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EXHIBIT 10.7
PRINCIPAL STOCKHOLDER'S ESCROW
AND CONTINGENT STOCK AGREEMENT
This Escrow and Contingent Stock Agreement (this "Agreement") is
entered into as of August ___, 1999, among PentaStar Communications, Inc., a
Delaware corporation ("PentaStar" or the "Escrow Agent"), OC Mergerco 2, Inc.,
a Delaware corporation (the "Acquiror") and Xxxxxx Xxxxxxxxxxx ("Xxxxxxxxxxx"),
who is the principal stockholder of ICM Communications Integration, Inc., a
Washington corporation ("ICM") (collectively, the "Parties").
RECITALS
A. PentaStar, the Acquiror, Xxxxxxxxxxx and ICM are parties to an
agreement and plan of merger dated August 13, 1999, under which ICM
will be merged into the Acquiror in a transaction intended to qualify
as a tax-free reorganization under Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Merger Transaction").
B. In the Merger Transaction, Xxxxxxxxxxx will receive 120,000 shares of
PentaStar common stock and $200,000 of cash in return for his shares
of ICM.
C. At the time of the Merger Transaction, the value of ICM cannot be
determined with certainty.
D. The purpose of this Agreement is to provide for certain adjustments in
the amount of stock consideration Xxxxxxxxxxx will receive in the
Merger Transaction.
NOW, THEREFORE, the parties to this Agreement agree as follows:
ARTICLE 1: DIRECTIONS
1.01 ESCROWED PROPERTY:
Xxxxxxxxxxx will deposit with the Escrow Agent 40,000 shares of
PentaStar common stock (the "Shares"), which will be held by the
Escrow Agent in a separate account the sole assets of which will
consist of the Shares and certain shares of PentaStar common stock
issued in connection with the acquisition by PentaStar of other third
party companies (the "Escrow Account"). The certificates for the
Shares shall be delivered with appropriate stock powers duly executed
in blank.
1.02 INSTRUCTIONS:
The Escrow Agent shall hold and disburse the Shares pursuant to the
instructions set forth in Schedule A, attached hereto and incorporated
herein by reference.
1.03 ASSIGNMENT OF INTEREST:
The assignment, transfer, conveyance, or hypothecation of any right,
title, or interest in and to the subject matter of this Agreement by
any party is prohibited, and no such assignment will be given effect.
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ARTICLE 2: RIGHTS OF XXXXXXXXXXX IN THE SHARES
During the term of this Agreement, (i) the Shares shall be reflected as
issued and outstanding on PentaStar's financial statements and other books and
records; (ii) Xxxxxxxxxxx shall have all ownership rights with respect to the
Shares, including rights to vote such Shares and rights to any dividends paid
by PentaStar with respect to the Shares, and the books and records of PentaStar
will reflect such ownership. Upon the death or termination of employment of
Xxxxxxxxxxx, the Shares will remain in the Escrow Account subject to
disbursement to Xxxxxxxxxxx or his legal heirs in accordance with Exhibit A.
ARTICLE 3: PROVISIONS CONCERNING ESCROW AGENT
3.01 ESCHEAT:
The parties are aware that under Colorado law, escrowed property which
is presumed abandoned may escheat to the State. The Escrow Agent shall
have no liability to Xxxxxxxxxxx, his respective heirs, legal
representatives, and successors, should any or all of the Shares
become escheatable or escheat by operation of law.
3.02 NON-LIABILITY:
The Escrow Agent shall not be liable for any act or omission while
acting in good faith and in the exercise of its own best judgment. Any
act or omission by the Escrow Agent pursuant to the advice of its
attorneys shall be conclusive evidence of such good faith. The Escrow
Agent shall have the right to consult with counsel at its expense
whenever any question arises concerning the Agreement and shall incur
no liability for any delay reasonably required to obtain such advice
of counsel. The Escrow Agent shall not be liable for the alteration,
modification or elimination of any right permitted or given under the
instructions set forth in Schedule A and/or in any document deposited
under this Agreement pursuant to any statute of limitations or by
reason of laches. The Escrow Agent shall have no further
responsibility or liability whatsoever to Xxxxxxxxxxx following a
partial or complete distribution of the Shares pursuant to this
Agreement. The Escrow Agent shall not incur any liability with respect
to any act or omission in reliance upon any document, including any
written notice or instructions provided for in this Agreement. In
performing its obligations hereunder, the Escrow Agent shall be
entitled to presume, without inquiry, the due execution, validity and
effectiveness of all documents it receives, and also the truth and
accuracy of any information contained therein. The Escrow Agent shall
not be responsible or liable for any diminution in value of the
Shares, whatsoever, for any reason.
3.03 DISAGREEMENTS:
If any disagreement or dispute arises between the parties to this
Agreement concerning the meaning or validity of any provision
hereunder or concerning any other matter relating to this Agreement,
the Escrow Agent:
a. Shall be under no obligation to act, except under process or
order of court, or until it has been adequately indemnified
to its full satisfaction, and shall sustain no liability for
its failure to act pending such process, court order or
indemnification; and
b. May, in its sole and absolute discretion, interplead the
Shares or that portion of Shares it
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then holds with the District Court of the City and County of
Denver, State of Colorado, and name the parties in such
interpleader action. Upon filing the interpleader action, the
Escrow Agent shall be relieved of all liability as to the
Shares. The parties by signing this Agreement submit
themselves to the jurisdiction of such Court and do appoint
the Clerk of such Court as their agent for the service of all
process in connection with such proceedings. In no event
shall the institution of such interpleader action impair the
rights of the Escrow Agent described in Section 4.06 of this
Article.
ARTICLE 4: GENERAL TERMS AND CONDITIONS
4.01 EXTENSION OF BENEFITS:
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective heirs, legal representatives,
successors, and assigns of all the parties and the Escrow Agent.
4.02 GOVERNING LAW:
This Agreement shall be construed and enforced in accordance with the
laws of the State of Colorado, without regard to the provisions of the
laws of the State of Colorado or any other State regarding conflicts
of laws.
4.03 NOTICES:
All notices, requests, demands, and other communications required
under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered personally or by certified mail, return
receipt requested, and postage prepaid. If any notice is mailed, it
shall be deemed given on the date such notice is deposited in the
United States mail. If any notice is personally delivered, it shall be
deemed given upon the date of such delivery. If notice is given to a
party, it shall be mailed or delivered to the addresses set forth
below the signature blocks. It shall be the responsibility of the
parties to notify the Escrow Agent in writing of any name or address
changes.
4.04 ENTIRE AGREEMENT:
With respect to the subject matter hereof, this Agreement sets forth
the entire agreement and understanding of the parties.
4.05 AMENDMENT:
This Agreement may be amended, modified, superseded, rescinded, or
canceled only by a written instrument executed by the parties.
4.06 WAIVERS:
The failure of any party to this Agreement at any time or times to
require performance of any provision under this Agreement shall in no
manner affect the right at a later time to enforce the same
performance. A waiver by any party to this Agreement of any such
condition or breach of any term, covenant, representation, or warranty
contained in this Agreement, in any one or more instances, shall
neither be construed as a further or continuing waiver of any such
condition or breach nor a waiver of any other condition or breach of
any other term, covenant, representation, or warranty contained in
this Agreement.
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4.07 HEADINGS:
Section headings of this Agreement have been inserted for convenience
of reference only and shall in no way restrict or otherwise modify any
of the terms of provisions of this Agreement.
4.08 COUNTERPARTS:
This Agreement may be executed in one or more counterparts, each of
which when executed shall be deemed to be an original, and such
counterparts shall together constitute one and the same instrument.
This Agreement may be delivered by facsimile, and facsimile signatures
shall be treated as original signatures for all applicable purposes.
4.09 ARBITRATION.
Any disputes arising under or in connection with this Agreement,
including, without limitation, those involving claims for specific
performance or other equitable relief, will be submitted to binding
arbitration in Denver, Colorado before the Judicial Arbiter Group, but
under the Commercial Arbitration Rules of the American Arbitration
Association under the authority of federal and state arbitration
statutes, and shall not be the subject of litigation in any forum. If
the Judicial Arbiter Group is unavailable to conduct the arbitration,
the it shall be before the American Arbitration Association. EACH
PARTY, BY SIGNING THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND
INTELLIGENTLY WAIVES ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO SEEK
REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO JURY TRIAL.
The arbitrator shall have full authority to order specific performance
and other equitable relief and award damages and other relief
available under this Agreement or applicable law, but shall have no
authority to add to, detract from, change or amend the terms of this
Agreement or existing law. All arbitration proceedings, including
settlements and awards, shall be confidential. The decision of the
arbitrators will be final and binding, and judgment on the award by
the arbitrators may be entered in any court of competent jurisdiction.
THIS SUBMISSION AND AGREEMENT TO ARBITRATE WILL BE SPECIFICALLY
ENFORCEABLE. The prevailing party or parties in any such arbitration
in any action to enforce this Agreement will be entitled to recover,
in addition to any other relief awarded by the arbitrator, all
reasonable costs and expenses, including fees and expenses of
arbitrators and attorneys, incurred in connection therewith. If each
party prevails on specific issues in the arbitration, the arbitrator
may allocate the costs incurred by all parties on a basis the
arbitrator deems appropriate.
IN WITNESS WHEREOF, the Parties to this Agreement have each caused this
Agreement to be duly executed on this ____ day of August, 1999.
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PENTASTAR COMMUNICATIONS, INC.
By:
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Its: XXXXXX XXXXXXXXXXX
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OC MERGERCO 2, INC.
By:
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Its:
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SCHEDULE A TO THE ESCROW AGREEMENT
DISBURSEMENT OF THE SHARES AND
POTENTIAL ISSUANCE OF ADDITIONAL PENTASTAR SHARES
1. Upon the occurrence of the earlier of (i) a sale of substantially all
of the assets or the outstanding stock of PentaStar, or (ii) August
___, 2004 (the "Valuation Event"), the number of Adjusted Shares (as
defined below) shall be determined pursuant to the formula set forth
below.
2. If the number of Adjusted Shares exceeds the number of Shares, (a) the
Escrow Agent shall distribute all of the Shares to Xxxxxxxxxxx within
60 days of the date of the Valuation Event; and (b) within such 60 day
period, PentaStar shall issue to Xxxxxxxxxxx additional shares of
PentaStar Common Stock equal to such excess (the "Additional Shares").
The parties agree that a portion of the Additional Shares shall be
treated as imputed interest under Section 483 of the Internal Revenue
Code and reported as interest for all applicable tax purposes.
Notwithstanding the foregoing, in no event shall the number of
Additional Shares exceed the number of shares of PentaStar Common
Stock issued to Xxxxxxxxxxx at the closing in the Merger Transaction
but not deposited in the Escrow Account.
3. If the number of Shares exceeds the number of Adjusted Shares, then
within 60 days of the date of the Valuation Event, (a) the Escrow
Agent shall retain such excess number of Shares in its Treasury and
(b) the Escrow Agent shall distribute the remainder of the Shares
(which shall equal the number of Adjusted Shares) to Xxxxxxxxxxx.
4. The number of Adjusted Shares shall be calculated under the following
formula:
Adjusted Shares = (Total Escrowed Shares) x (Xxxxxxxxxxx Percentage)
Xxxxxxxxxxx Percentage = Xxxxxxxxxxx'x Adjusted EBITA
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Total Operating Partner EBITA
Xxxxxxxxxxx Adjusted EBITA = (11.19%**) x (ICM Measurement Period
EBITA)
[**calculate percentage based on total consideration (cash and stock) received
by all ICM shareholders in ICM merger that is represented by the Shares
Xxxxxxxxxxx placed in this escrow -- such calculation will be done at Closing]
ICM Measurement Period EBITA = ICM's earnings before interest, income taxes,
and amortization (determined in accordance with generally accepted accounting
principles) for the twelve-month period ending on the earlier to occur of (i)
the date of termination of Xxxxxxxxxxx'x employment with PentaStar and (ii) the
date of the Valuation Event. For these purposes, ICM's earnings will include
earnings of ICM (and its subsidiaries, if any) before and after the
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acquisition of ICM by PentaStar, and, if ICM is merged into PentaStar, ICM's
earnings shall include those earnings of PentaStar attributable to the
metropolitan area in which ICM operated prior to such merger.
Total Escrowed Shares = the total number of shares of PentaStar Common Stock
received by Principal Shareholders prior to the date of the Valuation Event,
which shares are placed in the Escrow Account under escrow agreements similar
to this Agreement.
Principal Shareholders = those owners of business entities (including ICM)
acquired by PentaStar prior to the date of the Valuation Event who are active
in the operation of such business both before and after such acquisition, and
who enter into an agreement, the terms and conditions of which are
substantially similar to this Agreement.
Total Operating Partner EBITA = the total adjusted EBITA of all Principal
Shareholders (including Xxxxxxxxxxx), where the Adjusted EBITA for each such
Principal Shareholder is calculated in the same manner as the Xxxxxxxxxxx
Adjusted EBITA is calculated, as described above.
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EXAMPLES
EXAMPLE 1: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that ICM EBITA for 2003 = $3 million, and
that total Operating Partner EBITA (as defined above) for 2003 is $10 million.
Also, assume that 2 million total shares of PentaStar common stock (including
the Shares) are placed in the Escrow Account by all Principal Shareholders. The
Xxxxxxxxxxx Adjusted EBITA = 11.19% X $3 million, which equals $335,700. The
Xxxxxxxxxxx Percentage = $335,700 over $10 million, which = 3.36%. The number
of Adjusted Shares for Xxxxxxxxxxx = 2 million (the total number of Shares
placed in escrow) X 0.0336 (the Xxxxxxxxxxx Percentage), which =67,200.
Consequently, Xxxxxxxxxxx will receive the Shares back from the Escrow Account,
plus 27,200 additional shares of PentaStar common stock directly from
PentaStar.
EXAMPLE 2: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that ICM EBITA for 2003 = $1 million, and
that total Operating Partner EBITA (as defined above) for 2003 is $10 million.
Also, assume that 2 million total shares of PentaStar common stock (including
the Shares) are placed in the Escrow Account by all Principal Shareholders. The
Xxxxxxxxxxx Adjusted EBITA = 11.19% X $1 million, which equals $111,900. The
Xxxxxxxxxxx Percentage = $111,900 over $10 million, which = 1.12%. The number
of Adjusted Shares for Xxxxxxxxxxx = 2 million (the total number of Shares
placed in escrow) X 0.0112 (the Xxxxxxxxxxx Percentage), which = 22,400.
Consequently, Xxxxxxxxxxx will receive 22,400 of the Shares back, and the
remaining 17,600 Shares will be retained by PentaStar.
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