1
EXHIBIT 10.6
PRINCIPAL STOCKHOLDER'S ESCROW
AND CONTINGENT STOCK AGREEMENT
This Escrow and Contingent Stock Agreement (this "Agreement") is
entered into as of August ___, 1999, among PentaStar Communications, Inc., a
Delaware corporation ("PentaStar" or the "Escrow Agent"), OC Mergerco 1, Inc., a
Delaware corporation (the "Acquiror") and Xxxxxxx Xxxxx ("Xxxxx"), who is the
principal stockholder of DMA Ventures, Inc., a Colorado corporation ("Access")
(collectively, the "Parties").
RECITALS
A. PentaStar, the Acquiror, Access, and Xxxxx are parties to an agreement
and plan of merger dated August 13, 1999, under which Access will be
merged into the Acquiror in a transaction intended to qualify as a
tax-free reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Merger Transaction").
B. In the Merger Transaction, Xxxxx will receive 205,000 shares of
PentaStar common stock and $500,000 of cash in return for his shares of
Access.
C. At the time of the Merger Transaction, the value of Access cannot be
determined with certainty.
D. The purpose of this Agreement is to provide for certain adjustments in
the amount of stock consideration Xxxxx will receive in the Merger
Transaction.
NOW, THEREFORE, the parties to this Agreement agree as follows:
ARTICLE 1: DIRECTIONS
1.01 ESCROWED PROPERTY:
Xxxxx will deposit with the Escrow Agent 68,265 shares of PentaStar
common stock (the "Shares"), which will be held by the Escrow Agent in
a separate account the sole assets of which will consist of the Shares
and certain shares of PentaStar common stock issued in connection with
the acquisition by PentaStar of other third party companies (the
"Escrow Account"). The certificates for the Shares shall be delivered
with appropriate stock powers duly executed in blank.
1.02 INSTRUCTIONS:
The Escrow Agent shall hold and disburse the Shares pursuant to the
instructions set forth in Schedule A, attached hereto and incorporated
herein by reference.
2
1.03 ASSIGNMENT OF INTEREST:
The assignment, transfer, conveyance, or hypothecation of any right,
title, or interest in and to the subject matter of this Agreement is
prohibited by any party, and no such assignment will be given effect.
ARTICLE 2: RIGHTS OF XXXXX IN THE SHARES
During the term of this Agreement, (i) the Shares shall be reflected as
issued and outstanding on PentaStar's financial statements and other books and
records; (ii) Xxxxx shall have all ownership rights with respect to the Shares,
including rights to vote such Shares and rights to any dividends paid by
PentaStar with respect to the Shares, and the books and records of PentaStar
will reflect such ownership. Upon the death or termination of employment of
Xxxxx, the Shares will remain in the Escrow Account subject to disbursement to
Xxxxx'x legal heirs in accordance with Exhibit A.
ARTICLE 3: PROVISIONS CONCERNING ESCROW AGENT
3.01 ESCHEAT:
The Parties are aware that under Colorado law, escrowed property which is
presumed abandoned may escheat to the State. The Escrow Agent shall have
no liability to Xxxxx, his respective heirs, legal representatives, and
successors, should any or all of the Shares become escheatable or escheat
by operation of law.
3.02 NON-LIABILITY:
The Escrow Agent shall not be liable for any act or omission while acting
in good faith and in the exercise of its own best judgment. Any act or
omission by the Escrow Agent pursuant to the advice of its attorneys
shall be conclusive evidence of such good faith. The Escrow Agent shall
have the right to consult with counsel at its expense whenever any
question arises concerning the Agreement and shall incur no liability for
any delay reasonably required to obtain such advice of counsel. The
Escrow Agent shall not be liable for the alteration, modification or
elimination of any right permitted or given under the instructions set
forth in Schedule A and/or in any document deposited under this Agreement
pursuant to any statute of limitations or by reason of laches. The Escrow
Agent shall have no further responsibility or liability whatsoever to
Xxxxx following a partial or complete distribution of the Shares pursuant
to this Agreement. The Escrow Agent shall not incur any liability with
respect to any act or omission in reliance upon any document, including
any written notice or instructions provided for in this Agreement. In
performing its obligations hereunder, the Escrow Agent shall be entitled
to presume, without inquiry, the due execution, validity and
effectiveness of all documents it receives, and also the truth and
accuracy of any information contained therein. The Escrow Agent shall not
be responsible or liable for any diminution in value of the Shares,
whatsoever, for any reason.
3.03 DISAGREEMENTS:
If any disagreement or dispute arises between the Parties to this
Agreement concerning the meaning or validity of any provision hereunder
or concerning any other matter relating to this Agreement, the Escrow
Agent:
2
3
a. Shall be under no obligation to act, except under process or order
of court, or until it has been adequately indemnified to its full
satisfaction, and shall sustain no liability for its failure to
act pending such process, court order or indemnification; and
b. May, in its sole and absolute discretion, interplead the Shares or
that portion of Shares it then holds with the District Court of
the City and County of Denver, State of Colorado, and name the
Parties in such interpleader action. Upon filing the interpleader
action, the Escrow Agent shall be relieved of all liability as to
the Shares. The Parties by signing this Agreement submit
themselves to the jurisdiction of such Court and do appoint the
Clerk of such Court as their agent for the service of all process
in connection with such proceedings. In no event shall the
institution of such interpleader action impair the rights of the
Escrow Agent described in Section 4.06 of this Article.
ARTICLE 4: GENERAL TERMS AND CONDITIONS
4.01 EXTENSION OF BENEFITS:
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective heirs, legal representatives, successors,
and assigns of all the Parties and the Escrow Agent.
4.02 GOVERNING LAW:
This Agreement shall be construed and enforced in accordance with the
laws of the State of Colorado, without regard to the provisions of the
laws of the State of Colorado or any other State regarding conflicts of
laws.
4.03 NOTICES:
All notices, requests, demands, and other communications required under
this Agreement shall be in writing and shall be deemed to have been duly
given if delivered personally or by certified mail, return receipt
requested, and postage prepaid. If any notice is mailed, it shall be
deemed given on the date such notice is deposited in the United States
mail. If any notice is personally delivered, it shall be deemed given
upon the date of such delivery. If notice is given to a party, it shall
be mailed or delivered to the addresses set forth below the signature
blocks. It shall be the responsibility of the Parties to notify the
Escrow Agent in writing of any name or address changes.
4.04 ENTIRE AGREEMENT:
With respect to the subject matter hereof, this Agreement sets forth the
entire agreement and understanding of the Parties.
4.05 AMENDMENT:
This Agreement may be amended, modified, superseded, rescinded, or
canceled only by a written instrument executed by the Parties.
4.06 WAIVERS:
The failure of any party to this Agreement at any time or times to
require performance of any provision under this Agreement shall in no
manner affect the right at a later time to enforce the same performance.
A waiver by any party to this Agreement of any such
3
4
condition or breach of any term, covenant, representation, or
warranty contained in this Agreement, in any one or more instances, shall
neither be construed as a further or continuing waiver of any such
condition or breach nor a waiver of any other condition or breach of any
other term, covenant, representation, or warranty contained in this
Agreement.
4.07 HEADINGS:
Section headings of this Agreement have been inserted for convenience of
reference only and shall in no way restrict or otherwise modify any of
the terms of provisions of this Agreement.
4.08 COUNTERPARTS:
This Agreement may be executed in one or more counterparts, each of which
when executed shall be deemed to be an original, and such counterparts
shall together constitute one and the same instrument. This Agreement may
be delivered by facsimile, and facsimile signatures shall be treated as
original signatures for all applicable purposes.
4.09 ARBITRATION.
Any disputes arising under or in connection with this Agreement,
including, without limitation, those involving claims for specific
performance or other equitable relief, will be submitted to binding
arbitration in Denver, Colorado before the Judicial Arbiter Group, but
under the Commercial Arbitration Rules of the American Arbitration
Association under the authority of federal and state arbitration
statutes, and shall not be the subject of litigation in any forum. If the
Judicial Arbiter Group is unavailable to conduct the arbitration, the it
shall be before the American Arbitration Association. EACH PARTY, BY
SIGNING THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES
ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR
OTHER FORUMS, INCLUDING THE RIGHT TO JURY TRIAL. The arbitrator shall
have full authority to order specific performance and other equitable
relief and award damages and other relief available under this Agreement
or applicable law, but shall have no authority to add to, detract from,
change or amend the terms of this Agreement or existing law. All
arbitration proceedings, including settlements and awards, shall be
confidential. The decision of the arbitrators will be final and binding,
and judgment on the award by the arbitrators may be entered in any court
of competent jurisdiction. THIS SUBMISSION AND AGREEMENT TO ARBITRATE
WILL BE SPECIFICALLY ENFORCEABLE. The prevailing party or parties in any
such arbitration in any action to enforce this Agreement will be entitled
to recover, in addition to any other relief awarded by the arbitrator,
all reasonable costs and expenses, including fees and expenses of
arbitrators and attorneys, incurred in connection therewith. If each
party prevails on specific issues in the arbitration, the arbitrator may
allocate the costs incurred by all parties on a basis the arbitrator
deems appropriate.
4
5
IN WITNESS WHEREOF, the Parties to this Agreement have each caused this
Agreement to be duly executed on this ____ day of August, 1999.
PENTASTAR COMMUNICATIONS, INC.
By:
------------------------------- -----------------------------
Its: XXXXXXX XXXXX
------------------------------
OC MERGERCO 1, INC.
By:
--------------------------------
Its:
------------------------------
5
6
SCHEDULE A TO THE ESCROW AGREEMENT
DISBURSEMENT OF THE SHARES AND
POTENTIAL ISSUANCE OF ADDITIONAL PENTASTAR SHARES
1. Upon the occurrence of the earlier of (i) a sale of substantially all of
the assets or the outstanding stock of PentaStar, or (ii) August ___,
2004 (the "Valuation Event"), the number of Adjusted Shares shall be
determined pursuant to the formula set forth below.
2. If the number of Adjusted Shares exceeds the number of Shares, (a) the
Escrow Agent shall distribute all of the Shares to Xxxxx within 60 days
of the date of the Valuation Event; and (b) within such 60 day period,
PentaStar shall issue to Xxxxx additional shares of PentaStar Common
Stock equal to such excess (the "Additional Shares"). The Parties agree
that a portion of the Additional Shares shall be treated as imputed
interest under Section 483 of the Internal Revenue Code and reported as
interest for all applicable tax purposes. Notwithstanding the foregoing,
in no event shall the number of Additional Shares exceed the number of
shares of PentaStar Common Stock issued to Xxxxx at the closing in the
Merger Transaction but not deposited in the Escrow Account.
3. If the number of Shares exceeds the number of Adjusted Shares, then
within 60 days of the date of the Valuation Event, (a) the Escrow Agent
shall retain such excess number of Shares in its Treasury and (b) the
Escrow Agent shall distribute the remainder of the Shares (which shall
equal the number of Adjusted Shares), to Xxxxx.
4. The number of Adjusted Shares shall be calculated under the following
formula:
Adjusted Shares = (Total Escrowed Shares) x (Xxxxx Percentage)
Xxxxx Percentage = Xxxxx' Adjusted EBITA
Total Operating Partner EBITA
Xxxxx Adjusted EBITA = (26.77%**) x (Access Measurement Period EBITA)
[**calculate percentage based on total consideration (cash and stock) received
by all Access shareholders in Access merger that is represented by the Shares
Xxxxx placed in this escrow -- such calculation will be done at Closing]
Access Measurement Period EBITA = Access' earnings before interest, income
taxes, and amortization (determined in accordance with generally accepted
accounting principles) for the twelve-month period ending on the earlier to
occur of (i) the date of termination of Xxxxx' employment with PentaStar and
(ii) date of the Valuation Event. For these purposes, Access' earnings will
include earnings of Access (and its subsidiaries, if any) before and after the
acquisition of Access by PentaStar, and, if Access is merged into PentaStar,
Access earnings shall include those earnings of PentaStar attributable to the
metropolitan area in which Access operated prior to such merger.
i
7
Total Escrowed Shares = the total number of shares of PentaStar Common Stock
received by Principal Shareholders prior to the date of the Valuation Event,
which Shares are placed in the Escrow Account under escrow agreements similar to
this Agreement.
Principal Shareholders = those owners of business entities (including Access)
acquired by PentaStar prior to the date of the Valuation Event who are active in
the operation of such business both before and after such acquisition, and who
enter into an agreement, the terms and conditions of which are substantially
similar to this Agreement.
Total Operating Partner EBITA = the total adjusted EBITA of all Principal
Shareholders (including Xxxxx), where the Adjusted EBITA for each such Principal
Shareholder is calculated in the same manner as the Xxxxx Adjusted EBITA is
calculated, as described above.
EXAMPLES
EXAMPLE 1: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that Access EBITA for 2003 = $3 million, and
that total Operating Partner EBITA (as defined above) for 2003 is $10 million.
Also, assume that 1 million total shares of PentaStar common stock (including
the Shares) are placed in the Escrow Account by all Principal Shareholders. The
Xxxxx Adjusted EBITA = 26.77% X $3 million, which equals $803,100. The Xxxxx
Percentage = $803,100 over $10 million, which = 8.03%. The number of Adjusted
Shares for Xxxxx = 1 million (the total number of Shares placed in escrow) X
0.0803 (the Xxxxx Percentage), which = 80,310. Consequently, Xxxxx will receive
the Shares back from the Escrow Account, plus 12,045 additional shares of
PentaStar common stock directly from PentaStar.
EXAMPLE 2: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that Access EBITA for 2003 = $1 million, and
that total Operating Partner EBITA (as defined above) for 2003 is $10 million.
Also, assume that 1 million total shares of PentaStar common stock (including
the Shares) are placed in the Escrow Account by all Principal Shareholders. The
Xxxxx Adjusted EBITA = 26.77% X $1 million, which equals $267,700. The Xxxxx
Percentage = $267,700 over $10 million, which = 2.68%. The number of Adjusted
Shares for Xxxxx = 1 million (the total number of Shares placed in escrow) X
0.0268 (the Xxxxx Percentage), which = 26,770. Consequently, Xxxxx will receive
26,770 of the Shares back, and the remaining 41,495 Shares will be retained by
PentaStar.
ii
