with Law; Litigation
Schedule 6.12 Business; Real Property; Material Agreements
Schedule 6.13 No Violations
Schedule 9.11 Employees of the Company
Schedule 10.7 Directors' and Officers' Insurance
Schedule 11.1(f) Certain Indemnified Matters
Schedule 13.1 Permitted Activities
Schedule 18.1 Registration Statement
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is
made as of June 2, 1999, by and among CLARANT, INC., a Delaware corporation
("Clarant"), ICON ACQUISITION CORP., a Texas corporation ("Newco"), INTEGRATED
CONSULTING, INC., d/b/a i.con interactive a Texas corporation (the "Company"),
and Calvin W. Carter, Elliott W. Hawkes, and David Todd McGee (the
"Stockholders").
WHEREAS, Newco is a corporation duly organized and existing
under the laws of the State of Texas, having been incorporated on May 5, 1999,
solely for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of Clarant;
WHEREAS, the Company (together with its Subsidiaries) provides
high-level consulting services to businesses wishing to market through the
internet (the "Business");
WHEREAS, the respective Boards of Directors of Newco and the
Company (which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that Newco merge with and into
the Company pursuant to this Agreement and the applicable provisions of the laws
of the State of Texas (the "Merger"), and in furtherance thereof have approved
the Merger and to the extent required under applicable state laws have
recommended and submitted the Merger for approval to their constituent
stockholders;
WHEREAS, it is the intent of Clarant, Newco, the Company and
each of the Stockholders that upon the completion of the Merger, the Company
shall be the Surviving Corporation existing as a wholly owned subsidiary of
Clarant;
WHEREAS, Clarant plans to enter into other separate agreements
substantially similar to this Agreement (the "Other Agreements") with Align
Solutions Corp., Brand Dialog, Free Range Media, Inc., Interactive 8, Inc.,
Multimedia Resources LLC, Potomac Partners Management Consulting, LLC, and RSI
Group, Inc. (collectively, the "Other Founding Companies" and together with the
Company, the "Founding Companies"), and their principal owners in order to
acquire additional internet consulting organizations.
WHEREAS, this Agreement, the IPO and the Other Agreements
constitute the "Clarant Plan of Organization";
WHEREAS, the Boards of Directors of Clarant and the Company
have approved and adopted the Clarant Plan of Organization as an integrated plan
to transfer the capital stock of the Company and each of the Other Founding
Companies to Clarant under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the Stockholders and the
Board of Directors of the
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Company and the stockholders and the boards of directors of each of Clarant and
Newco have approved the Merger, this Agreement and the transactions contemplated
hereby.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger in substantially the form
attached hereto as EXHIBIT 1.1 to be signed, verified and filed with the
Secretary of State of the State of Texas and stamped receipt copies of each such
filing to be delivered to Clarant on or before the Closing Date.
1.2 EFFECTIVE TIME. At the Effective Time and subject to the
terms and conditions of this Merger and the applicable provisions of the
applicable laws governing mergers in the State of Texas (the "State Corporation
Law"), Newco shall be merged with and into the Company in accordance with the
Articles of Merger, the separate existence of Newco shall cease, and the Company
shall be the surviving party in the Merger. At the Effective Time, the effect of
the Merger otherwise shall be as provided in the applicable provisions of the
State Corporation Law.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF
DIRECTORS OF SURVIVING CORPORATION. At the Effective Time:
(a) the Articles of Incorporation of the Surviving
Corporation shall be amended and restated as permitted under the laws of the
State of Texas and shall read substantially in the form attached hereto as
EXHIBIT 1.3;
(b) the By-laws of Newco then in effect shall be the
By-laws of the Surviving Corporation until amended as provided by law;
(c) Guillermo G. Marmol, the Chief Executive Officer of
Clarant ("Mr. Marmol") 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) Mr. Marmol shall be the President and Chief Executive
Officer of the Surviving Corporation, the President of the Company immediately
prior to the Effective Time shall be a Vice President of the Surviving
Corporation and the other officers of the Company immediately prior to the
Effective Time shall continue as officers of the Surviving Corporation in the
same capacity or capacities.
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1.4 EFFECT OF MERGER. Except as herein specifically set forth,
the identity, existence, purposes, powers, objects, franchises, privileges,
rights and immunities of each Constituent Corporation shall continue unaffected
and unimpaired by the Merger, and the Surviving Corporation shall be fully
vested therewith. At the Effective Time, the separate existence of Newco shall
cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities, powers and
franchises, of a public as well as of a private nature, and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to the Company or Newco shall be taken and
deemed to be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the state of incorporation vested in the Company
and Newco, shall not revert or be in any way impaired by reason of the Merger.
The Surviving Corporation shall thenceforth be responsible and liable for all
the liabilities and obligations of the Company and Newco and any claim existing,
or action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
said debts, liabilities and duties had been incurred or contracted by it.
2. CONVERSION OF STOCK, CONVERTIBLE SECURITIES AND OPTIONS
2.1 MANNER OF CONVERSION. For purposes of converting the
issued and outstanding shares of capital stock of the Company ("Company Stock")
under this Agreement, the stockholders of the Company shall be divided into two
classes: (A) the first class being stockholders of the Company who qualify as
"accredited investors" under Rule 501(a) of Regulation D promulgated under the
1933 Act ("Accredited Stockholders") and (B) the second class being stockholders
of the Company who do not qualify as "accredited investors" under Rule 501(a) of
Regulation D promulgated under the 1933 Act ("Non-Accredited Stockholders").
Pursuant to the provisions of this Section 2.1, each of the Accredited
Stockholders and NonAccredited Stockholders shall receive his or her pro rata
share of the Merger Consideration distributed according to the terms of this
Section 2.1.
(a) At the Effective Time, by virtue of the Merger and
without any further action on the part of the holder thereof, each of the shares
of capital stock of the Constituent Corporations shall be automatically
canceled, extinguished and converted as follows:
(i) each share of issued and outstanding Company Stock
owned by an Accredited Stockholder immediately prior to the Effective Time shall
be converted
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into the right to receive (A) that number of shares of Clarant Common Stock as
determined by the appropriate formula set forth on EXHIBIT 2.1(a), and (B) the
amount of cash as determined by the appropriate formula set forth on EXHIBIT
2.1(a);
(ii) each share of issued and outstanding Company
Stock owned by a Non-Accredited Stockholder immediately prior to the Effective
Time shall be converted into the right to receive the amount of cash as
determined by the appropriate formula set forth on EXHIBIT 2.1(a);
(iii) each share Company Stock that is owned directly
or indirectly by the Company shall be canceled and retired and shall cease to
exist and no stock of Clarant or other consideration shall be delivered in
exchange therefor; and
(iv) each share of issued and outstanding Newco Stock
shall continue to be issued and outstanding and shall be converted automatically
into one share of validly issued, fully paid and non-assessable common stock in
the Surviving Corporation. Each stock certificate of Newco evidencing ownership
of any such shares shall continue to evidence ownership of the shares of capital
stock of the Surviving Corporation converted pursuant to this Agreement.
(b) [Reserved]
(c) All Clarant Common Stock received by the Stockholders
pursuant to this Agreement shall, except for restrictions on resale or transfer
described in Sections 15 and 16 hereof, have the same rights as all the other
shares of outstanding Clarant Common Stock by reason of the provisions of the
Certificate of Incorporation of Clarant or as otherwise provided by the Delaware
General Corporation Law. All voting rights of Clarant Common Stock received by
the Stockholders shall be fully exercisable by the Stockholders, and the
Stockholders shall not be deprived nor restricted in exercising those rights
after the Effective Time of the Merger.
(d) From and after the Effective Time, all shares of
Company Stock, Convertible Securities and Options of the Company shall no longer
be outstanding and shall cease to exist, and each certificate or agreement
previously representing any such securities shall represent only the right to
receive the consideration determined according to the formulas provided on
EXHIBIT 2.1(a).
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3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER CONSIDERATION; TENDER.
(a) At the Closing Clarant shall deliver to the
stockholders of the Company and the holders of Convertible Securities and
Options of the Company the following consideration allocable pro rata to each
such holder (the "Merger Consideration") upon the surrender by each of the
Company's stockholders of his or her certificates for shares of Company Stock:
(i) each of the Accredited Stockholders shall receive (A) the number of shares
of Clarant Common Stock allocable to such Accredited Stockholder pursuant to
EXHIBIT 2.1(a) and (B) the amount of cash allocable to such Accredited
Stockholder pursuant to EXHIBIT 2.1(a); and (ii) each of the Non-Accredited
Stockholders shall receive the amount of cash allocable to such Non-Accredited
Stockholder pursuant to EXHIBIT 2.1(a).
(b) The cash portion of the Merger Consideration allocable
to each Accredited Stockholder or Non-Accredited Stockholder, as the case may
be, shall be paid by wire transfer to the accounts of each holder pursuant to
the wire transfer instructions given on SCHEDULE 19.6. For purposes of this
Section 3.1, a holder's pro rata share shall be determined with respect to the
total number of issued and outstanding shares of Company Stock on a
Fully-Diluted basis immediately prior to the Effective Time. For purposes of
calculating the Merger Consideration, "Fully-Diluted" means the total number of
shares of Company Stock that would be issued and outstanding assuming the
exercise of all issued and outstanding rights, warrants and stock options
(whether vested or un-vested) and the conversion to Company Stock of all issued
and outstanding convertible bonds, debentures and preferred stock.
(c) At the Closing, Clarant shall make a capital
contribution to the Company by wire transfer of immediately available funds to
the account designated by the Company in an amount equal to 5% of the Merger
Consideration, subject to the limitation set forth in Section 5.17(e)(x), which
amount shall be deducted from the cash portion of the Merger Consideration
before the payments and transfers are made to the Stockholders pursuant to
EXHIBIT 2.1(a) and Section 3.1(a) hereof. Following the Closing, the Company
shall pay the amount so deducted to the employees pursuant to SCHEDULE 5.17(e),
in such form and amounts, and at such time, as the Company shall determine in
its sole discretion.
3.2 TENDER OF COMPANY STOCK.
(a) The Stockholders shall deliver in trust to Wilmer,
Cutler & Pickering, counsel to Clarant, at the Pre-Closing the certificates
representing Company Stock, duly endorsed in blank by each of the Stockholders,
or accompanied by stock powers duly endorsed in blank, with signatures
guaranteed by a national or state chartered bank or other financial institution,
and with all necessary transfer tax and other revenue stamps, acquired at the
Stockholders' expense, affixed and canceled. The Stockholders agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of
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conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
(b) At the Pre-Closing, the Stockholders shall use
commercially reasonable efforts to cause all stockholders of the Company who are
not signatories to this Agreement to deliver in trust to Wilmer, Cutler &
Pickering, counsel to Clarant, the certificates representing Company Stock held
by such stockholders, duly endorsed in blank by each of such stockholders, as
the case may be, or accompanied by stock powers duly endorsed in blank, with
signatures guaranteed by a national or state chartered bank or other financial
institution, and with all necessary transfer tax and other revenue stamps,
acquired at such stockholders' expense, affixed and canceled. The Stockholders
shall obtain from such other stockholders of the Company an agreement promptly
to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
3.3 EARN-OUT. In addition to the Merger Consideration and
subject to the terms of this Section 3.3, Clarant shall deliver contingent
consideration determined according to the formula stated in EXHIBIT 3.3 (the
"Contingent Consideration") to each Person who is a stockholder of the Company
as of the Closing Date such stockholder's pro rata share of the Contingent
Consideration (such pro rata share to be determined with respect to the total
number of issued and outstanding shares of Company Stock immediately prior to
the Effective Time without regard to issued and outstanding Convertible
Securities and Options. Each Accredited Stockholder as of the Closing Date shall
be eligible to receive his or her pro rata share of Contingent Consideration in
a combination of Clarant Common Stock and cash. Each Non-accredited Stockholder
as of the Closing Date shall be eligible to receive his or her pro rata share of
Contingent Consideration in cash as provided in EXHIBIT 3.3.
4. PRE-CLOSING AND CLOSING
4.1 PRE-CLOSING. At or prior to the Pre-Closing, the parties
shall take all actions necessary to prepare to (a) effect the Merger (including,
if permitted by applicable state law, the advance filing with the appropriate
state authorities of the Certificate and Articles of Merger and/or Plan of
Merger, as applicable (collectively, the "Merger Documents"), which shall become
effective at the Effective Time) and (b) deliver the Clarant Common Stock and
Company Stock, as the case may be, referred to in Article 3 hereof; provided,
that such actions shall not include the actual completion of the Merger for
purposes of this Agreement or the delivery of such stock and transmission of
funds by wire referred to in Article 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date and this Agreement terminates, Clarant hereby covenants and agrees
to do all things required by the State Corporation Law and all things which
counsel for the Company advise Clarant are required by the State Corporation Law
in order to rescind actions effected by the advance filing of the Merger
Documents as described in this Section. The taking of the actions described in
clauses (a) and (b) above (the "Pre-Closing") shall take place the day
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following the date that the Registration Statement is declared effective by the
Securities and Exchange Commission (the "Pre-Closing Date") at the offices of
Wilmer, Cutler & Pickering, 2445 M Street, N.W., Washington, D.C. 20037.
4.2 CLOSING. On the Closing Date: (a) the Merger Documents
shall be or shall have been filed with the appropriate state authorities so that
they shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (b) all transactions
contemplated by this Agreement, including the delivery of Clarant Common Stock
and Company Stock, as the case may be, the transmission of funds by wire in an
amount equal to the cash portion of the consideration to be paid according to
EXHIBIT 2.1(a), and (c) all conditions to closing as set forth in Articles 8 and
9 of this Agreement shall have been satisfied. The date on which the actions
described in this Section 4.2 occur shall be referred to as the "Closing Date."
This Agreement shall terminate if the Closing Date has not occurred within
fifteen (15) business days of the Pre-Closing Date. Time is of the essence. The
"Effective Time" shall be the same date as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
The Company and each of the Stockholders jointly and severally
represents and warrants to Clarant and Newco that all of the following
representations and warranties in this Section 5(A) are true, at the date of
this Agreement, shall be true, accurate and complete at the Pre-Closing Date and
the Closing Date, in each case as modified by any applicable Schedule amendments
or supplements pursuant to Section 7.11, and each of the Stockholders further
represents and warrants that, except as contemplated hereby or as affected by
the transaction contemplated hereby, such representations and warranties shall
survive the Closing Date as provided in Article 11.
5.1 DUE ORGANIZATION. The Company is duly organized, validly
existing, and in good standing under the laws of the state of its incorporation
and has all requisite power and authority to carry on its operations as they are
now being conducted, to own or use the properties and assets it purports to own
or use, and to perform all of its obligations under the Material Contracts. The
Company is duly qualified to conduct business and own its property and assets as
a foreign entity in good standing under the laws of each state in which either
the ownership or use of properties and assets owned or used by it, or the nature
of the activities conducted by it, requires such qualification and where failure
to do so would have a Material Adverse Effect. True and complete, copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of the
Company (the "Charter Documents") are all attached to SCHEDULE 5.1. The Company
is not in violation of any Charter Documents. The minute books and stock records
of the Company, as heretofore made available to Clarant, are complete in all
material respects and reflect all transactions of the Company. The most recent
minutes of the Company, which are
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dated no earlier than ten (10) business days prior to the date hereof, affirm
and ratify all prior acts of the Company and of its officers and directors on
behalf of the Company in respect of the transactions contemplated hereby.
SCHEDULE 5.1 contains a complete and accurate list of the directors and officers
of the Company.
5.2 AUTHORIZATION. The officers of the Company executing this
Agreement are duly authorized to execute and deliver this Agreement and to
perform the obligations hereunder. The execution and delivery of this Agreement
by the Company and performance by the Company of its obligations under this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action in accordance
with applicable law and the Charter Documents on the part of the Company and the
stockholders of the Company and copies of the respective approvals of the board
of directors and the stockholders of the Company (certified by the Secretary of
the Company to be true, accurate and complete) are attached hereto as EXHIBIT
5.2. This Agreement constitutes the valid and binding obligations of the Company
and the Stockholders, enforceable against the Company in accordance with its
terms, subject to bankruptcy, reorganization, receivership and other laws
affecting creditors' rights generally and the application of equitable
principles.
5.3 CAPITAL STOCK OF THE COMPANY. The respective designations
and numbers of outstanding shares and voting rights of each class of outstanding
capital stock and securities convertible, exercisable or redeemable for capital
stock (collectively, "Convertible Securities"), or rights, warrants, puts, calls
or options relating to capital stock (collectively, "Options") of the Company as
of the date of this Agreement are as set forth on SCHEDULE 5.3 hereto. All of
the issued and outstanding shares of capital stock, Convertible Securities and
Options of the Company are owned by the Persons listed on SCHEDULE 5.3 set forth
thereon, and, are owned free and clear of all Encumbrances, and no other Person
(other than Clarant) has any right to acquire any capital stock of the Company
or its Subsidiaries. All of the issued and outstanding shares of capital stock
of the Company have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the Stockholders and were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal securities laws concerning the offering and sale or
grant of securities. All of the Options have been duly authorized and validly
issued, are held of record and beneficially by the respective option holders set
forth on SCHEDULE 5.3 and in the amounts and in the amounts and the applicable
exercise price and vesting set forth thereon, and were granted in compliance
with all applicable state and Federal securities laws concerning the grant of
options. Set forth on SCHEDULE 5.3 is a complete list of all the Company's
stockholders' agreements, buy-sell agreements, security subscription agreements,
registration rights agreements, voting agreements, option plans and agreements
and other similar agreements (collectively, "Securities Agreements"), and a copy
of each such agreement is attached thereto. To the Knowledge of the Company,
there are no breaches or defaults by the Company under any of the Company's
Securities Agreements.
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5.4 AUTHORITY; NO CONFLICT. Except to the extent consents or
approvals are required from third parties or Governmental Authorities (the
"Consents"), the execution, delivery or performance of this Agreement by the
Company will not:
(a) violate or conflict with or result in a breach of any
provision of any Law, permit, judgment, or other decision of any court or other
tribunal or any Governmental Authority binding on the Company or any Subsidiary,
or any of its respective Affiliates, or conflict with or result in the breach of
any of the terms, conditions or provisions thereof;
(b) violate, conflict with or constitute a default under
any of the Charter Documents of the Company or any Subsidiary or of any Material
Contract;
(c) constitute an event that would permit any Person to
terminate any Material Contract or accelerate the maturity of any material
indebtedness or other material obligation;
(d) result in the creation or imposition of any
Encumbrance upon the properties or assets of the Company or any Subsidiary; or
(e) require any authorization, consent, approval,
exemption or other action by, or notice to any court or other tribunal or
Governmental Authority (each a "Governmental Consent").
SCHEDULE 5.4 describes each third party and Governmental
Authority Consent.
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.
Except as set forth on SCHEDULE 5.3, (a) no Option, Convertible Security, or
commitment of any kind exists which obligates the Company to issue any of its
authorized but unissued capital stock or its treasury stock; and (b) the Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its Company Stock, Convertible Securities or Options or any
interests therein or to pay any dividend or make any distribution in respect
thereof.
5.6 [Reserved]
5.7 SUBSIDIARIES. SCHEDULE 5.7 lists the name of each of the
Company's Subsidiaries and sets forth the number and class of the authorized
capital stock of each of the Company's Subsidiaries, the number of shares of
each of the Company's Subsidiaries which are issued and outstanding and the
holders of such stock, all of which shares (except as set forth on SCHEDULE 5.7)
are owned by the Company, free and clear of all Encumbrances and voting trusts
of every kind. Except as set forth on SCHEDULE 5.7, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership, limited
liability company or other non-corporate entity.
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5.8 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 5.8 is a
list of all names of all predecessor companies of the Company, including the
names of any entities acquired by the Company (by stock purchase, merger or
otherwise) or owned by the Company or from which the Company previously acquired
material assets. Except as disclosed on SCHEDULE 5.8, the Company has not been a
subsidiary or division of another company or a part of an acquisition that was
later rescinded.
5.9 SPIN-OFF BY THE COMPANY. Except as set forth on SCHEDULE
5.9, there has not been any sale, spin-off, or split-up of material properties
or assets of either the Company or any other person or entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Company ("Affiliates") since January 1, 1997.
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Company has
delivered to Clarant (as SCHEDULE 5.10) copies of the following financial
statements (the "Financial Statements"): audited Balance Sheets, income
statements, statements of stockholders' equity and statements of cash flows at
and for the fiscal years ended December 31, 1996, 1997 and 1998, except that the
Balance Sheet for the period ended December 31, 1996 is unaudited, and audited
Balance Sheets, income statements, statements of stockholders' equity and
statements of cash flows at and for the interim period ended March 31, 1999.
(b) Each of the Financial Statements fairly presents the
Company's financial condition, assets and liabilities as of their respective
dates and the results of operations and cash flows for the periods related
thereto in accordance with GAAP, consistently applied among the periods which
are the subject of the Financial Statements, except unaudited interim financial
statements which were or are subject to normal and recurring year-end
adjustments which were not and are not expected to be material in amount or to
require the addition of required footnotes thereto.
5.11 LIABILITIES AND OBLIGATIONS. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.11) as of the Balance
Sheet Date of (a) all liabilities of the Company in excess of $10,000 not
reflected on the Balance Sheet at the Balance Sheet Date or otherwise reflected
in the Company Financial Statements at the Balance Sheet Date, and (b) all loan
agreements, notes and other debt obligations (whether secured or unsecured),
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements to which the Company or any Subsidiary is a party. Except as
set forth on SCHEDULE 5.11, since the Balance Sheet Date, neither the Company
nor any Subsidiary has incurred any material liabilities of any kind, character
and description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the Ordinary Course of Business
that will not have a Material Adverse Effect.
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5.12 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered
to Clarant an accurate list (which is set forth on SCHEDULE 5.12) of the
accounts and notes receivable of the Company as of the Balance Sheet Date,
including any such amounts which are not reflected at the Balance Sheet Date,
and including receivables from and advances to employees and the Stockholders.
Within ten (10) days prior to Closing, the Company shall provide Clarant (a) an
accurate list of all outstanding receivables obtained subsequent to the Balance
Sheet Date and (b) an aging of all such accounts and notes receivable showing
amounts due in 30 day aging categories (the "A/R Aging Reports"). Except to the
extent reflected on SCHEDULE 5.12 or as disclosed by the Company to Clarant in a
writing accompanying the A/R Aging Reports, as the case may be, the accounts,
notes and other receivables shown on SCHEDULE 5.12 and on the A/R Aging Reports
are and the Company and the Stockholders have no reason to believe that any such
account receivable is not or shall not be, collectible in the amounts shown (in
the case of the accounts and notes receivable set forth on SCHEDULE 5.12, net of
reserves reflected in the balance sheet at the Balance Sheet Date) and as of the
date of the A/R Aging Reports, respectively.
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) The Company owns or licenses all Intellectual Property
necessary and desirable for the Company to conduct its business, in the manner
presently conducted, and all material Intellectual Property (other than
Trademarks) owned or used by the Company and/or any Subsidiaries or in which or
to which it has any rights, licenses or immunities are described and set forth
with reasonable particularity in SCHEDULE 5.13 along with material information
as to the ownership thereof or licenses, rights or immunities therein and
registrations thereof;
(b) Except as disclosed in SCHEDULE 5.13:
(i) to the Knowledge of the Stockholders and the
Company, the Company and its Subsidiaries have the right and authority to use
all Intellectual Property as is necessary to enable it to conduct and to
continue to conduct all phases of its business in the manner presently conducted
and the Company and any Subsidiary (in the continuing conduct) of the Company's
business) has never infringed on, misappropriated, or otherwise conflicted with,
is not now infringing on, misappropriating or otherwise conflicting with, and
will not conflict with infringe on or misappropriate any patent or other
intellectual property right belonging to any Person;
(ii) neither the Company nor any Subsidiary is a party
to any license agreement or arrangement, not set forth in SCHEDULE 5.13, whether
as licensee, licensor or otherwise, with respect to any Intellectual Property;
(iii) [Reserved];
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(iv) none of the Stockholders, or any of their
Affiliates, owns any of the Intellectual Property used by the Company or any
Subsidiary; and
(v) to the Knowledge of the Stockholders and the
Company, there is no unauthorized use, infringement or misappropriation by any
third party of any Intellectual Property owned by the Company or any Subsidiary.
5.14 TRADEMARKS. Except as disclosed in SCHEDULE 5.14:
(a) all trademarks, service marks, trade dress, and trade
names, ("Trademarks") used by the Company and/or any Subsidiaries in the conduct
of the Business are described and set forth with reasonable particularity in
SCHEDULE 5.14, along with material information as to the ownership thereof;
(b) all such Trademarks are owned by the Company and/or
any Subsidiaries, except for such as are licensed under licenses referred to in
SCHEDULE 5.14;
(c) all such Trademarks are valid and in good standing,
free and clear of any Encumbrances other than in the Ordinary Course of Business
and to the Knowledge of the Company and the Stockholders, are not being overtly
challenged in any way;
(d) to the Knowledge of the Company and the Stockholders,
the Company has not infringed on nor is it now infringing on any Trademark of or
belonging to another Person; and
(e) to the Knowledge of the Stockholders and the Company,
there is no claim pending or Threatened against the Company with respect to
alleged infringement of any Trademark owned by any Person nor does the operation
or any aspect to its business in the manner in which it has heretofore been
operated or is presently operated give rise to any such infringement.
5.15 LITIGATION AND LEGAL PROCEEDINGS.
(a) Except as set forth in SCHEDULE 5.15:
(i) there is no suit, private proceeding, action,
liability or claim (collectively, "Actions") pending or, to the Company's or the
Stockholders' Knowledge, Threatened, against the Company, any Subsidiary or any
Company Plan or any fiduciary of any such Company Plan or to which the Company
or any Subsidiary is otherwise a party or which may have a Material Adverse
Effect on the Company.
(ii) to the Knowledge of the Stockholders and the
Company, each of the Company and its Subsidiaries has given all required notice
of such Actions to the appropriate
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insurance carrier(s) and/or all such Actions have in the judgment of the
Company's Chief Financial Officer, been fully reserved for on the Financial
Statements. SCHEDULE 5.15 lists the insurer for each Action covered by insurance
or designates each Action, or portion of each Action, as uninsured and the
individual and aggregate policy limits for the insurance covering each insured
Action and the applicable policy deductibles for each insured Action;
(iii) no litigation matter (other than workers
compensation claims) to which the Company or any Subsidiary was a party was
resolved, settled or closed during the three years preceding the date of this
Agreement;
(iv) there is no pending Proceeding that has been
commenced by or against the Company or any Subsidiary that relates to or may
materially affect the Business, and, to the Knowledge of the Stockholders and
the Company, no such Proceeding has been Threatened; and
(v) the Company is not subject to any judgment, Order,
or decree of any court or Governmental Authority and, to the Knowledge of the
Company and the Stockholders, none is Threatened. Except as disclosed in
SCHEDULE 5.15, neither the Company or any Subsidiary is engaged in any legal
action to recover money due it or for damages sustained by it.
(b) Matters disclosed in SCHEDULE 5.15 shall include the
following information where applicable:
(i) a summary description of the Action together with
the following:
(1) a list of all relevant
documentation relating thereto;
(2) if known amounts claimed and any
other action or relief sought; and
(3) name of claimant and, if known all
other parties to the Action;
(ii) the name of each court or agency before which
such Action is pending; and
(iii) the date such Action was instituted.
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.
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(a) Except as set forth on SCHEDULE 5.16, the Company and
its Subsidiaries have complied in all material respects with all laws, rules,
regulations, writs, injunctions, decrees, and Orders applicable to it or to the
operation of the Business (collectively, "Laws") and has not received any
written notice of any alleged claim or threatened claim, violation of, liability
or potential responsibility under, any such Law that has not heretofore been
cured and for which there is no remaining liability other than those not having
a Material Adverse Effect.
(b) The Company and its Subsidiaries hold all licenses,
permits and other governmental authorizations (the "Permits") the absence of any
of which could have a Material Adverse Effect, and the Company has delivered to
Clarant an accurate list and summary description (which is set forth on SCHEDULE
5.16) of all such Permits. To the Knowledge of the Company and the Stockholders,
the Permits listed on SCHEDULES 5.16 are valid, and neither the Company nor any
Subsidiary has received any written notice that any Governmental Authority
intends to cancel, terminate or not renew any such Permit. The Company and its
Subsidiaries have conducted and are conducting their Business in compliance with
the requirements, standards, criteria and conditions set forth in the Permits
listed on SCHEDULE 5.16 and are not in violation of any of the foregoing except
where such non-compliance or violation would not have a Material Adverse Effect.
Except as specifically provided in SCHEDULE 5.16, the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company and its
Subsidiaries by, any of the Permits listed on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms have
the meanings set forth below:
"COBRA" means Sections 601-608 of ERISA and Section 4980(B)(8)
of the Code.
"Company Other Benefit Obligation" means an Other Benefit
Obligation the Company sponsors or maintains or with respect to which the
Company has or may have liability, in each case with respect to any present or
former employees, or directors of the Company.
"Company Plan" means all Plans of which the Company is Plan
Sponsor, or to which the Company otherwise contributes, or in which the
Company's employees have participated, or for which the Company has or may have
any liability (including with respect to previously terminated Plans).
"Company VEBA" means a VEBA whose members include employees of
the Company or any ERISA Affiliate.
"ERISA" means the Employee Retirement Income Security Act of
1974 as amended.
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"ERISA Affiliate" means, with respect to the Company, any
other trade or business, whether or not incorporated, that, together with the
Company, would be or was at any time treated as a single employer under
Section 414 of the Code or ERISA Section 4001.
"Multi-Employer Plan" has the meaning given in ERISA
Section 3(37)(A).
"Other Benefit Obligations" means all obligations or
arrangements to provide benefits to present or former employees or directors
(other than obligations or arrangements that are Plans). Other Benefit
Obligations include (unless they are Plans) employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, sabbaticals, severance pay policies,
plant closing benefits, salary continuation for disability, consulting, or other
compensation arrangements, workers' compensation, retirement, deferred
compensation, bonus, stock option or purchase, medical insurance, life
insurance, tuition reimbursement or scholarship programs, employee discount
programs, meals, travel, or vehicle allowances, any plans subject to Section
125 of the Code, and any plans providing benefits or payments in the event of
a change of control, change in ownership or effective control, or sale of a
substantial portion of the assets of any business or portion thereof, in each
case with respect to any present or former employees or directors and
excluding any arrangements that, in the aggregate, do not reflect liability
of the Company for more than $25,000.
"Pension Plan" has the meaning given in ERISA Section 3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3), including
plans exempted by ERISA Section 4(b)(5) or excluded from coverage under ERISA
by 29 CFR Section 2510.3-3(b) as a plan covering only partners, members, or
sole proprietors.
"Plan Sponsor" has the meaning given in ERISA
Section 3(16)(B).
"Qualified Plan" means any Company Plan that is intended to
meet the requirements of Section 401(a) of the Code.
The "Service" means the Internal Revenue Service.
"VEBA" means a voluntary employees' beneficiary association
under Section 501(c)(9) of the Code.
(b) (i) There are no Company VEBAs; and
(ii) neither the Company nor any ERISA Affiliate
sponsors, maintains or contributes to or has any actual or potential liability
with respect to any now or formerly existing (1) Multiemployer Plan or (2)
Pension Plan subject to Title IV of ERISA or Section 412 of the Code.
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(c) (i) SCHEDULE 5.17 contains a complete and accurate
list of all material Company Plans and material Company Other Benefit
Obligations; and
(ii) SCHEDULE 5.17 contains a complete and accurate
list of all ERISA Affiliates.
(d) The Company has provided to Clarant all of the
following documents relating to Company Plans and Company Other Benefit
Obligations:
(i) all the documents, if any that set forth the terms
of each Company Plan, and Company Other Benefit Obligation, of any related
trust, including (1) summary plan descriptions of Company Plans for which the
Company is required to distribute summary plan descriptions, (2) the most
recent, if any, summaries and descriptions furnished to participants and
beneficiaries regarding Company Plans; and Company Other Benefit Obligations,
for which a summary plan description is not required (and all forms of COBRA
notices), and (3) amendments, if any, to each of the foregoing;
(ii) all personnel, and employment manuals and
policies;
(iii) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in writing and that is
listed on SCHEDULE 5.17;
(iv) the Form 5500 or 5500 C/R, if any, filed in each
of the most recent two plan years (or three, if the most recent two 5500C/Rs do
not include a 5500C) with respect to each Company Plan, including all schedules
thereto;
(v) all material notices that were given with respect
to a Company Plan or Other Company Benefit Obligation, by the Service,
Department of Labor, or other governmental agency to the Company or any Company
Plan within the two years preceding the date of this Agreement (and any earlier
material notices relating to matters not resolved as of the date of this
Agreement); and
(vi) with respect to Qualified Plans, (i) the most
recent determination regarding qualification and, if different, the most recent
determination letter that covered the qualification of the entire plan, or (ii)
if applicable, the most recent opinion letter issued by the Service with respect
to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its material
obligations under all Company Plans, and Company Other Benefit Obligations;
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(ii) the Company, with respect to all Company Plans
and Company Other Benefit Obligations is, and each Company Plan and Company
Other Benefit Obligation is, in material compliance with ERISA, the Code,
federal and state securities laws and other applicable Laws and with the terms
of each Company Plan and Company Other Benefit Obligation
(iii) no transaction prohibited by ERISA Section
406 and no "prohibited transaction" under Section 4975(c) of the Code have
occurred with respect to any Company Plan; that could give rise to liability
against the Company in excess of $25,000;
(iv) the Company has no liability to the Service with
respect to any Plan, that would have a Material Adverse Effect;
(v) the Company has no liability with respect to any
Plan under ERISA Section 502(i) that would have a Material Adverse Effect;
(vi) a determination letter or, if applicable, an
opinion letter, has been issued by the Service with respect to each Qualified
Plan;
(vii) since December 31, 1998, there has been no
establishment or amendment of any Company Plan or Company. Other Benefit
Obligation that would increase the liability of the Company by more than
$25,000;
(viii) other than routine claims for benefits
submitted by participants or beneficiaries, no claim against, or legal
proceeding involving, any Company Plan, or Company Other Benefit Obligation is
pending or, to the Stockholders' or the Company's Knowledge, is Threatened. No
Company Plans or Company Other Benefit Obligations are, to the Company's
Knowledge, presently under audit or examination (nor has notice been received of
a potential audit or examination) by the Service, the Department of Labor, or
any other Governmental Authority and no matters are pending with respect to any
Company Plan under the Service's Employee Plans Compliance Resolutions System or
any successor or predecessor program;
(ix) no Company Plan or Company Other Benefit
Obligation provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service other than (1) coverage
mandated by applicable law, (2) death benefits or retirement benefits under any
Company Plan that is a Pension Plan, (3) deferred compensation benefits in the
form of cash, (4) benefits, the full cost of which is borne by the current or
former employee (or his beneficiary), or (5) insured disability benefits;
(x) no Company Plan or Company Other Benefit
Obligation contains any provision that would prohibit the transactions
contemplated by this Agreement or that would give rise to any acceleration or
vesting of benefits, severance, termination or other payments or
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liabilities as a result of the transactions contemplated by this Agreement; and
the Company has not declared or paid any bonus or incentive compensation in
contemplation of the transactions contemplated by this Agreement, except that
the Company shall pay to its employees bonuses in accordance with EXHIBIT 2.1(a)
and SCHEDULE 5.3, provided that no such bonus will be an excess parachute
payment as defined in Section 280G(b)(1) of the Code.
(xi) all group health plans of the Company and its
ERISA Affiliates have been operated in material compliance with the requirements
of COBRA and Section 5000 of the Code and the Health Insurance Portability and
Accountability Act.
(xii) except as otherwise disclosed in SCHEDULE 5.17,
the Company has never maintained or contributed to any Qualified Plans. No
Company Plan contains any security issued by the Company or any ERISA Affiliate;
(xiii) each Qualified Plan of the Company is and has
always been qualified under Section 401 of the Code;
(xiv) the Company has paid all amounts it is required
to pay as contributions to the Company Plans as of the last day of the most
recent fiscal year of each of the plans ended before the date of this Agreement;
all benefits accrued under any unfunded Company Plan or Company Other Benefit
Obligation will have been paid, accrued, or otherwise adequately reserved to the
extent required by GAAP as of the date of this Agreement; and
(xv) no payment that is owed or may become due to any
director, officer, employee, or agent of the Company will be non-deductible to
the Company or subject to tax under Section 280G or Section 4999 of the Code;
nor will the Company be required to "gross up" or otherwise compensate any
such Person because of the imposition of any excise or income tax on a
payment to such Person.
5.18 INSURANCE POLICIES.
(a) The Company has made available to Clarant:
(i) true and complete copies of all policies of
insurance to which the Company or any Subsidiary is a party or any officer or
director of the Company is or has been covered at the expense of the Company;
(ii) true, accurate and complete copies of all pending
applications by the Company for policies of insurance; and
(iii) any written statement by the auditor of the
Company's Financial Statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
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(b) SCHEDULE 5.18 describes:
(i) any self-insurance arrangement by the Company and
its Subsidiaries, including any reserves established thereunder;
(ii) any workers' compensation schemes applicable to
the Company or any subsidiary;
(iii) any contract or arrangement, other than a policy
of insurance, for the transfer or sharing of any risk by the Company and its
Subsidiaries; and
(iv) all obligations of the Company and its
Subsidiaries to third parties with respect to insurance (including such
obligations under leases and service agreements).
(c) SCHEDULE 5.18 sets forth, by year, for the current
policy year and each of the preceding two policy years:
(i) a summary of the loss experience under each
policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $50,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type
of insurance, and period of coverage; and
(C) the amount and a brief description of the
claim; and
(iii) a statement describing the loss experience for
all claims that were self-insured, including the number and aggregate cost of
such claims.
(d) Except as set forth in SCHEDULE 5.18:
(i) all insurance policies to which the Company or any
Subsidiary is a party or that provide coverage to Stockholders, or any director
or officer of the Company or any Subsidiary:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that the Company
believes is financially sound and reputable;
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(C) taken together, in the Company's belief,
provide adequate insurance for the properties, assets and the Business for all
risks normally insured against by a Person carrying on the same or similar
business or businesses as the Company;
(D) comply with the insurance requirements of all
Laws and Contracts to which the Company and/or any Subsidiary is a party or by
which it is bound; and
(E) do not provide for any retrospective premium
adjustment or other experience-based liability on the part of the Company and/or
any Subsidiary;
(ii) neither the Company nor any Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and its Subsidiaries has
paid all premiums due and has otherwise performed all of its obligations under
each policy to which the Company or any Subsidiary is a party or that provides
coverage to the Company, any Subsidiary, or director thereof; and
(iv) except as set forth in SCHEDULE 5.18 the Company
and each Subsidiary have given notice to the insurer of all material claims that
may be insured thereby.
5.19 ENVIRONMENT.
(a) Except as set forth in SCHEDULE 5.19:
(i) the Company is, and at all times has been, in
material compliance with, and has not been, and is not, in material violation
of, or materially liable under, any Environmental Law; and
(ii) with respect to Permits required by, and notices
or application required by, the Environmental Laws, the Company possesses all
such Permits and has filed all such notices and applications the absence of
which would have a Material Adverse Effect on the Company.
(b) Except as disclosed in SCHEDULE 5.19:
(i) the Company has not been subject to, or received
any, notice of any Action or intended Action relating to the presence or alleged
presence of Hazardous Materials in, under, or upon any real estate currently or
formerly owned, leased or used by (A) the Company,
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or (B) any other Person with respect to Hazardous Materials disposed of by or on
behalf of the
Company;
(ii) the Company and Stockholders have no Knowledge of
any basis for any such notice or Action; and
(iii) there are no pending or, to the Knowledge of the
Stockholders and the Company, Threatened, Actions (or notice of potential
actions or proceedings) from any Governmental Authority or any other entity
against or applicable to the Company regarding any matter relating to health or
protection of the Environment.
(c) There are, and have been, no past or present events,
conditions, circumstances, activities, practices, incidents, or actions that
could reasonably be expected to interfere with or prevent the Company's or any
Subsidiary's continued compliance with any Environmental Law, give rise to any
legal obligation or liability, or otherwise form the basis of any Action,
hearing or investigation against or involving the Company or any Subsidiary or
any real estate presently or previously owned or used by the Company or any
Subsidiary under any of the Environmental Law or related common law theories,
except as identified in SCHEDULE 5.19.
(d) To the Knowledge of the Stockholders and the Company,
SCHEDULE 5.19 sets forth the name and principal place of business of every
off-site waste disposal organization, and each of the haulers, transporters or
cartage organizations engaged now or in the preceding three years by the
Business to dispose of Hazardous Materials to any off-site waste disposal
location on behalf of the Company or any Subsidiary.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of and service providers to the Company and
any Subsidiary:
(a) [Reserved]
(b) the Company is complying and has complied in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and no claims or investigations
are pending or, to the Company's Knowledge, Threatened with respect to such
laws, either by private individuals or by Governmental Authority;
(c) the Company has not and is not engaged in any unfair
labor practice, and there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Company pending or, to the
Company's Knowledge, Threatened, before the National Labor Relations Board or
any other comparable authority;
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(d) no labor union represents or has ever represented the
Company's employees and no collective bargaining agreement is or had been
binding against the Company. The Company is not currently negotiating to enter
into such agreements. No grievance or arbitration proceeding arising out of or
under collective bargaining agreements or employment relationships is pending,
and no claims therefor exist or have, to the Company's Knowledge, been
Threatened;
(e) no labor strike, lock-out, slowdown, or work stoppage
is or has ever been pending or Threatened against or directly affecting the
Company;
(f) all Persons who are or were performing services for
the Company and are or were classified as independent contractors do or did
satisfy and have satisfied the requirements of law to be so classified, and the
Company has fully and accurately reported their compensation on the Service's
Form 1099 when required to do so; and
(g) SCHEDULE 5.20 hereto sets forth an accurate list, as
of the date hereof, of all employees of the Company and any Subsidiary who
earned more than $75,000 in 1998 or are expected to earn that level in 1999, and
lists all employment agreements with such employees, and the officers and
directors and the rate of compensation (and the portions thereof attributable to
salary, bonus, and other compensation respectively) of each such Person as of
(a) the Balance Sheet Date and (b) the date hereof.
5.21 PERSONAL PROPERTY.
(a) The Company has delivered to Clarant (a) an accurate
list (which is set forth on SCHEDULE 5.21) of (i) all personal property included
(or that will be included) in "depreciable plant, property and equipment" (or
similarly named line item) on the balance sheet of the Company at the Balance
Sheet Date, (ii) all other personal property owned by the Company or any
Subsidiary with a value individually in excess of $10,000 (A) at the Balance
Sheet Date and (B) acquired since the Balance Sheet Date, and (iii) all leases
and agreements in respect of personal property, together with a listing of the
capital costs of all such properties and assets which are subject to capital
leases.
(b) Except as set forth on SCHEDULE 5.21, (i) all personal
property with a value individually in excess of $10,000 used by the Company or
any Subsidiary in its business is either owned by the Company or any Subsidiary
or leased by the Company or any Subsidiary pursuant to a lease included on
SCHEDULE 5.21, (ii) all of the personal property listed on SCHEDULE 5.21 is in
good working order and condition, ordinary wear and tear excepted, and (iii) all
leases and agreements included on SCHEDULE 5.21 are in full force and effect and
constitute valid and binding agreements of the Company or any Subsidiary, and to
the Company's and the Stockholders' Knowledge, of the parties (and their
successors) thereto in accordance with their respective terms.
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5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND
COMMITMENTS.
(a) The Company has delivered to Clarant an accurate list
(which is set forth on SCHEDULE 5.22) of all Significant Customers, it being
understood and agreed that a "Significant Customer," for purposes of this
Agreement, means a customer (or Person) representing 5% or more of the Company's
annual revenues as of the Balance Sheet Date. Except to the extent set forth on
SCHEDULE 5.22, none of the Company's Significant Customers has canceled or
substantially reduced or, to the Knowledge of the Company or any Stockholder, is
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company or any Subsidiary.
(b) The Company has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Company or its Subsidiaries enforceable in accordance
with its terms, and is in full force and effect, subject to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and the application of equitable principles. Except as set forth on
SCHEDULE 5.22, the Company or its Subsidiaries have performed all obligations
required to be performed by it under each Material Contract, and it is not, nor,
to the Knowledge of the Company or any Stockholder, is any other party to any
Material Contract (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder. Neither the
Company nor any Subsidiary has been notified that any party to a Material
Contract intends to cancel, terminate, not renew, or exercise an option under
any Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.
(c) Except as listed or described on SCHEDULE 5.22, the
Company has no Contracts of the types described below:
(i) any collective bargaining arrangement with any
labor union or any such agreements currently in negotiation or proposed;
(ii) any contract for capital expenditures or the
acquisition or construction of fixed assets for or in respect to real property
other than in the Ordinary Course of Business in excess of $50,000;
(iii) any contract with a term in excess of one year
for the purchase, maintenance, acquisition, sale or furnishing of materials,
supplies, merchandise, machinery, equipment, parts or other property or services
(except that the Company need not list any such contract made in the Ordinary
Course of Business which requires aggregate future payments of less than
$50,000, and in lieu of providing each individual contract, the Company has
provided to Clarant its standard subcontractor form and a list of each
subcontractor).
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(iv) any contract relating to the borrowing of money,
or the guaranty of another Person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations, agreements
and other instruments for or relating to any lending or borrowing, including
assumed indebtedness;
(v) any contract granting any Person an Encumbrance on
any of the properties or assets of the Company or any Subsidiary, in whole or in
part;
(vi) any contract for the cleanup, abatement or other
actions in connection with Hazardous Materials, the remediation of any existing
environmental liabilities, violation of Environmental Laws or relating to the
performance of any environmental audit or study;
(vii) any contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any material property or asset of the Business of the Company or any Subsidiary,
other than in the Ordinary Course of Business;
(viii) any contract having an original value in excess
of $50,000 under which the Company or any Subsidiary is:
(A) a lessee or sublessee of any machinery,
equipment, vehicle or other tangible personal property or real property, or
(B) a lessor of any real property or machinery,
equipment, vehicle or other tangible personal property owned by the Company or
any Subsidiary;
(ix) any contract providing for the indemnification of
any officer, director, employee or other Person where such indemnification may
exceed the sum of $50,000;
(x) any joint venture or partnership contract;
(xi) any contract that prohibits the use or
publication by the Company, Clarant or Newco of the name of any other party to
such contract or prohibits or restricts the Company or any Subsidiary from
freely providing services to any other customer or potential customer of the
Company or any Subsidiary, Clarant, Newco or any Other Founding Company; or
(xii) a governmental contract subject to price
redetermination or renegotiation.
5.23 REAL PROPERTY.
(a) Neither the Company nor any Subsidiary owns any Real
Property.
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(b) SCHEDULE 5.23 sets forth a complete and accurate list
of real property leased by the Company or its Subsidiaries (the "Leased Real
Property") and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by Stockholders or Affiliates of the Company, any
Subsidiary , or a Stockholder. The Company has provided Clarant with true,
complete and correct copies of all leases and agreements (the "Leases") in
respect of such real property leased by the Company or its Subsidiaries.
SCHEDULE 5.23 sets forth the applicable monthly rental, expiration, and renewal
terms for each Lease. Except as set forth on SCHEDULE 5.23 all Leases are in
full force and effect and constitute valid and binding agreements of the Company
or its Subsidiaries, and, to the Company's and the Stockholders' Knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms. None of the Leases requires the consent or approval of any party thereto
in connection with the consummation of the transactions contemplated by this
Agreement.
(c) the Leased Real Property and all present uses and
operations of the Leased Real Property by the Company comply with all applicable
Laws, covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the Leased Real Property and the Company has obtained
all approvals of Governmental Authorities (including certificates of use and
occupancy, licenses and permits) required in connection with the use, occupation
and operation of the Leased Real Property;
5.24 TAXES.
(a) Neither the Company nor any Subsidiary is or has been
a member of anyaffiliated, consolidated, combined, unitary or similar group,
other than a group of which the Company is the common parent;
(b) All Returns required to have been filed by or with
respect to the Company and each of the Subsidiaries, including Returns of any
affiliated, combined, consolidated, unitary or similar group including the
Company or any Subsidiary (each a "Relevant Group"), have been duly filed, and
each such Return correctly and completely reports the Tax liability and all
other material information required to be reported thereon. All Taxes (whether
or not shown on any Return) owed by the Company, each Subsidiary and each
Relevant Group that are due and payable have been paid or accrued on the
Financial Statements;
(c) The amount of the liability of the Company and the
Subsidiaries for unpaid Taxes as of the Balance Sheet Date did not exceed the
liability accruals for Taxes (excluding any reserves for deferred Taxes) set
forth on the Company Financial Statements dated as of the Balance Sheet Date.
The amount of the liability of the Company and the Subsidiaries for unpaid Taxes
as of the date of any financial statements provided pursuant to Section 5.10
will not exceed the liability accruals for Taxes (excluding any reserves for
deferred Taxes) set forth on such financial statements. The amount of the
liability of the Company and the Subsidiaries for unpaid Taxes as of the Closing
Date will not exceed the liability accruals for Taxes (excluding any reserves
for deferred Taxes) set forth on the financial statements provided
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pursuant to Section 5.10, or if there are no such financial statements, the
Company Financial Statements dated as of the Balance Sheet Date, as such
accruals are adjusted on the books and records of the Company and the
Subsidiaries through the Closing Date in accordance with past custom and
practice;
(d) Neither the Company, any Subsidiary nor any Relevant
Group is a party or subject to any agreement extending the time within which to
file any Return. No claim has ever been made by any Taxing Authority in any
jurisdiction in which the Company or any Subsidiary does not file Returns that
it is or may be subject to taxation by that jurisdiction;
(e) The Company and each Subsidiary has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and record-keeping requirements with respect to, any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(f) No Tax Proceedings are presently pending with regard
to any Tax Returns or Taxes of the Company, any Subsidiary or any Relevant
Group, and no notice has been received (whether in writing or verbally) of the
expected commencement of a Tax Proceeding. No issues have been raised in any
audit or examination by or with respect to the Company, any Subsidiary or any
member of any Relevant Group which, by application of similar principles, could
reasonably be expected to result in a proposed deficiency for any other period
not so examined;
(g) SCHEDULE 5.24(g) attached hereto lists all material
federal, state, local and foreign income and franchise Tax Returns filed by or
with respect to the Company, each Subsidiary and each Relevant Group for all
Taxable Periods ended on or after January 1, 1991. With respect to each Return,
SCHEDULE 5.24(g) indicates whether the Return that has been examined and closed,
is presently subject to examination or is a Return with respect to which the
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired. The Stockholders have made available to Clarant complete
and correct copies of all federal, state, local and foreign income and franchise
Tax Returns filed by or with respect to, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, the Company, each
Company Subsidiary and each Relevant Group since January 1, 1991;
(h) Neither the Company nor any Subsidiary nor any
Relevant Group has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency;
(i) Neither the Company nor any Subsidiary has made any
payments, is obligated to make any payments or is a party to any agreement that
could require it to make any payments that are not deductible pursuant to
Section 280G of the Code;
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(j) Neither the Company nor any Subsidiary (i) is a party
to any Tax allocation, Tax indemnity, tax sharing agreement, or any similar
arrangement pursuant to which it has agreed to be liable for Taxes of any other
Person or (ii) has any liability for Taxes of any other Person (A) as a
transferee or successor or (B) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law);
(k) None of the assets owned or used by the Company or any
Subsidiary constitutes tax exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code. Neither the Company nor
any Subsidiary is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax Reform
Act of 1986, or to any "long term contract" within the meaning of Section 460 of
the Code;
(l) Neither the Company nor any Subsidiary has disposed of
any property in a transaction being accounted for under the installment method
pursuant to Section 453 of the Code;
(m) Neither the Company nor any Subsidiary is a
"consenting corporation" within the meaning of Section 341(f)(1) of the Code or
comparable provisions of any state statutes, and none of the assets of the
Company or any Subsidiary is subject to an election under Section 341(f) of the
Code or comparable provisions of any state statutes;
(n) Neither the Company nor any Subsidiary is a party to
any joint venture, or partnership;
(o) Neither the Company nor any Subsidiary will be
required to include any adjustment in taxable income in any Taxable Period
ending after the Closing Date under Section 481 of the Code (or any similar
provision of the Tax laws of any jurisdiction) as a result of any change in any
method of accounting occurring in a Taxable Period ending on or before the
Closing Date. No Taxing Authority has proposed any such change in any accounting
method. The Company and each Subsidiary presently use the accrual method of
accounting for income Tax purposes;
(p) Neither the Company nor any Subsidiary nor any member
of any Relevant Group has received any written ruling of a Taxing Authority
relating to Taxes or has entered into any closing agreement or similar written
binding agreement with a Taxing Authority relating to Taxes;
(q) SCHEDULE 5.24(q) sets forth all elections affecting
the Company or any Subsidiary with respect to (1) the qualified subchapter S
status of the Company, (2) the qualified subchapter S subsidiary status of any
Subsidiary, (3) any election made under Section 338 of the Code, (4) the
classification of the Company or any Subsidiary under Treasury Regulations
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Section 301.7701-3, (5) any material change in method of accounting, and (6) net
operating and loss limitations as a result of any member leaving a consolidated
group;
(r) There are no liens or other encumbrances on any of the
assets of the Company or any Subsidiary relating or attributable to Taxes (other
than liens for Taxes not yet delinquent);
(s) The Company is not an investment company as defined in
Section 351(e)(1) of the Code;
(t) None of the Stockholders is a party to or bound by any
agreement or arrangement pursuant to which such Stockholder will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by such
Stockholder pursuant to this Agreement;
(u) None of the Stockholders is under the jurisdiction of
a court in a Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code;
(v) There is no intercorporate indebtedness among the
Company or any of the Subsidiaries;
(w) There are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, Tax credits or other similar
items of or allocable to the Company or any Subsidiary (collectively, the "Tax
Attributes") under (A) Section 382 of the Code, (B) Section 383 of the Code, (C)
Section 384 of the Code, (D) Section 269 of the Code, or the Federal
consolidated return regulations, in each case as in effect both prior to and
following the Tax Reform Act of 1986; and
(x) As of December 31, 1998, the Company and each
Subsidiary had Tax Attributes for federal income Tax purposes as described on
SCHEDULE 5.24(x) attached hereto.
5.25 BUSINESS CONDUCT. Except as set forth on SCHEDULE 5.25,
since the Balance Sheet Date, the Company and its Subsidiaries have conducted
the Business only in the Ordinary Course of Business. Except as forth on
SCHEDULE 5.25 or SCHEDULE 5.11, since the Balance Sheet Date, there has not been
any:
(a) Change in the Company's business, operations,
financial condition, operating results, assets or liabilities that would have a
Material Adverse Effect on the Company;
(b) damage, destruction or loss of any real or personal
property or assets owned or leased by the Company or any Subsidiary or used in
the operation of the Business, whether or not covered by insurance, having a
replacement cost in excess of $50,000;
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(c) voluntary or involuntary sale, transfer, surrender,
abandonment or other disposition of any kind by the Company or any Subsidiary of
any assets or property rights (real or personal, tangible or intangible), having
a replacement cost or fair market value in excess of $50,000, except in each
case the sale of inventory and collection of accounts in the Ordinary Course of
Business;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might reasonably
be expected to have a Material Adverse Effect;
(e) material loan or advance by the Company or any
Subsidiary to any party other than sales to customers on credit or travel
advances to employees made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material
liability, potential liability or claimed liability relating to the Environment;
(g) declaration, setting aside, or payment of any dividend
or other distribution in respect to the Company's capital stock, Convertible
Securities or Options, any direct or indirect redemption, purchase, or other
acquisition of such stock, or the payment of principal or interest on any note,
bond, debt instrument or debt other than as required to be paid under the terms
of such instrument;
(h) incurrence of debts, liabilities or obligations
(except current liabilities incurred in connection with or for services rendered
or goods supplied in the Ordinary Course of Business, liabilities on account of
Taxes and governmental charges (but not penalties, interest or fines in respect
thereof), and obligations or liabilities incurred by virtue of the execution of
this Agreement);
(i) issuance by the Company or any Subsidiary of any
notes, bonds, or other debt securities or instruments or any equity securities
or securities convertible into or exchangeable for any equity securities;
(j) cancellation, waiver or release by the Company or any
Subsidiary of any material debts, liabilities, obligations, rights or claims,
except in each case in the Ordinary Course of Business;
(k) amendment of the Company's Charter Documents;
(l) amendment or termination of any Material Contract,
other than expiration of such contract in accordance with its terms;
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(m) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the Company or any Subsidiary;
(n) discharge or satisfaction of any material liability,
encumbrance or payment of any material obligation or liability, other than
current liabilities paid in the Ordinary Course of Business or cancellation of
any debts or claims;
(o) sale or assignment by the Company or any Subsidiary of
any properties or assets other than in the Ordinary Course of Business;
(p) capital expenditures or commitments therefor by the
Company or any Subsidiary other than in the Ordinary Course of Business or in
excess of $100,000 in the aggregate;
(q) charitable contributions or pledges by the Company or
any Subsidiary in excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any property
or asset of the Company or any Subsidiary other than in the Ordinary Course of
Business;
(s) adoption, amendment or termination of any employee
benefit or pension plan; or
(t) increase in the benefits provided under any employee
benefit pension plan;
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.
(a) The Company has delivered to Clarant an accurate
schedule (which is set forth on SCHEDULE 5.26) as of the date of this Agreement
of:
(i) the name of each financial institution in which
the Company or any Subsidiary has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of account and account number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
(b) SCHEDULE 5.26 also sets forth the name of each Person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power
of attorney.
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5.27 YEAR 2000 COMPLIANCE. The Company has investigated and
reviewed the areas within its business and operations and determined, after due
inquiry, that, except as set forth on SCHEDULE 5.27, all computer systems,
software and hardware used in or relied on for the business and operations of
the Company are able to accurately process date data, including calculating,
comparing and sequencing from, into and between the twentieth century without
human intervention (through year 1999), the year 2000, and the twenty-first
century, including leap year calculations ("Year 2000 Compliant"). To the
Knowledge of the Company and the Stockholders, the Company's Significant
Customers, and any other customer, vendor or business partner of the Company
whose failure to perform under any contract, agreement or other understanding
with the Company could have a Material Adverse Effect, are or will be Year 2000
Compliant before December 31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. Neither the Company nor any
Subsidiary has made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would cause the Company or any
Subsidiary to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
5.29 DISCLOSURE.
(a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and Investor
Questionnaires attached hereto respectively as EXHIBIT 5.29(a) and EXHIBIT
5.29(b) and all other documents and information made available to Clarant and
its representatives in writing pursuant hereto or thereto, present fairly the
Business of the Company and its Subsidiaries for the time periods with respect
to which such information was requested. The Company's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no statement made herein would be rendered untrue in any material
respect by, any other document to which the Company, any Subsidiary or any
officer, director or Stockholder is a party, or to which its properties or
assets are subject, or by any other fact or circumstance regarding the Company
and its Subsidiaries (which fact or circumstance was, or should reasonably,
after due inquiry, have been known to the Company or a Stockholder) that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of the final prospectus of Clarant utilized in connection with the IPO, the
Company or the Stockholders become aware of any fact or circumstance which would
change (or, if after the Closing Date, would have changed) a representation or
warranty of the Company or the Stockholders in this Agreement or would affect
any document delivered pursuant hereto in any material respect, the Company and
the Stockholders shall immediately give notice of such fact or circumstance to
Clarant. However, subject to the provisions of Section 7.11, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement, and, at the sole option of Clarant, the truth
and accuracy of any and all warranties and representations of the Company, or on
behalf of the Company and of the Stockholders at the date of this Agreement by
Clarant and Newco and on the
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Pre-Closing Date and on the Closing Date, shall be a precondition to the
consummation of this transaction.
(b) The Company and the Stockholders acknowledge and
agree: (i) that there exists no firm commitment, binding agreement, or promise
or other assurance of any kind, whether express or implied, oral or written,
that a Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of prices
or occur at all; (ii) that neither Clarant or any of its officers, directors,
agents or representatives nor any Underwriter shall have any liability to the
Company, the Stockholders or any other Person affiliated or associated with the
Company for any failure of the Registration Statement to become effective, the
IPO to occur at a particular price or within a particular range of prices or to
occur at all; and (iii) that the decision of the Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed Merger, has been or
will be made independent of, and without reliance upon, any statements, opinions
or other communications, or due diligence investigations which have been or will
be made or performed by any prospective Underwriter, agent of Clarant or the
prospective IPO; provided however that the Company and the Stockholders retain
the right to require as a condition to Closing that the price of the Clarant
Common Stock sold in the IPO be no lower than the minimum price specified in
EXHIBIT 2.1(a).
5.30 WARRANTIES; PRODUCTS. SCHEDULE 5.30 sets forth a
description of all of the product and service warranties and guarantees given by
the Company to any customer in connection with the sale or distribution of its
products and services. Except as described on SCHEDULE 5.30, (i) no claims have
been made or are, to the Knowledge of the Company, Threatened under the
Company's product or service warranties, (ii) to the Knowledge of the Company,
there exists no event or circumstance, which after notice or the passage of time
or both, might create or result in liabilities or obligations under the
Company's product warranties in excess of the liabilities and obligations
incurred by the Company, on average, during the past two years, and (iii) to the
Knowledge of the Company there is no design or other defect in any type of
product or service of the Company, including, without limitation, any software
programming that would cause the products or services delivered by the Company
to not be Year 2000 Compliant. The warranty reserves reflected on the Company
Financial Statements are set forth on SCHEDULE 5.30 and are reasonable for all
warranty claims .
5.31 AFFILIATE TRANSACTIONS. SCHEDULE 5.31 sets forth the
parties to and the date, nature and amount of (a) each transaction involving the
transfer of any cash, securities, property, assets or rights in which the amount
involved individually or collectively exceeded $60,000 to or from the Company or
any Subsidiary from, to, or for the benefit of any officer, director or family
member thereof or any other Affiliate or former Affiliate of the Company
("Affiliate Transactions") during the period commencing January 1, 1996, through
the date hereof and (b) any existing commitments of the Company or any
Subsidiary to engage in the future in any Affiliate Transactions. Each Affiliate
Transaction was effected on terms equivalent to those which would have been
established in an arms-length negotiation, except as disclosed on SCHEDULE 5.31.
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5.32 MISREPRESENTATION. To the Knowledge of the Company and
the Stockholders none of the representations and warranties set forth in this
Agreement or in any of the certificates, schedules, exhibits, lists, documents
or other instruments delivered, or to be delivered, by the Company or the
Stockholders as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
5.33 BROKERS. Neither the Company nor the Stockholders have
any liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which Clarant, Newco or the Surviving Corporation could become liable or
obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
Each Stockholder severally represents and warrants to Clarant and Newco
that the representations and warranties set forth in this Section 5(B) are true,
accurate and complete as of the date of this Agreement and, shall be true,
accurate and complete at the time of the Pre-Closing and on the Closing Date, in
each case as modified by any applicable Schedule amendments or supplements
pursuant to Section 7.11, and that the representations and warranties set forth
in Sections 5.34, 5.35 and 5.36 shall survive the Closing Date as provided in
Article 11:
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal
right, power and authority to enter into this Agreement and constitutes the
valid and binding obligation of each Stockholder, enforceable in accordance with
its terms. Such Stockholder owns beneficially and of record all of the shares of
the Company Stock identified on SCHEDULE 5.3 as being owned by such Stockholder,
and, except as set forth on SCHEDULE 5.3, such Company Stock is owned free and
clear of all Encumbrances.
5.35 PREEMPTIVE RIGHTS. Such Stockholder does not have, or
hereby waives, any preemptive or other right to acquire shares of Company Stock
or Clarant Stock that such Stockholder has or may have had other than rights of
any Stockholder to acquire Clarant Stock pursuant to (i) this Agreement or (ii)
any Option granted by Clarant.
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK. No Stockholder
has any current plan or intention, or is under any binding commitment or
contract, to sell, exchange or otherwise dispose of Company Stock, Convertible
Securities or Options or any Clarant Stock to be received or received pursuant
to Section 3.1 or 3.3.
5.37 TENDER. Such Stockholder has full power and authority to
tender, sell, assign, and transfer the Company Stock owned by such Stockholder
to Clarant pursuant to this Agreement, that there is no Person who holds any
right of first offer, right of first refusal, right under any stockholder's
agreement or otherwise that can prevent, or otherwise delay, the transfer of
Company Stock owned by the Stockholder to Clarant under this Agreement, and
that, when the
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Company Stock is accepted by Clarant, Clarant will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claims.
5.38 INVESTOR QUESTIONNAIRES. Such Stockholder has executed and
delivered to Clarant an Investor Questionnaire in the form attached hereto as
EXHIBIT 5.29(b) and such Investor Questionnaire as delivered by the Stockholder
is true, complete and accurate in all material respects.
6. REPRESENTATIONS OF CLARANT AND NEWCO
Clarant and Newco jointly and severally represent and warrant to the
Stockholders that all of the following representations and warranties in this
Article 6 are true, accurate and complete at the date of this Agreement and
shall be true, accurate and complete at the time of the Pre-Closing and on the
Closing Date, in each case as modified by any applicable Schedule amendments or
supplements pursuant to Section 7.11, and that such representations and
warranties shall survive the Closing Date.
6.1 DUE ORGANIZATION. Clarant is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. Each of Clarant and Newco is duly
authorized and qualified to do business under all applicable laws to carry on
its business in the places and in the manner as now conducted, except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect on Clarant. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended to date, of Clarant and Newco (the
"Clarant Charter Documents") are all attached hereto as EXHIBIT 6.1.
6.2 AUTHORIZATION. The respective officers of Clarant and
Newco executing this Agreement are duly authorized to execute and deliver this
Agreement, and Clarant and Newco have the corporate right, power and authority
to enter into this Agreement and the Merger.
6.3 TRANSACTION NOT A BREACH. Neither the execution and
delivery of this Agreement or the Other Agreements, nor their performance will
violate, conflict with, or result in a breach of any provision of any Law, rule,
regulation, order, permit, judgment, injunction, decree or other decision of any
court or other tribunal or any Governmental Authority binding on Clarant or
Newco or conflict with or result in the breach of any of the terms, conditions
or provisions of the Clarant Charter Documents or of any contract, agreement,
mortgage or other instrument or obligation to which Clarant or Newco is a party
or by which Clarant or Newco is bound.
6.4 MISREPRESENTATION. None of the representations and
warranties set forth in this Agreement or in any of the certificates, schedules,
exhibits, lists, documents, or other instruments (including the most recent
draft of the Registration Statement) delivered, or to be delivered, to the
Company or the Stockholders as contemplated by any provision hereof, contains
any untrue
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statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 CAPITAL STOCK. As of the Effective Time, the authorized
capital stock of Clarant will consist of one hundred million (100,000,000)
shares of common stock, par value $.10 per share (the "Clarant Common Stock")
and ten million (10,000,000) shares of preferred stock, par value $.10 per share
("Clarant Preferred Stock") (collectively, the "Clarant Common Stock" and
"Clarant Preferred Stock" referred to as "Clarant Stock") and the issued and
outstanding Clarant Stock, Convertible Securities and Options of Clarant will be
as set forth on SCHEDULE 6.5. SCHEDULE 6.5 also sets forth the issued and
outstanding Clarant Stock, Convertible Securities and Options as of the date of
this Agreement. As of the date of this Agreement, Clarant owns one hundred
percent of the issued and outstanding stock of Newco. Except as part of the IPO
that will take place on the Closing Date as contemplated by this Agreement and
the Other Agreements and as disclosed in the Registration Statement, there are
no outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which Clarant
is a party requiring issuance, sale or transfer of any equity securities of
Clarant or any securities convertible directly or indirectly into equity
securities of Clarant, or evidencing the right to subscribe for any equity
securities of Clarant, or giving any Person other than the Founding Companies
any rights with respect to the capital stock of Clarant. On the Closing Date,
Clarant shall have outstanding only one class of common stock (the Clarant
Common Stock), and the shares of Clarant Common Stock issued on the Closing Date
pursuant to this Agreement and the Other Agreements and to Persons who purchase
shares in the IPO will in the aggregate possess at least 80% of the total voting
power of the Clarant Common Stock that is entitled to vote and is outstanding as
of the Closing Date (after taking into account the dilution of the holdings of
Clarant Common Stock of the current Clarant stockholders). Except as disclosed
in the Registration Statement and as of the Closing Date, there are no voting
agreements, voting trusts, other agreements (including cumulative voting
rights), commitments or understandings with respect to the capital stock of
Clarant.
6.6 SUBSIDIARIES. Clarant has no subsidiaries except for the
companies identified as "ACQUISITION CORP." in the Other Agreements. Except as
disclosed in the Registration Statement, Clarant does not currently own, of
record or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and Clarant, directly or
indirectly, is not a participant in any joint venture, partnership or other
non-corporate entity.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on
SCHEDULE 6.7 or disclosed in the Registration Statement, Clarant has no material
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement and the Other Agreements and except for fees incurred in
connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on SCHEDULE 6.8 or disclosed in the Registration Statement, Clarant is not
in violation of any Law or Order of any
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Governmental Authority having jurisdiction over it which would have a Material
Adverse Effect on Clarant and except to the extent set forth in SCHEDULE 6.8,
there are no material Actions pending or, to the Knowledge of Clarant,
threatened, against or affecting Clarant, or before or by any Governmental
Authority having jurisdiction over it and no written notice of any Action has
been received by Clarant. Clarant has conducted and is conducting its businesses
in substantial compliance with applicable Laws and is not in violation of any of
the foregoing which might have a Material Adverse Effect on Clarant.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of
this Agreement by Clarant and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of
Clarant and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of Clarant.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof,
the Clarant Common Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of Clarant, fully paid
and nonassessable, and with the exception of restrictions upon resale set forth
in Article 15 hereof, will be identical in all substantive respects (which do
not include the form of certificate upon which it is printed or the presence or
absence of a CUSIP number on any such certificate) to the Clarant Common Stock
issued and outstanding as of the date hereof. The shares of Clarant Common Stock
to be issued to the Stockholders pursuant to this Agreement will not be
registered under the 1933 Act, except as provided in Article 17 hereof.
6.11 NO SIDE AGREEMENTS, Except as may be disclosed in the
Registration Statement, Clarant has not entered or, as of the Effective Date,
will not have entered into any material agreement with any of the Founding
Companies or any of the Stockholders of the Founding Companies other than (i)
the Other Agreements and the agreements contemplated by the Other Agreements,
including the employment agreements referred to therein and (ii) other
employment agreements entered into in the ordinary course of business.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
organized in August 1998 and has conducted limited operations since that time.
Clarant has not conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Clarant does not own and has not at any time owned any real property or any
material personal property and is not a party to any other material agreement,
except as listed on SCHEDULE 6.12 and except that Clarant is a party to the
Other Agreements and the agreements contemplated thereby and to such agreements
as will be disclosed in, or filed as exhibits to, the Registration Statement.
6.13 NO VIOLATIONS. Clarant is not in violation of any Clarant
Charter Document. None of Clarant, or, to the Knowledge of Clarant, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which Clarant is a party, or by which Clarant
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or any of its properties, are bound (collectively, the "Clarant Documents"). The
rights and benefits of Clarant under the Clarant Documents will not be adversely
affected by the transactions contemplated hereby and will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the Clarant Documents or the Clarant Charter Documents. Except as
set forth on SCHEDULE 6.13, none of the Clarant Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and the consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
6.14 ABSENCE OF CHANGES. Since March 31, 1999, except as set
forth in the Registration Statement, and except as contemplated by this
Agreement and the Other Agreements, there has not been:
(a) any change in the financial condition, assets,
liabilities (contingent or otherwise) income or business or Clarant that would
have of Material Adverse Effect;
(b) any damage destruction or loss (whether or not covered
by insurance) materially adversely affecting the properties or business of
Clarant;
(c) any change in the authorized capital of Clarant or its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of
Clarant;
(e) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, materially adversely
affecting the business of Clarant;
(f) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Clarant to any person;
(g) any cancellation or agreement to cancel, any
indebtedness or other obligation owing Clarant;
(h) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of Clarant or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(i) any waiver of any material rights or claims of
Clarant;
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(j) any amendment or termination of any material contract,
agreement, license, permit or other right to which Clarant is a party;
(k) any transaction by Clarant outside the Ordinary Course
of Business; or
(l) any other distribution of property or assets by
Clarant other than in the Ordinary Course of Business;
6.15 TAXES. All Returns required to have been filed by or with
respect to Clarant have been duly filed. No Tax Proceedings are presently
pending with regard to any Tax Returns or Taxes of Clarant, and no notice has
been received (whether in writing or verbally) of the expected commencement of
such a Tax Proceeding. All Taxes (whether or not shown on any Return) owed by
Clarant have been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing
Date, the Company will afford to the officers, directors and authorized
representatives of Clarant reasonable access during normal business hours to all
of the Company's and its Subsidiaries' sites, properties, books and records and
will furnish Clarant with such additional financial and operating data and other
information as to the Business and properties and assets of the Company and its
Subsidiaries as Clarant may from time to time reasonably request. The Company
will cooperate with Clarant and its representatives, including Clarant's
auditors and counsel, in the preparation of any documents or other material
(including the Registration Statement) which may be required in connection with
the transactions contemplated by this Agreement. Clarant, Newco, the
Stockholders and the Company and its Subsidiaries will treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Article 14
hereof. In addition, Clarant will cause each of the Other Agreements, binding
each of the Other Founding Companies, to contain a provision similar to this
Section 7.1 requiring each such Other Founding Company, its stockholders,
directors, officers, representatives, employees and agents to keep confidential
any information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing
Date, Clarant will afford to the officers and authorized representatives of the
Company access to all of Clarant's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the Business and properties of
Clarant and Newco as the Company may from time to time reasonably request.
Clarant and Newco will cooperate with the Company, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
required in connection with the transactions
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contemplated by this Agreement. The Company and the Stockholders will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Article 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date
hereof and the Closing Date, the Company and its Subsidiaries will:
(a) carry on in the Ordinary Course of Business
substantially as conducted heretofore and not introduce any new method of
management, operation or accounting;
(b) maintain its properties, assets and facilities,
including those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage;
(e) use their commercially reasonable best efforts to
maintain and preserve its business organization intact and use its best efforts
to retain its present management, key employees and relationships with
suppliers, customers and others having business relations with the Company or
any Subsidiary;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in
accordance with their respective terms and not enter into new or amended debt or
lease instruments, except as disclosed on Schedule 5.25, provided that debt
and/or lease instruments may be replaced if such replacement instruments are on
terms at least as favorable to the Company or Subsidiary as the instruments
being replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the
Closing Date, neither the Company nor any Subsidiary will, without the prior
written consent of Clarant:
(a) make any change in its Charter Documents;
(b) grant or issue any securities, Options, conversion
rights or commitments of any kind relating to its securities of any kind other
than in connection with the exercise of Options listed on SCHEDULE 5.3;
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(c) declare or pay any dividend, or make any distribution
in respect of its securities whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any securities or engage in any
transaction that will significantly affect the cash reflected on the Balance
Sheet of the Company at the Balance Sheet Date;
(d) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditure, except if it is in
the Ordinary Course of Business and involves an amount not in excess of $50,000;
(e) create, assume or permit to exist any Encumbrance upon
any assets or properties whether now owned or hereafter acquired, except (i)
with respect to purchase money liens incurred in connection with the acquisition
of equipment with an aggregate cost not in excess of $10,000 necessary or
desirable for the conduct of the Business of the Company and its Subsidiaries,
(ii) (1) liens for Taxes either not yet delinquent or being contested in good
faith and by appropriate proceedings (and for which adequate reserves have been
established and are being maintained) or (2) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the Ordinary
Course of Business (the liens set forth in clause (ii) being referred to herein
as "Statutory Liens"), or (iii) liens set forth on SCHEDULE 5.11 hereto;
(f) sell, assign, lease or otherwise transfer or dispose
of any property, assets or equipment except in the Ordinary Course of Business;
(g) negotiate for the acquisition of any business or the
start-up of any new business;
(h) merge or consolidate or agree to merge or consolidate
with or into any other entity;
(i) waive any material right or claim of the Company or
any Subsidiary, provided that the Company may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to be
included on SCHEDULE 5.12 unless specifically listed thereon;
(j) commit a material breach or amend or terminate any
Material Contract to which the Company or any Subsidiary is a party or as to
which it is a beneficiary;
(k) enter into any other transaction outside the Ordinary
Course of Business or prohibited hereunder;
(l) except in the Ordinary Course of Business or as
required by Law or contractual obligations or other understandings or
arrangements existing on the date hereof, neither the Company nor any Subsidiary
will (A) increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of the officers,
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directors or employees engaged in the Company's or any Subsidiary's Business,
(B) pay or agree to pay any additional pension, retirement allowance or other
employee benefit to any such officers, directors or employee, whether past or
present, (C) enter into any new employment, severance, consulting, or other
compensation agreement with any existing officers, directors or employee engaged
in the Company's or any Subsidiary's Business, (D) amend or enter into a new
Plan or Other Benefit Obligation (except as required by Law) or amend or enter
into a new collective bargaining agreement (except as required by this
Agreement), or (E) engage in any Affiliate Transactions;
(m) make or change any Tax election, amend any Tax Return
or take or omit to take any other action not in the Ordinary Course of Business
and consistent with past practice that would have the effect of increasing any
Taxes of Clarant, the Company or any Subsidiary for any Taxable Period ending
after the Closing Date; or
(n) without the express prior written consent of Clarant,
amend, modify, repeal or otherwise alter the approvals of the Company's board of
directors or by the Company's stockholders attached hereto as EXHIBIT 5.2.
7.4 NO SHOP. In consideration of the substantial expenditure of time,
effort and expense undertaken by Clarant in connection with its due diligence
review and the preparation and execution of this Agreement, the Company and the
Stockholders agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (a)
the termination of this Agreement or (b) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the Company or any Subsidiary) any
acquisition proposal relating to or affecting the Company or any Subsidiary or
any part of it, or any direct or indirect interests in the Company, whether by
purchase of assets or stock, purchase of interests, merger or other transaction,
and further agree that the Company will promptly advise Clarant of the terms of
any communications any of the Stockholders or the Company may receive or become
aware of relating to any bid for all or any part of the Company or any
Subsidiary.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
deliver to Clarant at the Pre-Closing, any and all proof that any such required
notice has been sent.
7.6 AGREEMENTS. On or prior to the Closing Date and effective as of the
Effective Time, the Company shall cause the termination of and obtain a written
waiver of rights from any beneficiary under (and shall deliver evidence of such
terminations and waivers to Clarant prior to Closing) (a) all Securities
Agreements, (b) any employment agreements between the Company and any employee
who is listed on SCHEDULE 9.11 hereto, and (c) any existing agreement between
the Company and any Stockholders or other security holders.
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7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Stockholders and the Company shall give prompt
notice to Clarant of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect; (ii) any material failure of
any Stockholder or the Company to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by such Person hereunder and (iii)
the exercise by any Person of any Option or Convertible Security listed on
SCHEDULE 5.3 or any enforceable request for the Company to purchase, redeem or
otherwise acquire any of its Company Stock, Convertible Securities or Options;
(b) Clarant and Newco shall give prompt notice to the
Company of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Clarant or Newco contained herein to be untrue or inaccurate in any material
respect and (ii) any material failure of Clarant or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder;
(c) The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.11 (ii) modify the conditions set forth in Articles 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
(a) The Company and Stockholders shall furnish or cause to
be furnished to Clarant and the Underwriters all of the information concerning
the Company and the Stockholders requested by Clarant or the Underwriters for
inclusion in, and will cooperate with Clarant and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholders agree promptly to
advise Clarant if at any time during the period in which a prospectus relating
to the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholders contains any untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and to provide the information needed to
correct such inaccuracy. Insofar as the information relates solely to the
Company or the Stockholders, the Company represents and warrants as to such
information with respect to itself and its Subsidiaries, and each Stockholder
represents and warrants, as to such information with respect to the Company and
himself or herself, that the Registration Statement at its effective date, at
the date of the final Prospectus, each preliminary
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prospectus and each amendment to the Registration Statement, and at each closing
date with respect to the IPO under the Underwriting Agreement (including with
respect to any over-allotment option) will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(b) Clarant agrees that it will use its commercially
reasonable best efforts to provide to the Company and its counsel copies of
drafts of the Registration Statement as they are prepared and to give the
Company and the Stockholders a reasonable period of time to review and comment
upon such documents prior to filing with the SEC. Any objections posed by the
Company or its counsel shall be in writing and state with specificity the
material in question, the reason for the objection, and the Company's and the
Stockholders' proposed alternative. If the objection is founded upon a rule
promulgated under the Securities Act, the objection shall cite the rule.
Notwithstanding the foregoing, during the three business days immediately
preceding the date scheduled for the effective date of the IPO, the Company and
the Stockholders agree that two hours from the time the proposed changes are
transmitted to the Company's counsel is sufficient time to review and respond to
proposed changes.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited consolidated Balance Sheets of the Company as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated income statements, statements of cash flows and retained earnings
of the Company for all fiscal quarters ended after the Balance Sheet Date. Such
Financial Statements shall have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated and in a manner consistent
with the Financial Statements (except as noted therein). Except as noted in such
Financial Statements, all of such Financial Statements will present fairly the
results of operations of the Company for the periods indicated thereon.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.11 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation, until 24 hours prior
to the anticipated effectiveness of the Registration Statement, to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules, provided
however, that supplements and amendments to Schedules 5.11 (Liabilities and
Obligations), 5.12 (Accounts and Notes Receivable) and 5.22 (Significant
Customers; Material Contracts and Commitments) must be delivered only at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the Ordinary Course of Business; and further provided
that all
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matters identified by the Company or the Stockholders on any Schedule supplement
or amendment shall also be included on Schedule 11.1(f). Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the Company may be made unless Clarant and a majority
of the Founding Companies other than the Company consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant or Newco that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on Clarant and Newco may be made
unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.11. In the event that one of
the Other Founding Companies seeks to amend or supplement a Schedule pursuant to
this Section 7.11 of one of the Other Agreements, and such amendment or
supplement constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on such Other Founding Company, Clarant shall give the
Company notice promptly after it has knowledge thereof. If Clarant and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Clarant or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(e). In the event
that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.11, and Clarant and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(a). No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.12 THIRD PARTY APPROVALS. Prior to the Closing Date, the
Company and its Subsidiaries shall satisfy any requirement for notice and
approval of the transactions contemplated by this Agreement under applicable
agreements with third parties, including any contract with any Governmental
Authority.
7.13 HSR FILING. To the extent the Merger is a transaction
subject to the filing requirements of the HSR Act, each of the Company, the
Stockholders and Clarant shall use its commercially reasonable best efforts to
(a) file all information required to be filed by it pursuant to the HSR Act and
(b) provide the other party with all information reasonably requested and
required by it to satisfy any filing requirements it may have under the HSR Act.
7.14 AUTHORIZED CAPITAL STOCK. Through the Closing Date,
Clarant shall maintain its authorized capital stock as set forth in the
Registration Statement filed with the SEC except for such changes as are made to
respond to comments made by the SEC or requirements of any
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exchange or automated trading system for which application is made to register
the Clarant Common Stock.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Article 8, on the Closing Date are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Article 8. As of the Pre-Closing Date or
the Closing Date, as the case may be, all conditions not satisfied shall be
deemed to have been waived by the Company and the Stockholders unless such
parties have objected by notifying Clarant in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of Clarant and Newco contained in
Article 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Clarant and Newco contained in Article 6 shall be true and correct
in all material respects as of the Pre-Closing Date and the Closing Date as
though such representations and warranties had been made as of that time; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President, any Vice President or the Secretary of Clarant
shall have been delivered to the Stockholders.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants
and conditions of this Agreement to be complied with and performed by Clarant
and Newco on or before each of the Pre-Closing Date and the Closing Date shall
have been duly complied with and performed in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and
certificates to the foregoing effect dated each of the Pre-Closing Date and the
Closing Date and signed by the President, any Vice President or the Secretary of
Clarant shall have been delivered to the Stockholders.
8.3 NO LITIGATION. No Action or Proceeding before a court or
any other governmental agency or body shall have been instituted or Threatened
to restrain or prohibit the Merger or the IPO and no Governmental Authority
shall have taken any other action with respect to the transactions hereunder
which would have a Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Company shall have received an
opinion from counsel for Clarant, dated the Pre-Closing Date, in form and
substance of the type customarily given by counsel to an acquiring company in
transactions similar to that contemplated by this Agreement and acceptable to
the Company (and the Underwriters shall have received a copy of the same opinion
addressed to them) and at the Closing, the Company shall have received a
statement from such counsel that the opinion is true as of the Closing Date.
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8.5 REGISTRATION STATEMENT. The Registration Statement shall
have been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
therefor shall have been instituted or shall be pending or contemplated under
the 1933 Act, and the Underwriters shall have agreed to acquire on a firm
commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of Clarant Common Stock for a price no lower than the minimum
price specified in EXHIBIT 2.1(a).
8.6 CONSENTS AND APPROVALS. All necessary consents of and
filings required to be obtained or made by Clarant or Newco with any
Governmental Authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. Clarant and Newco each shall
have delivered to the Company a certificate, dated as of a date no earlier than
ten (10) days prior to the Pre-Closing Date, duly issued by the Delaware
Secretary of State and in each state in which Clarant or Newco is authorized to
do business, showing that each of Clarant and Newco is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for Clarant and Newco, respectively, for all periods prior to the
Closing have been filed and paid.
8.8 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of Clarant and of Newco, certifying the truth and
correctness of attached copies of the Clarant's and Newco's respective
Certificates of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the boards of directors and, if
required, the Stockholders of Clarant and Newco approving Clarant's and Newco's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
8.9 HSR ACT. The waiting period applicable to the consummation
of the transaction contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
8.10 CLOSING OF THE IPO. The Closing of the sale of the
Clarant Common Stock to the Underwriters in the IPO shall have occurred
simultaneously with the Closing Date hereunder.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on
SCHEDULE 9.11 shall have been afforded the opportunity to enter into an
employment agreement substantially in the form of EXHIBIT 8.11.
8.12 LISTING. Clarant shall cause the Clarant Common Stock to
be listed on the NASDAQ National Stock Market, subject to official notice of
issuance.
8.13 TAX OPINION. Clarant shall have received an opinion upon
which the Company and the Stockholders will be entitled to rely (the "Tax
Opinion") from Wilmer, Cutler & Pickering, tax counsel for Clarant, or such
other tax counsel reasonably acceptable to Clarant and
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the Company ("Tax Counsel") that the Clarant Plan of Organization will qualify
as a tax-free transfer of property under Section 351(a) of Code and that the
Stockholders will not recognize gain to the extent the Stockholders exchange
common stock of the Company for Clarant Common Stock (but not cash or other
property) pursuant to the Clarant Plan of Organization, and in rendering such
Tax Opinion Tax Counsel shall be entitled to rely on customary written
representations acceptable to Tax Counsel and received from (i) Clarant, (ii)
the Company, (iii) each Other Founding Company, and (iv) each Stockholder and
each contributor, stockholder or member of the Other Founding Companies who will
receive Clarant Common Stock under the Clarant Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO
The obligations of Clarant and Newco with respect to actions to be
taken on the Pre-Closing Date and, on the Closing Date, are subject to the
satisfaction or waiver on or prior to the Pre-Closing Date and/or the Closing
Date, as the case may be, of all of the conditions set forth in this Article 9.
As of the Pre-Closing Date or the Closing Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by Clarant and
Newco unless such parties have objected by notifying the Company and the
Stockholders in writing of such objection on or before the Pre-Closing Date or
consummation of the transactions on the Closing Date, respectively, except that
no such waiver shall be deemed to affect the survival of the representations and
warranties of the Company and the Stockholders contained in Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All the representations
and warranties of the Stockholders and the Company contained in this Agreement
shall be true and correct in all material respects as of the Pre-Closing Date
and the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date; and the Stockholders shall have
delivered to Clarant certificates dated the Pre-Closing Date and the Closing
Date and signed by them to such effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants
and conditions of this Agreement to be complied with or performed by the
Stockholders and the Company on or before each of the Pre-Closing Date and the
Closing Date shall have been duly performed or complied with in all material
respects on or before each of the Pre-Closing Date and the Closing Date, as the
case may be; and the Stockholders shall have delivered to Clarant certificates
dated the Pre-Closing Date and the Closing Date, respectively, and signed by
them to such effect.
9.3 NO LITIGATION. No Action or Proceeding before a court or
any other Governmental Authority or body shall have been instituted or
Threatened to restrain or prohibit the Merger or the IPO and no Governmental
Authority or body shall have taken any other action or made any request of
Clarant as a result of which the management of Clarant deems it inadvisable to
proceed with the transactions hereunder.
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9.4 [Reserved]
9.5 NO MATERIAL ADVERSE EFFECT. As of the Pre-Closing Date and
as of the Closing Date, no event or circumstance shall have occurred which would
constitute a Material Adverse Effect.
9.6 TERMINATION OF RELATED PARTY AGREEMENTS. All existing
agreements between the Company and the Stockholders shall have been canceled
effective prior to or as of the Closing Date and the Company shall have obtained
all of the terminations and waivers required under Section 7.6.
9.7 OPINION OF COUNSEL. Clarant shall have received an opinion
from the Company's General Counsel and, with respect to the agreements
contemplated hereby, Fulbright & Jaworski 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.
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9.12 CLOSING OF IPO. The closing of the sale of the Clarant
Common Stock to the Underwriters in the IPO shall have occurred simultaneously
with the Closing Date hereunder.
9.13 FIRPTA CERTIFICATE. Each Stockholder shall have delivered
to Clarant a certificate to the effect that he or she is not a foreign Person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
9.14 [Reserved]
9.15 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to Clarant.
9.16 HSR ACT. The waiting period applicable to the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
9.17 INVESTOR QUESTIONNAIRE. Each Stockholder shall have
provided an executed Investor Questionnaire in the form of EXHIBIT 5.29(b).
9.18 THE STOCKHOLDERS' RELEASE. The Stockholders shall have
delivered to Clarant and the Company an instrument dated the Closing Date
releasing Clarant and the Company (including all subsidiaries) from (i) any and
all claims of the Stockholders against the Company and Clarant and (ii) any and
all obligations of the Company and Clarant to the Stockholders, except for (x)
any obligations arising after the Closing Date to a Stockholder relating to his
or her employment by the Company or Clarant and (y) obligations arising under
this Agreement or the transactions contemplated hereby.
9.19 COMPANY AND STOCKHOLDER REPRESENTATIONS. The Company and
the Stockholders receiving Clarant Common Stock shall have provided Tax Counsel
with the written representations requested pursuant to Section 8.14.
10. COVENANTS OF CLARANT AND THE STOCKHOLDERS AFTER CLOSING
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Closing
Date, Clarant shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization.
10.2 TAX MATTERS.
(a) Clarant shall prepare or cause to be prepared and file or
cause to be filed all Returns that are required to be filed with respect to the
Company and the Subsidiaries (i) for Taxable Periods ending on or before the
Closing Date that are due after the Closing Date (other
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than Returns of any Relevant Group of which the Company is not the common
parent), and (ii) for Taxable Periods beginning on or before and ending after
the Closing Date ("Straddle Periods"). All such Returns shall be prepared on a
basis consistent with past Returns of the Company and the Subsidiaries unless
otherwise required by applicable law.
(b) Upon the latter of (i) five (5) business days
following the receipt of a request therefor or (ii) five (5) business days prior
to the due date of any payment to the relevant Taxing Authority, or (iii) five
(5) business days following resolution of any dispute covered by Section
10.2(c), the Stockholders shall pay to Clarant all Taxes shown as due on the Tax
Returns prepared and filed pursuant to Section 10.2(a) that relate to a
Pre-Closing Period to the extent that such Taxes exceed the reserves for such
Taxes (excluding any reserves for deferred Taxes) set forth on the financial
statements provided pursuant to Section 5.10.
(c) Any federal or state income Tax Returns prepared by
Clarant pursuant to Section 10.2(a) shall be delivered to the Stockholders at
least 30 days before the due date of such Return including any extension. If the
Stockholders reasonably object in writing to any material item on such Return at
least 10 days before their due date, the parties shall reasonably negotiate to
resolve such dispute. If such dispute cannot be resolved within 10 days of the
receipt by the Company of such written notice, (i) the Company may in its sole
discretion file such Return and (ii) the dispute shall be referred to a national
independent accounting firm agreeable to the parties for resolution. The party
whose position is not adopted in such resolution by an independent accounting
firm shall pay all expenses of the successful party in resolving the dispute.
(d) For purposes of apportioning any Taxes to the portion
of a Straddle Period that ends on the Closing Date, the determination shall be
made based on a closing of the books as of the close of the Closing Date;
provided, that real property, personal property and intangible property Taxes
shall be apportioned ratably on a daily basis between the portions of the
Straddle Period in question.
(e) Each party hereto shall, and shall cause its
Subsidiaries and Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for Taxes or
a right to refund of Taxes or in conducting any Tax Proceeding. Such cooperation
and information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and relevant
work papers, relevant documents relating to rulings or other determinations by
Taxing Authorities and relevant records concerning the ownership and Tax basis
of property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
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(f) Each of the Company, Newco, Clarant and each
Stockholder shall comply with the tax reporting requirements of Section 1.351-3
of the Treasury Regulations promulgated under the Code, and shall treat the
transaction as a transfer of property under Section 351(a) of the Code.
10.3 DIRECTORS AND OFFICERS. The Persons named in the
Registration Statement shall be elected as directors and elected as officers of
Clarant, as and to the extent set forth in the Registration Statement.
10.4 [Reserved]
10.5 RELEASE OF GUARANTEES. Clarant shall use its commercially
reasonable best efforts to effect the release promptly after the Closing Date of
the personal guarantees of the debt and leases of the Company reflected on the
Financial Statements made by the Stockholders.
10.6 [RESERVED]
10.7 DIRECTORS' AND OFFICERS' INSURANCE. Clarant and the
Surviving Corporation shall use their commercially reasonable best efforts to
maintain for not less than four years from the Effective Time the policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries as of the date hereof to the extent set forth on SCHEDULE 10.7,
provided that Clarant and the Surviving Corporation may substitute policies of
at least equivalent coverage containing terms and conditions no less
advantageous to those covered in all material respects so long as no lapse in
coverage occurs as a result of such substitution, and covering the time period
before and up to the Effective Time. If a claim is asserted or made within the
four year period contemplated by this Section 10.7, Clarant and the Surviving
Corporation shall use their commercially reasonable best effects to cause such
insurance to be continued until final resolution of any such pending claim.
Schedule 10.7 sets forth a summary description of all such policies, including
premium rates.
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY STOCKHOLDERS. Subject to the
limitations of Section 11.11, the Stockholders shall jointly and severally
indemnify, defend and hold harmless Clarant, Newco, the Company, and the
Surviving Corporation and their respective officers, directors, employees,
agents, representatives and Affiliates (other than the Stockholders) (each, a
"Clarant Indemnified Party"), at all times from and after this Agreement
harmless from and against, and promptly pay to a Clarant Indemnified Party or
reimburse a Clarant Indemnified Party for, any and all liabilities, obligations,
deficiencies, demands, claims, suits, actions, or causes of action, assessments,
losses, costs, expenses, filing fees, interest, fines, penalties, or damages or
costs or expenses of any and all investigations, proceedings (including appeals,
arbitration and mediation), judgments, environmental analyses, remediations,
settlements and compromises (in cluding reasonable fees and expenses of
attorneys, accountants and other experts) (individually
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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
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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
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Indemnifying Party such assistance and materials as may be reasonably requested
by it, all at the expense of the Indemnifying Party, and the Indemnified Party
shall have the right at its expense to participate in the defense assisted by
counsel of its own choosing, provided that the Indemnified Party shall have the
right to compromise and settle the Claim only with the prior written consent of
the Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party Claim
or cease to defend against such Claim, if pursuant to or as a result of such
settlement or cessation, (i) injunctive or other equitable relief would be
imposed against the Indemnified Party, or (ii) such settlement or cessation
would lead to liability or create any financial or other obligation on the part
of the Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder. The Indemnifying Party shall not be entitled to
control, and the Indemnified Party shall be entitled to have sole control over,
the defense or settlement of any Claim to the extent that Claim seeks an order,
injunction or other equitable relief against the Indemnified Party which, if
successful, could materially interfere with the Business, assets, properties
condition (financial or otherwise) or prospects of the Indemnified Party (and
the cost of such defense shall constitute an Loss for which the Indemnified
Party is entitled to indemnification hereunder). If a firm decision is made to
settle a Third Party Claim, which offer the Indemnifying Party is permitted to
settle under this Section 11.3 and the Indemnifying Party desires to accept and
agree to such offer, the Indemnifying Party will give written notice to the
Indemnified Party to that effect. If the Indemnified Party fails to consent to
such firm offer within thirty (30) calendar days after its receipt of such
notice, the Indemnified Party may continue to contest or defend such Third Party
Claim and, in such event, the maximum liability of the Indemnifying Party as to
such Third Party Claim will not exceed the amount of such settlement offer, plus
costs and expenses paid or incurred by the Indemnified Party through the end of
such thirty (30) day period.
(d) Any judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
11.4 TAX CONTESTS.
(a) If any party receives written notice from any
Governmental Authority of a Tax Proceeding with respect to any Tax for which the
other party is obligated to provide indemnification under this Agreement, such
party shall within sixty (60) days thereof give written notice to the other
party (or within such shorter time as may be necessary to give the Indemnifying
Party a reasonable opportunity to respond to such notice); provided, however,
that the failure to give such notice shall not affect the indemnification
provided hereunder except to the extent that the failure to give such notice
materially prejudices the Indemnifying Party as provided in Section 11.6.
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(b) Upon written notice to Clarant within thirty (30) days
after receipt of notification pursuant to Section 11.4(a), the Stockholders
shall have the right, at their own expense, to control and make all decisions
with respect to any Tax Proceeding relating to Taxes of the Company or any
Subsidiary for any Taxable Period ending on or before the Closing Date. Clarant
shall have the right to approve the counsel selected by the Stockholders to
conduct any such Tax Proceeding, which approval shall not be unreasonably
withheld, and to participate fully at its own expense with counsel of its own
choosing in all aspects of the prosecution or defense of such Tax Proceeding.
The Stockholders shall not take any action or position in any such Tax
Proceeding if that action or position could reasonably be expected to increase
the past, present or future Tax liability of Clarant or any of its Affiliates,
or any Tax liability of the Company or any Subsidiary for any Taxable Period or
portion thereof beginning after the Closing Date without the prior written
consent of Clarant, which consent shall not be unreasonably withheld. The
Stockholders shall not settle or otherwise terminate any such Tax Proceeding
without the prior written consent of Clarant, which consent shall not be
unreasonably withheld.
(c) Upon written notice to Clarant within thirty (30) days
after receipt of notification pursuant to Section 11.4(a), the Stockholders
shall have the right, at their own expense, to jointly control and participate
with Clarant in the conduct of any Tax Proceeding relating to Taxes of the
Company or any Subsidiary for a Straddle Period. If Sellers exercise such right,
neither party shall settle or otherwise terminate any such Tax Proceeding
without the prior written consent of the other, which consent shall not be
unreasonably withheld.
(d) If the Stockholders do not exercise their right to
assume control of or participate in any Tax Proceeding as provided under this
Section 11.4, Clarant may defend or settle the same in such manner as it may
deem appropriate in its sole and absolute discretion, without in any way
limiting its rights of indemnification hereunder.
(e) Except as otherwise provided in this Section 11.4,
Clarant shall control all Tax Proceedings relating to Taxes and Tax Returns of
the Company and the Subsidiaries.
(f) In the event that the provisions of this Section 11.4
and the provisions of Section 11.3 hereof conflict or otherwise each apply by
their terms, this Section 11.4 shall exclusively govern all matters concerning
Tax Proceedings.
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim may be asserted
by giving the Indemnifying Party reasonably prompt written notice thereof, and
the Indemnifying Party will have a period of thirty (30) calendar days within
which to satisfy such Direct Claim. If the Indemnifying Party does not so
respond within such thirty (30) calendar day period, the Indemnifying Party will
be deemed to have rejected such Direct Claim, in which event the Indemnitee will
be free to pursue such remedies as may be available to the Indemnitee under this
Article 11.
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11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an
Indemnified Party to give timely, complete or accurate notice as provided in
Sections 11.3, 11.4 and 11.5 will not affect the rights or obligations of any
party hereunder except and only to the extent that, as a result of such failure,
any party entitled to receive such notice was deprived of its right to recover
any payment under its applicable insurance coverage or was otherwise directly
and materially damaged as a result of such failure to give timely notice.
11.7 REDUCTION OF LOSS. To the extent any Loss of an
Indemnified Party is reduced by receipt of payment (a) under insurance policies
which are not subject to retroactive adjustment or other reimbursement to the
insurer in respect of such payment, or (b) from third parties not Affiliated
with the Indemnified Party, such payments (net of the expenses of the recovery
thereof) (such net payment being referred to herein as a "Reimbursement") shall
be credited against such Loss; provided, however, (x) the pendency of such
payments shall not delay or reduce the obligation of the Indemnifying Party to
make payment to the Indemnified Party in respect of such Loss, and (y) the
Indemnified Party shall have no obligation, hereunder or otherwise, to pursue
payment under or from any insurer or third party in respect of such loss. If any
Reimbursement is obtained subsequent to payment by an Indemnifying Party in
respect of a Loss, such Reimbursement shall be promptly paid over to the
Indemnifying Party.
11.8 SUBROGATION. The Indemnifying Party shall be subrogated
to the Indemnified Party's rights of recovery to the extent of any Loss
satisfied by the Indemnifying Party. The Indemnified Party shall execute and
deliver such instruments and papers as are necessary to assign such rights and
assist in the exercise thereof, including access to books and records of the
Acquired Party.
11.9 ARBITRATION. Excluding the right of a party to seek
injunctive relief, all claims (pursuant to Federal or state statutes or by
common law), controversies, differences or disputes between Clarant or Newco and
the Stockholders arising out of or relating to this Agreement or related or
referenced exhibits or the alleged breach thereof including, but not limited to,
indemnification claims under Sections 11.1 and/or 11.2 shall be settled by
arbitration in accordance with the rules then in effect of the American
Arbitration Association at the time of the dispute. After an award is rendered
by the arbitrator(s), a judgment may be entered in any court of competent
Jurisdiction. The arbitration shall occur in Dallas, Texas to the exclusion of
all other locations. The arbitrators cannot add to or subtract from the terms of
this Agreement. The parties agree that the arbitrators may include provisions
for the payment of costs and expenses, including reasonable attorneys' fees as
part of any ruling or award made thereunder. The parties acknowledge that
arbitration shall be the sole, final, binding and exclusive remedy of the
parties with respect to any such matter for which arbitration is undertaken
hereunder. In preparation for the arbitration process described herein, the
parties shall be given at least one hundred twenty (120) days for discovery and
each party may utilize all methods of discovery authorized by the procedural
rules and statutes of the State of Texas for civil litigation and may enforce
the right to obtain such discovery in the manner provided by such rules and
statutes.
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11.10 EXCLUSIVE REMEDY. Except as provided in Section 11.11(d)
or Section 14.3 of this Agreement, the indemnification provided for in this
Article 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any party
to this Agreement against another party; provided, however, that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement or to seek relief for a breach
of any employment agreement with, or any security issued by, Clarant.
11.11 LIMITATION AND EXPIRATION. Notwithstanding the foregoing
provisions of this Article 11:
(a) with respect to the indemnification obligations of the
Stockholders under Section 11.1 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Clarant
Indemnified Parties exceeds one percent (1%) of the Merger Consideration (the
"Indemnification Threshold"); which Indemnification Threshold shall be treated
as a deductible; PROVIDED, HOWEVER, that the Indemnification Threshold shall not
apply to (w) Losses arising out of breaches of the covenants of the Stockholders
set forth in this Agreement to be performed after the Closing Date or the
representations and warranties made in Sections 5.3 (capital stock of the
Company), 5.17 (employee benefits), and 5.24 (taxes), (x) Losses described in
Section 11.1(c), (y) Losses arising out of intentional fraud; or (z) any matters
identified on SCHEDULE 11.1(f); and
(ii) the aggregate amount of the Stockholders'
liability under this Article 11 shall not exceed the Merger Consideration; and
(b) the indemnification obligations of the Stockholders
under Section 11.1, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 11.11(b):
(i) (A) with respect to claims arising out of
breaches of the representations and warranties made in Sections 5.17 (employee
benefits), 5.19 (environment) and 5.24 (taxes) or Losses described in clause (c)
of Section 11.1, the date that is six (6) months after the expiration of the
longest applicable federal or state statute of limitation (including extensions
thereof);
(B) with respect to all claims other than those
referred to in clause (i)(A) of this Section 11.11(b), eighteen (18) months
after the Effective Time; or
(ii) the final resolution of claims or demands pending
as of the relevant dates described in clause (i) of this Section 11.11(b);
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(c) with respect to the indemnification obligations of
Clarant under Section 11.2 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Stockholders
exceeds the Indemnification Threshold; PROVIDED, HOWEVER, that the
Indemnification Threshold shall not apply to Losses arising out of breaches of
the covenants of Clarant set forth in this Agreement to be performed after the
Closing Date or the representations and warranties made in Section 6.5 (capital
stock) and 6.15 (taxes), (y) Losses described in Section 11.2(c), or (z) Losses
arising out of intentional fraud; and
(ii) the aggregate amount of Clarant's liability under
this Article 11 shall not exceed the Merger Consideration.
(d) Indemnity obligations hereunder may be satisfied
through the payment of cash or the delivery of Clarant Common Stock, or a
combination thereof. For purposes of calculating the value of the Clarant Common
Stock received or delivered by the Stockholder (for purposes of determining the
Indemnification Threshold and the amount of any indemnity paid), Clarant Common
Stock shall be valued at its fair market value, which shall be the average
closing price for Clarant Common Stock on the Nasdaq National Market System for
the ten days immediately prior to the date of payment.
(e) Notwithstanding any other term of this Agreement, a
Stockholder's liability under this Article 11 shall be limited to the total
amount of proceeds received or payable to the Stockholder under this Agreement,
which total shall be equal to the sum of (i) the cash paid to the Stockholder
(ii) the Contingent Consideration, if any, earned and payable to such
Stockholder (iii) the Additional Contingent Consideration, if any, earned and
payable to such Stockholder and (iv) the value of the Clarant Common Stock
delivered to such Stockholder on the Closing Date at the IPO price.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS.
All representations, warranties and covenants made by the Company, the
Stockholders and Clarant in or pursuant to this Agreement or in any document
delivered pursuant hereto shall be deemed to have been made on the date of this
Agreement (except as otherwise provided herein) as of the Pre-Closing Date and,
if a Closing occurs, as of the Closing Date. The representations and warranties
of the Company and the Stockholders will survive the Closing and will remain in
effect until, and will expire upon, the termination of the indemnification
obligations as provided in Section 11.11(b). The representations and warranties
of Clarant will survive the Closing and will remain in effect until, and will
expire upon, the Clarant Expiration Date.
12. TERMINATION OF AGREEMENT
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12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date solely: (a) by mutual consent written consent of the
boards of directors of Clarant and the Company; (b) by either the Stockholders
or the Company (acting through its Stockholders), on the one hand, or by Clarant
(acting through its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not have been
consummated by December 31, 1999, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date; (c) by the
Stockholders or the Company, on the one hand, or by Clarant, on the other hand,
after giving written notice to the other party that a breach or default of any
representation, warranty, or covenant contained in this Agreement which breach
has had or is reasonably foreseeable as having a Material Adverse Effect on the
Company or Clarant, as the case may be, has occurred and such breach has not
been cured on or before the Closing Date; (d) by the Company (acting through its
board of directors) if, by June 30, 1999. Clarant shall not have filed an
initial registration statement with the SEC reflecting an IPO price for Clarant
Common Stock of $11.00 per share; or (e) pursuant to Section 7.11 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. The termination of
this Agreement will in no way limit any obligation or liability of any party
based on or arising from a breach or default by such party with respect to any
of its representations, warranties, covenants or agreements contained in this
Agreement including, but not limited to, legal and audit costs and out of pocket
expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES.
(a) Except for those specified permitted activities set forth
on SCHEDULE 13.1, the Stockholders will not, for a period of three (3) years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other Person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder,
option holder, lender, owner, partner, joint venturer, or in a managerial
capacity, whether as an employee, independent contractor, consultant or advisor,
or as a sales representative, in any business that is engaged in the Business,
anywhere in the United States or Canada (the "Territory") ;
(ii) call upon any Person who is, at that time, within
the Territory, an employee of Clarant (including the subsidiaries thereof) in a
sales representative or managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of Clarant (including
the subsidiaries thereof), provided that each Stockholder shall be permitted to
call upon and hire any member of his or her immediate family;
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(iii) call upon any Person which is, at that time, or
which has been, within one (1) year prior to the Closing Date, a customer of
Clarant (including the subsidiaries thereof), of the Company or any Subsidiary
or of any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with Clarant
within the Territory;
(iv) call upon any prospective acquisition candidate,
on any Stockholder's behalf or on behalf of any competitor of Clarant, which
candidate, to the actual knowledge of such Stockholder after due inquiry, was
called upon by Clarant (including the subsidiaries thereof) or for which, to the
actual knowledge of such Stockholder after due inquiry, Clarant (or any
subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
(v) disclose customers, whether in existence or
proposed, of the Company to any Person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
(b) Notwithstanding Section 13.1(a) the foregoing covenant shall not be
deemed to prohibit any Stockholder from acquiring as an investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter so long as the
Stockholder does not consult with or is not employed by such competitor.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to Clarant as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Clarant for
which it would have no other adequate remedy, each Stockholder agrees that, in
the event of breach by such Stockholder, the foregoing covenant may be enforced
by Clarant by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto
that the foregoing covenants in this Article 13 impose a reasonable restraint on
the Stockholders in light of the activities and business of Clarant (including
the subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Clarant; but it is also the intent of Clarant and the
Stockholders that such covenants be construed and enforced in accordance with
the changing activities and business of Clarant (including the subsidiaries
thereof) throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Stockholder who has entered into an employment agreement with Clarant and/or any
subsidiary thereof as set forth in Sections 8.10 and 9.12 hereto, shall
thereafter cease to be employed thereunder, and such Stockholder shall enter
into a business or pursue other activities not in competition with Clarant
and/or any subsidiary thereof, or similar activities or business in locations
the operations of
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which, under such circumstances, does not violate this Article 13 and in any
event such new business, activities or location are not in violation of this
Article 13 or such Stockholder's obligations under this Article 13, such
Stockholder shall not be chargeable with a violation of this Article 13 if
Clarant and/or any subsidiary thereof shall thereafter enter the same, similar
or a competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Article
13 are severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this
Article 13 shall be construed as an agreement independent of any other provision
in this Agreement, and the existence of any claim or cause of action of any
Stockholder against Clarant (including the subsidiaries thereof), whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Clarant of such covenants. It is specifically agreed that the
period of three (3) years stated at the beginning of this Article 13, during
which the agreements and covenants of each Stockholder made in this Article 13
shall be effective, shall be computed by excluding from such computation any
time during which such Stockholder is in violation of any provision of this
Article 13. The covenants contained in Article 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby
agree that this covenant is a material and substantial part of this transaction
and that it is supported by adequate consideration.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge
that they had in the past, currently have, and in the future may have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Clarant, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Clarant's respective businesses. The Stockholders agree that
they will not disclose such confidential information to any Person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Clarant or the Other Founding
Companies who need to know information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby, (b) following the Closing, such information may be disclosed by
the Stockholders as is required in the course of performing their duties for
Clarant or the Surviving Corporation and (c) to counsel
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and other advisers, provided that such advisers (other than counsel) agree to
the confidentiality provisions of this Section 14.1, unless (i) such information
becomes known to the public generally through no fault of any such Stockholders,
(ii) disclosure is required by law or the order of any Governmental Authority
under color of law, provided, that prior to disclosing any information pursuant
to this clause (ii), the Stockholders shall give prior written notice thereof to
Clarant and provide Clarant with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Stockholders of the
provisions of this Article 14, Clarant shall be entitled to an injunction
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Clarant from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, the Stockholders shall have
none of the above-mentioned restrictions on their ability to disseminate
confidential information with respect to the Company.
14.2 CLARANT AND NEWCO. Clarant and Newco recognize and
acknowledge that they had in the past and currently have access to certain
confidential information of the Company, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
Company's business. Clarant and Newco agree that, prior to the Closing, or if
the transactions contemplated by this Agreement are not consummated, they will
not disclose such confidential information to any Person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the Stockholders and to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisors (other than counsel)
agree to the confidentiality provisions of this Section 14.2 and (c) to the
Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of Clarant or Newco, (ii) disclosure is required by law or the order of
any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), Clarant and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party. In the event of a breach or threatened breach by
Clarant or Newco of the provisions of this Section, the Company and the
Stockholders shall be entitled to an injunction restraining Clarant and Newco
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Sections 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing
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covenants, the covenant may be enforced against the other parties by injunctions
and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this
Article 14 shall survive the termination of this Agreement for a period of five
years from the Closing Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Subject in all cases to compliance
with applicable federal and state securities laws, and in no case earlier than
twelve (12) months following the Closing Date, unless Clarant in its sole
discretion shall consent otherwise, except pursuant to Article 17 hereof,
gratuitous transfers to not-for-profit third parties and transfers to immediate
family members, in each case who agree to be bound by the restrictions set forth
in this Section 15.1 (or trusts for the benefit of the Stockholders or their
immediate family members, the trustees of which so agree), none of the
Stockholders shall (a) sell, assign, exchange, transfer, Encumber, pledge,
distribute, appoint or otherwise dispose of (i) any shares of Clarant Common
Stock received by the Stockholders in the Merger or (ii) any interest
(including, without limitation, an option to buy or sell) in any such shares of
Clarant Common Stock, in whole or in part, and no such attempted transfer shall
be treated as effective for any purpose; or (b) engage in any transaction,
whether or not with respect to any shares of Clarant Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of Clarant Common Stock acquired pursuant to Article 2 hereof
(including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the Stockholders may encumber or pledge any of such shares of Clarant
Common Stock provided the pledgee or other beneficiary of such encumbrance or
pledge agrees to be bound by the provisions of this Section as if a Stockholder
and party hereto. The certificates evidencing the Clarant Common Stock delivered
to the Stockholders pursuant to Article 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Clarant may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
(PROVIDED, HOWEVER, THAT SUCH SHARES MAY BE ENCUMBERED OR PLEDGED
PROVIDED THE PLEDGEE OR OTHER BENEFICIARY OF SUCH ENCUMBRANCE OR PLEDGE
AGREES TO BE BOUND BY THE PROVISIONS OF THESE RESTRICTIONS TO THE SAME
EXTENT AS THE HOLDER THEREOF).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
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16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. Each
Stockholder acknowledges that the shares of Clarant Common Stock delivered to
the Stockholder pursuant to this Agreement have not been and will not be
registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The Clarant Common Stock acquired by the Stockholder pursuant
to this Agreement is being acquired solely for their own respective accounts,
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of it.
16.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants
and represents that none of the shares of Clarant Common Stock issued to the
Stockholder will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC. The Clarant
Common Stock shall bear the following legend in addition to the legend required
under Article 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC., DELIVERY BY THE
HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CLARANT, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder
represents and warrants that it is able to bear the economic risk of an
investment in the Clarant Common Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and have such knowledge and
experience in financial and business matters that they are capable of evaluating
the merits and risks of the investment in the Clarant Common Stock. Each
Stockholder represents and warrants that it has had an adequate opportunity to
ask questions and receive answers from the officers of Clarant concerning any
and all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of Clarant, the plans for the operations of the business of
Clarant, the business, operations and financial condition of the Other Founding
Companies, and any plans for additional acquisitions and the like. Each
Stockholder acknowledges that it has asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to its
satisfaction. Each Stockholder represents and warrants that such Stockholder has
the requisite knowledge and experience in financial and business matters to be
capable of
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evaluating the merits and risks of this investment and is an "accredited
investor" as defined in Regulation D under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Closing Date, whenever Clarant proposes to register any Clarant Common Stock for
its own or others' account under the 1933 Act for a public offering, other than
(i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Clarant, (ii) registrations relating to
employee benefit plans and (iii) registrations relating to rights offerings made
to the stockholders of Clarant, Clarant shall give each of the Stockholders
prompt written notice of its intent to do so. Upon the written request of any of
the Stockholders given within thirty (30) days after receipt of such notice,
Clarant shall cause to be included in such registration all of the Clarant
Common Stock issued to the Stockholders pursuant to this Agreement which any
such Stockholder requests, provided that Clarant shall have the right to reduce
the number of shares included in such registration to the extent that inclusion
of such shares could, in the opinion of tax counsel to Clarant or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if Clarant is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by Persons other than Clarant is greater than the number of such
shares which can be offered without adversely affecting the offering, Clarant
may reduce pro rata the number of shares offered for the accounts of such
Persons (based upon the number of shares proposed to be sold by each such
Person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by Clarant after the IPO, such reduction shall
be made first by reducing the number of shares to be sold by Persons other than
Clarant, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 REGISTRATION PROCEDURES. All expenses incurred in
connection with the registrations under this Article 17 (including all
registration, filing, qualification, legal, printer and accounting fees, but
excluding underwriting commissions and discounts), shall be borne by Clarant. In
connection with registrations under Section 17.1, Clarant shall (i) use its
commercially reasonable best efforts to prepare and file with the SEC as soon as
reasonably practicable, a registration statement with respect to the Clarant
Common Stock and use its commercially reasonable best efforts to cause such
registration to promptly become and remain effective for a period of at least
one hundred twenty (120) days (or such shorter period during which Founding
Stockholders shall have sold all Clarant Common Stock which they requested to be
registered); (ii) use its commercially reasonable best efforts to register and
qualify the Clarant Common Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the Clarant Common Stock; and (iii)
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take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with each
registration pursuant to Sections 17.1 and 17.2 covering an underwritten
registered public offering, Clarant and each participating holder agree to enter
into a written agreement with the managing underwriters in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such managing underwriters and companies of Clarant's
size and investment stature, including indemnification provisions.
17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated
to register shares of Clarant Common Stock held by any Stockholder at any time
when the resale provisions of Rule 144(k) (or any successor provision)
promulgated under the 1933 Act are available to such Stockholder for such
shares.
17.5 MARKET STANDOFF. In consideration of the granting to the
Stockholders of the registration rights under this Article 17, each of the
Stockholders agrees that he or she will not sell, transfer or otherwise dispose
of, including without limitation through put or short sale arrangements, shares
of Clarant Common Stock in the ten (10) days prior to the effectiveness of any
registration of Clarant Common Stock for sale to the public and for up to ninety
(90) days following the effectiveness of such registration; provided that all
directors, executive officers and holders of more than five percent (5%) of the
outstanding Clarant Common Stock agree to the same restrictions; and further
provided that, with respect to the first public offering of shares of the
Clarant Common Stock within three years following the IPO, the Stockholders
shall have been afforded a meaningful opportunity to include shares in such
registration after any reduction by reason of underwriters' advice.
18. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Accredited Stockholders" shall have the meaning given to such term in
Section 2.1.
"Acquired Party" means the Company, any Subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies wholly-owned by Clarant prior to the Closing Date.
"Action" has the meaning set forth in Section 5.15.
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"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Affiliates" has the meaning set forth in Section 5.9.
"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or
any of its Subsidiaries has or may acquire any rights, (b) under which the
Company or any of its Subsidiaries has or may become subject to any obligation
or liability, or (c) by which the Company or any of its Subsidiaries or any of
the Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as EXHIBIT 1.1
hereto or with such changes therein as may be required by applicable state laws.
"Balance Sheet" means a consolidated balance sheet of the Company and
its Subsidiaries.
"Balance Sheet Date" means March 31, 1999.
"Business" has the meaning set forth in the recitals of this Agreement.
"Charter Documents" has the meaning set forth in Section 5.1.
"Claim" has the meaning set forth in Section 11.3.
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Charter Documents" has the meaning set forth in Section 6.1.
"Clarant Common Stock" has the meaning set forth in Section 6.5.
"Clarant Expiration Date" means the date that is one year from the
Effective Time.
"Clarant Indemnified Party" has the meaning set forth in
Section 11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.5.
"Clarant Stock" has the meaning set forth in Section 6.5.
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"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant to the Internal
Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Other Benefit Obligation" has the meaning set forth in
Section 5.17.
"Company Plan" has the meaning set forth in Section 5.17.
"Company Stock" has the meaning set forth in Section 2.1.
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Contingent Consideration" shall have the meaning given to such term in
Section 3.3.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Constituent Corporations" has the meaning set forth in the recitals
of this Agreement.
"Convertible Securities" has the meaning set forth in Section 5.3.
"Defense Counsel" has the meaning set forth in Section 11.3.
"Defense Notice" has the meaning set forth in Section 11.3.
"Discharged Debt" has the meaning set forth in Section 10.5
"Effective Time" means the time as of which the Merger becomes
effective, which the parties hereto contemplate to occur at the Closing.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters,
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drinking water supply, stream sediments, ambient air (including indoor air),
plant and animal life, and any other environmental medium or natural resource.
"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencement of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in
transportation of hazardous substances or materials, pollutants, oil,
or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay a Governmental Authority or
private parties, or groups of them, for damages done to the
Environment, or permitting self-appointed representatives of the
public interest to recover for injuries done to public assets.
"ERISA Affiliate" has the meaning set forth in Section 5.17.
"Exhibit" means each Exhibit attached to this Agreement.
"Financial Statements" has the meaning set forth in Section 5.10(a).
"Founding Companies" has the meaning set forth in the recitals of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
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"Fully-Diluted" shall have the meaning given to such term in Section
3.1(b).
"GAAP" means generally accepted accounting principles as in effect on
the date hereof.
"Governmental Authority" - means the United States or any state, local,
or foreign government, or any subdivision, agency, or authority of any thereof.
"Governmental Consents" has the meaning set forth in Section 5.4.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR Act" means the Hart-Scott-Rodino 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,
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regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property.
"Leased Real Property" has the meaning set forth in Section 5.23.
"Leases" has the meaning set forth in Section 5.23.
"Legal Requirement" means any federal, state, local, municipal,
foreign, or other administrative order, constitution, law, ordinance, principle
of common law, regulation, statute, or treaty.
"Losses" has the meaning set forth in Section 11.1.
"Material Adverse Effect" means with respect to any Person that is a
party to this Agreement a material adverse change in (i) the business
operations, condition or prospects (financial or otherwise) of such Person, (ii)
the ability of such Person to consummate the transactions contemplated by the
Agreement, or (iii) the condition or value of the properties and assets of such
Person.
"Material Contract" means any Contract affecting or pertaining to the
Business that has a monetary obligation of at least $25,000 per year and that is
not cancelable by the Company without penalty upon notice of six (6) months or
less.
"Merger" means the merger of Newco with and into the Company pursuant
to this Agreement and the applicable provisions of the laws of the State of
Texas and other applicable state laws.
"Merger Consideration" shall have the meaning given to such term in
Section 3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Mr. Marmol" means Guillermo G. Marmol, the Chief Executive Officer of
Clarant.
"Multiemployer Plan" has the meaning set forth in Section 5.17.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" has the meaning set forth in Section 1.4(c).
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
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"Non-accredited Stockholders" shall have the meaning given to such term
in Section 2.1.
"Options" has the meaning set forth in Section 5.3.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Authority or by an arbitrator.
"Ordinary Course of Business" means an action taken by a Person only
if:
a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person;
(b) such action is similar in nature and magnitude to actions
customarily taken in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business as
such Person.
"Other Agreements" has the meaning set forth in the recitals of this
Agreement.
"Other Benefit Obligations" has the meaning set forth in Section 5.17.
"Other Founding Companies" has the meaning set forth in the recitals of
this Agreement.
"Pension Plan" has the meaning set forth in Section 5.17
"Permits" has the meaning set forth in Section 5.16(b).
"Person" means any individual, corporation (including non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Plan" has the meaning set forth in Section 5.17.
"Plan Sponsor" has the meaning set forth in Section 5.17
"Plans" has the meaning set forth in Section 5.17.
"Pre-Closing" has the meaning set forth in Section 4.1.
"Pre-Closing Date" has the meaning set forth in Section 4.1.
"Pre-Closing Period" means any Taxable Period or portion thereof ending
on or before the Closing Date.
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"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Authority.
"Qualified Plan" has the meaning set forth in Section 5.17.
"Qualified Plans" has the meaning set forth in Section 5.17.
"Registration Statement" means that certain registration statement of
Clarant on Form S-1 covering the shares of Clarant Common Stock to be issued in
the IPO and attached hereto as SCHEDULE 18.1.
"Reimbursement" has the meaning set forth in Section 11.7.
"Relevant Group" has the meaning set forth in Section 5.24.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Schedule" means each Schedule attached hereto, and identified as a
Schedule, which shall reference the relevant sections of this Agreement, on
which parties hereto disclose information as part of their respective
representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Securities Agreements" shall have the meaning given to such term in
Section 5.3.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"State Corporation Law" has the meaning set forth in Section 1.2.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Straddle Period" has the meaning set forth in Section 10.2(a).
"Subsidiary" means any entity the majority of voting shares or
interests of which are owned by the Company and/or by one or more Subsidiaries
of the Company.
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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 Attributes" has the meaning set forth in Section 5.24.
"Tax Proceeding" means any audit, examination, claim or other
administrative or judicial proceeding relating to Taxes or Returns.
"Taxable Period" means any taxable year or other period that is treated
as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
"Third Party Claim" has the meaning set forth in Section 11.3.
"Threatened" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice has been given in writing that such a claim,
Proceeding, dispute, action or other matter is likely to be asserted, commenced,
taken, or otherwise pursued in the future.
"Title IV Plans" has the meaning set forth in Section 5.17.
"Trademarks" has the meaning set forth in Section 5.14.
"Underwriters" means the underwriters of the IPO, as identified in the
Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement by and among
the Underwriters and the Company in respect of the IPO.
"VEBA" has the meaning set forth in Section 5.17.
"Welfare Plan" has the meaning set forth in Section 5.17.
"Year 2000 Compliant" has the meaning set forth in Section 5.27.
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19. GENERAL
19.1 COOPERATION. The Company, the Stockholders, Clarant and
Newco shall each deliver or cause to be delivered to the other on the Closing
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with Clarant on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any Tax
Return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Closing
Date.
19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of
the parties hereunder may not be assigned (except by operation of law) and shall
be binding upon and shall inure to the benefit of the parties hereto, the
successors of Clarant, and the heirs and legal representatives of the
Stockholders.
19.3 ENTIRE AGREEMENT. This Agreement (including the Schedules
and Exhibits attached hereto which are incorporated by this reference) and the
documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company, Newco and Clarant and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended only by a written instrument executed by the
Stockholders, the Company, Newco and Clarant, acting through their respective
officers or trustees, duly authorized by their respective boards of directors.
Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes or any other Schedule required hereby, provided
that the Company and the Stockholder's shall make a good faith effort to cross
reference disclosure, as necessary or advisable, between related Schedules.
19.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. This Agreement may be
executed and delivered by facsimile signature which facsimile signature shall be
deemed an original.
19.5 EXPENSES.
(a) Whether or not the transactions herein contemplated
shall be consummated, Clarant will pay the fees, expenses and disbursements of
Clarant and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed by Clarant under this Agreement, including the
fees and expenses of Clarant's public auditors, Wilmer Cutler &
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Pickering, and any other Person retained by Clarant, and the costs of preparing
the Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of the
Stockholders, the Company and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by the
Company and the Stockholders under this Agreement, including the reasonable fees
and expenses of legal counsel to the Company and the Stockholders.
(c) If the transaction herein contemplated is consummated,
Clarant will pay the fees, expenses, and disbursements of the Stockholders and
the Company and their respective agents, representatives, accountants and
counsel as described in (b), above.
(d) Each Stockholder acknowledges that he, and not the
Company or Clarant, will pay all Taxes including, but not limited to, income and
transfer taxes due upon receipt of the consideration payable pursuant to Article
2 hereof, and will assume all Tax or as a result of risks and liabilities of
such Stockholder in connection with the transactions contemplated hereby.
19.6 NOTICES. All notices requests, demands and others
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given on the date of delivery, if delivered to
the persons identified below, or on the second business day, if delivered by a
reputable overnight carrier, or on the date of the return receipt acknowledgment
after mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, or on the date such transmission is made and confirmation of
receipt obtained if a business day, or if not, then on the next following
business day, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment, addressed as follows:
(a) If to Clarant, or Newco, addressed to them at:
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attention: Guillermo G. Marmol
Fax: 972-488-7299
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with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
Fax: 202-663-6363
(b) If to the Stockholders, addressed to them at their
addresses set forth on EXHIBIT 19.6 , with copies to such counsel as is set
forth with respect to each Stockholder on such EXHIBIT 19.6;
(c) If to the Company, addressed to it at:
Integrated Consulting, Inc.
1950 Stemmons Freeway
Suite 3027
Dallas, Texas 75207
Attn: Mr. Calvin W. Carter
Fax: 214-800-4265
and marked "Personal and Confidential"
with a copy to:
Donald J. Malouf, Esq.
Malouf, Lynch Jackson & Swinson, P.C.
700 Preston Commons West
8117 Preston Road
Dallas, Texas 75225
Fax: 214-373-0241
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,
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or of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this
Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of
this Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties, and if
such modification is not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
19.11 STOCKHOLDER'S REPRESENTATIVE.
(a) Each holder of Company Common Stock, by signing this
Agreement, designates Calvin W. Carter or, in the event that Calvin W. Carter is
unable or unwilling to serve, now or in the future, Elliot W. Hawkes, to be the
Stockholders' Representative for purposes of this Agreement. The Stockholders
shall be bound by any and all actions taken by the Stockholders' Representative
on their behalf.
(b) Clarant and Newco shall be entitled to rely upon any
communication or writings given or executed by the Stockholders' Representative.
All notices to be sent to Stockholders pursuant to this Agreement may be
addressed to the Stockholders' Representative and any notice so sent shall be
deemed notice to all of the Stockholders hereunder. The Stockholders hereby
consent and agree that the Stockholders' Representative is authorized to accept
notice on behalf of the Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed
and constituted the true and lawful attorney-in-fact of each Stockholder, with
full power in his or her name and on his or her behalf to act according to the
terms of this Agreement in the absolute discretion of the Stockholders'
Representative; and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with this Agreement. This power of attorney and
all authority hereby conferred is granted subject to the interest of the other
Stockholders hereunder and in consideration of the mutual covenants and
agreements made herein, and shall be irrevocable and shall not be terminated by
any act of either Stockholder, by operation of law, whether by death or other
event.
19.12 CAPTIONS. The headings of this Agreement are inserted
for convenience only, shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
19.13 SURVIVAL. The representations and warranties set forth
in this Agreement shall survive the Closing and expire in accordance with
Section 11.11. The covenants of the parties to
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be performed after the Closing shall survive the Closing and expire in
accordance with their respective terms.
19.14 ACCOUNTING TERMS. Except as otherwise expressly provided
herein, all accounting terms used in this Agreement shall be interpreted, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with U.S.
GAAP consistently applied.
[this space left intentionally blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC.
By: /s/ Guillermo G. Marmol
------------------------
Name: Guillermo G. Marmol
----------------------
Title: President
---------------------
ICON ACQUISITION CORP.
By: /s/ Guillermo G. Marmol
------------------------
Name: Guillermo G. Marmol
----------------------
Title: Manager
---------------------
INTEGRATED CONSULTING, INC.
d/b/a i.con interactive
Stockholders:
By: /s/ Calvin W. Carter
------------------------
Name: Calvin W. Carter
----------------------
Title: President
---------------------
/s/ Calvin W. Carter
---------------------------
Calvin W. Carter
/s/ Elliot W. Hawkes
---------------------------
Elliott W. Hawkes
/s/ David Todd McGee
---------------------------
David Todd McGee
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Icon Acquisition Corp.,
Integrated Consulting, Inc., and Calvin W. Carter,
Elliott W. Hawkes, and David Todd McGee
<PAGE>
EXHIBIT 2.1(a)
CONSIDERATION
1. MERGER CONSIDERATION. At Closing, Clarant will deliver to the Stockholders
Merger Consideration equal to the sum of the following:
(a) 810,091 shares of Clarant Common Stock (the "Stock Consideration");
plus
(b) cash equivalent to the product of 347,182 x the IPO price per share
of Clarant Common Stock (the "Cash Consideration").
2. DISTRIBUTION. At Closing, Clarant will distribute the Stock Consideration and
the Cash Consideration to the Stockholders pro rata as their interests in the
Company appear on SCHEDULE 5.3 in the ratio of 70% Clarant Common Stock and 30%
cash.
3. PHANTOM STOCK PLAN. At Closing, Clarant shall make an additional distribution
in an aggregate cash amount equal to the product of 60,900 x IPO price per share
of Clarant Common Stock (the "Other Consideration"). Clarant shall distribute
the Other Consideration as follows:
(a) To the extent the Other Consideration does not exceed $670,000,
Clarant shall make a capital contribution to the Company equal to the amount of
the Other Consideration, which shall then be distributed to certain employees of
the Company pursuant to the phantom stock plan described on SCHEDULE 5.3;
(b) To the extent the Other Consideration exceeds $670,000 (by virtue
of the IPO price per share exceeding $11.00), Clarant shall distribute any such
excess amount directly to the Stockholders as additional merger consideration in
the form of cash pro rata as their interests in the Company appear on SCHEDULE
5.3;
4. MINIMUM IPO PRICE. The minimum IPO price per share of Clarant Common Stock
for purposes of this Agreement shall be $9.90.
<PAGE>
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
<TABLE>
<CAPTION>
PROJECTED PROJECTED PROJECTED PROJECTED
MEASUREMENT COMPANY COMPANY PRE-TAX COMBINED COMBINED
PERIOD REVENUES INCOME REVENUES PRE-TAX INCOME
<S> <C> <C> <C> <C>
Jul. 1, 1999 - $3,404,000 $374,000 n/a n/a
Dec. 31, 1999
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
</TABLE>
FORMULAS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
<S> <C> <C> <C> <C> <C> <C>
Jul. 1, 1999 - 3 15 n/a 50% (Revenue Multiple) x $78,700,000 $3,350,000
Dec. 31, 1999 (Actual Company Revenues -
Projected Company Revenues)
+
50% (Pre-Tax Income
Multiple) x (Actual Pre-Tax
Income - Projected Pre-Tax
Income)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Jan. 1, 2000 - 3 15 4.26% (Pool Share) x 50% (Revenue $78,700,000 $3,350,000
Jun. 30, 2000 Multiple) x (Actual Combined
Revenues - Projected
Combined Revenues)
+
(Pool Share) x 50% (Pre-Tax
Income Multiple) x (Actual
Combined Pretax Income -
Projected Combined Pretax
Income)
</TABLE>
(b) For purposes of determining the amount of Contingent Consideration
payable to the Stockholder(s):
(i) Pre-Tax Income shall mean net revenues less direct costs less
indirect costs and expenses, but including all taxes other than Federal and
state income taxes, provided, that, Pre-Tax Income expressly excludes
amortization of acquisition goodwill or other charges incident to the
transactions contemplated by the Agreement;
(ii) Combined Revenues shall mean the total revenues of the
Founding Companies only, without giving effect to acquisitions by Clarant or any
Founding Company after the Closing Date, unless otherwise agreed to in writing
by Clarant;
(iii) Combined Pre-Tax Income shall mean the total Pre-Tax Income
of the Founding Companies only, without giving effect to acquisitions by Clarant
or any Founding Company after the Closing Date, unless otherwise agreed to in
writing by Clarant; and
(iv) except as otherwise expressly provided herein, all accounting
terms shall be interpreted in accordance with U.S. GAAP, based upon consistent
use of accounting principles and policies, revenue recognition methods and
reserve methodologies for the Measurement Period and the relevant audited
financial statements.
(c) The Contingent Consideration payable for a Measurement Period shall
be made in cash and shares of Clarant Common Stock, with the amount paid in cash
to be determined by Clarant in its sole and absolute discretion, PROVIDED, THAT,
such amount represents no less than twenty-five percent (25%), nor more than
fifty percent (50%), of the total amount of the Contingent Consideration for the
Measurement Period, and provided further, that such amount may be payable in
cash only to any Non-Accredited Stockholder. For these purposes, each share of
Clarant Common Stock will be valued at the trailing 30-day average closing
price, ending on the day before the date of issuance.
(d) Within forty-five (45) days following the end of each Measurement
Period, Clarant shall cause Arthur Andersen to review Clarant's and each
Founding Company's books and records to determine, as applicable, the Company's
actual revenues ("Actual Company
<PAGE>
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 Arthur Andersen of the Actual Company Revenues, Actual
Company Pre-Tax Income, Actual Combined Revenues and Actual Combined Pre-Tax
Income, if applicable, (ii) the total amount of the Contingent Consideration
payable to the Stockholder(s) for the Measurement Period and (iii) the amount of
cash and shares of Clarant Common Stock that will be paid to the Stockholder(s)
as Contingent Consideration for the Measurement Period. As soon as practicable
after delivering the Contingent Consideration Notice, Clarant shall issue the
shares of Clarant Common Stock to be paid as Contingent Consideration and
deliver such shares, along with the cash to be paid as Contingent Consideration,
to Clarant's Bank to hold in escrow until final resolution of any disputes
regarding the Contingent Consideration.
(e) The Stockholders' Representative shall have fifteen (15) days from
the receipt of the Contingent Consideration Notice to notify Clarant if there is
a dispute about such Contingent Consideration Notice. If Clarant has not
received notice of such a dispute within such 15-day period, Clarant shall
direct [Clarant's Bank] to pay the cash portion of the Contingent Consideration
by wire transfer of immediately available funds to the Stockholder(s) at the
account(s) identified on EXHIBIT 19.6 and deliver the shares of Clarant Common
Stock to the Stockholder(s) at the address(es) set forth on EXHIBIT 19.6. If,
however, the Stockholders' Representative has delivered notice of such a dispute
to Clarant within such 15-day period, then Clarant's chief financial officer and
the Stockholders' Representative shall meet (by conference telephone call or in
person at a mutually agreeable site) within one week after notice of a
disagreement is given as provided herein. Clarant's chief financial officer and
the Stockholders' Representative shall attempt to make a final determination of
the Contingent Consideration payable for the Measurement Period. If Clarant's
chief financial officer and the Stockholders' Representative do not reach
agreement within a reasonable time, either or both of them shall give notice of
an impasse, in which case they shall mutually agree on an independent accounting
firm to review the Contingent Consideration Notice (and related information) to
determine the amount of the Contingent Consideration. In the event that
Clarant's chief financial officer and the Stockholders' Representative cannot
agree on an independent accounting firm, Arthur Andersen 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.
<PAGE>
(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 Mr. Marmol (or an officer of Clarant designated by Mr. Marmol)
according to procedures established by Clarant.
<PAGE>
EXHIBIT 10.07
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
by and among
CLARANT, INC.,
INTERACTIVE8 ACQUISITION CORP.,
INTERACTIVE8, INC.
and
THE STOCKHOLDERS NAMED THEREIN
Dated: June 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. THE MERGER......................................................................................2
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER..............................................2
1.2 EFFECTIVE TIME.........................................................................2
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF SURVIVING
CORPORATION............................................................................2
1.4 EFFECT OF MERGER.......................................................................3
2. CONVERSION OF STOCK, CONVERTIBLE SECURITIES AND OPTIONS.........................................3
2.1 MANNER OF CONVERSION...................................................................3
3. DELIVERY OF MERGER CONSIDERATION................................................................5
3.1 MERGER CONSIDERATION; TENDER...........................................................5
3.2 TENDER OF COMPANY STOCK................................................................5
3.3 EARN-OUT...............................................................................6
4. PRE-CLOSING AND CLOSING.........................................................................6
4.1 PRE-CLOSING............................................................................6
4.2 CLOSING................................................................................7
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS....................................................................................7
5.1 DUE ORGANIZATION.......................................................................7
5.2 AUTHORIZATION..........................................................................8
5.3 CAPITAL STOCK OF THE COMPANY...........................................................8
5.4 AUTHORITY; NO CONFLICT.................................................................9
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING.................................9
5.6 [Reserved].............................................................................9
5.7 SUBSIDIARIES...........................................................................9
5.8 PREDECESSOR STATUS; ETC...............................................................10
5.9 SPIN-OFF BY THE COMPANY. .............................................................10
5.10 FINANCIAL STATEMENTS..................................................................10
5.11 LIABILITIES AND OBLIGATIONS...........................................................10
5.12 ACCOUNTS AND NOTES RECEIVABLE.........................................................11
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY...............................................11
5.14 TRADEMARKS............................................................................12
5.15 LITIGATION AND LEGAL PROCEEDINGS......................................................12
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS..............................................14
5.17 EMPLOYEE BENEFITS.....................................................................14
5.18 INSURANCE POLICIES....................................................................18
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
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.....................................................................33
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.........................................................................34
6.3 TRANSACTION NOT A BREACH..............................................................34
6.4 MISREPRESENTATION.....................................................................35
6.5 CAPITAL STOCK.........................................................................35
6.6 SUBSIDIARIES..........................................................................35
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....................................................................36
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS..........................................36
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
7.3 PROHIBITED ACTIVITIES.................................................................39
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
7.4 NO SHOP...............................................................................41
7.5 NOTICE TO BARGAINING AGENTS...........................................................41
7.6 AGREEMENTS...........................................................................41
7.7 NOTIFICATION OF CERTAIN MATTERS.......................................................41
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT..................................42
7.9 FINAL FINANCIAL STATEMENTS............................................................43
7.10 FURTHER ASSURANCES....................................................................43
7.11 AMENDMENT OF SCHEDULES................................................................43
7.12 THIRD PARTY APPROVALS.................................................................44
7.13 HSR FILING............................................................................44
7.14 AUTHORIZED CAPITAL STOCK..............................................................44
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY................................................................................45
8.1 REPRESENTATIONS AND WARRANTIES........................................................45
8.2 PERFORMANCE OF OBLIGATIONS............................................................45
8.3 NO LITIGATION.........................................................................45
8.4 OPINION OF COUNSEL....................................................................45
8.5 REGISTRATION STATEMENT................................................................45
8.6 CONSENTS AND APPROVALS................................................................46
8.7 GOOD STANDING CERTIFICATES............................................................46
8.8 SECRETARY'S CERTIFICATE...............................................................46
8.9 HSR ACT...............................................................................46
8.10 CLOSING OF THE IPO....................................................................46
8.11 EMPLOYMENT AGREEMENTS.................................................................46
8.12 LISTING...............................................................................46
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT
AND NEWCO......................................................................................47
9.1 REPRESENTATIONS AND WARRANTIES........................................................47
9.2 PERFORMANCE OF OBLIGATIONS............................................................47
9.3 NO LITIGATION.........................................................................47
9.4 [Reserved]............................................................................47
9.5 NO MATERIAL ADVERSE EFFECT............................................................47
9.6 TERMINATION OF RELATED PARTY AGREEMENTS...............................................47
9.7 OPINION OF COUNSEL....................................................................48
9.8 CONSENTS AND APPROVALS................................................................48
9.9 GOOD STANDING CERTIFICATES............................................................48
9.10 REGISTRATION STATEMENT................................................................48
9.11 EMPLOYMENT AGREEMENTS.................................................................48
9.12 CLOSING OF IPO........................................................................48
9.13 FIRPTA CERTIFICATE....................................................................48
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
9.14 [Reserved]............................................................................48
9.15 SATISFACTION..........................................................................48
9.16 HSR ACT...............................................................................49
9.17 INVESTOR QUESTIONNAIRE................................................................49
9.18 THE STOCKHOLDER NOTES.................................................................49
10. COVENANTS OF CLARANT AND THE STOCKHOLDERS AFTER
CLOSING........................................................................................49
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT..........................................49
10.2 TAX MATTERS...........................................................................49
10.3 DIRECTORS AND OFFICERS................................................................51
10.4 INTERNET PUBLISHING VENTURE...........................................................51
10.5 ASSUMPTION OF CERTAIN OBLIGATIONS.....................................................51
10.6 RELEASE OF GUARANTEES.................................................................51
11. INDEMNIFICATION................................................................................51
11.1 INDEMNIFICATION BY STOCKHOLDERS.......................................................51
11.2 INDEMNIFICATION BY CLARANT............................................................52
11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS........................................53
11.4 TAX CONTESTS..........................................................................54
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS.............................................56
11.6 FAILURE TO GIVE TIMELY NOTICE.........................................................56
11.7 REDUCTION OF LOSS.....................................................................56
11.8 SUBROGATION...........................................................................56
11.9 ARBITRATION...........................................................................56
11.10 EXCLUSIVE REMEDY......................................................................57
11.11 LIMITATION AND EXPIRATION.............................................................57
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS..................................58
12. TERMINATION OF AGREEMENT.......................................................................59
12.1 TERMINATION...........................................................................59
12.2 LIABILITIES IN EVENT OF TERMINATION...................................................59
13. NONCOMPETITION.................................................................................59
13.1 PROHIBITED ACTIVITIES.................................................................59
13.2 DAMAGES...............................................................................60
13.3 REASONABLE RESTRAINT..................................................................61
13.4 SEVERABILITY; REFORMATION.............................................................61
13.5 INDEPENDENT COVENANT..................................................................61
13.6 MATERIALITY...........................................................................61
</TABLE>
v
<PAGE>
<TABLE>
<S> <C> <C>
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION......................................................62
14.1 STOCKHOLDERS..........................................................................62
14.2 CLARANT AND NEWCO.....................................................................62
14.3 DAMAGES...............................................................................63
14.4 SURVIVAL..............................................................................63
15. TRANSFER RESTRICTIONS..........................................................................63
15.1 TRANSFER RESTRICTIONS.................................................................63
16. FEDERAL SECURITIES ACT REPRESENTATIONS.........................................................64
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK..............................................64
16.2 COMPLIANCE WITH LAW...................................................................64
16.3 ECONOMIC RISK; SOPHISTICATION.........................................................65
17. REGISTRATION RIGHTS............................................................................65
17.1 PIGGYBACK REGISTRATION RIGHTS.........................................................65
17.2 REGISTRATION PROCEDURES...............................................................66
17.3 UNDERWRITING AGREEMENT................................................................66
17.4 AVAILABILITY OF RULE 144..............................................................66
17.5 MARKET STANDOFF.......................................................................66
18. DEFINITIONS....................................................................................67
19. GENERAL........................................................................................76
19.1 COOPERATION...........................................................................76
19.2 SUCCESSORS AND ASSIGNS................................................................76
19.3 ENTIRE AGREEMENT......................................................................76
19.4 COUNTERPARTS..........................................................................76
19.5 EXPENSES..............................................................................76
19.6 NOTICES...............................................................................77
19.7 GOVERNING LAW.........................................................................78
19.8 EXERCISE OF RIGHTS AND REMEDIES.......................................................78
19.9 TIME..................................................................................79
19.10 REFORMATION AND SEVERABILITY..........................................................79
19.11 STOCKHOLDERS' REPRESENTATIVE..........................................................79
19.12 CAPTIONS..............................................................................79
19.13 SURVIVAL..............................................................................79
19.14 ACCOUNTING TERMS......................................................................80
</TABLE>
vi
<PAGE>
EXHIBITS AND SCHEDULES
LIST OF EXHIBITS
Exhibit 1.1 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 Board of Directors and Stockholders Consents
Exhibit 5.29(a) Director and Officer Questionnaire
Exhibit 5.29(b) Investor Questionnaire
Exhibit 6.1 Clarant Charter Documents
Exhibit 8.11 Form of Employment Agreement
Exhibit 18 Knowledge
Exhibit 16(f)(iii) Wire Transfer Instructions
Exhibit 19.6 Stockholders' and Counsel Addresses
LIST OF SCHEDULES
Schedule 5.1(a) Charter Documents
Schedule 5.1(b) 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
Schedule 5.17 Company Plans
Schedule 5.18 Insurance
Schedule 5.19 Environmental
Schedule 5.20 Employees
Schedule 5.21 Personal Property
Schedule 5.22 Significant Customers/Material Contracts
vii
<PAGE>
Schedule 5.23 Leased Real Property
Schedule 5.24(g) List of Tax Returns Since January 1991
Schedule 5.24(q) Tax Elections
Schedule 5.24(w) Qualified Subchapter S Subsidiary
Schedule 5.25 Material Adverse Change
Schedule 5.26 Powers of Attorney
Schedule 5.27 Y2K
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
Schedule 6.9 Litigation
Schedule 6.12 Property
Schedule 6.13 Consents
Schedule 7.10 Further Assurances
Schedule 9.11 Employees of the Company
Schedule 11.1(f) Certain Indemnified Matters
Schedule 13.1 Excepted Stockholders
Schedule 18.1 Registration Statement
viii
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as
of June 1, 1999, by and among CLARANT, INC., a Delaware corporation ("Clarant"),
INTERACTIVE8 ACQUISITION, INC., a New York corporation ("Newco"), INTERACTIVE8,
INC., a New York corporation (the "Company"), and Douglas M. Rice ("Rice") and
Morris William Markel ("Markel"), (each of Rice and Markel are referred to
herein as a "Stockholder" and, together the "Stockholders").
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of New York, 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
strategic planning, creative development, applications development and
integration, account management, site hosting, tracking and analysis, media and
promotions and marketing (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 New York (the "Merger"), and in furtherance thereof have
approved the Merger and to the extent required under applicable state laws have
recommended and submitted the Merger for approval to their constituent
stockholders;
WHEREAS, it is the intent of Clarant, Newco, the Company and each of
the Stockholders that upon the completion of the Merger, the Company shall be
the Surviving Corporation existing as a wholly owned subsidiary of Clarant;
WHEREAS, Clarant plans to enter into other separate agreements
substantially similar to this Agreement (the "Other Agreements") with Align
Solutions Corp., a Delaware corporation, Free Range Media, Inc., a Washington
corporation, Young & Rubicam Inc., a Delaware corporation (with respect to Brand
Dialogue, a business division of Young & Rubicam), Multimedia Resources LLC, a
New York limited liability company, Potomac Partners Management Consulting LLC,
a Delaware limited liability company, RSI Group, Inc., a Texas corporation, and
Integrated Consulting, Inc., d/b/a i.con interactive, a Texas corporation
(collectively, the "Other Founding Companies" and together with the 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";
<PAGE>
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 New York and stamped receipt copies of each
such filing to be delivered to Clarant on or before the Closing Date.
1.2 EFFECTIVE TIME. At the Effective Time and subject to the terms and
conditions of this Merger and the applicable provisions of the applicable laws
governing mergers in the State of New York (the "State 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) Guillermo G. Marmol, the Chief Executive Officer of
Clarant ("Mr. Marmol") 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
2
<PAGE>
(d) Mr. Marmol 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 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.
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(a) At the Effective Time, by virtue of the Merger and without
any further action on the part of the holder thereof, each of the shares of
capital stock of the Constituent Corporations shall be automatically canceled,
extinguished and converted as follows:
(i) each share of issued and outstanding Company
Stock owned by an Accredited Stockholder immediately prior to the Effective Time
shall be converted 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 an Non-accredited Stockholder immediately prior to the Effective
Time shall be converted into the right to receive the amount of cash as
determined by the appropriate formula set forth on EXHIBIT 2.1(a);
(iii) each share Company Stock that is owned directly
or indirectly by the Company shall be canceled and retired and shall cease to
exist and no stock of Clarant or other consideration shall be delivered in
exchange therefor; and
(iv) each share of issued and outstanding Newco Stock
shall continue to be issued and outstanding and shall be converted automatically
into one share of validly issued, fully paid and non-assessable common stock in
the Surviving Corporation. Each stock certificate of Newco evidencing ownership
of any such shares shall continue to evidence ownership of the shares of capital
stock of the Surviving Corporation converted pursuant to this Agreement.
(b) [Reserved]
(c) All Clarant Common Stock received by the Stockholders
pursuant to this Agreement shall, except for restrictions on resale or transfer
described in Sections 15 and 16 hereof, have the same rights as all the other
shares of outstanding Clarant Common Stock by reason of the provisions of the
Certificate of Incorporation of Clarant or as otherwise provided by the Delaware
General Corporation Law. All voting rights of Clarant Common Stock received by
the Stockholders shall be fully exercisable by the Stockholders, and the
Stockholders shall not be deprived nor restricted in exercising those rights
after the Effective Time of the Merger.
(d) From and after the Effective Time, all shares of Company
Stock, Convertible Securities and Options of the Company shall no longer be
outstanding and shall cease to exist, and each certificate or agreement
previously representing any such securities shall represent only the right to
receive the consideration determined according to the formulas provided on
EXHIBIT 2.1(a).
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3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER CONSIDERATION; TENDER. At the Closing, Clarant shall deliver
to the Stockholders of the Company and the holders of Convertible Securities and
Options of the 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 and holders of
Convertible Securities and Options of the Company shall receive the amount of
cash allocable to such Non-accredited Stockholder or holder of Convertible
Securities or Options of the Company pursuant to EXHIBIT 2.1(a);
(b) The cash portion of the Merger Consideration allocable to
each Accredited Stockholder, Non-accredited Stockholder, or holder of
Convertible Securities or Options of the Company as the case may be, shall be
paid by wire transfer to the accounts of each such holder pursuant to the wire
transfer instructions given on EXHIBIT 16(f)(iii). 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) OPTIONS AND CONVERTIBLE SECURITIES. The parties hereto
agree that (a) at the Closing, all employees of the Company who are holders of
Options that are vested as of the Closing Date (as shown on EXHIBIT 5.3) shall
receive the share of the Merger Consideration as provided on EXHIBIT 2.1(a) and
(b) all Options that are not vested as of the Closing Date shall be terminated
no later than the Effective Time.
3.2 TENDER OF COMPANY STOCK.
(a) The Stockholders shall deliver in trust to Wilmer, Cutler
& Pickering, 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
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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, if any, to deliver in trust to Wilmer, Cutler
& Pickering, counsel to Clarant, the certificates representing Company Stock
held by such stockholders, duly endorsed in blank by each of such stockholders,
as the case may be, or accompanied by stock powers duly endorsed in blank, with
signatures guaranteed by a national or state chartered bank or other financial
institution, and with all necessary transfer tax and other revenue stamps,
acquired at such stockholders' expense, affixed and canceled. The Stockholders
shall obtain from such other stockholders of the Company an agreement promptly
to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
3.3 EARN-OUT. In addition to the Merger Consideration and subject to
the terms of this Section 3.3, Clarant shall deliver contingent consideration
determined according to the formula stated in EXHIBIT 3.3 (the "Contingent
Consideration") to each Person who is a stockholder of the Company as of the
Closing Date, such stockholder's pro rata share of the Contingent Consideration
(such pro rata share to be determined with respect to the total number of issued
and outstanding shares of Company Stock immediately prior to the Effective Time
without regard to issued and outstanding Convertible Securities and Options).
Each Accredited Stockholder as of the Closing Date shall be eligible to receive
his or her pro rata share of Contingent Consideration in a combination of
Clarant Common Stock and cash. Each Non-accredited Stockholder as of the Closing
Date shall be eligible to receive his or her pro rata share of Contingent
Consideration in cash as provided in EXHIBIT 3.3.
4. PRE-CLOSING AND CLOSING
4.1 PRE-CLOSING. At or prior to the Pre-Closing, the parties shall take
all actions necessary to prepare to (a) effect the Merger (including, if
permitted by applicable state law, the advance filing with the appropriate state
authorities of the Certificate and Articles of Merger and/or Plan of Merger, as
applicable (collectively, the "Merger Documents"), which shall become effective
at the Effective Time) and (b) deliver the Clarant Common Stock and Company
Stock, as the case may be, referred to in Article 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the delivery of such stock and transmission of funds by wire
referred to in Article 3 hereof, each of which actions shall only be taken upon
the Closing Date as herein provided. In the event that there is no Closing Date
and this Agreement terminates, Clarant hereby covenants and agrees to do all
things required by the State Corporation Law and all things which counsel for
the Company advise Clarant are required by the State Corporation Law in order to
rescind actions effected by
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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 Wilmer, Cutler & Pickering, 2445 M Street, N.W.,
Washington, D.C. 20037.
4.2 CLOSING. On the Closing Date: (a) the Merger Documents shall be or
shall have been filed with the appropriate state authorities so that they shall
be or, as of 8:00 a.m. New York City time on the Closing Date, shall become
effective and the Merger shall thereby be effected, (b) all transactions
contemplated by this Agreement, including the delivery of Clarant Common Stock
and Company Stock, as the case may be, the transmission of funds by wire in an
amount equal to the cash portion of the consideration to be paid according to
EXHIBIT 2.1(a), and (c) all conditions to closing as set forth in Articles 8 and
9 of this Agreement shall have been satisfied. The date on which the actions
described in this Section 4.2 occur shall be referred to as the "Closing Date."
This Agreement shall terminate if the Closing Date has not occurred within
fifteen (15) business days of the Pre-Closing Date. Time is of the essence. The
"Effective Time" shall be the same date as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
The Company and each of the Stockholders jointly and severally
represents and warrants to Clarant and Newco that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement, shall be true, accurate and complete at the Pre-Closing Date and the
Closing Date, in each case as modified by any applicable Schedule amendments or
supplements pursuant to Section 7.11, and each of the Stockholders further
represents and warrants that, except as contemplated hereby or as affected by
the transaction contemplated hereby, such representations and warranties shall
survive the Closing Date as provided in Article 11:
5.1 DUE ORGANIZATION. The Company is duly organized, validly existing,
and in good standing under the laws of the state of its incorporation and has
all requisite power and authority to carry on its operations as they are now
being conducted, to own or use the properties and assets it purports to own or
use, and to perform all of its obligations under the Material Contracts. The
Company is duly qualified to conduct business and own its property and assets as
a foreign entity in good standing under the laws of each state in which either
the ownership or use of properties and assets owned or used by it, or the nature
of the activities conducted by it, requires such qualification and where failure
to do so would have a Material Adverse Effect. True and complete copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of the
Company (the "Charter Documents") are all attached to SCHEDULE 5.1(a). The
Company is
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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
transaction contemplated hereby. SCHEDULE 5.1(b) contains a complete and
accurate list of the directors and officers of the Company.
5.2 AUTHORIZATION. The officers of the Company executing this
Agreement are duly authorized to execute and deliver this Agreement and to
perform the obligations hereunder. The execution and delivery of this
Agreement by the Company and performance by the Company of its obligations
under this Agreement and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action in accordance with applicable law and the Charter Documents on the
part of the Company and the stockholders of the Company and copies of the
respective approvals of the board of directors and the stockholders of the
Company (certified by the Secretary of the Company to be true, accurate and
complete) are attached hereto as EXHIBIT 5.2. This Agreement constitutes the
valid and binding obligations of the Company and the Stockholders,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, reorganization, receivership and other laws affecting creditors'
rights generally and the application of equitable principles.
5.3 CAPITAL STOCK OF THE COMPANY. The respective designations and
numbers of outstanding shares and voting rights of each class of outstanding
capital stock and securities convertible, exercisable or redeemable for capital
stock (collectively, "Convertible Securities"), or rights, warrants, puts, calls
or options relating to capital stock (collectively, "Options") of the Company as
of the date of this Agreement are as set forth on SCHEDULE 5.3 hereto. All of
the issued and outstanding shares of capital stock, Convertible Securities and
Options of the Company are owned by the Persons listed on SCHEDULE 5.3 and in
the amounts and at the applicable exercise prices set forth thereon, and are
owned free and clear of all Encumbrances, and no other Person (other than
Clarant) has any right to acquire any 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 at the applicable exercise prices
and vesting periods 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
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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;
(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
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beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the Company, directly or indirectly, a
participant in any joint venture, partnership, limited liability company or
other non-corporate entity.
5.8 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 5.8 is a list of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from which the Company previously acquired material
assets. Except as disclosed on SCHEDULE 5.8, the Company has not been a
subsidiary or division of another company or a part of an acquisition that was
later rescinded.
5.9 SPIN-OFF BY THE COMPANY. Except as set forth on SCHEDULE 5.9, there
has not been any sale, spin-off, or split-up of material properties or assets of
either the Company or any other person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company ("Affiliates") since January 1, 1997.
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Company has
delivered to Clarant (as SCHEDULE 5.10) copies of the following financial
statements (the "Financial Statements"): audited 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 as of the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date and (b) all loan
agreements, notes and other material debt obligations (whether secured or
unsecured), indemnity or guaranty agreements, bonds, mortgages, liens, pledges
or other security agreements
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to which the Company or any Subsidiary is a party. Except as set forth on
SCHEDULE 5.11, since the Balance Sheet Date, neither the Company nor any
Subsidiary has incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the Ordinary Course of Business
that will not have a Material Adverse Effect.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.12) of the accounts
and notes receivable of the Company as of the Balance Sheet Date, including any
such amounts which are not reflected on the Balance Sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
Stockholders. Within ten (10) days prior to Closing, the Company shall provide
Clarant (a) an accurate list of all outstanding receivables obtained subsequent
to the Balance Sheet Date and (b) an aging of all such accounts and notes
receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on SCHEDULE 5.12 or as disclosed by
the Company to Clarant in a writing accompanying the A/R Aging Reports, as the
case may be, the Company and the Stockholders have no reason to believe that any
such account, note or other receivable is not or shall not be, collectible in
the amounts shown on SCHEDULE 5.12 (in the case of the accounts and notes
receivable set forth on SCHEDULE 5.12, net of reserves reflected in the balance
sheet at the Balance Sheet Date) and as of the date of the A/R Aging Reports,
respectively.
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) The Company owns or licenses all Intellectual Property
necessary for the Company to conduct its business in the manner presently
conducted, and all material Intellectual Property (other than Trademarks) owned
or used by the Company and/or any Subsidiaries or in which or to which it has
any rights, licenses or immunities are described and set forth with reasonable
particularity in SCHEDULE 5.13 along with material information as to the
ownership thereof or licenses, rights or immunities therein and registrations
thereof;
(b) Except as disclosed in SCHEDULE 5.13:
(i) to the Knowledge of the Stockholders and the
Company, the Company and any Subsidiaries have the right and authority to use
all Intellectual Property as is necessary to enable it to conduct and to
continue to conduct all phases of its business in the manner presently conducted
and, to the Knowledge of the Company and the Stockholders, and the Company and
any Subsidiary has never infringed on, misappropriated, or otherwise conflicted
with, and is not now infringing on, misappropriating or otherwise conflicting
with, any patent or other intellectual property right belonging to any Person;
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(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:
(a) all trademarks, service marks, trade dress and trade names
("Trademarks") used by the Company and/or any Subsidiaries in the conduct of the
Business are described and set forth with reasonable particularity in SCHEDULE
5.14, along with material information as to the ownership thereof;
(b) all such Trademarks are owned by the Company and/or any
Subsidiaries, except for such as are licensed under licenses referred to in
SCHEDULE 5.14;
(c) to the Knowledge of the Company and the Stockholders, no
such Trademarks are 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,
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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 any Subsidiaries has given all required notice
of such Actions to the appropriate insurance carrier(s) and/or all such Actions
have in the judgment of the Company's Chief Financial Officer, been fully
reserved for on the Financial Statements. SCHEDULE 5.15 lists the insurer for
each Action covered by insurance or designates each Action, or portion of each
Action, as uninsured and the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy deductibles for
each insured Action;
(iii) no litigation matter (other than workers
compensation claims) to which the Company or any Subsidiary was a party was
resolved, settled or closed during the three years preceding the date of this
Agreement;
(iv) there is no pending Proceeding that has been
commenced by or against the Company or any Subsidiary that relates to or may
materially affect the Business, and, to the Knowledge of the 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
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(iii) the date such Action was instituted.
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.
(a) Except as set forth on SCHEDULE 5.16, the Company and any
Subsidiaries have complied in all material respects with all laws, rules,
regulations, writs, injunctions, decrees, and Orders applicable to it or to the
operation of the Business (collectively, "Laws") and has not received any
written notice of any alleged claim or threatened claim, violation of, liability
or potential responsibility under, any such Law that has not heretofore been
cured and for which there is no remaining liability other than those not having
a Material Adverse Effect.
(b) The Company and any Subsidiaries hold all licenses,
permits and other governmental authorizations (the "Permits") the absence of any
of which could have a Material Adverse Effect, and the Company has delivered to
Clarant an accurate list and summary description (which is set forth on SCHEDULE
5.16) of all such Permits. To the Knowledge of the Company and the Stockholders,
the Permits listed on SCHEDULES 5.16 are valid, and neither the Company nor any
Subsidiary has received any written notice that any Governmental Authority
intends to cancel, terminate or not renew any such Permit. The Company and any
Subsidiaries have conducted and are conducting their Business in compliance with
the requirements, standards, criteria and conditions set forth in the Permits
listed on SCHEDULE 5.16 and are not in violation of any of the foregoing except
where such non-compliance or violation would not have a Material Adverse Effect.
Except as specifically provided in SCHEDULE 5.16, the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company and any
Subsidiaries by, any of the Permits listed on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms have the
meanings set forth below:
"COBRA" means Sections 601-608 of ERISA and Section 4980(B)(8)
of the Code.
"Company Other Benefit Obligation" means an Other Benefit
Obligation the Company sponsors or maintains or with respect to which the
Company has or may have liability, in each case with respect to any present or
former employees or 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).
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"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, 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 another provision of 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.
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(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:
(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 qualification and, if different, the most recent
determination letter that covered the
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qualification of the entire plan, or (II) if applicable, the most recent opinion
letter issued by the Service with respect to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its material
obligations under all Company Plans and Company Other Benefit Obligations;
(ii) the Company, with respect to all Company Plans
and Company Other Benefit Obligations is, and each Company Plan and Company
Other Benefit Obligation is, in material compliance with ERISA, the Code,
federal and state securities laws and other applicable Laws and with the terms
of each Company Plan and Company Other Benefit Obligation;
(iii) no transaction prohibited by ERISA Section 406
and no "prohibited transaction" under Section 4975(c) of the Code have occurred
with respect to any Company Plan that could give rise to liability against the
Company in excess of $25,000;
(iv) the Company has no liability to the Service with
respect to any Plan that would have a Material Adverse Effect;
(v) the Company has no liability with respect to any
Plan under ERISA Section 502(i) that would have a Material Adverse Effect;
(vi) a determination letter, or, if applicable, an
opinion letter, has been issued by the Service with respect to each Qualified
Plan;
(vii) since December 31, 1998, there has been no
establishment or amendment of any Company Plan or Company Other Benefit
Obligation that would increase the liability of the Company by more than
$25,000;
(viii) other than routine claims for benefits
submitted by participants or beneficiaries, no claim against, or legal
proceeding involving, any Company Plan or Company Other Benefit Obligation is
pending or, to the Stockholders' or the Company's Knowledge, is Threatened. No
Company Plans or Company Other Benefit Obligations are, to the Company's
Knowledge, presently under audit or examination (nor has notice been received of
a potential audit or examination) by the Service, the Department of Labor, or
any other Governmental Authority, and no matters are pending with respect to any
Company Plan under the Service's Employee Plans Compliance Resolutions System or
any successor or predecessor program;
(ix) no Company Plan or Company Other Benefit
Obligation provides benefits, including without limitation death or medical
benefits (whether or not insured), with
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respect to current or former employees after retirement or other termination of
service other than (1) coverage mandated by applicable law, (2) death benefits
or retirement benefits under any Company Plan that is a Pension Plan, (3)
deferred compensation benefits in the form of cash, (4) benefits, the full cost
of which is borne by the current or former employee (or his beneficiary), or (5)
insured disability benefits;
(x) no Company Plan or Company Other Benefit
Obligation contains any provision that would prohibit the transactions
contemplated by this Agreement or that would give rise to any acceleration or
vesting of benefits, severance, termination or other payments or liabilities as
a result of the transactions contemplated by this Agreement; and the Company has
not declared or paid any bonus or incentive compensation in contemplation of the
transactions contemplated by this Agreement;
(xi) all group health plans of the Company and its
ERISA Affiliates have been operated in material compliance with the requirements
of COBRA and Section 5000 of the Code and the Health Insurance Portability and
Accountability Act.
(xii) the only Qualified Plans are ________ and
_______. The Company has never maintained or contributed to other Qualified
Plans. No Company Plan contains any security issued by the Company or any ERISA
Affiliate; each Qualified Plan of the Company is and has always been in
substantial compliance with Section 401(a) of the Code;
(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;
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(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).
(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.
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(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 and its
Subsidiaries for all risks normally insured against by a Person carrying on the
same or similar business or businesses as the Company;
(D) comply with the insurance requirements
of all Laws and Contracts to which the Company and/or any Subsidiary is a party
or by which it is bound; and
(E) do not provide for any retrospective
premium adjustment or other experience-based liability on the part of the
Company and/or any Subsidiary;
(ii) neither the Company nor any Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and its Subsidiaries has
paid all premiums due and has otherwise performed all of its obligations under
each policy to which the Company or any Subsidiary is a party or that provides
coverage to the Company, any Subsidiary, or director thereof; and
(iv) except as set forth in SCHEDULE 5.18 the Company
and each Subsidiary have given notice to the insurer of all material claims that
may be insured thereby.
5.19 ENVIRONMENT.
(a) Except as set forth in SCHEDULE 5.19:
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(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 Environmental Law, give rise to any
material legal obligation or material liability, or otherwise form the basis of
any Action, hearing or investigation against or involving the Company or any
Subsidiary or any real estate presently or previously owned or used by the
Company or any Subsidiary under any of the Environmental Law or related common
law theories, except as identified in SCHEDULE 5.19.
(d) To the Knowledge of the 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.
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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 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.
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(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.
(b) The Company has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Company or any Subsidiaries enforceable in accordance
with its terms, and is in full force and effect, subject to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and the application of equitable principles. Except as set forth on
SCHEDULE 5.22, the Company 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
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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, 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
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(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. 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
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(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) owed by the Company, each Subsidiary and each
Relevant Group that are due and payable have been paid;
(c) The amount of the liability of the Company and the
Subsidiaries for unpaid Taxes as of the Balance Sheet Date did not exceed the
current liability accruals for Taxes (excluding any reserves for deferred Taxes)
set forth on the Company Financial Statements dated as of the Balance Sheet
Date. The amount of the liability of the Company and the Subsidiaries for unpaid
Taxes as of the date of any financial statements provided pursuant to Section
5.10 will not exceed the current liability accruals for Taxes (excluding any
reserves for deferred Taxes) set forth on such financial statements. The amount
of the liability of the Company and the Subsidiaries for unpaid Taxes as of the
Closing Date will not exceed the current liability accruals for Taxes (excluding
any reserves for deferred Taxes) set forth on the financial statements provided
pursuant to Section 5.10, or if there are no such financial statements, the
Company Financial Statements dated as of the Balance Sheet Date, as such
accruals are adjusted on the books and records of the Company and the
Subsidiaries through the Closing Date in accordance with past custom and
practice;
(d) Neither the Company, any Subsidiary nor any Relevant Group
is a party or subject to any agreement extending the time within which to file
any Return. No claim has ever been made by any Taxing Authority in any
jurisdiction in which the Company or any Subsidiary does not file Returns that
it is or may be subject to taxation by that jurisdiction;
(e) The Company and each Subsidiary has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and record-keeping requirements with respect to, any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(f) No Tax Proceedings are presently pending with regard to
any Tax Returns or Taxes of the Company, any Subsidiary or any Relevant Group,
and no notice has been received (whether in writing or verbally) of the expected
commencement of a Tax Proceeding. No issues have been raised in any audit or
examination by or with respect to the Company, any Subsidiary or any member of
any Relevant Group which, by application of similar principles, could reasonably
be expected to result in a proposed deficiency for any other period not so
examined;
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(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 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;
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(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, (5) any material change in method of accounting, and (6) net
operating and loss limitations as a result of any member leaving a consolidated
group;
(r) There are no liens or other encumbrances on any of the
assets of the Company or any Subsidiary relating or attributable to Taxes (other
than liens for Taxes not yet delinquent);
(s) The Company is not an investment company as defined in
Section 351(e)(1) of the Code;
(t) None of the Stockholders is a party to or bound by any
agreement or arrangement pursuant to which such Stockholder will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by such
Stockholder pursuant to this Agreement;
(u) None of the Stockholders is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code.
(v) 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 any Subsidiaries have conducted the Business
only in the Ordinary
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Course of Business. Except as forth on SCHEDULE 5.25, since the Balance Sheet
Date, there has not been any:
(a) change in the Company's business, operations, financial
condition, operating results, assets or liabilities that would have a Material
Adverse Effect on the Company;
(b) damage, destruction or loss of any real or personal
property or assets owned or leased by the Company or any Subsidiary or used in
the operation of the Business, whether or not covered by insurance, having a
replacement cost in excess of $50,000;
(c) voluntary or involuntary sale, transfer, surrender,
abandonment or other disposition of any kind by the Company or any Subsidiary of
any assets or property rights (real or personal, tangible or intangible), having
a replacement cost or fair market value in excess of $50,000, except in each
case the sale of inventory and collection of accounts in the Ordinary Course of
Business;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might reasonably
be expected to have a Material Adverse Effect;
(e) material loan or advance by the Company or any Subsidiary
to any party other than sales to customers on credit or travel advances to
employees made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material liability,
potential liability or claimed liability relating to the Environment;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect to the Company's capital stock, Convertible
Securities or Options, any direct or indirect redemption, purchase, or other
acquisition of such stock, or the payment of principal or interest on any note,
bond, debt instrument or debt other than as required to be paid under the terms
of such instrument; PROVIDED, THAT, neither the forgoing limitation nor any
other provision contained herein shall be construed to prevent the Company from
distributing or paying to the Stockholders, prior to the Closing Date, from the
Company's retained earnings and on account of shareholder loans an amount not to
exceed $500,000 plus fifty percent (50%) of tax liabilities in respect of income
attributable to each of the Stockholders' interests in the Company for the
period January 1, 1999 to the Closing Date;
(h) incurrence of debts, liabilities or obligations except:
(i) current liabilities incurred in connection with or for services rendered or
goods supplied in the Ordinary Course of Business, (ii) liabilities on account
of Taxes and governmental charges (but not penalties, interest or fines in
respect thereof), (iii) obligations or liabilities incurred by virtue of the
execution of this Agreement, (iv) obligations not to exceed $600,000 in the
aggregate incurred to finance certain capital expenses as described on SCHEDULE
5.25(h); and (v) obligations incurred to
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finance working capital or distributions to the Stockholders as described in the
proviso to Section 5.25(g);
(i) issuance by the Company or any Subsidiary of any notes,
bonds, or other debt securities or instruments or any equity securities or
securities convertible into or exchangeable for any equity securities;
(j) cancellation, waiver or release by the Company or any
Subsidiary of any material debts, liabilities, obligations, rights or claims,
except in each case in the Ordinary Course of Business;
(k) amendment of the Company's Charter Documents;
(l) amendment or termination of any Material Contract, other
than expiration of such contract in accordance with its terms;
(m) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the Company or any Subsidiary;
(n) discharge or satisfaction of any material liability,
encumbrance or payment of any material obligation or liability, other than
current liabilities paid in the Ordinary Course of Business or cancellation of
any debts or claims;
(o) sale or assignment by the Company or any Subsidiary of any
properties or assets other than in the Ordinary Course of Business;
(p) capital expenditures or commitments therefor by the
Company or any Subsidiary other than in the Ordinary Course of Business or in
excess of $100,000 in the aggregate;
(q) charitable contributions or pledges by the Company or any
Subsidiary in excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any property or
asset of the Company or any Subsidiary other than in the Ordinary Course of
Business;
(s) adoption, amendment or termination of any employee benefit
or pension plan; or
(t) increase in the benefits provided under any employee
benefit or pension plan.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.
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(a) The Company has delivered to Clarant an accurate schedule
(which is set forth on SCHEDULE 5.26) as of the date of this Agreement of:
(i) the name of each financial institution in which
the Company or any Subsidiary has accounts or safe deposit
boxes;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of account and account number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
(b) SCHEDULE 5.26 also sets forth the name of each Person,
corporation, firm or other entity holding a general or special power of attorney
from the Company or any Subsidiary and a description of the terms of such power
of attorney.
5.27 YEAR 2000 COMPLIANCE. The Company has investigated and reviewed
the areas within its business and operations and determined, to the Knowledge of
the Company, after due inquiry of the Company's vendors, that, except as set
forth on SCHEDULE 5.27, all computer systems, software and hardware used in or
relied on for the business and operations of the Company are able to accurately
process date data, including calculating, comparing and sequencing from, into
and between the twentieth century without human intervention (through year
1999), the year 2000, and the twenty-first century, including leap year
calculations ("Year 2000 Compliant"). To the Knowledge of the Company and the
Stockholders, the Company's Significant Customers, and any other customer,
vendor or business partner of the Company whose failure to perform under any
contract, agreement or other understanding with the Company could have a
Material Adverse Effect, are or will be Year 2000 Compliant before December 31,
1999.
5.28 RELATIONS WITH GOVERNMENTS. Neither the Company nor any Subsidiary
has made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause the Company or any Subsidiary to be
in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any
law of similar effect.
5.29 DISCLOSURE.
(a) This Agreement, including the schedules hereto, together
with the completed Directors and Officers Questionnaires and Investor
Questionnaires attached hereto respectively as EXHIBIT 5.29(a) and EXHIBIT
5.29(b) and all other documents and information made available to Clarant and
its representatives in writing pursuant hereto or thereto, present fairly the
Business of the Company and any Subsidiaries for the time periods with respect
to which such information was requested. The Company's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no statement made herein
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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 any Subsidiaries (which fact or
circumstance was 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, subject to Section 7.11, 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 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 Section 12.1.
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
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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 adequate 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, taken as a whole, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
5.33 BROKERS. Neither the Company nor the Stockholders have any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
Clarant, Newco or the Surviving Corporation could become liable or obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder severally represents and warrants to Clarant and Newco
that the representations and warranties set forth in this Section 5(B) are true,
accurate and complete as of the date of this Agreement and, subject to Section
7.11, shall be true, accurate and complete at the time of the Pre-Closing and on
the Closing Date, and that the representations and warranties set forth in
Sections 5.34, 5.35 and 5.36 shall survive the Closing Date as provided in
Article 11:
5.34 AUTHORITY; OWNERSHIP. Such 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
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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. Each Stockholder has executed and
delivered to Clarant an Investor Questionnaire in the form attached hereto as
EXHIBIT 5.29(b), and such Investor Questionnaire as delivered by the Stockholder
is true, complete and accurate in all material respects.
6. REPRESENTATIONS OF CLARANT AND NEWCO
Clarant and Newco jointly and severally represent and warrant to the
Stockholders that all of the following representations and warranties in this
Article 6 are true, accurate and complete at the date of this Agreement and
shall be true, accurate and complete at the time of the Pre-Closing and on the
Closing Date in each case as modified by any applicable Schedule amendments or
supplements pursuant to Section 7.11, and that such representations and
warranties shall survive the Closing Date.
6.1 DUE ORGANIZATION. Clarant 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.
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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 authorized and
outstanding Clarant Stock, Convertible Securities and Options as of the date of
this Agreement. As of the date of this Agreement, one hundred percent of the
capital stock of Newco is owned by Clarant. Except as part of the IPO that will
take place on the Closing Date as contemplated by this Agreement and the Other
Agreements and as disclosed in the Registration Statement, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which Clarant
is a party requiring issuance, sale or transfer of any equity securities of
Clarant or any securities convertible directly or indirectly into equity
securities of Clarant, or evidencing the right to subscribe for any equity
securities of Clarant, or giving any Person other than the Founding Companies
any rights with respect to the capital stock of Clarant. On the Closing Date,
Clarant shall have outstanding only one class of capital stock (the Clarant
Common Stock), and the shares of Clarant Common Stock issued on the Closing Date
pursuant to this Agreement and the Other Agreements and to Persons who purchase
shares in the IPO will in the aggregate possess at least 80% of the total voting
power of the Clarant Common Stock that is entitled to vote and is outstanding as
of the Closing Date (after taking into account the dilution of the holdings of
Clarant Common Stock of the current Clarant stockholders). Except as 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,
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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.
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 Time, will not have
entered into any material agreement with any of the Founding Companies or any of
the members or stockholders of the Founding Companies other than (i) the Other
Agreements and the agreements contemplated by the Other Agreements, including
the employment agreements referred to therein and (ii) other employment
agreements entered into in the ordinary course of business.
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6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
incorporated in Delaware on August 21, 1998 and has conducted limited operations
since that time. Clarant has not conducted any material business since the date
of its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Clarant does not own and has not at any time owned any real
property or any material personal property and is not a party to any other
material agreement, except as listed on SCHEDULE 6.12 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:
(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;
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(g) any cancellation or agreement to cancel, any indebtedness
or other obligation owing Clarant;
(h) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of Clarant or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(i) any waiver of any material rights or claims of Clarant;
(j) any amendment or termination of any material contract
agreement, license, permit or other right to which Clarant is a party;
(k) any transaction by Clarant outside the Ordinary Course of
Business; or
(l) any other distribution of property or assets by Clarant
other than in the Ordinary Course of Business;
6.15 TAXES. All Returns required to have been filed by or with respect
to Clarant have been duly filed. No Tax Proceedings are presently pending with
regard to any Tax Returns or Taxes of Clarant, and no notice has been received
(whether in writing or verbally) of the expected commencement of such a Tax
Proceeding. All Taxes (whether or not shown on any Return) owed by Clarant have
been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(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 any Subsidiaries will treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Article 14
hereof. In addition, Clarant will cause each of the Other Agreements, binding
each of the Other Founding Companies, to contain a provision similar to this
Section 7.1 requiring each such Other Founding Company, its stockholders,
directors, officers, representatives, employees and agents to keep confidential
any information obtained by such Other Founding Company.
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(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 any Subsidiaries will:
(a) carry on in the Ordinary Course of Business substantially
as conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties, assets and facilities, including
those held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use their commercially reasonable best efforts to maintain
and preserve its business organization intact and use its best efforts to retain
its present management, key employees and relationships with suppliers,
customers and others having business relations with the Company or any
Subsidiary;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or lease
instruments except as otherwise herein provided; PROVIDED, THAT, debt and/or
lease instruments with unrelated third-parties 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;
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(b) grant or issue any securities, Options, conversion rights
or commitments of any kind relating to its securities;
(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, as
provided for by Section 5.25(g), declare and pay a dividend to the Stockholders
and/or a payment on account of the Rice Note and Markel Note before the Closing;
(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 $60,000;
(e) create, assume or permit to exist any Encumbrance upon any
assets or properties whether now owned or hereafter acquired, except (i) with
respect to purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $10,000 necessary or desirable
for the conduct of the Business of the Company and any Subsidiaries, (ii) (1)
liens for Taxes either not yet delinquent or being contested in good faith and
by appropriate proceedings (and for which adequate reserves have been
established and are being maintained) or (2) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the Ordinary
Course of Business (the liens set forth in clause (ii) being referred to herein
as "Statutory Liens"), or (iii) liens set forth on SCHEDULE 5.11 OR 5.23 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;
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(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;
(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 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
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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 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 any Subsidiaries, and each Stockholder
represents and
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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 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, including, but not limited
to, commercially reasonable best efforts to release the Stockholders from the
personal guarantees set forth on SCHEDULE 7.10.
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
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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 Stockholders on any Schedule supplement or amendment shall also
be included on SCHEDULE 11.1(f). Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Company that constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
the Company may be made unless Clarant and a majority of the Founding Companies
other than the Company consent to such amendment or supplement; and provided
further, that no amendment or supplement to a Schedule prepared by Clarant or
Newco that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on Clarant and Newco may be made unless a majority of
the Founding Companies consent to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 7.11. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to this
Section 7.11 of one of the Other Agreements, and such amendment or supplement
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on such Other Founding Company, Clarant shall give the Company
notice promptly after it has knowledge thereof. If Clarant and a majority of the
Founding Companies consent to such amendment or supplement, which consent shall
have been deemed given by Clarant or any Founding Company if no response is
received within 24 hours following receipt of notice of such amendment or
supplement (or sooner if required by the circumstances under which such consent
is requested), but the Company does not give its consent, the Company may
terminate this Agreement pursuant to Section 12.1(v). 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
any Subsidiaries shall satisfy any requirement for notice and approval of the
transactions contemplated by this Agreement under applicable agreements with
third parties, including any contract with any Governmental Authority.
7.13 HSR FILING. To the extent the Merger is a transaction subject to
the filing requirements of the HSR Act, each of the Company, the 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.
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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 on the Closing Date are subject
to the satisfaction or waiver on or prior to the Pre-Closing Date and/or the
Closing Date, as the case may be, of all of the conditions set forth in this
Article 8. As of the Pre-Closing Date or the Closing Date, as the case may be,
all conditions not satisfied shall be deemed to have been waived by the Company
and the Stockholders unless such parties have objected by notifying Clarant in
writing of such objection on or before the Pre-Closing Date or consummation of
the transactions on the Closing Date, respectively, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
Clarant and Newco contained in Article 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Clarant and Newco contained in Article 6 shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made as of that time; and a certificate
to the foregoing effect dated the Pre-Closing Date and the Closing Date and
signed by the President, any Vice President or the Secretary of Clarant shall
have been delivered to the Stockholders.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by Clarant and
Newco on or before each of the Pre-Closing Date and the Closing Date shall have
been duly complied with and performed in all material respects on or before each
of the Pre-Closing Date and the Closing Date, as the case may be; and
certificates to the foregoing effect dated each of the Pre-Closing Date and the
Closing Date and signed by the President, any Vice President or the Secretary of
Clarant shall have been delivered to the Stockholders.
8.3 NO LITIGATION. No Action or Proceeding before a court or any other
governmental agency or body shall have been instituted or Threatened to restrain
or prohibit the Merger or the IPO and no Governmental Authority shall take any
other action with respect to the transactions hereunder which would have a
Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Clarant, dated the Pre-Closing Date in form and substance of the
type customarily given by counsel to an acquiring company in transactions
similar to that contemplated by this Agreement
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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).
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
in the form of EXHIBIT 8.11; PROVIDED, THAT, pursuant to such agreement Rice is
named as Clarant's "Chief Creative Officer;" and PROVIDED FURTHER that the base
salaries set forth in such agreements are at least equal to the base salaries
paid to the Stockholders prior to the Closing Date (which were $250,000).
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8.12 LISTING. Clarant shall cause the Clarant Common Stock to be listed
on the Nasdaq National Stock Market, subject to official notice of issuance.
8.13 TAX OPINION. Clarant shall have received an opinion upon which the
Company and the Stockholders will be entitled to rely (the "Tax Opinion") from
Wilmer, Cutler & Pickering, tax counsel for Clarant, or such other tax counsel
reasonably acceptable to Clarant and the Company ("Tax Counsel") that the
Clarant Plan of Organization will qualify as a tax-free transfer of property
under Section 351(a) of Code and that the Stockholders will not recognize gain
to the extent the Stockholders exchange Company Stock or membership interests,
as the case may be, for Clarant Common Stock (but not cash or other property)
pursuant to the Clarant Plan of Organization, and in rendering such Tax Opinion,
Tax Counsel shall be entitled to rely on customary written representations
acceptable to Tax Counsel and received from (i) Clarant and (ii) the Company,
(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.
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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]
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
counsel to the Company and the Stockholders, dated the Pre-Closing Date, in form
and substance of the type customarily given by counsel to a founding company in
transactions similar to that contemplated by this Agreement and acceptable to
Clarant (and the Underwriters shall have received a copy of the same opinion
addressed to them), and at the Closing Clarant shall have received a statement
from such counsel that the opinion is true as of the Closing Date.
9.8 CONSENTS AND APPROVALS. All necessary Consents of and filings with
any Governmental Authority 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.
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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.
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 STOCKHOLDER NOTES. The Stockholders shall have contributed to
the Company the then outstanding balances of the Rice Note and Markel Note after
taking into account payments made on such notes in accordance with Section
7.3(c), and Clarant shall have no further obligation under the Rice Note or the
Markel Note, as such terms are defined in SCHEDULE 5.11.
9.19 COMPANY AND STOCKHOLDER REPRESENTATIONS. The Company and the
Stockholders shall have provided Tax Counsel with the written representations
requested pursuant to Section 8.13.
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 this transaction.
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)
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for Taxable Periods beginning on or before and ending after the Closing Date
("Straddle Periods"). All such Returns shall be prepared on a basis consistent
with past Returns of the Company and the Subsidiaries unless otherwise required
by applicable law.
(b) Upon the latter of (i) five (5) business days following
the receipt of a request therefor (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, state or New York City income Tax Returns
prepared by Clarant pursuant to Section 10.2(a) shall be delivered to the
Stockholders no later than March 1, 2000. If the Stockholders object in writing
to any material item on such Return within 30 days of receipt of such Return,
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, the dispute shall be referred to a national independent accounting firm
agreeable to the parties for resolution. If such dispute is not resolved by the
due date of such return (including extensions), Clarant may in its sole
discretion file such Return. The party whose position is not adopted in such
resolution by a national independent accounting firm shall pay all expenses of
the successful party in resolving the dispute. In addition, if Clarant files
such Return prior to the resolution of such dispute and if Clarant is not the
successful party in resolving the dispute, and the Stockholders incur expenses,
interest or penalties in the preparation of an amended or corrected return,
Clarant shall reimburse Stockholders for such expenses, interest and/or
penalties and pay the Stockholders interest on such expenses, interest and/or
penalties from the time that the Stockholders actually paid such expenses,
interest and/or penalties until the time of reimbursement at the prime rate
quoted by Citibank applicable to such time period.
(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 any Subsidiaries
and Affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund, determining a liability for Taxes or a right
to refund of Taxes or in conducting any Tax Proceeding. Such cooperation and
information shall include providing copies of all relevant portions of relevant
Returns, together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings or other determinations by Taxing
Authorities and relevant records concerning the ownership and Tax basis of
property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
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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 under the Code, and shall treat the transaction
as a transfer of property under Section 351(a) of the Code.
(g) The Company shall reimburse each of the Stockholders for
one-half of their "InterActive8 1999 Tax Liability" (as hereinafter defined). On
or before November 1, 1999, Clarant shall deliver to each of the Stockholders a
written estimate of the Corporation's 1999 taxable income through the Closing
Date. Each of the Stockholders shall then promptly advise Clarant of such
Stockholder's estimated aggregate federal, state and local income tax
obligations attributable to the Company's 1999 taxable income, calculated at
such Stockholder's maximum marginal tax rates ("Estimated Tax Liability").
Within ten (10) days after receipt of such advice, Clarant shall deliver to each
Stockholder by check or wire transfer of immediately available funds an amount
equal to one-half of such Stockholder's Estimated Tax Liability as set forth
therein. Upon filing of the Company's 1999 S corporation tax returns for the
period ending on the Closing Date (the "1999 S Corporation Returns"), as herein
provided, Clarant shall deliver to each of the Stockholder's such Stockholder's
K-1 in connection with the 1999 S Corporation Returns. Each of the Stockholders
shall then promptly, after filing of such Stockholder's tax return, advise
Clarant of such Stockholder's actual federal, state and local tax obligations
attributable to such taxable income, calculated at such Stockholder's maximum
marginal rates (the "InterActive8 1999 Tax Liability"), together with a check
for the amount, if any, by which the Estimated Tax Liability payment theretofore
received by such Stockholder exceeds one-half of such Stockholder's InterActive8
1999 Tax Liability or, as the case may be, within ten (10) days after receipt of
such advice, Clarant shall deliver to each Stockholder by check an amount equal
to the amount, if any, by which one-half of such Stockholder's InterActive8 1999
Tax Liability as set forth therein, exceeds the Estimated Tax Liability payment
theretofore received by such Stockholder.
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 INTERNET PUBLISHING VENTURE. After the Closing Date, each of the
Stockholders may enter into and participate in a joint venture or partnership,
or other similar arrangement, with a company presently known as Triad (formerly
Premier) or its affiliates relating to an internet based educational publishing
venture, and neither Clarant nor the Company shall assert that such interest is
a corporate opportunity for Clarant or the Company or otherwise is in breach of
any other agreement between either Stockholder and Clarant.
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10.5 ASSUMPTION OF CERTAIN OBLIGATIONS. Clarant shall satisfy at
Closing the Company's obligation to Thomas Jacobs under a consulting agreement
dated July 1, 1997, according to the terms thereof; PROVIDED, THAT, the amount
of such obligation does not exceed $408,000, exclusive of interest accrued after
April 30, 1999.
10.6 RELEASE OF GUARANTEES. If the Stockholders have not been released
from the personal guarantees set forth on SCHEDULE 7.10 on or before the Closing
Date, Clarant shall use commercially reasonable best efforts to release the
Stockholders from such guarantees. If the Stockholders have not been released
from the personal guarantees set forth on SCHEDULE 7.10 within sixty (60) days
after the Closing Date, Clarant shall obtain an irrevocable letter of credit
sufficient to satisfy in full the obligations underlying the personal guarantees
set forth on SCHEDULE 7.10, which letter of credit shall be maintained, renewed
or replaced until such time as the Stockholders are released from the
guarantees.
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY STOCKHOLDERS. The Stockholders shall jointly
and severally indemnify, defend and hold harmless Clarant, Newco, the Company,
and the Surviving Corporation and their respective officers, directors,
employees, agents, representatives and Affiliates (other than the Stockholders)
(each, a "Clarant Indemnified Party"), at all times from and after this
Agreement harmless from and against, and promptly pay to a Clarant Indemnified
Party or reimburse a Clarant Indemnified Party for, any and all liabilities,
obligations, deficiencies, demands, claims, suits, actions, or causes of action,
assessments, losses, costs, expenses, filing fees, interest, fines, penalties,
or damages or costs or expenses of any and all investigations, proceedings
(including appeals, arbitration and mediation), judgments, environ mental
analyses, remediations, settlements and compromises (including reasonable fees
and expenses of attorneys, accountants and other experts) (individually and
collectively, the "Losses") sustained or incurred by any Clarant Indemnified
Party resulting from or arising out of (a) any breach of the representations and
warranties of the 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
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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. 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 (including, but not limited
to, the covenants contained in Sections 7.10 and 10.6), (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 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
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of any claim , obligation, deficiency, demand, suit, cause of action, assessment
or expense of any kind (each, a "Claim") or of the commencement of any action or
proceeding by an entity who is not a party to this Agreement or an Affiliate of
such a party (including, but not limited to any domestic or foreign court,
government, or Governmental Authority or instrumentality, federal state or
local) (a "Third Party Claim") against such Indemnified Party, against which a
party to this Agreement is required to provide indemnification under this
Agreement (an "Indemnifying Party"), the Indemnified Party shall give written
notice together with a statement of any available information regarding such
claim to the Indemnifying Party within sixty (60) days after learning of such
Claim (or within such shorter time as may be necessary to give the Indemnifying
Party a reasonable opportunity to respond to such Claim. The Indemnifying Party
shall have the right, upon written notice to the Indemnified Party (the "Defense
Notice") within thirty (30) days after receipt from the Indemnified Party of
notice of such Claim, which notice by the Indemnifying Party shall specify the
counsel it will appoint to defend such Claim ("Defense Counsel"), to conduct at
its expense the defense against such Claim in its own name, or if necessary in
the name of the Indemnified Party; provided, however, that the Indemnified Party
shall have the right to approve the Defense Counsel, which approval shall not be
unreasonably withheld, and in the event the Indemnifying Party shall propose an
alternate Defense Counsel, which shall be subject again to the Indemnified
Party's approval.
(b) In the event that the Indemnifying Party shall fail to
give such notice, it shall be deemed to have elected not to conduct the defense
of the subject Claim, and in such event the Indemnified Party shall have the
right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
(c) In the event that the Indemnifying Party does elect to
conduct the defense of the subject Claim, the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the Indemnifying
Party, and the Indemnified Party shall have the right at its expense to
participate in the defense assisted by counsel of its own choosing, provided
that the Indemnified Party shall have the right to compromise and settle the
Claim only with the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. Without the prior written
consent of the Indemnified Party, the Indemnifying Party will not enter into any
settlement of any Third Party Claim or cease to defend against such Claim, if
pursuant to or as a result of such settlement or cessation, (i) injunctive or
other equitable relief would be imposed against the Indemnified Party, or (ii)
such settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder. The Indemnifying 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
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materially interfere with the Business, assets, properties condition (financial
or otherwise) or prospects of the Indemnified Party (and the cost of such
defense shall constitute an Loss for which the Indemnified Party is entitled to
indemnification hereunder). If a firm decision is made to settle a Third Party
Claim, which offer the Indemnifying Party is permitted to settle under this
Section 11.3 and the Indemnifying Party desires to accept and agree to such
offer, the Indemnifying Party will give written notice to the Indemnified Party
to that effect who will have an opportunity to consent to the firm offer. If the
Indemnified Party 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 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
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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 Indemnified
Party will be free to pursue such remedies as may be available to the
Indemnified Party under this Article 11.
11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an Indemnified Party
to give timely, complete or accurate notice as provided in Sections 11.3, 11.4
and 11.5 will not affect the rights or obligations of any party hereunder except
and only to the extent that, as a result of such failure, any party entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise directly and materially damaged
as a result of such failure to give timely notice.
11.7 REDUCTION OF LOSS. To the extent any Loss of an Indemnified Party
is reduced by receipt of payment (a) under insurance policies which are not
subject to retroactive adjustment or other reimbursement to the insurer in
respect of such payment, or (b) from third parties not Affiliated with the
Indemnified Party, such payments (net of the expenses of the recovery thereof)
(such net payment being referred to herein as a "Reimbursement") shall be
credited
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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 14.3 of this
Agreement, the indemnification provided for in this Article 11 shall (except as
prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party; provided, however, that nothing herein shall be construed to
limit the right of a party, in a proper case, to seek injunctive relief for a
breach of this Agreement or to seek relief for a breach of any employment
agreement with, or any security issued by, Clarant.
11.11 LIMITATION AND EXPIRATION. Notwithstanding the foregoing
provisions of this Article 11:
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(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), 5.24 (taxes) and subsections (g) and (h) of
Section 5.25 (business conduct), (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);
(ii) the aggregate amount of the Stockholders'
liability under this Article 11 shall not exceed the Merger Consideration; and
(b) the indemnification obligations of the Stockholders under
Section 11.1, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 11.11(b):
(i) (A) with respect to claims arising out of
breaches of the representations and warranties made in Sections 5.17 (employee
benefits) 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 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Stockholders
exceeds the Indemnification Threshold; PROVIDED, HOWEVER, that the
Indemnification Threshold shall not apply to Losses (x) 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) described in Section 11.2(c), or (z)
arising out of intentional fraud;
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(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 trading days ending two business days immediately prior to the date of
payment.
(e) Notwithstanding any other term in 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 Stockholders), on the one hand, or by Clarant
(acting through its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not have been
consummated by December 31, 1999, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date; (c) by the
Stockholders or the Company, on the one hand, or by Clarant, on the other hand,
after giving written notice to the other party that a breach or default of any
representation, warranty, or covenant contained in this Agreement which breach
has had or is
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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; or (d) pursuant to Section 7.11; or (e) by the
Company if, by June 30, 1999, Clarant shall not have filed an initial
registration statement with the SEC reflecting an IPO price for Clarant Common
Stock of $11.00 per share.
12.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES.
(a) Except for those Stockholders and the 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 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
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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 (i) 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 or (ii)
an interest in a joint venture, partnership, or other similar arrangement, with
a company known as Triad (formerly Premier Publishing) or its affiliates.
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 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..
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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 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
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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.
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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
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16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. Each Stockholder
acknowledges that the shares of Clarant Common Stock delivered to the
Stockholder pursuant to this Agreement have not been and will not be registered
under the 1933 Act and therefore may not be resold without compliance with the
1933 Act. The Clarant Common Stock acquired by the Stockholder pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it.
16.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and
represents that none of the shares of Clarant Common Stock issued to the
Stockholder will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC. The Clarant
Common Stock shall bear the following legend in addition to the legend required
under Article 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC., DELIVERY BY THE
HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CLARANT, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder represents and
warrants that it is able to bear the economic risk of an investment in the
Clarant Common Stock acquired pursuant to this Agreement, can afford to sustain
a total loss of such investment and have such knowledge and experience in
financial and business matters that they are capable of evaluating the merits
and risks of the investment in the Clarant Common Stock. Each Stockholder
represents and warrants that it has had an adequate opportunity to ask questions
and receive answers from the officers of Clarant concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
Clarant, the plans for the operations of the business of Clarant, the business,
operations and financial condition of the Other Founding Companies, and any
plans for additional acquisitions and the like. Each Stockholder acknowledges
that it has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction. Each
Stockholder represents and warrants that such Stockholder has the requisite
knowledge and experience in financial and business matters to be capable of
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evaluating the merits and risks of this investment and is an "accredited
investor" as defined in Regulation D under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing
Date, whenever Clarant proposes to register any Clarant Common Stock for its own
or others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by Clarant, (ii) registrations relating to employee
benefit plans and (iii) registrations relating to rights offerings made to the
stockholders of Clarant, Clarant shall give each of the Stockholders prompt
written notice of its intent to do so. Upon the written request of any of the
Stockholders given within thirty (30) days after receipt of such notice, Clarant
shall cause to be included in such registration all of the Clarant Common Stock
issued to the Stockholders pursuant to this Agreement which any such Stockholder
requests, provided that Clarant shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to Clarant or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization. In addition, if Clarant is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by Persons other
than Clarant is greater than the number of such shares which can be offered
without adversely affecting the offering, Clarant may reduce pro rata the number
of shares offered for the accounts of such Persons (based upon the number of
shares proposed to be sold by each such Person) to a number deemed satisfactory
by such managing underwriter, provided, that, for each such offering made by
Clarant after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by Persons other than Clarant, the Stockholders and the
stockholders of the Other Founding Companies (collectively, the Stockholders and
the stockholders of the other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Clarant. In connection with
registrations under Section 17.1, Clarant shall (i) use its commercially
reasonable best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement with respect to the Clarant Common Stock
and use its commercially reasonable best efforts to cause such registration to
promptly become and remain effective for a period of at least one hundred twenty
(120) days (or such shorter period during which Founding Stockholders shall have
sold all Clarant Common Stock which they requested to be registered); (ii) use
its commercially reasonable best efforts to register and qualify the Clarant
Common Stock covered by such registration statement under applicable state
securities laws as
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the holders shall reasonably request for the distribution of the Clarant Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, Clarant and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of Clarant's size and
investment stature, including indemnification provisions.
17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated to
register shares of Clarant Common Stock held by any 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.
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"Action" has the meaning set forth in Section 5.15.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Affiliates" has the meaning set forth in Section 5.9.
"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or
any of its Subsidiaries has or may acquire any rights, (b) under which the
Company or any of its Subsidiaries has or may become subject to any obligation
or liability, or (c) by which the Company or any of its Subsidiaries or any of
the Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as EXHIBIT 1.1
hereto or with such changes therein as may be required by applicable state laws.
"Balance Sheet" means a consolidated balance sheet of the Company and
any Subsidiaries.
"Balance Sheet Date" means March 31, 1999.
"Business" has the meaning set forth in the recitals of this Agreement.
"Charter Documents" has the meaning set forth in Section 5.1.
"Claim" has the meaning set forth in Section 11.3.
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Charter Documents" has the meaning set forth in Section 6.1.
"Clarant Common Stock" has the meaning set forth in Section 6.5.
"Clarant Expiration Date" means the date that is one year from the
Effective Time.
"Clarant Indemnified Party" has the meaning set forth in
Section 11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.5.
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"Clarant Stock" has the meaning set forth in Section 6.5.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant to the Internal
Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Indemnified Party" has the meaning set forth in Section 11.2
"Company Other Benefit Obligation" has the meaning set forth in
Section 5.17.
"Company Plan" has the meaning set forth in Section 5.17.
"Company Stock" has the meaning set forth in Section 2.1(a).
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Contingent Consideration" shall have the meaning given to such term in
Section 3.3.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Constituent Companies" has the meaning set forth in the recitals of
this Agreement.
"Convertible Securities" has the meaning set forth in Section 5.3.
"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).
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"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.
"Direct Claim" has the meaning set forth in Section 11.4.
"Effective Time" means the time as of which the Merger becomes
effective, which the parties hereto contemplate to occur at the Closing.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencement of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
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(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).
"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 Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
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"Intellectual Property" means all Trademarks, copyrights and patents
and any registration or application for any of the foregoing, and any trade
secret, invention, process, know-how, computer software, technology systems,
product design or product packaging.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Investor Questionnaire" means the investor questionnaire referred to
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.
"Leases" has the meaning set forth in Section 5.23(b).
"Legal Requirement" means any federal, state, local, municipal,
foreign, or other administrative order, constitution, law, ordinance, principle
of common law, regulation, statute, or treaty.
"Losses" has the meaning set forth in Section 11.1.
"Material Adverse Effect" means with respect to any Person that is a
party to this Agreement a material adverse change in (i) the business
operations, condition or prospects (financial or otherwise) of such Person, (ii)
the ability of such Person to consummate the transactions contemplated by the
Agreement, or (iii) the condition or value of the properties and assets of such
Person.
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"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 New
York.
"Merger Consideration" shall have the meaning given to such term in
Section 3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Mr. Marmol" means Guillermo G. Marmol, 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.
"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.
73
<PAGE>
"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.
"PBGC" has the meaning set forth in Section 5.17.
"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" any Taxable Period or portion thereof ending on or
before the Closing Date.
"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Authority.
"Qualified Plan" has the meaning set forth in Section 5.17.
"Qualified Plans" has the meaning set forth in Section 5.17.
"Registration Statement" means that draft Registration Statement on
Form S-1 of Clarant, Inc. dated May 26, 1999, prepared by Merrill Corporation
Network Composition System and bearing a cover page time stamp of 17:05 that was
circulated the evening of May 27, 1999, to the Founding Companies, and attached
hereto as SCHEDULE 18.1.
74
<PAGE>
"Reimbursement" has the meaning set forth in Section 11.7.
"Relevant Group" has the meaning set forth in Section 5.24.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Schedule" means each Schedule attached hereto and identified as a
Schedule, which shall reference the relevant sections of this Agreement, on
which parties hereto disclose information as part of their respective
representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Securities Agreements" shall have the meaning given to such term in
Section 5.3.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"State Corporation Law" has the meaning set forth in Section 1.2.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Straddle Period" has the meaning set forth in Section 10.2(a).
"Subsidiary" means any entity the majority of voting shares or
interests of which are owned by the Company and/or by one or more Subsidiaries
of the Company.
"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.
75
<PAGE>
"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
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.
76
<PAGE>
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,
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, Wilmer Cutler & Pickering, and any
other Person retained by Clarant, and the costs of preparing the Registration
Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of the
Stockholders, the Company and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by the
Company and the Stockholders under this Agreement, including the reasonable fees
and expenses of legal counsel to the Company and the Stockholders.
77
<PAGE>
(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:
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attention: Guillermo G. Marmol
Fax: 972-488-7299
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
Fax: 202-663-6363
(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:
78
<PAGE>
(c) If to the Company, addressed to it at:
Interactive8, Inc.
114 W. 26th Street
12th Floor
New York, NY 10001
Attn: Douglas M. Rice
Facsimile: 212-655-1091
and marked "Personal and Confidential"
with a copy to:
Frankfurt, Garbus, Klein & Selz
488 Madison Avenue
New York, NY 10022
Attn.: Jerrold B. Spiegel, Esq.
Fax: 212-593-9125
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
19.7 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without reference to conflicts of laws
principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
79
<PAGE>
19.11 STOCKHOLDERS' REPRESENTATIVE.
(a) Each holder of Company Common Stock, by signing this
Agreement, designates Rice or, in the event that Rice is unable or unwilling to
serve, now or in the future, Markel, 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.
[this space left intentionally blank]
80
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC.
By: /s/ Guillermo G. Marmol
---------------------------------
Name: Guillermo G. Marmol
-------------------------------
Title: Chief Executive Officer &
President
------------------------------
INTERACTIVE8 ACQUISITION CORP.
By: /s/ Guillermo G. Marmol
---------------------------------
Name: Guillermo G. Marmol
-------------------------------
Title: President
------------------------------
INTERACTIVE8, INC.
By: /s/ Douglas M. Rice
---------------------------------
Name: Douglas M. Rice
-------------------------------
Title: President and CEO
------------------------------
STOCKHOLDERS:
/s/ Douglas M. Rice
-----------------------------------
Douglas M. Rice
/s/ Morris William Markel
-----------------------------------
Morris William Markel
Signature Page to Agreement and Plan of Organization
Clarant, Inc., Interactive8 Acquisition Corp.,
Interactive8, Inc. and the Stockholder's name therein
<PAGE>
EXHIBIT 1.1
ARTICLES OF MERGER
<PAGE>
EXHIBIT 1.3
SURVIVING CORPORATION CHARTER DOCUMENTS
<PAGE>
EXHIBIT 2.1(a)
MERGER CONSIDERATION
At Closing, Clarant will deliver to the Stockholders and the holders
of Options that are exercisable as of the Closing Date, Merger Consideration
equal to:
(a) 1,770,336 shares of Clarant Common Stock (but 1,760,089 shares
of Clarant Common Stock if Jon Chang is employed by the Company on the
Closing Date) (the "Stock Consideration"); and
(b) cash of $10,926,304 (but $11,039,016 if Jon Chang is employed by
the Company on the Closing Date) times a fraction, the numerator of which is
the IPO price per share of Clarant Common Stock and the denominator of which
is $11.00 (the "Cash Consideration").
(c) At Closing, the Merger Consideration shall be distributed among
the Stockholders and the holders of Options that are exercisable as of the
Closing Date as follows:
(i) first, the Stockholders and holders of Options that are
exercisable as of the Closing Date shall receive their pro rata share, on a
Fully-Diluted basis, according to SCHEDULE 5.3, of the Cash Consideration, as
determined pursuant to paragraph (b) above; and
(ii) second, the Stockholders shall receive their pro rata
share, with respect to each other and not on a Fully-Diluted basis, according
to SCHEDULE 5.3, of the Stock Consideration.
(d) The minimum IPO price per share of Clarant Common Stock is $9.90.
<PAGE>
EXHIBIT 3.3
(a) Contingent Consideration will be paid to the Stockholders
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
<TABLE>
<CAPTION>
PROJECTED PROJECTED PROJECTED PROJECTED
MEASUREMENT COMPANY COMPANY PRE-TAX COMBINED COMBINED
PERIOD REVENUES INCOME REVENUES PRE-TAX INCOME
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jul. 1, 1999 - $5,500,000 $1,000,000 n/a n/a
Dec. 31, 1999
- ---------------------------------------------------------------------------------------------
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
- ---------------------------------------------------------------------------------------------
</TABLE>
FORMULAS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jul. 1, 1999 - 3 15 n/a [50% (Revenue Multiple) x $78,700,000 $7,600,000
Dec. 31, 1999 (Actual Company Revenues -
Projected Company Revenues)]
+
[50% (Pre-Tax Income
Multiple) x (Actual Pre-Tax
Income - Projected Pre-Tax
Income)]
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Jan. 1, 2000 - 3 15 9.66% [(Pool Share) x 50% (Revenue $78,700,000 $7,600,000
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)]
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) For purposes of determining the amount of Contingent Consideration
payable to the Stockholders:
(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 (A)
amortization of acquisition goodwill incident to the transactions contemplated
by the Agreement, (B) payments by the Company to Thomas Jacobs pursuant to
Section 10.5 of the Agreement, (C) payments, if any, of returned earnings to the
Stockholders, (D) any charges in connection with the Company's incentive stock
option plan and (E) management fees, centralized service charges or other
similar intra-company charges payable to Clarant or any affiliate of Clarant,
except to the extent that such charges are for goods or services that replace
goods or services previously procured by the Company.
(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
<PAGE>
Contingent Consideration for the Measurement Period. For these purposes, each
share of Clarant Common Stock will be valued at the trailing 30-day average
closing price, ending on the day before the date of issuance.
(d) Within forty-five (45) days following the end of each
Measurement Period, Clarant shall cause Arthur Andersen 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 Stockholders'
Representative, as defined in Section 19.11, setting forth (i) the
determination made by Arthur Andersen 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 Stockholders for the Measurement Period and (iii) the amount
of cash and shares of Clarant Common Stock that will be paid to the
Stockholders 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
Stockholders at the accounts identified on Exhibit 16(f)(iii) and deliver the
shares of Clarant Common Stock to the Stockholders. 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, Arthur Andersen shall select such independent accounting
firm. The determination of such independent accounting firm shall be final
and binding on the parties
<PAGE>
hereto and promptly upon such determination Clarant shall direct [Clarant's
Bank] to deliver the Contingent Consideration to the Stockholders. 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 Stockholders for such imputed
interest.
(h) The right to receive the Contingent Consideration shall not be
assignable by the Stockholders.
(i) The parties acknowledge that Clarant intends to integrate the
businesses of the Founding Companies and implement policies applicable to
Clarant and its subsidiaries as a whole after the Closing Date. In
integrating the Founding Companies and implementing such policies, Clarant
shall not take any action intended to prejudice the Stockholders' rights with
respect to the Contingent Consideration. In the event that Clarant merges,
consolidates, reorganizes, restructures or disposes of a material portion of
the assets of, or takes any similar action with respect to, any one or more
of the Founding Companies, Clarant shall maintain sufficient records and
recordkeeping procedures as is commercially practicable and reasonably
necessary to calculate the amount of Contingent Consideration payable to the
Stockholders in accordance with the Agreement and the terms set forth in this
EXHIBIT 3.3. After the Closing Date and until June 30, 2000, to a
commercially reasonable extent, Clarant will ensure that the Company has an
appropriate level of working capital.
(j) For purposes of calculating the Contingent Consideration during
the first Measurement Period, the Company's Actual Pre-tax Income shall be
increased by ten percent (10%) of any revenues of any one of the Other
Founding Companies from any Referred Work. The term "Referred Work" means
work relating to a project obtained from a client by the Company that the
Company requests Clarant to assign to one of the Other Founding Companies and
which assignment request is approved by Mr. Marmol (or an officer of Clarant
designated by Mr. Marmol) according to procedures established by Clarant.
<PAGE>
EXHIBIT 10.08
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
by and among
CLARANT, INC.,
MULTIMEDIA ACQUISITION LLC,
MULTIMEDIA RESOURCES, LLC,
and
HENRY HEILBRUNN,
LYNN J. BRANIGAN
and
NORMAN L. DAWLEY
Dated: June 2, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. THE MERGER...............................................................................................2
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER.......................................................2
1.2 EFFECTIVE TIME..................................................................................2
1.3 ARTICLES OF ORGANIZATION, SOLE MEMBER OF SURVIVING COMPANY......................................2
1.4 EFFECT OF MERGER................................................................................3
2. CONVERSION OF MEMBERS' INTERESTS.........................................................................3
2.1 MANNER OF CONVERSION............................................................................3
3. DELIVERY OF MERGER CONSIDERATION.........................................................................4
3.1 MERGER CONSIDERATION; TENDER....................................................................4
3.2 TENDER OF COMPANY INTERESTS.....................................................................5
3.3 EARN-OUT........................................................................................5
4. PRE-CLOSING AND CLOSING..................................................................................6
4.1 PRE-CLOSING.....................................................................................6
4.2 CLOSING.........................................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MEMBERS
........................................................................................................6
5.1 DUE ORGANIZATION................................................................................7
5.2 AUTHORIZATION. .................................................................................7
5.3 MEMBERSHIP INTERESTS OF THE COMPANY.............................................................7
5.4 AUTHORITY; NO CONFLICT..........................................................................8
5.5 TRANSACTIONS IN COMPANY INTERESTS; ORGANIZATION ACCOUNTING......................................8
5.6 [Reserved]......................................................................................9
5.7 SUBSIDIARIES....................................................................................9
5.8 PREDECESSOR STATUS; ETC.........................................................................9
5.9 SPIN-OFF BY THE COMPANY. ......................................................................9
5.10 FINANCIAL STATEMENTS............................................................................9
5.11 LIABILITIES AND OBLIGATIONS....................................................................9
5.12 ACCOUNTS AND NOTES RECEIVABLE..................................................................10
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY........................................................10
5.14 TRADEMARKS.....................................................................................11
5.15 LITIGATION AND LEGAL PROCEEDINGS...............................................................11
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.......................................................13
5.17 EMPLOYEE BENEFITS..............................................................................13
5.18 INSURANCE POLICIES.............................................................................17
5.19 ENVIRONMENT....................................................................................19
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5.20 LABOR AND EMPLOYMENT MATTERS...................................................................20
5.21 PERSONAL PROPERTY..............................................................................21
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS......................................22
5.23 REAL PROPERTY..................................................................................24
5.24 TAXES..........................................................................................24
5.25 BUSINESS CONDUCT...............................................................................27
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY...........................................................29
5.27 YEAR 2000 COMPLIANCE. .........................................................................30
5.28 RELATIONS WITH GOVERNMENTS.....................................................................30
5.29 DISCLOSURE.....................................................................................30
5.31 AFFILIATE TRANSACTIONS.........................................................................31
5.32 MISREPRESENTATION..............................................................................32
5.33 BROKERS........................................................................................32
5.34 AUTHORITY; OWNERSHIP...........................................................................32
5.35 PREEMPTIVE RIGHTS..............................................................................32
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK.......................................................32
5.37 TENDER.........................................................................................32
5.38 INVESTOR QUESTIONNAIRES........................................................................33
6. REPRESENTATIONS OF CLARANT AND NEWCO....................................................................33
6.1 DUE ORGANIZATION...............................................................................33
6.2 AUTHORIZATION..................................................................................33
6.3 TRANSACTION NOT A BREACH.......................................................................33
6.4 MISREPRESENTATION..............................................................................33
6.5 CAPITAL STOCK..................................................................................34
6.6 SUBSIDIARIES...................................................................................34
6.7 LIABILITIES AND OBLIGATIONS....................................................................34
6.8 CONFORMITY WITH LAW; LITIGATION................................................................34
6.9 VALIDITY OF OBLIGATIONS........................................................................35
6.10 CLARANT COMMON STOCK...........................................................................35
6.11 NO SIDE AGREEMENTS.............................................................................35
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS...................................................35
6.13 NO VIOLATIONS..................................................................................35
6.14 ABSENCE OF CHANGES.............................................................................36
6.15 TAXES..........................................................................................37
7. COVENANTS PRIOR TO CLOSING..............................................................................37
7.1 ACCESS AND COOPERATION; DUE DILIGENCE..........................................................37
7.2 CONDUCT OF BUSINESS PENDING CLOSING............................................................38
7.3 PROHIBITED ACTIVITIES..........................................................................38
7.4 NO SHOP........................................................................................40
7.5 NOTICE TO BARGAINING AGENTS....................................................................40
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7.6 AGREEMENTS....................................................................................40
7.7 NOTIFICATION OF CERTAIN MATTERS................................................................41
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT...........................................41
7.9 FINAL FINANCIAL STATEMENTS. ...................................................................42
7.10 FURTHER ASSURANCES.............................................................................42
7.11 AMENDMENT OF SCHEDULES.........................................................................42
7.12 THIRD PARTY APPROVALS..........................................................................43
7.13 HSR FILING.....................................................................................43
7.14 AUTHORIZED CAPITAL STOCK.......................................................................43
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND THE
COMPANY
.......................................................................................................44
8.1 REPRESENTATIONS AND WARRANTIES.................................................................44
8.2 PERFORMANCE OF OBLIGATIONS.....................................................................44
8.3 NO LITIGATION..................................................................................44
8.4 OPINION OF COUNSEL.............................................................................44
8.5 REGISTRATION STATEMENT.........................................................................45
8.6 CONSENTS AND APPROVALS.........................................................................45
8.7 GOOD STANDING CERTIFICATES.....................................................................45
8.8 SECRETARY'S CERTIFICATE........................................................................45
8.9 HSR ACT........................................................................................45
8.10 CLOSING OF THE IPO.............................................................................45
8.11 EMPLOYMENT AGREEMENTS..........................................................................45
8.12 LISTING........................................................................................45
8.13 TAX OPINION....................................................................................46
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO
.......................................................................................................46
9.1 REPRESENTATIONS AND WARRANTIES.................................................................46
9.2 PERFORMANCE OF OBLIGATIONS.....................................................................46
9.3 NO LITIGATION..................................................................................46
Company and Member Representations......................................................................47
9.5 NO MATERIAL ADVERSE EFFECT.....................................................................47
9.6 TERMINATION OF RELATED PARTY AGREEMENTS........................................................47
9.7 OPINION OF COUNSEL.............................................................................47
9.8 CONSENTS AND APPROVALS.........................................................................47
9.9 GOOD STANDING CERTIFICATES.....................................................................47
9.10 REGISTRATION STATEMENT.........................................................................47
9.11 EMPLOYMENT AGREEMENTS..........................................................................48
9.12 CLOSING OF IPO.................................................................................48
9.13 FIRPTA CERTIFICATE.............................................................................48
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9.14 [Reserved].....................................................................................48
9.15 SATISFACTION...................................................................................48
9.16 HSR ACT........................................................................................48
9.17 INVESTOR QUESTIONNAIRE.........................................................................48
10. COVENANTS OF CLARANT AND THE MEMBERS AFTER CLOSING......................................................48
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT...................................................48
10.2 TAX MATTERS....................................................................................48
10.3 DIRECTORS AND OFFICERS.........................................................................50
10.4 DIRECTORS' AND OFFICERS' INSURANCE.............................................................50
11. INDEMNIFICATION.........................................................................................50
11.1 INDEMNIFICATION BY MEMBERS.....................................................................50
11.2 INDEMNIFICATION BY CLARANT.....................................................................51
11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS.................................................52
11.4 TAX CONTESTS...................................................................................53
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS......................................................54
11.6 FAILURE TO GIVE TIMELY NOTICE..................................................................54
11.7 REDUCTION OF LOSS..............................................................................55
11.8 SUBROGATION....................................................................................55
11.9 ARBITRATION....................................................................................55
11.10 EXCLUSIVE REMEDY...............................................................................55
11.11 LIMITATION AND EXPIRATION......................................................................56
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS...........................................57
12. TERMINATION OF AGREEMENT................................................................................57
12.1 TERMINATION....................................................................................57
12.2 LIABILITIES IN EVENT OF TERMINATION............................................................58
13. NONCOMPETITION..........................................................................................58
13.1 PROHIBITED ACTIVITIES.........................................................................58
13.2 DAMAGES........................................................................................59
13.3 REASONABLE RESTRAINT...........................................................................59
13.4 SEVERABILITY; REFORMATION......................................................................60
13.5 INDEPENDENT COVENANT...........................................................................60
13.6 MATERIALITY....................................................................................60
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................60
14.1 MEMBERS........................................................................................60
14.2 CLARANT AND NEWCO..............................................................................61
14.3 DAMAGES........................................................................................61
14.4 SURVIVAL.......................................................................................61
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15. TRANSFER RESTRICTIONS...................................................................................62
15.1 TRANSFER RESTRICTIONS..........................................................................62
16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................62
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK.......................................................62
16.2 COMPLIANCE WITH LAW............................................................................63
16.3 ECONOMIC RISK; SOPHISTICATION..................................................................63
17. REGISTRATION RIGHTS.....................................................................................63
17.1 PIGGYBACK REGISTRATION RIGHTS..................................................................63
17.2 REGISTRATION PROCEDURES........................................................................64
17.3 UNDERWRITING AGREEMENT.........................................................................64
17.4 AVAILABILITY OF RULE 144.......................................................................65
17.5 MARKET STANDOFF................................................................................65
18. DEFINITIONS.............................................................................................65
19. GENERAL................................................................................................74
19.1 COOPERATION....................................................................................74
19.2 SUCCESSORS AND ASSIGNS.........................................................................74
19.3 ENTIRE AGREEMENT...............................................................................74
19.4 COUNTERPARTS...................................................................................74
19.5 EXPENSES.......................................................................................74
19.6 NOTICES. ......................................................................................75
19.7 GOVERNING LAW..................................................................................76
19.8 EXERCISE OF RIGHTS AND REMEDIES................................................................76
19.9 TIME...........................................................................................76
19.10 REFORMATION AND SEVERABILITY...................................................................76
19.11 MEMBERS' REPRESENTATIVE........................................................................76
19.12 CAPTIONS.......................................................................................77
19.13 SURVIVAL.......................................................................................77
19.14 ACCOUNTING TERMS...............................................................................77
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EXHIBITS AND SCHEDULES
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EXHIBIT 1.1 Articles of Merger
EXHIBIT 1.3 Surviving Company Charter Documents
EXHIBIT 2.1(a) Consideration
EXHIBIT 3.3 Contingent Consideration
EXHIBIT 5.2 Member and Manager Approvals
EXHIBIT 5.29(a) Investor Questionnaires
EXHIBIT 6.1 Clarant Charter Documents
EXHIBIT 8.11 Form of Employment Agreement
EXHIBIT 18 Knowledge
EXHIBIT 19.6 Members Addresses and Counsel
SCHEDULE 5.1 Charter Documents and Officers and Directors of the Company
SCHEDULE 5.3 Capital Structure of the Company
SCHEDULE 5.4 Consents
SCHEDULE 5.7 Subsidiaries
SCHEDULE 5.8 Predecessor Status
SCHEDULE 5.10 Financial Statements
SCHEDULE 5.11 Liabilities and Obligations
SCHEDULE 5.12 Accounts Receivable
SCHEDULE 5.13 Intellectual Property
SCHEDULE 5.14 Trademarks
SCHEDULE 5.15 Litigation
SCHEDULE 5.16 Compliance with Laws/Permits
SCHEDULE 5.17 Company Plans
SCHEDULE 5.18 Insurance
SCHEDULE 5.19 Environmental
SCHEDULE 5.20 Employees
SCHEDULE 5.21 Personal Property
SCHEDULE 5.22 Material Contracts
SCHEDULE 5.23 Real Property
SCHEDULE 5.24(g) List of Tax Returns
SCHEDULE 5.24(q) Tax Elections
SCHEDULE 5.25 Business Conduct
SCHEDULE 5.26 Deposit Accounts/Powers of Attorney
SCHEDULE 5.27 Y2K
SCHEDULE 5.30 Warranties
SCHEDULE 5.31 Affiliate Transactions
SCHEDULE 6.5 Clarant Securities
SCHEDULE 6.7 Liabilities & Obligations
SCHEDULE 6.8 Conformity with Law
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SCHEDULE 6.9 Litigation
SCHEDULE 6.12 Property
SCHEDULE 6.13 Consents
SCHEDULE 9.11 Employment Agreements
SCHEDULE 10.4 D&O Insurance
SCHEDULE 11.1(f) Additional Indemnification Matters
SCHEDULE 18.1 Registration Statement
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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"),
MULTIMEDIA ACQUISITION LLC, a New York limited liability company ("Newco"),
MULTIMEDIA RESOURCES, LLC, a New York limited liability company (the "Company"),
HENRY HEILBRUNN, LYNN J. BRANIGAN and NORMAN L. DAWLEY, (collectively, the
"Members"). The Members are all the members of the Company.
WHEREAS, Newco is a limited liability company duly organized and
existing under the laws of the State of New York, having been formed on May 4,
1999, solely for the purpose of completing the transactions set forth herein,
and is a wholly-owned subsidiary of Clarant;
WHEREAS, the Company provides consulting services, involving strategic
planning, business development and marketing and program development and
implementation for the Internet (the "Business");
WHEREAS, the respective members of Newco and the Company (which
together are hereinafter collectively referred to as "Constituent Companies")
deem it advisable and in the best interests of the Constituent Companies and
their respective members that Newco merge with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of New
York (the "Merger"), and in furtherance thereof have approved the Merger;
WHEREAS, it is the intent of Clarant, Newco, the Company and each of
the Members that upon the completion of the Merger, the Company shall be the
Surviving Company existing as a wholly owned subsidiary of Clarant;
WHEREAS, Clarant plans to enter into other separate agreements
substantially similar to this Agreement (the "Other Agreements") with Align
Solutions Corp., Young & Rubicam, Inc., Free Range Media, Inc., Interactive8,
Inc., Integrated Consulting, Inc., Potomac Partners Management Consulting, LLC,
and RSI Group, Inc. (collectively, the "Other Founding Companies" and together
with the Other Founding Companies, the "Founding Companies"), and their
respective members in order to acquire additional Internet consulting
organizations.
WHEREAS, this Agreement, the IPO and the Other Agreements constitute
the "Clarant Plan of Organization";
WHEREAS, the Board of Directors of Clarant and Members of the Company
have approved and adopted the Clarant Plan of Organization as an integrated plan
to transfer the membership interests of the Company and the capital stock and
membership interests, as applicable, of the Other Founding Companies to Clarant
under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code");
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WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Members of the Company, the
members of Newco and the board of directors of Clarant have approved the Merger,
this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. Subject to satisfaction
of the terms and conditions of this Agreement, the Constituent Companies will
cause the Articles of Merger in substantially the form attached hereto as
EXHIBIT 1.1 to be signed, verified and filed with the Secretary of State of the
State of New York and stamped receipt copies of each such filing to be delivered
to Clarant on or before the Closing Date.
1.2 EFFECTIVE TIME. At the Effective Time and subject to the terms and
conditions of this Merger and the applicable provisions of the applicable laws
governing mergers in the State of New York (the "State LLC Law"), Newco shall be
merged with and into the Company in accordance with the Articles of Merger, the
separate existence of Newco shall cease, and the Company shall be the surviving
party in the Merger. At the Effective Time, the effect of the Merger otherwise
shall be as provided in the applicable provisions of the State LLC Law.
1.3 ARTICLES OF ORGANIZATION, SOLE MEMBER OF SURVIVING COMPANY. At the
Effective Time:
(a) the Articles of Organization of the Surviving Company
shall be amended and restated as permitted under the laws of New York and shall
read substantially in the form attached hereto as EXHIBIT 1.3;
(b) the operating agreement of Newco then in effect shall be
the operating agreement of the Surviving Company until amended as provided by
law;
(c) Guillermo G. Marmol, the Chief Executive Officer of
Clarant ("Mr. Marmol") shall be the sole managing member of the Surviving
Company until his successor is elected or appointed and qualified in accordance
with the terms of the operating agreement of the Surviving Company; and
(d) Mr. Marmol 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 Company in the same capacity or capacities.
1.4 EFFECT OF MERGER. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of each Constituent Company shall continue unaffected and
unimpaired by the Merger, and the Surviving Company shall be fully vested
therewith. At the Effective Time, the separate existence of Newco shall cease
and, in accordance with the terms of this Agreement, the Surviving Company shall
possess all the rights, privileges, immunities, powers and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all other choses in action, and all and every other interest of or belonging
to or due to the Company or Newco shall be taken and deemed to be transferred
to, and vested in, the Surviving Company without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Company as they were of the Company and Newco; and the title to any real estate,
or interest therein, whether by deed or otherwise, under the laws of the state
of organization vested in the Company and Newco, shall not revert or be in any
way impaired by reason of the Merger. The Surviving Company shall thenceforth be
responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Company may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Company, and may be enforced against it to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
2. CONVERSION OF MEMBERS' INTERESTS
2.1 MANNER OF CONVERSION. For purposes of converting the Members'
interests in the Company (each a "Company Interest" and collectively, the
"Company Interests") under this Agreement, the Members of the Company shall be
divided into two classes: (A) the first class being Members of the Company who
qualify as "accredited investors" under Rule 501(a) of Regulation D promulgated
under the 1933 Act ("Accredited Members") and (B) the second class being Members
of the Company who do not qualify as "accredited investors" under Rule 501(a) of
Regulation D promulgated under the 1933 Act ("Non-accredited Members"). Pursuant
to the provisions of this Section 2.1, each of the Accredited Members and
Non-accredited Members shall receive his or her pro rata share of the Merger
Consideration distributed according to the terms of this Section 2.1.
(a) At the Effective Time, by virtue of the Merger and without
any further action on the part of the holder thereof, each of the membership
interests of the Constituent Companies shall be automatically canceled,
extinguished and converted as follows:
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(i) each Company Interest owned by an Accredited
Member immediately prior to the Effective Time shall be converted into the right
to receive (A) that number of shares of Clarant Common Stock as determined by
the appropriate formula set forth on EXHIBIT 2.1(a), and (b) the amount of cash
as determined by the appropriate formula set forth on EXHIBIT 2.1(a);
(ii) each Company Interest owned by an Non-accredited
Member immediately prior to the Effective Time shall be converted into the right
to receive the amount of cash as determined by the appropriate formula set forth
of EXHIBIT 2.1(a);
(iii) each Company Interest that is owned directly or
indirectly by the Company shall be canceled and retired and shall cease to exist
and no stock of Clarant or other consideration shall be delivered in exchange
therefor; and
(iv) each outstanding membership interest in the
Newco shall continue to be outstanding and shall be converted automatically into
a membership interest in the Surviving Company. Any certificate of Newco
evidencing ownership of any such interest shall continue to evidence ownership
of such interest in the Surviving Corporation converted pursuant to this
Agreement.
(b) [Reserved]
(c) All Clarant Common Stock received by the Members pursuant
to this Agreement shall, except for restrictions on resale or transfer described
in Sections 15 and 16 hereof, have the same rights as all the other shares of
outstanding Clarant Common Stock by reason of the provisions of the Certificate
of Incorporation of Clarant or as otherwise provided by the Delaware General
Corporation Law. All voting rights of Clarant Common Stock received by the
Members shall be fully exercisable by the Members, and the Members shall not be
deprived nor restricted in exercising those rights after the Effective Time of
the Merger.
(d) From and after the Effective Time, all Company Interests
shall no longer be outstanding and shall cease to exist, and any certificate or
agreement previously representing any such interests shall represent only the
right to receive the consideration determined according to the formulas provided
on EXHIBIT 2.1(a).
3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER CONSIDERATION; TENDER. At the Closing, Clarant shall deliver
to the Members of the Company the consideration allocable pro rata to each such
Member (the "Merger Consideration") as follows:
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(a) upon the assignment by each of the Members of his or her
Company Interests, and any certificates representing such Company Interests, (i)
each of the Accredited Members shall receive (A) the number of shares of Clarant
Common Stock allocable to such Accredited Member pursuant to EXHIBIT 2.1(a) and
(B) the amount of cash allocable to such Accredited Member pursuant to EXHIBIT
2.1(a); and (ii) each of the Non-accredited Members shall receive the amount of
cash allocable to such Non-accredited Member pursuant to EXHIBIT 2.1(a); and
(b) The cash portion of the Merger Consideration allocable to
each Accredited Member or Non-accredited Member, as the case may be, shall be
paid by wire transfer to the accounts of each holder pursuant to the wire
transfer instructions given on EXHIBIT 19.6. For purposes of this Section 3.1, a
Member's pro rata share shall be determined with respect to the total amount of
outstanding Company Interests on a Fully-Diluted basis immediately prior to the
Effective Time. For purposes of calculating the Merger Consideration,
"Fully-Diluted" means the total amount of Company Interests that would be
outstanding assuming the exercise of all issued and outstanding rights, warrants
and options (whether vested or un-vested) and the conversion to Company
Interests of all issued and outstanding convertible bonds, debentures and
preferred interests.
3.2 TENDER OF COMPANY INTERESTS. The Members shall deliver in trust to
Wilmer, Cutler & Pickering, counsel to Clarant, at the Pre-Closing assignments
of Company Interests, duly executed by the Members, or accompanied by assignment
powers duly endorsed in blank, and with all necessary transfer tax and other
revenue stamps, acquired at the Members' expense, affixed and canceled. The
Members agree promptly to cure any deficiencies with respect to the assignments
or other documents of assignment with respect to such Company Interests or with
respect to the powers accompanying any Company Interest.
3.3 EARN-OUT. In addition to the Merger Consideration and subject to
the terms of this Section 3.3, Clarant shall deliver contingent consideration
determined according to the formula stated in EXHIBIT 3.3 (the "Contingent
Consideration") to each Person who is a Member of the Company as of the Closing
Date such Member's pro rata share of the Contingent Consideration (such pro rata
share to be determined with respect to the total number of outstanding Company
Interests immediately prior to the Effective Time). Each Accredited Member as of
the Closing Date shall be eligible to receive his or her pro rata share of
Contingent Consideration in a combination of Clarant Common Stock and cash. Each
Non-accredited Member as of the Closing Date shall be eligible to receive his or
her pro rata share of Contingent Consideration in cash as provided in EXHIBIT
3.3.
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4. PRE-CLOSING AND CLOSING
4.1 PRE-CLOSING. At or prior to the Pre-Closing, the parties shall take
all actions necessary to prepare to (a) effect the Merger (including, if
permitted by applicable state law, the advance filing with the appropriate state
authorities of the Certificate and Articles of Merger and/or Plan of Merger, as
applicable (collectively, the "Merger Documents"), which shall become effective
at the Effective Time) and (b) deliver the Clarant Common Stock and Company
Units, as the case may be, referred to in Article 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the delivery of such interests and the transmission of funds
by wire referred to in Article 3 hereof, each of which actions shall only be
taken upon the Closing Date as herein provided. In the event that there is no
Closing Date and this Agreement terminates, Clarant hereby covenants and agrees
to do all things required by the State LLC Law and all things which counsel for
the Company advise Clarant are required by the State LLC Law in order to rescind
actions effected by the advance filing of the Merger Documents as described in
this Section. The taking of the actions described in clauses (a) and (b) above
(the "Pre-Closing") shall take place the day following the date that the
Registration Statement shall be declared effective by the Securities and
Exchange Commission (the "Pre-Closing Date") at the offices of Wilmer, Cutler &
Pickering, 2445 M Street, N.W., Washington, D.C. 20037.
4.2 CLOSING. On the Closing Date: (a) the Merger Documents shall be or
shall have been filed with the appropriate state authorities so that they shall
be or, as of 8:00 a.m. New York City time on the Closing Date, shall become
effective and the Merger shall thereby be effected, (b) all transactions
contemplated by this Agreement, including the delivery of Clarant Common Stock
and Company Units, as the case may be, the transmission of funds by wire in an
amount equal to the cash portion of the consideration to be paid according to
EXHIBIT 2.1(a), and (c) all conditions to closing as set forth in Articles 8 and
9 of this Agreement shall have been satisfied. The date on which the actions
described in this Section 4.2 occur shall be referred to as the "Closing Date."
This Agreement shall terminate if the Closing Date has not occurred within
fifteen (15) business days of the Pre-Closing Date. Time is of the essence. The
"Effective Time" shall be the same date as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
MEMBERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
The Company and each of the Members jointly and severally represents
and warrants to Clarant and Newco that all of the following representations and
warranties in this Section 5(A) are true at the date of this Agreement, shall be
true, accurate and complete at the Pre-Closing Date and the Closing Date, in
each case as modified by any applicable Schedule amendments or supplements, and
each of the Members further represents and warrants that, except as
6
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contemplated hereby or as affected by the transaction contemplated hereby, such
representations and warranties shall survive the Closing Date as provided in
Article 11:
5.1 DUE ORGANIZATION. The Company is duly organized, validly existing,
and in good standing under the laws of New York and has all requisite power and
authority to carry on its operations as they are now being conducted, to own or
use the properties and assets it purports to own or use, and to perform all of
its obligations under the Material Contracts. The Company is duly qualified to
conduct business and own its property and assets as a foreign entity in good
standing under the laws of each state in which either the ownership or use of
properties and assets owned or used by it, or the nature of the activities
conducted by it, requires such qualification and where failure to do so would
have a Material Adverse Effect on its Business taken as a whole. True and
complete copies of the Articles of Organization and Operating Agreement, each as
amended, of the Company (the "Charter Documents") are all attached to SCHEDULE
5.1. The Company is not in violation of any Charter Documents. The minute books
and capital account records of the Company, as heretofore made available to
Clarant, are complete in all material respects and reflect all transactions of
the Company. The most recent minutes of the Company, which are dated no earlier
than ten (10) business days prior to the date hereof, affirm and ratify all
prior acts of the Company and of its members and manager on behalf of the
Company in respect of the transactions contemplated hereby. SCHEDULE 5.1
contains a complete and accurate list of the members and manager of the Company.
5.2 AUTHORIZATION. The Persons executing this Agreement on behalf of
the Company are duly authorized to execute and deliver this Agreement and to
perform the obligations hereunder. The execution and delivery of this Agreement
by the Company and performance by the Company of its obligations under this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary company action in accordance
with applicable law and the Charter Documents on the part of the Company and the
Members and copies of the respective approvals of the manager and the Members
(certified by the Members of the Company to be true, accurate and complete) are
attached hereto as EXHIBIT 5.2. This Agreement constitutes the valid and binding
obligations of the Company and the Members, enforceable against the Company and
the Members in accordance with its terms, subject to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally and the
application of equitable principles.
5.3 MEMBERSHIP INTERESTS OF THE COMPANY. The respective designations
and numbers of outstanding membership interests and voting rights of each class
of outstanding membership interests and securities convertible, exercisable or
redeemable for membership interests (collectively, "Convertible Securities"), or
rights, warrants, puts, calls or options relating to membership interests
(collectively, "Options") of the Company as of the date of this Agreement are as
set forth on SCHEDULE 5.3 hereto. All of the issued and outstanding Units of
membership interests, Convertible Securities and Options of the Company are
owned by the Persons listed on SCHEDULE 5.3 and in the amounts set forth
thereon, and are owned free and clear of all
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Encumbrances, and no other Person (other than Clarant) has any right to acquire
any membership interest in the Company or any of its Subsidiaries. All of the
issued and outstanding Units of membership interests of the Company have been
duly authorized and validly issued, are owned of record and beneficially by the
members of the Company and were offered, issued, sold and delivered by the
Company in compliance with all applicable state and Federal securities laws
concerning the offering and sale or grant of securities. All of the Options have
been duly authorized and validly issued, are held of record and beneficially by
the respective option holders set forth on SCHEDULE 5.3, and were granted in
compliance with all applicable state and Federal securities laws concerning the
grant of options. Set forth on SCHEDULE 5.3 is a complete list of all the
Company's unit holders' agreements, buy-sell agreements, security subscription
agreements, registration rights agreements, voting agreements, option plans and
agreements and other similar agreements (collectively, "Securities Agreements"),
and a copy of each such agreement is attached thereto. To the Knowledge of the
Company and the Members, there are no breaches or defaults by the Company or the
Members under any of the Company's Securities Agreements.
5.4 AUTHORITY; NO CONFLICT. Except to the extent consents or approvals
are required from third parties or Governmental Authorities (the "Consents"),
the execution, delivery or performance of this Agreement by the Company will
not:
(a) violate or conflict with or result in a breach of any
provision of any Law, permit, judgment, or other decision of any court or other
tribunal or any Governmental Authority binding on the Company or any Subsidiary,
or any of its respective Affiliates, or conflict with or result in the breach of
any of the terms, conditions or provisions thereof;
(b) violate, conflict with or constitute a default under any
of the Charter Documents of the Company or any Subsidiary or of any Material
Contract;
(c) constitute an event that would permit any Person to
terminate any Material Contract or accelerate the maturity of any material
indebtedness or other material obligation;
(d) result in the creation or imposition of any Encumbrance
upon the properties or assets of the Company or any Subsidiary; or
(e) require any authorization, consent, approval, exemption or
other action by, or notice to any court or other tribunal or Governmental
Authority (each a "Governmental Consent").
SCHEDULE 5.4 describes each third party and Governmental Authority Consent.
5.5 TRANSACTIONS IN COMPANY INTERESTS; ORGANIZATION ACCOUNTING. Except
as set forth on SCHEDULE 5.3, the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any Company Interests or
make any distribution in respect thereof.
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5.6 [Reserved]
5.7 SUBSIDIARIES. The Company has no Subsidiaries. Except as set forth
on SCHEDULE 5.7, the Company does not presently own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation, association
or business entity nor is the Company, directly or indirectly, a participant in
any joint venture, partnership, limited liability company or other non-corporate
entity.
5.8 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 5.8 is a list of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from which the Company previously acquired material
assets. Except as disclosed on SCHEDULE 5.8, the Company has not been a
subsidiary or division of another company or a part of an acquisition that was
later rescinded.
5.9 SPIN-OFF BY THE COMPANY. There has not been any sale, spin-off, or
split-up of material properties or assets of either the Company or any other
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company ("Affiliates") since January 1, 1997.
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Company has
delivered to Clarant (as SCHEDULE 5.10) copies of the following financial
statements (the "Financial Statements"): audited Balance Sheets, income
statements, statements of Members' equity and statements of cash flows at and
for the fiscal years ended December 31, 1996, 1997 and 1998 and unaudited
Balance Sheets, income statements, statements of members' equity and statements
of cash flows at and for the interim period ended March 31, 1999.
(b) Each of the Financial Statements fairly presents the
Company's consolidated financial condition, assets and liabilities as of their
respective dates and the results of operations and cash flows for the periods
related thereto in accordance with GAAP, consistently applied among the periods
which are the subject of the Financial Statements, except unaudited interim
financial statements which were or are subject to normal and recurring year-end
adjustments which were not and are not expected to be material in amount or to
require the addition of required footnotes thereto.
5.11 LIABILITIES AND OBLIGATIONS. The Company has delivered to Clarant
an accurate list (which is set forth on SCHEDULE 5.11) as of the Balance Sheet
Date of (a) all liabilities of the Company in excess of $10,000) not reflected
on the Balance Sheet at the Balance Sheet Date or
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otherwise reflected in the Company Financial Statements at the Balance Sheet
Date and (b) all loan agreements, notes and other material debt obligations
(whether secured or unsecured), indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the Company or
any Subsidiary is a party. Except as set forth on SCHEDULE 5.11, since the
Balance Sheet Date, neither the Company nor any Subsidiary has incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the Ordinary Course of Business that will not have a Material
Adverse Effect.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.12) of the accounts
and notes receivable of the Company as of the Balance Sheet Date, including any
such amounts which are not reflected in the Balance Sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
Members. Within ten (10) days prior to Closing, the Company shall provide
Clarant (a) an accurate list of all outstanding receivables obtained subsequent
to the Balance Sheet Date and (b) an aging of all such accounts and notes
receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on SCHEDULE 5.12 or as disclosed by
the Company to Clarant in a writing accompanying the A/R Aging Reports, as the
case may be, the Company and the Members have no reason to believe that any such
account, note or other receivable is not or shall not be, collectible in the
amounts shown on SCHEDULE 5.12 (in the case of the accounts and notes receivable
set forth on SCHEDULE 5.12, net of reserves reflected in the balance sheet at
the Balance Sheet Date) and as of the date of the A/R Aging Reports,
respectively.
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) The Company owns or licenses all Intellectual Property
necessary and desirable for the Company to conduct its business in the manner
presently conducted, and all material Intellectual Property (other than
Trademarks) owned or used by the Company and/or any Subsidiaries or in which or
to which it has any rights, licenses or immunities are described and set forth
with reasonable particularity in SCHEDULE 5.13 along with material information
as to the ownership thereof or licenses, rights or immunities therein and
registrations thereof;
(b) Except as disclosed in SCHEDULE 5.13:
(i) to the Knowledge of the Members and the Company,
the Company and its Subsidiaries have the right and authority to use all
Intellectual Property as is necessary to enable it to conduct and to continue to
conduct all phases of its business in the manner presently conducted and the
Company and any Subsidiary (in the conduct (or continuing conduct) of the
Company's business) has never infringed on, misappropriated, or otherwise
conflicted with, is not now infringing on, misappropriating or otherwise
conflicting with, and will not conflict with,
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infringe on or misappropriate any patent or other intellectual property right
belonging to any Person;
(ii) neither the Company nor any Subsidiary is a
party to any license agreement or arrangement, not set forth in SCHEDULE 5.13,
whether as licensee, licensor or otherwise, with respect to any Intellectual
Property;
(iii) [Reserved];
(iv) none of the Members, or any of their Affiliates,
owns any of the Intellectual Property used by the Company or any Subsidiary; and
(v) to the Knowledge of the Members and the Company,
there is no unauthorized use, infringement or misappropriation by any third
party of any Intellectual Property owned by the Company or any Subsidiary.
5.14 TRADEMARKS. Except as disclosed in SCHEDULE 5.14:
(a) all trademarks, service marks, trade dress and trade names
(including computer software and data) ("Trademarks") used by the Company and/or
any Subsidiaries in the conduct of the Business are described and set forth with
reasonable particularity in SCHEDULE 5.14, along with material information as to
the ownership thereof;
(b) all such Trademarks are owned by the Company and/or any
Subsidiaries, except for such as are licensed under licenses referred to in
SCHEDULE 5.14;
(c) all such Trademarks are valid and in good standing, free
and clear of any Encumbrances other than in the Ordinary Course of Business and,
to the Knowledge of the Company and the Members, are not being overtly
challenged in any way;
(d) to the Knowledge of the Company and the Members, the
Company has not infringed on nor is it now infringing on any Trademark of or
belonging to another Person; and
(e) to the Knowledge of the Members and the Company, there is
no claim pending or Threatened against the Company with respect to alleged
infringement of any Trademark owned by any Person nor does the operation or any
aspect to its business in the manner in which it has heretofore been operated or
is presently operated give rise to any such infringement.
5.15 LITIGATION AND LEGAL PROCEEDINGS.
(a) Except as set forth in SCHEDULE 5.15:
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(i) there is no suit, private proceeding, action,
liability or claim (collectively, "Actions") pending or, to the Company's or the
Members' Knowledge, Threatened, against the Company, any Subsidiary or any
Company Plan or any fiduciary of any such Company Plan or to which the Company
or any Subsidiary is otherwise a party or which may have a Material Adverse
Effect on the Company.
(ii) to the Knowledge of the Members and the Company,
each of the Company and its Subsidiaries has given all required notice of such
Actions to the appropriate insurance carrier(s) and/or all such Actions have in
the judgment of the Company's Chief Financial Officer, been fully reserved for
on the Financial Statements. SCHEDULE 5.15 lists the insurer for each Action
covered by insurance or designates each Action, or portion of each Action, as
uninsured and the individual and aggregate policy limits for the insurance
covering each insured Action and the applicable policy deductibles for each
insured Action;
(iii) no litigation matter (other than workers
compensation claims) to which the Company or any Subsidiary was a party was
resolved, settled or closed during the three years preceding the date of this
Agreement;
(iv) there is no pending Proceeding that has been
commenced by or against the Company or any Subsidiary that relates to or may
materially affect the Business, and, to the Knowledge of the Members and the
Company, no such Proceeding has been Threatened; and
(v) the Company is not subject to any judgment,
Order, or decree of any court or Governmental Authority and, to the Knowledge of
the Company and the Members, none is Threatened. Except as disclosed in SCHEDULE
5.15, neither the Company or any Subsidiary is engaged in any legal action to
recover money due it or for damages sustained by it.
(b) Matters disclosed in SCHEDULE 5.15 shall include the
following information, where applicable:
(i) a summary description of the Action together
with the following:
(1) a list of all relevant documentation
relating thereto;
(2) if known, amounts claimed and any
other action or relief sought; and
(3) name of claimant and, if known, all
other parties to the Action.
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(ii) the name of each court or agency before which
such Action is pending; and
(iii) the date such Action was instituted.
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.
(a) Except as set forth on SCHEDULE 5.16, the Company and its
Subsidiaries have complied in all material respects with all laws, rules,
regulations, writs, injunctions, decrees, and Orders applicable to it or to the
operation of the Business (collectively, "Laws") and has not received any
written notice of any alleged claim or threatened claim, violation of, liability
or potential responsibility under, any such Law that has not heretofore been
cured and for which there is no remaining liability other than those not having
a Material Adverse Effect.
(b) The Company and its Subsidiaries hold all licenses,
permits and other governmental authorizations (the "Permits") the absence of any
of which could have a Material Adverse Effect, and the Company has delivered to
Clarant an accurate list and summary description (which is set forth on SCHEDULE
5.16) of all such Permits. To the Knowledge of the Company and the Members, the
Permits listed on SCHEDULES 5.16 are valid, and neither the Company nor any
Subsidiary has received any written notice that any Governmental Authority
intends to cancel, terminate or not renew any such Permit. The Company and its
Subsidiaries have conducted and are conducting their Business in compliance with
the requirements, standards, criteria and conditions set forth in the Permits
listed on SCHEDULE 5.16 and are not in violation of any of the foregoing except
where such non-compliance or violation would not have a Material Adverse Effect.
Except as specifically provided in SCHEDULE 5.16, the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company and its
Subsidiaries by, any of the Permits listed on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms have the
meanings set forth below:
"COBRA" means Sections 601-608 of ERISA and Section 4980(B)(8)
of the Code.
"Company Other Benefit Obligation" means an Other Benefit
Obligation the Company sponsors or maintains or with respect to which the
Company has or may have liability, in each case with respect to any present or
former employees or directors of the Company.
"Company Plan" means all Plans of which the Company is a Plan
Sponsor, or to which the Company otherwise contributes, or in which the
Company's employees have
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participated, or for which the Company has or may have any liability (including
with respect to previously terminated Plans).
"Company VEBA" means a VEBA whose members include employees of
the Company or any ERISA Affiliate.
"ERISA" means the Employee Retirement Income Security Act of
1974 as amended.
"ERISA Affiliate" means, with respect to the Company, any
other trade or business, whether or not incorporated, that, together with the
Company, would be treated as a single employer under Section 414 of the Code or
ERISA Section 4001.
"Multiemployer Plan" has the meaning given in ERISA Section
3(37)(A).
"Other Benefit Obligations" means all obligations or
arrangements to provide benefits to present or former employees or directors
(other than obligations or arrangements that are Plans). Other Benefit
Obligations include (unless they are Plans) employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, sabbaticals, severance pay policies,
plant closing benefits, salary continuation for disability, consulting, or other
compensation arrangements, workers' compensation, retirement, deferred
compensation, bonus, stock option or purchase, medical insurance, life
insurance, tuition reimbursement or scholarship programs, employee discount
programs, meals, travel, or vehicle allowances, any plans subject to Section 125
of the Code, and any plans providing benefits or payments in the event of a
change of control, change in ownership or effective control, or sale of a
substantial portion of the assets of any business or portion thereof, in each
case with respect to any present or former employees or directors and excluding
any arrangements that, in the aggregate, do not reflect liability of the Company
for more than $25,000.
"Pension Plan" has the meaning given in ERISA Section 3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3), including
plans exempted by ERISA Section 4(b)(5) or excluded from coverage under ERISA by
29 CFR Section 2510.3-3(b) as a plan covering only partners, members, or sole
proprietors.
"Plan Sponsor" has the meaning given in ERISA Section
3(16)(B).
"Qualified Plan" means any Company Plan that is intended to
meet the requirements of Section 401(a) of the Code.
The "Service" means the Internal Revenue Service.
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"VEBA" means a voluntary employees' beneficiary association
under Section 501(c)(9) of the Code.
(b) (i) There are no Company VEBAs; and
(ii) neither the Company nor any ERISA Affiliate
sponsors, maintains or contributes to or has any actual or potential liability
with respect to any now or formerly existing (1) Multiemployer Plan or (2)
Pension Plan subject to Title IV of ERISA or Section 412 of the Code.
(c) (i) SCHEDULE 5.17 contains a complete and accurate
list of all material Company Plans and material Company Other Benefit
Obligations; and
(ii) SCHEDULE 5.17 contains a complete and accurate
list of all ERISA Affiliates.
(d) Members have provided to Clarant all of the following
documents relating to Company Plans and Company Other Benefit Obligations:
(i) all the documents, if any, that set forth the
terms of each Company Plan and Company Other Benefit Obligation and of any
related trust, including (1) the most recent summary plan descriptions of
Company Plans for which the Company is required to distribute summary plan
descriptions, (2) the most recent, if any, summaries and descriptions furnished
to participants and beneficiaries regarding Company Plans and Company Other
Benefit Obligations for which a summary plan description is not required (and
all forms of COBRA notices), and (3) amendments, if any, to each of the
foregoing;
(ii) all personnel and employment manuals and
policies;
(iii) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in writing and that is
listed on SCHEDULE 5.17;
(iv) the Form 5500 or 5500 C/R, if any, filed in each
of the most recent two plan years (or three, if the most recent two 5500C/Rs do
not include a 5500C) with respect to each Company Plan, including all schedules
thereto;
(v) all material notices that were given, with
respect to a Company Plan or Other Company Benefit Obligation, by the Service,
Department of Labor, or other Governmental Authority to the Company or any
Company Plan within the two years preceding the date of this Agreement (and any
earlier material notices relating to matters not resolved as of the date of this
Agreement); and
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(vi) with respect to Qualified Plans, (I) the most
recent determination regarding qualification and, if different, the most recent
determination letter that covered the qualification of the entire plan, or (II)
if applicable, the most recent opinion letter issued by the Service with respect
to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its material
obligations under all Company Plans and Company Other Benefit Obligations;
(ii) the Company, with respect to all Company Plans
and Company Other Benefit Obligations is, and each Company Plan and Company
Other Benefit Obligation is, in material compliance with ERISA, the Code,
federal and state securities laws and other applicable Laws and with the terms
of each Company Plan and Company Other Benefit Obligation;
(iii) no transaction prohibited by ERISA Section 406
and no "prohibited transaction" under Section 4975(c) of the Code have occurred
with respect to any Company Plan that could give rise to liability against the
Company in excess of $25,000;
(iv) the Company has no liability to the Service with
respect to any Plan that would have a Material Adverse Effect;
(v) the Company has no liability with respect to any
Plan under ERISA Section 502(i) that would have a Material Adverse Effect;
(vi) a determination letter, or, if applicable, an
opinion letter, has been issued by the Service with respect to each Qualified
Plan;
(vii) since December 31, 1998, there has been no
establishment or amendment of any Company Plan or Company Other Benefit
Obligation that would increase the liability of the Company by more than
$25,000;
(viii) other than routine claims for benefits
submitted by participants or beneficiaries, no claim against, or legal
proceeding involving, any Company Plan or Company Other Benefit Obligation is
pending or, to Members' or the Company's Knowledge, is Threatened. No Company
Plans or Company Other Benefit Obligations are, to the Company's Knowledge,
presently under audit or examination (nor has notice been received of a
potential audit or examination) by the Service, the Department of Labor, or any
other Governmental Authority, and no matters are pending with respect to any
Company Plan under the Service's Employee Plans Compliance Resolutions System or
any successor or predecessor program;
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(ix) no Company Plan or Company Other Benefit
Obligation provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service other than (1) coverage
mandated by applicable law, (2) death benefits or retirement benefits under any
Company Plan that is a Pension Plan, (3) deferred compensation benefits in the
form of cash, (4) benefits, the full cost of which is borne by the current or
former employee (or his beneficiary), or (5) insured disability benefits;
(x) no Company Plan or Company Other Benefit
Obligation contains any provision that would prohibit the transactions
contemplated by this Agreement or that would give rise to any acceleration or
vesting of benefits, severance, termination or other payments or liabilities as
a result of the transactions contemplated by this Agreement; and the Company has
not declared or paid any bonus or incentive compensation in contemplation of the
transactions contemplated by this Agreement;
(xi) all group health plans of the Company and its
ERISA Affiliates have been operated in material compliance with the requirements
of COBRA and Section 5000 of the Code and the Health Insurance Portability and
Accountability Act.
(xii) the only Qualified Plans are as identified on
SCHEDULE 5.17. The Company has never maintained or contributed to other
Qualified Plans. No Company Plan contains any security issued by the Company or
any ERISA Affiliate; each Qualified Plan of the Company is and has always been
in substantial compliance with Section 401(a) of the Code; and
(xiii) the Company has paid all amounts it is
required to pay as contributions to the Company Plans as of the last day of the
most recent fiscal year of each of the plans ended before the date of this
Agreement; all benefits accrued under any unfunded Company Plan or Company Other
Benefit Obligation will have been paid, accrued, or otherwise adequately
reserved to the extent required by GAAP as of the date of this Agreement.
5.18 INSURANCE POLICIES.
(a) The Company has made available to Clarant:
(i) true and complete copies of all policies of
insurance to which the Company or any Subsidiary is a party or any manager or
director of the Company is or has been covered at the expense of the Company;
(ii) true, accurate and complete copies of all
pending applications by the Company for policies of insurance; and
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(iii) any written statement by the auditor of the
Company's Financial Statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) SCHEDULE 5.18 describes:
(i) any self-insurance arrangement by the Company and
its Subsidiaries, including any reserves established thereunder;
(ii) any workers' compensation schemes applicable to
the Company or any subsidiary;
(iii) any contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk by the Company and
its Subsidiaries; and
(iv) all obligations of the Company and its
Subsidiaries to third parties with respect to insurance (including such
obligations under leases and service agreements).
(c) SCHEDULE 5.18 sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each
policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $50,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by
insurer, type of insurance, and period of coverage; and
(C) the amount and a brief description
of the claim; and
(iii) a statement describing the loss experience for
all claims that were self-insured, including the number and aggregate cost of
such claims.
(d) Except as set forth in SCHEDULE 5.18:
(i) all insurance policies to which the Company or
any Subsidiary is a party or that provide coverage to Members, or any director
or officer of the Company or any Subsidiary:
(A) are valid, outstanding, and enforceable;
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(B) are issued by an insurer that the
Company believes is financially sound and reputable;
(C) taken together, in the Company's belief,
provide adequate insurance for the properties, assets and the Business and its
Subsidiaries for all risks normally insured against by a Person carrying on the
same or similar business or businesses as the Company;
(D) comply with the insurance requirements
of all Laws and Contracts to which the Company and/or any Subsidiary is a party
or by which it is bound; and
(E) do not provide for any retrospective
premium adjustment or other experience-based liability on the part of the
Company and/or any Subsidiary;
(ii) neither the Company nor any Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and its Subsidiaries has
paid all premiums due and has otherwise performed all of its obligations under
each policy to which the Company or any Subsidiary is a party or that provides
coverage to the Company, any Subsidiary, or director thereof; and
(iv) except as set forth in SCHEDULE 5.18 the Company
and each Subsidiary have given notice to the insurer of all material claims that
may be insured thereby.
5.19 ENVIRONMENT.
(a) Except as set forth in SCHEDULE 5.19:
(i) the Company is, and at all times has been, in
material compliance with, and has not been, and is not, in material violation
of, or materially liable under, any Environmental Law; and
(ii) with respect to Permits required by, and notices
or application required by, the Environmental Laws, the Company possesses all
such Permits and has filed all such notices and applications the absence of
which would have a Material Adverse Effect on the Company.
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(b) Except as disclosed in SCHEDULE 5.19:
(i) the Company has not been subject to, or received
any, notice of any Action or intended Action relating to the presence or alleged
presence of Hazardous Materials in, under, or upon any real estate currently or
formerly owned, leased or used by (A) the Company, or (B) any other Person with
respect to Hazardous Materials disposed of by or on behalf of the Company;
(ii) the Company and Members have no Knowledge of any
basis for any such notice or Action; and
(iii) there are no pending or, to the Knowledge of
the Members and the Company Threatened, Actions (or notice of potential actions
or proceedings) from any Governmental Authority or any other entity against or
applicable to the Company regarding any matter relating to health or protection
of the Environment.
(c) To the Knowledge of the Company and the Members, there
are, and have been, no past or present events, conditions, circumstances,
activities, practices, incidents, or actions that could reasonably be expected
to interfere with or prevent the Company's or any Subsidiary's continued
compliance with any Environmental Law, give rise to any legal obligation or
liability, or otherwise form the basis of any Action, hearing or investigation
against or involving the Company or any Subsidiary or any real estate presently
or previously owned or used by the Company or any Subsidiary under any of the
Environmental Law or related common law theories, except as identified in
SCHEDULE 5.19.
(d) To the Knowledge of the Members and the Company, the
Company does not and never has disposed of any hazardous materials off-site, and
does not employ or use, and never has employed or used, any off-site waste
disposal organization, hauler, transporter or cartage organization to dispose of
Hazardous Materials to any off-site waste disposal location on behalf of the
Company or any Subsidiary.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of and service providers to the Company:
(a) [Reserved]
(b) the Company is complying and has complied in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including,
without limitation, any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements. No claims or
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investigations are pending or, to the Company's Knowledge, Threatened with
respect to such laws, either by private individuals or by Governmental
Authority;
(c) the Company has not and is not engaged in any unfair labor
practice. There is not now, nor within the past three years has there been, any
unfair labor practice complaint against the Company pending or, to the Company's
Knowledge, Threatened, before the National Labor Relations Board or any other
comparable authority;
(d) no labor union represents or has ever represented the
Company's employees and no collective bargaining agreement is or had been
binding against the Company. The Company is not currently negotiating to enter
into such agreements. No grievance or arbitration proceeding arising out of or
under collective bargaining agreements or employment relationships is pending,
and no claims therefor exist or have, to the Company's Knowledge, been
Threatened;
(e) to the Knowledge of the Company and the Members, no labor
strike, lockout, slowdown, or work stoppage is or has ever been pending or
Threatened against or directly affecting the Company;
(f) all Persons who are or were performing services for the
Company and are or were classified as independent contractors do or did satisfy
and have satisfied the requirements of law to be so classified, and the Company
has fully and accurately reported their compensation on the Service's Form 1099
when required to do so; and
(g) SCHEDULE 5.20 hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who earned more than $75,000 in
1998 or are expected to earn that level in 1999, and lists all employment
agreements with such employees, and the officers and members of the Company the
rate of compensation (and the portions thereof attributable to salary, bonus,
and other compensation respectively) of each such Person as of (a) the Balance
Sheet Date and (b) the date hereof.
5.21 PERSONAL PROPERTY.
(a) The Company has delivered to Clarant (a) an accurate list
(which is set forth on SCHEDULE 5.21) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" (or
similarly named line item) on the balance sheet of the Company at the Balance
Sheet Date, (ii) all other personal property owned by the Company with a value
individually in excess of $10,000 (A) at the Balance Sheet Date and (B) acquired
since the Balance Sheet Date, and (iii) all leases and agreements in respect of
personal property, together with a listing of the capital costs of all such
properties and assets which are subject to capital leases.
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(b) Except as set forth on SCHEDULE 5.21, (i) all personal
property with a value individually in excess of $10,000 used by the Company in
its business is either owned by the Company or leased by the Company pursuant to
a lease included on SCHEDULE 5.21, (ii) all of the personal property listed on
SCHEDULE 5.21 is in good working order and condition, ordinary wear and tear
excepted, and (iii) all leases and agreements included on SCHEDULE 5.21 are in
full force and effect and constitute valid and binding agreements of the
Company, and to the Company's and the Members' Knowledge, of the parties (and
their successors) thereto in accordance with their respective terms.
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) The Company has delivered to Clarant an accurate list
(which is set forth on SCHEDULE 5.22) of all Significant Customers, it being
understood and agreed that a "Significant Customer," for purposes of this
Agreement, means a customer (or Person) representing 5% or more of the Company's
annual revenues as of the Balance Sheet Date. Except to the extent set forth on
SCHEDULE 5.22, none of the Company's Significant Customers has canceled or
substantially reduced or, to the Knowledge of the Company or any Member, is
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company.
(b) The Company has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Company or its Subsidiaries enforceable against the
Company in accordance with its terms, and is in full force and effect, subject
to bankruptcy, reorganization, receivership and other laws affecting creditors'
rights generally and the application of equitable principles. Except as set
forth on SCHEDULE 5.22, the Company has performed all material obligations
required to be performed by it under each Material Contract, and it is not, nor,
to the Knowledge of the Company or any Member, is any other party to any
Material Contract (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder. Neither the
Company nor any Subsidiary has been notified that any party to a Material
Contract intends to cancel, terminate, not renew, or exercise an option under
any Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.
(c) Except as listed or described on SCHEDULE 5.22, the
Company has no Contracts of the types described below:
(i) any collective bargaining arrangement with any
labor union or any such agreements currently in negotiation or proposed;
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(ii) any contract for capital expenditures or the
acquisition or construction of fixed assets for or in respect to real property
other than in the Ordinary Course of Business in excess of $50,000;
(iii) any contract with a term in excess of one year
for the purchase, maintenance, acquisition, sale or furnishing of materials,
supplies, merchandise, machinery, equipment, parts or other property or services
(except that the Company need not list any such contract made in the Ordinary
Course of Business which requires aggregate future payments of less than
$50,000, and in lieu of providing each individual contract, the Company has
provided to Clarant its standard subcontractor form and a list of each
subcontractor).
(iv) any contract relating to the borrowing of money,
or the guaranty of another Person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations, agreements
and other instruments for or relating to any lending or borrowing, including
assumed indebtedness;
(v) any contract granting any Person an Encumbrance
on any of the properties or assets of the Company , in whole or in part;
(vi) any contract for the cleanup, abatement or other
actions in connection with Hazardous Materials, the remediation of any existing
environmental liabilities, violation of Environmental Laws or relating to the
performance of any environmental audit or study;
(vii) any contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any material property or asset of the Business of the Company , other than in
the Ordinary Course of Business;
(viii) any contract having an original value in
excess of $50,000 under which the Company is:
(A) a lessee or sublessee of any machinery,
equipment, vehicle or other tangible personal property or real property, or
(B) a lessor of any real property or
machinery, equipment, vehicle or other tangible personal property owned by the
Company;
(ix) any contract providing for the indemnification
of any officer, director, employee or other Person where such indemnification
may exceed the sum of $50,000;
(x) except as disclosed on SCHEDULE 5.7 any joint
venture or partnership contract;
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(xi) any agreement that prohibits the use or
publication by the Company, or could reasonably be expected to prohibit the use
or publication by Clarant or Newco, of the name of any other party to such
contract or prohibits or restricts the Company or any Subsidiary from freely
providing services to any other customer or potential customer of the Company or
any Subsidiary, Clarant, Newco or any Other Founding Company; or
(xii) a governmental contract subject to price
redetermination or renegotiation.
5.23 REAL PROPERTY.
(a) The Company does not own any real property.
(b) SCHEDULE 5.23 sets forth a complete and accurate list of
real property leased by the Company or its Subsidiaries (the "Leased Real
Property") and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by Members or Affiliates of the Company, any
Subsidiary, or a Stockholder. The Company has provided Clarant with true,
complete and correct copies of all leases and agreements (the "Leases") in
respect of such real property leased by the Company or its Subsidiaries.
SCHEDULE 5.23 sets forth the applicable monthly rental, expiration, and renewal
terms for each Lease. Except as set forth on SCHEDULE 5.23, all Leases are in
full force and effect and constitute valid and binding agreements of the Company
or its Subsidiaries and, to the Company's and the Members' Knowledge, of the
parties (and their successors) thereto in accordance with their respective
terms. Except as set forth on SCHEDULE 5.23, none of the Leases requires the
consent or approval of any party thereto in connection with the consummation of
the transactions contemplated by this Agreement.
(c) the Leased Real Property and all present uses and
operations of the Leased Real Property by the Company comply with all applicable
Laws, covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the Leased Real Property and the Company has obtained
all approvals of Governmental Authorities (including certificates of use and
occupancy, licenses and permits) required in connection with the use, occupation
and operation of the Leased Real Property.
5.24 TAXES
(a) Neither the Company nor any Subsidiary is or has been a
member of any affiliated, consolidated, combined, unitary or similar group,
other than a group of which the Company is the common parent;
(b) All Returns required to have been filed by or with respect
to the Company and each of the Subsidiaries, including Returns of any
affiliated, combined, consolidated, unitary or similar group including the
Company or any Subsidiary (each a "Relevant Group"), have been
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duly filed, and each such Return correctly and completely reports the Tax
liability and all other material information required to be reported thereon.
All Taxes (whether or not shown on any Return) owed by the Company, each
Subsidiary and each Relevant Group that are due and payable have been paid;
(c) The amount of the liability of the Company and the
Subsidiaries for unpaid Taxes as of the Balance Sheet Date did not exceed the
current liability accruals for Taxes (excluding any reserves for deferred Taxes)
set forth on the Company Financial Statements dated as of the Balance Sheet
Date. The amount of the liability of the Company and the Subsidiaries for unpaid
Taxes as of the date of any financial statements provided pursuant to Section
5.10 will not exceed the current liability accruals for Taxes (excluding any
reserves for deferred Taxes) set forth on such financial statements. The amount
of the liability of the Company and the Subsidiaries for unpaid Taxes as of the
Closing Date will not exceed the current liability accruals for Taxes (excluding
any reserves for deferred Taxes) set forth on the financial statements provided
pursuant to Section 5.10, or if there are no such financial statements, the
Company Financial Statements dated as of the Balance Sheet Date, as such
accruals are adjusted on the books and records of the Company and the
Subsidiaries through the Closing Date in accordance with past custom and
practice;
(d) Neither the Company, any Subsidiary nor any Relevant Group
is a party or subject to any agreement extending the time within which to file
any Return. No claim has ever been made by any Taxing Authority in any
jurisdiction in which the Company or any Subsidiary does not file Returns that
it is or may be subject to taxation by that jurisdiction;
(e) The Company and each Subsidiary has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and record-keeping requirements with respect to, any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(f) No Tax Proceedings are presently pending with regard to
any Tax Returns or Taxes of the Company, any Subsidiary or any Relevant Group,
and no notice has been received (whether in writing or verbally) of the expected
commencement of a Tax Proceeding. No issues have been raised in any audit or
examination by or with respect to the Company, any Subsidiary or any member of
any Relevant Group which, by application of similar principles, could reasonably
be expected to result in a proposed deficiency for any other period not so
examined;
(g) SCHEDULE 5.24(g) attached hereto lists all material
federal, state, local and foreign income and franchise Tax Returns filed by or
with respect to the Company, each Subsidiary and each Relevant Group for all
Taxable Periods ended on or after January 1, 1991. With respect to each Return,
SCHEDULE 5.24(g) indicates whether the Return that has been examined and closed,
is presently subject to examination or is a Return with respect to which the
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period for assessment under applicable law, after giving effect to extensions or
waivers, has expired. The Members have made available to Clarant complete and
correct copies of all federal, state, local and foreign income and franchise Tax
Returns filed by or with respect to, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, the Company, each
Company Subsidiary and each Relevant Group since January 1, 1991;
(h) Neither the Company nor any Subsidiary nor any Relevant
Group has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency;
(i) [Reserved]
(j) Neither the Company nor any Subsidiary (i) is a party to
any Tax allocation, Tax indemnity, tax sharing agreement, or any similar
arrangement pursuant to which it has agreed to be liable for Taxes of any other
Person or (ii) has any liability for Taxes of any other Person (A) as a
transferee or successor or (B) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law);
(k) None of the assets owned or used by the Company or any
Subsidiary constitutes tax exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code. Neither the Company nor
any Subsidiary is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax Reform
Act of 1986, or to any "long term contract" within the meaning of Section 460 of
the Code;
(l) Neither the Company nor any Subsidiary has disposed of any
property in a transaction being accounted for under the installment method
pursuant to Section 453 of the Code;
(m) [Reserved]
(n) The Company has been a partnership for U.S. federal income
tax purposes at all times since its formation up to and including the Closing
Date. No person has ever elected that the Company be treated as an association
for federal income tax purposes under Treasury Regulations Section 301.7701-3.
Except as stated in the preceding sentences of this subsection or as disclosed
SCHEDULE 5.7, neither the Company nor any Subsidiary is a party to any joint
venture or partnership;
(o) Neither the Company nor any Subsidiary will be required to
include any adjustment in taxable income in any Taxable Period ending after the
Closing Date under Section 481 of the Code (or any similar provision of the Tax
laws of any jurisdiction) as a result of any change in any method of accounting
occurring in a Taxable Period ending on or before the
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Closing Date. No Taxing Authority has proposed any such change in any accounting
method. The Company and each Subsidiary presently use the cash method of
accounting for income Tax purposes;
(p) Neither the Company nor any Subsidiary nor any member of
any Relevant Group has received any written ruling of a Taxing Authority
relating to Taxes or has entered into any closing agreement or similar written
binding agreement with a Taxing Authority relating to Taxes;
(q) SCHEDULE 5.24(q) sets forth all elections affecting the
Company or any Subsidiary with respect to (1) the qualified subchapter S status
of the Company, (2) the qualified subchapter S subsidiary status of any
Subsidiary, (3) any election made under Section 338 of the Code, (4) the
classification of the Company or any Subsidiary under Treasury Regulations
Section 301.7701-3, (5) any material change in method of accounting, and (6) net
operating and loss limitations as a result of any member leaving a consolidated
group;
(r) There are no liens or other encumbrances on any of the
assets of the Company or any Subsidiary relating or attributable to Taxes (other
than liens for Taxes not yet delinquent);
(s) The Company is not an investment company as defined in
Section 721(b) of the Code;
(t) None of the Members is a party to or bound by any
agreement or arrangement pursuant to which such Member will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by such
Member pursuant to this Agreement; and
(u) None of the Members is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 351(e)(2) of the
Code.
5.25 BUSINESS CONDUCT. Except as set forth on SCHEDULE 5.25, since the
Balance Sheet Date, the Company has conducted the Business only in the Ordinary
Course of Business and have incurred no liabilities other than in the Ordinary
Course of Business. Except as forth on SCHEDULE 5.25, since the Balance Sheet
Date, there has not been any:
(a) change in the Company's business, operations, financial
condition, operating results, assets or liabilities that would have a Material
Adverse Effect on the Company;
(b) damage, destruction or loss of any real or personal
property or assets owned or leased by the Company or used in the operation of
the Business, whether or not covered by insurance, having a replacement cost in
excess of $50,000;
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(c) voluntary or involuntary sale, transfer, surrender,
abandonment or other disposition of any kind by the Company of any assets or
property rights (real or personal, tangible or intangible), having a replacement
cost or fair market value in excess of $50,000, except in each case the sale of
inventory and collection of accounts in the Ordinary Course of Business;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might reasonably
be expected to have a Material Adverse Effect;
(e) material loan or advance by the Company to any party other
than sales to customers on credit in the Ordinary Course of Business or travel
advances to employees of the Company made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material liability,
potential liability or claimed liability relating to the Environment;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect to any Company Interest, any direct or indirect
redemption, purchase, or other acquisition of such Company Interest, or the
payment of principal or interest on any note, bond, debt instrument or debt
other than as required to be paid under the terms of such instrument;
(h) incurrence of debts, liabilities or obligations (except
current liabilities incurred in connection with or for services rendered or
goods supplied in the Ordinary Course of Business, liabilities on account of
Taxes and governmental charges (but not penalties, interest or fines in respect
thereof), and obligations or liabilities incurred by virtue of the execution of
this Agreement);
(i) issuance by the Company of any notes, bonds, or other debt
securities or instruments or any equity securities or securities convertible
into or exchangeable for any equity securities;
(j) cancellation, waiver or release by the Company of any
material debts, liabilities, obligations, rights or claims, except in each case
in the Ordinary Course of Business;
(k) amendment of the Company's Charter Documents;
(l) amendment or termination of any Material Contract, other
than expiration of such contract in accordance with its terms;
(m) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the Company;
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(n) discharge or satisfaction of any material liability,
encumbrance or payment of any material obligation or liability, other than
current liabilities paid in the Ordinary Course of Business or cancellation of
any debts or claims;
(o) sale or assignment by the Company of any properties or
assets other than in the Ordinary Course of Business;
(p) capital expenditures or commitments therefor by the
Company other than in the Ordinary Course of Business or in excess of $100,000
in the aggregate;
(q) charitable contributions or pledges by the Company in
excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any property or
asset of the Company other than in the Ordinary Course of Business;
(s) adoption, amendment or termination of any employee benefit
or pension plan; or
(t) increase in the benefits provided under any employee
benefit pension plan.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.
(a) The Company has delivered to Clarant an accurate schedule
(which is set forth on SCHEDULE 5.26) as of the date of this Agreement of:
(i) the name of each financial institution in which
the Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of account and account number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
(b) SCHEDULE 5.26 also sets forth the name of each Person,
corporation, firm or other entity holding a general or special power of attorney
from the Company and a description of the terms of such power of attorney.
5.27 YEAR 2000 COMPLIANCE. The Company has investigated and reviewed
the areas within its business and operations and determined, after due inquiry,
that, except as set forth on
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SCHEDULE 5.27, all computer systems, software and hardware used in or relied on
for the business and operations of the Company are able to accurately process
date data, including calculating, comparing and sequencing from, into and
between the twentieth century without human intervention (through year 1999),
the year 2000, and the twenty-first century, including leap year calculations
("Year 2000 Compliant"). To the Knowledge of the Company and the Members, the
Company's vendors whose failure to perform under any contract, agreement or
other understanding with the Company could have a Material Adverse Effect, are
or will be Year 2000 Compliant before December 31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 DISCLOSURE.
(a) This Agreement, including the schedules hereto, together
with the completed Investor Questionnaires attached hereto as EXHIBIT 5.29(a)
and all other documents and information made available to Clarant and its
representatives in writing pursuant hereto or thereto, present fairly the
Business of the Company for the time periods with respect to which such
information was requested. The Company's rights under the documents delivered
pursuant hereto would not be materially adversely affected by, and no statement
made herein would be rendered untrue in any material respect by, any other
document to which the Company or any officer or Member is a party, or to which
its properties or assets are subject, or by any other fact or circumstance
regarding the Company (which fact or circumstance was, or should reasonably,
after due inquiry, have been known to the Company or a Member) that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of the final prospectus of Clarant utilized in connection with the IPO, the
Company or the Members become aware of any fact or circumstance which would
change (or, if after the Closing Date, would have changed) a representation or
warranty of the Company or the Members in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the Company and the
Members shall immediately give notice of such fact or circumstance to Clarant.
However, subject to the provisions of Section 7.11, such notification shall not
relieve either the Company or the Members of their respective obligations under
this Agreement, and, at the sole option of Clarant, the truth and accuracy of
any and all warranties and representations of the Company, or on behalf of the
Company and of the Members at the date of this Agreement by Clarant and Newco
and on the Pre-Closing Date and on the Closing Date, shall be a precondition to
the consummation of this transaction.
(b) The Company and the Members acknowledge and agree: (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective
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or that the IPO pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all; (ii) that neither Clarant or any of
its officers, directors, agents or representatives nor any Underwriter shall
have any liability to the Company, the Members or any other Person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (iii) that the decision of the Members
to enter into this Agreement, or to vote in favor of or consent to the proposed
Merger, has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
agent of Clarant or the prospective IPO; provided however that the Company and
the Members retain the right to require as a condition to Closing that the price
of Clarant Common Stock sold in the IPO be no lower than the minimum price
specified on EXHIBIT 2.1(a).
5.30 WARRANTIES; PRODUCTS. SCHEDULE 5.30 sets forth a description of
all the product and service warranties and guarantees given by the Company to
any customer in connection with the sale or distribution of its products and
services. Except as described on SCHEDULE 5.30, (i) no claims have been made or
are, to the Knowledge of the Company, Threatened under the Company's product or
service warranties, (ii) to the Knowledge of the Company, there exists no event
or circumstance, which after notice or the passage of time or both, might create
or result in liabilities or obligations under the Company's product warranties
in excess of the liabilities and obligations incurred by the Company, on
average, during the past two years, and (iii) to the Knowledge of the Company,
there is no design or other defect in any type of product or service of the
Company, including, without limitation, any software programming that would
cause the products or services delivered by the Company to not be Year 2000
Compliant. The warranty reserves reflected on the Company Financial Statements
are set forth on SCHEDULE 5.30 and are reasonable for all warranty claims.
5.31 AFFILIATE TRANSACTIONS. SCHEDULE 5.31 sets forth the parties to
and the date, nature and amount of (a) each transaction involving the transfer
of any cash, securities, property, assets or rights in which the amount involved
individually or collectively exceeded $60,000 to or from the Company from, to,
or for the benefit of any Member or family member thereof or any other Affiliate
or former Affiliate of the Company ("Affiliate Transactions") during the period
commencing January 1, 1996, through the date hereof and (b) any existing
commitments of the Company to engage in the future in any Affiliate
Transactions. Each Affiliate Transaction was effected on terms equivalent to
those which would have been established in an arms-length negotiation, except as
disclosed on SCHEDULE 5.31.
5.32 MISREPRESENTATION. To the Knowledge of the Company and the
Members, none of the representations and warranties set forth in this Agreement
or in any of the certificates, schedules, exhibits, lists, documents or other
instruments delivered, or to be delivered, by the Company or the Members as
contemplated by any provision hereof, contains any untrue
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statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
5.33 BROKERS. Neither the Company nor the Members have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Clarant,
Newco or the Surviving Company could become liable or obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
Each Member severally represents and warrants to Clarant and Newco that
the representations and warranties set forth in this Section 5(B) are true,
accurate and complete as of the date of this Agreement and, shall be true,
accurate and complete at the time of the Pre- Closing and on the Closing Date,
and, subject to Section 7.11, that the representations and warranties set forth
in Sections 5.34, 5.35 and 5.36 shall survive the Closing Date as provided in
Article 11:
5.34 AUTHORITY; OWNERSHIP. Such Member has the full legal right, power
and authority to enter into this Agreement which constitutes the valid and
binding obligation of each Member, enforceable in accordance with its terms.
Such Member owns beneficially and of record all of the Company Interests
identified on SCHEDULE 5.3 as being owned by such Member, and, except as set
forth on SCHEDULE 5.3, such Company Interests are owned free and clear of all
Encumbrances.
5.35 PREEMPTIVE RIGHTS. Such Member does not have, or hereby waives,
any preemptive or other right to acquire interests in the Company or Clarant
Stock that such Member has or may have had other than rights of any Member to
acquire Clarant Stock pursuant to (i) this Agreement or (ii) any Option granted
by Clarant.
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK. No Member has any
current plan or intention, or is under any binding commitment or contract, to
sell, exchange or otherwise dispose of Clarant Stock to be received or received
pursuant to Section 3.1 or 3.3.
5.37 TENDER. Such Member has full power and authority to tender, sell,
assign, and transfer the Company Interests owned by such Member to Clarant
pursuant to this Agreement, that there is no Person who holds any right of first
offer, right of first refusal, right under any agreement or otherwise that can
prevent, or otherwise delay, the transfer of Company Interests owned by the
Member to Clarant under this Agreement, and that, when the Company Interests are
accepted by Clarant, Clarant will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claims.
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5.38 INVESTOR QUESTIONNAIRES. Such Member has executed and delivered to
Clarant an Investor Questionnaire in the form attached hereto as EXHIBIT
5.29(a), and such form is true, complete and accurate in all material respects.
6. REPRESENTATIONS OF CLARANT AND NEWCO
Clarant and Newco jointly and severally represent and warrant to the
Members that all of the following representations and warranties in this Article
6 are true, accurate and complete at the date of this Agreement and shall be
true, accurate and complete at the time of the Pre-Closing and on the Closing
Date, and that such representations and warranties shall survive the Closing
Date.
6.1 DUE ORGANIZATION. Clarant and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and each is duly authorized and qualified to do business under all
applicable laws to carry on its business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect on Clarant. True, complete and correct copies of
the Certificate of Incorporation and By-laws, each as amended to date, of
Clarant and Newco (the "Clarant Charter Documents") are all attached hereto as
EXHIBIT 6.1.
6.2 AUTHORIZATION. The respective officers of Clarant and Newco
executing this Agreement are duly authorized to execute and deliver this
Agreement, and Clarant and Newco have the corporate right, power and authority
to enter into this Agreement and the Merger.
6.3 TRANSACTION NOT A BREACH. Neither the execution and delivery of
this Agreement or the Other Agreements, nor their performance will violate,
conflict with, or result in a breach of any provision of any Law, rule,
regulation, order, permit, judgment, injunction, decree or other decision of any
court or other tribunal or any Governmental Authority binding on Clarant or
Newco or conflict with or result in the breach of any of the terms, conditions
or provisions of the Clarant Charter Documents or of any contract, agreement,
mortgage or other instrument or obligation to which Clarant or Newco is a party
or by which Clarant or Newco is bound.
6.4 MISREPRESENTATION. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, or other instruments (including the most recent draft of the
Registration Statement) delivered, or to be delivered, to the Company or the
Members as contemplated by any provision hereof, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
6.5 CAPITAL STOCK. As of the Effective Time, the authorized capital
stock of Clarant will consist of One Hundred Million (100,000,000) shares of
common stock, par value $.10 per share (the "Clarant Common Stock") and Ten
Million (10,000,000) shares of preferred stock,
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par value $.10 per share ("Clarant Preferred Stock") (collectively, the "Clarant
Common Stock" and "Clarant Preferred Stock" referred to as "Clarant Stock"), and
the issued and outstanding Clarant Stock, Convertible Securities and Options of
Clarant will be as set forth on SCHEDULE 6.5. SCHEDULE 6.5 also sets forth the
authorized and outstanding Clarant Stock, Convertible Securities and Options as
of the date of this Agreement. As of the date of this Agreement, one hundred
percent of the membership interests in Newco are owned by Clarant. Except as
part of the IPO that will take place on the Closing Date as contemplated by this
Agreement and the Other Agreements and as disclosed in the Registration
Statement, there are no outstanding options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
to which Clarant is a party requiring issuance, sale or transfer of any equity
securities of Clarant or any securities convertible directly or indirectly into
equity securities of Clarant, or evidencing the right to subscribe for any
equity securities of Clarant, or giving any Person other than the Founding
Companies any rights with respect to the capital stock of Clarant. On the
Closing Date, Clarant will have outstanding only one class of capital stock (the
Clarant Common Stock), and the shares of Clarant Common Stock issued on the
Closing Date pursuant to this Agreement and the Other Agreements and to Persons
who purchase shares in the IPO will in the aggregate possess at least 80% of the
total voting power of the Clarant Common Stock that is entitled to vote and is
outstanding as of the Closing Date (after taking into account the dilution of
the holdings of Clarant Common Stock of the current Clarant stockholders).
Except as will be disclosed in the Registration Statement and as of the Closing
Date, there are no voting agreements, voting trusts, other agreements (including
cumulative voting rights), commitments or understandings with respect to the
capital stock of Clarant.
6.6 SUBSIDIARIES. Clarant has no subsidiaries except for the companies
identified as "ACQUISITION CORP." in the Other Agreements. Except as disclosed
in the Registration Statement, Clarant does not currently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and Clarant, directly or indirectly, is not a
participant in any joint venture, partnership or other non-corporate entity.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on SCHEDULE 6.7 or
disclosed in the Registration Statement, Clarant has no material liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement and the Other Agreements and except for fees incurred in connection
with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
SCHEDULE 6.8 or disclosed in the Registration Statement, Clarant is not in
violation of any Law or Order of any Governmental Authority having jurisdiction
over it which would have a Material Adverse Effect on Clarant; and except to the
extent set forth in SCHEDULE 6.9, there are no material Actions pending or, to
the Knowledge of Clarant, threatened, against or affecting Clarant, or before or
by any Governmental Authority having jurisdiction over it and no written notice
of any Action has been received by Clarant. Clarant has conducted and is
conducting its businesses in substantial
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compliance with applicable Laws and is not in violation of any of the foregoing
which might have a Material Adverse Effect on Clarant.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by Clarant and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of Clarant and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of Clarant.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof, the Clarant
Common Stock to be delivered to the Members pursuant to this Agreement will
constitute valid and legally issued shares of Clarant, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Article 15 hereof, will be identical in all substantive respects (which do not
include the form of certificate upon which it is printed or the presence or
absence of a CUSIP number on any such certificate) to the Clarant Common Stock
issued and outstanding as of the date hereof. The shares of Clarant Common Stock
to be issued to the Members pursuant to this Agreement will not be registered
under the 1933 Act, except as provided in Article 17 hereof.
6.11 NO SIDE AGREEMENTS, Except as may be disclosed in the Registration
Statement, Clarant has not entered or, as of the Effective Date, will not have
entered into any material agreement with any of the Founding Companies or any of
the Members of the Founding Companies other than (i) the Other Agreements and
the agreements contemplated by the Other Agreements, including the employment
agreements referred to therein and (ii) other employment agreements entered into
in the ordinary course of business.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
organized on August 21, 1998, and has conducted limited operations since that
time. Clarant has not conducted any material business since the date of its
inception, except in connection with this Agreement, the Other Agreements and
the IPO. Clarant does not own and has not at any time owned any real property or
any material personal property and is not a party to any other material
agreement, except as listed on SCHEDULE 6.12 and except that Clarant is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be disclosed in, or filed as exhibits to, the Registration
Statement.
6.13 NO VIOLATIONS. Clarant is not in violation of any Clarant Charter
Document. None of Clarant, or, to the Knowledge of Clarant, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which Clarant is a party, or by which Clarant or any of its
properties, are bound (collectively, the "Clarant Documents"). The rights and
benefits of Clarant under the Clarant Documents will not be adversely affected
by the transactions contemplated hereby and will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Clarant Documents or the Clarant Charter Documents. Except as
set forth on SCHEDULE 6.13, none of the Clarant Documents
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requires notice to, or the consent or approval of, any Governmental Authority or
other third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and the consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.14 ABSENCE OF CHANGES. Since March 31, 1999, except as set forth in
the Registration Statement, and except as contemplated by this Agreement and the
Other Agreements, there has not been:
(a) any change in the financial condition, assets, liabilities
(contingent or otherwise) income or business or Clarant that would have of
Material Adverse Effect on Clarant;
(b) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of Clarant;
(c) any change in the authorized capital of Clarant or its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of Clarant;
(e) any work interruptions, labor grievances or claims filed,
or any event or condition of any character, materially adversely affecting the
business of Clarant;
(f) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Clarant to any person;
(g) any cancellation or agreement to cancel, any indebtedness
or other obligation owing Clarant;
(h) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of Clarant or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(i) any waiver of any material rights or claims of Clarant;
(j) any amendment or termination of any material contract
agreement, license, permit or other right to which Clarant is a party;
(k) any transaction by Clarant outside the Ordinary Course of
Business; or
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(l) any other distribution of property or assets by Clarant
other than in the Ordinary Course of Business;
6.15 TAXES. All Returns required to have been filed by or with respect
to Clarant have been duly filed. No Tax Proceedings are presently pending with
regard to any Tax Returns or Taxes of Clarant, and no notice has been received
(whether in writing or verbally) of the expected commencement of such a Tax
Proceeding. All Taxes (whether or not shown on any Return) owed by Clarant have
been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing Date,
the Company will afford to the officers, directors and authorized
representatives of Clarant reasonable access during normal business hours to all
of the Company's sites, properties, books and records and will furnish Clarant
with such additional financial and operating data and other information as to
the Business and properties and assets of the Company as Clarant may from time
to time reasonably request. The Company will cooperate with Clarant and its
representatives, including Clarant's auditors and counsel, in the preparation of
any documents or other material (including the Registration Statement) which may
be required in connection with the transactions contemplated by this Agreement.
Clarant, Newco, the Members and the Company will treat all information obtained
in connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Article 14 hereof. In
addition, Clarant will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its members, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date,
Clarant will afford to the officers and authorized representatives of the
Company access to all of Clarant's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the Business and properties of
Clarant and Newco as the Company may from time to time reasonably request.
Clarant and Newco will cooperate with the Company, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this Agreement. The
Company and the Members will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Article 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, the Company will:
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(a) carry on in the Ordinary Course of Business substantially
as conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties, assets and facilities, including
those held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use its commercially reasonable best efforts to maintain
and preserve its business organization intact and use its commercially
reasonable best efforts to retain its present management, key employees and
relationships with suppliers, customers and others having business relations
with the Company;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(h) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or lease
instruments, except as disclosed on SCHEDULE 5.25, provided that debt and/or
lease instruments may be replaced if such replacement instruments are on terms
at least as favorable to the Company as the instruments being replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the Closing
Date, the Company will not, without the prior written consent of Clarant:
(a) make any change in its Charter Documents;
(b) grant or issue any securities, Options, conversion rights
or commitments of any kind relating to its capital or interests of any kind;
(c) declare or pay any dividend, or make any distribution in
respect of its capital interests whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any interests or
engage in any transaction that will significantly affect the cash reflected on
the Balance Sheet of the Company at the Balance Sheet Date; except that the
Company may make distributions to the Members in the Ordinary Course of Business
up to the amount of the Company's earnings provided that the aggregate amount of
such distributions shall not create a working capital deficit of the Company;
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(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in the
Ordinary Course of Business (consistent with past practice) and involves an
amount not in excess of $50,000;
(e) create, assume or permit to exist any Encumbrance upon any
assets or properties whether now owned or hereafter acquired, except (i) with
respect to purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $10,000 necessary or desirable
for the conduct of the Business of the Company , (ii) (1) liens for Taxes either
not yet delinquent or being contested in good faith and by appropriate
proceedings (and for which adequate reserves have been established and are being
maintained) or (2) materialmen's, mechanics', workers', repairmen's, employees'
or other like liens arising in the Ordinary Course of Business (the liens set
forth in clause (ii) being referred to herein as "Statutory Liens"), or (iii)
liens set forth on SCHEDULE 5.11 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of
any property, assets or equipment except in the Ordinary Course of Business;
(g) negotiate for the acquisition of any business or the
start-up of any new business;
(h) merge or consolidate or agree to merge or consolidate with
or into any other entity;
(i) waive any material right or claim of the Company, provided
that the Company may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included on SCHEDULE
5.12 unless specifically listed thereon;
(j) commit a material breach or amend or terminate any
Material Contract to which the Company is a party or as to which it is a
beneficiary;
(k) enter into any other transaction outside the Ordinary
Course of Business or prohibited hereunder;
(l) except in the Ordinary Course of Business or as required
by Law or contractual obligations or other understandings or arrangements
existing on the date hereof, the Company will not (A) increase in any manner the
base compensation of, or enter into any new bonus or incentive agreement or
arrangement with, any of the officers, members or employees engaged in the
Company's 's Business, (B) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such officers, members or
employee, whether past or present, (C) enter into any new employment, severance,
consulting, or other compensation agreement with any existing officers, members
or employee engaged in the Company's 's Business, (D) amend or enter into a new
Plan or Other Benefit Obligation (except as required by Law) or amend or enter
into a new collective bargaining agreement (except as required by this
Agreement), or (E) engage in any Affiliate Transactions;
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(m) make or change any Tax election, amend any Tax Return or
take or omit to take any other action not in the Ordinary Course of Business and
consistent with past practice that would have the effect of increasing any Taxes
of Clarant, the Company for any Taxable Period ending after the Closing Date;
(n) without the express prior written consent of Clarant,
amend, modify, repeal or otherwise alter the approvals by the Company's managing
member and Members attached hereto as EXHIBIT 5.2.
7.4 NO SHOP. In consideration of the substantial expenditure of time,
effort and expense undertaken by Clarant in connection with its due diligence
review and the preparation and execution of this Agreement, the Company and the
Members agree that neither they nor their representatives, agents or employees
will, after the execution of this Agreement until the earlier of (a) the
termination of this Agreement or (b) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the Company ) any acquisition proposal
relating to or affecting the Company or any part of it, or any direct or
indirect interests in the Company, whether by purchase of assets or stock,
purchase of interests, merger or other transaction, and that the Company will
promptly advise Clarant of the terms of any communications any of the Members or
the Company may receive or become aware of relating to any bid for all or any
part of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
deliver to Clarant at the Pre-Closing, any and all proof that any such required
notice has been sent.
7.6 AGREEMENTS. On or prior to the Closing Date and effective as of the
Effective Time, the Company shall cause the termination of and obtain a written
waiver of rights from any beneficiary under (and shall deliver evidence of such
terminations and waivers to Clarant prior to Closing) (a) all Securities
Agreements, (b) any employment agreements between the Company and any employee
who is listed on SCHEDULE 9.11 hereto, and (c) any existing agreement between
the Company and any Members or other security holders.
7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Members and the Company shall give prompt notice to
Clarant of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of the Company or the Members contained herein to be untrue or inaccurate in any
material respect; (ii) any material failure of any Member or the Company to
comply with or satisfy any covenant, condition or agreement to be complied
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with or satisfied by such Person hereunder and (iii) the exercise by any Person
of any Option or Convertible Security listed on SCHEDULE 5.3 or any enforceable
request for the Company to purchase, redeem or otherwise acquire any of its
Company Interests, Convertible Securities or Options;
(b) Clarant and Newco shall give prompt notice to the Company
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Clarant or Newco contained herein to be untrue or inaccurate in any material
respect and (ii) any material failure of Clarant or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder;
(c) The delivery of any notice pursuant to this Section 7.7
shall not be deemed to (i) modify the representations or warranties hereunder of
the party delivering such notice, which modification may only be made pursuant
to Section 7.11, (ii) modify the conditions set forth in Articles 8 and 9, or
(iii) limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
(a) The Company and Members shall furnish or cause to be
furnished to Clarant and the Underwriters all of the information concerning the
Company and the Members requested by Clarant or the Underwriters for inclusion
in, and will cooperate with Clarant and the Underwriters in the preparation of,
the Registration Statement and the prospectus included therein (including
audited and unaudited financial statements, prepared in accordance with
generally accepted accounting principles, in form suitable for inclusion in the
Registration Statement). The Company and the Members agree promptly to advise
Clarant if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any information
contained in the prospectus concerning the Company or the Members contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Members, the Company represents
and warrants as to such information with respect to itself , and each Member
represents and warrants, as to such information with respect to the Company and
himself or herself, that the Registration Statement at its effective date, at
the date of the final Prospectus, each preliminary prospectus and each amendment
to the Registration Statement, and at each closing date with respect to the IPO
under the Underwriting Agreement (including with respect to any over-allotment
option) will not include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(b) Clarant agrees that it will use its commercially
reasonable best efforts to provide to the Company and its counsel copies of
drafts of the Registration Statement as they are prepared and to give the
Company or the Members sufficient time to review and comment upon
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such documents prior to filing with the SEC. Any objections posed by the Company
or its counsel shall be in writing and state with specificity the material in
question, the reason for the objection, and the Company's and the Members'
proposed alternative. If the objection is founded upon a rule promulgated under
the Securities Act, the objection shall cite the rule. Notwithstanding the
foregoing, during the three business days immediately preceding the date
scheduled for the effective date of the IPO, the Company and the Members agree
that two hours from the time the proposed changes are transmitted to the
Company's counsel is sufficient time to review and respond to proposed changes.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited consolidated Balance Sheets of the Company as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
income statements, statements of cash flows and retained earnings of the Company
for all fiscal quarters ended after the Balance Sheet Date. Such Financial
Statements shall have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated and in a manner consistent
with the Financial Statements (except as noted therein). Except as noted in such
Financial Statements, all of such Financial Statements will present fairly the
results of operations of the Company for the periods indicated thereon.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.11 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation, until 24 hours prior
to the anticipated effectiveness of the Registration Statement, to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules, provided
however, that supplements and amendments to Schedules 5.11 (Liabilities and
Obligations), 5.12 (Accounts and Notes Receivable) and 5.22 (Significant
Customers; Material Contracts and Commitments) must be delivered only at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the Ordinary Course of Business; and further provided
that all matters identified by the Company on any Schedule supplement or
amendment shall also be included on SCHEDULE 11.1(f). Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the Company may be made unless Clarant and a majority
of the Founding Companies other than the Company consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant or Newco that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on Clarant and Newco may be made
unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the
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Schedules as amended or supplemented pursuant to this Section 7.11. In the event
that one of the Other Founding Companies seeks to amend or supplement a Schedule
pursuant to this Section 7.11 of one of the Other Agreements, and such amendment
or supplement constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on such Other Founding Company, Clarant shall give the
Company notice promptly after it has knowledge thereof. If Clarant and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Clarant or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(d). In the event
that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.11, and Clarant and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(a). No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.12 THIRD PARTY APPROVALS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice and approval of the transactions
contemplated by this Agreement under applicable agreements with third parties,
including any contract with any Governmental Authority.
7.13 HSR FILING. To the extent the Merger is a transaction subject to
the filing requirements of the HSR Act, each of the Company, the Members and
Clarant shall use its commercially reasonable best efforts to (a) file all
information required to be filed by it pursuant to the HSR Act and (b) provide
the other party with all information reasonably requested and required by it to
satisfy any filing requirements it may have under the HSR Act.
7.14 AUTHORIZED CAPITAL STOCK. Through the Closing Date, Clarant shall
maintain its authorized capital stock as set forth in the Registration Statement
filed with the SEC except for such changes as are made to respond to comments
made by the SEC or requirements of any exchange or automated trading system for
which application is made to register the Clarant Common Stock.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND
THE COMPANY
The obligations of the Members and the Company with respect to actions
to be taken on the Pre-Closing Date and, to the extent specified in this Article
8, on the Closing Date are subject to the satisfaction or waiver on or prior to
the Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Article 8. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been
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waived by the Company and the Members unless such parties have objected by
notifying Clarant in writing of such objection on or before the Pre-Closing Date
or consummation of the transactions on the Closing Date, respectively, except
that no such waiver shall be deemed to affect the survival of the
representations and warranties of Clarant and Newco contained in Article 6
hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Clarant and Newco contained in Article 6 shall be true and correct in all
material respects as of the Pre- Closing Date and the Closing Date as though
such representations and warranties had been made as of that time; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President, any Vice President or the Secretary of Clarant
shall have been delivered to the Members.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by Clarant and
Newco on or before each of the Pre-Closing Date and the Closing Date shall have
been duly complied with and performed in all material respects on or before each
of the Pre-Closing Date and the Closing Date, as the case may be; and
certificates to the foregoing effect dated each of the Pre-Closing Date and the
Closing Date and signed by the President, any Vice President or the Secretary of
Clarant shall have been delivered to the Members.
8.3 NO LITIGATION. No Action or Proceeding before a court or any other
Governmental Authority or body shall have been instituted or Threatened to
restrain or prohibit the Merger or the IPO and no Governmental Authority shall
take any other action with respect to the transactions hereunder which would
have a Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Clarant, dated the Pre-Closing Date in form and substance of the
type customarily given by counsel to an acquiring company in transactions
similar to that contemplated by this Agreement and reasonably acceptable to the
Company (and the Underwriters shall have received a copy of the same opinion
addressed to them), and at the Closing the Company shall have received a
statement from such counsel that the opinion is true as of the Closing Date.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, shares of
Clarant Common Stock for a price no lower than the minimum price specified on
EXHIBIT 2.1(a).
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8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
required to be obtained or made by Clarant or Newco with any Governmental
Authority or agency relating to the consummation of the transactions
contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. Clarant and Newco each shall have
delivered to the Company a certificate, dated as of a date no earlier than ten
(10) days prior to the Pre-Closing Date, duly issued by the Delaware Secretary
of State and the New York Secretary of State, respectively, and in each state in
which Clarant or Newco is authorized to do business, showing that each of
Clarant and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for Clarant and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of Clarant and of Newco, certifying the truth and
correctness of attached copies of the Clarant's and Newco's respective
Certificates of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), Articles of Organization, Operating Agreement and
resolutions of the boards of directors and members, respectively, of Clarant and
Newco approving Clarant's and Newco's entering into this Agreement and the
consummation of the transactions contemplated hereby.
8.9 HSR ACT. The waiting period applicable to the consummation of the
transaction contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
8.10 CLOSING OF THE IPO. The Closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE 9.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of EXHIBIT 8.11.
8.12 LISTING. Clarant shall cause the Clarant Common Stock to be listed
on the Nasdaq National Stock Market, subject to official notice of issuance.
8.13 TAX OPINION. Clarant shall have received an opinion upon which the
Company and the Members will be entitled to rely (the "Tax Opinion") from
Wilmer, Cutler & Pickering, tax counsel for Clarant, or such other national tax
counsel reasonably acceptable to Clarant and the Company ("Tax Counsel"), which
opinion shall be reasonably acceptable to the Members, that the Clarant Plan of
Organization will qualify as a tax-free transfer of property under Section
351(a) of the Code and that the Members will not recognize gain to the extent
the Members exchange Company Units for Clarant Common Stock (but not cash or
other property) pursuant to the Clarant Plan of Organization, and in rendering
such Tax Opinion, Tax Counsel shall be
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entitled to rely on customary written representations acceptable to Tax Counsel
and received from (i) Clarant and (ii) the Company, (iii) each Other Founding
Company, and (iv) each Member and each contributor, stockholder or member of the
Other Founding Companies who will receive Clarant Common Stock under the Clarant
Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO
The obligations of Clarant and Newco with respect to actions to be
taken on the Pre- Closing Date and on the Closing Date, are subject to the
satisfaction or waiver on or prior to the Pre-Closing Date and/or the Closing
Date, as the case may be, of all of the conditions set forth in this Article 9.
As of the Pre-Closing Date or the Closing Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by Clarant and
Newco unless such parties have objected by notifying the Company and the Members
in writing of such objection on or before the Pre-Closing Date or consummation
of the transactions on the Closing Date, respectively, except that no such
waiver shall be deemed to affect the survival of the representations and
warranties of the Company and the Members contained in Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All the representations and
warranties of the Members and the Company contained in this Agreement shall be
true and correct in all material respects as of the Pre-Closing Date and the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; and the Members shall have delivered to
Clarant certificates dated the Pre-Closing Date and the Closing Date and signed
by them to such effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Members and
the Company on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
Members shall have delivered to Clarant certificates dated the Pre- Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 NO LITIGATION. No Action or Proceeding before a court or any other
Governmental Authority or body shall have been instituted or Threatened to
restrain or prohibit the Merger or the IPO and no Governmental Authority or body
shall have taken any other action or made any request of Clarant as a result of
which the management of Clarant deems it inadvisable to proceed with the
transactions hereunder.
9.4 COMPANY AND MEMBER REPRESENTATIONS. The Company and the Members
receiving Clarant Common Stock shall have provided Tax Counsel with the written
representations requested pursuant to Section 8.13.
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9.5 NO MATERIAL ADVERSE EFFECT. As of the Pre-Closing Date and as of
the Closing Date, no event or circumstance shall have occurred which would
constitute a Material Adverse Effect.
9.6 TERMINATION OF RELATED PARTY AGREEMENTS. All existing agreements
between the Company and the Members shall have been canceled effective prior to
or as of the Closing Date and the Company shall have obtained all of the
terminations and waivers required under Section 7.6.
9.7 OPINION OF COUNSEL. Clarant shall have received an opinion from
counsel to the Company, dated the Pre-Closing Date, in form and substance of the
type customarily given by counsel to a founding company in transactions similar
to that contemplated by this Agreement and reasonably acceptable to Clarant (and
the Underwriters shall have received a copy of the same opinion addressed to
them), and at the Closing Clarant shall have received a statement from such
counsel that the opinion is true as of the Closing Date.
9.8 CONSENTS AND APPROVALS. All necessary Consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
Consents of third parties listed on SCHEDULE 5.4 shall have been obtained.
9.9 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Clarant a certificate, dated as of a date no earlier than ten (10) days prior to
the Pre-Closing Date, duly issued by the appropriate governmental authority in
the Company's state of organization and, unless waived by Clarant, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the date
of the certificate have been filed and paid.
9.10 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, shares of
Clarant Common Stock.
9.11 EMPLOYMENT AGREEMENTS. Each of the Persons listed on SCHEDULE 9.11
shall have entered into an employment agreement with Clarant substantially in
the form of EXHIBIT 8.11.
9.12 CLOSING OF IPO. The closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
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9.13 FIRPTA CERTIFICATE. Each Member shall have delivered to Clarant a
certificate to the effect that he or she is not a foreign Person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.14 [Reserved]
9.15 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to Clarant.
9.16 HSR ACT. The waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have expired or been
terminated.
9.17 INVESTOR QUESTIONNAIRE. Each Member shall have provided an
executed Investor Questionnaire in the form of EXHIBIT 5.29(a).
10. COVENANTS OF CLARANT AND THE MEMBERS AFTER CLOSING
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Closing
Date, Clarant shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization.
10.2 TAX MATTERS.
(a) Clarant shall prepare or cause to be prepared and file or
cause to be filed all Returns that are required to be filed with respect to the
Company and the Subsidiaries (i) for Taxable Periods ending on or before the
Closing Date that are due after the Closing Date (other than Returns of any
Relevant Group of which the Company is not the common parent), and (ii) for
Taxable Periods beginning on or before and ending after the Closing Date
("Straddle Periods"). All such Returns shall be prepared on a basis consistent
with past Returns of the Company and the Subsidiaries unless otherwise required
by applicable law.
(b) Upon the later of (i) five (5) business days following the
receipt of a request therefor, (ii) five (5) business days prior to the due date
of any payment to the relevant Taxing Authority, or (iii) five (5) business days
following resolution of any dispute covered by Section 10.2(c), the Members
shall pay to Clarant all Taxes shown as due on the Tax Returns prepared and
filed pursuant to Section 10.2(a) that relate to a Pre-Closing Period to the
extent that such Taxes exceed the reserves for such Taxes (excluding any
reserves for deferred Taxes) set forth on the financial statements provided
pursuant to Section 5.10.
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(c) Any federal or state income Tax Returns prepared by
Clarant pursuant to Section 10.2(a) shall be delivered to the Members at least
30 days before the due date of such Return including any extension. If the
Members reasonably object in writing to any material item on such Return at
least 10 days before their due date, the parties shall reasonably negotiate to
resolve such dispute. If such dispute cannot be resolved within 10 days of the
receipt by the Company of such written notice, (i) the Company may in its sole
discretion file such Return and (ii) the dispute shall be referred to a national
independent accounting firm agreeable to the parties for resolution. The party
whose position is not adopted in such resolution by an independent accounting
firm shall pay all expenses of the successful party in resolving the dispute.
(d) For purposes of apportioning any Taxes to the portion of a
Straddle Period that ends on the Closing Date, the determination shall be made
based on a closing of the books as of the close of the Closing Date; provided,
that real property, personal property and intangible property Taxes shall be
apportioned ratably on a daily basis between the portions of the Straddle Period
in question.
(e) Each party hereto shall, and shall cause its Subsidiaries
and Affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund, determining a liability for Taxes or a right
to refund of Taxes or in conducting any Tax Proceeding. Such cooperation and
information shall include providing copies of all relevant portions of relevant
Returns, together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings or other determinations by Taxing
Authorities and relevant records concerning the ownership and Tax basis of
property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
(f) Each of the Company, Newco, Clarant and each Member shall
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction as a
transfer of property under Section 351(a) of the Code.
10.3 DIRECTORS AND OFFICERS. The Persons named in the Registration
Statement shall be elected as directors and elected as officers of Clarant, as
and to the extent set forth in the Registration Statement.
10.4 DIRECTORS' AND OFFICERS' INSURANCE. Clarant and the Surviving
Company shall use their commercially reasonable best efforts to maintain for not
less than four years from the Effective Time the policies of directors' and
officers' liability insurance maintained by the Company and its Subsidiaries as
of the date hereof to the extent set forth on SCHEDULE 10.4,
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provided that Clarant and the Surviving Company may substitute policies of at
least equivalent coverage containing terms and conditions no less advantageous
to those covered in all material respects so long as no lapse in coverage occurs
as a result of such substitution, and covering the time period before and up to
the Effective Time. If a claim is asserted or made within the four year period
contemplated by this Section 10.4, Clarant and the Surviving Company shall use
their commercially reasonable best effects to cause such insurance to be
continued until final resolution of any such pending claim. SCHEDULE 10.4 sets
forth a summary description of all such policies, including premium rates.
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY MEMBERS. Subject to the limitations of Section
11.11, the Members shall jointly and severally indemnify, defend and hold
harmless Clarant, Newco, the Company, and the Surviving Company and their
respective officers, directors, employees, agents, representatives and
Affiliates (other than the Members) (each, a "Clarant Indemnified Party"), at
all times from and after this Agreement from and against, and to promptly pay to
a Clarant Indemnified Party or reimburse a Clarant Indemnified Party for, any
and all liabilities, obligations, deficiencies, demands, claims, suits, actions,
or causes of action, assessments, losses, costs, expenses, filing fees,
interest, fines, penalties, or damages or costs or expenses of any and all
investigations, proceedings (including appeals, arbitration and mediation),
judgments, environmental analyses, remediations, settlements and compromises
(including reasonable fees and expenses of attorneys, accountants and other
experts) (individually and collectively, the "Losses") sustained or incurred by
any Clarant Indemnified Party resulting from, or arising out of (a) any breach
of the representations and warranties of the Members or the Company set forth
herein or on the schedules, exhibits or certificates delivered in connection
herewith, (b) any breach of any covenant or agreement on the part of the Members
or the Company under this Agreement, (c) any liability under the 1933 Act, the
1934 Act, or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to the Company or the Members, and
provided to Clarant or its counsel by the Company or the Members (but in the
case of the Members, only if such statement was provided in writing) contained
in the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Members required to be stated therein or necessary to make the
statements therein not misleading, (d) any Claim or Action arising out of or
relating to any purchase or redemption of Company Interests by the Company prior
to the date of this Agreement; (e) except to the extent reserved for (other than
as a deferred Tax item) on the most recent financial statements provided
pursuant to Section 7.9, or if no such financial statements are provided, the
Company Financial Statements dated as of the Balance Sheet Date, any liability
of the Company or any Subsidiary for Taxes for any Pre-Closing Period; or (f)
any matter identified on SCHEDULE 11.1(f); provided, however, (i) that in the
case of any indemnity arising pursuant to clause (c)
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such indemnity shall not inure to the benefit of Clarant, Newco, the Company or
the Surviving Company to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the Members provided in writing corrected
information to Clarant counsel and to Clarant for inclusion in the final
prospectus, and such information was not so included or properly delivered, (ii)
that no Member shall be liable for any indemnification obligation pursuant to
this Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other Member, and (iii)
that no Member shall be liable for any indemnification obligation attributable
to any Tax that Clarant may be required to pay because of the Surviving
Company's change from the cash method to the accrual method of accounting.
11.2 INDEMNIFICATION BY CLARANT. Clarant covenants and agrees that it
will indemnify, defend, protect and hold harmless the Members at all times from
and after the date of this Agreement until the Clarant Expiration Date, from and
against Losses sustained or incurred by any Member resulting from or arising out
of (a) any breach by Clarant or Newco of its representations and warranties set
forth herein or on the schedules, exhibits or certificates delivered in
connection herewith or given to Tax Counsel with respect to the Tax Opinion, (b)
any breach of any covenant or agreement on the part of Clarant or Newco under
this Agreement, (c) any liability which the Members may incur due to Clarant's
or Newco's failure to be responsible for the liabilities and obligations of the
Company as provided in Article 1 hereof (except to the extent that Clarant or
Newco has claims against the Members by reason of such liabilities); or (d) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to Clarant,
Newco or any of the Other Founding Companies in the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to Clarant or Newco or any of the Other
Founding Companies required to be stated therein or necessary to make the
statements therein not misleading. Provided the Closing occurs, each of the
Members waives any right of contribution or indemnification or other similar
right against Clarant, Newco or the Surviving Company arising out of the
Company's representations, warranties, covenants and agreements contained
herein, and each of the Members further agrees that any claims of Clarant and
any Clarant Indemnified Party or the Company hereunder, whether for
indemnification or otherwise, may be asserted directly and fully against the
Members without the need for any claim against or joinder of the Surviving
Company.
11.3 INDEMNIFICATION PROCEDURE -- THIRD PARTY CLAIMS.
(a) In the event that subsequent to the Closing any Person
entitled to indemnification under this Agreement (an "Indemnified Party")
receives notice of the assertion of any claim, obligation, deficiency, demand,
suit, cause of action, assessment or expense of any kind (each, a "Claim") or of
the commencement of any action or proceeding by an entity who is not a party to
this Agreement or an Affiliate of such a party (including, but not limited to
any domestic or foreign court, government, or Governmental Authority or
instrumentality, federal
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state or local) (a "Third Party Claim") against such Indemnified Party, against
which a party to this Agreement is required to provide indemnification under
this Agreement (an "Indemnifying Party"), the Indemnified Party shall give
written notice together with a statement of any available information regarding
such claim to the Indemnifying Party within sixty (60) days after learning of
such Claim (or within such shorter time as may be necessary to give the
Indemnifying Party a reasonable opportunity to respond to such Claim). The
Indemnifying Party shall have the right, upon written notice to the Indemnified
Party (the "Defense Notice") within thirty (30) days after receipt from the
Indemnified Party of notice of such Claim, which notice by the Indemnifying
Party shall specify the counsel it will appoint to defend such Claim ("Defense
Counsel"), to conduct at its expense the defense against such Claim in its own
name, or if necessary in the name of the Indemnified Party; provided, however,
that the Indemnified Party shall have the right to approve the Defense Counsel,
which approval shall not be unreasonably withheld or delayed, and in the event
the Indemnifying Party shall propose an alternate Defense Counsel, which shall
be subject again to the Indemnified Party's approval.
(b) In the event that the Indemnifying Party shall fail to
give such notice, it shall be deemed to have elected not to conduct the defense
of the subject Claim, and in such event the Indemnified Party shall have the
right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
(c) In the event that the Indemnifying Party does elect to
conduct the defense of the subject Claim, the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the Indemnifying
Party, and the Indemnified Party shall have the right at its expense to
participate in the defense assisted by counsel of its own choosing, provided
that the Indemnified Party shall have the right to compromise and settle the
Claim only with the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. Without the prior written
consent of the Indemnified Party, the Indemnifying Party will not enter into any
settlement of any Third Party Claim or cease to defend against such Claim, if
pursuant to or as a result of such settlement or cessation, (i) injunctive or
other equitable relief would be imposed against the Indemnified Party, or (ii)
such settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder. The Indemnifying Party shall
not be entitled to control, and the Indemnified Party shall be entitled to have
sole control over, the defense or settlement of any Claim to the extent that
Claim seeks an order, injunction or other equitable relief against the
Indemnified Party which, if successful, could materially interfere with the
Business, assets, properties condition (financial or otherwise) or prospects of
the Indemnified Party (and the cost of such defense shall constitute an Loss for
which the Indemnified Party is entitled to indemnification hereunder). If a firm
decision is made to settle a Third Party Claim, which offer the Indemnifying
Party is permitted to settle under this
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Section 11.3 and the Indemnifying Party desires to accept and agree to such
offer, the Indemnifying Party will give written notice to the Indemnified Party
to that effect. If the Indemnified Party fails to consent to such firm offer
within thirty (30) calendar days after its receipt of such notice, the
Indemnified Party may continue to contest or defend such Third Party Claim and,
in such event, the maximum liability of the Indemnifying Party as to such Third
Party Claim will not exceed the amount of such settlement offer, plus costs and
expenses paid or incurred by the Indemnified Party through the end of such
thirty (30) day period.
(d) Any judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
11.4 TAX CONTESTS.
(a) If any party receives written notice from any governmental
authority of a Tax Proceeding with respect to any Tax for which the other party
is obligated to provide indemnification under this Agreement, such party shall
within sixty (60) days thereof give written notice to the other party (or within
such shorter time as may be necessary to give the Indemnifying Party a
reasonable opportunity to respond to such notice); provided, however, that the
failure to give such notice shall not affect the indemnification provided
hereunder except to the extent that the failure to give such notice materially
prejudices the Indemnifying Party as provided in Section 11.6.
(b) Upon written notice to Clarant within thirty (30) days
after receipt of notification pursuant to Section 11.4(a), the Members shall
have the right, at their own expense, to control and make all decisions with
respect to any Tax Proceeding relating to Taxes of the Company for any Taxable
Period ending on or before the Closing Date. Clarant shall have the right to
approve the counsel selected by the Members to conduct any such Tax Proceeding,
which approval shall not be unreasonably withheld or delayed, and to participate
fully at its own expense with counsel of its own choosing in all aspects of the
prosecution or defense of such Tax Proceeding. The Members shall not take any
action or position in any such Tax Proceeding if that action or position could
reasonably be expected to increase the past, present or future Tax liability of
Clarant or any of its Affiliates, or any Tax liability of the Company for any
Taxable Period or portion thereof beginning after the Closing Date without the
prior written consent of Clarant, which consent shall not be unreasonably
withheld. The Members shall not settle or otherwise terminate any such Tax
Proceeding without the prior written consent of Clarant, which consent shall not
be unreasonably withheld.
(c) Upon written notice to Clarant within thirty (30) days
after receipt of notification pursuant to Section 11.4(a), the Members shall
have the right, at their own expense, to jointly control and participate with
Clarant in the conduct of any Tax Proceeding relating to
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Taxes of the Company for a Straddle Period. If Sellers exercise such right,
neither party shall settle or otherwise terminate any such Tax Proceeding
without the prior written consent of the other, which consent shall not be
unreasonably withheld.
(d) If the Members do not exercise their right to assume
control of or participate in any Tax Proceeding as provided under this Section
11.4, Clarant may defend or settle the same in such manner as it may deem
appropriate in its sole and absolute discretion, without in any way limiting its
rights of indemnification hereunder.
(e) Except as otherwise provided in this Section 11.4, Clarant
shall control all Tax Proceedings relating to Taxes and Tax Returns of the
Company and the Subsidiaries.
(f) In the event that the provisions of this Section 11.4 and
the provisions of Section 11.3 hereof conflict or otherwise each apply by their
terms, this Section 11.4 shall exclusively govern all matters concerning Tax
Proceedings.
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim (a "Direct
Claim") may be asserted by giving the Indemnifying Party reasonably prompt
written notice thereof, and the Indemnifying Party will have a period of thirty
(30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such Direct
Claim, in which event the Indemnified Party will be free to pursue such remedies
as may be available to the Indemnified Party under this Article 11.
11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an Indemnified Party
to give timely, complete or accurate notice as provided in Sections 11.3, 11.4
and 11.5 will not affect the rights or obligations of any party hereunder except
and only to the extent that, as a result of such failure, any party entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise directly and materially damaged
as a result of such failure to give timely notice.
11.7 REDUCTION OF LOSS. To the extent any Loss of an Indemnified Party
is reduced by receipt of payment (a) under insurance policies which are not
subject to retroactive adjustment or other reimbursement to the insurer in
respect of such payment, or (b) from third parties not Affiliated with the
Indemnified Party, such payments (net of the expenses of the recovery thereof)
(such net payment being referred to herein as a "Reimbursement") shall be
credited against such Loss; provided, however, (x) the pendency of such payments
shall not delay or reduce the obligation of the Indemnifying Party to make
payment to the Indemnified Party in respect of such Loss, and (y) the
Indemnified Party shall have no obligation, hereunder or otherwise, to pursue
payment under or from any insurer or third party in respect of such loss. If
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any Reimbursement is obtained subsequent to payment by an Indemnifying Party in
respect of a Loss, such Reimbursement shall be promptly paid over to the
Indemnifying Party.
11.8 SUBROGATION. The Indemnifying Party shall be subrogated to the
Indemnified Party's rights of recovery to the extent of any Loss satisfied by
the Indemnifying Party. The Indemnified Party shall execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records of the Acquired Party.
11.9 ARBITRATION. Excluding the right of a party to seek injunctive
relief, all claims (pursuant to Federal or state statutes or by common law),
controversies, differences or disputes between Clarant or Newco and the Members
arising out of or relating to this Agreement or related or referenced exhibits
or the alleged breach thereof including, but not limited to, indemnification
claims under Sections 11.1 and/or 11.2 shall be settled by arbitration in
accordance with the rules then in effect of the American Arbitration Association
at the time of the dispute. After an award is rendered by the arbitrator(s), a
judgment may be entered in any court of competent Jurisdiction. The arbitration
shall occur in Dallas, Texas to the exclusion of all other locations. The
arbitrators cannot add to or subtract from the terms of this Agreement. The
parties agree that the arbitrators may include provisions for the payment of
costs and expenses, including reasonable attorneys' fees as part of any ruling
or award made thereunder. The parties acknowledge that arbitration shall be the
sole, final, binding and exclusive remedy of the parties with respect to any
such matter for which arbitration is undertaken hereunder. In preparation for
the arbitration process described herein, the parties shall be given at least
one hundred twenty (120) days for discovery and each party may utilize all
methods of discovery authorized by the procedural rules and statutes of the
State of Texas for civil litigation and may enforce the right to obtain such
discovery in the manner provided by such rules and statutes.
11.10 EXCLUSIVE REMEDY. Except as provided in Section 11.11(d) or
Section 14.3 of this Agreement, the indemnification provided for in this Article
11 shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party; provided, however, that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement or to seek relief for a breach
of any employment agreement with, or any security issued by, Clarant.
11.11 LIMITATION AND EXPIRATION. Notwithstanding the foregoing
provisions of this Article 11:
(a) with respect to the indemnification obligations of the
Members under Section 11.1 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Clarant
Indemnified Parties exceeds one percent (1%) of the Merger Consideration (the
"Indemnification Threshold"), which Indemnification
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Threshold shall be treated as a deductible: PROVIDED, HOWEVER, that the
Indemnification Threshold shall not apply to (w) Losses arising out of breaches
of the covenants of the Members set forth in this Agreement to be performed
after the Closing Date or the representations and warranties made in Sections
5.3 (capital stock of the Company), 5.17 (employee benefits), 5.24 (taxes), (x)
Losses described in Section 11.1(c), (y) Losses arising out of intentional
fraud, or (z) any matters identified on SCHEDULE 11.1(f); and
(ii) [Reserved]
(b) the indemnification obligations of the Members under
Section 11.1, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 11.11(b):
(i) (A) with respect to claims arising out of
breaches of the representations and warranties made in Sections 5.17 (employee
benefits), 5.19 (environment) and 5.24 (taxes), the date that is six (6) months
after the expiration of the longest applicable federal or state statute of
limitation (including extensions thereof);
(B) with respect to Losses described in
clause (c) of Section 11.1, the date that is six (6) months after the expiration
of the longest applicable federal or state statute of limitation (including
extensions thereof); or
(C) with respect to all claims other than
those referred to in clause (i)(A) or (B) of this Section 11.11(b), eighteen
(18) months after the Effective Time; or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section
11.11(b);
(c) with respect to the indemnification obligations of Clarant
under Section 11.2 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Members exceeds
the Indemnification Threshold; PROVIDED, HOWEVER, that the Indemnification
Threshold shall not apply to Losses arising out of breaches of the covenants of
Clarant set forth in this Agreement to be performed after the Closing Date or
the representations and warranties made in Section 6.5 (Capital Stock) and 6.15
(Taxes), (y) Losses described in Section 11.2(c), or (z) Losses arising out of
intentional fraud; and
(ii) the aggregate amount of Clarant's liability
under this Article 11 shall not exceed the Merger Consideration.
(d) [Reserved]
(e) Indemnity obligations hereunder may be satisfied through the
payment of cash or the delivery of Clarant Common Stock, or a combination
thereof. For purposes of calculating the value of the Clarant Common Stock
received or delivered by the Member (for purposes of
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determining the Indemnification Threshold and the amount of any indemnity paid),
Clarant Common Stock shall be valued at its fair market value, which shall be
the average closing price for Clarant Common Stock on the Nasdaq national market
system for the ten trading days ending two business days immediately prior to
the date of payment.
(f) Notwithstanding any other term of this Agreement (except the
proviso to this sentence), a Member's liability under this Article 11 shall be
limited to the total amount of proceeds received or payable to the Member under
this Agreement, which total shall be equal to the sum of (i) the cash paid to
the Member at the Closing, (ii) the cash portion of Contingent Consideration, if
any, earned and payable to such Member and (iii) with respect to Clarant Common
Stock delivered to the Members as part of the Merger Consideration at Closing,
the value of such Clarant Common Stock at the initial public offering price, and
with respect to Clarant Common Stock delivered to the Members as part of the
Contingent Consideration, the value of such Clarant Common Stock at the price
issued.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Company, the Members and
Clarant in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) as of the Pre-Closing Date and, if a Closing
occurs, as of the Closing Date. The representations and warranties of the
Company and the Members will survive the Closing and will remain in effect
until, and will expire upon, the termination of the indemnification obligations
as provided in Section 11.11(b). The representations and warranties of Clarant
will survive the Closing and will remain in effect until, and will expire upon,
the Clarant Expiration Date.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely: (a) by mutual written consent of the boards of
directors of Clarant and the Company; (b) by either the Members or the Company
(acting through its members), on the one hand, or by Clarant (acting through its
board of directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1999, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date; (c) by the Members or the
Company, on the one hand, or by Clarant, on the other hand, after giving written
notice to the other party that a breach or default of any representation,
warranty, or covenant contained in this Agreement has occurred, which breach has
had or is reasonably foreseeable as having a Material Adverse Effect on the
Company or Clarant, as the case may be, and such breach has not been cured on or
before the Closing Date; (d) pursuant to Section 7.11; or (e) by the Company
(acting through the Members) if, by June 30, 1999, Clarant shall not have filed
an initial registration statement with the SEC reflecting an IPO price for
Clarant Common Stock of $11.00 per share.
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12.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES.
(a) The Members will not, for a period of three (3) years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other Person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder,
option holder, lender, owner, partner, joint venturer, or in a managerial
capacity, whether as an employee, independent contractor, consultant or advisor,
or as a sales representative, in any business that is engaged in the Business
anywhere in the United States or Canada (the "Territory");
(ii) call upon any Person who is, at that time,
within the Territory, an employee of Clarant (including the subsidiaries
thereof) in a sales representative or managerial capacity for the purpose or
with the intent of enticing such employee away from or out of the employ of
Clarant (including the subsidiaries thereof), provided that each Member shall be
permitted to call upon and hire any member of his or her immediate family;
(iii) call upon any Person which is, at that time, or
which has been, within one (1) year prior to the Closing Date, a customer of
Clarant (including the subsidiaries thereof), of the Company or of any of the
Other Founding Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with Clarant within the
Territory;
(iv) call upon any prospective acquisition candidate,
on any Member's behalf or on behalf of any competitor of Clarant, which
candidate, to the actual knowledge of such Member after due inquiry, was called
upon by Clarant (including the subsidiaries thereof) or for which, to the actual
knowledge of such Member after due inquiry, Clarant ( thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or
proposed, of the Company to any Person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
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(b) Notwithstanding Section 13.1(a) the foregoing covenant
shall not be deemed to prohibit any Member from acquiring as an investment not
more than one percent (1%) of the capital stock of a competing business whose
stock is traded on a national securities exchange or over-the-counter so long as
the Member does not consult with or is not employed by such competitor.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Clarant as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Clarant for which it
would have no other adequate remedy, each Member agrees that, in the event of
breach by such Member, the foregoing covenant may be enforced by Clarant by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Article 13 impose a reasonable restraint on the
Members in light of the activities and business of Clarant (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Clarant; but it is also the intent of Clarant and the Members
that such covenants be construed and enforced in accordance with the changing
activities and business of Clarant (including the subsidiaries thereof)
throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Member who has entered into an employment agreement with Clarant and/ thereof as
set forth in Sections 8.11 and 9.11 hereto, shall thereafter cease to be
employed thereunder, and such Member shall enter into a business or pursue other
activities not in competition with Clarant and/ thereof, or similar activities
or business in locations the operations of which, under such circumstances, does
not violate this Article 13 and in any event such new business, activities or
location are not in violation of this Article 13 or such Member's obligations
under this Article 13, such Member shall not be chargeable with a violation of
this Article 13 if Clarant and/ thereof shall thereafter enter the same, similar
or a competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Article 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Article 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Member
against Clarant (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Clarant of such covenants. It is specifically agreed that the period of three
(3) years stated at the beginning of this Article 13, during which the
agreements and covenants of
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each Member made in this Article 13 shall be effective, shall be computed by
excluding from such computation any time during which such Member is in
violation of any provision of this Article 13. The covenants contained in
Article 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Members hereby agree that this
covenant is a material and substantial part of this transaction and that it is
supported by adequate consideration.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 MEMBERS. The Members recognize and acknowledge that they had in
the past, currently have, and in the future may have, access to certain
confidential information of the Company, the Other Founding Companies, and/or
Clarant, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Clarant's respective businesses. The Members agree that they
will not disclose such confidential information to any Person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Clarant or the Other Founding
Companies who need to know information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby, (b) following the Closing, such information may be disclosed by
the Members as is required in the course of performing their duties for Clarant
or the Surviving Company and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such information becomes known to the public
generally through no fault of any such Members, (ii) disclosure is required by
law or the order of any governmental authority under color of law, provided,
that prior to disclosing any information pursuant to this clause (ii), the
Members shall give prior written notice thereof to Clarant and provide Clarant
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Members of the provisions of this Article 14,
Clarant shall be entitled to an injunction restraining such Members from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Clarant from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the Members shall have none of the above-mentioned restrictions on
their ability to disseminate confidential information with respect to the
Company.
14.2 CLARANT AND NEWCO. Clarant and Newco recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
Clarant and Newco agree that, prior to the Closing, or if the transactions
contemplated by this Agreement are not consummated, they will not disclose such
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confidential information to any Person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to the Members and to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2 and (c) to the Other Founding Companies and
their representatives pursuant to Section 7.1(a), unless (i) such information
becomes known to the public generally through no fault of Clarant or Newco, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), Clarant and Newco shall, if possible, give prior written
notice thereof to the Company and the Members and provide the Company and the
Members with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by Clarant or Newco of the provisions of this Section, the
Company and the Members shall be entitled to an injunction restraining Clarant
and Newco from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the Members
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Closing Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Subject in all cases to compliance with
applicable federal and state securities laws, and in no case earlier than twelve
(12) months following the Closing Date, unless Clarant in its sole discretion
shall consent otherwise, except pursuant to Article 17 hereof, gratuitous
transfers to not-for-profit third parties and transfers to immediate family
members, in each case who agree to be bound by the restrictions set forth in
this Section 15.1 (or trusts for the benefit of the Members or their immediate
family members, the trustees of which so agree) none of the Members shall (a)
sell, assign, exchange, transfer, Encumber, pledge, distribute, appoint or
otherwise dispose of (i) any shares of Clarant Common Stock received by the
Members in the Merger or (ii) any interest (including, without limitation, an
option to buy or sell) in any such shares of Clarant Common Stock, in whole or
in part, and no such attempted transfer shall be treated as effective for any
purpose; or (b) engage in any transaction, whether or not with respect to any
shares of Clarant Common Stock or any interest therein, the intent or
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effect of which is to reduce the risk of owning the shares of Clarant Common
Stock acquired pursuant to Article 2 hereof (including, by way of example and
not limitation, engaging in put, call, short-sale, straddle or similar market
transactions). Notwithstanding the foregoing, the Members may encumber or pledge
any of such shares of Clarant Common Stock provided the pledgee or other
beneficiary of such encumbrance or pledge agrees to be bound by the provisions
of this Section as if a Member and party hereto. The certificates evidencing the
Clarant Common Stock delivered to the Members pursuant to Article 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as Clarant may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
[(PROVIDED, HOWEVER, THAT SUCH SHARES MAY BE ENCUMBERED OR PLEDGED
PROVIDED THE PLEDGEE OR OTHER BENEFICIARY OF SUCH ENCUMBRANCE OR PLEDGE
AGREES TO BE BOUND BY THE PROVISIONS OF THESE RESTRICTIONS TO THE SAME
EXTENT AS THE HOLDER THEREOF).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. Each Member acknowledges
that the shares of Clarant Common Stock delivered to the Member pursuant to this
Agreement have not been and will not be registered under the 1933 Act and
therefore may not be resold without compliance with the 1933 Act. The Clarant
Common Stock acquired by the Member pursuant to this Agreement is being acquired
solely for their own respective accounts, for investment purposes only, and with
no present intention of distributing, selling or otherwise disposing of it.
16.2 COMPLIANCE WITH LAW. Each Member covenants, warrants and
represents that none of the shares of Clarant Common Stock issued to the Member
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. The Clarant Common
Stock shall bear the following legend in addition to the legend required under
Article 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
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STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC., DELIVERY BY THE
HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CLARANT, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Member represents and warrants
that it is able to bear the economic risk of an investment in the Clarant Common
Stock acquired pursuant to this Agreement, can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the
investment in the Clarant Common Stock. Each Member represents and warrants that
it has had an adequate opportunity to ask questions and receive answers from the
officers of Clarant concerning any and all matters relating to the transactions
described herein including, without limitation, the background and experience of
the current and proposed officers and directors of Clarant, the plans for the
operations of the business of Clarant, the business, operations and financial
condition of the Other Founding Companies, and any plans for additional
acquisitions and the like. Each Member acknowledges that it has asked any and
all questions in the nature described in the preceding sentence and all
questions have been answered to its satisfaction. Each Member represents and
warrants that such Member has the requisite knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of this investment and is an "accredited investor" as defined in Regulation D
under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing
Date, whenever Clarant proposes to register any Clarant Common Stock for its own
or others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by Clarant, (ii) registrations relating to employee
benefit plans and (iii) registrations relating to rights offerings made to the
stockholders of Clarant, Clarant shall give each of the Members prompt written
notice of its intent to do so. Upon the written request of any of the Members
given within thirty (30) days after receipt of such notice, Clarant shall cause
to be included in such registration all of the Clarant Common Stock issued to
the Members pursuant to this Agreement which any such Member requests, provided
that Clarant shall have the right to reduce the number of shares included in
such registration to the extent that inclusion of such shares could, in the
opinion of tax counsel to Clarant or its independent auditors, jeopardize the
status of the transactions contemplated hereby and by the Registration Statement
as a tax-free organization. In addition, if Clarant is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 that the number of shares to be sold by Persons other than Clarant
is greater than the number of such shares which can be offered without adversely
affecting the offering, Clarant may reduce pro rata the number of shares offered
for the accounts of such Persons (based upon the number of shares proposed to
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be sold by each such Person) to a number deemed satisfactory by such managing
underwriter, provided, that, for each such offering made by Clarant after the
IPO, such reduction shall be made first by reducing the number of shares to be
sold by Persons other than Clarant, the Members and the members and stockholders
of the Other Founding Companies (collectively, the Members and the members of
the other Founding Companies being referred to herein as the "Founding
Members"), and thereafter, if a further reduction is required, by reducing the
number of shares to be sold by the Founding Members.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Clarant. In connection with
registrations under Section 17.1, Clarant shall (i) use its commercially
reasonable best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement with respect to the Clarant Common Stock
and use its commercially reasonable best efforts to cause such registration to
promptly become and remain effective for a period of at least one hundred twenty
(120) days (or such shorter period during which Founding Members shall have sold
all Clarant Common Stock which they requested to be registered); (ii) use its
commercially reasonable best efforts to register and qualify the Clarant Common
Stock covered by such registration statement under applicable state securities
laws as the holders shall reasonably request for the distribution of the Clarant
Common Stock; and (iii) take such other actions as are reasonable and necessary
to comply with the requirements of the 1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, Clarant and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of Clarant's size and
investment stature, including indemnification provisions.
17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated to
register shares of Clarant Common Stock held by any Member at any time when the
resale provisions of Rule 144(k) (or any successor provision) promulgated under
the 1933 Act are available to such Member for such shares.
17.5 MARKET STANDOFF. In consideration of the granting to the Members
of the registration rights under this Article 17, the each of the Members agrees
that he or she will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of Clarant
Common Stock in the ten (10) days prior to the effectiveness of any registration
of Clarant Common Stock for sale to the public and for up to ninety (90) days
following the effectiveness of such registration; provided that all directors,
executive officers and holders of more than five percent (5%) of the outstanding
Clarant Common Stock agree to the same restrictions; and further provided that,
with respect to the first public offering of shares of the Clarant Common Stock
within three years following the IPO, the Members shall have been
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afforded a meaningful opportunity to include shares in such registration after
any reduction by reason of underwriters' advice.
18. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Accredited Members" shall have the meaning given to such term in
Section 2.1.
"Acquired Party" means the Company, any Subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies wholly-owned by Clarant prior to the Closing Date.
"Action" has the meaning set forth in Section 5.15.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Affiliates" has the meaning set forth in Section 5.9.
"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or
any of its Subsidiaries has or may acquire any rights, (b) under which the
Company or any of its Subsidiaries has or may become subject to any obligation
or liability, or (c) by which the Company or any of its Subsidiaries or any of
the Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as EXHIBIT 1.1
hereto or with such changes therein as may be required by applicable state laws.
"Balance Sheet" means a consolidated balance sheet of the Company .
"Balance Sheet Date" means March 31, 1999.
"Business" has the meaning set forth in the recitals of this Agreement.
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"Charter Documents" has the meaning set forth in Section 5.1.
"Claim" has the meaning set forth in Section 11.3.
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Charter Documents" has the meaning set forth in Section 6.1.
"Clarant Common Stock" has the meaning set forth in Section 6.5.
"Clarant Expiration Date" means the date that is one year from the
Effective Time.
"Clarant Indemnified Party" has the meaning set forth in Section
11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.5.
"Clarant Stock" has the meaning set forth in Section 6.5.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant to the Internal
Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Interest" has the meaning set forth in Section 2.1.
"Company Other Benefit Obligation" has the meaning set forth in Section
5.17.
"Company Plan" has the meaning set forth in Section 5.17.
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Constituent Companies" has the meaning set forth in the recitals of
this Agreement.
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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).
"Convertible Securities" has the meaning set forth in Section 5.3.
"Defense Counsel" has the meaning set forth in Section 11.3.
"Defense Notice" has the meaning set forth in Section 11.3.
"Direct Claim" has the meaning set forth in Section 11.5.
"Effective Time" means the time as of which the Merger becomes
effective, which the parties hereto contemplate to occur at the Closing.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencement of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
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<PAGE>
(f) reducing to acceptable levels the risks inherent in
transportation of hazardous substances or materials, pollutants, oil,
or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay a Governmental Authority or
private parties, or groups of them, for damages done to the
Environment, or permitting self- appointed representatives of the
public interest to recover for injuries done to public assets.
"ERISA Affiliate" has the meaning set forth in Section 5.17.
"Exhibit" means each Exhibit attached to this Agreement.
"Financial Statements" has the meaning set forth in Section 5.10(a).
"Founding Companies" has the meaning set forth in the recitals of this
Agreement.
"Founding Members" has the meaning set forth in Section 17.1.
"Fully-Diluted" shall have the meaning set forth in Section 3.1(b).
"GAAP" means generally accepted accounting principles as in effect on
the date hereof.
"Governmental Authority" means the United States or any state, local,
or foreign government, or any subdivision, agency, or authority of any thereof.
"Governmental Consents" has the meaning set forth in Section 5.4.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
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"Intellectual Property" means all Trademarks, copyrights and patents
and any registration or application for any of the foregoing, and any trade
secret, invention, process, know-how, computer software, technology systems,
product design or product packaging.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Investor Questionnaire" means the form of document attached hereto as
EXHIBIT 5.29(a) and as completed and delivered to Clarant by the Members.
"IPO" means the initial public offering of Clarant Common Stock
pursuant to the Registration Statement.
"Knowledge": an individual will be deemed to have "Knowledge" of a
particular fact if such individual is actually aware of such fact or other
matter. A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual listed in EXHIBIT 18 has,
or any time had, Knowledge of such fact or other matter.
"Laws" means, as applicable (a) all applicable statutes, rules,
regulations, Orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped, (b)
all laws, rules, regulations, writs, injunctions, decrees, and Orders applicable
to the Company or to the operation of the Business, and (c) all statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property.
"Leased Real Property" has the meaning set forth in Section 5.23(b)
"Leases" has the meaning set forth in Section 5.23(b).
"Legal Requirement" means any federal, state, local, municipal,
foreign, or other administrative order, constitution, law, ordinance, principle
of common law, regulation, statute, or treaty.
"Losses" has the meaning set forth in Section 11.1.
"Material Adverse Effect" means with respect to any Person that is a
party to this Agreement, a material adverse change in (i) the business
operations, condition or prospects (financial or otherwise) of such Person, (ii)
the ability of such Person to consummate the transactions contemplated by the
Agreement, or (iii) the condition or value of the properties and assets of such
Person.
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"Material Contract" means any Contract affecting or pertaining to the
Business that has a monetary obligation of at least $25,000 per year and that is
not cancelable by the Company without penalty upon notice of six (6) months or
less.
"Members" has the meaning set forth in the first paragraph of this
Agreement.
"Merger" means the merger of Newco with and into the Company pursuant
to this Agreement and the applicable provisions of the laws of the State of New
York.
"Merger Consideration" shall have the meaning given to such term in
Section 3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Mr. Marmol" means Guillermo G. Marmol, the Chief Executive Officer of
Clarant.
"Multi-Employer Plan" has the meaning set forth in Section 5.17.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Non-accredited Members" shall have the meaning given to such term in
Section 2.1.
"Options" has the meaning set forth in Section 5.3.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Authority or by an arbitrator.
"Ordinary Course of Business" means an action taken by a Person only
if:
a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person; or
(b) such action is similar in nature and magnitude to actions
customarily taken in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business as
such Person.
"Other Agreements" has the meaning set forth in the recitals of this
Agreement.
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"Other Benefit Obligations" has the meaning set forth in Section 5.17.
"Other Founding Companies" has the meaning set forth in the recitals of
this Agreement.
"Pension Plan" has the meaning set forth in Section 5.17
"Permits" has the meaning set forth in Section 5.16(b).
"Person" means any individual, corporation (including non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Plan" has the meaning set forth in Section 5.17.
"Plan Sponsor" has the meaning set forth in Section 5.17
"Plans" has the meaning set forth in Section 5.17.
"Pre-Closing" has the meaning set forth in Section 4.1.
"Pre-Closing Date" has the meaning set forth in Section 4.1.
"Pre-Closing Period" means any Taxable Period or portion thereof ending
on or before the Closing Date.
"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Authority.
"Qualified Plan" has the meaning set forth in Section 5.17.
"Qualified Plans" has the meaning set forth in Section 5.17.
"Registration Statement" means that certain registration statement of
Clarant on Form S-1 covering the shares of Clarant Common Stock to be issued in
the IPO and attached as SCHEDULE 18.1.
"Reimbursement" has the meaning set forth in Section 11.7.
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<PAGE>
"Relevant Group" has the meaning set forth in Section 5.24.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Schedule" means each Schedule attached hereto and identified as a
Schedule, which shall reference the relevant sections of this Agreement, on
which parties hereto disclose information as part of their respective
representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Securities Agreements" shall have the meaning given to such term in
Section 5.3.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"State LLC Law" has the meaning set forth in Section 1.2.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Straddle Period" has the meaning set forth in Section 10.2(a).
"Subsidiary" means any entity the majority of voting shares or
interests of which are owned by the Company and/or by one or more Subsidiaries
of the Company.
"Surviving Company" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, transfer, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Tax Proceeding" means any audit, examination, claim or other
administrative or judicial proceeding relating to Taxes or Returns.
"Taxable Period" means any taxable year or other period that is treated
as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
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<PAGE>
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
"Third Party Claim" has the meaning set forth in Section 11.3.
"Threatened" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice has been given in writing that such a claim,
Proceeding, dispute, action or other matter is likely to be asserted, commenced,
taken, or otherwise pursued in the future.
"Title IV Plans" has the meaning set forth in Section 5.17.
"Trademarks" has the meaning set forth in Section 5.14.
"Underwriters" means the underwriters of the IPO, as identified in the
Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement by and among
the Underwriters and the Company in respect of the IPO.
"VEBA" has the meaning set forth in Section 5.17.
"Welfare Plan" has the meaning set forth in Section 5.17.
"Year 2000 Compliant" has the meaning set forth in Section 5.27.
19. GENERAL
19.1 COOPERATION. The Company, the Members, Clarant and Newco shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Members will cooperate and use their reasonable efforts to
have the present officers, directors and employees of the Company cooperate with
Clarant on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the
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benefit of the parties hereto, the successors of Clarant, and the heirs and
legal representatives of the Members.
19.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
Exhibits attached hereto which are incorporated by this reference) and the
documents delivered pursuant hereto constitute the entire agreement and
understanding among the Members, the Company, Newco and Clarant and supersede
any prior agreement and understanding relating to the subject matter of this
Agreement. This Agreement, upon execution, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and may
be modified or amended only by a written instrument executed by the Members, the
Company, Newco and Clarant, acting through their respective officers or
trustees, duly authorized by their respective boards of directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby, provided
that the Company and the Members shall make a good faith effort to cross
reference disclosure, as necessary or advisable, between related Schedules.
19.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. This Agreement may be
executed and delivered by facsimile signature which facsimile signature shall be
deemed an original.
19.5 EXPENSES.
(a) Whether or not the transactions herein contemplated shall
be consummated, Clarant will pay the fees, expenses and disbursements of Clarant
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Clarant under this Agreement, including the fees
and expenses of Clarant's public auditors, Wilmer Cutler & Pickering, and any
other Person retained by Clarant, and the costs of preparing the Registration
Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of the
Members, the Company and their respective agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement and
any amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by the Company
and the Members under this Agreement, including the reasonable fees and expenses
of legal counsel to the Company and the Members.
(c) If the transaction herein contemplated is consummated,
Clarant will pay the fees, expenses, and disbursements of the Members and the
Company and their respective agents, representatives accountants and counsel.
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<PAGE>
(d) Each Member acknowledges that he, and not the Company or
Clarant, will pay all Taxes including, but not limited to, income and transfer
taxes due upon receipt of the consideration payable pursuant to Article 2
hereof, and will assume all Tax or as a result of risks and liabilities of such
Member in connection with the transactions contemplated hereby.
19.6 NOTICES. All notices, requests, demands and other communications
made in connection with this Agreement shall be in writing and shall be deemed
to have been duly given on the date of delivery, if delivered to the persons
identified below, or on the second business day, if delivered by a reputable
overnight carrier, or on the date of the return receipt acknowledgment after
mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, or on the date such transmission is made and confirmation of
receipt obtained if a business day, or if not, then on the next following
business day, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment, addressed as follows:
(a) If to Clarant, or Newco, addressed to them at:
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attention: Guillermo G. Marmol
Facsimile: (972) 488-7299
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
Facsimile: (202) 663-6363
(b) If to the Members, addressed to them at their addresses
set forth on EXHIBIT 19.6, with copies to such counsel as is set forth with
respect to each Member on such EXHIBIT 19.6;
( c) If to the Company, addressed to it at:
1865 Palmer Avenue
Larchmont, New York 10538
Attn: Managing Member
Facsimile:
and marked "Personal and Confidential"
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<PAGE>
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
19.7 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without reference to conflicts of laws
principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
19.11 MEMBERS' REPRESENTATIVE.
(a) Each holder of Company Units, by signing this Agreement,
designates Henry Heilbrunn or, in the event that Henry Heilbrunn is unable or
unwilling to serve, now or in the future, Lynn Branigan, to be the Members'
Representative for purposes of this Agreement. The Members shall be bound by any
and all actions taken by the Members' Representative on their behalf.
(b) Clarant and Newco shall be entitled to rely upon any
communication or writings given or executed by the Members' Representative. All
notices to be sent to Members pursuant to this Agreement may be addressed to the
Members' Representative and any notice so sent shall be deemed notice to all of
the Members hereunder. The Members hereby consent and agree that the Members'
Representative is authorized to accept notice on behalf of the Members pursuant
hereto.
(c) The Members' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Member, with full power
in his or her name and on his or her behalf to act according to the terms of
this Agreement in the absolute discretion of the Members' Representative; and in
general to do all things and to perform all acts including, without limitation,
executing and delivering all agreements, certificates, receipts, instructions
and other
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<PAGE>
instruments contemplated by or deemed advisable in connection with this
Agreement. This power of attorney and all authority hereby conferred is granted
subject to the interest of the other Members hereunder and in consideration of
the mutual covenants and agreements made herein, and shall be irrevocable and
shall not be terminated by any act of either Member, by operation of law,
whether by the death or other event.
19.12 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
19.13 SURVIVAL. The representations and warranties set forth in this
Agreement shall survive the Closing and expire in accordance with Section 11.11.
The covenants of the parties to be performed offer the Closing shall survive the
Closing and expire in accordance with their respective terms.
19.14 ACCOUNTING TERMS. Except as otherwise expressly provided herein,
all accounting terms used in this Agreement shall be interpreted, and all
financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with U.S.
GAAP consistently applied.
[this space left intentionally blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC.
By: /s/ Guillermo G. Marmol
-----------------------
Name: Guillermo G. Marmol
Title: President
MULTIMEDIA ACQUISITION LLC
By: /s/ Guillermo G. Marmol
-----------------------
Name: Guillermo G. Marmol
Title: Manager
MULTIMEDIA RESOURCES, LLC
By: /s/ Lynn J. Branigan
-----------------------
Name: Lynn J. Branigan
Title: Managing Partner
MEMBERS:
/s/ Henry Heilbrunn
--------------------------------
Henry Heilbrunn
/s/ Lynn J. Branigan
--------------------------------
Lynn J. Branigan
/s/ Norman L. Dawley
--------------------------------
Norman L. Dawley
Signature Page to Agreement and Plan of Organization
Multimedia Resources, LLC
<PAGE>
EXHIBIT 2.1(a)
CONSIDERATION
(a) At Closing, Clarant will deliver Merger Consideration to the Members equal
to:
(i) Six Hundred Sixty-Eight Thousand One Hundred Eighty-Two (668,182)
shares of Clarant Common Stock (the "Stock Consideration") plus
(ii) cash of Two Hundred Eighty-Six Thousand Three Hundred Sixty-Three
and 63/100 U.S. Dollars ($286,363.63) times the IPO price per share of Clarant
Common Stock. For example, if the IPO price per share of Clarant Common Stock is
$11.00, then Clarant will deliver to the Members total cash of Three Million One
Hundred Fifty Thousand and 00/100 U.S. Dollars ($3,150,000.00).
(b) At Closing, the Merger Consideration shall be distributed among the Members
so that each of the Members shall receive his or her pro rata allocation of the
Merger Consideration in the ratio of seventy percent (70%) Clarant Common Stock
and thirty percent (30%) cash.
(c) The minimum IPO price per share of Clarant Common Stock is $9.90.
<PAGE>
EXHIBIT 3.3
EARN-OUT
(a) Contingent Consideration will be paid to the Member(s) contingent
on the financial performance of the Company and Clarant during the periods July
1, 1999 through December 31, 1999, and January 1, 2000 through June 30, 2000
(each such period a "Measurement Period"). The following tables set forth the
projections and formulas for determining the Contingent Consideration payable to
the Member(s):
Projections for Determining Contingent Consideration
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PROJECTED PROJECTED PROJECTED PROJECTED
MEASUREMENT COMPANY COMPANY PRE-TAX COMBINED COMBINED
PERIOD REVENUES INCOME REVENUES PRE-TAX INCOME
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jul. 1, 1999 - $2,431,000 $429,000 n/a n/a
Dec. 31, 1999
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Formulas for Determining Contingent Consideration
<TABLE>
<CAPTION>
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jul. 1, 1999 - 3 15 n/a [50% (Revenue Multiple) x $78,700,000 $2,625,000
Dec. 31, 1999 (Actual Company Revenues -
Projected Company Revenues)]
+
[50% (Pre-Tax Income
Multiple) x (Actual Pre-Tax
Income - Projected Pre-Tax
Income)]
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jan. 1, 2000 - 3 15 3.34% [(Pool Share) x 50% (Revenue $78,700,000 $2,625,000
Jun. 30, 2000 Multiple) x (Actual Combined
Revenues - Projected
Combined Revenues)]
+
[(Pool Share) x 50% (Pre-Tax
Income Multiple) x (Actual
Combined Pretax Income -
Projected Combined Pretax
Income)]
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) For purposes of determining the amount of Contingent Consideration
payable to the Member(s):
(i) Pre-Tax Income shall mean net revenues less direct costs
less indirect costs and expenses, but including all taxes other than Federal and
state income taxes, provided, that, Pre-Tax Income expressly excludes
amortization of acquisition goodwill incident to the transactions contemplated
by the Agreement;
(ii) Combined Revenues shall mean the total revenues of the
Founding Companies only, without giving effect to acquisitions by Clarant or any
Founding Company after the Closing Date, unless otherwise agreed to in writing
by Clarant;
(iii) Combined Pre-Tax Income shall mean the total Pre-Tax
Income of the Founding Companies only, without giving effect to acquisitions by
Clarant or any Founding Company after the Closing Date, unless otherwise agreed
to in writing by Clarant; and
(iv) except as otherwise expressly provided herein, all
accounting terms shall be interpreted in accordance with U.S. GAAP, based upon
consistent use of accounting principles and policies, revenue recognition
methods and reserve methodologies for the Measurement Period and the relevant
audited financial statements.
(c) The Contingent Consideration payable for a Measurement Period shall
be made in cash and shares of Clarant Common Stock, with the amount paid in cash
to be determined by Clarant in its sole and absolute discretion, PROVIDED, THAT,
such amount represents no less than twenty-five percent (25%), nor more than
fifty percent (50%), of the total amount of the Contingent Consideration for the
Measurement Period. For these purposes, each share of Clarant Common Stock will
be valued at the trailing 30-day average closing price, ending on the day before
the date of issuance.
<PAGE>
(d) Within forty-five (45) days following the end of each Measurement
Period, Clarant shall cause Arthur Andersen to review Clarant's and each
Founding Company's books and records to determine, as applicable, the Company's
actual revenues ("Actual Company Revenues") and actual Pre-Tax Income ("Actual
Company Pre-Tax Income"), and the actual Combined Revenues ("Actual Combined
Revenues") and actual Combined Pre-Tax Income ("Actual Combined Pre-Tax
Income"), for the Measurement Period. Within sixty (60) days following the end
of each Measurement Period, Clarant shall deliver a written notice (a
"Contingent Consideration Notice") to the Member's Representative, as defined in
Section __, setting forth (i) the determination made by Arthur Andersen of the
Actual Company Revenues, Actual Company Pre-Tax Income, Actual Combined Revenues
and Actual Combined Pre-Tax Income, if applicable, (ii) the total amount of the
Contingent Consideration payable to the Member(s) for the Measurement Period and
(iii) the amount of cash and shares of Clarant Common Stock that will be paid to
the Member(s) as Contingent Consideration for the Measurement Period. As soon as
practicable after delivering the Contingent Consideration Notice, Clarant shall
issue the shares of Clarant Common Stock to be paid as Contingent Consideration
and deliver such shares, along with the cash to be paid as Contingent
Consideration, to [Clarant's Bank] to hold in escrow until final resolution of
any disputes regarding the Contingent Consideration.
(e) The Members' Representative shall have fifteen (15) days from the
receipt of the Contingent Consideration Notice to notify Clarant if there is a
dispute about such Contingent Consideration Notice. If Clarant has not received
notice of such a dispute within such 15-day period, Clarant shall direct
[Clarant's Bank] to pay the cash portion of the Contingent Consideration by wire
transfer of immediately available funds to the Member(s) at the account(s)
identified on SCHEDULE 19.6 and deliver the shares of Clarant Common Stock to
the Member(s) at the address(es) set forth on SCHEDULE 19.6. If, however, the
Members' Representative has delivered notice of such a dispute to Clarant within
such 15-day period, then Clarant's chief financial officer and the Members'
Representative shall meet (by conference telephone call or in person at a
mutually agreeable site) within one week after notice of a disagreement is given
as provided herein. Clarant's chief financial officer and the Members'
Representative shall attempt to make a final determination of the Contingent
Consideration payable for the Measurement Period. If Clarant's chief financial
officer and the Members' Representative do not reach agreement within a
reasonable time, either or both of them shall give notice of an impasse, in
which case they shall mutually agree on an independent accounting firm to review
the Contingent Consideration Notice (and related information) to determine the
amount of the Contingent Consideration. In the event that Clarant's chief
financial officer and the Members' Representative cannot agree on an independent
accounting firm, Arthur Andersen shall select such independent accounting firm.
The determination of such independent accounting firm shall be final and binding
on the parties hereto and promptly upon such determination Clarant shall direct
[Clarant's Bank] to deliver the Contingent Consideration to the Member(s). The
costs of the independent accounting firm shall be borne by the party whose
determination of the Contingent Consideration was furthest from the
determination of the independent accounting firm, or equally
<PAGE>
by the parties in the event that the determination by the independent accounting
firm is equidistant between the Contingent Consideration as calculated by
Clarant and the Members' Representative.
(f) Any adjustments to the Contingent Consideration required to be made
as a result of the process described in paragraph (e) shall be made in either
cash or Clarant Common Stock, notwithstanding any other limitations contained
herein to the contrary.
(g) The amounts payable as Contingent Consideration shall be deemed to
include interest, if any, that would be imputed under the Code. No additional
payments shall be made to the Member(s) for such imputed interest.
(h) The right to receive the Contingent Consideration shall not be
assignable by the Member(s).
(i) The parties acknowledge that Clarant intends to integrate the
businesses of the Founding Companies and implement policies applicable to
Clarant and its subsidiaries as a whole after the Closing Date. In integrating
the Founding Companies and implementing such policies, Clarant shall maintain
the Company as a separate operating unit through the end of the first
Measurement Period and will not take any action intended or reasonably likely to
prejudice the Members' rights with respect to the Contingent Consideration. In
the event that Clarant merges, consolidates, reorganizes, restructures or
disposes of a material portion of the assets of, or takes any similar action
with respect to, any one or more of the Founding Companies, Clarant shall
maintain sufficient records and recordkeeping procedures as is commercially
practicable and reasonably necessary to calculate the amount of Contingent
Consideration payable to the Members in accordance with the Agreement and the
terms set forth in this EXHIBIT 3.3.
(j) For purposes of calculating the Contingent Consideration during the
first Measurement Period, the Company's Actual Pre-tax Income shall be increased
by ten percent (10%) of any revenues of any one of the Other Founding Companies
from any Referred Work. The term "Referred Work" means work relating to a
project obtained from a client by the Company that the Company requests Clarant
to assign to one of the Other Founding Companies and which assignment request is
approved by Mr. Marmol (or an officer of Clarant designated by Mr. Marmol)
according to procedures established by Clarant.
<PAGE>
<PAGE>
EXHIBIT 10.09
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
BY AND AMONG
CLARANT, INC.,
POTOMAC PARTNERS ACQUISITION LLC,
POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC
AND
SIMON J. BLANKS
JAMES R. COREY
ROBERT J. KACERGIS
BRIAN D. METHVIN
PAUL WEDEKING
DONALD S. PERKINS
ELLEN R. MARRAM
JOHN M. RICHMAN
THOMAS PUGLISI
MICHAEL SMITH
DATED: JUNE 1, 1999
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TABLE OF CONTENTS
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1. THE MERGER.................................................................2
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER.........................2
1.2 EFFECTIVE TIME....................................................2
1.3 CERTIFICATE OF FORMATION, SOLE MEMBER OF SURVIVING COMPANY........2
1.4 EFFECT OF MERGER..................................................3
2. CONVERSION OF MEMBERSHIP INTERESTS, CONVERTIBLE SECURITIES AND OPTIONS.....3
2.1 MANNER OF CONVERSION..............................................3
3. DELIVERY OF MERGER CONSIDERATION...........................................5
3.1 MERGER CONSIDERATION; TENDER......................................5
3.2 TENDER OF COMPANY UNITS...........................................5
3.3 EARN-OUT..........................................................6
3.4 ADDITIONAL CONTINGENT CONSIDERATION...............................6
4. PRE-CLOSING AND CLOSING....................................................7
4.1 PRE-CLOSING.......................................................7
4.2 CLOSING...........................................................7
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MEMBERS..................7
5.1 DUE ORGANIZATION..................................................8
5.2 AUTHORIZATION.....................................................8
5.3 MEMBERSHIP INTERESTS OF THE COMPANY...............................8
5.4 AUTHORITY; NO CONFLICT............................................9
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING...........10
5.6 [RESERVED].......................................................10
5.7 SUBSIDIARIES.....................................................10
5.8 PREDECESSOR STATUS; ETC..........................................10
5.9 SPIN-OFF BY THE COMPANY..........................................10
5.10 FINANCIAL STATEMENTS.............................................10
5.11 LIABILITIES AND OBLIGATIONS......................................11
5.12 ACCOUNTS AND NOTES RECEIVABLE....................................11
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY..........................11
5.14 TRADEMARKS.......................................................12
5.15 LITIGATION AND LEGAL PROCEEDINGS.................................13
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5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.........................14
5.17 EMPLOYEE BENEFITS................................................14
5.18 INSURANCE POLICIES...............................................18
5.19 ENVIRONMENT......................................................20
5.20 LABOR AND EMPLOYMENT MATTERS.....................................21
5.21 PERSONAL PROPERTY................................................22
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS........23
5.23 REAL PROPERTY....................................................25
5.24 TAXES............................................................25
5.25 BUSINESS CONDUCT.................................................28
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.............................30
5.28 RELATIONS WITH GOVERNMENTS.......................................30
5.29 DISCLOSURE.......................................................31
5.31 AFFILIATE TRANSACTIONS...........................................32
5.32 MISREPRESENTATION................................................32
5.33 BROKERS..........................................................32
5.34 AUTHORITY; OWNERSHIP.............................................33
5.35 PREEMPTIVE RIGHTS................................................33
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK.........................33
5.37 TENDER...........................................................33
5.38 INVESTOR QUESTIONNAIRES..........................................33
6. REPRESENTATIONS OF CLARANT AND NEWCO......................................33
6.1 DUE ORGANIZATION.................................................33
6.2 AUTHORIZATION....................................................34
6.3 TRANSACTION NOT A BREACH.........................................34
6.4 MISREPRESENTATION................................................34
6.5 CAPITAL STOCK....................................................34
6.6 SUBSIDIARIES.....................................................35
6.7 LIABILITIES AND OBLIGATIONS......................................35
6.8 CONFORMITY WITH LAW; LITIGATION..................................35
6.9 VALIDITY OF OBLIGATIONS..........................................35
6.10 CLARANT COMMON STOCK.............................................35
6.11 NO SIDE AGREEMENTS...............................................36
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS.....................36
6.13 NO VIOLATIONS....................................................36
6.14 ABSENCE OF CHARGES...............................................36
6.15 TAXES............................................................37
7. COVENANTS PRIOR TO CLOSING................................................38
</TABLE>
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7.1 ACCESS AND COOPERATION; DUE DILIGENCE............................38
7.2 CONDUCT OF BUSINESS PENDING CLOSING..............................38
7.3 PROHIBITED ACTIVITIES............................................39
7.4 NO SHOP..........................................................41
7.5 NOTICE TO BARGAINING AGENTS......................................41
7.6 AGREEMENTS.......................................................41
7.7 NOTIFICATION OF CERTAIN MATTERS..................................41
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.............42
7.9 FINAL FINANCIAL STATEMENTS.......................................43
7.10 FURTHER ASSURANCES...............................................43
7.11 AMENDMENT OF SCHEDULES...........................................43
7.12 THIRD PARTY APPROVALS............................................44
7.13 HSR FILING.......................................................44
7.14 AUTHORIZED CAPITAL STOCK.........................................44
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND THE COMPANY........44
8.1 REPRESENTATIONS AND WARRANTIES...................................45
8.2 PERFORMANCE OF OBLIGATIONS.......................................45
8.3 NO LITIGATION....................................................45
8.4 OPINION OF COUNSEL...............................................45
8.5 REGISTRATION STATEMENT...........................................45
8.6 CONSENTS AND APPROVALS...........................................46
8.7 GOOD STANDING CERTIFICATES.......................................46
8.8 SECRETARY'S CERTIFICATE..........................................46
8.9 HSR ACT..........................................................46
8.10 CLOSING OF THE IPO...............................................46
8.11 EMPLOYMENT AGREEMENTS............................................46
8.12 LISTING..........................................................46
8.13 TAX OPINION......................................................46
8.14 BOARD OF DIRECTORS...............................................47
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO..................47
9.1 REPRESENTATIONS AND WARRANTIES...................................47
9.2 PERFORMANCE OF OBLIGATIONS.......................................47
9.3 NO LITIGATION....................................................47
9.4 COMPANY AND MEMBER REPRESENTATIONS...............................48
9.5 NO MATERIAL ADVERSE EFFECT.......................................48
9.6 TERMINATION OF RELATED PARTY AGREEMENTS..........................48
9.7 OPINION OF COUNSEL...............................................48
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9.8 CONSENTS AND APPROVALS...........................................48
9.9 GOOD STANDING CERTIFICATES.......................................48
9.10 REGISTRATION STATEMENT...........................................48
9.11 EMPLOYMENT AGREEMENTS............................................49
9.12 CLOSING OF IPO...................................................49
9.13 FIRPTA CERTIFICATE...............................................49
9.14 [RESERVED].......................................................49
9.15 SATISFACTION.....................................................49
9.16 HSR ACT..........................................................49
9.17 INVESTOR QUESTIONNAIRE...........................................49
9.18 THE MEMBERS' RELEASE.............................................49
10. COVENANTS OF CLARANT AND THE MEMBERS AFTER CLOSING........................49
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT.....................49
10.2 TAX MATTERS......................................................49
10.3 DIRECTORS AND OFFICERS...........................................51
10.4 [RESERVED].......................................................51
10.5 OPTIONS AND CONVERTIBLE SECURITIES...............................51
11. INDEMNIFICATION...........................................................51
11.1 INDEMNIFICATION BY MEMBERS.......................................51
11.2 INDEMNIFICATION BY CLARANT.......................................52
11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS...................53
11.4 TAX CONTESTS.....................................................54
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS........................55
11.6 FAILURE TO GIVE TIMELY NOTICE....................................56
11.7 REDUCTION OF LOSS................................................56
11.8 SUBROGATION......................................................56
11.9 ARBITRATION......................................................56
11.10 EXCLUSIVE REMEDY.................................................57
11.11 LIMITATION AND EXPIRATION........................................57
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS.............58
12. TERMINATION OF AGREEMENT..................................................59
12.1 TERMINATION......................................................59
12.2 LIABILITIES IN EVENT OF TERMINATION..............................59
13. NONCOMPETITION............................................................59
13.1 PROHIBITED ACTIVITIES............................................59
13.2 DAMAGES..........................................................60
13.3 REASONABLE RESTRAINT.............................................60
13.4 SEVERABILITY; REFORMATION........................................61
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13.5 INDEPENDENT COVENANT.............................................61
13.6 MATERIALITY......................................................61
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.................................61
14.1 MEMBERS..........................................................61
14.2 CLARANT AND NEWCO................................................62
14.3 DAMAGES..........................................................63
14.4 SURVIVAL.........................................................63
15. TRANSFER RESTRICTIONS.....................................................63
15.1 TRANSFER RESTRICTIONS............................................63
16. FEDERAL SECURITIES ACT REPRESENTATIONS....................................64
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK.........................64
16.2 COMPLIANCE WITH LAW..............................................64
16.3 ECONOMIC RISK; SOPHISTICATION....................................64
17. REGISTRATION RIGHTS.......................................................65
17.1 PIGGYBACK REGISTRATION RIGHTS....................................65
17.2 REGISTRATION PROCEDURES..........................................65
17.3 UNDERWRITING AGREEMENT...........................................66
17.4 AVAILABILITY OF RULE 144.........................................66
17.5 MARKET STANDOFF..................................................66
18. DEFINITIONS...............................................................66
19. GENERAL...................................................................76
19.1 COOPERATION......................................................76
19.2 SUCCESSORS AND ASSIGNS...........................................76
19.3 ENTIRE AGREEMENT.................................................76
19.4 COUNTERPARTS.....................................................76
19.5 EXPENSES.........................................................76
19.6 NOTICES..........................................................77
19.7 GOVERNING LAW....................................................78
19.8 EXERCISE OF RIGHTS AND REMEDIES..................................78
19.9 TIME.............................................................79
19.10 REFORMATION AND SEVERABILITY.....................................79
19.11 MEMBERS' REPRESENTATIVE..........................................79
19.12 CAPTIONS.........................................................79
19.13 SURVIVAL.........................................................79
19.14 ACCOUNTING TERMS.................................................80
</TABLE>
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EXHIBITS AND SCHEDULES
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EXHIBIT 1.1 Articles of Merger
EXHIBIT 1.3 Surviving Company Charter Documents
EXHIBIT 2.1(a) Consideration
EXHIBIT 3.3 Contingent Consideration
EXHIBIT 5.2 Member and Manager Approvals
EXHIBIT 5.29(a) Directors and Officers Questionnaire
EXHIBIT 5.29(b) Investor Questionnaires
EXHIBIT 6.1 Clarant Charter Documents
EXHIBIT 8.11 Form of Employment Agreement
EXHIBIT 19.6 Members Addresses and Counsel
SCHEDULE 5.1 Charter Documents and Manager of the Company
SCHEDULE 5.3 Capital Structure of the Company
SCHEDULE 5.4 Consents
SCHEDULE 5.8 Predecessor Status
SCHEDULE 5.9 Spin-Offs
SCHEDULE 5.10 Financial Statements
SCHEDULE 5.11 Liabilities and Obligations
SCHEDULE 5.12 Accounts Receivable
SCHEDULE 5.13 Intellectual Property
SCHEDULE 5.14 Trademarks
SCHEDULE 5.15 Litigation
SCHEDULE 5.16 Compliance with Laws/Permits
SCHEDULE 5.17 Company Plans
SCHEDULE 5.18 Insurance
SCHEDULE 5.19 Environmental
SCHEDULE 5.20 Employees
SCHEDULE 5.21 Personal Property
SCHEDULE 5.22 Material Contracts
SCHEDULE 5.24(g) List of Tax Returns
SCHEDULE 5.24(q) Tax Elections
SCHEDULE 5.25 Business Conduct
SCHEDULE 5.26 Deposit Accounts/Powers of Attorney
SCHEDULE 5.27 Y2K
SCHEDULE 5.31 Affiliate Transactions
SCHEDULE 6.5 Clarant Securities
SCHEDULE 6.7 Liabilities & Obligations
SCHEDULE 6.8 Conformity with Law
SCHEDULE 6.9 Litigation
</TABLE>
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SCHEDULE 6.12 Property
SCHEDULE 6.13 Consents
SCHEDULE 9.11 Employment Agreements
SCHEDULE 11.1(f) Additional Indemnification Matters
SCHEDULE 18.1 Registration Statement
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as
of June 1, 1999, by and among CLARANT, INC., a Delaware corporation ("Clarant"),
POTOMAC PARTNERS ACQUISITION LLC, a Delaware limited liability company
("Newco"), POTOMAC PARTNERS MANAGEMENT CONSULTING, LLC, a Delaware limited
liability company (the "Company"), and SIMON J. BLANKS, JAMES R. COREY, ROBERT
J. KACERGIS, PAUL WEDEKING, BRIAN D. METHVIN, DONALD S. PERKINS, ELLEN R.
MARRAM, JOHN M. RICHMAN, THOMAS PUGLISI and MICHAEL SMITH (the "Members").
WHEREAS, Newco is a limited liability company duly organized and
existing under the laws of the State of Delaware, having been formed on April
30, 1999, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Clarant;
WHEREAS, the Company provides consulting services on e-commerce
strategy, including business planning, organizational design, process redesign,
program management and change management to businesses who, among other things,
conduct commerce through the Internet (the "Business");
WHEREAS, the respective members of Newco and the Company (which
together are hereinafter collectively referred to as "Constituent Companies")
deem it advisable and in the best interests of the Constituent Companies and
their respective members that Newco merge with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware (the "Merger"), and in furtherance thereof have approved the Merger;
WHEREAS, it is the intent of Clarant, Newco, the Company and each of
the Members that upon the completion of the Merger, the Company shall be the
Surviving Company existing as a wholly owned subsidiary of Clarant;
WHEREAS, Clarant plans to enter into other separate agreements
substantially similar to this Agreement (the AOther "greements") with Align
Solutions Corp., Young & Rubicam, Inc., Free Range Media, Inc., Interactive8,
Inc., Integrated Consulting, Inc., Multimedia Resources, LLC, and RSI Group,
Inc. (collectively, the "Other Founding Companies" and together with the
Company, the "Founding Companies"), and their respective principal owners in
order to acquire additional Internet consulting organizations.
WHEREAS, this Agreement and the Other Agreements constitute the
"Clarant Plan of Organization"; Agreement and Plan of Organization
WHEREAS, the Board of Directors of Clarant and Members of the Company
have approved and adopted the Clarant Plan of Organization as an integrated plan
to transfer the
<PAGE>
membership interests of the Company and the capital stock and membership
interests, as applicable, of the Other Founding Companies to Clarant under
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Members of the Company and the
members and the boards of directors of each of Clarant and Newco have approved
the Merger, this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. Subject to
satisfaction of the terms and conditions of this Agreement, the Constituent
Companies will cause the Articles of Merger in substantially the form attached
hereto as EXHIBIT 1.1 to be signed, verified and filed with the Secretary of
State of the State of Delaware and stamped receipt copies of each such filing to
be delivered to Clarant on or before the Closing Date.
1.2 EFFECTIVE TIME. At the Effective Time and subject to the terms
and conditions of this Merger and the applicable provisions of the applicable
laws governing mergers in the State of Delaware (the "State LLC Law"), Newco
shall be merged with and into the Company in accordance with the Articles of
Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. At the Effective Time, the effect of the
Merger otherwise shall be as provided in the applicable provisions of the State
LLC Law.
1.3 CERTIFICATE OF FORMATION, SOLE MEMBER OF SURVIVING COMPANY. At
the Effective Time:
(a) the Certificate of Formation of the Surviving Company
shall be amended and restated as permitted under the laws of Delaware and shall
read substantially in the form attached hereto as EXHIBIT 1.3;
(b) the operating agreement of Newco then in effect shall
be the operating agreement of the Surviving Company until amended as provided by
law;
(c) Guillermo G. Marmol, the Chief Executive Officer of
Clarant ("Mr. Marmol") shall be the manager of the Surviving Company until his
successor is elected or appointed and qualified in accordance with the terms of
the operating agreement of the Surviving Company; and
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(d) James R. Corey shall be the President and Chief
Executive Officer of the Surviving Company, and the other officers of the
Company immediately prior to the Effective Time shall continue as officers of
the Surviving Company in the same capacity or capacities.
1.4 EFFECT OF MERGER. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of each Constituent Company shall continue unaffected and
unimpaired by the Merger, and the Surviving Company shall be fully vested
therewith. At the Effective Time, the separate existence of Newco shall cease
and, in accordance with the terms of this Agreement, the Surviving Company shall
possess all the rights, privileges, immunities, powers and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all other choses in action, and all and every other interest of or belonging
to or due to the Company or Newco shall be taken and deemed to be transferred
to, and vested in, the Surviving Company without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Company as they were of the Company and Newco; and the title to any real estate,
or interest therein, whether by deed or otherwise, under the laws of the state
of organization vested in the Company and Newco, shall not revert or be in any
way impaired by reason of the Merger. The Surviving Company shall thenceforth be
responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Company may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Company, and may be enforced against it to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
2. CONVERSION OF MEMBERSHIP INTERESTS, CONVERTIBLE SECURITIES AND OPTIONS
2.1 MANNER OF CONVERSION. For purposes of converting the issued
and outstanding units of membership interests in the Company ("Company Units")
under this Agreement, the unit holders of the Company shall be divided into two
classes: (A) the first class being unit holders of the Company who qualify as
"accredited investors" under Rule 501(a) of Regulation D promulgated under the
1933 Act ("Accredited Holders") and (B) the second class being unit holders of
the Company who do not qualify as "accredited investors" under Rule 501(a) of
Regulation D promulgated under the 1933 Act ("Non-accredited Holders"). Pursuant
to the provisions of this Section 2.1, each of the Accredited Holders and
Non-accredited Holders shall receive his or her pro rata share of the Merger
Consideration distributed according to the terms of this Section 2.1.
3
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(a) At the Effective Time, by virtue of the Merger and
without any further action on the part of the holder thereof, each of the
membership interests of the Constituent Corporations shall be automatically
canceled, extinguished and converted as follows:
(i) each issued and outstanding Company Unit
owned by an Accredited Holder immediately prior to the Effective Time shall be
converted into the right to receive (A) that number of shares of Clarant Common
Stock as determined by the appropriate formula set forth on EXHIBIT 2.1(A), and
(B) the amount of cash as determined by the appropriate formula set forth on
EXHIBIT 2.1(A);
(ii) each issued and outstanding Company Unit
owned by a Non-accredited Holder immediately prior to the Effective Time shall
be converted into the right to receive the amount of cash as determined by the
appropriate formula set forth on EXHIBIT 2.1(A);
(iii) each Company Unit that is owned directly or
indirectly by the Company shall be canceled and retired and shall cease to exist
and no stock of Clarant or other consideration shall be delivered in exchange
therefor; and
(iv) each issued and outstanding membership
interest of Newco shall continue to be issued and outstanding and shall be
converted automatically into an equivalent validly issued, fully paid and
non-assessable membership interest in the Surviving Company. Each certificate of
Newco evidencing ownership of any such membership interests shall evidence
ownership of the membership interests of the Surviving Company converted
pursuant to this Agreement.
(b) [Reserved]
(c) All Clarant Common Stock received by the Members
pursuant to this Agreement shall, except for restrictions on resale or transfer
described in Sections 15 and 16 hereof, have the same rights as all the other
shares of outstanding Clarant Common Stock by reason of the provisions of the
Certificate of Incorporation of Clarant or as otherwise provided by the Delaware
General Corporation Law. All voting rights of Clarant Common Stock received by
the Members shall be fully exercisable by the Members, and the Members shall not
be deprived nor restricted in exercising those rights after the Effective Time
of the Merger.
(d) From and after the Effective Time, all Company Units,
Convertible Securities and Options of the Company shall no longer be outstanding
and shall cease to exist, and each certificate or agreement previously
representing any such securities shall represent only the right to receive the
consideration determined according to the formulas provided on EXHIBIT 2.1(A).
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3. DELIVERY OF MERGER CONSIDERATION
3.1 MERGER CONSIDERATION; TENDER. At the Closing Clarant shall
deliver to the members of the Company and the holders of Convertible Securities
and vested Options of the Company and the holders of the Company's participation
rights the following consideration (the "Merger Consideration"):
(a) upon the surrender by each of the Company's members
of his or her certificates for Company Units (i) each of the Accredited Holders
shall receive (A) the number of shares of Clarant Common Stock allocable to such
Accredited Holder pursuant to EXHIBIT 2.1(A) and (B) the amount of cash
allocable to such Accredited Holder pursuant to EXHIBIT 2.1(A); and (ii) each of
the Non-accredited Holders shall receive the amount of cash allocable to such
Non-accredited Holder pursuant to EXHIBIT 2.1(A);
(b) The cash portion of the Merger Consideration
allocable to each Accredited Holder or Non-accredited Holder, as the case may
be, shall be paid by wire transfer to the accounts of each holder pursuant to
the wire transfer instructions given on EXHIBIT 19.6. For purposes of this
Section 3.1, a holder's pro rata share shall be determined with respect to the
total number of issued and outstanding Company Units on a Fully-Diluted basis
immediately prior to the Effective Time. For purposes of calculating the Merger
Consideration, "Fully-Diluted" means the total number of Company Units that
would be issued and outstanding assuming the exercise of all issued and
outstanding rights, warrants and vested options and the conversion to Company
Units of all issued and outstanding convertible bonds, debentures and preferred
units.
3.2 TENDER OF COMPANY UNITS.
(a) The Members shall deliver in trust to Wilmer, Cutler
& Pickering, counsel to Clarant, at the Pre-Closing the certificates of Company
Units, duly endorsed in blank by each of the Members, or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed by a national or state
chartered bank or other financial institution, and with all necessary transfer
tax and other revenue stamps, acquired at the Members' expense, affixed and
canceled. The Members agree promptly to cure any deficiencies with respect to
the assignments or other documents of assignment with respect to such Company
Units or with respect to the powers accompanying any Company Units.
(b) At the Pre-Closing, the Members shall use
commercially reasonable efforts to cause all members of the Company who are not
signatories to this Agreement to deliver all unit certificates in trust to
Wilmer, Cutler & Pickering, counsel to Clarant, the unit certificates
representing Company Units held by such members, duly endorsed in blank by each
of such members, as the case may be, or accompanied by stock powers duly
endorsed in blank, with signatures guaranteed by a national or state chartered
bank or other financial institution, and with all necessary transfer tax and
other revenue stamps, acquired at such members' expense, affixed
5
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and canceled. The Members shall obtain from such other members of the Company an
agreement promptly to cure any deficiencies with respect to the endorsement of
the unit certificates or other documents of conveyance with respect to such
Company Units or with respect to the stock powers accompanying any Company
Units.
3.3 EARN-OUT. In addition to the Merger Consideration and subject
to the terms of this Section 3.3, Clarant shall deliver contingent consideration
determined according to the formula stated in EXHIBIT 3.3 (the "Contingent
Consideration") to each Person who is a member of the Company as of the Closing
Date, which shall be distributed among the Members as determined by James R.
Corey. Each Accredited Holder as of the Closing Date shall be eligible to
receive his or her allocated share of Contingent Consideration in a combination
of Clarant Common Stock and cash. Each Non-accredited Holder as of the Closing
Date shall be eligible to receive his or her allocated share of Contingent
Consideration in cash as provided in EXHIBIT 3.3.
3.4 ADDITIONAL CONTINGENT CONSIDERATION. In addition to the
Contingent Consideration, Clarant will pay to each person who is a member of the
Company as of the Closing Date Additional Contingent Consideration, the amount
of each payment of Additional Contingent Consideration to be determined
according to the following formula, and which shall be distributed among the
Members as determined by James R. Corey:
(a) 1.5 times the UAL Revenues earned by Clarant or the
Surviving Company for New Consulting Services performed by Clarant or the
Surviving Company for UAL Corp., PLUS
(b) 0.4 times the UAL Revenues earned by Clarant or the
Surviving Company for New Other Services performed by Clarant or the Surviving
Company for UAL Corp.
Payments of Additional Contingent Consideration will be made within thirty (30)
business days after the completion of Clarant's annual audit for the fiscal
years 1999, 2000, 2001 and 2002. For all purposes under this Agreement, the UAL
Revenues shall not constitute any portion of the revenues of the Company for
purposes of determining the Contingent Consideration, except that for purposes
of determining the Company's payments of Contingent Consideration and Additional
Contingent Consideration, all UAL Revenues from New Consulting Services during
the period of the first tranche of the Contingent Consideration shall be deemed
part of the Contingent Consideration and not part of the Additional Contingent
Consideration. Payments of the Additional Contingent Consideration shall be made
consistently with the principles established in EXHIBIT 3.3 for the payment of
the Contingent Consideration.
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4. PRE-CLOSING AND CLOSING
4.1 PRE-CLOSING. At or prior to the Pre-Closing, the parties shall
take all actions necessary to prepare to (a) effect the Merger (including, if
permitted by applicable state law, the advance filing with the appropriate state
authorities of the Certificate and Articles of Merger and/or Plan of Merger, as
applicable (collectively, the "Merger Documents"), which shall become effective
at the Effective Time) and (b) deliver the Clarant Common Stock and Company
Units, as the case may be, referred to in Article 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the delivery of such interests and the transmission of funds
by wire referred to in Article 3 hereof, each of which actions shall only be
taken upon the Closing Date as herein provided. In the event that there is no
Closing Date and this Agreement terminates, Clarant hereby covenants and agrees
to do all things required by the State LLC Law and all things which counsel for
the Company advise Clarant are required by the State LLC Law in order to rescind
actions effected by the advance filing of the Merger Documents as described in
this Section. The taking of the actions described in clauses (a) and (b) above
(the "Pre-Closing") shall take place the day following the date that the
Registration Statement shall be declared effective by the Securities and
Exchange Commission (the "Pre-Closing Date") at the offices of Wilmer, Cutler &
Pickering, 2445 M Street, N.W., Washington, D.C. 20037.
4.2 CLOSING. On the Closing Date: (a) the Merger Documents shall
be or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (b) all transactions
contemplated by this Agreement, including the delivery of Clarant Common Stock
and Company Units, as the case may be, the transmission of funds by wire in an
amount equal to the cash portion of the consideration to be paid according to
EXHIBIT 2.1(A), and (c) all conditions to closing as set forth in Articles 8 and
9 of this Agreement shall have been satisfied. The date on which the actions
described in this Section 4.2 occur shall be referred to as the "Closing Date."
This Agreement shall terminate if the Closing Date has not occurred within
fifteen (15) business days of the Pre-Closing Date. Time is of the essence. The
"Effective Time" shall be the same date as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
MEMBERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS.
The Company and each of the Members (except for Donald S. Perkins,
Ellen R. Marram, John M. Richman, Thomas Puglisi and Michael Smith) 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
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amendments or supplements pursuant to Section 7.11, and each of the Members
further represents and warrants that, except as contemplated hereby or as
affected by the transaction contemplated hereby, such representations and
warranties shall survive the Closing Date as provided in Article 11:
5.1 DUE ORGANIZATION. The Company is duly organized, validly
existing, and in good standing under the laws of Delaware and has all requisite
power and authority to carry on its operations as they are now being conducted,
to own or use the properties and assets it purports to own or use, and to
perform all of its obligations under the Material Contracts. The Company is duly
qualified to conduct business and own its property and assets as a foreign
entity in good standing under the laws of each state in which either the
ownership or use of properties and assets owned or used by it, or the nature of
the activities conducted by it, requires such qualification and where failure to
do so would have a Material Adverse Effect on its Business taken as a whole.
True and complete copies of the Certificate of Formation and Operating
Agreement, each as amended, of the Company (the "Charter Documents") are all
attached to SCHEDULE 5.1. The Company is not in violation of any Charter
Documents. The minute books and capital account records of the Company, as
heretofore made available to Clarant, are complete in all material respects and
reflect all transactions of the Company. The most recent minutes of the Company,
which are dated no earlier than ten (10) business days prior to the date hereof,
affirm and ratify all prior acts of the Company and of its members and manager
on behalf of the Company in respect of the transactions contemplated hereby.
SCHEDULE 5.1 contains a complete and accurate list of the members and manager of
the Company.
5.2 AUTHORIZATION. The Persons executing this Agreement on behalf
of the Company are duly authorized to execute and deliver this Agreement and to
perform the obligations hereunder. The execution and delivery of this Agreement
by the Company and performance by the Company of its obligations under this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary company action in accordance
with applicable law and the Charter Documents on the part of the Company and the
Members and copies of the respective approvals of the manager and the Members
(certified by the Secretary of the Company to be true, accurate and complete)
are attached hereto as EXHIBIT 5.2. This Agreement constitutes the valid and
binding obligations of the Company and the Members, enforceable against the
Company and the Members in accordance with its terms, subject to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and the application of equitable principles.
5.3 MEMBERSHIP INTERESTS OF THE COMPANY. The respective
designations and numbers of outstanding membership interests and voting rights
of each class of outstanding membership interests and securities convertible,
exercisable or redeemable for membership interests (collectively, "Convertible
Securities"), or rights, warrants, puts, calls or options relating to membership
interests (collectively, "Options") of the Company as of the date of this
Agreement are as set forth on SCHEDULE 5.3 hereto. All of the issued and
outstanding Company Units,
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Convertible Securities and Options of the Company are owned by the
Persons listed on SCHEDULE 5.3 and in the amounts and at the applicable exercise
prices set forth thereon, and are owned free and clear of all Encumbrances, and
no other Person (other than Clarant) has any right to acquire any membership
interest in the Company or any of its Subsidiaries. All of the issued and
outstanding Company Units have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Members and were offered, issued, sold and delivered by the Company in
compliance with all applicable state and Federal securities laws concerning the
offering and sale or grant of securities. All of the Options have been duly
authorized and validly issued, are held of record and beneficially by the
respective option holders set forth on SCHEDULE 5.3, and were granted in
compliance with all applicable state and Federal securities laws concerning the
grant of options. Set forth on SCHEDULE 5.3 is a complete list of all the
Company's unit holders' agreements, buy-sell agreements, security subscription
agreements, registration rights agreements, voting agreements, option plans and
agreements and other similar agreements (collectively, "Securities Agreements"),
and a copy of each such agreement is attached thereto. To the Knowledge of the
Company and the Members, there are no breaches or defaults by the Company or the
Members under any of the Company's Securities Agreements.
5.4 AUTHORITY; NO CONFLICT. Except to the extent consents or
approvals are required from third parties or Governmental Authorities (the
"Consents"), the execution, delivery or performance of this Agreement by the
Company will not:
(a) violate or conflict with or result in a breach of any
provision of any Law, permit, judgment, or other decision of any court or other
tribunal or any Governmental Authority binding on the Company or any Subsidiary,
or any of its respective Affiliates, or conflict with or result in the breach of
any of the terms, conditions or provisions thereof;
(b) violate, conflict with or constitute a default under
any of the Charter Documents of the Company or any Subsidiary or of any Material
Contract;
(c) constitute an event that would permit any Person to
terminate any Material Contract or accelerate the maturity of any material
indebtedness or other material obligation;
(d) result in the creation or imposition of any
Encumbrance upon the properties or assets of the Company or any Subsidiary; or
(e) require any authorization, consent, approval,
exemption or other action by, or notice to any court or other tribunal or
Governmental Authority (each a "Governmental Consent").
SCHEDULE 5.4 describes each third party and Governmental Authority Consent.
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5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except
as set forth on SCHEDULE 5.3, (a) no Option, Convertible Security, or commitment
of any kind exists which obligates the Company to issue any of its authorized
but unissued membership interests or its treasury membership interests; and (b)
the Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its Company Units, Convertible Securities or Options or
any interests therein or to pay any dividend or make any distribution in respect
thereof.
5.6 [Reserved]
5.7 SUBSIDIARIES. The Company has no Subsidiaries. The Company
does not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership, limited liability company or other non-corporate entity.
5.8 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 5.8 is a list
of all names of all predecessor companies of the Company, including the names of
any entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from which the Company previously acquired material
assets. Except as disclosed on SCHEDULE 5.8, the Company has not been a
subsidiary or division of another company or a part of an acquisition that was
later rescinded.
5.9 SPIN-OFF BY THE COMPANY. Except as set forth on SCHEDULE 5.9,
there has not been any sale, spin-off, or split-up of material properties or
assets of either the Company or any other person or entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Company ("Affiliates") since January 1, 1997.
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Company has
delivered to Clarant (as SCHEDULE 5.10) copies of the following financial
statements (the "Financial Statements"): audited Balance Sheets, income
statements, statements of members' equity and statements of cash flows at and
for the fiscal years ended December 31, 1997 and 1998 and unaudited Balance
Sheets, income statements, statements of members' equity and statements of cash
flows at and for the interim periods ended March 31, 1999.
(b) Each of the Financial Statements fairly presents
the Company's consolidated financial condition, assets and liabilities as of
their respective dates and the results of operations and cash flows for the
periods related thereto in accordance with GAAP, consistently applied among
the periods which are the subject of the Financial Statements, except
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unaudited interim financial statements which were or are
subject to normal and recurring year-end adjustments which were not and are not
expected to be material in amount or to require the addition of required
footnotes thereto.
5.11 LIABILITIES AND OBLIGATIONS. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.11) as of the Balance
Sheet Date of (a) all liabilities of the Company in excess of $10,000 not
reflected on the Balance Sheet as of the Balance Sheet Date or otherwise
reflected in the Company Financial Statements at the Balance Sheet Date and (b)
all loan agreements, notes and other material debt obligations (whether secured
or unsecured), indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements to which the Company or any Subsidiary is a
party. Except as set forth on SCHEDULE 5.11, since the Balance Sheet Date,
neither the Company nor any Subsidiary has incurred any material liabilities of
any kind, character and description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
Ordinary Course of Business that will not have a Material Adverse Effect.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Clarant an accurate list (which is set forth on SCHEDULE 5.12) of the accounts
and notes receivable of the Company as of the Balance Sheet Date, including any
such amounts which are not reflected on the Balance Sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
Members. Within ten (10) days prior to Closing, the Company shall provide
Clarant (a) an accurate list of all outstanding receivables obtained subsequent
to the Balance Sheet Date and (b) an aging of all such accounts and notes
receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on SCHEDULE 5.12 or as disclosed by
the Company to Clarant in a writing accompanying the A/R Aging Reports, as the
case may be, the Company and the Members have no reason to believe that any such
account, note or other receivable is not or shall not be, collectible in the
amounts shown on SCHEDULE 5.12 (in the case of the accounts and notes receivable
set forth on SCHEDULE 5.12, net of reserves reflected in the balance sheet at
the Balance Sheet Date) and as of the date of the A/R Aging Reports,
respectively.
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) The Company owns or licenses all Intellectual
Property necessary for the Company to conduct its business in the manner
presently conducted, and all material Intellectual Property (other than
Trademarks) owned or used by the Company and/or any Subsidiaries or in which or
to which it has any rights, licenses or immunities are described and set forth
with reasonable particularity in SCHEDULE 5.13 along with material information
as to the ownership thereof or licenses, rights or immunities therein and
registrations thereof;
(b) Except as disclosed in SCHEDULE 5.13:
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(i) to the Knowledge of the Members and the
Company, the Company and any Subsidiaries have the right and authority to use
all Intellectual Property as is necessary to enable it to conduct and to
continue to conduct all phases of its business in the manner presently conducted
and to the Knowledge of the Company and the Members, the Company and any
Subsidiary has never infringed on, misappropriated, or otherwise conflicted
with, and is not now infringing on, misappropriating or otherwise conflicting
with, any patent or other intellectual property right belonging to any Person;
(ii) neither the Company nor any Subsidiary is a
party to any license agreement or arrangement, not set forth in SCHEDULE 5.13,
whether as licensee, licensor or otherwise, with respect to any Intellectual
Property;
(iii) [Reserved];
(iv) none of the Members, or any of their
Affiliates, owns any of the Intellectual Property used by the Company or any
Subsidiary; and
(v) to the Knowledge of the Members and the
Company, there is no unauthorized use, infringement or misappropriation by any
third party of any Intellectual Property owned by the Company or any Subsidiary.
5.14 TRADEMARKS. Except as disclosed in SCHEDULE 5.14:
(a) all trademarks, service marks, trade dress and trade
names ("Trademarks") used by the Company and/or any Subsidiaries in the conduct
of the Business are described and set forth with reasonable particularity in
SCHEDULE 5.14, along with material information as to the ownership thereof;
(b) all such Trademarks are owned by the Company and/or
any Subsidiaries, except for such as are licensed under licenses referred to in
SCHEDULE 5.14;
(c) to the Knowledge of the Company and the Members, no
such Trademarks are being overtly challenged in any way;
(d) to the Knowledge of the Company and the Members, the
Company has not infringed on nor is it now infringing on any Trademark of or
belonging to another Person; and
(e) to the Knowledge of the Members and the Company,
there is no claim pending or Threatened against the Company with respect to
alleged infringement of any Trademark owned by any Person nor does the operation
or any aspect to its business in the manner in which it has heretofore been
operated or is presently operated give rise to any such infringement.
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5.15 LITIGATION AND LEGAL PROCEEDINGS.
(a) Except as set forth in SCHEDULE 5.15:
(i) there is no suit, private proceeding,
action, liability or claim (collectively, "Actions") pending or, to the
Company's or the Members' Knowledge, Threatened, against the Company, any
Subsidiary or any Company Plan or any fiduciary of any such Company Plan or to
which the Company or any Subsidiary is otherwise a party or which may have a
Material Adverse Effect on the Company.
(ii) to the Knowledge of the Members and the
Company, each of the Company and any Subsidiaries has given all required notice
of such Actions to the appropriate insurance carrier(s) and/or all such Actions
have in the judgment of the Company's Chief Financial Officer, been fully
reserved for on the Financial Statements. SCHEDULE 5.15 lists the insurer for
each Action covered by insurance or designates each Action, or portion of each
Action, as uninsured and the individual and aggregate policy limits for the
insurance covering each insured Action and the applicable policy deductibles for
each insured Action;
(iii) no litigation matter (other than workers
compensation claims) to which the Company or any Subsidiary was a party was
resolved, settled or closed during the three years preceding the date of this
Agreement;
(iv) there is no pending Proceeding that has been
commenced by or against the Company or any Subsidiary that relates to or may
materially affect the Business, and, to the Knowledge of the Members and the
Company, no such Proceeding has been Threatened; and
(v) the Company is not subject to any judgment,
Order, or decree of any court or Governmental Authority and, to the Knowledge of
the Company and the Members, none is Threatened. Except as disclosed in SCHEDULE
5.15, neither the Company or any Subsidiary is engaged in any legal action to
recover money due it or for damages sustained by it.
(b) Matters disclosed in SCHEDULE 5.15 shall include the
following information, where applicable:
(i) a summary description of the Action together
with the following:
(1) a list of all relevant
documentation relating thereto;
(2) if known, amounts claimed and any
other action or relief sought; and
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(3) name of claimant and, if known, all
other parties to the Action.
(ii) the name of each court or agency before
which such Action is pending; and
(iii) the date such Action was instituted.
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.
(a) Except as set forth on SCHEDULE 5.16, the Company and
any Subsidiaries have complied in all material respects with all laws, rules,
regulations, writs, injunctions, decrees, and Orders applicable to it or to the
operation of the Business (collectively, "Laws") and has not received any
written notice of any alleged claim or threatened claim, violation of, liability
or potential responsibility under, any such Law that has not heretofore been
cured and for which there is no remaining liability other than those not having
a Material Adverse Effect.
(b) The Company and any Subsidiaries hold all licenses,
permits and other governmental authorizations (the "Permits") the absence of any
of which could have a Material Adverse Effect, and the Company has delivered to
Clarant an accurate list and summary description (which is set forth on SCHEDULE
5.16) of all such Permits. To the Knowledge of the Company and the Members, the
Permits listed on SCHEDULES 5.16 are valid, and neither the Company nor any
Subsidiary has received any written notice that any Governmental Authority
intends to cancel, terminate or not renew any such Permit. The Company and any
Subsidiaries have conducted and are conducting their Business in compliance with
the requirements, standards, criteria and conditions set forth in the Permits
listed on SCHEDULE 5.16 and are not in violation of any of the foregoing except
where such non-compliance or violation would not have a Material Adverse Effect.
Except as specifically provided in SCHEDULE 5.16, the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company and any
Subsidiaries by, any of the Permits listed on SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms
have the meanings set forth below:
"COBRA" means Sections 601-608 of ERISA and Section
4980(B)(8) of the Code.
"Company Other Benefit Obligation" means an Other Benefit
Obligation the Company sponsors or maintains or with respect to which the
Company has or may have liability, in each case with respect to any present or
former employees or manager of the Company.
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"Company Plan" means all Plans of which the Company is a Plan
Sponsor, or to which the Company otherwise contributes, or in which the
Company's employees have participated, or for which the Company has or may have
any liability (including with respect to previously terminated Plans).
"Company VEBA" means a VEBA whose members include employees of
the Company or any ERISA Affiliate.
"ERISA" means the Employee Retirement Income Security Act of
1974 as amended.
"ERISA Affiliate" means, with respect to the Company, any
other trade or business, whether or not incorporated, that, together with the
Company, would be treated as a single employer under Section 414 of the Code
or ERISA Section 4001.
"Multiemployer Plan" has the meaning given in ERISA Section
3(37) (A).
"Other Benefit Obligations" means all obligations or
arrangements to provide benefits to present or former employees or manager
(other than obligations or arrangements that are Plans). Other Benefit
Obligations include (unless they are Plans) employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, sabbaticals, severance pay policies,
plant closing benefits, salary continuation for disability, consulting, or
other compensation arrangements, workers' compensation, retirement, deferred
compensation, bonus, stock option or purchase, medical insurance, life
insurance, tuition reimbursement or scholarship programs, employee discount
programs, meals, travel, or vehicle allowances, any plans subject to Section
125 of the Code, and any plans providing benefits or payments in the event of
a change of control, change in ownership or effective control, or sale of a
substantial portion of the assets of any business or portion thereof, in each
case with respect to any present or former employees or managers and
excluding any arrangements that, in the aggregate, do not reflect liability
of the Company for more than $25,000.
"Pension Plan" has the meaning given in ERISA Section
3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3),
including plans exempted by ERISA ss. 4(b)(5) or excluded from coverage under
ERISA by 29 CFR Section 2510.3-3(b) as a plan covering only partners,
members, or sole proprietors.
"Plan Sponsor" has the meaning given in ERISA Section
3(16)(B).
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"Qualified Plan" means any Company Plan that is intended to
meet the requirements of Section 401(a) of the Code.
The "Service" means the Internal Revenue Service.
"VEBA" means a voluntary employees' beneficiary association
under Section 501(c)(9) of the Code.
(b) (i) There are no Company VEBAs; and
(ii) neither the Company nor any ERISA
Affiliate sponsors, maintains or contributes to or has any actual or
potential liability with respect to any now or formerly existing (1)
Multiemployer Plan or (2) Pension Plan subject to Title IV of ERISA or
Section 412 of the Code.
(c) (i) SCHEDULE 5.17 contains a complete and
accurate list of all material Company Plans and material Company Other Benefit
Obligations; and
(ii) SCHEDULE 5.17 contains a complete and
accurate list of all ERISA Affiliates.
(d) Members have provided to Clarant all of the following
documents relating to Company Plans and Company Other Benefit Obligations:
(i) all the documents, if any, that set forth
the terms of each Company Plan and Company Other Benefit Obligation and of any
related trust, including (1) the most recent summary plan descriptions of
Company Plans for which the Company is required to distribute summary plan
descriptions, (2) the most recent, if any, summaries and descriptions furnished
to participants and beneficiaries regarding Company Plans and Company Other
Benefit Obligations for which a summary plan description is not required (and
all forms of COBRA notices), and (3) amendments, if any, to each of the
foregoing;
(ii) all personnel and employment manuals and
policies;
(iii) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in writing and that is
listed on SCHEDULE 5.17;
(iv) the Form 5500 or 5500 C/R, if any, filed in
each of the most recent two plan years (or three, if the most recent two
5500C/Rs do not include a 5500C) with respect to each Company Plan, including
all schedules thereto;
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(v) all material notices that were given, with
respect to a Company Plan or Other Company Benefit Obligation, by the Service,
Department of Labor, or other governmental agency to the Company or any Company
Plan within the two years preceding the date of this Agreement (and any earlier
material notices relating to matters not resolved as of the date of this
Agreement); and
(vi) with respect to Qualified Plans, (I) the
most recent determination regarding qualification and, if different, the most
recent determination letter that covered the qualification of the entire plan,
or (II) if applicable, the most recent opinion letter issued by the Service with
respect to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its
material obligations under all Company Plans and Company Other Benefit
Obligations;
(ii) the Company, with respect to all Company
Plans and Company Other Benefit Obligations is, and each Company Plan and
Company Other Benefit Obligation is, in material compliance with ERISA, the
Code, federal and state securities laws and other applicable Laws and with the
terms of each Company Plan and Company Other Benefit Obligation;
(iii) no transaction prohibited by ERISA
Section 406 and no "prohibited transaction" under Section 4975(c) of the Code
have occurred with respect to any Company Plan that could give rise to
liability against the Company in excess of $25,000;
(iv) the Company has no liability to the Service
with respect to any Plan that would have a Material Adverse Effect;
(v) the Company has no liability with respect to
any Plan under ERISA Section 502(i) that would have a Material Adverse Effect;
(vi) a determination letter, or, if applicable,
an opinion letter, has been issued by the Service with respect to each Qualified
Plan;
(vii) since December 31, 1998, there has been no
establishment or amendment of any Company Plan or Company Other Benefit
Obligation that would increase the liability of the Company by more than
$25,000;
(viii) other than routine claims for benefits
submitted by participants or beneficiaries, no claim against, or legal
proceeding involving, any Company Plan or Company Other Benefit Obligation is
pending or, to Members' or the Company's Knowledge, is
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Threatened. No Company Plans or Company Other Benefit Obligations are, to the
Company's Knowledge, presently under audit or examination (nor has notice been
received of a potential audit or examination) by the Service, the Department of
Labor, or any other governmental agency, and no matters are pending with respect
to any Company Plan under the Service's Employee Plans Compliance Resolutions
System or any successor or predecessor program;
(ix) no Company Plan or Company Other Benefit
Obligation provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service other than (1) coverage
mandated by applicable law, (2) death benefits or retirement benefits under any
Company Plan that is a Pension Plan, (3) deferred compensation benefits in the
form of cash, (4) benefits, the full cost of which is borne by the current or
former employee (or his beneficiary), or (5) insured disability benefits;
(x) no Company Plan or Company Other Benefit
Obligation contains any provision that would prohibit the transactions
contemplated by this Agreement or that would give rise to any acceleration or
vesting of benefits, severance, termination or other payments or liabilities as
a result of the transactions contemplated by this Agreement; and the Company has
not declared or paid any bonus or incentive compensation in contemplation of the
transactions contemplated by this Agreement;
(xi) all group health plans of the Company and
its ERISA Affiliateshave been operated in material compliance with the
requirements of COBRA and Section 5000 of the Code and the Health Insurance
Portability and Accountability Act.
(xii) the only Qualified Plan is the Potomac
Partners 401(k) Plan. The Company has never maintained or contributed to other
Qualified Plans. No Company Plan contains any security issued by the Company or
any ERISA Affiliate; each Qualified Plan of the Company is and has always been
in substantial compliance with Section 401(a) of the Code; and
(xiii) the Company has paid all amounts it is
required to pay as contributions to the Company Plans as of the last day of the
most recent fiscal year of each of the plans ended before the date of this
Agreement; all benefits accrued under any unfunded Company Plan or Company Other
Benefit Obligation will have been paid, accrued, or otherwise adequately
reserved to the extent required by GAAP as of the date of this Agreement.
5.18 INSURANCE POLICIES.
(a) The Company has made available to Clarant:
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(i) true and complete copies of all policies of
insurance to which the Company or any Subsidiary is a party or any manager of
the Company is or has been covered at the expense of the Company;
(ii) true, accurate and complete copies of all
pending applications by the Company for policies of insurance; and
(iii) any written statement by the auditor of the
Company's Financial Statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) The Company does not have any of the following
insurance arrangements:
(i) any self-insurance arrangement by or
affecting the Company;
(ii) any monopolistic workers' compensation
schemes applicable to the Company;
(iii) any contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk by the Company; and
(iv) any obligations of the Company to third
parties with respect to insurance (including such obligations under leases and
service agreements).
(c) SCHEDULE 5.18 sets forth, by year, for the current
policy year and each of the preceding two policy years:
(i) a summary of the loss experience under each
policy; and
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $50,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by
insurer, type of insurance, and period of coverage; and
(C) the amount and a brief description
of the claim.
(d) Except as set forth in SCHEDULE 5.18:
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(i) all insurance policies to which the Company
or any Subsidiary is a party or that provide coverage to Members, or any
director or officer of the Company or any Subsidiary:
(A) are valid, outstanding, and
enforceable;
(B) are issued by an insurer that the
Company believes is financially sound and reputable;
(C) taken together, in the Company's
belief, provide adequate insurance for the properties, assets and the Business
for all risks normally insured against by a Person carrying on the same or
similar business or businesses as the Company;
(D) comply with the insurance
requirements of all Laws and Contracts to which the Company and/or any
Subsidiary is a party or by which it is bound; and
(E) do not provide for any
retrospective premium adjustment or other experience-based liability on the part
of the Company and/or any Subsidiary;
(ii) neither the Company nor any Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and any Subsidiaries has
paid all premiums due and has otherwise performed all of its obligations under
each policy to which the Company or any Subsidiary is a party or that provides
coverage to the Company, any Subsidiary, or member thereof; and
(iv) except as set forth in SCHEDULE 5.18 the
Company and each Subsidiary have given notice to the insurer of all claims that
may be insured thereby.
5.19 ENVIRONMENT.
(a) Except as set forth in SCHEDULE 5.19:
(i) the Company is, and at all times has been,
in material compliance with, and has not been, and is not, in material violation
of, or materially liable under, any Environmental Law; and
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(ii) with respect to Permits required by, and
notices or application required by, the Environmental Laws, the Company
possesses all such Permits and has filed all such notices and applications the
absence of which would have a Material Adverse Effect on the Company.
(b) Except as disclosed in SCHEDULE 5.19:
(i) the Company has not been subject to, or
received any, notice of any Action or intended Action relating to the presence
or alleged presence of Hazardous Materials in, under, or upon any real estate
currently or formerly owned, leased or used by (A) the Company, or (B) any other
Person with respect to Hazardous Materials disposed of by or on behalf of the
Company;
(ii) the Company and Members have no Knowledge of
any basis for any such notice or Action; and
(iii) there are no pending or, to the Knowledge of
the Members and the Company Threatened, Actions (or notice of potential actions
or proceedings) from any Governmental Authority or any other entity against or
applicable to the Company regarding any matter relating to health or protection
of the Environment.
(c) There are, and have been, no past or present events,
conditions, circumstances, activities, practices, incidents, or actions that
could reasonably be expected to interfere with or prevent the Company's or any
Subsidiary's continued compliance with any Environmental Law, give rise to any
material legal obligation or material liability, or otherwise form the basis of
any Action, hearing or investigation against or involving the Company or any
Subsidiary or any real estate presently or previously owned or used by the
Company or any Subsidiary under any of the Environmental Law or related common
law theories, except as identified in SCHEDULE 5.19.
(d) To the Knowledge of the Members and the Company, the
Company does not and never has disposed of any hazardous materials off-site, and
does not employ or use, and never has employed or used, any off-site waste
disposal organization, hauler, transporter or cartage organization to dispose of
Hazardous Materials to any off-site waste disposal location on behalf of the
Company or any Subsidiary.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of and service providers to the Company and
any Subsidiary:
(a) [Reserved]
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(b) the Company is complying and has complied in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and no claims or investigations
are pending or, to the Company's Knowledge, Threatened with respect to such
laws, either by private individuals or by Governmental Authority;
(c) the Company has not and is not engaged in any unfair
labor practice, and there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Company pending or, to the
Company's Knowledge, Threatened, before the National Labor Relations Board or
any other comparable authority;
(d) no labor union represents or has ever represented the
Company's employees and no collective bargaining agreement is or had been
binding against the Company. The Company is not currently negotiating to enter
into such agreements. No grievance or arbitration proceeding arising out of or
under collective bargaining agreements or employment relationships is pending,
and no claims therefor exist or have, to the Company's Knowledge, been
Threatened;
(e) no labor strike, lock-out, slowdown, or work stoppage
is or has ever been pending or Threatened against or directly affecting the
Company;
(f) all Persons who are or were performing services for
the Company and are or were classified as independent contractors do or did
satisfy and have satisfied the requirements of law to be so classified, and the
Company has fully and accurately reported their compensation on the Service's
Form 1099 when required to do so; and
(g) SCHEDULE 5.20 hereto sets forth an accurate list, as
of the date hereof, of all employees of the Company who earned more than $75,000
in 1998 or are expected to earn that level in 1999, and lists all employment
agreements with such employees, and the officers and members of the Company and
the rate of compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such Person as of (a) the
Balance Sheet Date and (b) the date hereof.
5.21 PERSONAL PROPERTY.
(a) The Company has delivered to Clarant (a) an accurate
list (which is set forth on SCHEDULE 5.21) of (i) all personal property included
(or that will be included) in "depreciable plant, property and equipment" (or
similarly named line item) on the balance sheet of the Company at the Balance
Sheet Date, (ii) all other personal property owned by the Company or any
Subsidiary with a value individually in excess of $10,000 (A) at the Balance
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Sheet Date and (B) acquired since the Balance Sheet Date, and (iii) all leases
and agreements in respect of personal property, together with a listing of the
capital costs of all such properties and assets which are subject to capital
leases.
(b) Except as set forth on SCHEDULE 5.21, (i) all personal
property with a value individually in excess of $10,000 used by the Company or
any Subsidiary in its business is either owned by the Company or any Subsidiary
or leased by the Company or any Subsidiary pursuant to a lease included on
SCHEDULE 5.21, (ii) all of the personal property listed on SCHEDULE 5.21 is in
good working order and condition, ordinary wear and tear excepted, and (iii) all
leases and agreements included on SCHEDULE 5.21 are in full force and effect and
constitute valid and binding agreements of the Company or any Subsidiary, and to
the Company's and the Members' Knowledge, of the parties (and their successors)
thereto in accordance with their respective terms.
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) The Company has delivered to Clarant an accurate list
(which is set forth on SCHEDULE 5.22) of all Significant Customers, it being
understood and agreed that a "Significant Customer," for purposes of this
Agreement, means a customer (or Person) representing 5% or more of the Company's
annual revenues as of the Balance Sheet Date. Except to the extent set forth on
SCHEDULE 5.22, none of the Company's Significant Customers has canceled or
substantially reduced or, to the Knowledge of the Company or any Member, is
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company or any Subsidiary.
(b) The Company has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Company or any Subsidiaries enforceable in accordance
with its terms, and is in full force and effect, subject to bankruptcy,
reorganization, receivership and other laws affecting creditors' rights
generally and the application of equitable principles. Except as set forth on
SCHEDULE 5.22, the Company has performed all obligations required to be
performed by it under each Material Contract, and it is not, nor, to the
Knowledge of the Company or any Member, is any other party to any Material
Contract (with or without the lapse of time or the giving of notice, or both) in
breach or default in any material respect thereunder. Neither the Company nor
any Subsidiary has been notified that any party to a Material Contract intends
to cancel, terminate, not renew, or exercise an option under any Material
Contract, whether in connection with the transactions contemplated hereby or
otherwise.
(c) Except as listed or described on SCHEDULE 5.22, the
Company has no Contracts of the types described below:
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(i) any collective bargaining arrangement with
any labor union or any such agreements currently in negotiation or proposed;
(ii) any contract for capital expenditures or the
acquisition or construction of fixed assets for or in respect to real property
other than in the Ordinary Course of Business in excess of $50,000;
(iii) any contract with a term in excess of one
year for the purchase, maintenance, acquisition, sale or furnishing of
materials, supplies, merchandise, machinery, equipment, parts or other property
or services (except that the Company need not list any such contract made in the
Ordinary Course of Business which requires aggregate future payments of less
than $50,000, and in lieu of providing each individual contract, the Company has
provided to Clarant its standard subcontractor form and a list of each
subcontractor).
(iv) any contract relating to the borrowing of
money, or the guaranty of another Person's borrowing of money, including,
without limitation, all notes, mortgages, indentures and other obligations,
agreements and other instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(v) any contract granting any Person an
Encumbrance on any of the properties or assets of the Company or any Subsidiary,
in whole or in part;
(vi) any contract for the cleanup, abatement or
other actions in connection with Hazardous Materials, the remediation of any
existing environmental liabilities, violation of Environmental Laws or relating
to the performance of any environmental audit or study;
(vii) any contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any material property or asset of the Business of the Company or any Subsidiary,
other than in the Ordinary Course of Business;
(viii) any contract having an original value in
excess of $50,000 under which the Company or any Subsidiary is:
(A) a lessee or sublessee of any
machinery, equipment, vehicle or other tangible personal property or real
property, or
(B) a lessor of any real property or
machinery, equipment, vehicle or other tangible personal property owned by the
Company or any Subsidiary;
(ix) any contract providing for the
indemnification of any officer, director, employee or other Person where such
indemnification may exceed the sum of $50,000;
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(x) any joint venture or partnership contract;
(xi) any agreement that prohibits the use or
publication by the Company, or could prohibit the use or publication by Clarant
or Newco, of the name of any other party to such contract or prohibits or
restricts the Company or any Subsidiary from freely providing services to any
other customer or potential customer of the Company or any Subsidiary, Clarant,
Newco or any Other Founding Company; or
(xii) a governmental contract subject to price
redetermination or renegotiation.
5.23 REAL PROPERTY. The Company does not now, and never has before,
own or lease any real property anywhere, and does not now, and never has before,
lease any office space anywhere.
5.24 TAXES
(a) Neither the Company nor any Subsidiary is or has been
a member of any affiliated, consolidated, combined, unitary or similar group,
other than a group of which the Company is the common parent;
(b) Except as set forth on SCHEDULE 5.24(G), all Returns
required to have been filed by or with respect to the Company and each of the
Subsidiaries, including Returns of any affiliated, combined, consolidated,
unitary or similar group including the Company or any Subsidiary (each a
"Relevant Group"), have been duly filed, and each such Return correctly and
completely reports the Tax liability and all other material information required
to be reported thereon. Except as set forth on SCHEDULE 5.24(G), all Taxes
(whether or not shown on any Return) owed by the Company, each Subsidiary and
each Relevant Group that are due and payable have been paid;
(c) Except as set forth on SCHEDULE 5.24(G), (i)the
amount of the liability of the Company and the Subsidiaries for unpaid Taxes as
of the Balance Sheet Date did not exceed the current liability accruals for
Taxes (excluding any reserves for deferred Taxes) set forth on the Company
Financial Statements dated as of the Balance Sheet Date; (ii) the amount of the
liability of the Company and the Subsidiaries for unpaid Taxes as of the date of
any financial statements provided pursuant to Section 5.10 will not exceed the
current liability accruals for Taxes (excluding any reserves for deferred Taxes)
set forth on such financial statements; and (iii) the amount of the liability of
the Company and the Subsidiaries for unpaid Taxes as of the Closing Date will
not exceed the current liability accruals for Taxes (excluding any reserves for
deferred Taxes) set forth on the Company Financial Statements dated as of the
Balance Sheet Date, as such accruals are adjusted on the books and records of
the Company and the Subsidiaries through the Closing Date in accordance with
past custom and practice;
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(d) Neither the Company, any Subsidiary nor any Relevant
Group is a party or subject to any agreement extending the time within which to
file any Return. Except as set forth on SCHEDULE 5.24(G), no claim has ever been
made by any Taxing Authority in any jurisdiction in which the Company or any
Subsidiary does not file Returns that it is or may be subject to taxation by
that jurisdiction;
(e) The Company and each Subsidiary has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and record-keeping requirements with respect to, any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(f) Except as set forth on SCHEDULE 5.24(G), no Tax
Proceedings are presently pending with regard to any Tax Returns or Taxes of the
Company, any Subsidiary or any Relevant Group, and no notice has been received
by the Company or the Members (whether in writing or verbally) of the expected
commencement of a Tax Proceeding. Except as set forth on SCHEDULE 5.24(G), no
issues have been raised in any audit or examination by or with respect to the
Company, any Subsidiary or any member of any Relevant Group which, by
application of similar principles, could be reasonably expected to result in a
proposed deficiency for any other period not so examined;
(g) SCHEDULE 5.24(G) attached hereto lists all material
federal, state, local and foreign income and franchise Tax Returns filed by or
with respect to the Company, each Subsidiary and each Relevant Group for all
Taxable Periods ended on or after January 1, 1991. With respect to each Return,
SCHEDULE 5.24(G) indicates whether the Return that has been examined and closed,
is presently subject to examination or is a Return with respect to which the
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired. The Members have made available to Clarant complete and
correct copies of all federal, state, local and foreign income and franchise Tax
Returns filed by or with respect to, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, the Company, each
Subsidiary and each Relevant Group since January 1, 1991;
(h) Neither the Company nor any Subsidiary nor any
Relevant Group has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency;
(i) [Reserved]
(j) Neither the Company nor any Subsidiary (i) is a party
to any Tax allocation, Tax indemnity, tax sharing agreement, or any similar
arrangement pursuant to which it has agreed to be liable for Taxes of any other
Person or (ii) has any liability for Taxes of any other Person (A) as a
transferee or successor or (B) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law);
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(k) None of the assets owned or used by the Company or
any Subsidiary constitutes tax exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code. Neither the Company nor
any Subsidiary is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax Reform
Act of 1986, or to any "long term contract" within the meaning of Section 460 of
the Code;
(l) Neither the Company nor any Subsidiary has disposed
of any property in a transaction being accounted for under the installment
method pursuant to Section 453 of the
Code;
(m) [Reserved]
(n) The Company has been a partnership for U.S. federal
income tax purposes at all times since its formation up to and including the
Closing Date. No person has ever elected that the Company be treated as an
association for federal income tax purposes under Treasury Regulations Section
301.7701-3. Except as stated in the preceding sentences of this subsection,
neither the Company nor any Subsidiary is a party to any joint venture or
partnership;
(o) Neither the Company nor any Subsidiary will be
required to include any adjustment in taxable income in any Taxable Period
ending after the Closing Date under Section 481 of the Code (or any similar
provision of the Tax laws of any jurisdiction) as a result of any change in any
method of accounting occurring in a Taxable Period ending on or before the
Closing Date. No Taxing Authority has proposed any such change in any accounting
method. The Company and each Subsidiary presently use the cash method of
accounting for income Tax purposes;
(p) Neither the Company nor any Subsidiary nor any member
of any Relevant Group has received any written ruling of a Taxing Authority
relating to Taxes or has entered into any closing agreement or similar written
binding agreement with a Taxing Authority relating to Taxes;
(q) SCHEDULE 5.24(Q) sets forth all elections affecting
the Company or any Subsidiary with respect to (1) the qualified subchapter S
status of the Company, (2) the qualified subchapter S subsidiary status of any
Subsidiary, (3) any election made under Section 338 of the Code, (4) the
classification of the Company or any Subsidiary under Treasury Regulations
Section 301.7701-3, (5) any material change in method of accounting, and (6) net
operating and loss limitations as a result of any member leaving a consolidated
group;
(r) There are no liens or other encumbrances on any of
the assets of the Company or any Subsidiary relating or attributable to Taxes
(other than liens for Taxes not yet delinquent);
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(s) The Company is not an investment company as defined
in Section 721(b) of the Code;
(t) None of the Members is a party to or bound by any
agreement or arrangement pursuant to which such Member will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by such
Member pursuant to this Agreement; and
(u) None of the Members is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code.
5.25 BUSINESS CONDUCT. Except as set forth on SCHEDULE 5.25, since
the Balance Sheet Date, the Company and any Subsidiaries have conducted the
Business only in the Ordinary Course of Business. Except as forth on SCHEDULE
5.25, since the Balance Sheet Date, there has not been any:
(a) change in the Company's business, operations,
financial condition, operating results, assets or liabilities that would have
a Material Adverse Effect on the Company;
(b) damage, destruction or loss of any real or
personal property or assets owned or leased by the Company or any Subsidiary
or used in the operation of the Business, whether or not covered by
insurance, having a replacement cost in excess of $50,000;
(c) voluntary or involuntary sale, transfer,
surrender, abandonment or other disposition of any kind by the Company or any
Subsidiary of any assets or property rights (real or personal, tangible or
intangible), having a replacement cost or fair market value in excess of
$50,000, except in each case the sale of inventory and collection of accounts
in the Ordinary Course of Business;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might
reasonably be expected to have a Material Adverse Effect;
(e) material loan or advance by the Company or any
Subsidiary to any party other than sales to customers on credit in the
Ordinary Course of Business or travel advances to employees of the Company
made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material
liability, potential liability or claimed liability relating to the
Environment;
(g) declaration, setting aside, or payment of any
dividend or other distribution in respect to the Company's capital stock,
Convertible Securities or Options, any direct or indirect redemption,
purchase, or other acquisition of such stock, or the payment of principal or
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interest on any note, bond, debt instrument or debt other than as required to be
paid under the terms of such instrument;
(h) incurrence of debts, liabilities or obligations
(except current liabilities incurred in connection with or for services
rendered or goods supplied in the Ordinary Course of Business, liabilities on
account of Taxes and governmental charges (but not penalties, interest or
fines in respect thereof), and obligations or liabilities incurred by virtue
of the execution of this Agreement);
(i) issuance by the Company or any Subsidiary of any
notes, bonds, or other debt securities or instruments or any equity
securities or securities convertible into or exchangeable for any equity
securities;
(j) cancellation, waiver or release by the Company or
any Subsidiary of any material debts, liabilities, obligations, rights or
claims, except in each case in the Ordinary Course of Business;
(k) amendment of the Company's Charter Documents;
(l) amendment or termination of any Material Contract,
other than expiration of such contract in accordance with its terms;
(m) change in accounting principles, methods or
practices (including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the Company or any Subsidiary;
(n) discharge or satisfaction of any material
liability, encumbrance or payment of any material obligation or liability,
other than current liabilities paid in the Ordinary Course of Business or
cancellation of any debts or claims;
(o) sale or assignment by the Company or any
Subsidiary of any properties or assets other than in the Ordinary Course of
Business;
(p) capital expenditures or commitments therefor by
the Company or any Subsidiary other than in the Ordinary Course of Business
or in excess of $100,000 in the aggregate;
(q) charitable contributions or pledges by the Company
or any Subsidiary in excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any
property or asset of the Company or any Subsidiary other than in the Ordinary
Course of Business;
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(s) adoption, amendment or termination of any employee
benefit or pension plan; or
(t) increase in the benefits provided under any employee
benefit pension plan
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.
(a) The Company has delivered to Clarant an accurate
schedule (which is set forth on SCHEDULE 5.26) as of the date of this Agreement
of:
(i) the name of each financial institution in
which the Company or any Subsidiary has accounts or safe
deposit boxes;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of account and account number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
(b) SCHEDULE 5.26 also sets forth the name of each
Person, corporation, firm or other entity holding a general or special power of
attorney from the Company or any Subsidiary and a description of the terms of
such power of attorney.
5.27 YEAR 2000 COMPLIANCE. The Company has investigated and
reviewed the areas within its business and operations and determined, to the
Knowledge of the Company, after due inquiry of the Company's vendors, that,
except as set forth on SCHEDULE 5.27, all computer systems, software and
hardware used in or relied on for the business and operations of the Company are
able to accurately process date data, including calculating, comparing and
sequencing from, into and between the twentieth century without human
intervention (through year 1999), the year 2000, and the twenty-first century,
including leap year calculations ("Year 2000 Compliant"). To the Knowledge of
the Company and the Members, the Company's vendors whose failure to perform
under any contract, agreement or other understanding with the Company could have
a Material Adverse Effect, are or will be Year 2000 Compliant before December
31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. Neither the Company nor any
Subsidiary has made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would cause the Company or any
Subsidiary to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect.
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5.29 DISCLOSURE.
(a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and Investor
Questionnaires attached hereto respectively as EXHIBIT 5.29(a) and EXHIBIT
5.29(b) and all other documents and information made available to Clarant and
its representatives in writing pursuant hereto or thereto, present fairly the
Business of the Company and any Subsidiaries for the time periods with respect
to which such information was requested. The Company's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no statement made herein would be rendered untrue in any material
respect by, any other document to which the Company, any Subsidiary or any
officer, manager or Member is a party, or to which its properties or assets are
subject, or by any other fact or circumstance regarding the Company and any
Subsidiaries (which fact or circumstance was known to the Company or a Member)
that is not disclosed pursuant hereto or thereto. If, prior to the 25th day
after the date of the final prospectus of Clarant utilized in connection with
the IPO, the Company or the Members become aware of any fact or circumstance
which would change (or, if after the Closing Date, would have changed) a
representation or warranty of the Company or the Members in this Agreement or
would affect any document delivered pursuant hereto in any material respect, the
Company and the Members shall immediately give notice of such fact or
circumstance to Clarant. However, subject to the provisions of Section 7.11,
such notification shall not relieve either the Company or the Members of their
respective obligations under this Agreement, and, subject to Section 7.11, the
truth and accuracy of any and all warranties and representations of the Company,
or on behalf of the Company and of the Members at the date of this Agreement by
Clarant and Newco and on the Pre-Closing Date and on the Closing Date, shall be
a precondition to the consummation of this transaction.
(b) The Company and the Members acknowledge and agree:
(i) that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither Clarant or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Members or any other Person affiliated or associated with the Company for any
failure of the Registration Statement to become effective, the IPO to occur at a
particular price or within a particular range of prices or to occur at all; and
(iii) that the decision of the Members to enter into this Agreement, or to vote
in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, agent of Clarant or the prospective
IPO; provided however that the Company and the Members retain the right to
require as a condition to Closing that the price of Clarant Common Stock sold in
the IPO be no lower than the minimum IPO price specified on EXHIBIT 2.1(a).
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5.30 WARRANTIES; PRODUCTS. The Company has never given to any
customer or client any warranty or guaranty of any kind in connection with the
sale, distribution, or providing of its services and no customer or client of
the Company has raised any claim against the Company relating to the Company's
services.
5.31 AFFILIATE TRANSACTIONS. SCHEDULE 5.31 sets forth the parties
to and the date, nature and amount of (a) each transaction involving the
transfer of any cash, securities, property, assets or rights in which the amount
involved individually or collectively exceeded $60,000 to or from the Company or
any Subsidiary from, to, or for the benefit of any officer, director or family
member thereof or any other Affiliate or former Affiliate of the Company
("Affiliate Transactions") during the period commencing January 1, 1996, through
the date hereof and (b) any existing commitments of the Company or any
Subsidiary to engage in the future in any Affiliate Transactions. Each Affiliate
Transaction was effected on terms equivalent to those which would have been
established in an arms-length negotiation, except as disclosed on SCHEDULE 5.31.
5.32 MISREPRESENTATION. To the Knowledge of the Company and the
Members, none of the representations and warranties set forth in this Agreement
or in any of the certificates, schedules, exhibits, lists, documents or other
instruments delivered, or to be delivered, by the Company or the Members as
contemplated by any provision hereof, taken as a whole, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
5.33 BROKERS. Neither the Company nor the Members have any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
Clarant, Newco or the Surviving Company could become liable or obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
Each Member individually and severally represents and warrants to
Clarant and Newco that the representations and warranties set forth in this
Section 5(B) are true, accurate and complete as of the date of this Agreement
and, subject to Section 7.11, shall be true, accurate and complete at the time
of the Pre-Closing and on the Closing Date, and that the representations and
warranties set forth in Sections 5.34, 5.35 and 5.36 shall survive the Closing
Date as provided in Article 11:
5.34 AUTHORITY; OWNERSHIP. Such Member has the full legal right,
power and authority to enter into this Agreement and constitutes the valid and
binding obligation of each Member, enforceable in accordance with its terms.
Such Member owns beneficially and of record all of the Company Units identified
on SCHEDULE 5.3 as being owned by such Member, and, except as set forth on
SCHEDULE 5.3, such Company Units is owned free and clear of all Encumbrances.
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5.35 PREEMPTIVE RIGHTS. Such Member does not have, or hereby
waives, any preemptive or other right to acquire Company Units or Clarant
Stock that such Member has or may have had other than rights of any Member to
acquire Clarant Stock pursuant to (i) this Agreement or (ii) any Option
granted by Clarant.
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK. No Member has any
current plan or intention, or is under any binding commitment or contract, to
sell, exchange or otherwise dispose of Company Units, Convertible Securities or
Options or any Clarant Stock to be received or received pursuant to Section 3.1
or 3.3.
5.37 TENDER. Such Member has full power and authority to tender,
sell, assign, and transfer the Company Units owned by such Member to Clarant
pursuant to this Agreement, that there is no Person who holds any right of
first offer, right of first refusal, right under any membership agreement or
otherwise that can prevent, or otherwise delay, the transfer of Company Units
owned by the Member to Clarant under this Agreement, and that, when the
Company Units is accepted by Clarant, Clarant will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claims.
5.38 INVESTOR QUESTIONNAIRES. Such Member has executed and
delivered to Clarant an Investor Questionnaire in the form attached hereto as
EXHIBIT 5.29(b), and such form is true, complete and accurate in all material
respects.
6. REPRESENTATIONS OF CLARANT AND NEWCO
Clarant and Newco jointly and severally represent and warrant to the
Members that all of the following representations and warranties in this Article
6 are true, accurate and complete at the date of this Agreement and shall be
true, accurate and complete at the time of the Pre-Closing and on the Closing
Date, and that such representations and warranties shall survive the Closing
Date.
6.1 DUE ORGANIZATION. Clarant is a corporation, and Newco is a
limited liability company, duly organized, validly existing and in good standing
under the laws of the State of Delaware and each is duly authorized and
qualified to do business under all applicable laws to carry on its business in
the places and in the manner as now conducted, except where the failure to be so
authorized or qualified would not have a Material Adverse Effect on Clarant.
True, complete and correct copies of the Certificate of Incorporation and
By-laws, each as amended to date, of Clarant and Newco (the "Clarant Charter
Documents") are all attached hereto as EXHIBIT 6.1.
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6.2 AUTHORIZATION. The respective officers of Clarant and Newco
executing this Agreement are duly authorized to execute and deliver this
Agreement, and Clarant and Newco have the corporate right, power and authority
to enter into this Agreement and the Merger.
6.3 TRANSACTION NOT A BREACH. Neither the execution and delivery
of this Agreement or the Other Agreements, nor their performance will violate,
conflict with, or result in a breach of any provision of any Law, rule,
regulation, order, permit, judgment, injunction, decree or other decision of any
court or other tribunal or any Governmental Authority binding on Clarant or
Newco or conflict with or result in the breach of any of the terms, conditions
or provisions of the Clarant Charter Documents or of any contract, agreement,
mortgage or other instrument or obligation to which Clarant or Newco is a party
or by which Clarant or Newco is bound.
6.4 MISREPRESENTATION. None of the representations and warranties
set forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, or other instruments (including the most recent draft of the
Registration Statement) delivered, or to be delivered, to the Company or the
Members as contemplated by any provision hereof, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
6.5 CAPITAL STOCK. As of the Effective Time, the authorized
capital stock of Clarant will consist of One Hundred Million (100,000,000)
shares of common stock, par value $.10 per share (the "Clarant Common Stock")
and Ten Million (10,000,000) shares of preferred stock, par value $.10 per share
("Clarant Preferred Stock") (collectively, the "Clarant Common Stock" and
"Clarant Preferred Stock" referred to as "Clarant Stock"), and the issued and
outstanding Clarant Stock, Convertible Securities and Options of Clarant will be
as set forth on SCHEDULE 6.5. SCHEDULE 6.5 also sets forth the authorized and
outstanding Clarant Stock, Convertible Securities and Options as of the date of
this Agreement. As of the date of this Agreement, one hundred percent of the
membership interests in Newco are owned by Clarant. Except as part of the IPO
that will take place on the Closing Date as contemplated by this Agreement and
the Other Agreements and as disclosed in the Registration Statement, there are
no outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which Clarant
is a party requiring issuance, sale or transfer of any equity securities of
Clarant or any securities convertible directly or indirectly into equity
securities of Clarant, or evidencing the right to subscribe for any equity
securities of Clarant, or giving any Person other than the Founding Companies
any rights with respect to the capital stock of Clarant. On the Closing Date,
Clarant shall have outstanding only one class of capital stock (the Clarant
Common Stock), and the shares of Clarant Common Stock issued on the Closing Date
pursuant to this Agreement and the Other Agreements and to Persons who purchase
shares in the IPO will in the aggregate possess at least 80% of the total voting
power of the Clarant Common Stock that is entitled to vote and is outstanding as
of the Closing Date (after taking into account the dilution of the holdings of
Clarant Common Stock of the current Clarant stockholders). Except as will be
disclosed in the Registration Statement and as of the Closing Date, there are no
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voting agreements, voting trusts, other agreements (including cumulative voting
rights), commitments or understandings with respect to the capital stock of
Clarant.
6.6 SUBSIDIARIES. Clarant has no subsidiaries except for the
companies identified as "ACQUISITION CORP." in the Other Agreements. Except as
disclosed in the Registration Statement, Clarant does not currently own, of
record or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and Clarant, directly or
indirectly, is not a participant in any joint venture, partnership or other
non-corporate entity.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on SCHEDULE
6.7 or disclosed in the Registration Statement, Clarant has no material
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement and the Other Agreements and except for fees incurred in
connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on SCHEDULE 6.8 or disclosed in the Registration Statement, Clarant is not
in violation of any Law or Order of any Governmental Authority having
jurisdiction over it which would have a Material Adverse Effect on Clarant; and
except to the extent set forth in SCHEDULE 6.9, there are no material Actions
pending or, to the Knowledge of Clarant, threatened, against or affecting
Clarant, or before or by any Governmental Authority having jurisdiction over it
and no written notice of any Action has been received by Clarant. Clarant has
conducted and is conducting its businesses in substantial compliance with
applicable Laws and is not in violation of any of the foregoing which might have
a Material Adverse Effect on Clarant.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by Clarant and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of Clarant and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of Clarant.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof, the
Clarant Common Stock to be delivered to the Members pursuant to this Agreement
will constitute valid and legally issued shares of Clarant, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Article 15 hereof, will be identical in all substantive respects (which do not
include the form of certificate upon which it is printed or the presence or
absence of a CUSIP number on any such certificate) to the Clarant Common Stock
issued and outstanding as of the date hereof and to the Clarant Common Stock to
be issued in the IPO, provided, however, that the shares of Clarant Common Stock
to be issued to the Members pursuant to this Agreement will not be registered
under the 1933 Act, except as provided in Article 17 hereof.
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6.11 NO SIDE AGREEMENTS, Except as may be disclosed in the
Registration Statement, Clarant has not entered or, as of the Effective Time,
will not have entered into any material agreement with any of the Founding
Companies or any of the members or stockholders of the Founding Companies other
than (i) the Other Agreements and the agreements contemplated by the Other
Agreements, including the employment agreements referred to therein and (ii)
other employment agreements entered into in the ordinary course of business.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
organized on August 21, 1998, and has conducted limited operations since that
time. Clarant has not conducted any material business since the date of its
inception, except in connection with this Agreement, the Other Agreements and
the IPO. Clarant does not own and has not at any time owned any real property or
any material personal property and is not a party to any other material
agreement, except as listed on SCHEDULE 6.12 and except that Clarant is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be disclosed in, or filed as exhibits to, the Registration
Statement.
6.13 NO VIOLATIONS. Clarant is not in violation of any Clarant
Charter Document. None of Clarant, or, to the Knowledge of Clarant, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which Clarant is a party, or by which Clarant or any of its
properties, are bound (collectively, the "Clarant Documents"). The rights and
benefits of Clarant under the Clarant Documents will not be adversely affected
by the transactions contemplated hereby and will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Clarant Documents or the Clarant Charter Documents. Except as
set forth on SCHEDULE 6.13, none of the Clarant Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and the consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
6.14 ABSENCE OF CHARGES. Since March 31, 1999, except as set forth
in the Registration Statement, and except as contemplated by this Agreement and
the Other Agreements, there has not been:
(a) any change in the financial condition, assets,
liabilities (contingent or otherwise) income or business or Clarant that would
have of Material Adverse Effect on Clarant;
(b) any damage destruction or loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of Clarant;
(c) any change in the authorized capital of Clarant or
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
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(d) any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of
Clarant;
(e) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, materially adversely
affecting the business of Clarant;
(f) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Clarant to any person;
(g) any cancellation or agreement to cancel, any
indebtedness or other obligation owing Clarant;
(h) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of Clarant or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(i) any waiver of any material rights or claims of
Clarant;
(j) any amendment or termination of any material
contract, agreement, license, permit or other right to which Clarant is a party;
(k) any transaction by Clarant outside the Ordinary
Course of Business; or
(l) any other distribution of property or assets by
Clarant other than in the Ordinary Course of Business;
6.15 TAXES. All Returns required to have been filed by or with
respect to Clarant have been duly filed. No Tax Proceedings are presently
pending with regard to any Tax Returns or Taxes of Clarant, and no notice has
been received (whether in writing or verbally) of the expected commencement of
such a Tax Proceeding. All Taxes (whether or not shown on any Return) owed by
Clarant have been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
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(a) Between the date of this Agreement and the Closing Date, the
Company will afford to the officers, directors and authorized representatives of
Clarant reasonable access during normal business hours to all of the Company's
and any Subsidiaries' sites, properties, books and records and will furnish
Clarant with such additional financial and operating data and other information
as to the Business and properties and assets of the Company and any Subsidiaries
as Clarant may from time to time reasonably request. The Company will cooperate
with Clarant and its representatives, including Clarant's auditors and counsel,
in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. Clarant, Newco, the Members and the
Company and any Subsidiaries will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Article 14 hereof. In
addition, Clarant will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its members, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date,
Clarant will afford to the officers and authorized representatives of the
Company access to all of Clarant's and Newco's sites, properties, books and
records and will furnish the Company with such additional financial and
operating data and other information as to the Business and properties of
Clarant and Newco as the Company may from time to time reasonably request.
Clarant and Newco will cooperate with the Company, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this Agreement. The
Company and the Members will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Article 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, the Company and any Subsidiaries will:
(a) carry on in the Ordinary Course of Business
substantially as conducted heretofore and not introduce any new method of
management, operation or accounting;
(b) maintain its properties, assets and facilities,
including those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(c) perform in all material respects its obligations
under agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage;
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(e) use their commercially reasonable best efforts to
maintain and preserve its business organization intact and use its best efforts
to retain its present management, key employees and relationships with
suppliers, customers and others having business relations with the Company or
any Subsidiary;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(h) maintain present debt and lease instruments in
accordance with their respective terms and not enter into new or amended debt or
lease instruments, except as disclosed on SCHEDULE 5.25, provided that debt
and/or lease instruments may be replaced if such replacement instruments are on
terms at least as favorable to the Company or Subsidiary as the instruments
being replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the Closing
Date, neither the Company nor any Subsidiary will, without the prior written
consent of Clarant:
(a) make any change in its Charter Documents;
(b) grant or issue any securities, Options, conversion
rights or commitments of any kind relating to its securities of any kind;
(c) declare or pay any dividend, or make any distribution
in respect of its securities whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any securities or engage in any
transaction that will significantly affect the cash reflected on the Balance
Sheet of the Company at the Balance Sheet Date, except for distributions to the
Members in the Ordinary Course of Business or which are otherwise reserved for
on the Company's Balance Sheet as of the Balance Sheet Date;
(d) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditure, except if it is in
the Ordinary Course of Business and involves an amount not in excess of $50,000;
(e) create, assume or permit to exist any Encumbrance
upon any assets or properties whether now owned or hereafter acquired, except
(i) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $10,000
necessary or desirable for the conduct of the Business of the Company and any
Subsidiaries, (ii) (1) liens for Taxes either not yet delinquent or being
contested in good faith and by appropriate proceedings (and for which adequate
reserves have been established and are being maintained) or (2) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens arising in the
Ordinary Course of Business (the liens set forth in clause (ii) being referred
to herein as "Statutory Liens"), or (iii) liens set forth on SCHEDULE 5.11
hereto;
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(f) sell, assign, lease or otherwise transfer or dispose
of any property, assets or equipment except in the Ordinary Course of Business;
(g) negotiate for the acquisition of any business or the
start-up of any new business;
(h) merge or consolidate or agree to merge or consolidate
with or into any other entity;
(i) waive any material right or claim of the Company or
any Subsidiary, provided that the Company may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to be
included on SCHEDULE 5.12 unless specifically listed thereon;
(j) commit a material breach or amend or terminate any
Material Contract to which the Company or any Subsidiary is a party or as to
which it is a beneficiary;
(k) enter into any other transaction outside the Ordinary
Course of Business or prohibited hereunder;
(l) except in the Ordinary Course of Business or as
required by Law or contractual obligations or other understandings or
arrangements existing on the date hereof, neither the Company nor any Subsidiary
will (A) increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of the officers, members
or employees engaged in the Company's or any Subsidiary's Business, (B) pay or
agree to pay any additional pension, retirement allowance or other employee
benefit to any such officers, members or employees, whether past or present, (C)
enter into any new employment, severance, consulting, or other compensation
agreement with any existing officers, members or employees engaged in the
Company's or any Subsidiary's Business, (D) amend or enter into a new Plan or
Other Benefit Obligation (except as required by Law) or amend or enter into a
new collective bargaining agreement (except as required by this Agreement), or
(E) engage in any Affiliate Transactions;
(m) make or change any Tax election, amend any Tax Return
or take or omit to take any other action not in the Ordinary Course of Business
and consistent with past practice that would have the effect of increasing any
Taxes of Clarant, the Company or any Subsidiary for any Taxable Period ending
after the Closing Date; or
(n) without the express prior written consent of Clarant,
amend, modify, repeal or otherwise alter the approvals by the Company manager or
by the Members attached hereto as EXHIBIT 5.2.
7.4 NO SHOP. In consideration of the substantial expenditure of
time, effort and expense undertaken by Clarant in connection with its due
diligence review and the preparation and execution of this Agreement, the
Company and the Members agree that neither they nor their
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representatives, agents or employees will, after the execution of this Agreement
until the earlier of (a) the termination of this Agreement or (b) the Closing,
directly or indirectly, solicit, encourage, negotiate or discuss with any third
party (including by way of furnishing any information concerning the Company or
any Subsidiary) any acquisition proposal relating to or affecting the Company or
any Subsidiary or any part of it, or any direct or indirect interests in the
Company, whether by purchase of assets or stock, purchase of interests, merger
or other transaction, and further agree that the Company will promptly advise
Clarant of the terms of any communications any of the Members or the Company may
receive or become aware of relating to any bid for all or any part of the
Company or any Subsidiary.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall deliver to Clarant at the Pre-Closing, any and all proof
that any such required notice has been sent.
7.6 AGREEMENTS. On or prior to the Closing Date and effective as
of the Effective Time, the Company shall cause the termination of and obtain a
written waiver of rights from any beneficiary under (and shall deliver evidence
of such terminations and waivers to Clarant prior to Closing) (a) all Securities
Agreements, (b) any employment agreements between the Company and any employee
who is listed on SCHEDULE 9.11 hereto, and (c) any existing agreement between
the Company and any Members or other security holders.
7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Members and the Company shall give prompt notice
to Clarant of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty of the Company or the Members contained herein to be untrue or
inaccurate in any material respect; (ii) any material failure of any Member or
the Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such Person hereunder and (iii) the exercise by
any Person of any Option or Convertible Security listed on SCHEDULE 5.3 or any
enforceable request for the Company to purchase, redeem or otherwise acquire any
of its Company Units, Convertible Securities or Options;
(b) Clarant and Newco shall give prompt notice to the
Company of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Clarant or Newco contained herein to be untrue or inaccurate in any material
respect and (ii) any material failure of Clarant or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder;
(c) The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.11, (ii) modify the conditions set
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forth in Articles 8 and 9, or (iii) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
(a) The Company and Members shall furnish or cause to be
furnished to Clarant and the Underwriters all of the information concerning the
Company and the Members requested by Clarant or the Underwriters for inclusion
in, and will cooperate with Clarant and the Underwriters in the preparation of,
the Registration Statement and the prospectus included therein (including
audited and unaudited financial statements, prepared in accordance with
generally accepted accounting principles, in form suitable for inclusion in the
Registration Statement). The Company and the Members agree promptly to advise
Clarant if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any information
contained in the prospectus concerning the Company or the Members contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Members, the Company represents
and warrants as to such information with respect to itself and any Subsidiaries,
and each Member represents and warrants, as to such information with respect to
the Company and himself or herself, that the Registration Statement at its
effective date, at the date of the final prospectus, each preliminary prospectus
and each amendment to the Registration Statement, and at each closing date with
respect to the IPO under the Underwriting Agreement (including with respect to
any over-allotment option) will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(b) Clarant agrees that it will use its commercially
reasonable best efforts to provide to the Company and its counsel copies of
drafts of the Registration Statement as they are prepared and give the Company
or the Members a reasonable period of time to review and comment upon such
documents prior to filing with the SEC. Any objections posed by the Company or
its counsel shall be in writing and state with specificity the material in
question, the reason for the objection, and the Company's and the Members'
proposed alternative. If the objection is founded upon a rule promulgated under
the Securities Act, the objection shall cite the rule. Notwithstanding the
foregoing, during the three business days immediately preceding the date
scheduled for the effective date of the IPO, the Company and the Members agree
that two hours from the time the proposed changes are transmitted to the
Company's counsel is sufficient time to review and respond to proposed changes.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to
the Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited consolidated Balance Sheets of the Company as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated income statements, statements of cash flows and retained earnings
of the Company for all fiscal quarters ended after the Balance Sheet Date. Such
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Financial Statements shall have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated and in a manner consistent
with the Financial Statements (except as noted therein). Except as noted in such
Financial Statements, all of such Financial Statements will present fairly the
results of operations of the Company for the periods indicated thereon.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.11 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation, until 24 hours prior
to the anticipated effectiveness of the Registration Statement, to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules, provided
however, that supplements and amendments to Schedules 5.11 (Liabilities and
Obligations), 5.12 (Accounts and Notes Receivable) and 5.22 (Significant
Customers; Material Contracts and Commitments) must be delivered only at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the Ordinary Course of Business; and further provided
that all matters identified by the Company on any Schedule supplement or
amendment shall also be included on SCHEDULE 11.1(f). Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the Company may be made unless Clarant and a majority
of the Founding Companies other than the Company consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant or Newco that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on Clarant and Newco may be made
unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.11. In the event that one of
the Other Founding Companies seeks to amend or supplement a Schedule pursuant to
this Section 7.11 of one of the Other Agreements, and such amendment or
supplement constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on such Other Founding Company, Clarant shall give the
Company notice promptly after it has knowledge thereof. If Clarant and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Clarant or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(d). In the event
that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.11, and Clarant and a majority of the Other Founding Companies do
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not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(a). No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.12 THIRD PARTY APPROVALS. Prior to the Closing Date, the Company
and any Subsidiaries shall satisfy any requirement for notice and approval of
the transactions contemplated by this Agreement under applicable agreements with
third parties, including any contract with any Governmental Authority.
7.13 HSR FILING. To the extent the Merger is a transaction subject
to the filing requirements of the HSR Act, each of the Company, the Members and
Clarant shall use its commercially reasonable best efforts to (a) file all
information required to be filed by it pursuant to the HSR Act and (b) provide
the other party with all information reasonably requested and required by it to
satisfy any filing requirements it may have under the HSR Act.
7.14 AUTHORIZED CAPITAL STOCK. Through the Closing Date, Clarant
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes as are made to respond to
comments made by the SEC or requirements of any exchange or automated trading
system for which application is made to register the Clarant Common Stock.
7.15 UNIT APPRECIATION RIGHTS. Prior to the Pre-Closing, the
Company will cause to be paid in full and will have terminated all unit
appreciation rights that may have been issued by the Company to any of the
members of its Board of Advisors or other persons. At the Pre-Closing, the
Company shall deliver to Clarant evidence satisfactory to Clarant that the
Company's unit appreciation rights have been paid in full and terminated.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS AND THE COMPANY
The obligations of the Members and the Company with respect to actions
to be taken on the Pre-Closing Date and on the Closing Date are subject to the
satisfaction or waiver on or prior to the Pre-Closing Date and/or the Closing
Date, as the case may be, of all of the conditions set forth in this Article 8.
As of the Pre-Closing Date or the Closing Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by the Company and
the Members unless such parties have objected by notifying Clarant in writing of
such objection on or before the Pre-Closing Date or consummation of the
transactions on the Closing Date, respectively, except that no such waiver shall
be deemed to affect the survival of the representations and warranties of
Clarant and Newco contained in Article 6 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Clarant and Newco contained in Article 6 shall be true and correct
in all material respects (except for the representation and warranty set forth
in Section 6.11, which shall be true and correct in all respects) as of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made as of that time; and a certificate to the foregoing
effect dated the Pre-Closing Date and the Closing Date and signed by the
President, any Vice President or the Secretary of Clarant shall have been
delivered to the Members.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by Clarant and
Newco on or before each of the Pre-Closing Date and the Closing Date shall have
been duly complied with and performed in all material respects on or before each
of the Pre-Closing Date and the Closing Date, as the case may be; and
certificates to the foregoing effect dated each of the Pre-Closing Date and the
Closing Date and signed by the President, any Vice President or the Secretary of
Clarant shall have been delivered to the Members.
8.3 NO LITIGATION. No Action or Proceeding before a court or any
other governmental agency or body shall have been instituted or Threatened to
restrain or prohibit the Merger or the IPO and no Governmental Authority shall
take any other action with respect to the transactions hereunder which would
have a Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion
from counsel for Clarant, dated the Pre-Closing Date in form and substance of
the type customarily given by counsel to an acquiring company in transactions
similar to that contemplated by this Agreement and acceptable to the Company
(and the Underwriters shall have received a copy of the same opinion addressed
to them), and at the Closing the Company shall have received a statement from
such counsel that the opinion is true as of the Closing Date.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
therefor shall have been instituted or shall be pending or contemplated under
the 1933 Act, and the Underwriters shall have agreed to acquire on a firm
commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of Clarant Common Stock for a price no lower than the minimum
price specified on EXHIBIT 2.1(a).
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
required to be obtained or made by Clarant or Newco with any Governmental
Authority or agency relating to the consummation of the transactions
contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. Clarant and Newco each shall have
delivered to the Company a certificate, dated as of a date no earlier than ten
(10) days prior to the Pre-Closing
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Date, duly issued by the Delaware Secretary of State and in each state in which
Clarant or Newco is authorized to do business, showing that each of Clarant and
Newco is in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes for Clarant and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of Clarant and of Newco, certifying the truth and
correctness of attached copies of the Clarant's and Newco's respective
Certificates of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the boards of directors and, if
required, the members of Clarant and Newco approving Clarant's and Newco's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
8.9 HSR ACT. The waiting period applicable to the consummation of
the transaction contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
8.10 CLOSING OF THE IPO. The Closing of the sale of the Clarant
Common Stock to the Underwriters in the IPO shall have occurred simultaneously
with the Closing Date hereunder.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on
SCHEDULE 9.11 shall have been afforded the opportunity to enter into an
employment agreement substantially in the form of EXHIBIT 8.11.
8.12 LISTING. Clarant shall cause the Clarant Common Stock to be
listed on the Nasdaq National Stock Market, subject to official notice of
issuance.
8.13 TAX OPINION. Clarant shall have received an opinion upon which
the Company and the Members will be entitled to rely (the "Tax Opinion") from
Wilmer, Cutler & Pickering, tax counsel for Clarant, or such other tax counsel
reasonably acceptable to Clarant and the Company ("Tax Counsel") that the
Clarant Plan of Organization will qualify as a tax-free transfer of property
under Section 351(a) of the Code and that the Members will not recognize gain to
the extent the Members exchange Company Units for Clarant Common Stock (but not
cash or other property) pursuant to the Clarant Plan of Organization, and in
rendering such Tax Opinion, Tax Counsel shall be entitled to rely on customary
written representations acceptable to Tax Counsel and received from (i) Clarant
and (ii) the Company, (iii) each Other Founding Company, and (iv) each Member
and each contributor, stockholder or member of the Other Founding Companies who
will receive Clarant Common Stock under the Clarant Plan of Organization.
8.14 BOARD OF DIRECTORS. The Board of Directors of Clarant shall
take action prior to the Closing Date to cause the number of directors
comprising the full board of directors of Clarant to be nine, and James R. Corey
shall be elected to the board of directors of Clarant effective as of the
Closing Date. If prior to the Closing Date Mr. Corey shall decline or be unable
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to serve as a director of Clarant, the Company's board of directors shall
designate another person to serve in Mr. Corey's stead.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO
The obligations of Clarant and Newco with respect to actions to be
taken on the Pre-Closing Date and on the Closing Date, are subject to the
satisfaction or waiver on or prior to the Pre-Closing Date and/or the Closing
Date, as the case may be, of all of the conditions set forth in this Article 9.
As of the Pre-Closing Date or the Closing Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by Clarant and
Newco unless such parties have objected by notifying the Company and the Members
in writing of such objection on or before the Pre-Closing Date or consummation
of the transactions on the Closing Date, respectively, except that no such
waiver shall be deemed to affect the survival of the representations and
warranties of the Company and the Members contained in Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All the representations and
warranties of the Members and the Company contained in this Agreement, and as
reflected on the Schedules as modified pursuant to Section 7.11, shall be true
and correct in all material respects as of the Pre-Closing Date and the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; and the Members shall have delivered to Clarant
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Members and
the Company on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
Members shall have delivered to Clarant certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 NO LITIGATION. No Action or Proceeding before a court or any
other Governmental Authority or body shall have been instituted or Threatened to
restrain or prohibit the Merger or the IPO and no Governmental Authority or body
shall have taken any other action or made any request of Clarant as a result of
which the management of Clarant deems it inadvisable to proceed with the
transactions hereunder.
9.4 COMPANY AND MEMBER REPRESENTATIONS. The Company and the
Members receiving Clarant Common Stock shall have provided Tax Counsel with the
written representations requested pursuant to Section 8.13.
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9.5 NO MATERIAL ADVERSE EFFECT. As of the Pre-Closing Date and as
of the Closing Date, no event or circumstance shall have occurred which would
constitute a Material Adverse Effect.
9.6 TERMINATION OF RELATED PARTY AGREEMENTS. All existing
agreements between the Company and the Members shall have been canceled
effective prior to or as of the Closing Date and the Company shall have obtained
all of the terminations and waivers required under Section 7.6.
9.7 OPINION OF COUNSEL. Clarant shall have received an opinion
from counsel to the Company, dated the Pre-Closing Date, in form and substance
of the type customarily given by counsel to a founding company in transactions
similar to that contemplated by this Agreement and acceptable to Clarant (and
the Underwriters shall have received a copy of the same opinion addressed to
them), and at the Closing Clarant shall have received a statement from such
counsel that the opinion is true as of the Closing Date.
9.8 CONSENTS AND APPROVALS. All necessary Consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
Consents of third parties listed on SCHEDULE 5.4 shall have been obtained.
9.9 GOOD STANDING CERTIFICATES. The Company shall have delivered
to Clarant a certificate, dated as of a date no earlier than ten (10) days prior
to the Pre-Closing Date, duly issued by the appropriate governmental authority
in the Company's state of organization and, unless waived by Clarant, in each
state in which the Company is authorized to do business, showing the Company is
in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for the Company for all periods prior to the
date of the certificate have been filed and paid.
9.10 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
therefor shall have been instituted or shall be pending or contemplated under
the 1933 Act, and the Underwriters shall have agreed to acquire on a firm
commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of Clarant Common Stock.
9.11 EMPLOYMENT AGREEMENTS. Each of the Persons listed on SCHEDULE
9.11 shall have entered into an employment agreement satisfactory to Clarant.
9.12 CLOSING OF IPO. The closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
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9.13 FIRPTA CERTIFICATE. Each Member shall have delivered to
Clarant a certificate to the effect that he or she is not a foreign Person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
9.14 [Reserved]
9.15 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to Clarant.
9.16 HSR ACT. The waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have expired or been
terminated.
9.17 INVESTOR QUESTIONNAIRE. Each Member shall have provided an
executed Investor Questionnaire in the form of EXHIBIT 5.29(b).
9.18 THE MEMBERS' RELEASE. The Members shall have delivered to
Clarant and the Company an instrument dated the Closing Date releasing Clarant
and the Company (including all subsidiaries) from (i) any and all claims of the
Members against the Company and Clarant and (ii) any and all obligations of the
Company and Clarant to the Members, except for (x) any obligations arising after
the Closing Date to a Member relating to his or her employment by the Company or
Clarant and (y) obligations arising under this Agreement or the transactions
contemplated hereby.
10. COVENANTS OF CLARANT AND THE MEMBERS AFTER CLOSING
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Closing
Date, Clarant shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the Clarant Plan
of Organization.
10.2 TAX MATTERS.
(a) Clarant shall prepare or cause to be prepared and
file or cause to be filed all Returns that are required to be filed with respect
to the Company and the Subsidiaries (i) for Taxable Periods ending on or before
the Closing Date that are due after the Closing Date (other than Returns of any
Relevant Group of which the Company is not the common parent and partnership
income information Tax Returns), and (ii) for Taxable Periods beginning on or
before and ending after the Closing Date ("Straddle Periods"). The Members shall
permit Clarant to review and comment on each partnership income information Tax
Return of the Company that is filed after the Closing Date and shall make such
revisions to such Tax Returns
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as are reasonably requested by Clarant. All such Returns, including without
limitation, any partnership income information Tax Return prepared by or caused
to be prepared by the Company or the Members, shall be prepared on a basis
consistent with past Returns of the Company and the Subsidiaries unless
otherwise required by applicable law.
(b) Upon the latter of (i) five (5) business days
following the receipt of a request therefor, (ii) five (5) business days prior
to the due date of any payment to the relevant Taxing Authority, or (iii) five
(5) business days following resolution of any dispute covered by Section
10.2(c), the Members shall pay to Clarant all Taxes shown as due on the Tax
Returns prepared and filed pursuant to Section 10.2(a) that relate to a
Pre-Closing Period to the extent that such Taxes exceed the reserves for such
Taxes (excluding any reserves for deferred Taxes) set forth on the financial
statements provided pursuant to Section 5.10.
(c) Any federal or state income Tax Returns prepared by
Clarant pursuant to Section 10.2(a) shall be delivered to the Members at least
30 days before the due date of such Return including any extension. If the
Members reasonably object in writing to any material item on such Return at
least 10 days before their due date, the parties shall reasonably negotiate to
resolve such dispute. If such dispute cannot be resolved within 10 days of the
receipt by the Company of such written notice, (i) the Company may in its sole
discretion file such Return and (ii) the dispute shall be referred to a national
independent accounting firm agreeable to the parties for resolution. The party
whose position is not adopted in such resolution by an independent accounting
firm shall pay all expenses of the successful party in resolving the dispute.
(d) For purposes of apportioning any Taxes for a Straddle
Period to the portion thereof ending on the Closing Date, the determination
shall be made based on a closing of the books as of the close of the Closing
Date; provided, that real property, personal property and intangible property
Taxes shall be apportioned ratably on a daily basis between the portions of the
Straddle Period in question.
(e) Each party hereto shall, and shall cause any
Subsidiaries and Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for Taxes or
a right to refund of Taxes or in conducting any Tax Proceeding. Such cooperation
and information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and relevant
work papers, relevant documents relating to rulings or other determinations by
Taxing Authorities and relevant records concerning the ownership and Tax basis
of property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
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(f) Each of the Company, Newco, Clarant and each Member
shall comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and shall treat the
transactions contemplated in this Agreement as part of the Clarant Plan of
Organization and as a transfer of property under Section 351(a) of the Code.
10.3 DIRECTORS AND OFFICERS. The Persons named in the Registration
Statement shall be elected as directors and elected as officers of Clarant, as
and to the extent set forth in the Registration Statement.
10.4 [Reserved]
10.5 OPTIONS AND CONVERTIBLE SECURITIES. The parties hereto agree
that (a) at the Closing, all employees of the Company who are holders of the
Company's participation rights (as shown on SCHEDULE 5.3) shall receive their
pro rata share of the Merger Consideration as provided on EXHIBIT 2.1(a) and (b)
all unvested Options shall be terminated as of the Effective Time and at the
Closing the holders of Options that are vested as of the Effective Time (as
shown on EXHIBIT 5.3) shall receive their pro rata share of the Merger
Consideration as provided on EXHIBIT 2.1(a).
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY MEMBERS. Subject to the limitations of
Section 11.11, the Members (except for Donald S. Perkins, Ellen R. Marram, John
M. Richman, Thomas Puglisi and Michael Smith) shall jointly and severally
indemnify, defend and hold harmless Clarant, Newco, the Company, and the
Surviving Company and their respective officers, directors, employees, agents,
representatives and Affiliates (other than the Members) (each, a "Clarant
Indemnified Party"), at all times from and after this Agreement harmless from
and against, and to promptly pay to a Clarant Indemnified Party or reimburse a
Clarant Indemnified Party for, any and all liabilities, obligations,
deficiencies, demands, claims, suits, actions, or causes of action, assessments,
losses, costs, expenses, filing fees, interest, fines, penalties, or damages or
costs or expenses of any and all investigations, proceedings (including appeals,
arbitration and mediation), judgments, environmental analyses, remediations,
settlements and compromises (in cluding reasonable fees and expenses of
attorneys, accountants and other experts) (individually and collectively, the
"Losses") sustained or incurred by any Clarant Indemnified Party resulting from,
or arising out of (a) any breach of the representations and warranties of the
Members or the Company set forth herein or on the schedules, exhibits or
certificates delivered in connection herewith, (b) any breach of any covenant or
agreement on the part of the Members or the Company under this Agreement, (c)
any liability under the 1933 Act, the 1934 Act, or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to the
Company or the Members, and provided to Clarant or its counsel by the Company or
the Members (but in the case
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of the Members, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Members required to be stated therein or necessary to make the
statements therein not misleading, (d) any Claim or Action arising out of or
relating to any purchase or redemption of Company Units, Convertible Securities
or Options by the Company prior to the date of this Agreement; (e) except to the
extent reserved for (other than as a deferred Tax item) on the most recent
financial statements provided pursuant to Section 7.9, or if no such financial
statements are provided, the Company Financial Statements dated as of the
Balance Sheet Date, any liability of the Company or any Subsidiary for Taxes for
any Pre-Closing Period; or (f) any matter identified on SCHEDULE 11.1(f);
provided, however, (i) that in the case of any indemnity arising pursuant to
clause (c) such indemnity shall not inure to the benefit of Clarant, Newco, the
Company or the Surviving Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Members provided in writing
corrected information to Clarant counsel and to Clarant for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and (ii) that no Member shall be liable for any indemnification
obligation pursuant to this Section 11.1 to the extent attributable to a breach
of any representation, warranty or agreement made herein individually by any
other Member.
11.2 INDEMNIFICATION BY CLARANT. Clarant covenants and agrees that
it will indemnify, defend, protect and hold harmless the Members at all times
from and after the date of this Agreement until the Clarant Expiration Date,
from and against Losses sustained or incurred by any Member resulting from or
arising out of (a) any breach by Clarant or Newco of its representations and
warranties set forth herein or on the schedules, exhibits or certificates
delivered in connection herewith, (b) any breach of any covenant or agreement on
the part of Clarant or Newco under this Agreement, (c) any liability which the
Members may incur due to Clarant's or Newco's failure to be responsible for the
liabilities and obligations of the Company as provided in Article 1 hereof
(except to the extent that Clarant or Newco has claims against the Members by
reason of such liabilities); or (d) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to Clarant, Newco or any of the Other Founding
Companies for inclusion in the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to Clarant or Newco or any of the Other Founding Companies
required to be stated therein or necessary to make the statements therein not
misleading. Provided the Closing occurs, each of the Members waives any right of
contribution or indemnification or other similar right against Clarant, Newco or
the Surviving Company arising out of the Company's representations, warranties,
covenants and agreements contained herein, and each of the Members further
agrees that any claims of Clarant and any Clarant Indemnified Party or the
Company hereunder, whether for indemnification or otherwise, may be asserted
directly and fully against the Members without the need for any claim against or
joinder of the Surviving Company.
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11.3 INDEMNIFICATION PROCEDURE --THIRD PARTY CLAIMS.
(a) In the event that subsequent to the Closing any
Person entitled to indemnification under this Agreement (an "Indemnified Party")
receives notice of the assertion of any claim , obligation, deficiency, demand,
suit, cause of action, assessment or expense of any kind (each, a "Claim") or of
the commencement of any action or proceeding by an entity who is not a party to
this Agreement or an Affiliate of such a party (including, but not limited to
any domestic or foreign court, government, or Governmental Authority or
instrumentality, federal state or local) (a "Third Party Claim") against such
Indemnified Party, against which a party to this Agreement is required to
provide indemnification under this Agreement (an "Indemnifying Party"), the
Indemnified Party shall give written notice together with a statement of any
available information regarding such claim to the Indemnifying Party within
sixty (60) days after learning of such Claim (or within such shorter time as may
be necessary to give the Indemnifying Party a reasonable opportunity to respond
to such Claim. The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such Claim, which notice by the
Indemnifying Party shall specify the counsel it will appoint to defend such
Claim ("Defense Counsel"), to conduct at its expense the defense against such
Claim in its own name, or if necessary in the name of the Indemnified Party;
provided, however, that the Indemnified Party shall have the right to approve
the Defense Counsel, which approval shall not be unreasonably withheld, and in
the event the Indemnifying Party shall propose an alternate Defense Counsel,
which shall be subject again to the Indemnified Party's approval.
(b) In the event that the Indemnifying Party shall fail
to give such notice, it shall be deemed to have elected not to conduct the
defense of the subject Claim, and in such event the Indemnified Party shall have
the right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
(c) In the event that the Indemnifying Party does elect
to conduct the defense of the subject Claim, the Indemnified Party will
cooperate with and make available to the Indemnifying Party such assistance and
materials as may be reasonably requested by it, all at the expense of the
Indemnifying Party, and the Indemnified Party shall have the right at its
expense to participate in the defense assisted by counsel of its own choosing,
provided that the Indemnified Party shall have the right to compromise and
settle the Claim only with the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed. Without the prior
written consent of the Indemnified Party, the Indemnifying Party will not enter
into any settlement of any Third Party Claim or cease to defend against such
Claim, if pursuant to or as a result of such settlement or cessation, (i)
injunctive or other equitable relief would be imposed against the Indemnified
Party, or (ii) such settlement or cessation would lead to liability or create
any financial or other obligation on the part of the Indemnified Party for which
the Indemnified Party is not entitled to indemnification hereunder. The
Indemnifying
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Party shall not be entitled to control, and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement of any Claim to
the extent that Claim seeks an order, injunction or other equitable relief
against the Indemnified Party which, if successful, could materially interfere
with the Business, assets, properties condition (financial or otherwise) or
prospects of the Indemnified Party (and the cost of such defense shall
constitute an Loss for which the Indemnified Party is entitled to
indemnification hereunder). If a firm decision is made to settle a Third Party
Claim, which offer the Indemnifying Party is permitted to settle under this
Section 11.3 and the Indemnifying Party desires to accept and agree to such
offer, the Indemnifying Party will give written notice to the Indemnified Party
to that effect, who will have an opportunity to consent to the firm offer. If
the Indemnified Party rejects or fails to consent to such firm offer within
thirty (30) calendar days after its receipt of such notice, the Indemnified
Party may continue to contest or defend such Third Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to such Third Party
Claim will not exceed the amount of such settlement offer, plus costs and
expenses paid or incurred by the Indemnified Party through the end of such
thirty (30) day period.
(d) Any judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
11.4 TAX CONTESTS.
(a) If any party receives written notice from any
governmental authority of a Tax Proceeding with respect to any Tax for which the
other party is obligated to provide indemnification under this Agreement, such
party shall within sixty (60) days thereof give written notice to the other
party (or within such shorter time as may be necessary to give the Indemnifying
Party a reasonable opportunity to respond to such notice); provided, however,
that the failure to give such notice shall not affect the indemnification
provided hereunder except to the extent that the failure to give such notice
materially prejudices the Indemnifying Party as provided in Section 11.6.
(b) The Members shall have the right, at their own
expense, to control and make all decisions with respect to any Tax Proceeding
relating to Taxes of the Company or any Subsidiary for any Taxable Period ending
on or before the Closing Date, provided, however, that the Members may exercise
this right ONLY IF (i) either (A) such Members receive a notice pursuant to
Section 11.4(a) or (B) written notice is or has been received before and the
Closing Date by the Company, any Subsidiary or any Member from a Governmental
Authority of a Tax Proceeding, AND (ii) the Members provide written notice of
the exercise of this right to Clarant within thirty (30) days of the later of
(A) the date of this Agreement for any Tax Proceeding described on SCHEDULE
5.24(g) or (B) the date of the receipt of the notice described in (i)(A) or
(i)(B). Clarant shall have the right to approve the counsel selected by the
Members to conduct
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any such Tax Proceeding, which approval shall not be unreasonably withheld, and
to participate fully at its own expense with counsel of its own choosing in all
aspects of the prosecution or defense of such Tax Proceeding. The Members shall
not take any action or position in any such Tax Proceeding if that action or
position could reasonably be expected to increase the past, present or future
Tax liability of Clarant or any of its Affiliates, or any Tax liability of the
Company or any Subsidiary for any Taxable Period or portion thereof beginning
after the Closing Date without the prior written consent of Clarant, which
consent shall not be unreasonably withheld. The Members shall not settle or
otherwise terminate any such Tax Proceeding without the prior written consent of
Clarant, which consent shall not be unreasonably withheld.
(c) Upon written notice to Clarant within thirty (30)
days after receipt of notification pursuant to Section 11.4(a), the Members
shall have the right, at their own expense, to jointly control and participate
with Clarant in the conduct of any Tax Proceeding relating to Taxes of the
Company or any Subsidiary for a Straddle Period. If the Members exercise such
right, neither party shall settle or otherwise terminate any such Tax Proceeding
without the prior written consent of the other, which consent shall not be
unreasonably withheld.
(d) If the Members do not exercise their right to assume
control of or participate in any Tax Proceeding as provided under this Section
11.4, Clarant may defend or settle the same in such manner as it may deem
appropriate in its sole and absolute discretion, without in any way limiting its
rights of indemnification hereunder.
(e) Except as otherwise provided in this Section 11.4, Clarant
shall control all Tax Proceedings relating to Taxes and Tax Returns of the
Company and the Subsidiaries.
(f) In the event that the provisions of this Section 11.4 and
the provisions of Section 11.3 hereof conflict or otherwise each apply by their
terms, this Section 11.4 shall exclusively govern all matters concerning Tax
Proceedings.
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim (a "Direct
Claim") may be asserted by giving the Indemnifying Party reasonably prompt
written notice thereof, and the Indemnifying Party will have a period of thirty
(30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such Direct
Claim, in which event the Indemnified Party will be free to pursue such remedies
as may be available to the Indemnified Party under this Article 11.
11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an Indemnified
Party to give timely, complete or accurate notice as provided in Sections 11.3,
11.4 and 11.5 will not affect the rights or obligations of any party hereunder
except and only to the extent that, as a result of such failure, any party
entitled to receive such notice was deprived of its right to recover any payment
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under its applicable insurance coverage or was otherwise directly and materially
damaged as a result of such failure to give timely notice.
11.7 REDUCTION OF LOSS. To the extent any Loss of an Indemnified
Party is reduced by receipt of payment (a) under insurance policies which are
not subject to retroactive adjustment or other reimbursement to the insurer in
respect of such payment, or (b) from third parties not Affiliated with the
Indemnified Party, such payments (net of the expenses of the recovery thereof)
(such net payment being referred to herein as a "Reimbursement") shall be
credited against such Loss; provided, however, (x) the pendency of such payments
shall not delay or reduce the obligation of the Indemnifying Party to make
payment to the Indemnified Party in respect of such Loss, and (y) the
Indemnified Party shall have no obligation, hereunder or otherwise, to pursue
payment under or from any insurer or third party in respect of such loss. If any
Reimbursement is obtained subsequent to payment by an Indemnifying Party in
respect of a Loss, such Reimbursement shall be promptly paid over to the
Indemnifying Party.
11.8 SUBROGATION. The Indemnifying Party shall be subrogated to the
Indemnified Party's rights of recovery to the extent of any Loss satisfied by
the Indemnifying Party. The Indemnified Party shall execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records of the Acquired Party.
11.9 ARBITRATION. Excluding the right of a party to seek injunctive
relief, all claims (pursuant to Federal or state statutes or by common law),
controversies, differences or disputes between Clarant or Newco and the Members
arising out of or relating to this Agreement or related or referenced exhibits
or the alleged breach thereof including, but not limited to, indemnification
claims under Sections 11.1 and/or 11.2 shall be settled by arbitration in
accordance with the rules then in effect of the American Arbitration Association
at the time of the dispute. After an award is rendered by the arbitrator(s), a
judgment may be entered in any court of competent Jurisdiction. The arbitration
shall occur in Dallas, Texas to the exclusion of all other locations. The
arbitrators cannot add to or subtract from the terms of this Agreement. The
parties agree that the arbitrators may include provisions for the payment of
costs and expenses, including reasonable attorneys' fees as part of any ruling
or award made thereunder. The parties acknowledge that arbitration shall be the
sole, final, binding and exclusive remedy of the parties with respect to any
such matter for which arbitration is undertaken hereunder. In preparation for
the arbitration process described herein, the parties shall be given at least
one hundred twenty (120) days for discovery and each party may utilize all
methods of discovery authorized by the procedural rules and statutes of the
State of Texas for civil litigation and may enforce the right to obtain such
discovery in the manner provided by such rules and statutes.
11.10 EXCLUSIVE REMEDY. Except as provided in Section 14.3 of this
Agreement, the indemnification provided for in this Article 11 shall (except as
prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by
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any party to this Agreement against another party; provided, however, that
nothing herein shall be construed to limit the right of a party, in a proper
case, to seek injunctive relief for a breach of this Agreement or to seek relief
for a breach of any employment agreement with, or any security issued by,
Clarant.
11.11 LIMITATION AND EXPIRATION. Notwithstanding the foregoing
provisions of this Article 11:
(a) with respect to the indemnification obligations of
the Members under Section 11.1 --
(i) there shall be no liability unless, and
solely to the extent that, the aggregate amount of Losses sustained by the
Clarant Indemnified Parties exceeds one percent (1%) of the Merger Consideration
(the "Indemnification Threshold"), which Indemnification Threshold shall be
treated as a deductible; PROVIDED, HOWEVER, that the Indemnification Threshold
shall not apply to (w) Losses arising out of breaches of the covenants of the
Members set forth in this Agreement to be performed after the Closing Date or
the representations and warranties made in Sections 5.3 (capital stock of the
Company), 5.17 (employee benefits), and 5.24 (taxes), (x) Losses described in
Section 11.1(c), (y) Losses arising out of intentional fraud, or (z) any matters
identified on SCHEDULE 11.1(f); and
(ii) [Reserved]
(b) the indemnification obligations of the Members under
Section 11.1, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 11.11(b):
(i) (A) with respect to claims arising out
of breaches of the representations and warranties made in Sections 5.17
(employee benefits) and 5.24 (taxes), the date that is six (6) months after the
expiration of the longest applicable federal or state statute of limitation
(including extensions thereof);
(B) with respect to Losses described in
clause (c) of Section 11.1, the date that is six (6) months after the expiration
of the longest applicable federal or state statute of limitation (including
extensions thereof); or
(C) with respect to all claims other
than those referred to in clause (i)(A) or (B) of this Section 11.11(b),
eighteen (18) months after the Effective Time; or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this Section
11.11(b);
(c) with respect to the indemnification obligations of
Clarant under Section 11.2 --
(i) there shall be no liability unless, and
solely to the extent that, the aggregate amount of Losses sustained by the
Members exceeds the Indemnification Threshold;
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PROVIDED, HOWEVER, that the Indemnification Threshold shall not apply to Losses
arising out of breaches of the covenants of Clarant set forth in this Agreement
to be performed after the Closing Date or the representations and warranties
made in Section 6.5 (Capital Stock) and 6.15 (Taxes), (y) Losses described in
Section 11.2(c), or (z) Losses arising out of intentional fraud; and
(ii) the aggregate amount of Clarant's liability
under this Article 11 shall not exceed the Merger Consideration.
(d) [Reserved]
(e) Indemnity obligations hereunder may be satisfied, at
the discretion of the Indemnifying Party, through the payment of cash or the
delivery of Clarant Common Stock, or a combination thereof. For purposes of
calculating the value of the Clarant Common Stock received or delivered by the
Member (for purposes of determining the Indemnification Threshold and the amount
of any indemnity paid), Clarant Common Stock shall be valued at its fair market
value, which shall be the average closing price for Clarant Common Stock on the
Nasdaq national market system for the ten trading days ending two business days
immediately prior to the date of payment.
(f) Notwithstanding any other term of this Agreement
(except the proviso to this sentence), a Member's liability under this Article
11 shall be limited to the total amount of proceeds received or payable to the
Member under this Agreement, which total shall be equal to the sum of (i) the
cash paid to the Member, (ii) the Contingent Consideration, if any, earned and
payable to such Member, (iii) the Additional Contingent Consideration, if any,
earned and payable to such Member and (iv) the value of the Clarant Common Stock
delivered to such Member on the Closing Date at the initial public offering
price.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Company, the Members and
Clarant in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein), as of the Pre-Closing Date and, if a Closing
occurs, as of the Closing Date. The representations and warranties of the
Company and the Members will survive the Closing and will remain in effect
until, and will expire upon, the termination of the indemnification obligations
as provided in Section 11.11(b). The representations and warranties of Clarant
will survive the Closing and will remain in effect until, and will expire upon,
the Clarant Expiration Date.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date solely: (a) by mutual consent written consent of the
boards of directors of Clarant and the Company; (b) by either the Members or the
Company (acting through its Members), on the one
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hand, or by Clarant (acting through its board of directors), on the other hand,
if the transactions contemplated by this Agreement to take place at the Closing
shall not have been consummated by December 31, 1999, unless the failure of such
transactions to be consummated is due to the willful failure of the party
seeking to terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date; (c) by the Members or the Company, on the one hand, or by Clarant,
on the other hand, after giving written notice to the other party that a breach
or default of any representation, warranty, or covenant contained in this
Agreement has occurred, which breach has had or is reasonably foreseeable as
having a Material Adverse Effect on the Company or Clarant, as the case may be,
and such breach has not been cured on or before the Closing Date, (d) pursuant
to Section 7.11; or (e) by the Company (acting through its members) if, by June
30, 1999, Clarant shall not have filed an initial registration statement with
the SEC reflecting an IPO price for Clarant Common Stock of $11.00 per share.
12.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES.
(a) Except for Donald S. Perkins, Ellen R. Marram, and
John M. Richman who shall not be subject to this Article 13, and further except
for Thomas Puglisi and Michael Smith for whom this Article 13 shall apply for a
period of one (1) year, the Members will not, for a period of three (3) years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other Person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director,
shareholder, option holder, lender, owner, partner, joint venturer, or in a
managerial capacity, whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in any business that is engaged in the
Business anywhere in the United States or Canada (the "Territory");
(ii) call upon any Person who is, at that time,
within the Territory, an employee of Clarant (including the subsidiaries
thereof) in a sales representative or managerial capacity for the purpose or
with the intent of enticing such employee away from or out of the employ of
Clarant (including the subsidiaries thereof), provided that each Member shall be
permitted to call upon and hire any member of his or her immediate family;
(iii) call upon any Person which is, at that time,
or which has been, within one (1) year prior to the Closing Date, a customer of
Clarant (including the subsidiaries thereof), of the Company or any Subsidiary
or of any of the Other Founding Companies within
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the Territory for the purpose of soliciting or selling products or services in
direct competition with Clarant within the Territory;
(iv) call upon any prospective acquisition
candidate, on any Member's behalf or on behalf of any competitor of Clarant,
which candidate, to the actual knowledge of such Member after due inquiry, was
called upon by Clarant (including the subsidiaries thereof) or for which, to the
actual knowledge of such Member after due inquiry, Clarant (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) disclose customers, whether in existence or
proposed, of the Company to any Person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
(b) Notwithstanding Section 13.1(a) the foregoing
covenant shall not be deemed to prohibit any Member from acquiring as an
investment not more than one percent (1%) of the capital stock of a competing
business whose stock is traded on a national securities exchange or
over-the-counter so long as the Member does not consult with or is not employed
by such competitor.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to Clarant as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Clarant for
which it would have no other adequate remedy, each Member agrees that, in the
event of breach by such Member, the foregoing covenant may be enforced by
Clarant by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Article 13 impose a reasonable restraint on the
Members in light of the activities and business of Clarant (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Clarant; but it is also the intent of Clarant and the Members
that such covenants be construed and enforced in accordance with the changing
activities and business of Clarant (including the subsidiaries thereof)
throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Member who has entered into an employment agreement with Clarant and/or any
subsidiary thereof as set forth in Sections 8.11 and 9.11 hereto, shall
thereafter cease to be employed thereunder, and such Member shall enter into a
business or pursue other activities not in competition with Clarant and/or any
subsidiary thereof, or similar activities or business in locations the
operations of which, under such circumstances, does not violate this Article 13
and in any event such new business, activities or location are not in violation
of this Article 13 or such Member's obligations under this Article 13, such
Member shall not be chargeable with a violation of this Article 13 if Clarant
and/or any subsidiary thereof shall thereafter enter the same, similar or a
competitive (i) business (ii) course of activities, or (iii) location, as
applicable.
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13.4 SEVERABILITY; REFORMATION. The covenants in this Article 13
are severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Article 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Member
against Clarant (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Clarant of such covenants. It is specifically agreed that the period of three
(3) years stated at the beginning of this Article 13, during which the
agreements and covenants of each Member made in this Article 13 shall be
effective, shall be computed by excluding from such computation any time during
which such Member is in violation of any provision of this Article 13. The
covenants contained in Article 13 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Members hereby agree that
this covenant is a material and substantial part of this transaction and that
it is supported by adequate consideration.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 MEMBERS. The Members recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the Company, the Other Founding Companies, and/or
Clarant, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Clarant's respective businesses. The Members agree that they
will not disclose such confidential information to any Person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Clarant or the Other Founding
Companies who need to know information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby, (b) following the Closing, such information may be disclosed by
the Members as is required in the course of performing their duties for Clarant
or the Surviving Company and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such information becomes known to the public
generally through no fault of any such Members, (ii) disclosure is required by
law or the order of any governmental authority under color of law, provided,
that prior to disclosing any information pursuant to this clause (ii), the
Members shall give prior written notice thereof to Clarant and provide Clarant
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Members
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of the provisions of this Article 14, Clarant shall be entitled to an injunction
restraining such Members from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Clarant from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, the Members shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 CLARANT AND NEWCO. Clarant and Newco recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the Company, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
Clarant and Newco agree that, prior to the Closing, or if the transactions
contemplated by this Agreement are not consummated, they will not disclose such
confidential information to any Person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to the Members and to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2 and (c) to the Other Founding Companies and
their representatives pursuant to Section 7.1(a), unless (i) such information
becomes known to the public generally through no fault of Clarant or Newco, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), Clarant and Newco shall, if possible, give prior written
notice thereof to the Company and the Members and provide the Company and the
Members with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by Clarant or Newco of the provisions of this Section, the
Company and the Members shall be entitled to an injunction restraining Clarant
and Newco from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Company and the Members
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Sections 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Closing Date.
15. TRANSFER RESTRICTIONS
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15.1 TRANSFER RESTRICTIONS. Subject in all cases to compliance with
applicable federal and state securities laws, and in no case earlier than twelve
(12) months following the Closing Date, unless Clarant in its sole discretion
shall consent otherwise, except pursuant to Article 17 hereof, gratuitous
transfers to not-for-profit third parties and transfers to immediate family
members, in each case who agree to be bound by the restrictions set forth in
this Section 15.1 (or trusts for the benefit of the Members or their immediate
family members, the trustees of which so agree) none of the Members shall (a)
sell, assign, exchange, transfer, Encumber, pledge, distribute, appoint or
otherwise dispose of (i) any shares of Clarant Common Stock received by the
Members in the Merger or (ii) any interest (including, without limitation, an
option to buy or sell) in any such shares of Clarant Common Stock, in whole or
in part, and no such attempted transfer shall be treated as effective for any
purpose; or (b) engage in any transaction, whether or not with respect to any
shares of Clarant Common Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning the shares of Clarant Common Stock
acquired pursuant to Article 2 hereof (including, by way of example and not
limitation, engaging in put, call, short-sale, straddle or similar market
transactions). Notwithstanding the foregoing, the Members may encumber or pledge
any of such shares of Clarant Common Stock provided the pledgee or other
beneficiary of such encumbrance or pledge agrees to be bound by the provisions
of this Section as if a Member and party hereto. The certificates evidencing the
Clarant Common Stock delivered to the Members pursuant to Article 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as Clarant may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
[(PROVIDED, HOWEVER, THAT SUCH SHARES MAY BE ENCUMBERED OR PLEDGED
PROVIDED THE PLEDGEE OR OTHER BENEFICIARY OF SUCH ENCUMBRANCE OR PLEDGE
AGREES TO BE BOUND BY THE PROVISIONS OF THESE RESTRICTIONS TO THE SAME
EXTENT AS THE HOLDER THEREOF).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. Each Member
acknowledges that the shares of Clarant Common Stock delivered to the Member
pursuant to this Agreement have not been and will not be registered under the
1933 Act and therefore may not be resold without compliance with the 1933 Act.
The Clarant Common Stock acquired by the Member pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it.
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16.2 COMPLIANCE WITH LAW. Each Member covenants, warrants and
represents that none of the shares of Clarant Common Stock issued to the Member
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. The Clarant Common
Stock shall bear the following legend in addition to the legend required under
Article 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC., DELIVERY BY THE
HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CLARANT, INC.
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Member represents and
warrants that it is able to bear the economic risk of an investment in the
Clarant Common Stock acquired pursuant to this Agreement, can afford to sustain
a total loss of such investment and have such knowledge and experience in
financial and business matters that they are capable of evaluating the merits
and risks of the investment in the Clarant Common Stock. Each Member represents
and warrants that it has had an adequate opportunity to ask questions and
receive answers from the officers of Clarant concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
Clarant, the plans for the operations of the business of Clarant, the business,
operations and financial condition of the Other Founding Companies, and any
plans for additional acquisitions and the like. Each Member acknowledges that it
has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction. Each Member
represents and warrants that such Member has the requisite knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of this investment and is an "accredited investor" as defined
in Regulation D under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Closing Date, whenever Clarant proposes to register any Clarant Common Stock for
its own or others' account under the 1933 Act for a public offering, other than
(i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Clarant, (ii) registrations relating to
employee benefit plans and (iii) registrations relating to rights offerings made
to the stockholders
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of Clarant, Clarant shall give each of the Members prompt written notice of its
intent to do so. Upon the written request of any of the Members given within
thirty (30) days after receipt of such notice, Clarant shall cause to be
included in such registration all of the Clarant Common Stock issued to the
Members pursuant to this Agreement which any such Member requests, provided that
Clarant shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares could, in the opinion
of tax counsel to Clarant or its independent auditors, jeopardize the status of
the transactions contemplated hereby and by the Registration Statement as a
tax-free organization. In addition, if Clarant is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 17.1
that the number of shares to be sold by Persons other than Clarant is greater
than the number of such shares which can be offered without adversely affecting
the offering, Clarant may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares proposed to be sold by
each such Person) to a number deemed satisfactory by such managing underwriter,
provided, that, for each such offering made by Clarant after the IPO, such
reduction shall be made first by reducing the number of shares to be sold by
Persons other than Clarant, the Members and the members of the Other Founding
Companies (collectively, the Members and the members of the other Founding
Companies being referred to herein as the "Founding Members"), and thereafter,
if a further reduction is required, by reducing the number of shares to be sold
by the Founding Members.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 17 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by Clarant. In
connection with registrations under Section 17.1, Clarant shall (i) use its
commercially reasonable best efforts to prepare and file with the SEC as soon as
reasonably practicable, a registration statement with respect to the Clarant
Common Stock and use its commercially reasonable best efforts to cause such
registration to promptly become and remain effective for a period of at least
one hundred twenty (120) days (or such shorter period during which Founding
Members shall have sold all Clarant Common Stock which they requested to be
registered); (ii) use its commercially reasonable best efforts to register and
qualify the Clarant Common Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the Clarant Common Stock; and (iii) take such other actions as
are reasonable and necessary to comply with the requirements of the 1933 Act and
the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, Clarant and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of Clarant's size and
investment stature, including indemnification provisions.
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17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated to
register shares of Clarant Common Stock held by any Member at any time when the
resale provisions of Rule 144(k) (or any successor provision) promulgated under
the 1933 Act are available to such Member for such shares.
17.5 MARKET STANDOFF. In consideration of the granting to the
Members of the registration rights under this Article 17, each of the Members
agrees that he or she will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of Clarant
Common Stock in the ten (10) days prior to the effectiveness of any registration
of Clarant Common Stock for sale to the public and for up to ninety (90) days
following the effectiveness of such registration; provided that all directors,
executive officers and holders of more than five percent (5%) of the outstanding
Clarant Common Stock agree to the same restrictions; and further provided that,
with respect to the first public offering of shares of the Clarant Common Stock
within three years following the IPO, the Members shall have been afforded a
meaningful opportunity to include shares in such registration after any
reduction by reason of underwriters' advice. Notwithstanding the foregoing, the
obligations of this Section 17.5 shall not apply to a registration relating
solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that
may be promulgated in the future, or a registration relating solely to a
Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future.
18. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Accredited Holders" shall have the meaning given to such term in
Section 2.1.
"Acquired Party" means the Company, any Subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies wholly-owned by Clarant prior to the Closing Date.
"Action" has the meaning set forth in Section 5.15.
"Additional Contingent Consideration" means contingent consideration
not to exceed Twenty-Five Million and 00/100 U.S. Dollars ($25,000,000) based
solely on UAL Revenues.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Affiliates" has the meaning set forth in Section 5.9.
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"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or
any of its Subsidiaries has or may acquire any rights, (b) under which the
Company or any of its Subsidiaries has or may become subject to any obligation
or liability, or (c) by which the Company or any of its Subsidiaries or any of
the Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as EXHIBIT 1.1
hereto or with such changes therein as may be required by applicable state laws.
"Balance Sheet" means a consolidated balance sheet of the Company and
any Subsidiaries.
"Balance Sheet Date" means March 31, 1999.
"Business" has the meaning set forth in the recitals of this Agreement.
"Charter Documents" has the meaning set forth in Section 5.1.
"Claim" has the meaning set forth in Section 11.3.
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Charter Documents" has the meaning set forth in Section 6.1.
"Clarant Common Stock" has the meaning set forth in Section 6.5.
"Clarant Expiration Date" means the date that is one year from the
Effective Time.
"Clarant Indemnified Party" has the meaning set forth in Section
11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.5.
"Clarant Stock" has the meaning set forth in Section 6.5.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
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"Closing Date" has the meaning set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant to the Internal
Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Other Benefit Obligation" has the meaning set forth in Section
5.17.
"Company Plan" has the meaning set forth in Section 5.17.
"Company Stock" has the meaning set forth in Section 2.1(a).
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Contingent Consideration" shall have the meaning given to such term in
Section 3.3.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Constituent Companies" has the meaning set forth in the recitals of
this Agreement.
"Convertible Securities" has the meaning set forth in Section 5.3.
"Defense Counsel" has the meaning set forth in Section 11.3.
"Defense Notice" has the meaning set forth in Section 11.3.
"Direct Claim" has the meaning set forth in Section 11.5.
"Effective Time" means the time as of which the Merger becomes
effective, which the parties hereto contemplate to occur at the Closing.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
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"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencement of activities, such as resource extraction or construction, that
could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the
release of pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated,
packaged, and used so that they do not present unreasonable risks to human
health or the Environment when used or disposed of;
(e) protecting resources, species, or ecological
amenities;
(f) reducing to acceptable levels the risks inherent in
transportation of hazardous substances or materials, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released,
preventing the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay a Governmental
Authority or private parties, or groups of them, for damages done to the
Environment, or permitting self-appointed representatives of the public interest
to recover for injuries done to public assets.
"ERISA Affiliate" has the meaning set forth in Section 5.17.
"Exhibit" means each Exhibit attached to this Agreement.
"Financial Statements" has the meaning set forth in Section 5.10(a).
"Founding Companies" has the meaning set forth in the recitals of this
Agreement.
"Founding Members" has the meaning set forth in Section 17.1.
"Fully-Diluted" shall have the meaning given to such term in Section
3.1(b).
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"GAAP" means generally accepted accounting principles as in effect on
the date hereof.
"Governmental Authority" means the United States or any state, local,
or foreign government, or any subdivision, agency, or authority of any thereof.
"Governmental Consents" has the meaning set forth in Section 5.4.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all Trademarks, copyrights, and patents
and any registration or application for any of the foregoing, and any trade
secret, invention, process, know-how, computer software, technology systems,
product design or product packaging.
"Investor Questionnaire" means the form of document attached as EXHIBIT
5.29(b) and as completed and delivered to Clarant by the Members.
"IPO" means the initial public offering of Clarant Common Stock
pursuant to the Registration Statement.
"Knowledge": an individual will be deemed to have "Knowledge" of a
particular fact if such individual is actually aware of such fact or other
matter. A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if James R. Corey, Simon J. Blanks, Brian
D. Methvin, Robert J. Kacergis, Paul Wedeking, or Melanie Connellee 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.
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"Legal Requirement" means any federal, state, local, municipal,
foreign, or other administrative order, constitution, law, ordinance, principle
of common law, regulation, statute, or treaty.
"Losses" has the meaning set forth in Section 11.1.
"Material Adverse Effect" means with respect to any Person that is a
party to this Agreement, a material adverse change in (i) the business
operations, condition or prospects (financial or otherwise) of such Person, (ii)
the ability of such Person to consummate the transactions contemplated by the
Agreement, or (iii) the condition or value of the properties and assets of such
Person.
"Material Contract" means any Contract affecting or pertaining to the
Business that has a monetary obligation of at least $25,000 per year and that is
not cancelable by the Company without penalty upon notice of six (6) months or
less.
"Members" has the meaning set forth in the first paragraph of this
Agreement.
"Merger" means the merger of Newco with and into the Company pursuant
to this Agreement and the applicable provisions of the laws of the State of
[Delaware] [and other applicable state laws].
"Merger Consideration" shall have the meaning given to such term in
Section 3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Mr. Marmol" means Guillermo G. Marmol, the Chief Executive Officer of
Clarant.
"Multi-Employer Plan" has the meaning set forth in Section 5.17.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"New Services" means any services that Clarant or the Surviving Company
performs for UAL Corp. pursuant to any new contract or agreement between the
Surviving Company or Clarant and UAL Corp., or pursuant to any engagement letter
agreeable to UAL Corp. and signed by the Surviving Company or Clarant, that is
executed and delivered by the parties thereto after May 25, 1999 and before June
30, 2002, but in any event excluding revenues received by Clarant or the
Surviving Company relating to the following projects for UAL Corp.: Middle
Market Business Plan (services expected to be completed on June 30, 1999); Mass
Market Plan (services expected to be completed on June 30, 1999); Portfolio
Management Project for Air Operations and Administration (services expected to
be completed on May 30, 1999); Portfolio Management
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Project for Sales, Marketing and Planning (services expected to be completed by
August 15, 1999).
"New Consulting Services" means any New Services related to consulting
on e-commerce strategy, including business planning, organizational design,
process redesign, program management and change management, and any consulting
services of the type performed by the Company for UAL Corp. prior to the Closing
Date.
"New Other Services" means any New Services other than New Consulting
Services.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Non-accredited Holders" shall have the meaning given to such term in
Section 2.1.
"Options" has the meaning set forth in Section 5.3.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Authority or by an arbitrator.
"Ordinary Course of Business" means an action taken by a Person only
if:
a) such action is consistent with the past practices of
such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person; or
(b) such action is similar in nature and magnitude to
actions customarily taken in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of
business as such Person.
"Other Agreements" has the meaning set forth in the recitals of this
Agreement.
"Other Benefit Obligations" has the meaning set forth in Section 5.17.
"Other Founding Companies" has the meaning set forth in the recitals of
this Agreement.
"Pension Plan" has the meaning set forth in Section 5.17
"Permits" has the meaning set forth in Section 5.16(b).
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"Person" means any individual, corporation (including non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Plan" has the meaning set forth in Section 5.17.
"Plan Sponsor" has the meaning set forth in Section 5.17
"Plans" has the meaning set forth in Section 5.17.
"Pre-Closing" has the meaning set forth in Section 4.1.
"Pre-Closing Date" has the meaning set forth in Section 4.1.
"Pre-Closing Period" means any Taxable Period or portion thereof ending
on or before the Closing Date.
"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Authority.
"Qualified Plan" has the meaning set forth in Section 5.17.
"Qualified Plans" has the meaning set forth in Section 5.17.
"Real Property" has the meaning set forth in Section 5.23(a).
"Registration Statement" means that certain registration statement of
Clarant on Form S-1 covering the shares of Clarant Common Stock to be issued in
the IPO and attached hereto as SCHEDULE 18.1.
"Reimbursement" has the meaning set forth in Section 11.7.
"Relevant Group" has the meaning set forth in Section 5.24.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
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"Schedule" means each Schedule attached hereto and identified as a
Schedule, which shall reference the relevant sections of this Agreement, on
which parties hereto disclose information as part of their respective
representations, warranties and covenants.
"Securities Agreements" shall have the meaning given to such term in
Section 5.3.
"SEC" means the United States Securities and Exchange Commission.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"State LLC Law" has the meaning set forth in Section 1.2.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Straddle Period" has the meaning set forth in Section 10.2(a).
"Subsidiary" means any entity the majority of voting shares or
interests of which are owned by the Company and/or by one or more Subsidiaries
of the Company.
"Surviving Company" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, transfer, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Tax Proceeding" means any audit, examination, claim or other
administrative or judicial proceeding relating to Taxes or Returns.
"Taxable Period" means any taxable year or other period that is treated
as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
"Third Party Claim" has the meaning set forth in Section 11.3.
"Threatened" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice
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has been given in writing that such a claim, Proceeding, dispute, action or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.
"Title IV Plans" has the meaning set forth in Section 5.17.
"Trademarks" has the meaning set forth in Section 5.14.
"UAL Revenues" means revenues from New Services provided by Clarant to
UAL Corp. that are billed by Clarant between July 1, 1999, and June 30, 2002,
and collected by Clarant before completion of Clarant's 2002 fiscal year audit.
"Underwriters" means the underwriters of the IPO, as identified in the
Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement by and among
the Underwriters and the Company in respect of the IPO.
"VEBA" has the meaning set forth in Section 5.17.
"Welfare Plan" has the meaning set forth in Section 5.17.
"Year 2000 Compliant" has the meaning set forth in Section 5.27.
19. GENERAL
19.1 COOPERATION. The Company, the Members, Clarant and Newco shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Members will cooperate and use their reasonable efforts to
have the present officers, directors and employees of the Company cooperate with
Clarant on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Clarant, and the heirs and legal representatives of the Members.
19.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
Exhibits attached hereto which are incorporated by this reference) and the
documents delivered pursuant hereto constitute the entire agreement and
understanding among the Members, the Company, Newco
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and Clarant and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance with
its terms and may be modified or amended only by a written instrument executed
by the Members, the Company, Newco and Clarant, acting through their respective
officers or trustees, duly authorized by their respective boards of directors.
Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby, provided
that the Company and the Members shall make a good faith effort to cross
reference disclosure, as necessary or advisable, between related Schedules.
19.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. This Agreement may be
executed and delivered by facsimile signature, which facsimile signature shall
be deemed an original.
19.5 EXPENSES.
(a) Whether or not the transactions herein contemplated
shall be consummated, Clarant will pay the fees, expenses and disbursements of
Clarant and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed by Clarant under this Agreement, including the
fees and expenses of Clarant's public auditors, Wilmer Cutler & Pickering, and
any other Person retained by Clarant, and the costs of preparing the
Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of the
Members, the Company and their respective agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement and
any amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by the Company
and the Members under this Agreement, including the reasonable fees and expenses
of legal counsel to the Company and the Members.
(c) If the transaction herein contemplated is
consummated, Clarant will pay the fees, expenses, and disbursements of the
Members and the Company and their respective agents, representatives accountants
and counsel.
(d) Each Member acknowledges that he, and not the Company
or Clarant, will pay all Taxes including, but not limited to, income and
transfer taxes due upon receipt of the consideration payable pursuant to Article
2 hereof, and will assume all Tax or as a result of risks and liabilities of
such Member in connection with the transactions contemplated hereby.
19.6 NOTICES. All notices, requests, demands and other
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given
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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:
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attention: Guillermo G. Marmol
Facsimile: (972) 488-7299
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
Facsimile: (202) 663-6363
(b) If to the Members, addressed to them at their
addresses set forth on EXHIBIT 19.6, with copies to such counsel as is set forth
with respect to each Member on such EXHIBIT 19.6;
(c) If to the Company, addressed to it at:
James R. Corey
694 Rossmore Court
Great Falls, Virginia 22066
Facsimile:
and marked "Personal and Confidential"
with a copy to:
Lynda M. Clarizio, Esq.
Arnold & Porter
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555 12th Street, N.W.
Washington, D.C. 20004
Facsimile: (202) 942-5999
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
19.7 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without reference to conflicts of laws
principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
19.11 MEMBERS' REPRESENTATIVE.
(a) Each holder of Company Units, by signing this
Agreement, designates James R. Corey or, in the event that James R. Corey is
unable or unwilling to serve, now or in the future, Brian Methvin, to be the
Members' Representative for purposes of this Agreement. The Members shall be
bound by any and all actions taken by the Members' Representative on their
behalf.
(b) Clarant and Newco shall be entitled to rely upon any
communication or writings given or executed by the Members' Representative. All
notices to be sent to Members pursuant to this Agreement may be addressed to the
Members' Representative and any notice so sent shall be deemed notice to all of
the Members hereunder. The Members hereby consent and agree that the Members'
Representative is authorized to accept notice on behalf of the Members pursuant
hereto.
78
<PAGE>
(c) The Members' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Member, with full power
in his or her name and on his or her behalf to act according to the terms of
this Agreement in the absolute discretion of the Members' Representative; and in
general to do all things and to perform all acts including, without limitation,
executing and delivering all agreements, certificates, receipts, instructions
and other instruments contemplated by or deemed advisable in connection with
this Agreement. This power of attorney and all authority hereby conferred is
granted subject to the interest of the other Members hereunder and in
consideration of the mutual covenants and agreements made herein, and shall be
irrevocable and shall not be terminated by any act of either Member, by
operation of law, whether by the death or other event.
19.12 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
19.13 SURVIVAL. The representations and warranties set forth in this
Agreement shall survive the Closing and expire in accordance with Section 11.11.
The covenants of the parties to be performed offer the Closing shall survive the
Closing and expire in accordance with their respective terms.
19.14 ACCOUNTING TERMS. Except as otherwise expressly provided
herein, all accounting terms used in this Agreement shall be interpreted, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with U.S.
GAAP consistently applied.
[this space left intentionally blank]
79
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC. POTOMAC PARTNERS ACQUISITION LLC
By: /s/ Guillermo G. Marmol By: /s/ Guillermo G. Marmol
Name: Guillermo G. Marmol Name: Guillermo G. Marmol
Title: President Title: Manager
POTOMAC PARTNERS MANAGEMENT
CONSULTING, LLC
By: /s/ James R. Corey
Name: James R. Corey
Title: Managing Partner
MEMBERS:
/s/ Simon J. Blanks /s/ Paul Wedeking
Simon J. Blanks Paul Wedeking
/s/ James R. Corey /s/ Ellen R. Marram
James R. Corey Ellen R. Marram
/s/ Robert J. Kacergis /s/ Donald S. Perkins
Robert J. Kacergis Donald S. Perkins
/s/ Brian D. Methvin /s/ John M. Richman
Brian D. Methvin John M. Richman
/s/ Thomas Puglisi /s/ Michael Smith
Thomas Puglisi Michael Smith
<PAGE>
EXHIBIT 2.1(a)
Consideration
(a) At Closing, Clarant will deliver Merger Consideration to the Members,
holders of vested Options and Convertible Securities and holders of the
Company's participation rights equal to:
(i) Three Million Four Hundred Seventy Thousand One Hundred
Ninety-Seven (3,470,197) shares of Clarant Common Stock (the "Stock
Consideration") plus
(ii) cash of Two Million Fifty-Seven Thousand Seventy-Five and
72/100 U.S. Dollars ($2,057,075.72) times the IPO price per share of Clarant
Common Stock (the "Cash Consideration"); for example, if the IPO price per share
of Clarant Common Stock is $11.00, then Clarant will deliver to the Members and
holders of vested Options and Convertible Securities total Cash Consideration of
Twenty-Two Million Six Hundred Twenty-Seven Thousand Eight Hundred Thirty-Two
and 99/100 U.S. Dollars ($22,627,832.99).
(b) At Closing, the Merger Consideration shall be distributed among the
Members and the holders of vested Options and Convertible Securities and holders
of the Company's participation rights as follows:
(i) first, the holders of the Company's participation rights shall
receive their pro rata share of the Cash Consideration allocated according to
SCHEDULE 5.3C (with the exercise price of such participation rights being
retained by the Members for distribution pro rata among the Members and holders
of vested Options); and
(ii) second, the Members and holders of vested Options shall
receive their share (determined pro rata with respect to each other) of the
Stock Consideration and the portion of the Cash Consideration remaining after
distribution to the participation rights holders under subsection (b)(i) in the
ratio of seventy percent (70%) Clarant Common Stock and thirty percent (30%)
cash (with the exercise price of any vested Options to be paid into the
Surviving Company and to be retained by the Surviving Company as working
capital).
(c) The minimum IPO price per share of Clarant Common Stock is $9.90.
<PAGE>
EXHIBIT 3.3
(a) Contingent Consideration will be paid to the Persons who are
Members as of the Closing Date contingent on the financial performance of the
Company and Clarant during the periods July 1, 1999 through December 31, 1999,
and January 1, 2000 through June 30, 2000 (each such period a "Measurement
Period"). The following tables set forth the projections and formulas for
determining the Contingent Consideration payable to the Member(s):
PROJECTIONS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
PROJECTED
PROJECTED PROJECTED PROJECTED COMBINED
MEASUREMENT COMPANY COMPANY PRE- COMBINED PRE-TAX
PERIOD REVENUES TAX INCOME REVENUES INCOME
<S> <C> <C> <C> <C>
Jul. 1, 1999 - $7,980,000 $1,476,000 n/a n/a
Dec. 31, 1999
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
</TABLE>
FORMULAS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
<S> <C> <C> <C> <C> <C> <C>
Jul. 1, 1999 - 3 15 n/a [50% (Revenue Multiple) $78,700,000 $15,200,000
Dec. 31, 1999 x (Actual Company
Revenues - Projected
Company Revenues)]
+
[50% (Pre-Tax Income
Multiple) x (Actual Pre-
Tax Income - Projected
Pre-Tax Income)]
<PAGE>
Jan. 1, 2000 - 3 15 19.31 [(Pool Share) x 50% $78,700,000 $15,200,000
Jun. 30, 2000 % (Revenue Multiple) x
(Actual Combined
Revenues - Projected
Combined Revenues)]
+
[(Pool Share) x 50% (Pre-
Tax Income Multiple) x
(Actual Combined Pretax
Income - Projected
Combined Pretax
Income)]
</TABLE>
(b) For purposes of determining the amount of Contingent
Consideration payable to the Members:
(i) Pre-Tax Income shall mean net revenues less direct
costs less indirect costs and expenses, but including all taxes other than
Federal and state income taxes, provided, that, Pre-Tax Income expressly
excludes amortization of acquisition goodwill incident to the transactions
contemplated by the Agreement and in no event shall overhead and general and
administrative expenses of Clarant be deducted from the foregoing to arrive at
the determination of Pre-Tax Income;
(ii) Combined Revenues shall mean the total revenues of
the Founding Companies only, without giving effect to acquisitions by Clarant or
any Founding Company after the Closing Date, unless otherwise agreed to in
writing by Clarant;
(iii) Combined Pre-Tax Income shall mean the total Pre-Tax
Income of the Founding Companies only, without giving effect to acquisitions by
Clarant or any Founding Company after the Closing Date, unless otherwise agreed
to in writing by Clarant; and
(iv) except as otherwise expressly provided herein, all
accounting terms shall be interpreted in accordance with U.S. GAAP, based upon
consistent use of accounting principles and policies, revenue recognition
methods and reserve methodologies for the Measurement Period and the relevant
audited financial statements.
(c) The Contingent Consideration payable for a Measurement Period
shall be made in cash and shares of Clarant Common Stock, with the amount paid
in cash to be determined by Clarant in its sole and absolute discretion,
PROVIDED, THAT, such amount represents no less than twenty-five percent (25%),
nor more than fifty percent (50%), of the total amount of the Contingent
Consideration for the Measurement Period. For these purposes, each share of
Clarant Common Stock will be valued at the trailing 30-day average closing
price, ending on the day before the date of issuance.
<PAGE>
(d) Within forty-five (45) days following the end of each
Measurement Period, Clarant shall cause Arthur Andersen to review Clarant's and
each Founding Company's books and records to determine, as applicable, the
Company's actual revenues ("Actual Company Revenues") and actual Pre-Tax Income
("Actual Company Pre-Tax Income"), and the actual Combined Revenues ("Actual
Combined Revenues") and actual Combined Pre-Tax Income ("Actual Combined Pre-Tax
Income"), for the Measurement Period. Within sixty (60) days following the end
of each Measurement Period, Clarant shall deliver a written notice (a
"Contingent Consideration Notice") to the Members' Representative, as defined in
Section 19.11, setting forth (i) the determination made by Arthur Andersen of
the Actual Company Revenues, Actual Company Pre-Tax Income, Actual Combined
Revenues and Actual Combined Pre-Tax Income, if applicable, (ii) the total
amount of the Contingent Consideration payable to the Members for the
Measurement Period and (iii) the amount of cash and shares of Clarant Common
Stock that will be paid to the Member(s) as Contingent Consideration for the
Measurement Period. As soon as practicable after delivering the Contingent
Consideration Notice, Clarant shall issue the shares of Clarant Common Stock to
be paid as Contingent Consideration and deliver such shares, along with the cash
to be paid as Contingent Consideration, to [CLARANT'S BANK] to hold in escrow
until final resolution of any disputes regarding the Contingent Consideration.
(e) The Members' Representative shall have fifteen (15) days from
the receipt of the Contingent Consideration Notice to notify Clarant if there is
a dispute about such Contingent Consideration Notice. If Clarant has not
received notice of such a dispute within such 15-day period, Clarant shall
direct [Clarant's Bank] to pay the cash portion of the Contingent Consideration
by wire transfer of immediately available funds to the Member(s) at the
account(s) identified on EXHIBIT 19.6 and deliver the shares of Clarant Common
Stock to eligible Members at the address(es) set forth on EXHIBIT 19.6. If,
however, the Members' Representative has delivered notice of such a dispute to
Clarant within such 15-day period, then Clarant's chief financial officer and
the Members' Representative shall meet (by conference telephone call or in
person at a mutually agreeable site) within one week after notice of a
disagreement is given as provided herein. Clarant's chief financial officer and
the Members' Representative shall attempt to make a final determination of the
Contingent Consideration payable for the Measurement Period. If Clarant's chief
financial officer and the Members' Representative do not reach agreement within
a reasonable time, either or both of them shall give notice of an impasse, in
which case they shall mutually agree on an independent accounting firm to review
the Contingent Consideration Notice (and related information) to determine the
amount of the Contingent Consideration. In the event that Clarant's chief
financial officer and the Members' Representative cannot agree on an independent
accounting firm, Arthur Andersen shall select such independent accounting firm.
The determination of such independent accounting firm shall be final and binding
on the parties hereto and promptly upon such determination Clarant shall direct
[Clarant's Bank] to deliver the Contingent Consideration to the Member(s). The
costs of the independent accounting firm shall be borne by the party whose
determination of the Contingent Consideration was furthest from the
determination of the independent accounting firm, or equally by the parties in
the event that the determination by the independent accounting firm is
<PAGE>
equidistant between the Contingent Consideration as calculated by Clarant and
the Members' Representative.
(f) Any adjustments to the Contingent Consideration required to be
made as a result of the process described in paragraph (e) shall be made in
either cash or Clarant Common Stock, notwithstanding any other limitations
contained herein to the contrary.
(g) The amounts payable as Contingent Consideration shall be
deemed to include interest, if any, that would be imputed under the Code. No
additional payments shall be made to the Members for such imputed interest.
(h) The right to receive the Contingent Consideration shall not be
assignable by the Members.
(i) It is understood and agreed by all parties hereto that only
members of the Company as of the Effective Time who qualify as Accredited
Holders may receive Clarant Common Stock as part of the Contingent
Consideration.
(j) The parties acknowledge that Clarant intends to integrate the
businesses of the Founding Companies and implement policies applicable to
Clarant and its subsidiaries as a whole after the Closing Date. In integrating
the Founding Companies and implementing such policies, Clarant shall not take
any action intended to prejudice the Members' rights with respect to the
Contingent Consideration (or the Additional Contingent Consideration). In the
event that Clarant merges, consolidates, reorganizes, restructures or disposes
of a material portion of the assets of, or takes any similar action with respect
to, any one or more of the Founding Companies, Clarant shall maintain sufficient
records and recordkeeping procedures as is commercially practicable and
reasonably necessary to calculate the amount of Contingent Consideration and the
Additional Contingent Consideration payable to the Members in accordance with
the Agreement and the terms set forth in this EXHIBIT 3.3 or Section 3.4, as the
case may be.
(k) For purposes of calculating the Contingent Consideration during the
first Measurement Period, the Company's Actual Pre-tax Income shall be increased
by ten percent (10%) of any revenues of any one of the Other Founding Companies
from any Referred Work. The term "Referred Work" means work relating to a
project obtained from a client by the Company that the Company requests Clarant
to assign to one of the Other Founding Companies and which assignment request is
approved by Mr. Marmol (or an officer of Clarant designated by Mr. Marmol)
according to procedures established by Clarant.
<PAGE>
EXHIBIT 10.10
EXECUTION COPY
AGREEMENT AND PLAN OF ORGANIZATION
by and among
CLARANT, INC.,
RSI I ACQUISITION CORP.,
RSI GROUP, INC.,
RESOURCE SOLUTIONS INTERNATIONAL, LLC
and
CHARLES HARRISON,
CAROLYN BROWN
and
BRUCE D. GRANT
Dated: June 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. THE MERGER...............................................................................................2
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER.......................................................2
1.2 EFFECTIVE TIME..................................................................................2
1.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF SURVIVING
CORPORATION.....................................................................................2
1.4 EFFECT OF MERGER................................................................................3
2. CONVERSION OF STOCK, CONVERTIBLE SECURITIES AND OPTIONS..................................................4
2.1 MANNER OF CONVERSION............................................................................4
3. DELIVERY OF MERGER CONSIDERATION.........................................................................5
3.1 TENDER OF CONSIDERATION.........................................................................5
3.2 TENDER OF COMPANY STOCK.........................................................................5
3.3 EARNOUT.........................................................................................5
4. PRECLOSING AND CLOSING...................................................................................6
4.1 PRECLOSING......................................................................................6
4.2 CLOSING.........................................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
STOCKHOLDERS.............................................................................................6
5.1 DUE ORGANIZATION................................................................................7
5.2 AUTHORIZATION...................................................................................7
5.3 CAPITAL STOCK OF THE COMPANY AND THE SUBSIDIARY.................................................8
5.4 AUTHORITY; NO CONFLICT..........................................................................8
5.5 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. ........................................9
5.6 [Reserved]......................................................................................9
5.7 SUBSIDIARIES....................................................................................9
5.8 PREDECESSOR STATUS; ETC.........................................................................9
5.9 SPINOFF BY THE COMPANY..........................................................................9
5.10 FINANCIAL STATEMENTS...........................................................................10
5.11 LIABILITIES AND OBLIGATIONS....................................................................10
5.12 ACCOUNTS AND NOTES RECEIVABLE..................................................................10
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY........................................................11
5.14 TRADEMARKS.....................................................................................11
5.15 LITIGATION AND LEGAL PROCEEDINGS...............................................................12
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.......................................................13
5.17 EMPLOYEE BENEFITS..............................................................................14
5.18 INSURANCE POLICIES.............................................................................18
i
<PAGE>
5.19 ENVIRONMENT....................................................................................20
5.20 LABOR AND EMPLOYMENT MATTERS...................................................................21
5.21 PERSONAL PROPERTY..............................................................................22
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS......................................22
5.23 REAL PROPERTY..................................................................................24
5.24 TAXES..........................................................................................27
5.25 BUSINESS CONDUCT...............................................................................30
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY...........................................................32
5.28 RELATIONS WITH GOVERNMENTS.....................................................................32
5.29 DISCLOSURE.....................................................................................32
5.31 AFFILIATE TRANSACTIONS.........................................................................34
5.32 MISREPRESENTATION..............................................................................34
5.33 BROKERS........................................................................................34
5.34 AUTHORITY; OWNERSHIP...........................................................................35
5.35 PREEMPTIVE RIGHTS..............................................................................35
5.36 NO INTENTION TO DISPOSE OF CLARANT STOCK.......................................................35
5.37 TENDER.........................................................................................35
5.38 INVESTOR QUESTIONNAIRES........................................................................35
6. REPRESENTATIONS OF CLARANT AND NEWCO....................................................................35
6.1 DUE ORGANIZATION...............................................................................35
6.2 AUTHORIZATION..................................................................................36
6.3 TRANSACTION NOT A BREACH.......................................................................36
6.4 MISREPRESENTATION..............................................................................36
6.5 CAPITAL STOCK..................................................................................36
6.6 SUBSIDIARIES...................................................................................37
6.7 LIABILITIES AND OBLIGATIONS....................................................................37
6.8 CONFORMITY WITH LAW; LITIGATION................................................................37
6.9 VALIDITY OF OBLIGATIONS........................................................................37
6.10 CLARANT COMMON STOCK...........................................................................37
6.11 NO SIDE AGREEMENTS.............................................................................38
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS...................................................38
6.13 NO VIOLATIONS..................................................................................38
6.14 ABSENCE OF CHARGES.............................................................................38
6.15 TAXES..........................................................................................39
7. COVENANTS PRIOR TO CLOSING..............................................................................40
7.1 ACCESS AND COOPERATION; DUE DILIGENCE..........................................................40
7.2 CONDUCT OF BUSINESS PENDING CLOSING............................................................40
7.3 PROHIBITED ACTIVITIES..........................................................................41
7.4 NO SHOP........................................................................................43
7.5 NOTICE TO BARGAINING AGENTS....................................................................43
ii
<PAGE>
7.6 AGREEMENTS.....................................................................................43
7.7 NOTIFICATION OF CERTAIN MATTERS................................................................44
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT...........................................44
7.9 FINAL FINANCIAL STATEMENTS.....................................................................45
7.10 FURTHER ASSURANCES.............................................................................45
7.11 AMENDMENT OF SCHEDULES.........................................................................45
7.12 THIRD PARTY APPROVALS..........................................................................46
7.13 HSR FILING.....................................................................................46
7.14 AUTHORIZED CAPITAL STOCK.......................................................................47
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND
THE COMPANY.............................................................................................47
8.1 REPRESENTATIONS AND WARRANTIES.................................................................47
8.2 PERFORMANCE OF OBLIGATIONS.....................................................................47
8.3 NO LITIGATION..................................................................................47
8.4 OPINION OF COUNSEL.............................................................................47
8.5 REGISTRATION STATEMENT.........................................................................48
8.6 CONSENTS AND APPROVALS.........................................................................48
8.7 GOOD STANDING CERTIFICATES.....................................................................48
8.8 SECRETARY'S CERTIFICATE........................................................................48
8.9 HSR ACT........................................................................................48
8.10 CLOSING OF THE IPO.............................................................................48
8.11 EMPLOYMENT AGREEMENTS..........................................................................48
8.12 LISTING........................................................................................49
8.13 TAX OPINION....................................................................................49
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT AND NEWCO................................................49
9.1 REPRESENTATIONS AND WARRANTIES.................................................................49
9.2 PERFORMANCE OF OBLIGATIONS.....................................................................49
9.3 NO LITIGATION..................................................................................50
9.4 COMPANY AND STOCKHOLDER REPRESENTATIONS........................................................50
9.5 NO MATERIAL ADVERSE EFFECT.....................................................................50
9.6 TERMINATION OF RELATED PARTY AGREEMENTS........................................................50
9.7 OPINION OF COUNSEL.............................................................................50
9.8 CONSENTS AND APPROVALS.........................................................................50
9.9 GOOD STANDING CERTIFICATES.....................................................................50
9.10 REGISTRATION STATEMENT.........................................................................51
9.11 EMPLOYMENT AGREEMENTS..........................................................................51
9.12 CLOSING OF IPO.................................................................................51
9.13 FIRPTA CERTIFICATE.............................................................................51
9.14 [Reserved].....................................................................................51
9.15 SATISFACTION...................................................................................51
iii
<PAGE>
9.16 HSR ACT........................................................................................51
9.17 INVESTOR QUESTIONNAIRE.........................................................................51
9.18 THE STOCKHOLDERS' RELEASE......................................................................51
10. COVENANTS OF CLARANT AND THE STOCKHOLDERS AFTER CLOSING.................................................51
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT...................................................51
10.2 TAX MATTERS....................................................................................52
10.3 DIRECTORS AND OFFICERS.........................................................................53
10.4 DIRECTORS' AND OFFICERS' INSURANCE.............................................................53
10.5 LOAN GUARANTIES................................................................................53
11. INDEMNIFICATION.........................................................................................53
11.1 INDEMNIFICATION BY STOCKHOLDERS................................................................53
11.2 INDEMNIFICATION BY CLARANT.....................................................................54
11.3 INDEMNIFICATION PROCEDURE THIRD PARTY CLAIMS...................................................55
11.4 TAX CONTESTS...................................................................................57
11.5 INDEMNIFICATION PROCEDURE OTHER CLAIMS........................................................58
11.6 FAILURE TO GIVE TIMELY NOTICE..................................................................58
11.7 REDUCTION OF LOSS..............................................................................58
11.8 SUBROGATION....................................................................................58
11.9 ARBITRATION....................................................................................58
11.10 EXCLUSIVE REMEDY...............................................................................59
11.11 LIMITATION AND EXPIRATION. ....................................................................59
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. .........................................61
12. TERMINATION OF AGREEMENT................................................................................61
12.1 TERMINATION....................................................................................61
12.2 LIABILITIES IN EVENT OF TERMINATION............................................................61
13. NONCOMPETITION..........................................................................................61
13.1 PROHIBITED ACTIVITIES..........................................................................61
13.2 DAMAGES........................................................................................62
13.3 REASONABLE RESTRAINT...........................................................................63
13.4 SEVERABILITY; REFORMATION......................................................................63
13.5 INDEPENDENT COVENANT...........................................................................63
13.6 MATERIALITY....................................................................................63
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................64
14.1 STOCKHOLDERS...................................................................................64
14.2 CLARANT AND NEWCO..............................................................................64
14.3 DAMAGES........................................................................................65
14.4 SURVIVAL.......................................................................................65
iv
<PAGE>
15. TRANSFER RESTRICTIONS...................................................................................65
15.1 TRANSFER RESTRICTIONS..........................................................................65
16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................66
16.1 NONREGISTRATION OF CLARANT COMMON STOCK........................................................66
16.2 COMPLIANCE WITH LAW............................................................................66
16.3 ECONOMIC RISK; SOPHISTICATION..................................................................67
17. REGISTRATION RIGHTS.....................................................................................67
17.1 PIGGYBACK REGISTRATION RIGHTS..................................................................67
17.2 REGISTRATION PROCEDURES........................................................................68
17.3 UNDERWRITING AGREEMENT.........................................................................68
17.4 AVAILABILITY OF RULE 144.......................................................................68
17.5 MARKET STANDOFF................................................................................68
18. DEFINITIONS....................................................................................69
19. GENERAL.................................................................................................77
19.1 COOPERATION....................................................................................77
19.2 SUCCESSORS AND ASSIGNS.........................................................................77
19.3 ENTIRE AGREEMENT...............................................................................77
19.4 COUNTERPARTS...................................................................................78
19.5 EXPENSES.......................................................................................78
19.6 NOTICES........................................................................................79
19.7 GOVERNING LAW..................................................................................80
19.8 EXERCISE OF RIGHTS AND REMEDIES................................................................80
19.9 TIME...........................................................................................80
19.10 REFORMATION AND SEVERABILITY...................................................................80
19.11 STOCKHOLDERS' REPRESENTATIVE...................................................................80
19.12 CAPTIONS.......................................................................................81
19.13 SURVIVAL.......................................................................................81
19.14 ACCOUNTING TERMS...............................................................................81
</TABLE>
v
<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
EXHIBIT 1.1 Articles of Merger
EXHIBIT 1.3 Surviving Corporation Charter Documents
EXHIBIT 2.1(a) Consideration
EXHIBIT 3.3 Contingent Consideration
EXHIBIT 5.2 Member and Manager Approvals
EXHIBIT 5.29(a) Directors and Officers Questionnaire
EXHIBIT 5.29(b) Investor Questionnaires
EXHIBIT 6.1 Clarant Charter Documents
EXHIBIT 8.11 Form of Employment Agreement
EXHIBIT 18 Knowledge
EXHIBIT 19.6 Stockholders' Addresses and Counsel/Wire Instructions
SCHEDULE 5.1 Charter Documents and Officers and Directors of the Company and
the Subsidiary
SCHEDULE 5.3 Capital Structure of the Company
SCHEDULE 5.4 Consents
SCHEDULE 5.8 Predecessor Status
SCHEDULE 5.10 Financial Statements
SCHEDULE 5.11 Liabilities and Obligations
SCHEDULE 5.12 Accounts Receivable
SCHEDULE 5.13 Intellectual Property
SCHEDULE 5.14 Trademarks
SCHEDULE 5.15 Litigation
SCHEDULE 5.16 Compliance with Laws/Permits
SCHEDULE 5.17 Company Plans
SCHEDULE 5.18 Insurance
SCHEDULE 5.19 Environmental
SCHEDULE 5.20 Employees
SCHEDULE 5.21 Personal Property
SCHEDULE 5.22 Material Contracts
SCHEDULE 5.23 Real Property
SCHEDULE 5.24(g) List of Tax Returns
SCHEDULE 5.24(q) Tax Elections
SCHEDULE 5.24(w) Qualified Subchapter S Subsidiaries
SCHEDULE 5.25 Business Conduct
SCHEDULE 5.26 Deposit Accounts/Powers of Attorney
SCHEDULE 5.27 Y2K
SCHEDULE 5.30 Warranties
SCHEDULE 5.31 Affiliate Transactions
vi
<PAGE>
SCHEDULE 6.5 Clarant Securities
SCHEDULE 6.7 Liabilities & Obligations
SCHEDULE 6.8 Conformity with Law
SCHEDULE 6.9 Litigation
SCHEDULE 6.12 Property
SCHEDULE 6.13 Consents
SCHEDULE 9.11 Employment Agreements
SCHEDULE 10.4 D&O Insurance
SCHEDULE 11.1(f) Additional Indemnification Matters
SCHEDULE 18.1 Registration Statement
</TABLE>
vii
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as
of June 1, 1999, by and among CLARANT, INC., a Delaware corporation ("Clarant"),
RSI I ACQUISITION CORP., a Texas corporation ("Newco"), RSI GROUP, INC., a Texas
corporation (the "Company") RESOURCE SOLUTIONS INTERNATIONAL, LLC, a Texas
limited liability company ("the Subsidiary"), and CHARLES HARRISON, CAROLYN
BROWN, and BRUCE D. GRANT (each individually a "Stockholder" and collectively,
the "Stockholders").
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Texas, having been incorporated on May 3, 1999, solely for
the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of Clarant;
WHEREAS, the Company provides is in the business of providing
professional data processing services to businesses wishing to market through
the Internet (the "Business");
WHEREAS, the respective Boards of Directors of Newco and the Company
and the members of the Subsidiary (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
and/or members that Newco merge with and into the Company pursuant to this
Agreement and the applicable provisions of the laws of the State of Texas (the
"Merger"), and in furtherance thereof have approved the Merger; and, as
applicable, have recommended approval of the Merger to their constituent
stockholders;
WHEREAS, the Stockholders of the Company and the members of the
Subsidiary have unanimously approved the Merger;
WHEREAS, Bruce D. Grant, as the owner of twenty percent (20%) of the
membership interests of the Subsidiary (the "Grant Interest"), and Clarant
desire, simultaneously with the consummation of the Merger, to have Bruce D.
Grant contribute all of the Grant Interest to Clarant in exchange for Clarant
Common Stock and cash;
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, the Subsidiary desires to join in this Agreement for the
purposes of making certain representations, warranties and covenants to Clarant
relating to the transactions contemplated by this Agreement;
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WHEREAS, Clarant plans to enter into other separate agreements
substantially similar to this Agreement (the "Other Agreements") with Align
Solutions Corp., Young & Rubicam, Inc., Free Range Media, Inc., Interactive8,
Inc., Integrated Consulting, Inc., Multimedia Resources, LLC, and Potomac
Partners Management Consulting, LLC (collectively, the "Other Founding
Companies" and together with the Company, the "Founding Companies"), and their
respective principal owners in order to acquire additional Internet consulting
organizations.
WHEREAS, this Agreement and the Other Agreements constitute the
"Clarant Plan of Organization";
WHEREAS, the Boards of Directors of Clarant and the Company and the
members of the Subsidiary have approved and adopted the Clarant Plan of
Organization as an integrated plan to transfer the capital stock as membership
interests, as the case may be, 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 Texas and stamped receipt copies of each such
filing to be delivered to Clarant on or before the Closing Date.
1.2 EFFECTIVE TIME. At the Effective Time and subject to the terms and
conditions of this Merger and the applicable provisions of the applicable laws
governing mergers in the State of Texas (the "State Corporation Law"), Newco
shall be merged with and into the Company in accordance with the Articles of
Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. At the Effective Time, the effect of the
Merger otherwise shall be as provided in the applicable provisions of the State
Corporation Law.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time:
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(a) the Articles of Incorporation of the Surviving Corporation
shall be amended and restated as permitted under the laws of the State of Texas
and shall read substantially in the form attached hereto as EXHIBIT 1.3;
(b) the By-laws of Newco then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
(c) Guillermo G. Marmol, the Chief Executive Officer of
Clarant ("Mr. Marmol") 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) Mr. Marmol shall be the President and Chief Executive
Officer of the Surviving Company. The President of the Company, or the
Subsidiary, immediately prior to the Effective Time shall be a Vice President of
the Surviving Company and the other officers of the Company, except for Mr.
Harrison and Ms. Brown, 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 Company 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.
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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 shall be divided into two classes: (A) the first
class being Stockholders 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 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 or membership interests as the case may be, of the Constituent
Corporations shall be automatically canceled, extinguished and converted or
otherwise treated as follows:
(i) each share of issued and outstanding Company
Stock owned by an Accredited Stockholder immediately prior to the Effective Time
shall be converted into the right to receive (A) that number of shares of
Clarant Common Stock as set forth on EXHIBIT 2.1(a), and (B) the amount of cash
as set forth on EXHIBIT 2.1(a);
(ii) each share of issued and outstanding Company
Stock owned by an Non-accredited Stockholder immediately prior to the Effective
Time shall be converted into the right to receive the amount of cash as 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 evidence ownership of the shares of capital stock of
the Surviving Corporation converted pursuant to this Agreement.
(v) each issued and outstanding membership interest
of the Subsidiary shall continue to be issued and outstanding without change,
except that Clarant shall become the owner of the Grant Interest.
(b) [Reserved]
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(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 TENDER OF CONSIDERATION. At the Closing Clarant shall deliver to
the Stockholders the consideration allocable pro rata to each Stockholder (the
"Merger Consideration") as follows:
(a) upon the surrender by each of the Stockholders 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 account listed on EXHIBIT 19.6.
3.2 TENDER OF COMPANY STOCK. The Stockholders shall deliver in trust to
Wilmer, Cutler & Pickering, 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.
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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 Stockholder on a pro rata basis. 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 shall be declared effective by the Securities
and Exchange Commission (the "Pre-Closing Date") at the offices of Wilmer,
Cutler & Pickering, 2445 M Street, N.W., Washington, D.C. 20037.
4.2 CLOSING. On the Closing Date: (a) the Merger Documents shall be or
shall have been filed with the appropriate state authorities so that they shall
be or, as of 8:00 a.m. New York City time on the Closing Date, shall become
effective and the Merger shall thereby be effected, (b) all transactions
contemplated by this Agreement, including the delivery of Clarant Common Stock
and Company Stock, as the case may be, the transmission of funds by wire in an
amount equal to the cash portion of the consideration to be paid according to
EXHIBIT 2.1(a), and (c) all conditions to closing as set forth in Articles 8 and
9 of this Agreement shall have been satisfied. The date on which the actions
described in this Section 4.2 occur shall be referred to as the "Closing Date."
This Agreement shall terminate if the Closing Date has not occurred within
fifteen (15) business days of the Pre-Closing Date. Time is of the essence. The
"Effective Time" shall be the same date as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS
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(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
The Company, the Subsidiary 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. Each of the Company and the Subsidiary 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. Each of the Company and the Subsidiary 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 and the
Subsidiary (the "Charter Documents") are all attached to SCHEDULE 5.1. Neither
the Company nor the Subsidiary is 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 each of the Company and the Subsidiary,
which are dated no earlier than ten (10) business days prior to the date hereof,
affirm and ratify all prior acts of each of the Company and the Subsidiary and
of its officers and directors on behalf of the Company and the Subsidiary in
respect of the transactions contemplated hereby. SCHEDULE 5.1 contains a
complete and accurate list of the directors and officers of the Company and the
Subsidiary.
5.2 AUTHORIZATION. The officers of each of the Company and the
Subsidiary executing this Agreement are duly authorized to execute and deliver
this Agreement and to perform the obligations hereunder. The execution and
delivery of this Agreement by the Company and the Subsidiary and performance by
the Company and the Subsidiary of their obligations under this Agreement and the
consummation by the Company and the Subsidiary 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, the
Subsidiary the Stockholders of the Company and the members of the Subsidiary and
copies of the respective approvals of the board of directors and the
Stockholders of the Company and the members of the Subsidiary (certified by the
Secretary of the Company to be true, accurate and complete) are
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attached hereto as EXHIBIT.5.2. This Agreement constitutes the valid and binding
obligations of the Company and the Stockholders, enforceable against the
Company, the Subsidiary and the Stockholders 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 AND THE SUBSIDIARY. The respective
designations and numbers of outstanding shares and voting rights of each class
of outstanding capital stock or membership interests, as the case may be, and
securities convertible, exercisable or redeemable for capital stock or
membership interests, as the case may be, (collectively, "Convertible
Securities"), or rights, warrants, puts, calls or options relating to capital
stock or membership interests, as the case may be, (collectively, "Options") of
the Company and of the Subsidiary as of the date of this Agreement are as set
forth on SCHEDULE 5.3 hereto. The Company and the Subsidiary have no issued and
outstanding Convertible Securities or Options. All of the issued and outstanding
shares of capital stock of the Company and membership interests of the
Subsidiary are owned by the Persons listed on SCHEDULE 5.3 and in the amounts
set forth thereon, and, except as set forth on SCHEDULE 5.3, 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 membership interest in the
Subsidiary. All of the issued and outstanding shares of capital stock of the
Company and membership interests of the Subsidiary 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 or the Subsidiary, as the case may be in compliance with all
applicable state and Federal securities laws concerning the offering and sale or
grant of securities, and a complete list of the Company's stockholders and the
Subsidiary's members and their respective holdings of Company Stock and
membership interests in the Subsidiary are set forth on SCHEDULE 5.3. Set forth
on SCHEDULE 5.3 is a complete list of all the Subsidiary's and 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, the
Subsidiary and the Stockholders, there are no breaches or defaults by the
Company, the Subsidiary or the Stockholders under any of the Company's or the
Subsidiary'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;
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(b) violate, conflict with or constitute a default under any
of the Charter Documents of the Company or the 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 the 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 or the Subsidiary to issue any of
its authorized but unissued capital stock or its treasury stock; and (b) neither
the Company nor the Subsidiary has any obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its Company Stock, Convertible
Securities or Options, the membership interests or any interests therein or to
pay any dividend or make any distribution in respect thereof.
5.6 [Reserved]
5.7 SUBSIDIARIES. The sole subsidiary of the company is the Subsidiary.
Neither the Company nor the Subsidiary 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 (other than the Subsidiary) nor is the Company or the
Subsidiary, directly or indirectly, a participant in any joint venture,
partnership, limited liability company or other non-corporate entity. The
Subsidiary has no subsidiaries.
5.8 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 5.8 is a list of all
names of all predecessor companies of the Company and the Subsidiary, including
the names of any entities acquired by the Company (by stock purchase, merger or
otherwise) or owned by the Company or from which the Company previously acquired
material assets. Except as disclosed on SCHEDULE 5.8, the Company has not been a
subsidiary or division of another company or a part of an acquisition that was
later rescinded.
5.9 SPIN-OFF BY THE COMPANY. There has not been any sale, spin-off, or
split-up of material properties or assets of either the Company, the Subsidiary
or any other person or entity
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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 and the
Subsidiary have 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 periods
ended March 31, 1999.
(b) Each of the Financial Statements fairly presents the
Company's consolidated financial condition, assets and liabilities as of their
respective dates and the results of operations and cash flows for the periods
related thereto in accordance with GAAP, consistently applied among the periods
which are the subject of the Financial Statements, except 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 and the Subsidiary have
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 which are not reflected on the Balance Sheet at the Balance Sheet Date
or otherwise reflected in the Company Financial Statements at the Balance Sheet
Date, (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
the Subsidiary is a party. Except as set forth on SCHEDULE 5.11, since the
Balance Sheet Date, neither the Company nor the 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 and the Subsidiary have
delivered to Clarant an accurate list (which is set forth on SCHEDULE 5.12) of
the accounts and notes receivable of the Company and the Subsidiary as of the
Balance Sheet Date, including any such amounts which are not reflected on the
Balance Sheet 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 and the Subsidiary shall provide Clarant (a) an accurate
list of all outstanding receivables obtained subsequent to the Balance Sheet
Date and (b) an aging of all such accounts and notes receivable showing amounts
due in 30 day aging categories (the "A/R Aging Reports"). Except to the extent
reflected on SCHEDULE 5.12 or as disclosed by the
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Company to Clarant in a writing accompanying the A/R Aging Reports, as the case
may be, the Company, the Subsidiary and the Stockholders have no reason to
believe that any such account, note or other receivable is not or shall not be,
collectible in the amounts shown on SCHEDULE 5.12 (in the case of the accounts
and notes receivable set forth on SCHEDULE 5.12, net of reserves reflected in
the balance sheet at the Balance Sheet Date) and as of the date of the A/R Aging
Reports, respectively.
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) The Company owns or licenses all Intellectual Property
necessary and desirable for the Company to conduct its business in the manner
presently conducted, and all material Intellectual Property (other than
Trademarks) owned or used by the Company and/or the Subsidiary 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, the
Subsidiary and the Company, the Company and the 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 the 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 the Subsidiary is a
party to any license agreement or arrangement, whether as licensee, licensor or
otherwise, with respect to any Intellectual Property not set forth in SCHEDULE
5.13;
(iii) [Reserved]
(iv) none of the Stockholders, or any of their
Affiliates, owns any of the Intellectual Property used by the Company or the
Subsidiary; and
(v) to the Knowledge of the Stockholders, the Company
and the Subsidiary, there is no unauthorized use, infringement or
misappropriation by any third party of any Intellectual Property owned by the
Company or the Subsidiary.
5.14 TRADEMARKS. Except as disclosed in SCHEDULE 5.14:
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(a) all trademarks, service marks, trade dress, and trade
names (including computer software and data) ("Trademarks") used by the Company
and/or the Subsidiary 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 the
Subsidiary, 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, the Subsidiary and the Stockholders, are not
being overtly challenged in any way;
(d) to the Knowledge of the Company, the Subsidiary and the
Stockholders, neither the Company nor the Subsidiary has infringed on is now
infringing on any Trademark of or belonging to another Person; and
(e) to the Knowledge of the Stockholders, the Subsidiary and
the Company, there is no claim pending or Threatened against the Company or the
Subsidiary 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, the
Subsidiary's or the Stockholders' Knowledge, Threatened, against the Company,
the Subsidiary or any Company Plan or any fiduciary of any such Company Plan or
to which the Company or the 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, the Company and the Subsidiary have 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;
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(iii) no litigation matter (other than workers
compensation claims) to which the Company or the Subsidiary was a party was
resolved, settled or closed during the three years preceding the date of this
Agreement;
(iv) there is no pending Proceeding that has been
commenced by or against the Company or the Subsidiary that relates to or may
materially affect the Business, and, to the Knowledge of the Stockholders, the
Subsidiary and the Company, no such Proceeding has been Threatened; and
(v) neither the Company nor the Subsidiary is subject
to any judgment, Order, or decree of any court or Governmental Authority and, to
the Knowledge of the Company, the Subsidiary and the Stockholders, none is
Threatened. Except as disclosed in SCHEDULE 5.15, neither the Company or the
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 all relevant documentation;
(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 the
Subsidiary 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 notice
of any alleged claim or threatened claim, violation of, liability or potential
responsibility under, any such Law which has not heretofore been cured and for
which there is no remaining liability other than those not having a Material
Adverse Effect.
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(b) The Company and the Subsidiary 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, the Subsidiary and
the Stockholders, the Permits listed on SCHEDULES 5.16 are valid, and neither
the Company nor the Subsidiary has received any written notice that any
Governmental Authority intends to cancel, terminate or not renew any such
Permit. The Company and the Subsidiary 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 the Subsidiary 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 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).
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"Other Benefit Obligations" means all obligations or
arrangements to provide benefits to present or former employees or directors
(other than obligations or arrangements that are Plans). Other Benefit
Obligations include (unless they are Plans) employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, sabbaticals, severance pay policies,
plant closing benefits, salary continuation for disability, consulting, or
other compensation arrangements, workers' compensation, retirement, deferred
compensation, bonus, stock option or purchase, medical insurance, life
insurance, tuition reimbursement or scholarship programs, employee discount
programs, meals, travel, or vehicle allowances, any plans subject to Section
125 of the Code, and any plans providing benefits or payments in the event of
a change of control, change in ownership or effective control, or sale of a
substantial portion of the assets of any business or portion thereof, in each
case with respect to any present or former employees or directors and
excluding any arrangements that, in the aggregate, do not reflect liability
of the Company for more than $25,000.
"Pension Plan" has the meaning given in ERISA Section
3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3),
including plans exempted by ERISA Section 4(b)(5) or excluded from coverage
under ERISA by 29 CFR Section 2510.3-3(b) as a plan covering only partners,
members, or sole properties.
"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
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(ii) SCHEDULE 5.17 contains a complete and accurate list
of all ERISA Affiliates.
(d) Stockholders have provided to Clarant all of the following
documents relating to Company Plans and Company Other Benefit
Obligations:
(i) all the documents, if any, that set forth the
terms of each Company Plan and Company Other Benefit Obligation and of any
related trust, including (1) the most recent summary plan descriptions of
Company Plans for which the Company is required to distribute summary plan
descriptions, (2) the most recent, if any, summaries and descriptions furnished
to participants and beneficiaries regarding Company Plans and Company Other
Benefit Obligations for which a summary plan description is not required (and
all forms of COBRA notices), and (3) amendments, if any, to each of the
foregoing;
(ii) all personnel and employment manuals and
policies;
(iii) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in writing and that is
listed on SCHEDULE 5.17;
(iv) the Form 5500 or 5500 C/R, if any, filed in each
of the most recent two plan years (or three, if the most recent two 5500C/Rs do
not include a 5500C) with respect to each Company Plan, including all schedules
thereto;
(v) all material notices that were given, with
respect to a Company Plan or Other Company Benefit Obligation, by the Service,
Department of Labor, or other governmental agency to the Company or any Company
Plan within the two years preceding the date of this Agreement (and any earlier
material notices relating to matters not resolved as of the date of this
Agreement); and
(vi) with respect to Qualified Plans, (I) the most
recent determination regarding qualification and, if different, the most recent
determination letter that covered the qualification of the entire plan, or (II)
if applicable, the most recent opinion letter issued by the Service with respect
to such Qualified Plan.
(e) With respect to Plans and Other Benefit Obligations:
(i) the Company has performed all of its material
obligations under all Company Plans and Company Other Benefit Obligations;
(ii) the Company, with respect to all Company Plans
and Company Other Benefit Obligations is, and each Company Plan and Company
Other Benefit Obligation is, in material compliance with ERISA, the Code,
federal and state securities laws and other
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applicable Laws and with the terms of each Company Plan and Company Other
Benefit Obligation;
(iii) no transaction prohibited by ERISA Section
406 and no "prohibited transaction" under Section 4975(c) of the Code have
occurred with respect to any Company Plan that could give rise to liability
against the Company in excess of $25,000;
(iv) the Company has no liability to the Service with
respect to any Plan that would have a Material Adverse Effect;
(v) the Company has no liability with respect to any
Plan under ERISA Section 502(i) that would have a Material Adverse Effect;
(vi) a determination letter, or, if applicable, an
opinion letter, has been issued by the Service with respect to each Qualified
Plan;
(vii) since December 31, 1998, there has been no
establishment or amendment of any Company Plan or Company Other Benefit
Obligation that would increase the liability of the Company by more than
$25,000;
(viii) other than routine claims for benefits
submitted by participants or beneficiaries, no claim against, or legal
proceeding involving, any Company Plan or Company Other Benefit Obligation is
pending or, to Stockholders' or the Company's Knowledge, is Threatened. No
Company Plans or Company Other Benefit Obligations are, to the Company's
Knowledge, presently under audit or examination (nor has notice been received of
a potential audit or examination) by the Service, the Department of Labor, or
any other governmental agency, and no matters are pending with respect to any
Company Plan under the Service's Employee Plans Compliance Resolutions System or
any successor or predecessor program;
(ix) no Company Plan or Company Other Benefit
Obligation provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service other than (1) coverage
mandated by applicable law, (2) death benefits or retirement benefits under any
Company Plan that is a Pension Plan, (3) deferred compensation benefits in the
form of cash, (4) benefits, the full cost of which is borne by the current or
former employee (or his beneficiary), or (5) insured disability benefits;
(x) no Company Plan or Company Other Benefit
Obligation contains any provision that would prohibit the transactions
contemplated by this Agreement or that would give rise to any acceleration or
vesting of benefits, severance, termination or other payments or liabilities as
a result of the transactions contemplated by this Agreement; and the Company has
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not declared or paid any bonus or incentive compensation in contemplation of the
transactions contemplated by this Agreement;
(xi) all group health plans of the Company and its
ERISA Affiliates have been operated in material compliance with the requirements
of COBRA and Section 5000 of the Code and the Health Insurance Portability and
Accountability Act.
(xii) the only Qualified Plans are the Qualified
Plans identified on SCHEDULE 5.17. The Company has never maintained or
contributed to other Qualified Plans. No Company Plan contains any security
issued by the Company or any ERISA Affiliate; each Qualified Plan of the
Company is and has always been in substantial compliance with Section 401(a)
of the Code;
(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 and the Subsidiary have made available to
Clarant:
(i) true and complete copies of all policies of
insurance to which the Company or the Subsidiary is a party or any officer or
director of the Company or the Subsidiary is or has been covered at the expense
of the Company or the Subsidiary;
(ii) true, accurate and complete copies of all
pending applications by the Company or the Subsidiary 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:
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(i) any self-insurance arrangement by or affecting
the Company and the Subsidiary, including any reserves established thereunder;
(ii) any workers' compensation schemes applicable to
the Company or the Subsidiary;
(iii) any contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk by the Company and
the Subsidiary; and
(iv) all obligations of the Company and the
Subsidiary to third parties with respect to insurance (including such
obligations under leases and service agreements).
(c) SCHEDULE 5.18 sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each
policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $50,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer,
type of insurance, and period of coverage; and
(C) the amount and a brief description of
the claim; and
(iii) a statement describing the loss experience for
all claims that were self- insured, including the number and aggregate cost of
such claims.
(d) Except as set forth in SCHEDULE 5.18:
(i) all insurance policies to which the Company or
the Subsidiary is a party or that provide coverage to Stockholders, or any
director or officer of the Company or the Subsidiary:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that the
Company and the Subsidiary believe is financially sound and reputable;
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(C) taken together, in the Company's belief,
provide adequate insurance for the properties, assets and the Business of the
Company and the Subsidiary 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 the 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 the Subsidiary;
(ii) neither the Company nor the Subsidiary has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder;
(iii) each of the Company and the Subsidiary has paid
all premiums due and has otherwise performed all of its obligations under each
policy to which the Company or the Subsidiary is a party or that provides
coverage to the Company, the Subsidiary, or director or member thereof; and
(iv) except as set forth in SCHEDULE 5.18 the Company
and the Subsidiary have given notice to the insurer of all claims that may be
insured thereby.
5.19 ENVIRONMENT.
(a) Except as set forth in SCHEDULE 5.19:
(i) the Company and the Subsidiary, and at all times
have 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 all
notices or applications required by, the Environmental Laws, the Company and the
Subsidiary possess all such Permits and has filed all such notices and
applications the absence of which would have a Material Adverse Effect on the
Company or the Subsidiary.
(b) Except as disclosed in SCHEDULE 5.19:
(i) neither the Company nor the Subsidiary has been
subject to, or received any, notice of any Action or intended Action relating to
the presence or alleged presence
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of Hazardous Materials in, under, or upon any real estate currently or formerly
owned, leased or used by (A) the Company or the Subsidiary, or (B) any other
Person with respect to Hazardous Materials disposed of by or on behalf of the
Company;
(ii) the Company, the Subsidiary 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, the Subsidiary and the Company, Threatened, Actions or
proceedings (or notice of potential actions or proceedings) from any
Governmental Authority or any other entity against or applicable to the Company
or the Subsidiary 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 the
Subsidiary's continued compliance with any Environmental Law, give rise to any
legal obligation or liability, or otherwise form the basis of any Action,
hearing or investigation against or involving the Company or the Subsidiary or
any real estate presently or previously owned or used by the Company or the
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, the Subsidiary 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 the Subsidiary.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of and service providers to the Company and
the Subsidiary:
(a) [Reserved]
(b) the Company and the Subsidiary are 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;
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(c) neither the Company nor the Subsidiary 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 or the Subsidiary 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 or the Subsidiary's employees and no collective bargaining agreement
is or had been binding against the Company. Neither the Company nor the
Subsidiary 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
or the Subsidiary;
(f) all Persons who are or were performing services for the
Company or the Subsidiary and are or were classified as independent contractors
do or did satisfy and have satisfied the requirements of law to be so
classified, and the Company and the Subsidiary 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 the 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 and the Subsidiary have 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
the 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
the Subsidiary in its business is either
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owned by the Company or any Subsidiary or leased by the Company or the
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 the 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 and the Subsidiary have 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 and the Subsidiary's annual revenues as of the Balance Sheet
Date. Except to the extent set forth on SCHEDULE 5.22, none of the Company's or
the Subsidiary'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 the Subsidiary.
(b) The Company and the Subsidiary have 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 the Subsidiary
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 the Subsidiary 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 the 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 and the Subsidiary have 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;
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(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 and the Subsidiary 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 and the Subsidiary have 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 the Subsidiary, in whole or
in part;
(vi) any contract for the cleanup, abatement or other
actions in connection with Hazardous Materials, the remediation of any existing
environmental liabilities, violation of Environmental Laws or relating to the
performance of any environmental audit or study;
(vii) any contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any material property or asset of the Business of the Company or the 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 the 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 the 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;
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(xi) any contract that prohibits the use or
publication by the Company, the Subsidiary, 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 the Subsidiary, Clarant, Newco or any Other Founding
Company; or
(xii) a governmental contract subject to price
redetermination or renegotiation.
5.23 REAL PROPERTY.
(a) SCHEDULE 5.23 contains a complete and accurate listing of
all real property owned by the Company and the Subsidiary including the street
address, legal description, property tax identification numbers of each parcel
of real property at the Balance Sheet Date and acquired since the Balance Sheet
Date (the "Real Property"). The Company and the Subsidiary have good and
insurable title to the Real Property subject to no Encumbrance, except for:
(i) liens reflected on SCHEDULE 5.11 as securing
specified liabilities (with respect to which no default by the Company or its
Subsidiary exists);
(ii) liens for current taxes not yet due and payable
and assessments not in default;
(iii) easements for utilities serving the Real
Property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County Clerks in the
jurisdictions in which the Real Property properties, assets and leasehold
estates are located which do not adversely affect the current use of the Real
Property.
(b) Except as set forth on SCHEDULE 5.23:
(i) to the Company's and the Stockholders' Knowledge,
the Company or the Subsidiary, as the case may be, has good and valid rights of
ingress and egress to and from all Real Property from and to the public street
systems for all usual street, road and utility purposes;
(ii) to the Knowledge of the Company and the
Stockholders, all structures and all structural, mechanical and other physical
systems thereof that constitute part of the Real Property, including but not
limited to the walls, roofs and structural elements thereof and the heating,
ventilation air conditioning, plumbing, electrical, mechanical, sewer, waste
water, storm water, paving and parking equipment, systems and facility included
therein, and other material items at the Real Property, are free of defects and
in good operating condition and repair (for purposes of this section, a defect
shall mean a condition relating to the structure or any
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structural, mechanical or physical system which requires an expenditure of
more than $1,000 to correct);
(iii) to the Knowledge of the Company and the
Stockholders, all water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by the
use and operation of the Real Property are installed to the property lines of
the Real Property, are connected pursuant to valid permits to municipal or
public utility services or proper drainage facilities, are fully operable and
are adequate to service the Real Property in the operation of the Business
and to permit full compliance with the requirements of all laws in the
operation of the business;
(iv) the Real Property and all present uses and
operations of the Real Property by the Company or the Subsidiary comply with all
applicable Laws, covenants, conditions, restrictions, easements, disposition
agreements and similar matters affecting the Real Property and the Company and
the Subsidiary have 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 Real Property;
(v) to the Knowledge of the Company and the
Stockholders, there are no pending or Threatened condemnation, fire, health,
safety, building, zoning or other land use regulatory proceedings, lawsuits or
administrative actions relating to any portion of the Real Property or any other
matters which do or may adversely effect the current use, occupancy or value
thereof, nor has the Company or the Subsidiary received notice of any pending or
Threatened special assessment proceedings affecting any portion of the Real
Property;
(vi) there are no parties other than the Company or
the Subsidiary in possession of any of the Real Property or any portion thereof,
and there are no leases, subleases, licenses, concessions or other agreements,
written or oral, granting to any party or parties the right of use or occupancy
of any portion of the Real Property or any portion thereof; and
(vii) all real property taxes and assessments that
are due and payable by the Company or the Subsidiary with respect to the Real
Property have been paid or will be paid at or prior to Closing.
(c) Attached to SCHEDULE 5.23 are true, complete and correct
copies of all title reports, title insurance policies and the most recent
property tax bills for each parcel of Real Property.
(d) 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
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applicable monthly rental, expiration, and renewal terms for each Lease. Except
as set forth on SCHEDULE 5.23, all Leases are in full force and effect and
constitute valid and binding agreements of the Company or its Subsidiaries and,
to the Company's and the Stockholders' Knowledge, of the parties (and their
successors) thereto in accordance with their respective terms. None of the
Leases requires the consent or approval of any party thereto in connection with
the consummation of the transactions contemplated by this Agreement.
(e) 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) owed by the Company, each Subsidiary and each
Relevant Group that are due and payable have been paid;
(c) The amount of the liability of the Company and the
Subsidiaries for unpaid Taxes as of the Balance Sheet Date did not exceed the
current liability accruals for Taxes (excluding any reserves for deferred Taxes)
set forth on the Company Financial Statements dated as of the Balance Sheet
Date. The amount of the liability of the Company and the Subsidiaries for unpaid
Taxes as of the date of any financial statements provided pursuant to Section
5.10 will not exceed the current liability accruals for Taxes (excluding any
reserves for deferred Taxes) set forth on such financial statements. The amount
of the liability of the Company and the Subsidiaries for unpaid Taxes as of the
Closing Date will not exceed the current liability accruals for Taxes (excluding
any reserves for deferred Taxes) set forth on the financial statements provided
pursuant to Section 5.10, or if there are no such financial statements, the
Company Financial Statements dated as of the Balance Sheet Date, as such
accruals are adjusted on the books and records of the Company and the
Subsidiaries through the Closing Date in accordance with past custom and
practice;
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(d) Neither the Company, any Subsidiary nor any Relevant Group
is a party or subject to any agreement extending the time within which to file
any Return. No claim has ever been made by any Taxing Authority in any
jurisdiction in which the Company or any Subsidiary does not file Returns that
it is or may be subject to taxation by that jurisdiction;
(e) The Company and each Subsidiary has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and record-keeping requirements with respect to, any
amounts paid or owing to any employee, creditor, independent contractor or other
third party;
(f) No Tax Proceedings are presently pending with regard to
any Tax Returns or Taxes of the Company, any Subsidiary or any Relevant Group,
and no notice has been received (whether in writing or verbally) of the expected
commencement of a Tax Proceeding. No issues have been raised in any audit or
examination by or with respect to the Company, any Subsidiary or any member of
any Relevant Group which, by application of similar principles, could reasonably
be expected to result in a proposed deficiency for any other period not so
examined;
(g) SCHEDULE 5.24(g) attached hereto lists all material
federal, state, local and foreign income and franchise Tax Returns filed by or
with respect to the Company, each Subsidiary and each Relevant Group for all
Taxable Periods ended on or after January 1, 1991. With respect to each Return,
SCHEDULE 5.24(g) indicates whether the Return that has been examined and closed,
is presently subject to examination or is a Return with respect to which the
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired. The Stockholders have made available to Clarant complete
and correct copies of all federal, state, local and foreign income and franchise
Tax Returns filed by or with respect to, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, the Company, each
Company Subsidiary and each Relevant Group since January 1, 1991;
(h) Neither the Company nor any Subsidiary nor any Relevant
Group has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency;
(i) Neither the Company nor any Subsidiary has made any
payments, is obligated to make any payments or is a party to any agreement that
could require it to make any payments that are not deductible pursuant to
Section 280G of the Code;
(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);
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(k) None of the assets owned or used by the Company or any
Subsidiary constitutes tax exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code. Neither the Company nor
any Subsidiary is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax Reform
Act of 1986, or to any "long term contract" within the meaning of Section 460 of
the Code;
(l) Neither the Company nor any Subsidiary has disposed of any
property in a transaction being accounted for under the installment method
pursuant to Section 453 of the Code;
(m) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code or comparable
provisions of any state statutes, and none of the assets of the Company or any
Subsidiary is subject to an election under Section 341(f) of the Code or
comparable provisions of any state statutes;
(n) Neither the Company nor any Subsidiary is a party to any
joint venture or partnership other than with respect to the fact that the
Subsidiary is a limited liability company;
(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, (5) any material change in method of accounting, and (6) net
operating and loss limitations as a result of any member leaving a consolidated
group;
(r) There are no liens or other encumbrances on any of the
assets of the Company or any Subsidiary relating or attributable to Taxes (other
than liens for Taxes not yet delinquent);
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(s) The Company is not an investment company as defined in
Section 351(e)(1) of the Code;
(t) None of the Stockholders is a party to or bound by any
agreement or arrangement pursuant to which such Stockholder will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by such
Stockholder pursuant to this Agreement;
(u) None of the Stockholders is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code.
(v) The Company (and any predecessor of the Company) has been
a validly electing S corporation within the meaning of Code ss.ss.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 ss.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 the Subsidiary have conducted the Business
only in the Ordinary Course of Business and have incurred no liabilities other
than in the Ordinary Course of Business. Except as forth on SCHEDULE 5.25, since
the Balance Sheet Date, there has not been any:
(a) change in the Company's or the Subsidiary's business,
operations, financial condition, operating results, assets or liabilities that
would have a Material Adverse Effect on the Company or the Subsidiary;
(b) damage, destruction or loss of any real or personal
property or assets owned or leased by the Company or the 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 the 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;
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(e) material loan or advance by the Company or the Subsidiary
to any party other than sales to customers on credit or travel advances to
employees made in the Ordinary Course of Business;
(f) notice (formal or otherwise) of any material liability,
potential liability or claimed liability relating to the Environment;
(g) declaration, setting aside, or payment of any dividend or
other distribution in respect to the Company's capital stock, Convertible
Securities or Options, any direct or indirect redemption, purchase, or other
acquisition of such stock, or the payment of principal or interest on any note,
bond, debt instrument or debt other than as required to be paid under the terms
of such instrument;
(h) incurrence of debts, liabilities or obligations (except
current liabilities incurred in connection with or for services rendered or
goods supplied in the Ordinary Course of Business, liabilities on account of
Taxes and governmental charges (but not penalties, interest or fines in respect
thereof), and obligations or liabilities incurred by virtue of the execution of
this Agreement);
(i) issuance by the Company or the 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 the
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 the 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 the Subsidiary of any
properties or assets other than in the Ordinary Course of Business;
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(p) capital expenditures or commitments therefor by the
Company or the 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 the
Subsidiary in excess of $25,000 in the aggregate;
(r) mortgage, pledge or other encumbrance of any property or
asset of the Company or the 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 the 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 the Subsidiary and a description of the terms of such power
of attorney.
5.27 YEAR 2000 COMPLIANCE. The Company and the Subsidiary have
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
and the Subsidiary'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 or the Subsidiary could have a
Material Adverse Effect, are or will be Year 2000 Compliant before December 31,
1999.
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5.28 RELATIONS WITH GOVERNMENTS. Neither the Company nor the Subsidiary
has made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause the Company or the 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 the Subsidiary 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 the Subsidiary (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, the Subsidiary or on
behalf of the Company, the Subsidiary 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, the Subsidiary 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 Subsidiary, the Stockholders or any other
Person affiliated or associated with the Company or the Subsidiary 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
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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, the
Subsidiary and the Stockholders retain the right to require as a condition to
Closing that the price of Clarant Common Stock sold in the IPO be no lower than
the minimum price specified on EXHIBIT 5.29(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 or
the Subsidiary 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 or the Subsidiary's product or service warranties, (ii) to the
Knowledge of the Company and the Subsidiary, 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 or the Subsidiary's
product warranties in excess of the liabilities and obligations incurred by the
Company or the Subsidiary, 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 or the Subsidiary, including, without
limitation, any software programming that would cause the products or services
delivered by the Company or the Subsidiary 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 the
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 or the
Subsidiary ("Affiliate Transactions") during the period commencing January 1,
1996, through the date hereof and (b) any existing commitments of the Company or
the 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, the
Subsidiary 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, the Subsidiary nor the Stockholders
have any liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect
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to the transactions contemplated by this Agreement for which Clarant, Newco or
the Surviving Corporation could become liable or obligated.
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder severally represents and warrants to Clarant and Newco
that the representations and warranties set forth in this Section 5(B) are true,
accurate and complete as of the date of this Agreement and, shall be true,
accurate and complete at the time of the Pre-Closing and on the Closing Date,
and, subject to Section 7.11, that the representations and warranties set forth
in Sections 5.34, 5.35 and 5.36 shall survive the Closing Date as provided in
Article 11:
5.34 AUTHORITY; OWNERSHIP. Such 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 form is true complete and accurate in all material
respects.
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6. REPRESENTATIONS OF CLARANT AND NEWCO
Clarant and Newco jointly and severally represent and warrant to the
Stockholders that all of the following representations and warranties in this
Article 6 are true, accurate and complete at the date of this Agreement and
shall be true, accurate and complete at the time of the Pre-Closing and on the
Closing Date, 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 authorized and
outstanding Clarant Stock, Convertible Securities
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and Options as of the date of this Agreement. As of the date of this Agreement,
one hundred percent of the issued and outstanding capital stock of Newco is
owned by Clarant. Except as part of the IPO that will take place on the Closing
Date as contemplated by this Agreement and the Other Agreements and as disclosed
in the Registration Statement, there are no outstanding options, rights
(preemptive or otherwise), warrants, calls, convertible securities or
commitments or any other arrangements to which Clarant is a party requiring
issuance, sale or transfer of any equity securities of Clarant or any securities
convertible directly or indirectly into equity securities of Clarant, or
evidencing the right to subscribe for any equity securities of Clarant, or
giving any Person other than the Founding Companies any rights with respect to
the capital stock of Clarant. At the Effective Time, Clarant shall have
outstanding only one class of capital stock (the Clarant Common Stock, and the
shares of Clarant Common Stock issued on the Closing Date pursuant to this
Agreement and the Other Agreements and to Persons who purchase shares in the IPO
will in the aggregate possess at least 80% of the total voting power of the
Clarant Common Stock that is entitled to vote and is outstanding as of the
Closing Date (after taking into account the dilution of the holdings of Clarant
Common Stock of the current Clarant stockholders). Except as will be disclosed
in the Registration Statement and as of the Closing Date, there are no voting
agreements, voting trusts, other agreements (including cumulative voting
rights), commitments or understandings with respect to the capital stock of
Clarant.
6.6 SUBSIDIARIES. Clarant has no subsidiaries except for the companies
identified as "ACQUISITION CORP." in the Other Agreements. Except as disclosed
in the Registration Statement, Clarant does not currently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and Clarant, directly or indirectly, is not a
participant in any joint venture, partnership or other non-corporate entity.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on SCHEDULE 6.7 or
disclosed in the Registration Statement, Clarant has no material liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement and the Other Agreements and except for fees incurred in connection
with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
SCHEDULE 6.8 or disclosed in the Registration Statement, Clarant is not in
violation of any Law or Order of any Governmental Authority having jurisdiction
over it which would have a Material Adverse Effect on Clarant; and except to the
extent set forth in SCHEDULE 6.9, there are no material Actions pending or, to
the Knowledge of Clarant, threatened, against or affecting Clarant, or before or
by any Governmental Authority having jurisdiction over it and no written notice
of any Action has been received by Clarant. Clarant has conducted and is
conducting its businesses in substantial compliance with applicable Laws and is
not in violation of any of the foregoing which might have a Material Adverse
Effect on Clarant.
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6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by Clarant and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of Clarant and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of Clarant.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof, the Clarant
Common Stock to be delivered to the Stockholders pursuant to this Agreement will
constitute valid and legally issued shares of Clarant, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Article 15 hereof, will be identical in all substantive respects (which do not
include the form of certificate upon which it is printed or the presence or
absence of a CUSIP number on any such certificate) to the Clarant Common Stock
issued and outstanding as of the date hereof. The shares of Clarant Common Stock
to be issued to the Stockholders pursuant to this Agreement will not be
registered under the 1933 Act, except as provided in Article 17 hereof.
6.11 NO SIDE AGREEMENTS, Except as may be disclosed in the Registration
Statement, Clarant has not entered or, as of the Effective Time, 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 on August 21, 1998, and has conducted limited operations since that
time. Clarant has not conducted any material business since the date of its
inception, except in connection with this Agreement, the Other Agreements and
the IPO. Clarant does not own and has not at any time owned any real property or
any material personal property and is not a party to any other material
agreement, except as listed on SCHEDULE 6.12 and except that Clarant is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be disclosed in, or filed as exhibits to, the Registration
Statement.
6.13 NO VIOLATIONS. Clarant is not in violation of any Clarant Charter
Document. None of Clarant, or, to the Knowledge of Clarant, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which Clarant is a party, or by which Clarant or any of its
properties, are bound (collectively, the "Clarant Documents"). The rights and
benefits of Clarant under the Clarant Documents will not be adversely affected
by the transactions contemplated hereby and will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Clarant Documents or the Clarant Charter Documents. Except as
set forth on SCHEDULE 6.13, none of the Clarant Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and
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effect, and the consummation of the transactions contemplated hereby will not
give rise to any right to termination, cancellation or acceleration or loss of
any right or benefit.
6.14 ABSENCE OF CHARGES. Since March 31, 1999, except as set forth in
the Registration Statement, and except as contemplated by this Agreement and the
Other Agreements, there has not been:
(a) any change in the financial condition, assets, liabilities
(contingent or otherwise) income or business or Clarant that would have of
Material Adverse Effect on Clarant;
(b) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of Clarant;
(c) any change in the authorized capital of Clarant or its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(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
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(l) any other distribution of property or assets by Clarant
other than in the Ordinary Course of Business;
6.15 TAXES. All Returns required to have been filed by or with respect
to Clarant have been duly filed. No Tax Proceedings are presently pending with
regard to any Tax Returns or Taxes of Clarant, and no notice has been received
(whether in writing or verbally) of the expected commencement of such a Tax
Proceeding. All Taxes (whether or not shown on any Return) owed by Clarant have
been paid.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing Date,
the Company and the Subsidiary 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 and the Subsidiary 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 and the Subsidiary access to all of Clarant's and Newco's sites,
properties, books and records and will furnish the Company and the Subsidiary
with such additional financial and operating data and other information as to
the Business and properties of Clarant and Newco as the Company and the
Subsidiary may from time to time reasonably request. Clarant and Newco will
cooperate with the Company, the
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Subsidiary, 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, the Subsidiary 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 of this
Agreement and the Closing Date, the Company and the Subsidiary will:
(a) carry on in the Ordinary Course of Business substantially
as conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties, assets and facilities, including
those held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting the Business;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use their commercially reasonable best efforts to maintain
and preserve its business organization intact and use its best efforts to retain
its present management, key employees and relationships with suppliers,
customers and others having business relations with the Company or the
Subsidiary;
(f) maintain compliance in all material respects with all
Permits, Laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar Governmental Authorities; and
(h) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or lease
instruments, except as disclosed on SCHEDULE 5.25, provided that debt and/or
lease instruments may be replaced if such replacement instruments are on terms
at least as favorable to the Company or the Subsidiary as the instruments being
replaced.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the Closing
Date, neither the Company nor the Subsidiary will, without the prior written
consent of Clarant:
(a) make any change in its Charter Documents;
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(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;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in the
Ordinary Course of Business and involves an amount not in excess of $50,000;
(e) create, assume or permit to exist any Encumbrance upon any
assets or properties whether now owned or hereafter acquired, except (i) with
respect to purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $10,000 necessary or desirable
for the conduct of the Business of the Company and the Subsidiary, (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 OR 5.23 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of
any property, assets or equipment except in the Ordinary Course of Business;
except that, at the request of either Mr. Harrison or Ms. Brown, as the case may
be, the Company may assign to either Mr. Harrison or Ms. Brown, as the case may
be, certain [LIST POLICIES] whole and term life insurance policies taken out by
the Company for the benefit of Mr. Harrison and Ms. Brown and provided that the
cash portion of the Merger Consideration to be paid to Mr. Harrison or Ms. Brown
shall be reduced by the cash value of such insurance policies if Mr. Harrison or
Ms. Brown, as the case may be, request the assignment of such life insurance
policies.
(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 the
Subsidiary, provided that the Company and the Subsidiary may negotiate and
adjust bills in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further,
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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 the 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 the 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 the 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 the Subsidiary's Business, (D) amend or enter into a new Plan or
Other Benefit Obligation (except as required by Law) or amend or enter into a
new collective bargaining agreement (except as required by this Agreement), or
(E) engage in any Affiliate Transactions;
(m) make or change any Tax election, amend any Tax Return or
take or omit to take any other action not in the Ordinary Course of Business and
consistent with past practice that would have the effect of increasing any Taxes
of Clarant, the Company or any Subsidiary for any Taxable Period ending after
the Closing Date; or
(n) without the express prior written consent of Clarant,
amend, modify, repeal or otherwise alter the approvals by the Company's board of
directors by the Company's stockholders, and by the members of the Subsidiary
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, the
Subsidiary 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
the Subsidiary) any acquisition proposal relating to or affecting the Company or
the Subsidiary or any part of it, or any direct or indirect interests in the
Company or the Subsidiary, whether by purchase of assets or stock, purchase of
interests, merger or other transaction, and further agree that the Company and
the Subsidiary will promptly advise Clarant of the terms of any communications
any of the Stockholders, the
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Company or the Subsidiary may receive or become aware of relating to any bid for
all or any part of the Company or the Subsidiary.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
and the Subsidiary 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 and the Subsidiary 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, the Subsidiary and any employee who is listed on SCHEDULE 9.11 hereto,
and (c) any existing agreement between the Company or the Subsidiary and any
Stockholders or other security holders.
7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Stockholders, the Company and the Subsidiary 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, the Subsidiary or the Stockholders
contained herein to be untrue or inaccurate in any material respect; (ii) any
material failure of any Stockholder, the Company or the Subsidiary to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by such Person hereunder and (iii) the exercise by any Person of any
Option or Convertible Security listed on SCHEDULE 5.3 or any enforceable request
for the Company or the Subsidiary 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
and the Subsidiary 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.
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7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
(a) The Company, the Subsidiary and Stockholders shall furnish
or cause to be furnished to Clarant and the Underwriters all of the information
concerning the Company, the Subsidiaries 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, the Subsidiary 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, the Subsidiary 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, the
Subsidiary or the Stockholders, the Company and the Subsidiary represents and
warrants as to such information with respect to itself and the Subsidiary, and
each Stockholder represents and warrants, as to such information with respect to
the Company, the Subsidiary and himself or herself, that the Registration
Statement at its effective date, at the date of the final Prospectus, each
preliminary prospectus and each amendment to the Registration Statement, and at
each closing date with respect to the IPO under the Underwriting Agreement
(including with respect to any over-allotment option) will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(b) Clarant agrees that it will use its commercially
reasonable best efforts to provide to the Company and its counsel copies of
drafts of the Registration Statement as they are prepared and give the Company,
the Subsidiary and the Stockholders a reasonable period of time to review and
comment upon such documents prior to filing with the SEC. Any objections posed
by the Company or its counsel shall be in writing and state with specificity the
material in question, the reason for the objection, and the Company's and the
Stockholders' proposed alternative. If the objection is founded upon a rule
promulgated under the Securities Act, the objection shall cite the rule.
Notwithstanding the foregoing, during the three business days immediately
preceding the date scheduled for the effective date of the IPO, the Company and
the Stockholders agree that two hours from the time the proposed changes are
transmitted to the Company and 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
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basis throughout the periods indicated and in a manner consistent with the
Financial Statements (except as noted therein). Except as noted in such
Financial Statements, all of such Financial Statements will present fairly the
results of operations of the Company for the periods indicated thereon.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.11 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation, until 24 hours prior
to the anticipated effectiveness of the Registration Statement, to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules, provided
however, that supplements and amendments to Schedules 5.11 (Liabilities and
Obligations), 5.12 (Accounts and Notes Receivable) and 5.22 (Significant
Customers; Material Contracts and Commitments) must be delivered only at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the Ordinary Course of Business; and further provided
that all matters identified by the Company on any Schedule supplement or
amendment shall also be included on SCHEDULE 11.1(f). Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the Company may be made unless Clarant and a majority
of the Founding Companies other than the Company consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant or Newco that constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on Clarant and Newco may be made
unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.11. In the event that one of
the Other Founding Companies seeks to amend or supplement a Schedule pursuant to
this Section 7.11 of one of the Other Agreements, and such amendment or
supplement constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on such Other Founding Company, Clarant shall give the
Company notice promptly after it has knowledge thereof. If Clarant and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Clarant or any Founding Company if
no response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(d). In the event
that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.11, and Clarant and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by
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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
the Subsidiary 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, the Company and the Subsidiary
with respect to actions to be taken on the Pre-Closing Date and, to the extent
specified in this Article 8, on the Closing Date are subject to the satisfaction
or waiver on or prior to the Pre-Closing Date and/or the Closing Date, as the
case may be, of all of the conditions set forth in this Article 8. As of the
Pre-Closing Date or the Closing Date, as the case may be, all conditions not
satisfied shall be deemed to have been waived by the Company, the Subsidiary 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.
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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 take any
other action with respect to the transactions hereunder which would have a
Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Clarant, dated the Pre-Closing Date in form and substance of the
type customarily given by counsel to an acquiring company in transactions
similar to that contemplated by this Agreement and acceptable to the Company
(and the Underwriters shall have received a copy of the same opinion addressed
to them), and at the Closing the Company shall have received a statement from
such counsel that the opinion is true as of the Closing Date.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, shares of
Clarant Common Stock for a price no lower than the minimum price specified on
EXHIBIT 2.1(a).
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
required to be obtained or made by Clarant or Newco with any Governmental
Authority or agency relating to the consummation of the transactions
contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. Clarant and Newco each shall have
delivered to the Company a certificate, dated as of a date no earlier than ten
(10) days prior to the Pre-Closing 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
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Newco's respective Certificates of Incorporation (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the boards of
directors and, if required, the Stockholders of Clarant and Newco approving
Clarant's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
8.9 HSR ACT. The waiting period applicable to the consummation of the
transaction contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
8.10 CLOSING OF THE IPO. The Closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE 9.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of EXHIBIT 8.11.
8.12 LISTING. Clarant shall cause the Clarant Common Stock to be listed
on the Nasdaq National Stock Market, subject to official notice of issuance.
8.13 TAX OPINION. Clarant shall have received an opinion upon which the
Company and the Stockholders will be entitled to rely (the "Tax Opinion") from
Wilmer, Cutler & Pickering, tax counsel for Clarant, or such other tax counsel
reasonably acceptable to Clarant and the Company ("Tax Counsel") that the
Clarant Plan of Organization will qualify as a tax-free transfer of property
under Section 351(a) of Code and that the Stockholders will not recognize gain
to the extent the Stockholders exchange Company Stock or membership interests,
as the case may be, for Clarant Common Stock (but not cash or other property)
pursuant to the Clarant Plan of Organization, and in rendering such Tax Opinion,
Tax Counsel shall be entitled to rely on customary written representations
acceptable to Tax Counsel and received from (i) Clarant and (ii) the Company,
(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
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representations and warranties of the Company, the Subsidiary and the
Stockholders contained in Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All the representations and
warranties of the Stockholders, the Company and the Subsidiary 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, the Company and the Subsidiary 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 COMPANY AND STOCKHOLDER REPRESENTATIONS. The Company and the
Stockholders who will receive Clarant Common Stock shall have provided Tax
Counsel with the written representations requested pursuant to Section 8.13.
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 or the Subsidiary 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
counsel to the Company, dated the Pre-Closing Date, in form and substance of the
type customarily given by counsel to a founding company in transactions similar
to that contemplated by this Agreement and acceptable to Clarant (and the
Underwriters shall have received a copy of the same opinion
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addressed to them), and at the Closing Clarant shall have received a statement
from such counsel that the opinion is true as of the Closing Date.
9.8 CONSENTS AND APPROVALS. All necessary Consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
Consents of third parties listed on SCHEDULE 5.4 shall have been obtained.
9.9 GOOD STANDING CERTIFICATES. The Company and the Subsidiary 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 or the Subsidiary is
authorized to do business, showing the Company and the Subsidiary are each in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company and the Subsidiary 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.
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.
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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.
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 Subsidiary (i) for Taxable Periods ending on or before the
Closing Date that are due after the Closing Date (other than Returns of any
Relevant Group of which the Company is not the common parent), and (ii) for
Taxable Periods beginning on or before and ending after the Closing Date
("Straddle Periods"). All such Returns shall be prepared on a basis consistent
with past Returns of the Company and the Subsidiaries unless otherwise required
by applicable law.
(b) Upon the 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
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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 under the Code, and shall treat the transaction
as a transfer of property under Section 351(a) of the Code.
10.3 DIRECTORS AND OFFICERS. The Persons named in the Registration
Statement shall be elected as directors and elected as officers of Clarant, as
and to the extent set forth in the Registration Statement.
10.4 DIRECTORS' AND OFFICERS' INSURANCE. Clarant and the Surviving
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 10.4, 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 10.4, Clarant and the Surviving Corporation shall
use
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their commercially reasonable best effects to cause such insurance to be
continued until final resolution of any such pending claim. SCHEDULE 10.4 sets
forth a summary description of all such policies, including premium rates.
10.5 LOAN GUARANTIES. Clarant covenants and agrees that it shall use
commercially reasonable efforts to obtain the release of Mr. Harrison as a
personal guarantor of the Company's revolving debt facility with Compass Bank.
The parties agree that it is not commercially reasonable for any officer or
director of Clarant to become a substitute personal guarantor of the Company's
revolving debt facility with Compass Bank.
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY STOCKHOLDERS. Subject to the limitations of
Section 11.11, the Stockholders shall jointly and severally indemnify, defend
and hold harmless Clarant, Newco, the Company, and the Surviving Corporation and
their respective officers, directors, employees, agents, representatives and
Affiliates (other than the Stockholders) (each, a "Clarant Indemnified Party"),
at all times from and after this Agreement harmless from and against, and
promptly pay to a Clarant Indemnified Party or reimburse a Clarant Indemnified
Party for, any and all liabilities, obligations, deficiencies, demands, claims,
suits, actions, or causes of action, assessments, losses, costs, expenses,
filing fees, interest, fines, penalties, or damages or costs or expenses of any
and all investigations, proceedings (including appeals, arbitration and
mediation), judgments, environmental analyses, remediations, settlements and
compromises (including reasonable fees and expenses of attorneys, accountants
and other experts) (individually and collectively, the "Losses") sustained or
incurred by any Clarant Indemnified Party resulting from or arising out of (a)
any breach of the representations and warranties of the 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
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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. 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 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
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not a party to this Agreement or an Affiliate of such a party (including, but
not limited to any domestic or foreign court, government, or Governmental
Authority or instrumentality, federal state or local) (a "Third Party Claim")
against such Indemnified Party, against which a party to this Agreement is
required to provide indemnification under this Agreement (an "Indemnifying
Party"), the Indemnified Party shall give written notice together with a
statement of any available information regarding such claim to the Indemnifying
Party within sixty (60) days after learning of such Claim (or within such
shorter time as may be necessary to give the Indemnifying Party a reasonable
opportunity to respond to such Claim. The Indemnifying Party shall have the
right, upon written notice to the Indemnified Party (the "Defense Notice")
within thirty (30) days after receipt from the Indemnified Party of notice of
such Claim, which notice by the Indemnifying Party shall specify the counsel it
will appoint to defend such Claim ("Defense Counsel"), to conduct at its expense
the defense against such Claim in its own name, or if necessary in the name of
the Indemnified Party; provided, however, that the Indemnified Party shall have
the right to approve the Defense Counsel, which approval shall not be
unreasonably withheld, and in the event the Indemnifying Party shall propose an
alternate Defense Counsel, which shall be subject again to the Indemnified
Party's approval.
(b) In the event that the Indemnifying Party shall fail to
give such notice, it shall be deemed to have elected not to conduct the defense
of the subject Claim, and in such event the Indemnified Party shall have the
right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
(c) In the event that the Indemnifying Party does elect to
conduct the defense of the subject Claim, the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the Indemnifying
Party, and the Indemnified Party shall have the right at its expense to
participate in the defense assisted by counsel of its own choosing, provided
that the Indemnified Party shall have the right to compromise and settle the
Claim only with the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. Without the prior written
consent of the Indemnified Party, the Indemnifying Party will not enter into any
settlement of any Third Party Claim or cease to defend against such Claim, if
pursuant to or as a result of such settlement or cessation, (i) injunctive or
other equitable relief would be imposed against the Indemnified Party, or (ii)
such settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder. The Indemnifying 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
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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 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.
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(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 the 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 Subsidiary.
(f) In the event that the provisions of this Section 11.4 and
the provisions of Section 11.3 hereof conflict or otherwise each apply by their
terms, this Section 11.4 shall exclusively govern all matters concerning Tax
Proceedings.
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim (a "Direct
Claim") may be asserted by giving the Indemnifying Party reasonably prompt
written notice thereof, and the Indemnifying Party will have a period of thirty
(30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such Direct
Claim, in which event the 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 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
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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 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 --
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(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), 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);
(ii) [Reserved]
(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), the date that is six (6) months
after the expiration of the longest applicable federal or state statute of
limitation (including extensions thereof);
(B) with respect to Losses described in
clause (c) of Section 11.1, the date that is six (6) months after the expiration
of the longest applicable federal or state statute of limitation (including
extensions thereof); or
(C) with respect to all claims other than
those referred to in clause (i)(A) or (B) of this Section 11.11(b), eighteen
(18) months after the Effective Time; or
(ii) the final resolution of claims or demands
pending as of the relevant dates described in clause (i) of this
Section 11.11(b);
(c) with respect to the indemnification obligations of Clarant
under Section 11.2 --
(i) there shall be no liability unless, and solely to
the extent that, the aggregate amount of Losses sustained by the Stockholders
exceeds the Indemnification Threshold; PROVIDED, HOWEVER, that the
Indemnification Threshold shall not apply to Losses arising out of breaches of
the covenants of Clarant set forth in this Agreement to be performed after the
Closing Date or the representations and warranties made in Section 6.5 (Capital
Stock) and 6.15 (Taxes), (y) Losses described in Section 11.2(c), or (z) Losses
arising out of intentional fraud; and
(ii) the aggregate amount of Clarant's liability
under this Article 11 shall not exceed the Merger Consideration.
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(d) [Reserved]
(e) Indemnity obligations hereunder may be satisfied through the
payment of cash or the delivery of Clarant Common Stock, or a combination
thereof. For purposes of calculating the value of the Clarant Common Stock
received or delivered by the 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 trading days ending two business days immediately prior to the date of
payment.
(f) Notwithstanding any other term of this Agreement (except the
proviso to this sentence), a 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 initial public offering 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 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)
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pursuant to Section 7.11; or (e) by the Company (acting through its members) if,
by June 30, 1999,Clarant shall not have filed an initial registration statement
with the SEC reflecting an IPO price for Clarant Common Stock of $11.00 per
share.
12.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES.
(a) Except for Charles Harrison and Carolyn Brown, 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 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
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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, other than Charles Harrison and Carolyn Brown, 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 8.11 and 9.11 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 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
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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 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.
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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.
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
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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 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
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"ACT"). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS AND, IF REQUIRED BY CLARANT, INC.,
DELIVERY BY THE HOLDER OF AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO CLARANT, INC. STATING THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder represents and
warrants that it is able to bear the economic risk of an investment in the
Clarant Common Stock acquired pursuant to this Agreement, can afford to sustain
a total loss of such investment and have such knowledge and experience in
financial and business matters that they are capable of evaluating the merits
and risks of the investment in the Clarant Common Stock. Each Stockholder
represents and warrants that it has had an adequate opportunity to ask questions
and receive answers from the officers of Clarant concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
Clarant, the plans for the operations of the business of Clarant, the business,
operations and financial condition of the Other Founding Companies, and any
plans for additional acquisitions and the like. Each Stockholder acknowledges
that it has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction. Each
Stockholder represents and warrants that such Stockholder has the requisite
knowledge and experience in financial and business matters to be capable of
evaluating the merits and risks of this investment and is an "accredited
investor" as defined in Regulation D under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing
Date, whenever Clarant proposes to register any Clarant Common Stock for its own
or others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by Clarant, (ii) registrations relating to employee
benefit plans and (iii) registrations relating to rights offerings made to the
stockholders of Clarant, Clarant shall give each of the Stockholders prompt
written notice of its intent to do so. Upon the written request of any of the
Stockholders given within thirty (30) days after receipt of such notice, Clarant
shall cause to be included in such registration all of the Clarant Common Stock
issued to the Stockholders pursuant to this Agreement which any such Stockholder
requests, provided that Clarant shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to Clarant or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization. In addition, if Clarant is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities
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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.
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, the 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
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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.
"Agreement" means this Agreement and Plan of Organization.
"Applicable Contract" means any Contract (a) under which the Company or
any of its Subsidiaries has or may acquire any rights, (b) under which the
Company or any of its Subsidiaries has or may become subject to any obligation
or liability, or (c) by which the Company or any of its Subsidiaries or any of
the Assets used by it is or may become bound.
"A/R Aging Reports" has the meaning set forth in Section 5.12
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as EXHIBIT 1.1
hereto or with such changes therein as may be required by applicable state laws.
"Balance Sheet" means a consolidated balance sheet of the Company and
its Subsidiaries.
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"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(a).
"Company VEBA" has the meaning set forth in Section 5.17.
"Consents" has the meaning set forth in Section 5.4.
"Contingent Consideration" shall have the meaning given to such term in
Section 3.3.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Constituent 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.
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"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.
"Direct Claim" has the meaning set forth in Section 11.5.
"Effective Time" means the time as of which the Merger becomes
effective, which the parties hereto contemplate to occur at the Closing.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencement of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
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(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in
transportation of hazardous substances or materials, pollutants, oil,
or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay a Governmental Authority or
private parties, or groups of them, for damages done to the
Environment, or permitting self-appointed representatives of the public
interest to recover for injuries done to public assets.
"ERISA Affiliate" has the meaning set forth in Section 5.17.
"Exhibit" means each Exhibit attached to this Agreement.
"Financial Statements" has the meaning set forth in Section 5.10(a).
"Founding Companies" has the meaning set forth in the recitals of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
"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 Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
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"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all Trademarks, copyrights, and patents
and any registration or application for any of the foregoing, and any trade
secret, invention, process, know-how, computer software, technology systems,
product design or product packaging.
"Investor Questionnaire" means the form of document attached hereto as
EXHIBIT 5.29(a) and as completed and delivered to Clarant by the Stockholders.
"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.
"Leases" has the meaning set forth in Section 5.23(d).
"Leased Real Property" has the meaning set forth in Section 5.23(d).
"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.
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<PAGE>
"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] [and other applicable state laws].
"Merger Consideration" shall have the meaning given to such term in
Section 3.1.
"Merger Documents" has the meaning set forth in Section 4.1.
"Mr. Marmol" means Guillermo G. Marmol, 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.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Authority or by an arbitrator.
"Ordinary Course of Business" means an action taken by a Person only if:
a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person; or
(b) such action is similar in nature and magnitude to actions
customarily taken in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business as
such Person.
"Other Agreements" has the meaning set forth in the recitals of this
Agreement.
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<PAGE>
"Other Benefit Obligations" has the meaning set forth in Section 5.17.
"Other Founding Companies" has the meaning set forth in the recitals of
this Agreement.
"Pension Plan" has the meaning set forth in Section 5.17
"Permits" has the meaning set forth in Section 5.16(b).
"Person" means any individual, corporation (including non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Plan" has the meaning set forth in Section 5.17.
"Plan Sponsor" has the meaning set forth in Section 5.17
"Plans" has the meaning set forth in Section 5.17.
"Pre-Closing" has the meaning set forth in Section 4.1.
"Pre-Closing Date" has the meaning set forth in Section 4.1.
"Pre-Closing Period" means any Taxable Period or portion thereof ending
on or before the Closing Date.
"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Authority.
"Qualified Plan" has the meaning set forth in Section 5.17.
"Qualified Plans" has the meaning set forth in Section 5.17.
"Real Property" has the meaning set forth in Section 5.23(a).
"Registration Statement" means that certain registration statement of
Clarant on Form S-1 covering the shares of Clarant Common Stock to be issued in
the IPO and attached hereto as SCHEDULE 18.1.
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<PAGE>
"Reimbursement" has the meaning set forth in Section 11.7.
"Relevant Group" has the meaning set forth in Section 5.24.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Schedule" means each Schedule attached hereto and identified as a
Schedule, which shall reference the relevant sections of this Agreement, on
which parties hereto disclose information as part of their respective
representations, warranties and covenants.
"Securities Agreements" shall have the meaning given to such term in
Section 5.3.
"SEC" means the United States Securities and Exchange Commission.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"State 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.
"Stockholder Notes" has the meaning set forth in Section 3.3.
"Straddle Period" has the meaning set forth in Section 10.2(a).
"Subsidiary" means Resource Solutions International, LLC and any entity
the majority of voting shares or interests of which are owned by the Company
and/or by one or more Subsidiaries of the Company.
"Surviving 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.
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<PAGE>
"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
19.1 COOPERATION. The Company, the Subsidiary, 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,
77
<PAGE>
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,
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, the Subsidiary, Newco and Clarant, acting through
their respective officers or trustees, or members, as the case may be, 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.
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, Wilmer Cutler & Pickering, and any
other Person retained by Clarant, and the costs of preparing the Registration
Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of the
Stockholders, the Company, the Subsidiary 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, the Subsidiary
and the Stockholders.
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<PAGE>
(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, the Subsidiary 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:
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attention: Guillermo G. Marmol
Facsimile: (972) 488-7299
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
Facsimile: (202) 663-6363
(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 or the Subsidiary, addressed to it at:
607 Herndon Parkway
Herndon, Virginia 20170
Attn: Mr. Bruce D. Grant
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<PAGE>
Facsimile: (703) 742-0106
and marked "Personal and Confidential"
with a copy to:
Stauffer, Mannix, Rommel, Decker & Dulany, L.L.C.
Suite 100
8300 Greensboro Drive
McLean, Virginia 22102-3604
Attn: William L. Stauffer, Jr.
Facsimile: (703) 827-0545
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
19.7 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without reference to conflicts of laws
principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
19.11 STOCKHOLDERS' REPRESENTATIVE.
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<PAGE>
(a) Each Stockholder, by signing this Agreement, designates
Bruce D. Grant or, in the event that Bruce D. Grant is unable or unwilling to
serve, now or in the future, Charles Harrison, 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 offer the Closing shall survive the
Closing and expire in accordance with their respective terms.
19.14 ACCOUNTING TERMS. Except as otherwise expressly provided herein,
all accounting terms used in this Agreement shall be interpreted, and all
financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with U.S.
GAAP consistently applied.
[this space left intentionally blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT, INC., RSI I ACQUISITION CORP.,
a Delaware corporation a Texas corporation
By: /s/ Guillermo G. Marmol By: /s/ Guillermo G. Marmol
Name: Guillermo G. Marmol Name: Guillermo G. Marmol
Title: President Title: President
RSI GROUP, INC., RESOURCE SOLUTIONS
a Texas corporation INTERNATIONAL, LLC
By: /s/ Charles Harrison By: /s/ Charles Harrison
Name: Charles Harrison Name: Charles Harrison
Title: President and CEO Title: Manager
STOCKHOLDERS:
/s/ Charles Harrison /s/ Carolyn Brown
Charles Harrison Carolyn Brown
/s/ Bruce D. Grant
Bruce D. Grant
<PAGE>
EXHIBIT 2.1(a)
CONSIDERATION
(a) At Closing, Clarant will deliver Merger Consideration to the Members and
holders of vested Options and Convertible Securities equal to:
(i) if the IPO price per share of Clarant Common Stock is equal to or
greater than $11.00,
(A) One Million Ninety-Four Thousand Five Hundred Forty-Five
(1,094,545) shares of Clarant Common Stock (the "Stock Consideration") plus
(B) Four Hundred Sixty-Nine Thousand Ninety-One and 71/100
U.S. Dollars ($469,091.71) times the IPO price per share of Clarant Common
Stock; provided that, for purposes of this calculation, the IPO price per share
of Clarant Common Stock shall not be less than $11.00 provided that in no event
shall the amount of cash delivered to the Stockholders be less than Five Million
One Hundred Sixty Thousand Eight and 81/100 U.S. Dollars ($5,160,008.81) (the
"Cash Consideration"); or
(ii) if the IPO price per share of Clarant Common Stock is less than
$11.00:
(A) the Stock Consideration plus a sufficient number of
additional shares of Clarant Common Stock (the "Additional Shares") such that
the aggregate value of the Stock Consideration plus the Additional Shares plus
the mimimum Cash Consideration under (a)(i)(B) above shall be Seventeen Million
Two Hundred Thousand and 00/100 U.S. Dollars ($17,200,000.00)
(b) At Closing, the Merger Consideration shall be distributed among the
Stockholders so that Bruce D. Grant receives twenty percent (20%) of the Merger
Consideration and Charles Harrison and Carolyn Brown receive their pro rata
allocation of the remaining eighty percent (80%) of the Merger Consideration,
such distribution to be made to each of the Stockholders in the ratio of seventy
percent (70%) Clarant Common Stock and thirty percent (30%) cash.
(c) The minimum IPO price per share of Clarant Common Stock is $9.90.
<PAGE>
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
<TABLE>
<CAPTION>
PROJECTED PROJECTED PROJECTED PROJECTED
MEASUREMENT COMPANY COMPANY PRE-TAX COMBINED COMBINED
PERIOD REVENUES INCOME REVENUES PRE-TAX INCOME
- ------ -------- ------ -------- --------------
<S> <C> <C> <C> <C>
Jul. 1, 1999 - $8,664,000 $1,049,000 n/a n/a
Dec. 31, 1999
Jan. 1, 2000 - n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
</TABLE>
FORMULAS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
MAXIMUM
PRE-TAX POOL FOR CAP ON
MEASUREMENT REVENUE INCOME POOL FORMULA FOR CALCULATING CONTINGENT CONTINGENT
PERIOD MULTIPLE MULTIPLE SHARE CONTINGENT CONSIDERATION CONSIDERATION CONSIDERATION
- ------ -------- -------- ----- ------------------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jul. 1, 1999 - 3 15 n/a [50% (Revenue Multiple) x $78,700,000 $4,300,000
Dec. 31, 1999 (Actual Company Revenues -
Projected Company Revenues)]
+
[50% (Pre-Tax Income Multiple)
x (Actual Pre-Tax Income -
Projected Pre-Tax Income)]
Jan. 1, 2000 - 3 15 5.46% [(Pool Share) x 50% (Revenue $78,700,000 $4,300,000
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)]
</TABLE>
<PAGE>
(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. 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 Arthur Andersen 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 setting
forth (i) the determination made by Arthur Andersen 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
<PAGE>
the shares of Clarant Common Stock to be paid as Contingent Consideration and
deliver such shares, along with the cash to be paid as Contingent Consideration,
to [Clarant's Bank] to hold in escrow until final resolution of any disputes
regarding the Contingent Consideration.
(e) The Stockholders' Representative shall have fifteen (15) days from
the receipt of the Contingent Consideration Notice to notify Clarant if there is
a dispute about such Contingent Consideration Notice. If Clarant has not
received notice of such a dispute within such 15-day period, Clarant shall
direct [Clarant's Bank] to pay the cash portion of the Contingent Consideration
by wire transfer of immediately available funds to the Stockholder(s) at the
account(s) identified on SCHEDULE 19.6 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, Arthur Andersen 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) The parties acknowledge that Clarant intends to integrate the
businesses of the Founding Companies and implement policies applicable to
Clarant and its subsidiaries as a whole after the Closing Date. In integrating
the Founding Companies and implementing such
<PAGE>
policies, Clarant shall not take any action intended to prejudice the
Stockholders' rights with respect to the Contingent Consideration. In the event
that Clarant merges, consolidates, reorganizes, restructures or disposes of a
material portion of the assets of, or takes any similar action with respect to,
any one or more of the Founding Companies, Clarant shall maintain sufficient
records and recordkeeping procedures as is commercially practicable and
reasonably necessary to calculate the amount of Contingent Consideration payable
to the Stockholder in accordance with the Agreement and the terms set forth in
this EXHIBIT 3.3.
(j) For purposes of calculating the Contingent Consideration during the
first Measurement Period, the Company's Actual Pre-tax Income shall be increased
by ten percent (10%) of any revenues of any one of the Other Founding Companies
from any Referred Work. The term "Referred Work" means work relating to a
project obtained from a client by the Company that the Company requests Clarant
to assign to one of the Other Founding Companies and which assignment request is
approved by Mr. Marmol (or an officer of Clarant designated by Mr. Marmol)
according to procedures established by Clarant.
<PAGE>
EXHIBIT 10.11
EXECUTION COPY
CONTRIBUTION AGREEMENT
BY AND BETWEEN
CLARANT WORLDWIDE CORPORATION
AND
YOUNG & RUBICAM INC.
JUNE 7, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. THE PURCHASE.............................................................................................2
1.1 PURCHASE AND CONTRIBUTION OF ASSETS.............................................................2
1.2 LIABILITIES RELATED TO THE BUSINESS.............................................................4
2. [INTENTIONALLY OMITTED]..................................................................................5
3. DELIVERY OF CONSIDERATION................................................................................5
3.1 TENDER OF CONSIDERATION.........................................................................5
3.2 ALLOCATION OF CONSIDERATION.....................................................................5
3.3 EARN-OUT........................................................................................5
4. PRECLOSING AND CLOSING...................................................................................5
4.1 PRE-CLOSING.....................................................................................5
4.2 THE CLOSING.....................................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR........................................................7
5.1 DUE ORGANIZATION................................................................................7
5.2 AUTHORIZATION...................................................................................7
5.3 [Intentionally Omitted].........................................................................7
5.4 AUTHORITY; NO CONFLICT..........................................................................7
5.5 [Intentionally Omitted].........................................................................8
5.6 [Intentionally Omitted].........................................................................8
5.7 [Intentionally Omitted].........................................................................8
5.8 [Intentionally Omitted].........................................................................8
5.9 [Intentionally Omitted].........................................................................8
5.10 FINANCIAL STATEMENTS............................................................................8
5.11 LIABILITIES AND OBLIGATIONS.....................................................................8
5.12 ACCOUNTS AND NOTES RECEIVABLE...................................................................9
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.........................................................9
5.14 TRADEMARKS......................................................................................9
5.15 LITIGATION AND LEGAL PROCEEDINGS...............................................................10
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.......................................................11
5.17 EMPLOYEE BENEFITS..............................................................................11
5.18 INSURANCE POLICIES.............................................................................13
5.19 ENVIRONMENT....................................................................................13
5.20 LABOR AND EMPLOYMENT MATTERS...................................................................13
5.21 PERSONAL PROPERTY..............................................................................14
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND
COMMITMENTS....................................................................................15
<PAGE>
5.23 REAL PROPERTY..................................................................................15
5.24 TAXES..........................................................................................16
5.25 BUSINESS CONDUCT...............................................................................18
5.26 DEPOSIT ACCOUNTS...............................................................................19
5.27 YEAR 2000 COMPLIANCE...........................................................................19
5.28 RELATIONS WITH GOVERNMENTS.....................................................................20
5.29 DISCLOSURE.....................................................................................20
5.30 WARRANTIES; PRODUCTS...........................................................................20
5.31 AFFILIATE TRANSACTIONS.........................................................................20
5.32 [Intentionally Omitted.........................................................................20
5.33 BROKERS........................................................................................20
5.34 OWNERSHIP AND CONDITION OF ASSETS..............................................................21
6. REPRESENTATIONS OF CLARANT..............................................................................21
6.1 DUE ORGANIZATION...............................................................................21
6.2 AUTHORIZATION..................................................................................21
6.3 CAPITAL STOCK..................................................................................21
6.4 SUBSIDIARIES...................................................................................22
6.5 LIABILITIES AND OBLIGATIONS....................................................................22
6.6 NO VIOLATIONS..................................................................................22
6.7 MISREPRESENTATION..............................................................................23
6.8 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS...................................................23
6.9 CONFORMITY WITH LAW; LITIGATION................................................................23
6.10 CLARANT COMMON STOCK...........................................................................23
6.11 NO SIDE AGREEMENTS.............................................................................23
6.12 ABSENCE OF CHANGES.............................................................................24
6.13 TAXES..........................................................................................25
7. COVENANTS PRIOR TO CLOSING..............................................................................25
7.1 ACCESS AND COOPERATION; DUE DILIGENCE..........................................................25
7.2 CONDUCT OF BUSINESS PENDING CLOSING............................................................26
7.3 PROHIBITED ACTIVITIES..........................................................................26
7.4 NO SHOP........................................................................................27
7.5 [Intentionally Omitted]........................................................................27
7.6 AGREEMENTS.....................................................................................28
7.7 NOTIFICATION OF CERTAIN MATTERS................................................................28
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT...........................................28
7.9 FINAL FINANCIAL STATEMENTS.....................................................................29
7.10 FURTHER ASSURANCES.............................................................................29
7.11 THIRD PARTY APPROVALS..........................................................................29
7.12 BASIS..........................................................................................29
7.13 AMENDMENT OF SCHEDULES.........................................................................29
ii
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7.14 AUTHORIZED CAPITAL STOCK.......................................................................30
7.15 HSR FILING.....................................................................................30
iii
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CONTRIBUTOR..................................................31
8.1 REPRESENTATIONS AND WARRANTIES.................................................................31
8.2 PERFORMANCE OF OBLIGATIONS.....................................................................31
8.3 NO LITIGATION..................................................................................31
8.4 OPINION OF COUNSEL.............................................................................31
8.5 REGISTRATION STATEMENT.........................................................................31
8.6 CONSENTS AND APPROVALS.........................................................................32
8.7 GOOD STANDING CERTIFICATES.....................................................................32
8.8 SECRETARY'S CERTIFICATE........................................................................32
8.9 CLOSING OF IPO.................................................................................32
8.10 EMPLOYMENT AGREEMENTS..........................................................................32
8.11 DIRECTOR INDEMNIFICATION.......................................................................32
8.12 TRANSITION SERVICES AGREEMENT..................................................................32
8.13 LISTING........................................................................................32
8.14 DIRECTORS......................................................................................32
8.15 MATERIAL ADVERSE EFFECT........................................................................33
8.16 TAX OPINION....................................................................................33
8.17 HSR ACT........................................................................................33
8.18 OPTIONS........................................................................................33
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT..........................................................33
9.1 REPRESENTATIONS AND WARRANTIES.................................................................33
9.2 PERFORMANCE OF OBLIGATIONS.....................................................................34
9.3 NO LITIGATION..................................................................................34
9.4 SECRETARY'S CERTIFICATE........................................................................34
9.5 NO MATERIAL ADVERSE EFFECT.....................................................................34
9.6 CONSENTS AND APPROVALS.........................................................................34
9.7 OPINION OF COUNSEL.............................................................................35
9.8 REGISTRATION STATEMENT.........................................................................35
9.9 EMPLOYMENT AGREEMENTS..........................................................................35
9.10 CLOSING OF IPO.................................................................................35
9.11 SATISFACTION...................................................................................35
9.12 TRANSITION SERVICES AGREEMENT..................................................................35
9.13 CONTRIBUTOR REPRESENTATIONS....................................................................35
10. COVENANTS OF CLARANT AND THE CONTRIBUTOR AFTER CLOSING..................................................35
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT...................................................35
10.2 TAX MATTERS....................................................................................35
10.3 DIRECTORS AND OFFICERS.........................................................................36
10.4 FURTHER ASSURANCES.............................................................................37
10.5 TRANSFER TAXES.................................................................................37
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10.6 [Intentionally Omitted]........................................................................37
10.7 EMPLOYEE RELATIONS AND BENEFITS................................................................37
10.8 POST CLOSING SERVICES..........................................................................38
10.9 GRANT OF LICENSE...............................................................................41
11. INDEMNIFICATION.........................................................................................42
11.1 INDEMNIFICATION BY CONTRIBUTOR.................................................................42
11.2 INDEMNIFICATION BY CLARANT.....................................................................43
11.3 INDEMNIFICATION PROCEDURE THIRD PARTY CLAIMS...................................................43
11.4 [Intentionally Omitted]........................................................................45
11.5 INDEMNIFICATION PROCEDURE OTHER CLAIMS........................................................45
11.6 FAILURE TO GIVE TIMELY NOTICE..................................................................45
11.7 REDUCTION OF LOSS..............................................................................45
11.8 SUBROGATION....................................................................................45
11.9 ARBITRATION....................................................................................46
11.10 EXCLUSIVE REMEDIES.............................................................................46
11.11 LIMITATION AND EXPIRATION......................................................................46
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND
COVENANTS......................................................................................48
12. TERMINATION OF AGREEMENT................................................................................48
12.1 TERMINATION....................................................................................48
12.2 LIABILITIES IN EVENT OF TERMINATION............................................................48
13. NONCOMPETITION..........................................................................................48
13.1 PROHIBITED ACTIVITIES..........................................................................48
DAMAGES........................................................................................49
13.2 DAMAGES........................................................................................49
13.3 REASONABLE RESTRAINT...........................................................................49
13.4 SEVERABILITY; REFORMATION......................................................................49
13.5 INDEPENDENT COVENANT...........................................................................49
13.6 MATERIALITY....................................................................................50
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................................................50
14.1 CONTRIBUTOR....................................................................................50
14.2 CLARANT........................................................................................50
14.3 DAMAGES........................................................................................51
14.4 SURVIVAL.......................................................................................51
15. [INTENTIONALLY OMITTED].................................................................................51
16. FEDERAL SECURITIES ACT REPRESENTATIONS..................................................................51
16.1 NONREGISTRATION OF CLARANT COMMON STOCK........................................................51
16.2 COMPLIANCE WITH LAW............................................................................51
v
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16.3 ECONOMIC RISK; SOPHISTICATION..................................................................52
vi
<PAGE>
17. REGISTRATION RIGHTS.....................................................................................52
17.1 REGISTRATION RIGHTS............................................................................52
17.2 REGISTRATION PROCEDURES........................................................................54
17.3 UNDERWRITING AGREEMENT.........................................................................54
17.4 AVAILABILITY OF RULE 144.......................................................................54
17.5 MARKET STANDOFF................................................................................54
18. DEFINITIONS.............................................................................................55
19. GENERAL.................................................................................................61
19.1 COOPERATION....................................................................................61
19.2 SUCCESSORS AND ASSIGNS.........................................................................62
19.3 ENTIRE AGREEMENT...............................................................................62
19.4 COUNTERPARTS...................................................................................62
19.5 EXPENSES.......................................................................................62
19.6 NOTICES........................................................................................63
19.7 GOVERNING LAW..................................................................................64
19.8 EXERCISE OF RIGHTS AND REMEDIES................................................................64
19.9 TIME...........................................................................................64
19.10 REFORMATION AND SEVERABILITY...................................................................64
19.11 [Intentionally Omitted]........................................................................64
19.12 CAPTIONS.......................................................................................64
19.13 SURVIVAL.......................................................................................64
</TABLE>
vii
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBITS:
3.1 Consideration
3.2 Allocation of Consideration
3.3 Contingent Consideration
4.1(b)(ii) Form of General Assignment and Bill of Sale
4.1(b)(iii) Form of Instrument of Assumption of
Liabilities
4.1(b)(iv) Form of Transition Services Agreement
8.10 Form of Employment Agreement
10.8(i) Form of Option Agreement
SCHEDULES:
1.1(a)(ii) Fixed Assets
1.1(a)(iii) Permits
1.1(a)(iv) Assigned Contracts
1.1(a)(v) Computer Software
1.1(b)(v) Logo
5.4 Consents
5.10 Financial Statements
5.11 Liabilities and Obligations
5.12 Accounts and Notes Receivable
5.13 Patents and Other Intellectual Property
5.14 Trademarks
5.15 Litigation
5.16 Compliance with Applicable Laws; Permits
5.18 Insurance Policies
5.19 Environment
5.20 Labor and Employment Matters
5.21 Personal Property
5.22 Significant Customers; Material Contracts
and Commitments
5.23 Real Property
5.24 Taxes
5.25 Business Conduct
5.26 Deposit Accounts
5.27 Year 2000 Compliance
5.30 Warranties; Products
5.31 Affiliate Transactions
6.3(a) Capital Stock
6.5 Liabilities and Obligations
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6.6 No Violations
6.8 Business; Real Property; Material Agreements
6.9 Conformity with Law; Litigation
7.6 Agreements
9.6 Consents and Approvals
9.9 Employment Agreements
10.8(b) Work Orders
10.8(c) Existing Clients of Contributor
10.8(g) Clients of Clarant
10.9(b) Licensed Material
11.1(d) Indemnification
13.1(a)(ii) Certain Companies
18.1 Draft Registration Statement
ix
<PAGE>
CONTRIBUTION AGREEMENT
This Contribution Agreement (the "Agreement") is entered into as of
June 7, 1999 by and between Clarant Worldwide Corporation, a Delaware
corporation ("Clarant"), and Young & Rubicam Inc., a Delaware corporation (the
"Contributor").
WHEREAS, Brand Dialogue ("Brand Dialogue"), an unincorporated division
of the Contributor with operations in New York, and elsewhere in the United
States and the world, provides consulting services to businesses seeking to
market through the Internet;
WHEREAS, Clarant desires to acquire, and the Contributor desires to
contribute, certain of Brand Dialogue's assets located in New York, New York and
used principally in connection with Brand Dialogue's operations in New York, New
York (such operations hereinafter referred to as the "Business"), which assets
are more fully described in Section 1.1 below;
WHEREAS, Clarant has agreed to assume certain liabilities relating to
or arising out of the Business and the Acquired Assets (as defined in Section
1.1 below);
WHEREAS, Clarant plans to enter into other separate agreements (the
"Other Agreements") with Align Solutions Corp., a Delaware corporation, Free
Range Media, Inc., a Washington corporation, InterActive8, Inc., a New York
corporation, Multimedia Resources LLC, a New York limited liability company,
Potomac Partners Management Consulting LLC, a Delaware limited liability
company, RSI Group, Inc., a Texas corporation, and Integrated Consulting, Inc.,
d/b/a/ i.con interactive, a Texas corporation (collectively, the "Other Founding
Companies" and together with the Contributor, the "Founding Companies"), and
their respective principal owners in order to acquire additional Internet
consulting organizations;
WHEREAS, this Agreement and the Other Agreements and the transactions
contemplated thereby constitute the "Clarant Plan of Organization;"
WHEREAS, in consideration of the agreements of the Other Founding
Companies as set forth in the Other Agreements, the Board of Directors of the
Contributor has approved this Agreement and the transactions contemplated hereby
and thereby;
WHEREAS, in consideration of the agreements of the Other Founding
Companies as set forth in the Other Agreements, the Board of Directors and the
stockholders of Clarant have approved the Clarant Plan of Organization, this
Agreement and the transactions contemplated hereby and thereby; and
WHEREAS, the parties have approved this Agreement and the Plan of
Organization as an integrated plan to transfer the Acquired Assets (as defined
in Section 1.1 below) to Clarant under Section 351 of the Code.
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE PURCHASE
1.1 PURCHASE AND CONTRIBUTION OF ASSETS. Upon and subject to the terms
and conditions of this Agreement, the Contributor shall contribute, convey,
assign, transfer and deliver to Clarant, and Clarant shall purchase, acquire and
accept from Contributor, the assets described in subsection (a) hereof,
excluding however, the Excluded Assets, as they exist on the Closing Date, in
each case, whether such assets are real and personal, tangible and intangible,
absolute or contingent, and whether or not such assets are carried or reflected
on the books and records of the Contributor (collectively, the "Acquired
Assets").
(a) ACQUIRED ASSETS. The Acquired Assets shall include,
subject in each case to Section 1.1(b), the assets of the Business described in
clauses (i) through (viii) below:
(i) All of the Contributor's trade accounts
receivable allocated directly to the Business (collectively, the "Accounts
Receivable") and pre-paid expenses allocated directly to the Business, in each
case as existing on the Closing Date;
(ii) All of the Contributor's owned
machinery, equipment, tools, data processing equipment, computers and peripheral
equipment and other personal property, in each case, listed in SCHEDULE
1.1(a)(ii) (the "Fixed Assets");
(iii) Contributor's Permits (as defined in
Section 5.16(b)) listed on SCHEDULE 1.1(a)(iii) to the extent
the same may be lawfully sold or transferred;
(iv) All of Contributor's rights and
benefits pursuant to or arising from those Contracts listed on SCHEDULE
1.1(a)(iv) (collectively, the "Assigned Contracts"), including all deposits and
prepayments relating to any of the Assigned Contracts;
(v) all of Contributor's right to use, to the
extent such right is transferable, the computer software listed on SCHEDULE
1.1(a)(v) and used in connection with the Business, including, but not limited
to, data and related documentation (the "Computer Software");
(vi) all confidential or proprietary
business information and brand-building models and systems (including research
and development, know-how, formulas, compositions, principles and techniques,
technical data, designs, drawings, blueprints, specifications, certifications
and file reports) used solely in connection with the Business (the "Intellectual
Property");
2
<PAGE>
(vii) Copies of the Business's customer and
supplier lists, contacts and files, catalogues, brochures, pricing and other
marketing information and materials, supplies, form marketing literature and
videos, and all similar data and materials of all kinds in each case only to the
extent solely related to the Business; and
(viii) True copies of all of the books, records,
data and information relating solely to the Business (collectively, the "Books
and Records"), including, without limitation, all general, financial and
accounting records, purchase orders and invoices, sales orders and sales order
log books, personnel records, correspondence and miscellaneous records with
respect to customers and supply sources, and all other general correspondence,
records, books and files now owned or hereafter acquired by the Contributor with
respect to the Business.
(b) EXCLUDED ASSETS. Notwithstanding Section 1.1(a), all the
following assets (the "Excluded Assets") shall be retained by Contributor and
shall not be transferred pursuant to this Agreement:
(i) Cash on hand, cash equivalents (including
all amounts reflected as "Due from related parties, net" on the Balance Sheet),
investments (including stock, debt instruments, options and other instruments
and securities) and bank deposits as of the Closing Date;
(ii) Contributor's original corporate
minute books, stock records, tax returns, and any other books and records of the
Contributor PROVIDED, HOWEVER, that the Books and Records described in Section
1.1(a)(ix) above shall not be deemed Excluded Assets and PROVIDED FURTHER that
copies of any such books and records that are Excluded Assets and that relate to
the Business or the Acquired Assets shall be made available to Clarant in
accordance with Section 10.2(c) and any Books and Records acquired by Clarant
shall be made available to the Contributor in accordance with Section 10.2(c)
hereof;
(iii) All rights of Contributor under this
Agreement and the documents delivered in connection herewith; and
(iv) All accounts receivable of Contributor
not allocated to the Business or which have been written off or reserved
prior to Closing, and all collections associated therewith;
(v) All rights to the use of the name "Brand
Dialogue" and any variation or derivation thereof or confusingly similar term
and any trademarks, service marks, trade names, trade dress, logos, business and
product names, slogans and registrations and applications for registration
thereof incorporating, using or referring to the name "Brand Dialogue," or used
in connection with the Business prior to the Closing (including without
3
<PAGE>
limitation, the logo attached hereto as SCHEDULE 1.1(b)(v)); PROVIDED, HOWEVER,
that Clarant shall, pursuant to Section 10.9, have certain rights with respect
to the foregoing;
(vi) All assets of the Contributor which are
not located in New York, New York, whether or not used principally in
connection with the Business;
(vii) All assets necessary in connection with
Brand Dialogue's operations in locations other than New York;
(viii) All rights of the Contributor to any refund
of Taxes (as defined in Section 5.24(c));
(ix) All Contributor Plans (as defined in
Section 5.17(a) and all assets relating to such plans;
(x) All claims, rights and causes of action to
the extent related to an Excluded Asset or Retained Liability
(as defined in Section 1.2(b));
(xi) All furniture and fixtures; and
(xii) Subject to the Transition Services
Agreement, all corporate services rendered to the Business by the Contributor,
including without limitation, services rendered by the accounting, payroll and
benefits departments of the Contributor.
1.2 LIABILITIES RELATED TO THE BUSINESS.
(a) ASSUMED LIABILITIES. Subject to Section 1.2(b), upon and
subject to the terms and conditions of this Agreement, Clarant shall assume,
perform and timely pay and discharge, from and after the Closing, all of the
following liabilities or obligations and no other liabilities or obligations
(collectively, the "Assumed Liabilities"):
(i) All liabilities and obligations arising
under or relating to the Assigned Contracts, except for liabilities under any
Assigned Contract for any breach, act or omission by the Contributor prior to
the Closing;
(ii) Any current payables, accrued expenses
or other current liabilities incurred or accrued in the
ordinary course of operation of the Business;
(iii) Liabilities and obligations respecting
employees to the extent provided in Section 10.7 hereof;
4
<PAGE>
(iv) Any Encumbrances on the Acquired
Assets that would not, in the aggregate, cost more than $10,000 to satisfy or
have released;
(v) All liabilities for Taxes relating solely
to the Business or the Acquired Assets and that are incurred in or are
attributable to Post-Closing Periods, but not including any liability for Taxes
which are delinquent as of the Closing Date; and
(vi) Any liabilities or obligations relating
to or arising out of the conduct of the Business or ownership or use of the
Acquired Assets from and after the Closing Date.
(b) RETAINED LIABILITIES. Notwithstanding the foregoing or
anything to the contrary set forth herein, Clarant shall not assume or become
responsible for, and the Contributor shall remain solely liable for, any and all
liabilities or obligations (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated, whether accrued or unaccrued,
whether due or to become due, and whether claims with respect thereto are
asserted before or after the Closing) of the Contributor which are not Assumed
Liabilities (collectively, the "Retained Liabilities").
2. [INTENTIONALLY OMITTED]
3. DELIVERY OF CONSIDERATION
3.1 TENDER OF CONSIDERATION. On the Closing Date, Clarant shall deliver
to the Contributor, free and clear of all Encumbrances and claims of every kind,
the number of shares of Clarant Common Stock set forth on EXHIBIT 3.1 (the
"Consideration").
3.2 ALLOCATION OF CONSIDERATION. Clarant and the Contributor agree to
allocate the Consideration (and all other capitalizable costs) among the
Acquired Assets for all purposes (including financial accounting and Tax
purposes) in accordance with the allocation schedule attached hereto as EXHIBIT
3.2.
3.3 EARN-OUT. In addition to the Consideration tendered to Contributor
on the Closing Date in accordance with Section 3.1, and subject to the terms of
this Section 3.3, Clarant shall deliver contingent consideration determined
according to the formula and terms stated on EXHIBIT 3.3 (the "Contingent
Consideration") to the Contributor.
4. PRE-CLOSING AND CLOSING
4.1 PRE-CLOSING. At or prior to the Pre-Closing, the parties shall
cooperate and use their reasonable efforts to prepare to (a) effect the
transactions contemplated hereby and (b) deliver the Consideration; PROVIDED,
THAT, such actions shall not include the actual completion of
5
<PAGE>
such transactions for purposes of this Agreement or the delivery of such stock,
each of which actions shall only be taken upon the Closing Date as herein
provided. The actions described in clauses (a) and (b) above are hereinafter
referred to as the "Pre-Closing" and the day following the date that the
Registration Statement is declared effective by the Securities and Exchange
Commission is hereinafter referred to as the "Pre-Closing Date."
4.2 THE CLOSING.
(a) The Closing of the transactions contemplated by this
Agreement shall take place on such mutually agreeable date (the "Closing Date")
as soon as practicable after the satisfaction or waiver of the conditions to
Closing set forth in Articles 8 and 9 hereof, but in no event more than five (5)
business days after such satisfaction or waiver or more than fifteen (15)
business days after the Pre-Closing Date.
(b) At the Closing:
(i) all conditions to Closing as set forth in
Articles 8 and 9 of this Agreement shall have been satisfied;
(ii) the parties shall execute a General
Assignment and Bill of Sale in substantially the form attached hereto as EXHIBIT
4.2(b)(ii) and execute and deliver, as appropriate, such other instruments of
conveyance as Clarant may reasonably request in order to effect the sale,
transfer, conveyance and assignment to Clarant of valid ownership of the
Acquired Assets, including any required consents, approvals or permits;
PROVIDED, HOWEVER, that no such document shall expand in any way any of the
Contributor's representations, warranties or obligations hereunder;
(iii) the parties shall execute an Instrument of
Assumption of Liabilities substantially in the form attached hereto as EXHIBIT
4.2(b)(iii) and such other instruments as the Contributor may reasonably request
in order to effect the assumption by Clarant of the Assumed Liabilities;
(iv) the parties shall execute a transition
services agreement (the "Transition Services Agreement") substantially in the
form attached hereto as EXHIBIT 4.2(b)(iv);
(v) the Contributor shall deliver to Clarant,
or otherwise make available to Clarant, all of the Acquired Assets of a tangible
nature (including without limitation such electronic and hard copy
manifestations of the Intellectual Property and related documentation as Clarant
shall reasonably request). However, notwithstanding this or any other provision
of this Agreement, Clarant shall take possession of the Acquired Assets on the
Closing Date at the Contributor's address set forth in Section 19.6, at no cost
or expense to Contributor;
6
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(vi) the parties shall deliver all other
previously undelivered documents, instruments and writings required to be
delivered by the Contributor and Clarant at or prior to the Closing pursuant to
this Agreement or otherwise in connection herewith; and
(vii) Clarant shall deliver to the Contributor
stock certificates evidencing the number of shares of Clarant Common Stock set
forth on EXHIBIT 3.1.
5. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to Clarant that all of the
following representations and warranties in this Article 5 are true and correct
at the date of this Agreement, and further represents and warrants that such
representations and warranties shall survive the Closing Date in accordance with
Section 11.12. The representations and warranties in this Article, except for
those contained in Sections 5.17 (employee benefits) and 5.20 (labor and
employment matters), relate solely to the Business, the Acquired Assets and the
Assumed Liabilities, unless expressly stated otherwise.
5.1 DUE ORGANIZATION. The Contributor is duly organized, validly
existing, and in good standing under the laws of the state of its incorporation
and has all requisite power and authority to operate the Business as it is now
being conducted and to own or use the Acquired Assets, and to perform all of its
obligations under the Material Contracts. The Contributor is duly qualified as a
foreign corporation to conduct business, and is in good standing, under the laws
of each state in which the nature of the activities conducted by the Business
requires such qualification and where failure to do so would have a Material
Adverse Effect on the Business.
5.2 AUTHORIZATION. The officers of the Contributor executing this
Agreement are duly authorized to execute and deliver this Agreement. The
execution and delivery of this Agreement by the Contributor and performance by
the Contributor of its obligations under this Agreement and the consummation by
the Contributor of the transactions contemplated hereby have been duly
authorized by all necessary corporate action in accordance with applicable law
and the Articles of Incorporation and Bylaws ("Charter Documents") of the
Contributor. This Agreement constitutes the valid and binding obligation of the
Contributor, enforceable in accordance with its terms.
5.3 [Intentionally Omitted]
5.4 AUTHORITY; NO CONFLICT.
(a) Except to the extent consents, approvals, filings, notices
or other similar actions are required from or with third parties or Governmental
Authorities (the "Consents"), the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby will not:
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(i) violate or conflict with or result in
a material breach of any provision of any Law, permit, judgment, or other
decision of any Governmental Authority binding on the Contributor, or conflict
with or result in the breach of any of the material terms, conditions or
provisions thereof;
(ii) violate, conflict with or constitute a
default under any of the Charter Documents of the Contributor or result in a
material breach of any Material Contract;
(iii) constitute an event that would permit any
Person to terminate any Material Contract or accelerate the maturity of any
material indebtedness or other material obligation; or
(iv) result in the creation or imposition
of any material Encumbrance upon the Acquired Assets.
(b) SCHEDULE 5.4 sets forth and describes each Consent.
5.5 [Intentionally Omitted]
5.6 [Intentionally Omitted]
5.7 [Intentionally Omitted]
5.8 [Intentionally Omitted]
5.9 [Intentionally Omitted]
5.10 FINANCIAL STATEMENTS.
(a) Except as set forth on SCHEDULE 5.10, the Contributor has
delivered, on the date hereof, to Clarant (as SCHEDULE 5.10) copies of the
following financial statements relating to the Business (the "Financial
Statements"): audited balance sheet, statement of operations, and statement of
cash flows at and for the fiscal year ended December 31, 1998 and unaudited
balance sheet, statement of operations, and statement of cash flows at and for
the interim period ended March 31, 1999.
(b) Each of the Financial Statements fairly presents the
Business' financial condition, assets and liabilities as of their respective
dates and the results of operations and cash flows for the periods related
thereto in accordance with GAAP, consistently applied among the periods which
are the subject of the Financial Statements, except unaudited interim financial
statements which were or are subject to normal and recurring year-end
adjustments.
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5.11 LIABILITIES AND OBLIGATIONS. The Contributor has delivered to
Clarant an accurate list relating solely to the Acquired Assets and the Business
(which is set forth on SCHEDULE 5.11) as at the Balance Sheet Date of (a) all
liabilities of the Business existing at the Balance Sheet Date which are not
reflected in the Financial Statements at the Balance Sheet Date, (b) any
material liabilities of the Business (including but not limited to all
liabilities in excess of $50,000) existing at the Balance Sheet Date, and (c)
all loan agreements, notes and other debt obligations (whether secured or
unsecured), indemnity or guaranty agreements, bonds or material Encumbrances
which encumber the Acquired Assets or which constitute an Assigned Contract or
Assumed Liability existing at the Balance Sheet Date. Except as set forth on
SCHEDULE 5.11, since the Balance Sheet Date, no material liabilities of any
kind, character and description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, relating to the Business have been incurred,
other than liabilities incurred in the Ordinary Course of Business that will not
have a Material Adverse Effect on the Business.
5.12 ACCOUNTS AND NOTES RECEIVABLE. The Contributor has delivered to
Clarant an accurate list relating to the Acquired Assets or the Business (which
is set forth on SCHEDULE 5.12) of the Accounts Receivable as at the Balance
Sheet Date (excluding all amounts reflected as "Due from related parties, net"
on the Balance Sheet) and any notes receivable included in the Acquired Assets
as at the Balance Sheet Date, and including receivables from and advances to
employees. Within ten (10) days prior to Closing, with respect to the Business,
the Contributor shall provide Clarant (a) an accurate list of all outstanding
receivables allocable directly to the Business and obtained subsequent to the
Balance Sheet Date and (b) an aging of all such accounts and notes receivable
showing amounts due in 30 day aging categories (the "A/R Aging Reports"). The
Contributor has no reason to believe that any such account receivable, to the
extent it is an Acquired Asset, is not or shall not be, collectible in the
amounts shown (in the case of the accounts and notes receivable set forth on
SCHEDULE 5.12, net of reserves reflected in the balance sheet at the Balance
Sheet Date).
5.13 PATENTS AND OTHER INTELLECTUAL PROPERTY.
(a) with respect to the Business, all material Intellectual
Property is described and set forth with particularity in SCHEDULE 5.13 along
with information as to the ownership thereof or licenses, rights or immunities
therein and registrations thereof;
(b) with respect to the Business, except as disclosed in
SCHEDULE 5.13:
(i) Contributor has not infringed on,
misappropriated, or otherwise conflicted with, and is not now, infringing on,
misappropriating or otherwise conflicting with, in any material way, any patent
or other intellectual property right belonging to any Person;
(ii) the Contributor has the right and
authority to use all Intellectual Property as is necessary to enable it to
conduct all phases of the Business in the manner presently
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conducted and, to the Knowledge of the Contributor, such use does not and will
not conflict with, infringe on or misappropriate any intellectual property
rights of any Person; and
(iii) to the Knowledge of the Contributor, there
is no unauthorized use, infringement or misappropriation of any of the
Intellectual Property.
5.14 TRADEMARKS.
(a) With respect to the Business, all material trademarks,
service marks, trade dress, trade names, and copyrights used by the Contributor
in the conduct of the Business ("Trademarks") are described and set forth with
particularity in SCHEDULE 5.14, along with information as to the ownership
thereof.
(b) Except as disclosed in SCHEDULE 5.14, the Business has not
infringed on nor is it now infringing on, in any material way, any Trademark of
or belonging to another Person.
5.15 LITIGATION AND LEGAL PROCEEDINGS.
(a) Except as set forth in SCHEDULE 5.15, with respect to the
Acquired Assets, Assumed Liabilities or the Business:
(i) there is no suit, private proceeding,
action, liability or claim (collectively, "Actions") pending or, to the
Contributor's Knowledge, Threatened, which may have a Material Adverse Effect on
the Business;
(ii) to the Knowledge of the Contributor,
the Contributor has given all required notice of such Actions to the appropriate
insurance carrier(s) and/or all such Actions have been appropriately reserved
for on the Financial Statements. SCHEDULE 5.15 lists the insurer for each Action
covered by insurance or designates each Action, or portion of each Action, as
uninsured and the individual and aggregate policy limits for the insurance
covering each insured Action and the applicable policy deductibles for each
insured Action;
(iii) no litigation matters (other than workers
compensation claims) directly affecting the Business were closed during the one
(1) year period preceding the date of this Agreement;
(iv) there is no pending Proceeding that has
been commenced that relates to and may adversely affect the Business, and, to
the Knowledge of the Contributor, no such Proceeding has been Threatened; and
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(v) neither the Business nor the Acquired
Assets are subject to any judgment, Order, or decree of any Governmental
Authority and, to Contributor's Knowledge, none is Threatened which is
reasonably likely to have a Material Adverse Effect on the Business. Except as
disclosed in SCHEDULE 5.15, the Contributor is not engaged in any legal action
to recover money due to it for damages sustained by the Business.
(b) Matters disclosed in SCHEDULE 5.15 shall include the
following information:
(i) a summary description of the Action
together with the following:
(1) a list of all relevant documentation
relating thereto;
(2) if known, amounts claimed and any
other action or relief sought; and
(3) name of claimant and, if known, all
other parties to the Action;
(ii) name of each court or agency before which
such Action is pending; and
(iii) date such Action was instituted.
5.16 COMPLIANCE WITH APPLICABLE LAWS; PERMITS.
(a) Except as set forth on SCHEDULE 5.16, the Contributor has
complied in all material respects with all laws, rules, regulations, writs,
injunctions, decrees, and Orders (collectively, "Laws") applicable to the
operation of the Business and the Acquired Assets and has not received any
notice of any Threatened claim, violation of, liability or potential
responsibility under, any such Law which has not heretofore been cured and for
which there is no remaining liability other than those not having a Material
Adverse Effect.
(b) The Contributor holds all licenses, permits and other
governmental authorizations (the "Permits") necessary to the conduct of the
Business the absence of any of which would have a Material Adverse Effect, and
the Contributor has delivered to Clarant an accurate list and summary
description (which is set forth on SCHEDULE 5.16) of all such Permits. To the
Knowledge of the Contributor, the Permits listed on SCHEDULES 5.16 are valid,
and the Contributor has not received any notice that any Governmental Authority
intends to cancel, terminate or not renew any Permit. The Contributor conducted
and is conducting the Business in compliance with the requirements, standards,
criteria and conditions set forth in the Permits listed on SCHEDULE 5.16 and is
not in violation of any of the foregoing except where such non-
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compliance or violation would not have a Material Adverse Effect. Except as
specifically provided in SCHEDULE 5.16, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Contributor by, any
of the Permits.
5.17 EMPLOYEE BENEFITS.
(a) As used in this Section 5.17, the following terms have the
meanings set forth below:
"Contributor Other Benefit Obligation" means an Other Benefit
Obligation the Contributor sponsors or maintains or with respect to which the
Contributor has liability (whether actual or otherwise), in each case with
respect to any present or former directors, employees, or agents of the
Contributor with respect to the Business.
"Contributor Plan" means all Plans (including any multiemployer
plans as defined in ERISA Section 3(37)(A)) of which the Contributor or an
ERISA Affiliate of the Contributor is or was a Plan Sponsor, or to which the
Contributor or an ERISA Affiliate of the Contributor otherwise contributes or
has contributed or has or may have any liability, or in which the Contributor
or an ERISA Affiliate of the Contributor otherwise participates or has
participated.
"ERISA" means the Employee Retirement Income Security Act
of 1974 as amended.
"ERISA Affiliate" means, with respect to the Contributor, any other
Person that, together with the Contributor, would be treated as a single
employer under Section 414 of the Code or ERISA Section 4001 and any general
partnership of which the Contributor is or has been a general partner.
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, agents or independent contractors (other than obligations,
arrangements, and practices that are Plans). Other Benefit Obligations include
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
sabbaticals, severance pay policies, plant closing benefits, salary continuation
for disability, consulting, or other compensation arrangements (including
arrangements under which the compensation paid does not depend upon the amount
of services rendered), workers' compensation, retirement, deferred compensation,
bonus, stock option or purchase, hospitalization, medical insurance, life
insurance, tuition reimbursement or scholarship programs, employee discount
programs, meals, travel, or vehicle allowances, any plans subject to Section 125
of the Code, and any plans providing benefits or payments in the event of a
change of control, change in ownership or effective control, or sale of a
substantial portion (including all or substantially all) of the assets of any
business or portion
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thereof, in each case with respect to any present or former employees or
directors excluding any arrangements that, in the aggregate, do not reflect
liability for more than $25,000.
"Plan" has the meaning given in ERISA Section 3(3), including plans
exempted by another provision of ERISA.
(b) Contributor has provided a list of all Contributor Plans
and all Contributor Other Benefit Obligations to Clarant and copies of all
material descriptive materials provided to employees of the Business with regard
to such plans and benefit obligations (all of which accurately and completely
describe the material terms of such plans and benefit obligations) and copies of
any personnel or employment manuals covering employees of the Business.
(c) Clarant has and will have no liability or obligation with
respect to any Contributor Plan or Contributor Other Benefit Obligation, except
as expressly assumed by Clarant under Section 10.7.
(d) No Contributor Plan or Contributor Other Benefit
Obligation contains any provision that would give rise to any acceleration or
vesting of benefits, severance, termination or other payments or liabilities as
a result of the transactions contemplated by this Agreement; and the Contributor
has not declared, paid, or promised any bonus or incentive compensation in
contemplation of the transactions contemplated by this Agreement.
5.18 INSURANCE POLICIES.
(a) With respect to the Business and the Acquired Assets, the
Contributor has made available to Clarant a summary of all policies of insurance
covering the Business or the Acquired Assets to which the Contributor is a party
or has been covered at any time within one (1) year preceding the date of this
Agreement, including, but not limited to, general liability, property, fire,
theft, automobile, all-risk, business interruption and workers' compensation
insurance. There are no outstanding claims relating to the Business or the
Acquired Assets under any such insurance policies.
(b) With respect to any insurance policy covering the Business
and the Acquired Assets, except as set forth in SCHEDULE 5.18, the Contributor
has not received (i) any refusal of coverage or (ii) any notice of cancellation,
in each case, as a result of the nature of Business or Acquired Assets.
5.19 ENVIRONMENT.
(a) With respect to the Business and the Acquired Assets,
except as set forth in SCHEDULE 5.19:
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(i) the Business is in material compliance
with, and has not been, and is not now, in material violation
of, or materially liable under, any Environmental Law; and
(ii) the Business possesses all material Permits
required by Environmental Law.
(b) With respect to the Business to the knowledge of the
Contributor, except as disclosed in SCHEDULE 5.19:
(i) the Contributor has not received any
written notice of any Action or Threatened Action relating to the presence of
Hazardous Materials in, under, or upon any real estate currently used by the
Business;
(ii) there are no pending or, to the Knowledge of
the Contributor, Threatened, Actions or Proceedings from any Governmental
Authority or any other entity regarding any matter regulated by Environmental
Law which would have a Material Adverse Effect on the Business.
5.20 LABOR AND EMPLOYMENT MATTERS.
With respect to employees of the Business:
(a) the Contributor is complying and has complied in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and no claims or investigations
are pending or, to the Contributor's Knowledge, Threatened with respect to such
laws, either by private individuals or by Governmental Authority that, if
determined adversely, would have a Material Adverse Effect.
(b) the Contributor has not and is not engaged in any unfair
labor practice, and there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Contributor pending or, to
the Contributor's Knowledge, Threatened, before the National Labor Relations
Board or any other comparable authority that, if determined adversely, would
have a Material Adverse Effect;
(c) no labor union represents or has represented in the last
three (3) years employees of the Business and no collective bargaining agreement
relating to employees of the Business is binding against the Contributor. The
Contributor is not currently negotiating to enter into such agreements. No
grievance or arbitration proceeding arising out of or under collective
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bargaining agreements or employment relationships is pending, and no claims
therefor exist or have, to the Contributor's Knowledge, been Threatened;
(d) no labor strike, lock-out, slowdown, or work stoppage
directly affecting the Business is, or, within the last three (3) years, has
been, pending or Threatened against or directly affecting the Business; and
(e) SCHEDULE 5.20 hereto sets forth an accurate list, as of
the date hereof, of all employees of the Business together with their current
annual salaries, and lists all employment agreements with such employees and the
rate of compensation (and the portions thereof attributable to salary, bonus,
and other compensation respectively) of each such Person as of (a) the Balance
Sheet Date and (b) the date hereof.
5.21 PERSONAL PROPERTY.
(a) With respect to the Business, the Contributor has
delivered to Clarant an accurate list (which is set forth on SCHEDULE 5.21(a))
of (i) all personal property having a value greater than $10,000 included in the
Acquired Assets which is included (or that will be included) in "depreciable
plant, property and equipment" (or similarly named line item) on the Balance
Sheet, (ii) all other personal property included in the Acquired Assets which is
owned by the Contributor with a value individually in excess of $10,000 (A) at
the Balance Sheet Date and (B) acquired since the Balance Sheet Date and (iii)
all Assigned Contracts in respect of personal property together with a listing
of the capital costs of all such properties and assets which are subject to
capital leases.
(b) Except as set forth on SCHEDULE 5.21(a), (i) all of the
personal property listed on SCHEDULE 5.21(a) and included in the Acquired Assets
is in good working order and condition, ordinary wear and tear excepted and (ii)
all Assigned Contracts included on SCHEDULE 5.21 are in full force and effect
and constitute valid and binding agreements of the Contributor, and to the
Contributor's Knowledge, of the parties (and their successors) thereto in
accordance with their respective terms.
5.22 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) With respect to the Business, the Contributor has
delivered to Clarant an accurate list (which is set forth on SCHEDULE 5.22) of
all Significant Customers, it being understood and agreed that a "Significant
Customer," for purposes of this Agreement, means a customer (or Person)
representing 5% or more of the 1998 annual revenues of the Business. Except to
the extent set forth on SCHEDULE 5.22, none of the Significant Customers has
canceled or substantially reduced or, to the Knowledge of the Contributor, is
currently attempting or Threatening to cancel a contract or substantially reduce
utilization of the services provided by the Business.
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(b) The Contributor has made available to Clarant a true and
complete copy (or in the case of oral arrangements, a detailed summary) of each
Material Contract, including all amendments or other modifications thereto.
Except as set forth on SCHEDULE 5.22, each Material Contract is a valid and
binding obligation of the Contributor enforceable in accordance with its terms,
and is in full force and effect, subject to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally and the
application of equitable principles. Except as set forth on SCHEDULE 5.22, the
Contributor has performed all obligations relating to the Business required to
be performed by it under each Material Contract, and it is not, nor, to the
Knowledge of the Contributor, is any other party to any Material Contract (with
or without the lapse of time or the giving of notice, or both) in breach or
default in any material respect thereunder; and there exists no condition which,
to the Knowledge of the Contributor, would constitute a breach or default
thereunder. Except as set forth on SCHEDULE 5.22, to Contributor's Knowledge, no
party to a Material Contract intends to cancel, terminate, not renew, or fail to
exercise an option under any Material Contract, whether in connection with the
transactions contemplated hereby or otherwise.
5.23 REAL PROPERTY.
(a) SCHEDULE 5.23 contains a complete and accurate listing of
all real property owned by the Contributor and used by the Business, including
the street address.
(b) SCHEDULE 5.23 includes an accurate list of real property
leased by the Contributor and used by the Business and attached to SCHEDULE 5.23
are true, complete and correct copies of all such leases and agreements (the
"Leases"). Except as set forth on SCHEDULE 5.23, all of such Leases included on
SCHEDULE 5.23 are in full force and effect and constitute valid and binding
agreements of the Contributor and, to the Contributor's Knowledge, of the
parties (and their successors) thereto in accordance with their respective
terms. Except as set forth in SCHEDULE 5.23, none of the Leases requires the
consent or approval of any party thereto in connection with the consummation of
the transactions contemplated by this Agreement.
5.24 TAXES.
(a) (i) except as set forth on SCHEDULE 5.24, all
Returns required to have been filed by or with respect to the Contributor,
including Returns of any affiliated, combined, consolidated, unitary or similar
group including the Contributor (each a "Relevant Group") relating to the
Business or the Acquired Assets, have been duly filed, and each such Return
correctly and completely reports the Tax liability and all other information
required to be reported thereon in each case relating to the Business or the
Acquired Assets and, except as set forth on Schedule 5.24, all Taxes (whether or
not shown on any Return) owed by the Contributor with respect to the Business
and the Acquired Assets have been paid;
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(ii) except as set forth on SCHEDULE 5.24, the
current liability accruals for Taxes (excluding reserves for deferred Taxes) on
the Financial Statements dated as of the Balance Sheet Date reflect all unpaid
Taxes owed by or with respect to the Business and the Acquired Assets;
(iii) except as set forth on SCHEDULE 5.24, no
deficiencies for any Taxes have been asserted in writing or assessed against
Contributor, or any Relevant Group which, if unpaid, might result in a Lien on
the Acquired Assets. No Tax Proceeding is presently pending with respect to
Taxes related to the Brand Dialogue Business or the Acquired Assets, no written
notice has been received of the expected commencement of a Tax Proceeding with
respect to Taxes related to the Business or the Acquired Assets;
(iv) except as set forth on Schedule 5.24 no
claim has ever been made by any Taxing Authority in any jurisdiction in which
the Contributor does not file Returns that it is or may be subject to taxation
by that jurisdiction with respect to the Business or the Acquired Assets;
(v) except as set forth on Schedule 5.24 the
Contributor has withheld and paid over all Taxes with respect to the Business or
the Acquired Assets required to have been withheld and paid over, and complied
with all information reporting and record-keeping requirements relating to the
Business and the Acquired Assets with respect to, any amounts paid or owing to
any employee, creditor, independent contractor or other third party;
(vi) [Intentionally omitted];
(vii) neither the Contributor nor any Relevant
Group has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency solely with
respect to the Business or the Acquired Assets;
(viii) none of the Acquired Assets constitutes tax
exempt bond financed property or tax-exempt use property within the meaning of
Section 168 of the Code;
(ix) there are no liens or other
encumbrances on the Acquired Assets relating or attributable
to Taxes (other than liens for Taxes not yet due and payable);
(x) none of the Acquired Assets is stock in a
corporation or an interest in a joint venture, partnership or
other arrangement that is treated as a partnership for federal
income tax purposes;
(xi) the Contributor is not a party to or
bound by any agreement or arrangement pursuant to which it will transfer or
otherwise dispose of beneficial ownership of the Clarant Stock received by it
pursuant to this Agreement; and
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(xii) the Contributor is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 351(e)(2) of the Code.
(b) For purposes of this Agreement, the following definitions
shall apply:
"RETURNS" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"PRE-CLOSING PERIOD" means any Taxable Period or portion thereof ending
on or before the Closing Date.
"POST-CLOSING PERIOD" means any Taxable Period or portion thereof
beginning after the Closing Date.
"TAX" or "TAXES" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, transfer, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TAX PROCEEDING" means any audit, examination, claim or other
administrative or judicial proceeding relating to Taxes or Returns.
"TAXABLE PERIOD" means any taxable year or other period that is treated
as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
"TAXING AUTHORITY" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.25 BUSINESS CONDUCT. Except as set forth on SCHEDULE 5.25, since the
Balance Sheet Date, the Contributor has conducted the Business in the Ordinary
Course of Business and has incurred no liabilities with respect to the Business
other than in the Ordinary Course of Business. Except as forth on SCHEDULE 5.25,
since the Balance Sheet Date, with respect to the Business, there has not been
any:
(a) Material Adverse Effect;
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(b) damage, destruction or loss of any real or personal
property or assets to be included in the Acquired Assets whether or not covered
by insurance, having a replacement cost in excess of $50,000;
(c) voluntary or involuntary sale, transfer, surrender,
abandonment or other disposition of any kind by the Contributor of any material
assets or property rights (real or personal, tangible or intangible) used in the
Business, having a replacement cost or fair market value in excess of $50,000,
except in each case the sale of inventory and collection of accounts in the
Ordinary Course of Business;
(d) strike, picketing, boycott, work stoppage, union
organizational activity, allegation, charge or complaint of employment
discrimination, other labor dispute or similar occurrence that might reasonably
be expected to have a Material Adverse Effect;
(e) material loan or advance by the Business to any party
other than sales to customers on credit or travel advances to employees made in
the Ordinary Course of Business and other than intercompany payables;
(f) notice of any material liability, potential liability or
claimed liability relating to the Environment;
(g) incurrence of debts, liabilities or obligations (except
current liabilities incurred in connection with or for services rendered or
goods supplied in the Ordinary Course of Business, liabilities on account of
Taxes and governmental charges (but not penalties, interest or fines in respect
thereof), and obligations or liabilities incurred by virtue of the execution of
this Agreement);
(h) cancellation, waiver or release by the Contributor of any
debts, liabilities, obligations, rights or claims relating to the Business,
except in each case in the Ordinary Course of Business;
(i) amendment or termination of any Material Contract, other
than expiration of such contract in accordance with its terms;
(j) change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the Contributor in connection with the Business;
(k) discharge or satisfaction of any material liability or
Encumbrance or payment of any material obligation or liability relating to the
Business other than current liabilities paid in the Ordinary Course of Business
or cancellation of any debts or claims;
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(l) sale or assignment by the Contributor of any
properties or assets necessary to the Business other than in the Ordinary Course
of Business;
(m) capital expenditures or commitments therefor by the
Contributor relating to the Business other than in the Ordinary Course of
Business or in excess of $100,000 in the aggregate; or
(n) mortgage, pledge or other Encumbrance of any property or
asset to be included in the Acquired Assets other than in the Ordinary Course of
Business.
5.26 DEPOSIT ACCOUNTS. With respect to the Business, the Contributor
has delivered to Clarant an accurate schedule (which is set forth on SCHEDULE
5.26) as of the date of this Agreement of:
(i) the name of each financial institution in which
the Contributor has accounts or safe deposit boxes which
relate solely to the Business;
(ii) the names in which the accounts or boxes are
held;
(iii) the type of such account and its account
number; and
(iv) the name of each Person authorized to draw
thereon or have access thereto.
5.27 YEAR 2000 COMPLIANCE. The Contributor has investigated and
reviewed the Acquired Assets and determined that, except as set forth on
SCHEDULE 5.27, all computer systems, software and hardware included in the
Acquired Assets are able to process accurately date data, including calculating,
comparing and sequencing from, into and between the twentieth century without
human intervention (through year 1999), the year 2000, and the twenty-first
century, including leap year calculations ("Year 2000 Compliant"). To the
Knowledge of the Business, the Significant Customers, and any other customer,
vendor or business partner of the Business whose failure to perform under any
contract, agreement or other understanding could have a Material Adverse Effect
on the Business, are or will be Year 2000 Compliant before December 31, 1999.
5.28 RELATIONS WITH GOVERNMENTS. To the Knowledge of the Contributor,
the Business has not made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would cause the Business to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any law
of similar effect.
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5.29 DISCLOSURE. To the Knowledge of the Contributor, none of the
representations and warranties set forth in this Agreement or in any of the
certificates, schedules, exhibits, lists, documents or other instruments
delivered, or to be delivered, by the Contributor as contemplated by any
provision hereof, as of their respective dates, contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
5.30 WARRANTIES; PRODUCTS. With respect to the Business, SCHEDULE 5.30
sets forth a description of all the product and service warranties and
guarantees given by Contributor with respect to services provided by the
Business for any customer. Except as described on SCHEDULE 5.30, with respect to
the Business, (i) no claims have been made or are, to the Knowledge of the
Contributor, Threatened, under the Contributor's product or service warranties
and (ii) to the Knowledge of Contributor, there exists no event or circumstance,
which after notice or the passage of time or both, might create or result in
liabilities or obligations to Clarant under any product warranties.
5.31 AFFILIATE TRANSACTIONS. With respect to the Business, SCHEDULE
5.31 (to the extent such information is required to be disclosed under the
caption "Certain Transactions" in the Registration Statement) sets forth the
parties to and the date, nature and amount of (a) each transaction involving the
transfer of any cash, securities, property, assets or rights in which the amount
involved individually or collectively exceeded $60,000 to or from the Business
from, to, or for the benefit of any officer, director or family member thereof
or any other Affiliate or former Affiliate of the Contributor ("Affiliate
Transactions") during the period commencing January 1, 1996, through the date
hereof and (b) any existing commitments of the Business to engage in the future
in any Affiliate Transactions. Each Affiliate Transaction was effected on terms
equivalent to those which would have been established in an arms-length
negotiation, except as disclosed on SCHEDULE 5.31.
5.32 [Intentionally Omitted.]
5.33 BROKERS. The Contributor has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Clarant could become
liable or obligated.
5.34 OWNERSHIP AND CONDITION OF ASSETS.
(a) The Contributor is the true and lawful owner of, and has
good title to, all of the Acquired Assets, free and clear of all Encumbrances
other than those which would not have a Material Adverse Effect.
(b) Upon execution and delivery by the Contributor to Clarant
of the instruments of conveyance referred to in Section 4.2(b), Clarant will
become the true and lawful
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owner of, and will receive good title to, the Acquired Assets, free and clear of
all Encumbrances other than those which would not have a Material Adverse Effect
6. REPRESENTATIONS OF CLARANT
Clarant represents and warrants to Contributor that all of the
following representations and warranties in this Article 6 are true and correct
at the date of this Agreement, and further represents that such representations
and warranties shall survive the Closing Date in accordance with Section 11.12.
6.1 DUE ORGANIZATION. Clarant is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to (i) carry on its operations as they are now
being conducted and (ii) to perform all of its obligations under this Agreement
and the Other Agreements. Clarant is duly qualified to conduct business as a
foreign corporation, and is in good standing, under the laws of each state in
which the operation of its business requires and the consummation of the
transactions under this Agreement and the Other Agreements requires, or will
require, such qualification.
6.2 AUTHORIZATION. The officers of Clarant executing this Agreement are
duly authorized to execute and deliver this Agreement and the Other Agreements,
and Clarant has the corporate right, power and authority to enter into this
Agreement and the Other Agreements and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Other
Agreements by Clarant and the performance by Clarant of its obligations under
this Agreement and the Other Agreements, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action in accordance with applicable law and the Clarant
Charter Documents. This Agreement and the Other Agreements constitute the valid
and binding obligations of Clarant, enforceable against Clarant in accordance
with their respective terms.
6.3 CAPITAL STOCK. As of the Closing Date and immediately following the
IPO, the authorized capital stock of Clarant will consist of one-hundred million
(100,000,000) shares of common stock, par value $.10 per share (the "Clarant
Common Stock") and ten million (10,000,000) shares of preferred stock, par value
$.10 per share ("Clarant Preferred Stock") (collectively, the "Clarant Common
Stock" and "Clarant Preferred Stock" referred to as "Clarant Stock"). The number
of issued and outstanding shares of Clarant Common Stock and Clarant Preferred
Stock as of the date hereof, as of the Closing Date and immediately following
the IPO is set forth on SCHEDULE 6.3(a) (which Schedule reflects the issuance of
such shares in connection with this Agreement and each Other Agreement). All of
the shares of Clarant Common Stock issued and outstanding on the date hereof
have been duly authorized and validly issued and are fully paid and
non-assessable. All of the shares of Clarant Common Stock and Clarant Preferred
Stock to be issued as of the Closing Date and immediately following the IPO will
be duly authorized, validly issued, fully paid and non-assessable. Except as
specifically contemplated by
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this Agreement and the Other Agreements, there are no outstanding options,
rights (preemptive or otherwise), warrants, calls, convertible securities or
commitments or any other arrangements to which Clarant is a party requiring
issuance, sale or transfer or redemption of any equity securities of Clarant or
any securities convertible or exercisable directly or indirectly into equity
securities of Clarant, or evidencing the right to subscribe for any equity
securities of Clarant, or giving any Person any rights with respect to the
capital stock of Clarant. On the Closing Date, Clarant shall have outstanding
only one class of capital stock (the Clarant Common Stock), and the shares of
Clarant Common Stock issued on the Closing Date pursuant to this Agreement and
the Other Agreements and to Persons who purchase shares in the IPO will in the
aggregate possess at least 80% of the total voting power of the Clarant Common
Stock that is entitled to vote and is outstanding as of the Closing Date (after
taking into account the dilution of the holdings of Clarant Common Stock of the
current Clarant stockholders). Other than agreements and commitments
specifically described in the Draft Registration Statement, as of the Closing
Date, there are no voting agreements, voting trusts, other agreements (including
cumulative voting rights), commitments or understandings with respect to the
capital stock of Clarant.
6.4 SUBSIDIARIES. Clarant has no subsidiaries except for the companies
identified as "ACQUISITION CORP." in the Other Agreements. Except as disclosed
in the Draft Registration Statement, Clarant does not currently own, of record
or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and Clarant, directly or
indirectly, is not a participant in any joint venture, partnership or other
non-corporate entity.
6.5 LIABILITIES AND OBLIGATIONS. Except as set forth on SCHEDULE 6.5,
or as disclosed in the Draft Registration Statement, Clarant has no material
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement and the Other Agreements and except for fees incurred in
connection with the transactions contemplated hereby and thereby.
6.6 NO VIOLATIONS. Clarant is not in violation of any Clarant Charter
Document. None of Clarant, or, to the Knowledge of Clarant, any other party
thereto, is in default under any obligation, lease, instrument, agreement,
license, or permit to which Clarant is a party, or by which Clarant or any of
its properties, are bound (collectively, the "Clarant Documents"). The rights
and benefits of Clarant under the Clarant Documents will not be adversely
affected by the transactions contemplated hereby and neither the execution and
delivery of this Agreement and the Other Agreements, nor the consummation of the
transactions contemplated hereby and thereby will result in any material
violation or conflict or breach or constitute a default under, any of the terms
or provisions of the Clarant Documents or the Clarant Charter Documents or any
Law, Order or Permit. Except as set forth on SCHEDULE 6.6, none of the Clarant
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect, and the consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
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6.7 MISREPRESENTATION. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, or other instruments (including the Draft Registration
Statement) delivered, or to be delivered, to the Contributor as contemplated by
any provision hereof, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading.
6.8 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Clarant was
incorporated in Delaware on August 21, 1998, and has conducted limited
operations since that time. Clarant has not conducted any material business
since the date of its inception, except in connection with this Agreement, the
Other Agreements and the IPO. Clarant does not own and has not at any time owned
any real property or any material personal property and is not a party to any
other material agreement, except as listed on SCHEDULE 6.8 and except that
Clarant is a party to the Other Agreements and the agreements contemplated
thereby and to such agreements as will be disclosed in, or filed as exhibits to,
the Registration Statement.
6.9 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
SCHEDULE 6.9 or disclosed in the Draft Registration Statement, Clarant is not in
violation of any Law or Order of any Governmental Authority having jurisdiction
over it which would have a Material Adverse Effect on Clarant or the Plan of
Reorganization and except to the extent set forth in SCHEDULE 6.9, there are no
material Actions or Proceedings pending or, to the Knowledge of Clarant,
threatened, against or affecting Clarant, or before or by any Governmental
Authority having jurisdiction over it and no written notice of any Action or
Proceeding has been received by Clarant. Clarant has conducted and is conducting
its businesses in substantial compliance with applicable Laws and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
Clarant or the Plan of Reorganization.
6.10 CLARANT COMMON STOCK. At the time of issuance thereof, the Clarant
Common Stock to be delivered to the Contributor pursuant to, or contemplated by,
this Agreement will constitute duly authorized, valid and legally issued shares
of Clarant Common Stock, fully paid and nonassessable, and will be identical in
all substantive respects (which do not include the form of certificate upon
which it is printed or the presence or absence of a CUSIP number on any such
certificate) to the Clarant Common Stock issued and outstanding as of the date
hereof. The shares of Clarant Common Stock to be issued to the Contributor
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Article 17 hereof.
6.11 NO SIDE AGREEMENTS. Clarant has not entered into and, as of the
Closing Date, will not have entered into any agreement with any of the Founding
Companies or any of the owners of the Founding Companies other than (i) the
Other Agreements and the agreements contemplated by the Other Agreements,
including the employment agreements referred to therein and (ii) other
employment agreements entered into in the ordinary course of business.
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6.12 ABSENCE OF CHANGES. Since March 31, 1999, except as contemplated
by this Agreement and the Other Agreements, there has not been:
(a) any change in the financial condition, assets, liabilities
(contingent or otherwise) income or business or Clarant that would have of
Material Adverse Effect on Clarant;
(b) any damage destruction or loss (whether or not
covered by insurance) materially adversely affecting the properties or
business of Clarant;
(c) any change in the authorized capital of Clarant or
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of
Clarant;
(e) any work interruptions, labor grievances or claims
filed, or any event or condition of any character, materially adversely
affecting the business of Clarant;
(f) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Clarant to any person;
(g) any cancellation or agreement to cancel, any
indebtedness or other obligation owing Clarant;
(h) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of Clarant or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(i) any waiver of any material rights or claims of
Clarant;
(j) any amendment or termination of any material
contract agreement, license, permit or other right to which Clarant is a
party;
(k) any transaction by Clarant outside the Ordinary
Course of Business; or
(l) any other distribution of property or assets by Clarant
other than in the Ordinary Course of Business;
6.13 TAXES. All Returns required to have been filed by or with respect
to Clarant have been duly filed. No Tax Proceedings are presently pending with
regard to any Tax Returns or
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Taxes of Clarant, and no notice has been received (whether in writing or
verbally) of the expected commencement of such a Tax Proceeding. All Taxes
(whether or not shown on any Return) owed by Clarant have been paid. Clarant has
withheld and paid over to the proper governmental authority all Taxes required
to have been withheld and paid over, and complied with all information reporting
and record-keeping requirements with respect to, any amounts paid or owing to
any employee, creditor, independent contractor or other third party. Clarant has
not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency. None of the
assets of Clarant constitutes tax exempt bond financed property or tax-exempt
use property within the meaning of Section 168 of the Code.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing Date,
the Contributor will afford to the officers, directors and authorized
representatives of Clarant access during normal business hours and upon
reasonable notice to all of the Contributor's sites, properties, books and
records directly related to the Business and will furnish Clarant with such
additional financial and operating data and other information as to the Business
and the Acquired Assets as Clarant may from time to time reasonably request. The
Contributor will cooperate with Clarant and its representatives, including
Clarant's auditors and counsel, in the preparation of any documents or other
material (including the Registration Statement) which may be required in
connection with the transactions contemplated by this Agreement. Clarant and the
Contributor will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Article 14 hereof. In
addition, Clarant will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date,
Clarant will afford to the officers and authorized representatives of the
Contributor access during normal business hours and upon reasonable notice to
all of Clarant's (including the Founding Companies') sites, properties, books
and records and will furnish the Contributor with such additional financial and
operating data and other information as to the business and properties of
Clarant and the Founding Companies as the Contributor may from time to time
reasonably request. Clarant will cooperate with the Contributor, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with the transactions
contemplated by this Agreement. The Contributor will cause all information
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obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Article 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. With respect to the Business,
between the date of this Agreement and the Closing Date, the Contributor will:
(a) conduct the Business in the Ordinary Course of
Business substantially as conducted heretofore and not introduce any new method
of management, operation or accounting;
(b) maintain the Acquired Assets, in as good working
order and condition as at present, ordinary wear and tear excepted;
(c) perform in all material respects its
obligations under the Assigned Contracts to or affecting the
Business;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage covering the Business and the
Acquired Assets;
(e) use commercially reasonable efforts to maintain and
preserve the Acquired Assets intact and use its best efforts to retain its
present management, key employees of the Business and relationships with
suppliers, customers and others having business relations with the Business; and
(f) maintain compliance, in all material respects, with
all Permits, Laws, rules and regulations, consent orders, and all other orders
of applicable courts, regulatory agencies and similar Governmental Authorities.
7.3 PROHIBITED ACTIVITIES. Between the date hereof and the
Closing Date, the Contributor will not, without the prior written consent of
Clarant, with respect to the Business:
(a) enter into any contract or commitment on behalf of
the Business or incur or agree to incur any liability or make any capital
expenditure on behalf of the Business except if it is in the Ordinary Course of
Business (consistent with past practice) and involves an amount not in excess of
$50,000;
(b) create, assume or permit to exist any Encumbrance
upon any Acquired Asset, except (i) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate cost
not in excess of $10,000 necessary or desirable for the conduct of the Business,
(ii) (1) liens for Taxes either not yet delinquent or being contested in good
faith and by appropriate proceedings (and for which adequate reserves have been
established and are being maintained) or (2) materialmen's, mechanics',
workers', repairmen's,
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employees' or other like liens arising in the Ordinary Course of Business (the
liens set forth in clause (ii) being referred to herein as "Statutory Liens"),
or (iii) liens set forth on SCHEDULE 5.11 hereto;
(c) sell, assign, lease or otherwise transfer or dispose
of any Acquired Assets except in the Ordinary Course of Business;
(d) waive any material right or claim of the Business,
provided that the Contributor may negotiate and adjust bills in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included on
SCHEDULE 5.12 unless specifically listed thereon;
(e) commit a material breach or materially amend or
terminate any Material Contract to which the Contributor or any Subsidiary is a
party or as to which it is a beneficiary;
(f) enter into any other transaction on behalf of the
Business outside the Ordinary Course of Business or prohibited hereunder;
(g) except in the Ordinary Course of Business or as
required by Law or contractual obligations or other understandings or
arrangements existing on the date hereof, the Contributor will not (A) increase
in any manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the Business, (B)
pay or agree to pay any additional pension, retirement allowance or other
employee benefit to any such employee, whether past or present or (C) enter into
any new employment, severance, consulting, or other compensation agreement with
any existing employee engaged in the Business; or
(h) make or change any Tax election, amend any Tax Return
or take or omit to take any other action not in the Ordinary Course of Business
and consistent with past practice that would have the effect of increasing any
Taxes of Clarant for any Taxable Period ending after the Closing Date.
7.4 NO SHOP. In consideration of the substantial expenditure of time,
effort and expense undertaken by Clarant in connection with its due diligence
review and the preparation and execution of this Agreement, the Contributor
agrees that neither it nor its representatives, agents or employees will, after
the execution of this Agreement until the earlier of (a) the termination of this
Agreement or (b) the Closing, directly or indirectly, solicit, encourage,
negotiate or discuss with any third party (including by way of furnishing any
information concerning the Business) any acquisition proposal relating to or
affecting the Business or the Acquired Assets, whether by purchase of assets or
stock, purchase of interests, merger or other transaction, and that the
Contributor will promptly advise Clarant of the terms of any
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communications the Contributor may receive or become aware of relating to any
bid for all or any part of the Business or the Acquired Assets.
7.5 [Intentionally Omitted]
7.6 AGREEMENTS. The Contributor shall terminate the employment
agreements listed on SCHEDULE 7.6 hereto.
7.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Contributor shall give prompt notice to Clarant
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of the Contributor contained herein to be untrue or inaccurate in any material
respect; and (ii) any material failure of the Contributor to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such Person hereunder;
(b) Clarant shall give prompt notice to the Contributor
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Clarant contained herein to be untrue or inaccurate in any material respect
and (ii) any material failure of Clarant to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
(c) The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.13, (ii) modify the conditions set forth in Articles
8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
(a) The Contributor shall furnish or cause to be
furnished to Clarant and the Underwriters all of the information concerning the
Contributor reasonably requested by Clarant or the Underwriters for inclusion
in, and will cooperate with Clarant and the Underwriters in the preparation of,
the Registration Statement and the prospectus included therein (including
audited and unaudited financial statements, prepared in accordance with
generally accepted accounting principles, in form suitable for inclusion in the
Registration Statement). The Contributor agrees promptly to advise Clarant if at
any time during the period in which a prospectus relating to the offering is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the Contributor contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and to provide the
information needed to correct such inaccuracy. Insofar as the
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information relates solely to the Contributor, the Contributor represents and
warrants as to such information, that the Registration Statement at its
effective date, at the date of the final Prospectus, each preliminary prospectus
and each amendment to the Registration Statement, and at each closing date with
respect to the IPO under the Underwriting Agreement (including with respect to
any over-allotment option) will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(b) Clarant agrees that it will use its commercially
reasonable best efforts to provide to the Contributor and its counsel copies of
drafts of the Registration Statement as they are prepared and to give the
Contributor a reasonable period of time to review and comment upon such
documents prior to filing with the SEC. Any objections posed by the Contributor
or its counsel shall be in writing and state with specificity the material in
question, the reason for the objection, and the Contributor's proposed
alternative.
7.9 FINAL FINANCIAL STATEMENTS. The Contributor shall provide prior to
the Closing Date, and Clarant shall have had sufficient time prior thereto to
review, the unaudited Balance Sheets of the Business as of the end of all fiscal
quarters following the Balance Sheet Date, and the unaudited statements of
operations and statements of cash flows of the Business for all fiscal quarters
ended after the Balance Sheet Date. Such Financial Statements shall have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods indicated and in a manner consistent with the Financial Statements
(except as noted therein). Except as noted in such Financial Statements, all of
such Financial Statements will present fairly the results of operations of the
Business for the periods indicated thereon. Clarant shall provide prior to the
Closing Date (promptly after being made available to Clarant), and the
Contributor shall have had at least 48 hours prior to Closing to review, all the
financial statements delivered to Clarant by the Other Founding Companies.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.11 THIRD PARTY APPROVALS. Prior to the Closing Date, Clarant and the
Contributor shall satisfy any requirement for notice and approval of the
transactions contemplated by this Agreement under applicable agreements or Laws.
7.12 BASIS. Prior to the Closing Date, Contributor shall provide to
Clarant accurate and complete descriptions of the Contributor's basis in
Acquired Assets having a book basis in excess of Five Hundred Dollars ($500).
7.13 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have
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the continuing obligation, until 24 hours prior to the anticipated effectiveness
of the Registration Statement, to supplement or amend promptly the Schedules
hereto with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in such party's Schedules, provided however, that
supplements and amendments to Schedules 5.11 (Liabilities and Obligations), 5.12
(Accounts and Notes Receivable) and 5.22 (Significant Customers; Material
Contracts and Commitments) must be delivered only at the Closing Date, unless
such Schedule is to be amended to reflect an event occurring other than in the
Ordinary Course of Business; and further provided that all matters identified by
the Company on any Schedule supplement or amendment shall also be included on
Schedule 11.1(d), except that any Schedule supplement or amendment specifically
required by any Section of this Agreement shall not be included on Schedule
11.1(d) unless such supplement or amendment reflects matters outside of the
Ordinary Course of Business. Notwithstanding the foregoing sentence, no
amendment or supplement to a Schedule prepared by the Contributor that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on the Business may be made unless Clarant and a majority of the
Founding Companies other than the Contributor consent to such amendment or
supplement; and provided further, that no amendment or supplement to a Schedule
prepared by Clarant that constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on Clarant may be made unless a majority of
the Founding Companies consent to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 7.13. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to a
provision similar to this Section 7.13 of one of the Other Agreements, and such
amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on such Other Founding Company, Clarant
shall give the Contributor notice promptly after it has Knowledge thereof and no
such amendment or supplement may be made unless a majority of the Founding
Companies and Clarant consent to such amendment or supplement. If a majority of
the Founding Companies consent to a Schedule amendment or supplement by Clarant,
which consent shall have been deemed given by any Founding Company if no
response is received within 72 hours following receipt of notice of such
amendment or supplement but the Contributor does not give its consent, the
Contributor may terminate this Agreement pursuant to Section 12.1(d). If Clarant
and a majority of the Founding Companies consent to a Schedule amendment or
supplement by any Other Founding Company, which consent shall have been deemed
given by Clarant or any Founding Company if no response is received within 24
hours following receipt of notice of such amendment or supplement, but the
Contributor does not give its consent, the Contributor may terminate this
Agreement pursuant to Section 12.1(d). In the event that the Contributor seeks
to amend or supplement a Schedule pursuant to this Section 7.13, and Clarant or
a majority of the Other Founding Companies do not consent to such amendment or
supplement, Contributor may terminate this Agreement pursuant to Section
12.1(d). No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
Notwithstanding
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anything herein to the contrary, Schedule 10.8(g) shall not be amended by
Clarant without the express written consent of the Contributor.
7.14 AUTHORIZED CAPITAL STOCK. Through the Closing Date, Clarant shall
maintain its authorized capital stock as set forth in the Registration Statement
filed with the SEC except for such changes as are made to respond to comments
made by the SEC or requirements of any exchange or automated trading system for
which application is made to register the Clarant Common Stock.
7.15 HSR FILING. To the extent the transaction contemplated hereunder
is a transaction subject to the filing requirements of the HSR Act, the
Contributor and Clarant shall use their commercially reasonable best efforts to
(a) file all information required to be filed by it pursuant to the HSR Act and
(b) provide the other party with all information reasonably requested and
required by it to satisfy any filing requirements it may have under the HSR Act.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CONTRIBUTOR
The obligations of the Contributor with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date, as the case may be, of all of the conditions set forth in this
Article 8. As of the Closing Date, all conditions not satisfied shall be deemed
to have been waived by the Contributor unless such parties have objected by
notifying Clarant in writing of such objection on or before the consummation of
the transactions on the Closing Date, respectively, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
Clarant contained in Article 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Clarant contained in Article 6 shall be true and correct in all material
respects on the date when made and shall be repeated at and as of the Closing
Date and shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality which shall be
true and correct in all respects) on the Closing Date as so made again (unless a
representation is made as of a specific date, and in such event it shall be true
and correct in all material respects as of such date); and a certificate to the
foregoing effect dated the Closing Date and signed by the President, any Vice
President or the Secretary of Clarant shall have been delivered to the
Contributors.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by Clarant on or
before the Closing Date shall have been duly complied with and performed in all
material respects on or before the Closing Date; and a certificate to the
foregoing effect dated the Closing Date and signed by the President, any Vice
President or the Secretary of Clarant shall have been delivered to the
Contributor.
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8.3 NO LITIGATION. No Action or Proceeding before a court or any other
governmental agency or body shall have been instituted or Threatened to restrain
or prohibit this Agreement or the IPO and no Governmental Authority shall take
any other action with respect to the transactions hereunder which would have a
Material Adverse Effect on Clarant.
8.4 OPINION OF COUNSEL. The Contributor shall have received an opinion
from counsel for Clarant, dated the Pre-Closing Date, in form and substance of
the type customarily given by counsel to an acquiring company in transactions
similar to that contemplated by this Agreement and reasonably acceptable to
Clarant (and the Underwriters shall have received a copy of the same opinion
addressed to them), and at the Closing, the Contributor shall have received a
statement from such counsel that the opinion is true as of the Closing Date.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, shares of
Clarant Common Stock for a price no lower than the minimum price specified on
EXHIBIT 3.1.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
required to be obtained or made by Clarant with any Governmental Authority or
agency relating to the consummation of the transactions contemplated herein
shall have been obtained and made and all Consents listed on SCHEDULE 5.4 shall
have been obtained.
8.7 GOOD STANDING CERTIFICATES. Clarant shall have delivered to the
Contributor a certificate, dated as of a date no earlier than ten (10) days
prior to the Closing Date, duly issued by the Delaware Secretary of State and in
each state in which Clarant is authorized to do business, showing that Clarant
is in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for Clarant, respectively, for all periods
prior to the Closing have been filed and paid.
8.8 SECRETARY'S CERTIFICATE. The Contributor shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Clarant, certifying the truth and correctness of attached copies of the
Clarant's respective Charter Documents (including amendments thereto) and
resolutions of the board of directors.
8.9 CLOSING OF IPO. The closing of the sale of the Clarant stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
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8.10 EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE 9.9
shall have been afforded the opportunity to enter into an employment agreement
in the form attached as EXHIBIT 8.10 hereto (the "Employment Agreements").
8.11 DIRECTOR INDEMNIFICATION. Clarant shall have obtained directors'
and officers' liability insurance from a reputable insurance company in type and
amount customary for businesses similar to Clarant and the Founding Companies
taken as a whole.
8.12 TRANSITION SERVICES AGREEMENT. Clarant shall have entered into
the Transition Services Agreement substantially in the form of EXHIBIT
4.1(b)(iv).
8.13 LISTING. Clarant shall cause the Clarant Common Stock to be listed
on the Nasdaq National Stock Market, subject to official notice of issuance.
8.14 DIRECTORS. As of the Closing Date, Clarant shall have caused one
Director (or two Directors, if the Board of Directors of Clarant has ten (10) or
more members immediately after the Closing), identified in writing by the
Contributor prior to the Closing, to be elected to the Board of Directors of
Clarant.
8.15 MATERIAL ADVERSE EFFECT. As of the Closing Date, no event or
circumstance shall have occurred or exist with respect to Clarant or any of the
Founding Companies which would constitute a Material Adverse Effect on Clarant
and the Founding Companies taken as a whole and, on or prior to the Closing
Date, there shall have been no waiver of any term, provision or condition set
forth in any Other Agreement or any of the agreements contemplated thereunder
which would materially adversely affect the value of the Consideration paid, or
the value of any stock or options to be issued, to Contributor under this
Agreement.
8.16 TAX OPINION. Contributor shall have received an opinion, addressed
to the Contributor upon which the Contributor will be entitled to rely (the "Tax
Opinion") from Wilmer, Cutler & Pickering, tax counsel for Clarant, or such
other tax counsel reasonably acceptable to Clarant and the Contributor ("Tax
Counsel") that the Clarant Plan of Organization will qualify as a tax-free
transfer of property under Section 351(a) of Code and that the Contributor will
not recognize gain to the extent the Contributor exchanges assets which
constitute property for purposes of Section 351 of the Code for Clarant Common
Stock (but not cash or other property) pursuant to the Clarant Plan of
Organization, and in rendering such Tax Opinion, Tax Counsel shall be entitled
to rely on customary written representations acceptable to Tax Counsel and
received from (i) Clarant, (ii) the Contributor, (iii) each Other Founding
Company, and (iv) each contributor, stockholder or member of the Other Founding
Companies who will receive Clarant Common Stock under the Clarant Plan of
Organization.
8.17 HSR ACT. The waiting period applicable to the consummation of the
transaction contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
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8.18 OPTIONS. Contributor shall have been granted the options described
in Section 10.8 pursuant to an option agreement in the form of EXHIBIT 10.8(i).
8.19 ISSUED AND OUTSTANDING CAPITAL STOCK. Clarant shall not have
issued or agreed to issue any capital stock, option or other security
exercisable or exchangeable for, or convertible into, capital stock of Clarant
other than the capital stock and options specifically set forth in the Draft
Registration Statement, and Contributor shall be the largest single stockholder
of Clarant.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLARANT
The obligations of Clarant with respect to actions to be
taken on the Closing Date, are subject to the satisfaction or waiver on or prior
to the Closing Date, of all of the conditions set forth in this Article 9. As of
the Closing Date, all conditions not satisfied shall be deemed to have been
waived by Clarant unless such parties have objected by notifying the Contributor
in writing of such objection on or before the consummation of the transactions
on the Closing Date, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the Contributor contained in
Article 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of the Contributor contained in Article 5 shall be true and correct in all
material respects on the date when made and shall be repeated at and as of the
Closing Date and shall be true and correct in all material respects (except for
those representations and warranties that are qualified by materiality which
shall be true and correct in all respects) on the Closing Date as so made again
(unless a representation is made as of a specific date, and in such event it
shall be true and correct in all material respects as of such date); and a
certificate to the foregoing effect dated the Closing Date and signed by the
President, any Vice President or the Secretary of the Contributor shall have
been delivered to Clarant.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Contributor
on or before the Closing Date shall have been duly performed or complied with in
all material respects on or before the Closing Date.
9.3 NO LITIGATION. No Action or Proceeding before a court or any other
Governmental Authority or body shall have been instituted or Threatened to
restrain or prohibit this Agreement or the IPO.
9.4 SECRETARY'S CERTIFICATE. Clarant shall have received a certificate
or certificates, dated the Closing Date and signed by the secretary of the
Contributor, certifying the offices and signatures of the officers and directors
of the Contributor and including certified resolutions authorizing and approving
the transactions contemplated by this Agreement.
9.5 NO MATERIAL ADVERSE EFFECT. As of the Closing Date, no event or
circumstance shall have occurred which would constitute a Material Adverse
Effect on Clarant.
9.6 CONSENTS AND APPROVALS. All necessary Consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated
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herein shall have been obtained and made and all Consents listed on SCHEDULE 9.6
shall have been obtained.
9.7 OPINION OF COUNSEL. Clarant shall have received an opinion from
counsel to the Contributor, dated the Pre-Closing Date, in form and substance of
the type customarily given by counsel to a founding company in transactions
similar to that contemplated by this Agreement and reasonably acceptable to the
Contributor (and the Underwriters shall have received a copy of the same opinion
addressed to them), and at the Closing, Clarant shall have received a statement
from such counsel that the opinion is true as of the Closing Date.
9.8 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, shares of
Clarant Common Stock.
9.9 EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE 9.9
shall have entered into an Employment Agreement.
9.10 CLOSING OF IPO. The closing of the sale of the Clarant Common
Stock to the Underwriters in the IPO shall have occurred simultaneously with the
Closing Date hereunder.
9.11 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to Clarant.
9.12 TRANSITION SERVICES AGREEMENT. The Contributor shall have entered
into the Transition Services Agreement substantially in the form of EXHIBIT
4.1(b)(iv).
9.13 CONTRIBUTOR REPRESENTATIONS. The Contributor shall have provided
Tax Counsel with the written representations requested pursuant to Section 8.16.
10. COVENANTS OF CLARANT AND THE CONTRIBUTOR AFTER CLOSING
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Closing
Date, Clarant shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization
under Section 351 of the Code.
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10.2 TAX MATTERS.
(a) The Contributor shall timely pay all Taxes relating to the
Business or the Acquired Assets and that were incurred in or are attributable to
any Pre-Closing Period and Clarant shall timely pay all Taxes relating to the
Business and the Acquired Assets and that are incurred in, or that are
attributable to, (a) the portion of any Taxable Period that begins on or before
but ends after the Closing Date (but only to the extent attributable to periods
after the Closing Date) and (b) any Taxable Period beginning on or after the
Closing Date.
(b) All real property, personal property and other similar
Taxes levied with respect to the Business or the Acquired Assets for a Taxable
Period that includes but does not end on the Closing Date shall be apportioned
between the Contributor and Clarant based on the number of days of such Taxable
Period up to and including the Closing Date and the number of days of such
Taxable Period after the Closing Date. The Contributor shall pay the
proportionate amount of such Taxes that is attributable to the portion of the
Taxable Period ending on the Closing Date, and Clarant shall pay the
proportionate amount of such Taxes that is attributable to the portion of the
Taxable Period beginning after the Closing Date.
(c) Each party hereto shall, and shall cause its Subsidiaries
and Affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund, determining a liability for Taxes or a right
to refund of Taxes or in conducting any Tax Proceeding. Such cooperation and
information shall include providing copies of all relevant portions of relevant
Returns, together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings or other determinations by Taxing
Authorities and relevant records concerning the ownership and Tax basis of
property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns. Neither party shall take
any action or position with respect to Taxes relating to the Business or the
Acquired Assets, including in any Tax Proceeding, if that action or position
could reasonably be expected to adversely affect the other party to this
Agreement or any of its respective Affiliates.
(e) The Contributor and Clarant shall comply with the tax
reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and treat the transaction as a transfer of property
under Section 351(a) of the Code.
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10.3 DIRECTORS AND OFFICERS.
(a) The Persons named in the Registration Statement shall be
elected as directors and elected as officers of Clarant, as and to the extent
set forth in the Registration Statement.
(b) After the Closing Date, Contributor shall be entitled to
nominate one (1) Director to the Board of Directors of Clarant and, if the
number of Directors constituting the entire Board of Directors of Clarant equals
or exceeds ten (10), then Contributor shall be entitled to nominate two (2)
Directors to the Board of Directors of Clarant (the "Contributor Directors");
PROVIDED, THAT:
(i) any Directors elected to Clarant's Board of
Directors in accordance with Section 8.14 (Directors) shall be deemed to be the
Contributor Directors so long as they are members of the Board of Directors, and
Contributor (for so long as it has appropriate representation on the Board of
Directors as contemplated by this Schedule 10.3) shall have no right to nominate
additional Directors pursuant to this Section;
(ii) if Contributor disposes of more than
one-third (1/3) but less than two-thirds (2/3) of the total number of shares of
Clarant Common Stock acquired as Consideration and Contingent Consideration
pursuant to this Agreement, Contributor shall only have the right to nominate
one Director, notwithstanding the size of the Board of Directors of Clarant; and
(iii) if Contributor disposes of more than
two-thirds (2/3) of the total number of shares of Clarant Common Stock acquired
as Consideration and Contingent Consideration pursuant to this Agreement,
Contributor shall have no right to nominate any Directors to the Board of
Directors of Clarant.
10.4 FURTHER ASSURANCES. At any time and from time to time after the
Closing without further consideration, each party shall execute and deliver such
other instruments of sale, transfer, conveyance and assignment and take such
action as the other party may reasonably determine is necessary to transfer,
convey and assign to Clarant, to evidence and confirm Clarant's rights to, title
in and ownership of, the Business and the Acquired Assets, and to carry out the
purpose and intent of this Agreement.
10.5 TRANSFER TAXES. Any transfer, documentary, sales, use, excise or
other Taxes assessed upon or with respect to the transfer of the Business and
the Acquired Assets and any recording or filing fees with respect thereto shall
be borne by the party obligated to pay such Taxes under applicable Laws. The
Contributor and Clarant agree to cooperate in good faith with each other, and to
use their commercially reasonable efforts, to minimize such Taxes.
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10.6 [Intentionally Omitted.]
10.7 EMPLOYEE RELATIONS AND BENEFITS.
(a) Clarant shall offer employment as of the Closing Date to
all of the employees of the Contributor exclusively engaged in the Business
(whether salaried or hourly, whether full-time or part-time), whether or not
actively employed on the Closing Date (E.G., including employees on vacation and
leave of absence, including maternity, family, sick or short-term disability
leave) on at least the same wage rates or cash salary levels as are in effect
immediately prior to the Closing Date. With respect to each such employee who
accepts Clarant's offer of employment (a "TRANSFERRED EMPLOYEE"), Clarant shall
(i) maintain such equivalent or higher cash salary levels, and (ii) to the
extent permitted by applicable plans, credit periods of service prior to the
Closing for purposes of determining eligibility and benefit accruals and vesting
under its Plans after the Closing and (iii) provide substantially similar
benefits (other than with respect to the Contributor's cash balance pension plan
and any post-retirement benefits for life or health coverage other than as
required by law) in the aggregate for 12 months after Closing.
(b) Without limiting the scope of Section 10.7(a), Clarant
shall cause each Transferred Employee (and his or her eligible dependents) to be
covered following the Closing by a group health plan that provides health
benefits (within the meaning of Section 5000(b)(1) of the Code) that (i) does
not limit or exclude coverage on the basis of any pre-existing condition of such
Transferred Employee or dependent who was not so limited by the Contributor's
plans and (ii) provides each Transferred Employee full credit, for the year
during which the Closing occurs, with any deductible already incurred by the
Transferred Employee under the Contributor's group health plan.
(c) With respect to any accrued but unused vacation time for
which any Transferred Employee is eligible as of the Closing Date, Clarant shall
allow such Transferred Employee to use such accrued vacation, provided that
Clarant shall not be required to allow use of vacation if and to the extent that
it accrued at a higher rate after December 31, 1998.
(d) The Contributor shall retain responsibility for making
long-term disability payments for employees who are receiving long-term
disability payments as of the Closing or who were on short-term disability but
become eligible for long-term disability.
(e) Without limiting the scope of Section 10.7(a), as soon as
practicable after the Closing, Clarant shall make available a tax-qualified
defined contribution plan or plans with a cash or deferred feature (a "CLARANT
401(k) PLAN") for the benefit of each Transferred Employee who was eligible to
participate in a tax-qualified defined contribution plan maintained by the
Contributor with a cash or deferred feature (a "CONTRIBUTOR 401(k) PLAN").
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(f) Any severance payable on or after the consummation of the
transactions contemplated hereby to any Transferred Employee shall be the sole
responsibility of Clarant.
(g) Nothing herein, expressed or implied, shall confer upon
any employee or former employee of the Contributor or Clarant or any of their
affiliates (including, without limitation, the Transferred Employees), any
rights or remedies (including, without limitation, any right to employment or
continued employment for any specified period or benefits of any nature) of any
nature or kind whatsoever, under or by reason of this Agreement.
10.8 POST CLOSING SERVICES.
(a) The parties acknowledge that they intend to cooperate in
marketing their respective services to each others' clients in order to increase
the range, breadth and depth of services available to such clients.
(b) For a period of one (1) year from and after the Closing,
Clarant shall cause the Business (which, for purposes of this Section 10.8,
shall refer to the Business and the Acquired Assets and the employees of the
Business as operated by Clarant following the Closing) to continue to perform,
or commence performance of, the services (the "Current Services") contemplated
under the work orders listed on SCHEDULE 10.8(b) (the "Work Orders"). The
Current Services shall meet the specifications described in the applicable Work
Order and shall be performed in a workmanlike and professional manner by
employees of the Business.
(c) For a period of one (1) year from and after the Closing,
Contributor shall cause its Young & Rubicam Advertising (New York) division
("Y&R Advertising") and its Wunderman Cato Johnson (New York) division ("WCJ")
to enter into work orders with the Business (the "New Work Orders") with respect
to projects committed to by Existing Clients and Additional Clients for services
of a kind, quality and nature substantially similar to the work provided by the
Business prior to the Closing (the "New Services"); PROVIDED THAT Contributor
shall be under no obligation to cause Y&R Advertising or WCJ to enter into any
such New Work Order if, in the reasonable judgment of the Contributor, entering
into any such New Work Order is not in the best interests of the Existing
Clients or Additional Clients. Clarant shall cause the Business to enter into
the New Work Orders and to perform the New Services in accordance with the
specifications contained in the applicable New Work Order and in a workmanlike
and professional manner by employees of the Business. For purposes of this
Section 10.8, "Existing Clients" shall mean the clients of Contributor listed on
SCHEDULE 10.8(c) hereof and "Additional Clients" shall mean such additional
existing or future clients of Contributor that (i) the parties mutually agree to
add on a supplement to SCHEDULE 10.8(c) hereof, or (ii) that Contributor elects
to add on a supplement to SCHEDULE 10.8(c) hereof, provided, that, without the
prior consent of Clarant, Contributor may add no more than eight (8) clients
pursuant to this clause (ii) and such clients may be added if and only if, in
the reasonable judgment of Contributor, such clients will
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generate $500,000 or more in revenues for Clarant and the Business collectively
in the next succeeding twelve (12) month period.
(d) The Contributor shall have the right to terminate any
particular Work Order or New Work Order, in whole or in part, if (i) Clarant or
the Business fails to satisfactorily perform its obligations under this Section
10.8 with respect to such work order, or (ii) Clarant, its Affiliates or the
Business commits any act, or fails to take any act, which results in a default
under such work order or any agreement between the Contributor and any client,
unless the terms of such contract or agreement were not known to Clarant or the
Business when the act or failure to act occurred, or (iii) any Existing Client
or Additional Client cancels or terminates, in whole or in part, its request for
services covered by any Work Orders or any New Work Order, or (iv) in the
reasonable judgment of the Contributor, the continued performance of any Current
Services or New Services by the Business is not in the best interests of any
Existing Client or Additional Client. Any such termination shall be effective
immediately upon delivery by the Contributor to Clarant or the Business of a
written notice respecting such termination. No such termination shall affect, in
any way, the obligations of Contributor or the client, as the case may be, for
amounts earned by the Business prior to the date of such termination.
(e) In full consideration for the provision of the Current
Services, the Contributor shall pay to the Business amounts actually received by
the Contributor from its clients and allocated by the Contributor to the
performance of the Current Services. The amount allocated to the Current
Services shall be calculated (i) as contemplated in the applicable Work Order,
or (ii) if the applicable Work Order does not specify an amount payable with
respect to such services, based on the rates which Contributor is charging such
client under the applicable agreement between Contributor and such client. The
payment terms relating to New Services which are provided to Existing Clients
listed on SCHEDULE 10.8(c) on the date hereof shall be set forth by Contributor
in the applicable New Work Order and, in each case, shall be based on the rates
which Contributor charges such clients for substantially similar projects under
the applicable agreement between Contributor and such client. The payment terms
relating to New Services which are provided to Additional Clients added to
SCHEDULE 10.8(c) pursuant to Sections 10.8(c)(i) or 10.8(c)(ii) shall be set
forth by Contributor in the applicable New Work Order and, in each case, shall
be based on the then-current market rates for such services. Each of Clarant and
the Business shall be responsible for all expenses incurred by it in connection
with providing the Current Services or any New Services (unless such expenses
are otherwise specifically approved in the respective work order), including,
without limitation, all travel, equipment, overhead and personnel expenses.
Clarant and the Business shall be responsible for all applicable taxes in
connection with providing the Current Services and any New Services. Clarant or
the Business shall render invoices (addressed to the applicable client) in
respect of a Work Order or a New Work Order to the Contributor at the times
provided in the applicable Work Order or New Work Order and in the detail
specified therein. Contributor shall include such invoices in its regular
billing to Existing Clients or Additional Clients in accordance with
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the applicable contract with such client or in a Contributor's ordinary course
of business with such client.
(f) Clarant shall cause the Business to, and the Business
shall, perform the Current Services and any New Services in a manner (i) which
complies in all material respects with all applicable local, state and federal
laws and regulations, (ii) which is consistent with, and which will not violate
the terms of, any contract or agreement between the Contributor and the Existing
Clients and any Additional Clients of the Contributor, PROVIDED THAT the terms
of such contract or agreement have been made known to the Business by
(g) Except as set forth on SCHEDULE 10.8(g) and subject to the
terms of such Schedule, Clarant shall not, and shall cause the Business and its
other Affiliates not to, market, solicit, attempt to sell any services to, or
attempt (except as otherwise provided in this Section 10.8(g)) to collect any
accounts receivable arising out of a Work Order or New Work Order from, any
Existing Clients or Additional Clients for which the Contributor has engaged the
Business to perform services. If an invoice submitted to the Contributor by
Clarant or the Business pursuant to Section 10.8(e) has not been paid within the
time period required by the applicable contract between Contributor and such
Client or pursuant to the Contributor's ordinary course of business with such
Client, the Contributor shall, at the request of the Business, use its best
efforts to collect from the client such account receivable. If any account
receivable with respect to services performed by the Business for an Existing
Client or an Additional Client remains unpaid for more than one hundred eighty
(180) days, or thirty (30) days after a request by the Business to Contributor
to assist in collecting the account receivable, whichever is later, then -- at
the sole election of Clarant -- Contributor shall either: (x) authorize Clarant
and the Business to collect such account receivable directly from the client, or
(y) pay the Business a proportionate share of the accounts receivable collected
from such client by Contributor from the date on which the account receivable
became due and payable. Notwithstanding anything to the contrary contained in
this Section 10.8(g), at the request of either Clarant or the Contributor, (i)
any Existing Client listed on SCHEDULE 10.8(c) on the date hereof shall be
removed from SCHEDULE 10.8(c) if, for the twelve month period following the
Closing Date, Clarant and the Business collectively earned less than $500,000 in
revenues from such client or (ii) any Additional Client added to SCHEDULE
10.8(c) on or after the Closing Date shall be removed from SCHEDULE 10.8(c) if,
for the twelve month period following the addition of such client to SCHEDULE
10.8(c), Clarant and the Business collectively earned less than $500,000 in
revenues from such client; PROVIDED, THAT, the dollar thresholds stipulated in
the foregoing clauses shall, for any twelve-month period beginning on or after
the first anniversary of the Closing Date or the date on which such client was
added to SCHEDULE 10.8(c), as the case may be, be equal to the greater of (x)
$500,000 or (y) ninety percent (90%) of the revenues Clarant and the Business
collectively earned in the previous twelve-month period from the applicable
client. Commencing ninety (90) days after the removal of any client from
SCHEDULE 10.8(c) pursuant to the foregoing sentence, the restrictions set forth
in this Section 10.8(g) shall not apply with respect to such client.
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(h) Contributor and Clarant shall each execute and deliver or
cause to be executed and delivered to the other at such times and places as
shall reasonably be agreed to, such subcontract agreements, work orders or other
instruments or agreements which the Contributor or Clarant reasonably deems
advisable for the purposes of memorializing the terms of the agreements set
forth in this Section 10.8.
(i) In consideration for this Section 10.8, Clarant shall
grant to the Contributor, at the Closing, an option to purchase one million
shares of Clarant Common Stock at an exercise price equal to the IPO price per
share of Clarant Common Stock, and subject to the terms and conditions set forth
in an option agreement, the form of which is attached as EXHIBIT 10.8(i).
10.9 GRANT OF LICENSE.
(a) Subject to the other provisions of this Agreement,
Contributor grants to Clarant, effective immediately following the Closing and
continuing for a period of sixty (60) days following the Closing Date (the
"Transition Period"), a non-exclusive, royalty-free, non-transferable license to
use the name and mark "Brand Dialogue" (the "Mark") solely for the purpose of
indicating that the Business was formerly operated under the name "Brand
Dialogue." Clarant acknowledges that Contributor owns all right, title and
interest in and to the Mark and the goodwill associated with it, and that any
use of the Mark by Clarant and any goodwill associated with such use will inure
to the benefit of Contributor. Upon termination of the Transition Period,
Clarant immediately will cease all use of the Mark and any similar versions of
the Mark.
(b) For a period of one (1) year from and after the Closing
Date (the "License Period"), Contributor grants to Clarant a non-exclusive,
royalty-free, non-transferable license to use the confidential or proprietary
business information and brand-building models and systems (including research
and development, know-how, formulas, compositions, principles and techniques,
technical data, designs, drawings, blueprints, specifications, certifications
and file reports) listed on SCHEDULE 10.9(b) (the "Licensed Materials"). Clarant
acknowledges that Contributor owns all right, title and interest in and to the
Licensed Materials and the goodwill associated with such materials, and that any
use of the Licensed Materials by Clarant and any goodwill associated with such
use will inure to the benefit of Contributor. Upon termination of the Transition
Period, Clarant immediately will cease all use of the Licensed Materials.
(c) Clarant will not use the Mark or the Licensed Materials in
a manner inconsistent with the past uses of the Mark or the Licensed Materials
by Contributor, and will not materially alter or modify the Mark or the Licensed
Materials except as Contributor, in its sole discretion, may authorize in
writing.
11. INDEMNIFICATION
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11.1 INDEMNIFICATION BY CONTRIBUTOR. The Contributor indemnifies,
defends and holds harmless Clarant and its respective officers, directors,
employees, agents, representatives and Affiliates (each, a "Clarant Indemnified
Party"), at all times from and after this Agreement harmless from and against,
and to promptly pay to a Clarant Indemnified Party or reimburse a Clarant
Indemnified Party for, any and all liabilities, obligations, deficiencies,
demands, claims, suits, actions, or causes of action, assessments, losses,
reasonable costs and expenses, filing fees, interest, fines, penalties, or
damages or costs or expenses of any and all investigations, proceedings
(including appeals, arbitration and mediation), judgments, environmental
analyses, remediations, settlements and compromises (including reasonable fees
and expenses of attorneys, accountants and other experts) (individually and
collectively, the "Losses") sustained or incurred by any Clarant Indemnified
Party resulting from or arising out of (a) any breach of the representations and
warranties of the Contributor set forth herein or on the schedules, exhibits or
certificates delivered in connection herewith, (b) any breach of any covenant or
agreement on the part of the Contributor under this Agreement, (c) any liability
under the 1933 Act, the 1934 Act, or other Federal or state law or regulation,
at common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to the Contributor, and
provided in writing to Clarant or its counsel by the Contributor expressly for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Contributor required to be stated therein or necessary to make
the statements therein not misleading, (d) the matters disclosed on SCHEDULE
11.1(d); (e) any liability of the Contributor for Taxes and any liability for
Taxes relating to the Business or the Acquired Assets for any Pre-Closing
Period; (f) any liability for Taxes relating to any failure to comply with
applicable Tax or other commercial law concerning bulk sales or bulk transfers
in either case resulting from the transactions contemplated hereby; provided,
however, that in the case of any indemnity arising pursuant to clause (c) such
indemnity shall not inure to the benefit of Clarant, to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the Contributor
provided in writing corrected information to Clarant counsel and to Clarant for
inclusion in the final prospectus, and such information was not so included or
properly delivered.
11.2 INDEMNIFICATION BY CLARANT. Clarant covenants and agrees that it
will indemnify, defend, protect and hold harmless the Contributor and its
respective officers, directors, employees, agents, representatives and
Affiliates (each, a "Contributor Indemnified Party") at all times from and after
the date of this Agreement until the Clarant Expiration Date, from and against
any and all Losses sustained or incurred by any Contributor Indemnified Party
resulting from or arising out of (a) any breach by Clarant of its
representations and warranties set forth herein or on the schedules, exhibits or
certificates delivered in connection herewith, (b) any breach of any covenant or
agreement on the part of Clarant under this Agreement, (c) any liability which
any Contributor Indemnified Party may incur due to Clarant's failure to be
responsible for the Assumed Liabilities, (except to the extent that Clarant has
claims against the Contributor by
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reason of such liabilities), (d) any liability under the 1933 Act, the 1934 Act
or other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to Clarant or any of the Other Founding Companies for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to Clarant or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading, or (e) any
liability of Clarant or its Affiliates for Taxes for any Post-Closing Period and
any liability for Taxes payable pursuant to Section 10.2 hereof related to the
Business or the Acquired Assets for any Post-Closing Period, except to the
extent that Contributor is obligated to indemnify Clarant for such Taxes
pursuant to this Agreement.
11.3 INDEMNIFICATION PROCEDURE -- THIRD PARTY CLAIMS.
(a) In the event that subsequent to the Closing any Person
entitled to indemnification under this Agreement (an "Indemnified Party")
receives notice of the assertion of any claim , obligation, deficiency, demand,
suit, cause of action, assessment or expense of any kind (each, a "Claim") or of
the commencement of any action or proceeding by an entity who is not a party to
this Agreement or an Affiliate of such a party (including, but not limited to
any domestic or foreign court, government, or Governmental Authority or
instrumentality, federal state or local) (a "Third Party Claim") against such
Indemnified Party, against which a party to this Agreement is required to
provide indemnification under this Agreement (an "Indemnifying Party"), the
Indemnified Party shall give written notice together with a statement of any
available information regarding such claim to the Indemnifying Party within
sixty (60) days after learning of such Claim (or within such shorter time as may
be necessary to give the Indemnifying Party a reasonable opportunity to respond
to such Claim. The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such Claim, which notice by the
Indemnifying Party shall specify the counsel it will appoint to defend such
Claim ("Defense Counsel"), to conduct at its expense the defense against such
Claim in its own name, or if necessary in the name of the Indemnified Party;
provided, however, that the Indemnified Party shall have the right to approve
the Defense Counsel, which approval shall not be unreasonably withheld, and in
the event the Indemnifying Party shall propose an alternate Defense Counsel,
which shall be subject again to the Indemnified Party's approval.
(b) In the event that the Indemnifying Party shall fail to
give such notice, it shall be deemed to have elected not to conduct the defense
of the subject Claim, and in such event the Indemnified Party shall have the
right to conduct such defense in good faith and to compromise and settle the
Claim without prior consent of the Indemnifying Party and the Indemnifying Party
will be liable for all costs, expense, settlement amounts or other Losses paid
or incurred in connection therewith.
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(c) In the event that the Indemnifying Party does elect to
conduct the defense of the subject Claim, the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the Indemnifying
Party, and the Indemnified Party shall have the right at its expense to
participate in the defense assisted by counsel of its own choosing, provided
that the Indemnified Party shall have the right to compromise and settle the
Claim only with the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. Without the prior written
consent of the Indemnified Party, the Indemnifying Party will not enter into any
settlement of any Third Party Claim or cease to defend against such Claim, if
pursuant to or as a result of such settlement or cessation, (i) injunctive or
other equitable relief would be imposed against the Indemnified Party, or (ii)
such settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder. The Indemnifying Party shall
not be entitled to control, and the Indemnified Party shall be entitled to have
sole control over, the defense or settlement of any Claim to the extent that
Claim seeks an order, injunction or other equitable relief against the
Indemnified Party which, if successful, could materially interfere with the
Business, assets, properties condition (financial or otherwise) or prospects of
the Indemnified Party (and the cost of such defense shall constitute an Loss for
which the Indemnified Party is entitled to indemnification hereunder). If a firm
decision is made to settle a Third Party Claim, which offer the Indemnifying
Party is permitted to settle under this Section 11.3 and the Indemnifying Party
desires to accept and agree to such offer, the Indemnifying Party will give
written notice to the Indemnified Party to that effect. If the Indemnified Party
fails to consent to such firm offer within thirty (30) calendar days after its
receipt of such notice, the Indemnified Party may continue to contest or defend
such Third Party Claim and, in such event, the maximum liability of the
Indemnifying Party as to such Third Party Claim will not exceed the amount of
such settlement offer, plus costs and expenses paid or incurred by the
Indemnified Party through the end of such thirty (30) day period.
(d) Any judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
11.4 [Intentionally Omitted]
11.5 INDEMNIFICATION PROCEDURE -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim may be asserted
by giving the Indemnifying Party reasonably prompt written notice thereof, and
the Indemnifying Party will have a period of thirty (30) calendar days within
which to satisfy such Direct Claim. If the Indemnifying Party does not so
respond within such thirty (30) calendar day period, the Indemnifying Party will
be deemed to have rejected such Direct Claim, in which event the Indemnified
Party will be free to pursue such remedies as may be available to the
Indemnified Party under this Article 11.
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11.6 FAILURE TO GIVE TIMELY NOTICE. A failure by an Indemnified Party
to give timely, complete or accurate notice as provided in this Article 11 will
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under its applicable
insurance coverage or was otherwise directly and materially damaged as a result
of such failure to give timely notice.
11.7 REDUCTION OF LOSS. To the extent any Loss of an Indemnified Party
is reduced by receipt of payment (a) under insurance policies which are not
subject to retroactive adjustment or other reimbursement to the insurer in
respect of such payment, or (b) from third parties not Affiliated with the
Indemnified Party, such payments (net of the expenses of the recovery thereof)
(such net payment being referred to herein as a "Reimbursement") shall be
credited against such Loss; provided, however, (x) the pendency of such payments
shall not delay or reduce the obligation of the Indemnifying Party to make
payment to the Indemnified Party in respect of such Loss, and (y) the
Indemnified Party shall have no obligation, hereunder or otherwise, to pursue
payment under or from any insurer or third party in respect of such loss. If any
Reimbursement is obtained subsequent to payment by an Indemnifying Party in
respect of a Loss, such Reimbursement shall be promptly paid over to the
Indemnifying Party.
11.8 SUBROGATION. The Indemnifying Party shall be subrogated to the
Indemnified Party's rights of recovery to the extent of any Loss satisfied by
the Indemnifying Party. The Indemnified Party shall execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records of the other party.
11.9 ARBITRATION. Excluding the right of a party to seek injunctive
relief, all claims (pursuant to Federal or state statutes or by common law),
controversies, differences or disputes between Clarant and the Contributor
arising out of or relating to this Agreement or related or referenced exhibits
or the alleged breach thereof including, but not limited to, indemnification
claims under Sections 11.1 and/or 11.2 shall be settled by arbitration in
accordance with the rules then in effect of the American Arbitration Association
at the time of the dispute. After an award is rendered by the arbitrator(s), a
judgment may be entered in any court of competent Jurisdiction. The arbitration
shall occur in Washington, DC to the exclusion of all other locations. The
arbitrators cannot add to or subtract from the terms of this Agreement. The
parties agree that the arbitrators may include provisions for the payment of
costs and expenses, including reasonable attorneys' fees as part of any ruling
or award made thereunder. The parties acknowledge that arbitration shall be the
sole, final, binding and exclusive remedy of the parties with respect to any
such matter for which arbitration is undertaken hereunder. In preparation for
the arbitration process described herein, the parties shall be given at least
one hundred twenty (120) days for discovery and each party may utilize all
methods of discovery authorized by the
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procedural rules and statutes of the District of Columbia for civil litigation
and may enforce the right to obtain such discovery in the manner provided by
such rules and statutes.
11.10 EXCLUSIVE REMEDIES. Except as provided in Section 14.3 of this
Agreement, the indemnification provided for in this Article 11 shall (except as
prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party; provided, however, that nothing herein shall be construed to
limit the right of a party, in a proper case, to seek injunctive relief for a
breach of this Agreement or to seek relief for a breach of any employment
agreement with, or any security issued by, Clarant.
11.11 LIMITATION AND EXPIRATION. Notwithstanding the foregoing
provisions of this Article 11:
(a) with respect to the indemnification obligations
of the Contributor under Section 11.1 --
(i) there shall be no liability unless, and
solely to the extent that, the aggregate amount of Losses sustained by the
Clarant Indemnified Parties exceeds one percent (1%) of the Consideration (the
"Indemnification Threshold") which Indemnification Threshold shall be treated as
a deductible; PROVIDED, HOWEVER, that the Indemnification Threshold shall not
apply to (w) Losses arising out of breaches of the covenants of the Contributor
set forth in Sections 10.2, 10.5, 10.7 and 10.8, or the representations and
warranties made in Sections 5.17 (employee benefits) or 5.24 (taxes), (x) Losses
described in Section 11.1(c), (y) Losses arising out of intentional fraud by
Contributor or (z) any matters identified on Schedule 11.1(d); and
(ii) the aggregate amount of the Contributor's
liability under this Article 11 shall not exceed the Consideration;
(b) the indemnification obligations of the Contributor
under Section 11.1, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 11.11(b):
(i) (A) with respect to claims arising out of
breaches of the representations and warranties made in Sections 5.17 (employee
benefits) and 5.24 (taxes), the date that is six (6) months after the expiration
of the longest applicable federal or state statute of limitation (including
extensions thereof); or
(B) with respect to all claims other than
those referred to in clause (i)(A) of this Section 11.11(b),
eighteen (18) months after the Closing Date; or
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(ii) the final resolution of claims or
demands made under Section 11.1 prior to the expiration of the survival period
specified in clause (i) of this Section 11.11(b);
(c) with respect to the indemnification obligations of
Clarant under Section 11.2 --
(i) there shall be no liability unless, and
solely to the extent that, the aggregate amount of Losses sustained by the
Contributor Indemnified Parties exceeds the Indemnification Threshold; PROVIDED,
HOWEVER, that the Indemnification Threshold shall not apply to Losses (x)
arising out of breaches of the covenants of Clarant set forth in Sections 7.14,
10.2, 10.5, 10.7, 10.8 and 10.9 or the representations and warranties made in
Sections 6.5 (capital stock) and 6.15 (taxes), (y) described in Section 11.2(c)
or (z) arising out of intentional fraud; and
(ii) the aggregate amount of Clarant's
liability under this Article 11 shall not exceed the
Consideration;
(d) the indemnification obligations of Clarant under
Section 11.2, or under any certificate or writing furnished in connection
herewith, shall terminate at the date that is the later of clause (i) or (ii) of
this Section 11.1(d):
(i) the Clarant Expiration Date; or
(ii) the final resolutions of claims or
demands made under Section 11.2 prior to the expiration of the survival period
specified in clause (i) of this Section 11.11(d).
(e) Contributor may satisfy indemnification obligations
hereunder through the payment of cash or the delivery of Clarant Common Stock,
or a combination thereof. For purposes of calculating the value of the Clarant
Common Stock delivered by the Contributor pursuant to this Section 11.11(e),
Clarant Common Stock shall be valued at its fair market value, which shall be
the average closing price for Clarant Common Stock on the Nasdaq National Market
System for the ten (10) trading days ending two business days immediately prior
to the date of payment. For purposes of determining the Indemnification
Threshold or indemnification limits referred to in Sections 11.11(a)(ii) and
11.11(c)(ii), each share of Clarant Common Stock shall be valued at the IPO
price.
11.12 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Contributor and Clarant in
or pursuant to this Agreement or in any document delivered pursuant hereto shall
be deemed to have been made on the date of this Agreement (except as otherwise
provided herein) as of the Pre-Closing Date and, if a Closing occurs, as of the
Closing Date. The representations and warranties of the Contributor and Clarant
will survive the Closing and will remain in effect until, and will expire upon,
the
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termination of the indemnification obligations as provided in Section 11.11(b)
or 11.11(d), as the case may be.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely: (a) by mutual consent of the boards of directors of
Clarant and the Contributor; (b) by the Contributor or by Clarant, if the
transactions contemplated by this Agreement to take place at the Closing shall
not have been consummated by December 31, 1999, unless the failure of such
transactions to be consummated is due to the willful failure of the party
seeking to terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date; (c) by the Contributor, or by Clarant after giving written notice
to the other party that a breach or default of any representation, warranty, or
covenant contained in this Agreement which breach has had or is reasonably
foreseeable as having a Material Adverse Effect on the Business or Clarant,
occurred and such breach has not been cured on or before the Closing Date, (d)
by the Contributor or Clarant pursuant to Section 7.13 or (e) by the Contributor
if, by June 30, 1999, Clarant shall not have filed the Registration Statement
with the SEC reflecting an IPO price for the Clarant Common Stock of $11.00 per
share.
12.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES.
(a) The Contributor will not, for any reason whatsoever,
directly or indirectly, for itself or on behalf of or in conjunction with any
other Person of whatever nature:
(i) for a period of two (2) years
following the Closing Date with respect to employees with an annual salary of
$100,000 or more, and for a period of one (1) year following the Closing Date
with respect to all other employees, call upon any such Person who is an
employee of Clarant (including the subsidiaries thereof) for the purpose or with
the intent of enticing such employee away from or out of the employ of Clarant
(including the subsidiaries thereof); or
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(ii) for a period of two (2) years following the
Closing Date call upon any Founding Company or any company listed on SCHEDULE
13.1(a)(ii) on the Contributor's behalf or on behalf of any competitor of
Clarant, for the purpose of acquiring such entity.
(b) For a period of two (2) years following the Closing
Date with respect to employees with an annual salary of $100,000 or more, and
for a period of one (1) year following the Closing Date with respect to all
other employees, Clarant will not, for any reason whatsoever, directly or
indirectly, for itself or on behalf of or in conjunction with any such other
Person of whatever nature, call upon any Person who is an employee of
Contributor (or any division or subsidiary thereof) for the purpose or with the
intent of enticing such employee away from or out of the employ of Contributor
(or of any division or subsidiary thereof).
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Clarant or Contributor (as the case may be) as a result of a breach of the
foregoing covenants, and because of the immediate and irreparable damage that
could be caused for which the damaged party would have no other adequate remedy,
the parties hereto agree that, in the event of a breach of Section 13.1 hereof,
the foregoing covenant may be enforced by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Article 13 impose a reasonable restraint on each of
the Contributor and Clarant in light of their respective activities and
businesses (and including their respective subsidiaries) on the date of the
execution of this Agreement.
13.4 SEVERABILITY; REFORMATION. The covenants in this Article 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Article 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any separate claim or cause of action, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Clarant or the Contributor of such covenants. It is specifically
agreed that the period of one (1) year or two (2) years, as the case may be,
stated at the beginning of this Article 13, during which the agreements and
covenants of the Contributor and Clarant made in this Article 13 shall be
effective, shall be computed by excluding from such computation any time during
which there is a violation of any provision of Section 13.1. The covenants
contained in Article 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
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13.6 MATERIALITY. The parties hereby agree that this covenant is a
material and substantial part of this transaction and that it is supported by
adequate consideration.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 CONTRIBUTOR. The Contributor recognizes and acknowledges that it
has in the past, currently has, and in the future may have, access to certain
confidential information of the Other Founding Companies, and/or Clarant, such
as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Other Founding Companies' and/or Clarant's
respective businesses. The Contributor agrees that it will not, and that it will
cause its Affiliates not to, disclose such confidential information to any
Person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of Clarant or the Other
Founding Companies who need to know information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, (b) following the Closing, such information may
be disclosed by the Contributor as is required in the course of performing its
duties and (c) to counsel and other advisers, provided that such advisers (other
than counsel) agree to the confidentiality provisions of this Section 14.1,
unless (i) such information becomes known to the public generally through no
fault of the Contributor or its Affiliates, (ii) disclosure is required by law
or the order of any Governmental Authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), the
Contributor shall give prior written notice thereof to Clarant and provide
Clarant with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by the Contributor of the provisions of this Article 14,
Clarant shall be entitled to an injunction restraining the Contributor from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Clarant from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
Notwithstanding the foregoing, to the extent the confidentiality provisions
contained herein relate to Evaluation Material, the terms of that certain letter
agreement regarding confidentiality from Integrated Interactive, Inc. dated
February 17, 1999 to Contributor shall govern the confidentiality obligations of
the parties.
14.2 CLARANT. Clarant recognizes and acknowledges that it has in the
past and currently has, and in the future may have, access to certain
confidential information of the Contributor, such as the Evaluation Material
provided in connection with this transaction, operational policies, and pricing
and cost policies that are valuable, special and unique assets of the
Contributor's business. Clarant agrees that it will not, and that it will cause
its Affiliates not to, disclose such confidential information to any Person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Contributor who need
to know information in connection with the transactions contemplated hereby, who
have been informed of the confidential nature of such information and who have
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agreed to keep such information confidential as provided hereby, (b) to counsel
and other advisers, provided that such advisors (other than counsel) agree to
the confidentiality provisions of this Section 14.2 and (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
Clarant or its Affiliates, (ii) disclosure is required by law or the order of
any Governmental Authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), Clarant shall give
prior written notice thereof to the Contributor and provide the Contributor with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by Clarant of the provisions of this Article 14, the
Contributor shall be entitled to an injunction restraining Clarant from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting the Contributor from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Closing Date.
15. [INTENTIONALLY OMITTED]
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 NON-REGISTRATION OF CLARANT COMMON STOCK. The Contributor
acknowledges that the shares of Clarant Common Stock delivered to the
Contributor pursuant to this Agreement have not been and will not be registered
under the 1933 Act and therefore may not be resold without compliance with the
1933 Act. The Clarant Common Stock acquired by the Contributor pursuant to this
Agreement is being acquired solely for its own account, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it; provided, however, that this covenant shall not prohibit any
disposition in accordance with the securities laws and this Agreement.
16.2 COMPLIANCE WITH LAW. The Contributor covenants, warrants and
represents that none of the shares of Clarant Common Stock issued to the
Contributor will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full
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compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC. The Clarant Common Stock shall bear the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY CLARANT WORLDWIDE CORPORATION,
DELIVERY BY THE HOLDER OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO CLARANT WORLDWIDE CORPORATION STATING THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
16.3 ECONOMIC RISK; SOPHISTICATION. The Contributor represents and
warrants that it is able to bear the economic risk of an investment in the
Clarant Common Stock acquired pursuant to this Agreement, can afford to sustain
a total loss of such investment and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investment in the Clarant Common Stock. The Contributor represents
and warrants that it has had an adequate opportunity to ask questions and
receive answers from the officers of Clarant concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
Clarant, the plans for the operations of the business of Clarant, the business,
operations and financial condition of the Other Founding Companies, and any
plans for additional acquisitions and the like. The Contributor acknowledges
that it has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction. The
Contributor represents and warrants that it has the requisite knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of this investment and is an "accredited investor" as defined
in Regulation D under the 1933 Act.
17. REGISTRATION RIGHTS
17.1 REGISTRATION RIGHTS.
(a) PIGGYBACK. At any time following the Closing Date,
whenever Clarant proposes to register any Clarant Common Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by Clarant, (ii) registrations relating to employee
benefit plans and (iii) registrations relating to rights offerings made to the
stockholders of Clarant,
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Clarant shall give the Contributor prompt written notice of its intent to do so.
Upon the written request of the Contributor given within thirty (30) days after
receipt of such notice, Clarant shall cause to be included in such registration
all of the Clarant Common Stock issued to the Contributor pursuant to this
Agreement, including any shares issued in accordance with Exhibit 3.3 or upon
the exercise of options issued to Contributor pursuant to Section 10.8(i), that
Clarant shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares could, in the opinion
of tax counsel to Clarant or its independent auditors, jeopardize the status of
the transactions contemplated hereby and by the Registration Statement as a
tax-free organization. In addition, if Clarant is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 17.1
that the number of shares to be sold by Persons other than Clarant is greater
than the number of such shares which can be offered without adversely affecting
the offering, Clarant may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares proposed to be sold by
each such Person) to a number deemed satisfactory by such managing underwriter,
provided, that, for each such offering made by Clarant after the IPO, such
reduction shall be made first by reducing the number of shares to be sold by
Persons other than Clarant and the stockholders of the Founding Companies
(collectively, the Contributor and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
(b) DEMAND.
(i) At any time (A) after the date that is
eighteen (18) months after the Closing Date, the Contributor may request in
writing that Clarant file a registration statement under the 1933 Act covering
the registration of shares of Clarant Common Stock issued to Contributor
pursuant to this Agreement (including any stock issued as Contingent
Consideration, a dividend or other distribution with respect to, or in exchange
for, or in replacement of such Clarant Common Stock or upon the exercise of
options issued to Contributor pursuant to Section 10.8(i)) then held by
Contributor (a "DEMAND REGISTRATION"). Within thirty (30) days after the date on
which Clarant receives such request, Clarant shall file and thereafter use its
best efforts to cause to become effective a registration statement covering all
shares that the Contributor has requested to be included in such registration.
Clarant will keep such Demand Registration current and effective for one hundred
twenty (120) days (or such shorter period as is required for the Contributor to
sell all of the shares registered thereon).
(ii) In the event such registration is
underwritten, Clarant shall select an underwriter reasonably
satisfactory to Contributor.
(iii) Clarant shall not be obligated to
effect more than one Demand Registration for Contributor
pursuant to this Section 17.1(b).
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(iv) If the Board of Directors of Clarant,
in its good faith judgment, determines that any registration of shares of
Clarant Common Stock pursuant to this Section 17.1(b) should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporation reorganization, merger, or other transaction involving
Clarant or any of its subsidiaries (a "VALID BUSINESS REASON"), (A) Clarant may
postpone filing a registration statement relating to the Demand Registration
until such Valid Business Reason no longer exists, but in no event for more than
sixty (60) days, and (B) in case a registration statement has been filed
relating to a Demand Registration, Clarant may cause such registration statement
to be withdrawn and its effectiveness terminated or may postpone amending or
supplementing such registration statement until such Valid Business Reason no
longer exists, but in no event for more than sixty (60) days.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Clarant. In connection with
registrations under Section 17.1(a) and 17.1(b), Clarant shall (i) use its
commercially reasonable best efforts to prepare and file with the SEC as soon as
reasonably practicable, a registration statement with respect to the Clarant
Common Stock and use its commercially reasonable best efforts to cause such
registration to promptly become and remain effective for a period of at least
one hundred twenty (120) days (or such shorter period during which the
Contributor and the Founding Stockholders shall have sold all Clarant Common
Stock which they requested to be registered); (ii) use its commercially
reasonable best efforts to register and qualify the Clarant Common Stock covered
by such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the Clarant Common
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1(a) and (b) covering an underwritten registered public
offering, Clarant and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of Clarant's size and
investment stature, including indemnification provisions.
17.4 AVAILABILITY OF RULE 144. Clarant shall not be obligated to
register shares of Clarant Common Stock held by the Contributor at any time when
the resale provisions of Rule 144(k) (or any successor provision) promulgated
under the 1933 Act are available to the Contributor for such shares.
17.5 MARKET STANDOFF. In consideration of the granting to the
Contributor of the registration rights under this Article 17, the Contributor
agrees that it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares
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<PAGE>
of Clarant Common Stock in the ten (10) days prior to the effectiveness of any
registration of Clarant Common Stock for sale to the public and for up to ninety
(90) days following the effectiveness of such registration; provided that all
directors, executive officers and holders of more than five percent (5%) of the
outstanding Clarant Common Stock agree to the same restrictions; and further
provided that, with respect to the first public offering of shares of the
Clarant Common Stock within three years following the IPO, the Contributor shall
have been afforded a meaningful opportunity to include shares in such
registration after any reduction by reason of underwriters' advice.
Notwithstanding the foregoing, the obligations of this Section 17.5 shall not
apply to a registration relating solely to employee benefit plans on Form S-1 or
Form S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form S-4 or
similar forms that may be promulgated in the future.
18. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Accounts Receivable" has the meaning set forth in Section 1.1(a)(i).
"Acquired Assets" has the meaning set forth in Section 1.1(a).
"Action" has the meaning set forth in Section 5.15.
"Affiliate" means any Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the any other Person.
"Affiliate Transactions" has the meaning set forth in Section 5.31.
"Agreement" means this Contribution Agreement.
"A/R Aging Reports" has the meaning set forth in Section 5.12.
"Assigned Contracts" has the meaning set forth in Section 1.1(a)(iv).
"Assumed Liabilities" has the meaning set forth in Section 1.2(a).
"Balance Sheet" means a balance sheet of the Business as at the Balance
Sheet Date.
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"Balance Sheet Date" means March 31, 1999.
"Books and Records" has the meaning set forth in Section 1.1(a)(viii).
"Business" has the meaning set forth in the recitals of this Agreement.
"Charter Documents" has the meaning set forth in Section 5.2.
"Claim" has the meaning set forth in Section 11.3(a).
"Clarant" has the meaning set forth in the first paragraph of this
Agreement.
"Clarant Common Stock" has the meaning set forth in Section 6.3.
"Clarant Expiration Date" means the date that is one year from the
Closing Date.
"Clarant Indemnified Party" has the meaning set forth in
Section 11.1(a).
"Clarant Plan of Organization" has the meaning set forth in the
recitals of this Agreement.
"Clarant Preferred Stock" has the meaning set forth in Section 6.3.
"Clarant Stock" has the meaning set forth in Section 6.3.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant to the Internal
Revenue Code of 1986, as amended.
"Computer Software" has the meaning set forth in Section 1.1(a)(v).
"Consents" has the meaning set forth in Section 5.4.
"Consideration" has the meaning set forth in Section 3.1.
"Contingent Consideration" has the meaning set forth in Section 3.3.
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"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral)
"Contributor" has the meaning set forth in the first paragraph of this
Agreement.
"Contributor Indemnified Party" has the meaning set forth in
Section 11.2.
"Contributor Other Benefit Obligation" has the meaning set forth in
Section 5.17.
"Contributor Plan" has the meaning set forth in Section 5.17.
"Defense Counsel" has the meaning set forth in Section 11.3(a).
"Defense Notice" has the meaning set forth in Section 11.3(a).
"Demand Registration" has the meaning set forth in Section 17.1(b).
"Direct Claim" has the meaning set forth in Section 11.4.
"Draft Registration Statement" means the draft registration statement
on Form S-1 of Clarant dated June 7, 1999, prepared by Merrill Corporation
Network Composition System and attached hereto as SCHEDULE 18.1.
"Encumbrance" means any charge, claim, equity, judgment, lease,
liability, lien, mortgage, pledge, restriction, security interest, Tax lien, or
encumbrance of any kind.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands) groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental Law" means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencement of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the
release of pollutants or hazardous substances or materials into the
Environment;
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(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated,
packaged, and used so that they do not present unreasonable risks to
human health or the Environment when used or disposed of;
(e) protecting natural resources, species, or
ecological amenities;
(f) transporting of hazardous substances or materials,
pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released,
preventing the threat of release, or paying the costs of such clean up
or prevention; or
(h) making responsible parties pay a Governmental
Authority or private parties, or groups of them, for damages done to
the Environment, or permitting self-appointed representatives of the
public interest to recover for injuries done to public assets.
"ERISA Affiliate" has the meaning set forth in Section 5.17.
"Evaluation Material" shall mean any and all financial, technical,
commercial or other information concerning the business and affairs of the
Contributor that has been or may hereafter be provided or shown to Clarant or
its employees, officers, directors, representatives or agents, irrespective of
the form of the communication, all notes, analyses, compilations, studies or
other material prepared by Contributor or its representatives.
"Excluded Assets" has the meaning set forth in Section 1.1(b).
"Exhibit" means each Exhibit attached to this Agreement.
"Financial Statements" has the meaning set forth in Section 5.10(a).
"Fixed Assets" has the meaning set forth in Section 1.1(a)(iii).
"Founding Companies" has the meaning set forth in the recitals of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
"GAAP" means generally accepted accounting principles as in effect on
the date hereof.
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"Governmental Authority" means the United States or any state, local,
or foreign government, or any subdivision, agency, authority, court or tribunal
of any thereof.
"Governmental Consents" has the meaning set forth in Section 5.4.
"Hazardous Material" means any waste or other substance that is listed,
defined, designated, or classified as, or by its characteristics determined to
be, hazardous, radioactive, or is defined as toxic or a pollutant or a
contaminant under or pursuant to any Environmental Law, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HSR Act" means the Hart-Scott Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Party" has the meaning set forth in Section 11.3(a).
"Indemnifying Party" has the meaning set forth in Section 11.3(a).
"Intellectual Property" has the meaning set forth in
Section 1.1(a)(vi).
"IPO" means the initial public offering of Clarant Common Stock
pursuant to the Registration Statement.
"Knowledge": an individual will be deemed to have "Knowledge" of a
particular fact if such individual is actually aware of such fact or other
matter. A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving as a
director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has Knowledge of such fact or other matter. For purposes of
this Agreement, "Knowledge of Contributor," "Contributor's Knowledge,"
"Knowledge of the Business," the "Business' Knowledge" or words of similar
import shall include the Knowledge of Steven M. Blondy and James W. Pharo except
with respect to Section 10.8(d).
"Laws" has the meaning set forth in Section 5.16(a).
"Leases" has the meaning set forth in Section 5.23(b).
"Legal Requirement" means any federal, state, local, municipal,
foreign, or other administrative order, constitution, law, ordinance, principle
of common law, regulation, statute, or treaty.
"Losses" has the meaning set forth in Section 11.1.
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"Material Adverse Effect" means a material adverse change in (i) the
business operations, condition or prospects (financial or otherwise) of any
Person, (ii) the ability of such Person to consummate the transactions
contemplated by the Agreement, or (iii) with respect to the Business, the
condition or value of the Acquired Assets taken as a whole or (iv) with respect
to Clarant, the condition or value of the assets of Clarant taken as a whole.
"Material Contract" means any Assigned Contract or other Contract
solely relating to the Business that has a monetary obligation of at least
$25,000 per year and that is not cancelable by the Contributor without penalty
upon notice of six (6) months or less.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Authority or by an arbitrator.
"Ordinary Course of Business" means an action taken by a Person only if
such action is consistent with the past practices of such Person and is taken in
the ordinary course of the normal day-to-day operations of such Person;
"Other Agreements" has the meaning set forth in the recitals of this
Agreement.
"Other Benefit Obligations" has the meaning set forth in Section 5.17.
"Other Founding Companies" has the meaning set forth in the recitals of
this Agreement.
"Permits" has the meaning set forth in Section 5.16(b).
"Person" means any individual, corporation (including non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Plan" has the meaning set forth in Section 5.17.
"Plans" has the meaning set forth in Section 5.17.
"Post-Closing Period" has the meaning set forth in Section 5.24.
"Pre-Closing Period" has the meaning set forth in Section 5.24.
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"Pricing" means the date of determination by Clarant and the
Underwriters of the public offering price of the shares of Clarant Common Stock
in the IPO.
"Proceeding" means any action, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative or investigative)
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Authority.
"Registration Statement" means that certain registration statement on
Form S-1 of Clarant Worldwide Corporation covering the shares of Clarant Common
Stock to be issued in the IPO.
"Reimbursement" has the meaning set forth in Section 11.7.
"Relevant Group" has the meaning set forth in Section 5.24.
"Retained Liabilities" has the meaning set forth in Section 1.2(b).
"Returns" has the meaning set forth in Section 5.24.
"Schedule" means each Schedule attached hereto and identified as a
Schedule, which shall reference the relevant sections of this Agreement, on
which parties hereto disclose information as part of their respective
representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Significant Customer" has the meaning set forth in Section 5.22(a).
"Statutory Liens" has the meaning set forth in Section 7.3(b).
"Subsidiary" means any entity the majority of voting shares or
interests of which are owned by the Contributor and/or by one or more
Subsidiaries of the Contributor.
"Tax" or "Taxes" has the meaning set forth in Section 5.24.
"Tax Proceeding" has the meaning set forth in Section 5.24.
"Taxable Period" has the meaning set forth in Section 5.24.
"Taxing Authority" has the meaning set forth in Section 5.24.
"Third Party Claim" has the meaning set forth in Section 11.3.
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"Threatened" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice has been given in writing that such a claim,
Proceeding, dispute, action or other matter is likely to be asserted, commenced,
taken, or otherwise pursued in the future.
"Trademarks" has the meaning set forth in Section 5.14.
"Transition Services Agreement" has the meaning set forth
in Section 4.2(b)(iv).
"Underwriters" means the underwriters of the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement by and among
the Underwriters and Clarant in respect of the IPO.
"Year 2000 Compliant" has the meaning set forth in
Section 5.27.
19. GENERAL
19.1 COOPERATION. The Contributor and Clarant shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement. The
Contributor will cooperate and use its reasonable efforts to have the present
officers, directors and employees of the Contributor cooperate with Clarant on
and after the Closing Date in furnishing information, evidence, testimony and
other assistance in connection with any Tax Return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
19.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Clarant, and the successors of the Contributor.
19.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
Exhibits attached hereto which are incorporated by this reference) and the
documents delivered pursuant hereto constitute the entire agreement and
understanding among the Contributor and Clarant and supersede any prior
agreement and understanding relating to the subject matter of this Agreement;
provided, however, that the terms of the letter agreement referred to in Section
14.1 shall not be superseded by this Agreement and shall survive pursuant to the
terms thereof. This Agreement, upon execution, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and may
be modified or amended only by a written instrument executed by the Contributor
and Clarant, acting through their respective officers or
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trustees, duly authorized by their respective boards of directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby;
PROVIDED, THAT, the parties shall make a good faith effort to cross reference
disclosure, as necessary or advisable, between related Schedules and provided
further that any item disclosed or referred to in the Draft Registration
Statement shall not be deemed disclosed on any other Schedule unless such other
Schedule specifically refers to the applicable Section and page number of the
Draft Registration Statement.
19.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. This Agreement may be
executed and delivered by facsimile signature, which facsimile signature shall
be deemed an original.
19.5 EXPENSES.
(a) Whether or not the transactions herein contemplated shall
be consummated, Clarant will pay the fees, expenses and disbursements of Clarant
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Clarant under this Agreement, including the fees
and expenses of Clarant's public auditors, Wilmer, Cutler & Pickering, and any
other Person retained by Clarant, and the costs of preparing the Registration
Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Contributor shall pay the fees, expenses and disbursements of
the Contributor and its respective agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the performance
and compliance with all conditions to be performed by the Contributor under this
Agreement, including the reasonable fees and expenses of legal counsel to the
Contributor.
(c) If the transaction herein contemplated is consummated,
Clarant will pay the fees, expenses, and disbursements of the Contributor and
its agents, representatives, accountants and counsel as described in (b), above.
19.6 NOTICES. All notices, requests, demands and other communications
made in connection with this Agreement shall be in writing and shall be deemed
to have been duly given on the date of delivery, if delivered to the persons
identified below, or on the second business day, if delivered by a reputable
overnight carrier, or on the date of the return receipt acknowledgment after
mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, or on the date such transmission is made and confirmation of
receipt obtained
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if a business day, or if not, then on the next following business day, if sent
by facsimile, telecopy, telegraph, telex or other similar telegraphic
communications equipment, addressed as follows:
(a) If to Clarant, addressed to them at:
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attention: Guillermo G. Marmol
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: George P. Stamas, Esq.
(b) If to the Contributor, addressed to it at:
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017
Fax: (212) 210-5544
Attention: General Counsel
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Fax: (212) 309-6273
Attention: Christopher T. Jensen, Esquire
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 19.6 from time to time.
19.7 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without reference to conflicts of laws
principles.
19.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power
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or remedy, nor shall it be construed as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring before or after that waiver.
19.9 TIME. Time is of the essence with respect to this Agreement.
19.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
19.11 [Intentionally Omitted].
19.12 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
19.13 SURVIVAL. The representations and warranties set forth in this
Agreement shall survive the Closing and expire in accordance with Section 11.11.
The covenants of the parties to be performed after the Closing shall survive the
Closing and expire in accordance with their respective terms.
[Execution page following.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLARANT WORLDWIDE CORPORATION
By: /s/ Guillermo G. Marmol
---------------------------------
Name: Guillermo G. Marmol
-------------------------------
Title: Chief Executive Officer
------------------------------
YOUNG & RUBICAM INC.
By: /s/ Stephanie W. Abramson
---------------------------------
Name: Stephanie W. Abramson
-------------------------------
Title: Executive Vice President,
General Counsel
------------------------------
<PAGE>
EXHIBIT 3.1
CONSIDERATION
The Consideration shall be 4,609,091 shares of Clarant Common Stock.
The minimum IPO price per share of Clarant Common Stock is $9.90.
<PAGE>
EXHIBIT 3.2
ALLOCATION OF CONSIDERATION
SCHEDULE 3.2
<TABLE>
<CAPTION>
Item Value
---- -----
<S> <C>
Accounts Receivable, book value thereof
Fixed Assets,
Permits,
Assigned Contracts, and
Computer Software
Intellectual Property, remainder of the Consideration
Books and Records,
goodwill, if any,
assets described in
1.1(a)(vii) and any other
intangibles
</TABLE>
<PAGE>
EXHIBIT 3.3
(a) Contingent Consideration will be paid to the Contributor contingent
on the financial performance of the Business and Clarant during the periods July
1, 1999 through December 31, 1999, and January 1, 2000 through June 30, 2000
(each such period a "Measurement Period"). The following tables set forth the
projections and formulas for determining the Contingent Consideration payable to
the Contributor:
PROJECTIONS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
Projected Projected Projected Projected
Measurement Business Business Pre- Combined Combined
Period Revenues Tax Income Revenues Pre-tax Income
- ------ -------- ---------- -------- --------------
<S> <C> <C> <C> <C>
Jul. 1, 1999- $8,470,000 $1,001,000 n/a n/a
Dec. 31, 1999
Jan. 1, 2000- n/a n/a $75,216,000 $13,810,000
Jun. 30, 2000
</TABLE>
FORMULAS FOR DETERMINING CONTINGENT CONSIDERATION
<TABLE>
<CAPTION>
Maximum
Pre-tax Pool for Cap On
Measurement Revenue Income Pool Formula for Calculating Contingent Contingent
Period Multiple Multiple Share Contingent Consideration Consideration Consideration
- ------ -------- -------- ----- ------------------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jul. 1, 1999 - 3 15 n/a 50% (Revenue $78,700,000 $12,675,000
Multiple) x (Actual
Dec. 31, 1999 Business Revenues -
Projected Business
Revenues)
+
50% (Pre-Tax Income
Multiple) x (Actual
Pre-Tax Income -
Projected Pre-Tax
Income)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Jan. 1, 2000 - 3 15 16.1 (Pool Share) x 50% $78,700,000 $12,675,000
1% (Revenue Multiple) x
Jun. 30, 2000 (Actual Combined
Revenues - Projected
Combined Revenues)
+
(Pool Share) x 50%
(Pre-Tax Income
Multiple) x (Actual
Combined Pretax
Income - Projected
Combined Pretax
Income)
</TABLE>
(b) For purposes of determining the amount of Contingent Consideration
payable to the Contributor:
(i) Pre-Tax Income shall mean net revenues less direct costs
less indirect costs and expenses, but including all taxes other than Federal and
state income taxes, provided, that, Pre-Tax Income expressly excludes
amortization of acquisition goodwill or other charges incident to the
transactions contemplated by the Agreement;
(ii) Combined Revenues shall mean the total revenues of the
Founding Companies only, without giving effect to acquisitions by Clarant or any
Founding Company after the Closing Date, unless otherwise agreed to in writing
by Clarant;
(iii) Combined Pre-Tax Income shall mean the total Pre-Tax
Income of the Founding Companies only, without giving effect to acquisitions by
Clarant or any Founding Company after the Closing Date, unless otherwise agreed
to in writing by Clarant; and
(iv) except as otherwise expressly provided herein, all
accounting terms shall be interpreted in accordance with U.S. GAAP, based upon
consistent use of accounting principles and policies, revenue recognition
methods and reserve methodologies for the Measurement Period and the relevant
audited financial statements.
(c) The Contingent Consideration payable for a Measurement Period shall
be made in cash and shares of Clarant Common Stock, with the amount of cash to
be determined by Clarant in its sole and absolute discretion, PROVIDED, THAT,
such amount represents no less than twenty-five percent (25%), nor more than
fifty percent (50%), of the total amount of the Contingent Consideration for the
Measurement Period; and provided further that in no event shall Clarant pay the
Contingent Consideration in shares of Clarant Common Stock if after giving
effect to such payment, the Contributor would own, directly or indirectly,
twenty percent (20%) or more of the issued and outstanding shares of Clarant
Common Stock. For these purposes, each share
<PAGE>
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 Arthur Andersen to review Clarant's and each
Founding Company's books and records to determine, as applicable, the Business'
actual revenues ("Actual Business Revenues") and actual Pre-Tax Income ("Actual
Business Pre-Tax Income"), and the actual Combined Revenues ("Actual Combined
Revenues") and actual Combined Pre-Tax Income ("Actual Combined Pre-Tax
Income"), for the Measurement Period. Within sixty (60) days following the end
of each Measurement Period, Clarant shall deliver a written notice (a
"Contingent Consideration Notice") to the Contributor setting forth (i) the
determination made by Arthur Andersen of the Actual Business Revenues, Actual
Business Pre-Tax Income, Actual Combined Revenues and Actual Combined Pre-Tax
Income, if applicable, (ii) the total amount of the Contingent Consideration
payable to the Contributor for the Measurement Period and (iii) the amount of
cash and shares of Clarant Common Stock that will be paid to the Contributor as
Contingent Consideration for the Measurement Period. As soon as practicable
after delivering the Contingent Consideration Notice, Clarant shall issue the
shares of Clarant Common Stock to be paid as Contingent Consideration and
deliver such shares, along with the cash to be paid as Contingent Consideration,
to a bank designated by Clarant ("Clarant's Bank") to hold in escrow until final
resolution of any disputes regarding the Contingent Consideration.
(e) The Contributor shall have fifteen (15) days from the receipt of
the Contingent Consideration Notice to notify Clarant if there is a dispute
about such Contingent Consideration Notice. If Clarant has not received notice
of such a dispute within such 15-day period, Clarant shall direct Clarant's Bank
to pay the cash portion of the Contingent Consideration by wire transfer of
immediately available funds to the Contributor at the account identified on
EXHIBIT 4.2(b)(vii) (which will be provided to Clarant prior to the Closing) and
deliver the shares of Clarant Common Stock to the Contributor. If, however, the
Contributor has delivered notice of such a dispute to Clarant within such 15-day
period, then Clarant's chief financial officer and the chief financial officer
of the Contributor shall meet (by conference telephone call or in person at a
mutually agreeable site) within one week after notice of a disagreement is given
as provided herein. Clarant's chief financial officer and the chief financial
officer of the Contributor shall attempt to make a final determination of the
Contingent Consideration payable for the Measurement Period. If Clarant's chief
financial officer and the chief financial officer of the Contributor do not
reach agreement within a reasonable time, either or both of them shall give
notice of an impasse, in which case they shall mutually agree on an independent
accounting firm to review the Contingent Consideration Notice (and related
information) to determine the amount of the Contingent Consideration. In the
event that Clarant's chief financial officer and the chief financial officer of
Contributor cannot agree on an independent accounting firm, Arthur Andersen
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
<PAGE>
Contributor. The costs of the independent accounting firm shall be borne by
the party whose determination of the Contingent Consideration was furthest from
the determination of the independent accounting firm, or equally by the parties
in the event that the determination by the independent accounting firm is
equidistant between the Contingent Consideration as calculated by Clarant and
the Contributor.
(f) Any adjustments to the Contingent Consideration required to be made
as a result of the process described in paragraph (e) shall be made in either
cash or Clarant Common Stock.
(g) The amounts payable as Contingent Consideration shall be deemed to
include interest, if any, that would be imputed under the Code. No additional
payments shall be made to the Contributor for such imputed interest.
(h) The right to receive the Contingent Consideration shall not be
assignable by the Contributor.
(i) The parties acknowledge that Clarant intends to integrate the
businesses of the Founding Companies and implement policies applicable to
Clarant and its subsidiaries as a whole after the Closing Date. In integrating
the Founding Companies and implementing such policies, Clarant shall not take
any action intended or reasonably likely to prejudice the Contributor's rights
with respect to the Contingent Consideration. In the event that Clarant merges,
consolidates, reorganizes, restructures or disposes of a material portion of the
assets of, or takes any similar action with respect to, any one or more of the
Founding Companies, Clarant shall maintain sufficient records and recordkeeping
procedures as is commercially practicable and reasonably necessary to calculate
the amount of Contingent Consideration payable to the Contributor in accordance
with the Agreement and the terms set forth in this EXHIBIT 3.3.
(j) For purposes of calculating the Contingent Consideration during
the first Measurement Period, the Business' Actual Pre-tax Income shall be
increased by ten percent (10%) of any revenues of any one of the Other
Founding Companies from any Referred Work. The term "Referred Work" means
work relating to a project obtained from a client of the Contributor that the
Contributor requests Clarant to assign to one of the Other Founding Companies
and which assignment request is accepted by such Other Founding Company.
<PAGE>
INTEGRATED INTERACTIVE, INC
AND
COMMONWEALTH PRINCIPALS II, LLC
CREDIT AGREEMENT
DATED SEPTEMBER 2, 1998
<PAGE>
THIS CREDIT AGREEMENT, dated September 2, 1998 (as amended and modified
from time to time) (the "Agreement") is by and between Integrated
Interactive, Inc., a Delaware corporation (the "Company") and Commonwealth
Principals II, LLC, a Delaware limited liability company (the "Lender").
INTRODUCTION
The Company desires to obtain a credit facility in the maximum principal
amount of $3,000,000 in order to provide funds for the implementation of its
plan to execute a consolidation of a group of contract research companies and
contemporaneous initial public offering ("IPO") of the common stock of the
Company, and Lender is willing to establish such a credit facility in favor
of the Company on the terms and conditions herein set forth.
In consideration of the premises and the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
DEFINITIONS. As used in this Agreement the following terms shall have
the following respective meanings:
"Closing Date" - means the closing of the IPO of Integrated Interactive
pursuant to the final Registration Statement on Form S-1 filed with the
Securities Exchange Commission covering the offer and sale of Integrated
Interactive common stock.
"Event of Default" - means any of the events or conditions described in
Section 5.1.
"Founding Company" - means one of the companies that make up the
consolidated group of companies described in the final Registration Statement
on Form S-1 filed with the Securities Exchange Commission covering the offer
and sale of Integrated Interactive common stock in the IPO.
"Interest Rate" - means the Prime Rate.
"Prime Rate" - means the prime rate of interest cumulative,
non-compounded as reported by the Wall Street Journal from time to time under
its Money Rates column.
"Loan" - means any borrowing under Section 2.3 evidenced by a Note and
made pursuant to Section 2.1.
"Note" - means any promissory note of the Company evidencing the Loans
in substantially the form annexed hereto as EXHIBIT A as amended or modified
from time to time, together with any promissory note or notes issued in
exchange or replacement thereof.
"Termination Date" means the Closing Date.
2
<PAGE>
"Integrated Interactive" means Integrated Interactive Inc., a Delaware
corporation, its successors, and any other similar entity that at the closing
of the planned consolidation and IPO involving the internet consulting Plan
is the public company.
ARTICLE II
THE COMMITMENT AND THE LOANS
2.1 COMMITMENT. Subject to his privilege to terminate this Credit Agreement
at any time, Lender agrees, subject to the terms of this Agreement, to make
Loans to the Company pursuant to Section 2.3 from time to time not to exceed a
maximum principal amount at any time outstanding of $3,000,000.
2.2 TERMINATION AND REDUCTION OF COMMITMENT. Lender shall have the right
to terminate or reduce the Commitment at any time and from time to time at his
sole and absolute discretion upon notice of such termination or reduction to
the Company.
2.3 DISBURSEMENT OF LOANS. The Company shall give notice of its request
for each Loan in substantially the form of EXHIBIT B hereto not later than
three business days prior to the date the Loan is requested to be made. Subject
to the terms and conditions of this Agreement, including Lender's right to
terminate his commitment, the proceeds of each requested Loan will be made
available to the Company by a check made out to the order of the Company.
2.4 CONDITION OF DISBURSEMENT. The obligation of Lender to make any Loans
is subject to receipt by Lender of the following documents and completion of
the following matters, in form and substance reasonably satisfactory to the
Lender:
(a) An authorizing resolution and evidence of other corporate
action taken by the Company to authorize the execution, delivery, and
performance by the Company with this Agreement and the Note;
(b) The Notes, duly executed on behalf of the Company, for Lender.
2.5 MINIMUM AMOUNTS. Except for Loans which exhaust the entire remaining
amount of the commitment, each Loan shall be in a minimum amount of
$5,000,000.
III
PAYMENTS
3.1 PRINCIPAL AND INTEREST PAYMENTS. The Company shall pay to Lender on
the earlier of Demand and the Termination Date the entire outstanding
principal amount plus interest at the Interest Rate on the unpaid principal
amount of each Loan for the period commencing on the date such Loan is made
until such Loan is paid in full.
3
<PAGE>
3.2 NO SETOFF OR DEDUCTION. All payments of principal and interest on
the Loans shall be made by the Company without setoff or counterclaim.
IV
COVENANTS
The Company covenants and agrees that until the Termination Date and
thereafter until irrevocable payments in full of the principal and accrued
interest on the Notes under this Agreement it shall.
(a) PRESERVATION OF CORPORATE EXISTENCE. Do or cause to be done all
things necessary to preserve, renew, and keep in full force and effect
its legal existence and its qualification as a foreign entity in good
standing in each jurisdiction in which such qualification is necessary
under applicable law.
(b) ACCOUNTING. Maintain a system of accounting established and
administered in accordance with sound business practices.
V
DEFAULT
5.1 EVENTS OF DEFAULT. The occurrence of any one of the following events or
conditions shall be deemed an "Event of Default" hereunder:
(a) NONPAYMENT OF PRINCIPAL OR INTEREST. The Company shall fail to
pay when due any principal or interest of Notes;
(b) CERTAIN COVENANTS. The Company shall fail perform or observe any
term, covenant or agreement contained in Article V and such failure
shall continue for 30 calendar days after occurrence thereof;
(c) INSOLVENCY. The Company or any of its subsidiaries shall be
dissolved or liquidated or shall make a general assignment for the
benefit of its creditors, or shall institute or shall be instituted
against the Company or any of its subsidiaries any proceeding or case
seeking to adjudicate it a bankrupt or insolvent or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts, or the appointment of a receiver, trustee,
custodian or other similar official for it or for a substantial part of its
assets, rights, revenues or property.
(d) CHANGE OF CONTROL. The Company shall experience a Change of
Control. For purposes of this Section "Change in Control"-- shall be
deemed to have occurred upon the first to occur of the following:
(i) The acquisition, other than from the Company, by and
individual, entity, or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the
4
<PAGE>
Exchange Act) of Beneficial Ownership of fifty (50%) percent or
more of either (1) the then-outstanding capital interest of the
Company (the "Outstanding Company Capital") or (2) the combined voting
power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of the Management Committee
(the "Outstanding Company Voting Securities"); and
(ii) Individuals who, as of the date hereof, constitute the
Management Committee cease for any reason to constitute at least a
majority of the Management Committee.
5.2 REMEDIES. Upon the occurrence of and during the continuance of any
Event of Default, the Lender may and shall by notice to the Company
terminate the Commitments or declare the outstanding principal of, and
accrued interest on, the Notes to be immediately due and payable, whereupon
the Commitments shall terminate forthwith and all amounts shall become
immediately due and payable.
VI
ARBITRATION
ALL CLAIMS (PURSUANT TO FEDERAL OR STATE STATUTE(S) OR BY COMMON LAW),
CONTROVERSIES, DIFFERENCES OR DISPUTES BETWEEN COMPANY AND LENDER ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE BREACH THEREOF, 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 FAIRFAX COUNTY,
VIRGINIA TO THE EXCLUSION OF ALL OTHER LOCATIONS. THE ARBITRATOR(S) CANNOT
ADD OR SUBTRACT TO THE CONTENTS OF THIS AGREEMENT. THE PARTIES AGREE THAT THE
ARBITRATOR(S) MAY INCLUDE PROVISIONS FOR THE PAYMENT OF COSTS AND EXPENSES,
INCLUDING REASONABLE ATTORNEY'S 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 REQUIRED HEREUNDER. IN PREPARATION FOR THE
ARBITRATION HEREIN, EACH PARTY MAY UTILIZE ALL METHODS OF DISCOVERY
AUTHORIZED BY THE PROCEDURAL RULES AND STATUTES OF THE COMMONWEALTH OF
VIRGINIA AND MAY ENFORCE THE RIGHT TO OBTAIN SUCH DISCOVERY IN THE MANNER
PROVIDED BY SAID RULES AND STATUTES AND/OR BY THE ARBITRATION LAW OF THE
COMMONWEALTH OF VIRGINIA.
5
<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 NOTICES, CONSENTS, ETC. Any notices, consents or other communication
required to be sent or given hereunder by any of the parties shall in every
case be in writing and shall be deemed properly served if (i) delivered
personally, (ii) sent by registered or certified mail, in all such cases with
first class postage prepaid, return receipt requested, or (iii) delivered by
a recognized overnight courier service, to the parties at the addresses as
set forth below or at such other addresses as may be furnished in writing.
(a) If to Lender:
Commonwealth Principals II, LLC
(b) If to Company:
Integrated Interactive, Inc.
Attention:
Date of service of such notice shall be (x) the date such notice is
personally delivered. (y) three (3) days after the date of mailing if sent by
certified or registered mail, or (z) one (1) day after date of delivery to
the overnight courier if sent by overnight courier.
7.2 SEVERABILITY. The unenforceability or invalidity of any provision of
this Agreement shall not affect the enforceability or validity of any other
provision.
7.3 DOCUMENTS. Each party will execute all documents and take such other
actions as the other party may reasonably request in order to consummate the
transactions provided for herein and to accomplish the purposes of this
Agreement.
7.4 COUNTERPARTS. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.5 GOVERNING LAW. This Agreement shall be construed and governs in
accordance with the laws of the Commonwealth of Virginia, without giving
effect to conflicts and choice of law principles.
7.6 HEADINGS. The subject headings of Articles and Sections of this
Agreement are included for purposes of convenience only and shall not affect
the construction or interpretation of any of its provisions.
6
<PAGE>
7.7 ASSIGNMENT. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns but will not be assignable or delegable by any party without the
prior written consent of the other party.
7.8 ENTIRE AGREEMENT. This Agreement and all the Exhibits attached to
the Agreement (which shall be deemed incorporated in the Agreement and made
a part hereof) set forth the entire understanding of the parties and
supersedes all prior or contemporaneous agreements or negotiations (whether
in writing or oral) and may be modified only by instruments signed by by both
of the parties hereto. Oral modifications are absolutely prohibited.
7.9 THIRD PARTIES. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person or entity, other than
the parties to this Agreement, any rights or remedies under or by reason of
this Agreement.
7.10 INTERPRETATIVE MATTERS. Unless the context otherwise requires, (i)
all references to Articles, Sections, Schedules or Exhibits in this
Agreement, and (ii) words in the singular or plural include the singular and
plural and pronouns stated in either the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
7.11 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising a right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of the
right, power, or privilege, and no single or partial exercise of a right,
power, or privilege will preclude any other or further exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in it can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given. Every right and remedy
granted by this Agreement or the Notes or by applicable law to the Lender may
be exercised from time to time and as often as may be deemed expedient by
Lender and unless contrary to the express provisions of this Agreement or the
Notes, irrespective of the occurrence or continuance of any Default or Event
of Default.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement this 2d day
of September, 1998.
WITNESS: INTEGRATED INTERACTIVE, INC.
By: /s/ J. Marshall Coleman
--------------------------
J. Marshall Coleman
LENDER:
COMMONWEALTH PRINCIPALS II, LLC
/s/ [illegible]
----------------------------
8
<PAGE>
Exhibit 10.13
FORFEITURE AGREEMENT
THIS FORFEITURE AGREEMENT (the "Agreement") is made as of June 6, 1999,
by and between Commonwealth Principals II LLC, a Delaware limited liability
company ("Commonwealth"), and Clarant Worldwide Corporation, a Delaware
corporation ("Clarant").
RECITALS
A. Commonwealth is the majority shareholder of Clarant.
B. In connection with the initial public offering of shares of Clarant common
stock (the "IPO"), Clarant will, simultaneously with the closing of the IPO,
close on the acquisition by merger of all of the capital stock of RSI Group,
Inc., a Texas corporation ("RSI"), pursuant to the terms and conditions of that
certain Agreement and Plan of Organization dated June 1, 1999 (the "Merger
Agreement"), by and among Clarant, RSI I Acquisition Corp., a Texas corporation,
RSI, Resource Solutions International, LLC, a Texas limited liability company,
Charles Harrison, Carolyn Brown and Bruce D. Grant (collectively, such
individuals being the "Stockholders").
C. Pursuant to the Merger Agreement, Clarant has agreed that at the closing of
the transactions contemplated by the Merger Agreement (i) if the IPO price per
share of Clarant common stock is $11.00 or greater, then Clarant will issue to
the Stockholders 1,094,545 shares of Clarant common stock plus cash of
$469,091.71 times the IPO price per share of Clarant common stock, but (ii) if
the IPO price per share of Clarant common stock is less than $11.00, Clarant
will issue to the Stockholders $5,160,008.81 in cash plus a sufficient number of
shares of Clarant common stock (valued at the IPO price per share) in addition
to the 1,094,545 shares of Clarant common stock such that the total
consideration paid to the Stockholders is $17,200,000.00.
D. Commonwealth has agreed to bear the economic burden of Clarant's commitment
under the Merger Agreement to issue additional shares of Clarant common stock if
the IPO price per share of Clarant common stock is less than $11.00 and,
accordingly, Commonwealth and Clarant desire to arrange for the delivery by
Commonwealth to Clarant of that number of shares of Clarant Common Stock in
excess of 1,094,545 shares that Clarant is required to deliver to the
Stockholders if the IPO price per share of Clarant common stock is less than
$11.00.
NOW THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Commonwealth and Clarant hereby agree as follows:
1. FORFEITURE OF SHARES. Commonwealth agrees that if the IPO price per
share of Clarant common stock is less than $11.00, then Commonwealth will,
simultaneously with the
<PAGE>
closing of the transactions contemplated by the Merger Agreement, deliver to
Clarant, at no cost to Clarant, that number of shares of Clarant common stock
equal to the number of shares of Clarant common stock in excess of 1,094,545
shares that Clarant issues to the Stockholders pursuant to the Merger Agreement.
2. FURTHER ASSURANCES. The parties hereto shall from time to time, at
the request of any party hereto, execute and deliver such other instruments of
conveyance and transfer and take such other actions as such party hereto may
reasonably request, in order to more effectively consummate the transactions
contemplated by this Agreement.
3. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements
between the parties (written or oral) with respect to the subject matter of this
Agreement and is intended as a complete and exclusive statement of the terms of
the agreement between the parties. This Agreement may be amended or modified
only by a written instrument duly executed by the parties.
4. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with laws of the State of Delaware, without regard to its principles
of conflicts of laws.
5. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
6. PARTIES IN INTEREST. All the terms of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective legal representatives, successors and assigns.
7. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall
entitle any person other than Commonwealth or Clarant or their respective
successors and assigns permitted hereby to any claim, cause of action, remedy or
right of any kind.
8. SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforce able in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in such or any other jurisdiction. If any provision of this Agreement
is so broad as to be unenforceable, such provision shall be interpreted to be
only so broad as is enforceable.
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, no one of which needs to be executed by both parties, and this
Agreement shall be binding upon both parties with the same force and effect as
if both parties had signed the same document, and each such signed counterpart
shall constitute an original of this Agreement. In addition, this
<PAGE>
Agreement may be executed by facsimile signatures and such signatures shall be
deemed originals.
10. JURISDICTION. Any judicial proceeding brought against any of the
parties hereto, with respect to this Agreement, may be brought in any court of
competent jurisdiction in the Commonwealth of Virginia, irrespective of where
such party may be located at the time of such proceeding, and by execution and
delivery of this Agreement, each of the parties hereto hereby consents to the
jurisdiction of any such court and waives any defense or opposition to such
jurisdiction. Each party hereby waives the right to trial by jury in any
judicial proceeding referred to in this Section 10.
11. SPECIFIC PERFORMANCE; REMEDIES. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation. It is
accordingly agreed that, in addition to any other remedies which may be
available upon the breach of any such covenants or agreements, each party hereto
shall have the right to obtain injunctive relief to restrain a breach or
threatened breach of, or otherwise to obtain specific performance of, the other
parties, covenants and agreements contained in this Agreement.
IN WITNESS WHEREOF, Commonwealth and Clarant have caused this Agreement
to be executed as of the date first above written.
COMMONWEALTH PRINCIPALS II LLC,
a Delaware limited liability company
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
Date:
---------------------------
CLARANT WORLDWIDE CORPORATION,
a Delaware corporation
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
Date:
---------------------------
<PAGE>
Exhibit 10.14
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
as of June __, 1999, by and among LUMINANT WORLDWIDE CORPORATION, a Delaware
corporation (the "Company"), Commonwealth Principals II, LLC, a Delaware limited
liability company, and Guillermo G. Marmol.
RECITALS
A. Commonwealth Principals II, LLC, and Guillermo G. Marmol
(the "Stockholders") are and will be the sole Persons who own Company Common
Stock prior to the IPO Event and the Target Acquisitions.
B. The Stockholders have previously agreed that, in connection
with the Target Acquisitions, it is intended that the sellers of the companies
involved in such transactions receive capital stock of the Company in a manner
that qualifies for tax-free treatment under Section 351 of the Code. The
Stockholders have agreed that, if necessary to preserve such tax-free treatment,
they would reduce their aggregate stake in the Company so that such stake
constitutes less than 20% of the outstanding Company Common Stock, measured
post-consummation of the IPO Event and the Target Acquisitions and as adjusted
pursuant to that certain Stockholders Agreement entered into as of the date of
this Agreement. The Stockholders agreed that they would accomplish such
reduction by surrendering to the Company an appropriate number of their shares
of Company Common Stock immediately prior to the consummation of the Target
Acquisitions and the IPO Event.
C. The parties hereto wish by this Agreement to provide
certain registration rights to the Stockholders with respect to the shares of
Company Common Stock they may own (directly or indirectly) or have the right to
acquire pursuant to options granted in connection with the IPO Event
(collectively, the "Shares").
AGREEMENT
In consideration of the foregoing and the covenants set forth
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
DEFINITIONS. For purposes of this Agreement, in addition to
terms defined elsewhere herein, the following terms when used herein shall have
the following meanings:
"Code" means the U.S. Internal Revenue Code of 1986, as
amended.
<PAGE>
"Company Common Stock" means shares of the Company's common
stock, $.01 par value per share.
"Founding Companies" means Align Solutions Corp., a Delaware
corporation, Free Range Media, Inc., a Washington corporation, Young & Rubicam
Inc., a Delaware corporation (with respect to Brand Dialogue, a business
division of Young & Rubicam), Multimedia Resources LLC, a New York limited
liability company, Potomac Partners Management Consulting LLC, a Delaware
limited liability company, RSI Group, Inc., a Texas corporation, and Integrated
Consulting, Inc., d/b/a i.con interactive, a Texas corporation, and
Interactive8, Inc., a New York corporation.
"IPO Event" means an underwritten public offering, pursuant to
an effective registration statement under the 1933 Act, that is underwritten by
one or more nationally-recognized investment banking firms and results in the
Company receiving not less than $10,000,000 in aggregate cash proceeds from such
offering.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or government body.
"Target Acquisitions" means the acquisitions by the Company of
the Founding Companies that are expected to close in conjunction with the IPO
Event.
ARTICLE II
REGISTRATION RIGHTS
2.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Closing Date, whenever the Company proposes to register any Company 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 the Company, (ii) registrations
relating to employee benefit plans and (iii) registrations relating to rights
offerings made to the stockholders of the Company, the Company 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, the Company shall cause to be included in such
registration all of the Shares which any such Stockholder requests, provided
that the Company shall have the right to reduce the number of Shares included in
such registration to the
<PAGE>
extent that inclusion of such Shares could, in the opinion of tax counsel to the
Company or its independent auditors, jeopardize the status of the transactions
contemplated by the IPO Event as a tax-free organization. In addition, if the
Company 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 2.1 that the number of shares to be
sold by Persons other than the Company is greater than the number of such shares
which can be offered without adversely affecting the offering, the Company 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 the Company after the IPO Event, such reduction shall
be made first by reducing the number of shares to be sold by Persons other than
the Company, the Stockholders and the stockholders of the Founding Companies who
have been granted registration rights (the stockholders of the Founding
Companies are hereafter referred to as the "Founding Stockholders"), next, if a
further reduction is required, by reducing the number of shares to be sold by
the Stockholders, and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
2.2 REGISTRATION PROCEDURES. All expenses incurred in
connection with the registrations under this Agreement (including all
registration, filing, qualification, legal, printer and accounting fees, but
excluding underwriting commissions and discounts), shall be borne by the
Company. In connection with registrations under Section 2.1, the Company 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 Company Common Stock and use its commercially reasonable best efforts to
cause such registration to promptly become and remain effective for a period of
at least one hundred twenty (120) days (or such shorter period during which the
Stockholders shall have sold all Company Common Stock which they requested to be
registered); (ii) use its commercially reasonable best efforts to register and
qualify the Company Common Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the Company 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.
2.3 UNDERWRITING AGREEMENT. In connection with each
registration pursuant to Sections 2.1 and 2.2 covering an underwritten
registered public offering, the Company 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 the Company's
size and investment stature, including indemnification provisions.
2.4 AVAILABILITY OF RULE 144. The Company shall not be
obligated to register any of the Shares at any time when the resale provisions
of Rule 144(k) (or any successor provision) promulgated under the 1933 Act are
available to a Stockholder for such Shares.
2.5 MARKET STANDOFF. In consideration of the granting to the
Stockholders of
<PAGE>
the registration rights under this Agreement, 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 Company
Common Stock in the ten (10) days prior to the effectiveness of any registration
of Company 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
Company Common Stock agree to the same restrictions; and further provided that,
with respect to the first public offering of shares of the Company Common Stock
within three (3) years following the IPO Event, the Stockholders shall have been
afforded a meaningful opportunity to include Shares in such registration after
any reduction by reason of underwriters' advice.
ARTICLE III
MISCELLANEOUS
3.1 RULES 144 AND 144A. The Company covenants that following
the registration of Shares it will file any reports required to be filed by it
under the 1933 Act and the 1934 Act so as to enable the Stockholders to sell
such Shares without registration under the 1933 Act within the limitation of the
exemptions provided by (a) Rules 144 and 144A under the 1933 Act, as each such
Rule may be amended from time to time, or (b) any similar rule or rules. Upon
the request of any Stockholder, the Company will forthwith deliver to such
Stockholder a written statement as to whether it has complied with such
requirements.
3.2 NO WAIVER OF RIGHTS. No failure or delay on the part of
any party in the exercise of any power or right hereunder shall operate as a
waiver thereof. No single or partial exercise of any right or power hereunder
shall operate as a waiver of such right or power or of any other right or power.
The waiver by any party of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any other or subsequent breach hereunder.
Except as otherwise expressly provided herein, all rights and remedies existing
under this Agreement are cumulative with, and not exclusive of, any rights or
remedies otherwise available.
3.3 AMENDMENT. Except as otherwise expressly set forth in this
Agreement, this Agreement may be amended or supplemented only by the written
agreement of the Company and the Stockholders.
3.4 ENTIRE AGREEMENT; SUCCESSORS; THIRD PARTIES. This
Agreement contains the entire agreement among the parties with respect to the
transactions contemplated hereby and supersedes all prior arrangements or
understandings with respect thereto, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors, heirs, executors, administrators and
permitted assigns. Except as specifically set forth herein, nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto and their respective successors and permitted assigns,
any rights, remedies, obligations or liabilities.
<PAGE>
3.5 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally, by facsimile or sent by overnight express or by registered or
certified mail, postage prepaid, addressed as follows:
If to the Company to:
Luminant Worldwide Corp.
2665 Villa Creek Drive
Suite 200
Dallas, Texas 75234
Attention: Guillermo G. Marmol
Tel: (972) 488-7280
Fax: (972) 488-7299
If to the Stockholders to:
Commonwealth Principals II, LLC
1650 Tysons Blvd.
McLean, Virginia 22102
Attention: J. Marshall Coleman
Tel: (703) 288-3080
Fax: (703) 288-3085
and
Guillermo G. Marmol
6123 Deloache Avenue
Dallas, Texas 75225
Tel: (214) 369-7970
Fax: (214) 750-8122
All deliveries of notice shall be deemed effective when received by the persons
entitled to such receipt or when delivery has been attempted but refused by such
person or persons.
3.6 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
3.7 COUNTERPARTS; FACSIMILES. This Agreement may be executed
in any number of counterparts, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement. This Agreement may be executed and delivered by facsimile
transmission.
3.8 GOVERNING LAW AND VENUE. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware applicable
<PAGE>
to agreements made and entirely to be performed within such jurisdiction. The
party bringing any action under this Agreement shall only be entitled to choose
the federal or local courts in the District of Columbia or Delaware as the venue
for such action, and each party consents to the jurisdiction of the court chosen
in such manner for such action.
3.9 SEVERABILITY. The provisions of this Agreement are
severable, and the unenforceability of any provision of this Agreement shall not
affect the enforceability of the remainder of this Agreement. The parties
acknowledge that it is their intention that if any provision of this Agreement
is determined by a court to be invalid, illegal or unenforceable as drafted,
that provision should be construed in a manner designed to effectuate the
purpose of that provision to the greatest extent possible under applicable law.
3.10 SPECIFIC PERFORMANCE. The rights of the parties under
this Agreement are unique and the failure of a party to perform its obligations
hereunder would irreparably harm the other parties hereto. Accordingly, the
parties shall, in addition to such other remedies as may be available at law or
in equity, have the right to enforce their rights hereunder by actions for
specific performance to the extent permitted by law.
3.11 FURTHER ASSURANCES. Each of the parties hereto agrees to
execute all such further instruments and documents and to take all such further
action as any other party may reasonably require in order to effectuate the
terms and purposes of this Agreement.
[Execution Pages Follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have caused this Agreement to be executed as of the day
and year first above written.
LUMINANT WORLDWIDE CORPORATION
By:
----------------------------------
Guillermo G. Marmol
President
THE STOCKHOLDERS:
COMMONWEALTH PRINCIPALS II, LLC
By:
----------------------------------
J. Marshall Coleman
Member
----------------------------------
Guillermo G. Marmol
<PAGE>
Exhibit 10.15
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is made effective
the 2d day of September, 1998 by and between WebOne, Inc., a Delaware
corporation ("WebOne") and Commonwealth Principals II, LLC, a Delaware limited
liability company ("Commonwealth II").
WHEREAS, WebOne has been formed to execute a consolidation of a group
of firms that provide high level consulting services for businesses wishing to
market through the internet and contemporaneous initial public offering ("IPO")
of its common stock. (the "Plan");
WHEREAS, WebOne desires to retain the services of Commonwealth II to
assist in the execution of the Plan and the parties desire to enter into an
Agreement to evidence the terms and conditions of such an engagement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained in this Management Services Agreement, it is agreed as follows:
SECTION 1. CONSULTING TERMS AND DUTIES.
(a) Upon the terms and conditions set forth herein, WebOne hereby
retains and engages Commonwealth II, and Commonwealth II hereby accepts such
engagement and agrees to render services to WebOne designed to assist its
execution of the Plan.
(b) By way of example it is anticipated that Commonwealth II will
provide the following services --
(i) Professional services to manage and execute the Plan,
(ii) Identification and placement of senior executives to
manage WebOne before and after the IPO,
(iii) Identification of legal and auditing professionals to
represent WebOne in connection with the consolidation and IPO, and
(iv) Loans to fund the execution of the Plan.
SECTION 2. TERM. The term of Commonwealth II's retention and engagement
by WebOne under this Agreement (the "Term") shall commence with the effective
date of this agreement (the "Commencement Date") and shall continue for the
earlier of the Closing and twenty-four months, unless earlier terminated
pursuant to Section 6 of this Agreement.
SECTION 3. CONSIDERATION In consideration for the services rendered
pursuant to this Management Services Agreement, WebOne will pay to Commonwealth
II the following:
<PAGE>
(a) CONSULTING FEES. WebOne will pay to Commonwealth II a fee in cash
at Closing equal to the amount incurred by Commonwealth II in compensation paid
or promised to consultants, advisors, accountants and other professionals
engaged by it to execute the plan.
(b) REIMBURSEMENT OF EXPENSES. WebOne will pay to Commonwealth II at
Closing the amount incurred or accrued by Commonwealth II for -
(i) those reasonable and necessary out-of-pocket expenses in
furtherance of the Plan, including an allocation for overhead
("Expenses"); and
(ii) interest on Preferred Investors' invested capital, not
otherwise accrued under a loan described in Section 4.
(c) RETURN. WebOne will pay to Commonwealth II at Closing an amount
equal to the sum of individual calculations of a return on each dollar expended
and interest cost incurred by Commonwealth II described in Subsections (a) and
(b), above, at the Prime Rate from the date the dollar is expended by
Commonwealth II until payment in full hereunder.
SECTION 4. LOANS.
Subject to its privilege to terminate its commitment at any time and
for any reason, Commonwealth II agrees to make loans to WebOne under the terms
and conditions provided in the Credit Agreement attached as EXHIBIT A and hereby
made a part hereof.
SECTION 5. TERMINATION This Agreement may be terminated by
either party with 30 days prior written notice.
SECTION 6. ARBITRATION. Excluding the right of WebOne to seek
injunctive relief, all claims (pursuant to Federal or state statutes or by
common law), controversies, differences or disputes between the parties arising
out of or relating to this Agreement or related or referenced exhibits or the
alleged breach thereof 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
Fairfax County, Virginia to the exclusion of all other locations. The
arbitrators can only award actual and NOT punitive, trebled or exemplary damages
and 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.
SECTION 7. MISCELLANEOUS
(a) NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered
personally, sent by facsimile
2
<PAGE>
transmission (with a copy also sent by another means herein provided
for), sent by certified, registered or express mail, postage prepaid
or sent by reputable air courier. Any such notice shall be deemed
given when so delivered personally or sent by facsimile transmission
(with issuance by the transmitting machine of a confirmation of
successful transmission) or, if mailed, five days after the date of
deposit in the United States mail or, if sent by courier, two days
after the date of deposit with much courier, addressed as follows:
(i) if to WebOne to:
Attention:
----------------
(ii) if to Commonwealth II, to:
Commonwealth Principals
8500 Leesburg Pike
Suite 601
Vienna, VA 22182
Attention: J. Marshall Coleman
Telecopy: (703) 288-3085
Any party may change its address for notice hereunder by notice to the
other party hereto given in accordance herewith.
(b) ASSIGNABILITY. This Agreement shall not be assignable by
either party hereto without the prior written consent of the other
party, which consent, if requested of WebOne by Commonwealth II, shall
not be unreasonably withheld, and any such purported assignment shall
be void AB INITIO.
(c) GOVERNING LAW. The parties agree that this Agreement shall
be construed and governed in accordance with the internal laws of the
Commonwealth of Virginia, without giving effect to principles of
conflicts of laws.
(d) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
legal representatives, executors, administrators, successors and
permitted assigns.
(e) COUNTERPARTS. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be
deemed an original but all of which together shall constitute one and
the same instrument.
3
<PAGE>
(f) ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties hereto with respect to the
matters set forth herein. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications,
understandings and agreements between parties, written or oral,
relating to the subject matter of this Agreement. This Agreement may be
amended, superseded, cancelled, renewed, or extended and the terms
hereof may be waived, only by a written instrument signed by the
parties hereto or, in the case of a waiver, by the party waiving
compliance.
(g) WAIVERS. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver
thereof. Nor shall any waiver on the part of any party of any such
right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder, preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege hereunder.
(h) HEADINGS. The headings in this Agreement are inserted for
convenience only and are not to be considered in the interpretation or
construction of the provisions hereof.
(i) DEFINITIONS. For purposes of this Agreement, the following
terms have the meanings referred to in this Section 8:
"Closing" - means the consummation of the merger and
conversion of ownership interests of the Founding Companies
contemporaneously with the closing of the IPO of WebOne common
stock.
"Founding Companies" - means the companies that make up the
consolidated group of companies described in the final
Registration Statement on Form S-1 filed with the Securities
Exchange Commission covering the offer and sale of WebOne
common stock in the IPO.
"Prime Rate" - means the prime rate of interest cumulative,
non-compounded as reported by the Wall Street Journal from
time to time under its Money Rate column.
4
<PAGE>
IN WITNESS WHEREOF, WebOne and Commonwealth II have signed this
Agreement this __ day of September, 1998.
WEBONE, INC.
By: /s/ J. Marshall Coleman
---------------------------------
J. Marshall Coleman
Chairman
COMMONWEALTH PRINCIPALS II, LLC
By: /s/ [illegible]
---------------------------------
5
<PAGE>
EXHIBIT 10.16
EXECUTION COPY
/ / Employee's Copy
/ / Company's Copy
LUMINANT WORLDWIDE CORPORATION
EMPLOYMENT AGREEMENT
To DEREK REISFIELD:
This Agreement establishes the terms of your employment with Luminant
Worldwide Corporation, a Delaware corporation (the "COMPANY"). The Company has
been formed as a parent company to acquire companies engaged in the business of
providing internet professional services and to make an initial public offering
("IPO") of the Company's common stock.
EMPLOYMENT AND DUTIES You and the Company agree to your employment as
Executive Vice President and Vice Chairman of the
Company on the terms contained herein. In such
position, you will report directly to the Company's
Chief Executive Officer (the "CEO"). You agree to
perform whatever duties the Board may assign you from
time to time, consistent with your position as
Executive Vice President and Vice Chairman. During
your employment, you agree to devote sufficient
business time, attention, and energies to performing
those duties (except as you and the CEO otherwise
agree from time to time). You agree to comply with
the noncompetition, secrecy, and other provisions of
Exhibit A to this Agreement.
TERM OF EMPLOYMENT Your employment under this Agreement begins as of
July 23, 1999 (the "EFFECTIVE DATE"). Unless sooner
terminated under this Agreement, your employment ends
at 6:00 p.m. Central Time on
(i) December 31, 1999 (or such earlier date
as of which the Company's Board of Directors
(the "BOARD") notifies you the Company is
abandoning its efforts for 1999 to complete
an IPO), if the Company has not completed
its IPO by that date, or
(ii) the third anniversary of the Effective
Date, if the Company has completed its IPO
on or before December 31, 1999.
The period running from the Effective Date to the
applicable date in the preceding sentence is the
"TERM."
<PAGE>
Termination or expiration of this Agreement ends your
employment but does not end your obligation to comply
with Exhibit A or the Company's obligation, if any,
to make payments under the PAYMENTS ON TERMINATION
and SEVERANCE provisions as specified below.
COMPENSATION
SALARY The Company will pay you an annual salary (the
"SALARY") from the Effective Date to the date as of
which the IPO closes (the "IPO CLOSING DATE") at the
rate of not less than $20,000 per month in accordance
with its generally applicable payroll practices. Your
Salary will change prospectively to an annual rate of
$250,000 per year as of the IPO Closing Date. The
Board or its Compensation Committee will review your
Salary annually and consider you for increases.
CLOSING BONUS The Company will pay you a lump sum bonus equal to
$333 per day elapsed between February 15, 1999 and
the IPO Closing Date, payable within 15 days after
the IPO Closing Date.
PERFORMANCE BONUS The Board or its Compensation Committee will
establish annual bonus targets under which you will
be eligible for an annual bonus equal to up to 100%
of your Salary. The Company will use its best efforts
to establish bonus targets for the first year, in
good faith consultation with you, within 45 days
following the IPO Closing Date.
OPTIONS As of the date the Company's underwriters price the
IPO, the Company will grant options to you under the
Company's 1999 Equity Incentive Plan (the "EQUITY
PLAN"), exercisable at the IPO price, to acquire 1%
of the shares of common stock that will be
outstanding immediately after the IPO (including for
that purpose any shares subject to the underwriters'
overallotment but excluding any shares subject to
options, whether or not then exercisable). (As of the
Effective Date, the options are projected to cover
427,953 shares, but the Company will adjust that
number as necessary to satisfy the preceding
sentence.) The options will consist of incentive
stock options under Section 422 of the Internal
Revenue Code to the extent the tax laws permit and of
nonqualified stock options for the remainder. The
option agreement will provide that such options will
be fully exercisable when granted and will remain
exercisable for 10 years, irrespective of whether you
remain employed, or such shorter
Employment Agreement with Derek Reisfield Page 2 of 23
<PAGE>
period at the end of which the Company terminates all
options under the Equity Plan's provisions. The
Company will permit cashless exercises of the
options, subject to any applicable lockups and
securities law restrictions. This provision will
survive any termination or expiration of this
Agreement.
The Company agrees to consider you for an additional
option on the same terms as those set forth in the
preceding paragraph and to be granted at the same
time. The Company will propose a number of shares for
such option within 30 days after the Effective Date.
The Company and you agree that you will have 10
business days to consider the number, at the end of
which you may tender your resignation (to be
effective no earlier than the earlier of October 15,
1999 or the IPO Closing Date) and receive severance
pay on the following schedule in lieu of all benefits
listed below under SEVERANCE and all other benefits
under the Agreement other than the options described
in the preceding paragraph: two months' payment of
$30,000 per month, two months' payment of $20,000 per
month, and two months' payment of $10,000 per month.
EMPLOYEE BENEFITS While the Company employs you under this Agreement,
the Company will provide you with the same benefits
as it makes generally available from time to time to
the Company's senior executive employees, as those
benefits are amended or terminated from time to time,
including participation in vacation policies (and
payment for accrued vacation) on a basis comparable
to that for senior management. Your participation in
the Company's benefit plans will be subject to the
terms of the applicable plan documents and the
Company's generally applied policies, and the Company
in its sole discretion may from time to time adopt,
modify, interpret, or discontinue such plans or
policies.
VACATION You will be entitled to four weeks' paid vacation
during each full year of your employment under this
Agreement. You must take such vacations at such times
as are consistent with the Company's reasonable
business needs.
COMPENSATION You will be eligible under a senior executive
REVIEW compensation program that will consider you for
annual increases in Salary.
PLACE OF EMPLOYMENT Your principal place of employment will be in Dallas,
Texas or in the surrounding counties or in New York
City, as the Company directs. You agree that you may
be required to travel from time to time for business
reasons.
EXPENSES The Company will reimburse you for reasonable and
necessary
Employment Agreement with Derek Reisfield Page 3 of 23
<PAGE>
travel and other business-related expenses you incur
for the Company in performing your duties under this
Agreement (with the travel accommodations
substantially comparable to that of senior management
of the Company). You must itemize and substantiate
all requests for reimbursements. You must submit
requests for reimbursement in accordance with the
policies and practices of the Company. In addition,
the Company will reimburse you for all reasonable
attorneys' fees you have incurred in connection with
this Agreement, your options, and your employment by
the Company, to a maximum of $4,000.
MOVING EXPENSES The Company will reimburse you or pay up to $15,000
to move to Dallas, Texas and, if it later relocates
you to New York City, will reimburse you or pay up to
$15,000 for the move from Dallas to New York City.
LIMITS ON OTHER While the Company employs you, you agree that you
EMPLOYMENT will not, directly or indirectly, provide services to
any person or organization for which you receive
compensation or otherwise engage in activities if
providing such services or engaging in such
activities would conflict or interfere significantly
with your faithful performance of your duties as an
employee. (This prohibition excludes any work
performed at the Company's direction.) The Company
acknowledges that you serve as a director as of the
Effective Date for the companies listed on Schedule I
and agrees that such service (or comparable future
obligations you disclose in writing to the CEO) is
not, by itself, inconsistent with your obligations
under this Agreement, so long as you do not violate
the provisions of Exhibit A. In addition, you may
complete your existing consulting agreements listed
on Schedule II, consistent with the foregoing, as
long as you are finished by January 22, 2000. You may
manage your personal investments, as long as the
management does not conflict or interfere
significantly with your faithful performance of your
duties as an employee and is consistent with the
provisions of the NO CONFLICTS OF INTEREST Section
and the NO COMPETITION Section in Exhibit A. The
Company further agrees that you may continue writing
articles for MarketWatch.com, as long as the articles
are consistent with your obligations under the
SECRECY provisions in Exhibit A.
You represent to the Company that you are not subject
to any agreement, commitment, or policy of any third
party that would prevent you from entering into or
performing your duties under this Agreement, and you
agree that you will not enter into any agreement or
commitment or agree to any policy that would prevent
or hinder your performance of duties and obligations
under
Employment Agreement with Derek Reisfield Page 4 of 23
<PAGE>
this Agreement, including Exhibit A.
NO CONFLICTS OF INTEREST You confirm that you have fully disclosed to the
Company, to the best of your knowledge, all
circumstances under which you, your spouse, and other
persons who reside in your household have or may have
a conflict of interest with the Company. You further
agree to fully disclose to the Company any such
circumstances that might arise during your employment
upon your becoming aware of such circumstances. You
agree to fully comply with the Company's policy and
practices relating to conflicts of interest.
NO IMPROPER You will neither pay nor permit payment of any
PAYMENTS remuneration to or on behalf of any governmental
official other than payments required or permitted by
applicable law. You will comply fully with the
Foreign Corrupt Practices Act of 1977, as amended.
You will not, directly or indirectly,
make or permit any contribution, gift,
bribe, rebate, payoff, influence payment,
kickback, or other payment to any person or
entity, private or public, regardless of
what form, whether in money, property, or
services
to obtain favorable treatment
for business secured,
to pay for favorable treatment for
business secured,
to obtain special concessions or
for special concessions already
obtained, or
in violation of any legal
requirement, or
establish or maintain any fund or asset
related to the Company that is not recorded
in the Company's books and records, or
take any action that would violate (or would
be part of a series of actions that would
violate) any U.S. law relating to
international trade or commerce, including
those laws relating to trading with the
enemy, export control, and boycotts of
Israel or Israeli products (as is sought by
certain Arab countries).
TERMINATION Subject to the provisions of this section, you and
the Company agree that
Employment Agreement with Derek Reisfield Page 5 of 23
<PAGE>
it may terminate your employment, or you may resign,
except that, if you voluntarily resign, you must
provide the Company with 30 days' prior written
notice (unless the Board has previously waived such
notice in writing or authorized a shorter notice
period).
FOR CAUSE The Company may terminate your employment for "CAUSE"
if you:
(i) commit a material breach of your
obligations or agreements under this
Agreement, including Exhibit A;
(ii) commit an act of gross negligence with
respect to the Company; or
(iii) are convicted of or plead guilty or no
contest to a felony (or to a felony charge
reduced to misdemeanor), other than
vehicular manslaughter, or, with respect to
your employment, to any misdemeanor (other
than a traffic violation) or, with respect
to your employment, commit either a material
dishonest act or common law fraud or
knowingly violate any federal or state
securities or tax laws.
Your termination for Cause will be effective
immediately upon the Company's mailing or written
transmission of notice of such termination. Before
terminating your employment for Cause under clauses
(i) and (ii) above, the Company will specify in
writing to you the nature of the act, omission,
refusal, or failure that it deems to constitute Cause
and, unless the situation is not reasonably
correctable, give you 30 days after you receive such
notice to correct the situation (and thus avoid
termination for Cause), unless the Company agrees to
extend the time for correction.
WITHOUT CAUSE Subject to the provisions below under PAYMENTS ON
TERMINATION and SEVERANCE, the Company may terminate
your employment under this Agreement before the end
of the Term without CAUSE. The Company agrees not to
terminate your employment without CAUSE during the
first six months after the Effective Date.
DISABILITY If you become "DISABLED" (as defined below), the
Company may terminate your employment. You are
"disabled" if you are unable, despite whatever
reasonable accommodations the law requires, to render
services
Employment Agreement with Derek Reisfield Page 6 of 23
<PAGE>
to the Company for more than 90 consecutive days
because of physical or mental disability, incapacity,
or illness. You are also disabled if you are found to
be disabled within the meaning of the Company's
long-term disability insurance coverage as then in
effect (or would be so found if you applied for the
coverage).
GOOD REASON You may resign for Good Reason with 30 days' advance
written notice. "GOOD REASON" for this purposes
means, without your consent, (i) the Company
materially breaches this Agreement or (ii) the
Company relocates your primary office outside Dallas,
Texas and the surrounding counties or, if you
relocate from Dallas to New York City, from New York
City.
You must give notice to the Company of your intention
to resign for Good Reason within 30 days after the
occurrence of the event that you assert entitles you
to resign for Good Reason. In that notice, you must
state the condition that you consider provides you
with Good Reason and, if such reason relates to
clause (i) above, must give the Company an
opportunity to cure the condition within 30 days
after your notice (with the 30 day period shortened
to 10 days if the failure relates to a nonpayment of
Salary and such nonpayment is not cured within 5 days
after you provide written notice of such nonpayment
to the Company). Before or during the 30 (or 10) day
period, either party may request mediation under
Exhibit B to resolve any such disputes, and, if so
requested, the parties agree to cooperate to arrange
a prompt mediation during no more than a 30 day
period. If the Company fails to cure the condition,
your resignation will be effective on the 30th day
after your notice (unless the Board has previously
waived such notice period in writing or agreed to a
shorter notice period or unless mediation is
proceeding in good faith, in which case such
resignation will become effective 15 days after the
end of such mediation, if not previously cured). The
Company agrees that your effective date of
resignation will be the end of the 10 day cure period
for failure to pay Salary.
You will not be treated as resigning for GOOD REASON
if the Company already had given notice of
termination for CAUSE as of the date of your notice
of resignation.
DEATH If you die during the Term, the Term will end as of
the date of your death.
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<PAGE>
PAYMENTS ON If you resign or the Company terminates your
TERMINATION employment with or without CAUSE or because of
disability or death or because the Company does not
complete its IPO, the Company will pay you any unpaid
portion of your Salary pro-rated through the date of
actual termination (and any annual bonuses already
determined by such date but not yet paid, unless your
employment is terminated with CAUSE or because the
IPO has been canceled), reimburse any substantiated
but unreimbursed business expenses, pay any accrued
and unused vacation time (to the extent consistent
with the Company's policies), and provide such other
benefits as applicable laws or the terms of the
benefits require. Except to the extent the law
requires otherwise or as provided in the SEVERANCE
paragraph or your option agreements, neither you nor
your beneficiary or estate will have any rights or
claims under this Agreement or otherwise to receive
severance or any other compensation, or to
participate in any other plan, arrangement, or
benefit, after such termination or resignation. If
your employment is terminated because the Company
does not complete its IPO in 1999, you acknowledge
that you have no rights to the SEVERANCE set forth
below.
SEVERANCE In addition to the foregoing payments, if (i) you
resign for GOOD REASON and the Company completes or
has completed its IPO on or before December 31, 1999
or (ii) after the completion of the IPO but before
the end of the Term, you resign for GOOD REASON or
the Company terminates your employment without CAUSE,
the Company will
pay you severance equal to your Salary, as
then in effect, for 18 months on the same
schedule as though you had remained employed
during such period, even though you are no
longer employed;
pay the after-tax premium cost for you to
receive any group health coverage the
Company must offer you under Section 4980B
of the Internal Revenue Code of 1986 ("COBRA
COVERAGE") for the period of such coverage
(unless the coverage is then provided under
a self-insured plan); and
pay you, at the time the Company would
otherwise pay your annual bonus, your pro
rata
Employment Agreement with Derek Reisfield Page 8 of 23
<PAGE>
share of the bonus for the year of your
termination, where the pro rata factor is
based on days elapsed in your year of
termination till date of termination over
365, less any portion of the bonus for the
year of your termination already paid.
You are not required to mitigate amounts
payable under the SEVERANCE paragraph by
seeking other employment or otherwise, nor
must you return to the Company amounts
earned under subsequent employment.
EXPIRATION Expiration of this Agreement, whether because of
notice of non- renewal or otherwise, does not
constitute termination without CAUSE nor provide you
with GOOD REASON and does not entitle you to
SEVERANCE, unless the Company's general severance
practices entitle you to severance in that situation.
If you remain employed through the end of the Term
and your employment then ends as a result of
expiration of the Agreement (other than because the
IPO is canceled), the Company will pay you severance
equal to your Salary, as then in effect, for nine
months on the same schedule as though you had
remained employed during such period, even though you
are no longer employed, which payments you agree
compensate you for the restrictions under Exhibit A
upon contract expiration.
ASSIGNMENT The Company may assign or otherwise transfer this
Agreement and any and all of its rights, duties,
obligations, or interests under it to
any of the affiliates or subsidiaries of the
Company or
to any business entity that at any time by
merger, consolidation, or otherwise acquires
all or substantially all of the Company's
stock or assets or to which the Company
transfers all or substantially all of its
assets.
Under the preceding sentence, the Company
agrees not to assign or transfer this
Agreement to a subsidiary, affiliate, or
asset purchaser without your consent, but
may assign or transfer the Agreement without
your consent to a stock purchaser or merger
survivor. Upon such assignment or
Employment Agreement with Derek Reisfield Page 9 of 23
<PAGE>
transfer, any such business entity will be
deemed to be substituted for the Company for
all purposes (except that the Company will
remain secondarily liable if it transfers
this Agreement to a subsidiary). You agree
that any such permitted assignment or
transfer does not entitle you to Severance.
This Agreement binds and benefits the
Company, its successors or assigns, and your
heirs and the personal representatives of
your estate. Without the Board's or the
CEO's prior written consent, you may not
assign or delegate this Agreement or any or
all rights, duties, obligations, or
interests under it.
SEVERABILITY If the final determination of an arbitrator or a
court of competent jurisdiction declares, after the
expiration of the time within which judicial review
(if permitted) of such determination may be
perfected, that any term or provision of this
Agreement, including any provision of Exhibit A, is
invalid or unenforceable, the remaining terms and
provisions will be unimpaired, and the invalid or
unenforceable term or provision will be deemed
replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or
provision.
AMENDMENT; WAIVER Neither you nor the Company may modify, amend, or
waive the terms of this Agreement other than by a
written instrument signed by you and an executive
officer of the Company duly authorized by the Board.
Either party's waiver of the other party's compliance
with any provision of this Agreement is not a waiver
of any other provision of this Agreement or of any
subsequent breach by such party of a provision of
this Agreement.
WITHHOLDING The Company will reduce its compensatory payments to
you for withholding and FICA taxes and any other
withholdings and contributions required by law.
THIRD PARTY BENEFICIARY You understand and agree that, until the IPO is
completed, Commonwealth Principals II LLC is a third
party beneficiary of this Agreement, which means that
Commonwealth may enforce this Agreement even though
not a party to it.
GOVERNING LAW The laws of the State of Texas (other than its
conflict of laws provisions) govern this Agreement.
NOTICES Notices must be given in writing by personal
delivery, by certified mail, return receipt
requested, by telecopy, or by overnight delivery. You
Employment Agreement with Derek Reisfield Page 10 of 23
<PAGE>
should send or deliver your notices to the Company's
corporate headquarters. The Company will send or
deliver any notice given to you at your address as
reflected on the Company's personnel records. You and
the Company may change the address for notice by like
notice to the others. You and the Company agree that
notice is received on the date it is personally
delivered, the date it is received by certified mail,
the date of guaranteed delivery by the overnight
service, or the date the fax machine confirms
effective transmission.
SUPERSEDING EFFECT This Agreement supersedes any prior oral or written
employment, severance, option, or fringe benefit
agreements between you and the Company, other than
with respect to your eligibility for generally
applicable employee benefit plans. This Agreement
supersedes all prior or contemporaneous negotiations,
commitments, agreements, and writings with respect to
the subject matter of this Agreement specifically
including your letter agreement with the Company
dated as of February 15, 1999. All such other
negotiations, commitments, agreements, and writings
will have no further force or effect; and the parties
to any such other negotiation, commitment, agreement,
or writing will have no further rights or obligations
thereunder.
If you accept the terms of this Agreement, please sign in the space indicated
below. We encourage you to consult with any advisers you choose.
LUMINANT WORLDWIDE CORPORATION
By: /s/ Guillermo G. Marmol
-------------------------------
Guillermo G. Marmol
Chief Executive Officer
Employment Agreement with Derek Reisfield Page 11 of 23
<PAGE>
I accept and agree to the terms of employment set
forth in this Agreement:
/s/ Derek Reisfield
- ---------------------------
Derek Reisfield
Dated: July 23, 1999
---------------------
EXHIBIT A
NO COMPETITION You agree to the provisions of this Exhibit A in
consideration of (i) your employment by the Company
and salary and benefits under this Agreement and the
training you will receive in connection with such
employment and (ii) your participation in the
Company's public offering, and you agree that Exhibit
A should be considered ancillary to the agreements by
which the Company will make its IPO. While the
Company (or its successor or transferee) employs you
and to the end of the Restricted Period (as defined
below), you agree as follows:
You will not, directly or indirectly, be
employed by, lend money to, or engage in any
Competing Business within the Market Area
(each as defined below). That prohibition
includes, but is not limited to, acting,
either singly or jointly or as agent for, or
as an employee of or consultant to, any one
or more persons, firms, entities, or
corporations directly or indirectly (as a
director, independent contractor,
representative, consultant, member, or
otherwise) that constitutes such a Competing
Business. You also will not invest or hold
equity or options in any Competing Business,
provided that you may own up to 3% of the
outstanding capital stock of any corporation
that is actively publicly traded without
violating this NO COMPETITION covenant, so
long as you have no involvement beyond
passive investing in such business and you
comply with the second sentence of this
paragraph.
Notwithstanding other provisions of Exhibit A, during
the Restricted Period, you may directly provide
consulting services for clients other than those any
one or more
Employment Agreement with Derek Reisfield Page 12 of 23
<PAGE>
members of the Company Group billed at least $25,000
in the 12 months preceding your employment
termination ("SIGNIFICANT COMPANY CLIENTS") (or, for
consulting assignments while employed, within the 12
months preceding the date as of which you would begin
the assignment), but this exception does not permit
you to be an employee or board member of a Competing
Business. Within 30 days after your employment ends,
the Company will provide you with a list of the
Significant Company Clients (which list you will
treat as Confidential Information under the SECRECY
provisions). You agree that you are on notice as to
all Significant Company Clients during the term of
your employment and that, after your employment ends,
you agree to treat as a Significant Company Client
during the Restricted Period any client of the
Company Group that you are aware should have been on
the list provided to you.
If, during the Restricted Period, you are offered and
want to accept employment with a Competing Business,
you will inform the CEO in writing of the identity of
the business, your proposed duties with that
business, and the proposed starting date of that
employment. You will also inform that business of the
terms of this Exhibit A. The Company will analyze the
proposed employment and respond within three business
days as to whether it will release you from the NO
COMPETITION restrictions with respect to that
employment.
You acknowledge that, during the portion of the
Restricted Period that follows your employment, if
any, you may engage in any business activity or
gainful employment of any type and in any place
except as described above. You acknowledge that you
will be reasonably able to earn a livelihood without
violating the terms of this Agreement.
You understand and agree that the rights and
obligations set forth in this NO COMPETITION Section
will continue and will survive through the Restricted
Period.
Employment Agreement with Derek Reisfield Page 13 of 23
<PAGE>
DEFINITIONS
COMPETING COMPETING BUSINESS means (i) Scient, Viant, US Web /
BUSINESS CKS, Proxicom, Razorfish, Modem Media.Poppe Tyson,
iXL Enterprises, AGENCY.COM, AppNet, Organic Online,
US Interactive, AnswerThink Consulting Group, THINK
New Ideas, Inc., Sapient, (ii) any entity that is a
successor to one of the listed entities, and (iii)
three additional comparable companies for each year
of your employment (beginning as of each anniversary
of the Effective Date), up to a cumulative total of
nine additional companies, which additional companies
the Company will list on a schedule it will provide
you within 30 days after your termination of
employment. (In other words, you agree that the
Company may list three additional comparable
companies times the number of anniversaries of the
Effective Date that have occurred before expiration
of this Agreement or termination of your employment,
to a maximum of nine additional companies.)
MARKET AREA The Market Area consists of the United States
and Canada. You agree that the Company provides
services both at its facilities and at the locations
of its customers or clients and that, by the nature
of its business, it operates globally.
RESTRICTED For purposes of this Agreement, the RESTRICTED PERIOD
PERIOD ends at the earliest of (i) nine months after the
date your employment with the Company Group ends for
any reason (where "COMPANY GROUP" means the Company
and its successors, assigns, subsidiaries, and
predecessors of subsidiaries), (ii) the Company's
failure for any reason to complete its IPO by
December 31, 1999, and (iii) the date of your
termination for Disability.
NO INTERFERENCE; During the Restricted Period you agree that you will
NO SOLICITATION not, directly or indirectly, whether for yourself or
for any other individual or entity (other than the
Company or its affiliates or subsidiaries),
intentionally
solicit any person or entity who is, or was,
within the 24 months preceding your date of
termination or resignation, a customer,
prospect (with respect to which any member
of the Company Group has incurred
substantial costs or with which you have
been involved), or client of the Company
Group within the Market Area, with the 24
month period reduced to 12 months for
prospects with which you have
Employment Agreement with Derek Reisfield Page 14 of 23
<PAGE>
not been involved, provided that, after your
employment ends, the foregoing applies only
to Significant Company Clients;
hire away or endeavor to entice away from
the Company Group any employee or any other
person or entity whom the Company Group
engages to perform services or supply
products and including, but not limited to,
any independent contractors, consultants,
engineers, or sales representatives or any
contractor, subcontractor, supplier, or
vendor; or
hire any person whom the Company Group
employs or employed within the prior 12
months, unless the Company terminated the
employee.
SECRECY
PRESERVING Your employment with the Company under and, if
COMPANY applicable, before this Agreement (with a predecessor
CONFIDENCES to a member of the Company Group), has given and will
give you access to Confidential Information (as
defined below). You acknowledge and agree that using,
disclosing, or publishing any Confidential
Information in an unauthorized or improper manner
could cause the Company or Company Group to incur
substantial loss and damages that could not be
readily calculated and for which no remedy at law
would be adequate. Accordingly, you agree with the
Company that you will not at any time, except in
performing your employment duties to the Company or
the Company Group under this Agreement (or with the
Board's or the CEO's prior written consent), directly
or indirectly, use, disclose, or publish, or permit
others not so authorized to use, disclose, or publish
any Confidential Information that you may learn or
become aware of, or may have learned or become aware
of, because of your prior or continuing employment,
ownership, or association with the Company or the
Company Group or any of their predecessors, or use
any such information in a manner detrimental to the
interests of the Company or the Company Group.
PRESERVING You agree not to use in working for the Company Group
OTHERS' and not to disclose to the Company Group any trade
CONFIDENCES secrets or other information you do not have the
right to use or disclose and that the Company Group
is not free to use without liability of any kind. You
agree to promptly inform the Company in writing of
any patents,
Employment Agreement with Derek Reisfield Page 15 of 23
<PAGE>
copyrights, trademarks, or other proprietary rights
known to you that the Company or the Company Group
might violate because of information you provide.
CONFIDENTIAL "CONFIDENTIAL INFORMATION" includes, without
INFORMATION limitation, information that the Company or the
Company Group has not previously disclosed to the
public or to the trade with respect to the Company's
or the Company Group's present or future business,
including its operations, services, products,
research, inventions, discoveries, drawings, designs,
plans, processes, models, technical information,
facilities, methods, trade secrets, copyrights,
software, source code, systems, patents, procedures,
manuals, specifications, any other intellectual
property, confidential reports, price lists, pricing
formulas, customer lists, financial information
(including the revenues, costs, or profits associated
with any of the Company's or the Company Group's
products or services), business plans, lease
structure, projections, prospects, opportunities or
strategies, acquisitions or mergers, advertising or
promotions, personnel matters, legal matters, any
other confidential and proprietary information, and
any other information not generally known outside the
Company or the Company Group that may be of value to
the Company or the Company Group "CONFIDENTIAL
INFORMATION" also includes confidential and
proprietary information and trade secrets that third
parties entrust to the Company or the Company Group
in confidence.
"CONFIDENTIAL INFORMATION" excludes any such
information
already properly in the public domain,
that has already entered the public domain
through no direct or indirect fault, action,
or omission of yours,
that a third party independently develops
without breach of this SECRECY provision and
releases to the public domain,
that the Company or other member of the
Company Group approves in writing for you to
disclose or use, or
that you must disclose under an order of a
court of law or arbitrator, governmental
demand, or other operation of law, provided
that you immediately notify the Company of
any demand for such disclosure and allow the
Company to contest such disclosure.
Employment Agreement with Derek Reisfield Page 16 of 23
<PAGE>
You understand and agree that the rights and
obligations set forth in this SECRECY
Section will continue indefinitely and will
survive termination of this Agreement and
your employment with the Company or the
Company Group.
EXCLUSIVE PROPERTY You confirm that all Confidential Information is and
must remain the exclusive property of the Company or
the relevant member of the Company Group. Any office
equipment (including computers) you receive from the
Company Group in the course of your employment and
all business records, business papers, and business
documents you keep or make, whether on digital media
or otherwise, in the course of your employment by the
Company relating to the Company or any member of the
Company Group must be and remain the property of the
Company or the relevant member of the Company Group.
Upon the termination of this Agreement with the
Company or upon the Company's request at any time,
you must promptly deliver to the Company or to the
relevant member of the Company Group any such office
equipment (including computers) and any Confidential
Information or other materials (written or otherwise)
not available to the public or made available to the
public in a manner you know or reasonably should
recognize the Company did not authorize, and any
copies, excerpts, summaries, compilations, records,
or documents you made or that came into your
possession during your employment. You agree that
you will not, without the Company's consent, retain
copies, excerpts, summaries, or compilations of the
foregoing information and materials. You understand
and agree that the rights and obligations set forth
in this EXCLUSIVE PROPERTY Section will continue
indefinitely and will survive termination of this
Agreement and your employment with the Company Group.
COPYRIGHTS, You agree that all records, in whatever media
DISCOVERIES, (including written works), documents, papers,
INVENTIONS, AND notebooks, drawings, designs, technical information,
PATENTS source code, object code, processes, methods or other
copyrightable or otherwise protected works you
conceive, create, make, invent, or discover for the
Company or the Company Group in the course of your
employment (whether or not during usual working
hours), whether conceived, created, discovered, made,
or invented individually or jointly with others, will
be and remain the absolute property of the Company
(or another appropriate member of the Company Group,
as specified by the Company), as will all the
worldwide patent, copyright, trade secret, or other
intellectual property rights in all such works. (All
Employment Agreement with Derek Reisfield Page 17 of 23
<PAGE>
references in this section to the Company include the
members of the Company Group, unless the Company
determines otherwise.) You irrevocably and
unconditionally waive all rights, wherever in the
world enforceable, that vest in you (whether before,
on, or after the date of this Agreement) in
connection with your authorship of any such
copyrightable works in the course of your employment
with the Company Group or any predecessor. Without
limitation, you waive the right to be identified as
the author of any such works and the right not to
have any such works subjected to derogatory
treatment. YOU RECOGNIZE ANY SUCH WORKS ARE "WORKS
FOR HIRE" OF WHICH THE COMPANY IS THE AUTHOR.
You will promptly disclose, grant, and assign
ownership to the Company for its sole use and benefit
any and all ideas, processes, inventions,
discoveries, improvements, technical information, and
copyrightable works (whether patentable or not) that
you develop, acquire, conceive or reduce to practice
in the course of your employment (whether or not
during usual working hours) for the Company or the
Company Group. You will promptly disclose and hereby
grant and assign ownership to the Company of all
patent applications, letters patent, utility and
design patents, copyrights, and reissues thereof or
any foreign equivalents thereof, that may at any time
be filed or granted for or upon any such invention,
improvement, or information. In connection therewith:
You will, without charge but at the
Company's expense, promptly execute and
deliver such applications, assignments,
descriptions, and other instruments as the
Company may consider reasonably necessary or
proper to vest title to any such inventions,
discoveries, improvements, technical
information, patent applications, patents,
copyrightable works, or reissues thereof in
the Company and to enable it to obtain and
maintain the entire worldwide right and
title thereto; and
You will provide to the Company at its
expense all such assistance as the Company
may reasonably require in the prosecution of
applications for such patents, copyrights,
or reissues thereof, in the prosecution or
defense of interferences that may be
declared involving any such applications,
patents, or copyrights and in any litigation
in which the Company
Employment Agreement with Derek Reisfield Page 18 of 23
<PAGE>
may be involved relating to any such
patents, inventions, discoveries,
improvements, technical information, or
copyrightable works or reissues thereof. The
Company will reimburse you for reasonable
out-of-pocket expenses you incur and pay you
reasonable compensation for your time if the
Company Group no longer employs you.
You and the Company agree that Exhibit C lists and
briefly describes works, inventions, discoveries,
proprietary information, and copyrighted or
copyrightable works (including contemplated works)
that the Company will not contest are owned (or will
be owned) by you or any entity to which you have
assigned them, so long as they are not created for
the Company or the Company Group in the course of
your employment for the Company or the Company Group.
Except as set forth in the next paragraph, you agree
that you have no ownership interest in any other such
works or related patents or copyrights that you
create in the course of your employment for the
Company or the Company Group.
To the extent, if any, that you own rights to works,
inventions, discoveries, proprietary information, and
copyrighted or copyrightable works, or other forms of
intellectual property that are incorporated in the
work product you create for the Company Group
(creating "DERIVATIVE PRODUCTS"), you agree that the
Company will have an unrestricted, non-exclusive,
royalty-free, perpetual, transferable license to
make, use, sell, offer for sale, and sublicense such
Derivative Products, and you hereby grant such
license to the Company (and the Company Group).
This COPYRIGHTS, DISCOVERIES, INVENTIONS AND PATENTS
section does not apply to an invention or discovery
for which no equipment, supplies, facility or trade
secret information of the Company Group (including
its predecessors) was used and that was developed
entirely on your own time and not in course of your
employment.
MAXIMUM LIMITS If any of the provisions of Exhibit A are ever deemed
to exceed the time, geographic area, or activity
limitations the law permits, you and the Company
agree to reduce the limitations to the maximum
permissible limitation, and you and the Company
authorize a court or
Employment Agreement with Derek Reisfield Page 19 of 23
<PAGE>
arbitrator having jurisdiction to reform the
provisions to the maximum time, geographic area, and
activity limitations the law permits; PROVIDED,
HOWEVER, that such reductions apply only with respect
to the operation of such provision in the particular
jurisdiction with respect to which such adjudication
is made.
INJUNCTIVE RELIEF Without limiting the remedies available to the
Company, you acknowledge
that a breach of any of the covenants in
this Exhibit A may result in material
irreparable injury to the Company and
Company Group for which there is no adequate
remedy at law, and
that it will not be possible to measure
damages for such injuries precisely.
You agree that, if there is a breach or threatened
breach, the Company or any member of the Company
Group may be entitled to seek a temporary restraining
order and/or a preliminary or permanent injunction
restraining you from engaging in activities
prohibited by any provisions of this Exhibit A or
such other relief as may be required to specifically
enforce any of the covenants in this Exhibit A. The
Company or any member of the Company Group will, in
addition to the remedies provided in this Agreement,
be entitled to avail itself of all such other
remedies as may now or hereafter exist at law or in
equity for compensation and for the specific
enforcement of the covenants contained in this
Agreement. Resort to any remedy provided for in this
Section or provided for by law will not prevent the
concurrent or subsequent employment of any other
appropriate remedy or remedies, or preclude the
Company's or the Company Group's recovery of monetary
damages and compensation. You also agree that the
Restricted Period or such longer period during which
the covenants hereunder by their terms survive will
extend for any and all periods for which a court with
personal jurisdiction over you finds that you
violated the covenants contained in this Exhibit A.
Employment Agreement with Derek Reisfield Page 20 of 23
<PAGE>
EXHIBIT B
DISPUTE RESOLUTION
MEDIATION If either party has a dispute or claim relating to
this Agreement or their relationship and except as
set forth in ALTERNATIVES, the parties must first
seek to mediate the same before an impartial mediator
the parties mutually designate, and the parties must
equally share the expenses of such proceeding (other
than their respective attorneys' fees). Subject to
the mediator's schedule, the mediation must occur
within 30 days of either party's written demand.
However, in an appropriate circumstance, a party may
seek emergency equitable relief from a court of
competent jurisdiction notwithstanding this
obligation to mediate.
ALTERNATIVES This DISPUTE RESOLUTION provision does not preclude a
party from seeking equitable relief from a court (i)
to prevent imminent or irreparable injury or (ii)
pending mediation, to preserve the last peaceable
status quo, nor does it preclude the parties from
agreeing to a less expensive and faster means of
dispute resolution. It does not prevent the Company
from immediately seeking in court an injunction or
other remedy with respect to Exhibit A.
Employment Agreement with Derek Reisfield Page 21 of 23
<PAGE>
EXHIBIT C
INTELLECTUAL PROPERTY CARVEOUTS
Intellectual property, copyrighted and copyrightable material, inventions and
discoveries, works and proprietary information and techniques related to the
newspaper, magazine, book publishing, radio broadcasting, recorded music,
television broadcast and production, film, cable television, satellite,
broadband, internet, and electronic media and distribution industries, as well
as computer and telecommunication industries on a variety of topics, including
content creation, advertising, electronic commerce, production, packaging,
distribution, marketing, databases, and other aspects or forms of commercial
exploitation of these and other industries. In addition, numerous financial and
joint venture structuring methodologies, and works in progress related to
articles or books on these and related topics.
Employment Agreement with Derek Reisfield Page 22 of 23
<PAGE>
Exhibit 10.17
FORM OF LUMINANT WORLDWIDE CORPORATION
SENIOR BONUS PLAN
PURPOSE Luminant Worldwide Corporation, a Delaware corporation (the
"COMPANY"), wishes to motivate, reward, and retain key
senior executives of the Company. To further these
objectives, the Company hereby sets forth this Luminant
Worldwide Corporation Senior Bonus Plan (the "PLAN"),
effective as of __________, 1999, to provide Participants
with incentives ("INDIVIDUAL AWARD OPPORTUNITIES") to earn
performance-based bonus awards ("AWARDS"), in accordance
with Section 162(m) ("SECTION 162(m)") of the Internal
Revenue Code of 1986 (the "CODE"). (All references to
"Section 162(m)" or any other Code provision include
successor provisions, related regulations, and amendments.)
PARTICIPANTS During each Performance Period, the Committee may designate
some or all of the Executive Officers of the Company
(including those of any subsidiary, operating unit, or
division) as eligible for Individual Award Opportunities
under this Plan. Eligible Executive Officers are
Participants only with respect to Performance Periods for
which the Committee designates them under the Plan.
"EXECUTIVE OFFICER" has the meaning set forth in Rule 3b-7
issued under the Securities Exchange Act of 1934, each as
amended from time to time, and anyone else the Committee
determines to treat as an Executive Officer for purposes of
this Plan.
COMMITTEE The COMMITTEE will be a committee of the Company's Board of
Directors (the "BOARD") designated by the Board to be
responsible for administering and interpreting the Plan. The
Committee will include two or more directors, each of whom
qualifies as an "outside director" within the meaning of
Section 162(m), and those outside directors will have
exclusive authority under this Plan to make Awards and
establish and determine satisfaction of Performance Goals.
If a Committee member intended to qualify as an outside
director does not in fact so qualify, the mere fact of such
nonqualification will not invalidate the payment of any
Award or other action by the Committee under the Plan that
was otherwise valid under the Plan.
The Committee is responsible for the general operation and
administration of the
Luminant Worldwide Corporation
Senior Bonus Plan
Page 1 of 10
<PAGE>
Plan and for carrying out its provisions and has full
discretion in interpreting and administering the provisions
of the Plan. Subject to the express provisions of the Plan,
the Committee may exercise such powers and authority of the
Board as the Committee may find necessary or appropriate to
carry out its functions. The Committee will exercise its
powers under the Plan in a manner that preserves the
Company's Federal income tax deduction for payments made
under the Plan, in accordance with the requirements of
Section 162(m).
GENERAL Subject to the terms of the Plan and after taking into
RESPONSIBILITIES account the recommendations of the Company's Chief Executive
OF THE Officer, for each Performance Period the Committee will:
COMMITTEE
determine any bonus pool award opportunities available,
designate the Executive Officers who will be
Participants in the Plan,
establish each Participant's Individual Award
Opportunity,
define Performance Goals and other Award terms and
conditions for each Participant,
determine and certify the Award amounts earned, based on
actual performance as compared to the Performance Goals,
determine and make permitted Negative Discretion
Adjustments to Awards otherwise earned, and
decide whether, under what circumstances, and subject to
what terms, Awards will be paid on a deferred basis
(including automatic deferrals at the Committee's
election or elective deferrals at the election of
Participants).
Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other
decisions made under or with respect to the Plan and all
Awards made under the Plan are within the sole and absolute
discretion of the Committee and will be final, conclusive
and binding on all persons, including the Company,
Participants, and Beneficiaries or other persons having or
claiming any rights under the Plan.
PARTICIPANT The Committee will designate the Participants in the Plan
for each
Luminant Worldwide Corporation
Senior Bonus Plan
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<PAGE>
DESIGNATIONS Performance Period within the Applicable Period, and with
reference to the fiscal year for which the Company would be
entitled to a Federal tax deduction for payment of Awards in
respect of the Performance Period (the "DEDUCTION YEAR").
The Committee will make its designations primarily by taking
into account which Executive Officers:
are likely to be Executive Officers of the Company as of
the last day of the Deduction Year,
are reasonably expected to have individual compensation
for the Deduction Year that may be in excess of $1
million, not including compensation that is excluded
under Section 162(m) as payable under a "performance
based" plan other than this Plan, and
are reasonably expected to be "covered employees" for
the Deduction Year for purposes of Section 162(m).
The Committee may also take into consideration other factors
that it deems appropriate.
INDIVIDUAL INDIVIDUAL AWARD OPPORTUNITY means a Participant's
AWARD opportunity to earn an Award for a given Performance Period,
OPPORTUNITIES based on the achievement of the Participant's Performance
Goals. The Committee will establish each Participant's
Individual Award Opportunity, within the Applicable Period,
for each Performance Period.
An Individual Award Opportunity may be expressed in dollars
or may be based on a formula that is consistent with the
provisions of the Plan. If Individual Award Opportunities
are expressed in terms of shares of any bonus pool, the
shares of such bonus pool designated for Individual Award
Opportunities may not exceed 100% of the pool for any
Performance Period.
PERFORMANCE The Committee will, within the Applicable Period, set one or
GOALS more PERFORMANCE GOALS for a Performance Period for each
Participant, and/or each group of Participants, and/or each
bonus pool (if any). Performance Goals will be based
exclusively on one or more of the following corporate-wide
or parent, subsidiary, division, or operating unit financial
measures:
pretax or after tax net income,
operating income,
Luminant Worldwide Corporation
Senior Bonus Plan
Page 3 of 10
<PAGE>
gross revenue,
profit margin,
stock price,
cash flow(s),
strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market
penetration, geographic business expansion goals, cost
targets, and goals relating to acquisitions or
divestitures,
or any combination thereof (in each case before or after
such objective income and expense allocations or
adjustments as the Committee may specify within the
Applicable Period).
Each Performance Goal may be expressed in absolute and/or
relative terms, may be based on or use comparisons with
current internal targets, the past performance of the
Company (including the performance of one or more
subsidiaries, divisions and/or operating units) and/or the
past or current performance of other companies. In the case
of earnings-based measures, Performance Goals may use
comparisons relating to capital (including, but limited to,
the cost of capital), shareholders' equity and/or shares
outstanding, or to assets or net assets.
In all cases, Performance Goals are to be set in a manner
that will satisfy any applicable requirements under Treas.
Reg. Sec. 1.162-27(e)(2) (as amended from time to time).
Such requirements include requirements that achieving
Performance Goals be 'substantially uncertain' at the time
that they are established, that Performance Goals be defined
in such a way that a third party with knowledge of the
relevant facts could determine whether and to what extent
the Goals have been met, and such a third party could
determine the amount of the resulting Award payable (subject
to the Committee's right to make Negative Discretion
Adjustments).
The measures used in setting Performance Goals set under the
Plan for any given Performance Period will be determined in
accordance with generally accepted accounting principles
("GAAP") and in a manner consistent with the methods used in
the Company's audited financial statements, without regard
to (i) extraordinary items as determined by the Company's
independent public accountants in
Luminant Worldwide Corporation
Senior Bonus Plan
Page 4 of 10
<PAGE>
accordance with GAAP, (ii) changes in accounting, unless, in
each case, the Committee decides otherwise within the
Applicable Period, or (iii) nonrecurring acquisition
expenses and restructuring charges.
PAYMENT OF Subject to the limitations set forth in this section, Awards
AWARDS determined under the Plan for a Performance Period will be
paid to Participants in cash or, if the Company's permitted
under the Company's 1999 Long-Term Incentive Plan, in shares
of Company stock or other equity based awards. Awards will
be paid as soon as practicable following the end of the
Performance Period to which the Awards apply.
CERTIFICATION No Award will be paid unless and until the
Committee, based on the Company's audited financial
results for such Performance Period (as prepared and
reviewed by the Company's independent public
accountants), has certified in the manner prescribed
under applicable regulations the extent to which the
Performance Goals for the Performance Period have been
satisfied and has made its decisions regarding the
extent of any Negative Discretion Adjustment of Awards.
DEFERRAL The Committee may specify that a portion of the Award
for any given Performance Period will be paid on a
deferred basis, in accordance with any Award payment
rules the Committee may establish and announce for the
Performance Period.
CONTINUED The Committee may require that Participants for a
EMPLOYMENT Performance Period must still be employed as of end of
the Performance Period and/or as of the later date that
the Awards for the Performance Period are announced to
be eligible for an Award for the Performance Period. Any
such requirement must be established and announced
within the Applicable Period, and may be subject to such
exceptions as the Committee may specify within the
Applicable Period.
PERFORMANCE A PERFORMANCE PERIOD is a period for which Performance Goals
PERIOD are set and during which performance is to be measured to
determine whether a Participant is entitled to payment of an
Award under the Plan. A Performance Period may coincide with
one or more fiscal years of the Company, or with a portion
thereof.
APPLICABLE The APPLICABLE PERIOD with respect to any Performance Period
PERIOD means a period beginning on or before the first day of the
Performance Period and ending no later than the earlier of
(i) the 90th day of the Performance Period or (ii) the date
on which 25% of the Performance Period has been completed.
Luminant Worldwide Corporation
Senior Bonus Plan
Page 5 of 10
<PAGE>
Any action required under the Plan to be taken within
the Applicable Period may be taken at a later date only
if the provisions of Section 162(m) or the regulations
thereunder are modified, or are interpreted by the
Internal Revenue Service, to permit such later date. In
such event, the definition of the Applicable Period
under this Plan will be deemed to be amended
accordingly.
FORFEITURE Within the Applicable Period and subject to the
OR PRORATION Committee Certification required for payment of Awards,
the Committee may adopt such forfeiture, proration, or
other rules as it deems appropriate, in its sole and
absolute discretion, regarding the impact on Awards of
(i) a Participant's death, Disability, voluntary
termination of employment, termination of employment by
the Company other than for Cause, or termination of
employment by the Company for Cause, or (ii) a Change of
Control.
EMPLOYMENT "TERMINATION OF EMPLOYMENT" means the time when the
employer-employee
TERMINATION or other service-providing relationship between the
Participant and the Company ends for any reason. The
Committee, in its sole discretion, will determine all
questions of whether particular terminations or leaves
of absence are terminations of employment.
DISABILITY "DISABILITY" means 'disability' as defined in any
employment agreement then in effect between the
Participant and the Company or, if not defined therein
or if there is no such agreement, as defined in the
Company's long-term disability plan as in effect from
time to time, or if there is no plan or if not defined
therein, the Participant's physical or mental incapacity
and consequent inability for a period of 120 days in any
twelve consecutive month period to perform his duties to
the Company.
CAUSE "CAUSE" means 'cause' as defined in any employment
agreement then in effect between the Participant and the
Company or if not defined therein or, if there is no
such agreement, where the Participant: (i) commits any
act of fraud, willful misconduct, or dishonesty in
connection with his employment or that injures the
Company or its direct or indirect subsidiaries; (ii)
breaches any other material provision of any agreement
between the Participant and the Company or a subsidiary
of the Company relating to the Participant's employment
or breaches any fiduciary duty to the Company or its
direct or indirect subsidiaries; (iii) fails, refuses,
or neglects to timely perform any material duty or
obligation relating to his position; (iv) commits a
material violation of any law, rule, regulation, or
bylaw of any governmental authority (state, Federal, or
foreign), any securities
Luminant Worldwide Corporation
Senior Bonus Plan
Page 6 of 10
<PAGE>
exchange or association or other regulatory or self
regulatory body or agency applicable to the Company or
its direct or indirect subsidiaries; (v) commits a
material violation of any general policy or directive of
the Company or its direct or indirect subsidiaries
communicated in writing to the Participant; or (vi) is
charged with a crime involving dishonesty, fraud, or
unethical business conduct, or a felony.
CHANGE OF "CHANGE OF CONTROL" has the same meaning as set forth
CONTROL in the Company's 1999 Long-Term Incentive Plan, as
amended from time to time.
LIMITATION ON Notwithstanding any other provision of this Plan, the
AWARDS maximum Award payable under the Plan to any individual
Participant in any single calendar year will be $3 million.
NEGATIVE The Committee's powers include the power to make NEGATIVE
DISCRETION DISCRETION ADJUSTMENTS, which are adjustments that eliminate
ADJUSTMENTS or reduce (but not increase) an Award otherwise payable to a
Participant for a Performance Period. No Negative Discretion
Adjustment may cause an Award to fail to qualify as
"performance based compensation" under Section 162(m).
OTHER A Participant in this Plan may not also participate in the
PLANS Company's general bonus plans during any Performance Period
for which such participation would cause an Award under
this Plan to fail to qualify as "performance based" under
Section 162(m).
Awards will not be treated as compensation for purposes of
any other compensation or benefit plan, program, or
arrangement of the Company or any subsidiary unless and
except to the extent that the Board or the Committee
determines in writing.
Neither the adoption of this Plan nor the submission of the
Plan to the Company's shareholders for approval will be
construed as limiting the power of the Board or the
Committee to adopt such other incentive arrangements as
either may otherwise deem appropriate.
LEGAL The Company will not make payments of Awards until all
COMPLIANCE applicable requirements imposed by Federal and state laws,
rules, and regulations, and by any applicable regulatory
agencies, have been fully met. No provision in the Plan or
action taken under it authorizes any action that Federal or
state laws otherwise prohibit.
Luminant Worldwide Corporation
Senior Bonus Plan
Page 7 of 10
<PAGE>
The Plan is intended to conform with all provisions of
Section 162(m) and Treas. Reg. Section 1.162-27 to the
extent necessary to allow the Company a Federal income tax
deduction for Awards as "qualified performance based
compensation."
Notwithstanding anything in the Plan to the contrary, the
Committee must administer the Plan, and Awards may be
granted and paid, only in a manner that conforms to such
laws, rules, and regulations. To the extent permitted by
applicable law, the Plan will be treated as amended to the
extent necessary to conform to such laws, rules, and
regulations.
TAX WITHHOLDING The Company may make all appropriate provisions for the
withholding of Federal, state, and local taxes imposed with
respect to Awards, which may vary with the time and manner
of payment.
NONTRANSFER Except as and to the extent required by law, or as the Plan
OF RIGHTS expressly provides, a Participant's rights under the Plan
may not be assigned, pledged, or otherwise transferred in
any way, whether by operation of law or otherwise or through
any legal or equitable proceedings (including bankruptcy),
by the Participant to any person.
BENEFICIARY Each Participant may designate in a written form filed with
DESIGNATIONS the Committee the Beneficiary (or Beneficiaries) to receive
the amounts (if any) payable under the Plan if the
Participant dies before the Award payment date for a
Performance Period. A Beneficiary designation filed under
this section will not be considered a prohibited transfer of
rights.
A Participant may change a Beneficiary designation at any
time without the Beneficiary's consent (unless otherwise
required by law) by filing a new written Beneficiary
designation with the Committee. A Beneficiary designation
will be effective only if the Company is in receipt of the
designation before the Participant's death.
If no effective Beneficiary designation is made, the
beneficiary of any amounts due will be the Participant's
estate.
AMENDMENT OR Subject to the limitations set forth in this section, the
TERMINATION Board may amend, suspend, or terminate the Plan at any time,
OF PLAN without the consent of the Participants or their
Beneficiaries.
Without the Participant's written consent, no amendment or
termination may adversely affect the Award rights (if any)
of any already designated Participant for
Luminant Worldwide Corporation
Senior Bonus Plan
Page 8 of 10
<PAGE>
a given Performance Period once the Committee has announced
the Participant designations and Performance Goals for such
Performance Period.
The Board or the Committee may make any amendments necessary
to comply with applicable regulatory requirements, including
Section 162(m) and regulations thereunder.
The Board must submit any Plan amendment to the Company's
shareholders for their approval if and to the extent such
approval is required under Section 162(m).
LIMITATIONS ON No member of the Committee and no other individual acting as
LIABILITY a director, officer, other employee or agent of the Company
will be liable to any Participant, former Participant,
spouse, Beneficiary, or any other person for any claim,
loss, liability, or expense incurred in connection with the
Plan. No member of the Committee will be liable for any
action or determination (including, but limited to, any
decision not to act) made in good faith with respect to the
Plan or any Award under the Plan. If a Committee member
intended to qualify as an 'outside director' under
Section 162(m) does not in fact so qualify, the mere fact
of such nonqualification will not invalidate any award or
other action made by the Committee under the Plan that
otherwise was validly made under the Plan.
The Company will indemnify and hold harmless each member of
the Committee, director, officer, other employee, or agent
of the Company to whom it or another has delegated or does
delegate any duty or power relating to the administration or
interpretation of the Plan, against any cost or expense
(including attorneys' fees) or liability (including any sum
paid in settlement of a claim with the Board's approval)
arising out of any act or omission to act concerning this
Plan unless arising out of such person's own fraud or bad
faith.
NO EMPLOYMENT Nothing contained in this Plan constitutes an employment
CONTRACT contract between the Company and the Participants. The Plan
does not give any Participant any right to be retained in
the Company's employ, nor does it enlarge or diminish the
Company's right to end the Participant's employment or other
relationship with the Company.
APPLICABLE The laws of the State of Delaware (other than its choice
LAW of law provisions) govern this Plan and its interpretation.
DURATION OF The Plan will remain effective until terminated by the
THE PLAN Board, provided, however, that the continued effectiveness
of the Plan will be subject to the
Luminant Worldwide Corporation
Senior Bonus Plan
Page 9 of 10
<PAGE>
approval of the Company's shareholders at such times and in
such manner as Section 162(m) may require.
DISCLOSURE AND The Plan must be submitted to Company shareholders for their
APPROVAL OF approval. The specific terms of the Plan, including the
THE PLAN class of employees eligible to be Participants, the
Performance Goals, and the terms of payment of Awards,
must be disclosed to the shareholders to the extent
Section 162(m) requires. The shareholders must approve the
Plan by a separate vote after such disclosure. If the
shareholders do not approve the Plan, the Plan will be
treated as void and of no effect.
Luminant Worldwide Corporation
Senior Bonus Plan
Page 10 of 10
<PAGE>
EXHIBIT 10.18
EXECUTION COPY
|__| Employee's Copy
|__| Company's Copy
CLARANT WORLDWIDE CORPORATION
EMPLOYMENT AGREEMENT
To THOMAS G. BEVIVINO:
This Agreement establishes the terms of your employment with Clarant
Worldwide Corporation, a Delaware corporation (the "COMPANY"). The Company has
been formed as a parent company to acquire companies engaged in the business of
providing internet professional services and to make an initial public offering
("IPO") of the Company's common stock.
EMPLOYMENT AND DUTIES You and the Company agree to your employment as Vice
President, Finance on the terms contained herein. You
agree to perform whatever duties the Company's Board
of Directors (the "BOARD") or person the Board or the
Company's Chief Executive Officer specifies as your
direct report (the "DIRECT REPORT") may assign you
from time to time that are reasonably consistent with
your position as Vice President, Finance. During your
employment, you agree to devote your full business
time, attention, and energies to performing those
duties (except as your Direct Report otherwise agrees
from time to time). You agree to comply with the
noncompetition, secrecy, and other provisions of
Exhibit A to this Agreement.
TERM OF EMPLOYMENT Your employment under this Agreement begins as of
your execution of this Agreement (the "EFFECTIVE
DATE"). Unless sooner terminated under this
Agreement, your employment ends at 6:00 p.m. Central
Time on
(i) December 31, 1999 (or such earlier date
as of which the Board or the CEO notifies
you the Company is abandoning its efforts
for 1999 to complete an IPO), if the Company
has not completed its IPO by that date, or
(ii) the third anniversary of the Effective
Date if the Company has completed its IPO on
or before December 31, 1999.
The period running from the Effective Date to the
applicable date in the preceding sentence is the
"TERM."
Termination or expiration of this Agreement ends your
<PAGE>
employment but does not end your obligation to comply
with Exhibit A or the Company's obligation, if any,
to make payments under the PAYMENTS ON TERMINATION
and SEVERANCE provisions as specified below.
COMPENSATION
SALARY The Company will pay you an annual salary (the
"SALARY") from the Effective Date at the rate of not
less than $150,000 in accordance with its generally
applicable payroll practices. The Board or your
Direct Report will review your Salary annually and
consider you for increases.
BONUS The Board or its Compensation Committee, or if the
Board directs, your Direct Report will establish
annual bonus targets under which you will be eligible
for an annual bonus equal to up to 100% of your
Salary. It is the Company's good faith intention to
establish bonus targets for the first year, in
consultation with you, within 90 days following the
Effective Date.
OPTIONS The Company will grant options to you under the
Company's 1999 Equity Incentive Plan, exercisable at
the IPO price, to acquire 100,000 shares of common
stock. The options will consist of incentive stock
options under Section 422 of the Internal Revenue
Code to the extent the tax laws permit and of
nonqualified stock options for the remainder. The
options will become exercisable, so long as you
remain employed, in sixths every six months after the
closing date of the IPO and will remain exercisable
for up to 10 years, subject to the option plan's
rules on expiration on or after termination of
employment. In addition, if you resign from
employment for any reason or the Company terminates
your employment without CAUSE, the options described
above will accelerate such that any portion of the
options that would become exercisable within the six
months after your date of termination or resignation
will become exercisable as a result of your
termination or resignation (and will expire in
accordance with the option's terms within 90 days
after such date).
EMPLOYEE BENEFITS While the Company employs you under this Agreement,
the Company will provide you with the same benefits
as it makes generally available from time to time to
the Company's employees, as those benefits are
amended or terminated from time to time. Your
participation in the
Employment Agreement with Thomas G. Bevivino Page 2 of 22
<PAGE>
Company's benefit plans will be subject to the terms
of the applicable plan documents and the Company's
generally applied policies, and the Company in its
sole discretion may from time to time adopt, modify,
interpret, or discontinue such plans or policies.
PLACE OF EMPLOYMENT Your principal place of employment will be within 35
miles of Horsham, Pennsylvania for the first 12
months following the closing date of the IPO. You
understand and agree that you must travel from time
to time for business reasons; however, you will not
be required to spend more than a cumulative maximum
of 12 days per month away on travel. (The monthly
travel obligations may vary, so long as you are not
required on a cumulative basis to have been away on
travel more than 12 days times the number of months
of employment, and any days in excess of that amount
will reduce the obligations for succeeding months.)
EXPENSES The Company will reimburse you for reasonable and
necessary travel and other business-related expenses
(including costs associated with maintaining your CPA
license) you incur for the Company in performing your
duties under this Agreement. You must itemize and
substantiate all requests for reimbursements. You
must submit requests for reimbursement in accordance
with the policies and practices of the Company. From
the Effective Date through the IPO Closing Date, the
Company will reimburse such expenses on a biweekly
basis and will reimburse them after that date
according to its normal schedule.
NO OTHER EMPLOYMENT While the Company employs you, you agree that you
will not, directly or indirectly, provide services to
any person or organization for which you receive
compensation or otherwise engage in activities that
would conflict or interfere significantly with your
faithful performance of your duties as an employee
without the Board's prior written consent. (This
prohibition excludes any work performed at the
Company's direction.) The Company acknowledges that,
as of the Effective Date, you serve as a director or
comparable position of ARC Group LLC and agrees that
such positions do not violate the prohibition on
other employment, so long as you do not violate the
provisions of Exhibit A. You may manage your personal
investments, as long as the management takes only
minimal amounts of time and is consistent with the
provisions of the NO CONFLICTS OF INTEREST Section
and the NO COMPETITION Section in Exhibit A.
You represent to the Company that you are not subject
to any agreement, commitment, or policy of any third
party that would prevent you from entering into or
performing your
Employment Agreement with Thomas G. Bevivino Page 3 of 22
<PAGE>
duties under this Agreement, and you agree that you
will not enter into any agreement or commitment or
agree to any policy that would prevent or hinder your
performance of duties and obligations under this
Agreement, including Exhibit A.
NO CONFLICTS OF INTEREST You confirm that you have fully disclosed to the
Company, to the best of your knowledge, all
circumstances under which you, your spouse, and other
persons who reside in your household have or may have
a conflict of interest with the Company. You further
agree to fully disclose to the Company any such
circumstances that might arise during your employment
upon your becoming aware of such circumstances. You
agree to fully comply with the Company's policy and
practices relating to conflicts of interest.
NO IMPROPER You will neither pay nor permit payment of any
PAYMENTS remuneration to or on behalf of any governmental
official other than payments required or permitted by
applicable law. You will comply fully with the
Foreign Corrupt Practices Act of 1977, as amended.
You will not, directly or indirectly,
make or permit any contribution, gift,
bribe, rebate, payoff, influence payment,
kickback, or other payment to any person or
entity, private or public, regardless of
what form, whether in money, property, or
services
to obtain favorable treatment for business
secured,
to pay for favorable treatment for business
secured,
to obtain special concessions or for special
concessions already obtained, or
in violation of any legal requirement, or
establish or maintain any fund or asset related to
the Company that is not recorded in the Company's
books and records, or
take any action that would violate (or would be part
of a series of actions that would violate) any U.S.
law
Employment Agreement with Thomas G. Bevivino Page 4 of 22
<PAGE>
relating to international trade or commerce,
including those laws relating to trading with the
enemy, export control, and boycotts of Israel or
Israeli products (as is sought by certain Arab
countries).
TERMINATION Subject to the provisions of this section, you and the Company
agree that it may terminate your employment, or you may
resign, except that, if you voluntarily resign, you must
provide the Company with 90 days' prior written notice (unless
the Board or your Direct Report has previously waived such
notice in writing or authorized a shorter notice period).
FOR CAUSE The Company may terminate your employment for "CAUSE" if
you:
(i) commit a material breach of your obligations or
agreements under this Agreement, including Exhibit A;
(ii) commit an act of gross negligence with respect
to the Company or otherwise act with willful
disregard for the Company's best interests;
(iii) fail or refuse to perform any duties delegated
to you that are consistent with the duties of
similarly-situated senior executives or are otherwise
required under this Agreement, provided that these
duties do not conflict with any other provision of
this Agreement;
(iv) seize a corporate opportunity for yourself
instead of offering such opportunity to the Company
if within the scope of the Company's or its
subsidiaries' business; or
(v) are convicted of or plead guilty or no contest to
a felony (or to a felony charge reduced to
misdemeanor), or, with respect to your employment, to
any misdemeanor (other than a traffic violation) or,
with respect to your employment, commit either a
material dishonest act or common law fraud or
knowingly violate any federal or state securities or
tax laws.
Employment Agreement with Thomas G. Bevivino Page 5 of 22
<PAGE>
Your termination for Cause will be effective immediately upon
the Company's mailing or written transmission of notice of
such termination. Before terminating your employment for Cause
under clauses (i) - (iv) above, the Company will specify in
writing to you the nature of the act, omission, refusal, or
failure that it deems to constitute Cause and, unless the
Board or your Direct Report reasonably concludes the situation
could not be corrected, give you 30 days after you receive
such notice to correct the situation (and thus avoid
termination for Cause), unless the Company agrees to extend
the time for correction. You agree that the Board or your
Direct Report will have the discretion to determine in good
faith whether your correction is sufficient, provided that
this decision does not foreclose you from using the Dispute
Resolution provisions of Exhibit B.
WITHOUT CAUSE Subject to the provisions below under PAYMENTS ON TERMINATION
and SEVERANCE, the Company may terminate your employment under
this Agreement before the end of the Term without CAUSE.
DISABILITY If you become "DISABLED" (as defined below), the Company may
terminate your employment. You are "disabled" if you are
unable, despite whatever reasonable accommodations the law
requires, to render services to the Company for more than 90
consecutive days because of physical or mental disability,
incapacity, or illness. You are also disabled if you are found
to be disabled within the meaning of the Company's long-term
disability insurance coverage as then in effect (or would be
so found if you applied for the coverage).
GOOD REASON You may resign for Good Reason with 45 days' advance written
notice. "GOOD REASON" for this purposes means, without your
consent, (i) the Company materially breaches this Agreement or
(ii) before the first anniversary of the IPO Closing Date, the
Company relocates your primary office by more than 35 miles
from Horsham, Pennsylvania.
You must give notice to the Company of your intention to
resign for Good Reason within 30 days after the occurrence of
the event that you assert entitles you to resign for Good
Employment Agreement with Thomas G. Bevivino Page 6 of 22
<PAGE>
Reason. In that notice, you must state the condition that you
consider provides you with Good Reason and, if such reason
relates to clause (i) above, must give the Company an
opportunity to cure the condition within 30 days after your
notice. Before or during the 30 day period, either party may
request mediation under Exhibit B to resolve any such
disputes, and, if so requested, the parties agree to cooperate
to arrange a prompt mediation during no more than a 30 day
period. If the Company fails to cure the condition, your
resignation will be effective on the 45th day after your
notice (unless the Board has previously waived such notice
period in writing or agreed to a shorter notice period or
unless mediation is proceeding in good faith), in which case
such resignation will become effective 15 days after the end
of such mediation, if not previously cured.
You will not be treated as resigning for GOOD REASON if the
Company already had given notice of termination for CAUSE as
of the date of your notice of resignation.
RELOCATION If on or after the first anniversary of the IPO Closing Date,
REASON the Company requires you, without your consent, to move your
principal place of employment by more than 35 miles, you may
resign for RELOCATION REASON
DEATH If you die during the Term, the Term will end as of the date
of your death.
PAYMENTS ON If you resign or the Company terminates your employment with
TERMINATION or without Cause or because of disability or death or because
the Company does not complete its IPO, the Company will pay
you any unpaid portion of your Salary pro-rated through the
date of actual termination (and any annual bonuses already
determined by such date but not yet paid unless your
employment is terminated with CAUSE or because the IPO has
been canceled), reimburse any substantiated but unreimbursed
business expenses, pay any accrued and unused vacation time
(to the extent consistent with the Company's policies), and
provide such other benefits as applicable laws or the terms of
the benefits require. Except to the extent the law requires
otherwise or as provided in the SEVERANCE paragraph or in your
option agreements, neither you nor your beneficiary or
Employment Agreement with Thomas G. Bevivino Page 7 of 22
<PAGE>
estate will have any rights or claims under this Agreement or
otherwise to receive severance or any other compensation, or
to participate in any other plan, arrangement, or benefit,
after such termination or resignation. If your employment is
terminated because the Company does not complete its IPO in
1999, you acknowledge that you have no rights to the Severance
set forth below or to any other payments under or with respect
to this Agreement.
SEVERANCE In addition to the foregoing payments, if after the completion
of the IPO but before the end of the Term, the Company
terminates your employment without CAUSE or you resign for
GOOD REASON, the Company will
pay you severance equal to your Salary, as then in
effect, for 18 months on the same schedule as though
you had remained employed during such period, even
though you are no longer employed;
pay the after-tax premium cost for you to receive any
group health coverage the Company must offer you
under Section 4980B of the Internal Revenue Code of
1986 ("COBRA COVERAGE") for the period of such
coverage (unless the coverage is then provided under
a self-insured plan);
pay you, at the time the Company would otherwise pay
your annual bonus, your pro rata share of the bonus
for the year of your termination, where the pro rata
factor is based on days elapsed in your year of
termination till date of termination over 365, less
any portion of the bonus for the year of your
termination already paid; and
accelerate your options such that any options that
would become exercisable within the six months after
your date of termination or resignation will become
exercisable as a result of your termination or
resignation (and will
Employment Agreement with Thomas G. Bevivino Page 8 of 22
<PAGE>
expire in accordance with the option's terms within
90 days after such date); PROVIDED, HOWEVER, that
this provision does not itself accelerate any option
described above in the OPTION section of this
Agreement.
In lieu of the Severance and other benefits described above on
termination for GOOD REASON, if after the completion of the
IPO but before the end of the Term, you resign for RELOCATION
REASON, the Company will pay you severance equal to your
Salary, as then in effect, for four and one-half months on the
same schedule as though you had remained employed during such
period, even though you are no longer employed.
You are not required to mitigate amounts payable under the
SEVERANCE paragraph by seeking other employment or otherwise,
nor must you return to the Company amounts earned under
subsequent employment.
EXPIRATION Expiration of this Agreement, whether because of notice of
non-renewal or otherwise, does not constitute termination
without CAUSE nor provide you with GOOD REASON and does not
entitle you to SEVERANCE, unless the Company's general
severance practices entitle you to severance in that
situation. If you remain employed at the end of the Term and
your employment then ends as a result of expiration of the
Agreement, the Company will pay you severance equal to your
Salary, as then in effect, for 12 months on the same schedule
as though you had remained employed during such period, even
though you are no longer employed, which payments you agree
compensate you for the restrictions under Exhibit A upon
contract expiration.
ASSIGNMENT The Company may assign or otherwise transfer this Agreement
and any and all of its rights, duties, obligations, or
interests under it to
any of the affiliates or subsidiaries of the Company
or
to any business entity that at any time by merger,
consolidation, or otherwise acquires all or
substantially all of the Company's stock or assets or
Employment Agreement with Thomas G. Bevivino Page 9 of 22
<PAGE>
to which the Company transfers all or substantially
all of its assets.
Upon such assignment or transfer, any such business entity
will be deemed to be substituted for the Company for all
purposes (except that the Company will remain secondarily
liable if it transfers this Agreement to a subsidiary). You
agree that assignment or transfer does not entitle you to
Severance. This Agreement binds and benefits the Company, its
successors or assigns, and your heirs and the personal
representatives of your estate. Without the Board's or your
Direct Report's prior written consent, you may not assign or
delegate this Agreement or any or all rights, duties,
obligations, or interests under it.
SEVERABILITY If the final determination of an arbitrator or a court of
competent jurisdiction declares, after the expiration of the
time within which judicial review (if permitted) of such
determination may be perfected, that any term or provision of
this Agreement, including any provision of Exhibit A, is
invalid or unenforceable, the remaining terms and provisions
will be unimpaired, and the invalid or unenforceable term or
provision will be deemed replaced by a term or provision that
is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or
provision.
AMENDMENT; WAIVER Neither you nor the Company may modify, amend, or waive the
terms of this Agreement other than by a written instrument
signed by you and an executive officer of the Company duly
authorized by the Board. Either party's waiver of the other
party's compliance with any provision of this Agreement is not
a waiver of any other provision of this Agreement or of any
subsequent breach by such party of a provision of this
Agreement.
WITHHOLDING The Company will reduce its compensatory payments to you for
withholding and FICA taxes and any other withholdings and
contributions required by law.
THIRD PARTY You understand and agree that, until the IPO is completed,
BENEFICIARY Commonwealth Principals II LLC is a third party beneficiary of
this Agreement, which means that Commonwealth may enforce this
Agreement even though not a party to it.
GOVERNING LAW The laws of the State of Texas (other than its conflict of
laws
Employment Agreement with Thomas G. Bevivino Page 10 of 22
<PAGE>
provisions) govern this Agreement.
NOTICES Notices must be given in writing by personal delivery, by
certified mail, return receipt requested, by telecopy, or by
overnight delivery. You should send or deliver your notices to
the Company's corporate headquarters. The Company will send or
deliver any notice given to you at your address as reflected
on the Company's personnel records. You and the Company may
change the address for notice by like notice to the others.
You and the Company agree that notice is received on the date
it is personally delivered, the date it is received by
certified mail, the date of guaranteed delivery by the
overnight service, or the date the fax machine confirms
effective transmission.
SUPERSEDING This Agreement supersedes any prior oral or written
EFFECT employment, severance, option, or fringe benefit agreements
between you and the Company, other than with respect to your
eligibility for generally applicable employee benefit plans.
This Agreement supersedes all prior or contemporaneous
negotiations, commitments, agreements, and writings with
respect to the subject matter of this Agreement, other than
the agreement among the Company, ARC Group LLC and
Commonwealth Principals II LLC dated as of March 8, 1999,
under which ARC Group LLC will receive a $240,000 payment upon
successful completion of the IPO. All such other negotiations,
commitments, agreements, and writings will have no further
force or effect; and the parties to any such other
negotiation, commitment, agreement, or writing will have no
further rights or obligations thereunder.
If you accept the terms of this Agreement, please sign in the space indicated
below. We encourage you to consult with any advisors you choose.
CLARANT WORLDWIDE CORPORATION
By: /s/ Guillermo G. Marmol
--------------------------------
Guillermo G. Marmol
Chief Executive Officer
I accept and agree to the terms of employment set
forth in this Agreement:
Employment Agreement with Thomas G. Bevivino Page 11 of 22
<PAGE>
/s/ Thomas G. Bevivino
- ---------------------------
Thomas G. Bevivino
Dated: June 28, 1999
---------------------
Employment Agreement with Thomas G. Bevivino Page 12 of 22
<PAGE>
EXHIBIT A
NO COMPETITION You agree to the provisions of this Exhibit A in
consideration of your employment by the Company and
salary and benefits under this Agreement and the
training you will receive in connection with such
employment, and you agree that Exhibit A should be
considered ancillary to the option agreements by
which you will receive options from the Company.
While the Company (or its successor or transferee)
employs you and to the end of the Restricted Period
(as defined below), you agree as follows:
You will not, directly or indirectly, be employed by,
lend money to, or engage in any Competing Business
within the Market Area (each as defined below). That
prohibition includes, but is not limited to, acting,
either singly or jointly or as agent for, or as an
employee of or consultant to, any one or more
persons, firms, entities, or corporations directly or
indirectly (as a director, independent contractor,
representative, consultant, member, or otherwise)
that constitutes such a Competing Business. You also
will not invest or hold equity or options in any
Competing Business, provided that you may own up to
3% of the outstanding capital stock of any
corporation that is actively publicly traded without
violating this NO COMPETITION covenant, so long as
you have no involvement beyond passive investing in
such business and you comply with the second sentence
of this paragraph.
If, during the Restricted Period, you are offered and
want to accept employment with a business that
engages in activities similar to the Company's, you
will inform your Direct Report in writing of the
identity of the business, your proposed duties with
that business, and the proposed starting date of that
employment. You will also inform that business of the
terms of this Exhibit A. The Company will analyze the
proposed employment and make a good faith
determination as to whether it would threaten the
Company's legitimate competitive interests. If the
Company determines that the proposed employment would
not pose an unacceptable threat to its interests, the
Company will notify you that it does not object to
the employment.
Employment Agreement with Thomas G. Bevivino Page 13 of 22
<PAGE>
You acknowledge that, during the portion of the
Restricted Period that follows your employment, you
may engage in any business activity or gainful
employment of any type and in any place except as
described above. You acknowledge that you will be
reasonably able to earn a livelihood without
violating the terms of this Agreement.
You understand and agree that the rights and
obligations set forth in this NO COMPETITION Section
will continue and will survive through the Restricted
Period.
DEFINITIONS
COMPETING COMPETING BUSINESS means any service or product of
BUSINESS any person or organization other than the Company and
its successors, assigns, or subsidiaries
(collectively, the "COMPANY GROUP") that competes
with any service or product of the Company Group
provided by any member of the Company Group during
your employment. COMPETING BUSINESS includes any
enterprise engaged in the formation or operation of
internet professional services firms that provide
strategic, interactive design and technical business
services, information technology and interactive
business consulting, and other related services to
assist clients in integrating and maintaining their
electronic commerce capabilities.
MARKET AREA The Market Area consists of the United States and
Canada. You agree that the Company provides services
both at its facilities and at the locations of its
customers or clients and that, by the nature of its
business, it operates globally.
RESTRICTED For purposes of this Agreement, the RESTRICTED PERIOD
PERIOD ends at the first anniversary of the date your
employment with the Company Group ends for any
reason; PROVIDED, HOWEVER, that the RESTRICTED PERIOD
will end nine months to the day after your employment
ends if you resign as a result of RELOCATION REASON.
Employment Agreement with Thomas G. Bevivino Page 14 of 22
<PAGE>
NO INTERFERENCE; During the Restricted Period, you agree that you will
NO SOLICITATION not, directly or indirectly, whether for yourself or
for any other individual or entity (other than the
Company or its affiliates or subsidiaries),
intentionally
solicit any person or entity who is, or was,
within the 24 months preceding your date of
termination or resignation, a customer,
prospect (with respect to which any member
of the Company Group has incurred
substantial costs or with which you have
been involved), or client of the Company
Group within the Market Area, with the 24
month period reduced to 12 months for
prospects with which you have not been
involved;
hire away or endeavor to entice away from
the Company Group any employee or any other
person or entity whom the Company Group
engages to perform services or supply
products and including, but not limited to,
any independent contractors, consultants,
engineers, or sales representatives or any
contractor, subcontractor, supplier, or
vendor; or
hire any person whom the Company Group
employs or employed within the prior
12 months.
SECRECY
PRESERVING Your employment with the Company under and, if
COMPANY applicable, before this Agreement (with a predecessor
CONFIDENCES to a member of the Company Group), has given and will
give you access to Confidential Information (as
defined below). You acknowledge and agree that using,
disclosing, or publishing any Confidential
Information in an unauthorized or improper manner
could cause the Company or Company Group to incur
substantial loss and damages that could not be
readily calculated and for which no remedy at law
would be adequate. Accordingly, you agree with the
Company that you will not at any time, except in
performing your employment duties to the Company or
the Company Group under
Employment Agreement with Thomas G. Bevivino Page 15 of 22
<PAGE>
this Agreement (or with the Board's or your Direct
Report's prior written consent), directly or
indirectly, use, disclose, or publish, or permit
others not so authorized to use, disclose, or publish
any Confidential Information that you may learn or
become aware of, or may have learned or become aware
of, because of your prior or continuing employment,
ownership, or association with the Company or the
Company Group or any of their predecessors, or use
any such information in a manner detrimental to the
interests of the Company or the Company Group.
PRESERVING You agree not to use in working for the Company Group
OTHERS' and not to disclose to the Company Group any trade
CONFIDENCES secrets or other information you do not have the
right to use or disclose and that the Company Group
is not free to use without liability of any kind. You
agree to promptly inform the Company in writing of
any patents, copyrights, trademarks, or other
proprietary rights known to you that the Company or
the Company Group might violate because of
information you provide.
CONFIDENTIAL "CONFIDENTIAL INFORMATION" includes, without
INFORMATION limitation, information that the Company or the
Company Group has not previously disclosed to the
public or to the trade with respect to the Company's
or the Company Group's present or future business,
including its operations, services, products,
research, inventions, discoveries, drawings, designs,
plans, processes, models, technical information,
facilities, methods, trade secrets, copyrights,
software, source code, systems, patents, procedures,
manuals, specifications, any other intellectual
property, confidential reports, price lists, pricing
formulas, customer lists, financial information
(including the revenues, costs, or profits associated
with any of the Company's or the Company Group's
products or services), business plans, lease
structure, projections, prospects, opportunities or
strategies, acquisitions or mergers, advertising or
promotions, personnel matters, legal matters, any
other confidential and proprietary information, and
any other information not generally known outside the
Company or the Company Group that may be of value to
the Company or the Company Group but, notwithstanding
anything to the contrary, excludes any information
already properly in the public domain. "CONFIDENTIAL
INFORMATION" also includes confidential and
proprietary information and trade secrets that third
parties entrust to the Company or the Company Group
in
Employment Agreement with Thomas G. Bevivino Page 16 of 22
<PAGE>
confidence.
You understand and agree that the rights and
obligations set forth in this SECRECY Section will
continue indefinitely and will survive termination of
this Agreement and your employment with the Company
or the Company Group.
EXCLUSIVE PROPERTY You confirm that all Confidential Information is and
must remain the exclusive property of the Company or
the relevant member of the Company Group. Any office
equipment (including computers) you receive from the
Company Group in the course of your employment and
all business records, business papers, and business
documents you keep or make, whether on digital media
or otherwise, in the course of your employment by the
Company relating to the Company or any member of the
Company Group must be and remain the property of the
Company or the relevant member of the Company Group.
Upon the termination of this Agreement with the
Company or upon the Company's request at any time,
you must promptly deliver to the Company or to the
relevant member of the Company Group any such office
equipment (including computers) and any Confidential
Information or other materials (written or otherwise)
not available to the public or made available to the
public in a manner you know or reasonably should
recognize the Company did not authorize, and any
copies, excerpts, summaries, compilations, records,
or documents you made or that came into your
possession during your employment. You agree that you
will not, without the Company's consent, retain
copies, excerpts, summaries, or compilations of the
foregoing information and materials. You understand
and agree that the rights and obligations set forth
in this EXCLUSIVE PROPERTY Section will continue
indefinitely and will survive termination of this
Agreement and your employment with the Company Group.
COPYRIGHTS, You agree that all records, in whatever media
DISCOVERIES, (including written works), documents, papers,
INVENTIONS, AND notebooks, drawings, designs, technical information,
PATENTS source code, object code, processes, methods or other
copyrightable or otherwise protected works you
conceive, create, make, invent, or discover that
relate to or result from any work you perform or
performed for the Company or the Company Group or
that arise from the use or assistance of the Company
Group's facilities, materials, personnel, or
Confidential Information in the course of your
employment (whether or not during usual working
hours), whether conceived, created, discovered, made,
or invented individually or jointly
Employment Agreement with Thomas G. Bevivino Page 17 of 22
<PAGE>
with others, will be and remain the absolute property
of the Company (or another appropriate member of the
Company Group, as specified by the Company), as will
all the worldwide patent, copyright, trade secret, or
other intellectual property rights in all such works.
(All references in this section to the Company
include the members of the Company Group, unless the
Company determines otherwise.) You irrevocably and
unconditionally waive all rights, wherever in the
world enforceable, that vest in you (whether before,
on, or after the date of this Agreement) in
connection with your authorship of any such
copyrightable works in the course of your employment
with the Company Group or any predecessor. Without
limitation, you waive the right to be identified as
the author of any such works and the right not to
have any such works subjected to derogatory
treatment. YOU RECOGNIZE ANY SUCH WORKS ARE "WORKS
FOR HIRE" OF WHICH THE COMPANY IS THE AUTHOR.
You will promptly disclose, grant, and assign
ownership to the Company for its sole use and
benefit any and all ideas, processes, inventions,
discoveries, improvements, technical information,
and copyrightable works (whether patentable or
not) that you develop, acquire, conceive or reduce
to practice (whether or not during usual working
hours) while the Company or the Company Group
employs you. You will promptly disclose and hereby
grant and assign ownership to the Company of all
patent applications, letters patent, utility and
design patents, copyrights, and reissues thereof
or any foreign equivalents thereof, that may at
any time be filed or granted for or upon any such
invention, improvement, or information. In
connection therewith:
You will, without charge but at the
Company's expense, promptly execute and
deliver such applications, assignments,
descriptions, and other instruments as
the Company may consider reasonably
necessary or proper to
vest title to any such inventions,
discoveries, improvements, technical
information, patent applications,
patents, copyrightable works, or reissues
thereof in the Company and to enable it
to obtain and maintain the entire
worldwide right and title thereto; and
You will provide to the Company at its
expense all such assistance as the Company
may reasonably
Employment Agreement with Thomas G. Bevivino Page 18 of 22
<PAGE>
require in the prosecution of applications
for such patents, copyrights, or reissues
thereof, in the prosecution or defense of
interferences that may be declared involving
any such applications, patents, or
copyrights and in any litigation in which
the Company may be involved relating to any
such patents, inventions, discoveries,
improvements, technical information, or
copyrightable works or reissues thereof. The
Company will reimburse you for reasonable
out-of-pocket expenses you incur and pay you
reasonable compensation for your time if the
Company Group no longer employs you.
To the extent, if any, that you own rights to works,
inventions, discoveries, proprietary information, and
copyrighted or copyrightable works, or other forms of
intellectual property that are incorporated in the
work product you create for the Company Group, you
agree that the Company will have an unrestricted,
non-exclusive, royalty-free, perpetual, transferable
license to make, use, sell, offer for sale, and
sublicense such works and property in whatever form,
and you hereby grant such license to the Company (and
the Company Group).
This COPYRIGHTS, DISCOVERIES, INVENTIONS AND PATENTS
section does not apply to an invention or discovery
for which no equipment, supplies, facility or trade
secret information of the Company Group (including
its predecessors) was used and that was developed
entirely on your own time, unless (a) the invention
relates (i) directly to the business of the Company
Group, or (ii) the Company Group's actual or then
reasonably anticipated research or development, or
(b) the invention results from any work you performed
for the Company Group or any predecessor.
MAXIMUM LIMITS If any of the provisions of Exhibit A are ever deemed
to exceed the time, geographic area, or activity
limitations the law permits, you and the Company
agree to reduce the limitations to the maximum
permissible limitation, and you and the Company
authorize a court or arbitrator having jurisdiction
to reform the provisions to the maximum time,
geographic area, and activity limitations the law
permits; PROVIDED, HOWEVER, that such reductions
apply only with respect to the operation of such
provision in the particular jurisdiction with respect
to which such
Employment Agreement with Thomas G. Bevivino Page 19 of 22
<PAGE>
adjudication is made.
INJUNCTIVE RELIEF Without limiting the remedies available to the
Company, you acknowledge
that a breach of any of the covenants in
this Exhibit A may result in material
irreparable injury to the Company and
Company Group for which there is no adequate
remedy at law, and
that it will not be possible to measure
damages for such injuries precisely.
You agree that, if there is a breach or threatened
breach, the Company or any member of the Company
Group may be entitled to obtain a temporary
restraining order and/or a preliminary or permanent
injunction restraining you from engaging in
activities prohibited by any provisions of this
Exhibit A or such other relief as may be required to
specifically enforce any of the covenants in this
Exhibit A. The Company or any member of the Company
Group will, in addition to the remedies provided in
this Agreement, be entitled to avail itself of all
such other remedies as may now or hereafter exist at
law or in equity for compensation and for the
specific enforcement of the covenants contained in
this Agreement. Resort to any remedy provided for in
this Section or provided for by law will not prevent
the concurrent or subsequent employment of any other
appropriate remedy or remedies, or preclude the
Company's or the Company Group's recovery of monetary
damages and compensation. You also agree that the
Restricted Period or such longer period during which
the covenants hereunder by their terms survive will
extend for any and all periods for which a court
with personal jurisdiction over you finds that you
violated the covenants contained in this Exhibit A.
EXHIBIT B
DISPUTE RESOLUTION
MEDIATION If either party has a dispute or claim relating to this
Agreement or
Employment Agreement with Thomas G. Bevivino Page 20 of 22
<PAGE>
their relationship and except as set forth in ALTERNATIVES,
the parties must first seek to mediate the same before an
impartial mediator the parties mutually designate, and the
parties must equally share the expenses of such proceeding
(other than their respective attorneys' fees). Subject to the
mediator's schedule, the mediation must occur within 45 days
of either party's written demand. However, in an appropriate
circumstance, a party may seek emergency equitable relief from
a court of competent jurisdiction notwithstanding this
obligation to mediate.
BINDING If the mediation reaches no solution or the parties agree to
ARBITRATION forego mediation, the parties will promptly submit their
disputes to binding arbitration before one or more arbitrators
(collectively or singly, the "ARBITRATOR") the parties agree
to select (or whom, absent agreement, a court of competent
jurisdiction selects). The arbitration must follow applicable
law related to arbitration proceedings and, where appropriate,
the Commercial Arbitration Rules of the American Arbitration
Association.
ARBITRATION All statutes of limitations and substantive laws applicable to
PRINCIPLES a court proceeding will apply to this proceeding. The
Arbitrator will have the power to grant relief in equity as
well as at law, to issue subpoenas duces tecum, to question
witnesses, to consider affidavits (provided there is a fair
opportunity to rebut the affidavits), to require briefs and
written summaries of the material evidence, and to relax the
rules of evidence and procedure, provided that the Arbitrator
must not admit evidence it does not consider reliable. The
Arbitrator will not have the authority to add to, detract
from, or modify any provision of this Agreement. The parties
agree (and the Arbitrator must agree) that all proceedings and
decisions of the Arbitrator will be maintained in confidence,
to the extent legally permissible, and not be made public by
any party or the Arbitrator without the prior written
consent of all parties to the arbitration, except as the law
may otherwise require.
DISCOVERY; The parties have selected arbitration to expedite the
EVIDENCE; resolution of disputes and to reduce the costs and burdens
PRESUMPTIONS associated with litigation. The parties agree that the
Arbitrator should take these concerns into account when
determining whether to authorize discovery and, if so, the
scope of permissible discovery and other hearing and
pre-hearing procedures. The Arbitrator may permit reasonable
discovery rights in preparation for the arbitration, provided
that it should accelerate the scheduling of and responses to
such discovery so as not to unreasonably delay the
arbitration. Exhibits must be marked and left with the
Arbitrator until it has rendered a decision. Either party
Employment Agreement with Thomas G. Bevivino Page 21 of 22
<PAGE>
may elect, at its expense, to record the proceedings by
audiotape or stenographic recorder (but not by video). The
Arbitrator may conclude that the applicable law of any foreign
jurisdiction would be identical to that of Texas on the
pertinent issue(s), absent a party's providing the Arbitrator
with relevant authorities (and copying the opposing party) at
least five business days before the arbitration hearing.
NATURE OF AWARD The Arbitrator must render its award, to the extent feasible,
within 30 days after the close of the hearing. The award must
set forth the material findings of fact and legal conclusions
supporting the award. The parties agree that it will be final,
binding, and enforceable by any court of competent
jurisdiction. Where necessary or appropriate to effectuate
relief, the Arbitrator may issue equitable orders as part of
or ancillary to the award. The Arbitrator must equitably
allocate the costs and fees of the proceeding and may consider
in doing so the relative fault of the parties. The Arbitrator
may award reasonable attorneys' fees to the prevailing party
to the extent a court could have made such an award.
APPEAL The parties may appeal the award based on the grounds allowed
by statute, as well as upon the ground that the award
misapplies the law to the facts, provided that such appeal is
filed within the applicable time limits law allows. If the
award is appealed, the court may consider the ruling, evidence
submitted during the arbitration, briefs, and arguments but
must not try the case DE NOVO. The parties will bear the costs
and fees associated with the appeal in accordance with the
arbitration award or, in the event of a successful appeal, in
accordance with the court's final judgment.
ALTERNATIVES This DISPUTE RESOLUTION provision does not preclude a party
from seeking equitable relief from a court (i) to prevent
imminent or irreparable injury or (ii) pending arbitration, to
preserve the last peaceable status quo, nor does it preclude
the parties from agreeing to a less expensive and faster means
of dispute resolution. It does not prevent the Company from
immediately seeking in court an injunction or other remedy
with respect to Exhibit A.
Employment Agreement with Thomas G. Bevivino Page 22 of 22
<PAGE>
<PAGE>
Exhibit 10.19
ARC GROUP LLC
Accounting Resources and Consulting
- --------------------------------------------------------------------------------
March 8, 1999
Sean Coleman, Director
Commonwealth Principals LLC
8500 Leesburg Pike
Suite 601
Vienna, Virginia 22182
Dear Sean and :
This letter is to confirm our understanding of the terms and objectives of our
engagement and the nature and limitations of the services we will provide. The
goals of our engagement are:
- - To provide Integrated Interactive, Inc. ("III") with due diligence
assistance in connection with the proposed roll-up of Internet technology
companies (the "Proposed Transaction").
- - To assist in the identification of operational recommendations based on
procedures performed at the founding companies.
- - To facilitate the completion of the audits of each of the founding
companies by conducting site visits prior to the arrival of the auditors.
The purpose of these visits will be to identify the historical financial
information that is available as well as review the supporting detail for
adequacy. It will also include the preliminary identification of unusual
accounting and reporting issues. At the conclusion of our visits, we will
prepare summaries of our observations which will be provided to III,
founding company management, and the auditors. These summaries will
identify significant items noted as well as recommendations for resolution
of these items.
- - To the extent that audit deficiencies are noted during our site visits, we
will assist the founding companies in the preparation of the information
that will be necessary in order for the auditors to complete the audits on
a timely basis.
- - To assist the founding companies in the compilation of financial
projections.
- - We will develop an overall forecast template which will incorporate the
historical (both actual and pro forma) results, compiled financial
projections, and the effect of the proposed transaction.
- - We will maintain the template and respond to requests or questions from any
of the parties involved, including the underwriters.
In performing our services, we will be relying on the sufficiency, accuracy, and
reliability of information provided by each of the founding companies. Also, our
ability to complete our work will depend on the cooperation of the management of
the founding companies.
We will compile the 1999 and 2000 financial projections for the founding
companies based on data furnished to us by the founding companies and their
employees, and issue compilation reports thereon in accordance with Statements
on Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants. We will not audit or review such financial
statements, and accordingly, we will not express an opinion or any other form of
assurance on them.
In order to commence procedures under this contract, we will require a one-time
fee payable in advance of $80,000. In addition, out-of-pocket expenses will be
billed periodically and are payable upon presentation.
<PAGE>
Sean Coleman
March 8, 1999
Page 2
Upon completion of the Proposed Transaction, an additional fee of $245,000 will
be payable to ARC Group LLC ("ARC") for services rendered under this contract.
This fee will be payable in the event of the successful completion of either a
public offering or a private placement. By signing this letter, Commonwealth
Principals LLC ("Commonwealth") guarantees full payment of all fees and out of
pocket expenses billed in connection with services under this agreement.
Please note that our ability to perform services under this contract is
dependent upon the cooperation of management of the founding companies as well
as the availability of information necessary for the compilation of the
financial projections and the development of the projection template. In
addition, although we will be assisting management in the documentation of
assumptions used in their projections, ultimately the projections are
management's responsibility. Finally, while we will make every effort to
identify and resolve any accounting deficiencies or reporting issues at the
founding companies, we will not be responsible for unrecognized or unresolved
issues identified by the auditors.
By signing this letter, III and Commonwealth agree to release and hold harmless
ARC and its directors from and against any claims, liabilities, costs and
expenses (including, without limitation attorneys' fees and the time of our
involvement) brought against, paid or incurred by us at any time and in any way
arising out of or relating to our service under this letter, except to the
extent finally determined to have resulted from the gross negligence or willful
misconduct on our part.
Our maximum liability relating to services rendered under this letter
(regardless of form of action, whether in contract negligence or otherwise)
shall be limited to the charges paid to us for the portion of our services or
work product giving rise to liability. In no event shall we be liable for
consequential, special, incidental or punitive loss, damage or expense
(including without limitation, lost profits, opportunity costs, etc.) even if it
has been advised of their possible existence.
This letter constitutes the complete and exclusive statement of agreement
between ARC, III and Commonwealth, superseding all oral or written
communications with respect to the terms of the engagement between the parties.
If this letter defines the engagement as you understand it, please sign and date
the enclosed copy and fax it to our office. In addition, please mail the copy
with your original signature.
<PAGE>
Sean Coleman
March 8, 1999
Page 3
With the formalities aside, we would both like to thank you again for the
opportunity to work with you. Our goal is to provide you with the best possible
service, and we hope that this is the start of a long-term, mutually beneficial
relationship. Please don't hesitate to call either of us if you have any
questions.
Sincerely,
/s/ Chris Meshginpoosh /s/ Tom Bevivino
- ---------------------------------- ---------------------------------------
Chris Meshginpoosh Tom Bevivino
Director Director
Enclosure
Confirmed by:
/s/ Sean Coleman
- ---------------------------------- ---------------------------------------
Sean Coleman, Director Date
Commonwealth Principals LLC
/s/ Sean Coleman
- ---------------------------------- ---------------------------------------
Date
Integrated Interactive, Inc.
<PAGE>
EXHIBIT 21.1
Luminant Worldwide Corporation, a Delaware corporation
Align Solutions Corp., a Delaware corporation
-- Align - Synapse Acquisition Corporation, a Texas corporation
-- Fifth Gear Acquisition Corporation, a Texas corporation
Potomac Partners Management Consulting, LLC, a Delaware limited
liability company
Multimedia Resources, LLC, a New York limited liability company
InterActive8, Inc., a New York corporation
-- I8 West, Inc., a California corporation
RSI Group, Inc., a Texas corporation
-- Resource Solutions International, LLC, a Texas limited
liability company
Integrated Consulting, Inc., a Texas corporation
Free Range Media, Inc., a Washington corporation
LWC Management Corp., a Delaware corporation
LWC Operating Corp., a Delaware corporation
BD Acquisition Corp., a Delaware corporation
19
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
July 23, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 24, 1999, except for
Note 8 which is as of June 3, 1999, relating to the financial statements of
Brand Dialogue - New York, which appears in such Prospectus. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
New York, New York
July 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF CLARANT WORLDWIDE CORPORATION AS OF
MARCH 31, 1999 AND THE YEAR ENDED DECEMBER 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 0 37,882
<SECURITIES> 0 0
<RECEIVABLES> 0 11,445
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 51,468
<PP&E> 0 3,550
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 306,041
<CURRENT-LIABILITIES> 0 12,919
<BONDS> 0 1,405
0 0
0 0
<COMMON> 0 409
<OTHER-SE> 0 291,308
<TOTAL-LIABILITY-AND-EQUITY> 0 306,041
<SALES> 0 0
<TOTAL-REVENUES> 54,846 18,415
<CGS> (36,267) (11,245)
<TOTAL-COSTS> (154,242) (39,870)
<OTHER-EXPENSES> 29 (13)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (324) (65)
<INCOME-PRETAX> (99,247) (21,528)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (99,247) (21,528)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (99,247) (21,528)
<EPS-BASIC> (2.43) (0.53)
<EPS-DILUTED> (2.43) (0.53)
</TABLE>
