1
EXHIBIT 2.14
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
PENTASTAR COMMUNICATIONS, INC.,
NETLINK, INC.
AND THE
SHAREHOLDERS
OF
NETLINK, INC.
================================================================================
2
TABLE OF CONTENTS
Page
----
1. Definitions.............................................................. 1
2. Merger................................................................... 1
2.1. Basic Transaction............................................... 1
2.2. The Closing..................................................... 8
3. Representations and Warranties........................................... 8
3.1. Representations and Warranties of the Shareholders.............. 8
3.2. Representations and Warranties of PentaStar.................... 21
3.3. Survival of Representations.................................... 23
3.4. Representations as to Knowledge................................ 23
4. Pre-Closing Covenants................................................... 23
4.1. [RESERVED.].................................................... 23
4.2. [RESERVED.].................................................... 23
4.3. [RESERVED.].................................................... 23
4.4. [RESERVED.].................................................... 23
4.5. [RESERVED.].................................................... 23
4.6. [RESERVED.].................................................... 23
4.7. Closing Date Liabilities and Excluded Assets. ................ 23
4.8. Conveyance of Shareholder Property............................. 23
5. Post-Closing Covenants.................................................. 24
5.1. Further Assurances............................................. 24
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.................................... 25
5.8. Repurchase of Unpaid Receivables............................... 25
5.9. Termination of Obligations..................................... 25
5.10. Transfer Restrictions.......................................... 25
5.11. Tax Returns.................................................... 26
5.12. Conduct During Earn-Out Period................................. 27
5.13. Rule 144 Reporting............................................. 27
5.14. Required Consents.............................................. 27
6. Conditions to Closing................................................... 27
6.1. Conditions to Obligation of PentaStar.......................... 27
6.2. Conditions to Obligation of the Shareholders................... 29
7. Remedies for Breaches of This Agreement................................. 30
i
3
7.1. Indemnification Provisions for Benefit of PentaStar............ 30
7.2. Indemnification Provisions for Benefit of the Shareholders..... 31
7.3. Matters Involving Third Parties................................ 32
7.4. Right of Offset................................................ 33
7.5. Other Remedies................................................. 33
8. Termination. [RESERVED.]................................................ 33
9. Miscellaneous........................................................... 33
9.1. No Third-Party Beneficiaries................................... 33
9.2. Entire Agreement............................................... 33
9.3. Succession and Assignment...................................... 33
9.4. Counterparts................................................... 33
9.5. Headings....................................................... 33
9.6. Notices........................................................ 33
9.7. Governing Law.................................................. 34
9.8. Amendments and Waivers......................................... 34
9.9. Severability................................................... 34
9.10. Expenses....................................................... 34
9.11. Arbitration.................................................... 35
9.12. Construction................................................... 35
9.13. Incorporation of Exhibits...................................... 35
9.14. Shareholders' Agent............................................ 36
ii
4
EXHIBITS
Exhibit 1.1(a) Exhibit 3.1(g)(i)(B)
Exhibit 1.1(b) Exhibit 3.1(h)
Exhibit 1.1(c) Exhibit 3.1(i)(i)
Exhibit 1.1(d) Exhibit 3.1(i)(ii)
Exhibit 1.1(e) Exhibit 3.1(k)
Exhibit 1.1(f) Exhibit 3.1(l)
Exhibit 3.1(a)(i) Exhibit 3.1(m)(i)
Exhibit 3.1(a)(ii) Exhibit 3.1(m)(iii)
Exhibit 3.1(b)(ii) Exhibit 3.1(n)(ii)
Exhibit 3.1(c) Exhibit 3.1(o)(i)(A)
Exhibit 3.1(d)(i)(A) Exhibit 3.1(o)(i)(B)
Exhibit 3.1(d)(i)(B) Exhibit 3.1(s)
Exhibit 3.1(e)(i) Exhibit 3.1(t)
Exhibit 3.1(e)(ii) Exhibit 3.1(u)(ii)
Exhibit 3.1(e)(ii)(F) Exhibit 3.1(u)(xi)
Exhibit 3.1(e)(iii) Exhibit 3.2(b)(i)
Exhibit 3.1(f)(iii) Exhibit 5.14
Exhibit 3.1(f)(v) Exhibit 6.1(h)
Exhibit 3.1(f)(vi) Exhibit 6.2(c)
Exhibit 3.1(g)(i)(A)
iii
5
This Agreement and Plan of Merger is entered into on September
_____, 2000, to be effective as provided herein, among PentaStar Communications,
Inc., a Delaware corporation ("PentaStar" or the "Acquiror"), NetLink, Inc., a
Missouri 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. PentaStar desires to acquire certain of the business operations
of the Company through a statutory merger of the Company with and into
PentaStar, with PentaStar as the surviving entity (the "Transaction").
C. The Boards of Directors of each of PentaStar and the Company
has determined that the Transaction is in the best interests of their respective
corporations and shareholders.
D. It is intended that the Transaction qualify as a reorganization
under the provisions of Section 368(a)(1)(A) of the Code.
E. PentaStar and the Shareholders desire to make certain
representations, warranties and agreements in connection with the Transaction
and also desire to set forth various conditions precedent thereto.
Agreement
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties and covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:
1. Definitions. The terms defined in Exhibit 1.1(a) shall have the meanings
designated therein.
2. Merger.
2.1. Basic Transaction. Subject to the terms and conditions of this
Agreement and the corporation laws of the States of Delaware and Missouri, at
the Closing, but effective for accounting purposes as of 12:01 a.m. Missouri
time on July 1, 2000 (the "Effective Date"), the Company shall be merged with
and into the Acquiror (the "Merger") and the separate existence of the Company
shall cease and the Acquiror shall continue as the surviving corporation in the
Merger (the "Surviving Corporation"). The Merger shall have all the effects
provided by applicable Legal Requirement, including Sections 251 and 252 of the
Delaware General Corporation Law and Sections 351.450 of the General and
Business Corporation Law of Missouri. The terms of the Merger shall be as
follows:
(a) General. At the Closing, the Shareholders shall receive the
consideration described in Section 2.1(k), and the Company Shares owned by the
Shareholders shall be canceled and shall cease to represent any interest in the
Company. As of the Closing Date, the stock transfer books of the Company shall
be closed and no transfer or issuance of shares of capital stock of the Company
shall be permitted.
1
6
(b) Certificate of Incorporation. At the Closing Date, the
Certificate of Incorporation of the Acquiror, as in effect immediately prior to
the Closing Date, shall continue to be the Certificate of Incorporation of the
Surviving Corporation. Such Certificate of Incorporation may thereafter be
amended as provided therein and by the Delaware General Corporation Law.
(c) Bylaws. At the Closing Date, the Bylaws of the Acquiror, as in
effect immediately prior to the Closing Date, shall continue to be the Bylaws of
the Surviving Corporation, and such Bylaws may thereafter be amended or repealed
in accordance with their terms and the Certificate of Incorporation of the
Surviving Corporation and as provided by the Delaware General Corporation Law.
(d) Directors. At the Closing Date, the directors of the Acquiror
immediately prior to the Closing Date shall continue to be the directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and the Delaware General
Corporation Law until the earlier of his or her resignation or removal or until
his or her successor is duly elected and qualified, as the case may be.
(e) Officers. At the Closing Date, the officers of the Acquiror
immediately prior to the Closing Date shall continue to be the officers of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and the Delaware General
Corporation Law until the earlier of his or her resignation or removal or until
his or her successor is duly appointed and qualified, as the case may be.
(f) Properties and Liabilities. At the Closing Date all the
properties, rights, privileges, powers, and franchises of the Company shall vest
in the Surviving Corporation, and all debts, liabilities, and duties of the
Company shall become the debts, liabilities, and duties of the Surviving
Corporation.
(g) Documents. Subject to the terms and conditions in this
Agreement, the parties shall prepare, sign, and acknowledge, in accordance with
the Delaware General Corporation Law and the General and Business Corporation
Law of Missouri, a certificate of merger (the "Certificate of Merger") and
deliver the Certificate of Merger to the Secretary of State of the State of
Delaware for filing pursuant to the Delaware General Corporation Law on the
Closing Date and deliver articles of merger (the "Articles of Merger") to the
Secretary of State of the State of Missouri for filing pursuant to the General
and Business Corporation Law of Missouri. The Merger shall be completed upon the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and the Articles of Merger with the Secretary of State of the State of
Missouri, but shall be effective for accounting purposes as of the Effective
Date.
(h) Share Conversion. At the Closing Date, by virtue of the Merger
and without any action on the part of the holder of any Company Shares, each
issued and outstanding Company Share shall be converted into the right to
receive a portion of the consideration payable pursuant to Section 2.1(k)
determined by dividing the aggregate consideration so payable by the number of
Company Shares outstanding at the Closing Date (except as otherwise provided in
Section 2.1(n)); provided, however, that each share of capital stock of the
Company which is treasury stock, if any, shall be cancelled and retired, and no
cash, PentaStar Shares or other consideration shall be delivered or payable in
exchange therefor. Each share of the capital stock of the Acquiror issued and
outstanding immediately prior to the Closing Date shall remain issued and
outstanding.
2
7
(i) No Fractional Shares. No certificates or scrip representing
fractional shares of PentaStar Shares shall be issued pursuant to the Merger.
Such fractional share interests shall not entitle the owner thereof to any
rights as a security holder of PentaStar. In lieu of any such fractional shares,
the Shareholders shall be entitled to receive an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying the Fair
Market Value of a PentaStar Share issuable pursuant to this Agreement (as set
forth in Section 2.1(k) or, in the case of PentaStar Shares issued as part of
the Earn-Out Amount, as determined pursuant to Section 2.1(n)) by the fractional
interest in such PentaStar Share to which the Shareholder would otherwise be
entitled.
(j) Estimated Closing Date Financial Information.
(i) Estimated Closing Date Balance Sheet. No earlier than ten
Business Days prior to the Closing nor later than three Business Days prior to
the Closing, the Shareholders shall deliver a balance sheet for the Company with
respect to the Retained Operations prepared as of the Closing Date (the
"Estimated Closing Date Balance Sheet"). The Estimated Closing Date Balance
Sheet shall be prepared in accordance with GAAP, on a basis consistent with the
accounting practices of PentaStar. The Estimated Closing Date Balance Sheet
shall set forth, in addition to other items required by PentaStar's application
of GAAP, the amount, as of the Closing Date, of
(A) cash held by the Company in excess of the Interim Cash
Requirement,
(B) the Interim Cash Requirement,
(C) the aggregate amount of accounts receivable, residual
payment rights and notes receivable collected by the Company after February 29,
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,
(D) the Retained Liabilities described in clauses (b) and
(c) of the definition of Retained Liabilities and each item thereof, and
(E) all Closing Date Liabilities and each item thereof.
On or before the Closing Date, the Shareholders shall pay or cause the Company
to pay all Closing Date Liabilities and the Estimated Closing Date Balance Sheet
shall reflect those payments. As a result, the only Liabilities reflected on the
Estimated Closing Date Balance Sheet should be the Retained Liabilities, unless
the Shareholders have failed to pay any Closing Date Liabilities prior to the
Closing.
(ii) Estimated Interim Period Cash Flow Statement. No earlier
than ten Business Days prior to the Closing nor later than three Business Days
prior to the Closing, the Shareholders shall deliver a projected cash flow
statement for the NetLink Division 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 NetLink Division during the
Interim Period, and each item thereof, and the specific dates on which payments
are due from service suppliers, (B) the estimated amount of cash disbursements
by the NetLink Division during the Interim
3
8
Period for Liabilities, including payroll, commissions, rent and accounts
payable, and each item thereof, and (C) the difference between (A) over (B).
(k) Consideration.
(i) Subject to adjustment as provided in Section 2.1(m),
the aggregate consideration (the "Purchase Price") payable to the Shareholders
pursuant to the Merger shall be as follows:
(A) cash in the amount of the sum of
(1) $100,000, plus
(2) the amount of cash set forth on the Estimated
Closing Date Balance Sheet in excess of the Interim Cash Requirement, plus
(3) the amount by which the sum of clauses (a) and (b)
of Bank Debt is less than $299,000, minus
(4) the amount by which the Bank Debt is more than
$299,000, minus,
(5) the amount of any Closing Date Liabilities
reflected on the Estimated Closing Date Balance Sheet or the amount of any
Closing Date Liabilities not paid by the Shareholders or the Company prior to
the Closing Date (the net amount described in this clause (A) being referred to
as the "Cash Portion" of the Purchase Price);
(B) a number of shares of PentaStar Common Stock (subject
to Section 2.1(i)) as have an aggregate Fair Market Value as of the Closing Date
equal to $986,000 (the "Closing Shares"); and
(C) the Earn-Out Amount payable pursuant to Section
2.1(n).
The Purchase Price shall be adjusted in accordance with Section 2.1(m), and
shall be payable and issuable to the Shareholders in accordance with the
following percentages:
Number of Company Percentage of
Shareholder Shares Owned Purchase Price
----------- ----------------- --------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 265 30.11%
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 265 30.11%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 230 26.14%
▇▇▇▇ ▇. ▇▇▇▇▇▇ 120 13.64%
The Shareholders acknowledge and agree that the proportions in which they will
share the Earn-Out Amount, as specified in Section 2.1(n), are different from
their relative percentage interests in the Company. The Shareholders hereby
agree to those proportions and waive any right they may have to receive all
elements of the Purchase Price in proportion to their relative stock ownership
in the Company.
4
9
(ii) On the Closing Date PentaStar shall (A) pay to the
Shareholders by wire transfer to an account or accounts designated by the
Shareholders (in accordance with the percentages set forth above) the Cash
Portion of the Purchase Price; and (B) issue the Closing Shares to the
Shareholders and deliver any payment in lieu of a fractional share pursuant to
Section 2.1(i).
(iii) On the Closing Date, 50% of the Closing Shares
issuable to ▇▇. ▇▇▇▇▇▇▇ pursuant to Section 2.1(k)(i) shall be delivered to
PentaStar to be held subject to the Principal Shareholder's Escrow Agreement. If
any shares of PentaStar Common Stock become issuable to ▇▇. ▇▇▇▇▇▇▇ in respect
of the Earn-Out Amount, 50% of such shares shall also be delivered to PentaStar
to be held subject to the Principal Shareholder's Escrow Agreement. The
Principal Shareholder's Escrow Agreement provides that upon the occurrence of
certain conditions, ▇▇. ▇▇▇▇▇▇▇ may receive a greater or lesser number of shares
of PentaStar Common Stock than the number deposited with PentaStar pursuant to
the Principal Shareholder's Escrow Agreement.
(l) Closing Date Financial Information.
(i) Closing Date Balance Sheet. Within 60 days after the
Closing Date an unaudited balance sheet for the Company shall be prepared as of
the Closing Date (the "Closing Date Balance Sheet") by PentaStar and delivered
by PentaStar to the Shareholders. The Closing Date Balance Sheet shall be
prepared in accordance with GAAP, on a basis consistent with the accounting
practices of PentaStar. The Closing Date Balance Sheet shall set forth, in
addition to other items required by PentaStar's application of GAAP, the amount,
as of the Closing Date, of
(A) cash held by the Company in excess of the Interim
Cash Requirement,
(B) the Interim Cash Requirement,
(C) the aggregate amount of accounts receivable,
residual payment rights and notes receivable collected by the Company after
February 29, 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,
(D) the Retained Liabilities described in clauses (b)
and (c) of the definition of Retained Liabilities and each item thereof, and
(E) all Closing Date Liabilities and each item
thereof.
Within 20 days after receipt of the Closing Date Balance Sheet, the Shareholders
shall, in a written notice to PentaStar, either accept the Closing Date Balance
Sheet or object to it by describing in reasonably specific detail any proposed
adjustments to the Closing Date Balance Sheet and the estimated amounts of and
reasons for such proposed adjustments. The failure by the Shareholders to object
to the Closing Date Balance Sheet within such 20-day period shall be deemed to
be an acceptance by the Shareholders of the Closing Date Balance Sheet. If any
adjustments to the Closing Date Balance Sheet are proposed by the Shareholders
within such 20-day period, the dispute shall be resolved as provided in Section
2.1(o).
5
10
(ii) Interim Period Cash Flow Statement. Within 60 days
after the Closing Date an unaudited cash flow statement for the NetLink Division
for the Interim Period (the "Interim Period Cash Flow Statement") shall be
prepared by PentaStar and delivered by PentaStar to the Shareholders. The
Interim Period Cash Flow Statement shall be prepared based upon the actual cash
flows of the NetLink Division during the Interim Period and shall set forth (A)
the actual amount of cash collections by the NetLink Division 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 NetLink Division
during the Interim Period for Liabilities, including payroll, commissions, rent
and accounts payable, and each item thereof, and (C) the difference between (A)
over (B). Within 20 days after receipt of the Interim Period Cash Flow
Statement, the Shareholders shall, in a written notice to PentaStar, either
accept the Interim Period Cash Flow Statement, or object to it by describing in
reasonable specific detail any proposed adjustments to the Interim Period Cash
Flow Statement and the estimated amounts of and reasons for such proposed
adjustments. The failure by the Shareholders to object to the Interim Period
Cash Flow Statement within such 20-day period shall be deemed to be an
acceptance by the Shareholders of the Interim Period Cash Flow Statement. If any
adjustments to the Interim Period Cash Flow Statement are proposed by the
Shareholders within such 20-day period, the dispute shall be resolved as
provided in Section 2.1(o).
(m) Post-Closing Adjustments to the Purchase Price. Within 10
Business Days after the later of the acceptance of the Closing Date Balance
Sheet and the Interim Period Cash Flow Statement by the Shareholders or the
resolution of any disputes under Section 2.1(o), as the case may be, the Cash
Portion of the Purchase Price shall be redetermined as provided in Section
2.1(k)(i) based on the Closing Date Balance Sheet rather than the Estimated
Closing Date Balance Sheet, and based upon the Interim Period Cash Flow
Statement rather than the Estimated Interim Period Cash Flow Statement, and an
appropriate adjusting cash payment shall be made by PentaStar to the
Shareholders or by the Shareholders to PentaStar, as the case may be, so that
the Cash Portion of the Purchase Price actually paid equals the Cash Portion of
the Purchase Price determined on the basis of the Closing Date Balance Sheet and
the Interim Period Cash Flow Statement. If the Closing Date Balance Sheet
reflects Closing Date Liabilities that have not previously been paid by the
Shareholders, such Closing Date Liabilities shall be paid at the time the
adjusting payment is made under this Section 2.1(m), either by PentaStar out of
any adjusting payment due from it hereunder or, if no such payment is due or
such payment is less than the unpaid Closing Date Liabilities, by the
Shareholders. If PentaStar has previously paid any such Closing Date Liability,
it shall be reimbursed for said payment at the time the adjusting payment is
made under this Section 2.1(m), either by offset against any adjusting payment
due hereunder or, if no such payment is due or such payment is less than the
reimbursement amount, by the Shareholders. Any adjustment in the Purchase Price
made under this Section 2.1(m) shall be allocated as an adjustment to the
consideration paid for the Company Shares. If the Closing Date Balance Sheet
reflects a breach of Section 3.1(e)(iv), then PentaStar shall be paid the amount
thereof by payment at the time the adjusting payment is made under this Section
2.1(m), either by offset against any adjusting payment due hereunder or, if no
such payment is due or such payment is less than the breach amount, by the
Shareholders.
(n) Earn-Out. In addition to the Cash Portion of the Purchase
Price and the Closing Shares payable and issuable at the Closing pursuant to
this Section 2.1, the Shareholders shall be entitled to receive the Earn-Out
Amount determined and payable as provided in this Section 2.1(n); provided,
however, that once the sum of (i) the Cash Portion of the Purchase Price, (ii)
the $986,000 amount described in Section 2.1(k)(i)(B), (iii) the Bank Debt and
(iv) the portion of the Earn-Out Amount which all Shareholders are entitled to
receive, equals $2,400,000, then only ▇▇. ▇▇▇▇▇▇▇ shall be entitled to receive
any portion of the Earn-Out Amount which is in excess of the amount described in
clause (iv).
6
11
(i) PentaStar agrees that, during the Earn-Out Period,
PentaStar shall conduct the Retained Operations as a separate division of
PentaStar (the "NetLink Division"). PentaStar shall account for the operations
of the NetLink Division in accordance with the accounting practices of
PentaStar.
(ii) As soon as reasonably practicable after July 31, 2001
and in any event by September 30, 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
2.1(n)(ii) shall be made in accordance with GAAP, on a basis consistent with the
accounting practices of PentaStar. PentaStar shall promptly provide a copy of
the Earn-Out Financial Statements to the Shareholders. Within 20 days after
receipt of the Earn-Out Financial Statements, each of PentaStar and the
Shareholders 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 Shareholders to object to
the Earn-Out Financial Statements within such 20-day period shall be deemed to
be an acceptance by such Person of the Earn-Out Financial Statements. If any
adjustments to the Earn-Out Financial Statements are proposed by PentaStar or
the Shareholders within such 20-day period, the dispute shall be resolved as
provided in Section 2.1(o). 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
Shareholders or the resolution of any disputes under Section 2.1(o), as the case
may be, PentaStar shall pay the Earn-Out Amount, if any, to the Shareholders
(the time of such payment being referred to as the "Second Closing"). The
Earn-Out Amount shall be payable, in PentaStar's sole discretion, in cash or
PentaStar Common Stock, or any combination thereof. Notwithstanding the
foregoing, the amount of cash included in the payment of the Earn-Out Amount
shall not be such as to cause the Purchase Price, taken as a whole, not to
comply with the continuity of interest test for a tax-free reorganization under
Section 368 of the Code, as determined in good faith by PentaStar based on
advice of counsel. If any portion of the Earn-Out Amount is paid in PentaStar
Common Stock, the number of shares of PentaStar Common Stock to be issued (which
shall be rounded down to the nearest whole share, and PentaStar shall pay the
Shareholder cash for any such fractional share as specified in Section 2.1(i))
shall be determined by dividing (A) the Earn-Out Amount that is being paid in
PentaStar Common Stock by (B) the Fair Market Value of a share of PentaStar
Common Stock as of July 31, 2001. The cash portion of the Earn-Out Amount shall
be paid by wire transfer to an account or accounts designated by the applicable
Shareholder. Certificates representing any shares of PentaStar Common Stock
issued in payment of the Earn-Out Amount shall be mailed to each Shareholder at
the Shareholder's address for notice purposes under this Agreement.
(iv) In the event that PentaStar sells the operations
conducted by NetLink Division prior to the end of the Earn-Out Period, PentaStar
shall require the purchaser to continue to account for such operations
separately and agree to assume the obligation of PentaStar to pay the Earn-Out
Amount as provided in this Section 2.1(n). In that event, the purchaser may pay
the Earn-Out Amount, in its sole discretion, in cash, such purchaser's common
equity securities based on the fair market value of such securities on the
relevant date as provided in this Section 2.1(n), or any combination thereof.
(o) Resolution of Disputes. If any adjustments to the Closing
Date Balance Sheet, the Interim Period Cash Flow Statement or the Earn-Out
Financial Statements are proposed by PentaStar or the
7
12
Shareholders pursuant to Section 2.1(l) or 2.1(n), PentaStar and the
Shareholders shall negotiate in good faith to resolve any dispute, provided that
if the dispute is not resolved within 10 days following the receipt of the
proposed adjustments then PentaStar and the Shareholders shall retain the
Denver, Colorado office of BDO ▇▇▇▇▇▇▇ 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 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 2.1(l) or 2.1(n), as the case may be, without
change, within 30 days of the expiration of the applicable 20-day period
described in Section 2.1(l) or 2.1(n)(ii), as the case may be.
2.2. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place, via facsimile and overnight
delivery, at the offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.C. at 9:00 a.m. Denver,
Colorado time on September 18, 2000, or as soon thereafter as the conditions to
closing set forth in Section 6 are satisfied (12:01 a.m. Missouri time on the
date upon which the Closing actually occurs being referred to as the "Closing
Date").
2.3. Deliveries at the Closing. At the Closing, (a) the Shareholders
shall deliver or cause to be delivered to PentaStar the various certificates,
instruments and documents, and take or cause to be taken the actions, referred
to in Section 6.1 and (b) PentaStar shall deliver or cause to be delivered to
the Shareholders the various certificates, instruments and documents, and take
or cause to be taken the actions, referred to in Section 6.2.
3. Representations and Warranties.
3.1. Representations and Warranties of the Shareholders. Each
Shareholder severally, but not jointly, represents and warrants 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). Since July 1, 2000,
the Company has not undertaken any material action except with the prior written
consent of PentaStar.
(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 Missouri, and is qualified and authorized to do business as a foreign
corporation and is in good standing in the States of Illinois and Texas, which
are the only jurisdictions (other than Georgia) in which the nature of the
business represented by the Retained Operations or the properties owned, leased
or operated by it with respect to the Retained Operations make qualification to
do business necessary, except where the failure to so qualify would not have a
material adverse effect. The Company has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The copies of the articles of incorporation (certified
by the Secretary of State of Missouri) and the bylaws of the Company, both as
amended to date, which have been delivered to PentaStar by the Shareholders and
are attached as Exhibits 3.1(a)(i) and 3.1(a)(ii), respectively, are complete
and correct, and the Company is not in default under or in violation of any
provision of its articles of incorporation or bylaws. The minute books (which
contain the records of all meetings of or actions by the shareholders, the board
of directors, and any committees of the board of
8
13
directors) and the stock certificate books and the stock record books of the
Company, copies of which have been delivered to PentaStar by the Shareholders,
are correct and complete.
(b) Ownership and Capitalization.
(i) The authorized capital stock of the Company consists of
30,000 shares of common stock, $1.00 par value. Each Shareholder owns,
beneficially and of record, free and clear of any Encumbrance or Tax, the number
of shares of the common stock, $1.00 par value, of the Company (the "Company
Shares") set forth opposite such Shareholder's name in Section 2.1(k)(i), and
the Company Shares reflected in Section 2.1(k)(i) constitute all of the issued
and outstanding capital stock of the Company. In addition, the Company holds 120
shares of common stock, $1.00 par value, as treasury stock. All of the issued
and outstanding shares of the Company's capital stock have been duly authorized
and validly issued, and are fully paid and nonassessable, with no personal
Liability attaching to the ownership thereof. There is no authorized or
outstanding stock or security convertible into or exchangeable for, or any
authorized or outstanding option, warrant or other right to subscribe for or to
purchase, or convert any obligation into, any unissued shares of the Company's
capital stock or any treasury stock, and the Company has not agreed to issue any
security so convertible or exchangeable or any such option, warrant or other
right. There are no authorized or outstanding stock appreciation, phantom stock,
profit participation or similar rights with respect to the Company. There are no
voting trusts, voting agreements, proxies or other agreements or understandings
with respect to any capital stock of the Company. Except as set forth on Exhibit
3.1(b)(i), all of which the Shareholders shall cause to be terminated prior to
the Closing, there are no existing rights of first refusal, buy-sell
arrangements, options, warrants, rights, calls, or other commitments or
restrictions of any character relating to any of the Company Shares, except
those restrictions on transfer imposed by the Securities Act and applicable
state securities laws.
(ii) Except as set forth on Exhibit 3.1(b)(ii), the Company
has no Subsidiaries and no capital stock, securities convertible into capital
stock, or any other equity interest in any other corporation, partnership,
limited partnership, limited liability company, association, joint venture or
other Person. Each of the entities listed on Exhibit 3.1(b)(ii) is wholly-owned,
directly or indirectly, by the Company, is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation as
set forth on Exhibit 3.1(b)(ii), and is qualified to do business as a foreign
corporation and is in good standing in the states set forth on Exhibit
3.1(b)(ii), which are the only jurisdictions in which the nature of the business
conducted by it or the properties owned, leased or operated by it make such
qualification necessary. No Person has any right to acquire any interest in any
Subsidiary and there are no authorized or outstanding stock appreciation,
phantom stock, profit participation or similar rights with respect to any
Subsidiary. Each such Subsidiary has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted.
(c) Authority; No Violation. Each Shareholder, and each relative
or affiliate of the Company or of a Shareholder who is a party to any Other
Seller Agreement, has full and absolute right, power, authority and legal
capacity to execute, deliver and perform this Agreement and all Other Seller
Agreements to which such Shareholder, relative or affiliate is a party, and this
Agreement constitutes, and the Other Seller Agreements shall when executed and
delivered constitute, the legal, valid and binding obligations of, and shall be
enforceable in accordance with their respective terms against, each such
Shareholder, relative or affiliate who is a party thereto. The execution,
delivery and performance of this Agreement and the Other Seller Agreements and
the consummation of the transactions contemplated hereby and thereby shall not
(i) violate any Legal Requirement to which the Company, any Shareholder, or any
9
14
relative or affiliate of the Company or of any Shareholder who is a party to any
Other Seller Agreement is subject or any provision of the articles of
incorporation or bylaws of the Company or of any such affiliate, or (ii)
violate, with or without the giving of notice or the lapse of time or both, or
conflict with or result in the breach or termination of any provision of, or
constitute a default under, or give any Person the right to accelerate any
obligation under, or result in the creation of any Encumbrance upon any
properties, assets or business of the Company, of any Shareholder, or of any
such relative or affiliate pursuant to, any indenture, mortgage, deed of trust,
lien, lease, license, Permit, agreement, instrument or other arrangement to
which the Company, any Shareholder or any such relative or affiliate is a party
or by which the Company, any Shareholder, or any such relative or affiliate or
any of their respective assets and properties is bound or subject. Except for
notices that shall be given and consents that shall be obtained by the
Shareholders prior to the Closing (each of which is set forth in Exhibit
3.1(c)), neither the Company, any Shareholder, nor any such relative or
affiliate need give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority or other Person
in order for the parties to consummate the transactions contemplated by this
Agreement and the Other Seller Agreements.
(d) Financial Statements; Absence of Liabilities. (i) The
unaudited balance sheet of the Retained Operations as of July 31, 2000 (the
"Latest Balance Sheet") and the related unaudited statements of income and
shareholders' equity for the twelve-month period then ended (each as adjusted by
the adjusting entries set forth in the letter dated September 28, 2000 from
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to PentaStar, which letter is included as part of Exhibit
3.1(d)(i)(A)), and the unaudited statement of income for the Retained Operations
for the twelve-month period ended December 31, 1999, have been prepared in
accordance with GAAP on a consistent basis, are in accordance with the books and
records of the Company (which books and records are complete and correct in all
material respects), and fairly present the financial position and results of
operations of the Retained Operations in all material respects as of such dates
and for each of the periods indicated. As of the date of the Latest Balance
Sheet, the Company had no Liability with respect to the Retained Operations
other than those set forth on each such balance sheet. Copies of the financial
statements described in the first sentence in this Section 3.1(d) are attached
as Exhibit 3.1(d)(i)(A). The expenses itemized on Exhibit 3.1(d)(i)(B) and
reflected in the Retained Operations financial performance for the 12-month
period ended July 31, 2000 shall not be realized on an on-going basis after the
Closing Date.
(ii) Since the date of the Latest Balance Sheet, the Company
has not incurred or become subject to any Liability other than Liabilities
incurred in the ordinary course of business consistent with past practice. As of
the Closing, the Company shall have no Liability (and there shall be no basis
for the assertion of any Liability), except for the Retained Liabilities.
(e) Absence of Certain Agreements, Changes or Events.
(i) The Company is not with respect to the Retained
Operations, except as set forth on Exhibit 3.1(e)(i), a party to or otherwise
bound by any contract or agreement involving in excess of $1,000 (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 February 29, 2000, the Company with respect to the
Retained Operations has not (A) incurred any debt, indebtedness or other
Liability, except current Liabilities incurred in the ordinary course of
business consistent with past practice; (B) delayed or postponed the payment of
accounts payable or other Liabilities beyond stated, normal terms; (C) sold or
otherwise transferred any of its assets or properties (other than the Excluded
Assets and Excluded Operations distributed pursuant to Section 4.7
10
15
to the Shareholders as set forth on Exhibit 3.1(e)(ii)(I)); (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; (E)
changed in any significant manner the way in which it conducts its business
(other than the distribution pursuant to Section 4.7 to the Shareholders of the
Excluded Assets and the Excluded Operations as set forth on Exhibit
3.1(e)(ii)(I)); (F) except as set forth on Exhibit 3.1(e)(ii)(F), made or
granted any individual wage or salary increase in excess of 10% or $1.00 per
hour, any general wage or salary increase, or any additional benefits of any
kind or nature; (G) except as otherwise expressly permitted by this Section
3.1(e)(ii), (1) entered into any contracts or agreements, or made any
commitments, involving more than $5,000 individually or in the aggregate or (2)
accelerated, terminated, delayed, modified or cancelled any agreement, contract,
lease or license (or series of related agreements, contracts, leases and
licenses) involving more than $5,000 individually or in the aggregate; (H)
suffered any material adverse effect or change, including, without limitation,
to or in its business, assets or financial condition or customer or service
provider relationships; (I) made any payment or transfer to or for the benefit
of any shareholder, officer or director or any relative or affiliate thereof or
permitted any Person, including, without limitation, any shareholder, officer,
director or employee or any relative or affiliate thereof, to withdraw assets
from the Company (other than the Excluded Assets and Excluded Operations
distributed pursuant to Section 4.7 to the Shareholders as set forth on Exhibit
3.1(e)(ii)(I), the repayment of loans made to the Company by Tel-Vi or ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇ as set forth on Exhibit 3.1(e)(ii)(I) and payment to the Shareholders
of the proportionate monthly amount of (1) their respective normal annualized
salaries due and payable during such period or (2) rent due under pre-existing
real property leases between the Company and a Shareholder which are disclosed
on Exhibit 3.1(g)(i)(A)); or (J) agreed to incur, take, enter into, make or
permit any of the matters described in clauses (A) through (I).
(iii) Exhibit 3.1(e)(iii) lists all orders booked and all customer
contracts entered into by the Company with respect to the Retained Operations,
by month, during the 12-month period from August 1, 1999 through July 31, 2000
and the current status of each such order or contract.
(iv) Since February 29, 2000, the Company has not collected any
accounts receivable, residual payment rights or notes receivable (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 or notes receivable.
(f) Tax Matters.
(i) The Company has filed all Tax Returns that it was required
to file prior to the Closing Date. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Company (whether or not shown on
any Tax Return) have been paid. The Company is not currently the beneficiary of
any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no Encumbrances on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
11
16
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other third party.
(iii) To the best knowledge of the Shareholders, there is no
basis for any authority to assess any additional Taxes for any period for which
Tax Returns have been filed and 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 Shareholders have delivered to PentaStar
correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies filed or assessed against or agreed to
by the Company since December 31, 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 the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662. The Company is not a party to any
Tax allocation or sharing agreement. The Company has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) and has no Liability for the
Taxes of any Person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract or otherwise.
(vi) Exhibit 3.1(f)(vi) sets forth the following information
with respect to the Company as of the most recent practicable date (as well as
on an estimated pro forma basis as of the Closing giving effect to the
consummation of the transactions contemplated hereby): (A) the basis of the
Company in the Acquired Assets; and (B) the amount of any net operating loss,
net capital loss, unused investment or other credit, unused foreign tax credit
or excess charitable contribution allocable to the Company.
(vii) The fair market value of the Excluded Assets does not
exceed the amount of the Liabilities associated with the Excluded Assets (which
Liabilities have been distributed to the Shareholders in connection with the
distribution of the Excluded Assets as contemplated by Section 4.7(a) and are
Closing Date Liabilities for purposes of this Agreement) by more than $425,000.
(g) Assets and Properties.
(i) The Company has good and marketable title to, or a valid
leasehold interest or interest as a lessee in, the assets and properties used or
held for use by it in the Retained Operations, or shown on the Latest Balance
Sheet or acquired after the date thereof with respect to the Retained
Operations.
12
17
Exhibit 3.1(g)(i)(A) is a list of the tangible assets used in the Retained
Operations. As of the Closing, all of the Acquired Assets shall be owned by the
Company, free and clear of all Encumbrances. The Company has not entered into
any contract or made any commitment to sell all or any part of its assets. The
Acquired Assets constitute all of the real, personal and mixed assets and
property, both tangible and intangible, including Intellectual Property, which
are being used or held for use by the Company in the conduct of the business and
operations of the Company, consistent with historical and current practices,
other than the Excluded Assets. The Company owns or leases all equipment and
other tangible assets necessary for the conduct of the Retained Operations as
presently conducted and as presently proposed to be conducted. Each such
tangible asset material to the Retained Operations has been maintained in
accordance with normal industry practice and is in good operating condition and
repair (subject to normal wear and tear). All leases of real property between
the Company and any shareholder, officer or director or any relative or
affiliate thereof or of the Company included in the Retained Liabilities are on
fair market terms (including rent at fair market value). Neither the
Shareholders, nor any relative or affiliate thereof or of the Company, own any
asset, tangible or intangible, which is used in the Retained Operations, 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).
(ii) The Premises constitute all of the real property,
buildings and improvements used by the Company in the Retained Operations. To
the best knowledge of the Shareholders, the Premises have been occupied,
operated and maintained in accordance with applicable Legal Requirements. The
Company has not received notice of violation of any Legal Requirement or Permit
relating to its operations or its owned or leased properties.
(iii) No party to any lease with respect to any Premises has
repudiated any provision thereof, and there are no disputes, oral agreements or
forbearance programs in effect as to any such lease.
(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 Retained Operations, the Retained Liabilities or
the Acquired Assets:
(i) the following contracts and other agreements in effect as
of the date of this Agreement or as of the Closing Date to which the Company is
a party or by which the Company is bound:
(A) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $5,000 per year;
(B) any agreement pursuant to which the Company, or any of
the Shareholders on behalf of the Company, has made a deposit in an amount
greater than $5,000;
(C) any agreement (or group of related agreements) for the
purchase or sale of supplies, products or other personal property, or for the
furnishing or receipt of services, the performance of which shall extend over a
period of more than one year, result in a material loss to the Company or
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
13
18
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 of 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;
(M) any agreement under which the consequences of a
default or termination could have a material adverse effect on the business,
financial condition, operations, results of operations or future prospects of
the Company; or
(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, and also those with respect to the Excluded Operations and the Excluded
Assets.
(iii) All material franchises, approvals, Permits, licenses,
Orders, registrations, certificates, variances and similar rights of the Company
(all of which are in full force and effect).
(iv) Each item of Intellectual Property owned by the Company or
which is used by the Company in its business and, in each case where the Company
is not the owner, the owner of the Intellectual Property.
(v) The name of each bank or other financial institution or
entity in which the Company has an account or safe deposit box (with the
identifying account number or symbol) and the names of all persons authorized to
draw thereon or to have access thereto.
The Shareholders have delivered to PentaStar a correct and complete
copy of each written agreement and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section
14
19
3.1(h)(i). With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable and in full force and effect; (B) the agreement
shall continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither the Company nor, to the best knowledge of the
Shareholders, any other party is in breach or default, and, to the best
knowledge of the Shareholders, no event has occurred which, with notice or lapse
of time, would constitute a breach or default, or permit termination,
modification or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(i) Litigation; Compliance with Applicable Laws and Rights.
(i) There is no outstanding Order against, nor, except as
set forth on Exhibit 3.1(i)(i), is there any litigation, proceeding, arbitration
or investigation by any Governmental Authority or other Person pending or, to
the best knowledge of the Shareholders, threatened against, the Company, its
assets or its business or relating to the transactions contemplated by this
Agreement, nor is there any basis for any such action.
(ii) To the best knowledge of the Shareholders, except as
set forth on Exhibit 3.1(i)(ii), neither the Company nor the Company's assets
are in violation of any applicable Legal Requirement or Right. The Company has
not received notice from any Governmental Authority or other Person of any
violation or alleged violation of any Legal Requirement or Right, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand or
notice has been filed or commenced or is pending or, to the best knowledge of
the Shareholder, threatened against the Company alleging any such violation.
(j) Notes and Accounts Receivable. The notes and accounts
receivable (including residual payment rights) of the Company reflected on its
Latest Balance Sheet (other than those representing Excluded Receivables), and
all notes and accounts receivable (including residual payment rights) arising on
or prior to the Closing Date (other than those representing Excluded
Receivables), arose and shall arise from bona fide transactions by the Company
in the ordinary course of business and are valid receivables with trade
customers subject to no setoffs or counterclaims other than as reflected on the
Latest Balance Sheet.
(k) Product Quality, Warranty and Liability. All services and
products sold, leased, provided or delivered by the Company to customers on or
prior to the Closing Date conform to applicable contractual commitments, express
and implied warranties, product and service specifications and quality
standards, and there is no basis for any Liability for replacement or repair
thereof or other damages in connection therewith. No service or product sold,
leased, provided or delivered by the Company to customers on or prior to the
Closing is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale or lease. The Company has no
Liability and there is no basis for any Liability arising out of any injury to a
Person or property as a result of the ownership, possession, provision or use of
any service or product sold, leased, provided or delivered by the Company on or
prior to the Closing Date. All product or service liability claims that have
been asserted against the Company since December 31, 1995, whether covered by
insurance or not and whether litigation has resulted or not, other than those
listed and summarized on Exhibit 3.1(i)(i), are listed and summarized on Exhibit
3.1(k).
(l) Insurance. The Company has policies of insurance covering
(i) risk of loss on the Acquired Assets, (ii) products and services liability
and liability for fire, property damage, personal injury and workers'
compensation coverage and (iii) for business interruption, all, to the best
knowledge of the
15
20
Shareholders, with responsible and financially sound insurance carriers in
adequate amounts and in compliance with governmental requirements and in
accordance with good industry practice. All such insurance policies are valid,
in full force and effect and enforceable in accordance with their respective
terms and no party has repudiated any provision thereof. All such policies shall
remain in full force and effect until the Closing Date. Neither the Company nor
any other party to any such policy is in breach or default (including with
respect to the payment of premiums or the giving of notices) in the performance
of any of their respective obligations thereunder, and no event exists which,
with the giving of notice or the lapse of time or both, would constitute a
breach, default or event of default, or permit termination, modification or
acceleration under any such policy. There are no claims, actions, proceedings or
suits arising out of or based upon any of such policies nor, to the best
knowledge of the Shareholders, does any basis for any such claim, action, suit
or proceeding exist. All premiums have been paid on such policies as of the date
of this Agreement and shall be paid on such policies through the Closing Date.
The Company has been covered during the five years prior to the date of this
Agreement by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. All claims
made during such five-year period with respect to any insurance coverage of the
Company, other than those described on Exhibit 3.1(k), are set forth on Exhibit
3.1(l).
(m) Pension and Employee Benefit Matters.
(i) Exhibit 3.1(m)(i) lists each Employee Benefit Plan
that is an Employee Welfare Benefit Plan (the "Company Welfare Plans") or is an
Employee Pension Benefit Plan (the "Company Retirement Plans"). Correct and
complete copies of each Employee Benefit Plan have been delivered to PentaStar
by the Shareholder.
(ii) Each Employee Benefit Plan has been maintained and
administered in substantial compliance with its terms and with all applicable
Legal Requirements.
(iii) Exhibit 3.1(m)(iii) lists each employment, severance
or other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit sharing, bonuses, stock options, stock appreciation rights
or other forms of incentive compensation, reduced interest or interest free
loans, mortgages, relocation assistance or post-retirement insurance,
compensation or other benefits that: (A) is not an Employee Benefit Plan; (B) is
entered into, maintained or contributed to, by the Company; and (C) covers any
employee or former employee of the Company or any relative thereof. Such
contracts, plans and arrangements as are described in this Section 3.1(m)(iii),
are hereinafter referred to collectively as the "Benefit Arrangements." Copies
and descriptions (including descriptions of the number and employment
classifications of employees covered by each such Benefit Arrangement) have been
delivered by the Shareholders to PentaStar and attached hereto as part of
Exhibit 3.1(m)(iii). Each Benefit Arrangement has been maintained and
administered in substantial compliance with its terms and with the requirements
prescribed by any and all Legal Requirements that are applicable to each such
Benefit Arrangement.
(iv) No Company Welfare Plan is maintained in connection
with any trust described in Section 501(c)(9) of the Code.
16
21
(v) There have been no prohibited transactions with
respect to any Employee Benefit Plan. No "Fiduciary" (as defined in Section
3(21) of ERISA) has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing or investigation with respect to the administration or the investment of
the assets of any Employee Benefit Plan (other than routine claims for benefits)
is pending or, to the best knowledge of the Shareholders is threatened. None of
the Shareholders have any knowledge of any basis for any such action, suit,
proceeding, hearing or investigation.
(vi) The Company does not maintain and has never
maintained nor contributes, or ever has contributed, or ever has been required
to contribute, to any Company Welfare Plan providing health or medical benefits
for current or future retired or terminated employees, their spouses or their
dependents (other than in accordance with Code Section 4980B). No condition
exists that would prevent the Company from amending or terminating any Company
Welfare Plan or Benefit Arrangement providing health or medical benefits in
respect of any active or retired employees of the Company.
(vii) Any Company Welfare Plan that is a "group health
plan" (as defined in Code Section 5000(b)(l)) has been administered in
accordance with the requirements of Part 6 of Subtitle B of Title I of ERISA and
Code Section 4980B and nothing done or omitted to be done in connection with the
maintenance or administration of any Company Welfare Plan that is a "group
health plan" has made or shall make the Company subject to any liability under
Title I of ERISA, excise Tax Liability under Code Section 4980B or has resulted
or shall result in any loss of income exclusion for a participant under Code
Sections 105(h) or 106.
(viii) There is no contract, agreement, plan or
arrangement covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G or 162(a)(l) of
the Code.
(ix) The Company has made, before the date of this
Agreement, all required contributions and premium payments under each Employee
Benefit Plan and Benefit Arrangement for all completed fiscal years including
contributions that may not by law have otherwise been required to be made until
the due date for filing the Tax Return for any completed fiscal year.
(n) Employees and Labor.
(i) The Company has not received any notice, nor, to the
best knowledge of the Shareholders, is there any reason to believe that any Key
Employee of the Company or any group of employees of the Company has any plans
to terminate his, her or its employment with the Company. To the best knowledge
of the Shareholders, no Key Employee is subject to any agreement, obligation,
Order or other legal hindrance that impedes or might impede such Key Employee
from devoting his or her full business time to the affairs of the Company prior
to the Closing Date and, if such person becomes an employee of PentaStar, to the
affairs of PentaStar after the Closing Date. The Company shall not be required
to give any notice under the Worker Adjustment and Retraining Notification Act,
as amended, or any similar Legal Requirement as a result of this Agreement, the
Other Seller Agreements or the transactions contemplated hereby or thereby. The
Company does not have any labor relations problems or disputes with respect to
the Retained Operations, 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
17
22
union organization effort has been threatened, initiated or is in progress with
respect to any employees of the Company.
(ii) Exhibit 3.1(n)(ii) lists (A) the name of each
salesperson (whether such salesperson was an employee or independent contractor)
of the Company with respect to the Retained Operations who has left the
employment of the Company in the 12-month period prior to the date of this
Agreement, (B) the date such salesperson left the employment of the Company and
(C) the dollar amount of orders booked by the Company with respect to the
Retained Operations during the 12-month period prior to the date such
salesperson left the employment of the Company which were attributable to such
salesperson or for which such salesperson was responsible.
(o) Customer and Service Provider Relationships. Exhibit
3.1(o)(i)(A), with respect to the Retained Operations, lists each customer that
individually or with its affiliates was, based on the Company's revenues during
the fiscal year ended December 31, 1999 or the seven-month period ended July 31,
2000, one of the Company's ten largest customers during such fiscal year or
seven-month period or accounted for 2% or more of the Company's revenues during
such fiscal year or seven-month period (the "Principal Customers"). Exhibit
3.1(o)(i)(B) lists, with respect to the Retained Operations, each Person who is
a service provider (including Ameritech, Southwestern ▇▇▇▇ and AT&T) to the
Company's customers, or a Sub-Agent of the Company, as of the date of this
Agreement (the "Principal Providers"). The Company has good commercial working
relationships with its Principal Customers and Principal Providers and since
December 31, 1999, no Principal Customer or Principal Provider has cancelled or
otherwise terminated its relationship with the Company, materially decreased its
purchases from or services supplied to the Company or its customers, or
threatened to take any such action. The Shareholders have no basis to
anticipate, with respect to the Retained Operations, any problems with or loss
of business with respect to the Company's customer, service provider or
Sub-Agent relationships. To the best knowledge of the Shareholders without
inquiry of any Principal Customer or Principal Provider, no Principal Customer
or Principal Provider has any plans to terminate their relationship with 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 or Principal Provider prior to the
Closing Date or of PentaStar with any Principal Customer or Principal Provider
after the Closing Date.
(p) Environmental Matters. The Company is conducting and at
all times has conducted its business and operations, and has occupied, used and
operated the Premises and all other real property and facilities presently or
previously owned, occupied, used or operated by the Company, in compliance with
all Environmental Obligations and so as not to give rise to Liability under any
Environmental Obligations or to any impact on the Company's business or
activities. The Company has no Liability under any Environmental Obligation, nor
is there any basis for any such Liability.
(q) Intellectual Property. The Company owns or has the legal
right to use each item of Intellectual Property required to be identified on
Exhibit 3.1(h). To the best knowledge of the Shareholders, the continued
operation of the business of the Company as currently conducted shall not
interfere with, infringe upon, misappropriate or conflict with any Intellectual
Property rights of another Person. To the best knowledge of the Shareholders, no
other Person has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property rights of the Company or any
Intellectual Property included in the Acquired Assets. Neither the Company nor
any owner of any Intellectual Property included in the Acquired Assets has
granted any license, sublicense or permission with respect to any Intellectual
Property owned or used in the Retained Operations. No claims are pending or, to
the knowledge
18
23
of the Shareholders, threatened, that the Company is infringing or otherwise
adversely affecting the rights of any Person with regard to any Intellectual
Property. To the best knowledge of the Shareholders, all of the Intellectual
Property that is owned by the Company and used in the Retained Operations 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 Retained Operations are licensed pursuant to valid and
existing license agreements. The consummation of the transactions contemplated
by this Agreement shall not result in the loss or material diminution of any
such Intellectual Property or rights in Intellectual Property.
(r) Year ▇▇▇▇ ▇▇▇▇▇▇▇▇. To the best knowledge of the
Shareholders, the computer software owned by the Company with respect to the
Retained Operations and all other Intellectual Property used or held for use by
the Company in with respect to the Retained Operations 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 (i) developed or (ii) first provided to the Company's customers, or tested
by the Company for such customers, whichever is later. Notwithstanding the
foregoing, the Company shall not be considered to be in breach of the
representation and warranty in the immediately preceding sentence if the failure
of such Company software to comply with such representation and warranty is
attributable solely to (x) a failure by any Third Party Product to accurately
process date/time data (including but not limited to, calculating, comparing,
and sequencing) from, into, and between the twentieth and twenty-first
centuries, and the years 1999 and 2000 and leap year calculations and the date
September 9, 1999; or (y) any modification of the Company software by any party
other than the Company (unless such modification was made at the direction of
the Company).
(s) Brokers' Fees. Except as set forth on Exhibit 3.1(s), the
Company does not have, 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,
and at the Closing the Shareholders shall have delivered to PentaStar a written
release from such broker, in form and substance satisfactory to PentaStar,
evidencing the Company's payment of such brokerage fee and the release of the
Company and PentaStar from any obligations or Liability to such broker.
(t) Guaranties. The Company is not a guarantor or otherwise
liable for any Liability (including indebtedness for borrowed money) of any
other Person. Except as set forth on Exhibit 3.1(t), no Person is a guarantor or
otherwise liable for any Liability (including indebtedness for borrowed money)
of the Company.
(u) Investment Representations. (i) The Shareholder is
acquiring the shares of PentaStar Common Stock to be issued to the Shareholder
pursuant to this Agreement (the "PentaStar Shares") for the Shareholder's own
account and not on behalf of any other Person; the Shareholder is aware and
acknowledges that the PentaStar Shares have not been registered under the
Securities Act, or applicable state securities laws, and may not be offered,
sold, assigned, exchanged, transferred, pledged or otherwise disposed of unless
so registered under the Securities Act and applicable state securities laws or
an exemption from the registration requirements thereof is available; (ii) the
Shareholder (or, if such Shareholder is not an "accredited investor" as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act, such
Shareholder through
19
24
such Shareholder's purchaser representative ("Purchaser Representative") as duly
designated pursuant to documentation delivered and reasonably satisfactory to
PentaStar on or before the execution of this Agreement (the "Purchaser
Representative Documents")) has been furnished all information that the
Shareholder deems necessary to enable the Shareholder (and such Shareholder's
Purchaser Representative, if such Shareholder is not an "accredited investor")
to evaluate the merits and risks of an investment in PentaStar, including,
without limitation, the information described on Exhibit 3.1(u)(ii); the
Shareholder (and such Shareholder's Purchaser Representative, if such
Shareholder is not an "accredited investor") has had a reasonable opportunity to
ask questions of and receive answers from PentaStar concerning PentaStar, the
PentaStar Shares and any and all matters relating to the transactions described
herein or in the information described on Exhibit 3.1(u)(ii), and all such
questions, if any, have been answered to the full satisfaction of the
Shareholder (and such Shareholder's Purchaser Representative, if such
Shareholder is not an "accredited investor"); (iii) no Person other than the
Shareholder has (A) any rights in and to the PentaStar Shares, which rights were
obtained through or from the Shareholder; or (B) any rights to acquire the
PentaStar Shares, which rights were obtained through or from the Shareholder;
(iv) the Shareholder (or such Shareholder's Purchaser Representative, if such
Shareholder is not an "accredited investor") has such knowledge and experience
in financial and business matters (including knowledge and experience in the
business and proposed business of PentaStar) that the Shareholder (or such
Shareholder's Purchaser Representative, if such Shareholder is not an
"accredited investor") is capable of evaluating the merits and risks involved in
an investment in the PentaStar Shares; and the Shareholder is financially able
to bear the economic risk of the investment in the PentaStar Shares, including a
total loss of such investment; (v) the Shareholder has adequate means of
providing for the Shareholder's current needs and has no need for liquidity in
the Shareholder's investment in the PentaStar Shares; the Shareholder has no
reason to anticipate any material change in the Shareholder's financial
condition for the foreseeable future; (vi) the Shareholder is aware that the
acquisition of the PentaStar Shares is an investment involving a risk of loss
and that there is no guarantee that the Shareholder shall realize any gain from
this investment, and that the Shareholder could lose the total amount of its
investment; (vii) the Shareholder understands that no United States federal or
state agency has made any finding of determination regarding the fairness of the
offering of the PentaStar Shares for investment, or any recommendation or
endorsement of the offering of the PentaStar Shares; (viii) the Shareholder is
acquiring the PentaStar Shares for investment, with no present intention of
dividing or allowing others to participate in such investment or of reselling,
or otherwise participating, directly or indirectly, in a distribution of
PentaStar Shares, and shall not make any sale, transfer or pledge thereof
without registration under the Securities Act and any applicable securities laws
of any state, unless an exemption from registration is available, as established
to the reasonable satisfaction of PentaStar, by opinion of counsel or otherwise;
(ix) except as set forth herein, no representations or warranties have been made
to the Shareholder (or such Shareholder's Purchaser Representative, if such
Shareholder is not an "accredited investor") by PentaStar or any agent, employee
or affiliate of PentaStar, and in entering into this transaction the Shareholder
is not relying upon any information, other than from the results of independent
investigation by the Shareholder (or such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor"); and (x)
the Shareholder understands that the PentaStar Shares are being offered to the
Shareholder in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that
PentaStar is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Shareholder
set forth herein (and in the Purchaser Representative Documents, if applicable)
in order to determine the applicability of such exemptions and the suitability
of the Shareholder to acquire the PentaStar Shares; and (xi) 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 Shareholder's state of residency.
20
25
All the certificates representing PentaStar Shares shall bear the
following legend, in addition to the legend required by Section 5.10:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY STATE SECURITIES LAWS AND CAN
NOT BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH SECURITIES MAY
BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE
ACT OR APPLICABLE STATE SECURITIES LAWS.
(v) Disclosure. None of the documents or information provided
to PentaStar by the Company, any Shareholder or any agent or employee thereof in
the course of PentaStar's due diligence investigation and the negotiation of
this Agreement and Section 3.1 of this Agreement and the disclosure Exhibits
referred to therein, including the financial statements referred to above in
Section 3.1, contain any untrue statement of any material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact which materially adversely affects the
business, condition, affairs or operations of the Company or any of its assets
or properties, in each case with respect to the Retained Operations, the
Retained Liabilities and the Acquired Assets, which has not been set forth in
this Agreement or such Exhibits, including such financial statements.
Nothing in the disclosure Exhibits referred to in Section 3.1
shall be deemed adequate to disclose an exception to a representation or
warranty made herein unless the applicable disclosure Exhibit identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). Each Shareholder acknowledges and agrees that
the fact that they have made disclosures pursuant to Section 3.1 or otherwise of
matters, or did not have knowledge of matters, which result in Adverse
Consequences to PentaStar shall not relieve the Shareholders of their obligation
pursuant to Section 7 of this Agreement to indemnify and hold PentaStar harmless
from Adverse Consequences as required by Section 7.
3.2. Representations and Warranties of PentaStar. PentaStar represents
and warrants to the Shareholders that the statements contained in this Section
3.2 are correct and complete as of the date of this Agreement and shall be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 3.2).
(a) Organization, Good Standing, Power, Etc. PentaStar is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the nature of
the businesses conducted by it or the properties owned, leased or operated by it
make such qualification necessary. This Agreement and the Other PentaStar
Agreements and the transactions contemplated hereby and thereby have been duly
approved by all requisite corporate action. PentaStar has full corporate power
and authority to execute, deliver and perform this Agreement and the Other
PentaStar Agreements, and this Agreement constitutes, and the Other PentaStar
Agreements shall when executed and delivered constitute, the legal, valid
21
26
and binding obligations of PentaStar, and shall be enforceable in accordance
with their respective terms against PentaStar.
(b) Capitalization.
(i) The authorized, issued and outstanding shares of the
capital stock of PentaStar are as set forth on Exhibit 3.2(b)(i).
(ii) At the time of issuance thereof and delivery to a
Shareholder, the PentaStar Shares to be delivered to the Shareholder pursuant to
this Agreement shall be duly authorized and validly issued shares of PentaStar's
Common Stock, and shall be fully paid and nonassessable. Such PentaStar Shares
shall at the time of such issuance and delivery be free and clear of any
Encumbrances of any kind or character, other than those arising under applicable
federal and state securities laws, under this Agreement or under any Other
Seller Agreement to which the Shareholder is a party.
(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 is subject or any provision of
the certificate of incorporation or bylaws of PentaStar 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 pursuant to, any indenture, mortgage, deed of trust, lien,
lease, license, agreement, instrument or other arrangement to which PentaStar is
a party or by which PentaStar or any of its assets and properties is bound or
subject. Except for notices and consents that shall be given or obtained by
PentaStar prior to the Closing, PentaStar need not 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).
22
27
3.3. Survival of Representations. The representations and warranties
contained in Sections 3.1 and 3.2 and the Liabilities of the parties with
respect thereto shall survive any investigation thereof by the parties and shall
survive the Closing for four years, except that the Liabilities of the
Shareholders with respect to the representations and warranties set forth in
Sections 3.1(a), 3.1(b), 3.1(c), 3.1(f), 3.1(g), 3.1(m), 3.1(p), 3.1(q), 3.1(u)
and 3.1(v) and the Liabilities of PentaStar with respect to the representations
and warranties set forth in Sections 3.2(a) and 3.2(b), 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 until
expiration of the applicable statute of limitations.
3.4. Representations as to Knowledge. The representations and
warranties contained in Article 3 hereof shall in each and every case where an
exercise of discretion or a statement to the "best knowledge," "best of
knowledge" or "knowledge" is required on behalf of any party to this Agreement
be deemed to require that such exercise of discretion or statement be in good
faith after reasonable investigation (including, in the case of the
Shareholders, inquiry of the applicable employees of the Company, but excluding
any inquiry of any Principal Customer or Principal Provider), with due
diligence, to the best efforts of such party and be exercised always in a
reasonable manner and within reasonable times.
4. Pre-Closing Covenants. The parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
4.1. [RESERVED.]
4.2. [RESERVED.]
4.3. [RESERVED.]
4.4. [RESERVED.]
4.5. [RESERVED.]
4.6. [RESERVED.]
4.7. Closing Date Liabilities and Excluded Assets.
(a) Prior to the Closing Date, the Shareholders shall pay, or
shall cause the Company to pay prior to the Closing Date, in full all Closing
Date Liabilities in excess of the amounts set forth on the Estimated Closing
Date Balance Sheet; provided, that no funds received in respect of accounts or
notes receivable described in Section 3.1(e)(iv) shall be used for such purpose.
Effective as of immediately prior to the Closing Date, the Shareholders hereby
assume all Closing Date Liabilities in excess of the amounts set forth on the
Estimated Closing Date Balance Sheet without further action by any Shareholder,
the Company or any other Person.
(b) Prior to the Closing Date, the Shareholders shall have caused
the Company to distribute to the Shareholders the Excluded Assets.
4.8. Conveyance of Shareholder Property. Prior to the Closing Date,
each Shareholder shall convey, and shall cause each relative or affiliate of the
Company or of such Shareholder to convey, to the
23
28
Company, free and clear of any Encumbrance or Tax, all of such Shareholder's and
each such relative's or affiliate's right, title and interest to any tangible or
intangible asset (excluding real property, improvements and fixtures, other than
trade fixtures) which is used by the Company in the Retained Operations and
owned or leased by such 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 such 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.
5. Post-Closing Covenants. The parties agree as follows with respect to the
period following the Closing.
5.1. Further Assurances. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties shall take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor under
Section 7).
5.2. Transition. No Shareholder shall take any action at any time that
is designed or intended to have the effect of discouraging any customer, service
provider, Sub-Agent, lessor, licensor, employee or other business associate of
the Company with respect to the Retained Operations from establishing or
continuing a business relationship with 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
involving any of the Acquired Assets or the Company's business, each of the
other parties shall cooperate with such party and its counsel in the contest or
defense, make available their personnel, and provide such testimony 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 Shareholders shall treat and hold as
confidential all Confidential Information concerning PentaStar, the Company's
business with respect to the Retained Operations or the Acquired Assets, refrain
from using any such Confidential Information and deliver promptly to PentaStar
or destroy, at the request and option of PentaStar, all of such Confidential
Information in its or their possession.
5.5. Post-Closing Announcements. Following the Closing, no Shareholder
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of
PentaStar.
5.6. Financial Statements. 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 Shareholders. The
24
29
Shareholders acknowledge that PentaStar may be required by Legal Requirement to
include audited financial statements with respect to the business of the Company
represented by the Retained Operations in reports filed with governmental
agencies and that the inability to audit the financial statements as of the
Effective Date promptly after the Closing could have a material adverse effect
on PentaStar.
5.7. Satisfaction of Liabilities.
(a) Promptly following the Closing, the Shareholders shall pay
when due all Closing Date Liabilities in excess of the amounts set forth on the
Estimated Closing Date Balance Sheet to the extent not previously paid and any
Taxes attributable to the transactions contemplated by this Agreement. In
addition, any and all Taxes attributable to the assumption of the Closing Date
Liabilities under Section 4.7(a) or to the distribution of the Excluded Assets
under Section 4.7(b), and to any pre-Closing distribution or dividend of assets,
including, without limitation, any recognition by the Company of taxable income
or gain with respect to the distribution or dividend of the Excluded Assets or
any pre-Closing distribution or dividend of assets, shall be Closing Date
Liabilities and shall be paid in full by the Shareholders, and neither the
Company nor PentaStar shall have any Liability with respect thereto.
(b) The Shareholders, at their expense, promptly shall take or
cause to be taken any action necessary to remedy any failure of the Premises or
the acquired business to comply at the Closing Date with any Legal Requirement,
upon receipt of notice from PentaStar at any time.
(c) PentaStar shall pay and perform, as and when due, the Retained
Liabilities.
5.8. Repurchase of Unpaid Receivables. The Shareholders severally, but
not jointly, guarantee that the Closing Accounts Receivable, net of any reserve
established on the Latest Balance Sheet in accordance with GAAP on a basis
consistent with the historical accounting practice of PentaStar, shall be fully
paid to the Acquiror in accordance with their terms at their recorded amounts
not later than 180 days from the Closing Date. Upon such payment to the
Acquiror, the Closing Accounts Receivable which are so paid for by the
Shareholders shall, without further action of any party, become the property of
the Shareholders, who may pursue collection thereof; provided, however, that the
Shareholders shall notify the account obligor that such collection efforts are
not being undertaken on behalf of PentaStar. From the Closing until 180 days
after the Closing Date, PentaStar shall apply its standard accounts receivable
collection procedures to the Closing Accounts Receivable (which efforts shall be
overseen by ▇▇. ▇▇▇▇▇▇▇); 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 PentaStar or any such collection agency or other agent
shall not relieve the Shareholders from their guarantee of the Closing Accounts
Receivable as described in this Section 5.8.
5.9. Termination of Obligations. Effective as of the Closing Date,
PentaStar shall not have any Liability to any Shareholder or any relative or
affiliate thereof or of the Company, except as otherwise provided in this
Agreement or in an Other Seller Agreement. Effective as of the Closing Date, no
Shareholder shall have any Liability to PentaStar, except as otherwise provided
in this Agreement, in an Other Seller Agreement or in any other written
agreement entered into on or after the Closing Date.
5.10. Transfer Restrictions. Unless otherwise agreed by PentaStar,
except for transfers by a Shareholder to (a) immediate family members of the
Shareholder who agree to be bound by the restrictions
25
30
set forth in this Section 5.10 (and a copy of such agreement is furnished to
PentaStar prior to the transfer), (b) trusts, partnerships or other entities, in
each case only for estate planning purposes for the benefit of the Shareholder
or family members of the Shareholder, the trustees, partners or other persons
having authority to bind the trust, partnership or other entity of which agree
to be bound by such restrictions (and a copy of such agreement is furnished to
PentaStar prior to the transfer), or (c) any charitable organization that
qualifies for receipt of charitable contributions under Section 170(c) of the
Code and such organization agrees to be bound by such restrictions (and a copy
of such agreement is furnished to PentaStar prior to the transfer), each
Shareholder agrees that the Shareholder shall not sell, assign, exchange,
transfer, pledge or otherwise dispose of at any time prior to the date which is
18 months after the Closing any of the PentaStar Shares received by the
Shareholder as part of the Purchase Price. Thereafter, up to 33% of the
PentaStar Shares received as part of the Purchase Price by the Shareholder may
be resold at any time, and an additional 17% of the PentaStar Shares received as
part of the Purchase Price by the Shareholder may be resold by the Shareholder
beginning 24 months after the Closing; provided, however, that the restrictions
set forth in this sentence shall lapse as to all of the PentaStar Shares
described in this sentence upon the occurrence of (w) set forth in the following
sentence. Any remaining PentaStar Shares may not be sold until the earlier to
occur of (w) the sale of all or substantially all of the assets or outstanding
shares of PentaStar, whether by way of merger, acquisition or other method
(except a merger or consolidation immediately after which the Persons who were
shareholders of PentaStar before the transaction own a majority of the
outstanding equity securities of the surviving or resulting entity) or (x)
October 26, 2004. Notwithstanding anything to the contrary in this Section 5.10,
none of the PentaStar Shares which are subject to the Principal Shareholder's
Escrow Agreement may be sold, assigned, exchanged, transferred, pledged or
otherwise disposed of except as set forth in the Principal Stockholder's Escrow
Agreement. Certificates for the PentaStar Shares delivered to the Shareholders
pursuant to the Agreement shall bear a legend substantially in the form set
forth below as long as applicable:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN AGREEMENT
AND PLAN OF MERGER ENTERED INTO ON SEPTEMBER ___, 2000, (THE "AGREEMENT") BY AND
AMONG THE ISSUER, NETLINK, INC. AND THE SHAREHOLDERS OF NETLINK, INC. PRIOR TO
THE EXPIRATION OF THE HOLDING PERIODS SET FORTH IN THE AGREEMENT, SUCH SHARES
MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED
OF WITHOUT THE WRITTEN CONSENT OF THE ISSUER, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
PLEDGE OR OTHER DISPOSITION WHICH VIOLATES THE AGREEMENT. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER RELATING TO THIS RESTRICTIVE LEGEND
PLACED WITH THE TRANSFER AGENT) WHEN THE APPLICABLE HOLDING PERIOD HAS EXPIRED.
PentaStar shall issue separate certificates to each Shareholder
representing the shares of PentaStar Shares subject to each of the three periods
of restriction contemplated by this Section 5.10.
The restrictions set forth above in this Section 5.10 shall be in
addition to any restrictions on transfer set forth in Section 3.1(u) or imposed
by the Securities Act and applicable state securities laws. Each Shareholder
also agrees to comply with such restrictions.
5.11. Tax Returns. The Shareholders shall be responsible for the timely
filing of the Company's Tax Returns for the 1999 tax year and the short tax year
from January 1, 2000 through the Closing Date and for the timely payment of all
income or other Taxes relating to those periods. PentaStar shall make the books
26
31
and records of the Company available to the Shareholders as required for the
preparation of such Tax Returns or for any subsequent audit or examination of
any Tax Return of the Company for any period ending with or prior to the Closing
Date. The Surviving Corporation shall notify the Shareholders of any inquiry,
audit or examination of which PentaStar receives notice relating to the
Company's Tax Returns for any period ending with or prior to the Closing Date
and the Shareholders shall have the right, subject to Section 7, to control the
defense and settlement of any such inquiry, audit or examination. PentaStar
shall not file any amended Tax Return for the Company for any period ending with
or prior to the Closing Date without the consent of the Shareholders, unless
required to do so by applicable Legal Requirement. The Shareholders shall afford
PentaStar a reasonable opportunity tor review any new or amended Tax Return for
the Company filed by the Shareholders hereunder and shall not make any election
or take any other action on any such return that would increase the Tax
Liability of PentaStar for periods after the Closing Date.
5.12. Conduct During Earn-Out Period. During the Earn-Out Period,
PentaStar shall (a) operate the NetLink Division in the usual and ordinary
course of PentaStar's business operations and (b) not engage in any actions
designed to intentionally deprive the Shareholders of the potential benefit of
the Earn-Out arrangement. If ▇▇. ▇▇▇▇▇▇▇, in his capacity as Regional Manager
under the Employment Agreement, believes that any action he is directed by
PentaStar to take would have a significant adverse effect on the NetLink
Division or the potential benefit of the Earn-Out arrangement, ▇▇. ▇▇▇▇▇▇▇ shall
so notify PentaStar within 10 Business Days of his receipt of such direction,
and PentaStar and ▇▇. ▇▇▇▇▇▇▇ shall thereafter attempt in good faith to
determine the most appropriate course of action.
5.13. Rule 144 Reporting. With a view to making available to the
Shareholders the benefits of certain rules and regulations of the SEC which may
permit the sale of the PentaStar Shares to the public without registration,
PentaStar agrees to use its best efforts all times during which any PentaStar
Share is not subject to the transfer restrictions set forth in Section 5.10 to
(a) make and keep public information available, as those terms are understood
and defined in SEC Rule 144 or any similar or analogous rule promulgated under
the Securities Act and (b) file with the SEC, in a timely manner, all reports
and other documents required of PentaStar under the Exchange Act.
5.14. Required Consents. As of the Closing, the Company has not
obtained the third party consents, estoppels, nondisturbance agreements,
landlord waivers or contract terminations set forth on Exhibit 5.14
(collectively, the "Outstanding Consents"). With respect to the Outstanding
Consents, PentaStar and the Shareholders agree as follows: (a) the Closing shall
occur even though the Outstanding Consents have not been obtained by the
Closing; (b) it is the obligation of the Shareholders to obtain the Outstanding
Consents, and PentaStar has not waived the obligation of the Shareholders to
obtain the Outstanding Consents and to indemnify and hold harmless PentaStar
from any Adverse Consequences which it may suffer resulting from, arising out
of, relating to or caused by the failure of the Shareholders to obtain any such
Outstanding Consent; and (c) the Shareholders shall obtain each Outstanding
Consent as soon as practicable after Closing, with the provisions of Section
6.1(c) continuing to apply to such Outstanding Consents.
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) each Shareholder's representations and warranties shall be
correct and complete at and as of the Closing Date and the Closing;
27
32
(b) the Shareholders shall have performed and complied with all of
their covenants hereunder through the Closing;
(c) the Shareholders shall have given, or shall have caused the
Company to give, all notices and shall have procured, or shall have caused the
Company to procure, all of the third-party consents, authorizations and
approvals required to consummate the transactions contemplated by this
Agreement, including the Transaction, all in form and substance reasonably
satisfactory to PentaStar;
(d) no action, suit or proceeding shall be pending or threatened
before any Governmental Authority or any other Person wherein an Order has been
sought which would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation or (iii) affect
adversely the right of the Acquiror to own the Acquired Assets and conduct the
Company's business represented by the Retained Operations, and no such Order
shall be in effect;
(e) [RESERVED];
(f) the Shareholders shall have delivered to PentaStar (i) a
certificate to the effect that each of the conditions specified above in
Sections 6.1(a) through (e) is satisfied in all respects, (ii) the certified
copy of the Company's articles of incorporation specified in Section 3.1(a) and
a good standing certificate, dated within 10 days of the Closing, from the
Secretary of State of the State of the Company's jurisdiction of incorporation
and each other state in which the Company is qualified or authorized to do
business as a foreign corporation, and (iii) a Tax Clearance Certificate issued
by the State of Missouri for use by PentaStar in connection with the merger of
the Company into the Acquiror, (iv) a certificate executed by the secretary or
other authorized officer of the Company certifying as to the adoption, and
continuing effectiveness, of resolutions of the board of directors and
shareholders of the Company approving the execution, delivery and performance by
the Company of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby, and (v) a copy of the executed documents
pursuant to which the Excluded Assets and related Liabilities were distributed
out of the Company prior to the Closing;
(g) the Other Seller Agreements shall have been executed and
delivered by the parties thereto other than PentaStar;
(h) PentaStar shall have received from counsel to the Shareholders
an opinion in form and substance as set forth in Exhibit 6.1(h) addressed to
PentaStar and dated as of the Closing;
(i) PentaStar shall have completed its due diligence with respect
to the Company with results satisfactory to PentaStar;
(j) financing necessary for the consummation of the transactions
contemplated hereby and the operation of the Retained Operations shall be
available on terms and conditions satisfactory to PentaStar;
(k) PentaStar shall have received from the Shareholders (i) UCC,
lien, litigation and judgment searches with respect to the Company and evidence
of the termination of all Encumbrances filed against the Company or any Acquired
Assets and (ii) the release contemplated by Section 3.1(s);
28
33
(l) PentaStar shall have received the resignations, effective as
of the Closing, of each director and officer of the Company;
(m) stock certificates representing the Shares duly endorsed in
blank or accompanied by stock powers duly executed in blank, shall have been
delivered by the Shareholders to PentaStar;
(n) the Shareholders shall have delivered to PentaStar possession
and control of the Company and the Acquired Assets, including, without
limitation, all stock certificate books, minute books, corporate seals, and all
other corporate and financial records of the Company (except for records
relating to the Excluded Operations); and
(o) the Shareholders shall have delivered, or caused the Company
to deliver, to PentaStar such other instruments, certificates and documents as
are reasonably requested by PentaStar in order to consummate the transactions
contemplated by this Agreement, all in form and substance reasonably
satisfactory to PentaStar.
PentaStar may waive any condition specified in this Section 6.1 at or prior to
the Closing.
6.2. Conditions to Obligation of the Shareholders. The obligation of
the Shareholders to consummate the transactions contemplated by this Agreement
is subject to satisfaction of the following conditions:
(a) PentaStar's representations and warranties shall be correct
and complete at and as of the Closing Date and the Closing;
(b) PentaStar shall have performed and complied with all of its
covenants hereunder through the Closing Date;
(c) no action, suit or proceeding shall be pending or threatened
before any Governmental Authority or any other Person wherein an Order has been
sought which would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation or (iii) affect
adversely the right of the Acquiror to own the Acquired Assets and conduct the
Company's business represented by the Retained Operations, and no such Order
shall be in effect;
(d) PentaStar shall have delivered to the Shareholders a
certificate to the effect that each of the conditions specified above in
Sections 6.2(a) through (c) is satisfied in all respects;
(e) the Other PentaStar Agreements shall have been executed and
delivered by PentaStar and the Shareholders shall have received from counsel to
PentaStar an opinion in form and substance as set forth in Exhibit 6.2(e),
addressed to the Shareholders and dated as of the Closing;
(f) the Shareholders shall have been released, in form and
substance reasonably satisfactory to the Shareholders' Agent, as guarantors of
the Bank Debt or shall have received evidence of the payment thereof; and
29
34
(g) PentaStar shall have paid, issued and deposited the portion of
the Purchase Price due at the Closing pursuant to Section 2.1.
The Shareholders' Agent may waive any condition specified in this Section 6.2 at
or prior to the Closing.
7. Remedies for Breaches of This Agreement.
7.1. Indemnification Provisions for Benefit of PentaStar.
(a) If any Shareholder breaches (or if any Person other than
PentaStar alleges any fact that, if true, would mean any Shareholder has
breached) any of the representations or warranties of any Shareholder contained
herein and PentaStar gives notice thereof to the Shareholders' Agent within the
Survival Period, or if any Shareholder breaches (or if any Person other than
PentaStar alleges any fact that, if true, would mean any Shareholder has
breached) any covenants of any Shareholder contained herein or any
representations, warranties or covenants of any Shareholder contained in any
Other Seller Agreement and PentaStar gives notice thereof to the Shareholders'
Agent, then the Shareholders agree to severally, but not jointly, indemnify and
hold harmless PentaStar from and against any Adverse Consequences PentaStar may
suffer resulting from, arising out of, relating to or caused by any of the
foregoing regardless of whether the Adverse Consequences are suffered during or
after the Survival Period; provided, however, that the Shareholders shall not
have any obligation to indemnify PentaStar from and against any Adverse
Consequences based upon the breach (or alleged breach) of any representation or
warranty of the Shareholders contained in Section 3.1 (other than those
contained in Section 3.1(a), 3.1(b), 3.1(c), 3.1(e)(iv), 3.1(f), 3.1(g), 3.1(m),
3.1(p), 3.1(q), 3.1(u) or 3.1(v) until PentaStar has suffered Adverse
Consequences by reason of any or all such breaches of such representations and
warranties (or alleged breaches) in excess of $25,000 in the aggregate, at which
point the Shareholders shall be obligated to indemnify PentaStar from and
against the entirety of all Adverse Consequences from the first dollar;
provided, further, that the "basket" contained in the foregoing proviso shall
not apply to any covenants of any Shareholder nor shall such "basket" have any
effect on what constitutes, nor the amount of, the Retained Liabilities;
provided, further that the aggregate indemnification obligation of any
particular Shareholder for the breach (or alleged breach) of any representation
or warranty contained in Section 3.1 shall be limited to an amount equal to 150%
of such Shareholder's portion of (i) the Purchase Price (each Shareholder's
portion being determined based upon Sections 2.1(k) and (n)), with the
understanding that each share of PentaStar Common Stock shall be valued as set
forth in the proviso set forth in Section 7.1(b), and (ii) the Bank Debt (each
Shareholder's portion being determined based upon Section 2.1(k)); and, provided
finally, that the aggregate indemnification obligation of the Shareholders shall
be limited to an amount equal to the sum of (i) the Purchase Price, with the
understanding that each share of PentaStar Common Stock shall be valued as set
forth in the proviso set forth in Section 7.1(b), and (ii) the Bank Debt. 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, such
representations and warranties shall not be qualified (other than by the
reference to "knowledge" set forth in the first sentence of Section 3.1(n)(i) or
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. Each
Shareholder also agrees to indemnify and hold harmless PentaStar from and
against any Adverse Consequences PentaStar may suffer which result from, arise
out of, relate to or are caused by (i) any Liability of the Company or any
Shareholder not included in the Retained Liabilities or (ii) any condition,
circumstance or activity existing prior to the Closing Date which relates to any
Legal Requirement or any act or omission of the Company or any Shareholder or
any predecessor with respect to, or any event or
30
35
circumstance related to, the Company's, any Shareholder's or any predecessor's
ownership, use or operation of any of the Acquired Assets, the Excluded Assets,
the Premises or any other assets or properties or the conduct of its or their
business, regardless, in the case of (i) or (ii), of (A) whether or not such
Liability, act, omission, event, circumstance or matter was known or disclosed
to PentaStar, was disclosed on any Exhibit hereto or is a matter with respect to
which 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; provided, however, that the indemnification obligation
of any particular Shareholder shall be limited to an amount equal to (1) such
Shareholder's percentage of the Purchase Price (determined based upon Sections
2.1(k) and (n)) multiplied by (2) the Adverse Consequence. 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; provided, however, that if PentaStar is sued in an
action relating in whole or in part to a claim against which it is or may be
entitled to indemnification hereunder, it may, at its option, join the
Shareholders in that action and have its right to indemnification adjudicated by
the court.
(b) For purposes of indemnification claims, each of the shares of
PentaStar Common Stock shall be valued at its Fair Market Value as of the date
(the "Notice Date") that PentaStar gives notice pursuant to Section 7.1(a) of
the breach (or alleged breach) or Adverse Consequence; provided, however, that
if the Fair Market Value of a share of PentaStar Common Stock as of the Notice
Date is less than its Fair Market Value as of the Closing Date, each share of
PentaStar Common Stock shall, for such indemnification purposes, be valued at
its Fair Market Value as of the Notice Date and no Shareholder shall be required
to make up the difference between the Fair Market Value as of the Closing Date
and as of the Notice Date in cash; and, provided finally, that PentaStar shall
be entitled in respect of an indemnification claim to first receive from a
Shareholder cash (but, with respect to such Shareholder, only to the extent of
an amount equal to 150% of such Shareholder's portion (determined based upon
Sections 2.1(k) and (n)) of the sum of (i) the amount set forth in Section
2.1(k)(i)(A)(1) plus (ii) the Bank Debt) or shares of PentaStar Common Stock, or
a combination thereof, as it determines.
7.2. Indemnification Provisions for Benefit of the Shareholders. If
PentaStar breaches (or if any Person other than a Shareholder alleges facts
that, if true, would mean PentaStar has breached) any of its representations or
warranties contained herein and the Shareholders' Agent gives notice of a claim
for indemnification against PentaStar within the Survival Period, or if
PentaStar breaches (or if any Person other than a Shareholder alleges facts
that, if true, would mean PentaStar has breached) any of its 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 agrees to indemnify and hold
harmless the Shareholders from and against any Adverse Consequences the
Shareholders may suffer which result from, arise out of, relate to, or are
caused by the breach or alleged breach, regardless of whether the Adverse
Consequences are suffered during or after the Survival Period. In determining
whether there has been a breach of any representation or warranty contained in
Section 3.2 and in determining the amount of Adverse Consequences suffered by
the Shareholders for purposes of this Section 7.2, such representations and
warranties shall not be qualified by "material," "materiality," "in all material
respects," "best knowledge," "best of knowledge" or "knowledge" or words of
similar import, or by any phrase using any such terms or words. If any dispute
arises concerning whether any indemnification is owing which cannot be resolved
by negotiation among the parties within 30 days of notice of claim for
indemnification from the party claiming indemnification to the party against
whom such claim is asserted,
31
36
the dispute shall be resolved by arbitration pursuant to this Agreement;
provided, however, that if a Shareholder is sued in an action relating in whole
or in part to a claim against which he or she is or may be entitled to
indemnification hereunder, he or she may, at its option, join PentaStar in that
action and have his right to indemnification adjudicated by the court.
7.3. Matters Involving Third Parties.
(a) If any Person not a party to this Agreement (including,
without limitation, any Governmental Authority) notifies any party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other party (the
"Indemnifying Party"), then the Indemnified Party shall notify each Indemnifying
Party thereof in writing within 15 days after receiving such notice. No delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party shall have the right, at its sole cost
and expense, to defend the Indemnified Party against the Third Party Claim with
counsel of its choice satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within 10 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party shall indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party shall have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (v) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently. 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
32
37
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 shall have the right to offset any
Adverse Consequences it may suffer or any other amounts due to it hereunder
against any amounts payable or shares of PentaStar Common Stock issued or to be
issued pursuant to this Agreement or any Other Seller Agreement to any
Shareholder or any relative or affiliate of any Shareholder at or after the
Closing. For purposes of effecting any offset against shares of PentaStar Common
Stock, such shares shall be valued at their Fair Market Value as of the date the
set-off is effected by PentaStar.
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. [RESERVED.]
9. Miscellaneous.
9.1. No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the parties and their respective
successors and permitted assigns.
9.2. Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements or representations by or among the parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.
9.3. Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. No Shareholder may assign this Agreement nor any of his or
her rights, interests or obligations hereunder without the prior written
approval of PentaStar. PentaStar may assign its 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 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:
33
38
If to any
Shareholder: Copy to:
Addressed to the
Shareholders' Agent at: Blackwell, Sanders, ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Attn: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to PentaStar: 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.
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 Shareholders shall bear all costs and expenses (including,
without limitation, all legal, accounting and tax related fees and expenses, all
fees, commissions, expenses and other amounts payable to any broker, finder or
agent) incurred by the Company prior to the Closing or by any Shareholder either
before or after the date
34
39
of this Agreement in connection with this Agreement or the transactions
contemplated hereby (collectively, "Seller Transaction Expenses"); provided,
however, that prior to the Closing Date the Company may use any cash (other than
the Interim Cash Requirement or cash received in respect of accounts or notes
receivable described in Section 3.1(e)(iv)) to pay Seller Transaction Expenses
so long as the Shareholders are liable for any Tax consequences to the Company
or PentaStar arising therefrom, and any such Liability shall be a Closing Date
Liability.
9.11. Arbitration. Any disputes arising under or in connection with
this Agreement, including, without limitation, those involving claims for
specific performance or other equitable relief, shall be submitted to binding
arbitration in Denver, Colorado before the Judicial Arbiter Group, but under the
Commercial Arbitration Rules of the American Arbitration Association under the
authority of federal and state arbitration statutes, and shall not be the
subject of litigation in any forum. If the Judicial Arbiter Group is unavailable
to conduct the arbitration, then it shall be before another arbitral body in
Denver, Colorado selected by PentaStar and the Shareholders' Agent or, if they
cannot agree on another arbitral body, the American Arbitration Association.
EACH PARTY, BY SIGNING THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY
WAIVES ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR
OTHER FORUMS, INCLUDING THE RIGHT TO JURY TRIAL. The arbitrator shall have full
authority to order specific performance and other equitable relief and award
damages and other relief available under this Agreement or applicable law, but
shall have no authority to add to, detract from, change or amend the terms of
this Agreement or existing law. All arbitration proceedings, including
settlements and awards, shall be confidential. 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 said action shall pay the other party's costs and
expenses incurred in seeing such stay and/or compelling arbitration, including
reasonable attorneys' fees.
9.12. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The word "including" shall mean including
without limitation. The parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any party
breaches any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) which the party has not breached shall not detract from or mitigate
the fact that the party is in breach of the first representation, warranty or
covenant.
9.13. Incorporation of Exhibits. The Exhibits identified in this
Agreement are incorporated herein by reference and made a part hereof.
35
40
9.14. Shareholders' Agent. Each Shareholder hereby authorizes and
appoints the Shareholders' Agent as its, his or her exclusive agent and
attorney-in-fact to act on behalf of each of them with respect to all matters
which are the subject of this Agreement, including, without limitation, (a)
receiving or giving all notices, instructions, other communications, consents or
agreements that may be necessary, required or given hereunder and (b) asserting,
settling, compromising, or defending, or determining not to assert, settle,
compromise or defend, (i) any claims which any Shareholder may assert, or have
the right to assert, against PentaStar, or (ii) any claims which PentaStar may
assert, or have the right to assert, against any Shareholder. The Shareholders'
Agent hereby accepts such authorization and appointment. Upon the receipt of
written evidence satisfactory to PentaStar to the effect that the Shareholders'
Agent has been substituted as agent of the Shareholders by reason of his death,
disability or resignation, PentaStar shall be entitled to rely on such
substituted agent to the same extent as they were theretofore entitled to rely
upon the Shareholders' Agent with respect to the matters covered by this Section
9.14. No Shareholder shall act with respect to any of the matters which are the
subject of this Agreement except through the Shareholders' Agent. Each
Shareholder acknowledges and agrees that PentaStar may deal exclusively with the
Shareholders' Agent in respect of such matters, that the enforceability of this
Section 9.14 is material to PentaStar, and that PentaStar has relied upon the
enforceability of this Section 9.14 in entering into this Agreement.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
36
41
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
September _____, 2000.
PENTASTAR:
PENTASTAR COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Title: CEO
---------------------------------
COMPANY:
NETLINK, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
Title: President
---------------------------------
SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
37
42
EXHIBIT 1.1(a)
DEFINED TERMS
Acquired Assets means all right, title and interest of the Company
in and to all of the tangible and intangible assets of the Company, including
cash, cash equivalents and customer data, but excluding the Excluded Assets.
Adverse Consequences means all actions, suits, proceedings,
investigations, complaints, claims, demands, Orders, Liabilities, liens, losses,
damages, penalties, fines, settlements, costs, remediation costs, expenses and
fees (including court costs and reasonable fees and expenses of counsel and
other experts), plus interest at a rate equal to two percentage points above the
prime rate quoted by PentaStar's principal lender from time to time accrued from
the date of such Adverse Consequence.
Affiliated Group means any affiliated group within the meaning of
Code Section 1504 or any similar group defined under a similar provision of
state, local or foreign law.
Bank Debt means, as of the Closing Date, the sum of (a) the
outstanding principal balance owed by the Company to the Bank of America under
the loan agreement (loan number 5015951-0001) between Bank of America and the
Company (the "BOA Loan Agreement"), (b) the current (but not past due) interest
on such principal amount which has been accrued but unpaid in respect of the
period from the last date on which an interest payment was due until the Closing
Date, and (c) any interest thereon which is past due as of the Closing Date. For
reference purposes, as of September 25, 2000, the Bank Debt is $304,354.16,
consisting of $300,000 of outstanding principal balance, $1,899 of current (but
not past due) interest thereon which has been accrued but unpaid in respect of
the period from the last date on which an interest payment was due until
September 25, 2000, and $2,454.18 of past due interest thereon.
Benefit Arrangement has the meaning set forth in Section 3.1(m).
Business Day means any day on which commercial banks are open for
business in Denver, Colorado.
Cash Portion of the Purchase Price has the meaning set forth in
Section 2.1(k)(i).
Closing Accounts Receivable means all accounts (including late
fees and interest charges thereon) and notes receivable of the Company which are
in existence as of the Closing Date, including residual payment rights, but
excluding the Excluded Receivables.
Closing and Closing Date have the meanings given in Section 2.2.
Closing Date Balance Sheet has the meaning given it in Section
2.1(l)(i).
Closing Date Liabilities means all Liabilities of the Company
(including those designated as Closing Date Liabilities under Sections 5.7(a) or
9.10), other than Retained Liabilities.
Closing Shares has the meaning given in Section 2.1(k)(i).
Exhibit 1.1(a) - 1
43
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning given it in Recital A, except that for
purposes of Section 3.1, the term the "Company" shall mean the Company and all
of its Subsidiaries.
Company Shares has the meaning given it in Section 3.1(b)(i).
Company Welfare Plan has the meaning given it in Section
3.1(m)(i).
Confidential Information means any information concerning the
subject Person or the subject Person's business, products, financial condition,
prospects and affairs that is not already generally available to the public.
Earn-Out Amount means the remainder of (a) four times the Earn-Out
EBITA, minus (b) the Cash Portion of the Purchase Price, minus (c) the $986,000
amount described in Section 2.1(k)(i)(B), and minus (c) the Bank Debt; provided,
however, that in no event shall the Earn-Out Amount be such as would cause sum
of (v) the Purchase Price, plus (w) the amount described in the last sentence of
Section 2.1(m), plus (x) the amount described in Section 2.1(k)(i)(A)(5) (as
finally determined pursuant to Section 2.1(m)), plus (y) the Bank Debt, plus (z)
amounts paid by PentaStar in respect of Closing Date Liabilities (other than
those Closing Date Liabilities in respect of which there is a reduction of the
Purchase Price pursuant to Section 2.1(k)(i)(A)(5)) to exceed $3,600,000.
Earn-Out EBITA means the EBITA of the NetLink Division for the
Earn-Out Period, including for purposes of such determination the EBITA of the
Company from the Retained Operations (but not from the Excluded Operations) from
August 1, 2000 until the Closing Date; provided, however, that in any event
Earn-Out EBITA (a) shall not include any allocation of PentaStar corporate
headquarters expense but shall include allocation of a pro rata portion of
direct expenses of PentaStar for services provided to the NetLink Division, (b)
shall not include any fees, costs or expenses, including accounting and legal
fees, incurred by the Company in connection with the Transaction, (c) shall not
include any revenue or compensation in respect of the Excluded Operations, (d)
shall include the expense of any bonus paid to ▇▇. ▇▇▇▇▇▇▇ pursuant to the
Employment Agreement and (e) shall include the expense differential to PentaStar
of ▇▇. ▇▇▇▇▇▇▇'▇ employment pursuant to the Employment Agreement as if ▇▇.
▇▇▇▇▇▇▇ was employed by PentaStar commencing August 1, 2000 pursuant to the
Employment Agreement, as compared to the actual compensation expense to the
Company of employing ▇▇. ▇▇▇▇▇▇▇ from August 1, 2000 until the Closing Date.
Earn-Out Financial Statements has the meaning given in Section
2.1(n)(ii).
Earn-Out Period means the period commencing August 1, 2000 and
ending July 31, 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
Exhibit 1.1(a) - 2
44
paid salesperson commissions as prepaid commissions less an appropriate reserve
for contract cancellations and salesperson terminations.
Effective Date has the meaning given it in Section 2.1.
Employee Benefit Plan means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan, as defined in ERISA Section 3(37)) or (d)
Employee Welfare Benefit Plan.
Employee Pension Benefit Plan has the meaning set forth in ERISA
Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in ERISA
Section 3(1).
Employment Agreement means the Employment and Noncompetition
Agreement between PentaStar and ▇▇. ▇▇▇▇▇▇▇ in the form of Exhibit 1.1(b).
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. Section 6901 et seq.), as amended, and the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 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 2.1(j)(i).
Estimated Interim Period Cash Flow Statement has the meaning given
it in Section 2.1(j)(ii).
Exchange Act means the Securities Exchange Act of 1934, as
amended.
Excluded Assets means (a) the assets of the Company used directly
and exclusively in the Excluded Operations and (b) the Excluded Receivables.
Excluded Operations means the Company's business of selling and
installing telecommunications hardware.
Exhibit 1.1(a) - 3
45
Excluded Receivables means all accounts (including late fees and
interest charges thereon) and notes receivable of the Company which are in
existence as of the Closing Date and were generated directly and exclusively
from the Excluded Operations (and not in any respect from the Retained
Operations).
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 July
31, 2001, as quoted by Nasdaq and (c) as of any other date, the average of the
closing prices of the PentaStar Common Stock for the five trading days ending
two trading days prior to such date. If closing prices are not quoted for the
PentaStar Common Stock, the closing price for each such day shall be deemed to
be the average of the last bid and last asked prices for the PentaStar Common
Stock for that day, as quoted by Nasdaq. If the PentaStar Common Stock is not
quoted on Nasdaq, the closing price for each such day shall be deemed to be the
average of the high and low sales prices for the PentaStar Common Stock on that
day (or if no sales prices are reported, the average of the high and low asked
prices) as reported by the principal regional stock exchange, or if not so
reported, as reported by Nasdaq or a quotation system of general circulation to
brokers and dealers. If the Fair Market Value of the PentaStar Common Stock
cannot be determined as provided above, Fair Market Value shall be determined by
the board of directors of PentaStar by any reasonable method chosen by it.
GAAP means generally accepted accounting principles as in effect
from time to time in the United States.
Governmental Authority means the United States of America, any
state, commonwealth, territory or possession of the United States of America,
any political subdivision thereof (including counties, 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 or technical information, computer software,
all registrations, licenses and applications pertaining thereto, and all related
documentation and goodwill.
Interim Cash Requirement means (a) the amount of the positive
difference, if any, between (i) the aggregate amount of cash disbursements by
the NetLink Division during the Interim Period for Liabilities, including
payroll, commissions, rent and accounts payable, over (ii) the aggregate amount
of cash collections by the NetLink Division during the Interim Period, (b) less
$5,000.
Exhibit 1.1(a) - 4
46
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 2.1(l)(ii).
Key Employee means, with respect to the Retained Operations, (a)
each employee of the Company other than clerical employees and (b) if any
salesperson is an independent contractor rather than an employee, each such
salesperson. Key Employees include, without limitation, executives and
salespersons.
Latest Balance Sheet has the meaning given it in Section 3.1(d).
Legal Requirement means any constitution, statute, ordinance,
code, or other law (including common law), rule, regulation, Order, notice,
standard, procedure or other requirement enacted, adopted, applied or issued by
any Governmental Authority, including, without limitation, judicial decisions
applying or interpreting any such Legal Requirement.
Liability means any liability or obligation (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due).
License Agreement means the License Agreement between PentaStar
and NetLink Hardware L.L.C. in the form of Exhibit 1.1(c) pursuant to which
PentaStar shall be licensed to use the name and ▇▇▇▇ "NetLink" in connection
with the Retained Operations.
Merger has the meaning given it in Section 2.1.
▇▇. ▇▇▇▇▇▇▇ means ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
NetLink Division has the meaning given it in Section 2.1(n)(i);
provided, however, that nothing in this definition or in this Agreement shall
preclude PentaStar from simultaneously selling into any area, including any area
in which the NetLink Division operates, through PentaStar or any division or
subsidiary of PentaStar.
Noncompetition Agreement means the Noncompetition Agreement
between PentaStar and the Shareholders in the form of Exhibit 1.1(d).
Orders means all judgments, injunctions, orders, rulings, decrees,
directives, notices of violation or other requirements of any Governmental
Authority or arbitrator having jurisdiction in the matter, including a
bankruptcy court or trustee.
Other PentaStar Agreements means the Employment Agreement, the
License Agreement, the Noncompetition Agreement, the Principal Shareholder's
Escrow Agreement, and the other documents and instruments to be executed and
delivered by PentaStar pursuant to this Agreement.
Exhibit 1.1(a) - 5
47
Other Seller Agreements means the Employment Agreement, the
License Agreement, the Noncompetition Agreement, the Principal Shareholder's
Escrow Agreement and other documents and instruments to be executed and
delivered by any Shareholder or any relative or affiliate of the Company or of
any Shareholder pursuant to this Agreement.
PentaStar Common Stock means the common stock, par value $.0001
per share, of PentaStar.
PentaStar Shares has the meaning set forth in Section 3.1(u).
Permits means all permits, licenses, consents, franchises,
authorizations, approvals, privileges, waivers, exemptions, variances,
exclusionary or inclusionary Orders and other concessions, whether governmental
or private, including, without limitation, those relating to environmental,
public health, welfare or safety matters.
Person means an individual, partnership, corporation, association,
joint stock company, trust, joint venture, limited liability company,
unincorporated organization or Governmental Authority.
Premises means the real property, buildings and improvements
thereon constituting the business premises of the Company with respect to the
Retained Operations located at (a) ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
and (b) ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
Principal Shareholder's Escrow Agreement means the Principal
Shareholder's Escrow and Contingent Stock Agreement between PentaStar and ▇▇.
▇▇▇▇▇▇▇ in the form of Exhibit 1.1(e).
Purchase Price has the meaning given it in Section 2.1(k).
Retained Liabilities means (a) the obligations of the Company
arising after the Closing Date under those contracts which are identified by
PentaStar on Exhibit 1.1(f) with respect to the period after the Closing Date;
provided, however, that such obligations shall not include any Liability of the
type contemplated in clause (ii) of the third sentence of Section 7.1(a) which
results from, arises out of or relates to the period on or before the Closing
Date, (b) current liabilities in existence as of the Closing Date which (i) have
been incurred by the Company in the ordinary course of business consistent with
past practice solely and exclusively in connection with the Retained Operations
(excluding, however, in all cases any Liability for interest bearing debt; bank
debt; loans for the acquisition of equipment or other fixed assets; loans or
debt with respect to the acquisition of any business or entity (regardless of
how structured); capital, operating or other leases; Liabilities to any
shareholder, director, officer or affiliate of the Company or any relative or
affiliate of any such Person; past due payables or Liabilities; compensation,
bonuses or commissions associated with revenues that have been received by the
Company prior to the Closing Date; accrued bonuses; accrued commissions; accrued
profit sharing; accrued rent; accrued Taxes; Taxes which are the responsibility
of the Shareholders pursuant to Section 5.11; and all expenses or Liabilities
which are required by GAAP to be accrued as of the Closing Date but which have
not been so accrued (including expenses and Liabilities attributable to bonuses,
commissions, profit sharing, rent and Taxes)), and (ii) are set forth on the
Closing
Exhibit 1.1(a) - 6
48
Date Balance Sheet as Retained Liabilities rather than as Closing Date
Liabilities and (c) the Bank Debt. Retained Liabilities shall not include any
other Liability.
Retained Operations means all operations of the Company other than
the Excluded Operations. Retained Operations include the network services agency
business of the Company, including its business related to business access to
local communications services, data communications services, long distance
services, wireless services, Internet services or any other form of
communications services used by businesses for the purpose of transferring
voice, data, video or related information.
Right means any right, property interest, concession, patent,
trademark, trade name, copyright, know-how or other proprietary right of another
Person.
SEC means the Securities and Exchange Commission.
SEC Filings means all reports, registration statements and other
filings filed by PentaStar with the SEC on or prior to the Closing Date.
Second Closing has the meaning set forth in Section 2.1(n)(iii).
Securities Act means the Securities Act of 1933, as amended.
Shareholders has the meaning given it in the preamble to this
Agreement.
Shareholders' Agent means ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (or the
substituted agent described in Section 9.14) acting as agent for the
Shareholders pursuant to Section 9.14.
Shareholder Property has the meaning given it in Section 4.8.
Sub-Agent means a Person, not an employee of the Company, who
markets or sells goods or services of the Company to third parties. The term
Sub-Agent includes the Persons listed as such on Exhibit 3.1(o)(i)(B).
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.
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),
Exhibit 1.1(a) - 7
49
unemployment, disability, real property, documentary, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
Transaction has the meaning given it in the preamble to this
Agreement.