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EXHIBIT 2.17
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PURCHASE AGREEMENT
AMONG
PENTASTAR COMMUNICATIONS, INC.,
PENTASTAR ACQUISITION CORP. IX,
DIGISTAR NETWORKS, INC.
AND THE
SHAREHOLDERS
OF
DIGISTAR NETWORKS, INC.
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TABLE OF CONTENTS
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1. Definitions.................................................................................1
2. Purchase and Sale...........................................................................1
2.1. Basic Transaction..................................................................1
2.2. Assumption of Certain Liabilities..................................................1
2.3. Purchase Price; Payment............................................................1
2.4. Sales Taxes, Etc...................................................................7
2.5. The Closing........................................................................7
2.6. Deliveries at the Closing..........................................................7
3. Representations and Warranties..............................................................8
3.1. Representations and Warranties of the Company and the Shareholders.................8
3.2. Representations and Warranties of PentaStar.......................................19
3.3. Survival of Representations.......................................................21
3.4. Representations as to Knowledge...................................................21
4. Pre-Closing Covenants......................................................................21
4.1. General...........................................................................21
4.2. Operation and Preservation of Business............................................22
4.3. Full Access.......................................................................22
4.4. Notice of Developments............................................................22
4.5. Exclusivity.......................................................................22
4.6. Announcements; Securities Law Restrictions........................................22
4.7. Bulk Sales Laws...................................................................23
4.8. Conveyance of Shareholder Property................................................23
4.9. Conveyance of Capital Lease Property..............................................23
4.10. Interim Information. ............................................................23
4.11. Certain Closing Date Liabilities..................................................23
4.12. Company Options...................................................................23
5. Post-Closing Covenants.....................................................................23
5.1. Further Assurances................................................................23
5.2. Transition........................................................................24
5.3. Cooperation.......................................................................24
5.4. Confidentiality...................................................................24
5.5. Post-Closing Announcements........................................................24
5.6. Financial Statements..............................................................24
5.7. Satisfaction of Liabilities.......................................................24
5.8. Repurchase of Unpaid Receivables and Residual Payment Rights......................25
5.9. Transfer Restrictions.............................................................26
5.10. [RESERVED.] ......................................................................26
5.11. Coop/Marketing Funds..............................................................26
5.12. Certain Services..................................................................26
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6. Conditions to Closing......................................................................27
6.1. Conditions to Obligation of PentaStar.............................................27
6.2. Conditions to Obligation of the Company and the Shareholders......................28
7. Remedies for Breaches of This Agreement....................................................28
7.1. Indemnification Provisions for Benefit of PentaStar and the Acquiror..............28
7.2. Indemnification Provisions for Benefit of the Company and the Shareholders........31
7.3. Matters Involving Third Parties...................................................31
7.4. Right of Offset...................................................................32
7.5. Other Remedies....................................................................33
8. Termination................................................................................33
8.1. Termination of Agreement..........................................................33
8.2. Effect of Termination.............................................................33
9. Miscellaneous..............................................................................33
9.1. No Third-Party Beneficiaries......................................................33
9.2. Entire Agreement..................................................................33
9.3. Succession and Assignment.........................................................34
9.4. Counterparts......................................................................34
9.5. Headings..........................................................................34
9.6. Notices...........................................................................34
9.7. Governing Law.....................................................................35
9.8. Amendments and Waivers............................................................35
9.9. Severability......................................................................35
9.10. Expenses..........................................................................35
9.11. Arbitration.......................................................................35
9.12. Construction......................................................................36
9.13. Incorporation of Exhibits.........................................................36
9.14. Shareholders' Agent...............................................................36
9.15. ▇▇▇▇▇ ▇▇▇▇▇.......................................................................37
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Exhibits:
Exhibit 1.1(a) Exhibit 3.1(h)
Exhibit 1.1(b) Exhibit 3.1(i)(i)
Exhibit 1.1(c) Exhibit 3.1(i)(ii)
Exhibit 1.1(d)(i) Exhibit 3.1(k)
Exhibit 1.1(d)(ii) Exhibit 3.1(l)
Exhibit 1.1(e) Exhibit 3.1(m)
Exhibit 1.1(f) Exhibit 3.1(n)(i)
Exhibit 1.1(g) Exhibit 3.1(n)(ii)
Exhibit 3.1(b)(i) Exhibit 3.1(o)(i)
Exhibit 3.1(c) Exhibit 3.1(o)(ii)
Exhibit 3.1(d)(i) Exhibit 3.1(o)(iii)
Exhibit 3.1(d)(ii) Exhibit 3.1(o)(iv)
Exhibit 3.1(e)(i) Exhibit 3.1(s)
Exhibit 3.1(e)(iii) Exhibit 3.1(t)
Exhibit 3.1(f)(iii) Exhibit 3.1(u)(ii)
Exhibit 3.1(f)(v) Exhibit 3.1(u)(xi)
Exhibit 3.1(f)(vi) Exhibit 3.2(b)(i)
Exhibit 3.1(g)(i)(A) Exhibit 4.9
Exhibit 3.1(g)(i)(B) Exhibit 5.8
Exhibit 6.1(h)
Exhibit 6.2(c)
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This Purchase Agreement is entered into as of December 29, 2000 among
PentaStar Communications, Inc., a Delaware corporation ("PentaStar"), PentaStar
Acquisition Corp. IX, a Delaware corporation (the "Acquiror"), Digistar
Networks, Inc. a Delaware corporation (the "Company"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (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 from the Company, and the Company desires to
sell to the Acquiror, certain of the Company's assets as provided in this
Agreement.
C. PentaStar, the Acquiror, the Company and the Shareholders desire to make
certain representations, warranties and agreements in connection with such
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. Purchase and Sale.
2.1. Basic Transaction. Subject to the terms and conditions set forth in
this Agreement, the Acquiror agrees to purchase from the Company, and the
Company agrees to sell to the Acquiror, all the Acquired Assets free and clear
of any Encumbrance or Tax, for the consideration specified in Section 2.3. The
Acquiror shall have no obligation under this Agreement to purchase less than all
of the Acquired Assets.
2.2. Assumption of Certain Liabilities. Subject to the terms and conditions
set forth in this Agreement, the Acquiror agrees to assume and become
responsible at the Closing for all of the Assumed Liabilities. The Acquiror
shall not assume or have any responsibility with respect to any other Liability
not expressly included within the definition of Assumed Liabilities.
2.3. Purchase Price; Payment
(a) Consideration.
(i) Subject to adjustment as provided in Section 2.3(d), the
aggregate consideration (the "Purchase Price") payable by the Acquiror to the
Company for the Acquired Assets shall be as follows:
(A) cash in the amount of the sum of
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(1) $300,000, less the amount of any Seller Transaction
Expenses incurred by PentaStar and not reimbursed at the Closing by the Company,
less the amount of the Liabilities set forth on Exhibit 1.1(d)(ii), minus
(2) the amount by which the Interim Cash Requirement
exceeds the amount of cash on hand included in the Acquired Assets, minus
(3) the aggregate amount of accounts receivable, notes
receivable and Residual Payment Rights collected by the Company after September
30, 2000 (whether by collection of cash, offset or otherwise, and whether or not
any cash or other amount received in respect thereof is on hand or has been used
by the Company) as a result of the accelerated collection thereof beyond normal
stated terms or outside the ordinary course of business consistent with past
practice, or as a set-off against future payments against accounts receivable,
notes receivable or Residual Payment Rights, minus
(4) 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 Company prior to the Closing Date (the net amount
described in this clause (A) being referred to as the "Cash Portion" of the
Purchase Price);
(B) cash in an amount equal to the sum of all cash received by
the Acquiror from January 1, 2001 through January 31, 2001 from Ameritech,
BellSouth and Southwestern ▇▇▇▇, provided, however, that in any event the amount
payable by the Acquiror to the Company pursuant to this Section 2.3(a)(i)(B)
shall not exceed $150,000 (which amount shall be payable on February 1, 2001);
(C) the Earn-Out Amount payable pursuant to Section 2.3(e);
and
(D) the assumption of the Assumed Liabilities.
The Purchase Price shall be adjusted in accordance with Section 2.3(d).
(ii) On the Closing Date the Acquiror shall (A) pay to the Company
by wire transfer to an account designated by the Company the Cash Portion of the
Purchase Price, less $30,000; and (B) assume the Assumed Liabilities. On January
22, 2001, the Acquiror shall pay to the Company in cash the $30,000 so retained,
less any Closing Date Liabilities not set forth on Exhibit 1.1(d)(ii) to which
the Acquiror has become subject.
(b) Estimated Closing Date Financial Information.
(i) Estimated Closing Date Balance Sheet. No earlier than ten
Business Days prior to the Closing nor later than three Business Days prior to
the Closing, the Company 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) the Interim Cash Requirement,
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(B) the aggregate amount of accounts receivable, notes
receivable and Residual Payment Rights collected by the Company after September
30, 2000 (whether by collection of cash, offset or otherwise, and whether or not
any cash or other amount received in respect thereof is on hand or has been used
by the Company) as a result of the accelerated collection thereof beyond normal
stated terms or outside the ordinary course of business consistent with past
practice or as a set-off against future payments against accounts receivable,
notes receivable or Residual Payment Rights,
(C) the Assumed Liabilities described in clause (b) of the
definition of Assumed Liabilities and each item thereof,
(D) all Closing Date Liabilities and each item thereof, and
(E) the Closing Accounts Receivable.
At the same time, the Company shall deliver an itemization of the Closing
Accounts Receivable and individual tracking numbers and detailed support (and
the Company's Ameritech code) for the Ameritech installations associated with
the Closing Accounts Receivable reflected on the Estimated Closing Date Balance
Sheet in order to facilitate the verification by the Acquiror of installations
and resulting accounts receivable. On or before the Closing Date, the Company
shall 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 Assumed Liabilities,
unless the Company has failed to pay any Closing Date Liabilities prior to the
Closing.
(ii) Estimated Interim Period Cash Flow Statement. No earlier than
ten Business Days prior to the Closing nor later than three Business Days prior
to the Closing, the Company 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 providers, (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).
(c) 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 Company. 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) the Interim Cash Requirement,
(B) the aggregate amount of accounts receivable, notes
receivable and Residual Payment Rights collected by the Company after September
30, 2000 (whether by collection of cash, offset or otherwise, and whether or not
any cash or other amount received in respect thereof is on hand or has been used
by the Company) as a result of the accelerated collection thereof beyond normal
stated terms or outside
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the ordinary course of business consistent with past practice or as a set-off
against future payments against accounts receivable, notes receivable or
Residual Payment Rights,
(C) the Assumed Liabilities described in clause (b) of the
definition of Assumed Liabilities and each item thereof,
(D) all Closing Date Liabilities and each item thereof, and
(E) the Closing Accounts Receivable.
Within 20 days after receipt of the Closing Date Balance Sheet, the Company
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 Company to object to
the Closing Date Balance Sheet within such 20-day period shall be deemed to be
an acceptance by the Company of the Closing Date Balance Sheet. If any
adjustments to the Closing Date Balance Sheet are proposed by the Company within
such 20-day period, the dispute shall be resolved as provided in Section 2.3(f).
(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 Company. 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 Company 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 Company
to object to the Interim Period Cash Flow Statement within such 20-day period
shall be deemed to be an acceptance by the Company of the Interim Period Cash
Flow Statement. If any adjustments to the Interim Period Cash Flow Statement are
proposed by the Company within such 20-day period, the dispute shall be resolved
as provided in Section 2.3(f).
(d) 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 Company or the resolution of any
disputes under Section 2.3(f), as the case may be, the Cash Portion of the
Purchase Price shall be redetermined as provided in Section 2.3(a)(i) based on
the Closing Date Balance Sheet rather than the Estimated Closing Date Balance
Sheet, and based upon the Interim Period Cash Flow Statement rather than the
Estimated Interim Period Cash Flow Statement, and an appropriate adjusting cash
payment shall be made by the Acquiror to the Company or by the Company to the
Acquiror, as the case may be, so that the Cash Portion of the Purchase Price
actually paid equals the Cash Portion of the Purchase Price determined on the
basis of the Closing Date Balance Sheet and the Interim Period Cash Flow
Statement; provided, however, that no adjustment shall be made in respect of the
Interim Cash Requirement unless such adjustment involves more than $1,000. If
the Closing Date Balance Sheet reflects Closing Date Liabilities that have not
previously been paid by the Company, such Closing Date Liabilities shall be paid
at the time the adjusting payment is made under this Section 2.3(d), either by
the Acquiror out of any adjusting payment due from it hereunder or, if no such
payment
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is due or such payment is less than the unpaid Closing Date Liabilities, by the
Company. 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 2.3(d), 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 Company.
(e) Earn-Out. In addition to the Cash Portion of the Purchase Price,
the Company shall be entitled to receive the Earn-Out Amount determined and
payable as provided in this Section 2.3(e).
(i) The parties agree that, during the Earn-Out Period, (A) the
operations previously conducted by the Company in the Network Group Operations
shall be accounted for by PentaStar so as to enable a calculation of the
Earn-Out Amount (and the Company shall have access to the records relating
thereto), (B) the Network Group Operations shall be accounted for 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 Company or any other Person for so conducting
the business and (D) in operating the business of the Network Group Operations,
the Acquiror and/or PentaStar may make decisions or take action with respect to
the business of the Network Group Operations that impacts, directly or
indirectly, positively or negatively, the potential benefit of the Earn-Out
arrangement. The parties further agree that, absent willful and wanton conduct
engaged in by the Acquiror and/or PentaStar with the sole purpose of materially
affecting the potential benefit to the Shareholders of the Earn-Out arrangement,
neither the Acquiror nor PentaStar shall have any Liability to the Company 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.
(ii) As soon as reasonably practicable after September 30, 2001
and in any event by December 10, 2001, PentaStar shall cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
L.L.P. ("▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇") to determine (A) the Earn-Out EBITA and (B) prepare a
written calculation of the Earn-Out Amount (collectively, the "Earn-Out
Financial Statements"). ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ determination under this Section
2.3(e)(ii) shall be made in accordance with GAAP, on a basis consistent with the
accounting practices of PentaStar. PentaStar shall cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to
promptly provide a copy of the Earn-Out Financial Statements to PentaStar and
the Company. Within 30 days after receipt of the Earn-Out Financial Statements,
each of PentaStar and the Company shall, in a written notice to the other,
either accept the Earn-Out Financial Statements or object to them by describing
in reasonably specific detail any proposed adjustments to the Earn-Out Financial
Statements and the estimated amounts of and reasons under PentaStar's
application of GAAP for such proposed adjustments. The failure by PentaStar or
the Company to object to the Earn-Out Financial Statements within such 30-day
period shall be deemed to be an acceptance by the Company or PentaStar, as the
case may be, of the Earn-Out Financial Statements. If any adjustments to the
Earn-Out Financial Statements are proposed by PentaStar or the Company within
such 30-day period, the dispute shall be resolved as provided in Section 2.3(f).
The fees and expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ for the preparation of the Earn-Out
Financial Statements shall be paid by PentaStar.
(iii) Within 10 Business Days after the later of the acceptance of
the Earn-Out Financial Statements by PentaStar and the Company or the resolution
of any disputes under Section 2.3(f), as the case may be (but in no event prior
to December 31, 2001 if the Promissory Note, or any amount thereunder, is then
outstanding), PentaStar shall pay the Earn-Out Amount, if any, to the Company
(the time of such payment being referred to as the "Second Closing"). The
Earn-Out Amount shall be payable, in PentaStar's sole discretion, in cash or
PentaStar Common Stock, or any combination thereof; provided, however, that the
Earn-Out Amount, if any, shall be payable only in cash to the extent that (A)
the amount due under the Promissory Note included in the Loan Documents has not
become due and payable under the terms of the Promissory Note
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prior to December 31, 2001 and (B) the Company has elected under the Promissory
Note to pay such Note by offset against the Earn-Out Amount, and in any event
only to the extent of the Earn-Out Amount payable. If any portion of the
Earn-Out Amount is paid in PentaStar Common Stock, the number of shares of
PentaStar Common Stock to be issued (which shall be rounded to the nearest whole
share) shall be determined by dividing (A) the Earn-Out Amount that is being
paid in PentaStar Common Stock by (B) the Fair Market Value of a share of
PentaStar Common Stock as of June 30, 2001. Any cash portion of the Earn-Out
Amount shall be paid by wire transfer to an account or accounts designated by
the Company or by offset against the Promissory Note. Certificates representing
any shares of PentaStar Common Stock issued in payment of the Earn-Out Amount
shall be delivered to the Company at the Shareholders' Agent's address for
notice purposes under this Agreement. If the Earn-Out EBITA is negative, the
Acquiror shall not be entitled to recover, solely as a result of Earn-Out EBITA
being negative, any amount paid as Purchase Price by the Acquiror to the
Company; provided, however, that the foregoing shall not affect the Liability of
the Company and the Shareholders for the breach of any representation, warranty
or covenant.
(iv) In the event that PentaStar sells the operations conducted by
the Acquiror (whether separately or as part of a sale of all or substantially
all of the assets or operations of PentaStar, and whether by sale of assets or
stock of PentaStar or the Acquiror, by merger of PentaStar or the Acquiror or
otherwise) prior to the end of the Earn-Out Period, PentaStar shall require the
purchaser to continue to account for such operations separately and agree to
assume the obligation of PentaStar to pay the Earn-Out Amount as provided in
this Section 2.3(e). In that event, the purchaser may pay the Earn-Out Amount,
in its sole discretion, in cash, such purchaser's or any parent's common equity
securities based on the fair market value of such securities on the relevant
date as provided in this Section 2.3(e), or any combination thereof.
(v) Upon request of the Company to PentaStar's Chief Financial
Officer, PentaStar shall provide the Company with a copy of any print-out
available to PentaStar from Ameritech in respect of the quarter ending March 31,
2001 and June 30, 2001 which sets forth the revenues of the Acquiror from
Ameritech for such quarters. Such print-outs shall be provided only for purposes
of the Company gauging potential Earn-Out EBITA, and shall be Confidential
Information for purposes of Section 5.4. The Company and the Shareholders
acknowledge and agree (A) that neither PentaStar, the Acquiror nor any other
Person shall have any Liability as a result of any errors or omissions in such
print-outs and (B) that the Earn-Out Amount shall be determined as set forth in
Section 2.3(e)(ii) and, if necessary, 2.3(f).
(f) Resolution of Disputes. If any adjustments to the Closing Date
Balance Sheet, the Interim Period Cash Flow Statement or the Earn-Out Financial
Statements are proposed by PentaStar or the Company pursuant to Section 2.3(c)
or 2.3(e), PentaStar and the Company shall negotiate in good faith to resolve
any dispute, provided that if the dispute is not resolved within 10 days
following the receipt of the proposed adjustments then PentaStar and the Company
shall retain the Denver, Colorado office of BDO ▇▇▇▇▇▇▇ LLC to resolve such
dispute, which resolution shall be final and binding. The fees and expenses of
BDO ▇▇▇▇▇▇▇ LLC shall be paid by the losing party in the dispute. BDO ▇▇▇▇▇▇▇
LLC shall be retained under a retention letter executed by the parties that
specifies that the determination by said firm of any such disputes shall be
resolved in accordance with this Agreement (including the definitions set forth
in this Agreement) by choosing the position of (i) PentaStar in the case of the
Closing Date Balance Sheet or the Interim Period Cash Flow Statement, (ii)
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in the case of the Earn-Out Financial Statements, or, (iii) in
either case, the objecting party under Section 2.3(c) or 2.3(e), as the case may
be, without change, within 30 days of the expiration of the applicable 20-day or
30-day period described in Section 2.3(c) or 2.3(e)(ii), as the case may be.
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(g) The allocation of the total consideration for the Acquired Assets
and Assumed Liabilities for Tax reporting purposes shall be as follows: (i) to
cash and cash equivalents, the amount thereof; (ii) to the Assumed Liabilities,
the amount thereof; (iii) to the potential Earn-Out Amount, the estimated amount
thereof of PentaStar Common Stock and cash, less an appropriate discount for the
PentaStar Common Stock's lack of liquidity and the risk of the Business
operating as a stand-alone entity. Once the Earn-Out Amount is known, through
the passage of time and the occurrence of performance on the part of the
Acquiror, the allocation of the total consideration shall be as follows: (i) to
cash and cash equivalents, the amount thereof; (ii) to the Assumed Liabilities,
the amount thereof; and (iii) to PentaStar Common Stock, if any, issued in
respect of the Earn-Out Amount, the amount thereof less a 2% discount for each
month with respect to shares of PentaStar Common Stock subject to the transfer
restrictions in Section 5.9 of this Agreement (for example, if 33% of the
PentaStar Common Stock issued in respect of the Earn-Out Amount is subject at
the end of the Earn-Out Period pursuant to Section 5.9 to not being sold,
assigned, exchanged, transferred, pledged or otherwise disposed of for five
months thereafter, then 33% of the total PentaStar Common Stock issued as
Closing Shares or in respect of the Earn-Out Amount received by the Company
shall be discounted 10%). The Company shall allocate the total consideration
against its Tax basis in the Acquired Assets, Assumed Liabilities and recorded
net operating losses to calculate its recorded gain on the transaction for Tax
purposes. The Acquiror shall allocate the total consideration against an
estimated fair market value of the Acquired Assets and the Assumed Liabilities
to calculate its recorded goodwill on the transaction for Tax purposes. The
parties acknowledge that such allocations for Tax reporting purposes were
determined pursuant to arm's length bargaining regarding the fair market values
of the total consideration paid in accordance with the provisions of Code
Section 1060. The parties further agree to prepare and file all Tax Returns
(including Form 8594 under the Code) in a manner consistent with such
allocations.
2.4. Sales Taxes, Etc. The Company shall pay all sales, use, transfer,
licensing and other Taxes, fees and charges payable in respect of or as a result
of the sale and transfer of the Acquired Assets to the Acquiror pursuant to this
Agreement.
2.5. 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 ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.C. at 9:00 a.m. Denver,
Colorado time on December 29, 2000 upon satisfaction of the parties respective
obligations to close set forth in Sections 6.1 and 6.2. All transactions
contemplated by this Agreement shall be effective at 12:01 a.m. local time in
Illinois on December 29, 2000 (such effective time being the "Closing Date");
provided, however, that the transactions shall be effective for PentaStar's
accounting purposes only as of 12:01 a.m. local time in Illinois on October 1,
2000.
2.6. Deliveries at the Closing. At the Closing, (a) the Company shall
deliver or cause to be delivered to PentaStar or the Acquiror the various
certificates, instruments and documents, and take or cause to be taken the
actions, referred to in Section 6.1 and (b) PentaStar or the Acquiror shall
deliver or cause to be delivered to the Company the various certificates,
instruments and documents, and take or cause to be taken the actions, referred
to in Section 6.2.
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3. Representations and Warranties.
3.1. Representations and Warranties of the Company and the Shareholders.
The Company and the Shareholders jointly and severally represent and warrant to
PentaStar 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
Delaware, and, with respect to the Business, is qualified and authorized to do
business as a foreign corporation and is in good standing in Illinois and
Georgia, which are the only jurisdictions in which the nature of the Business or
the properties owned, leased or operated by the Company with respect to the
Business make such qualification necessary. The Company has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
(b) Ownership and Capitalization.
(i) The authorized capital stock of the Company consists of
5,000,000 shares of Class A voting common stock, $.01 par value, and 10,000,000
shares of Class B nonvoting common stock, $.01 par value. Each Shareholder owns,
beneficially and of record, free and clear of any Encumbrance or Tax, the number
of shares of the Company (the "Company Shares") set forth opposite such
Shareholder's name on Exhibit 3.1(b)(i) and the Company Shares reflected on
Exhibit 3.1(b)(i) constitute all of the issued and outstanding capital stock of
the Company.
(ii) None of the Business is conducted by or through, and none of
the Acquired Assets are owned by, any Subsidiary of the Company or any other
entity.
(c) Authority; No Violation. This Agreement and the Other Seller
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly and unanimously approved by the board of directors and
shareholders of the Company, and this Agreement and the Other Seller Agreements
to which the Company is a party have been duly executed and delivered by the
Company. The Company has full corporate power and authority to execute, deliver
and perform this Agreement and the Other Seller Agreements to which the Company
is a party, 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, the Company and 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
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14
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 Company and 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 The audited balance sheet of the Business as
of September 30, 2000 (such audited September 30, 2000 balance sheet being
referred to as the "Latest Balance Sheet"), the related audited statements of
income and cash flows for the 9-month period then ended, the unaudited balance
sheets of the Business as of October 31, 2000, November 30, 2000 and as of any
subsequent dates delivered pursuant to Section 4.10 and the related statements
of income and cash flows for the periods since January 1, 2000 then ended have
been prepared in accordance with GAAP on a consistent basis and on a basis
consistent with the "Carve-Out" (as defined in GAAP) method of accounting and
the accounting practices of PentaStar, are in accordance with the books and
records of the Company with respect to the Business (which books and records are
complete and correct in all material respects), and fairly present the financial
position and results of operations of the Business in all material respects as
of such dates and for each of the periods indicated. As of the date of each of
such balance sheet, the Company had no Liability with respect to the Business
other than those set forth on each such balance sheet. Copies of the financial
statements described in the first sentence in this Section 3.1(d) are attached
as Exhibit 3.1(d)(i). The expenses itemized on Exhibit 3.1(d)(ii) and reflected
in the Business' financial performance for the 9-month period ended September
30, 2000 shall not be realized on an on-going basis after the Closing Date.
(e) Absence of Certain Agreements, Changes or Events.
(i) The Company is not, with respect to the Business, except as
set forth on Exhibit 3.1(e)(i), a party to or otherwise bound by any material
contract or agreement (A) pursuant to which the Company is obligated to furnish
any services, product or equipment and (B) that has been prepaid with respect to
any period after the Closing Date.
(ii) Since January 1, 2000, the Company, with respect to the
Business, 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, except in the ordinary course of
business, provided that as of the Closing all Closing Date Liabilities relating
to the Business shall have been paid by the Company; (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; (F) made or granted any individual wage or salary increase in excess
of 10% or $1.00 per hour (whichever is greater), 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 fact or
change, including, without
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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 payment to the Shareholders of the
proportionate monthly amount of (1) their respective normal annualized salaries
due and payable during such period or (2) rent due under pre-existing real
property leases between the Company and a Shareholder which are disclosed on
Exhibit 3.1(g)(i)(B)); or (J) agreed to incur, take, enter into, make or permit
any of the matters described in clauses (A) through (I). Further, since October
1, 2000, the Company has maintained Operational Continuity.
(iii) Exhibit 3.1(e)(iii) lists all orders booked and all customer
contracts entered into by the Company with respect to the Business, by month,
during the 12-month period from October 1, 1999 through September 30, 2000,
during the one-month period ending October 31, 2000 and during each one-month
period thereafter ending on the last day of each full calendar month prior to
the Closing, and the current status of each such order or contract.
(f) Tax Matters.
(i) The Company has filed all Tax Returns that it was required to
file. 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. 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 Acquired Assets 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 Company and 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,
1993, indicates those Tax Returns that have been audited and indicates those Tax
Returns that currently are the subject of audit. The Company has 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, 1993.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) Neither the Company nor any of its shareholders has ever filed
(A) an election pursuant to Section 1362 of the Code that the Company be taxed
as an "S" corporation, except as set forth on Exhibit 3.1(f)(v), or (B) a
consent pursuant to Section 341(f) of the Code relating to collapsible
corporations. The Company has not made any payments, is not obligated to make
any payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that shall not be
deductible under Code Section 280G. The Company has not been a United States
real property holding corporation within
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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. The total adjusted basis of the Acquired Assets exceeds the sum of
the Company's Liabilities plus the amount of Liabilities to which the Acquired
Assets are subject.
(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 Business or the Division.
(g) Assets and Properties.
(i) The Company has good and marketable title to, or a valid
leasehold interest or interest as a licensee in, the assets and properties used
or held for use by it with respect to the Business located on the Premises with
respect to the Business, or shown on the Latest Balance Sheet or acquired after
the date thereof with respect to the Business. Exhibit 3.1(g)(i)(A) is a list of
the tangible assets included in the Acquired Assets. 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 the Acquired 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, consistent with
historical and current practices. The Company owns or leases all equipment and
other tangible assets necessary for the conduct of the Business as presently
conducted and as presently proposed to be conducted. Each such tangible asset
material to the 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 with respect to the Business 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). None of the Shareholders, nor any relative or affiliate thereof
or of the Company, own any asset, tangible or intangible, which is used in the
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)(B).
The Acquiror shall not have any Liability for the payment of any commissions or
other amounts to any Person in respect of amounts received by the Acquiror or
PentaStar in respect of Residual Payment Rights or Closing Accounts Receivable,
other than the amount of sales commissions set forth on Exhibit 1.1(d)(ii).
(ii) The Premises constitute all of the real property, buildings
and improvements used by the Company in the Business. To the best knowledge of
the Company and 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 the
operations of the Business or its owned or leased properties relating thereto.
(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.
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(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:
(i) the following contracts and other agreements in effect as of
the date of this Agreement or the Closing Date to which the Company is a party
or by which the Company is bound:
(A) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $5,000 per year;
(B) any agreement pursuant to which the Company, or any of the
Shareholders on behalf of the Company, has made a deposit in an amount greater
than $5,000;
(C) any agreement (or group of related agreements) for the
purchase or sale of supplies, products or other personal property, or for the
furnishing or receipt of services, the performance of which shall extend over a
period of more than one year, result in a material loss to the 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;
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(M) any agreement under which the consequences of a default or
termination could have a material adverse effect on the Business or its
financial condition, operations, results of operations or future prospects; 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 the 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 Company has 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) to the best knowledge of the Company and the Shareholders,
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 Company and the Shareholders, threatened against, the
Company, its assets or its business or relating to the transactions contemplated
by this Agreement (i.e., the acquisition of the Business and the Acquired
Assets), nor is there any basis for any such action.
(ii) To the best knowledge of the Company and the Shareholders,
except as set forth on Exhibit 3.1(i)(ii), neither the Company (with respect to
the Business) nor the Acquired 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 Company and the Shareholders,
threatened against the Company alleging any such violation solely as it relates
to the Business or the Acquired Assets.
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(j) Notes and Accounts Receivable. The notes and accounts receivable of
the Company relating to the Business reflected on the Latest Balance Sheet and
all Residual Payment Rights of the Company, and all notes and accounts
receivable relating to the Business 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 the best knowledge of the Company and the
Shareholders, 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 of the Business
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. To the best knowledge
of the Company and the Shareholders, 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 with respect to the Business since the first date of the
Shareholders' acquisition of part of the Business, 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 (i) covering risk
of loss on the Acquired Assets, (ii) covering products and services liability
and liability for fire, property damage, personal injury and workers'
compensation coverage with respect to the Business and the Acquired Assets and
(iii) for business interruption, all, to the best knowledge of the Company and
the Shareholders, with responsible and financially sound insurance carriers in
adequate amounts and in compliance with governmental requirements and in
accordance with good industry practice. All such insurance policies are valid,
in full force and effect and enforceable in accordance with their respective
terms and no party has repudiated any provision thereof. All such policies shall
remain in full force and effect until the Closing Date. Neither the Company nor
any other party to any such policy is in breach or default (including with
respect to the payment of premiums or the giving of notices) in the performance
of any of their respective obligations thereunder, and no event exists which,
with the giving of notice or the lapse of time or both, would constitute a
breach, default or event of default, or permit termination, modification or
acceleration under any such policy. There are no claims, actions, proceedings or
suits arising out of or based upon any of such policies nor, to the best
knowledge of the Company and 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 since the first date of
the Company's acquisition of part of the Business by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. All claims made in connection with the
Business 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. Rollovers and Direct
Rollovers from any 401(k) Plan maintained by the Company to a 401(k) Plan
maintained by PentaStar shall not be permitted for employees of the Company who
become employees of the Acquiror or PentaStar. Neither the Acquiror nor
PentaStar shall suffer any Liability or Adverse Consequence from the Company's
administration or termination of any of its Employee Benefit Plans or from any
failure of any pre-Closing or post-Closing distribution of benefits to employees
of the Company to be made by the Company in compliance with all applicable Legal
Requirements.
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Neither the Acquiror nor PentaStar shall have any obligation to employ any
employee of the Company or to continue any Employee Benefit Plan, and shall have
no Liability under any plan or arrangement maintained by the Company for the
benefit of any employee. The Company shall remain liable for all costs of
employee compensation, including benefits and Taxes relating to employment and
employees attributable to periods through the Closing Date, whether reported by
the Closing Date or thereafter, and all group health plan continuation coverage
to which any employee, former employee or dependent is entitled because of a
qualifying event (as defined in Section 4980B(f)(3) of the Code) occurring
through the Closing Date or as a result of termination of employment with the
Company because of the transactions contemplated by this Agreement and any
benefit or excise tax liability or penalty or other costs arising from any
failure by the Company to provide group health plan continuation coverage.
Except as set forth on Exhibit 3.1(m), neither the Company nor any Affiliated
Group which includes the Company (if any) maintains, administers or contributes
to, has maintained, administered or contributed to, or has any Liability to
contribute to, any Employee Benefit Plan. Exhibit 3.1(m) lists each Employee
Benefit Plan that is, or at any time during the past six years was, maintained,
administered, contributed to or required to be contributed to by the Company or
any Affiliated Group (if any) which includes or has included the Company, and
the date of termination of each such Employee Benefit Plan (if any) which has
been terminated. The Company has no Liability (and there is no basis for the
assertion of any Liability) as a result of the Company's or any such Affiliated
Group's maintenance, administration or termination of, or contribution to, any
Employee Benefit Plan. Neither the Company nor any member of any Affiliated
Group (if any) which includes or has included the Company has ever been required
to contribute to any Multiemployer Plan (as defined in ERISA Section 3(37)) nor
has incurred any Liability under Title IV of ERISA.
(n) Employees and Labor.
(i) The Company has not received any notice, nor, to the best knowledge
of the Company and the Shareholders, is there any reason to believe that any Key
Employee of the Company or any group of employees of the Company with respect to
the Business has any plans to terminate his, her or its employment with the
Company. To the best knowledge of the Company and 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 Business 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. PentaStar and the Acquiror
shall (A) have complete discretion in determining which, if any, employees of
the Company that the Acquiror may offer employment to and the terms of any such
employment and (B) shall not have any obligation to employ any such employee
which the Acquiror may hire for any period of time. The Company is 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 with respect to the Business, 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. All
Key Employees are listed on Exhibit 3.1(n)(i).
(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 with
respect to the Business who has left the employment of the Company in the
12-month period prior to the date of this Agreement or the Closing, (B) the date
such salesperson left the employment of the Company and (C) the dollar amount of
orders booked by the Company with respect to the Business during the 12-month
period prior to the date such salesperson left the
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employment of the Company which were attributable to such salesperson or for
which such salesperson was responsible.
(o) Customer and Service Provider Relationships. Exhibit 5.3.1(o)(iv) sets
forth as of the date of this Agreement a schedule of residual payments due from
Ameritech with respect to Residual Payment Rights under contracts existing on
the Closing Date (and the Company shall update Exhibit 5.3.1(o)(iv) prior to the
Closing to reflect Ameritech contracts which are not on original Exhibit
5.3.1(o)(iv) due to the fact that they were entered into between the time
Exhibit 5.3.1(o)(iv) was prepared and the Closing Date). Exhibit 5.3.1(o)(iv)
accurately reflects the remaining term and amount of each such residual payment
obligation based upon Ameritech's records. 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 Business' revenues during the 12-month
period ended September 30, 2000. Exhibit 3.1(o)(ii) lists each Person who is a
service provider (including Ameritech, BellSouth and Southwestern ▇▇▇▇) to the
Business' customers, or a Sub-Agent of the Company with respect to the Business,
as of the date of this Agreement (the "Principal Providers"). To the best
knowledge of the Company and the Shareholders, the Company has good commercial
working relationships with its Principal Customers, Principal Referral Sources
and Principal Providers and since October 1, 1999, 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 except as set forth on Exhibit 3.1(o)(iii),
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, and have not been informed of, any
problems with or loss of business with respect to the Business' customer,
referral source, service provider or Sub-Agent relationships. To the best
knowledge of the Company and 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.
(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).
The continued operation of the business of the Business 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
Company and 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
Business. No claims are pending or, to the knowledge of the Company and 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 Company and the Shareholders, all of the Intellectual
Property that is owned by the Company
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and used in the Business 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 and used in the Business 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 Intellectual Property or rights in such Intellectual Property.
(r) Year ▇▇▇▇ ▇▇▇▇▇▇▇▇. To the best knowledge of the Company and the
Shareholders, the computer software owned by the Company and used in the
Business and all other Intellectual Property used or held for use by the Company
in the 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 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 (A) developed or (B) 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. As it pertains to the Business or the Acquired Assets, 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 as it pertains to the
Business or the Acquired Assets.
(u) Investment Representations. (i) Any shares of PentaStar Common Stock
issued to the Company pursuant to this Agreement (the "PentaStar Shares") will
be acquired by the Company for the Company's own account and not on behalf of
any other Person; the Company 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) the Company (or, if the Company is not
an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated
under the Securities Act, the Company through the Company'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 Company (and the Company's Purchaser
Representative, if the Company is not an "accredited investor") deems necessary
to enable the Company (and
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23
the Company's Purchaser Representative, if the Company 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 Company (and the Company's Purchaser Representative if the Company is not an
"accredited investor") has had a reasonable opportunity to ask questions of and
receive answers from PentaStar concerning PentaStar, the PentaStar Shares and
any and all matters relating to the transactions described herein or in the
information described on Exhibit 3.1(u)(ii), and all such questions, if any,
have been answered to the full satisfaction of the Company (and the Company's
Purchaser Representative, if the Company is not an "accredited investor"); (iii)
no Person other than the Company has (A) any rights in and to the PentaStar
Shares, which rights were obtained through or from the Company; or (B) any
rights to acquire the PentaStar Shares, which rights were obtained through or
from the Company, except that it may subject certain of the shares to the Bank
Pledge; (iv) the Company (or the Company's Purchaser Representative, if the
Company 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 Company (or the Company's
Purchaser Representative, if the Company is not an "accredited investor") is
capable of evaluating the merits and risks involved in an investment in the
PentaStar Shares; and the Company is financially able to bear the economic risk
of the investment in the PentaStar Shares, including a total loss of such
investment; (v) the Company has adequate means of providing for the Company's
current needs and has no need for liquidity in the Company's investment in the
PentaStar Shares; the Company has no reason to anticipate any material change in
the Company's financial condition for the foreseeable future; (vi) the Company
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 Company shall realize any
gain from this investment, and that the Company could lose the total amount of
its investment; (vii) the Company 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) the Company 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,
except that it may subject certain of the shares to the Bank Pledge; (ix) except
as set forth herein, no representations or warranties have been made to the
Company (or the Company's Purchaser Representative, if the Company is not an
"accredited investor") by PentaStar or any agent, employee or affiliate of
PentaStar, and in entering into this transaction the Company is not relying upon
any information, other than from the results of independent investigation by the
Company (or the Company's Purchaser Representative, if the Company is not an
"accredited investor"); and (x) the Company understands that the PentaStar
Shares are being offered to the Company 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 Company 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 Company to acquire the PentaStar Shares; and (xi) except as
set forth on Exhibit 3.1(u)(xi), the Shareholder is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
Exhibit 3.1(u)(xi) also sets forth the Company's state of residency. The Company
acknowledges that ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ is the Company's Purchaser Representative for
purposes of the Company's investment in the PentaStar Shares.
All the certificates representing PentaStar Shares shall bear the following
legend, in addition to the legend required by Section 5.9:
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24
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY STATE SECURITIES LAWS AND CAN
NOT BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR (II) THE ISSUER RECEIVES AN OPINION OF
COUNSEL TO THE ISSUER OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SUCH SECURITIES MAY
BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE
ACT OR APPLICABLE STATE SECURITIES LAWS.
(v) Disclosure. As they relate to the Business, the Acquired Assets or the
transactions contemplated by this Agreement, none of the documents or
information provided to PentaStar by the Company, any Shareholder or any agent
or employee thereof in the course of PentaStar's due diligence investigation and
the negotiation of this Agreement and Section 3.1 of this Agreement and the
disclosure Exhibits referred to therein, including the financial statements
referred to above in Section 3.1, contains any untrue statement of any material
fact or omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact which materially
adversely affects the Business or the condition, affairs or operations of the
Business or the Acquired Assets or Assumed Liabilities 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 Company and 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
shall not relieve the Company and the Shareholders of their obligation pursuant
to Section 7 of this Agreement to indemnify and hold PentaStar harmless from all
Adverse Consequences.
3.2. Representations and Warranties of PentaStar. PentaStar represents and
warrants to the Company and 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. PentaStar and the Acquiror
are each corporations duly organized, validly existing and in good standing
under the laws of the State of Delaware and are qualified to do business as
foreign corporations and are in good standing in all jurisdictions in which the
nature of the respective businesses conducted by each of them or the respective
properties owned, leased or operated by each of them 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.
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25
(b) Capitalization.
(i) The authorized, issued and outstanding shares of the capital
stock of PentaStar are as set forth on Exhibit 3.2(b)(i).
(ii) At the time of issuance thereof and delivery to the Company,
the PentaStar Shares, if any, delivered to the Company pursuant to this
Agreement shall be duly authorized and validly issued shares of PentaStar's
Common Stock, and shall be fully paid and nonassessable. Such PentaStar Shares
shall at the time of such issuance and delivery be free and clear of any
Encumbrances of any kind or character, other than those arising under applicable
federal and state securities laws, under this Agreement or under any Other
Seller Agreement to which the Company 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 of 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 to 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).
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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 two years, except that the Liabilities of the Company
and the Shareholders with respect to the representations and warranties set
forth in Sections 3.1(f), 3.1(m) and 3.1(p) shall survive until expiration of
the applicable statute of limitations, and except that the Liabilities of the
Company and the Shareholders with respect to the representations and warranties
set forth in Sections 3.1(a), 3.1(b), 3.1(c), 3.1(g), 3.1(q), 3.1(u) and 3.1(v),
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 Liability 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 Section 3.1 hereof shall in each and every case where a statement
to the "best knowledge," "best of knowledge" or "knowledge" is required on
behalf of the Company and the Shareholders be deemed to require that such
statement be in good faith based upon the actual knowledge of any of ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇▇ after
reasonable investigation (including inquiry of the applicable employees of the
Company (but no inquiry shall be required with respect to the second sentence of
Section 3.1(n)(i)), but excluding any inquiry of any customer or service
provider).
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 Company shall, and the Shareholders 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 Company shall, and 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 with respect to the Business, intact. The Company shall not, and
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 the Company or any Shareholder; and, provided further, that the
Company shall not take or fail to take any action which would result in a breach
of the representation and warranty set forth in the last sentence of Section
3.1(e)(ii). Notwithstanding the foregoing, if the Company is unable to obtain
the prior written approval of PentaStar with respect to any action which is the
subject of clause (c) of the definition of Operational Continuity and the
Company, in its good faith business judgment, believes that it is necessary to
take such action in order to maintain the viability of the Business, the Company
may take such action. Further, neither PentaStar nor the Acquiror shall have any
Liability to the Company, the Shareholders or any other Person under or in
connection with this Agreement as a result of, arising out of, relating to or
caused by any discussions or consultations with, or any granting or failing to
grant any approval or waiver by, PentaStar contemplated by the definition of
Operational Continuity or otherwise in connection with this Agreement.
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27
4.3. Full Access. The Company shall, and 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 Business.
4.4. Notice of Developments. The Company and the Shareholders shall give
prompt written notice to PentaStar of any material development which occurs
after the date of this Agreement and before the Closing and affects the
Business, the Acquired Assets or the Liabilities, financial condition,
operations, results of operations or future prospects of the Business or the
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. Neither the Company nor any 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 Company and the
Shareholders shall notify PentaStar immediately if any Person makes any
proposal, offer, inquiry or contact with respect to any of the foregoing.
4.6. Announcements; Securities Law Restrictions. Prior to the Closing,
neither any Shareholder nor the Company shall disclose to any Person, nor issue
any press release or make any public announcement concerning, the existence,
terms or subject matter of this Agreement without the prior written approval of
PentaStar, except as (and only to the extent) previously publicly announced by
PentaStar. Further, neither any Shareholder nor the Company shall violate the
United States securities laws which restrict each Shareholder 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. Bulk Sales Laws. In reliance upon its indemnification rights set forth
in Section 7, the Acquiror waives compliance by the Company with the bulk
transfer law and any other similar law of any applicable jurisdiction in respect
to the transactions contemplated by this Agreement.
4.8. Conveyance of Shareholder Property. Prior to the Closing Date, the
Shareholder shall convey, and shall cause each relative or affiliate of the
Company or of the Shareholder to convey, to the Company, free and clear of any
Encumbrance or Tax, all of the 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 in the Business and owned or leased by the
Shareholder or relative or affiliate of the Company or of the 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 the Shareholder, the Shareholder 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.
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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 and is conveyed to the Acquiror at the
Closing as an Acquired Asset, free and clear of any Encumbrance or Tax.
4.10. Interim Information. Within 10 days of the end of each month
(beginning with the month ending December 31, 2000) between the date of this
Agreement and the Closing, the Company shall deliver to PentaStar (a) an
unaudited balance sheet of the Business as of the last day of each such month
and the related statements of income and cash flows of the Business for the
period from January 1, 2000 through such month-end and (b) the information
required by Section 3.1(e)(iii). All such financial statements shall conform to
the representations and warranties set forth in Section 3.1(d), and such
representations and warranties shall be deemed made with respect to such
financial statements as a result of their delivery to PentaStar.
4.11. Certain Closing Date Liabilities. On or before the Closing Date, the
Company shall pay in full all Closing Date Liabilities relating to the Business
and the Acquired Assets not covered in the Interim Cash Requirement.
4.12. Company Options. PentaStar acknowledges that the Company intends to
provide certain of the Company's employees who become employees of the Acquiror
with options to acquire the Company's equity securities.
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. Neither the Company nor any 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 with respect to the
Business 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, the Assumed Liabilities or the Business,
each of the other parties shall cooperate with such party and its counsel in the
contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be reasonably necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending party (unless the contesting or defending party is
entitled to indemnification therefor under Section 7).
5.4. Confidentiality. The Company and the Shareholders shall treat and hold
as confidential all Confidential Information concerning PentaStar, the Business
or the Acquired Assets, refrain from using any such
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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, neither the Company
nor any 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. The Company and 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, all at the sole cost and expense of
PentaStar, but without additional consideration to the Company or the
Shareholders. The Company and the Shareholders acknowledge that PentaStar may be
required by applicable Legal Requirements to include audited financial
statements with respect to the Business in reports filed with governmental
agencies and that the inability to audit the financial statements as of the
Closing Date promptly after the Closing could have a material adverse effect on
PentaStar.
5.7. Satisfaction of Liabilities. The Company and the Shareholders shall
pay and perform, as and when due, all Liabilities (other than the Assumed
Liabilities) relating to the Company, the Business or the Acquired Assets,
including without limitation, all Taxes attributable to the transactions
contemplated by this Agreement. Further, the Company and 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 Business to comply at the Closing Date
with any Legal Requirement, upon receipt of notice from PentaStar at any time.
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 Assumed Liabilities.
5.8. Repurchase of Unpaid Receivables and Residual Payment Rights. Subject
to the last two sentences of this Section 5.8, the Company, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇. ▇▇▇▇▇ jointly and severally guarantee (a) that the Closing Accounts
Receivable, net of any reserve established in accordance with GAAP on the Latest
Balance Sheet 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, and (b) that at
least 90% of the amount set forth on Exhibit 5.8 shall be received by the
Acquiror from Ameritech prior to the first anniversary of the Closing Date in
respect of Residual Payment Rights under contracts existing on the Closing Date
(and Exhibit 5.8 sets forth the aggregate amount of residual payments due under
such contracts prior to the first anniversary of the Closing Date) (payments
received by the Acquiror from Ameritech prior to the first anniversary of the
Closing Date in respect of Residual Payment Right under contracts existing on
the Closing Date are referred to as "2001 Residual Payments"). Subject to the
last two sentences of this Section 5.8, upon demand by PentaStar (a) at any time
after the Earn-Out Amount is determined pursuant to this Agreement, the Company,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇ shall jointly and severally pay to the
Acquiror the full amount of any unpaid Closing Accounts Receivable which is the
subject of such demand and is then unpaid and (b) at any time after the first
anniversary of the Closing Date, the Company, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇.
▇▇▇▇▇ shall jointly and severally pay to the Acquiror the full amount of the
difference between (i) 90% of the amount set forth on Exhibit 5.8 and (ii) the
2001 Residuals Payments. Any amounts due to the Acquiror pursuant to the
preceding sentence shall be reduced to the extent of the amount of any Earn-Out
EBITA Differential which is then available under Section 7.1(b)(ii). The
obligations of the Company, ▇▇. ▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ under this Section 5.8 are
independent of their obligations under Section 7, and are not limited in any
manner by Section 7, including, without limitation, Section 7.1(c). Upon such
payment to the
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Acquiror, the Closing Accounts Receivable which are so paid for by the Company,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇ shall, without further action of any party,
become the property of the Company, which may pursue collection thereof;
provided, however, that the Company 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 and use its commercially
reasonable efforts to collect 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 Company or such Shareholders from their guarantee of the Closing
Accounts Receivable and residual payments as described in this Section 5.8.
Notwithstanding anything to the contrary in this Section 5.8, neither ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ nor ▇▇▇▇▇ ▇. ▇▇▇▇▇ shall have any guarantee obligation under this
Section 5.8 with respect to Closing Accounts Receivable once the Acquiror has
received actual payment of Closing Accounts Receivable of at least $414,000 in
the aggregate. Further, notwithstanding anything to the contrary in this Section
5.8, neither the Company, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ nor ▇▇▇▇▇ ▇. ▇▇▇▇▇ shall have any
guarantee obligation under this Section 5.8 in respect of Residual Payment
Rights under contracts with Ameritech in the following circumstances: (a) if,
after the Closing, Ameritech withholds payment of Residual Payment Rights as a
result of a dispute with PentaStar arising out of issues and claims which
occurred, or had their origin, after the Closing (but excluding issues and
claims which arise, or have their origin, before the Closing or relate to the
Company); (b) if, after the Closing, PentaStar has unilaterally elected to
discontinue selling services as an Ameritech agent; or (c) if, beginning after
the Closing Date, Ameritech unilaterally (and universally throughout its agency
program) discontinues making residual payments on all contracts in its agency
program.
5.9.Transfer Restrictions. Unless otherwise agreed by PentaStar, the
Company agrees it 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 Company as part of the
Purchase Price. Thereafter, up to 33% of the PentaStar Shares received as part
of the Purchase Price by the Company may be resold at any time, and an
additional 17% of the PentaStar Shares received as part of the Purchase Price by
the Company may be resold by the Company beginning 24 months after the Closing.
Any remaining PentaStar Shares may not be sold until the earlier to occur of (w)
the sale of all or substantially all of the assets or outstanding shares of
PentaStar, whether by way of merger, acquisition or other method (except a
merger or consolidation immediately after which the Persons who were
shareholders of PentaStar before the transaction own a majority of the
outstanding equity securities of the surviving or resulting entity) or (x)
October 26, 2004. Certificates for the PentaStar Shares delivered to the Company
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 PURCHASE
AGREEMENT DATED AS OF ___________, 2000 (THE "AGREEMENT"), BY AND AMONG THE
ISSUER, PENTASTAR ACQUISITION CORP. IX, DIGISTAR NETWORKS, INC. AND THE
SHAREHOLDERS OF DIGISTAR NETWORKS, 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
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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 Company representing the
shares of PentaStar Shares subject to each of the three periods of restriction
contemplated by this Section 5.9.
The restrictions set forth above in this Section 5.9 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 Company also agrees to
comply with such restrictions.
5.10. [RESERVED.]
5.11. Coop/Marketing Funds. If the Acquiror receives "cooperative" or
"marketing" funds from Ameritech which are designated by Ameritech as for the
Business, the Acquiror shall use its good faith efforts to spend such funds for
the benefit of the Business.
5.12. Certain Services. Following the Closing, PentaStar shall have the
option, exercisable in its sole discretion, of providing accounting,
administrative, order processing, provisioning and other services to the
Acquiror directly through PentaStar or any of its divisions, operations or
Subsidiaries. In such case, the Earn-Out EBITA shall be reduced by the fair
market value of such services. For purposes of this Section, the fair market
value of any services so provided shall be the price at which a willing provider
would provide, and a willing user would obtain, such services having full
knowledge of the facts, in an arm's length transaction without time constraints
and without being under any compulsion to provide or use.
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 Company's and each Shareholder's 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 Company and the Shareholders shall have performed and complied
with all of their covenants hereunder through the Closing;
(c the Company and the Shareholders shall have (i) obtained the Bank
Lien Release and (ii) given all notices and procured all of the other
third-party consents, authorizations and approvals required to consummate the
transactions contemplated by this Agreement, all in form and substance
reasonably satisfactory to PentaStar;
(d no action, suit or proceeding shall be pending or threatened before
any Governmental Authority or any other Person wherein an unfavorable Order
would (i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation or (iii) affect adversely the right of the
Acquiror to own the Acquired Assets and conduct the acquired business, and no
such Order shall be in effect;
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(e there shall have been no adverse change in the Business or the
Acquired Assets between the date of execution of this Agreement and the Closing;
(f the Company and 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 certificate as
to the adoption of resolutions by the board of directors and shareholders of the
Company authorizing the execution, delivery and performance of this Agreement
and the Other Seller Agreements and the consummation of the transactions
contemplated hereby and thereby and (iii) 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, with respect to the Business, qualified or authorized to do business
as a foreign corporation;
(g the Other Seller Agreements and the Purchaser Representative
Documents shall have been executed and delivered by the parties thereto other
than PentaStar and the Acquiror;
(h PentaStar shall have received from counsel to the Company and the
Shareholders an opinion in form and substance as set forth in Exhibit 6.1(h)
addressed to PentaStar and the Acquiror dated as of the Closing;
(i PentaStar shall have completed its due diligence with respect to the
Business and the Acquired Assets with results satisfactory to PentaStar;
(j [RESERVED.];
(k financing necessary for the consummation of the transactions
contemplated hereby and for the operation of the acquired business shall be
available to PentaStar on terms and conditions satisfactory to it;
(l PentaStar shall have received from the Company UCC, lien, judgment,
litigation and bankruptcy searches with respect to the Company, the Business and
the Acquired Assets and evidence of the termination of all Encumbrances filed
against the Acquired Assets;
(m the Company shall have delivered to the Acquiror possession and
control of the Acquired Assets;
(n [RESERVED.]; and
(o the Company and the Shareholders shall have delivered 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 Company and the Shareholders. The
obligation of the Company and the Shareholders to consummate the transactions
contemplated by this Agreement is subject to satisfaction of the following
conditions:
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33
(a the loan contemplated by the Promissory Note shall have been made by
PentaStar and the Bank Lien Release shall have been obtained;
(b PentaStar shall have delivered to the Company a certificate to the
effect that PentaStar's representations and warranties are correct and complete
at and as of the Closing Date and the Closing and that PentaStar has performed
and complied with all of its covenants hereunder through the Closing Date;
(c the Company shall have received from counsel to PentaStar an opinion
in form and substance as set forth in Exhibit 6.2(c), addressed to the Company
and dated as of the Closing;
(d the Other PentaStar Agreements shall have been executed and
delivered by PentaStar and the Acquiror, as applicable; and
(e the Acquiror shall have paid and issued the portion of the Purchase
Price due at the Closing pursuant to Section 2.3(a).
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 the Company or any Shareholder breaches (or if any Person other
than PentaStar or the Acquiror alleges facts that, if true, would mean the
Company or 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 the Company
or any Shareholder breaches (or if any Person other than PentaStar or the
Acquiror alleges facts that, if true, would mean the Company or any Shareholder
has breached) any covenants of the Company or any Shareholder contained herein
or any representations, warranties or covenants of the Company or any
Shareholder contained in any Other Seller Agreement and PentaStar gives notice
thereof to the Shareholders' Agent, then the Company and 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. In determining whether there has been a breach of any
representation or warranty contained in Section 3.1 and in determining for
purposes of the preceding sentence the amount of Adverse Consequences suffered
by PentaStar or the Acquiror, such representations and warranties shall not be
qualified (other than by the reference to "knowledge" set forth in the last
sentence of Section 3.1(o)) by "material," "materiality," "in all material
respects," "best knowledge," "best of knowledge" or "knowledge" or words of
similar import, or by any phrase using any such terms or words. The Company and
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 Assumed 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 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
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34
to PentaStar, was disclosed on any Exhibit hereto or is a matter with respect to
which the Company or any Shareholder 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 and (iii) any Liability resulting
from any failure of the parties to comply with any applicable bulk sales or
transfer Legal Requirement in connection with the transactions contemplated by
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 Company and the
Shareholders, or any of them, in that action and have its right to
indemnification adjudicated by the court. 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 Company and the Shareholders in that action and
have its right to indemnification adjudicated by the court.
(b (i) The aggregate indemnification obligation of the Company and the
Shareholders shall be limited to the amount of the Purchase Price; provided,
however, that neither the Company nor the Shareholders shall have any obligation
to indemnify PentaStar or the Acquiror from and against any Adverse Consequences
based upon the breach (or alleged breach) of any representation or warranty of
the Company or the Shareholders contained in Section 3.1(other than those
contained in Section 3.1(a), 3.1(b), 3.1(c), 3.1(f), 3.1(g)(i), 3.1(m), Section
3.1(o), 3.1(p), 3.1(q), 3.1(u) and 3.1(v)) until PentaStar and the Acquiror have
collectively suffered Adverse Consequences by reason of any or all such breaches
(or alleged breaches) in excess of $5,000 in aggregate, at which point the
Company and the Shareholders shall be obligated to jointly and severally
indemnify PentaStar and the Acquiror from and against the entirety of all such
Adverse Consequences from the first dollar; and provided, further, that the
indemnification obligation of the Shareholders shall be further limited as set
forth in Section 7.1(c).
(ii) If Earn-Out EBITA is determined pursuant to this Agreement to
be in excess of $625,000 and after such determination is made PentaStar or the
Acquiror have an indemnification claim pursuant to Section 7.1(a) against the
Company or the Shareholders, then PentaStar and the Acquiror shall not assert
such claim against the Company and the Shareholders unless, and then only to the
extent that, such claim (aggregated with all other claims which were not
previously asserted against the Company and the Shareholders due to operation of
this sentence (and such other claims may also then be asserted)) exceeds the
positive difference, if any, between (A) the Earn-Out EBITA Differential, minus
(B) the amount of the Earn-Out EBITA Differential which has been consumed by
operation of Section 5.8; provided, however, that the Earn-Out EBITA
Differential may be used to offset amounts due under Section 5.8 only if and to
the extent PentaStar and the Acquiror do not have other claims under Section
7.1(a), including claims represented by the Unasserted Claim Amount.
(c Notwithstanding anything to the contrary set forth in Section 7.1(a)
or 7.1(b):
(i the Shareholders shall not have any Liability under Section
7.1(a) or 7.1(b) (except as set forth in Section 5.8) so long as:
(A) prior to the first anniversary of the Closing Date, (1)
all or substantially all of the assets or capital stock of the Company are not
sold or transferred, regardless of how structured (including any acquisition
structured as a merger, consolidation or share exchange) and whether in one
transaction or a series of related or unrelated transactions; and
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(B) (1) the Company does not make any payment or transfer to
or for the benefit of any shareholder, officer or director or any relative or
affiliate thereof and the Company does not permit 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 payment to
the Shareholders of the proportionate monthly amount of (I) their respective
normal annualized salaries due and payable during such period or (II) rent due
under pre-existing real property leases between the Company and a Shareholder
which are disclosed on Exhibit 3.1(g)(i)(B)) and (2) neither the Company nor any
Shareholder has agreed to take, enter into, or permit any of the matters
described in clauses (B)(1) or (2); and
(C) neither the Company nor the Shareholders has failed to
disclose to PentaStar prior to the date of this Agreement and the Closing, any
material adverse information then known to any of the Company or the
Shareholders concerning the Business, the Acquired Assets, or the transactions
contemplated by this Agreement; and
(D) the representations and warranties set forth in Sections
3.1(b) or 3.1(c) have not been breached; and
(E) the Company has not assigned this Agreement or any of its
obligations hereunder.
(ii If the Shareholders have any Liability as a result of the
conditions set forth in Section 7.1(c)(i) not having been met, then the
Liability of each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall be limited to
any funds, assets or property which such Shareholder or any of such
Shareholder's relatives or affiliates (other than another Shareholder) receives
from or in respect of the Company.
(d) Notwithstanding anything to the contrary in this Section 7.1, the
Loan Documents shall not be considered Other Seller Agreements for any purposes
of Section 7, including, without limitation, for purposes of Sections 7.1(a),
(b) or (c). The only obligations of the Company, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇.
▇▇▇▇▇, as the case may be, with respect to the Loan Documents shall be as set
forth in the Loan Documents. The only rights of PentaStar and the Acquiror with
respect to the Loan Documents shall be as set forth in the Loan Documents and
applicable Legal Requirement.
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7.2. Indemnification Provisions for Benefit of the Company and the
Shareholders. If PentaStar breaches (or if any Person other than the Company or
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, as the case may be, breaches
(or if any Person other than the Company or 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 Company and the
Shareholders from and against any Adverse Consequences the Company and 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 Company and the Shareholders for purposes of this Section 7.2,
such representations and warranties shall not be qualified by "material,"
"materiality," "in all material respects," "best knowledge," "best of knowledge"
or "knowledge" or words of similar import, or by any phrase using any such terms
or words. If any dispute arises concerning whether any indemnification is owing
which cannot be resolved by negotiation among the parties within 30 days of
notice of claim for indemnification from the party claiming indemnification to
the party against whom such claim is asserted, the dispute shall be resolved by
arbitration pursuant to this Agreement. If the Company or a Shareholder 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, the Shareholder's Agent may, at its
option, join PentaStar or the Acquiror, as the case may be, in that action and
have the right of the Company and the Shareholders to indemnification
adjudicated by the court. If the Company or a Shareholder is sued in an action
relating in whole or in part to a claim against which the Company or the
Shareholder is or may be entitled to indemnification hereunder, the Company or
the Shareholder may, at its option, join PentaStar or the Acquiror, as the case
may be, in that action and have his right to indemnification adjudicated by the
court.
7.3. Matters Involving Third Parties.
(a If any Person not a party to this Agreement (including, without
limitation, any Governmental Authority) notifies any party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other party (the "Indemnifying
Party"), then the Indemnified Party shall notify each Indemnifying Party thereof
in writing within 15 days after receiving such notice. No delay on the part of
the Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(b Any Indemnifying Party shall have the right, at its sole cost and
expense, to defend the Indemnified Party against the Third Party Claim with
counsel of its choice satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within 10 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party shall indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party shall have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not,
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in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (v) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently. If the Indemnifying
Party does not assume control of the defense or settlement of any Third Party
Claim in the manner described above, it shall be bound by the results obtained
by the Indemnified Party with respect to the Third Party Claim.
(c So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 7.3(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (ii) the Indemnified Party
shall not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (iii) the Indemnifying
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably).
(d In the event any of the conditions in Section 7.3(b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Party shall
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party shall remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to or caused by the Third Party Claim to the fullest extent
provided in this Section 7.
7.4. Right of Offset. PentaStar and the Acquiror shall have the right to
offset any Adverse Consequences either of them may suffer or any amounts due to
either of them hereunder or under any Other Seller Agreement against any amounts
payable or shares of PentaStar Common Stock issuable pursuant to this Agreement
or any Other Seller Agreement to the Company, any Shareholder or any relative or
affiliate of the Company or any Shareholder at or after the Closing. For
purposes of effecting any offset against shares of PentaStar Common Stock, each
share shall be valued at the price per share at which it was issued, and
PentaStar and the Acquiror shall be entitled to select the particular shares
against which any setoff is effected.
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; or
(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 the
Company or 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, (ii) if the Closing has not occurred on or
before January 31, 2001 because of the failure of any condition
xxxiii
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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 (iii) in the
event the Company takes any action it is permitted to take pursuant to the
penultimate sentence of Section 4.2; or
(c) the Shareholders' Agent may terminate this Agreement by giving
written notice to PentaStar at any time prior to the Closing (i) in the event
PentaStar or the Acquiror 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 January 31, 2001 because of the failure of any condition precedent to the
Company's obligations to consummate the Closing (unless the failure results
primarily from the Company or 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. If this Agreement is
terminated pursuant to Section 8.1, the Company and the Shareholders acknowledge
and agree that PentaStar and any Subsidiary may solicit, hire and enter into
relationships with the Company's employees, Sub-Agents, customers, referral
sources and service providers of the Company, and neither PentaStar, the
Acquiror nor any Person associated therewith shall have any Liability as a
result thereof.
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. Neither the Company nor any Shareholder may assign this
Agreement or any of its, his or her rights, interests or obligations hereunder
without the prior written approval of PentaStar; provided, however, that the
Company may assign this Agreement and its rights and interests hereunder and
delegate its obligations hereunder to any Person who (a) acquires all or
substantially all of the assets or capital stock of the Company (regardless of
how such transaction is structured, including any acquisition structured as a
merger, consolidation or share exchange, and whether in one transaction or a
series of related or unrelated transactions) or (b) provides debt or equity
financing to the Company, so long as such Person expressly agrees in writing to
assume such obligations and be bound by this Agreement and a copy of such
written agreement is delivered to PentaStar. PentaStar and the Acquiror may
assign their respective rights and obligations hereunder as permitted by
applicable Legal Requirement, including, without limitation, to any debt or
equity financing source.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be deemed to be one and the same instrument. The execution of a
counterpart
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of the signature page to this Agreement shall be deemed the execution of a
counterpart of this Agreement. This Agreement may be delivered by facsimile and
facsimile signatures shall be treated as original signatures for all purposes.
9.5. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.6. Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if it is sent
by registered or certified mail, return receipt requested, postage prepaid, or
by courier, telecopy or facsimile, and addressed to the intended recipient as
set forth below:
If to the Company or any
Shareholder: Copy to:
Addressed to the
Shareholders' Agent at: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to PentaStar or the Acquiror: Copy to:
PentaStar Communications, Inc. ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer Attn: B. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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.
xxxv
40
9.9. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.10. Expenses. Except as otherwise provided in Section 8.2, (a) PentaStar
shall bear its own costs and expenses (including, without limitation, legal fees
and expenses) incurred either before or after the date of this Agreement in
connection with this Agreement or the transactions contemplated hereby and (b)
the Company and 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 or by any Shareholder either before or after the
date of this Agreement in connection with this Agreement or the transactions
contemplated hereby.
9.11. Arbitration. If the Closing occurs, 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 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
xxxvi
41
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. The Company and each Shareholder hereby
authorize and appoint 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 Company or any
Shareholder may assert, or have the right to assert, against PentaStar or the
Acquiror, or (ii) any claims which PentaStar or the Acquiror may assert, or have
the right to assert, against the Company or any Shareholder. The Shareholders'
Agent hereby accepts such authorization and appointment. Upon the receipt of
written evidence satisfactory to PentaStar to the effect that the Shareholders'
Agent has been substituted as agent of the Company and the Shareholders by
reason of his death, disability or resignation, PentaStar and the Acquiror shall
be entitled to rely on such substituted agent to the same extent as they were
theretofore entitled to rely upon the Shareholders' Agent with respect to the
matters covered by this Section 9.14. Neither the Company nor any Shareholder
shall act with respect to any of the matters which are the subject of this
Agreement except through the Shareholders' Agent. The Company and the
Shareholders acknowledge and agree that PentaStar and the Acquiror may deal
exclusively with the Shareholders' Agent in respect of such matters, that the
enforceability of this Section 9.14 is material to PentaStar and the Acquiror,
and that PentaStar and the Acquiror have relied upon the enforceability of this
Section 9.14 in entering into this Agreement.
xxxvii
42
9.15. ▇▇▇▇▇ ▇▇▇▇▇. The parties acknowledge and agree that they have had
various discussions concerning the employment of ▇▇▇▇▇ ▇. ▇▇▇▇▇ by the Acquiror,
that ▇▇. ▇▇▇▇▇ has on December 29, 2000 been offered employment by the Acquiror
as a salesperson with select managerial responsibilities, and that such offer
supersedes all prior offers, understandings, agreements, representations or
obligations by , between or among any of the parties, including ▇▇. ▇▇▇▇▇,
concerning his employment by PentaStar or the Acquiror.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.]
xxxviii
43
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written. PENTASTAR:
PENTASTAR COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
ACQUIROR:
PENTASTAR ACQUISITION CORP. IX
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
COMPANY:
DIGISTAR NETWORKS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
SHAREHOLDERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
[SIGNATURE PAGE TO PURCHASE AGREEMENT]
xxxix
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Exhibit 1.1(a)
-------
DEFINED TERMS
Acquiror has the meaning given it in the preamble to this Agreement.
Acquired Assets means all right, title and interest of the Company in and
to all of the tangible and intangible assets of the Company identified on
Exhibit 1.1(b).
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.
Assignment and Assumption Agreement means the Assignment and Assumption
Agreement between the Company and the Acquiror in the form of Exhibit 1.1(c)
pursuant to which the Acquiror shall assume the Assumed Liabilities.
Assumed Liabilities are those Liabilities of the Company with respect to
the Business which will become the Liabilities of the Acquiror, PentaStar
Corporation or PentaStar Holding Corp., as the case may be (as indicated on
Exhibit 1.1(d)(i)), upon the Closing pursuant to the Assignment and Assumption
Agreement. Assumed Liabilities means (a) the obligations of the Company arising
after the Closing Date under those contracts with respect to the Business which
are identified by PentaStar on Exhibit 1.1(d)(i) with respect to the period
after the Closing Date; provided, however, that such obligations shall not
include any Liability of the type contemplated by 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) the Liabilities set forth on
Exhibit 1.1(d)(ii) in the amounts set forth on Exhibit 1.1(d)(ii). Assumed
Liabilities shall not include any other Liability.
Bank means ▇▇▇▇ ▇▇▇▇▇▇ Bank.
Bank Lien Release means the delivery by the Bank to PentaStar of UCC-3
termination statements and such other documents as PentaStar requests to affect
and evidence the release of all Encumbrances of the Bank on the Acquired Assets.
Benefit Arrangement has the meaning set forth in Section 3.1(m).
Business means all the activities and services performed by the Company
pursuant to its agency/distributor agreements with Ameritech, BellSouth,
Southwestern ▇▇▇▇, Sprint, Intermedia and QWEST and also including the business
of selling as an agent, or a sub-agent, communication services of providers in
exchange for a commission, either directly or indirectly. After December 31,
2001, the definition o f "Business" shall not include the selling of
communication services as an agent or sub-agent for the specific purpose only of
Exhibit 1.1(a) - i
45
augmenting for terrestrial purposes the Company's post-Closing business of
providing video satellite high speed data, video and related services.
Business Day means any day on which commercial banks are open for business
in Denver, Colorado.
Capital Lease Property has the meaning given it in Section 4.9.
Cash Portion of the Purchase Price has the meaning set forth in Section
2.1(a)(i).
Closing Accounts Receivable means all accounts (including late fees and
interest charges thereon) and notes receivable of the Company with respect to
the Business 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 2.5.
Closing Date Balance Sheet has the meaning given it in Section 2.3(c)(i).
Closing Date Liabilities means all Liabilities of the Company (including
those designated as such pursuant to this Agreement), other than the Assumed
Liabilities.
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).
Company Welfare Plan has the meaning given it in Section 3.1(m).
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 Amount means the remainder of two times the Earn-Out EBITA, minus
(a) the Cash Portion of the Purchase Price, minus (b) the amount of the Assumed
Liabilities described in clause (b) of the definition of Assumed Liabilities,
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 2.3(a)(i)(A)(4)), and minus
(d) the amount paid to the Company pursuant to Section 2.3(a)(i)(B); provided,
however, that in no event shall the Earn-Out Amount be such as would cause the
Earn-Out Amount plus the amounts referred to in clauses (a) through (d) of this
definition to exceed $1,250,000.
Earn-Out EBITA means the EBITA of the Acquiror from the Network Group
Operations for the Earn-Out Period, including for purposes of such determination
the EBITA of the Business from October 1, 2000 until the Closing Date; provided,
however, that in any event Earn-Out EBITA (a) shall include payments actually
received during the Earn-Out Period for Residual Payments Rights, (b) shall not
include any general allocation
Exhibit 1.1(a) - ii
46
of PentaStar corporate headquarters expense but shall include as an expense the
fair market value (determined as set forth in Section 5.12) of any services
provided to the Acquiror pursuant to Section 5.12 and (c) shall be reduced by
the Principal Customer/Principal Referral Source Reduction Amount.
Earn-Out EBITA Differential means the product (if such product is a
positive number) of (a) (i) Earn-Out EBITA, (ii) minus $625,000, multiplied by
(b) 2; provided, however, that if Earn-Out EBITA is zero or negative, the
Earn-Out EBITA Differential shall be zero. For example, if Earn-Out EBITA is
$700,000, then the Earn-Out EBITA Differential would be $150,000.
Earn-Out Financial Statements has the meaning given in Section 2.3(e)(ii).
Earn-Out Period means the period commencing October 1, 2000 and ending
September 30, 2001.
EBITA means earnings before interest, taxes and amortization, determined in
accordance with GAAP and on a basis consistent with the accounting practices of
PentaStar, including PentaStar's GAAP methods of revenue recognition for
residual commission payments and GAAP consistent with booking prior paid
salesperson commissions as prepaid commissions less an appropriate reserve for
contract cancellations and salesperson terminations and expensing salesperson
commissions at the time the revenue is recognized; provided, however, that all
salesperson commissions with respect to the Business paid by the Company between
October 1, 2000 and the Closing Date shall only be expensed one time, at the
time the revenue is recognized for GAAP purposes.
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).
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).
Estimated Closing Date Balance Sheet has the meaning given it in Section
2.3(b)(i).
Exhibit 1.1(a) - iii
47
Estimated Interim Period Cash Flow Statement has the meaning given it in
Section 2.3(b)(ii).
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value of the PentaStar Common Stock means (a), as of the
Closing Date, the average of the closing prices of the PentaStar Common Stock
for the five trading days ending two trading days prior to the Closing Date, as
quoted by Nasdaq, (b) for the Second Closing, the average of the closing prices
of PentaStar Common Stock for the five trading days ending two trading days
prior to June 30, 2001, as quoted by Nasdaq and (c) as of any other date, the
average of the closing prices of the PentaStar Common Stock for the five trading
days ending two trading days prior to such date. If closing prices are not
quoted for the PentaStar Common Stock, the closing price for each such day shall
be deemed to be the average of the last bid and last asked prices for the
PentaStar Common Stock for that day, as quoted by Nasdaq. If the PentaStar
Common Stock is not quoted on Nasdaq, the closing price for each such day shall
be deemed to be the average of the high and low sales prices for the PentaStar
Common Stock on that day (or if no sales prices are reported, the average of the
high and low asked prices) as reported by the principal regional stock exchange,
or if not so reported, as reported by Nasdaq or a quotation system of general
circulation to brokers and dealers. If the Fair Market Value of the PentaStar
Common Stock cannot be determined as provided above, Fair Market Value shall be
determined by the board of directors of PentaStar by any reasonable method
chosen by it.
First Year Shortfall Percentage means the percentage obtained by dividing
(a) the aggregate amount of residual payments due from Ameritech prior to the
first anniversary of the Closing as set forth on Exhibit 5.8 which are not
actually received from Ameritech by the Acquiror prior to the first anniversary
of the Closing Date, by (b) the aggregate amount of residual payments due from
Ameritech prior to the first anniversary of the Closing as set forth on Exhibit
5.8.
401(k) Plan means a plan maintained under Code Section 401(k).
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
Exhibit 1.1(a) - iv
48
payroll, commissions, rent and accounts payable, minus (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 date of
receipt of the first regularly scheduled Ameritech commission payment following
the Closing Date.
Interim Period Cash Flow Statement has the meaning given it in Section
2.3(c)(ii).
Key Employee means (a) each employee of the Company with respect to the
Business other than clerical employees and (b) if any salesperson with respect
to the Business 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).
Loan Documents means each of the Promissory Note from the Company to
PentaStar in the form of Exhibit 1.1(e) and the Guaranty from ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and their respective spouses, to PentaStar in the form of
Exhibit 1.1(f).
Network Group Operations means the current operations of the Company with
respect to the Business as of the Closing Date; provided, however, that nothing
in this definition or elsewhere in this Agreement shall preclude PentaStar from
simultaneously selling into the sales areas of the Network Group Operations
through other subsidiaries or its own activities; provided, further, that 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 this definition, a "customer" shall mean
a Person to whom a sale has been made by, or involving as agent for the seller,
PentaStar (including for this purpose any Person or business acquired by
PentaStar), through a Subsidiary or its own activities, within the three-year
period prior to the Closing Date. For purposes of this definition, a
"prospective customer" shall mean a Person whom PentaStar (including for this
purpose any Person or business acquired by PentaStar), through a Subsidiary or
its own activities, (a) has contacted via telephone, mail or other delivery,
Internet or indirect marketing through referral sources or sub-agents or (b) 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.
Noncompetition Agreement means the Noncompetition Agreement among
PentaStar, the Acquiror, the Company and the Shareholders in the form of Exhibit
1.1(g).
Operational Continuity means the Company has, with respect to the Business
and the Acquired Assets, (a) maintained its assets, properties and business in
the same manner as prior to October 1, 2000 and in a manner consistent with the
Company's budget as previously submitted to PentaStar, (b) discussed and
consulted
Exhibit 1.1(a) - v
49
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 Assignment and Assumption Agreement,
the Noncompetition Agreement and the other documents and instruments to be
executed and delivered by PentaStar or the Acquiror pursuant to this Agreement.
Other Seller Agreements means the Assignment and Assumption Agreement, the
Loan Documents, the Noncompetition Agreement and other documents and instruments
to be executed and delivered by the Company, any Shareholder or any relative or
affiliate of the Company or of any Shareholder pursuant to this Agreement.
PentaStar Common Stock means the common stock, par value $.0001 per share,
of PentaStar.
PentaStar Shares has the meaning set forth in Section 3.1(u).
Permits means all permits, licenses, consents, franchises, authorizations,
approvals, privileges, waivers, exemptions, variances, exclusionary or
inclusionary Orders and other concessions, whether governmental or private,
including, without limitation, those relating to environmental, public health,
welfare or safety matters.
Person means an individual, partnership, corporation, association, joint
stock company, trust, joint venture, limited liability company, unincorporated
organization or Governmental Authority.
Premises means the real property, buildings and improvements thereon
constituting the Business premises located at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇.▇., ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇.
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 with respect
to the Business and the Acquiror during the 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 with respect to the Business and the Acquiror, less the aggregate
commission expense of the Company with respect to the Business and the Acquiror
for sales people or fees of the Company with respect to the Business 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
Exhibit 1.1(a) - vi
50
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 with respect to the Business and the Acquiror during the Earn-Out
Period.
Promissory Note has the meaning given it in the definition of Loan
Documents.
Purchase Price has the meaning given it in Section 2.3(a).
Purchaser Representative Documents has the meaning given it in Section
3.1(u).
Residual Payment Rights means all rights to future payments of commissions
from any service provider.
Residual Payment Shortfall means an amount determined by multiplying the
(a) First Year Shortfall Percentage by (b) the aggregate amount of residual
payments which are due from Ameritech on or after the first anniversary of the
Closing as set forth on Exhibit 5.8.
Right means any right, property interest, concession, patent, trademark,
trade name, copyright, know-how or other proprietary right of another Person.
Rollovers and Direct Rollovers have the meanings set forth in Code Section
401(a)(31).
SEC means the Securities and Exchange Commission.
SEC Filings means all reports, registration statements and other filings
filed by PentaStar with the SEC on or prior to the date of this Agreement.
Second Closing has the meaning set forth in Section 2.3(e)(iii).
Securities Act means the Securities Act of 1933, as amended.
Seller Transaction Expenses means the reasonable out-of-pocket expenses
incurred by PentaStar in obtaining the certificates and searches contemplated by
Sections 6.1(f)(iii) and (l) and in obtaining or assisting the Company in
connection with any other similar matters requested by the Company to facilitate
the Closing.
Shareholders has the meaning given it in the preamble to this Agreement.
Shareholders' Agent means ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (or the substituted agent
described in Section 9.14) acting as agent for the Company and the Shareholders
pursuant to Section 9.14.
Shareholder Property has the meaning given it in Section 4.8.
Exhibit 1.1(a) - viii
51
Sub-Agent means a Person, not an employee of the Company, who markets or
sells goods or services of the Company with respect to the Business to third
parties. The term Sub-Agent includes the Persons listed as such on Exhibit
3.1(o)(ii).
Subsidiary means, with respect to a Person, any Person controlled (meaning
possession of the direct or indirect power to direct or cause the direction of
the management and policies, whether through the ownership of voting securities,
by contract or otherwise) by such first Person directly or through one or more
intermediaries.
Survival Period means, with respect to a representation or warranty, the
applicable period after the Closing Date during which such representation or
warranty survives pursuant to Section 3.3.
2001 Residual Payments has the meaning given it in Section 5.8.
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.
Unasserted Claim Amount means the aggregate of all claims against the
Company and the Shareholders which have not then been asserted by PentaStar or
the Acquiror due to the operation of Section 7.1(b)(ii).
Exhibit 1.1(a) - ix
52
Exhibit 1.1(a) - x