1
EXHIBIT 10.7
AMENDED AND RESTATED
PRINCIPAL STOCKHOLDER'S ESCROW
AND CONTINGENT STOCK AGREEMENT
This Amended and Restated Principal Stockholder's Escrow and Contingent
Stock Agreement (this "Agreement") is entered into effective as of October 26,
1999, regardless of its date of execution, among PentaStar Communications, Inc.,
a Delaware corporation ("PentaStar" or the "Escrow Agent"), OC Mergerco 2, Inc.,
a Delaware corporation (the "Acquiror"), and Xxxxxx Xxxxxxxxxxx ("Xxxxxxxxxxx"),
who is the principal stockholder of ICM Communications Integration, Inc., a
Washington corporation ("ICM") (collectively, the "Parties").
RECITALS
1. The Parties are party to a Principal Stockholder's Escrow and
Contingent Stock Agreement dated October 26, 1999 (the "Original
Agreement"). The parties are entering into this Agreement for the
purpose of amending and restating the Original Agreement in its
entirety effective as of October 26, 1999.
2. PentaStar, the Acquiror, Xxxxxxxxxxx and ICM are parties to an
agreement and plan of merger dated August 13, 1999, under which ICM
will be merged into the Acquiror in a transaction intended to qualify
as a tax-free reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Merger Transaction").
3. In the Merger Transaction, Xxxxxxxxxxx will receive 120,000 shares of
PentaStar common stock and $200,000 of cash in return for his shares of
ICM.
4. At the time of the Merger Transaction, the value of ICM cannot be
determined with certainty.
5. The purpose of this Agreement is to provide for certain adjustments in
the amount of stock consideration Xxxxxxxxxxx will receive in the
Merger Transaction.
NOW, THEREFORE, the parties to this Agreement agree as follows:
ARTICLE 1: DIRECTIONS
1.1 ESCROWED PROPERTY:
Xxxxxxxxxxx will deposit with the Escrow Agent 40,000 shares of
PentaStar common stock (the "Shares"), which will be held by the Escrow
Agent in a separate account the sole assets of which will consist of
the Shares and certain shares of PentaStar common stock issued in
connection with the acquisition by PentaStar of certain other
businesses (the "Escrow Account"). The certificates for the Shares
shall be delivered with appropriate stock powers duly executed in
blank.
1.2 INSTRUCTIONS:
The Escrow Agent shall hold and disburse the Shares pursuant to the
instructions set forth in Schedule A, attached hereto and incorporated
herein by reference.
2
1.3 ASSIGNMENT OF INTEREST:
The assignment, transfer, conveyance, or hypothecation of any right,
title, or interest in and to the subject matter of this Agreement by
any party is prohibited, and no such assignment, transfer, conveyance,
or hypothecation will be given effect.
ARTICLE 2: RIGHTS OF XXXXXXXXXXX IN THE SHARES
During the term of this Agreement, (i) the Shares shall be reflected as
issued and outstanding on PentaStar's financial statements and other books and
records; (ii) Xxxxxxxxxxx shall have all ownership rights with respect to the
Shares, including rights to vote such Shares and rights to any dividends paid by
PentaStar with respect to the Shares, and the books and records of PentaStar
will reflect such ownership. Upon the death or termination of employment of
Xxxxxxxxxxx, the Shares will remain in the Escrow Account subject to
disbursement to Xxxxxxxxxxx or his legal heirs in accordance with Schedule A.
ARTICLE 3: PROVISIONS CONCERNING ESCROW AGENT
3.1 ESCHEAT:
The parties are aware that under Colorado law, escrowed property which
is presumed abandoned may escheat to the State. The Escrow Agent shall
have no liability to Xxxxxxxxxxx, his respective heirs, legal
representatives, and successors, should any or all of the Shares become
escheatable or escheat by operation of law.
3.2 NON-LIABILITY:
The Escrow Agent shall not be liable for any act or omission while
acting in good faith and in the exercise of its own best judgment. Any
act or omission by the Escrow Agent pursuant to the advice of its
attorneys shall be conclusive evidence of such good faith. The Escrow
Agent shall have the right to consult with counsel at its expense
whenever any question arises concerning the Agreement and shall incur
no liability for any delay reasonably required to obtain such advice of
counsel. The Escrow Agent shall not be liable for the alteration,
modification or elimination of any right permitted or given under the
instructions set forth in Schedule A and/or in any document deposited
under this Agreement pursuant to any statute of limitations or by
reason of laches. The Escrow Agent shall have no further responsibility
or liability whatsoever to Xxxxxxxxxxx following a partial or complete
distribution of the Shares pursuant to this Agreement. The Escrow Agent
shall not incur any liability with respect to any act or omission in
reliance upon any document, including any written notice or
instructions provided for in this Agreement. In performing its
obligations hereunder, the Escrow Agent shall be entitled to presume,
without inquiry, the due execution, validity and effectiveness of all
documents it receives, and also the truth and accuracy of any
information contained therein. The Escrow Agent shall not be
responsible or liable for any diminution in value of the Shares,
whatsoever, for any reason.
2
3
3.3 DISAGREEMENTS:
If any disagreement or dispute arises between the parties to this
Agreement concerning the meaning or validity of any provision hereunder
or concerning any other matter relating to this Agreement, the Escrow
Agent:
a. Shall be under no obligation to act, except under process or
order of court, or until it has been adequately indemnified to
its full satisfaction, and shall sustain no liability for its
failure to act pending such process, court order or
indemnification; and
b. May, in its sole and absolute discretion, interplead the
Shares or that portion of Shares it then holds with the
District Court of the City and County of Denver, State of
Colorado, and name the parties in such interpleader action.
Upon filing the interpleader action, the Escrow Agent shall be
relieved of all liability as to the Shares. The parties by
signing this Agreement submit themselves to the jurisdiction
of such Court and do appoint the Clerk of such Court as their
agent for the service of all process in connection with such
proceedings. In no event shall the institution of such
interpleader action impair the rights of the Escrow Agent
described in Section 3.2 of this Article.
ARTICLE 4: GENERAL TERMS AND CONDITIONS
4.1 EXTENSION OF BENEFITS:
Subject to Section 1.3, this Agreement shall be binding upon, inure to
the benefit of, and be enforceable by, the respective heirs, legal
representatives, successors, and assigns of all the parties and the
Escrow Agent.
4.2 GOVERNING LAW:
This Agreement shall be construed and enforced in accordance with the
laws of the State of Colorado, without regard to the provisions of the
laws of the State of Colorado or any other State regarding conflicts of
laws.
4.3 NOTICES:
All notices, requests, demands, and other communications required under
this Agreement shall be in writing and shall be deemed to have been
duly given if delivered personally or by certified mail, return receipt
requested, and postage prepaid. If any notice is mailed, it shall be
deemed given on the date such notice is deposited in the United States
mail. If any notice is personally delivered, it shall be deemed given
upon the date of such delivery. If notice is given to a party, it shall
be mailed or delivered to the addresses set forth below the signature
blocks. It shall be the responsibility of the parties to notify the
Escrow Agent in writing of any name or address changes.
3
4
4.4 ENTIRE AGREEMENT:
With respect to the subject matter hereof, this Agreement sets forth
the entire agreement and understanding of the parties.
4.5 AMENDMENT:
This Agreement may be amended, modified, superseded, rescinded, or
canceled only by a written instrument executed by the parties.
4.6 WAIVERS:
The failure of any party to this Agreement at any time or times to
require performance of any provision under this Agreement shall in no
manner affect the right at a later time to enforce the same
performance. A waiver by any party to this Agreement of any such
condition or breach of any term, covenant, representation, or warranty
contained in this Agreement, in any one or more instances, shall
neither be construed as a further or continuing waiver of any such
condition or breach nor a waiver of any other condition or breach of
any other term, covenant, representation, or warranty contained in this
Agreement.
4.7 HEADINGS:
Section headings of this Agreement have been inserted for convenience
of reference only and shall in no way restrict or otherwise modify any
of the terms of provisions of this Agreement.
4.8 COUNTERPARTS:
This Agreement may be executed in one or more counterparts, each of
which when executed shall be deemed to be an original, and such
counterparts shall together constitute one and the same instrument.
This Agreement may be delivered by facsimile, and facsimile signatures
shall be treated as original signatures for all applicable purposes.
4.9 ARBITRATION.
Any disputes arising under or in connection with this Agreement,
including, without limitation, those involving claims for specific
performance or other equitable relief, will be submitted to binding
arbitration in Denver, Colorado before the Judicial Arbiter Group, but
under the Commercial Arbitration Rules of the American Arbitration
Association under the authority of federal and state arbitration
statutes, and shall not be the subject of litigation in any forum. If
the Judicial Arbiter Group is unavailable to conduct the arbitration,
the it shall be before the American Arbitration Association. EACH
PARTY, BY SIGNING THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND
INTELLIGENTLY WAIVES ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO SEEK
REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO JURY TRIAL.
The arbitrator shall have full authority to order specific performance
and other equitable relief and award damages and other relief available
under this Agreement or applicable law, but shall have no authority to
add to, detract from, change or amend the terms of this Agreement or
existing law. All arbitration proceedings, including settlements and
awards, shall be confidential. The decision of the arbitrators will be
final and binding, and judgment on the award by the arbitrators may be
entered in any court of competent jurisdiction. THIS
4
5
SUBMISSION AND AGREEMENT TO ARBITRATE WILL BE SPECIFICALLY ENFORCEABLE.
The prevailing party or parties in any such arbitration in any action
to enforce this Agreement will be entitled to recover, in addition to
any other relief awarded by the arbitrator, all reasonable costs and
expenses, including fees and expenses of arbitrators and attorneys,
incurred in connection therewith. If each party prevails on specific
issues in the arbitration, the arbitrator may allocate the costs
incurred by all parties on a basis the arbitrator deems appropriate.
IN WITNESS WHEREOF, the Parties to this Agreement have each caused
this Agreement to be duly executed on this 12 day of January, 2000, but
effective as of October 26, 1999.
PENTASTAR COMMUNICATIONS, INC.
/s/ Xxxxx X. Xxxxxxxx /s/ Xxxxxx Xxxxxxxxxxx
----------------------------------- ------------------------------------
By: Xxxxx X. Xxxxxxxx XXXXXX XXXXXXXXXXX
Its: Vice President
OC MERGERCO 2, INC.
/s/ Xxxxx X. Xxxxxxxx
-----------------------------------
By: Xxxxx X. Xxxxxxxx
Its: Vice President
5
6
SCHEDULE A TO THE ESCROW AGREEMENT
DISBURSEMENT OF THE SHARES AND
POTENTIAL ISSUANCE OF ADDITIONAL PENTASTAR SHARES
1. Upon the occurrence of the earlier of (i) a sale of substantially all of the
assets or of all of the outstanding stock of PentaStar, or (ii) October 26, 2004
(the "Valuation Event"), the number of Adjusted Shares (as defined below) shall
be determined pursuant to the formula set forth below.
2. If the number of Adjusted Shares exceeds the number of Shares, (a) the Escrow
Agent shall distribute all of the Shares to Xxxxxxxxxxx within 60 days of the
date of the Valuation Event; and (b) within such 60 day period, PentaStar shall
issue to Xxxxxxxxxxx additional shares of PentaStar common stock equal to such
excess (the "Additional Shares"). The parties agree that a portion of the
Additional Shares shall be treated as imputed interest under Section 483 of the
Internal Revenue Code and reported as interest for all applicable tax purposes.
Notwithstanding the foregoing, in no event shall the number of Additional Shares
exceed the number of shares of PentaStar common stock issued to Xxxxxxxxxxx at
the closing in the Merger Transaction but not deposited in the Escrow Account.
3. If the number of Shares exceeds the number of Adjusted Shares, then within 60
days of the date of the Valuation Event, (a) the Escrow Agent shall retain such
excess number of Shares and (b) the Escrow Agent shall distribute the remainder
of the Shares (which shall equal the number of Adjusted Shares) to Xxxxxxxxxxx.
4. The number of Adjusted Shares shall be calculated under the following
formula:
Adjusted Shares = (Total Escrowed Shares) x (Xxxxxxxxxxx Percentage)
Xxxxxxxxxxx Percentage = Xxxxxxxxxxx'x Adjusted EBITA
------------------------------
Total Operating Partner EBITA
Xxxxxxxxxxx Adjusted EBITA = (11.19%) x (ICM Measurement Period EBITA)
ICM Measurement Period EBITA = The lesser of (i) ICM's earnings before interest,
income taxes, and amortization (determined in accordance with generally accepted
accounting principles) for the twelve-month period ending on the date of
termination of Xxxxxxxxxxx'x employment with PentaStar or (ii) ICM's earnings
before interest, income taxes, and amortization (determined in accordance with
generally accepted accounting principles) for the twelve-month period ending on
the date of the Valuation Event. In any case, if the Valuation Event occurs
before termination of Xxxxxxxxxxx'x employment, the ICM Measurement Period EBITA
shall be the twelve-month period ending on the Valuation Date. For these
purposes, ICM's earnings will include earnings of ICM (and its subsidiaries, if
any) before and after the acquisition of ICM by PentaStar, and, if ICM is merged
into PentaStar, ICM's earnings shall include those earnings of PentaStar
attributable to the metropolitan area in which ICM operated prior to such
merger.
Total Escrowed Shares = the total number of shares of PentaStar common stock
received by Principal Shareholders prior to the date of the Valuation Event,
which shares are placed in the Escrow Account under escrow agreements similar to
this Agreement.
Principal Shareholders = those owners of a business (including ICM) acquired by
PentaStar (whether through a stock or other equity interest acquisition, a
merger, an asset acquisition or otherwise) prior to the date of the Valuation
Event who are active in the operation of such business both before and after
such acquisition, and who enter into an agreement, the terms and conditions of
which are substantially similar to this Agreement.
6
7
Total Operating Partner EBITA = the total Adjusted EBITA of all Principal
Shareholders (including Xxxxxxxxxxx), where the Adjusted EBITA for each such
Principal Shareholder is calculated in the same manner as the Xxxxxxxxxxx
Adjusted EBITA is calculated, as described above.
EXAMPLES
EXAMPLE 1: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that ICM EBITA for 2003 = $3 million, and that
total Operating Partner EBITA (as defined above) for 2003 is $10 million. Also,
assume that 2 million total shares of PentaStar common stock (including the
Shares) are placed in the Escrow Account by all Principal Shareholders. The
Xxxxxxxxxxx Adjusted EBITA = 11.19% X $3 million, which equals $335,700. The
Xxxxxxxxxxx Percentage = $335,700 over $10 million, which = 3.36%. The number of
Adjusted Shares for Xxxxxxxxxxx = 2 million (the total number of Shares placed
in escrow) X 0.0336 (the Xxxxxxxxxxx Percentage), which =67,200. Consequently,
Xxxxxxxxxxx will receive the Shares back from the Escrow Account, plus 27,200
additional shares of PentaStar common stock directly from PentaStar.
EXAMPLE 2: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that ICM EBITA for 2003 = $1 million, and that
total Operating Partner EBITA (as defined above) for 2003 is $10 million. Also,
assume that 2 million total shares of PentaStar common stock (including the
Shares) are placed in the Escrow Account by all Principal Shareholders. The
Xxxxxxxxxxx Adjusted EBITA = 11.19% X $1 million, which equals $111,900. The
Xxxxxxxxxxx Percentage = $111,900 over $10 million, which = 1.12%. The number of
Adjusted Shares for Xxxxxxxxxxx = 2 million (the total number of Shares placed
in escrow) X 0.0112 (the Xxxxxxxxxxx Percentage), which = 22,400. Consequently,
Xxxxxxxxxxx will receive 22,400 of the Shares back, and the remaining 17,600
Shares will be retained by PentaStar.
7
