1
Exhibit 2.18
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AGREEMENT AND PLAN OF MERGER
AMONG
PENTASTAR COMMUNICATIONS, INC.,
PENTASTAR ACQUISITION CORP. VIII,
DIGITAL SALES SUPPORT NET, INC.
AND THE
SHAREHOLDERS
OF
DIGITAL SALES SUPPORT NET, 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........................................................ 10
2.3. Deliveries at the Closing.......................................... 10
3. Representations and Warranties........................................... 11
3.1. Representations and Warranties of the Shareholders................. 11
3.2. Representations and Warranties of PentaStar........................ 23
3.3. Survival of Representations........................................ 24
3.4. Representations as to Knowledge.................................... 25
4. Pre-Closing Covenants.................................................... 25
4.1. General............................................................ 25
4.2. Operation and Preservation of Business............................. 25
4.3. Full Access........................................................ 25
4.4. Notice of Developments............................................. 25
4.5. Exclusivity........................................................ 26
4.6. Announcements; Securities Law Restrictions......................... 26
4.7. Closing Date Liabilities and Excluded Assets....................... 26
4.8. Conveyance of Shareholder Property................................. 26
4.9. Conveyance of Capital Lease Property............................... 26
5. Post-Closing Covenants................................................... 27
5.1. Further Assurances................................................. 27
5.2. Transition......................................................... 27
5.3. Cooperation........................................................ 27
5.4. Confidentiality.................................................... 27
5.5. Post-Closing Announcements......................................... 27
5.6. Financial Statements............................................... 27
5.7. Satisfaction of Liabilities........................................ 28
5.8. Repurchase of Unpaid Receivables................................... 28
5.9. Termination of Obligations......................................... 29
5.10. Transfer Restrictions.............................................. 29
5.11. Tax Returns........................................................ 30
5.12. Sales Commissions.................................................. 30
5.13. Certain Matters.................................................... 30
5.14. Primary Agent Agreement............................................ 31
6. Conditions to Closing.................................................... 31
6.1. Conditions to Obligation of PentaStar.............................. 31
6.2. Conditions to Obligation of the Shareholders....................... 32
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7. Remedies for Breaches of This Agreement.................................. 33
7.1. Indemnification Provisions for Benefit of PentaStar................ 33
7.2. Indemnification Provisions for Benefit of the Shareholders......... 35
7.3. Matters Involving Third Parties.................................... 35
7.4. Right of Offset.................................................... 36
7.5. Other Remedies..................................................... 36
8. Termination.............................................................. 36
8.1. Termination of Agreement........................................... 37
8.2. Effect of Termination.............................................. 37
8.3. Confidentiality.................................................... 37
9. Miscellaneous............................................................ 37
9.1. No Third-Party Beneficiaries....................................... 37
9.2. Entire Agreement................................................... 37
9.3. Succession and Assignment.......................................... 37
9.4. Counterparts....................................................... 38
9.5. Headings........................................................... 38
9.6. Notices............................................................ 38
9.7. Governing Law...................................................... 38
9.8. Amendments and Waivers............................................. 38
9.9. Severability....................................................... 39
9.10. Expenses........................................................... 39
9.11. Arbitration........................................................ 39
9.12. Construction....................................................... 40
9.13. Incorporation of Exhibits.......................................... 40
9.14. Shareholders' Agent................................................ 40
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EXHIBITS
Exhibit 1.1(a) Exhibit 3.1(g)(i)
Exhibit 1.1(b) Exhibit 3.1(h)(i)
Exhibit 1.1(c)(i) Exhibit 3.1(h)(ii)
Exhibit 1.1(c)(ii) 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(l)
Exhibit 1.1(g) Exhibit 3.1(m)(i)
Exhibit 1.1(h) Exhibit 3.1(m)(ii)
Exhibit 2.1(k)(iii) Exhibit 3.1(m)(iii)
Exhibit 3.1(a)(i) Exhibit 3.1(n)(ii)
Exhibit 3.1(a)(ii) Exhibit 3.1(o)(i)
Exhibit 3.1(b)(i) Exhibit 3.1(o)(ii)
Exhibit 3.1(b)(ii) Exhibit 3.1(s)
Exhibit 3.1(c) Exhibit 3.1(t)
Exhibit 3.1(d)(i)(A) Exhibit 3.1(u)(ii)
Exhibit 3.1(d)(i)(B) Exhibit 3.1(u)(xi)
Exhibit 3.1(e)(i) Exhibit 3.2(b)(i)
Exhibit 3.1(e)(ii)(I) Exhibit 4.9
Exhibit 3.1(e)(iii) Exhibit 6.1(h)
Exhibit 3.1(f)(iii) Exhibit 6.2(e)
Exhibit 3.1(f)(v)
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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"), Digital Sales Support Net, Inc., a New York
corporation (the "Company"), and Xxxxxx Xxxxxx and Xxxx X. Xxxxx (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 recently 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 States of Delaware and New York, at
the Closing, but effective for accounting purposes as of 12:01 a.m. New York
time on January 1, 2001 (the ?Effective Date?), 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 Sections 251 and 252 of the
Delaware General Corporation Law and Sections 904 and 907 of the Business
Corporation Law of the State of New York. 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 and the Business Corporation Law of the State
of New York, 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 and
deliver a certificate of merger (the "New York Certificate of Merger") to the
Secretary of State of the State of New York for filing pursuant to the Business
Corporation Law of the State of New York. The Merger shall be completed upon the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and the New York Certificate of Merger with the Secretary of State of
the State of New York, but shall be effective for accounting purposes as of the
Effective Date.
(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
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consideration shall be delivered or payable in exchange therefor. Each share of
the capital stock of 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 in excess of the Interim Cash
Requirement,
(B) the Interim Cash Requirement,
(C) 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,
(D) the Retained Liabilities described in clause (b) of the
definition of Retained Liabilities and each item thereof, and
(E) 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.
(ii) Estimated Interim Period Cash Flow Statement. 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 projected cash flow statement
for the Acquiror prepared for the Interim Period (the "Estimated Interim Period
Cash Flow Statement"). The Estimated Interim Period Cash Flow Statement shall
set forth the amount, as of the Closing Date, of (A) the estimated amount of
cash collections by the Acquiror during the Interim Period, and each item
thereof, and the specific dates on which payments are due from service
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suppliers, (B) the estimated amount of cash disbursements by the Acquiror during
the Interim Period for Liabilities, including payroll, commissions, rent and
accounts payable, and each item thereof, and (C) the difference between (A) over
(B).
(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:
(A) cash in the amount of the sum of
(1) $190,832 (representing $200,000, less a $20,000
deduction which will be applied to pay Shareholders' obligation to compensate
Xxxxxx Xxxxxxxx for the preparation of certain DSS financial statements in
accordance with the terms of this Agreement, the balance of such obligation to
Xxxxxx Xxxxxxxx being the responsibility of PentaStar, plus $5,125 representing
Xxxxx Xxxxxxx advance commissions, plus $5,707 representing Xxx Xxxxxx payroll
draw plus applicable tax overhead), 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 net amount described in this clause (A) being referred to as the "Cash
Portion" of the Purchase Price);
(B) 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 $800,000 (the "Closing Shares");
(C) cash equal to the Cash Differential Amount (which amount
shall be payable as specified in Section 2.1(p)); and
(D) 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
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Xxxxxx Xxxxxx 75 75%
Xxxx X. Xxxxx 25 25%
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(ii) On the Closing Date, PentaStar shall (A) pay to the
Shareholders (in accordance with the percentages set forth above) by wire
transfer to an account or accounts designated by the Shareholder's Agent the
Cash Portion of the Purchase Price, (B) deliver the Closing Shares to the
Shareholders 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))
and (C) 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 $500,000 (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 $262,500 (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 four 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 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
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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 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 in excess of the Interim Cash
Requirement,
(B) the Interim Cash Requirement,
(C) 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,
(D) the Retained Liabilities described in clause (b) of the
definition of Retained Liabilities and each item thereof, and
(E) 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).
(ii) Interim Period Cash Flow Statement. Within 60 days after
the Closing Date an unaudited cash flow statement for the Acquiror for the
Interim Period (the "Interim Period Cash Flow
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Statement") shall be prepared by PentaStar and delivered by PentaStar to the
Shareholders. The Interim Period Cash Flow Statement shall be prepared based
upon the actual cash flows of the Acquiror during the Interim Period and shall
set forth (A) the actual amount of cash collections by the Acquiror during the
Interim Period and each item thereof, and the specific dates on which such
collections were received, (B) the amount of cash disbursements by the Acquiror
during the Interim Period for Liabilities, including payroll, commissions, rent
and accounts payable, and each item thereof, and (C) the difference between (A)
over (B). Within 20 days after receipt of the Interim Period Cash Flow
Statement, the Shareholders shall, in a written notice to PentaStar, either
accept the Interim Period Cash Flow Statement, or object to it by describing in
reasonable specific detail any proposed adjustments to the Interim Period Cash
Flow Statement and the estimated amounts of and reasons for such proposed
adjustments. The failure by the Shareholders to object to the Interim Period
Cash Flow Statement within such 20-day period shall be deemed to be an
acceptance by the Shareholders of the Interim Period Cash Flow Statement. If any
adjustments to the Interim Period Cash Flow Statement 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 and the Interim Period Cash Flow Statement by the Shareholders or the
resolution of any disputes under Section 2.1(o), as the case may be, the Cash
Portion of the Purchase Price 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 based upon the Interim Period Cash Flow
Statement rather than the Estimated Interim Period Cash Flow Statement, and an
appropriate adjusting cash 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 Cash Portion of the Purchase Price actually paid equals the Cash Portion of
the Purchase Price determined on the basis of the Closing Date Balance Sheet and
the Interim Period Cash Flow Statement. 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 Cash Portion of the Purchase Price
and 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).
(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 RKK, if acquired, (B) the Acquiror
shall account for its operations in the New York Region in accordance with the
accounting practices of PentaStar, (C) 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 (D) 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
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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 (C) or (D) 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 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 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 payable as
follows:
(A) the first $250,000 of the Earn-Out Amount (if any is
earned) shall be paid in cash; and
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(B) the remainder of the Earn-Out Amount (if any is earned)
shall be paid, in PentaStar's sole discretion, in cash or PentaStar Common
Stock, or any combination thereof. 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, the Interim Period Cash Flow Statement, the Earn-Out Financial
Statements or the Cash Differential Financial Statements are proposed by the
Shareholders pursuant to Section 2.1(l), 2.1(n) or 2.1(p), 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, the
Interim Period Cash Flow Statement, the Earn-Out Financial Statements or the
Cash Differential Financial Statements or (ii) the objecting party under Section
2.1(l), 2.1(n) or 2.1(p), as the case may be, without change, or (iii) some
combination thereof which BDO Xxxxxxx LLC determines 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) or 2.1(p), as the
case may be.
If any dispute is submitted to BDO Xxxxxxx LLC pursuant to this Section
2.1(o) (a "DSS Dispute") and the DSS Dispute also relates to matters which could
be or are the subject of a dispute resolution pursuant to Section 2.1(o) of the
RKK Merger Agreement (an "RKK Dispute"), then the DSS Dispute and the RKK
Dispute shall be resolved at the same time by BDO Xxxxxxx LLC in a single
dispute proceeding pursuant
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to this Section 2.1(o) and Section 2.1(o) of the RKK Merger Agreement, and such
resolution shall be final and binding upon PentaStar, the Acquiror, the
Shareholders and the RKK Shareholders.
If any dispute arises solely between the Shareholders and the RKK
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 RKK 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.
(p) Cash Differential Amount. As soon as reasonably practicable
after July 31, 2001 and in any event by August 31, 2001, PentaStar shall
determine the Cash Differential Amount and prepare a written calculation of the
Cash Differential Amount (collectively, the "Cash Deferential Financial
Statements"). PentaStar's determination under this Section 2.1(p) 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 Cash Differential
Financial Statements to the Shareholders. Within 30 days after receipt of the
Cash Differential Financial Statements, the Shareholders shall, in a written
notice to PentaStar, either accept the Cash Differential Financial Statements or
object to them by describing in reasonably specific detail any proposed
adjustments to the Cash Differential 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 Cash Differential
Financial Statements within such 30-day period shall be deemed to be an
acceptance by the Shareholders of the Cash Differential Financial Statements. If
any adjustments to the Cash Differential Financial Statements are proposed by
the Shareholders within such 30-day period, the dispute shall be resolved as
provided in Section 2.1(o). Within 10 Business Days after the later of the
acceptance of the Cash Differential 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 Cash Differential Amount, if any, to the Shareholders.
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 York 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.
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3. 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).
(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 New York, which is the only jurisdiction in which the nature of the
business conducted by it or the properties owned, leased or operated by it make
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 New York) 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
1,000,000 shares of common stock, $.01 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, $.01 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
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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 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.
(iii) Prior to the Closing Date, the Company has contributed to
DSS-Net, Inc. ("DSS-Net") all capital stock of DSS-Net owned by the Company (the
"DSS-Net Contribution") in exchange for $5,000 cash paid by DSS-Net to the
Company prior to the Closing, and as a result thereof the Company owns no equity
or other interest in DSS-Net. As of the Closing, such $5,000 will be included in
the cash on hand of the Company and, upon the Closing, will be included in the
cash on hand of the Acquiror. Neither the Company nor DSS-Net has received any
payment (whether directly or indirectly, by collection of cash, offset or
otherwise) from Verizon or any affiliate thereof in respect of amounts which
were or are to be received from Verizon or any such affiliate on or after March
1, 2001 (the "March Verizon Payment Obligation"). The Company is party to a
primary agent agreement dated March 14, 2001 (the "Primary Agent Agreement")
with PentaStar, and in consideration thereof has paid PentaStar the cash fee
required thereunder.
(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 audited balance sheets of the Company as of December 31,
1999 and December 31, 2000 (the latter being referred to as the "Latest Balance
Sheet") and the related statements of
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income, shareholders' equity and cash flows for the 12-month periods then ended
have been prepared in accordance with GAAP on a consistent basis and on a basis
consistent with the accounting practices of PentaStar, are in accordance with
the books and records of the Company (which books and records are complete and
correct in all material respects), and fairly present the financial position and
results of operations of the Company in all material respects as of such dates
and for each of the periods indicated. As of the date of each such balance
sheet, the Company had no Liability other than those set forth on each such
balance sheet. Copies of the financial statements described in the first
sentence in this Section 3.1(d) are attached as Exhibit 3.1(d)(i)(A). The
expenses itemized on Exhibit 3.1(d)(i)(B) and reflected in the Company's
financial performance for the 12-month period ended December 31, 2000 shall not
be realized on an on-going basis after the Closing Date.
(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 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.
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(iii) Exhibit 3.1(e)(iii) lists all orders booked and all
customer contracts entered into by the Company, by month, during the 12-month
period from January 1, 2000 through December 31, 2000 and for the month of
January, 2001 and the current status of each such order or contract.
(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, 1995, 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, 1995.
(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. 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
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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).
(h) Lists of Contracts and Other Matters. Attached as Exhibit
3.1(h)(i) 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:
(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;
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(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
(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). Except as set
forth on Exhibit 3.1(h)(ii), 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
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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 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) Insurance. The Company has policies of insurance covering (i)
risk of loss on the Acquired Assets and (ii) products and services liability and
liability for fire, property damage, personal injury and workers' compensation
coverage, all, to the best knowledge of the Shareholders, with responsible and
financially sound insurance carriers in adequate amounts and in compliance with
governmental requirements and in accordance with good industry practice. All
such insurance policies are valid, in full force and effect and enforceable in
accordance with their respective terms and no party has repudiated any provision
thereof. All such policies shall remain in full force and effect until the
Closing Date. Neither the Company nor any other party to any such policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices) in the performance of any of their respective obligations
thereunder, and no event exists which, with the giving of notice or the lapse of
time or both, would constitute a breach, default or event of default, or permit
termination, modification or acceleration under any such policy. There are no
claims, actions, proceedings or suits arising out of or based upon any of such
policies nor, to the best knowledge of the Shareholders, does any basis for any
such claim, action, suit or proceeding exist. All premiums have been paid on
such policies as of the date of this Agreement and shall be paid on such
policies through the Closing Date. The Company has been covered during the five
years prior to the date of this Agreement by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. All claims made during such five-year period with respect
to any insurance coverage of the Company, other than those described on Exhibit
3.1(k), are set forth on Exhibit 3.1(l).
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(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 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
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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. The Company has, before
the date of this Agreement, frozen its profit sharing plan and initiated steps
to terminate such plan so as to effect a distribution of the assets thereof to
the plan participants at the earliest practicable date, all in accordance with
applicable Legal Requirements.
(n) Employees and Labor.
(i) 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, except that the
Shareholders may terminate their employment by the Acquiror within six months
post-Closing. 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 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.
(ii) Exhibit 3.1(n)(ii) lists (A) the name of each salesperson
(whether such salesperson was an employee or independent contractor) of the
Company who has left the employment of the Company in the 12-month period prior
to the date of this Agreement, (B) the date such salesperson left the employment
of the Company and (C) the dollar amount of orders booked by the Company during
the
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12-month period prior to the date such salesperson left the employment of the
Company which were attributable to such salesperson or for which such
salesperson was responsible.
(o) Customer and Service Provider Relationships. Exhibit 3.1(o)(i)
lists each customer and each referral source that individually or with its
affiliates accounted, as a customer or as a referral source, for 5% or more of
the Company's revenues during the 12-month period ended December 31, 2000.
Exhibit 3.1(o)(ii) lists each Person who is a service provider (including
Verizon) to the Company's customers, or a Sub-Agent of the Company, as of the
date of this Agreement (the "Principal Providers"). The Company has good
commercial working relationships with such customers, such referral sources and
the Principal Providers and since January 1, 2000, no such customer, such
referral source or Principal Provider has cancelled or otherwise terminated its
relationship with the Company, materially decreased its purchases from the
Company or such providers, its referrals to the Company or its services supplied
to the Company or its customers, or threatened to take any such action. The
Company and the Shareholders have no basis to anticipate any problems with or
loss of business with respect to the Company's customer, referral source,
service provider or Sub-Agent relationships. To the best knowledge of the
Shareholders, no such customer, such referral source or Principal Provider has
any plans to terminate their relationship with or referrals to the Company and
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby shall not adversely affect the relationship of
the Company with any such customer, such referral source or Principal Provider
prior to the Closing Date or of the Acquiror or PentaStar with any such
customer, such referral source or Principal Provider after the Closing Date.
(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) Year 0000 Xxxxxxxx. To the best knowledge of the Shareholders,
the computer software owned by the Company and all other Intellectual Property
used or held for use by the Company in its business accurately processes and has
accurately processed date/time data (including calculating,
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comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, and the years 1999 and 2000 and leap year calculations
and the date September 9, 1999 when either (i) used as a standalone application,
or (ii) integrated into or otherwise used in conjunction with the third party
hardware, software, firmware and data over which the Shareholders and the
Company have no control ("Third Party Products") with which such Company
software or other Intellectual Property was designated or intended to operate at
the time such Company software was (i) developed or (ii) first provided to the
Company's customers, or tested by the Company for such customers, whichever is
later. Notwithstanding the foregoing, the Company shall not be considered to be
in breach of the representation and warranty in the immediately preceding
sentence if the failure of such Company software to comply with such
representation and warranty is attributable solely to (x) a failure by any Third
Party Product to accurately process date/time data (including but not limited
to, calculating, comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations and the date September 9, 1999; or (y) any modification of the
Company software by any party other than the Company (unless such modification
was made at the direction of the Company).
(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 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)
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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 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.
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(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 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. The Acquiror's activities as of the Closing have consisted of
matters relating to its organization, acquisition of DSS and operation of DSS'
business.
(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
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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 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
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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.
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.
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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 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.
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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 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).
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,
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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, (i) by
July 15, 2001, the information necessary to prepare the Cash Differential
Financial Statements and (ii) by October 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 April 1, 2001 through September
30, 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
Premises or 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
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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 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 the 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.
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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 __, 2001, (THE "AGREEMENT") BY AND
AMONG THE ISSUER, PENTASTAR ACQUISITION CORP. VIII, DIGITAL SALES SUPPORT NET,
INC. AND THE SHAREHOLDERS OF DIGITAL SALES SUPPORT NET, 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.
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 agreed in writing by a Shareholder and the Chief Executive Officer of
the Acquiror.
5.13. Certain Matters. As soon as reasonably practical following the
Closing, the Shareholders shall cause the termination and distribution described
in the last sentence of Section 3.1(m)(ix) to be completed
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in accordance with applicable Legal Requirement and without Liability or cost to
the Acquiror or PentaStar. Promptly, following the Closing, the Shareholders
shall use reasonable efforts to obtain the assignment of the Company's agency
agreement with Intermedia to PentaStar Holding Corp.; however, by reason of the
merger of the Company into the Acquiror, the Acquiror shall have the economic
benefit of such agreement pending such assignment.
5.14. Primary Agent Agreement. PentaStar may terminate the Primary Agent
Agreement following the Closing, with no financial or other obligation to the
Acquiror, the Shareholders or any other Person.
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) (i) The Shareholders' representations and warranties shall be
correct and complete at and as of the Closing Date and the Closing, and (ii) the
Shareholders shall have delivered to PentaStar documents (in form and substance
satisfactory to PentaStar) evidencing completion of the DSS-Net Contribution and
(iii) 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;
(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;
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(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) [RESERVED];
(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
DSS-Net and evidence of the termination of all Encumbrances filed against the
Company, DSS-Net 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
(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;
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(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 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 (other than by the reference to "knowledge" set forth in the last
sentence of Section 3.1(o)) 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,
DSS-Net 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.
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(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 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
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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.
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.
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If the Indemnifying 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 with respect to
breaches of covenants contained in this Agreement or in any Other Seller
Agreement. The Shareholders shall not have any liability to PentaStar or the
Acquiror until PentaStar and the Acquiror, in the aggregate, have suffered
Adverse Consequences in excess of $15,000, at which point the Shareholders shall
be jointly and severally obligated to indemnify PentaStar and the Acquiror from
and against the entirety of all Adverse Consequences from the first dollar;
provided, however, that the "basket" contained in this sentence shall not apply
(a) to any Purchase Price adjustments, (b) with respect to the breach of any
representation or warranty set forth in Sections 3.1(a), 3.1(b), 3.1(c), 3.1(f),
3.1(g), 3.1(m), 3.1(p), 3.1(q), 3.1(u) or 3.1(v), (c) with respect to breaches
of covenants contained in this Agreement or in any Other Seller Agreement, (d)
with respect to Closing Date Liabilities or (e) in the case of fraud or
intentional misrepresentation.
8. Termination.
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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;
(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
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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
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 Xxxx Xxxxxxxxxx Xxxxx Xxxxxx Xxxxxx
Shareholders' Agent at: & Xxxxxxxxx LLP
000 Xxxxxxxxx Xxxx 000 Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxx Xxxxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
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,
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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.
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 expressly provided in Section 8.2 or
elsewhere in this Agreement or in any Other PentaStar Agreement or any Other
Seller Agreement, (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, (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 the Interim Cash Requirement or
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, and (c) PentaStar shall bear all fees and expenses of
Xxxxxx Xxxxxxxx for work done by such firm on the financial statements of DSS
prior to the Closing, except that the first $20,000 of such fees and expense
will be borne by the Shareholders.
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,
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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 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. Each Shareholder acknowledges and agrees
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.
[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:
DIGITAL SALES SUPPORT NET, INC.
By: /s/ X. Xxxxxx
------------------------------------
Name: Xxxxxx Xxxxxx
Title: President
SHAREHOLDERS:
/s/ X. Xxxxxx
----------------------------------------
Xxxxxx Xxxxxx
/s/ Xxxx X. Xxxxx
----------------------------------------
Xxxx X. Xxxxx
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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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, cash on hand equal to the Interim Cash
Requirement, 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.
Cash Differential Amount means an amount of cash (not to exceed $50,000)
equal to the positive remainder, if any, of (a) $50,000, plus (b) cash of the
Acquiror on its balance sheet as of July 31, 2001, minus (c) the aggregate
amount of cash paid out by PentaStar and/or the Acquiror from and including the
Closing Date through July 31, 2001 (including, without limitation, amounts paid
at the Closing or thereafter in respect of the Cash Portion of the Purchase
Price), plus (d) the amount of cash, if any, distributed by the Acquiror to
PentaStar from and including the Closing Date through July 31, 2001, plus (e)
$98,550; provided, however, that cash as of July 31, 2001 shall not include any
amounts collected after December 31, 2000 as a result of the accelerated
collection thereof beyond normal stated terms or outside the ordinary course of
business consistent with past practice; and, provided further, that the $5,000
amount referred to in the first sentence of Section 3.1(b)(iii), the $7,000
amount paid by PentaStar Holding Corp. to DSS-Net pursuant to the Letter
Agreement for assignment of the Verizon agreement, any portion of the $15,000
amount referred to in the Letter Agreement received by the Acquiror
post-Closing, the $5,707 amount and the $5,125 amount in respect of payments
made by the Company to Xxx Xxxxxx and Xxxxx Xxxxxxx and the $20,000 amount to
Xxxxxx Xxxxxxxx in respect of the Company's accounting work (all three of which
amounts are referred to in Section 2.1(k)(i)(A)(1)) shall not be included for
any purpose in calculating the Cash Differential Amount. If the Cash
Differential Amount is negative, it shall be treated as being zero for purposes
of Section 2.1(k)(i)(C).
Exhibit 1.1(a) - 1
47
Cash Differential Financial Statements has the meaning given it in
Section 2.1(p).
Cash Portion of the Purchase Price has the meaning set forth in Section
2.1(k)(i).
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).
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 Business means customer orders for communications services installed
during the Earn-Out Period which satisfy all of the conditions set forth in the
following clauses (a) through (c): (a) the Acquiror is entitled to receive a
commission during the Earn-Out Period from the service provider in respect of
such order; (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 or (ii) through a Shareholder's historical business or historical
referral sources which are identified on Exhibit 1.1(b); and (c) such order is
not RKK Business.
DSS-Net has the meaning given it in Section 3.1(b)(ii).
DSS-Net Contribution has the meaning given it in Section 3.1(b)(ii).
Earn-Out Amount means the remainder of (a) four times Earn-Out EBITA
(excluding, however, for this purpose any portion of Earn-Out EBITA which is RKK
Earn-Out EBITA or RKK Growth Customer EBITA), plus (b) two times RKK Earn-Out
EBITA, plus (c) two and one-half times RKK Growth Customer EBITA, minus (d) the
Cash Portion of the Purchase Price, minus (e) the $800,000 amount described in
Section 2.1(k)(i)(B), minus (f) the amount of the Retained Liabilities described
in clause (b) of the definition
Exhibit 1.1(a) - 2
48
of Retained Liabilities, minus (g) 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)), and minus (h) the Cash Differential Amount; 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 (d) through (h) of this
definition to exceed two times Earn-Out Period Revenue.
Earn-Out EBITA means the EBITA of the Acquiror for the Earn-Out Period
directly associated with the Earn-Out Period Revenue; 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 DSS 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
DSS 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 RKK
Shareholders (or their replacements) as a percent of RKK Pre-Management
Compensation EBITA) for the compensation expense associated with the Acquiror's
employment of the RKK 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 January 1, 2001 and ending
December 31, 2001.
Earn-Out Period Revenue means commission revenues of the Acquiror during
the Earn-Out Period from the DSS Business, determined in accordance with GAAP
and on a basis consistent with the
Exhibit 1.1(a) - 3
49
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.
Effective Date has the meaning given it in Section 2.1.
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).
Employee Welfare Benefit Plan has the meaning set forth in ERISA Section
3(1).
Employment Agreements means the Employment Agreements between PentaStar
and each of Xxxxxx Xxxxxx and Xxxx X. Xxxxx in the forms of Exhibits 1.1(c)(i)
and Exhibit 1.1(c)(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.
Exhibit 1.1(a) - 4
50
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(d).
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)(i).
Estimated Interim Period Cash Flow Statement has the meaning given it in
Section 2.1(j)(ii).
Exchange Act means the Securities Exchange Act of 1934, as amended.
Excluded Assets means cash on hand of the Company in excess of the
Interim Cash Requirement.
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 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,
Exhibit 1.1(a) - 5
51
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.
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.
Interim Cash Requirement means the amount of the positive difference, if
any, between (a) the aggregate amount of cash disbursements by the Acquiror
during the Interim Period for Liabilities, including payroll, commissions, rent
and accounts payable, over (b) the aggregate amount of cash collections by the
Acquiror during the Interim Period, plus (c) the $5,000 referred to in the first
sentence of Section 3.1(e)(iii). Interim Period means the period between the
Closing Date and the date of receipt of the first regularly scheduled Verizon
commission payment following the Closing Date.
Interim Period Cash Flow Statement has the meaning given it in Section
2.1(l)(ii).
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.
Letter Agreement means the letter agreement between the Acquiror,
DSS-Net and the Shareholders in the form of Exhibit 1.1(e).
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).
March Verizon Payment Obligation has the meaning given it in Section
3.1(b)(iii). 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.
Exhibit 1.1(a) - 6
52
Noncompetition Agreement means the Noncompetition Agreement among
PentaStar, the Acquiror and the Shareholders in the form of Exhibit 1.1(f).
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.
Other PentaStar Agreements means the Employment Agreements, the Escrow
Agreement, the Letter 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 Letter 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.
Premises means the real property, buildings and improvements thereon
constituting the business premises of the Company located at 0 Xxxx 00xx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000.
Primary Agent Agreement has the meaning given it in Section 3.1(b)(iii).
Principal Customer means each customer (including any RKK Growth
Customer or any other 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 April 1, 2001 through September 30, 2001.
Exhibit 1.1(a) - 7
53
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 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 October 1, 2001 through December 31, 2001, 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 April 1, 2001 through September 30, 2001.
Principal Customer/Principal Referral Source Resolution Amount means (if
Earn-Out EBITA is reduced pursuant to clause (g) thereof) an amount equal to 33%
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 entered into pursuant to the RKK Merger Agreement (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 Company and the Acquiror
during the period from April 1, 2001 through September 30, 2001.
Principal Shareholder's Escrow Agreement means the Principal
Shareholder's Escrow and Contingent Stock Agreement among PentaStar, the
Acquiror and the Shareholders in the form of Exhibit 1.1(g).
Purchase Price has the meaning given it in Section 2.1(k).
RKK means RKK Consulting Group, Inc., a Delaware corporation.
RKK Business means RKK Business under and as defined in the RKK Merger
Agreement.
Exhibit 1.1(a) - 8
54
RKK Earn-Out Amount means Earn-Out EBITA under and as defined in the RKK
Merger Agreement.
RKK Growth Customer means Growth Customer under and as defined in the
RKK Merger Agreement.
RKK Growth Customer EBITA means Growth Customer EBITA under and as
defined in the RKK Merger Agreement.
RKK Merger Agreement means the Agreement of Plan of Merger dated March
29, 2001 among PentaStar, the Acquiror, RKK and the shareholders of RKK.
RKK Pre-Management Compensation EBITA means Pre-Management Compensation
EBITA under and as defined in the RKK Merger Agreement.
RKK Shareholders means the Shareholders under and as defined in the RKK
Merger Agreement.
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 those contracts which are identified by PentaStar
on Exhibit 1.1(h) 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) the expense of
$8,500 to be accrued on the Closing Date Balance Sheet for finders' fees payable
following the Closing in respect of the March Verizon Payment Obligation and
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 (other than the $8,500 of accrued commissions referenced at the
beginning of this clause (b)); accrued profit sharing; accrued rent; accrued
Taxes; Taxes which are made the responsibility of the Shareholders pursuant to
this Agreement; Taxes associated with DSS-Net, DSS-Net's operations, revenues,
distributions or exchanges, the Company's receipt of any monies or assets of or
from DSS-Net; costs and expenses in connection with this Agreement or the
transactions contemplated hereby; Liabilities or costs associated with or
arising out of the Company's profit sharing plan, including, without limitation,
the freezing and termination of such plan and distribution of its assets; 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.
Exhibit 1.1(a) - 9
55
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.
Shareholders has the meaning given it in the preamble to this Agreement.
Shareholders' Agent means Xxxxxx 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. The term Sub-Agent
includes the Persons listed as such on Exhibit 3.1(o)(ii).
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.
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.
Exhibit 1.1(a) - 10
