1
Exhibit 2.20
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AGREEMENT AND PLAN OF MERGER
AMONG
PENTASTAR COMMUNICATIONS, INC.,
PENTASTAR ACQUISITION CORP. VIII,
RKK CONSULTING GROUP, INC.
AND THE
SHAREHOLDERS
OF
RKK CONSULTING GROUP, INC.
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TABLE OF CONTENTS
Page
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1. Definitions............................................................ 1
2. Merger................................................................. 1
2.1. Basic Transaction............................................... 1
2.2. The Closing..................................................... 9
2.3. Deliveries at the Closing....................................... 9
3. Representations and Warranties......................................... 9
3.1. Representations and Warranties of the Shareholders.............. 9
3.2. Representations and Warranties of PentaStar..................... 21
3.3. Survival of Representations..................................... 22
3.4. Representations as to Knowledge................................. 22
4. Pre-Closing Covenants.................................................. 22
4.1. General......................................................... 22
4.2. Operation and Preservation of Business.......................... 23
4.3. Full Access..................................................... 23
4.4. Notice of Developments.......................................... 23
4.5. Exclusivity..................................................... 23
4.6. Announcements; Securities Law Restrictions...................... 23
4.7. Closing Date Liabilities and Excluded Assets. ................. 23
4.8. Conveyance of Shareholder Property.............................. 24
4.9. Conveyance of Capital Lease Property............................ 24
5. Post-Closing Covenants................................................. 24
5.1. Further Assurances.............................................. 24
5.2. Transition...................................................... 24
5.3. Cooperation..................................................... 24
5.4. Confidentiality................................................. 25
5.5. Post-Closing Announcements...................................... 25
5.6. Financial Statements............................................ 25
5.7. Satisfaction of Liabilities..................................... 26
5.8. Repurchase of Unpaid Receivables................................ 26
5.9. Termination of Obligations...................................... 26
5.10. Transfer Restrictions........................................... 27
5.11. Tax Returns..................................................... 28
6. Conditions to Closing.................................................. 28
6.1. Conditions to Obligation of PentaStar........................... 28
6.2. Conditions to Obligation of the Shareholders.................... 30
7. Remedies for Breaches of This Agreement................................ 30
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7.1. Indemnification Provisions for Benefit of PentaStar............. 30
7.2. Indemnification Provisions for Benefit of the Shareholders...... 32
7.3. Matters Involving Third Parties................................. 33
7.4. Right of Offset................................................. 33
7.5. Other Remedies.................................................. 34
8. Termination............................................................ 34
8.1. Termination of Agreement........................................ 34
8.2. Effect of Termination........................................... 34
8.3. Confidentiality................................................. 35
9. Miscellaneous.......................................................... 35
9.1. No Third-Party Beneficiaries.................................... 35
9.2. Entire Agreement................................................ 35
9.3. Succession and Assignment....................................... 35
9.4. Counterparts.................................................... 35
9.5. Headings........................................................ 35
9.6. Notices......................................................... 35
9.7. Governing Law................................................... 36
9.8. Amendments and Waivers.......................................... 36
9.9. Severability.................................................... 36
9.10. Expenses........................................................ 36
9.11. Arbitration..................................................... 36
9.12. Construction.................................................... 37
9.13. Incorporation of Exhibits....................................... 37
9.14. Shareholders' Agent............................................. 37
9.15. Rescission...................................................... 38
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EXHIBITS
Exhibit 1.1(a) Exhibit 3.1(f)(v)
Exhibit 1.1(b)(i) Exhibit 3.1(g)(i)
Exhibit 1.1(b)(ii) Exhibit 3.1(h)
Exhibit 1.1(c) Exhibit 3.1(i)(i)
Exhibit 1.1(d) Exhibit 3.1(i)(ii)
Exhibit 1.1(e) Exhibit 3.1(k)
Exhibit 1.1(f) Exhibit 3.1(m)(i)
Exhibit 1.1(g) Exhibit 3.1(m)(ii)
Exhibit 2.1(k)(iii) Exhibit 3.1(m)(iii)
Exhibit 3.1(a)(i) Exhibit 3.1(s)
Exhibit 3.1(a)(ii) Exhibit 3.1(t)
Exhibit 3.1(b)(i) Exhibit 3.1(u)(ii)
Exhibit 3.1(b)(ii) Exhibit 3.1(u)(xi)
Exhibit 3.1(c) Exhibit 3.2(b)(i)
Exhibit 3.1(d) Exhibit 4.9
Exhibit 3.1(e)(i) Exhibit 6.1(h)
Exhibit 3.1(e)(ii)(I) Exhibit 6.2(e)
Exhibit 3.1(f)(iii)
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This Agreement and Plan of Merger is entered into on March 29, 2001, to
be effective as provided herein, among PentaStar Communications, Inc., a
Delaware corporation ("PentaStar"), PentaStar Acquisition Corp. VIII, a Delaware
corporation (the "Acquiror"), RKK Consulting Group, Inc., a Delaware corporation
(the "Company"), and Xxxxxxx X. Xxxxxx and Xxxxxx X. Xxxxxxx (individually, a
"Shareholder" and collectively, the "Shareholders").
Recitals
A. The Shareholders own all of the issued and outstanding capital stock
of the Company.
B. The Acquiror is a newly formed, wholly-owned subsidiary of PentaStar.
The Acquiror desires to acquire all of the business operations of the Company
through a statutory merger of the Company with and into the Acquiror, with the
Acquiror as the surviving entity (the "Transaction").
C. The Boards of Directors of each of PentaStar, the Acquiror and the
Company has determined that the Transaction is in the best interests of their
respective corporations and shareholders.
D. It is intended that the Transaction qualify as a reorganization under
the provisions of Section 368(a)(1)(A) pursuant to Section 368(a)(2)(D) of the
Code.
E. PentaStar, the Acquiror and the Shareholders desire to make certain
representations, warranties and agreements in connection with the Transaction
and also desire to set forth various conditions precedent thereto.
Agreement
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties and covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:
1. Definitions. The terms defined in Exhibit 1.1(a) shall have the meanings
designated therein.
2. Merger.
2.1. Basic Transaction. Subject to the terms and conditions of this
Agreement and the corporation laws of the State of Delaware at the Closing the
Company shall be merged with and into the Acquiror (the "Merger") and the
separate existence of the Company shall cease and the Acquiror shall continue as
the surviving corporation in the Merger (the "Surviving Corporation"). The
Merger shall have all the effects provided by applicable Legal Requirement,
including Section 251 of the Delaware General Corporation Law. The terms of the
Merger shall be as follows:
(a) General. At the Closing, the Shareholders shall receive the
consideration described in Section 2.1(k) in respect of the Company Shares, and
the Company Shares shall be canceled and shall cease to represent any interest
in the Company or the Surviving Corporation. As of the Closing Date, the stock
transfer books of the Company shall be closed and no transfer or issuance of
shares of capital stock of the Company shall be permitted.
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(b) Certificate of Incorporation. At the Closing Date, the
Certificate of Incorporation of the Acquiror, as in effect immediately prior to
the Closing Date, shall continue to be the Certificate of Incorporation of the
Surviving Corporation, and the name of the Surviving Corporation shall remain
"PentaStar Acquisition Corp. VIII." Such Certificate of Incorporation may
thereafter be amended as provided therein and by the Delaware General
Corporation Law.
(c) Bylaws. At the Closing Date, the Bylaws of the Acquiror, as in
effect immediately prior to the Closing Date, shall continue to be the Bylaws of
the Surviving Corporation, and such Bylaws may thereafter be amended or repealed
in accordance with their terms and the Certificate of Incorporation of the
Surviving Corporation and as provided by the Delaware General Corporation Law.
(d) Directors. At the Closing Date, the directors of the Acquiror
immediately prior to the Closing Date shall continue to be the directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and the Delaware General
Corporation Law until the earlier of his or her resignation or removal or until
his or her successor is duly elected and qualified, as the case may be.
(e) Officers. At the Closing Date, the officers of the Acquiror
immediately prior to the Closing Date shall continue to be the officers of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and the Delaware General
Corporation Law until the earlier of his or her resignation or removal or until
his or her successor is duly appointed and qualified, as the case may be.
(f) Properties and Liabilities. At the Closing Date, and after
giving effect to the distribution of the Excluded Assets and the assumption of
the Closing Date Liabilities pursuant to Section 4.7, all the properties,
rights, privileges, powers, and franchises of the Company and the Acquiror shall
vest in the Surviving Corporation, and all debts, liabilities, and duties of the
Company and the Acquiror shall become the debts, liabilities, and duties of the
Surviving Corporation.
(g) Documents. Subject to the terms and conditions in this
Agreement, the parties shall prepare, sign, and acknowledge, in accordance with
the Delaware General Corporation Law, a certificate of merger (the "Certificate
of Merger") and deliver the Certificate of Merger to the Secretary of State of
the State of Delaware for filing pursuant to the Delaware General Corporation
Law on the Closing Date. The Merger shall be completed upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware.
(h) Share Conversion. At the Closing Date, by virtue of the Merger
and without any action on the part of the holder of any share of capital stock
of any corporation, each issued and outstanding share of capital stock of the
Company shall be converted into the right to receive a portion of the
consideration payable pursuant to Section 2.1(k) determined by dividing the
aggregate consideration so payable by the number of Company Shares outstanding
at the Closing Date; provided, however, that each share of capital stock of the
Company which is owned directly or indirectly by the Company (treasury stock)
immediately prior to the Closing Date, if any, shall be cancelled and retired,
and no cash, PentaStar Shares or other consideration shall be delivered or
payable in exchange therefor. Each share of the capital stock of
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the Acquiror issued and outstanding immediately prior to the Closing Date shall
remain issued and outstanding.
(i) No Fractional Shares. No certificates or scrip representing
fractional shares of PentaStar Shares shall be issued pursuant to the Merger.
Such fractional share interests shall not entitle the owner thereof to any
rights as a security holder of the Surviving Corporation. In lieu of any such
fractional shares, the Shareholders shall be entitled to receive an amount in
cash (without interest), rounded to the nearest cent, determined by multiplying
the Fair Market Value of a PentaStar Share issuable pursuant to this Agreement
(as set forth in Section 2.1(k) or, in the case of PentaStar Shares issued as
part of the Earn-Out Amount, as determined pursuant to Section 2.1(n)) by the
fractional interest in such PentaStar Share to which the Shareholder would
otherwise be entitled.
(j) Estimated Closing Date Financial Information.
(i) Estimated Closing Date Balance Sheet. No earlier than ten
Business Days prior to the Closing nor later than three Business Days prior to
the Closing, the Shareholders shall deliver a balance sheet for the Company
prepared as of the Closing Date (the "Estimated Closing Date Balance Sheet").
The Estimated Closing Date Balance Sheet shall be prepared in accordance with
GAAP, on a basis consistent with the accounting practices of PentaStar. The
Estimated Closing Date Balance Sheet shall set forth, in addition to other items
required by PentaStar's application of GAAP, the amount, as of the Closing Date,
of
(A) cash held by the Company,
(B) the aggregate amount of accounts receivable, notes
receivable and Residual Payment Rights collected by the Company after December
31, 2000 (whether by collection of cash, offset or otherwise, and whether or not
any cash or other amount received in respect thereof is on hand or has been used
by the Company) as a result of the accelerated collection thereof beyond normal
stated terms or outside the ordinary course of business consistent with past
practice or as a set-off against future payments against accounts receivable,
notes receivable or Residual Payment Rights,
(C) the Retained Liabilities described in clause (b) of the
definition of Retained Liabilities and each item thereof, and
(D) all Closing Date Liabilities and each item thereof.
On or before the Closing Date, the Shareholders shall pay or cause the Company
to pay all Closing Date Liabilities and the Estimated Closing Date Balance Sheet
shall reflect those payments. As a result, the only Liabilities reflected on the
Estimated Closing Date Balance Sheet should be the Retained Liabilities, unless
the Shareholders have failed to pay any Closing Date Liabilities prior to the
Closing.
(k) Consideration.
(i) Subject to adjustment as provided in Section 2.1(m), the
aggregate consideration (the "Purchase Price") payable to the Shareholders
pursuant to the Merger shall be as follows:
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(A) a number of shares of PentaStar Common Stock (subject to
Section 2.1(i)) as have an aggregate Fair Market Value as of the Closing Date
equal to
(1) $1,000,000, minus
(2) the aggregate amount of accounts receivable, notes
receivable and Residual Payment Rights collected by the Company after December
31, 2000 (whether by collection of cash, offset or otherwise, and whether or not
any cash or other amount received in respect thereof is on hand or has been used
by the Company) as a result of the accelerated collection thereof beyond normal
stated terms or outside the ordinary course of business consistent with past
practice or as a set-off against future payments against accounts receivable,
notes receivable or Residual Payment Rights, minus
(3) the amount of any Closing Date Liabilities reflected
on the Estimated Closing Date Balance Sheet or the amount of any Closing Date
Liabilities not paid by the Shareholders or the Company prior to the Closing
Date (the "Closing Shares"); and
(B) the Earn-Out amount payable pursuant to Section 2.1(n).
The Purchase Price shall be adjusted in accordance with Section 2.1(m), and
shall be payable and issuable to the Shareholders in accordance with the
following percentages:
Number of Company Percentage of
Shareholder Shares Owned Purchase Price
----------------- ----------------- --------------
Xxxxxxx X. Xxxxxx 1 50%
Xxxxxx X. Xxxxxxx 1 50%
(ii) On the Closing Date, PentaStar shall (A) deliver the Closing
Shares and any payment in lieu of a fractional share pursuant to Section 2.1(i)
(other than those which are the subject of Section 2.1(k)(iii) or (iv) to itself
to be held pursuant to Section 9.15 and (B) deliver the balance of the Closing
Shares pursuant to Sections 2.1(k)(iii) and (iv).
(iii) (A) On the Closing Date, the Shareholders shall deposit a
number of Closing Shares having a Fair Market Value as of the Closing Date equal
to $950,000 (the "EBITA Escrow") with the Escrow Agent pursuant to the Escrow
Agreement to be held under the Escrow Agreement until the EBITA Escrow Release
Date, and PentaStar shall deliver such shares directly to the Escrow Agent.
(B) If the Earn-Out EBITA (as determined pursuant to Section
2.1(n)(ii)) is less than $400,000 (such difference being the "Earn-Out EBITA
Shortfall"), then an amount of (1) Closing Shares from the EBITA Escrow having a
Fair Market Value as of the date such shares are delivered from the EBITA Escrow
equal to two and one-half times the Earn-Out EBITA Shortfall shall be deducted
from the EBITA Escrow and returned to PentaStar (but, in any event, the number
of Closing Shares so delivered to PentaStar cannot exceed the number initially
deposited in the EBITA Escrow) or (2) cash equal to the Earn-Out EBITA Shortfall
shall be paid, jointly and severally, by the Shareholders to PentaStar;
provided, however, that the Shareholders shall have the right to elect between
clause (1) or (2) at such time; provided further that PentaStar may require the
Shareholders to pay cash for the Earn-Out EBITA Shortfall under
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clause (2) above if, in the good faith opinion of PentaStar, based on advice of
counsel, the taking of shares from the EBITA Escrow would cause the Purchase
Price, taken as a whole, not to comply with the continuity of interest test for
a tax-free reorganization under Section 368 of the Code. For purposes of
determining the number of Closing Shares deducted from the EBITA Escrow, if any,
each of the shares of PentaStar Common Stock shall be valued at its Fair Market
Value as of the date it is delivered from the Escrow Account.
(C) The Shareholders shall have no further Liability if
there is an Earn-Out EBITA Shortfall except for any Liability arising under
Section 7 as a result of the breach of any representation, warranty or covenant
of the Shareholders. During the time that any PentaStar Shares are held in the
EBITA Escrow, the Shareholders shall have the right to vote such shares and have
the economic benefit of any dividends paid on such shares. Reference is made to
Exhibit 2.1(k)(iii). The Escrow Deposit shall be held and disbursed according to
this Agreement and the Escrow Agreement.
(iv) On the Closing Date, the Shareholders shall designate a
percentage (not less than 25% nor more than 50%) of the total PentaStar Shares
which the Shareholders may receive as Purchase Price which shall be delivered to
PentaStar to be held subject to the Principal Shareholder=s Escrow Agreement. If
any shares of PentaStar Common Stock become issuable to the Shareholders in
respect of the Earn-Out Amount and such shares are to be subject to the
Principal Shareholder's Escrow Agreement, then such shares shall also be
delivered to PentaStar to be held subject to the Principal Shareholder's Escrow
Agreement. The Principal Shareholder's Escrow Agreement provides that upon the
occurrence of certain conditions, the Shareholders may receive a greater or
lesser number of shares of PentaStar Common Stock than the number deposited with
PentaStar pursuant to the Principal Shareholder's Escrow Agreement.
(v) The parties agree that any adjustment in the number of
shares pursuant to Section 2.1(k)(iii), Section 2.1(k)(iv) or Section 2.1(n)
shall be treated as an adjustment to the Purchase Price. Because (A) the total
number of PentaStar Shares included in the Purchase Price shall not be known
until the Earn-Out Amount, if any, is paid and (B) certain of the Closing Shares
shall be held by the Escrow Agent pursuant to the Escrow Agreement, they shall
initially not be available for delivery to PentaStar as contemplated by the
Principal Shareholder's Escrow Agreement if they are designated by the
Shareholders to be subject to the Principal Shareholder's Escrow Agreement.
However, as soon as (A) PentaStar Shares, if any, are issued in respect of the
Earn-Out Amount or (B) any Closing Shares are released from the Escrow Agreement
for delivery to such Shareholders, they shall be delivered to PentaStar until
the number of PentaStar Shares so delivered equals the number of PentaStar
Shares which have been designated to be subject to the Principal Shareholder's
Escrow Agreement. In the event that any PentaStar Shares which are designated to
be subject to the Principal Shareholder's Escrow Agreement are delivered to
PentaStar or the Acquiror in satisfaction of the indemnification obligations of
the Shareholders under this Agreement, or pursuant to a deduction from the EBITA
Escrow under Section 2.1(k)(iii) or in satisfaction of any other obligation to
PentaStar or the Acquiror secured by such shares, the number of shares subject
to the Principal Shareholder's Escrow Agreement shall remain the specified
percentage of the remaining PentaStar Shares.
(l) Closing Date Financial Information.
(i) Closing Date Balance Sheet. Within 60 days after the Closing
Date an unaudited balance sheet for the Company shall be prepared as of the
Closing Date (the "Closing Date Balance Sheet") by PentaStar and delivered by
PentaStar to the Shareholders. The Closing Date Balance Sheet shall be prepared
in accordance with GAAP, on a basis consistent with the accounting practices of
PentaStar. The
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Closing Date Balance Sheet shall set forth, in addition to other items required
by PentaStar's application of GAAP, the amount, as of the Closing Date, of
(A) cash held by the Company,
(B) the aggregate amount of accounts receivable, notes
receivable and Residual Payment Rights collected by the Company after December
31, 2000 (whether by collection of cash, offset or otherwise, and whether or not
any cash or other amount received in respect thereof is on hand or has been used
by the Company) as a result of the accelerated collection thereof beyond normal
stated terms or outside the ordinary course of business consistent with past
practice or as a set-off against future payments against accounts receivable,
notes receivable or Residual Payment Rights,
(C) the Retained Liabilities described in clause (b) of the
definition of Retained Liabilities and each item thereof, and
(D) all Closing Date Liabilities and each item thereof.
Within 20 days after receipt of the Closing Date Balance Sheet, the Shareholders
shall, in a written notice to PentaStar, either accept the Closing Date Balance
Sheet or object to it by describing in reasonably specific detail any proposed
adjustments to the Closing Date Balance Sheet and the estimated amounts of and
reasons for such proposed adjustments. The failure by the Shareholders to object
to the Closing Date Balance Sheet within such 20-day period shall be deemed to
be an acceptance by the Shareholders of the Closing Date Balance Sheet. If any
adjustments to the Closing Date Balance Sheet are proposed by the Shareholders
within such 20-day period, the dispute shall be resolved as provided in Section
2.1(o).
(m) Post-Closing Adjustments to the Purchase Price. Within 10
Business Days after the later of the acceptance of the Closing Date Balance
Sheet by the Shareholders or the resolution of any disputes under Section
2.1(o), as the case may be, the number of Closing Shares shall be redetermined
as provided in Section 2.1(k)(i) based on the Closing Date Balance Sheet rather
than the Estimated Closing Date Balance Sheet, and an appropriate adjusting
payment shall be made by the Acquiror to the Shareholders or by the Shareholders
to the Acquiror, as the case may be, so that the number of Closing Shares
actually issued equals the number of Closing Shares to be issued determined on
the basis of the Closing Date Balance Sheet. If the Closing Date Balance Sheet
reflects Closing Date Liabilities that have not previously been paid by the
Shareholders, such Closing Date Liabilities shall be paid at the time the
adjusting payment is made under this Section 2.1(m), either by the Acquiror out
of any adjusting payment due from it hereunder or, if no such payment is due or
such payment is less than the unpaid Closing Date Liabilities, by the
Shareholders. If the Acquiror has previously paid any such Closing Date
Liability, it shall be reimbursed for said payment at the time the adjusting
payment is made under this Section 2.1(m), either by offset against any
adjusting payment due hereunder or, if no such payment is due or such payment is
less than the reimbursement amount, by the Shareholders. Any adjustment in the
Purchase Price made under this Section 2.1(m) shall be allocated as an
adjustment to the consideration paid for the Company Shares.
(n) Earn-Out. In addition to the Closing Shares payable and issuable
at the Closing pursuant to this Section 2.1, the Shareholders shall be entitled
to receive the Earn-Out Amount determined and payable as provided in this
Section 2.1(n).
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(i) The parties agree that, during the Earn-Out Period, (A) the
operations previously conducted by the Company in the New York Region shall be
conducted as a separate subsidiary or division of PentaStar with no other
operations other than the operations of DSS, if acquired, (B) the Acquiror shall
account for its operations in the New York Region in accordance with the
accounting practices of PentaStar, (C) budgets (including for new hires,
compensation and marketing shall be mutually constructed by PentaStar and the
designee of Xx. Xxxxxx and Xx. Xxxxxxx (so long as Xx. Xxxxxx or Xx. Xxxxxxx is
employed by the Acquiror), which designee shall initially be Xx. Xxxxxx (should
Xx. Xxxxxx cease to serve as designee while employed by the Acquiror or leave
the employment of the Acquiror, such designee shall be Xx. Xxxxxxx if he is at
that time employed by the Acquiror), (D) the business of the Acquiror shall be
conducted by the Acquiror and/or PentaStar in the usual and ordinary course of
PentaStar's business operations and neither the Acquiror nor PentaStar shall
have any Liability to the Shareholders or any other Person for so conducting the
business and (E) in operating the business of the Acquiror, the Acquiror and/or
PentaStar may make decisions or take action with respect to the business of the
Acquiror that impacts, directly or indirectly, positively or negatively, the
potential benefit of the Earn-Out arrangement. If the Shareholders believe that
the Acquiror and/or PentaStar has made a decision or taken an action which will
have a material adverse effect on the potential benefit to the Shareholders of
the Earn-Out arrangement, the Shareholders' Agent shall so notify PentaStar
(which notice shall also set forth the Shareholders' belief as to the potential
adverse effect thereof) within 10 Business Days of any Shareholder having
knowledge of such decision or action, and PentaStar and the Shareholders' Agent
shall thereafter attempt in good faith to determine the most appropriate course
of action to mitigate such adverse effect, if any. However, the parties further
agree that, absent conduct engaged in by the Acquiror and/or PentaStar with the
purpose of materially adversely affecting the potential benefit to the
Shareholders of the Earn-Out arrangement, neither the Acquiror nor PentaStar
shall have any Liability to the Shareholders or any other Person arising from or
relating to its or their conduct of the business of the Acquiror or any
decisions made or actions taken with respect to the business of the Acquiror,
including, without limitation, those of the type contemplated by clauses (D) or
(E) above or by the following paragraph.
Nothing in this Agreement shall preclude PentaStar from
simultaneously selling into the areas of the Acquiror's operations through other
Subsidiaries or its own activities. The Acquiror shall not call on, solicit,
market to or sell to any Person which, as of the date of the first contact with
such Person, is an existing or prospective customer of PentaStar. For purposes
of the foregoing, an "existing customer" shall mean a Person to whom a sale has
been made by, or involving as agent for the seller, PentaStar (including for
this purpose any Person or business acquired by PentaStar), through a Subsidiary
or its own activities, within the one-year period prior to the Closing Date. For
purposes of the foregoing, a "prospective customer" shall mean a Person whom
PentaStar (including for this purpose any Person or business acquired by
PentaStar), through a Subsidiary or its own activities, has made a proposal to
within the six-month period prior to the date of this Agreement.
(ii) As soon as reasonably practicable after January 31, 2002
and in any event by April 30, 2002, PentaStar shall determine the Earn-Out EBITA
and the Growth Customer EBITA and prepare a written calculation of the Earn-Out
Amount (collectively, the "Earn-Out Financial Statements"). PentaStar's
determination under this Section 2.1(n)(ii) shall be made in accordance with
GAAP, on a basis consistent with the accounting practices of PentaStar.
PentaStar shall promptly provide a copy of the Earn-Out Financial Statements to
the Shareholders. The Shareholders and their representatives shall be given
reasonable access to all documentation and work papers for the purpose of
reviewing each Earn-Out Financial Statement. Within 30 days after receipt of the
Earn-Out Financial Statements, the Shareholders shall, in a
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written notice to PentaStar, either accept the Earn-Out Financial Statements or
object to them by describing in reasonably specific detail any proposed
adjustments to the Earn-Out Financial Statements, and the estimated amounts of
and reasons under PentaStar's application of GAAP for such proposed adjustments.
The failure by the Shareholders to object to the Earn-Out Financial Statements
within such 30-day period shall be deemed to be an acceptance by the
Shareholders of the Earn-Out Financial Statements. If any adjustments to the
Earn-Out Financial Statements are proposed by the Shareholders within such
30-day period, the dispute shall be resolved as provided in Section 2.1(o).
(iii) Within 10 Business Days after the later of the acceptance
of the Earn-Out Financial Statements by the Shareholders or the resolution of
any disputes under Section 2.1(o), as the case may be, PentaStar shall pay the
Earn-Out Amount, if any, to the Shareholders (the time of such payment being
referred to as the "Second Closing"). The Earn-Out Amount shall be paid, in
PentaStar's sole discretion, in cash or PentaStar Common Stock, or any
combination thereof; provided, however, that if Earn-Out EBITA is $500,000 or
more, then 50% of the first $200,000 of the Earn-Out Amount shall be paid in
cash. Notwithstanding the foregoing, the amount of cash included in the payment
of the Earn-Out Amount shall not be such as to cause the Purchase Price, taken
as a whole, not to comply with the continuity of interest test for a tax-free
reorganization under Section 368 of the Code, as determined in good faith by
PentaStar based on advice of counsel, unless PentaStar is responsible for the
increase in Tax Liability to the Shareholders directly resulting from such
non-compliance. If any portion of the Earn-Out Amount is paid in PentaStar
Common Stock, the number of shares of PentaStar Common Stock to be issued (which
shall be rounded down to the nearest whole share, and PentaStar shall pay the
Shareholders cash for any such fractional share as specified in Section 2.1(i))
shall be determined by dividing (A) the Earn-Out Amount that is being paid in
PentaStar Common Stock by (B) the Fair Market Value of a share of PentaStar
Common Stock as of June 30, 2001. Any cash portion of the Earn-Out Amount shall
be paid by wire transfer to an account or accounts designated by the
Shareholders' Agent. Certificates representing any shares of PentaStar Common
Stock issued in payment of the Earn-Out Amount shall be mailed to the
Shareholders at the Shareholders' Agent's address for notice purposes under this
Agreement.
(iv) In the event that PentaStar sells the operations conducted
by the Acquiror (whether separately or as part of a sale of all or substantially
all of the assets or operations of PentaStar, and whether by sale of assets or
stock of PentaStar or the Acquiror, by merger of PentaStar or the Acquiror or
otherwise) prior to the end of the Earn-Out Period, PentaStar shall require the
purchaser to continue to account for such operations separately and agree to
assume the obligation of PentaStar to pay the Earn-Out Amount as provided in
this Section 2.1(n). In that event, the purchaser may pay the Earn-Out Amount,
in its sole discretion, in cash, such purchaser's or any parent's common equity
securities based on the fair market value of such securities on the relevant
date as provided in this Section 2.1(n), or any combination thereof.
(o) Resolution of Disputes. If any adjustments to the Closing Date
Balance Sheet or the Earn-Out Financial Statements are proposed by the
Shareholders pursuant to Section 2.1(l) or 2.1(n), PentaStar and the
Shareholders shall negotiate in good faith to resolve any dispute, provided that
if the dispute is not resolved within 10 days following the receipt of the
proposed adjustments then PentaStar and the Shareholders shall retain the
Denver, Colorado office of BDO Xxxxxxx LLC to resolve such dispute, which
resolution shall be final and binding. BDO Xxxxxxx LLC shall be retained under a
retention letter executed by the parties that specifies that the determination
by said firm of any such disputes shall be resolved in accordance with this
Agreement (including the definitions set forth in this Agreement) by choosing
the position of (i) PentaStar in the case of the Closing Date Balance Sheet or
the Earn-Out Financial Statements
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or (ii) the objecting party under Section 2.1(l) or 2.1(n), as the case may be,
without change, or (iii) some combination thereof which BDO Xxxxxxx LLC
determines is appropriate in accordance with this Agreement (including the
definitions set forth in this Agreement), within 30 days of the expiration of
the 20-day period described in Section 2.1(l) or the 30-day period described in
Section 2.1(n)(ii), as the case may be.
If any dispute is submitted to BDO Xxxxxxx LLC pursuant to this
Section 2.1(o) (a "RKK Dispute") and the RKK Dispute also relates to matters
which could be or are the subject of a dispute resolution pursuant to Section
2.1(o) of the DSS Merger Agreement (a "DSS Dispute"), then the RKK Dispute and
the DSS Dispute shall be resolved at the same time by BDO Xxxxxxx LLC in a
single dispute resolution pursuant to this Section 2.1(o) and Section 2.1(o) of
the DSS Merger Agreement, and such resolution shall be final and binding upon
PentaStar, the Acquiror, the Shareholders and the shareholders of DSS.
If any dispute arises solely between the Shareholders and the
DSS shareholders concerning calculation of their respective Earn-Out amounts,
such dispute shall also be resolved in such a single dispute resolution pursuant
to this Section 2.1(o), and the Shareholders and the DSS shareholders shall
indemnify PentaStar and the Acquiror for all costs and expenses incurred in
connection therewith.
In connection with its activities pursuant to this Section
2.1(o), BDO Xxxxxxx LLC may review such documents and information, and make such
inquiry of the parties, as it deems necessary. The fees and expenses of BDO
Xxxxxxx LLC shall be paid by the losing party in the dispute, or otherwise
apportioned between or among the parties in the discretion of BDO Xxxxxxx LLC as
it deems appropriate in the circumstances.
2.2. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place, via facsimile and overnight
delivery, at the offices of Xxxxxxx & Xxxxxx L.L.C. at 9:00 a.m. Denver,
Colorado time on March 29, 2001, or as soon thereafter as the conditions to
closing set forth in Section 6 are satisfied (12:01 a.m. New Jersey time on the
date upon which the Closing actually occurs being referred to as the "Closing
Date"). The signing of this Agreement and the Closing shall occur
simultaneously.
2.3. Deliveries at the Closing. At the Closing, (a) the Shareholders
shall deliver or cause to be delivered to PentaStar the various certificates,
instruments and documents, and take or cause to be taken the actions, referred
to in Section 6.1 and (b) PentaStar shall deliver or cause to be delivered to
the Shareholders the various certificates, instruments and documents, and take
or cause to be taken the actions, referred to in Section 6.2.
30 Representations and Warranties.
3.1. Representations and Warranties of the Shareholders. Each
Shareholder jointly and severally represents and warrants to PentaStar and the
Acquiror that the statements contained in this Section 3.1 are correct and
complete as of the date of this Agreement and shall be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
then substituted for the date of this Agreement throughout this Section 3.1).
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(a) Organization, Good Standing, Etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is qualified and authorized to transact business as a
foreign corporation and is in good standing in the State of New Jersey, which is
the only jurisdiction in which the nature of the business conducted by it or the
properties owned, leased or operated by it such qualification and authorization
necessary. The Company has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The copies of the articles of incorporation (certified by the
Secretary of State of Delaware) and the bylaws of the Company, both as amended
to date, which have been delivered to PentaStar by the Shareholders and are
attached as Exhibits 3.1(a)(i) and 3.1(a)(ii), respectively, are complete and
correct, and the Company is not in default under or in violation of any
provision of its articles of incorporation or bylaws. The minute books (which
contain the records of all meetings of or actions by the shareholders, the board
of directors, and any committees of the board of directors) and the stock
certificate books and the stock record books of the Company, copies of which
have been delivered to PentaStar by the Shareholders, are true, correct and
complete.
(b) Ownership and Capitalization.
(i) The authorized capital stock of the Company consists of
1,500 shares of common stock, no par value. Each Shareholder owns, beneficially
and of record, free and clear of any Encumbrance or Tax, the number of shares of
the common stock, no par value, of the Company (the "Company Shares") set forth
opposite such Shareholder's name in Section 2.1(k)(i), and the Company Shares
reflected in Section 2.1(k)(i) constitute all of the issued and outstanding
capital stock of the Company. The Company does not own, directly or indirectly,
any shares of its capital stock. All of the issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued, and are
fully paid and nonassessable, with no personal Liability attaching to the
ownership thereof. There is no authorized or outstanding stock or security
convertible into or exchangeable for, or any authorized or outstanding option,
warrant or other right to subscribe for or to purchase, or convert any
obligation into, any unissued shares of the Company's capital stock or any
treasury stock, and the Company has not agreed to issue any security so
convertible or exchangeable or any such option, warrant or other right. There
are no authorized or outstanding stock appreciation, phantom stock, profit
participation or similar rights with respect to the Company. There are no voting
trusts, voting agreements, proxies or other agreements or understandings with
respect to any capital stock of the Company. Except as set forth on Exhibit
3.1(b)(i), all of which the Shareholders shall cause to be terminated prior to
the Closing, there are no existing rights of first refusal, buy-sell
arrangements, options, warrants, rights, calls, or other commitments or
restrictions of any character relating to any of the Company Shares, except
those restrictions on transfer imposed by the Securities Act and applicable
state securities laws.
(ii) Except as set forth on Exhibit 3.1(b)(ii), the Company has
no Subsidiaries and no capital stock, securities convertible into capital stock,
or any other equity interest in any other corporation, partnership, limited
partnership, limited liability company, association, joint venture or other
Person. Each of the entities listed on Exhibit 3.1(b)(ii) is wholly-owned,
directly or indirectly, by the Company, is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation as
set forth on Exhibit 3.1(b)(ii), and is qualified to do business as a foreign
corporation and is in good standing in the states set forth on Exhibit
3.1(b)(ii), which are the only jurisdictions in which the nature of the business
conducted by it or the properties owned, leased or operated by it make such
qualification necessary. No Person has any right to acquire any interest in any
Subsidiary and there are no authorized or outstanding stock appreciation,
phantom stock, profit participation or similar rights with respect to any
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Subsidiary. Each such Subsidiary has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted.
(c) Authority; No Violation. Each Shareholder, and each relative or
affiliate of the Company or of a Shareholder who is a party to any Other Seller
Agreement, has full and absolute right, power, authority and legal capacity to
execute, deliver and perform this Agreement and all Other Seller Agreements to
which such Shareholder, relative or affiliate is a party, and this Agreement
constitutes, and the Other Seller Agreements shall when executed and delivered
constitute, the legal, valid and binding obligations of, and shall be
enforceable in accordance with their respective terms against, each such
Shareholder, relative or affiliate who is a party thereto. The execution,
delivery and performance of this Agreement and the Other Seller Agreements and
the consummation of the transactions contemplated hereby and thereby shall not
(i) violate any Legal Requirement to which the Company, any Shareholder, or any
relative or affiliate of the Company or of any Shareholder who is a party to any
Other Seller Agreement is subject or any provision of the articles of
incorporation or bylaws of the Company or of any such affiliate, or (ii)
violate, with or without the giving of notice or the lapse of time or both, or
conflict with or result in the breach or termination of any provision of, or
constitute a default under, or give any Person the right to accelerate any
obligation under, or result in the creation of any Encumbrance upon any
properties, assets or business of the Company, of any Shareholder, or of any
such relative or affiliate pursuant to, any indenture, mortgage, deed of trust,
lien, lease, license, Permit, agreement, instrument or other arrangement to
which the Company, any Shareholder or any such relative or affiliate is a party
or by which the Company, any Shareholder, or any such relative or affiliate or
any of their respective assets and properties is bound or subject. Except for
notices that shall be given and consents that shall be obtained by the
Shareholders prior to the Closing (each of which is set forth in Exhibit
3.1(c)), neither the Company, any Shareholder, nor any such relative or
affiliate need give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority or other Person
in order for the parties to consummate the transactions contemplated by this
Agreement and the Other Seller Agreements.
(d) Financial Statements; Absence of Liabilities. (i) The unaudited
balance sheet of the Company as of the day prior to the Closing Date (the
"Latest Balance Sheet"), and the related statements of income, shareholders'
equity and cash flows for the two-month period ended February 28, 2001 have been
delivered by the Shareholders to PentaStar.
(ii) Since the date of the Latest Balance Sheet, the Company has
not incurred or become subject to any Liability other than Liabilities incurred
in the ordinary course of business consistent with past practice. As of the
Closing, the Company shall have no Liability (and there shall be no basis for
the assertion of any Liability), except for the Retained Liabilities.
(e) Absence of Certain Agreements, Changes or Events.
(i) The Company is not, except as set forth on Exhibit
3.1(e)(i), a party to or otherwise bound by any material contract or agreement
(A) pursuant to which the Company is obligated to furnish any services, product
or equipment and (B) that has been prepaid with respect to any period after the
Closing Date.
(ii) Since January 1, 2001, the Company has not (A) incurred any
debt, indebtedness or other Liability, except current Liabilities incurred in
the ordinary course of business consistent with past
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practice; (B) delayed or postponed the payment of accounts payable or other
Liabilities beyond stated, normal terms; (C) sold or otherwise transferred any
of its assets or properties; (D) cancelled, compromised, settled, released,
waived, written-off or expensed any account or note receivable, right, debt or
claim involving more than $5,000 in the aggregate or accelerated the collection
of any account or note receivable or Residual Payment Right; (E) changed in any
significant manner the way in which it conducts its business (other than the
distribution pursuant to Section 4.7 to the Shareholders of the Excluded Assets
as set forth on Exhibit 3.1(e)(ii)(I)); (F), made or granted any individual wage
or salary increase in excess of 10% or $1.00 per hour, any general wage or
salary increase, or any additional benefits of any kind or nature; (G) except as
otherwise expressly permitted by this Section 3.1(e)(ii), (1) entered into any
contracts or agreements, or made any commitments, involving more than $5,000
individually or in the aggregate or (2) accelerated, terminated, delayed,
modified or cancelled any agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) involving more than $5,000
individually or in the aggregate; (H) suffered any material adverse effect or
change, including, without limitation, to or in its business, assets or
financial condition or customer or service provider relationships; (I) made any
payment or transfer to or for the benefit of any shareholder, officer or
director or any relative or affiliate thereof or permitted any Person,
including, without limitation, any shareholder, officer, director or employee or
any relative or affiliate thereof, to withdraw assets from the Company (other
than the Excluded Assets distributed pursuant to Section 4.7 to the Shareholders
as set forth on Exhibit 3.1(e)(ii)(I) and payment to the Shareholders of the
proportionate monthly amount of (1) their respective normal annualized salaries
due and payable during such period or (2) rent due under pre-existing real
property leases between the Company and a Shareholder which are disclosed on
Exhibit 3.1(g)(i)); or (J) agreed to incur, take, enter into, make or permit any
of the matters described in clauses (A) through (I). Further, since January 1,
2001, the Company has maintained Operational Continuity.
(f) Tax Matters.
(i) The Company has filed all Tax Returns that it was required
to file prior to the Closing Date. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Company (whether or not shown on
any Tax Return) have been paid when due. The Company is not currently the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Encumbrances on any of the assets of the Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other third party.
(iii) To the best knowledge of the Shareholders, there is no
basis for any authority to assess any additional Taxes for any period for which
Tax Returns have been filed. There is no pending or threatened dispute or claim
concerning any Tax Liability of the Company. Exhibit 3.1(f)(iii) lists all
federal, state, local and foreign income Tax Returns filed with respect to the
Company for taxable periods ended on or after December 31, 1994, indicates those
Tax Returns that have been audited and indicates those Tax Returns that
currently are the subject of audit. The Shareholders have delivered to PentaStar
correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies filed or assessed against or agreed to
by the Company since December 31, 1994.
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(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) Neither the Company nor any of its shareholders has ever
filed (A) an election pursuant to Section 1362 of the Code that the Company be
taxed as an "S" corporation, except as set forth on Exhibit 3.1(f)(v), or (B) a
consent pursuant to Section 341(f) of the Code relating to collapsible
corporations. The Company has not made any payments, is not obligated to make
any payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that shall not be
deductible under Code Section 280G. The Company has not been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662. The Company is not a party to any
Tax allocation or sharing agreement. The Company has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) and has no Liability for the
Taxes of any Person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract or otherwise.
(g) Assets and Properties.
(i) The Company has good and marketable title to, or a valid
leasehold interest or interest as a lessee in, the assets and properties used or
held for use by it located on the Premises or shown on the Latest Balance Sheet
or acquired after the date thereof. As of the Closing, all of the Acquired
Assets shall be owned by the Company, free and clear of all Encumbrances. The
Company has not entered into any contract or made any commitment to sell all or
any part of its assets. The Acquired Assets constitute all of the real, personal
and mixed assets and property, both tangible and intangible, including
Intellectual Property, which are being used or held for use by the Company in
the conduct of the business and operations of the Company, consistent with
historical and current practices, other than the Excluded Assets. The Company
owns or leases all equipment and other tangible assets necessary for the conduct
of its business as presently conducted and as presently proposed to be
conducted. Each such tangible asset material to the Company's business has been
maintained in accordance with normal industry practice and is in good operating
condition and repair (subject to normal wear and tear). All leases of real
property between the Company and any shareholder, officer or director or any
relative or affiliate thereof or of the Company are on fair market terms
(including rent at fair market value). Neither the Shareholders, nor any
relative or affiliate thereof or of the Company, own any asset, tangible or
intangible, which is used in the Company's business, other than real property
leased to the Company on fair market terms and at fair market value pursuant to
leases set forth on Exhibit 3.1(g)(i).
(ii) Since its inception, the Company has been operated as a
home-based business and has neither owned nor leased any real property.
(h) Lists of Contracts and Other Matters. Attached as Exhibit 3.1(h)
is a correct and complete list setting forth the following items, to the extent
such items relate to the Acquired Assets, the Assumed Liabilities or the
business represented by Acquired Assets:
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(i) the following contracts and other agreements in effect as of
the date of this Agreement or as of the Closing Date to which the Company is a
party or by which the Company is bound:
(A) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $5,000 per year;
(B) any agreement pursuant to which the Company, or any of
the Shareholders on behalf of the Company, has made a deposit in an amount
greater than $5,000;
(C) any agreement (or group of related agreements) for the
purchase or sale of supplies, products or other personal property, or for the
furnishing or receipt of services, the performance of which shall extend over a
period of more than one year, result in a material loss to the Company or its
business or involve consideration in excess of $5,000;
(D) any agreement concerning a partnership or joint venture;
(E) any agreement (or group of related agreements) under
which the Company has created, incurred, assumed or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of $5,000 or
under which it has granted any Encumbrances on any of its assets, tangible or
intangible;
(F) any agreement concerning confidentiality or
noncompetition;
(G) any agreement with any of its current or former
shareholders, directors or officers or any relative or affiliate thereof (other
than the Company);
(H) any profit sharing, stock option, stock purchase,
phantom stock, stock appreciation, profit participation, deferred compensation,
severance or other plan or arrangement;
(I) any collective bargaining agreement;
(J) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis or any agreement providing
severance benefits;
(K) any agreement under which the Company has advanced or
loaned any amount to any of its directors, officers and employees outside the
ordinary course of business;
(L) any agreement obligating the Company to meet another
party's unspecified requirements for goods or services or obligating it to
purchase an unspecified amount of goods or services based on another party's
ability to supply them;
(M) any agreement under which the consequences of a default
or termination could have a material adverse effect on the business, financial
condition, operations, results of operations or future prospects of the Company
or its business; or
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(N) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
(ii) All material claims, deposits, causes of action, choses in
action, rights of recovery, rights of setoff and rights of recoupment of the
Company.
(iii) All material franchises, approvals, Permits, licenses,
Orders, registrations, certificates, variances and similar rights of the Company
(all of which are in full force and effect).
(iv) Each item of Intellectual Property owned by the Company or
which is used by the Company in its business and, in each case where the Company
is not the owner, the owner of the Intellectual Property.
(v) The name of each bank or other financial institution or
entity in which the Company has an account or safe deposit box (with the
identifying account number or symbol) and the names of all persons authorized to
draw thereon or to have access thereto.
The Shareholders have delivered to PentaStar a correct and complete copy
of each written agreement and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3.1(h). With respect to
each such agreement: (A) the agreement is legal, valid, binding, enforceable and
in full force and effect; (B) the agreement shall continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) neither the
Company nor, to the best knowledge of the Shareholders, any other party is in
breach or default, and, to the best knowledge of the Shareholders, no event has
occurred which, with notice or lapse of time, would constitute a breach or
default, or permit termination, modification or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(i) Litigation; Compliance with Applicable Laws and Rights.
(i) There is no outstanding Order against, nor, except as set
forth on Exhibit 3.1(i)(i), is there any litigation, proceeding, arbitration or
investigation by any Governmental Authority or other Person pending or, to the
best knowledge of the Shareholders, threatened against, the Company, its assets
or its business or relating to the transactions contemplated by this Agreement,
nor is there any basis for any such action.
(ii) To the best knowledge of the Shareholders, except as set
forth on Exhibit 3.1(i)(ii), neither the Company nor the Company's assets are in
violation of any applicable Legal Requirement or Right. The Company has not
received notice from any Governmental Authority or other Person of any violation
or alleged violation of any Legal Requirement or Right, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand or notice
has been filed or commenced or is pending or, to the best knowledge of the
Shareholders, threatened against the Company alleging any such violation.
(j) Notes and Accounts Receivable. The notes and accounts receivable
of the Company reflected on the Latest Balance Sheet and all Residual Payment
Rights of the Company, and all notes and accounts receivable and Residual
Payment Rights arising on or prior to the Closing Date, arose and shall
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arise from bona fide transactions by the Company in the ordinary course of
business and are valid receivables with trade customers subject to no setoffs or
counterclaims.
(k) Product Quality, Warranty and Liability. All services and
products sold, leased, provided or delivered by the Company to customers on or
prior to the Closing Date conform to applicable contractual commitments, express
and implied warranties, product and service specifications and quality
standards, and there is no basis for any Liability for replacement or repair
thereof or other damages in connection therewith. No service or product sold,
leased, provided or delivered by the Company to customers on or prior to the
Closing Date is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale or lease. The Company has no
Liability and there is no basis for any Liability arising out of any injury to a
Person or property as a result of the ownership, possession, provision or use of
any service or product sold, leased, provided or delivered by the Company on or
prior to the Closing Date. All product or service liability claims that have
been asserted against the Company since January 1, 1995, whether covered by
insurance or not and whether litigation has resulted or not, other than those
listed and summarized on Exhibit 3.1(i)(i), are listed and summarized on Exhibit
3.1(k).
(l) [Reserved.]
(m) Pension and Employee Benefit Matters.
(i) Exhibit 3.1(m)(i) lists each Employee Benefit Plan that is
an Employee Welfare Benefit Plan (the "Company Welfare Plans") or is an Employee
Pension Benefit Plan (the "Company Retirement Plans"). Correct and complete
copies of each Employee Benefit Plan have been delivered to PentaStar by the
Shareholders. No Employee Benefit Plan is a Multiemployer Plan. No Employee
Pension Benefit Plan is a plan that is subject to the Plan Termination Insurance
provisions of Title IV of ERISA.
(ii) Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code is so qualified, has been so qualified during
the period from its adoption to date, has been maintained and administered in
substantial compliance with its terms and with applicable Legal Requirements and
in a manner that would not adversely affect its qualified status, and has
received a currently effective determination letter (or a determination letter
has been timely requested) from the Internal Revenues Service that the Plan is
(or continues to be) currently qualified for federal income tax purposes. The
Shareholders have delivered to PentaStar copies of such determination letters
and any pending applications, and copies thereof have been attached hereto as
part of Exhibit 3.1(m)(ii). Each trust in which Company Retirement Plan assets
are held in exempt from tax pursuant to Section 501(a) of the Code.
(iii) Exhibit 3.1(m)(iii) lists each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit sharing, bonuses, stock options, stock appreciation rights
or other forms of incentive compensation, reduced interest or interest free
loans, mortgages, relocation assistance or post-retirement insurance,
compensation or other benefits that: (A) is not an Employee Benefit Plan; (B) is
entered into, maintained or contributed to, by the Company; and (C) covers any
employee or former employee of the Company or any relative thereof. Such
contracts, plans and arrangements as are described in this Section 3.1(m)(iii),
are hereinafter referred to collectively as the "Benefit Arrangements." Copies
and descriptions (including descriptions of the number
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and employment classifications of employees covered by each such Benefit
Arrangement) have been delivered by the Shareholders to PentaStar and attached
hereto as part of Exhibit 3.1(m)(iii). Each Benefit Arrangement has been
maintained and administered in substantial compliance with its terms and with
the requirements prescribed by any and all Legal Requirements that are
applicable to each such Benefit Arrangement.
(iv) No Company Welfare Plan is maintained in connection with
any trust described in Section 501(c)(9) of the Code.
(v) There have been no prohibited transactions with respect to
any Employee Benefit Plan. No "Fiduciary" (as defined in Section 3(21) of ERISA)
has any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing or
investigation with respect to the administration or the investment of the assets
of any Employee Benefit Plan (other than routine claims for benefits) is pending
or, to the best knowledge of the Shareholders is threatened. None of the
Shareholders have any knowledge of any basis for any such action, suit,
proceeding, hearing or investigation.
(vi) The Company does not maintain and has never maintained nor
contributes, or ever has contributed, or ever has been required to contribute,
to any Company Welfare Plan providing health or medical benefits for current or
future retired or terminated employees, their spouses or their dependents (other
than in accordance with Code Section 4980B). No condition exists that would
prevent the Company from amending or terminating any Company Welfare Plan or
Benefit Arrangement providing health or medical benefits in respect of any
active or retired employees of the Company.
(vii) Any Company Welfare Plan that is a "group health plan" (as
defined in Code Section 5000(b)(l)) has been administered in accordance with the
requirements of Part 6 of Subtitle B of Title I of ERISA and Code Section 4980B
and nothing done or omitted to be done in connection with the maintenance or
administration of any Company Welfare Plan that is a "group health plan" has
made or shall make the Company subject to any liability under Title I of ERISA,
excise Tax Liability under Code Section 4980B or has resulted or shall result in
any loss of income exclusion for a participant under Code Sections 105(h) or
106.
(viii) There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G or 162(a)(l) of the Code.
(ix) The Company has made, before the date of this Agreement,
all required contributions and premium payments under each Employee Benefit Plan
and Benefit Arrangement for all completed fiscal years including contributions
that may not by law have otherwise been required to be made until the due date
for filing the Tax Return for any completed fiscal year.
(n) Employees and Labor. The Company has not received any notice,
nor, to the best knowledge of the Shareholders, is there any reason to believe
that any Key Employee of the Company or any group of employees of the Company
has any plans to terminate his, her or its employment with the Company. To the
best knowledge of the Shareholders, no Key Employee is subject to any agreement,
obligation, Order or other legal hindrance that impedes or might impede such Key
Employee from devoting his or her full
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business time to the affairs of the Company prior to the Closing Date and, if
such person becomes an employee of the Acquiror or PentaStar, to the affairs of
the Acquiror or PentaStar after the Closing Date. The Company shall not be
required to give any notice under the Worker Adjustment and Retraining
Notification Act, as amended, or any similar Legal Requirement as a result of
this Agreement, the Other Seller Agreements or the transactions contemplated
hereby or thereby. The Company does not have any labor relations problems or
disputes, nor has the Company experienced any strikes, grievances, claims of
unfair labor practices or other collective bargaining disputes. The Company is
not a party to or bound by any collective bargaining agreement, there is no
union or collective bargaining unit at the Company's facilities, and no union
organization effort has been threatened, initiated or is in progress with
respect to any employees of the Company.
(o) [Reserved.]
(p) Environmental Matters. The Company is conducting and at all
times has conducted its business and operations, and has occupied, used and
operated the Premises and all other real property and facilities presently or
previously owned, occupied, used or operated by the Company, in compliance with
all Environmental Obligations and so as not to give rise to Liability under any
Environmental Obligations or to any impact on the Company's business or
activities. The Company has no Liability under any Environmental Obligation, nor
is there any basis for any such Liability.
(q) Intellectual Property. The Company owns or has the legal right
to use each item of Intellectual Property required to be identified on Exhibit
3.1(h). To the best knowledge of the Shareholders, the continued operation of
the business of the Company as currently conducted shall not interfere with,
infringe upon, misappropriate or conflict with any Intellectual Property rights
of another Person. To the best knowledge of the Shareholders, no other Person
has interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property rights of the Company or any
Intellectual Property included in the Acquired Assets. Neither the Company nor
any owner of any Intellectual Property included in the Acquired Assets has
granted any license, sublicense or permission with respect to any Intellectual
Property owned or used in the Company's business. No claims are pending or, to
the knowledge of the Shareholders, threatened, that the Company is infringing or
otherwise adversely affecting the rights of any Person with regard to any
Intellectual Property. To the best knowledge of the Shareholders, all of the
Intellectual Property that is owned by the Company is owned free and clear of
all Encumbrances and was not misappropriated from any Person, and all portions
of the Intellectual Property that are licensed by the Company are licensed
pursuant to valid and existing license agreements. The consummation of the
transactions contemplated by this Agreement shall not result in the loss or
material diminution of any such Intellectual Property or rights in Intellectual
Property.
(r) [Reserved.]
(s) Brokers' Fees. Except as set forth on Exhibit 3.1(s), neither
the Company nor any Shareholder has, and shall not have as a result of the
consummation of this Agreement, any Liability to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
(t) Guaranties. The Company is not a guarantor or otherwise liable
for any Liability (including indebtedness for borrowed money) of any other
Person. Except as set forth on Exhibit 3.1(t), no
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Person is a guarantor or otherwise liable for any Liability (including
indebtedness for borrowed money) of the Company.
(u) Investment Representations. (i) Each Shareholder is acquiring
the shares of PentaStar Common Stock to be issued to such Shareholder pursuant
to this Agreement (the "PentaStar Shares") for such Shareholder's own account
and not on behalf of any other Person; each Shareholder is aware and
acknowledges that the PentaStar Shares have not been registered under the
Securities Act, or applicable state securities laws, and may not be offered,
sold, assigned, exchanged, transferred, pledged or otherwise disposed of unless
so registered under the Securities Act and applicable state securities laws or
an exemption from the registration requirements thereof is available; (ii) each
Shareholder (or, if such Shareholder is not an "accredited investor" as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act, such
Shareholder through such Shareholder's purchaser representative ("Purchaser
Representative") as duly designated pursuant to documentation delivered and
reasonably satisfactory to PentaStar on or before the execution of this
Agreement (the "Purchaser Representative Documents")) has been furnished all
information that such Shareholder (and such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor") deems
necessary to enable such Shareholder (and such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor") to evaluate
the merits and risks of an investment in PentaStar, including, without
limitation, the information described on Exhibit 3.1(u)(ii); each Shareholder
(and such Shareholder's Purchaser Representative, if such Shareholder is not an
"accredited investor"), has had a reasonable opportunity to ask questions of and
receive answers from PentaStar concerning PentaStar, the PentaStar Shares and
any and all matters relating to the transactions described herein or in the
information described on Exhibit 3.1(u)(ii), and all such questions, if any,
have been answered to the full satisfaction of such Shareholder (and such
Shareholder's Purchaser Representative, if such Shareholder is not an
"accredited investor"); (iii) no Person other than such Shareholder has (A) any
rights in and to the PentaStar Shares, which rights were obtained through or
from such Shareholder; or (B) any rights to acquire the PentaStar Shares, which
rights were obtained through or from such Shareholder; (iv) each Shareholder (or
such Shareholder's Purchaser Representative, if such Shareholder is not an
"accredited investor") has such knowledge and experience in financial and
business matters (including knowledge and experience in the business and
proposed business of PentaStar) that such Shareholder (or such Shareholder's
Purchaser Representative, if such Shareholder is not an "accredited investor")
is capable of evaluating the merits and risks involved in an investment in the
PentaStar Shares; and such Shareholder is financially able to bear the economic
risk of the investment in the PentaStar Shares, including a total loss of such
investment; (v) each Shareholder has adequate means of providing for such
Shareholder's current needs and has no need for liquidity in such Shareholder's
investment in the PentaStar Shares; each Shareholder has no reason to anticipate
any material change in such Shareholder's financial condition for the
foreseeable future; (vi) each Shareholder is aware that the acquisition of the
PentaStar Shares is an investment involving a risk of loss and that there is no
guarantee that such Shareholder shall realize any gain from this investment, and
that such Shareholder could lose the total amount of its investment; (vii) each
Shareholder understands that no United States federal or state agency has made
any finding of determination regarding the fairness of the offering of the
PentaStar Shares for investment, or any recommendation or endorsement of the
offering of the PentaStar Shares; (viii) each Shareholder is acquiring the
PentaStar Shares for investment, with no present intention of dividing or
allowing others to participate in such investment or of reselling, or otherwise
participating, directly or indirectly, in a distribution of PentaStar Shares,
and shall not make any sale, transfer or pledge thereof without registration
under the Securities Act and any applicable securities laws of any state, unless
an exemption from registration is available, as established to the reasonable
satisfaction of PentaStar, by opinion of counsel or otherwise; (ix) except as
set forth herein, no representations or warranties have been
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made to any Shareholder (or such Shareholder's Purchaser Representative, if such
Shareholder is not an "accredited investor") by PentaStar or any agent, employee
or affiliate of PentaStar, and in entering into this transaction each
Shareholder is not relying upon any information, other than from the results of
independent investigation by such Shareholder (or such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor"); and (x)
each Shareholder understands that the PentaStar Shares are being offered to such
Shareholder in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that
PentaStar is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Shareholder
set forth herein (and in the Purchaser Representative Documents, if applicable)
in order to determine the applicability of such exemptions and the suitability
of such Shareholder to acquire the PentaStar Shares; and (xi) except as set
forth on Exhibit 3.1(u)(xi), each Shareholder is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
Exhibit 3.1(u)(xi) also sets forth each Shareholder's state of residency.
All the certificates representing PentaStar Shares shall bear the
following legend, in addition to the legend required by Section 5.10:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY STATE SECURITIES LAWS AND CAN
NOT BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR (ii) THE ISSUER RECEIVES AN OPINION OF
COUNSEL TO THE ISSUER OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SUCH SECURITIES MAY
BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE
ACT OR APPLICABLE STATE SECURITIES LAWS.
(v) Disclosure. None of the documents or information provided to
PentaStar by the Company, any Shareholder or any agent or employee thereof in
the course of PentaStar's due diligence investigation and the negotiation of
this Agreement and Section 3.1 of this Agreement and the disclosure Exhibits
referred to therein, including the financial statements referred to above in
Section 3.1, contains any untrue statement of any material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact which materially adversely affects the
business, condition, affairs or operations of the Company or any of its assets
or properties which has not been set forth in this Agreement or such Exhibits,
including such financial statements.
Nothing in the disclosure Exhibits referred to in Section 3.1 shall be
deemed adequate to disclose an exception to a representation or warranty made
herein unless the applicable disclosure Exhibit identifies the exception with
reasonable particularity and describes the relevant facts in reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). Each Shareholder acknowledges and agrees that the fact that they
have made disclosures pursuant to Section 3.1 or otherwise of matters, or did
not have knowledge of matters, which result in Adverse Consequences to PentaStar
or the Acquiror shall not relieve the Shareholders of their obligation pursuant
to Section 7 of this
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Agreement to indemnify and hold PentaStar and the Acquiror harmless from Adverse
Consequences as required by Section 7.
3.2. Representations and Warranties of PentaStar. PentaStar represents
and warrants to the Shareholders that the statements contained in this Section
3.2 are correct and complete as of the date of this Agreement and shall be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 3.2).
(a) Organization, Good Standing, Power, Etc. Each of PentaStar and
the Acquiror is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is qualified to do business
as a foreign corporation and is in good standing in all jurisdictions in which
the nature of the businesses conducted by it or the properties owned, leased or
operated by it make such qualification necessary. This Agreement and the Other
PentaStar Agreements and the transactions contemplated hereby and thereby have
been duly approved by all requisite corporate action. Each of PentaStar and the
Acquiror have full corporate power and authority to execute, deliver and perform
this Agreement and the Other PentaStar Agreements to which it is a party, and
this Agreement constitutes, and the Other PentaStar Agreements shall when
executed and delivered constitute, the legal, valid and binding obligations of
PentaStar or the Acquiror, as the case may be, and shall be enforceable in
accordance with their respective terms against PentaStar or the Acquiror, as the
case may be.
(b Capitalization.
(i) The authorized, issued and outstanding shares of the capital
stock of PentaStar are as set forth on Exhibit 3.2(b)(i).
(ii) At the time of issuance thereof and delivery to a
Shareholder, the PentaStar Shares to be delivered to such Shareholder pursuant
to this Agreement shall be duly authorized and validly issued shares of
PentaStar's Common Stock, and shall be fully paid and nonassessable. Such
PentaStar Shares shall at the time of such issuance and delivery be free and
clear of any Encumbrances of any kind or character, other than those arising
under applicable federal and state securities laws, under this Agreement or
under any Other Seller Agreement to which the Shareholder is a party.
(iii) All of the issued and outstanding capital stock of the
Acquiror is owned by PentaStar.
(c No Violation of Agreements, Etc. The execution, delivery and
performance of this Agreement and the Other PentaStar Agreements, and the
consummation of the transactions contemplated hereby and thereby shall not (i)
violate any Legal Requirement to which PentaStar or the Acquiror is subject or
any provision of the certificate of incorporation or bylaws of PentaStar or the
Acquiror or (ii) violate, with or without the giving of notice or the lapse of
time or both, or conflict with or result in the breach or termination of any
provision of, or constitute a default under, or give any Person the right to
accelerate any obligation under, or result in the creation of any Encumbrance
upon any properties, assets or business of PentaStar or the Acquiror pursuant
to, any indenture, mortgage, deed of trust, lien, lease, license, agreement,
instrument or other arrangement to which PentaStar or the Acquiror is a party or
by which PentaStar or the Acquiror or any of their respective assets and
properties is bound or subject. Except for notices and consents that shall be
given or obtained by PentaStar prior to the Closing, neither PentaStar nor the
Acquiror need give
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any notice to, make any filing with or obtain any authorization, consent or
approval of any Governmental Authority or other Person in order for the parties
to consummate the transactions contemplated by this Agreement.
(d SEC Filings; Financial Statements.
(i) PentaStar has filed all reports, registration statements and
other filings, together with any amendments or supplements required to be made
with respect thereto, that it has been required to file with the SEC under the
Securities Act and the Exchange Act. As of the respective dates of their filing
with the SEC, the SEC Filings complied in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(ii) Each of the historical consolidated financial statements of
PentaStar (including any related notes or schedules) included in the SEC Filings
was prepared in accordance with GAAP (except as may be disclosed therein) and
complied in all material respects with the applicable rules and regulations of
the SEC. Such financial statements fairly present in all material respects the
consolidated financial position of PentaStar and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of operations, cash flows
and changes in stockholders' equity for the periods then ended (subject, in the
case of the unaudited interim financial statements, to normal, recurring
year-end audit adjustments).
3.3. Survival of Representations. The representations and warranties
contained in Sections 3.1 and 3.2 and the Liabilities of the parties with
respect thereto shall survive any investigation thereof by the parties and shall
survive the Closing for four years, except that (a) the Liabilities of the
Shareholders with respect to the representations and warranties (i) set forth in
Sections 3.1(f), 3.1(m) and 3.1(p) shall survive until expiration of the
applicable statute of limitations and (ii) set forth in Sections 3.1(a), 3.1(b),
3.1(c), 3.1(g), 3.1(q), 3.1(u) and 3.1(v) shall survive without termination and
(b) the Liabilities of PentaStar with respect to the representations and
warranties set forth in Sections 3.2(a), 3.2(b) and 3.2(c), shall survive
without termination, except that the Liability of PentaStar with respect to the
representations and warranties set forth in Section 3.2(d) shall survive the
Closing for one year.
3.4. Representations as to Knowledge. The representations and warranties
contained in Article 3 hereof shall in each and every case where an exercise of
discretion or a statement to the "best knowledge," "best of knowledge" or
"knowledge" is required on behalf of any party to this Agreement be deemed to
require that such exercise of discretion or statement be in good faith after
reasonable investigation (including, in the case of the Shareholders, inquiry of
the applicable employees of the Company, with due diligence, to the best efforts
of such party and be exercised always in a reasonable manner and within
reasonable times.
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4. Pre-Closing Covenants. The parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
4.1. General. Each of the parties shall use its reasonable best efforts
to take all actions necessary, proper or advisable in order to consummate and
make effective the transactions contemplated by this Agreement (including the
satisfaction, but not the waiver, of the closing conditions set forth in Section
6) and the other agreements contemplated hereby. Without limiting the foregoing,
the Shareholders shall, and shall cause the Company to, give any notices, make
any filings and obtain any consents, authorizations or approvals needed to
consummate the transactions contemplated by this Agreement.
4.2. Operation and Preservation of Business. The Shareholders shall not
cause or permit the Company to engage in any practice, take any action or enter
into any transaction outside the ordinary course of its business consistent with
past practice; provided, however, that in no event shall any action be taken or
fail to be taken or any transaction be entered into which would result in a
breach of any representation, warranty or covenant of any Shareholder. The
Shareholders shall cause the Company to keep its business and properties,
including its current operations, physical facilities, working conditions and
relationships with customers, service providers, Sub-Agents, lessors, licensors
and employees, intact.
4.3. Full Access. The Shareholders shall cause the Company to permit
PentaStar and its agents to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of the
Company, to all premises, properties, personnel, books, records (including Tax
records), contracts and documents of or pertaining to the Company.
4.4. Notice of Developments. The Shareholders shall give prompt written
notice to PentaStar of any material development which occurs after the date of
this Agreement and before the Closing and affects the business, assets,
Liabilities, financial condition, operations, results of operations, future
prospects, representations, warranties, covenants or disclosure Exhibits of the
Company. No such written notice, however, shall be deemed to amend or supplement
any disclosure Exhibit or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.
4.5. Exclusivity. No Shareholder shall, and the Shareholders shall not
cause or permit the Company to, (a) solicit, initiate or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any portion of the assets
of, the Company (including any acquisition structured as a merger, consolidation
or share exchange) or (b) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. No Shareholder shall vote shares of the Company's stock in
favor of any such transaction. The Shareholders shall notify PentaStar
immediately if any Person makes any proposal, offer, inquiry or contact with
respect to any of the foregoing.
4.6. Announcements; Securities Law Restrictions. Prior to the Closing,
neither any Shareholder nor the Company shall disclose to any Person, nor issue
any press release or make any public announcement concerning, the existence,
terms or subject matter of this Agreement without the prior written approval of
PentaStar, except as (and only to the extent) previously publicly announced by
PentaStar or to obtain consents required by this Agreement. Further, neither any
Shareholder nor the Company shall violate the United States securities laws
which restrict the Shareholders and the Company, as Persons with material
non-public
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information concerning PentaStar obtained directly or indirectly from PentaStar,
from purchasing or selling securities of PentaStar or from communicating such
information to any other Person under any circumstances in which it is
reasonably foreseeable that such Person is likely to purchase or sell such
securities.
4.7. Closing Date Liabilities and Excluded Assets.
(a Prior to the Closing Date, the Shareholders shall pay, or shall
cause the Company to pay prior to the Closing Date, in full all Closing Date
Liabilities in excess of the amounts set forth on the Estimated Closing Date
Balance Sheet. Effective as of immediately prior to the Closing Date, the
Shareholders hereby assume all Closing Date Liabilities in excess of the amounts
set forth on the Estimated Closing Date Balance Sheet without further action by
any Shareholder, the Company or any other Person.
(b Prior to the Closing Date, the Shareholders shall cause the
Company to distribute to the Shareholders the Excluded Assets.
4.8. Conveyance of Shareholder Property. Prior to the Closing Date, each
Shareholder shall convey, and shall cause each relative or affiliate of the
Company or of such Shareholder to convey, to the Company, free and clear of any
Encumbrance or Tax, all of such Shareholder's and each such relative's or
affiliate's right, title and interest to any tangible or intangible asset
(excluding real property, improvements and fixtures, other than trade fixtures)
which is used by the Company and owned or leased by such Shareholder or relative
or affiliate of the Company or of such Shareholder (the "Shareholder Property").
In the event that any of the Shareholder Property is leased rather than owned by
a Shareholder or relative or affiliate of the Company or of such Shareholder,
the Shareholders shall cause the lessee thereof to purchase such property prior
to the Closing Date in order to be able to convey it to the Company as required
by this Section.
4.9. Conveyance of Capital Lease Property. Prior to the Closing Date,
the Company shall purchase from the lessors thereof all of the property
identified on Exhibit 4.9 (which is held under capital, rather than operating,
leases) (the "Capital Lease Property"), so that the Capital Lease Property is
owned by the Company immediately prior to the Closing as an Acquired Asset, free
and clear of any Encumbrance or Tax.
5. Post-Closing Covenants. The parties agree as follows with respect to the
period following the Closing.
5.1. Further Assurances. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties shall take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor under
Section 7).
5.2. Transition. No Shareholder shall take any action at any time that
is designed or intended to have the effect of discouraging any customer, service
provider, Sub-Agent, lessor, licensor, employee or other business associate of
the Company from establishing or continuing a business relationship with the
Acquiror or PentaStar after the Closing.
5.3. Cooperation. In the event and for so long as any party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with (a) any
transaction contemplated by this Agreement or (b) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the
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Closing Date involving any of the Acquired Assets or the Company's business,
each of the other parties shall cooperate with such party and its counsel in the
contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be reasonably necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending party (unless the contesting or defending party is
entitled to indemnification therefor under Section 7) or unless the dispute is
between the parties to this Agreement.
5.4. Confidentiality. Each Shareholder shall treat and hold as
confidential all Confidential Information concerning PentaStar, the Company's
business or the Acquired Assets, refrain from using any such Confidential
Information and deliver promptly to PentaStar or destroy, at the request and
option of PentaStar, all of such Confidential Information in its or their
possession.
5.5. Post-Closing Announcements. Following the Closing, no Shareholder
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of
PentaStar.
5.6. Financial Statements.
(a Shareholder Assistance. The Shareholders shall, upon request of
PentaStar, cooperate with PentaStar and render such assistance to PentaStar and
its accountants as may be required to produce such historical and on-going
financial statements and audits as PentaStar may request, including, without
limitation, signing management representation letters reasonably requested by
PentaStar's auditors. The Shareholders acknowledge that PentaStar may be
required by applicable Legal Requirements to include audited financial
statements with respect to the business of the Company in reports filed with the
SEC and other governmental agencies and that the inability to audit the
financial statements as of the Effective Date promptly after the Closing could
have a material adverse effect on PentaStar. PentaStar and the Acquiror shall
make available to the Shareholders such existing books and records of the
Company as are required by the Shareholders to fulfill their obligations under
this Section 5.6(a).
(b Acquiror Reporting. The Acquiror shall produce and deliver to
PentaStar historical and on-going financial statements, monthly management plan
and review reports and annual budget/forecasts, in form and substance acceptable
to PentaStar. The monthly management plan and review reports shall contain an
analysis of the Acquiror=s sales activity, including a sales forecast and an
analysis of order activity for the preceding month which shall detail and
summarize new orders, cancellations, installations and month-end backlog.
Additionally, the Acquiror shall prepare and deliver to PentaStar monthly
calculations of revenue (installed orders for up-front commissions and residual
payments received for residual commissions), using PentaStar=s GAAP method of
accounting and revenue recognition for the month, commission expense incurred
associated with those revenues, and all other direct and other expenses of the
Acquiror for such month and an initial calculation of EBITA (however such
calculation shall not be binding on any party for purposes of determining
Earn-Out EBITA, which shall be determined as set forth in Section 2.3(n)). The
Acquiror shall also prepare and deliver to PentaStar monthly calculations, using
PentaStar=s GAAP method of accounting, showing cash, accounts receivable, net
fixed assets and any other assets, accrued commissions, accounts payable and any
other Liabilities and a month-end balance sheet for the Acquiror. Other
financial statement calculations may be required of the Acquiror to comply with
PentaStar=s reporting obligations under applicable securities laws as a public
company and to assist in any audit activities PentaStar needs to engage in for
Earn-Out calculations, lender covenant purposes or other typical types of
reports necessary for overall corporate governance and operations. The Acquiror
shall also prepare and deliver to PentaStar, by
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November 15, 2001, information as to each customer or referral source which
accounted for 5% or more of the aggregate GAAP revenues of the Acquiror during
the period from May 1, 2001 through October 31, 2001, as contemplated by the
definitions of Principal Customer and Principal Referral Source.
(c PentaStar Reporting. PentaStar shall consolidate the above,
appropriately prepared financial statements into overall financial statements of
PentaStar for reporting obligations under applicable securities laws, including
the preparation and filing of annual and quarterly reports, lender covenant
purposes and other typical types of reports necessary for overall corporate
governance and operations.
5.7. Satisfaction of Liabilities.
(a Promptly following the Closing, the Shareholders shall pay when
due all Closing Date Liabilities in excess of the amounts set forth on the
Estimated Closing Date Balance Sheet to the extent not previously paid and any
Taxes attributable to the transactions contemplated by this Agreement. In
addition, any and all Taxes attributable to the assumption of the Closing Date
Liabilities under Section 4.7(a) or to the distribution of the Excluded Assets
under Section 4.7(b), and to any pre-Closing distribution or dividend of assets,
including, without limitation, any recognition by the Company of taxable income
or gain with respect to the distribution or dividend of the Excluded Assets or
any pre-Closing distribution or dividend of assets, shall be Closing Date
Liabilities and shall be paid in full by the Shareholders, and neither the
Company nor PentaStar shall have any Liability with respect thereto.
(b The Shareholders, at the Shareholders' expense, promptly shall
take or cause to be taken any action necessary to remedy any failure of the
acquired business to comply at the Closing Date with any Legal Requirement, upon
receipt of notice from PentaStar at any time.
(c The Acquiror shall pay and perform, as and when due (except to
the extent the validity thereof or the Liability therefor is being contested by
the Acquiror), the Retained Liabilities.
5.8. Repurchase of Unpaid Receivables. The Shareholders jointly and
severally guarantee that the Closing Accounts Receivable, net of any reserve
established on the Latest Balance Sheet in accordance with GAAP on a basis
consistent with the accounting practice of PentaStar, shall be fully paid to the
Acquiror in accordance with their terms at their recorded amounts not later than
180 days from the Closing Date. Upon demand by PentaStar at any time after 180
days from the Closing Date, the Shareholders shall jointly and severally pay to
the Acquiror the full amount of any unpaid Closing Accounts Receivable which is
the subject of such demand. Upon such payment to the Acquiror, the Closing
Accounts Receivable which are so paid for by the Shareholders shall, without
further action of any party, become the property of the Shareholders, who may
pursue collection thereof; provided, however, that the Shareholders shall notify
the account obligor that such collection efforts are not being undertaken on
behalf of PentaStar. From the Closing until 180 days after the Closing Date,
PentaStar (through the Acquiror) shall apply its standard accounts receivable
collection procedures to the Closing Accounts Receivable; provided, however,
neither the Acquiror nor PentaStar shall not be required to institute suit,
utilize third-party collection agencies or other agents or take other
extraordinary collection actions with respect to the Closing Accounts
Receivable; and, provided further, that any failure of any collection activities
of the Acquiror, PentaStar or any such collection agency or other agent shall
not relieve the Shareholders from their guarantee of the Closing Accounts
Receivable as described in this Section 5.8.
5.9. Termination of Obligations. Effective as of the Closing Date, the
Surviving Corporation shall
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not have any Liability to any Shareholder or any relative or affiliate thereof
or of the Company, except as otherwise provided in this Agreement or in an Other
Seller Agreement. Effective as of the Closing Date, no Shareholder shall have
any Liability to the Surviving Corporation, except as otherwise provided in this
Agreement, in an Other Seller Agreement or in any other written agreement
entered into on or after the Closing Date.
5.10. Transfer Restrictions. Unless otherwise agreed by PentaStar,
except for transfers by a Shareholder to (a) immediate family members of such
Shareholder who agree to be bound by the restrictions set forth in this Section
5.10 (and a copy of such agreement is furnished to PentaStar prior to the
transfer), (b) trusts, limited partnerships or other estate planning entities
for the benefit of such Shareholder or family members of such Shareholder, the
trustees, partners or other persons having authority to bind the trust, limited
partnership or other estate planning entity of which agree to be bound by such
restrictions (and a copy of such agreement is furnished to PentaStar prior to
the transfer), or (c) any charitable organization that qualifies for receipt of
charitable contributions under Section 170(c) of the Code and such organization
agrees to be bound by such restrictions (and a copy of such agreement is
furnished to PentaStar prior to the transfer), each Shareholder agrees that such
Shareholder shall not sell, assign, exchange, transfer, pledge or otherwise
dispose of at any time prior to the date which is 18 months after the Closing
any of the PentaStar Shares received by such Shareholder pursuant to this
Agreement. Thereafter, up to 33% of the PentaStar Shares received pursuant to
this Agreement by such Shareholder may be resold at any time, and an additional
17% of the PentaStar Shares received pursuant to this Agreement by such
Shareholder may be resold by such Shareholder beginning 24 months after the
Closing. Any remaining PentaStar Shares may not be sold until the earlier to
occur of (w) the sale of all or substantially all of the assets or outstanding
shares of PentaStar, whether by way of merger, acquisition or other method
(except a merger or consolidation immediately after which the Persons who were
shareholders of PentaStar before the transaction own a majority of the
outstanding equity securities of the surviving or resulting entity) or (x)
October 26, 2004. Notwithstanding anything to the contrary in this Section 5.10,
(y) none of the PentaStar Shares which are the subject of the Escrow Deposit may
be sold, assigned, exchanged, transferred, pledged or otherwise disposed of
unless and until released to the Shareholders from the Escrow Deposit and (z)
none of the PentaStar Shares which are subject to the Principal Shareholder's
Escrow Agreement may be sold, assigned, exchanged, transferred, pledged or
otherwise disposed of except as set forth in the Principal Shareholder's Escrow
Agreement. Certificates for the PentaStar Shares delivered to the Shareholders
pursuant to the Agreement shall bear a legend substantially in the form set
forth below as long as applicable:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN AGREEMENT
AND PLAN OF MERGER ENTERED INTO ON MARCH 29, 2001, (THE "AGREEMENT") BY AND
AMONG THE ISSUER, PENTASTAR ACQUISITION CORP. VIII, RKK CONSULTING COMPANY, INC.
AND THE SHAREHOLDERS OF RKK CONSULTING COMPANY, INC. PRIOR TO THE EXPIRATION OF
THE HOLDING PERIODS SET FORTH IN THE AGREEMENT, SUCH SHARES MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT THE
WRITTEN CONSENT OF THE ISSUER, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER
DISPOSITION WHICH VIOLATES THE AGREEMENT. UPON THE WRITTEN REQUEST OF THE HOLDER
OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER RELATING TO THIS RESTRICTIVE LEGEND PLACED WITH THE TRANSFER
AGENT) WHEN THE APPLICABLE HOLDING PERIOD HAS EXPIRED.
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PentaStar shall issue separate certificates to each Shareholder
representing the shares of PentaStar Shares subject to each of the three periods
of restriction contemplated by this Section 5.10.
The restrictions set forth above in this Section 5.10 shall be in
addition to any restrictions on transfer set forth in Section 3.1(u) or imposed
by the Securities Act and applicable state securities laws. Each Shareholder
also agrees to comply with such restrictions.
5.11. Tax Returns. The Shareholders shall be responsible for the timely
filing of the Company's Tax Returns for all Tax years prior to January 1, 2001
and for the short tax year from January 1, 2001 through the Closing Date and for
the timely payment of all income or other Taxes relating to those periods. The
Acquiror shall make the books and records of the Company available to the
Shareholders as required for the preparation of such Tax Returns or for any
subsequent audit or examination of any Tax Return of the Company for any period
ending with or prior to the Closing Date. The Acquiror shall notify the
Shareholders of any inquiry, audit or examination of which PentaStar receives
notice relating to the Company's Tax Returns for any period ending with or prior
to the Closing Date and the Shareholders shall have the right, subject to
Section 7, to control the defense and settlement of any such inquiry, audit or
examination. PentaStar shall not file any amended Tax Return for the Company for
any period ending with or prior to the Closing Date without the consent of the
Shareholders, unless required to do so by applicable Legal Requirement. The
Shareholders shall afford PentaStar a reasonable opportunity to review any new
or amended Tax Return for the Company filed by the Shareholders hereunder prior
to its filing and shall not take any position in any such Tax Returns which is
detrimental to PentaStar or the Acquiror or make any election or take any other
action on any such return that would increase the Tax Liability of PentaStar or
the Acquiror for periods after the Closing Date.
5.12. Sales Commissions. Neither any Shareholder nor any relative or
affiliate of any Shareholder may receive from the Acquiror sales commissions or
other remuneration in respect of sales made by the Acquiror except as may be
otherwise set forth in this Agreement or the Employment Agreements.
6. Conditions to Closing.
6.1. Conditions to Obligation of PentaStar. The obligation of PentaStar
to consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(a the Shareholders' representations and warranties shall be correct
and complete at and as of the Closing Date and the Closing, and any written
notices delivered to PentaStar pursuant to Section 4.4 and the subject matter
thereof shall be satisfactory to PentaStar;
(b the Shareholders shall have performed and complied with all of
their covenants hereunder through the Closing;
(c the Shareholders shall have given, or shall have caused the
Company to give, all notices and shall have procured, or shall have caused the
Company to procure, all of the third-party consents, authorizations and
approvals required to consummate the transactions contemplated by this
Agreement, including the Transaction, all in form and substance reasonably
satisfactory to PentaStar;
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(d no action, suit or proceeding shall be pending or threatened
before any Governmental Authority or any other Person wherein an unfavorable
Order would (i) prevent consummation of any of the transactions contemplated by
this Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or (iii) affect adversely the
right of the Acquiror to own the Acquired Assets and conduct the acquired
business, and no such Order shall be in effect;
(e there shall have been no adverse change in the Company, the
Acquired Assets or the Company's business between the date of execution of this
Agreement and the Closing;
(f the Shareholders shall have delivered to PentaStar (i) a
certificate to the effect that each of the conditions specified above in
Sections 6.1(a) through (e) is satisfied in all respects, and (ii) a good
standing certificate, dated within 10 days of the Closing, from the Secretary of
State of the State of the Company's jurisdiction of incorporation and each other
state in which the Company is qualified or authorized to do business as a
foreign corporation;
(g the Other Seller Agreements shall have been executed and
delivered by the parties thereto other than PentaStar and the Acquiror;
(h PentaStar and the Acquiror shall have received from counsel to
the Shareholders an opinion in form and substance as set forth in Exhibit 6.1(h)
addressed to PentaStar and the Acquiror and dated as of the Closing;
(i PentaStar shall have completed its due diligence with respect to
the Company with results satisfactory to PentaStar;
(j the owners of the real property underlying the Premises leases,
and each Person having an Encumbrance on such property, shall have executed and
delivered estoppel, nondisturbance and landlord waiver agreements relating
thereto satisfactory to PentaStar;
(k financing necessary for the consummation of the transactions
contemplated hereby and the operation of the acquired business shall be
available to the Acquiror on terms and conditions satisfactory to PentaStar;
(l PentaStar shall have received from the Shareholders UCC, lien,
litigation, judgment and bankruptcy searches with respect to the Company and
evidence of the termination of all Encumbrances filed against the Company or any
Acquired Assets;
(m PentaStar shall have received the resignations, effective as of
the Closing, of each director and officer of the Company;
(n stock certificates representing the Shares duly endorsed in blank
or accompanied by stock powers duly executed in blank, shall have been delivered
by the Shareholders to PentaStar;
(o the Shareholders shall have delivered to PentaStar possession and
control of the Company and the Acquired Assets, including, without limitation,
all stock certificate books, minute books, corporate seals, and all other
corporate and financial records of the Company; and
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(p the Shareholders shall have delivered, or caused the Company to
deliver, to PentaStar such other instruments, certificates and documents as are
reasonably requested by PentaStar in order to consummate the transactions
contemplated by this Agreement, all in form and substance reasonably
satisfactory to PentaStar.
PentaStar may waive any condition specified in this Section 6.1 at or prior to
the Closing.
6.2. Conditions to Obligation of the Shareholders. The obligation of the
Shareholders to consummate the transactions contemplated by this Agreement is
subject to satisfaction of the following conditions:
(a PentaStar's representations and warranties shall be correct and
complete at and as of the Closing Date and the Closing;
(b PentaStar shall have performed and complied with all of its
covenants hereunder through the Closing Date;
(c PentaStar shall have delivered to the Shareholders a certificate
to the effect that each of the conditions specified above in Sections 6.2(a)
through (b) is satisfied in all respects;
(d the Other PentaStar Agreements shall have been executed and
delivered by PentaStar and the Acquiror, as applicable;
(e and the Shareholders shall have received from counsel to
PentaStar an opinion in form and substance as set forth in Exhibit 6.2(e),
addressed to the Shareholders and dated as of the Closing; and
(f The Acquiror shall have paid, issued and deposited the portion of
the Purchase Price due at the Closing pursuant to Section 2.1.
The Shareholders' Agent may waive any condition specified in this Section 6.2 at
or prior to the Closing.
7. Remedies for Breaches of This Agreement.
7.1. Indemnification Provisions for Benefit of PentaStar.
(a
(i) If any Shareholder breaches (or if any Person other than
PentaStar or the Acquiror alleges any fact that, if true, would mean any
Shareholder has breached) any of the representations or warranties of any
Shareholder contained herein and PentaStar gives notice thereof to the
Shareholders' Agent within the Survival Period, or if any Shareholder breaches
(or if any Person other than PentaStar or the Acquiror alleges any fact that, if
true, would mean any Shareholder has breached) any covenants of any Shareholder
contained herein or any representations, warranties or covenants of any
Shareholder contained in any Other Seller Agreement and PentaStar gives notice
thereof to the Shareholders' Agent, then the Shareholders agree to jointly and
severally indemnify and hold harmless PentaStar and the Acquiror from and
against any Adverse Consequences PentaStar or the Acquiror may suffer resulting
from, arising out of, relating to or caused by any of the foregoing regardless
of whether the Adverse Consequences are suffered
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during or after the Survival Period; provided however, that the aggregate
indemnification obligation of the Shareholders for breaches of representations
and warranties shall be limited to the amount of the Purchase Price (less any
amount forfeited in respect of the EBITA Escrow) plus the amount of the Retained
Liabilities described in clause (b) of the definition thereof. In determining
whether there has been a breach of any representation or warranty contained in
Section 3.1 and in determining for purposes of the preceding sentence the amount
of Adverse Consequences suffered by PentaStar or the Acquiror, such
representations and warranties shall not be qualified by "material,"
"materiality," "in all material respects," "best knowledge," "best of knowledge"
or "knowledge" or words of similar import, or by any phrase using any such terms
or words.
(ii) The Shareholders also agree to jointly and severally
indemnify and hold harmless PentaStar and the Acquiror from and against any
Adverse Consequences PentaStar or the Acquiror may suffer which result from,
arise out of, relate to or are caused by (A) any Liability of the Company or any
Shareholder not included in the Retained Liabilities or (B) any condition,
circumstance or activity existing prior to the Closing Date which relates to any
Legal Requirement or any act or omission of the Company or any current or former
shareholder of the Company or any predecessor with respect to, or any event or
circumstance related to, the Company's, any current or former shareholder's or
any predecessor's ownership, use or operation of any of the Acquired Assets, the
Excluded Assets, the Premises or any other assets or properties or the conduct
of its or their business, regardless, in the case of (A) or (B), of (1) whether
or not such Liability, act, omission, event, circumstance or matter was known or
disclosed to PentaStar, was disclosed on any Exhibit hereto or is a matter with
respect to which any Shareholder did or did not have knowledge, (2) when such
Liability, act, omission, event, circumstance or matter occurred, existed,
occurs or exists and (3) whether a claim with respect thereto was asserted
before or is asserted after the Closing Date.
(iii) If any dispute arises concerning whether any
indemnification is owing which cannot be resolved by negotiation among the
parties within 30 days of notice of claim for indemnification from the party
claiming indemnification to the party against whom such claim is asserted, the
dispute shall be resolved by arbitration pursuant to this Agreement. If
PentaStar or the Acquiror is sued in an action relating in whole or in part to a
claim against which it is or may be entitled to indemnification hereunder, it
may, at its option, join the Shareholders in that action and have its right to
indemnification adjudicated by the court.
(b Amounts needed to cover any indemnification claims by PentaStar
or the Acquiror against the Shareholders during the Escrow Period may be taken
by PentaStar or the Acquiror out of the Escrow Deposit, subject to the
requirement of the Escrow Agreement that amounts are to be released from the
Escrow Deposit only upon the joint written instruction of PentaStar and the
Shareholders' Agent. At the end of the Escrow Period, amounts of the Escrow
Deposit which may reasonably be needed to cover pending indemnification claims
made by PentaStar or the Acquiror (such amounts to be determined by PentaStar
based upon the good faith exercise of its business judgment) shall be retained
in the Escrow Account until such claims are resolved, and any excess amount of
the Escrow Deposit shall be paid to the Shareholders. For purposes of
indemnification claims, each of the shares of PentaStar Common Stock shall be
valued at its Fair Market Value as of the date that it is delivered from the
Escrow Account. PentaStar and the Shareholders' Agent shall jointly give
instructions to the Escrow Agent to carry out the intent of this Section 7.1(b).
Any disputes concerning the escrowed property shall be settled by arbitration as
provided in this Agreement. PentaStar and the Acquiror, on the one hand, and the
Shareholders, on the other hand, shall each be responsible for one-half of the
fees, charges and expenses payable to the Escrow Agent pursuant to the
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Escrow Agreement. Nothing in this Section 7.1(b) shall be construed to limit
PentaStar's or the Acquiror's right to indemnification to amounts on deposit in
the Escrow Account or to require that the Escrow Account first be exhausted
before PentaStar or the Acquiror may resort to any other remedy available under
this Agreement or otherwise. The Shareholders shall be jointly and severally
liable to PentaStar and the Acquiror for any amounts needed to cover claims by
PentaStar or the Acquiror, which amounts shall be paid directly to PentaStar or
the Acquiror as the case may be.
(c During the time that any PentaStar Shares are held in the Escrow
Deposit, the Shareholders shall have the right to vote such shares and shall
have the economic benefit of any dividends paid on such shares. All such
dividends shall be retained in the Escrow Deposit and shall be available in
respect of an Earn-Out EBITA Shortfall pursuant to Section 2.1(k)(iii) or for
the payment of indemnification claims under Section 7.1. In the event that
PentaStar or the Acquiror proposes to take any shares from the Escrow Deposit to
satisfy an indemnification claim, the Shareholders shall have the right, in the
Shareholders' sole discretion, to pay to the Escrow Agent an amount of cash
equal to the Fair Market Value of the shares proposed to be taken, determined as
of the date such payment is made, and receive from the Escrow Agent certificates
representing such shares. If the Shareholders exercise that right, PentaStar and
the Shareholders shall execute joint written instructions to the Escrow Agent to
deliver the cash so paid to PentaStar and to transfer the appropriate number of
shares of PentaStar Common Stock to the Shareholders. If the Shareholders do not
exercise that right, PentaStar may nonetheless require the Shareholders to
substitute cash for the shares (in an amount equal to the Fair Market Value of
the shares determined as of the date such payment is required by PentaStar or
the Acquiror to be made) to be taken from the Escrow Deposit if, in the good
faith opinion of PentaStar, based on advice of counsel, the taking of shares
from the Escrow Deposit would cause the Purchase Price, taken as a whole, not to
comply with the continuity of interest test for a tax-free reorganization under
Section 368 of the Code. For that purpose, the parties agree that, under current
Legal Requirements, such continuity of interest test would not require that the
PentaStar Shares constitute more than half of the total Purchase Price, after
all adjustments and taking into account any reacquisition by PentaStar or the
Acquiror of any of the PentaStar Shares.
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7.2. Indemnification Provisions for Benefit of the Shareholders. If
PentaStar breaches (or if any Person other than a Shareholder alleges facts
that, if true, would mean PentaStar has breached) any of its representations or
warranties contained herein and the Shareholders' Agent gives notice of a claim
for indemnification against PentaStar within the Survival Period, or if
PentaStar or the Acquiror breaches (or if any Person other than a Shareholder
alleges facts that, if true, would mean PentaStar or the Acquiror has breached)
any of its respective covenants contained herein or any of its respective
representations, warranties or covenants contained in any Other PentaStar
Agreement and the Shareholders' Agent gives notice thereof to PentaStar, then
PentaStar or the Acquiror, as the case may be, agrees to indemnify and hold
harmless the Shareholders from and against any Adverse Consequences the
Shareholders may suffer which result from, arise out of, relate to, or are
caused by the breach or alleged breach by such Person, regardless of whether the
Adverse Consequences are suffered during or after the Survival Period. In
determining whether there has been a breach of any representation or warranty
contained in Section 3.2 and in determining the amount of Adverse Consequences
suffered by the Shareholders for purposes of this Section 7.2, such
representations and warranties shall not be qualified by "material,"
"materiality," "in all material respects," "best knowledge," "best of knowledge"
or "knowledge" or words of similar import, or by any phrase using any such terms
or words. If any dispute arises concerning whether any indemnification is owing
which cannot be resolved by negotiation among the parties within 30 days of
notice of claim for indemnification from the party claiming indemnification to
the party against whom such claim is asserted, the dispute shall be resolved by
arbitration pursuant to this Agreement. If a Shareholder is sued in an action
relating in whole or in part to a claim against which he or she is or may be
entitled to indemnification hereunder, he or she may, at its option, join
PentaStar or the Acquiror, as the case may be, in that action and have his right
to indemnification adjudicated by the court.
7.3. Matters Involving Third Parties.
(a) If any Person not a party to this Agreement (including, without
limitation, any Governmental Authority) notifies any party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other party (the "Indemnifying
Party"), then the Indemnified Party shall notify each Indemnifying Party thereof
in writing within 15 days after receiving such notice. No delay on the part of
the Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party shall have the right, at its sole cost
and expense, to defend the Indemnified Party against the Third Party Claim with
counsel of its choice satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within 10 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party shall indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party shall have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (v) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently. If the Indemnifying
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Party does not assume control of the defense or settlement of any Third Party
Claim in the manner described above, it shall be bound by the results obtained
by the Indemnified Party with respect to the Third Party Claim.
(c) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 7.3(b) above, (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (ii) the Indemnified
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably), and (iii)
the Indemnifying Party shall not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 7.3(b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Party shall
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party shall remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to or caused by the Third Party Claim to the fullest extent
provided in this Section 7.
7.4. Right of Offset. PentaStar and the Acquiror shall have the right to
offset any Adverse Consequences either of them may suffer or any amounts due to
either of them hereunder or under any Other Seller Agreement against any amounts
payable or shares of PentaStar Common Stock issuable pursuant to this Agreement
or any Other Seller Agreement to any Shareholder or any relative or affiliate of
any Shareholder at or after the Closing. For purposes of effecting any offset
against shares of PentaStar Common Stock, such shares shall be valued at their
Fair Market Value as of the date the set-off is effected by PentaStar or the
Acquiror.
7.5. Other Remedies. The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory, equitable or common law
remedy any party may have. However, in no event shall the aggregate liability of
the Shareholders exceed the total amount of the Purchase Price received by the
Shareholders (with any PentaStar Common Stock being valued in accordance with
Section 7.1(b) of this Agreement) and the amount of the Retained Liabilities;
provided, however, that the foregoing limitations shall not apply (a) with
respect to breaches of covenants contained in this Agreement or in any Other
Seller Agreement, (b) with respect to Closing Date Liabilities or (c) in the
case of fraud or intentional misrepresentation.
8. Termination.
8.1. Termination of Agreement. The parties may terminate this Agreement
as provided below:
(a) PentaStar and the Shareholders' Agent may terminate this
Agreement by mutual written consent at any time prior to the Closing;
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(b) PentaStar may terminate this Agreement by giving written notice
to the Shareholders' Agent at any time prior to the Closing (i) in the event any
Shareholder has breached any representation, warranty or covenant contained in
this Agreement in any material way, PentaStar has notified the Shareholders'
Agent of the breach, and the breach has not been cured within 10 days after the
notice of breach or (ii) if the Closing has not occurred on or before April 30,
2001 because of the failure of any condition precedent to PentaStar's
obligations to consummate the Closing (unless the failure results primarily from
PentaStar breaching any representation, warranty or covenant contained in this
Agreement in any material way); or
(c) the Shareholders' Agent may terminate this Agreement by giving
written notice to PentaStar at any time prior to the Closing (i) if PentaStar
has breached any representation, warranty or covenant contained in this
Agreement in any material way, the Shareholders' Agent has notified PentaStar of
the breach, and the breach has not been cured within 10 days after the notice of
breach or (ii) if the Closing has not occurred on or before April 30, 2001
because of the failure of any condition precedent to the Shareholders'
obligations to consummate the Closing (unless the failure results primarily from
any Shareholder breaching any representation, warranty or covenant contained in
this Agreement in any material way).
8.2. Effect of Termination. The termination of this Agreement by a party
pursuant to Section 8.1 shall in no way limit any Liability of any other party
based on or arising from a breach or default by such other party with respect to
any of its representations, warranties, covenants or agreements contained in
this Agreement, and the terminating party shall be entitled to seek all relief
to which it is entitled under applicable Legal Requirement.
8.3. Confidentiality. If this Agreement is terminated, each party shall
treat and hold as confidential all Confidential Information concerning the other
parties which it acquired from such other parties in connection with this
Agreement and the transactions contemplated hereby.
9. Miscellaneous.
9.1. No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the parties and their respective
successors and permitted assigns.
9.2. Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements or representations by or among the parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.
9.3. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. No Shareholder may assign this Agreement nor any of its, his
or her rights, interests or obligations hereunder without the prior written
approval of PentaStar. PentaStar and the Acquiror may assign their respective
rights and obligations hereunder as permitted by applicable Legal Requirement,
including, without limitation, to any debt or equity financing source.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be deemed to be one and the same instrument. The execution of a
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counterpart of the signature page to this Agreement shall be deemed the
execution of a counterpart of this Agreement. This Agreement may be delivered by
facsimile and facsimile signatures shall be treated as original signatures for
all purposes.
9.5. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.6. Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if it is sent
by registered or certified mail, return receipt requested, postage prepaid, or
by courier, telecopy or facsimile, and addressed to the intended recipient as
set forth below:
If to any
Shareholder: Copy to:
Addressed to the
Shareholders' Agent at: Xxxx Xxxxxxxxxx Xxxxx Xxxxxx Xxxxxx
& Xxxxxxxxx XXX
00 Xxxxx Xxxxx 000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Telecopy: Attn: Xxxxxx Xxxxx, Esq.
Telecopy: (000) 000-0000
If to PentaStar or the Acquiror: Copy to:
PentaStar Communications, Inc. Xxxxxxx & Xxxxxx L.L.C.
0000 Xxxxxxx Xxxxxx, Xxxxx 0000 000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000 Xxxxxx, Xxxxxxxx 00000
Attn: Chief Executive Officer Attn: B. Xxxxx Xxxxxxx, Esq.
Telecopy: (000) 000-0000 Telecopy: (000) 000-0000
Notices shall be deemed given three days after mailing if sent by certified
mail, when delivered if sent by courier, and upon receipt of confirmation by
person or machine if sent by telecopy or facsimile transmission. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
9.7. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Colorado without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Colorado or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Colorado.
9.8. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same is in writing and signed by PentaStar
and the Shareholders' Agent. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence, and no waiver shall be effective unless set forth in writing and
signed by the party against whom such waiver is asserted.
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9.9. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.10. Expenses. Except as otherwise provided in Section 8.2, (a)
PentaStar shall bear its own costs and expenses (including, without limitation,
legal fees and expenses) incurred either before or after the date of this
Agreement in connection with this Agreement or the transactions contemplated
hereby and (b) the Shareholders shall bear all costs and expenses (including,
without limitation, all legal, accounting and tax related fees and expenses, all
fees, commissions, expenses and other amounts payable to any broker, finder or
agent) incurred by the Company prior to the Closing or by any Shareholder either
before or after the date of this Agreement in connection with this Agreement or
the transactions contemplated hereby (collectively, "Seller Transaction
Expenses"); provided, however, that prior to the Closing Date the Company may
use any cash (other than cash received in respect of accounts or notes
receivable or Residual Payment Rights described in Section 2.1(k)(i)(A)(2) to
pay Seller Transaction Expenses so long as the Shareholders are liable for any
Tax consequences to the Company, the Acquiror or PentaStar arising therefrom,
and any such Liability shall be a Closing Date Liability.
9.11. Arbitration. Any disputes arising under or in connection with this
Agreement, including, without limitation, those involving claims for specific
performance or other equitable relief, shall be submitted to binding arbitration
in Chicago, Illinois before the American Arbitration Association, 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. 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, except as may otherwise be required by applicable Legal
Requirement. The decision of the arbitrators shall 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 SHALL BE
SPECIFICALLY ENFORCEABLE. The prevailing party or parties in any such
arbitration or in any action to enforce this Agreement shall be entitled to
recover, in addition to any other relief awarded by the arbitrator, all
reasonable costs and expenses, including fees and expenses of the arbitrators
(but excluding fees of attorneys), incurred in connection therewith. If each
party prevails on specific issues in the arbitration or action, the arbitrator
or court may allocate the costs incurred by all parties on a basis it deems
appropriate. If any party files a judicial or administrative action asserting
claims subject to arbitration, as prescribed under this Section 9.11, and
another party successfully stays such action and/or compels arbitration of said
claims, the party filing such action shall pay the other party's costs and
expenses incurred in seeking such stay and/or compelling arbitration, including
reasonable attorneys' fees.
9.12. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or
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disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. The word "including" shall mean including without limitation.
The parties intend that each representation, warranty and covenant contained
herein shall have independent significance. If any party breaches any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty or covenant.
9.13. Incorporation of Exhibits. The Exhibits identified in this
Agreement are incorporated herein by reference and made a part hereof.
9.14. Shareholders' Agent. Each Shareholder hereby authorizes and
appoints the Shareholders' Agent as its, his or her exclusive agent and
attorney-in-fact to act on behalf of each of them with respect to all matters
which are the subject of this Agreement, including, without limitation, (a)
receiving or giving all notices, instructions, other communications, consents or
agreements that may be necessary, required or given hereunder and (b) asserting,
settling, compromising, or defending, or determining not to assert, settle,
compromise or defend, (i) any claims which any Shareholder may assert, or have
the right to assert, against PentaStar or the Acquiror, or (ii) any claims which
PentaStar or the Acquiror may assert, or have the right to assert, against any
Shareholder. The Shareholders' Agent hereby accepts such authorization and
appointment. Upon the receipt of written evidence satisfactory to PentaStar to
the effect that the Shareholders' Agent has been substituted as agent of the
Shareholders by reason of his death, disability or resignation, PentaStar and
the Acquiror shall be entitled to rely on such substituted agent to the same
extent as they were theretofore entitled to rely upon the Shareholders' Agent
with respect to the matters covered by this Section 9.14. No Shareholder shall
act with respect to any of the matters which are the subject of this Agreement
except through the Shareholders' Agent. The Shareholders acknowledge and agree
that PentaStar or the Acquiror may deal exclusively with the Shareholders' Agent
in respect of such matters, that the enforceability of this Section 9.14 is
material to PentaStar and the Acquiror, and that PentaStar and the Acquiror have
relied upon the enforceability of this Section 9.14 in entering into this
Agreement.
9.15. Rescission. If the Acquiror has not completed the DSS Acquisition
by March 29, 2001, then the Shareholders or the Acquiror shall have the right,
upon written notice to the other, given not later than 5:00 p.m., Denver,
Colorado time, on March 29, 2001, to rescind the Transaction. In such event, (a)
PentaStar shall retain the Closing Shares held by it pursuant to Section
2.1(k)(ii)(A) and, on March 29, 2001, the Shareholders shall execute joint
instructions with PentaStar and the Acquiror for delivery to the Escrow Agent
authorizing return of the EBITA Escrow to the Acquiror and (b) upon receipt
thereof, the Acquiror shall convey to the Shareholders all of the issued and
outstanding stock of the Acquiror, free and clear of any Encumbrance. Thereupon
the parties shall have no further Liability to each other, except that (x)
Sections 7.1(a)(ii) and (iii), Section 7.3 (as it relates to Sections 7.1(a)(ii)
and (iii)) and Section 9 shall survive and (y) the Acquiror and the Shareholders
shall indemnify and hold PentaStar harmless from all Liabilities of the
Acquiror. If the Transaction is not so rescinded, on March 29, 2001, the Closing
Shares held by PentaStar pursuant to Section 2.1(k)(ii)(A) shall be mailed to
the Shareholders at the Shareholders' Agent's address for notice purposes under
this Agreement.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
PENTASTAR:
PENTASTAR COMMUNICATIONS, INC.
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: CEO
ACQUIROR:
PENTASTAR ACQUISITION CORP. VIII
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: CEO
COMPANY:
RKK CONSULTING GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President
SHAREHOLDERS:
/s/ Xxxxxxx X. Xxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxx
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
39
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Exhibit 1.1(a)
DEFINED TERMS
Acquiror has the meaning given it in the preamble to this Agreement.
Acquired Assets means all right, title and interest of the Company in
and to all of the tangible and intangible assets of the Company, including
customer information and data, the Shareholder Property and the Capital Lease
Property, but excluding the Excluded Assets.
Adverse Consequences means all actions, suits, proceedings,
investigations, complaints, claims, demands, Orders, Liabilities, liens, losses,
damages, penalties, fines, settlements, costs, remediation costs, expenses and
fees (including court costs and reasonable fees and expenses of counsel and
other experts), plus interest at a rate equal to two percentage points above the
prime rate quoted by PentaStar's principal lender from time to time accrued from
the date of such Adverse Consequence.
Affiliated Group means any affiliated group within the meaning of Code
Section 1504 or any similar group defined under a similar provision of state,
local or foreign law.
Benefit Arrangement has the meaning set forth in Section 3.1(m).
Business Day means any day on which commercial banks are open for
business in Denver, Colorado.
Capital Lease Property has the meaning given it in Section 4.9.
Closing Accounts Receivable means all accounts (including late fees and
interest charges thereon) and notes receivable of the Company in existence as of
the Closing Date as set forth on the Closing Date Balance Sheet, determined in
accordance with GAAP and on a basis consistent with the accounting practices of
PentaStar but excluding in any event any Residual Payment Rights.
Closing and Closing Date have the meanings given in Section 2.2.
Closing Date Balance Sheet has the meaning given it in Section
2.1(l)(i).
Closing Date Liabilities means all Liabilities of the Company (including
those designated as Closing Date Liabilities under Sections 5.7(a) or 9.10),
other than Retained Liabilities.
Closing Shares has the meaning given in Section 2.1(k)(i).
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning given it in the preamble to this Agreement ,
except that for purposes of Section 3.1, the term the "Company" shall mean the
Company and all of its Subsidiaries.
Company Shares has the meaning given it in Section 3.1(b)(i).
Exhibit 1.1(a) - 1
45
Company Welfare Plan has the meaning given it in Section 3.1(m)(i).
Confidential Information means any information concerning the subject
Person or the subject Person's business, products, financial condition,
prospects and affairs that is not already generally available to the public.
DSS means Digital Sales Support Net, Inc. and DSS-Net, Inc., each
Delaware corporations.
DSS Acquisition means closing of the acquisition by the Acquiror of all
or substantially all of the assets and business of DSS, whether by merger,
acquisition of stock, acquisition of assets or otherwise.
DSS Merger Agreement means the Agreement and Plan of Merger among
PentaStar, the Acquiror, DSS and the shareholders of DSS, if such an agreement
is entered into by such parties.
Earn-Out Amount means the remainder of (a) two and one-half times
Earn-Out EBITA, plus one and one-half times Growth Customer EBITA, plus one
times the Principal Customer/Principal Referral Source Resolution Amount minus
(b) the $1,000,000 amount described in Section 2.1(k)(i)(A)(1), minus (c) the
amount of the Retained Liabilities described in clause (b) of the definition of
Retained Liabilities, and minus (d) amounts paid by the Acquiror in respect of
Closing Date Liabilities (other than those Closing Date Liabilities in respect
of which there is a reduction of the Purchase Price pursuant to Section
2.1(k)(i)(A)(3)); provided, however, that in no event shall the Earn-Out Amount
be such as would cause the Earn-Out Amount plus the amounts referred to in
clauses (b) through (d) of this definition to exceed Earn-Out Period Revenue.
Earn-Out EBITA means the EBITA of the Acquiror for the Earn-Out Period
(excluding any Growth Customer EBITA) directly associated with the Earn-Out
Period Revenues; provided, however, that in any event Earn-Out EBITA (a) shall
include a deduction for an account management expense equal to the greater of
(i) 35% of Earn-Out Period Revenue or (ii) the actual finder's or referral fees
paid in respect of Earn-Out Period Revenue, in each case determined in
accordance with GAAP and on a basis consistent with the accounting practices of
PentaStar, including PentaStar's GAAP methods of revenue recognition for
residual commission payments and GAAP consistent with booking prior paid
salesperson commissions as prepaid commissions less an appropriate reserve
(determined as set forth in the definition of Earn-Out Period Revenue) for
contract cancellations, salesperson terminations and expenses and salesperson
commissions at the time the revenue is recognized, (b) shall include allocation
of a pro rata portion (based on the Acquiror's revenues attributable to the RKK
Business as a percent of the Acquiror's total revenues during the Earn-Out
Period) of direct expenses of PentaStar or any of its divisions, operations or
Subsidiaries to the extent PentaStar or any of its divisions, operations or
Subsidiaries provide services to the Acquiror, (c) shall include a pro rata
expense charge (based on the Acquiror's revenues attributable to the RKK
Business as a percent of the Acquiror's total revenues during the Earn-Out
Period) for customer service, accounting (including an internal bookkeeper for
the Acquiror's operations, administrative (including, without limitation,
provisioning) and other services provided to the Acquiror by PentaStar or any of
its divisions, operations or Subsidiaries, (d) shall include an expense charge
for capital (not to exceed prime rate at PentaStar's primary bank) (and
associated costs) provided by or through PentaStar or any of its divisions,
operations or Subsidiaries to the Acquiror which is used for items which are not
capital expenditures (except that no such charge for capital shall be made
unless and until the amount of capital produced by the Acquiror's operations is
exceeded), (e) shall include an expense allocation equal to the costs incurred
by the Acquiror to satisfy its obligations under Section 5.6(b) (but not under
Section 5.6(c)), (f) shall include a pro rata expense charge (based on the
Acquiror's compensation expense associated with its employment of the
Shareholders (or their replacements)
Exhibit 1.1(a) - 2
46
as a percent of Pre-Management Compensation EBITA) for the compensation expense
associated with the Acquiror's employment of the Shareholders (or their
replacements), (g) shall be reduced by the Principal Customer/Principal Referral
Source Reduction Amount and (h) shall be reduced by the amount of any increased
rent expense (from that set forth in the current lease for the premises between
DSS-Net and the landlord of the premises) which the Acquiror may incur in
connection with the efforts of the parties to obtain the landlord's consent to
the assignment to the Acquiror of the lease for the premises or, if such consent
is not given, in connection with leasing new space for the operations of the
Acquiror (except that such increased expenses shall not include moving and
similar expenses).
Earn-Out EBITA Shortfall has the meaning given it in Section
2.1(k)(iii).
Earn-Out Financial Statements has the meaning given it in Section
2.1(n)(ii).
Earn-Out Period means the period commencing on February 1, 2001 and
ending January 31, 2002.
Earn-Out Period Revenue means commission revenues of the Acquiror during
the Earn-Out Period from the RKK Business, determined in accordance with GAAP
and on a basis consistent with the accounting practices of PentaStar, including
PentaStar's GAAP methods of revenue recognition for residual commission payments
and GAAP consistent with booking prior paid salesperson commissions as prepaid
commissions and less an appropriate reserve of a percentage of Earn-Out Period
Revenue for contract cancellations, salesperson terminations and expenses and
salesperson commissions at the time the revenue is recognized, but reduced by
the revenues associated with the Principal Customer/Principal Referral Source
Reduction Amount. The appropriate reserve shall initially be at three percent of
Earn-Out Period Revenue but may be adjusted up or down depending upon the actual
experience of the Acquiror concerning contract cancellations, salesperson
terminations and expenses and salesperson commissions throughout the Earn-Out
Period.
EBITA means earnings before interest, taxes and amortization, determined
in accordance with GAAP and on a basis consistent with the accounting practices
of PentaStar, including PentaStar's GAAP methods of revenue recognition for
residual commission payments and GAAP consistent with booking prior paid
salesperson commissions as prepaid commissions less an appropriate reserve for
contract cancellations and salesperson terminations and expensing salesperson
commissions at the time the revenue is recognized. PentaStar recognizes revenue
from Verizon based on installation, provided there are no residuals.
EBITA Escrow has the meaning set forth in Section 2.1(k)(iii).
EBITA Escrow Release Date means the earlier of (a) the date on which the
Earn-Out Amount is paid pursuant to Section 2.1(n) or (b) the date upon which it
is determined that no Earn-Out Amount is payable.
Employee Benefit Plan means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan, as defined in ERISA Section 3(37)) or (d) Employee Welfare
Benefit Plan.
Employee Pension Benefit Plan has the meaning set forth in ERISA Section
3(2).
Exhibit 1.1(a) - 3
47
Employee Welfare Benefit Plan has the meaning set forth in ERISA Section
3(1).
Employment Agreements mean the Employment and Noncompetition Agreements
between the Acquiror and each of Xxxxxxx X. Xxxxxx and Xxxxxx X. Xxxxxxx in the
forms of Exhibits 1.1(b)(i) and 1.1(b)(ii), respectively.
Encumbrance means any mortgage, pledge, conditional sale agreement,
charge, claim, interest of another Person, lien, security interest, title defect
or other encumbrance.
Environmental Obligations means all present and future Legal
Requirements and Permits concerning land use, public health, safety, welfare or
the environment, including, without limitation, the Resource Conservation and
Recovery Act (42 U.S.C. '6901 et seq.), as amended, and the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ' 9601 et
seq.), as amended.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and any regulations, rules or orders promulgated thereunder.
ERISA Affiliate means any entity which is controlled by, or is under
common control with, the Company, as determined under ERISA Section 4001(a)(14).
Escrow Agent means Xxxxx Fargo Bank West, National Association.
Escrow Agreement means the Escrow Agreement among PentaStar, the
Acquiror, the Shareholders, the Shareholders' Agent and the Escrow Agent in form
of Exhibit 1.1(c).
Escrow Deposit means the Closing Shares deposited with the Escrow Agent,
all cash, securities or other property received by the Shareholders or the
Escrow Agent in respect of or in exchange for such Closing Shares and all
earnings thereon.
Escrow Period means the period commencing on the Closing Date and ending
on the EBITA Escrow Release Date.
Estimated Closing Date Balance Sheet has the meaning given it in Section
2.1(j).
Exchange Act means the Securities Exchange Act of 1934, as amended.
Excluded Assets means cash on hand of the Company.
Fair Market Value of the PentaStar Common Stock means (a) as of the
Closing Date, the average of the closing prices of the PentaStar Common Stock
for the five trading days ending two trading days prior to the Closing Date, as
quoted by Nasdaq, (b) for the Second Closing, the average of the closing prices
of PentaStar Common Stock for the five trading days ending two trading days
prior to June 30, 2001, as quoted by Nasdaq and (c) as of any other date, the
average of the closing prices of the PentaStar Common Stock for the five trading
days ending two trading days prior to such date. If closing prices are not
quoted for the PentaStar Common Stock, the closing price for each such day shall
be deemed to be the average of the last bid and last asked prices for the
PentaStar Common Stock for that day, as quoted by Nasdaq. If the PentaStar
Common Stock is not quoted on Nasdaq, the closing price for each such day shall
be deemed to be the
Exhibit 1.1(a) - 4
48
average of the high and low sales prices for the PentaStar Common Stock on that
day (or if no sales prices are reported, the average of the high and low asked
prices) as reported by the principal regional stock exchange, or if not so
reported, as reported by Nasdaq or a quotation system of general circulation to
brokers and dealers. If the Fair Market Value of the PentaStar Common Stock
cannot be determined as provided above, Fair Market Value shall be determined by
the board of directors of PentaStar by any reasonable method chosen by it.
GAAP means generally accepted accounting principles as in effect from
time to time in the United States.
Governmental Authority means the United States of America, any state,
commonwealth, territory or possession of the United States of America, any
political subdivision thereof (including counties, municipalities, home-rule
cities and the like), and any agency, authority or instrumentality of any of the
foregoing, including, without limitation, any court, tribunal, department,
bureau, commission or board.
Growth Customer EBITA means the EBITA of the Acquiror for the Earn-Out
Period directly associated with revenues from Growth Customers; provided,
however, that in any event Earn-Out EBITA (a) shall include a deduction for an
account management expense equal to the greater of (i) 35% of Earn-Out Period
Revenue or (ii) the actual finder's or referral fees paid in respect of Earn-Out
Period Revenue, in each case determined in accordance with GAAP and on a basis
consistent with the accounting practices of PentaStar, including PentaStar's
GAAP methods of revenue recognition for residual commission payments and GAAP
consistent with booking prior paid salesperson commissions as prepaid
commissions less an appropriate reserve for contract cancellations and
salesperson terminations and expensing salesperson commissions at the time the
revenue is recognized, (b) shall include allocation of a pro rata portion (based
on the Acquiror's revenues attributable to the RKK Business as a percent of the
Acquiror's total revenues during the Earn-Out Period of pro rata expenses of
PentaStar or any of its divisions, operations or Subsidiaries to the extent
PentaStar or any of its divisions, operations or Subsidiaries provide services
to the Acquiror, (c) shall include a pro rata expense charge (based on the
Acquiror's revenues attributable to the RKK Business as a percent of the
Acquiror's total revenues during the Earn-Out Period) for customer service,
accounting (including an internal bookkeeper for the Acquiror's operations,
administrative (including, without limitation, provisioning) and other services
provided to the Acquiror by PentaStar or any of its divisions, operations or
Subsidiaries, (d) shall include an expense charge for capital (not to exceed
prime rate at PentaStar's primary bank) (and associated costs) provided by or
through PentaStar or any of its divisions, operations or Subsidiaries to the
Acquiror which is used for items which are not capital expenditures (except that
no such charge for capital shall be made unless and until the amount of capital
produced by the Acquiror's operations is exceeded), (e) shall include a pro rata
expense charge (based on the Acquiror's compensation expense associated with its
employment of the Shareholders as a percent of Pre-Management Compensation
EBITA) for the compensation expense associated with the Acquiror's employment of
the Shareholders, and (f) shall be reduced by the Principal Customer/Principal
Referral Source Reduction Amount.
Growth Customers means Persons who satisfy all of the conditions set
forth in the following clauses (a) through (c): (a) first become customers of
the Acquiror after the closing of the DSS Acquisition; (b) were not customers of
the Company prior to the Closing or of DSS prior to the closing of the DSS
Acquisition; and (c) become customers of the Acquiror as a direct result of
Xxxxxx Xxxxxx'x or any other current (current as of the DSS Acquisition) DSS
employee's direct solicitation of such Persons.
Exhibit 1.1(a) - 5
49
Hazardous Materials means any material, chemical, compound, mixture,
hazardous substance, hazardous waste, pollutant or contaminant defined, listed,
classified or regulated under any Environmental Obligation.
Intellectual Property means all trade, corporate, business and product
names, trademarks, trademark rights, service marks, copyrights, patents, patent
rights, trade secrets, inventions, processes, formulae, discoveries,
improvements, business, customer and technical information, computer software,
all registrations, licenses and applications pertaining thereto, and all related
documentation and goodwill.
Key Employee means (a) each employee of the Company other than clerical
employees and (b) if any salesperson is an independent contractor rather than an
employee, each such salesperson. Key Employees include, without limitation,
executives and salespersons.
Latest Balance Sheet has the meaning given it in Section 3.1(d).
Legal Requirement means any constitution, statute, ordinance, code, or
other law (including common law), rule, regulation, Order, notice, standard,
procedure or other requirement enacted, adopted, applied or issued by any
Governmental Authority, including, without limitation, judicial decisions
applying or interpreting any such Legal Requirement.
Liability means any liability or obligation (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due).
Merger has the meaning given it in Section 2.1.
Multiemployer Plan is a plan maintained under a collective bargaining
agreement, to which more than one employer is required to contribute, and which
has the meaning set forth in ERISA Section 3(37).
New York Region means the current operations of the Company as of the
Closing Date.
Noncompetition Agreement means the Noncompetition Agreement among
PentaStar, the Acquiror and the Shareholders in the form of Exhibit 1.1(d).
Operational Continuity means the Company has (a) maintained its assets,
properties and business in the same manner as prior to January 1, 2001 and in a
manner consistent with the Company's budget as previously submitted to
PentaStar, (b) discussed and consulted with PentaStar on any material changes in
strategy, policies or business operations and (c) obtained PentaStar's prior
written approval before making or implementing any material operating or policy
decisions regarding the Company, including, without limitation, hiring, entering
into contracts and making capital or operating expenditures.
Orders means all judgments, injunctions, orders, rulings, decrees,
directives, notices of violation or other requirements of any Governmental
Authority or arbitrator having jurisdiction in the matter, including a
bankruptcy court or trustee.
Exhibit 1.1(a) - 6
50
Other PentaStar Agreements means the Employment Agreements, the Escrow
Agreement, the Noncompetition Agreement, the Principal Shareholder's Escrow
Agreement and the other documents and instruments to be executed and delivered
by PentaStar or the Acquiror pursuant to this Agreement.
Other Seller Agreements means the Employment Agreements, the Escrow
Agreement, the Noncompetition Agreement, the Principal Shareholder's Escrow
Agreement and other documents and instruments to be executed and delivered by
any Shareholder or any relative or affiliate of the Company or of any
Shareholder pursuant to this Agreement.
PentaStar Common Stock means the common stock, par value $.0001 per
share, of PentaStar.
PentaStar Shares has the meaning set forth in Section 3.1(u).
Permits means all permits, licenses, consents, franchises,
authorizations, approvals, privileges, waivers, exemptions, variances,
exclusionary or inclusionary Orders and other concessions, whether governmental
or private, including, without limitation, those relating to environmental,
public health, welfare or safety matters.
Person means an individual, partnership, corporation, association, joint
stock company, trust, joint venture, limited liability company, unincorporated
organization or Governmental Authority.
Pre-Management Compensation EBITA means the EBITA of the Acquiror for
the Earn-Out Period before deduction of compensation expense associated with the
Acquiror's employment of the Shareholders (or their replacements).
Premises means the real property, buildings and improvements thereon
constituting the business premises of the Company, it being understood that
since the date of its inception the Company has been operated as a home-based
business and has neither owned nor leased any real property.
Principal Customer means each customer (including, without limitation,
any Growth Customer) that individually or with its affiliates accounts, as a
customer, for 5% or more of the aggregate GAAP revenues of the Acquiror during
the period from May 1, 2001 through October 31, 2001.
Principal Customer/Principal Referral Source EBITA Impact Amount means,
with respect to the Earn-Out Period (a) and with respect to a particular
Principal Customer, an amount equal to the aggregate GAAP revenues of the
Acquiror during the Earn-Out Period associated with such Principal Customer,
less the greater of (i) 35% of the aggregate GAAP revenues of the Acquiror
during the Earn-Out Period associated with such Principal Customer or (ii) the
aggregate commission expense of Acquiror for sales people associated with such
revenues or fees of the Acquiror to referral sources associated with such
revenues and (b) with respect to a Principal Referral Source, an amount equal to
the aggregate GAAP revenues of the Acquiror during the Earn-Out Period
associated with such Principal Referral Source, less the greater of (i) 35% of
the aggregate GAAP revenues of the Acquiror during the Earn-Out Period
associated with such Principal Referral Source or (ii) the aggregate commission
expense of the Acquiror for sales people associated with such revenues or fees
of the Acquiror to referral sources associated with such revenues.
Principal Customer/Principal Referral Source Reduction Amount means the
Principal Customer/Referral Source EBITA Impact Amount associated with any
Principal Customer or Principal
Exhibit 1.1(a) - 7
51
Referral Source (a) which ceases to be, which gives notice to the Acquiror or
PentaStar that it will cease to be (including, without limitation, a Principal
Customer or Principal Referral Source which ceases business operations or gives
notice thereof), or which PentaStar believes in good faith based on documented
information will cease to be, a Principal Customer or Principal Referral Source
or (b) which, in respect of the period from November 1, 2001 through January 31,
2002, fails to account for an amount of revenue in excess of 10% of the
aggregate revenues of the Acquiror attributable to such Principal Customer or
Principal Referral Source during the period from May 1, 2001 through October 31,
2001.
Principal Customer/Principal Referral Source Resolution Amount means (if
Earn-Out EBITA is reduced pursuant to clause (g) thereof) an amount equal to 67%
of (a)(i) the amount determined pursuant to clause (a) (in the case of Principal
Customers) and clause (b) (in the case of Principal Referral Sources) of the
definition of Principal Customer/Principal Referral Source EBITA Impact Amount,
multiplied by (ii) 20%, minus (b) the aggregate amounts paid by the Acquiror to
the Shareholders (or their replacements) pursuant to Section 2.2(a) of the two
Employment Agreements (or any similar agreement with any replacement) in respect
of the related revenue.
Principal Provider has the meaning given it in Section 3.1(o).
Principal Referral Source means each finder or referral source that
individually or with its affiliates accounts, as a finder or referral source,
for 5% or more of the aggregate GAAP revenues of the Acquiror during the period
from May 1, 2001 through October 31, 2001.
Principal Shareholder's Escrow Agreement means the Principal
Shareholder's Escrow and Contingent Stock Agreement among PentaStar, the
Acquiror, Xxxxxxx X. Xxxxxx and Xxxxxx X. Xxxxxxx in the form of Exhibit 1.1(e).
Purchase Price has the meaning given it in Section 2.1(k).
RKK Business means customer orders for communications services installed
during the Earn-Out Period which satisfy the conditions set forth in the
following clauses (a) and (b): (a) the Acquiror is entitled to receive a
commission during the Earn-Out Period from the service provider in respect of
such order; and (b) each such order has been obtained and generated (i)
personally by either Shareholder by the direct solicitation and booking of such
order by a Shareholder, provided such Shareholder is employed by the Acquiror at
the time of the order, (ii) through a Shareholder's historical business or
historical referral sources (but excluding in all cases, any orders received by
the Acquiror post-Closing from or resulting from customers, finders or referral
sources which have had business dealings with DSS prior to the DSS Acquisition)
(such customers, finders and referral sources which have had business dealings
with DSS are identified on Exhibit 1.1(f)), provided such Shareholder is
employed by the Acquiror at the time of the order, (iii) by business, finder or
referral sources which have been newly developed by the Shareholders ("newly
developed" meaning such business, finder or referral source has not had any
business dealings with any owner or employee of DSS prior to their solicitation
by a Shareholder) or (iv) by sales persons who are hired by the Acquiror during
the Earn-Out Period.
Residual Payment Rights means all rights to future payments of
commissions from any service provider.
Retained Liabilities means (a) the obligations of the Company arising
after the Closing Date under
Exhibit 1.1(a) - 8
52
those contracts which are identified by PentaStar on Exhibit 1.1(g) with respect
to the period after the Closing Date; provided, however, that such obligations
shall not include any Liability of the type contemplated in clause (B) of
Section 7.1(a)(ii) which results from, arises out of or relates to the period on
or before the Closing Date and (b) current liabilities in existence as of the
Closing Date which (i) have been incurred by the Company in the ordinary course
of business consistent with past practice (excluding, however, in all cases any
Liability for interest bearing debt; bank debt; loans for the acquisition of
equipment or other fixed assets; loans or debt with respect to the acquisition
of any business or entity (regardless of how structured); capital, operating or
other leases; Liabilities to any shareholder, director, officer or affiliate of
the Company or any relative or affiliate of any such Person; past due payables
or Liabilities; compensation, bonuses or commissions associated with revenues
that have been received by the Company prior to the Closing Date; accrued
bonuses; accrued commissions; accrued profit sharing; accrued rent; accrued
Taxes; Taxes which are made the responsibility of the Shareholders pursuant to
this Agreement; costs and expenses in connection with this Agreement or the
transactions contemplated hereby; and all expenses or Liabilities which are
required by GAAP to be accrued as of the Closing Date but which have not been so
accrued (including expenses and Liabilities attributable to bonuses,
commissions, profit sharing, rent and Taxes)), and (ii) are set forth on the
Closing Date Balance Sheet as Retained Liabilities rather than as Closing Date
Liabilities. Retained Liabilities shall not include any other Liability.
Right means any right, property interest, concession, patent, trademark,
trade name, copyright, know-how or other proprietary right of another Person.
SEC means the Securities and Exchange Commission.
SEC Filings means all reports, registration statements and other filings
filed by PentaStar with the SEC on or prior to the date of this Agreement.
Second Closing has the meaning set forth in Section 2.1(n)(iii).
Securities Act means the Securities Act of 1933, as amended.
Shareholder has the meaning given it in the preamble to this Agreement.
Shareholders' Agent means Xxxxxxx X. Xxxxxx (or the substituted agent
described in Section 9.14) acting as agent for the Shareholders pursuant to
Section 9.14.
Shareholder Property has the meaning given it in Section 4.8.
Sub-Agent means a Person, not an employee of the Company, who markets or
sells goods or services of the Company to third parties.
Subsidiary means, with respect to a Person, any Person controlled
(meaning possession of the direct or indirect power to direct or cause the
direction of the management and policies, whether through the ownership of
voting securities, by contract or otherwise) by such first Person directly or
through one or more intermediaries.
Survival Period means, with respect to a representation or warranty, the
applicable period after the Closing Date during which such representation or
warranty survives pursuant to Section 3.3.
Exhibit 1.1(a) - 9
53
Surviving Corporation has the meaning given it in Section 2.1(a).
Tax means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, documentary, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
Transaction has the meaning given it in the preamble to this Agreement.
