Exhibit 2.22
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AGREEMENT AND PLAN OF MERGER
AMONG
PENTASTAR COMMUNICATIONS, INC.,
PENTASTAR ACQUISITION CORP. XII,
XXXXXXXXXXXXXX.XXX INC
AND THE
SHAREHOLDERS
OF
XXXXXXXXXXXXXX.XXX 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.................................................13
2.3. Deliveries at the Closing...................................13
3. Representations and Warranties.......................................14
3.1. Representations and Warranties of the Shareholders..........14
3.2. Representations and Warranties of PentaStar.................28
3.3. Survival of Representations.................................28
3.4. Representations as to Knowledge.............................28
4. Pre-Closing Covenants................................................29
4.1. General.....................................................29
4.2. Operation and Preservation of Business......................29
4.3. Full Access.................................................29
4.4. Notice of Developments......................................29
4.5. Exclusivity.................................................29
4.6. Announcements; Securities Law Restrictions..................29
4.7. Closing Date Liabilities and Excluded Assets. .............30
4.8. Conveyance of Shareholder Property..........................30
4.9. Conveyance of Capital Lease Property........................30
5. Post-Closing Covenants...............................................30
5.1. Further Assurances..........................................30
5.2. Transition..................................................30
5.3. Cooperation.................................................30
5.4. Confidentiality.............................................31
5.5. Post-Closing Announcements..................................31
5.6. Financial Statements........................................31
5.7. Satisfaction of Liabilities.................................32
5.8. Repurchase of Unpaid Receivables............................32
5.9. Termination of Obligations..................................33
5.10. Transfer Restrictions.......................................33
5.11. Tax Returns.................................................34
5.12. Sales Commissions...........................................34
5.13. Tax Clearance Certificate...................................34
6. Conditions to Closing................................................35
6.1. Conditions to Obligation of PentaStar.......................35
6.2. Conditions to Obligation of the Shareholders................36
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Page
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7. Remedies for Breaches of This Agreement..............................37
7.1. Indemnification Provisions for Benefit of PentaStar.........37
7.2. Indemnification Provisions for Benefit of the Shareholders..38
7.3. Matters Involving Third Parties.............................38
7.4. Right of Offset.............................................39
7.5. Other Remedies..............................................39
8. Termination..........................................................39
8.1. Termination of Agreement....................................39
8.2. Effect of Termination.......................................40
8.3. Confidentiality.............................................40
9. Miscellaneous........................................................40
9.1. No Third-Party Beneficiaries................................40
9.2. Entire Agreement............................................40
9.3. Succession and Assignment...................................40
9.4. Counterparts................................................42
9.5. Headings....................................................41
9.6. Notices.....................................................41
9.7. Governing Law...............................................41
9.8. Amendments and Waivers......................................42
9.9. Severability................................................42
9.10. Expenses....................................................42
9.11. Arbitration.................................................42
9.12. Construction................................................43
9.13. Incorporation of Exhibits...................................43
9.14. Shareholders' Agent.........................................43
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EXHIBITS
Exhibit 1.1(a) Exhibit 3.1(g)(i)
Exhibit 1.1(b)(i) Exhibit 3.1(h)
Exhibit 1.1(b)(ii) Exhibit 3.1(i)(i)
Exhibit 1.1(c) Exhibit 3.1(i)(ii)
Exhibit 1.1(e) Exhibit 3.1(k)
Exhibit 1.1(g) Exhibit 3.1(l)
Exhibit 3.1(a)(i) Exhibit 3.1(m)(i)
Exhibit 3.1(a)(ii) Exhibit 3.1(m)(ii)
Exhibit 3.1(b)(i) Exhibit 3.1(m)(iii)
Exhibit 3.1(b)(ii) Exhibit 3.1(n)(ii)
Exhibit 3.1(c) Exhibit 3.1(o)(i)
Exhibit 3.1(d)(i)(A) Exhibit 3.1(o)(ii)
Exhibit 3.1(d)(i)(B) Exhibit 3.1(s)
Exhibit 3.1(e)(i) Exhibit 3.1(t)
Exhibit 3.1(e)(ii) Exhibit 3.1(u)(ii)
Exhibit 3.1(e)(ii)(I) Exhibit 3.1(u)(xi)
Exhibit 3.1(e)(iii) Exhibit 3.2(b)(i)
Exhibit 3.1(e)(iv) Exhibit 4.9
Exhibit 3.1(f)(iii) Exhibit 6.1(h)
Exhibit 3.1(f)(v) Exhibit 6.2(e)
Exhibit 3.1(f)(vi)
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This Agreement and Plan of Merger is entered into on October 29, 2001,
to be effective as provided herein, among PentaStar Communications, Inc., a
Delaware corporation ("PentaStar"), PentaStar Acquisition Corp. XII, a Delaware
corporation (the "Acquiror"), XxxxxxxXxxxxxx.xxx Inc, a California corporation
(the "Company"), Xxxxx Xxxxxx and Xxxxx Xxxxxxx as Trustees U/T/A dated 10/1/01,
The Xxxxxx X. X'Xxxxx and Xxxxx X. X'Xxxxx Revocable Trust Dated August 27,
1998, Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxxx Revocable Trust dated October 19,
1999, Xxxxx X. Xxxxx and Xxxxx X. Xxxxx, Trustees U/T/A Dated 5/18/2000, Xxxxx
Xxxxxx, Xxxxx X. Xxxxxxx and Xxxx X. Xxxxxxx, Trustees of The Xxxxxxx Living
Trust, Dated March 10, 1998, Xxxxxx Xxxxxxx and Xxxx X. Xxxxxxx as Trustees UTA
Dated 7-16-91, Xxxxxxx X. Xxxxxxx, Xxxxxxx Xxxx and Xxxxxxx Link Family Trust
Dated 7/3/93, Xxxx X. Xxxxxx, Xxxxxx X. Xxxxxx and Xxxxxxx XxXxxxxx
(individually, a "Shareholder" and collectively, the "Shareholders").
Recitals
A. The Shareholders own all of the issued and outstanding capital
stock of the Company.
B. The Acquiror is a newly formed, wholly-owned subsidiary of
PentaStar. The Acquiror desires to acquire all of the business operations of the
Company through a statutory merger of the Company with and into the Acquiror,
with the Acquiror as the surviving entity (the "Transaction").
C. The Boards of Directors of each of PentaStar, the Acquiror and
the Company has determined that the Transaction is in the best interests of
their respective corporations and shareholders.
D. It is intended that the Transaction qualify as a
reorganization under the provisions of Section 368(a)(1)(A) pursuant to Section
368(a)(2)(D) of the Code.
E. PentaStar, the Acquiror and the Shareholders desire to make
certain representations, warranties and agreements in connection with the
Transaction and also desire to set forth various conditions precedent thereto.
Agreement
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties and covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:
1. Definitions. The terms defined in Exhibit 1.1(a) shall have the
meanings designated therein.
2. Merger.
2.1. Basic Transaction. Subject to the terms and conditions of this
Agreement and the corporation laws of the States of Delaware and California, at
the Closing, but effective for accounting purposes as of 12:01 a.m. California
time on October 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 1100 and 1108 of the California
Corporations Code. The terms of the Merger shall be as follows:
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(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.
(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. XII." 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 California Corporations Code, a
certificate of merger (the "Delaware Certificate of Merger") and deliver the
Delaware 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 " Certificate of Merger")
to the Secretary of State of the State of California for filing pursuant to
California Corporations Code. The Merger shall be completed upon the filing of
the Delaware Certificate of Merger with the Secretary of State of the State of
Delaware and the California Certificate of Merger with the Secretary of State of
the State of California, but shall be effective for accounting purposes as of
the Effective Date.
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(h) Share Conversion. At the Closing Date, by virtue of the Merger
and without any action on the part of the holder of any share of capital stock
of any corporation, each issued and outstanding share of capital stock of the
Company shall be converted into the right to receive a portion of the
consideration payable pursuant to Section 2.1(k) determined by dividing the
aggregate consideration so payable by the number of Company Shares outstanding
at the Closing Date; provided, however, that each share of capital stock of the
Company which is owned directly or indirectly by the Company (treasury stock)
immediately prior to the Closing Date, if any, shall be cancelled and retired,
and no cash, PentaStar Shares or other consideration shall be delivered or
payable in exchange therefor. Each share of the capital stock of 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, each Shareholder shall be entitled to receive a whole number
of shares.
(j) Estimated Closing Date Financial Information.
(i) Estimated Closing Date Balance Sheet. No earlier than
ten Business Days prior to the Closing or 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
August 31, 2001 (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.
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(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 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) 30,000 shares of PentaStar Common Stock
(subject to Section 2.1(i)) with a per share Fair Market Value of $8.51 and an
aggregate Fair Market Value of $255,240 as of the Closing Date, minus
(1) the aggregate amount of accounts
receivable, notes receivable and Residual Payment Rights collected by the
Company after August 31, 2001 (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
(2) 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 number of shares of PentaStar Common Stock
amount described in this clause (A) being referred to as the "Closing Shares");
plus
(3) cash held by the Company as of the
Closing Date in excess of the Interim Cash Requirement,
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(B) the earn-out amounts 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:
Shareholder No. of Shares Percentage
----------- ------------- ----------
Xxxxx Xxxxxx and Xxxxx Xxxxxxx as Trustees U/T/A dated 10/1/01 1,137,940 53.6%
The Xxxxxx X. X'Xxxxx and Xxxxx X. X'Xxxxx Revocable Trust Dated August 27, 1998 425,000 20.0%
Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxxx Revocable Trust dated October 19, 1999. 234,740 11.0%
Xxxxx X. Xxxxx and Xxxxx X. Xxxxx, Trustees U/T/A Dated 5/18/2000 150,000 7.1%
Xxxxx Xxxxxx 77,840 3.7%
Xxxxx X. Xxxxxxx and Xxxx X. Xxxxxxx, Trustees of The Xxxxxxx Living Trust,
Dated March 10, 1998 22,240 1.0%
Xxxxxx Xxxxxxx and Xxxx X. Xxxxxxx as Trustees UTA Dated 7-16-91 22,240 1.0%
Xxxxxxx X. Xxxxxxx 20,000 0.9%
Xxxxxxx Xxxx and Xxxxxxx Link Family Trust Dated 7/3/93 10,000 0.5%
Xxxx X. Xxxxxx 10,000 0.5%
Xxxxxx X. Xxxxxx 10,000 0.5%
Xxxxxxx XxXxxxxx 5,000 0.2%
--------- ------
Total 2,125,000 100.0%
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(ii) On the Closing Date, PentaStar shall (A) deliver the
Closing Shares to the Shareholders pursuant to Section 2.1(i) and as set forth
below:
Shareholder Shares
----------- --------
Xxxxx Xxxxxx and Xxxxx Xxxxxxx as Trustees U/T/A dated 10/1/01 16,080.0
The Xxxxxx X. X'Xxxxx and Xxxxx X. X'Xxxxx Revocable Trust Dated August 27, 1998 6,000.0
Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxxx Revocable Trust dated October 19, 1999. 3,300.0
Xxxxx X. Xxxxx and Xxxxx X. Xxxxx, Trustees U/T/A Dated 5/18/2000 2,130.0
Xxxxx Xxxxxx 1,110.0
Xxxxx X. Xxxxxxx and Xxxx X. Xxxxxxx, Trustees of The Xxxxxxx Living Trust,
Dated March 10, 1998 300.0
Xxxxxx Xxxxxxx and Xxxx X. Xxxxxxx as Trustees UTA Dated 7-16-91 300.0
Xxxxxxx X. Xxxxxxx 270.0
Xxxxxxx Xxxx and Xxxxxxx Link Family Trust Dated 7/3/93 150.0
Xxxx X. Xxxxxx 150.0
Xxxxxx X. Xxxxxx 150.0
Xxxxxxx XxXxxxxx 60.0
--------
Total 30,000.0
========
(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' Agent. 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
August 31, 2001 (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.
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Within 20 days after receipt of the Closing Date Balance Sheet, the
Shareholders' Agent 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' Agent 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' Agent 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 Statement") shall be prepared by
PentaStar and delivered by PentaStar to the Shareholders' Agent. 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' Agent
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' Agent 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' Agent 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' Agent or
the resolution of any disputes under Section 2.1(o), as the case may be, 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 PentaStar to the Shareholders or by the Shareholders,
jointly and severally, to PentaStar, as the case may be, so that the Purchase
Price actually paid equals 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 PentaStar 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, jointly and severally. 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, jointly
and severally. 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.
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(n) Earn-Out. In addition to the Closing Shares issuable at the
Closing pursuant to this Section 2.1, the Shareholders shall be entitled to
receive the Cash Consideration Earn-Out Amounts, the Earn-Out Amount and the
Expansion Earn-Out Amount determined and payable as provided in this Section
2.1(n).
(i) The parties agree that, during the Earn-Out Periods
(and any applicable Expansion Earn-Out Period), (A) the operations previously
conducted by the Company in the Bay Area Region shall be conducted as a separate
subsidiary or division of PentaStar with no other operations except for those
mutually agreed to by PentaStar and the Shareholders' Agent, (B) the Acquiror
shall account for its operations in the Bay Area 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 actions with respect to the business of the
Acquiror that impacts, directly or indirectly, positively or negatively, the
potential benefit of the earn-out arrangements. If the Shareholders believe that
the Acquiror or PentaStar has made a decision or taken an action which will have
a material adverse effect on the potential benefit to the Shareholders of the
earn-out arrangements, 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 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. The parties further agree that, absent
willful conduct engaged in by the Acquiror and/or PentaStar with the sole
purpose of materially adversely affecting the potential benefit to the
Shareholders of the earn-out arrangements, 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.
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; provided, however, that, during the Earn-Out Periods
only, PentaStar shall not call on, solicit, market to or sell to any Person
which, as of the date of PentaStar's first contact with such Person, is an
existing or prospective customer of the Acquiror. 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" of PentaStar 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 (other than the
Company) acquired by PentaStar), through a Subsidiary or its own activities,
within the three-year period prior to the Closing Date. For purposes of the
foregoing, a "prospective customer" of PentaStar shall mean a Person whom
PentaStar (including for this purpose any Person or business (other than the
Company) acquired by PentaStar) through a Subsidiary or its own activities, has
made a proposal to on or prior to the date on which the Acquiror first contacts
such Person regarding a sale within the Acquiror's business. For the purposes of
the foregoing, an "existing customer" of the Acquiror shall mean a Person to
whom a sale has been made by, or involving as agent for the seller, the Company
or the Acquiror, through a Subsidiary or their own activities, within the
three-year period prior to the Closing Date. For purposes of the foregoing, a
"prospective customer" of the Acquiror shall mean a Person whom the Company or
the Acquiror has made a proposal to on or prior to the date on which PentaStar
(including for this purpose any Person or business (other than the Company)
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acquired by PentaStar), through a Subsidiary or its own activities, first
contacts such Person regarding a sale within the Pentastar's business.
(ii) As soon as reasonably practicable after the end of
the applicable Earn-Out Period (or after the end of the applicable Expansion
Earn-Out Period) and in any event within 60 days after the end of the applicable
Earn-Out Period or Expansion Earn-Out Period (except in the case of the Cash
Consideration Earn-Out Amounts, within 30 days of the end of the applicable Cash
Consideration Earn-Out Period), PentaStar shall determine (A) the Earn-Out EBITA
for the Earn-Out Period then ended (or the applicable Expansion EBITA) and (B)
prepare a written calculation of the Cash Consideration Earn-Out Amount for the
Earn-Out Period then ended (and the Earn-Out Amount in the case of Earn-Out
Period Three (collectively, as to an Earn-Out Period, the "Earn-Out Financial
Statements") (or of the applicable Expansion Earn-Out Amount (collectively, as
to an applicable Expansion Earn-Out Period, the "Expansion 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 and consistent with the financial statements of the
Acquiror included in the audited or unaudited, as the case may be, financial
statements used, or to be used, by PentaStar in its annual or quarterly reports
filed with the SEC. As it specifically relates to the confirmation of
installation of services, PentaStar shall, if necessary, use other resources in
addition to Provider internal software system for tracking installations,
including confirming installations with customers, qualified personnel within a
Provider, the Acquiror's installation log books and any other resource which
might augment the confirmation of installations and be acceptable to PentaStar
as being in accordance with GAAP. PentaStar shall promptly provide a copy of the
Earn-Out Financial Statements (or the Expansion Earn-Out Financial Statements)
to the Shareholders' Agent. Within 20 days after receipt of the Earn-Out
Financial Statements (or the Expansion Earn-Out Financial Statements), the
Shareholders' Agent shall, in a written notice to PentaStar, either accept the
Earn-Out Financial Statements (or the Expansion Earn-Out Financial Statements)
or object to them by describing in reasonably specific detail any proposed
adjustments to the Earn-Out Financial Statements (or the Expansion 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' Agent to object to the Earn-Out Financial Statements (or the
Expansion Earn-Out Financial Statements) within such 20-day period shall be
deemed to be an acceptance by the Shareholders of the Earn-Out Financial
Statements (or the Expansion Earn-Out Financial Statements). If any adjustments
to the Earn-Out Financial Statements (or the Expansion Earn-Out Financial
Statements) are proposed by the Shareholders' Agent within such 20-day period,
the dispute shall be resolved as provided in Section 2.1(o).
(iii) (A) Within 15 Business Days after the later of
the acceptance by the Shareholders of the Earn-Out Financial Statements
pertaining to a Cash Consideration Earn-Out Amount, if any, or the resolution of
any disputes under Section 2.1(o), as the case may be, PentaStar shall pay the
Cash Consideration Earn-Out Amount, if any, to the Shareholders. The Cash
Consideration Earn-Out Amount shall be paid in cash; provided, however, that
PentaStar may pay a portion of the Cash Consideration Earn-Out Amount in
PentaStar Common Stock (valued at the Fair Market Value) if, in the good faith
opinion of PentaStar, based on advice of counsel, the payment of the Cash
Consideration Earn-Out Amount in cash only will 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.
(B) Within 15 Business Days after the later of
the acceptance by the Shareholders of the Earn-Out Financial Statements
pertaining to the Earn-Out Amount (or the Expansion Earn-Out Financial
Statements pertaining to an Expansion Earn-Out Amount) or the resolution of any
x
disputes under Section 2.1(o), as the case may be, PentaStar shall (1) pay the
Earn-Out Amount (or the Expansion Earn-Out Amount less the Expansion Earn-Out
Escrow Deposit), if any, to the Shareholders (the time of such payment of the
Earn-Out Amount (but not any Expansion Earn-Out Amount) being referred to as the
"Second Closing") and (2) shall deposit with the Escrow Agent the Earn-Out
Escrow Deposit (or the Expansion Earn-Out Escrow Deposit, as the case may be).
If the Fair Market Value of PentaStar Common Stock at the time of the Second
Closing is less than the Fair Market Value as of the Closing Date, the Earn-Out
Amount (or the Expansion Earn-Out Amount), if any, shall be paid in PentaStar's
sole discretion in cash or shares of PentaStar Common Stock which shall be
valued at the Fair Market Value. If the Fair Market Value of PentaStar Common
Stock at the time of the Second Closing is more than the Fair Market Value as of
the Closing Date, the Earn-Out Amount (or the Expansion Earn-Out Amount), if
any, shall be paid in shares of PentaStar Common Stock which shall be valued at
the Fair Market Value.
(C) If any portion of the Cash Consideration
Earn-Out Amount or the Earn-Out Amount (or the applicable Expansion Earn-Out
Amount) is paid in PentaStar Common Stock, the number of shares of PentaStar
Common Stock to be issued (which shall be rounded up to the nearest whole share,
and PentaStar shall distribute to the Shareholders a share for any such
fractional share as specified in Section 2.1(i)) shall be determined by dividing
(A) such portion of the Cash Consideration Earn-Out Amount or the Earn-Out
Amount (or the applicable Expansion Earn-Out Amount) that is being paid in
PentaStar Common Stock by (B) the Fair Market Value of a share of PentaStar
Common Stock. The cash portion of the Cash Consideration Earn-Out Amount or the
Earn-Out Amount (or the applicable Expansion 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 Cash Consideration Earn-Out Amount or the Earn-Out Amount less the
Earn-Out Escrow Deposit (or the applicable Expansion Earn-Out Amount less the
Expansion Earn-Out Escrow Deposit) shall be mailed to the Shareholders at the
Shareholders' Agent's address for notice purposes under this Agreement.
(D) On the date the Earn-Out Amount is paid, the
Shareholders shall deposit the Earn-Out Escrow Deposit with the Escrow Agent
pursuant to the Escrow Agreement to be held under the Escrow Agreement until the
Earn-Out Deposit Release Date, and PentaStar shall deliver such Earn-Out Escrow
Deposit directly to the Escrow Agent. On the date which is 180 days after the
end of the Earn-Out Period, PentaStar shall determine the Attributed Earn-Out
Amount EBITA Shortfall and (1) an amount (not to exceed the Earn-Out Escrow
Deposit) equal to five times the Attributed Earn-Out Amount EBITA Shortfall (or
four times the Expansion Earn-Out Amount Escrow Deposit, as the case may be)
shall be delivered from the Earn-Out Escrow Deposit and returned to PentaStar or
(2) cash equal to the Earn-Out Amount Accounts Receivable Shortfall shall be
paid by the Shareholders, jointly and severally, to PentaStar; provided,
however, that the Shareholders (as a group) shall have the right to elect
between clause (1) or (2) at such time; and, provided further, that PentaStar
may require the Shareholders, jointly and severally, to pay cash for the
Earn-Out Amount Accounts Receivable Shortfall under clause (2) above if, in the
good faith opinion of PentaStar, based on advice of counsel, the taking of
shares from the Earn-Out 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. PentaStar shall promptly provide a
copy of its calculation of the Earn-Out Amount Accounts Receivable Shortfall to
the Shareholders' Agent. The failure by the Shareholders' Agent to object (which
objection shall describe in reasonably specific detail any proposed adjustments
to such calculation) to such calculation within 20 days after receipt thereof
shall be deemed to be acceptance by the Shareholders of such calculation. For
purposes of determining the number of PentaStar Shares deducted from the
Earn-Out Escrow Deposit, 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. During the
xi
time that any PentaStar Shares are held in the Earn-Out 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. The Earn-Out Escrow
Deposit shall be held and disbursed according to this Agreement and the Escrow
Agreement. PentaStar and the Shareholders' Agent shall jointly give written
instructions to the Escrow Agent as necessary to carry out the intent of this
Section 2.1(n)(iii)(D). If any of the uncollected receivables used in
calculating the Attributed Earn-Out Amount EBITA Shortfall are collected
subsequent to the release from the Earn-Out Escrow Deposit of the relevant
shares to PentaStar, PentaStar will pay the cash proceeds of the subsequently
collected receivables to the Shareholders.
(E) On the date an Expansion Earn-Out Amount is
paid, the Shareholders shall deposit the Expansion Earn-Out Escrow Deposit
corresponding thereto with the Escrow Agent pursuant to the Escrow Agreement to
be held under the Escrow Agreement until the Expansion Earn-Out Deposit Release
Date corresponding thereto, and PentaStar shall deliver such Expansion Earn-Out
Escrow Deposit directly to the Escrow Agent. On the date which is 180 days after
the end of the Expansion Earn-Out Period corresponding thereto, PentaStar shall
determine the amount of the Attributed Expansion Earn-Out Amount EBITA Shortfall
and (1) an amount (not to exceed the Expansion Earn-Out Escrow Deposit
corresponding thereto) equal to four times such Expansion Earn-Out Amount
Accounts Receivable Shortfall shall be delivered from the Expansion Earn-Out
Escrow Deposit corresponding thereto and returned to PentaStar or (2) cash equal
to such Expansion Earn-Out Amount Accounts Receivable Shortfall shall be paid by
the Shareholders, jointly and severally, to PentaStar; provided, however, that
the Shareholders (as a group) shall have the right to elect between clause (1)
or (2) at such time; and, provided further, that PentaStar may require the
Shareholders, jointly and severally, to pay cash for such Expansion Earn-Out
Amount Accounts Receivable Shortfall under clause (2) above if, in the good
faith opinion of PentaStar, based on advice of counsel, the taking of shares
from such Expansion Earn-Out 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. PentaStar shall promptly
provide a copy of its calculation of the Expansion Earn-Out Amount Accounts
Receivable Shortfall to the Shareholders' Agent. The failure by the
Shareholders' Agent to object (which objection shall describe in reasonably
specific detail any proposed adjustments to such calculation) to such
calculation within 20 days after receipt thereof shall be deemed to be
acceptance by the Shareholders of such calculation. For purposes of determining
the number of PentaStar Shares deducted from such Expansion Earn-Out Escrow
Deposit, 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.
During the time that any PentaStar Shares are held in such Expansion Earn-Out
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. Any
Expansion Earn-Out Escrow Deposit shall be held and disbursed according to this
Agreement and the Escrow Agreement. PentaStar and the Shareholders' Agent shall
jointly give written instructions to the Escrow Agent as necessary to carry out
the intent of this Section 2.1(n)(ii)(E). If any of the uncollected receivables
used in calculating the Attributed Expansion Earn-Out Amount EBITA Shortfall are
collected subsequent to the release from the Expansion Earn-Out Escrow Deposit
of the relevant shares to PentaStar, PentaStar will pay the cash proceeds of the
subsequently collected receivables to the Shareholders.
(iv) (A) If a PentaStar Liquidity Event occurs prior
to the end of Earn-Out Period Three, then the Shareholders (as a group) shall
have the option, exercisable by notice to PentaStar within three Business Days
of notice from PentaStar to the Shareholders' Agent (which notice may be given
by PentaStar at any time after it reasonably believes that the PentaStar
Liquidity Event will occur even if it
xii
has not then been closed), of (1) using the Earn-Out EBITA for the 12-month
period ending on the last day of the month preceding the month before the month
in which the PentaStar Liquidity Event occurs (the "12-Month Period"; e.g., if
the PentaStar Liquidity Event occurs on June 15, 2002, then the 12-Month Period
would be the 12 months ended April 30, 2002) for purposes of calculating the
deemed Earn-Out Amount for Earn-Out Period Three (even if the start of such
deemed 12-Month Period is before the Closing of this transaction) or (2)
receiving in lieu of the Earn-Out Amount, an amount equal to (x) 135% of the
Acquiror's revenues (determined on a basis consistent with the principles set
forth in the definition of EBITA) for the 12-Month Period, minus (y) the
aggregate Purchase Price (whether escrowed or not) previously paid by PentaStar.
If the Shareholders exercise their option pursuant to this Section 2.1(n)(v)(A),
then the amount payable pursuant to this Section 2.1(n)(v)(A) shall be in full
satisfaction of all Cash Consideration Earn-Out Amounts and the Earn-Out Amount
and the Shareholders shall forfeit any right to receive any other consideration.
If the Fair Market Value of PentaStar Common Stock at the time of the Second
Closing is less than the Fair Market Value as of the Closing Date, the deemed
Earn-Out Amount (or the deemed Expansion Earn-Out Amount), if any, shall be paid
in PentaStar's sole discretion in cash or shares of PentaStar Common Stock which
shall be valued at the Fair Market Value. If the Fair Market Value of PentaStar
Common Stock at the time of the Second Closing is more than the Fair Market
Value as of the Closing Date, the Earn-Out Amount (or the Expansion Earn-Out
Amount), if any, shall be paid in shares of PentaStar Common Stock which shall
be valued at the Fair Market Value.
(B) If a PentaStar Liquidity Event occurs prior
to the end of any Expansion Earn-Out Period, then the Shareholders shall have
the option, exercisable by notice to PentaStar within three Business Days of
notice from PentaStar to the Shareholders' Agent (which notice may be given by
PentaStar at any time it reasonably believes that a PentaStar Liquidity Event
will occur even if it has not then been closed) of receiving in respect of the
applicable Expansion Earn-Out Amount (1) an amount equal to 120% of Expansion
Revenues for such Bay Area-based Expansion Office for the period from the first
day of such Expansion Earn-Out Period until the last day of the last full month
preceding the month in which the PentaStar Liquidity Event occurs, if such
measurement period is less than three calendar months long, or (2) if such
measurement period is three or more calendar months long, an amount equal to the
Expansion Earn-Out Amount, determined by annualizing the actual Expansion EBITA
and the actual Expansion Revenues for such measurement period. Pertaining to any
amount payable pursuant to this Section 2.1(n)(v)(B), if the Fair Market Value
of PentaStar Common Stock at the time of the Second Closing is less than the
Fair Market Value as of the Closing Date, the Earn-Out Amount (or the Expansion
Earn-Out Amount), if any, shall be paid in PentaStar's sole discretion in cash
or shares of PentaStar Common Stock which shall be valued at the Fair Market
Value. If the Fair Market Value of PentaStar Common Stock at the time of the
Second Closing is more than the Fair Market Value as of the Closing Date, the
Earn-Out Amount (or the Expansion Earn-Out Amount), if any, shall be paid in
shares of PentaStar Common Stock which shall be valued at the Fair Market Value.
(C) If the Shareholders do not exercise their
options pursuant to Sections 2.1(n)(v)(A) and (B), then PentaStar shall have the
option, exercisable by notice to the Shareholders' Agent on or before the date
of the PentaStar Liquidity Event, of paying to the Shareholders, in full
satisfaction of its obligation to pay the Earn-Out Amount, all Cash
Consideration Earn-Out Amounts and all Expansion Earn-Out Amounts, an amount
equal to (1) two times the Earn-Out EBITA for the 12-Month Period, if the
PentaStar Liquidity Event occurs on or before December 31, 2001, (2) the
Earn-Out EBITA for the 12-Month Period, if the PentaStar Liquidity Event occurs
between January 1, 2002 and December 31, 2002, or (3) one-half times the
Earn-Out EBITA for the 12-Month Period, if the PentaStar Liquidity Event occurs
between January 1, 2003 and June 30, 2004. If PentaStar exercises its option
pursuant to this Section 2.1(n)(v)(C),
xiii
then the amount payable pursuant to clause (1), (2) or (3) above shall be in
full satisfaction of all Cash Consideration Earn-Out Amounts, the Earn-Out
Amount and all Expansion Earn-Out Amounts All amounts payable pursuant to this
Section 2.1(n)(v)(C) shall be paid within ten Business Days after the PentaStar
Liquidity Event. Any PentaStar Shares delivered pursuant to this Section
2.1(n)(v)(C) shall not be subject to the contractual restrictions on transfer
set forth in the first paragraph of Section 5.10.
(D) If the Shareholders do not exercise their
options pursuant to Section 2.1(n)(v)(A)and (B) and PentaStar does not exercise
its option pursuant to Section 2.1(n)(v)(C), then the earn-outs shall continue
as set forth in Section 2.1(n).
(v) Upon agreement of PentaStar and the Shareholders'
Agent, the Acquiror may, during the three- year period following the Closing
Date, open additional geographic offices (which may be in any mutually agreed
location in the United States) for its operations headquartered in Petaluma,
California ("Bay Area-based Expansion Offices"). Any Bay Area-based Expansion
Offices, shall be under Xx. X'Xxxxx'x direct management (so long as Xx. X'Xxxxx
is employed by the Acquiror), subject to PentaStar's control. All monies for the
establishment and operation of any Bay Area-based Expansion Office shall come
solely from the Acquiror's operations. Budgets (including compensation plans)
for the Bay Area-based Expansion Offices shall be mutually constructed by
PentaStar and Xx. X'Xxxxx (so long as Xx. X'Xxxxx is employed by the Acquiror).
The Shareholders shall be paid the Expansion Earn-Out Amount with respect to
each Bay Area-based Expansion Office.
(o) Resolution of Disputes. If any adjustments to the Closing Date
Balance Sheet, the Interim Period Cash Flow Statement, the Earn-Out Financial
Statements, any Expansion Earn-Out Financial Statements, the calculation of the
Earn-Out Amount Accounts Receivable Shortfall or the calculation of any
Expansion Earn-Out Amount Accounts Receivable Shortfall are proposed by the
Shareholders' Agent pursuant to Section 2.1(l) or 2.1(n), PentaStar and the
Shareholders' Agent 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 shall retain the Denver,
Colorado office of BDO Xxxxxxx LLC to resolve such dispute, which resolution
shall be final and binding. The fees and expenses of BDO Xxxxxxx LLC shall be
paid by the parties in accordance with the percentage allocation of any changes
required to be made as a result of the dispute, as determined by BDO Xxxxxxx
LLC. BDO Xxxxxxx LLC shall be retained under a retention letter 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, any Expansion Earn-Out Financial Statements, the
calculation of the Earn-Out Amount Accounts Receivable Shortfall or the
calculation of any Expansion Earn-Out Amount Accounts Receivable Shortfall or
(ii) the objecting party (as the objecting party's proposed adjustment position
is specified in the objecting party's notice meeting the requirements of Section
2.1(l) or 2.1(n), as the case may be) under Section 2.1(l) or 2.1(n), as the
case may be, without change, within 30 days of the expiration of the applicable
20-day period described in Section 2.1(l) or 2.1(n), as the case may be.
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 October 29, 2001, or as soon thereafter as the conditions to
closing set forth in Section 6 are satisfied (12:01 a.m. California time on the
date upon which the Closing actually occurs being referred to as the "Closing
Date").
xiv
2.3. Deliveries at the Closing. At the Closing, (a) the Shareholder
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 Shareholder the various certificates, instruments and documents, and take or
cause to be taken the actions, referred to in Section 6.2.
3. Representations and Warranties.
3.1. Representations and Warranties of the Shareholders. The
Shareholders, jointly and severally, represent and warrant 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 California, and the nature of the business conducted by it or
the properties owned, leased or operated by it make qualification and
authorization not necessary in any other jurisdiction. 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 California) 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 5,000,000 shares of common stock, no par value and 500,000 shares of
preferred stock, no par value. Each Shareholder owns, beneficially and of
record, free and clear of any Encumbrance or Tax, the number of shares of the
common stock, no par value, of the Company (the "Company Shares") set forth
opposite such Shareholder's name in Section 2.1(k)(i), and the Company Shares
reflected in Section 2.1(k)(i) constitute all of the issued and outstanding
capital stock of the Company. The Company does not own, directly or indirectly,
any shares of its capital stock. All of the issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued, and are
fully paid and nonassessable, with no personal Liability attaching to the
ownership thereof. Except as set forth on Exhibit 3.1(b)(i), 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
xv
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 Closing, there are no existing rights of first
refusal, buy-sell arrangements, options, warrants, rights, calls, or other
commitments or restrictions of any character relating to any of the Company
Shares, except those restrictions on transfer imposed by the Securities Act and
applicable state securities laws.
(ii) Except as set forth on Exhibit 3.1(b)(ii),
the Company has no Subsidiaries and no capital stock, securities convertible
into capital stock, or any other equity interest in any other corporation,
partnership, limited partnership, limited liability company, association, joint
venture or other Person. Each of the entities listed on Exhibit 3.1(b)(ii) is
wholly-owned, directly or indirectly, by the Company, is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation as set forth on Exhibit 3.1(b)(ii), and is qualified to do
business as a foreign corporation and is in good standing in the states set
forth on Exhibit 3.1(b)(ii), which are the only jurisdictions in which the
nature of the business conducted by it or the properties owned, leased or
operated by it make such qualification necessary. No Person has any right to
acquire any interest in any Subsidiary and there are no authorized or
outstanding stock appreciation, phantom stock, profit participation or similar
rights with respect to any Subsidiary. Each such Subsidiary has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
(c) Authority; No Violation. Each Shareholder, and each relative
or affiliate of the Company or of a Shareholder who is a party to any Other
Seller Agreement, has full and absolute right, power, authority and legal
capacity to execute, deliver and perform this Agreement and all Other Seller
Agreements to which such Shareholder, relative or affiliate is a party, and this
Agreement constitutes, and the Other Seller Agreements shall when executed and
delivered constitute, the legal, valid and binding obligations of, and shall be
enforceable in accordance with their respective terms against, each such
Shareholder, relative or affiliate who is a party thereto. The execution,
delivery and performance of this Agreement and the Other Seller Agreements and
the consummation of the transactions contemplated hereby and thereby shall not
(i) violate any Legal Requirement to which the Company, any Shareholder, or any
relative or affiliate of the Company or of any Shareholder who is a party to any
Other Seller Agreement is subject or any provision of the articles of
incorporation or bylaws of the Company or of any such affiliate, or (ii)
violate, with or without the giving of notice or the lapse of time or both, or
conflict with or result in the breach or termination of any provision of, or
constitute a default under, or give any Person the right to accelerate any
obligation under, or result in the creation of any Encumbrance upon any
properties, assets or business of the Company, of any Shareholder, or of any
such relative or affiliate pursuant to, any indenture, mortgage, deed of trust,
lien, lease, license, Permit, agreement, instrument or other arrangement to
which the Company, any Shareholder or any such relative or affiliate is a party
or by which the Company, any Shareholder, or any such relative or affiliate or
any of their respective assets and properties is bound or subject. Except for
notices that shall be given and consents that shall be obtained by the
Shareholders prior to the Closing (each of which is set forth in Exhibit
3.1(c)), neither the Company, any Shareholder, nor any such relative or
affiliate need give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority or other Person
in order for the parties to consummate the transactions contemplated by this
Agreement and the Other Seller Agreements.
(d) Financial Statements; Absence of Liabilities. (i) The balance
sheet of the Company as of June 30, 2001 (the "Latest Balance Sheet") and the
related statement of income for the six-month period
xvi
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 such balance sheet, the Company had no Liability other than those set forth
on 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 six-month period ended June 30, 2001 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) Except as set forth on Exhibit 3.1(e)(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 salary due and payable during such period or (2) rent due under
pre-existing real property leases between the Company and any 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 July 1, 2001, the Company has maintained Operational Continuity.
xvii
(iii) Exhibit 3.1(e)(iii) sets forth (A) a single page
summary of, and (B) a list of, all net orders booked (based on the increase in
revenue for one-time and residual commissions) and all customer contracts
entered into by the Company, and all orders installed, in each case by month,
for the 12-month period from July 1, 1999 through June 30, 2000, July 1, 2000
through June 30, 2001 and the three month period from July 1, 2001 through
September 30, 2001 (the "Most Recent Calendar Quarter") thereafter, and the
current status of each such order, contract or installation for the Most Recent
Calendar Quarter and (C) the average annual cancellation rate of ongoing
services that the Company has incurred for the same periods.
(iv) Exhibit 3.1(e)(iv) provides signed copies of (A) the
Company's one and only note to Xxxxx Xxxxxx (the "Xxxxxx Note"), (B) the
assignment of the Xxxxxx Note to CRC Networks Inc. and (C) the consent by Xxxxx
Xxxxxx to the assignment of the Xxxxxx note to CRC Networks Inc. and the release
by Xxxxx Xxxxxx of the Company from any obligation pertaining to the Xxxxxx
Note.
(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, 1997, 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, 1997.
(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
xviii
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.
(vi) Exhibit 3.1(f)(vi) sets forth the following
information with respect to the Company as of the most recent practicable date
(as well as on an estimated pro forma basis as of the Closing giving effect to
the consummation of the transactions contemplated hereby): (A) the basis of the
Company in the Acquired Assets; and (B) the amount of any net operating loss,
net capital loss, unused investment or other credit, unused foreign tax credit
or excess charitable contribution allocable to the Company.
(g) Assets and Properties.
(i) The Company has good and marketable title to, or a
valid leasehold interest or interest as a lessee in, the assets and properties
used or held for use by it located on the Premises or shown on the Latest
Balance Sheet or acquired after the date thereof. As of the Closing, all of the
Acquired Assets shall be owned by the Company, free and clear of all
Encumbrances. The Company has not entered into any contract or made any
commitment to sell all or any part of its assets. The Acquired Assets constitute
all of the real, personal and mixed assets and property, both tangible and
intangible, including Intellectual Property, which are being used or held for
use by the Company in the conduct of the business and operations of the Company,
consistent with historical and current practices, other than the Excluded
Assets. The Company owns or leases all equipment and other tangible assets
necessary for the conduct of its business as presently conducted and as
presently proposed to be conducted. Each such tangible asset material to the
Company's business has been maintained in accordance with normal industry
practice and is in good operating condition and repair (subject to normal wear
and tear). All leases of real property between the Company and any shareholder,
officer or director or any relative or affiliate thereof or of the Company are
on fair market terms (including rent at fair market value). Neither any
Shareholder, nor any relative or affiliate thereof or of the Company, own any
asset, tangible or intangible, which is used in the Company's business, other
than real property leased to the Company on fair market terms and at fair market
value pursuant to leases set forth on Exhibit 3.1(g)(i).
(ii) The Premises constitute all of the real property,
buildings and improvements used by the Company in its business. To the best
knowledge of the Shareholders, the Premises have been occupied, operated and
maintained in accordance with applicable Legal Requirements. The Company has not
received notice of violation of any Legal Requirement or Permit relating to its
operations or its owned or leased properties.
(iii) No party to any lease with respect to any Premises
has repudiated any provision thereof, and there are no disputes, oral agreements
or forbearance programs in effect as to any such lease.
xix
(h) Lists of Contracts and Other Matters. Attached as Exhibit
3.1(h) is a correct and complete list setting forth the following items, to the
extent such items relate to the Acquired Assets, the Assumed Liabilities or the
business represented by Acquired Assets:
(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 any shareholder on behalf of the Company, has made a deposit in an
amount greater than $5,000;
(C) any agreement (or group of related
agreements) for the purchase or sale of supplies, products or other personal
property, or for the furnishing or receipt of services, the performance of which
shall extend over a period of more than one year, result in a material loss to
the Company or its business or involve consideration in excess of $5,000;
(D) any agreement concerning a partnership or
joint venture;
(E) any agreement (or group of related
agreements) under which the Company has created, incurred, assumed or guaranteed
any indebtedness for borrowed money, or any capitalized lease obligation, in
excess of $5,000 or under which it has granted any Encumbrances on any of its
assets, tangible or intangible;
(F) any agreement concerning confidentiality or
noncompetition;
(G) any agreement with any of its current or
former shareholders, directors or officers or any relative or affiliate thereof
(other than the Company);
(H) any profit sharing, stock option, stock
purchase, phantom stock, stock appreciation, profit participation, deferred
compensation, severance or other plan or arrangement;
(I) any collective bargaining agreement;
(J) any agreement for the employment of any
individual on a full-time, part-time, consulting or other basis or any agreement
providing severance benefits;
(K) any agreement under which the Company has
advanced or loaned any amount to any of its directors, officers and employees
outside the ordinary course of business;
(L) any agreement obligating the Company to meet
another party's unspecified requirements for goods or services or obligating it
to purchase an unspecified amount of goods or services based on another party's
ability to supply them;
xx
(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). With respect to
each such agreement: (A) the agreement is legal, valid, binding, enforceable and
in full force and effect; (B) the agreement shall continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) neither the
Company nor, to the best knowledge of the Shareholders, any other party is in
breach or default, and, to the best knowledge of the Shareholders, no event has
occurred which, with notice or lapse of time, would constitute a breach or
default, or permit termination, modification or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(i) Litigation; Compliance with Applicable Laws and Rights.
(i) There is no outstanding Order against, nor, except as
set forth on Exhibit 3.1(i)(i), is there any litigation, proceeding, arbitration
or investigation by any Governmental Authority or other Person pending or, to
the best knowledge of the Shareholders, threatened against, the Company, its
assets or its business or relating to the transactions contemplated by this
Agreement, nor is there any basis for any such action.
(ii) To the best knowledge of the Shareholders, except as
set forth on Exhibit 3.1(i)(ii), neither the Company nor the Company's assets
are in violation of any applicable Legal Requirement or Right. The Company has
not received notice from any Governmental Authority or other Person of any
violation or alleged violation of any Legal Requirement or Right, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand or
notice has been filed or commenced or is pending or, to the best knowledge of
the Shareholders, threatened against the Company alleging any such violation.
xxi
(j) Notes and Accounts Receivable. The notes and accounts
receivable of the Company reflected on its 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, 1996, 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, (ii) products and services liability and
liability for fire, property damage, personal injury and workers' compensation
coverage and (iii) business interruption, all, to the best knowledge of the
Shareholders, with responsible and financially sound insurance carriers in
adequate amounts and in compliance with applicable Legal 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 which is, to the best knowledge of the Shareholders, 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).
(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.
xxii
(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 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 Revenue 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 is exempt from Tax pursuant to Section 501(a) of the Code.
(iii) Exhibit 3.1(m)(iii) lists each employment, offer
letter, 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. The
Shareholders have no knowledge of any basis for any such action, suit,
proceeding, hearing or investigation.
(vi) The Company does not maintain and has never
maintained nor contributes, or ever has contributed, or ever has been required
to contribute, to any Company Welfare Plan providing health or medical benefits
for current or future retired or terminated employees, their spouses or their
dependents (other than in accordance with Code Section 4980B). No condition
exists that would prevent the Company from amending or terminating any Company
Welfare Plan or Benefit Arrangement providing health or medical benefits in
respect of any active or retired employees of the Company.
(vii) Any Company Welfare Plan that is a "group health
plan" (as defined in Code Section 5000(b)(l)) has been administered in
accordance with the requirements of Part 6 of Subtitle B of Title
xxiii
I of ERISA and Code Section 4980B and nothing done or omitted to be done in
connection with the maintenance or administration of any Company Welfare Plan
that is a "group health plan" has made or shall make the Company subject to any
liability under Title I of ERISA, excise Tax Liability under Code Section 4980B
or has resulted or shall result in any loss of income exclusion for a
participant under Code Sections 105(h) or 106.
(viii) There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G or 162(a)(l) of the Code.
(ix) The Company has made, before the date of this
Agreement, all required contributions and premium payments under each Employee
Benefit Plan and Benefit Arrangement for all completed fiscal years including
contributions that may not by law have otherwise been required to be made until
the due date for filing the Tax Return for any completed fiscal year.
(n) Employees and Labor.
(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. 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 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 (a "Principal Customer") and each referral source (a
"Principal 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 June 30, 2001. Exhibit 3.1(o)(ii) lists each
Person who is a service provider (including Cable & Wireless, Pac-Xxxx and New
Edge) 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 its Principal Customers, Principal Referral Sources
and Principal
xxiv
Providers and since July 1, 2000, no Principal Customer, Principal 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 Principal Customer, Principal 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 Principal Customer, Principal Referral Source or
Principal Provider prior to the Closing Date or of the Acquiror or PentaStar
with any Principal Customer, Principal Referral Source or Principal Provider
after the Closing Date. Certain Principal Providers (including, AT&T, SBC, Inc.
and Sprint) have not yet agreed to the assignment of the Company's agency
relationships, contracts or contract rights to PentaStar. After the Closing, the
Shareholders and PentaStar will continue to use commercially reasonable efforts
to have unassigned contracts assigned to PentaStar. However, there can be no
assurance that the remaining contracts will be assigned and the Shareholders
make no representation, warranty or indemnification that they will be assigned.
(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, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
and the years
xxv
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 the Shareholder pursuant to
this Agreement (the "PentaStar Shares") for the 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 the Shareholder is not an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Securities Act, the Shareholder
through the 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
the Shareholder deems necessary to enable the Shareholder (and the Shareholder's
Purchaser Representative, if the 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), the Regulation FD
Nondisclosure Agreement dated October 25, 2001 between PentaStar and the
Shareholders and PentaStar's Regulation FD Nondisclosure Agreement letter to the
shareholders dated October 25, 2001; each Shareholder (and the Shareholder's
Purchaser
xxvi
Representative, if the 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), the Regulation FD Nondisclosure Agreement dated October 25, 2001
between PentaStar and the Shareholders and PentaStar's Regulation FD
Nondisclosure Agreement letter to the shareholders dated October 25, 2001, and
all such questions, if any, have been answered to the full satisfaction of the
Shareholder (and the Shareholder's Purchaser Representative, if the Shareholder
is not an "accredited investor"); (iii) no Person other than each Shareholder
has (A) any rights in and to the PentaStar Shares, which rights were obtained
through or from the Shareholder; or (B) any rights to acquire the PentaStar
Shares, which rights were obtained through or from the Shareholder; (iv) each
Shareholder (or the Shareholder's Purchaser Representative, if the 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 the Shareholder (or the Shareholder's
Purchaser Representative, if the Shareholder is not an "accredited investor") is
capable of evaluating the merits and risks involved in an investment in the
PentaStar Shares; and each 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 the
Shareholder's current needs and has no need for liquidity in the Shareholder's
investment in the PentaStar Shares; each Shareholder has no reason to anticipate
any material change in the 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 the Shareholder shall realize any gain from this investment, and that the
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 the Shareholder's Purchaser Representative, if the Shareholder
is not an "accredited investor") by PentaStar or any agent, employee or
affiliate of PentaStar, and in entering into this transaction the Shareholder is
not relying upon any information, other than from the results of independent
investigation by the Shareholder (or the Shareholder's Purchaser Representative,
if the Shareholder is not an "accredited investor"); and (x) each Shareholder
understands that the PentaStar Shares are being offered to the 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 the 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 the Shareholder to
acquire the PentaStar Shares; and (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) sets forth the 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 COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
xxvii
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED WITHOUT
REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
(v) Disclosure. None of the documents or information provided to
PentaStar by the Company, any Shareholder or any agent or employee thereof in
the course of PentaStar's due diligence investigation and the negotiation of
this Agreement and Section 3.1 of this Agreement and the disclosure Exhibits
referred to therein, including the financial statements referred to above in
Section 3.1, contain 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
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).
The Shareholders acknowledge and agree 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.
(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).
xxviii
(ii) At the time of issuance thereof and delivery to a
Shareholder, the PentaStar Shares to be delivered to such Shareholder pursuant
to this Agreement shall be duly authorized and validly issued shares of
PentaStar's Common Stock, and shall be fully paid and nonassessable. Such
PentaStar Shares shall at the time of such issuance and delivery be free and
clear of any Encumbrances of any kind or character, other than those arising
under applicable federal and state securities laws, under this Agreement or
under any Other Seller Agreement to which a 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).
(e) Certain Principal Providers.
(i) Certain Principal Providers (including, AT&T, SBC,
Inc. and Sprint) have not yet agreed to the assignment of the Company's agency
relationships, contracts or contract rights to PentaStar.
xxix
After the Closing, the Shareholders and PentaStar will continue to use
commercially reasonable efforts to have unassigned contracts assigned to
PentaStar. However, there can be no assurance that the remaining contracts will
be assigned and PentaStar makes no representation, warranty or indemnification
that they will be assigned.
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 three years , except that the Liabilities of the
Shareholders with respect to the representations and warranties set forth in
Sections 3.1(a), 3.1(b), 3.1(c), 3.1(f), 3.1(m), 3.1(p), 3.1(q), 3.1(u) and
3.1(v) and the Liabilities of PentaStar with respect to the representations and
warranties set forth in Sections 3.2(a), 3.2(b) and 3.2(c) shall survive without
termination, and except that the Liabilities of PentaStar with respect to the
representations and warranties set forth in Section 3.2(d) shall survive the
Closing for six months.
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 a
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
xxx
business, assets, Liabilities, financial condition, operations, results of
operations, future prospects, representations, warranties, covenants or
disclosure Exhibits of the Company. No such written notice, however, shall be
deemed to amend or supplement any disclosure Exhibit or to prevent or cure any
misrepresentation, breach of warranty or breach of covenant.
4.5. Exclusivity. No Shareholder shall, and the Shareholders shall
not cause or permit the Company to, (a) solicit, initiate or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any portion of the assets
of, the Company (including any acquisition structured as a merger, consolidation
or share exchange) or (b) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. No Shareholder shall vote shares of the Company's stock in
favor of any such transaction. The Shareholders shall notify PentaStar
immediately if any Person makes any proposal, offer, inquiry or contact with
respect to any of the foregoing.
4.6. Announcements; Securities Law Restrictions. Prior to the
Closing, neither any Shareholder nor the Company shall disclose to any Person,
nor issue any press release or make any public announcement concerning, the
existence, terms or subject matter of this Agreement without the prior written
approval of PentaStar, except (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; provided, however, that no funds received in respect
of accounts receivable, notes receivable or Residual Payment Rights described in
Section 2.1(k)(i)(A)(1) shall be used for such purpose. 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 the Shareholders, the
Company or any other Person.
(b) Prior to the Closing Date, the Shareholders shall
have caused 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 any Shareholder to convey, to the Company, free and clear of any
Encumbrance or Tax, all of any 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 any Shareholder or relative
or affiliate of the Company or of any 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 a 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.
xxxi
4.9. Conveyance of Capital Lease Property. Prior to the Closing
Date, the Company shall purchase from the lessors thereof all of the property
identified on Exhibit 4.9 (which is held under capital, rather than operating,
leases) (the "Capital Lease Property"), so that the Capital Lease Property is
owned by the Company immediately prior to the Closing as an Acquired Asset, free
and clear of any Encumbrance or Tax.
5. Post-Closing Covenants. The parties agree as follows with respect to
the period following the Closing.
5.1. Further Assurances. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties shall take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor under
Section 7).
5.2. Transition. No Shareholder shall take any action at any time
that is designed or intended to have the effect of discouraging any customer,
service provider, Sub-Agent, lessor, licensor, employee or other business
associate of the Company from establishing or continuing a business relationship
with the Acquiror or PentaStar after the Closing.
5.3. Cooperation. In the event and for so long as any party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection with
(a) any transaction contemplated by this Agreement or (b) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving any of the Acquired Assets or the Company's business, each of the
other parties shall cooperate with such party and its counsel in the contest or
defense, make available their personnel, and provide such testimony and access
to their books and records as shall be reasonably necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending party (unless the contesting or defending party is entitled to
indemnification therefor under Section 7 or unless the dispute is between the
parties to this Agreement).
5.4. Confidentiality. The Shareholders 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.
xxxii
(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 Shareholder acknowledge that PentaStar
may be required by applicable Legal Requirements to include audited financial
statements with respect to the business of the Company in reports filed with the
SEC and other governmental agencies and that the inability to audit the
financial statements as of the Effective Date promptly after the Closing could
have a material adverse effect on PentaStar. PentaStar and the Acquiror shall
make available to the Shareholders such existing books and records of the
Company as are required by the Shareholders to fulfill their obligations under
this Section 5.6(a).
(b) Acquiror Reporting. The Acquiror shall produce and
deliver to PentaStar historical and on-going financial statements, monthly
management plan and review reports and annual budget/forecasts, in form and
substance acceptable to PentaStar. The monthly management plans 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 any Cash Consideration Earn-Out Amount, the Earn-Out Amount or
any Expansion Earn-Out Amount, which shall be determined as set forth in Section
2.1(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 produce, under the supervision of the
Shareholders' Agent (so long as the Shareholders' Agent is employed by the
Acquiror), the Earn-Out Amount Accounts Receivable Detail List and the Expansion
Earn-Out Amount Accounts Receivable Detail List and submit such Lists to
PentaStar within 15 Business Days after the end of Earn-Out Period Three or the
applicable Expansion Earn-Out Period, as the case may be, for PentaStar's use in
connection with Sections 2.1(n)(iii)(D) and (E), as the case may be.
(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,
jointly and severally, 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
xxxiii
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, jointly and
severally, and neither the Company nor PentaStar shall have any Liability with
respect thereto.
(b) The Shareholders, at their 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 GAAP on a
basis consistent with the accounting practices 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, jointly and severally,
shall 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 the Acquiror or 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 the
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 the Shareholder or family members of the 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
xxxiv
by such restrictions (and a copy of such agreement is furnished to PentaStar
prior to the transfer), each Shareholder agrees that the 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 the Shareholder pursuant to this Agreement. Thereafter, each
Shareholder may sell, assign, exchange, transfer, pledge or otherwise dispose of
any of the PentaStar Shares received by the Shareholder pursuant to this
Agreement at any time, and an additional number of the PentaStar Shares already
received pursuant to this Agreement which, equals 50% of the total PentaStar
Shares received pursuant to this Agreement by the 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) at which time all of the PentaStar Shares shall
no longer be subject to selling restrictions or (x) October 29, 2004 (the
earlier to occur of (w) or (x) being referred to as a "PentaStar Liquidity
Event") at which time all of the PentaStar Shares shall no longer be subject to
selling restrictions. 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 OCTOBER 29, 2001, (THE "AGREEMENT") BY AND
AMONG THE ISSUER, PENTASTAR ACQUISITION CORP. XII, XXXXXXXXXXXXXX.XXX INC AND
THE SHAREHOLDER OF XXXXXXXXXXXXXX.XXX 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 the Shareholders
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. The Shareholders
also agree to comply with such restrictions.
5.11. Tax Returns. The Shareholders shall be responsible for the
timely filing (but in any event not later than the earlier of the date required
by applicable Legal Requirement or 120 days of the Closing Date) of the
Company's Tax Returns for the 2000 tax year and the short tax year from January
1, 2001 through the Closing Date and for the timely payment of all income,
franchise, sales or other Taxes relating to those periods. The Acquiror shall
make the books and records of the Company available to the Shareholders' Agent
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' Agent of
any inquiry, audit or examination of which PentaStar receives notice relating to
xxxv
the Company's Tax Returns for any period ending with or prior to the Closing
Date and the Shareholders' Agent 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' Agent, 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 proposed to be filed by the
Shareholders hereunder and shall not file any such Tax Return unless and until
it is approved by PentaStar, such approval not to be unreasonably withheld. The
Shareholders shall not 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. Further, the Shareholders shall cooperate with
PentaStar in connection with PentaStar's submissions, if any, of Tax clearance
requests to various state and local Taxing authorities to which the Company may
be subject and shall cooperate with such authorities to facilitate the issuance
of all necessary Tax clearances required by applicable Legal Requirement, if
any. If, at any time after the Closing Date, Acquiror receives any Tax refunds
related to any period prior to the Closing Date, the amount of the refund shall
be payable from the Acquiror to the Shareholders.
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 for those
Shareholders who are employed by Acquiror after the Closing Date.
5.13. Tax Clearance Certificate. As soon as practicable after the
Closing but in no event later than 75 days after the Closing, the Shareholders
will deliver to PentaStar tax clearance certificates, or equivalent documents,
issued by the State of California for use by PentaStar in connection with the
Merger of the Company into the Acquiror. The Shareholders will be responsible
for any costs, including, without limitation, Taxes payable in respect of the
period through the Closing Date, due in the course of obtaining such tax
clearance certificates, or equivalent documents, and will indemnify PentaStar
for any Liability arising out of the Shareholders inability to obtain such
documents. Upon receipt of such tax clearance certificates, or equivalent
documents, PentaStar will cause the California Certificate of Merger to be filed
with the State of California effective as of the Closing Date.
6. Conditions to Closing.
6.1. Conditions to Obligation of PentaStar. The obligation of
PentaStar to consummate the transactions contemplated by this Agreement is
subject to satisfaction of the following conditions:
(a) the Shareholders' representations and warranties
shall be correct and complete at and as of the Closing Date and the Closing, and
any written notices delivered to PentaStar pursuant to Section 4.4 and the
subject matter thereof shall be satisfactory to PentaStar;
(b) the Shareholders shall have performed and complied
with all of their covenants hereunder through the Closing;
(c) the Shareholders shall have given, or shall have
caused the Company to give, all notices and shall have procured, or shall have
caused the Company to procure, all of the third-party consents, authorizations
and approvals required to consummate the transactions contemplated by this
Agreement, including the Transaction, all in form and substance reasonably
satisfactory to PentaStar;
xxxvi
(d) no action, suit or proceeding shall be pending or
threatened before any Governmental Authority or any other Person wherein an
Order has been sought which 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, (ii) a good standing
certificate, dated within 10 days of the Closing, from the Secretary of State of
the State of the Company's jurisdiction of incorporation and each other state in
which the Company is qualified or authorized to do business as a foreign
corporation;
(g) the Other Seller Agreements shall have been executed
and delivered by the parties thereto other than PentaStar and the Acquiror;
(h) PentaStar and the Acquiror shall have received from
counsel to the Shareholders an opinion in form and substance as set forth in
Exhibit 6.1(h) addressed to PentaStar and the Acquiror and dated as of the
Closing;
(i) PentaStar shall have completed its due diligence with
respect to the Company with results satisfactory to PentaStar;
(j) the owners of the real property underlying the
Premises leases, and each Person having an Encumbrance on such property, shall
have executed and delivered estoppel, nondisturbance and landlord waiver
agreements relating thereto satisfactory to PentaStar;
(k) financing necessary for the consummation of the
transactions contemplated hereby and the operation of the acquired business
shall be available to the Acquiror on terms and conditions satisfactory to
PentaStar;
(l) PentaStar shall have received from the Shareholders
UCC, lien, litigation and judgment searches with respect to the Company and
evidence of the termination of all Encumbrances filed against the Company or any
Acquired Assets;
(m) PentaStar shall have received the resignations,
effective as of the Closing, of each director and officer of the Company;
(n) stock certificates representing the Company's 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
xxxvii
(p) the Shareholders shall have delivered, or caused the
Company to deliver, to PentaStar such other instruments, certificates and
documents as are reasonably requested by PentaStar in order to consummate the
transactions contemplated by this Agreement, all in form and substance
reasonably satisfactory to PentaStar.
PentaStar may waive any condition specified in this Section 6.1 at or prior to
the Closing.
6.2. Conditions to Obligation of the Shareholders. The obligation
of the Shareholders to consummate the transactions contemplated by this
Agreement is subject to satisfaction of the following conditions:
(a) PentaStar's representations and warranties shall be
correct and complete at and as of the Closing Date and the Closing;
(b) PentaStar shall have performed and complied with all
of its covenants hereunder through the Closing Date;
(c) PentaStar shall have delivered to the Shareholders a
certificate to the effect that each of the conditions specified above in
Sections 6.2(a) through (b) is satisfied in all respects;
(d) the Other PentaStar Agreements shall have been
executed and delivered by PentaStar and the Acquiror, as applicable;
(e) and the Shareholders shall have received from counsel
to PentaStar an opinion in form and substance as set forth in Exhibit 6.2(e),
addressed to the Shareholder 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 and the
Acquiror.
(a) 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 the
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
xxxviii
Shareholders for breaches of representations and warranties contained in this
Agreement shall be limited to the amount of the Purchase Price 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 references 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. 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 (i) any Liability of the
Company or any Shareholder not included in the Retained Liabilities or (ii) 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
(i) or (ii), of (A) 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 the Shareholders did or did
not have knowledge, (B) when such Liability, act, omission, event, circumstance
or matter occurred, existed, occurs or exists and (C) whether a claim with
respect thereto was asserted before or is asserted after the Closing Date. 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.
xxxix
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 (other than those set
forth in Section 3.2(d)) 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 the Shareholder's 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
xl
Party, and (v) the Indemnifying Party conducts the defense of the Third Party
Claim actively and diligently. 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 issued or to be
issued pursuant to this Agreement or any Other Seller Agreement to any
Shareholder or any relative or affiliate of a 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.
8. Termination.
8.1. Termination of Agreement. The parties may terminate this
Agreement as provided below:
(a) PentaStar and the Shareholders' Agent may terminate
this Agreement by mutual written consent at any time prior to the Closing;
xli
(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 November 1, 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
November 1, 2001 because of the failure of any condition precedent to the
Shareholders' obligations to consummate the Closing (unless the failure results
primarily from any Shareholder breaching any representation, warranty or
covenant contained in this Agreement in any material way).
8.2. Effect of Termination. The termination of this Agreement by a
party pursuant to Section 8.1 shall in no way limit any Liability of any other
party based on or arising from a breach or default by such other party with
respect to any of its representations, warranties, covenants or agreements
contained in this Agreement, and the terminating party shall be entitled to seek
all relief to which it is entitled under applicable Legal Requirement.
8.3. Confidentiality. If this Agreement is terminated, each party
shall treat and hold as confidential all Confidential Information concerning the
other parties which it acquired from such other parties in connection with this
Agreement and the transactions contemplated hereby.
9. Miscellaneous.
9.1. No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns.
9.2. Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements or representations by or among
the parties, written or oral, to the extent they relate in any way to the
subject matter hereof.
9.3. Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. No Shareholder may assign this Agreement nor any of its, his
or her rights, interests or obligations hereunder without the prior written
approval of PentaStar. PentaStar and the Acquiror may assign their respective
rights and obligations hereunder as permitted by applicable Legal Requirement,
including, without limitation, to any debt or equity financing source.
xlii
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:
xliii
If to any Shareholder: Copy to:
Addressed to the Law Office of Xxx X. Xxxxxx
Shareholders' Agent at: 000 Xxxxxx Xxxx Xxxxx
000 X Xxxxxx Xxxxxxxxxx, XX 00000
Xxxxxxxx, Xxxxxxxxxx 00000 Attn: Xxx X. Xxxxxx
Telecopy: 707-766-6964 Telecopy: 000-000-0000
If to PentaStar or the Acquiror: Copy to:
PentaStar Communications, Inc. Xxxxxxx & Xxxxxx L.L.C.
0000 Xxxxxxx Xxxxxx, Xxxxx 0000 000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000 Xxxxxx, Xxxxxxxx 00000
Attn: Chief Executive Officer Attn: B. Xxxxx Xxxxxxx, Esq.
Telecopy: (000) 000-0000 Telecopy: (000) 000-0000
Notices shall be deemed given three days after mailing if sent by certified
mail, when delivered if sent by courier, and upon receipt of confirmation by
person or machine if sent by telecopy or facsimile transmission. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
9.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
9.8. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same is in writing and signed by PentaStar
and the Shareholders' Agent. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence, and no waiver shall be effective unless set forth in writing and
signed by the party against whom such waiver is asserted.
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.
xliv
9.10. Expenses. Except as otherwise provided in Section 8.2, (a)
PentaStar shall bear its own costs and expenses (including, without limitation,
legal fees and expenses) incurred either before or after the date of this
Agreement in connection with this Agreement or the transactions contemplated
hereby and (b) the Shareholders shall bear all costs and expenses (including,
without limitation, all legal, accounting and tax related fees and expenses, all
fees, commissions, expenses and other amounts payable to any broker, finder or
agent) incurred by the Company prior to the Closing or by any Shareholder either
before or after the date of this Agreement in connection with this Agreement or
the transactions contemplated hereby (collectively, "Seller Transaction
Expenses"); provided, however, that prior to the Closing Date the Company may
use any cash (other than 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)(1) to pay Seller Transaction Expenses so long as the
Shareholders are jointly and severally liable for any Tax consequences to the
Company, the Acquiror or PentaStar arising therefrom, and any such Liability
shall be a Closing Date Liability.
9.11. Arbitration. Any disputes arising under or in connection with
this Agreement, including, without limitation, those involving claims for
specific performance or other equitable relief, shall be submitted to binding
arbitration in 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, then it shall be before another arbitral body in
Denver, Colorado selected by PentaStar and the Shareholders' Agent or, if they
cannot agree on another arbitral body, 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, 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 and attorneys, incurred in connection therewith. If each party
prevails on specific issues in the arbitration or action, the arbitrator or
court may allocate the costs incurred by all parties on a basis it deems
appropriate. If any party files a judicial or administrative action asserting
claims subject to arbitration, as prescribed under this Section 9.11, and
another party successfully stays such action and/or compels arbitration of said
claims, the party filing such action shall pay the other party's costs and
expenses incurred in seeking such stay and/or compelling arbitration, including
reasonable attorneys' fees.
9.12. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or
xlv
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 the Shareholder may assert, or have
the right to assert, against PentaStar or the Acquiror, or (ii) any claims which
PentaStar may assert, or have the right to assert, against the 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 the Shareholders' Agent's death, disability or resignation, PentaStar 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 that PentaStar has relied upon the enforceability of this Section
9.14 in entering into this Agreement.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
xlvi
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of 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. XII
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: CEO
COMPANY:
XXXXXXXXXXXXXX.XXX INC.
By: /s/ Xxxxx X. X'Xxxxx
-------------------------------------
Xxxxx X. X'Xxxxx, Its President
SHAREHOLDERS:
Xxxxx Xxxxxx and Xxxxx Xxxxxxx as
Trustees U/T/A dated 10/1/01
/s/ Xxxxx Xxxxxx
-----------------------------------------
Xxxxx Xxxxxx
/s/ Xxxxx Xxxxxxx
-----------------------------------------
Xxxxx Xxxxxxx
The Xxxxxx X. X'Xxxxx and Xxxxx X.
X'Xxxxx Revocable Trust Dated August 27,
1998
xlvii
/s/ Xxxxxx X. X'Xxxxx
-----------------------------------------
Xxxxxx X. X'Xxxxx
/s/ Xxxxx X. X'Xxxxx
-----------------------------------------
Xxxxx X. X'Xxxxx
Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxxx
Revocable Trust dated October 19, 1999
/s/ Xxxxx X. Xxxxxx
-----------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxx
Xxxxx X. Xxxxx and Xxxxx X. Xxxxx,
Trustees U/T/A Dated 5/18/2000
/s/ Xxxxx X. Xxxxx
-----------------------------------------
Xxxxx X. Xxxxx
/s/ Xxxxx X. Xxxxx
-----------------------------------------
Xxxxx X. Xxxxx
/s/ Xxxxx Xxxxxx
-----------------------------------------
Xxxxx Xxxxxx
Xxxxx X. Xxxxxxx and Xxxx X. Xxxxxxx,
Trustees of The Xxxxxxx Living Trust,
Dated March 10, 1998
/s/ Xxxxx X. Xxxxxxx
-----------------------------------------
Xxxxx X. Xxxxxxx
/s/ Xxxx X. Xxxxxxx
-----------------------------------------
Xxxx X. Xxxxxxx
Xxxxxx Xxxxxxx and Xxxx X. Xxxxxxx as
Trustees UTA Dated 7-16-91
xlviii
/s/ Xxxxxx Xxxxxxx
-----------------------------------------
Xxxxxx Xxxxxxx
/s/ Xxxx X. Xxxxxxx
-----------------------------------------
Xxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxx
Xxxxxxx Xxxx and Xxxxxxx Link Family
Trust Dated 7/3/93
/s/ Xxxxxxx Xxxx
-----------------------------------------
Xxxxxxx Xxxx
/s/ Xxxxxxx Link
-----------------------------------------
Xxxxxxx Link
/s/ Xxxx X. Xxxxxx
-----------------------------------------
Xxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxxxx XxXxxxxx
-----------------------------------------
Xxxxxxx XxXxxxxx
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
xlix
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.
Attributed Earn-Out Amount EBITA Shortfall shall mean all Earn-Out
Amount Accounts Receivable which have not been collected within 180 days of the
end of Earn-Out Period Three less any unpaid commissions or payments due
employees, sub-agents or referral sources and associated variable overhead costs
for Medicare, FICA or other clearly attributed variable costs associated with
the sales which created the Earn-Out Amount Accounts Receivable.
Attributed Expansion Earn-Out Amount EBITA Shortfall shall mean all
Expansion Earn-Out Amount Accounts Receivable which have not been collected
within 180 days of the end of any particular Expansion Earn-Out Period less any
unpaid commissions or payments due employees, sub-agents or referral sources and
associated variable overhead costs for Medicare, FICA or other clearly
attributed variable costs associated with the sales which created the Expansion
Earn-Out Amount Accounts Receivable.
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.
Provider means a communications services provider.
Cash Consideration Earn-Out Amount means, in respect of any Cash
Consideration Earn-Out Period, an amount equal to 70% of Earn-Out EBITA for such
Cash Consideration Earn-Out Period.
Cash Consideration Earn-Out Period means the six-month period ending
March 31, 2002, September 30, 2002, March 31, 2003, September 30, 2003, March
31, 2004 or September 30, 2004, as the case may be.
Exhibit 1.1(a)-i
Cash Portion of the Purchase Price has the meaning given it 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.
Earn-Out Accounts Receivable Detail List means a detailed list, by
order and installation, of every Earn-Out Amount Account Receivable, the
aggregate total of which equals the total accounts receivable on the Acquiror's
balance sheet as of the end of Earn-Out Period Three.
Earn-Out Amount means the remainder of five times the Earn-Out EBITA
for Earn-Out Period Three, minus (a) the $255,240 amount described in Section
2.1(k)(i)(A), minus (b) the amount of the Retained Liabilities excluded in
clause (b) of the definition of Retained Liabilities but assumed by the Acquiror
in the course of this transaction, and minus (c) 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)(2)).
Earn-Out Amount Accounts Receivable means all accounts receivable of
the Acquiror in existence as of the end of the period in respect of which the
Earn-Out Amount is calculated and which represent revenues which are included in
the calculation of the Earn-Out Amount but for which payment has not been
received by the Acquiror as of the end of the Earn-Out Period Three.
Exhibit 1.1(a)-ii
Earn-Out Deposit Escrow Period means the period commencing on the date
the Earn-Out Amount, if any, is paid and ending 180 days after such date.
Earn-Out Deposit Release Date means ten Business Days after PentaStar's
receipt of the Earn-Out Accounts Receivable Detail List.
Earn-Out EBITA means the EBITA of the Acquiror from the Bay Area Region
for the applicable Earn-Out Period, including, without limitation, (a) any bonus
payment actually received from any communications services provider during the
Earn-Out Period, (b) payments earned during the Earn-Out Period for consulting
revenues, referral fees and commissions allocated by PentaStar management earned
in conjunction with other PentaStar subsidiaries or divisions on mutual sales
efforts and (c) payments actually received during the Earn-Out Period for
Residual Payment Rights; provided, however, that in any event Earn-Out EBITA (i)
shall not include any allocation of PentaStar corporate headquarters expense but
shall include allocation of a pro rata portion of direct expenses of PentaStar
to the extent PentaStar or any of its divisions, operations or Subsidiaries
provides services to the Acquiror at a lower cost than such services could then
be obtained directly be the Acquiror, (ii) shall be reduced by the Principal
Customer/Principal Referral Source Reduction Amount, (iii) shall not include any
EBITA associated with any Bay Area-based Expansion Office, (iv) shall include a
direct expense for accounting (including an internal bookkeeper for the
Acquiror), (v) shall include an expense allocation equal to the costs incurred
by the Acquiror to satisfy its obligations under Section 5.6(b).
Earn-Out Escrow Deposit means an amount of PentaStar Common Stock from
the Earn-Out Amount equal to two and one half times the Earn-Out Amount Accounts
Receivable.
Earn-Out Financial Statements has the meaning given it in Section
2.1(n)(ii).
Earn-Out Period means (a) the applicable Cash Consideration Earn-Out
Period, in the case of the determination of a Cash Consideration Earn-Out
Amount, and (b) Earn-Out Period Three, in the case of the determination of the
Earn-Out Amount.
Earn-Out Period Three means the period commencing July 1, 2003 and
ending June 30, 2004; provided, however, that if a PentaStar Liquidity Event
occurs prior to June 30, 2004, then Earn-Out Period Three shall be the 12-Month
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 and with the financial statements of the Acquiror
included in the audited or unaudited, as the case may be, financial statements
used, or to be used, by PentaStar in its annual or quarterly reports filed with
the SEC, including PentaStar's GAAP method of revenue recognition for residual
commission payments recognizing residual commissions upon receipt of payment 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.
Exhibit 1.1(a)-iii
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 Agreement means the Employment and Noncompetition Agreements
between the Acquiror and each of Xxxxx X. X'Xxxxx and Xxxxx X. Xxxxxx in the
forms of Exhibits 1.1(b)(i) and (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.ss.6901 et seq.), as amended, and the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C.ss.9601 et
seq.), as amended.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and any regulations, rules or orders promulgated thereunder.
ERISA Affiliate means any entity which is controlled by, or is under
common control with, the Company, as determined under ERISA Section 4001(a)(14).
Escrow Account means the account existing pursuant to the Escrow
Agreement.
Escrow Agent means Xxxxx Fargo Bank West, National Association.
Escrow Agreement means the Escrow Agreement among PentaStar, the
Acquiror, the Shareholders' Agent and the Escrow Agent in form of Exhibit
1.1(c).
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.
Exhibit 1.1(a)-iv
Excluded Assets means cash on hand of the Company in excess of the
Interim Cash Requirement.
Expansion Earn-Out Accounts Receivable means, with respect to a
particular Expansion Earn-Out Amount, all accounts receivable of the Acquiror in
existence as of the end of the period in respect of which such Expansion
Earn-Out Amount is calculated and which represent revenues which are included in
the calculation of such Expansion Earn-Out Amount but for which payment has not
been received by the Acquiror as of the end of the applicable Expansion Earn-Out
Period.
Expansion Earn-Out Amount means, with respect to a Bay Area-based
Expansion Office and the applicable Expansion Earn-Out Period, an amount equal
to (a)(i) 120% of the Expansion Revenues of such office, minus (ii) four times
the negative Expansion EBITA of such office, if such office has a negative
Expansion EBITA, or (b) five times the Expansion EBITA of such Bay Area-based
Expansion Office. The Shareholders' Agent shall notify PentaStar prior to the
inception (with inception meaning the date of hiring of the first employee for
such office) of the Shareholders' irrevocable choice to receive the amount
determined pursuant to clause (a) or (b) above. If the Shareholders' Agent does
not timely provide such notice to PentaStar, then clause (a) shall be
irrevocably deemed to have been selected.
Expansion Earn-Out Amount Accounts Receivable Detail List means, with
respect to a particular Expansion Earn-Out Amount, a detailed list, by order and
installation, of every Expansion Earn-Out Account Receivable, the aggregate
total of which equals the total accounts receivable on the Acquiror's balance
sheet as of the end of the applicable Expansion Earn-Out Period.
Expansion Earn-Out Amount Accounts Receivable Shortfall has the meaning
given it in Section 2.1(n)(iii)(E).
Expansion Earn-Out Deposit Escrow Period means, with respect to a
particular Expansion Earn-Out Escrow Deposit, the period commencing on the date
such Expansion Earn-Out Amount, if any, is paid and ending 180 days after such
date.
Expansion Earn-Out Deposit Release Date means, with respect to a
particular Expansion Earn-Out Escrow Deposit, ten Business Days after
PentaStar's receipt of the corresponding Expansion Earn-Out Accounts Receivable
Detail List.
Expansion Earn-Out Escrow Deposit means an amount of PentaStar Common
Stock from an Expansion Earn-Out Amount equal to two and one half times the
Expansion Earn-Out Accounts Receivable.
Expansion Earn-Out Financial Statements has the meaning given it in
Section 2.1(n)(ii).
Expansion Earn-Out Period means, with respect to a Bay Area-based
Expansion Office, (a) if clause (a) of the definition of Expansion Earn-Out
Amount is applicable to such office because it is the Shareholders' designated
choice pursuant to such definition or because it is deemed to have been selected
due to the Shareholders' Agent's failure to timely notify PentaStar of its
choice, the 12-month period
Exhibit 1.1(a)-v
commencing on the first calendar day of the first calendar month following the
calendar month in which the inception of such office occurs (with inception
meaning the date of hiring of the first employee for such office) (for example,
in the case of this clause (a), if the first employee for such office is hired
in June 2002, the 12-month period for such office shall commence July 1, 2002)
or (b) if clause (b) of the definition of Expansion Earn-Out Amount is
applicable to such office because it is the Shareholders' designated choice
pursuant to such definition, the 12-month period commencing on the first
calendar day of the seventh calendar month following the calendar month in which
the inception of such office occurs (with inception meaning the date of hiring
of the first employee for such office) (for example, in the case of this clause
(b), if the first employee for such office is hired in June 2002, the 12-month
period for such office shall commence January 1, 2003).
Expansion EBITA means, with respect to a Bay Area-based Expansion
Office, the EBITA of the Acquiror from such office during the Expansion Earn-Out
Period, including for purposes of such determination an allocation (on a
percentage basis determined by dividing (a) the Expansion Revenues of such
office by (b) the sum of (i) the Expansion Revenues of such office plus (ii) the
total revenues of the Acquiror during the Expansion Earn-Out Period, determined
in accordance with and on a basis consistent with PentaStar's GAAP method of
revenue recognition) of (x) the operating expenses of the Acquiror associated
with such office's procurement of telecommunications services and (y) the
expense of the Acquiror associated with the Bay Area Region Regional Manager.
Expansion Revenues means the revenues (determined on a basis consistent
with the principles set forth in the definition of EBITA) of the Acquiror from
any Bay Area-based Expansion Office for the Expansion Earn-Out Period relating
to such office.
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 sum of the 1) the average of the
closing prices of the PentaStar Common Stock for the five trading days ending
two trading days prior to September 30, 2004, as quoted by Nasdaq plus 2) 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,
then divided by 2. Example: If 1) is $10.00 and 2) is $20.00, then the sum shall
be $30.00, and divided by 2 equals $15.00;
(c) for the Liquidity Event, the sum of the 1) 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 plus 2) the
average of the closing prices of the PentaStar Common Stock for the five trading
days ending two trading days prior to the Liquidity Event, as quoted by Nasdaq,
then divided by 2. Example: If 1) is $10.00 and 2 is $20.00, then the sum shall
be $30.00, and divided by 2 equals $15.00
(d) for any Cash Consideration Earn-Out Amount, the sum of the 1)
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 plus 2) the average of the closing prices of the PentaStar Common Stock
for the five trading days ending two trading days prior to the due date for the
Cash Consideration Earn-Out Amount, as quoted by Nasdaq, then divided by 2.
Example: If 1) is $10.00 and 2 is $15.00, then the sum shall be $25.00, and
divided by 2 equals $12.50
Exhibit 1.1(a)-vi
(e) as of any other date, the sum of the 1) 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 plus 2) the
average of the closing prices of the PentaStar Common Stock for the five trading
days ending two trading days prior to the that date, as quoted by Nasdaq, then
divided by 2. Example: If 1) is $10.00 and 2 is $15.00, then the sum shall be
$25.00, and divided by 2 equals $12.50.
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, 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.
Interim Period means the period between the Closing Date and the last
date of receipt by the Acquiror of the first regularly scheduled commissions
payments from each of Cable & Wireless, Pac-Xxxx and New Edge following the
Closing Date.
Interim Period Cash Flow Statement has the meaning given it in Section
2.1(l)(ii).
Exhibit 1.1(a)-vii
Key Employee means (a) each employee of the Company other than clerical
employees and (b) if any salesperson is an independent contractor rather than an
employee, each such salesperson. Key Employees include, without limitation,
executives and salespersons.
Latest Balance Sheet has the meaning given it in Section 3.1(d).
Legal Requirement means any constitution, statute, ordinance, code, or
other law (including common law), rule, regulation, Order, notice, standard,
procedure or other requirement enacted, adopted, applied or issued by any
Governmental Authority, including, without limitation, judicial decisions
applying or interpreting any such Legal Requirement.
Liability means any liability or obligation (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due).
Merger has the meaning given it in Section 2.1.
Multiemployer Plan is a plan maintained under a collective bargaining
agreement, to which more than one employer is required to contribute, and which
has the meaning set forth in ERISA Section 3(37).
Noncompetition Agreement means the Noncompetition Agreement among
PentaStar, the Acquiror and the Shareholders in the form of Exhibit 1.1(e).
Bay Area -based Expansion Offices has the meaning given it in Section
2.1(n)(v).
Bay Area Region means the current operations of the Company in the
Petaluma, California region as of the Closing Date.
Operational Continuity means the Company has (a) maintained its assets,
properties and business in the same manner as prior to July 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 Escrow Agreement, the Employment
Agreements, the Noncompetition Agreement and the other documents and instruments
to be executed and delivered by PentaStar or the Acquiror pursuant to this
Agreement.
Exhibit 1.1(a)-viii
Other Seller Agreements means the Escrow Agreement, the Employment
Agreements, the Noncompetition 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 Liquidity Event has the meaning given it in Section 5.10.
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 000 X Xxxxxx, Xxxxx
0, Xxxxxxxx, Xxxxxxxxxx 00000.
Principal Customer (a) has the meaning given it in Section 3.1(o) and
(b) also means each customer that individually or with its affiliates accounts,
as a customer, for 5% or more of the aggregate revenues of the Company and the
Acquiror during the applicable Earn-Out Period.
Principal Customer/Principal Referral Source EBITA Impact Amount means,
with respect to the Earn-Out Period and associated with any particular Principal
Customer or Principal Referral Source, the aggregate GAAP revenues of the
Company and the Acquiror, less the aggregate commission expense of the Company
and the Acquiror for sales people or fees of the Company and the Acquiror to
referral sources.
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 which ceases to be, which gives
notice to the Acquiror or PentaStar that it will cease to be, or which PentaStar
reasonably believes in good faith will cease to be, a Principal Customer or
Principal Referral Source.
Principal Provider has the meaning given it in Section 3.1(o).
Principal Referral Source (a) has the meaning given it in Section
3.1(o) and (b) also means each referral source that individually or with its
affiliates accounts, as a referral source, for 5% or more of the aggregate
revenues of the Company and the Acquiror during the applicable Earn-Out Period.
Purchase Price has the meaning given it in Section 2.1(k).
Exhibit 1.1(a)-ix
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(g) with respect to the period after the Closing Date; provided,
however, that such obligations shall not include any Liability of the type
contemplated in clause (ii) of the third sentence of Section 7.1(a) which
results from, arises out of or relates to the period on or before the Closing
Date and (b) current liabilities in existence as of the Closing Date which (i)
have been incurred by the Company in the ordinary course of business consistent
with past practice (excluding, however, in all cases any Liability for interest
bearing debt; bank debt; loans for the acquisition of equipment or other fixed
assets; loans or debt with respect to the acquisition of any business or entity
(regardless of how structured); capital, operating or other leases (other than
assumed real estate 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 monies that have been received by, or credited by offset to, the
Company prior to the Closing Date; accrued bonuses; accrued commissions; accrued
profit sharing; accrued rent; accrued Taxes; Taxes which are made the
responsibility of the Shareholders pursuant to this Agreement; costs and
expenses in connection with this Agreement or the transactions contemplated
hereby; and all expenses or Liabilities which are required by GAAP to be accrued
as of the Closing Date but which have not been so accrued (including expenses
and Liabilities attributable to bonuses, commissions, profit sharing, rent and
Taxes)), and (ii) are set forth on the Closing Date Balance Sheet as Retained
Liabilities rather than as Closing Date Liabilities. Retained Liabilities shall
not include any other Liability.
Right means any right, property interest, concession, patent,
trademark, trade name, copyright, know-how or other proprietary right of another
Person.
SEC means the Securities and Exchange Commission.
SEC Filings means all reports, registration statements and other
filings filed by PentaStar with the SEC on or prior to the Closing Date.
Second Closing has the meaning set forth in Section 2.1(n)(iii).
Second Closing Date means the earlier of (a) September 30, 2004 or (b)
a PentaStar Liquidity Event.
Securities Act means the Securities Act of 1933, as amended.
Shareholder has the meaning given it in the preamble to this Agreement.
Shareholders' Agent means Xxxxx X. X'Xxxxx (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.
Exhibit 1.1(a)-x
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)(i).
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).
12-Month Period has the meaning giving it in Section 2.1(n)(v).
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(d)-i
