<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PENTASTAR COMMUNICATIONS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 4813 84-1502003
(State or jurisdiction of incorporation (Primary Standard Industrial Classification Code Number) (I.R.S. Employer
or organization) Identification No.)
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1522 BLAKE STREET
DENVER, COLORADO 80202
(303) 825-4400
(Address and telephone number of principal executive offices)
(Address of principal place of business or intended principal place of business)
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CRAIG J. ZOELLNER, PRESIDENT
PENTASTAR COMMUNICATIONS, INC.
1522 BLAKE STREET
DENVER, COLORADO 80202
(303) 825-4400
(Name, address and telephone number of agent for service)
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Copies to:
B. SCOTT PULLARA, ESQ. ROBERT W. WALTER, ESQ.
LESLIE A. NICHOLS, ESQ. STACEY L. BOWERS, ESQ.
SHERMAN & HOWARD L.L.C. BERLINER ZISSER WALTER & GALLEGOS, P.C.
633 SEVENTEENTH STREET, SUITE 3000 1700 LINCOLN STREET, SUITE 4700
DENVER, COLORADO 80202 DENVER, COLORADO 80203
(303) 297-2900 (303) 830-1700
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
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COMMON STOCK, $.0001 PAR VALUE (2) $18,975,000 $5,276
UNDERWRITERS WARRANTS $10 $1
COMMON STOCK, $.0001 PAR VALUE, UNDERLYING
UNDERWRITERS WARRANTS $1,980,000 $551
=============================================================================================================
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(1) ESTIMATED SOLELY FOR PURPOSES OF CALCULATING THE AMOUNT OF REGISTRATION FEE
IN ACCORDANCE WITH RULE 457(O) UNDER THE SECURITIES ACT OF 1933.
(2) INCLUDES SHARES THAT THE REPRESENTATIVE OF THE UNDERWRITERS HAS THE OPTION
TO PURCHASE FROM PENTASTAR COMMUNICATIONS, INC. TO COVER OVER-ALLOTMENTS,
IF ANY EQUAL TO 15% OF THE INITIAL SHARES.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
-----------------------------------
<PAGE> 2
PROSPECTUS Subject to completion, dated August 16, 1999
The information contained in this prospectus is not complete and may be changed.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. We may not sell these securities until the
registration statement is effective. This prospectus is not an offer to sell
these securities and we are not selecting an offer to buy these securities in
any state where the offer or sale is not permitted.
PENTASTAR COMMUNICATIONS, INC.
1,500,000 SHARES OF COMMON STOCK
This is an initial public offering. We are offering all of the
1,500,000 shares. We estimate that the share price will be between $9.00 and
$11.00. No public market currently exists for our shares.
We have applied for the listing of our shares on the Nasdaq SmallCap
Market under the symbol "PNTA."
INVESTING IN OUR SHARES INVOLVES RISKS. SEE "RISK FACTORS" COMMENCING
ON PAGE 5.
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PER SHARE TOTAL
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Public offering price $ $
Underwriting discounts $ $
Proceeds to PentaStar $ $
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The representative of the underwriters has a 45-day option to purchase
an additional 225,000 shares from PentaStar to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS A CRIME TO MAKE ANY REPRESENTATION TO
THE CONTRARY.
SCHNEIDER SECURITIES, INC.
PROSPECTUS DATED ______________, 1999
<PAGE> 3
We intend to furnish stockholders with annual reports containing financial
statements audited by an independent public accounting firm and quarterly
reports containing unaudited financial information for the first three quarters
of each year.
<PAGE> 4
PENTASTAR PROSPECTUS
INTRODUCTION
Please read this prospectus carefully. It describes our business,
services and finances. We have prepared this prospectus so that you will have
the information necessary to make an investment decision.
You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
TABLE OF CONTENTS
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Page
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Prospectus Summary......................................................1
Risk Factors............................................................5
Where You Can Find Additional Information..............................18
Forward Looking Statements.............................................18
Use of Proceeds........................................................19
Dividend Policy........................................................20
Capitalization.........................................................21
Dilution...............................................................22
Selected Financial Data................................................24
Management's Discussion And Analysis Of Financial Condition
And Results of Operations.........................................27
Business...............................................................45
Management.............................................................60
Certain Transactions...................................................67
Principal Stockholders.................................................68
Description of Capital Stock...........................................72
Shares Eligible For Future Sale........................................76
Underwriting...........................................................80
Legal Matters..........................................................83
Experts................................................................83
Index to Financial Statements.........................................F-1
Unaudited Pro Forma Combined Financial Information....................F-2
Financial Statements of PentaStar Communications, Inc. ...............F-9
Financial Statements of ICM Communications Integration, Inc. ........F-16
Financial Statements of DMA Ventures, Inc.,
dba Access Communications.......................................F-28
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<PAGE> 5
PROSPECTUS SUMMARY
PENTASTAR COMMUNICATIONS, INC.
PentaStar is a communications services agent. We design, select and
implement communications services solutions that best meet our customers'
specific requirements and budgets. Through our agent relationships with regional
Bell operating companies, or RBOCs, and other communications service providers
in markets other than local access, we procure communications services for our
customers. These customers are small to medium-sized businesses active in a wide
variety of industries including:
o retail;
o wholesale;
o manufacturing;
o service;
o distribution; and
o professional service organizations.
Our customers are usually of a size that cannot justify a dedicated
internal communications staff but, given the complexities of the communications
industry, need assistance in procuring services. Since we do not own any
communications infrastructure, we believe that we give our customers an
independent evaluation of available communications services and technologies. We
focus our personnel and financial resources on:
o assessing the customers' needs for current and future
communications services;
o analyzing and designing specific customer solutions;
o helping customers integrate those communications services into
their operations;
o selecting the providers that best match the customers'
requirements;
o facilitating the ordering, installation and ongoing use of
communications services; and
o staying current with developing technologies and pricing plans
and analyzing how they may be applicable to our customers.
We work exclusively with RBOCs in providing our customers with local
access services. We also work with a variety of communications service providers
to offer our customers long distance, wireless and Internet services for voice
and data communications. We believe our agent services are attractive to
communications service providers because we allow them to out-source a difficult
function in a cost-effective manner that provides them a means of retaining
customers and increasing sales. We are paid a commission by each service
provider based on a percentage of each customer's cost of service.
We have entered into agreements to acquire two communications services
agents concurrently with the completion of this offering, DMA Ventures, Inc.,
dba Access Communications, and ICM Communications Integration, Inc. We intend to
acquire other communications services agents in major metropolitan areas.
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<PAGE> 6
We also plan to acquire Internet service providers, or ISPs, in small,
high-growth areas through a separate subsidiary. We intend to use the staff and
customer relationships of these ISPs to implement our comprehensive local
access, long distance and wireless solution in these small markets. We believe
the national service providers in all segments of the communications industry
have had difficulty finding an effective means to sell into and service small
markets. The ISPs we acquire are expected to offer a unique sales channel to
serve the communications needs of these markets, in addition to the value to us
of their core Internet businesses.
We believe that the agents and ISPs we target for acquisition will be
attracted to, and benefit from, the opportunity to join us because we plan to
offer them:
o access to ongoing analysis of available communications and
Internet technologies and pricing plans;
o shared systems, administration and infrastructure support;
o lower costs resulting from planned economies of scale;
o availability of multiple long distance, wireless and Internet
options;
o access to other acquired companies' business methods and
practices;
o greater access to capital for future growth;
o improved commission structures resulting from aggregating sales;
o add-on sales to local operations of regional customers; and
o consolidated order entry and processing.
We estimate the core communications market segments of local access,
long distance, wireless and Internet services had 1998 sales in excess of $200
billion. The communications industry offers its services through the direct
sales forces of communications service providers and through independent agents.
The agent industry is highly fragmented and characterized by hundreds of local
companies with no large national competitors. The ISP industry is also highly
fragmented with over 5,000 mostly small, local companies. This fragmentation
enhances the opportunity to build a leading agent with operations in multiple
regions of the country.
On August 13, 1999, we changed our name to PentaStar Communications,
Inc. from Optimal Communications, Inc. Our executive offices are located at 1522
Blake Street, Denver, Colorado 80202 and our telephone number is (303) 825-4400.
THE OFFERING
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Common stock offered............................................. 1,500,000 shares
Common stock to be outstanding after this offering............... 5,000,000 shares
Use of proceeds.................................................. To finance the acquisitions of ICM and
Access; to make other complementary
acquisitions or investments; to repay
certain indebtedness; and for working
capital, systems investment and other
general corporate purposes.
Proposed Nasdaq SmallCap Market symbol........................... PNTA
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<PAGE> 7
The number of shares of common stock to be outstanding after this
offering does not include shares we have either agreed to issue or reserved for
issuance under our stock option plan. For an explanation, please refer to the
Capitalization section on page 21.
Unless the context requires otherwise, "PentaStar," "we," "us" and
"our" in this prospectus refers to PentaStar, ICM and Access on a combined
basis. Unless otherwise indicated, all information in this prospectus:
o reflects a 3,417.96 for 1 split of the PentaStar common stock
immediately prior to this offering;
o assumes completion of the acquisitions of ICM and Access and the
issuance of approximately 370,000 shares of common stock issuable
on the closing of the acquisitions; and
o assumes that the representative of the underwriters does not
exercise its over-allotment option or its warrants and that no
other person exercises any other option or warrant.
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<PAGE> 8
SUMMARY PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary unaudited pro forma combined financial data
present financial data for our business as adjusted for: (1) the effects of the
acquisitions of ICM and Access on an historical basis; (2) the effects of pro
forma adjustments to the historical financial statements; and (3) the completion
of this offering.
We prepared the unaudited pro forma statement of operations data to
reflect the acquisitions of ICM and Access as if they had each occurred on
January 1, 1998. These results have been prepared using the purchase method of
accounting. We have presented this information to give you a better picture of
what our business might have looked like if we had owned ICM and Access since
January 1, 1998. These companies may have performed differently if they had
actually been combined with our operations. You should not rely on the unaudited
pro forma information as being indicative of the historical results that we
would have had or the future results that we will experience after the
acquisitions. Please see our unaudited pro forma combined financial information
beginning on page F-2.
SUMMARY PRO FORMA STATEMENT OF OPERATIONS DATA
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YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, 1998 ENDED JUNE 30, 1998 ENDED JUNE 30, 1999
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Total revenues ................................... $ 6,657 $ 2,744 $ 2,996
Cost and expenses ................................ 5,592 2,603 2,789
------- ------- -------
Income from operations ........................... $ 1,065 $ 141 $ 207
======= ======= =======
Net income (loss) from continuing operations ..... $ 617 $ 10 $ 134
======= ======= =======
Basic and diluted per share data(1)
Net income (loss) per share from
company operations ........................... $ 0.12 $ -- $ .03
======= ======= =======
Depreciation and amortization .................... $ 307 $ 154 $ 160
EBITDA(2) ........................................ $ 1,372 $ 295 $ 367
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SUMMARY PRO FORMA BALANCE SHEET DATA AS OF JUNE 30, 1999
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PRO PRO FORMA
FORMA(3) ADJUSTED(4)
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Current assets ................................... $ 2,008 $11,957
Goodwill ......................................... 3,815 3,815
Other noncurrent assets .......................... 1,076 1,076
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Total assets ............................. $ 6,899 $16,848
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Current liabilities .............................. $ 3,571 $ 1,120
Shareholders' equity ............................. 3,328 15,728
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Total liabilities and equity ............. $ 6,899 $16,848
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(1) Based upon 5,000,000 pro forma basic and diluted shares outstanding.
(2) EBITDA represents the income (loss) from operations before interest, other
expense (income), income tax expense (benefit), depreciation and
amortization. EBITDA does not represent cash flow for the periods presented
and should not be considered as an alternative to net income (loss), as an
indicator of operating performance or as an alternative to cash flows as a
source of liquidity, and may not be comparable with EBITDA as defined by
other companies.
(3) The pro forma column reflects the acquisitions of ICM and Access as if they
had each occurred on June 30, 1999.
(4) The pro forma adjusted column gives effect to completion of this offering
at an assumed offering price of $10.00 per share, after deducting
underwriting discounts and other estimated offering expenses.
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<PAGE> 9
RISK FACTORS
You should carefully consider the following risks before you decide to
buy our common stock. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our business.
If any of the events described in the following risks actually occur,
our business, financial condition and operating results could be materially
adversely affected and cause the price of our common stock to be highly
volatile. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
RISKS RELATING GENERALLY TO OUR COMPANY
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE NO COMBINED OPERATING HISTORY AND
OUR BUSINESS MODEL IS UNTESTED.
We are a newly-formed company with no operations for you to review in
evaluating our business. We will combine ICM and Access into PentaStar
concurrently with the completion of this offering. This makes it difficult to
determine if their businesses can be integrated and operated successfully
together. We will be applying a business model that has not been tested in our
industry, and the success of this business model depends on our ability to build
on the strengths of ICM, Access and other future acquisitions and to centralize
many of their business functions. It may take us longer than anticipated to
implement our business model and some components of our model may not prove to
be feasible or possible. As a result, our business may not produce the level of
profitability we are trying to achieve.
Our success as a national communications services agent and ISP will
depend in large part on our ability to integrate the operations and management
of ICM and Access and our ability to integrate agents and ISPs we may acquire in
the future. Failure to integrate our agents and ISPs successfully may result in
significant operating inefficiencies, which may reduce our profitability. We
will have to expend substantial managerial, operating, financial and other
resources to integrate these businesses and implement our business model.
OUR FUTURE REVENUES ARE UNPREDICTABLE, OUR OPERATING RESULTS WILL FLUCTUATE AND
THE VALUE OF YOUR INVESTMENT MAY BE ADVERSELY AFFECTED.
We are unable to forecast our revenues with any degree of certainty as
a result of our lack of combined operating history. Our current and projected
expense levels are based largely on our estimates of future revenues.
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<PAGE> 10
The success of our business depends on our ability to continue to
increase revenues to offset expenses. If our revenues are less than expected, or
if our expenses are more than expected or cannot be reduced, our net income will
decline.
We believe that our operating results may fluctuate significantly as a
result of a variety of factors, many of which are outside our control. As a
result, we believe that quarter-to-quarter comparisons of our operating results
are not a good indication of future performance. It is also likely that in some
future quarter our operating results may be below the expectations of public
market analysts or investors. In this event, the price of our common stock may
fall.
WE FACE RISKS ASSOCIATED WITH THE TWO ACQUISITIONS WE WILL COMPLETE CONCURRENTLY
WITH THE COMPLETION OF THIS OFFERING AND WE WILL CONTINUE TO FACE RISKS DUE TO
OUR ACQUISITION STRATEGY THAT MAY DILUTE SHAREHOLDERS' EQUITY AND FAIL TO MEET
OUR FINANCIAL OBJECTIVES.
Our acquisition strategy is to acquire agents and ISPs if appropriate
opportunities arise. This acquisition strategy is subject to the following
risks:
o we may be unable to identify suitable acquisition candidates at
reasonable prices;
o we may be unable to successfully integrate the services and
personnel of any acquisition into our operations;
o costs of these acquisitions, including the amortization of
intangible assets, could adversely affect our operating results
and profitability;
o because we plan to use our common stock as acquisition currency,
the completion of acquisitions is dependent on our stock price
and the acquisitions may be dilutive to our shareholders;
o we may be unable to retain the customer base of our specific
acquisitions; and
o we may be unable to gain approval of our
acquisitions from RBOCs or other necessary third parties.
Our acquisitions of ICM and Access may not succeed due to the risks
identified above. Additionally, due to these and other risks, we may be unable
to successfully engage in our planned acquisition strategy.
COMPETING BIDS FOR AGENTS AND ISPS THAT WE ARE INTERESTED IN MAY DRIVE UP
PURCHASE PRICES AND LIMIT OUR ABILITY TO CARRY OUT OUR ACQUISITION STRATEGY.
Our future success depends greatly on our ability to expand into new
markets through the acquisition of agents and ISPs. We will face competition
from other companies seeking to acquire and consolidate agents and ISPs. Many of
these companies may have significantly greater financial and other resources
than we do. As a result of this competition and demand, we may be unable to
purchase potential acquisition candidates due to increased acquisition prices.
If we are unable to purchase, or must pay higher acquisition prices for, agents
or ISPs, our business, financial condition and operating results will be
materially adversely affected.
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<PAGE> 11
WE MAY ACQUIRE CONTINGENT OR UNDISCLOSED LIABILITIES AS A RESULT OF OUR
ACQUISITIONS THAT COULD DEPLETE OUR CASH RESERVES.
When we acquire ICM and Access and other agents and ISPs, we may
acquire liabilities that we did not know about at the time we negotiated or
closed these acquisitions. These liabilities may be contingent or realized or
prove to be larger than anticipated. If these liabilities arise, they may be in
excess of our ability to collect on our indemnification rights against the
former owners of the acquired company. In that case, our cash reserves may
decline.
THE COMMUNICATIONS INDUSTRY IS UNDERGOING RAPID TECHNOLOGICAL CHANGE AND WE MAY
NOT BE ABLE TO KEEP PACE WITH THESE CHANGES.
Our success depends upon our ability to keep pace with the rapid
changes that are occurring in the communications industry. In order to compete
effectively we must be able to keep pace with:
o rapidly changing technology and communication delivery methods;
o constantly evolving industry standards and practices;
o frequent new service introductions and enhancements; and
o changing client requirements and preferences.
If we are unable to respond to these changes, our services could become
obsolete. To prevent this from occurring we may be required to incur significant
costs to modify or adapt our services to innovations in the industry. In order
to remain competitive, we must also remain knowledgeable of technology
developments and evolving service offerings, and incorporate these new
technologies into our services in order to address the complex and varied needs
of our customers.
OUR INTANGIBLE ASSETS REPRESENT A SIGNIFICANT PORTION OF OUR TOTAL ASSETS AND
THE AMORTIZATION OF THESE INTANGIBLE ASSETS WILL DECREASE OUR NET INCOME.
As a result of the acquisition of ICM and Access, we will incur
goodwill of approximately $3.8 million. This goodwill is equal to 22.6% of our
total assets and will be expensed at an approximate annual rate of $191,000. We
will continue to incur non-cash charges in connection with the amortization of
our intangible assets. We expect these charges to have a significant adverse
effect on our net income for the foreseeable future. In addition, if we are
required to write-off a significant portion of any unamortized intangible asset
our net income would decline.
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<PAGE> 12
WE ARE DEPENDENT ON BACE INDUSTRIES, LLC AND BLACK DIAMOND CAPITAL, LLC, AND
PRINCIPALS OF BACE INDUSTRIES AND BLACK DIAMOND MAY HAVE CONFLICTS OF INTEREST
WITH US.
We are parties to a consulting agreement with BIBD, LLC, a venture
between BACE Industries and Black Diamond, under which BIBD provides consulting
services to us. Those services include identifying, evaluating and effecting
acquisitions of companies. The termination of this consulting agreement or the
loss of the services provided by BIBD could have a material adverse effect on
our ability to successfully implement our acquisition strategy.
We may enter into additional or modified agreements, arrangements and
transactions with BACE Industries, Black Diamond or BIBD, or their principals.
While we expect that any future arrangements and transactions between PentaStar
and BACE Industries, Black Diamond or BIBD, or their principals will be
determined through negotiation between the parties, there can be no assurance
that conflicts of interest will not occur with respect to these future business
dealings and similar corporate matters or that any of these conflicts will be
resolved in a manner favorable to us or our stockholders. All material contracts
and transactions between us and BACE Industries, Black Diamond or BIBD, or their
principals have been approved by a majority of our directors who are not
affiliated with BACE Industries, and we will continue that policy in the future.
THE LOSS OF SENIOR MANAGEMENT OR KEY PERSONNEL, WITH EXPERIENCE IN THE
COMMUNICATIONS SERVICES INDUSTRY, AND OUR FAILURE TO ATTRACT AND RETAIN
ADDITIONAL HIGHLY SKILLED PERSONNEL COULD HARM OUR BUSINESS AND CAUSE OUR STOCK
PRICE TO FALL.
We believe that our success will depend on the services and performance
of our senior management team, especially Robert S. Lazzeri, our chief executive
officer upon this offering, and R. Neal Tomblyn, our president and chief
operating officer upon this offering, and other key personnel. The loss of the
services of any of our senior management team or other key employees could
adversely affect our business, financial condition and operating results.
We will be dependent on the ability of our senior management and key
personnel to work effectively as a team. Members of our senior management team
have not worked together prior to the date of this prospectus and may not be
able to work effectively together.
Our future success also depends on our ability to identify, hire, train
and retain highly qualified technical, marketing, sales and operations
personnel. Because we face intense competition in the communications industry
for qualified personnel, we may be unable to continue to employ our key
personnel or to attract and retain qualified personnel in the future.
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<PAGE> 13
OUR FAILURE TO MANAGE GROWTH IN THE RAPIDLY EVOLVING COMMUNICATIONS AND INTERNET
SERVICES MARKETS COULD ADVERSELY AFFECT US.
Our ability to successfully offer services and compete in these rapidly
evolving markets requires an effective planning and management process.
Continued growth of our business may place a significant strain on our
management systems and resources. If we are not successful in managing our
growth and integrating our acquisitions, the value of your investment could
materially decline.
OUR FAILURE AND THE FAILURE OF THIRD PARTIES TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS.
The year 2000 issue could result in major system failures or
miscalculations. Many of our service providers, customers and potential
customers maintain their operations on systems that may not be year 2000
compliant. If our service providers are not year 2000 compliant, we may be
unable to obtain the services we require for our operations. If our customers'
and potential customers' systems are impacted by the year 2000 issue, our
business could be materially impacted, particularly if demand for our services
declines as a result of our customers' needs to upgrade their computer systems.
The services we deliver to our customers are dependent on third-party services
and products. As a result, it is difficult for us to determine which part of our
services may result in year 2000 problems. This may cause us to be involved in
litigation concerning our services.
GENERAL ECONOMIC CONDITIONS MAY AFFECT OUR ABILITY TO SUCCEED IN THE
COMMUNICATIONS AND INTERNET SERVICES INDUSTRIES.
In the last few years the health of the general economy has been
relatively strong and growing. To the extent the general economic health of the
United States declines from recent historical high levels, or to the extent
companies and individuals fear a decline is imminent, these companies and
individuals may reduce expenditures such as those for our services. Any decline
or concern about an imminent decline may delay decisions among some of our
customers and prospective customers to make evaluations of our services. Any of
these delayed decisions could cause our revenues to decline or be delayed.
RISKS RELATED TO OUR COMMUNICATIONS SERVICES AGENT BUSINESS
WE CURRENTLY DEPEND UPON THE COMMISSIONS AND FEES FROM ONE RBOC.
Our operating results currently substantially depend upon our
agreements with U S WEST. If these agreements were terminated or not renewed,
our revenues would be materially impacted. The agreements with U S WEST include
performance benchmarks, which if not met, could result in termination of these
agreements. These agreements expire in December 2000.
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<PAGE> 14
We would also be adversely affected if the quality of services offered by U S
WEST or any future RBOC we may deal with were to decline or if their pricing was
no longer competitive.
WE RELY ON THE RBOCS TO PROVIDE LOCAL ACCESS SERVICE, AND IF THE RBOCS ENCOUNTER
WORK STOPPAGES, SLOWDOWNS, STRIKES OR OTHER DISRUPTIONS OF THEIR LABOR FORCE, IT
MAY IMPACT OUR ABILITY TO SELL LOCAL ACCESS SERVICE, WHICH MAY AFFECT OUR
PROFITABILITY.
We rely on U S WEST, and in the future may rely upon other RBOCs, to
provide local access service to our customers. Unions have been established at
all of the RBOCs. If an RBOC were to experience a work stoppage, slowdown,
strike or other labor disruption we may be delayed in providing or unable to
provide local access service to our customers. As a result, we could suffer a
decline in revenues, customer loss or harm to our reputation. If we are unable
to offer local access services as a result of any labor disruptions, our
revenues could decline.
WE HAVE RECENTLY BEGUN TO SELL LONG DISTANCE, WIRELESS AND INTERNET SERVICES TO
OUR CUSTOMERS AND WE MAY NOT BE SUCCESSFUL AT SELLING THESE SERVICES OR
GENERATING SUBSTANTIAL REVENUES FROM THESE SERVICES.
Until recently, we only offered local access service to our customers.
We have recently begun marketing and selling long distance, wireless and
Internet services to our customers. We do not know if our current customers or
future customers will purchase these services through us or if we will be
successful in marketing these services. To date we have only established a few
agency relationships with service providers in the long distance, wireless and
Internet services markets. If we are unable to establish additional agency
relationships with providers or sell these additional services to our customers,
revenues would not increase as we anticipate.
WE MAY LOSE CUSTOMERS IF THEY ARE DISSATISFIED WITH OUR AGENT SERVICES OR OUR
THIRD-PARTY PROVIDED SERVICES, WHICH WOULD RESULT IN REDUCED REVENUES.
The communications services that we provide are critical to the
operations of the businesses of our customers. These communications services are
provided by third-party suppliers that we do not control. If defects exist in
the services provided by our suppliers to our customers, we could experience
delayed or lost revenues. In addition, these defects could result in lost
customers, negative publicity regarding us and potential lawsuits by our
customers. Any of these events could result in reduced revenues or increased
expenses.
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WITH LARGER COMMUNICATIONS COMPANIES
AND OTHER COMMUNICATIONS SERVICE PROVIDERS AND AGENTS, AND THE VALUE OF YOUR
INVESTMENT MAY DECLINE AS A RESULT.
The market for communications services is extremely competitive. We
expect that this competition will continue to intensify as new communications
services agents and ISPs enter the market. Our local access, long distance,
wireless and Internet services
-10-
<PAGE> 15
compete for customer recognition with other providers offering similar services.
We compete directly with other communications services agents and indirectly
with national, regional and local communications providers of local access, long
distance, wireless and Internet services. Many of our competitors have greater
name recognition and financial, marketing and other resources. As a result, we
may be unable to successfully compete against our competitors' pricing
strategies, technology advances, advertising campaigns and other initiatives. We
will need to distinguish ourselves by our communications services knowledge, our
ability to offer a range of services and our responsiveness. We cannot assure
you that we will be able to distinguish ourselves from our competitors or
survive in this intensely competitive market.
SOME OF OUR COMMUNICATIONS SERVICES ARE SUBJECT TO GOVERNMENT REGULATION AND
CHANGES IN CURRENT OR FUTURE LAWS OR REGULATIONS COULD ADVERSELY AFFECT OUR
BUSINESS AND THE VALUE OF YOUR INVESTMENT COULD DECLINE.
A significant portion of the communications services that we offer are
subject to regulation at the federal, state or local levels. Future federal,
state or local regulations may be less favorable to us than current regulations.
This could cause a decrease in demand for our services or increase our cost of
doing business.
The origination of the agency program in the communications industry
was a part of the modified final judgment which mandated the breakup of AT&T.
Subsequently, it was mandated by the Federal Communications Commission that
RBOCs implement agency programs. A change in these requirements or regulations
could result in RBOCs no longer using agents. If the RBOCs cease using agents,
our business, financial condition and operating results would be materially
adversely impacted. In addition, the government has promoted, and is currently
taking regulatory action to promote, greater competition in the local access
markets. As a result of any increased competition due to these regulations,
prices could be eroded which would result in us earning less commission revenues
on our agency contracts.
Since our communications services strategy is dependent on the RBOCs
and regulatory activities are chiefly aimed at fostering competition with and
among the RBOCs, regulatory activities could have a negative effect on our
ability to sell communications services.
RISKS RELATED TO INTERNET SERVICE PROVIDERS
As part of our growth strategy, we plan to acquire ISPs that provide
Internet access across telephone lines in small, high growth markets. As of the
date of this prospectus, we have not acquired any ISPs. We may not be able to
acquire any ISPs for the reasons set forth elsewhere in this prospectus. If we
do acquire any ISPs, our ISP business will be subject to the following risks in
addition to those set forth elsewhere in this prospectus, those not presently
known to us and those that we presently deem immaterial.
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<PAGE> 16
THE INTERNET SERVICE MARKET CHANGES RAPIDLY AND WE MAY NOT BE SUCCESSFUL IN
ADOPTING NEW TECHNOLOGIES OR ALTERNATIVE INTERNET ACCESS SYSTEMS.
The ISP industry is characterized by rapid changes in technology,
evolving industry standards, emerging competition and frequent new service
introductions. We are not able to predict if we will have the necessary
resources to adapt and compete in this changing marketplace. If the Internet
becomes easily accessible in other ways, we would need to change our anticipated
method of providing Internet access, which would require substantial time and
expense. If we are unable to change our methodology, we would not be able to
effectively compete.
IF COMMUNICATIONS CARRIERS DO NOT PROVIDE US WITH ADEQUATE COMMUNICATIONS
CAPACITY TO DELIVER OUR INTERNET SERVICES, WE MAY LOSE SUBSCRIBERS AND FAIL TO
ATTRACT NEW SUBSCRIBERS, WHICH WOULD RESULT IN REDUCED REVENUES AND
PROFITABILITY.
We will rely on local and long-distance communications companies to
provide communications capacity to deliver our Internet services. These
providers may experience disruptions of service or may have limited capacity,
which could disrupt our services or limit Internet access for subscribers of
ISPs we may acquire. We may not be able to replace or supplement these services
on a timely basis or at all. In addition, because we will rely on third-party
communications service providers for our connection to the Internet, we will
face the following limitations on our ability to serve Internet subscribers and
add additional subscribers:
o we will not control decisions regarding availability of service
at any particular time;
o we may not be able to deploy new technologies when we wish to
because our communications service providers may not be able to
support that technology on their infrastructure;
o we may not be able to increase access capacity sufficiently to
respond to increased subscriber demand; and
o we may not be able to negotiate favorable interconnect agreements
with other communications service providers.
Communications carriers may also supply their services to ISPs that
will be our competitors and these carriers may be, or in the future may become,
competitors themselves. Communications carriers with whom we do business may
enter into exclusive arrangements with our competitors or stop supplying their
services to us at commercially reasonable prices or at all.
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<PAGE> 17
IF WE FAIL TO USE, ADOPT, ACCESS OR PROVIDE NEW TECHNOLOGY, WE MAY FALL BEHIND
TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS AND LOSE SUBSCRIBERS TO OUR
COMPETITORS, RESULTING IN REDUCED REVENUES.
If we fail to use, adopt, access or provide new technologies
effectively, we may not be able to retain subscribers or attract new ones, which
will result in a reduction in our anticipated revenues. Our ability to compete
successfully will also depend upon the continued compatibility of our
anticipated Internet services with products and architectures offered by various
vendors. Although we intend to support emerging standards in the market for
Internet access, industry standards may not be established or, if they become
established, we may not be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market. In addition, services
or technologies developed by others may render the services or technology of
ISPs we may acquire noncompetitive or obsolete.
A DROP IN DEMAND FOR INTERNET ACCESS MAY RESULT IN A REDUCTION OF ANTICIPATED
REVENUES.
Our anticipated Internet service provider business will rely on demand
for access to the Internet and for services related to the Internet. The
Internet has experienced rapid growth in recent years, but new Internet-related
services may not be accepted in the market. Commerce and communication over the
Internet may not continue to develop and expand. Even if they do, the Internet
access and communications services we offer may not become widely adopted for
these purposes.
Our anticipated business and revenues will not grow as we expect and
may decline if:
o the market for Internet access services fails to continue to
develop;
o the Internet market develops more slowly than expected;
o the Internet market becomes saturated with competitors; or
o the Internet access and related services we may offer are not
widely accepted.
INTERNET SYSTEMS FAILURES AND DELAYS COULD RESULT IN A LOSS OF SUBSCRIBERS AND A
CONSEQUENT REDUCTION IN ANTICIPATED REVENUES OF OUR PROPOSED ISP BUSINESS.
We will face capacity constraints both at the level of particular
points of presence, affecting subscribers attempting to use that point of
presence, and in connection with system-wide services like e-mail. We may
experience delayed delivery from suppliers of new telephone lines, modems,
routers, terminal servers and other equipment. If we experience significant
delays of this nature, all our incoming modem lines may become full during peak
times, resulting in busy signals for subscribers who are trying to connect to
our network. We may experience similar problems if we are unable to expand the
capacity of our information servers
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<PAGE> 18
for e-mail, news and the World Wide Web fast enough to keep up with demand from
a growing subscriber base. If the capacity of our servers is exceeded,
subscribers will experience delays when trying to use a particular service. If
we do not maintain sufficient capacity in our network connections, subscribers
will experience a general slowdown of all ISP services. If we fail to expand or
enhance our network on a timely basis or to adapt to changing subscriber
requirements or evolving industry standards, we could lose subscribers, which
could result in a reduction in anticipated revenues.
The occurrence of a natural disaster or other unanticipated problems at
one of our points of presence could cause service interruptions for subscribers.
In addition, if communications service providers fail to provide the
communications capacity we require as a result of a natural disaster,
operational disruption or for any other reason, subscribers could experience
service disruptions. We do not anticipate maintaining fully redundant or back-up
Internet services or infrastructure or other fully redundant computing and
communications facilities. Any accident, incident or system failure that causes
interruptions in operations could limit our ability to provide Internet services
to subscribers.
IF THE SECURITY MEASURES OF ISPS WE ACQUIRE WERE TO FAIL, WE MAY LOSE
SUBSCRIBERS OR BE SUED, RESULTING IN ADDITIONAL EXPENSES.
Fixing problems caused by computer viruses, other inappropriate uses or
security breaches may require interruptions, delays or stops in service to
Internet subscribers, which could cause them to seek Internet access from other
providers. In addition, we expect subscribers will increasingly use the Internet
for commercial transactions in the future. Any network malfunction or security
breach could cause these transactions to be delayed, not completed at all or
completed with compromised security. Our subscribers or others may sue us as a
result of a failure, which could result in additional expenses.
IMPLEMENTATION OF NEW GOVERNMENT REGULATIONS MAY INCREASE OUR EXPECTED COSTS OF
THE ISP BUSINESS.
Changes in the regulatory environment relating to the Internet access
market, including changes that affect communications costs or increase
competition from RBOCs or other communications service providers, could
adversely affect the prices at which we may sell ISP services. For example, the
imposition of interstate access charges or the elimination of reciprocal
compensation for local telephone companies may increase the cost of serving
subscribers.
The FCC may, in the future, reconsider its past ruling that Internet
access service is not "telecommunications" and that ISPs are not subject to the
requirement to pay a percentage of their gross revenues as a "universal service
contribution." If the FCC were to require universal service contributions from
providers of Internet access or Internet infrastructure services, our expected
costs of doing business could increase substantially, and we may not be able to
recover these costs from our customers.
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<PAGE> 19
TO LIMIT POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED OVER NETWORKS OF ISPS
WE MAY ACQUIRE, WE MAY HAVE TO SPEND SUBSTANTIAL AMOUNTS OF MONEY OR DISCONTINUE
SOME SERVICE OFFERINGS, RESULTING IN INCREASED EXPENSES OR REDUCED REVENUES.
We may be liable for information carried on or disseminated through
networks of ISPs we may acquire. A number of lawsuits have sought to impose
liability on ISPs or on-line service providers for defamatory speech and
infringement of copyrighted materials. The imposition upon ISPs of liability for
materials carried on or disseminated through their systems could require us to
implement measures to reduce our exposure to this liability. These measures, as
well as existing and proposed federal and state legislation, may require the
expenditure of substantial resources or the discontinuation of some service
offerings.
AS A RESULT OF AN INCREASE IN THE NUMBER OF COMPETITORS, AND VERTICAL AND
HORIZONTAL INTEGRATION IN THE ISP INDUSTRY, WE EXPECT TO FACE SIGNIFICANT
COMPETITION.
Our competitors will include ISPs and on-line service providers with a
significant national presence available in small, high growth regions, including
America Online, Microsoft Network, Prodigy, MindSpring and EarthLink. Most of
these competitors have significantly greater market presence, brand recognition
and financial, technical and personnel resources than we will. They also have
extensive coast-to-coast access to Internet infrastructure, which may provide
them with the ability to provide better service quality. We will also compete
with independent regional and local ISPs. We expect increased competition over
time in small, high-growth markets as national on-line service providers and
other ISPs enter and increase their focus on these markets.
All of the major long-distance companies, including AT&T, MCI/WorldCom
and Sprint, offer Internet access services and will compete with us. Local
access carriers, including RBOCs and competitive local exchange carriers, or
CLECs, also have entered the ISP market. We believe long-distance and local
carriers are moving toward horizontal integration through acquisitions of, and
joint ventures with, ISPs. Accordingly, we expect we will experience increased
competition from the traditional communications carriers both for Internet
subscribers and potential ISP acquisitions.
In addition, AT&T and Time Warner, among other cable companies, offer
high speed Internet access via cable modem in a growing number of markets,
either directly or through alliances with Internet access providers such as At
Home Corporation. Other alternative service companies are approaching the
Internet access market with various newer wireless terrestrial and
satellite-based service technologies. These companies will have substantially
greater financial and other resources than we anticipate having.
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<PAGE> 20
RISKS RELATED TO OUR STOCK AND THIS OFFERING
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION OF APPROXIMATELY $7.62 PER
SHARE AND MAY EXPERIENCE CONTINUED DILUTION IN THE FUTURE.
The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock immediately
following this offering. As a result, if you purchase common stock in this
offering you will incur immediate and substantial dilution of approximately
$7.62, or 76%, in the net tangible book value per share of the common stock from
the price you pay for the common stock in this offering.
In addition, upon this offering we will issue warrants to the
representative and options to a director, two executive officers and a
consultant. You may experience further dilution to the extent that our common
stock is issued upon the exercise of the warrants and options.
MANAGEMENT HAS BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING.
Our management will have broad discretion over the use of proceeds we
raise in this offering. You will not have the opportunity to evaluate the
economic, financial or other information on which the management bases its
decisions on how to use the proceeds. In particular, you will not have an
opportunity to review the financial statements or any other information of any
agent or ISP business that we may propose to acquire and you will not be able to
vote on any of these acquisitions. You must rely on the judgment of management
in the application of the proceeds.
THERE IS NO EXISTING MARKET FOR OUR COMMON STOCK AND AN ACTIVE TRADING MARKET
MAY NOT DEVELOP.
Before this offering, there has not been a public market for our common
stock. We have applied for listing on the Nasdaq SmallCap Market of our common
stock, but we do not know whether active trading in the common stock will
develop and continue after this offering. We will determine the initial public
offering price for the common stock through negotiations with the underwriters.
You may not be able to resell your shares at or above the initial public
offering price.
OUR STOCK PRICE MAY BE VOLATILE, WHICH MAY AFFECT YOUR INVESTMENT.
Following this public offering, our common stock price may fluctuate
significantly as a result of:
o variations and fluctuations in our operating results and
revenues;
o failure to meet analyst and investor expectations;
o announcements by us or our competitors of technological
innovations or new services;
o changes in our industry, including regulatory conditions;
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<PAGE> 21
o general economic and market conditions; and
o our common stock being held by relatively few owners.
The securities of many companies have experienced extreme price and
volume fluctuation in recent years that is often unrelated to their operating
performance. In addition, the market prices for securities of communications,
Internet-related and technology companies have frequently reached elevated
levels following their initial public offerings. These levels are often not
sustainable and may not bear any relationship to that company's operating
performance. If the market price of our common stock reaches an elevated level
following this offering, it is likely to materially decline. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we were the
object of securities class action litigation, it could result in substantial
costs and diversion of management's attention and resources.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE OUR STOCK
PRICE TO FALL AND DECREASE THE VALUE OF YOUR INVESTMENT.
The market price of our common stock could fall if our stockholders
sell substantial amounts of common stock, including shares issued upon the
exercise of outstanding warrants and options, in the public market following
this offering. These sales might impede our ability to raise capital through the
sale of equity securities in the future at a time and price that we deem
appropriate.
OUR ANTI-TAKEOVER PROVISIONS AND STOCK OWNERSHIP BY BACE INVESTMENTS AND BLACK
DIAMOND COULD NEGATIVELY IMPACT OUR STOCKHOLDERS.
Some of the provisions of our certificate of incorporation, bylaws and
Delaware law could make it more difficult for a third party to acquire us. These
provisions may adversely affect the price of our common stock, discourage third
parties from making bids for us and reduce premiums paid to our stockholders for
their common stock. After consummation of this offering, the members of BACE
Investments, LLC (who are also the members of BACE Industries) will beneficially
own 33.5% of the outstanding shares of our common stock (32.1% if the
representative's over-allotment option is exercised in full) and Craig J.
Zoellner and Richard M. Tyler, the members of BACE Investments and BACE
Industries, will continue to serve on our board of directors. After completion
of this offering, the member of Black Diamond will beneficially own 14.6% of the
outstanding shares of our common stock (14.0% if the representative's
over-allotment option is exercised in full). BACE Investments and Black Diamond
will be able to significantly influence the composition of our board of
directors and the approval or disapproval of matters requiring stockholder
approval and will continue to have significant influence over our affairs.
This significant ownership of BACE Investments and Black Diamond of our
capital stock could have the effect of delaying or preventing a change of our
control or otherwise discouraging a potential acquiror from attempting to obtain
control of us. This could result in a material adverse effect on the market
price of our common stock or prevent our stockholders from realizing a premium
over the market prices for their shares of common stock.
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<PAGE> 22
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form SB-2 under the Securities Act of 1933
with respect to the common stock offered by this prospectus. This prospectus
does not contain all of the information in the registration statement and the
exhibits and schedules. For further information about us and our common stock,
please refer to the registration statement and the exhibits and schedules filed
with the registration statement. Statements contained in this prospectus as to
the contents of any contract or document filed as an exhibit or schedule to the
registration statement are qualified by reference to the filed exhibit or
schedule.
A copy of the registration statement, and the exhibits and schedules to
the registration statement may be inspected without charge at the public
reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from these offices upon the payment of the fees prescribed by the SEC.
The SEC maintains a website that contains registration statements, reports,
proxies and other information regarding registrants that file electronically
with the SEC. The address of this website is http://www.sec.gov.
FORWARD LOOKING STATEMENTS
Some of the statements in this prospectus are forward-looking
statements that involve risks and uncertainties. These statements relate to our
future plans, objectives, expectations and intentions. These statements may be
identified by the use of words such as "believes," "expects," "estimates,"
"anticipates," "intends," "plans" and similar expressions. Our actual results
could differ materially from those anticipated in the forward-looking statements
as a result of various factors, including all the risks discussed in "Risk
Factors" and elsewhere in this prospectus.
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<PAGE> 23
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $12.4 million, or approximately $14.4 million if the
representative exercises its over-allotment option in full. Each of these
amounts is based on an assumed initial offering price of $10.00 per share.
The principal reasons for this offering are to raise funds to use for
the following purposes and in the following priorities:
o to pay the cash portion of the purchase price of the acquisitions
of ICM and Access in the aggregate amount of $2.424 million, or
approximately 19.6% of estimated net proceeds;
o to make other complementary acquisitions or investments, which
may include the acquisition of agents and ISPs in the aggregate
amount of $8.4 million, or approximately 67.7% of estimated net
proceeds;
o to repay indebtedness to BACE Industries in the aggregate amount
of approximately $75,000, or approximately 0.6% of estimated net
proceeds, which was loaned to us by BACE Industries to finance
our activities; and
o for working capital, systems investment and other general
corporate purposes in the aggregate amount of $1.5 million, or
approximately 12.1% of estimated net proceeds.
As noted above, we may acquire or invest in complementary businesses or
services and a portion of the net proceeds may be used for these acquisitions or
investments. However, other than with respect to the pending acquisition of ICM
and Access, we currently have no understandings, commitments or agreements for
any material acquisition or investment.
Working capital will be used to pay items such as rent, office
expenses, equipment, salaries and PentaStar's other day-to-day costs of doing
business. It will also be used to support anticipated growth in accounts
receivable as a result of increasing revenues. If the over-allotment option is
exercised by the representative or if warrants are exercised, PentaStar will
allocate the additional proceeds to acquisitions and working capital, provided
that the amounts allocated to working capital will not exceed 15% of the net
proceeds.
The foregoing represents PentaStar's best estimate of the uses of the
net proceeds to be received in this offering, based on current planning and
business conditions. However, PentaStar reserves the right to change such uses
when and if market conditions or unexpected changes in operating conditions or
results of operations occur. The amounts actually expended for each use may vary
significantly depending upon a number of factors including, but not limited to,
future acquisitions and the amount of cash generated by PentaStar's operations.
PentaStar believes that
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<PAGE> 24
its existing capital resources and the net proceeds of this offering will be
sufficient to maintain its current and planned operations for a period of at
least 12 months from the date of this prospectus.
Because we have not identified specific uses for all of the net
proceeds from this offering, management will have broad discretion over the use
and investment of the proceeds. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future.
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<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999.
Our capitalization is presented (in thousands, except share data):
o on an actual basis;
o on a pro forma basis to give effect to the issuance of 370,000
shares of common stock upon the closings of the acquisitions of
ICM and Access; and
o on a pro forma as adjusted basis to reflect our receipt of the
estimated net proceeds from the sale of 1,500,000 shares of
common stock at an estimated initial public offering price of
$10.00 per share, after deducting underwriting discounts and
estimated offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------
(unaudited)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------- -----------
<S> <C> <C> <C>
CURRENT BORROWINGS .................................... $ 27 $ 2,451 $ --
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value per share,
1,000,000 authorized, no shares issued and
outstanding ......................................... -- -- --
Common stock (1), $.0001 par value per share,
20,000,000 shares authorized, 3,130,000 shares
issued and outstanding, actual; 3,500,000 shares
issued and outstanding, pro forma; 5,000,000
shares issued and outstanding, pro forma as
adjusted ............................................ -- -- --
Additional paid-in capital ............................ -- 3,330 15,730
Retained earnings (loss) .............................. (2) (2) (2)
-------- -------- --------
Total stockholders' equity ......................... (2) 3,328 15,728
-------- -------- --------
Total capitalization .................................. $ 25 $ 5,779 $ 15,728
======== ======== ========
</TABLE>
(1) Common stock has been restated for a 3,417.96 for one stock split.
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<PAGE> 26
The foregoing discussion and tables assume no exercise of the
representative's over-allotment option or of any outstanding warrants or stock
options after June 30, 1999. You will suffer further dilution to the extent any
options are exercised in the future.
Based on the number of shares outstanding as of the date of this
prospectus after giving pro forma effect to the acquisitions of ICM and Access,
we expect there to be 5,000,000 shares of common stock outstanding after this
offering. In addition to the shares outstanding after the offering, we have
reserved 1,000,000 shares for issuance pursuant to the exercise of options
granted under our stock option plan. Upon this offering, we will grant options
to purchase 325,000 shares of our common stock to a director, two executive
officers and a consultant at an exercise price per share equal to the initial
public offering price. No other options have been granted by PentaStar.
DILUTION
Our pro forma net tangible book value (deficit) as of June 30, 1999 was
approximately $(487,000), or approximately $(0.14) per share. Pro forma net
tangible book value (deficit) per share represents the amount of our total
tangible assets less total liabilities, divided by the number of shares of
common stock outstanding, assuming the issuance of 370,000 shares of common
stock upon the closings of the acquisitions of ICM and Access.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of common stock in
this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to the sale
of the 1,500,000 shares of common stock offered at an assumed initial public
offering price of $10.00 per share, and after deducting the underwriting
discounts and estimated offering expenses payable by us, our pro forma net
tangible book value at June 30, 1999 would have been approximately $11,913,000,
or $2.38 per share. This represents an immediate increase in pro forma net
tangible book value of $2.52 per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $7.62 per share to purchasers
of common stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<CAPTION>
Per Share
---------
<S> <C> <C>
Assumed initial public offering price per share ......................... $ 10.00
Pro forma net tangible book value (deficit) per share
before this offering ................................................. $ (0.14)
Increase per share attributable to new investors ..................... 2.52
-------
Pro forma net tangible book value per share after this offering ......... 2.38
-------
Dilution in pro forma net tangible book value per share to new
investors ............................................................ $ 7.62
=======
</TABLE>
The following table sets forth, on a pro forma basis after giving
effect to the acquisitions of ICM and Access, the differences between the number
of shares of common stock purchased from PentaStar, the total consideration paid
and the average price per share paid by existing
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<PAGE> 27
holders of common stock and by the new investors at the assumed initial public
offering price of $10.00 per share, before deducting underwriting discounts and
other estimated offering expenses payable by PentaStar.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGED PRICE
------------------- -------------------- --------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders .... 3,500,000 70 $ 1,000 -- $ 0.01
New investors ............ 1,500,000 30 15,000,000 100 10.00
---------- --- ----------- ---
Total ........... 5,000,000 100 $15,001,000 100
========= === =========== ===
</TABLE>
Based on the number of shares outstanding as of the date of this
prospectus after giving pro forma effect to the acquisitions of ICM and Access,
we expect there to be 5,000,000 shares of common stock outstanding after this
offering. In addition to the shares outstanding after the offering, we have
reserved 1,000,000 shares for issuance pursuant to the exercise of options
granted under our stock option plan. Upon this offering, we will grant options
to purchase 325,000 shares of our common stock to a director, two executive
officers and a consultant at an exercise price per share equal to the initial
offering price. No other options have been granted by PentaStar.
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<PAGE> 28
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes beginning on page F-1. The
historical statements of operations data set forth below for the periods ended
December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 and
the historical balance sheet data at June 30, 1999 are derived from and
qualified by reference to our financial statements included elsewhere in this
prospectus. The historical results are not necessarily indicative of results to
be expected for any future period.
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<PAGE> 29
ICM COMMUNICATIONS INTEGRATION, INC.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- --------------------
1997 1998 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Advanced communication services ........... $ 2,910 $ 3,681 $ 1,638 $ 1,795
Basic dial tone services .................. 611 594 197 348
------- ------- ------- -------
Total revenues ............................ 3,521 4,275 1,835 2,143
Total operating expenses .................. 2,669 3,698 1,586 1,802
Income from operations .................... 852 577 249 341
Income before income taxes ................ 855 585 251 338
Net income ................................ 517 385 155 205
BALANCE SHEET DATA:
Total assets .............................. $ 1,239 $ 2,035 (2) $ 2,405
Long-term borrowings ...................... -- -- (2) --
Total shareholders' equity ................ 486 833 (2) 1,038
OTHER FINANCIAL DATA:
EBITDA (1) ................................ $ 862 $ 614 $ 267 $ 366
Depreciation and amortization ............. 10 37 18 25
Capital expenditures ...................... 106 96 66 7
</TABLE>
(1) EBITDA represents the income (loss) from operations before interest, other
expense (income), income tax expense (benefit), depreciation and
amortization. EBITDA does not represent cash flow for the periods presented
and should not be considered as an alternative to net income (loss) or as
an indicator of operating performance or as an alternative to cash flows as
a source of liquidity, and may not be comparable with EBITDA as defined by
other companies.
(2) Not provided.
-25-
<PAGE> 30
DMA VENTURES, INC.
(dba ACCESS COMMUNICATIONS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ---------------------
1997 1998 1998 1999
------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Advanced communication services .......... $ 1,921 $ 2,038 $ 683 $ 784
Basic dial tone services ................. 1,040 344 226 69
------- ------- ------ ------
Total revenues ........................... 2,961 2,382 909 853
Total operating expenses ................. 2,141 1,778 959 941
Income (loss) from operations ............ 820 604 (50) (88)
Income (loss) before income taxes ....... 736 555 (97) (112)
Net income from continuing operations .... 427 343 (63) (70)
Discontinued operations (1) .............. (198) (370) (225) (76)
Net income (loss) ................... 229 (27) (288) (146)
BALANCE SHEET DATA:
Total assets ............................. $ 1,561 $ 916 (3) $ 868
Long-term borrowings ..................... 248 185 (3) 156
Total shareholders' equity .................. 240 145 (3) 112
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ---------------------
1997 1998 1998 1999
------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(2) .............................. $ 875 $ 683 $ (9) $ (48)
Depreciation and amortization .......... 55 79 41 40
Capital expenditures ................... 42 13 -- 50
</TABLE>
(1) Represents the results of operations of the hardware business which was
discontinued in April 1999.
(2) EBITDA represents the income (loss) from operations before interest, other
expense (income), income tax expense (benefit), depreciation and
amortization. EBITDA does not represent cash flow for the periods presented
and should not be considered as an alternative to net income (loss) as an
indicator of operating performance or as an alternative to cash flows as a
source of liquidity, and may not be comparable with EBITDA as defined by
other companies.
(3) Not provided.
-26-
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that
involve risks and uncertainties. PentaStar's actual results could differ
materially from those discussed in the forward-looking statements as a result of
these factors, including those set forth under "Risk Factors" and elsewhere in
this prospectus. The following discussion and analysis should be read in
conjunction with "Selected Financial Data" and the financial statements and
notes thereto appearing elsewhere in this prospectus.
GENERAL
We are a newly formed company with no combined operating history. We
have not generated any revenues from our combined operations. Our activities to
date have consisted of:
o organizing PentaStar;
o developing our business plan, management and corporate
structure;
o pursuing the acquisitions of two agents, ICM and Access; and
o conducting activities in connection with this offering.
PentaStar designs, sells and facilitates the use of communications and
Internet services for small and medium-sized businesses. The services we offer
come from third-party communications service providers. Substantially all of our
current revenues originate from the sale of U S WEST communications services,
but we expect that we will be an agent for other providers in the future. Our
goal is to acquire communications services agents in various RBOC territories
and provide local access, long-distance, wireless and Internet services to our
customers.
We intend to acquire communications agents in major metropolitan areas.
We have also formed a wholly-owned subsidiary to acquire ISPs in small,
high-growth areas. Our goal is to use the staff and customer relationships of
these ISPs to implement a comprehensive local access, long distance and wireless
solution for customers in these small markets.
-27-
<PAGE> 32
Recent Acquisitions
On August 13, 1999 we entered into agreements with the stockholders of
ICM and Access to acquire all of the shares of ICM and Access concurrently with
the completion of this offering.
ICM is a U S WEST Strategic Partner agent, which means that it has
achieved the required U S WEST levels of qualification to sell, order and assist
in the implementation of U S WEST communications services for small and
medium-sized businesses. Substantially all of ICM's revenues in fiscal 1998 were
from U S WEST. According to U S WEST, ICM is one of their leading agents. ICM's
president, Dennis W. Schillinger, will remain with PentaStar as manager of our
Northwest region after our acquisition of ICM. ICM, located in Bellevue,
Washington, was founded in 1991.
Access is also a U S WEST Strategic Partner agent. Substantially all of
Access' revenues in fiscal 1998 were from U S WEST. According to U S WEST,
Access is one of their leading agents in Colorado. Access' president, Jeffrey A.
Veres, will remain with PentaStar as manager of our Colorado region after our
acquisition of Access. Access, located in Denver, Colorado, was founded in 1995.
The aggregate purchase price for ICM consists of $1.924 million in cash
and 165,000 shares of our common stock. Of those amounts, Mr. Schillinger will
receive $200,000 in cash and 120,000 shares of common stock. Of the shares of
common stock received by Mr. Schillinger, 40,000 will be subject to escrow and
adjustment as described elsewhere in this prospectus. If the per share initial
offering price of PentaStar common stock in this offering is less than $9.00 per
share or more than $11.00, 30,000 of the 165,000 shares to be issued to ICM will
be increased or decreased in number pursuant to a formula so that the minimum
value of such number of shares will be $270,000 and the maximum value will be
$330,000 based upon the initial public offering price. Of the cash payable under
the ICM agreement, $500,000 will be held in escrow to cover indemnification
obligations for one year after closing.
The aggregate purchase price for Access consists of $500,000 in cash
and 205,000 shares of our common stock. Mr. Veres will receive all of the cash
and shares of common stock. Of the shares received by Mr. Veres, 68,265 will be
subject to escrow and adjustment as described elsewhere in this prospectus.
Jeffrey A. Veres is the sole stockholder of Access.
The amount of cash payable under both of these agreements will be
reduced to the extent that the acquired company has liabilities at the closing
other than current payables and accrued expenses, and increased by the amount of
cash held by the acquired company at the closing.
The stockholders of ICM and Access contributed their stock into a
limited liability company in July 1999 in order to begin cooperating together on
"best practices" in sales and
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<PAGE> 33
marketing, operations and order processing, accounting and overall customer and
vendor management in anticipation of their acquisition by PentaStar.
We will use the purchase method of accounting for the acquisitions.
With the completion of the acquisitions of ICM and Access, we expect
our general and administrative expenses to grow significantly due to the
amortization of goodwill associated with the acquisitions. We expect this
amortization expense to approximate $191,000 on an annual basis for a
twenty-year period.
Any reference in the following discussion to information on a pro forma
basis assumes the acquisitions of ICM and Access were completed as of January 1,
1998. We have presented this information to give you a better picture of what
our business might have looked like if we had owned these companies since
January 1, 1998. These companies may have performed differently if they had
actually been combined at that time. You should not rely on the unaudited pro
forma information as being indicative of the historical results that we would
have had or the future results that we will experience after the acquisitions
are completed.
Overview of ICM and Access Operations
The following table presents financial information, expressed as
percentages, as if ICM and Access had operated on a combined basis for the year
ended December 31, 1998.
OPERATIONS AS A PERCENTAGE OF ICM AND ACCESS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ICM ACCESS
------ ------
<S> <C> <C>
Revenues
Advanced communications
services .................... 64.4% 35.6%
Basic dial tone services ....... 63.3 36.7
------ ------
Costs and expenses
Salaries and commissions ....... 69.6 30.4
Other .......................... 62.3 37.7
------ ------
Income from operations .............. 48.9% 51.1%
====== ======
Earnings before interest, taxes,
depreciation and
amortization (EBITDA) .......... 47.3% 52.7%
====== ======
</TABLE>
Revenues of ICM and Access are derived primarily from the commissions
they receive from selling communications services as agents for communications
service providers. ICM and
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<PAGE> 34
Access are paid a commission by each service provider based on a percentage of
each customer's cost of services. ICM and Access sell advanced communications
and basic dial tone services for the local access market to facilitate data,
voice and video communications. ICM and Access expect that, over time, the
percentage of advanced communications services revenues will increase as a
percentage of revenues because of increased demand for, and availability of,
these services.
ICM's and Access' salaries and commissions expenses consist principally
of salary and incentive compensation that they pay their sales and marketing,
operations and engineering support and administrative staff.
ICM's and Access' other expenses include communications expenses,
office rent and utilities, travel, professional fees and depreciation.
ICM and Access have experienced some seasonal variations in their
businesses. Orders for communications services tend to slow in the last quarter
of the calendar year due to customers' budgetary constraints. Generally, orders
increase in the first quarter of the following year. Because of the time lag
between order and installation, revenues of ICM and Access in the first four
months of each calendar year are below the average of their revenues for the
remaining portion of the year.
SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
When we obtain an order for U S WEST communications services, we
receive an up-front payment of a portion of the commission we are entitled to
receive for the whole order. That up-front portion was 35% in 1998, but was
increased to 55% for orders received after June 1, 1999. Those initial payments
are accounted for as deferred revenue. After the services are fully installed,
which usually takes three to 12 weeks from order, we become entitled to receive
the remaining portion of the commission. It is not until the final installation
is completed by U S WEST that we recognize the revenue for the total commission,
including the initial payment and the final payment. We generally receive final
payment within 90 days of final installation.
We will incur goodwill in an estimated amount of $3,815,000 in the
acquisitions of ICM and Access. The goodwill amount will be amortized over 20
years. The annual goodwill amortization expense will be approximately $191,000.
We anticipate that we will acquire additional agents and ISPs in the future and
we expect to incur goodwill in those acquisitions.
ICM COMMUNICATIONS INTEGRATION, INC.
ICM is located in Bellevue, Washington and has an additional office in
Portland, Oregon. As of June 30, 1999, ICM had a total of 37 employees,
consisting of 17 in sales and marketing, 12 in operations and engineering
support and eight in administration.
-30-
<PAGE> 35
Results of Operations
The following table sets forth selected financial data for ICM for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------------- ----------------------------------------
1997 1998 1998 1999
---- ---- ---- ----
(DOLLARS IN THOUSANDS) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Advanced communications
services .................. $2,910 82.6% $3,681 86.1% $1,638 89.3% $1,795 83.8%
Basic dial tone services ....... 611 17.4 594 13.9 197 10.7 348 16.2
------ ------ ------ ------ ------ ------ ------ ------
Total revenues ............. 3,521 100.0 4,275 100.0 1,835 100.0 2,143 100.0
Costs and expenses
Salaries and commissions ....... 1,858 52.8 2,746 64.2 1,227 66.9 1,364 63.6
Other .......................... 811 23.0 952 22.3 359 19.6 438 20.4
------ ------ ------ ------ ------ ------ ------ ------
Income from operations .............. $ 852 24.2% $ 577 13.5% $ 249 13.5% $ 341 16.0%
====== ====== ====== ====== ====== ====== ====== ======
Earnings before interest, taxes,
depreciation and
amortization (EBITDA) .......... $ 862 24.5% $ 614 14.4% $ 267 14.6% $ 366 17.1%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The row entitled "Earnings before interest, taxes, depreciation and
amortization (EBITDA)" reflects net income or loss plus depreciation,
amortization and interest expense, income taxes and other non-cash charges.
EBITDA is a measure used by analysts and investors as an indicator of operating
cash flow because it excludes the impact of movements in working capital items,
non-cash charges and financing costs. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles and should
not be considered a substitute for other financial measures of performance.
-31-
<PAGE> 36
Six-month period ended June 30, 1998 compared to the six-month period
ended June 30, 1999
Revenues. Advanced communications services revenues increased $157,000,
or 9.6%, from $1,638,000 for the period ended June 30, 1998 to $1,795,000 for
the period ended June 30, 1999. This increase was primarily attributable to
increased focus on selling advanced communications services, primarily for data.
Basic dial tone services revenues increased $151,000, or 76.6%, from $197,000
for the period ended June 30, 1998 to $348,000 for the period ended June 30,
1999. This increase was primarily attributable to the creation of a specific
group dedicated to selling basic dial tone services.
Costs and expenses. Salaries and commissions increased $137,000, or
11.2%, from $1,227,000 for the period ended June 30, 1998 to $1,364,000 for the
period ended June 30, 1999. This increase was primarily attributable to
increased staffing in sales, operations and accounting and additional
commissions due to increased revenues. Other expenses increased $79,000, or
22.0%, from $359,000 for the period ended June 30, 1998 to $438,000 for the
period ended June 30, 1999. This was primarily due to increases in general
overhead expenses such as supplies and utilities and a minor increase in rent.
Income from operations. Income from operations increased $92,000, or
36.9%, from $249,000 for the period ended June 30, 1998 to $341,000 for the
period ended June 30, 1999. This increase was primarily attributable to the
increase in revenues discussed above. Income from operations increased from
13.5% of revenues for the period ended June 30, 1998 to 16.0% of revenues for
the period ended June 30, 1999 as a result of the above discussed changes in
revenues and costs and expenses.
Other income (expense), net. Other income (expense), net, decreased
$5,000, or 250%, from income of $2,000 for the period ended June 30, 1998 to an
expense of $3,000 for the period ended June 30, 1999. Interest income, net of
expense, consists of interest on available cash balances less interest expense
associated with a line of credit.
Income taxes. Provision for income taxes increased $37,000, or 38.5%,
from $96,000 for the period ended June 30, 1998 to $133,000 for the period ended
June 30, 1999. The effective tax rate was 38.2% in the 1998 period and increased
to 39.3% in the 1999 period.
Earnings before interest, taxes, depreciation and amortization. EBITDA
from operations increased $99,000, or 37.1%, from $267,000 for the period ended
June 30, 1998 to $366,000 for the period ended June 30, 1999. This increase was
primarily attributable to the increase in revenues discussed above. EBITDA
increased from 14.6% of revenues for the period ended June 30, 1998 to 17.1% of
revenues for the period ended June 30, 1999.
-32-
<PAGE> 37
Year ended December 31, 1997 compared to the year ended December 31,
1998
Revenues. Advanced communications services revenues increased $771,000,
or 26.5%, from $2,910,000 for the year ended December 31, 1997 to $3,681,000 for
the year ended December 31, 1998. This increase was primarily attributable to
increased focus on advanced communications services, primarily for data. Basic
dial tone services revenues decreased $17,000, or 2.8%, from $611,000 for the
year ended December 31, 1997 to $594,000 for the year ended December 31, 1998.
This decrease was primarily attributable to ICM's reduced focus on basic
communications services and ICM's increased focus in 1998 on advanced
communications services, primarily for data.
Costs and expenses. Salaries and commissions increased $888,000, or
47.8%, from $1,858,000 for the year ended December 31, 1997 to $2,746,000 for
the year ended December 31, 1998. This increase was primarily attributable to
increased staffing in sales, operations and accounting and additional
commissions due to increased revenues. Other expenses increased $141,000, or
17.4%, from $811,000 for the year ended December 31, 1997 to $952,000 for the
year ended December 31, 1998. This was primarily due to increases in general
expenses, primarily rent, communications and depreciation.
Income from operations. Income from operations decreased $275,000, or
32.3%, from $852,000 for the year ended December 31, 1997 to $577,000 for the
year ended December 31, 1998. This decrease was primarily attributable to the
decrease in basic dial tone revenues and the increase in salaries, commissions
and other expenses discussed above. Income from operations decreased from 24.2%
of revenues for the year ended December 31, 1997 to 13.5% of revenues for the
year ended December 31, 1998 as a result of the above discussed changes in
revenues and costs and expenses
Other income (expense), net. Other income (expense), net, increased
$5,000, or 166.7%, from $3,000 for the year ended December 31, 1997 to $8,000
for the year ended December 31, 1998. Interest income, net of expense, consists
of interest on available cash balances less interest expense associated with a
line of credit.
Income taxes. Provision for income taxes decreased $138,000, or 40.8%,
from $338,000 for the year ended December 31, 1997 to $200,000 for the year
ended December 31, 1998. The effective tax rate was 39.5% in 1997 and decreased
to 34.2% in 1998.
Earnings before interest, taxes, depreciation and amortization. EBITDA
from operations decreased $248,000, or 28.8%, from $862,000 for the period ended
December 31, 1997 to $614,000 for the year ended December 31, 1998. This decline
was primarily attributable to the decrease in basic dial tone revenues and the
increase in salaries, commissions and other expenses discussed above. EBITDA
decreased from 24.5% of revenues for the year ended December 31, 1997 to 14.4%
of revenues for the year ended December 31, 1998.
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<PAGE> 38
Liquidity and capital resources. ICM's operations generated $298,000 of
net cash for the first six months of 1999, which is consistent with the first
six months of 1998. ICM used net cash in investing activities of $220,000 in the
first six months of 1999 relating primarily to advances to related parties.
ICM expects to be able to fund its cash needs such as working capital
through cash it generates from operations. It generally funds its purchases of
property, plant and equipment with internally generated cash or debt. ICM
maintains a $150,000 line of credit with a bank. At June 30, 1999, it had no
outstanding balance under this line of credit. PentaStar will repay any interest
bearing indebtedness and terminate the line of credit when we acquire ICM. The
cash portion of the purchase price otherwise payable to the stockholder of ICM
at the closing will be reduced by the amount of interest bearing indebtedness so
repaid.
ACCESS COMMUNICATIONS
Access Communications is located in Denver, Colorado and has an
additional office in Colorado Springs, Colorado. Access Communications has a
total of 26 employees, consisting of 13 in sales and marketing, seven in
operations and engineering support and six in administration.
Results of Operations
The following table sets forth certain financial data for Access for
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------- ----------------------------------------
1997 1998 1998 1999
---------------- ---------------- ----------------- -----------------
(dollars in thousands) (unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Advanced communications
services ..................... $1,921 64.9% $2,038 85.6% $ 683 75.1% $ 784 91.9%
Basic dial tone services ......... 1,040 35.1 344 14.4 226 24.9 69 8.1
------ ------ ------ ------ ------ ------ ------ ------
Total revenues ................ 2,961 100.0 2,382 100.0 909 100.0 853 100.0
Costs and expenses
Salaries and commissions ......... 1,504 50.8 1,201 50.4 647 71.1 661 77.5
Other ............................ 637 21.5 577 24.2 312 34.3 280 32.8
------ ------ ------ ------ ------ ------ ------ ------
Income from operations .............. $ 820 27.7% $ 604 25.4% $ (50) (5.5)% $ (88) (10.3)%
====== ====== ====== ====== ====== ====== ====== ======
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) ......................... $ 875 29.6% $ 683 28.7% $ (9) (1.0)% $ (48) (5.6)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
-34-
<PAGE> 39
Six-month period ended June 30, 1998 compared to the six-month period
ended June 30, 1999
Revenues. Advanced communications services revenues increased $101,000,
or 14.8%, from $683,000 for the period ended June 30, 1998 to $784,000 for the
period ended June 30, 1999. This increase was primarily attributable to
increased focus on advanced communications services, primarily for data. Basic
dial tone services revenues decreased $157,000, or 69.5%, from $226,000 for the
period ended June 30, 1998 to $69,000 for the period ended June 30, 1999. This
decline was primarily attributable to a decreased focus on basic communications
services and increased focus on advanced communications services, primarily for
data.
Costs and expenses. Salaries and commissions remained relatively
constant for the period ended June 30, 1998 as compared to the period ended June
30, 1999. Other expenses decreased $32,000, or 10.3%, from $312,000 for the
period ended June 30, 1998 to $280,000 for the period ended June 30, 1999.
Income (loss) from operations. Loss from operations increased $38,000,
or 76.0%, from a loss of $50,000 for the period ended June 30, 1998 to a loss of
$88,000 for the period ended June 30, 1999. This increase in loss is primarily
attributable to the decrease in revenues from basic dial tone services more than
offsetting decreases in administrative staffing and occupancy expenses. Loss
from operations increased from (5.5%) of revenues for the period ended June 30,
1998 to (10.3%) of revenues for the period ended June 30, 1999 as a result of
the above discussed changes in revenues and expenses.
Other income (expense), net. Other income (expense), net, decreased
$23,000, or 48.9%, from expense of $47,000 for the period ended June 30, 1998 to
an expense of $24,000 for the period ended June 30, 1999. Other expenses in
these periods primarily reflect interest on a line of credit and long-term
borrowings.
Income taxes. Access provided an income tax benefit that increased
$8,000, or 23.5%, from $34,000 for the period ended June 30, 1998 to $42,000 for
the period ended June 30, 1999. The effective tax rate increased from 35.1% to
37.5% between periods.
Loss from discontinued operations. Loss from discontinued operations
decreased $149,000, or 66.2%, from $225,000 for the period ended June 30, 1998
to $76,000 for the period ended June 30, 1999. The loss from discontinued
operations is net of income tax benefits of $129,000 for the period ended June
30, 1998 and $40,000 for the period ended June 30, 1999. The loss from
discontinued operations relates to the disposition of Access' hardware business
in April 1999.
Earnings before interest, taxes, depreciation and amortization. EBITDA
from operations decreased $39,000 from a $9,000 deficit for the period ended
June 30, 1998 to a $48,000 deficit
-35-
<PAGE> 40
for the period ended June 30, 1999. This decrease is primarily attributable to
the decrease in revenues from basic dial tone services more than offsetting
decreases in administrative staffing and occupancy expenses. EBITDA decreased
from 1.0% of revenues for the period ended June 30, 1998 to 5.6% of revenues for
the period ended June 30, 1999.
Year ended December 31, 1997 compared to the year ended December 31,
1998
Revenues. Advanced communications services revenues increased $117,000,
or 6.1%, from $1,921,000 for the year ended December 31, 1997 to $2,038,000 for
the year ended December 31, 1998. This increase was primarily attributable to
increased focus on advanced communications services, primarily for data. Basic
dial tone services revenues decreased $696,000, or 66.9%, from $1,040,000 for
the year ended December 31, 1997 to $344,000 for the year ended December 31,
1998. This decrease was primarily attributable to a reduced focus on basic
communications services. Access has increased its focus on advanced
communications services, primarily for data.
Costs and expenses. Salaries and commissions decreased $303,000, or
20.1%, from $1,504,000 for the year ended December 31, 1997 to $1,201,000 for
the year ended December 31, 1998. This decrease was primarily attributable to
decreased commissions expense in sales and decreased staffing in operations and
administration. Other expenses decreased $60,000, or 9.4%, from $637,000 for the
year ended December 31, 1997 to $577,000 for the year ended December 31, 1998.
This decrease was primarily due to reduced administrative staff and overall
corporate cost control measures.
Income from operations. Income from operations decreased $216,000, or
26.3%, from $820,000 for the year ended December 31, 1997 to $604,000 for the
year ended December 31, 1998. This decline is primarily attributable to the
reduction in revenues more than offsetting the decrease in costs and expenses
discussed above. Income from operations decreased from 27.7% of revenues for the
year ended December 31, 1997 to 25.4% of revenue for the year December 31, 1998,
as a result of the above discussed decline in revenues more than offsetting the
decrease in costs and expenses.
Other income (expense), net. Other income (expense), net, decreased
$35,000, or 41.7%, from expense of $84,000 for the year ended December 31, 1997
to an expense of $49,000 for the year ended December 31, 1998. Interest income,
net of expense, consists of interest on available cash balances less interest
expense associated with a line of credit and long-term borrowings.
Income taxes. Provision for income taxes decreased $97,000, or 31.4%,
from $309,000 for the year ended December 31, 1997 to $212,000 for the year
ended December 31, 1998. The effective tax rate was 42.0% in 1997 and decreased
to 38.2% in 1998.
Loss from discontinued operations. Loss from discontinued operations
increased $172,000, or 86.9%, from $198,000 for the year ended December 31, 1997
to $370,000 for the
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<PAGE> 41
year ended December 31, 1998. The loss from discontinued operations is net of
income tax benefits of $129,000 for the year ended December 31, 1997 and
$219,000 for the year ended December 31, 1998.
Earnings before interest, taxes, depreciation and amortization. EBITDA
from operations decreased $192,000, or 21.9%, from $875,000 for the year ended
December 31, 1997 to $683,000 for the year ended December 31, 1998. This
decrease is primarily attributable to the decrease in revenues more than
offsetting the decrease in costs and expenses discussed above. EBITDA decreased
from 29.6% of revenues for the year ended December 31, 1997 to 28.7% of revenue
for the year ended December 31, 1998.
Liquidity and capital resources. Access' operations used $161,000 of
net cash for the first six months of 1999, a decrease of $208,000 from 1998,
primarily due to a reduced investment in accounts receivable between years.
Access used net cash in investing activities of $50,000 in the first six months
of 1999, all of which it spent on property, plant and equipment. In the first
six months of 1999, Access generated net cash of $132,000 in its financing
activities, which reflected net proceeds from borrowings and capital
contributions of $113,000.
Access expects to be able to fund its cash needs such as working
capital through cash it generates from its operations. It generally funds its
purchases of property, plant and equipment with internally generated cash or
debt. Access maintains a $350,000 line of credit with a bank. At June 30, 1999,
it had $95,000 outstanding under this line of credit. PentaStar will repay any
interest bearing indebtedness and terminate the line of credit when it acquires
Access. The cash portion of the purchase price otherwise payable to the
stockholder of Access at the closing will be reduced by the amount of interest
bearing indebtedness so repaid.
PENTASTAR COMMUNICATIONS, INC.
PentaStar is located in Denver, Colorado. After this offering and the
acquisitions of ICM and Access are completed, PentaStar will be the parent
company of ICM and Access as well as the parent of the subsidiary formed to
acquire ISPs. PentaStar was founded in March 1999 to pursue the strategies in
this prospectus. It has incurred approximately $2,000 of expenses through June
30, 1999.
PRO FORMA COMBINED
Results of Operations
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. In our opinion, the pro forma information presented in this
prospectus, when finalized, should not materially change from the preliminary
estimates. The unaudited pro forma financial data do not purport to represent
what the financial position or results of operations would actually have been
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if such transactions in fact had occurred on those dates and are not necessarily
representative of our financial position or results of operations for any future
period. The pro forma combined financial information in this prospectus covers
periods during which ICM and Access operated independently of each other. Since
the acquired companies were not under common control or management, historical
combined results may not be comparable to, or indicative of, future performance.
The unaudited pro forma combined condensed financial statements should be read
in conjunction with the other financial statements and notes thereto included
elsewhere in the prospectus.
Our pro forma combined statements of operations include pro forma
adjustments to our salaries and commissions expenses to reflect the salary
differential to owners of the businesses we initially will acquire that will
take effect when we acquire them. The decrease is approximately $255,000 in
1998, $127,000 in the first six months of 1998 and $141,000 in the first six
months of 1999.
The pro forma combined statements of operations also include pro forma
adjustments to our selling, general and administrative expenses for rent for our
headquarters and for consulting fees. The increase is $180,000 in 1998, $90,000
in the first six months of 1998 and $90,000 in 1999.
Our pro forma combined statements of operations include pro forma
adjustments to our amortization expenses to reflect the amortization of goodwill
associated with the acquisition of the two companies discussed in this
prospectus. We amortize goodwill evenly over a 20 year period. The increase is
approximately $191,000 in 1998 on a pro forma basis, $95,000 in the first six
months of 1998 and $95,000 in the first six months of 1999.
Our pro forma combined statements of operations do not reflect the cost
savings or incremental costs we expect, but cannot quantify.
The following table sets forth unaudited pro forma combined condensed
financial information for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues
Advanced communications services .............. $2,321 84.6% $2,579 86.1%
Basic dial tone services ...................... 423 15.4 417 13.9
------ ------ ------ ------
2,744 100.0 2,996 100.0
Costs and expenses
Salaries and commissions ....................... 1,747 63.7 1,884 62.9
Other general and administrative expenses ...... 761 27.7 810 27.0
Goodwill amortization ........................ 95 3.5 95 3.2
------ ------ ------ ------
Income from operations ........................... $ 141 5.1% $ 207 6.9%
====== ====== ====== ======
Earnings before interest, taxes, depreciation
and amortization (EBITDA) .................... $ 295 10.8% $ 367 $ 12.2%
====== ====== ====== ======
</TABLE>
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Pro forma combined results for the six-month period ended June 30, 1998
compared to the six-month period ended June 30, 1999
Revenues. Advanced communications services revenues increased $258,000,
or 11.1%, from $2,321,000 for the period ended June 30, 1998 to $2,579,000 for
the period ended June 30, 1999. This increase was primarily attributable to
increased focus on advanced communications services, primarily for data. Basic
dial tone services revenues remained relatively constant between the six months
ended June 30, 1998 and 1999.
Costs and expenses. Salaries and commissions increased $137,000, or
7.8%, from $1,747,000 for the period ended June 30, 1998 to $1,884,000 for the
period ended June 30, 1999. This increase was primarily attributable to
increased staffing in sales and marketing, operations and engineering support
and administration and to increased commissions on higher revenues. Other
expenses remained relatively constant between the six months ended June 30, 1998
and 1999.
Income from operations. Income from operations increased $66,000 from
$141,000 for the period ended June 30, 1998 to $207,000 for the period ended
June 30, 1999. This increase is primarily attributable to the increase in
advanced communications services revenues discussed above.
Earnings before interest, taxes, depreciation and amortization. EBITDA
from operations increased $72,000, or 24.4%, from $295,000 for the period ended
June 30, 1998 to $367,000 for the period ended June 30, 1999. This increase is
primarily attributable to the result of items discussed above. EBITDA increased
from 10.8% of revenues for the period ended June 30, 1998 to 12.2% of revenues
for the period ended June 30, 1999.
In the ordinary course of business, ICM and Access have experienced
delays in payment for disputed items from a communications service provider. In
1997 and 1998, the aggregate amounts were $720,000 and $865,000, representing
approximately 11.1% and 13.0% of ICM's and Access' combined revenues in those
years. We expect that disputed items with this provider due to documentation
deficiencies and discrepancies in payment amounts will continue to adversely
impact our cash flows in future periods.
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FACTORS THAT MAY AFFECT OUR FUTURE OPERATING RESULTS
We believe the following significant factors may affect our future
operating results:
o our ability to successfully implement our acquisition strategy;
o continued reliance on RBOCs and other service providers for
communications services; and
o our ability to increase revenues from service providers other
than local access service providers.
Our future operating results are materially dependent upon our ability
to complete suitable acquisitions at acceptable prices, integrate the acquired
companies and implement our business strategy through the acquired companies.
Our strategy is to acquire agents in RBOC territories. Those agents
will be primarily reliant on RBOCs for revenues. If the agent programs or agent
relationships are discontinued, or significant reductions in commission rates
are made, we may have difficulty in remaining a viable business and would need
to establish agent relationships with other communications service providers.
We intend to expand our sales of long distance, wireless and Internet
services, and will incur additional costs in salaries, commissions and selling,
general and administrative expenses to implement this strategy. We will need to
increase revenues to offset these increased expenses.
We believe that we may be able to increase our revenues in the future
by providing new services to our customers and obtaining higher sales commission
rates. In addition, we believe we can reduce costs as a percentage of sales by
consolidating administrative functions and obtaining company-wide purchasing
agreements with our suppliers. However, we cannot assure you that we will be
able to increase our revenues or reduce our expenses or quantify such increases
or savings. Additionally, we will incur new costs associated with:
o our corporate management team;
o executing our acquisition strategy; and
o being a publicly-held company.
LIQUIDITY AND CAPITAL RESOURCES
On a historical combined basis, the acquired companies generated cash
flows from operating activities of $137,000 in the first six months of 1999 as a
result of an increase in tax related items which was partially offset by an
increase in the accounts receivable balance. Net cash used in investing
activities of $270,000 resulted primarily from the purchase of property and
equipment. Net cash provided by financing activities of $126,000 resulted
primarily from draws on the line of credit and capital contributions.
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Upon completion of this offering, we will realize net proceeds of $12.4
million. We will use $2.424 million of the net proceeds to complete the
acquisitions of ICM and Access. We expect to use the remaining net proceeds of
$10.0 million to make complimentary acquisitions or investments, to repay
certain indebtedness and for working capital, systems investment and other
general corporate purposes.
We intend to fund future acquisitions through the issuance of
additional common stock, the proceeds of this offering and internally generated
cash flow. However, other than the acquisitions of ICM and Access, we do not
have any understandings, agreements or commitments with respect to any
acquisition.
Upon completion of this offering, PentaStar will have no outstanding
debt. We believe we will be able to obtain a working capital line of credit or
other debt financing following completion of this offering. However, we may not
be able to obtain this financing, or, if available, the terms of the financing
may not be favorable to us or our stockholders without substantial dilution of
ownership rights.
We anticipate that the net proceeds from this offering and our cash
flow from operations will be sufficient to satisfy our anticipated cash
requirements for the 12-month period following this offering.
YEAR 2000 RISKS
Many software applications and computer hardware and related equipment
and systems that use embedded technology, such as microprocessors, rely on two
digits rather than four to represent years in performing computations and
decision-making functions. These programs, hardware items and systems may fail
beginning on January 1, 2000, or earlier, because they misinterpret "00" as the
year 1900 rather than 2000. These failures could have a material effect on us
because of our direct dependence on our own software, equipment and systems and
our indirect dependence on those of third parties. Our year 2000 program will
consist of the following phases:
o identifying all items that may be affected by the year 2000;
o investigating those items for year 2000 compliance;
o assessing the potential impact of year 2000 non-compliance;
o identifying solutions for non-compliant items;
o repairing and replacing any non-compliant items;
o testing those repairs and replacements; and
o contingency planning.
Upon completion of this offering, our chief financial officer will be
assigned the overall responsibility to track and coordinate the year 2000
efforts of the individual companies we acquire. Although we are following the
general steps we outlined above, we do not consider preparation and maintenance
of formal inventories and risk rankings, detailed test plans and
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documentation of results as being necessary because of the small number of
information technology systems each acquired company uses.
Each of ICM and Access have completed identification of its information
technology hardware and software, including business applications, operations
software, service providers and product suppliers that may be affected by the
year 2000. We estimate that each of ICM and Access have completed 90% of this
process and expect to fully complete it by December 31, 1999. We have also
contacted our primary service provider, U S WEST, and have obtained
representations and assurances that their hardware, embedded technology systems
and software, which we use or which would impact us, are, or will be modified on
a timely basis to be year 2000 compliant. We do not believe that any other third
parties we utilize will have a significant impact on our operations based upon
year 2000 compliance issues.
After the acquisitions of ICM and Access, we will replace some of their
financial and other computer systems in order to obtain internal consistency.
Some systems we are replacing as a result of these inconsistencies are not year
2000 compliant, but we will replace these systems prior to December 31, 1999. We
have not included the cost of the system replacements as a part of our year 2000
program expenses. We have decided not to perform a detailed analysis of the
costs associated with this effort. We based this decision on the low number of
systems that comprise our technical environment and the fact that year 2000
efforts have been and are currently being addressed by ICM and Access during the
normal course of their businesses.
All of the systems we currently use include "off the shelf" software
which can easily be replaced. We estimate that the external costs of the year
2000 programs of ICM and Access total approximately $5,000 to date and we expect
that the additional costs of these programs after completion of this offering
will be less than $20,000. We expect to pay these additional costs from the cash
flow from our consolidated operations.
We have incurred substantially all these costs in investigating systems
for year 2000 compliance and have not incurred any material costs to replace or
repair non-compliant systems. We have not deferred other information technology
projects because of our year 2000 efforts. We have not yet begun a formal
analysis of various failure scenarios or their potential impact or possible
contingency plans, but we will conduct this analysis by December 31, 1999. If we
identify significant risks related to year 2000 compliance or our progress
deviates from our anticipated program, we will develop contingency plans as
necessary.
We do not anticipate any material adverse effect to our business from
year 2000 failures, but we can offer no guarantee that we will achieve total
compliance. Factors that give rise to this uncertainty include our possible
failure to identify all susceptible systems, non-compliance by third parties
whose systems and operations impact us and a possible loss of technical
resources to perform the work.
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Our most likely worst-case year 2000 non-compliance scenarios are:
o an interruption in our ability to collect amounts due from U S
WEST and other vendors;
o loss of sales due to customers focusing on year 2000 issues
rather than new communications services;
o loss of accurate accounting records;
o loss of phone service; or
o office equipment failures.
Depending on the length of any non-compliance or system failure, any of
these situations could have a material adverse impact on our ability to serve
our customers in a timely manner and result in lost business and revenues or
increased costs. This disclosure is subject to protection under the Year 2000
Information and Readiness Disclosure Act of 1998, Public Law 105-271, as a "Year
2000 Statement" and "Year 2000 Readiness Disclosure" as that Act defines those
terms.
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INFLATION
As a result of the relatively low levels of inflation during the last
three years, inflation did not have a significant impact on the results of
operations in those periods of any of the businesses we initially will acquire.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). PentaStar is required to
adopt SFAS No. 133 in the year ended December 31, 2001. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, we have not entered into any derivative financial instruments or hedging
activities and have no plans to do so.
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BUSINESS
INTRODUCTION
We design, sell and facilitate the installation and use of
communications and Internet services for small to medium-sized businesses that
generally cannot afford in-house communications management resources. Our goal
is to provide our customers with a comprehensive communications solution,
utilizing the infrastructure of existing communications service providers. By
analyzing and selecting from a variety of available communications service
providers and technologies, other than for local access where we offer only RBOC
service, we provide our customers a custom-designed, cost-effective solution for
local access, long distance, wireless and Internet services for voice and data
communications. As the communications industry becomes increasingly complex, we
believe our services will become more valuable to our customers.
We service customers in a broad range of industries, including
wholesale, retail, manufacturing, service, distribution and professional
services. Some of the major benefits we will provide our customers are:
o assistance in sorting through the abundance of confusing
technology options;
o management of the ordering and installation of communications
services;
o more effective and timely responses to problems encountered with
communications service providers than can generally be obtained
by an individual customer;
o ongoing evaluation of new solutions that could better suit the
future communications needs of our customers;
o development and maintenance of customer-specific databases that
allow us to better apply our knowledge and experience to each
customer's communications needs; and
o payment of most of our fees by the communications service
provider.
We believe that we offer compelling reasons for communications service
providers to view us as a strategic partner. Those reasons are as follows:
o we are an effective sales force for our service providers, with a
competitive, variable cost to them;
o we provide the ability to retain customers and increase revenues
from customers;
o we provide a professional staff to handle the installation of
services and ongoing interface between the customer and the
service provider;
o we can sell into markets that may not be economical for the
service providers to support directly; and
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o we can offer the communications services that some service
providers, the RBOCs in particular, are prohibited by law from
offering. This provides their customers with a complete
communications solution.
We intend to acquire communications agents in major metropolitan areas.
We have also formed a wholly-owned subsidiary to acquire ISPs in small,
high-growth areas. Our goal is to use the staff and customer relationships of
these ISPs to implement comprehensive local access, long distance, wireless and
Internet solutions for customers in these small markets.
OUR STRATEGY
Our objective is to be a leading national provider of custom-designed
communications solutions to small and medium-sized businesses. Our strategy to
achieve this objective is to:
Grow Through Acquisitions
We intend to build a national presence in the communications market by
acquiring RBOC agents in major metropolitan areas and ISPs in small, high-growth
areas. We strive to acquire companies that are well managed, have a strong
customer base, are profitable and would benefit from the additional resources
that we intend to provide. Our goal is to structure these acquisitions so that
the owners who manage the business of each acquired agent receive the majority
of their portion of the purchase price in our common stock.
We believe the communications services agents and ISPs we target for
acquisition will be attracted to, and benefit from, the opportunity to join us
because we plan to offer them:
o access to ongoing analysis of available communications and
Internet technologies and pricing plans;
o shared systems, administration and infrastructure support;
o lower costs resulting from planned economies of scale;
o availability of multiple long distance, wireless and Internet
options;
o access to other acquired companies' "best practices" models;
o greater access to capital for future growth;
o improved commission structures resulting from aggregating sales;
o add-on sales to local operations of regional customers; and
o consolidated order entry and processing.
Provide Comprehensive Communications Solutions
We will offer a comprehensive communications solution by providing
customers with the benefit of our independent analysis of multiple technologies
and pricing plans. We believe that by purchasing a package of local access, long
distance, wireless and Internet services from one communications service
provider, the customer may not have the opportunity to choose the
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solutions that best meet its communications needs. By engaging our services, the
customer can select different providers for each type of service.
We will establish a team of technology experts to analyze existing and
developing technologies on a continual basis. This team will also evaluate
continually changing pricing programs of various service providers. We will seek
technology and pricing solutions that best address the needs of our customers.
This will allow our field sales personnel to customize the services that we
recommend for each customer.
Increase Revenues of Acquired Companies
We intend to increase revenues of agents and ISPs we acquire as
follows:
Introduce New Agent Services. ICM, Access and the agents we
intend to acquire primarily sell local access services. We also intend to
provide our customers with access to long distance, wireless and Internet
services for voice and data communications. This will enable our customers to
use PentaStar as the one resource for all their communications needs. ICM and
Access have already begun selling these other services.
Increase Revenues Through Commission Strategies. As a result
of creating a larger organization, we expect to enhance our commission rates by
meeting volume minimums in some existing commission contracts. We also expect to
negotiate more favorable commission arrangements with some service providers. We
believe the impact of this strategy will increase as we grow.
Enhance Selling and Advertising Efforts. We expect to attract
new customers by increasing our direct selling and advertising efforts. We
expect to accomplish this in part by allowing the managers of acquired agents
and ISPs to have more time to focus on selling as a result of relieving them of
the administrative functions that will be consolidated into our headquarters or
regional centers. We believe advertising has not been used in any significant
way by agents or small ISPs. We will provide management assistance and financial
resources to implement a significant advertising program. We will also develop
marketing materials and presentations to be used by management and the sales
personnel of our agents and ISPs.
Sell Communications Services Through ISP Sales Channel. We
believe the RBOCs and national communications service providers in all segments
of the communications industry have had difficulty finding an effective means to
sell into and service small markets. We intend to increase our revenues by
utilizing the sales force of the ISPs we acquire to sell local access, long
distance and wireless services for voice and data communications to subscribers
of the ISPs. These ISPs will offer a unique sales channel for us to serve small
markets, in addition to providing us with the value of their Internet business.
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Utilize our Size to Increase Efficiencies in the Operating Regions
Over time, we plan to consolidate functions that are not critical to
control at the local level into our corporate headquarters. These functions
include human resources, information systems, legal services and tax matters.
Additionally, we plan to consolidate some aspects of accounting, order
processing and after-sales management into regional centers to be established at
designated local sites. Purchasing of insurance, supplies, equipment and
external services will be managed from our corporate headquarters. Also, our
acquired ISPs will aggregate their service provider traffic onto a unified
Internet connection, which we believe should result in lower access costs to us.
Implement a Best Practices Program
The agents and ISPs we acquire will continue to operate with a high
degree of autonomy in their regions. However, we will implement a best practices
program under which each acquired company will be able to adopt successful
business practices developed by our other agents and ISPs. This will allow each
acquired company to develop a best practices model that works for it. Our
corporate management team will actively facilitate this process.
Create Strong Incentives for Managers to Increase Revenues
Our agent managers, who will generally be the former owners of the
acquired agents, will have two strong incentives to increase their area's
earnings. The first incentive is the opportunity to earn a greater percentage of
the total shares of our common stock issued to acquire the agents based on each
agent's future performance. The second incentive is a bonus plan pursuant to
which each agent manager may receive a cash bonus of up to 5% of their area's
operating earnings before amortization expense. Managers of acquired ISPs will
participate in bonus programs based upon their operating earnings before
amortization expense and in our stock option plan.
INDUSTRY
The Communications Services Agent Industry
General. Communications services agents are organizations that are
authorized to sell and facilitate the use of communications services of one or
more communications service providers. A full-service agent:
o establishes relationships with customers;
o assists the customer in analyzing its communications needs;
o sells the customer the communications services that best suit its
needs; and
o facilitates the installation of communications services by the
various communications service providers.
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Agents have been successful in obtaining new sales as a result of
existing relationships with customers and potential customers. We believe agents
have a sales cost that is competitive with that of the direct sales forces of
service providers. By utilizing agents to sell their services, service providers
can outsource a difficult and costly function.
Communications services agents are generally paid a commission by each
communications service provider based on a percentage of the customer's cost of
services sold by the agent. This commission typically ranges from 10% to 18% of
the contract value. It is paid upon either the execution of the contract and
installation of the services or pro-rata over the contract's life, depending
upon the service provider.
The communications services agent industry is highly fragmented and
characterized by hundreds of local companies with no large national competitors.
According to the 1999 MultiMedia Telecommunications Association Market Review
and Forecast, the core communications market segments, other than the Internet,
in which we compete had sales of $200.6 billion in 1998 and are expected to grow
to $283.8 billion by the end of 2002, a 9.0% compound annual growth rate. Sales
in these market segments are made directly by service providers and by agents.
We are not aware of any data that breaks down these sales between service
providers and agents. According to International Data Corporation, the
U.S.-based Internet service provider market was $10.7 billion in 1998 and is
expected to grow to $37.4 billion in 2003, a compound annual growth rate of
28.4%. The total market for all services that PentaStar sells was $211.3 billion
in 1998 and is projected to grow to $312.9 billion in 2002, a compound annual
growth rate of 10.3%.
Communications service providers include:
o RBOCs;
o CLECs;
o long distance service providers;
o wireless service providers; and
o ISPs.
Most communications service providers use agents to augment their
direct sales force. Generally, communications service providers select agents
that they believe have the knowledge and expertise to effectively sell
communications services and manage the installation process.
Local Access Market. According to the 1999 MultiMedia
Telecommunications Association Market Review and Forecast, local access services
revenues were $56.4 billion in 1998 and are expected to reach $70.4 billion by
2002, a 5.7% compound annual growth rate. We believe the RBOCs have continued to
dominate the local access market. The modified final judgment that resulted in
the break-up of AT&T required the RBOCs to implement agency programs. Further,
the Telecommunications Act of 1996 required the RBOCs to allow other
communications service providers to interconnect with the RBOC's facilities and
equipment. This has made the local access market more competitive.
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We believe that the RBOCs continue to have a distinct competitive
advantage in the local access market because they:
o control the line to customer locations;
o have an established customer base; and
o have greater financial and other resources to deploy new
technologies.
As the local access market continues to offer greater service choices
and faces increased competition, we believe that agents which are cost
effective, offer an efficient method of attracting and retaining customers and
have the ability to provide comprehensive communications services will be in
demand by both RBOCs and customers.
Long Distance Market. According to the 1999 MultiMedia
Telecommunications Association Market Review and Forecast, long distance
revenues were $106 billion in 1998 and are expected to reach $142.6 billion by
2002, a 7.7% compound annual growth rate. The long-distance market is highly
price competitive and is dominated by large national companies such as AT&T,
MCI/WorldCom, Qwest and Sprint. These large national carriers may compete
aggressively for market share and most have established agency programs that
enhance their overall sales efforts. The RBOCs will also be allowed to offer
long distance service upon satisfaction of the statutorily mandated criteria
which determine when the local market has become sufficiently competitive.
Wireless Market. According to the 1999 MultiMedia Telecommunications
Association Market Review and Forecast, the wireless communications services
market was $38.2 billion in 1998 and is expected to reach $70.8 billion by 2002,
a 16.7% compound annual growth rate. Although much of the early growth in
wireless communications has occurred in the consumer sector, in particular
cellular phones, we believe an increasing share of wireless communications
services will be used by business customers in the future.
The development of personal communication service, or PCS, and its
ability to facilitate voice, Internet, e-mail and other wireless services has
ushered in the increasing use of wireless technologies for the business market.
According to a White Paper prepared by the MultiMedia Telecommunications
Association entitled "Wireless Technology Creates Foundation for Future
Enterprise Mobility," spending on PCS services is expected to grow to $20.1
billion by 2001, a compound annual growth rate of 150% from 1998. The
integration of computer applications and wireless technologies is anticipated to
also fuel future market growth.
We expect that small to medium-sized businesses will increasingly use
wireless communications for voice and data applications.
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Internet Services Market. The Internet has grown rapidly since its
introduction to the public in the early 1990s, allowing millions of people
worldwide to communicate and conduct business electronically. The April 1999
Internet Demographics Survey, conducted by CommerceNet and Neilsen Media
Research, estimated the number of Internet users in the United States and Canada
at 92 million. According to International Data Corporation, the U.S. based ISP
market was $10.7 billion in 1998 and is expected to grow to $37.4 billion in
2003, a compound annual growth rate of 28.4%. The growth in the number of
Internet users is being fueled by a number of factors, including the increased
use of personal computers, the speed and reduction in cost of computer hardware
and the increasing importance of the Internet as a means of communication and
commerce.
The Internet Service Provider Industry
Businesses are becoming more "virtual," which allows individuals to be
less concerned with proximity to the office and more concerned with
communications and Internet access to the office. The Internet has allowed many
businesses and individuals to conduct their business away from the traditional
commercial centers to regions and cities that have not previously been viable
locations for business. This trend is spurring growth in both Internet users and
ISPs, as well as in the use of the Internet for communications.
ISPs are organizations that offer a wide range of Internet and World
Wide Web-based services to customers. The Internet services market in the areas
we are targeting currently consists primarily of basic Internet access. The
rapid development and growth of the Internet has resulted in a highly fragmented
market. According to the Broadwatch Directory of Internet Service Providers
there are over 5,000 ISPs in the United States. Most of these ISPs are small and
local businesses, and currently very few ISPs have a regional or national market
coverage. This industry is currently undergoing substantial consolidation.
OUR SERVICES
Local Access
We currently provide comprehensive local access services through our
relationship with U S WEST. Basic dial tone services are telephone connections,
voice messaging and call management. More advanced communications services we
offer include:
o data transmission oriented services;
o dedicated high capacity transmission services;
o high speed real time communications access, including digital
subscriber line, or DSL;
o packet-based transmission for wide area networks, including frame
relay service; and
o an advanced digital network for data, video, voice and Internet
traffic, including ISDN.
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Long Distance
We have recently established relationships with AT&T and Qwest to sell
their long-distance services to our customers. These relationships allow us to
offer our customers the pricing, quality and add-on features that they require
for their specific long distance communications. We are seeking to establish
similar relationships with MCI/WorldCom and Sprint.
Wireless
We plan to concentrate on providing our customers with services and
capabilities that will allow them to better utilize wireless technology and make
this technology an integral part of their voice and data communications
strategy. We have recently begun selling U S WEST's wireless services. These
wireless services include cellular, paging and integrated voice and data
communications services. We intend to provide our customers with competitive
pricing, coverage and access to add-on features.
Internet
We find that customers are often confused by the process of selecting
an ISP, connecting to the ISP and integrating the service into their internal
systems. Many ISPs do not provide installation and start-up assistance or
assistance in internal cabling and networking for their customers. As a result,
the customers must coordinate with local access providers, networking/cabling
consultants and the ISP to obtain service. To address this problem, we plan to
offer a turnkey solution to our customers through our agent relationships,
connection expertise and relationships with networking/cabling companies. We
have recently begun selling U S WEST's Internet services. We also sell Internet
connections to ISPs on behalf of Level3 Communications.
Project Management
The combination of wireless technologies, computer networking
integration, phone system integration and Internet technologies creates
significant challenges for small to medium-sized businesses attempting to
implement an overall communications solution. We believe that some of our
customers will benefit from our project management capabilities. We intend to
offer comprehensive communications services, assistance in the selection of
hardware and cabling providers, and supervision of the installation and
integration of all the communications services components. However, we do not
plan to offer computer network implementation or hardware installation. As our
size and geographic coverage expand, we believe we will be able to offer
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project management to customers who have larger, more complex projects requiring
significant planning, resource management and coordination.
Analysis of New Technologies and Developments
We believe that over the course of the next few years the
communications industry will see the introduction and use of a wide range of new
technologies and services. These new technologies will include the use of:
o Internet and wireless technologies for voice and data
communications;
o wireless receptor technologies, such as dish relay, satellite and
radio towers and cable networks for communication; and
o intra-company networks.
There are also several private companies developing satellite networks that will
be used for providing new services and capabilities. Many of these new
technologies will be valuable additions to the overall communications strategies
of our customers. However, this abundance of new options may add to the
confusion our customers face in making their communications choices. We intend
to offer our customers, at no charge to the customer, ongoing analysis of these
new technologies and services and assist them in their determination of which
technologies may be applicable to their needs.
Our Proposed Internet Services
The core product expected to be offered by our ISPs will be dial-up
access to the Internet. Although individuals typically use slower, less
expensive Internet access methods, business customers often benefit from
dedicated, high-speed Internet access. We expect to have the ability to procure
the communications services necessary to provide our customers with the highest
speed access available in a particular market. We also plan to offer e-mail
applications, file transfer protocol, web hosting, web design, project
management web-based services and assistance with electronic commerce. Our goal
is to increase our customers' use of these more advanced services.
Other Services
It is not currently common in the agent industry to provide customers
with post-sales support beyond installation. Additionally, our small to
medium-size business customers typically do not have communications departments
to deal with post-sales issues. Since post-sales services have not been
customarily offered by agents, we do not know whether we can sell these services
at a price that is acceptable to the customer and economical to us. To fill this
need we may eventually offer customers:
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o on-going contract maintenance, including service and billing
problem dispute resolution with the communications service
provider;
o 7-day a week emergency assistance for service interruption or
degradation;
o ongoing audits and needs analysis to ensure that all services
are functioning appropriately;
o regular audits and analysis of the services in place and the
need for new services; and
o audits of billings and consolidation of billings.
We believe that providing these additional services may add significant
incremental revenues and further strengthen our customer relationships.
SALES AND MARKETING
Our direct sales efforts are conducted at the local level by our direct
sales force of approximately 24 full-time employees. Members of our direct sales
team meet face-to-face with prospective customers, discuss their communications
needs and use our local project management staff to design a comprehensive
package of communications services. We will continually focus on improving our
project management staff and capabilities and developing programs to recruit and
train motivated sales people with good technical and customer skills. Our goal
is to establish a long-term relationship as the customer's total solution
provider.
Our agents also establish additional customer referral relationships by
working directly with:
o interconnect companies;
o value-added resellers;
o computer network integrators;
o telephone system integrators; and
o ISPs and equipment vendors.
We customarily pay a referral fee to these companies or reciprocate in the
sharing of market opportunities.
In addition, we intend to maintain a comprehensive database for
significant customers that will document their communications service plans and
providers, historical usage and anticipated future needs. We believe that this
database will become a valuable tool for providing enhanced services to these
customers.
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COMPETITION
Agent Business
The market for communications services is extremely competitive and
rapidly changing. We expect competition to increase as communications service
providers expand their traditional service offerings. Many of our largest
competitors are national communications service providers that have
significantly greater financial, marketing and other resources. These
competitors may adopt more aggressive pricing policies and offer more attractive
terms to customers than we can. We may face increasing price pressure from our
larger competitors. In addition, some of our current and potential competitors
have established, or may establish, cooperative relationships among themselves
or with third parties to compete more effectively. We cannot assure you of our
survival in this intensely competitive and rapidly evolving market. Within this
market, we encounter multiple competitors that include:
o the direct sales forces of other communications service providers,
such as U S WEST, AT&T, MCI/WorldCom and numerous CLECs;
o other communications services agents;
o customer infrastructure out-sourcers, such as Convergent
Technologies, which buy a customer's computers, servers and
telephone equipment and lease them back to the customer along
with providing the customer CLEC-type services; and
o communications consultants, such as groups within Electronic Data
Systems and Andersen Consulting.
We believe the primary competitive factors in our market include:
o the ability to provide a solution that satisfies all the
customer's communications needs;
o pricing;
o customer service during and after installation;
o quality and reliability of communications services;
o access to multiple service provider options; and
o development of customer loyalty.
Although we face a broad range of competition from a variety of
communications service providers, we will seek to compete effectively by
providing RBOC services in the local access market, along with long distance,
wireless and Internet services from providers in those respective markets, with
a strong focus on customer service.
Proposed ISP Business
Our target market for Internet access is extremely competitive. We
expect competition to increase as Internet use grows and ISPs expand their
traditional services and new start-ups
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emerge in the marketplace. Barriers to entry are minimal and competitors can
enter the market at a relatively low cost. Many of our competitors have greater
financial, marketing and other resources than us. We cannot guarantee you that
we will be able to compete effectively in this market. Our competitors include:
o other local and regional ISPs;
o national ISPs such as MindSpring and Verio;
o on-line information providers, such as America Online and Prodigy;
o large national communications providers, such as AT&T,
MCI/WorldCom and the RBOCs; and
o traditional cable television providers.
In our target ISP market, we believe that the following are the
principal competitive factors:
o maintaining high-speed access options and adequate capacity;
o affordable pricing;
o the ability to assist customers in implementing services and
resolving problems; and
o offering a variety of services in addition to basic access.
GOVERNMENT REGULATION
Agent Business
PentaStar is not, and following our acquisition of ICM and Access will
not be, directly subject to any government regulations other than normal
business regulations. However, our communications service providers are subject
to varying degrees of federal, state and local regulation. Generally, the FCC
exercises jurisdiction over all communications service providers to the extent
they provide services involving the supplying of interstate or international
communications. The Telecommunications Act of 1996 expanded the FCC's
jurisdiction to include certain interconnection and related issues that
traditionally have been considered subject primarily to state regulation. The
state regulatory commissions also retain jurisdiction over significant aspects
of the provision of intrastate communications services. The Telecommunications
Act of 1996 was intended ultimately to permit service providers in the long
distance and local communications services markets, as well as cable television
providers, to compete freely in all communications markets. For example, the
Telecommunications Act of 1996 eventually will permit the RBOCs to compete fully
in the provision of long distance services upon the satisfaction of statutorily
mandated criteria. The Telecommunications Act of 1996 generally requires RBOCs
to provide competitors with interconnection and nondiscriminatory access to
their local exchange network on more favorable terms than have been available in
the past. As required by the Telecommunications Act of 1996, the FCC adopted in
August 1996 new rules implementing the interconnection and resale provisions of
the
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Telecommunications Act of 1996, which are intended to minimize regulatory,
economic and operational impediments to full competition for local services.
We are unable to determine what effect the Telecommunications Act of
1996 and other laws and regulations will have on the communications industry in
general and on us in particular. Numerous FCC, state and local regulatory
decisions are expected regarding issues that may materially affect us because
they will have an impact on:
o the services and the pricing that can be offered by RBOCs; and
o who can compete with RBOCs in various markets and the prices they
will be able to offer.
Proposed ISP Business
We anticipate providing Internet access, in part, through transmissions
over public telephone lines. These transmissions are governed by regulatory
policies establishing charges and terms for communications. As an ISP, we will
not be directly regulated by the FCC or any other agency, other than regulations
applicable to businesses generally. We could, however, become subject in the
future to regulation by the FCC or other regulatory agencies as a provider of
basic telecommunications services.
These regulations could affect the charges that we pay to connect to
the local telephone network or for other purposes. We, like other ISPs, are not
required to pay carrier access charges. Access charges are assessed by local
telephone companies to long-distance companies for the use of the local
telephone network to originate and terminate long-distance calls, generally on a
per minute basis. Access charges have been a matter of continuing dispute
between local telephone companies and long-distance carriers. In May 1997, the
FCC reaffirmed its decision that ISPs should not be required to pay carrier
access charges.
To the extent that an end user's call to an ISP is local rather than
long distance, the local telephone company that serves the ISP may be entitled
to reciprocal compensation from the end user's local telephone company.
Reciprocal compensation is a reimbursement from one local telephone company to a
second one for handling calls that originate with the first local telephone
company and terminate with the second one. To the extent that a call from an end
user to an ISP is considered intrastate, the local telephone company serving an
ISP would be entitled to reciprocal compensation. This payment of reciprocal
compensation reduces the local telephone company's costs and ultimately reduces
the ISP's costs. The FCC recently determined that most, but not all, traffic to
an ISP is interstate in nature rather than local. This determination could
potentially eliminate the payment of reciprocal compensation to the local
telephone company. The FCC has yet to rule on the specific issue of reciprocal
compensation and ISP traffic; however, the FCC has stated that state commissions
may determine whether, in some circumstances, reciprocal compensation should be
paid.
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The FCC's current position is that Internet access providers should not
be required to contribute to a new universal service fund established to replace
current local rate subsidies and to meet other public policy objectives, such as
enhanced communications systems for schools, libraries and health care
providers. As a result, unlike telecommunications carriers and other
telecommunications providers, ISPs do not have to contribute a percentage of
their revenues to the federal universal service fund and are not expected to be
required to contribute to similar funds being established at the state level.
Both the access charge and universal service treatment of ISPs, however, are the
subjects of further FCC proceedings and could change. Telephone companies are
actively seeking reconsideration or reversal of the FCC decisions, and their
arguments are gaining more support as Internet-based telephony begins to compete
with conventional telecommunications companies.
We are not in a position to predict how these matters will be resolved,
but we could be adversely affected if, in the future, we and other ISPs are
required to pay access charges, contribute to universal service support or our
local telephone companies no longer receive reciprocal compensation for our
traffic.
The law relating to the liability of ISPs and on-line services
companies for information carried on or disseminated through their networks is
unsettled. As the law in this area develops, the potential imposition of
liability upon us for information carried on and disseminated through our
network could require us to implement measures to reduce our exposure to this
liability, which may require the expenditure of substantial resources or the
discontinuation of some of our products or service offerings. Any costs that are
incurred as a result of contesting any asserted claims or the consequent
imposition of liability could materially adversely affect our profitability.
Due to the increasing popularity and use of the Internet, a number of
laws and regulations have been adopted in recent months, and may be adopted in
the future, by federal and state governments, as well as by foreign governments
with respect to the Internet. These laws cover or may cover issues such as
content, user privacy, pricing and copyright infringement. We cannot predict the
impact, if any, that recent and any future regulatory changes or developments
may have on the business, financial condition and results of operations of any
ISPs we acquire. Changes in the regulatory environment relating to the Internet
access industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition from
access providers or others, could have a material adverse effect on the ISP
business.
EMPLOYEES
As of June 30, 1999, ICM and Access had 63 employees, all of whom were
full-time employees. Of our full-time employees, 30 were in sales and marketing,
19 were in operations and engineering support, and 14 were in administration. As
of the date of this prospectus, PentaStar has no employees. Upon this offering,
we will hire three executive officers.
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We believe that our relations with our employees are satisfactory. We
are not a party to any collective bargaining agreements and we have never
experienced a work stoppage. As we continue to grow and acquire new companies,
we expect to hire additional personnel.
PROPERTIES
We maintain our corporate headquarters at 1522 Blake Street, Denver,
Colorado. We lease 1,875 square feet under a lease which expires August 31,
2002. Additionally, our agents lease the following facilities:
<TABLE>
<CAPTION>
Location Sq. Ft. Term
<S> <C> <C>
Englewood, Colorado 9,050 4,250 sq. ft. expires 7/31/00
4,800 sq. ft. expires 12/31/01
Colorado Springs, Colorado 300 Expires 3/31/00
Bellevue, Washington 9,902 5,213 sq. ft. expires 11/30/02
4,689 sq. ft. expires 11/30/02
Portland, Oregon 3,238 Expires 6/28/01
</TABLE>
We believe additional space is available for expansion.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors upon completion of this offering
and the acquisitions of ICM and Access will be:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert S. Lazzeri 38 Chief Executive Officer and Director
R. Neal Tomblyn 44 President and Chief Operating Officer
David L. Dunham 40 Chief Financial Officer
Richard M. Tyler 41 Vice President, Secretary and Director
Craig J. Zoellner 42 Vice President, Treasurer and Director
Carleton A. Brown 57 Director
</TABLE>
KEY EMPLOYEES
Our key employees are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dennis W. Schillinger 55 Manager-Northwest Region
Jeffrey A. Veres 45 Manager-Colorado Region
</TABLE>
Robert S. Lazzeri will become PentaStar's chief executive officer and a
director upon this offering. From October 1989 to his employment by PentaStar,
Mr. Lazzeri worked for Daniels & Associates, L.P., a leading international
telecommunications investment banking firm, most recently as a senior vice
president. While at Daniels & Associates, Mr. Lazzeri specialized in providing
merger, acquisition and advisory services to clients in the wired and wireless
telecommunications industry, completing more than 100 telecommunications
transactions. He holds a B.S. degree from the University of Colorado.
R. Neal Tomblyn will become PentaStar's president and chief operating
officer upon this offering. From July 1998 until his employment by PentaStar, he
owned and operated NTC Corporation, a company that provided strategic planning
and operational consulting to companies in the communications, Internet and
broadband industries. From January 1997 until its acquisition in June 1998, Mr.
Tomblyn was chief executive officer of IEG, Inc., a private Internet based
multimedia, software and database company. From May 1995 to January 1997, Mr.
Tomblyn was president and chief operating officer of Ingenius, an educational
programming joint venture of Reuters and Tele-Communications, Inc. From December
1992 to April 1995, Mr. Tomblyn was chief operating officer of Bell Atlantic
Video Services, a start-up subsidiary of
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Bell Atlantic Corporation. While at Bell Atlantic Video, he helped create an
interactive multimedia business and founded the Internet services group for Bell
Atlantic Corporation. He has experience working with RBOCs, ISPs, inter-exchange
carriers such as AT&T and MCI/WorldCom, and cable companies. Mr. Tomblyn holds a
B.S. degree from Eastern Kentucky University.
David L. Dunham will become PentaStar's chief financial officer upon
this offering. From August 1997 to his employment by PentaStar, Mr. Dunham was
chief financial officer of Strategic Marketing International, LLC, a PGA Tour
licensee company that has developed the Golfwatch program for tour events
nationwide. From January 1996 to July 1997, Mr. Dunham was corporate controller
for Birner Dental Management Services, Inc., a company that is undertaking a
consolidation in the dental practice industry. From September 1989 to December
1995, Mr. Dunham was corporate controller for Gillett Holdings, Inc., a holding
company that had 18 subsidiaries in a variety of businesses. Mr. Dunham also
worked for Arthur Andersen for eight years, most recently as an audit manager.
Mr. Dunham holds a B.S. degree from the University of Wyoming and is a licensed
CPA.
Richard M. Tyler has been vice president, secretary and a director of
PentaStar since March 1999. Since November 1988, he has been a member (or a
partner in the predecessor partnership) of BACE Investments and BACE Industries,
a private company that has completed consolidations and executed exit strategies
in several industries. Mr. Tyler has been an executive officer or director of
various companies for which BACE Industries has led consolidation efforts. Those
companies include BACE Plastics Group, Inc. from March 1989 to March 1995,
SoftWorld Services Corporation from January 1995 to November 1996, and RentX
Industries, Inc. from March 1996 to July 1999. He holds a B.A. degree from The
Colorado College.
Craig J. Zoellner has been president, treasurer and a director of
PentaStar since March 1999. Upon this offering, he will cease to be our
president and will become a vice president and continue to be our treasurer and
a director. Since November 1988, he has been a member (or a partner in the
predecessor partnership) of BACE Investments and BACE Industries. Mr. Zoellner
has been an executive officer or director of various companies for which BACE
Industries has led consolidation efforts. Those companies include BACE Plastics
Group, Inc. from March 1989 to March 1995, SoftWorld Services Corporation from
January 1995 to November 1996, and RentX Industries, Inc. from March 1996 to
July 1999. He holds a B.A. degree from The Colorado College and an M.B.A. from
the Stanford Graduate School of Business.
Carleton A. Brown has served as a director of PentaStar since August
1999. Since July 1998, Mr. Brown has served as executive vice president of Orion
Systems, Inc., a start-up CLEC and Internet telephony company. From October 1996
to January 1998, Mr. Brown served as senior vice president of global sales and
marketing for Intergram International, Inc., an Internet-based communications
messaging company. From November 1994 to September 1996, Mr. Brown served as
president and chief executive officer of American Lightwave Systems, Inc., a
worldwide provider of broadband and video solutions. From January 1994 to
November 1994,
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Mr. Brown served as president and chief executive officer of ATx Telecom
Systems, Inc., a network technology solutions company. From January 1992 to
January 1994, Mr. Brown served as senior vice president and general manager of
Teleport Communications Group, a national CLEC. Mr. Brown also was president and
chief operating officer of Alcatel Network Systems, a communications technology
company, and served as president, Southwest division, of MCI. He holds a B.S.
degree from Norwich University and an M.B.A. from Fairleigh Dickinson
University.
Dennis W. Schillinger will become the regional manager of the Northwest
region of our agent business upon completion of the ICM acquisition. He founded
ICM and has been president of ICM since September 1990. From May 1997 to August
12, 1999, Mr. Schillinger was president and a director of Network Communications
Integration, Inc., a communications services agent. From August 1965 to February
1990, Mr. Schillinger was engaged in various administration, sales and
technology management positions for U S WEST and its predecessors in Seattle,
Washington, most recently as director of technical support. Mr. Schillinger has
an A.A. degree from Southern Junior College.
Jeffrey A. Veres will become the regional manager of the Colorado
region of our agent business upon completion of the Access acquisition. Mr.
Veres has been the president and owner of Access since November 1995. From April
1994 to October 1995, Mr. Veres served as senior vice president of technology
services for Random Access, Inc. a LAN/WAN systems integrator. From April 1987
to March 1994, Mr. Veres owned and operated JLV Enterprises, Inc. a regional
data communications equipment provider and communications network integrator.
Mr. Veres also has been employed in the roles of sales and territory management
by different entities of the Bell system, including Mountain Bell, AT&T
Information Systems, Mountain Bell Technologies, and U S WEST Information
Systems. Mr. Veres has an A.A. degree from Arapahoe Community College.
There is no family relationship among any of our directors, executive
officers or key employees.
From January 1995 until November 1996, Richard M. Tyler and Craig J.
Zoellner were vice president and secretary and vice president, assistant
secretary and director, respectively, of SoftWorld Services Corporation, which
provided turnkey manufacturing and fulfillment services to software developers.
In April 1997, SoftWorld filed a petition for relief under the Federal
Bankruptcy Code and has been liquidated.
From October 1996 to January 1998, Carleton A. Brown served as a senior
vice president of global sales and marketing for Intergram International Inc. In
July 1998 Intergram filed a petition for relief under the Federal Bankruptcy
Code.
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BOARD OF DIRECTORS
Upon this offering, we will have four directors. Our certificate of
incorporation provides for, among other things, a classified board of directors.
The certificate of incorporation states that the terms of office of the board of
directors will be divided into three classes: class I, whose term will expire at
the annual meeting of stockholders to be held in 2000, class II, whose term will
expire at the annual meeting of stockholders to be held in 2001 and class III,
whose term will expire at the annual meeting of stockholders to be held in 2002.
Mr. Brown is the class I director, Mr. Lazzeri will be the class II director and
Mr. Tyler and Mr. Zoellner are the class III directors. Within 90 days after the
completion of this offering, we will appoint an additional independent director.
He will be a class I director and will be appointed to the audit committee. At
each annual meeting of stockholders beginning with the 2000 annual meeting, the
successors to directors whose terms expire will be elected to serve from the
time of election and qualification until the third annual meeting following
election and until their successors have been elected.
COMMITTEES OF THE BOARD OF DIRECTORS
The compensation committee consists of Mr. Brown, Mr. Zoellner and Mr.
Tyler. The compensation committee makes recommendations to the board of
directors regarding compensation and benefits for PentaStar's executive
officers.
The audit committee consists of Mr. Brown, Mr. Zoellner and the
independent director to be added as described above. The functions of the audit
committee are to:
o review the scope of the audit procedures utilized by our
independent auditors;
o review with the independent auditors our accounting practices and
policies;
o consult with PentaStar's independent auditors during the year;
o approve the audit fee charged by the independent auditors; and
o report to the board of directors with respect to these matters
and to recommend the selection of independent auditors.
DIRECTOR COMPENSATION
Directors who are not receiving compensation as officers, employees or
consultants are entitled to receive an annual retainer fee of $5,000 and to be
reimbursed for expenses incurred in connection with each meeting of the board
attended in person. In addition, each of these directors receives a grant of
options to acquire 10,000 shares of common stock under our stock
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option plan upon becoming a director and an annual grant of options to purchase
5,000 shares of common stock on each annual meeting date on which the individual
is still a director.
STOCK OPTION PLAN
PentaStar's stock option plan was adopted on August 13, 1999. The plan
will terminate on the tenth anniversary of the date of its adoption, unless
earlier terminated by the board pursuant to the terms of the plan. The plan is
administered by the board or a committee appointed by the board.
Grants may be made to full-time employees of PentaStar or any of its
subsidiaries and non-employees selected by the board or the committee
administering the plan, in their discretion, whose judgment, initiative and
efforts are, or will be, important to the successful conduct of its business.
Grants under the plan may consist of:
o options intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code; and
o stock options that are not intended to so qualify.
We have reserved 1,000,000 shares for issuance pursuant to the exercise
of options granted under our stock option plan. Upon this offering, we will
grant options to purchase 325,000 shares of our common stock to a director, two
executive officers and a consultant at an exercise price per share equal to the
initial public offering price. No other options have been granted under our
stock option plan.
The board or a committee appointed by the board determines the exercise
price of options granted under the plan in accordance with the guidelines set
forth in the plan. The exercise price of incentive stock options granted
pursuant to the plan cannot be less than 100% of the fair market value of the
common stock on the date of the grant and the term of these options cannot
exceed ten years. The exercise price of incentive stock options granted to any
person who at the time of grant owns stock representing more than 10% of the
total combined voting power of all classes of PentaStar's capital stock or any
of its affiliates must be at least 110% of the fair market value of PentaStar's
common stock on the date of grant and the term of these incentive stock options
cannot exceed five years. PentaStar has agreed that for a period of at least one
year following the date of this prospectus non-qualified options will not be
granted at an exercise price of less than 100% of the fair market value of
PentaStar's common stock on the date of grant and the terms will not exceed five
years. The board or a committee appointed by the board determines the exercise
price of nonqualified stock options. Options granted under the plan vest at the
rate specified in the option agreement.
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Upon a change of control (as defined in the plan) of PentaStar, the
board or a committee appointed by the board in its sole discretion, without
obtaining stockholder approval unless otherwise required by the plan, may take
any or all of the following actions:
o accelerate or partially accelerate the vesting and exercise date
of any outstanding options or make all such options fully vested
and exercisable;
o grant a cash bonus award to any option holder in an amount
necessary to pay the option price of all or any portion of the
options then held by each option holder;
o pay cash to any or all option holders in exchange for the
cancellation of their outstanding options in an amount equal to
the difference between the option price of such options and the
greater of the per share tender offer price, the per share value
of the consideration to be paid in the change of control
transaction for the underlying stock or the fair market value of
the underlying stock on the date of the cancellation of the
options;
o cause the surviving or acquiring corporation to substitute or
assume the options; and
o make any other adjustments or amendments to the outstanding
options.
EXECUTIVE COMPENSATION
PentaStar was founded in March of 1999 and has had no significant
operations. No compensation has been paid to any executive officer.
We anticipate entering into employment agreements with Messrs. Lazzeri
and Tomblyn following completion of this offering. We believe that the
employment agreements will contain provisions for compensation, severance
payments, confidentiality and restrictions on competing with PentaStar for a
reasonable period of time subsequent to termination of their employment.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our bylaws provide that we will indemnify our directors and officers,
and may indemnify employees and agents, to the fullest extent permitted by
Delaware law. In addition, our certificate of incorporation provides that, to
the fullest extent permitted by Delaware law, our directors will not be liable
for monetary damages for breach of the directors' fiduciary duty to PentaStar
and its stockholders. This provision of the certificate of incorporation does
not eliminate the duty of care. In appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief are available under
Delaware law. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws.
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Each director will continue to be subject to liability for:
o breach of the director's duty of loyalty to PentaStar;
o acts or omissions not in good faith or involving intentional
misconduct;
o knowing violations of law;
o any transaction from which the director derived an improper
personal benefit;
o improper transactions between the director and PentaStar; and
o improper distributions to stockholders and improper loans to
directors and officers.
We intend to enter into indemnity agreements with each of our directors
and executive officers to indemnify them against expenses and losses incurred
for claims brought against them in their capacities as directors or executive
officers. PentaStar's board of directors has authorized its officers to
investigate and obtain directors' and officers' liability insurance.
There is no pending litigation or proceeding involving a director or
officer as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and control persons of
PentaStar pursuant to the foregoing provisions, or otherwise, PentaStar has been
advised that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable.
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CERTAIN TRANSACTIONS
On March 17, 1999, PentaStar issued 1,708,980 shares of common stock to
BACE Investments for $500.
On March 31, 1999, PentaStar issued 732,420 shares of common stock to
Black Diamond for $321; 469,500 shares of common stock to Robert S. Lazzeri for
$206; and 219,100 shares of common stock to Jeffrey A. Veres for $96.
On March 31, 1999, Robert S. Lazzeri, entered into agreements with each
of BACE Investments and Black Diamond pursuant to which Mr. Lazzeri has
purchased for $10.00 an option to buy 167,480 shares of PentaStar's common stock
held by BACE Investments and 73,242 shares of PentaStar's common stock held by
Black Diamond. These options become effective upon the completion of this
offering and can be exercised upon the earlier of a sale of all or substantially
all of PentaStar's assets or stock or March 31, 2000. The options terminate on
March 31, 2004. The exercise price per share is equal to the public offering
price per share in this offering.
Pursuant to a consulting agreement, effective September 1, 1999, BIBD
provides business expertise and assistance to PentaStar concerning acquisitions
and other matters. BIBD is owned by BACE Industries and by Black Diamond.
Messrs. Tyler and Zoellner, who are directors and officers of PentaStar, are the
members of BACE Industries and BACE Investments. Mr. Blair McNea is the sole
member of Black Diamond. BIBD is compensated by a monthly fee that varies from
$12,000 per month to $21,000 per month depending on PentaStar's annualized
revenue. This fee is also subject to increase based on the Consumer Price Index.
PentaStar is obligated to reimburse BIBD for expenses incurred in providing
services under the consulting agreement and to provide medical, dental,
disability and other similar benefits for up to six employees or members of
BIBD, BACE Industries and Black Diamond. BIBD, BACE Industries and Black Diamond
are subject to non-competition agreements expiring one year after the
termination of the consulting agreement and are subject to confidentiality
provisions. The consulting agreement continues in effect until terminated
according to its terms. PentaStar may terminate the consulting agreement for
cause, including gross negligence and willful disregard of instructions from the
board of directors. BIBD may terminate the consulting agreement on 30 days prior
notice. The consulting agreement terminates automatically if PentaStar sells all
or substantially all of its assets or is acquired for cash by an unaffiliated
party, or if PentaStar becomes the subject of a proceeding under Chapter 11 of
the Federal Bankruptcy Code.
PentaStar leases 1,875 square feet of office space from an affiliate of
Messrs. Zoellner and Tyler for $3,000 per month (subject to increases based on
the Consumer Price Index and increases in operating expenses). This lease
agreement has a 36-month term commencing September 1, 1999.
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Commencing upon the completion of this offering, PentaStar will lease
4,800 square feet of office space from Mr. Veres for $3,000 per month. This
lease expires on December 31, 2001.
Since March 15, 1999, PentaStar has issued promissory notes to BACE
Industries for funds loaned by BACE Industries to PentaStar for its use to pay
expenses associated with the organization of PentaStar, the acquisitions of ICM
and Access and this offering. The notes bear interest at 5% per annum and are
payable upon completion of this offering. We estimate we will pay BACE
Industries approximately $75,000, plus accrued interest, at that time as payment
in full for the promissory notes.
We have entered into an employment agreement with Mr. Veres that will
be effective upon the completion of this offering. Mr. Veres' employment
agreement has a term from the completion of this offering until the earlier of
the date of a change of control of PentaStar (as defined in the agreement) or
five years after the completion of this offering, provided that it can be
earlier terminated for cause (as defined in the agreement). Mr. Veres' annual
salary will be $120,000 and he will be eligible to receive an annual cash bonus
of up to 5% of his area's operating income before amortization expense. This
agreement generally restricts Mr. Veres from competing with us for a period that
is the greater of three years from the date of the agreement or one year after
his termination date. We will also reimburse Mr. Veres for reasonable
out-of-pocket expenses and he will be eligible to participate in our benefit
plans and programs.
PentaStar believes that the transactions summarized above were made on
terms no less favorable than terms PentaStar could have obtained from
unaffiliated third parties. The board of directors has determined that any
future transactions between PentaStar and its officers, directors or principal
stockholders will be approved by a majority of the disinterested directors who
had access, at PentaStar's expense, to PentaStar's counsel or independent legal
counsel and will be on terms no less favorable than PentaStar could obtain from
an unaffiliated third party. The board of directors may obtain independent
counsel or other independent advice to assist in that determination.
PRINCIPAL STOCKHOLDERS
GENERAL
The following table details information with respect to the beneficial
ownership of PentaStar's common stock as of the date of this prospectus, prior
to and after giving effect to the issuance of shares of common stock in
connection with the ICM and Access acquisitions and this offering, by:
o each stockholder known by PentaStar to beneficially own more than
5% of our common stock;
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o each person who is or will be an executive officer following
completion of this offering;
o each director; and
o all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PRIOR TO SHARES AFTER
ACQUISITIONS AND OFFERING ACQUISITIONS AND OFFERING
------------------------- -------------------------
SHARES OWNED PERCENT SHARES OWNED PERCENT
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
BACE Investments, LLC 1,674,800 53.5 1,674,800 33.5
Craig J. Zoellner 1,674,800 53.5 1,674,800 33.5
Richard M. Tyler 1,674,800 53.5 1,674,800 33.5
Black Diamond Capital, LLC 732,420 23.4 732,420 14.6
7101 LaVista Place, Suite 100
Niwot, Colorado 80503
Blair W. McNea 732,420 23.4 732,420 14.6
7101 LaVista Place, Suite 100
Niwot, Colorado 80503
Robert S. Lazzeri 469,500 15.0 469,500 9.4
Jeffrey A. Veres 219,100 7.0 424,100 8.5
7076 S. Alton Way, Bldg. A
Englewood, Colorado 80112
R. Neal Tomblyn 0 * 55,000 1.1
David L. Dunham 0 * 18,750 *
Carleton A. Brown 0 * 10,000 *
All directors and 2,144,300 68.5 2,228,050 43.8
executive officers as a
group (6 persons)
</TABLE>
Asterisks on the foregoing table indicate beneficial ownership of less
than 1%.
Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently
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exercisable or will become exercisable within 60 days after the date of this
prospectus are deemed outstanding, while these shares are not deemed outstanding
for purposes of computing percentage ownership of any other person. Applicable
percentages are based on 3,500,000 shares of common stock outstanding as of the
date of this prospectus and 5,000,000 shares of common stock outstanding after
completion of this offering. Unless otherwise indicated in the following
paragraphs, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. Unless otherwise indicated in the
table above, the address of each person who beneficially owns or will own more
than 5% of our common stock is 1522 Blake Street, Denver, Colorado 80202.
The shares listed as being owned by BACE Investments include 140,000
shares that will be placed in escrow pursuant to an agreement with the
representative of the underwriters, as to which BACE Investments will have
voting but not dispositive power until certain events described in "Shares
Eligible for Future Sales" section. The shares listed as being owned by Messrs.
Zoellner and Tyler, the members of BACE Investments, include the shares listed
as being owned by BACE Investments. The shares listed as being owned by BACE
Investments do not include 34,180 shares owned by an employee of BACE Industries
which BACE Investments has the right to acquire upon termination of the
employee's employment.
The shares listed as being owned by Black Diamond include 60,000 shares
that will be placed in escrow pursuant to an agreement with the representative
of the underwriters, as to which Black Diamond will have voting but not
dispositive power until certain events described in "Shares Eligible for Future
Sales" section. The shares listed as being owned by Mr. McNea, the sole member
of Black Diamond, include shares listed as being owned by Black Diamond.
Shares listed as being owned by Mr. Veres after the acquisition of
Access include 68,265 shares that will be subject to the escrow and contingent
stock agreement described below, as to which he will have voting but not
dispositive power until the earlier of the sale of all or substantially all of
the assets or stock of PentaStar or the fifth anniversary of the acquisition of
Access.
The shares listed for Mr. Tomblyn include 55,000 shares that will be
subject to a stock option to be granted upon this offering. The stock option
will be exercisable within 60 days of this offering.
The shares listed for Mr. Dunham include 18,750 shares that will be
subject to a stock option to be granted upon this offering. The stock option
will be exercisable within 60 days of this offering.
The shares listed for Mr. Brown include 10,000 shares that will be
subject to a stock option to be granted upon this offering. The stock option
will be exercisable within 60 days of this offering.
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Escrow and Contingent Stock Agreements
Each of Mr. Schillinger and Mr. Veres, as principal owners of ICM and
Access, will enter into escrow and contingent stock agreements on closing of the
acquisitions. These agreements adjust the final consideration paid to those
stockholders in return for their interests in ICM and Access. Under these
agreements, Mr. Schillinger and Mr. Veres will place 40,000 and 68,265 shares of
the PentaStar common stock each receives upon the acquisition of his company
into escrow. Based upon the earnings performance of an acquired company relative
to that of all other acquired companies for the 12-month period prior to the
earlier of a sale of substantially all of the assets or stock of PentaStar or
five years, the stockholder associated with that company will receive back from
escrow all, some or none of the shares he placed in escrow. In addition, based
again upon the relative earnings performance of the acquired company, that
stockholder may receive additional shares of common stock from PentaStar. The
escrow agreement is designed, however, so that there will be no net change to
the total number of PentaStar common stock outstanding after the combined
adjustments are made for all of the acquired companies. We expect that the
owners who manage other companies that we acquire will be required to receive
the majority of the purchase price in PentaStar common stock and place into
escrow from 25% to 50% of their PentaStar common stock pursuant to similar
arrangements.
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<PAGE> 76
DESCRIPTION OF CAPITAL STOCK
The following description summarizes some of the terms of our capital
stock and provisions of our certificate of incorporation and bylaws. Please
refer to our certificate of incorporation and bylaws, which have been filed as
exhibits to our registration statement.
On the closing of this offering, our authorized capital stock will
consist of 20,000,000 shares of common stock, $.0001 par value per share, and
1,000,000 shares of preferred stock, $.0001 par value per share. As of the date
of this prospectus, without giving effect to the shares to be issued in the ICM
and Access acquisitions, there were 3,130,000 shares of common stock outstanding
held of record by five stockholders.
COMMON STOCK
The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. The
holders of common stock are not entitled to cumulative voting rights with
respect to the election of directors, and as a consequence minority stockholders
will not be able to elect directors on the basis of their votes alone. Subject
to preferences that may be applicable to any then outstanding shares of
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board out of funds legally available.
In the event of a liquidation, dissolution or winding up, holders of
the common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive rights and no right
to convert their common stock into any other securities. There are no redemption
provisions applicable to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding on completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including:
o dividend rights;
o conversion rights;
o voting rights;
o terms of redemption;
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o liquidation preferences;
o sinking fund terms; and
o the number of shares constituting any series or the designation
of such series.
Any such issuance could adversely affect the voting power of holders of common
stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation could have the effect of delaying, deferring or
preventing a change in control of PentaStar. We have no present plan to issue
any shares of preferred stock.
WARRANTS
Upon completion of this offering, we will sell to the representative of
the underwriters for $10 warrants to purchase 150,000 shares of common stock.
These warrants will become exercisable one year after the effective date of the
offering at a per share exercise price of 120% of the initial public offering
price and will expire five years from the effective date of the offering. The
common stock issuable on exercise of the representative's warrants is subject to
adjustment in some circumstances to prevent dilution.
REGISTRATION RIGHTS
The holders of the representative's warrants are entitled to demand and
incidental registration rights with respect to the shares of common stock
issuable upon exercise of those warrants. We are required to bear all
registration expenses in connection with the registration of registrable
securities.
DELAWARE ANTI-TAKEOVER LAW AND RELATED CHARTER PROVISIONS
PentaStar is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock. The existence of this provision would be expected to
have anti-takeover effects with respect to transactions not approved in advance
by the board of directors, such as discouraging takeover attempts that might
result in a premium over the market price of the common stock.
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Our certificate of incorporation provides for a board of directors that
is divided into three classes:
o the directors in class I will hold office until the first annual
meeting of stockholders following this offering;
o the directors in class II will hold office until the second annual
meeting of stockholders following this offering; and
o the directors in class III will hold office until the third annual
meeting of stockholders following this offering or, in each case,
until their successors are duly elected and qualified or until
their earlier resignation, removal from office or death.
After each election, the directors in each class will then serve in
succeeding terms of three years and until their successors are elected. The
classification system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of
PentaStar and may maintain the incumbency of the board of directors, as the
classification of the board of directors generally increases the difficulty of
replacing a majority of the directors.
Our corporate documents contain other provisions that might discourage,
delay or prevent a change in control of PentaStar or of our management. These
provisions could also limit the price that investors might be willing to pay for
shares of our common stock. These provisions provide that:
o stockholders may not act by written consent;
o special meetings of stockholders may be called by the board of
directors, the chairman of the board or the chief executive
officer;
o only the board of directors may change the authorized number of
directors;
o no director can be removed without cause, subject to the right of
any holders of preferred stock; and
o directors may be removed for cause only by a majority vote of the
stockholders.
LISTING
We have applied for listing of our common stock on the Nasdaq SmallCap
Market under the trading symbol "PNTA."
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<PAGE> 79
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. has been appointed as the
transfer agent and registrar for our common stock.
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<PAGE> 80
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for PentaStar's
common stock, and there can be no assurance that a significant public market for
our common stock will develop or be sustained after this offering. Future sales
of substantial amounts of common stock in the public market could adversely
affect market prices prevailing from time to time.
After this offering, PentaStar will have a total of 5,000,000 shares of
common stock outstanding. Of these shares, the 1,500,000 shares sold in this
offering will be freely tradable in the public market without restriction under
the Securities Act, except for any shares held by "affiliates" of PentaStar, as
that term is defined in Rule 144 under the Securities Act. The remaining
3,500,000 shares of common stock held by existing stockholders and persons who
will acquire shares in the acquisitions of ICM and Access are "restricted
securities," as that term is defined in Rule 144 under the Securities Act. All
restricted shares were issued and sold by PentaStar in private transactions,
which relied on the registration exemptions detailed in the Securities Act.
Restricted shares may be sold in the public market only if they are registered
or if they qualify for an exemption from registration, such as Rule 144 or Rule
701 under the Securities Act.
PentaStar's executive officers, directors and existing stockholders and
persons who will acquire shares in the acquisitions of ICM and Access
collectively hold an aggregate of 3,500,000 restricted shares. These persons
have each agreed with Schneider Securities, Inc., as representative of the
underwriters, not to sell, offer to sell, consent to sell, grant any option for
the sale of, grant any security interest in, pledge, hypothecate or otherwise
sell or dispose of any of those shares for a period of twelve months from the
date of this prospectus.
Persons who receive in connection with this offering options to acquire
an aggregate of 325,000 shares of common stock will agree with Schneider
Securities, Inc., as representative of the underwriters, not to sell the common
stock issued upon exercise of an option pursuant to the exemption under Rule 701
of the Securities Act for a period of 12 months after the effectiveness of this
offering. Rule 701, as currently in effect, permits resales of shares in
reliance upon Rule 144 but without compliance with some of the restrictions in
Rule 144, including the holding period requirement of Rule 144. Any employee,
officer or director of or consultant to PentaStar who purchased shares pursuant
to a written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 further provides that non-affiliates may sell
shares acquired pursuant to Rule 701 in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144.
Beginning 12 months following the effectiveness of this offering,
PentaStar will be permitted to file a registration statement on form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under its stock option plan. We have reserved 1,000,000
shares for issuance pursuant to the exercise of options granted under our stock
option plan. Upon this offering, we will grant options to purchase 325,000
shares of our common stock to a director, two executive officers and a
consultant at an exercise price per share equal to the initial per share
offering price.
The representative has undertaken that it will not shorten or waive the
lock-up period. PentaStar has undertaken that it will not, for a period of one
year following the date of this offering, issue or reserve for issuance options
or warrants to purchase common stock that in the aggregate exceeds 15% of the
shares of common stock outstanding on completion of this offering except for
some limited exclusions.
Excluded from the 15% limitation are:
o the representative's warrants and any other warrants or options
exercisable at or above the public offering price of the common
stock;
o options that are issued or reserved for issuance to employees or
consultants that are not promoters under a qualified stock option
plan;
o options or warrants granted to unaffiliated institutional
investors in connection with loans, subject to satisfaction of
certain additional conditions; and
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o options and warrants granted in connection with acquisitions,
mergers and certain other transactions to persons unaffiliated
with PentaStar that will not materially dilute PentaStar earnings.
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned
restricted securities for at least one year is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (1) 1%
of the number of shares of common stock then outstanding (which number of
outstanding shares will equal 5,000,000 shares immediately after this offering);
or (2) the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144. Sales under Rule 144 are also
subject to the manner of sale provisions under Rule 144 and notice requirements
and to the availability of current public information about PentaStar. Under
Rule 144(k), a person who is deemed not to have been an affiliate of PentaStar
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner except an affiliate), is entitled to sell those shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
Taking into account the various lock-up agreements described in this
section, no shares will be available for sale in the public market under the
provisions of Rules 144, 144(k) or 701 during the 365 days after the date of
this prospectus.
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Registration of any shares under the Securities Act pursuant to
outstanding registration rights would result in the shares becoming freely
tradable without restriction.
In addition, BACE Investments will deposit 140,000 shares and Black
Diamond will deposit 60,000 shares of common stock of PentaStar owned by those
stockholders in an escrow account pursuant to an escrow agreement with the
representative and American Securities Transfer & Trust, Inc. The common stock
deposited in the escrow account will be subject to release to the stockholders
on the earlier to occur of:
o PentaStar achieving pro forma (based on a full 12-month period for
all acquired operations) diluted earnings per share of $0.50 in
fiscal year 2000;
o PentaStar achieving pro forma (based on a full 12-month period for
all acquired operations) diluted earnings per share of $1.25 in
fiscal year 2001;
o a merger, acquisition or exchange in which PentaStar is not the
surviving entity or in which the stockholders of PentaStar own
less than 50% of the outstanding capital stock of the surviving
entity following that transaction or the sale of all or
substantially all of the assets of PentaStar that is approved by a
majority of the holders of the outstanding shares, excluding the
shares held in the escrow account; or
o seven years after the date of this prospectus.
The shares of common stock held in escrow are not transferable or assignable,
although they may be voted by the stockholders. The earnings levels set forth
above were determined by negotiation between PentaStar and the representative
and should not be construed to imply or predict any future earnings by PentaStar
or the market price of the common stock.
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<PAGE> 83
Finally, the officers, directors, all existing stockholders and
persons, except as described in the last sentence of this paragraph, who will
acquire shares in the acquisitions of ICM and Access, as well as persons who
acquire our common stock upon exercise of options, are contractually bound by
PentaStar not to sell any of their stock for 18 months after the completion of
this offering. They may sell up to 33.33% of the shares owned by them after 18
months, an additional 16.67% after 24 months and the remaining 50% only at the
earlier of the sale of substantially all of the assets or stock of PentaStar or
five years after the completion of this offering. However, the stockholders of
ICM, other than Mr. Schillinger, may sell up to 33.33% of the 45,000 shares that
will be acquired by them in the acquisition of ICM after 18 months, an
additional 33.33% of those shares after 24 months and the remaining 33.33% of
those shares 30 months after the completion of this offering.
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<PAGE> 84
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, the underwriters named below, for which Schneider Securities, Inc. is
acting as representative, have severally agreed to purchase from PentaStar the
respective number of shares of common stock set forth opposite each
underwriter's name.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Schneider Securities, Inc......................
---------
Total..................................... 1,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in PentaStar's business and the receipt of
certain certificates, opinions and letters from PentaStar, its counsel and
independent auditors. The nature of the underwriters' obligations is that they
are obligated to purchase and pay for all the shares of common stock offered
hereby, if any shares are purchased.
The underwriters propose initially to offer the shares of common stock
directly to the public at the public offering price set forth on the cover page
of this prospectus and to certain dealers at that price less a concession not in
excess of $___ per share. After the initial public offering of the shares, the
offering price and other selling terms may be changed by the representative of
the underwriters. The representative has advised PentaStar that the underwriters
do not expect any sales to accounts for which any of the underwriters will
exercise discretion as to such sale.
PentaStar has granted to the representative an option, expiring at the
close of business on the 45th day after the date of this prospectus, to purchase
up to 225,000 additional shares at the initial public offering price, less the
underwriting discounts, all as set forth on the cover page of this prospectus.
The representative may exercise this option only to cover over-allotments made
in connection with the sale of common stock in this offering.
The offering of the shares is made for delivery when, as and if
accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
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Upon completion of this offering, PentaStar will sell to the
representative for $10 warrants to purchase 150,000 shares of common stock. The
representative's warrants will become exercisable one year from the effective
date of this offering at a per share exercise price equal to 120% of the initial
public offering price and will expire five years from the date of this
prospectus. The representative's warrants and underlying shares of common stock
will be restricted from sale, transfer, assignment or hypothecation for a period
of one year from the effective date of the registration statement, except to the
officers and employees of, the representative, underwriters, the selling group
members and their officers, employees or partners. During the exercise period,
holders of the representative's warrants are entitled to demand and incidental
registration rights with respect to the shares of common stock issuable upon
exercise of the representative's warrants. The common stock issuable on exercise
of the representative's warrants is subject to adjustment in some circumstances
to prevent dilution.
PentaStar will pay the representative a nonaccountable expense
allowance of 3% of the gross proceeds of the offering, which will include
proceeds from the over-allotment option, if exercised. The representative's
expenses in excess of the nonaccountable expense allowance, including its legal
expenses, will be borne by the representative. PentaStar has paid $25,000 to the
representative as an advance for expenses.
PentaStar has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, and to
contribute to payments which the underwriters may be required to make regarding
these liabilities.
PentaStar has agreed to give notice to the representative of meetings
of the board of directors and to grant access to those meetings to nominees of
the representative to attend the meetings as observers.
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934. Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the securities in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representative to reclaim a
selling concession from a syndicate member when the securities originally sold
by the syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. These stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the common stock
to be higher than it would otherwise be in the absence of these transactions.
These transactions may be effected on the Nasdaq SmallCap Market or otherwise
and, if commenced, may be discontinued at any time.
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Neither PentaStar nor the underwriters can predict the effect that the
transactions described above may have on the price of the common stock. In
addition, neither PentaStar nor the underwriters represent that the underwriters
will engage in those transactions. If commenced, those transactions may be
discontinued at any time without notice. It is anticipated that certain of the
underwriters will make a market in the common stock on completion of this
offering, as permitted by applicable law. The underwriters are not obligated to
make a market in the common stock and if they do so may discontinue making a
market at any time. There is no assurance an active trading market will ever
develop for the common stock.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between PentaStar and the representative. The principal factors to be considered
in determining the initial public offering price include:
o the information set forth in this prospectus and otherwise
available;
o the history and the prospects for the industries in which
PentaStar will compete;
o the ability of PentaStar's management;
o the prospects for future earnings of PentaStar;
o the present state of PentaStar's development and its current
financial condition;
o the general condition of the securities markets at the time of
this offering; and
o the recent market prices of, and the demand for, publicly traded
stock of generally comparable companies.
The estimated initial public offering price per share range set forth
on the cover of this preliminary prospectus is subject to change as a result of
the above and other factors.
-82-
<PAGE> 87
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
PentaStar by Sherman & Howard L.L.C., Denver, Colorado. Certain legal matters
will be passed upon for the representative by Berliner Zisser Walter & Gallegos,
P.C., Denver, Colorado.
EXPERTS
The audited financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
-83-
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PENTASTAR COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction of Unaudited Pro Forma Combined Financial Statements F-2
Unaudited Pro Forma Combined Balance Sheet F-3
Unaudited Pro Forma Combined Statement of Operations F-4
Notes to Unaudited Pro Forma Combined Financial Statements F-6
PENTASTAR COMMUNICATIONS, INC.
Report of Independent Public Accountants F-9
Balance Sheets F-10
Statement of Operations F-11
Statement of Cash Flows F-12
Notes to Financial Statements F-13
ICM COMMUNICATIONS INTEGRATION, INC.
Report of Independent Public Accountants F-16
Balance Sheets F-17
Statement of Operations F-18
Statement of Cash Flows F-19
Statement of Shareholders' Equity F-20
Notes to Financial Statements F-21
DMA VENTURES, INC., dba. ACCESS COMMUNICATIONS
Report of Independent Public Accountants F-28
Balance Sheets F-29
Statement of Operations F-30
Statement of Cash Flows F-31
Statement of Shareholder's Equity F-32
Notes to Financial Statements F-33
</TABLE>
F-1
<PAGE> 89
PENTASTAR COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
BASIS OF PRESENTATION
The following unaudited pro forma condensed combined financial information gives
effect to (a) the acquisitions by PentaStar Communications, Inc. ("PentaStar"),
of the outstanding capital stock and other equity interests of ICM
Communications Integration, Inc., ("ICM Communications") and DMA Ventures, Inc.,
dba Access Communications ("Access Communications") (together, the Acquired
Companies) and (b) the closing of PentaStar's initial public offering (the
Offering). The acquisitions (the Acquisitions) will occur simultaneously with
the closing of the Offering and will be accounted for using the purchase method
of accounting. The unaudited pro forma condensed combined financial information
is derived from the historical financial statements of PentaStar, Access
Communications and ICM.
The unaudited pro forma combined balance sheet gives effect to the Acquisitions
and related transactions, and the Offering, as if they had occurred on June 30,
1999. The unaudited pro forma combined statements of operations give effect to
these transactions as if they had occurred at the beginning of the earliest
period presented on January 1, 1998. The purchase accounting adjustments made in
connection with the development of the pro forma condensed combined financial
information are preliminary and have been made solely for purposes of developing
such pro forma condensed combined financial information.
PentaStar has analyzed the savings that it expects to realize from reductions in
salaries, bonuses and certain benefits to the owners. To the extent the owners
of the Acquired Companies have contractually agreed to prospective changes in
salary, bonuses, benefits and lease payments, these changes have been reflected
in the unaudited pro forma combined statements of operations. With respect to
other potential cost savings, PentaStar has not and cannot quantify these
savings until completion of the Acquisitions. It is anticipated that these
savings will be partially offset by costs related to PentaStar's new corporate
management and by the costs associated with being a public company. However,
because these costs cannot be accurately quantified at this time, they have not
been included in the pro forma combined financial information of PentaStar.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that PentaStar management deems appropriate
and may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what PentaStar's combined financial
position or results of operations would actually have been if such transactions
in fact had occurred on those dates and are not necessarily representative of
PentaStar's combined financial position or results of operations for any future
period. Since the Acquired Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial information
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Prospectus. See also "Risk Factors" included
elsewhere herein.
F-2
<PAGE> 90
PENTASTAR COMMUNICATIONS, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
(In thousands)
<TABLE>
<CAPTION>
ICM
ASSETS PentaStar Communications Access
------ Communications, Integration, Communications Pro Forma Pro Forma
Inc. (9) Inc. (9) (9) Adjustments Combined
-------------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1 $ 210 $ 4 (2) $ (2,424) $ 9,950
(4) 12,400
(3) (27)
(2) (214)
Accounts receivable, net -- 1,294 271 1,565
Prepaid and other 24 234 184 442
--------- --------- --------- --------- ---------
Total current assets 25 1,738 459 9,735 11,957
PROPERTY AND EQUIPMENT, net -- 160 409 -- 569
GOODWILL -- -- -- (2) 3,815 3,815
OTHER -- 507 -- -- 507
--------- --------- --------- --------- ---------
Total assets $ 25 $ 2,405 $ 868 $ 13,550 $ 16,848
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current borrowings $ 27 $ 29 $ 206 (2) $ (235) $ --
-- -- -- (3) (27) --
Other current liabilities -- 1,338 394 (2) (612) 1,120
--------- --------- --------- --------- ---------
Total current liabilities 27 1,367 600 (874) 1,120
LONG-TERM BORROWINGS -- -- 156 (2) (156) --
SHAREHOLDERS' EQUITY:
Common stock -- -- 114 (5) (114) --
Additional paid in capital -- -- -- (2) 3,330 15,730
(4) 12,400 --
Retained earnings (deficit) (2) 1,038 (2)(5) (1,036) (2)
--------- --------- --------- --------- ---------
Total shareholders' equity (2) 1,038 112 14,580 15,728
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 25 $ 2,405 $ 868 $ 13,550 $ 16,848
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to pro forma financial information.
F-3
<PAGE> 91
PENTASTAR COMMUNICATIONS, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
ICM
PentaStar Communications Access
Communications, Integration, Communications Pro Forma Pro Forma
Inc. (9) Inc. (9) (9) Adjustments Combined
-------------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Advanced communication services $ -- $ 3,681 $ 2,038 $ -- $ 5,719
Basic dial tone services -- 594 344 -- 938
----------- ----------- -------- -------- --------
-- 4,275 2,382 -- 6,657
COSTS AND EXPENSES:
Salaries and commissions -- 2,746 1,201 (6) (255) 3,692
Other general and administrative expenses -- 952 577 (7) 180 1,709
Goodwill amortization -- -- -- (2) 191 191
----------- ----------- -------- -------- --------
Income from operations -- 577 604 (116) 1,065
----------- ----------- -------- -------- --------
OTHER (INCOME) EXPENSE:
Interest expense -- 1 52 (2)(3) (53) --
Other (income) expense -- (9) (3) -- (12)
----------- ----------- -------- -------- --------
Other (income) expense -- (8) 49 (53) (12)
----------- ----------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES: 585 555 (63) 1,077
Provision for income taxes -- 200 212 (8) 48 460
----------- ----------- -------- -------- --------
NET INCOME FROM CONTINUING OPERATIONS $ -- $ 385 $ 343 $ (111) $ 617
=========== =========== ======== ======== ========
EARNINGS PER SHARE - BASIC AND DILUTED:
Net income from continuing operations per share (10) $ 0.12
Shares used in computing net income per share
from continuing operations (10) 5,000,000
</TABLE>
See accompanying notes to pro forma financial information.
F-4
<PAGE> 92
PENTASTAR COMMUNICATIONS, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
ICM
PentaStar Communications Access
Communications, Integration, Communications Pro Forma Pro Forma
Inc. (9) Inc. (9) (9) Adjustments Combined
-------------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Advanced communication services $ -- $ 1,795 $ 784 $ -- $ 2,579
Basic dial tone services -- 348 69 -- 417
----------- ----------- ------- -------- -------
-- 2,143 853 -- 2,996
COSTS AND EXPENSES:
Salaries and commissions -- 1,364 661 (6) (141) 1,884
Other general and administrative expenses 2 438 280 (7) 90 810
Goodwill amortization -- -- -- (2) 95 95
----------- ----------- ------- -------- -------
Income (loss) from operations (2) 341 (88) (44) 207
----------- ----------- ------- -------- -------
OTHER (INCOME) EXPENSE:
Interest expense -- 4 15 (2)(3) (19) --
Other (income) expense -- (1) 9 -- 8
----------- ----------- ------- -------- -------
Other (income) expense -- 3 24 (19) 8
----------- ----------- ------- -------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES: (2) 338 (112) (25) 199
Provision (benefit) for income taxes -- 133 (42) (8) (26) 65
----------- ----------- ------- -------- -------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS $ (2) $ 205 $ (70) $ 1 $ 134
=========== =========== ======= ======== =======
EARNINGS PER SHARE - BASIC AND DILUTED:
Net income from continuing operations per share (10) $ 0.03
Shares used in computing net income per share from
continuing operations (10) 5,000,000
</TABLE>
See accompanying notes to pro forma financial information.
F-5
<PAGE> 93
PENTASTAR COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(1) GENERAL
PentaStar Communications, Inc. ("PentaStar"), was founded to create a
national company to design, sell and facilitate the installation and usage
of communications services for small- and medium-size business customers.
PentaStar Communications, Inc. plans to implement cost effective local
access, long distance, wireless, and Internet voice and data communications
services for customers in a combined package. PentaStar has conducted no
operations to date and will acquire the Acquired Companies concurrently
with and as a condition to the closing of the Offering.
(2) ACQUISITION OF ACQUIRED COMPANIES
Concurrently with and as a condition to the closing of the Offering,
PentaStar will acquire all of the outstanding capital stock and other
equity interests of the Acquired Companies. The acquisitions will be
accounted for using the purchase method of accounting, with PentaStar being
the accounting acquirer.
The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of common stock to the shareholders of each of the Acquired
Companies. For purposes of computing the purchase consideration, the value
of the shares was determined using an estimated fair value of $9 per share
(or approximately $3.3 million), which represents a discount of 10 percent
from the assumed initial public offering price of $10 per share due to: (1)
restrictions on the sale and transferability of the shares issued and (2)
avoided offering costs for shares issued to the Acquired Companies.
<TABLE>
<CAPTION>
Common
Cash Stock Total
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Access Communications $ 500 $1,845 $2,345
ICM Communications 1,924 1,485 3,409
------ ------ ------
Total $2,424 $3,330 $5,754
====== ====== ======
</TABLE>
F-6
<PAGE> 94
The purchase price will be subject to certain working capital adjustments at
closing. These adjustments will exclude certain liabilities (principally
borrowings, taxes and past due obligations) and will provide for the
distribution of excess cash balances. See "Certain Transactions." Upon closing
of the acquisitions, the purchase consideration will be allocated to the
identifiable assets and liabilities of the Acquired Companies. A preliminary
allocation of the purchase price has been made below based upon information
available to management of PentaStar at the date of preparation of the
accompanying pro forma condensed combined financial information.
Purchase consideration $ 5,754
Historical net book value:
Access Communications (112)
ICM Communications (1,038)
Working capital to be distributed 214
Excluded liabilities (612)
Excluded borrowings (391)
-------
Goodwill $ 3,815
=======
PentaStar expects the amount of excess consideration allocated to goodwill to be
amortized over twenty years. The factors considered in determining the
appropriate amortization period included the expected life of the associated
technology, legal and regulatory issues, future changes in technology,
anticipated market demand and competition. The result is annual amortization of
$191 ($95 for six months). PentaStar will evaluate the period of amortization
continually to determine whether events and circumstances warrant revised useful
lives. Annual amortization would increase $63 ($32 for six months) for a five
year reduction in the goodwill amortization period.
OTHER PRO FORMA ADJUSTMENTS
3. Reflects the repayment of outstanding borrowings of PentaStar.
4. Reflects the proceeds from the issuance of 1,500,000 shares of common
stock at $10 per share, net of estimated offering costs. Offering costs
consist of underwriting discounts and commissions, accounting fees, legal
fees and printing expenses estimated at $2,600,000.
5. To eliminate the historical equity of ICM and Access.
6. Reflects the reduction in salaries, bonuses and benefits derived from
contractual agreements which establish the compensation of the owners and
certain key employees of the Acquired Companies subsequent to the
Offering. The new agreement provides for salaries of $195,000 and bonuses
of 5% of EBIT.
F-7
<PAGE> 95
7. Reflects contractually agreed management and administrative charges due
BIBD subsequent to the acquisition based upon executed agreements.
8. Reflects the tax effect of the pro forma adjustments (except goodwill
amortization which will not be tax deductible) at an effective rate of
37.5%. The acquisition will be treated as a tax-free transaction and no
step-up will be allowed for tax purposes. To the extent an allocation is
made to identifiable intangibles in the final purchase price allocation,
deferred taxes and additional goodwill will need to be recorded for the
lack of tax basis.
9 Represents the historical balances of PentaStar, ICM and Access.
10. The number of shares estimated to be outstanding on completion of the
Offering includes the following:
Shares outstanding (as adjusted to
reflect a stock split) 3,130,000
Issued in Initial Public Offering 1,500,000
Issued to acquire the Acquired Companies 370,000
---------
Shares estimated to be outstanding 5,000,000
F-8
<PAGE> 96
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
PentaStar Communications, Inc.:
We have audited the accompanying balance sheets of PentaStar Communications,
Inc. (a Delaware corporation) as of June 30, 1999, and the related statements of
operations, and cash flows for the period from inception (March 15, 1999)
through June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PentaStar Communications as
June 30, 1999, and the results of its operations and its cash flows for the
period from inception (March 15, 1999) through June 30, 1999, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 10, 1999.
F-9
<PAGE> 97
PENTASTAR COMMUNICATIONS, INC.
BALANCE SHEET
AS OF JUNE 30, 1999
(In thousands, except share information)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1
Prepaid expenses 24
----
Total assets $ 25
====
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
RELATED PARTY BORROWINGS $ 27
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.0001 par value; 3,417,960 shares
authorized, 3,130,000 outstanding --
Retained earnings (deficit) (2)
----
Total shareholders' equity (deficit) (2)
----
Total liabilities and shareholders' equity (deficit) $ 25
====
</TABLE>
The accompanying notes to financial statements are
an integral part of this balance sheet.
F-10
<PAGE> 98
PENTASTAR COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MARCH 15, 1999)
THROUGH JUNE 30, 1999
(In thousands)
<TABLE>
<S> <C>
REVENUE $ --
-----------
COSTS AND EXPENSES
General and administrative expenses 2
-----------
Loss from operations (2)
-----------
NET LOSS $ (2)
===========
EARNINGS PER SHARE - BASIC AND DILUTED:
Net income (loss) from continuing
operations per share $ --
===========
Shares used in computing net
income per share 3,130,000
===========
</TABLE>
The accompanying notes to financial statements are
an integral part of this statement.
F-11
<PAGE> 99
PENTASTAR COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 15, 1999)
THROUGH JUNE 30, 1999
(In thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2)
Increase in prepaid expenses (25)
----
Net cash used by operating activities (27)
----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party debt 27
Shareholders' contributions 1
----
Net cash provided by financing activities 28
----
NET INCREASE IN CASH AND CASH EQUIVALENTS 1
CASH AND CASH EQUIVALENTS, beginning of period --
----
CASH AND CASH EQUIVALENTS, end of period $ 1
====
</TABLE>
The accompanying notes are an integral part of this statement.
F-12
<PAGE> 100
PENTASTAR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
PentaStar Communications, Inc. a Delaware corporation ("PentaStar" or the
"Company"), was founded in March 1999, to become a national company to design,
sell and facilitate the installation and usage of communication services for
small and medium-size business customers. PentaStar intends to acquire two U.S.
business (the "Acquired Companies"), complete an initial public offering (the
"Offering") of its common stock ("Common Stock") and, subsequent to the
Offering, continue to acquire companies to expand its national and regional
operations.
PentaStar has not conducted any operations, and all activities to date have
related to the Offering and the acquisition of the Acquired Companies. All
expenditures of the Company to date have been funded by its current
Shareholders' and loans from related parties. PentaStar is dependent upon the
Offering to execute the pending acquisitions of the Acquired Companies and to
repay PentaStar's borrowings. There is no assurance that the pending acquisition
of the Acquired Companies discussed below will be completed or that PentaStar
will be able to generate future operating revenues. The ability of PentaStar to
generate future operating revenues is dependent upon PentaStar's ability to
manage the effect on the combined companies of changes in demand for
communications services and the effect of business growth, including the
availability of key personnel.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
F-13
<PAGE> 101
Income Taxes
Deferred tax assets and liabilities are provided for differences between the
financial statement and tax basis of assets and liabilities using current
enacted tax rates. The provision for income taxes includes the amount due for
the current period and the change in deferred taxes between periods.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Company is required to
adopt SFAS No. 133 in the year ended December 31, 2001. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, the Company has not entered into any derivative financial instruments or
hedging activities.
(3) SHAREHOLDERS' EQUITY
Common Stock
PentaStar increased the number of authorized shares of Common Stock to 3,417,960
shares of Common Stock by effecting a 3,417.96-for-1 stock split in 1999, for
each share of Common Stock then outstanding. The effects of the stock split and
the increase in the shares of authorized Common Stock have been retroactively
reflected in these financial statements.
In connection with the organization and initial capitalization of PentaStar, the
Company issued 3,130,000 shares (as restated for the 3,417.96-for-1 stock split)
of Common Stock at $.0001 par value.
(4) ACQUIRED COMPANY ACQUISITIONS
PentaStar has signed definitive agreements to acquire the following entities
(Acquired Companies) to be effective contemporaneously with the Offering. The
entities to be acquired are:
o ICM Communications Integration, Inc.
o DMA Ventures Inc. (dba Access Communications)
The aggregate consideration that will be paid by PentaStar to acquire the
Acquired Companies is approximately $2,424,000 in cash and 370,000 shares of
common stock. The cash portion of the consideration is subject to adjustment
based upon the initial public offering price and certain closing balance sheet
amounts. Additional shares of common stock and cash may be issued to two of the
Shareholders of the Acquired Companies provided certain earnings thresholds are
satisfied after the consummation of the Offering.
F-14
<PAGE> 102
In addition, the Company has entered into employment agreements with certain key
executives of the Acquired Companies. These employment agreements generally
prohibit such individuals from disclosing confidential information and trade
secrets and restrict such individuals from competing with the Company for a
period of one to two years following termination of employment. The initial term
of these employment agreements is the earlier of a change in control of
PentaStar or five years.
(5) BORROWINGS
Notes Payable
At June 30, 1999, notes payable consisted of the following:
<TABLE>
<S> <C>
Note payable to BACE Industries, LLC, Denver,
Colorado; interest at 5.0% per annum; due on
the earlier of the initial public stock offering
of PentaStar or December 31, 2000. $ 27
====
</TABLE>
The carrying amount of the note approximates its fair value due to its
short-term nature.
F-15
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
ICM Communications Integration, Inc:
We have audited the accompanying balance sheets of ICM Communications
Integration, Inc. (a Washington corporation) as of December 31, 1997 and 1998,
and the related statements of operations, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICM Communications Integration,
Inc. as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 23, 1999.
F-16
<PAGE> 104
ICM COMMUNICATIONS INTEGRATION, INC.
BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- ----------
1997 1998 1999
------- ------- -------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 181 $ 138 $ 210
Accounts receivable, net 736 1,229 1,267
Related party receivables 40 27 27
Deferred income taxes 37 90 90
Prepaid expenses and other 51 79 144
------- ------- -------
Total current assets 1,045 1,563 1,738
PROPERTY AND EQUIPMENT, net 119 178 160
DEFERRED INCOME TAXES 19 13 13
OTHER ASSETS 56 281 494
------- ------- -------
Total assets $ 1,239 $ 2,035 $ 2,405
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ -- $ 4 $ --
Current maturities of capital leases 10 -- --
Accounts payable and accrued expenses 128 101 78
Compensation related accruals 284 465 407
Income taxes payable 282 442 575
Deferred revenue 49 159 278
Shareholder note payable -- 31 29
------- ------- -------
Total current liabilities 753 1,202 1,367
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 8)
SHAREHOLDERS' EQUITY:
Common stock, no par value; 1,000,000
shares authorized; 520,000 shares issued
and 514,000 shares outstanding 10 -- --
Retained earnings 476 833 1,038
------- ------- -------
Total shareholders' equity 486 833 1,038
------- ------- -------
Total liabilities and shareholders'
equity $ 1,239 $ 2,035 $ 2,405
======= ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-17
<PAGE> 105
ICM COMMUNICATIONS INTEGRATION, INC.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Six Months
For the Years Ended Ended
December 31, June 30,
----------------------- -----------------------
1997 1998 1998 1999
------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Advanced communication services $ 2,910 $ 3,681 $ 1,638 $ 1,795
Basic dial tone services 611 594 197 348
------- ------- ------- -------
3,521 4,275 1,835 2,143
------- ------- ------- -------
COSTS AND EXPENSES:
Salaries and commissions 1,858 2,746 1,227 1,364
Other general and administrative expenses 811 952 359 438
------- ------- ------- -------
2,669 3,698 1,586 1,802
------- ------- ------- -------
Income from operations 852 577 249 341
------- ------- ------- -------
OTHER (INCOME) EXPENSE:
Interest income (6) (9) (3) (1)
Interest expense 3 1 1 4
------- ------- ------- -------
Other (income) expense (3) (8) (2) 3
------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 855 585 251 338
Provision for income taxes 338 200 96 133
------- ------- ------- -------
NET INCOME $ 517 $ 385 $ 155 $ 205
======= ======= ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-18
<PAGE> 106
ICM COMMUNICATIONS INTEGRATION, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
--------------------- Retained Shareholders'
Shares Amount Earnings Equity
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1996 520 $ 10 $ (41) $ (31)
Net income -- -- 517 517
----- ---- ------- -------
BALANCES, December 31, 1997 520 10 476 486
Retirement of repurchased shares (6) (10) (28) (38)
Net income -- -- 385 385
----- ---- ------- -------
BALANCES, December 31, 1998 514 -- 833 833
Net income (unaudited) -- -- 205 205
----- ---- ------- -------
BALANCES, June 30, 1999 (unaudited) 514 $ -- $ 1,038 $ 1,038
===== ==== ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-19
<PAGE> 107
ICM COMMUNICATIONS INTEGRATION, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended For the Six Months Ended
December 31, June 30,
-------------------- ------------------------
1997 1998 1998 1999
------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 517 $ 385 $ 155 $ 205
Adjustments to reconcile net income to net cash
provided by operating activities-
Provision for disputed items 99 141 61 --
Deferred income tax provision (benefit) (56) (47) -- --
Depreciation 10 37 18 25
Changes in operating assets and liabilities-
Accounts receivable (775) (621) (184) (38)
Prepaid expenses and other (16) (28) (36) (65)
Accounts payable and accrued expenses 238 154 123 (81)
Income taxes 282 160 56 133
Deferred revenue 10 110 98 119
----- ----- ----- -----
Net cash provided by operating activities 309 291 291 298
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (106) (96) (66) (7)
Advances to related parties (31) (225) (106) (213)
----- ----- ----- -----
Net cash used in investing activities (137) (321) (172) (220)
----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in line of credit -- 4 -- (4)
Treasury stock repurchase -- (7) -- (2)
Payments on capital lease obligations (9) (10) (6) --
----- ----- ----- -----
Net cash used in financing activities (9) (13) (6) (6)
----- ----- ----- -----
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 163 (43) 113 72
CASH AND CASH EQUIVALENTS, beginning of year 18 181 181 138
----- ----- ----- -----
CASH AND CASH EQUIVALENTS, end of year $ 181 $ 138 $ 294 $ 210
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 3 $ 1 $ 1 $ 4
===== ===== ===== =====
Cash paid for taxes $ 131 $ 88 $ 44 $ --
===== ===== ===== =====
SUPPLEMENTAL SCHEDULE OF NON CASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of treasury stock for note payable $ -- $ 38 $ -- $ --
===== ===== ===== =====
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-20
<PAGE> 108
ICM COMMUNICATIONS INTEGRATION, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(1) BUSINESS AND ORGANIZATION
ICM Communications Integration, Inc., a Washington corporation (the "Company"),
was incorporated on January 3, 1995. On July 31, 1997, International
Communications Management, Inc. (the former parent of the Company) distributed
its shares in the Company to its shareholders.
Dependence Upon U S WEST
The Company acts as a sales agent for and generates substantially all of its
revenues from U S WEST Communications, Inc. ("U S WEST"), a regional Bell
operating company. The loss of the relationship with U S WEST or a material
diminishment in the volume of business with U S WEST would adversely affect the
Company. Management believes the Company could become a sales agent for another
provider with comparable terms if it were to lose its relationship with U S
WEST.
Interim Financial Information
The financial statements as of and for the six months ended June 30, 1998 and
1999, are unaudited; however, they include all adjustments (consisting of normal
recurring adjustments) considered necessary by management for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line
method over its estimated useful lives. Expenditures for repairs and maintenance
are charged to expense when incurred. Expenditures for major renewals and
betterments, which extend the useful lives of existing equipment, are
capitalized and depreciated. Upon retirement or disposition of property
F-21
<PAGE> 109
and equipment, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized in the statement of
operations. Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
Estimated Useful ------------------
Life in Years 1997 1998
---------------------- ------ ------
<S> <C> <C> <C>
Computer and telephone equipment 3-5 $ 118 $ 191
Office furniture and fixtures 7 17 40
----- -----
135 231
Less: Accumulated depreciation (16) (53)
----- -----
Property and equipment, net $ 119 $ 178
===== =====
</TABLE>
Depreciation expense was approximately $10 and $37 for the years ended December
31, 1997 and 1998, respectively.
Revenue Recognition
Revenue and the related commission expense are recognized in the month when
services are installed by U S WEST. Deferred revenue in the accompanying balance
sheets represents cash collected from U S WEST on uninstalled services.
Beginning in 1998, the Company received advanced communication service
commissions from a related entity for telecommunication agency services not
related to U S WEST. The revenue approximated $32 for the year ended December
31, 1998.
The Company has not received payment for 1997 and 1998 installed services of
$333 and $685, at December 31, 1997 and 1998, respectively. The delay in payment
for these disputed items has been due to deficiencies in documentation required
by U S WEST and discrepancies in the amounts believed receivable from U S WEST.
An allowance of $99 and $240 at December 31, 1997 and 1998, respectively, has
been established for these disputed receivables.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates. Significant estimates which
could change in the near future include the allowance provided for disputed
receivables.
F-22
<PAGE> 110
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable and borrowings. The carrying
value of these financial instruments on the accompanying balance sheets
approximates their fair value because of their short-term nature.
Concentration of Credit Risk
The Company's financial instruments exposed to concentrations of credit risk
consist primarily of cash and accounts receivable. The Company maintains their
cash in institutions which the Company considers of high credit quality. The
balances, at times, may exceed federally insured limits. Credit risk with
respect to accounts receivable is limited due to the credit worthiness of the
Company's primary customer, U S WEST. Management does not anticipate significant
credit losses from such financial instruments.
Asset Impairment
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Long-lived assets, which are held and used in operations would
be impaired if the undiscounted future cash flows related to the asset did not
exceed the net book value. If an asset is determined to be impaired, it is
written down to its fair value.
Advertising and Promotion
Advertising and promotional related expenses are charged to operations when
incurred or the first time the advertising occurs. Advertising expense totaled
$6 and $30 for the years ended December 31, 1997 and 1998, respectively.
Income Taxes
Deferred tax assets and liabilities are provided for differences between the
financial statement and tax basis of assets and liabilities using current
enacted tax rates. The provision for income taxes includes the amount due for
the current period and the change in deferred taxes between periods.
Prior to July 31, 1997, the Company was included in the consolidated tax return
of International Communications Management, Inc. (the "Parent"). The Company
paid or received from the Parent, the incremental taxes resulting from its
inclusion in the consolidated tax return. The amounts reported in the Company's
financial statements approximates the amounts which would have been reported had
the Company been a stand-alone tax payor.
F-23
<PAGE> 111
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Company is required to
adopt SFAS No. 133 in the year ended December 31, 2001. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, the Company has not entered into any derivative financial instruments or
hedging activities.
(3) BORROWINGS
Line of Credit
In June 1997, the Company established a line of credit with SeaFirst Bank
("SeaFirst"), which permits the Company to borrow up to $50 at a rate equal to
the prime rate plus 3% (8.75% at December 31, 1998). The line of credit expires
on November 5, 1999. A related party, who is a shareholder and director,
guarantees borrowings under the agreement. The line of credit was increased to
$150 in April of 1999 and three additional shareholders and directors became
guarantors.
Capital Lease Obligations
The Company had two capital lease agreements with Ameritech Leasing Services to
purchase computer and telephone equipment. The implicit interest rate was 11%
per annum.
(4) OPERATING LEASES
The Company leases three office facilities in Bellevue, Washington and Portland,
Oregon. The Company has sublet a portion of one of the Bellevue, Washington
leases to a related party. The Company is required to pay executory costs such
as property taxes, maintenance and insurance under its operating leases.
As of December 31, 1998, future minimum lease payments required under operating
leases, net of sublease payments, are as follows:
<TABLE>
<CAPTION>
Minimum
Gross Sublease Net
Years Ended December 31- Obligation Commitments Obligation
---------- ----------- ----------
<S> <C> <C> <C>
1999 $ 195 $ 49 $ 146
2000 199 49 150
2001 182 49 133
2002 150 45 105
------ ------ ------
$ 726 $ 192 $ 534
====== ====== ======
</TABLE>
F-24
<PAGE> 112
Rent expense, net of sublease payments, charged to operations totaled
approximately $71 and $106 for 1997 and 1998, respectively. Sublease charges to
the related party were $19 and $16 for 1997 and 1998, respectively.
(5) PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following for the years ended
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Current provision:
Federal $ 342 $ 213
State 52 34
----- -----
Total current 394 247
----- -----
Deferred provision:
Federal (48) (41)
State (8) (6)
----- -----
Total deferred (56) (47)
----- -----
Provision for income taxes $ 338 $ 200
===== =====
</TABLE>
A reconciliation of the statutory income tax rate to the provision for income
taxes is as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Federal income tax at statutory rate 34.0% 34.0%
State income taxes, net of federal
tax effect 3.3 3.3
Other 2.2 (3.1)
---- ----
Total provision 39.5% 34.2%
==== ====
</TABLE>
F-25
<PAGE> 113
The tax effects of temporary differences, representing deferred tax assets and
liabilities, result principally from the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Allowance for disputed receivables $ 37 $ 90
Basis difference in property 19 13
Deferred tax asset $ 56 $ 103
</TABLE>
(6) RETIREMENT SAVING PLAN
The Company adopted an IRA plan in October 1997. Under the plan, qualified
employees may elect to defer up to $6 of their calendar year compensation. The
plan provides for contributions by the Company to match the first 3% of the
qualified compensation. The Company may match less than 3%, but not below 1%, in
no more than two out of the past five years. Alternatively, the Company may
contribute 2% of compensation to all eligible employees, whether or not they
participate in the plan. The Company's contributions for the years ended
December 31, 1997 and 1998 were $16 and $24, respectively.
(7) RELATED-PARTY TRANSACTIONS
Noncurrent Receivable
The Company has a note receivable from a related entity. The related entity and
the Company have some common shareholders. The receivable consists of cash
advances, commissions receivable from sales made on behalf of the related entity
and shared expenses. Management believes that the amount is fully collectible
and repayments will begin in the year 2000. The balance was approximately $56
and $281 at December 31, 1997 and 1998, respectively.
Amounts charged to the related entity for the shared expenses, commissions
earned from the sales made on behalf of the related entity and cash advances to
the related entity were as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Six Months Ended
December 31, June 30,
------------------ ------------------------
1997 1998 1998 1999
------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Commissions earned $ -- $ 32 $ 17 $ 52
Salaries and bonuses 20 53 26 46
Other expenses 35 63 29 21
Cash advances -- 102 39 94
</TABLE>
F-26
<PAGE> 114
Current Receivables
The Company has a note receivable from one of its shareholders. Interest accrues
at 12% per annum and the monthly principal and interest payments are $1. The
note matures on July 15, 1999. The principal balances as of December 31, 1997
and 1998 were $15 and $2, respectively.
The Company had a $25 non-interest bearing receivable from a related entity
outstanding at December 31, 1997 and 1998. The advance was repaid in July 1999.
Shareholder Notes Payable
In November of 1998, the Company repurchased six shares of non-par stock from a
Shareholder for $38. Consideration for the repurchase was a note payable with
monthly payments of $3, maturing in October of 1999. Interest accrues at a rate
of 6%. The current balance as of December 31, 1998 was $31.
Sublease Income
In October 1998, the Company sublet space to a related entity. The terms of the
sublease mirror the terms of the master lease. The related entity is responsible
for all lease payments and related property expenses.
Guarantees
In June 1997, a shareholder and director guaranteed the Company's line of credit
from SeaFirst Bank. Subsequent to December 31, 1998, the line of credit was
amended to include among other things, additional shareholders and directors as
guarantors.
(8) COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in litigation which arose in the ordinary course of
business. It is the opinion of management and counsel that the outcome of such
litigation will not have a material effect on the financial position of the
Company.
(9) SUBSEQUENT EVENT
Subsequent to yearend, the shareholders' of the Company entered into a
definitive agreement with PentaStar Communications, Inc. ("PentaStar"), pursuant
to which all outstanding shares of the Company's stock will be exchanged for
cash and shares of PentaStar common stock.
F-27
<PAGE> 115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
DMA Ventures, Inc.
dba Access Communications:
We have audited the accompanying balance sheets of DMA Ventures, Inc. dba Access
Communications (a Colorado corporation) as of December 31, 1997 and 1998, and
the related statements of operations, shareholder's equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DMA Ventures, Inc. dba Access
Communications as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 6, 1999.
F-28
<PAGE> 116
DMA VENTURES, INC.
dba ACCESS COMMUNICATIONS
BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------- June 30,
1997 1998 1999
------ ------ ----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 591 $ 83 $ 4
Accounts receivable, net 124 179 271
Prepaid expenses and other 29 46 35
Deferred income taxes 352 149 149
Net current assets of discontinued operations -- 60 --
------ ------ ------
Total current assets 1,096 517 459
PROPERTY AND EQUIPMENT, net 465 399 409
------ ------ ------
Total assets $1,561 $ 916 $ 868
====== ====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Related party borrowings, current maturities $ 67 $ 5 $ 5
Current maturities of long-term borrowings 63 72 65
Current maturities of capital leases 76 63 41
Line of credit -- -- 95
Accounts payable 46 71 76
Accrued expenses 335 161 198
Income taxes payable 273 82 --
Deferred revenue 95 114 120
Net current liabilities of discontinued operations 26 -- --
------ ------ ------
Total current liabilities 981 568 600
------ ------ ------
RELATED PARTY BORROWINGS 5 -- --
LONG-TERM BORROWINGS 243 185 156
CAPITAL LEASE OBLIGATIONS 92 18 --
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 9)
SHAREHOLDER'S EQUITY:
Preferred stock, no par value; 10,000,000 shares authorized;
no shares issued and outstanding -- -- --
Common stock, no par value; 25,000,000 shares authorized;
10,000,000 shares issued and outstanding 1 1 114
Retained earnings (deficit) 239 144 (2)
------ ------ ------
Total shareholder's equity 240 145 112
------ ------ ------
Total liabilities and shareholder's equity $1,561 $ 916 $ 868
====== ====== ======
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-29
<PAGE> 117
DMA VENTURES, INC.
dba ACCESS COMMUNICATIONS
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Six Months
For the Year Ended Ended
December 31, June 30,
----------------------- ---------------------
1997 1998 1998 1999
------- ------- ------ ------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Advanced communication services $ 1,921 $ 2,038 $ 683 $ 784
Basic dial tone services 1,040 344 226 69
------- ------- ------ ------
2,961 2,382 909 853
------- ------- ------ ------
COSTS AND EXPENSES:
Salaries and commissions 1,504 1,201 647 661
Other general and administrative expenses 637 577 312 280
------- ------- ------ ------
2,141 1,778 959 941
------- ------- ------ ------
Income (loss) from operations 820 604 (50) (88)
------- ------- ------ ------
OTHER (INCOME) EXPENSE:
Interest income (7) (3) -- --
Interest expense 91 52 35 15
Other expense -- -- 12 9
------- ------- ------ ------
Other (income) expense 84 49 47 24
------- ------- ------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 736 555 (97) (112)
Provision (benefit) for income taxes 309 212 (34) (42)
------- ------- ------ ------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS 427 343 (63) (70)
LOSS FROM DISCONTINUED OPERATIONS
(less applicable income tax benefit of $129, $219,
$129 and $40, respectively) (198) (370) (225) (76)
------- ------- ------ ------
NET INCOME (LOSS) $ 229 $ (27) $ (288) $ (146)
======= ======= ====== ======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-30
<PAGE> 118
DMA VENTURES, INC.
dba ACCESS COMMUNICATIONS
STATEMENTS OF SHAREHOLDER'S EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Retained Total
----------------------- ---------------- Earnings Shareholder's
Shares Amount Shares Amount (Deficit) Equity
---------- ------ ------ ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 10,000,000 $ 1 -- $ -- $ 90 $ 91
Distributions to shareholder -- -- -- -- (80) (80)
Net income -- -- -- -- 229 229
---------- ----- ---- ---- ---- -----
BALANCES, December 31, 1997 10,000,000 1 -- -- 239 240
Distributions to shareholder -- -- -- -- (68) (68)
Net loss -- -- -- -- (27) (27)
---------- ----- ---- ---- ---- -----
BALANCES, December 31, 1998 10,000,000 1 -- -- 144 145
Contribution from
Shareholder (unaudited) -- 113 -- -- -- 113
Net loss (unaudited) -- -- -- -- (146) (146)
---------- ----- ---- ---- ---- -----
BALANCES, June 30, 1999
(unaudited) 10,000,000 $ 114 -- $ -- $ (2) $ 112
========== ===== ==== ==== ===== =====
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-31
<PAGE> 119
DMA VENTURES, INC.
dba ACCESS COMMUNICATIONS
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months
For the Year Ended Ended
December 31, June 30,
--------------------- ----------------------
1997 1998 1998 1999
------ ------ ------- -------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 229 $ (27) $(288) $(146)
Adjustments to reconcile net income to net cash
provided by operating activities-
Deferred income tax provision (benefit) (262) 203 -- --
Provision for disputed items 130 10 -- --
Depreciation 55 79 41 40
Other -- -- 6 --
Changes in operating assets and liabilities-
Accounts receivable (254) (65) (236) (92)
Prepaid expenses (9) (17) (11) 11
Accounts payable 32 25 (10) 5
Accrued expenses 246 (174) (28) 37
Income tax payable 355 (191) (165) (82)
Deferred revenue 4 19 20 6
Discontinued operations 33 (86) 302 60
----- ----- ----- -----
Net cash provided by (used in)
operating activities 559 (224) (369) (161)
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (42) (13) -- (50)
----- ----- ----- -----
Net cash used in investing activities (42) (13) -- (50)
----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in line of credit -- -- -- 95
Principal payments on related party borrowings (42) (67) (51) --
Proceeds from long-term borrowings 300 -- -- --
Principal payments on long-term borrowings (238) (49) (2) (36)
Payments on capital lease (36) (87) (44) (40)
Distributions to shareholder (80) (68) (56) --
Capital contribution -- -- -- 113
----- ----- ----- -----
Net cash provided by (used in)
financing activities (96) (271) (153) 132
----- ----- ----- -----
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 421 (508) (522) (79)
CASH AND CASH EQUIVALENTS, beginning of year 170 591 591 83
----- ----- ----- -----
CASH AND CASH EQUIVALENTS, end of year $ 591 $ 83 $ 69 $ 4
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest $ 33 $ 67 $ 36 $ 15
===== ===== ===== =====
Cash paid for taxes $ 23 $ 12 $ 12 $ 0
===== ===== ===== =====
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-32
<PAGE> 120
DMA VENTURES, INC.
dba ACCESS COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(1) BUSINESS AND ORGANIZATION
DMA Ventures, Inc., dba Access Communications, a Colorado corporation (the
"Company") was incorporated on August 10, 1993 and acts as a sales agent for U S
WEST Communications, Inc. ("U S WEST"). In addition, the Company is a network
integrator, focused on converging technologies for voice, data and video
communication ("Hardware Business"). Subsequent to year end, the Company decided
to discontinue the operations of the Hardware Business (see Note 10).
Fiscal Year
The Company's fiscal year ends on July 31. The accompanying financial statements
have been conformed to a December 31 year end in connection with the acquisition
of the Company by PentaStar (see Note 11).
Dependence Upon U S WEST
The Company acts as a sales agent for and generates all of its continuing
revenues from U S WEST, regional Bell operating company. The loss of the
relationship with U S WEST or a material diminishment in the volume of business
with U S WEST would adversely affect the Company. Management believes the
Company could become a sales agent for another provider with comparable terms if
it were to lose its relationship with U S WEST.
Interim Financial Information
The financial statements as of and for the six months ended June 30, 1998 and
1999 are unaudited; however, they include all adjustments (consisting of normal
recurring adjustments) considered necessary by management for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
F-33
<PAGE> 121
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements are capitalized and amortized using the straight-line method over
the shorter of the useful lives or the remaining lease term.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
Estimated Useful ---------------------
Life in Years 1997 1998
---------------- ------ ------
<S> <C> <C> <C>
Computer and telephone equipment 3-6 $ 242 $ 250
Office furniture and equipment 5-10 104 112
Leasehold improvements 3-10 140 140
Vehicles 5 77 74
----- -----
563 576
Less: accumulated depreciation (98) (177)
----- -----
Property and equipment, net $ 465 $ 399
===== =====
</TABLE>
Depreciation expense was $55 and $79 for the years ended December 31, 1997 and
1998, respectively.
Revenue Recognition
Revenue and the related commission expense are recognized in the month when
services are installed by U S WEST. Deferred revenue in the accompanying balance
sheets represents cash collected from U S WEST on uninstalled services.
The Company has not received payment for certain 1997 and 1998 installed
services due to a dispute with U S WEST. The delay in payment for these disputed
items has been due to deficiencies in documentation required by U S WEST and
discrepancies in the amounts believed receivable from U S WEST. An allowance of
$190 and $180 at December 31, 1997 and 1998, respectively, has been established
for these disputed receivables.
F-34
<PAGE> 122
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates which could change in the near future include the allowance for
disputed receivables.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and borrowings. The carrying value of
these financial instruments in the accompanying balance sheets approximates
their fair value because of their short-term nature.
Concentration of Credit Risk
The Company's financial instruments exposed to concentrations of credit risk
consist primarily of cash and accounts receivable. The Company maintains their
cash in institutions which the Company considers of high credit quality. The
balances, at times, may exceed federally insured limits. Credit risk with
respect to accounts receivable is limited due to the credit worthiness of the
Company's primary customer, U S WEST. Management does not anticipate significant
credit losses from such financial instruments.
Asset Impairment
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Long-lived assets which are held and used in operations would be
impaired if the undiscounted future cash flows related to the asset did not
exceed the net book value. If an asset is determined to be impaired, it is
written down to its fair value.
Advertising and Promotion
Advertising and promotional related expenses are charged to operations when
incurred or the first time the advertising appears. Advertising expense totaled
$13 and $1 for the years ended December 31, 1997 and 1998, respectively.
Income Taxes
Deferred tax assets and liabilities are provided for differences between the
financial statement and tax basis of assets and liabilities using current
enacted tax rates. The provision for income taxes includes the amount due for
the current period and the change in deferred taxes between periods.
A valuation allowance is provided for a portion or all of the deferred tax asset
when it is more likely than not that the Company will not be able to realize the
benefits of the deferred tax assets in future years.
F-35
<PAGE> 123
Stock-Based Compensation
The Company accounts for its stock-based employee compensation agreements using
the intrinsic value method under which no compensation is generally recognized
for options granted to employees with an exercise price equal to or greater than
the fair market of the underlying stock. Equity instruments granted to
non-employees are recorded at fair value on the date of grant.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
The Company is required to adopt SFAS No. 133 in the year ended December 31,
2001. SFAS No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. To date, the Company has not entered into any derivative
financial instruments or hedging activities.
(3) BORROWINGS
Line of Credit
The Company has a line of credit with Colorado Business Bank, N.A. which permits
the Company to borrow up to $350 at a rate equal to the prime rate plus 1%
(8.75% at December 31, 1998). The line of credit is renewed on a yearly basis.
Borrowings under the agreement are collateralized by all accounts, inventory,
equipment and general intangibles of the Company, as well as shareholder owned
marketable securities and the shareholder's life insurance policy. The Company's
borrowings are limited to 75% of the total accounts receivable balance less than
ninety days (approximately $90 borrowing limitation at December 31, 1998). At
December 31, 1997 and 1998, there were no amounts outstanding under this line.
<TABLE>
<CAPTION>
Notes Payable
-------------
1997 1998
------ ------
<S> <C> <C> <C>
At December 31, 1997 and 1998, notes payable consisted of the following:
Note payable to Colorado Business Bank, N.A., Denver, Colorado;
interest at 9.5% per annum; collateralized by all accounts, inventory,
equipment, general intangibles, and shareholder owned marketable
securities; cross collateralized with the line of credit; co-borrower
with the Company's shareholder and an officer; payable in monthly
installments of $6.3; due April 2002. $ 265 $ 220
</TABLE>
F-36
<PAGE> 124
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Note payable to Lexus Financial Services Corporation; interest at
8.5% per annum; collateralized by a vehicle; payable in monthly
principal and interest installments of $.884; due April 2002. $ -- $ 31
Note payable to Colorado Business Bank, N.A., Littleton, Colorado;
interest at 10.5% per annum; collateralized by a vehicle; payable in
monthly principal and interest installments of $.798; due August 1999. 15 6
Note payable to Bank One, Denver, Colorado; interest at 9.25%;
collateralized by a vehicle; payable in monthly principal and interest
installments of $.759; paid April 1998. 26 --
Note payable to shareholder; interest at the annual federal rate (5.1%
at December 31, 1998), unsecured; due July 1999. 72 5
----- -----
378 262
Less: current maturities (130) (77)
Long-term borrowings, net of current maturities $ 248 $ 185
===== =====
</TABLE>
Maturities of long-term borrowings are as follows:
<TABLE>
<CAPTION>
Years Ending December 31-
<S> <C>
1999 $ 77
2000 72
2001 72
2002 41
------
Total $ 262
</TABLE>
Capital Leases
The Company leases certain office furniture and equipment under agreements which
are classified as capital leases. The Company acquired $127 and $0 assets under
capital lease arrangements in 1997 and 1998, respectively. Cost of such assets
at December 31, 1997 and 1998 totaled $237 for each yearend and accumulated
amortization totaled $37 and $76, respectively.
F-37
<PAGE> 125
As of December 31, 1998, future lease payments under capital leases are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31-
<S> <C>
1999 $ 65
2000 22
----
Total future minimum lease payments 87
Less: amount representing interest (6)
----
Present value of future minimum
lease payments 81
Less: current portion (63)
----
Long-term portion $ 18
====
</TABLE>
(4) OPERATING LEASES
The Company leases office and warehouse facilities from its shareholder and
other office space and equipment from unrelated parties under long-term leases
expiring in various years through the year 2016. Generally, the Company is
required to pay executory costs such as property taxes, maintenance and
insurance.
As of December 31, 1998, future minimum lease payments required under operating
leases are as follows:
<TABLE>
<CAPTION>
Related
Others Parties
------ -------
Years Ended December 31-
<S> <C> <C>
1999 $ 81 $ 36
2000 47 36
2001 -- 36
2002 -- 36
2003 -- 36
Thereafter -- 456
----- -----
$ 128 $ 636
===== =====
</TABLE>
Total rent expense charged to income for leases totaled $70 and $79 for the
years ended December 31, 1997 and 1998, respectively, of which, $36 and $36
represents rent expense for the related party leases in 1997 and 1998,
respectively.
F-38
<PAGE> 126
(6) PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following for the years ended
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Current provision (benefit):
Federal $ 400 $ (182)
State 42 (28)
----- ------
Total current 442 (210)
----- ------
Deferred provision (benefit):
Federal (238) 176
State (24) 27
----- ------
Total deferred (262) 203
----- ------
Provision (benefit) for income taxes $ 180 $ (7)
===== ======
</TABLE>
A reconciliation of the statutory income tax rate to the provision for income
taxes from continuing operations is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
----- -----
<S> <C> <C>
Federal income tax at statutory rate 34.0% 34.0%
State income taxes, net of federal tax effect 3.5 3.3
Other 4.5 .9
----- -----
Total provision 42.0% 38.2%
===== =====
</TABLE>
Deferred income taxes result from differences in the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes. The tax
effects of these temporary differences, representing deferred tax assets and
liabilities, result principally from the following:
F-39
<PAGE> 127
<TABLE>
<CAPTION>
1997 1998
----- ------
<S> <C> <C>
Deferred tax assets (liabilities):
Accounts receivable $ (96) $ (173)
Accrued expenses 184 127
Deferred revenue 129 91
Allowance for disputes 145 121
Other (10) (17)
----- ------
Net deferred tax asset $ 352 $ 149
===== ======
</TABLE>
(7) STOCK OPTION PLAN
In February 1998, the Company adopted a stock option plan which provides for the
granting of options to employees, directors and consultants. A maximum of
700,000 shares of common stock may be issued under the plan. The option price,
number of shares and grant date are determined at the discretion of the
Company's Board of Directors. Options granted under the plan expire ten years
after the grant date and vest 1/12th on the last day of each fiscal quarter.
A summary of option transactions for the year ended December 31, 1998 and
options outstanding at December 31, 1998 are shown below:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price
--------- -----
<S> <C> <C> <C>
Options Granted in 1998 551,500 $0.33
Exercised -- --
------- -----
Outstanding at December 31, 1998 551,500 $0.33
======= =====
Exercisable at December 31, 1998 140,250 $0.33
======= =====
</TABLE>
The remaining contractual life of options outstanding at December 31, 1998, was
9.5 years. All options outstanding and exercisable have an exercise price of
$0.33.
The fair value of the options granted in 1998 was $0.5 per share. Had the
Company's stock based compensation cost been determined using their fair value
at the grant date, the Company's net income would have been reduced to the pro
forma amounts indicated below.
F-40
<PAGE> 128
<TABLE>
<CAPTION>
Year Ended
December 31,
1998
-------------
<S> <C>
Net Income:
As reported $ (27)
Pro forma $ (32)
</TABLE>
The above fair value was determined using the minimum value method (no
volatility assumed), a risk free interest rate of 4.55%, an expected life of
four years and no dividend payout.
(8) RETIREMENT SAVING PLAN
The Company maintains a qualified retirement savings plan under Section 401(k)
of the Internal Revenue Code. Under the plan, employees may elect to defer up to
15% of their compensation, subject to Internal Revenue Service limits. The plan
allows for discretionary contributions to be made by the Company. No Company
contributions were made for the years ended December 31, 1997 and 1998,
respectively. The plan is administered by a third party.
(9) COMMITMENTS AND CONTINGENCIES
Guarantees
In December 1995, the Company, acting as a co-borrower with its shareholder and
an officer, obtained a loan from Key Bank ("Key Bank"). The funds were used to
purchase, among other items, real estate owned by the shareholder and officer.
The loan was secured by the real estate, through a Deed of Trust dated December
28, 1995. In May 1996, the U.S. Small Business Administration ("SBA") guaranteed
the Key Bank loan, which resulted in the Deed of Trust being transferred to the
SBA. In August of 1998, the Key Bank debt balance was paid in full, with
proceeds obtained by the shareholder and officer from the Colorado Business
Bank. The Company is a guarantor on the Colorado Business Bank note. The real
estate securing the note has been leased by the Company since April of 1996.
The Colorado Business Bank note bears interest at 9% and is due in monthly
principal and interest installments of $1. The note is secured by a first deed
of trust and an assignment of rents between the Company and its shareholder. At
December 31, 1998 the balance due on this note is $138. The note is due January,
2016.
Litigation
The Company is involved in litigation arising in the ordinary course of
business. It is the opinion of management that the outcome of such litigation
will not have a material effect on the financial position of the Company.
F-41
<PAGE> 129
(10) DISCONTINUED OPERATIONS
During February 1999, management approved a formal plan to dispose of the
Company's Hardware Business. Operations related to this business ceased on April
30, 1999, with the completion of all installations. The Company reduced its
labor force, eliminated all inventories, and wrote-down the value of the
property and equipment. As a result of this decision, the Company has reflected
the operations of the hardware business as discontinued operations in the
accompanying financial statements.
Net current assets(liabilities) of discontinued operations as of December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Current Assets:
Accounts receivable, net $ 132 $ 284
Inventory 178 178
----- -----
Total current assets 310 462
----- -----
Current Liabilities:
Accounts payable and accrued expenses $ 107 $ 274
Deferred revenue 229 128
----- -----
Total current liabilities 336 402
----- -----
Net assets (liabilities) of discontinued operations $ (26) $ 60
===== =====
</TABLE>
The results of discontinued operations were as follows: December 31,
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Revenues $ 2,411 $ 3,223
Cost and expenses 2,738 3,812
------- -------
Loss from discontinued operations before taxes $ (327) $ (589)
======= =======
</TABLE>
(11) SUBSEQUENT EVENTS
Subsequent to year end, the sole shareholder at the Company entered into a
definitive agreement with PentaStar Communications, Inc. ("PentaStar"), pursuant
to which all outstanding shares of the Company's stock will be exchanged for
cash and shares of PentaStar common stock.
F-42
<PAGE> 130
PENTASTAR COMMUNICATIONS, INC.
1,500,000 SHARES
COMMON STOCK
---------------------------------------
PROSPECTUS
, 1999
----------------------
---------------------------------------
SCHNEIDER SECURITIES, INC.
PROSPECTUS DELIVERY OBLIGATIONS
Until _______, 1999 (25 days after the date of this prospectus), all
dealers effecting transactions in the common stock, whether or not participating
in this distribution, may be required to deliver a prospectus. This is in
addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE> 131
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, PentaStar
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act.
Our certificate of incorporation provides for the elimination of
liability for monetary damages for breach of the directors' fiduciary duty of
care to PentaStar and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of nonmonetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to PentaStar or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
We intend to enter into indemnity agreements with each of our directors
and executive officers pursuant to which we will indemnify each director and
executive officer against expenses and losses incurred for claims brought
against them by reason of their being a director or executive officer of
PentaStar, and we plan to obtain directors' and officers' liability insurance.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of PentaStar and its
officers, directors, counsel and control persons and for indemnification by
PentaStar of the underwriters and its officers, directors, counsel, agents and
control persons for certain liabilities arising under the Securities Act or
otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by PentaStar in connection with the sale of the
common stock being registered hereby. All amounts shown are estimates, except
the SEC registration fee, the NASD filing fee and the Nasdaq SmallCap Market
listing fee.
II-1
<PAGE> 132
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................ $ 5,826.00
NASD filing fee................................................................ 2,596.00
Nasdaq SmallCap Market listing application fee................................. 10,000.00
Blue Sky fees and expenses..................................................... 38,000.00
Printing and engraving expenses................................................ 120,000.00
Legal fees and expenses........................................................ 300,000.00
Accounting fees and expenses................................................... 200,000.00
Transfer agent and registrar fees.............................................. 10,000.00
Miscellaneous expenses......................................................... 25,000.00
Total........................................................................ $711,422.00
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since March 15, 1999, the date of its formation, PentaStar has sold
unregistered securities as follows:
1. On March 17, 1999, PentaStar issued 1,708,980 shares of common stock
to BACE Investments, LLC for $500.
2. On March 31, 1999, PentaStar issued 732,420 shares of common stock
to Black Diamond Capital, LLC for $321.43; 469,500 shares of common stock to
Robert S. Lazzeri for $206.04; and 219,100 shares of common stock to Jeffrey A.
Veres for $96.15.
3. On August 13, 1999, PentaStar entered into Agreements and Plans of
Merger with the stockholder of DMA Ventures, Inc. and the stockholders of ICM
Communications Integration, Inc. pursuant to which PentaStar will acquire,
concurrently with the closing of this offering, all of the outstanding stock of
DMA for $500,000 cash and 205,000 shares of PentaStar common stock and all of
the outstanding stock of ICM for $1.924 million cash and 165,000 shares of
PentaStar common stock.
The sales and issuance of securities in the transactions described in
paragraphs 1 and 2 above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2). The purchaser in paragraph 1 is an
accredited investor. The principal of the entity listed in paragraph 2 is a
sophisticated and experienced investor. The individuals listed in paragraph 2
are accredited investors who will become employees of PentaStar in connection
with this offering.
The sales and ultimate issuance of securities in the transactions
described in paragraph 3 above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 506. The stockholder of DMA, Jeffrey A.
Veres, and the principal stockholder of ICM, Dennis W. Schillinger, are
accredited investors. The other stockholders of ICM who will receive PentaStar
common stock are persons who PentaStar believes, either alone or with his
purchaser representative, has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of the
investment in PentaStar common stock.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- ------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealers Agreement.
2.1 Agreement and Plan of Merger dated August 13, 1999 among
PentaStar Communications, Inc., OC Mergerco 1, Inc., DMA
Ventures, Inc. and its principal shareholder, Jeffrey A.
Veres.
</TABLE>
II-2
<PAGE> 133
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- ------------------------
<S> <C>
2.2 Agreement and Plan of Merger dated August 13, 1999 among
PentaStar Communications, Inc., OC Mergerco 2, Inc., ICM
Communications Integration, Inc. and the shareholders of ICM
Communications Integration, Inc.
3.1 Form of Restated Certificate of Incorporation.
3.2 Form of Restated Bylaws.
4.1* Specimen stock certificate representing shares of common stock
of PentaStar Communications, Inc.
4.2 Form of Warrant for the purchase of common stock to be issued
to the representatives upon the closing of this offering.
5.1* Opinion of Sherman & Howard L.L.C. regarding the legality of
the securities being registered.
10.1 PentaStar Communications, Inc. Stock Option Plan.
10.2* Strategic Agent Sales Agreement by and between U S WEST
Communications, Inc. and Access Communications dated February
15, 1998.
10.3* Strategic Agent Sales Agreement by and between U S WEST
Communications, Inc. and ICM Communications Integration, Inc.
dated February 13, 1998.
10.4 Consulting Agreement effective September 1, 1999 between
Optimal Communications, Inc. (nka PentaStar Communications,
Inc.) and BIBD, LLC.
10.5 Employment and Noncompetition Agreement entered into as of
August 13, 1999 between PentaStar Communications, Inc. and
Jeffrey A. Veres.
10.6 Form of Principal Stockholder's Escrow and Contingent Stock
Agreement among PentaStar Communications, Inc., OC Mergerco 1,
Inc. and Jeffrey A. Veres.
10.7 Form of Principal Stockholder's Escrow and Contingent Stock
Agreement among PentaStar Communications, Inc., OC Mergerco 2,
Inc. and Dennis W. Schillinger.
10.8 Lease Agreement between BACE Real Estate, LLC and PentaStar
Communications, Inc.
10.9 Stock Purchase Agreement dated March 31, 1999 between Optimal
Communications, Inc. (nka PentaStar Communications, Inc.) and
Robert S. Lazzeri and Addendum thereto.
10.10 Stock Purchase Agreement dated March 31, 1999 between Optimal
Communications, Inc. (nka PentaStar Communications, Inc.) and
Black Diamond Capital, LLC and Addendum thereto.
10.11 Stock Purchase Agreement dated March 31, 1999 between Optimal
Communications, Inc. (nka PentaStar Communications, Inc.) and
Jeffrey A. Veres and Addendum thereto.
10.12 Lock-Up Agreement dated March 17, 1999 between Optimal
Communications, Inc. (nka PentaStar Communications, Inc.) and
BACE Investments, LLC.
10.13 Business Lease dated April 10, 1996 between Jeffrey and Linda
Veres and DMA Ventures, Inc. (dba Access Communications) and
First Amendment to Lease dated August 13, 1999.
10.14 Form of Escrow Agreement among BACE Investments, LLC, Black
Diamond Capital, LLC, PentaStar Communications, Inc.,
Schneider Securities, Inc. and American Securities Transfer &
Trust, Inc.
21.1 Statement re subsidiaries of PentaStar Communications, Inc.
23.1* Consent of Sherman & Howard L.L.C. (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants.
</TABLE>
II-3
<PAGE> 134
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- ------------------------
<S> <C>
24.1 Power of Attorney. Reference is made to II-5.
27.1 Financial Data Schedule.
</TABLE>
* To be filed by amendment.
All schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements of the
registrant or related notes thereto.
ITEM 28. UNDERTAKINGS
The undersigned small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is
II-4
<PAGE> 135
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer pursuant to Rule 424(b)(1), or
(4), or 497(h) under the Securities Act as part of this Registration Statement
as of the time the Commission declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration Statement,
and that offering of such securities at that time as the initial bona fide
offering of those securities.
The small business issuer will provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE> 136
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Denver, State of Colorado, on the 16th day of August, 1999.
PENTASTAR COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
-------------------------------------
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard M. Tyler and Craig J. Zoellner,
and each of them, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
pre-effective and post-effective amendments) to this Registration Statement, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Craig J. Zoellner President, Treasurer and Director
- --------------------------------- (Principal Executive Officer and August 16, 1999
Principal Financial and Accounting
Officer)
/s/ Richard M. Tyler Vice President, Secretary and August 16, 1999
- --------------------------------- Director
Richard M. Tyler
/s/ Director __________, 1999
- ---------------------------------
Carleton A. Brown
</TABLE>
II-6
<PAGE> 137
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- ------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealers Agreement.
2.1 Agreement and Plan of Merger dated August 13, 1999 among
PentaStar Communications, Inc., OC Mergerco 1, Inc., DMA
Ventures, Inc. and its principal shareholder, Jeffrey A.
Veres.
2.2 Agreement and Plan of Merger dated August 13, 1999 among
PentaStar Communications, Inc., OC Mergerco 2, Inc., ICM
Communications Integration, Inc. and the shareholders of ICM
Communications Integration, Inc.
3.1 Form of Restated Certificate of Incorporation.
3.2 Form of Restated Bylaws.
4.1* Specimen stock certificate representing shares of common stock
of PentaStar Communications, Inc.
4.2 Form of Warrant for the purchase of common stock to be issued
to the representatives upon the closing of this offering.
5.1* Opinion of Sherman & Howard L.L.C. regarding the legality of
the securities being registered.
10.1 PentaStar Communications, Inc. Stock Option Plan.
10.2* Strategic Agent Sales Agreement by and between U S WEST
Communications, Inc. and Access Communications dated February
15, 1998.
10.3* Strategic Agent Sales Agreement by and between U S WEST
Communications, Inc. and ICM Communications Integration, Inc.
dated February 13, 1998.
10.4 Consulting Agreement effective September 1, 1999 between
Optimal Communications, Inc. (nka PentaStar Communications,
Inc.) and BIBD, LLC.
10.5 Employment and Noncompetition Agreement entered into as of
August 13, 1999 between PentaStar Communications, Inc. and
Jeffrey A. Veres.
10.6 Form of Principal Stockholder's Escrow and Contingent Stock
Agreement among PentaStar Communications, Inc., OC Mergerco 1,
Inc. and Jeffrey A. Veres.
10.7 Form of Principal Stockholder's Escrow and Contingent Stock
Agreement among PentaStar Communications, Inc., OC Mergerco 2,
Inc. and Dennis W. Schillinger.
10.8 Lease Agreement between BACE Real Estate, LLC and PentaStar
Communications, Inc.
10.9 Stock Purchase Agreement dated March 31, 1999 between Optimal
Communications, Inc. (nka PentaStar Communications, Inc.) and
Robert S. Lazzeri and Addendum thereto.
</TABLE>
<PAGE> 138
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- ------------------------
<S> <C>
10.10 Stock Purchase Agreement dated March 31, 1999 between Optimal
Communications, Inc. (nka PentaStar Communications, Inc.) and
Black Diamond Capital, LLC and Addendum thereto.
10.11 Stock Purchase Agreement dated March 31, 1999 between Optimal
Communications, Inc. (nka PentaStar Communications, Inc.) and
Jeffrey A. Veres and Addendum thereto.
10.12 Lock-Up Agreement dated March 17, 1999 between Optimal
Communications, Inc. (nka PentaStar Communications, Inc.) and
BACE Investments, LLC.
10.13 Business Lease dated April 10, 1996 between Jeffrey and Linda
Veres and DMA Ventures, Inc. (dba Access Communications) and
First Amendment to Lease dated August 13, 1999.
10.14 Form of Escrow Agreement among BACE Investments, LLC, Black
Diamond Capital, LLC, PentaStar Communications, Inc.,
Schneider Securities, Inc. and American Securities Transfer &
Trust, Inc.
21.1 Statement re subsidiaries of PentaStar Communications, Inc..
23.1* Consent of Sherman & Howard L.L.C. (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24.1 Power of Attorney. Reference is made to II-5.
27.1 Financial Data Schedule.
</TABLE>
* To be filed by amendment.
<PAGE> 1
1,500,000 SHARES OF COMMON STOCK
PENTASTAR COMMUNICATIONS, INC.
UNDERWRITING AGREEMENT
________, 1999
Schneider Securities, Inc.
1120 Lincoln Street
Suite 900
Denver, Colorado 80203
Dear Sirs:
PentaStar Communications, Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement with you (who are sometimes hereinafter referred
to as the "Representative") and with the other members of the underwriting group
(the "Underwriters") named on Schedule 1 hereto as follows:
1. Introductory. Subject to the terms and conditions herein contained,
the Company proposes to sell to the several Underwriters an aggregate of
1,500,000 shares (the "Firm Shares") of the Company's Common Stock, par value
$.001 per share (the "Common Stock"). The Company also proposes to sell to the
several Underwriters not more than 225,000 additional shares of Common Stock
(15% of the number of shares constituting the Firm Shares) if requested by the
Representative as provided in Section 3 of this Agreement. Any and all shares of
Common Stock to be purchased by the Underwriters pursuant to such option are
referred to herein as the "Additional Shares." The Firm Shares and any
Additional Shares are collectively referred to herein as the "Shares."
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
a. The Company has filed with the United States Securities and
Exchange Commission (the "Commission") a registration statement, and
may have filed one or more amendments thereto, on Form SB-2
(Registration No. 333-______), including in such registration statement
and each such amendment a facing sheet, the information called for by
Part I, audited consolidated financial statements for the past three
fiscal years or such other period as may be appropriate, the
information called for by Part II, the undertakings to deliver
certificates, file reports and file post-effective amendments, the
required signatures, consents of experts, exhibits, a related
preliminary prospectus (a "Preliminary Prospectus") and any other
information or documents which are required for the registration of the
<PAGE> 2
Shares, and the warrants referred to in Section 5(p) (the
"Representative's Warrants") and the shares referred to in Section 5(p)
purchasable upon exercise of the Representative's Warrants (the
"Representative's Warrant Shares"), under the Securities Act of 1933,
as amended (the "Act"). As used in this Agreement, the term
"Registration Statement" means such registration statement, including
incorporated documents, all exhibits and consolidated financial
statements and schedules thereto, as amended, when it becomes
effective, and shall include the information with respect to the
Shares, the Representative's Warrants, and the Representative's Warrant
Shares and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A
of the General Rules and Regulations promulgated under the Act (the
"Regulations"), which information is deemed to be included therein when
it becomes effective as provided by Rule 430A; the term "Preliminary
Prospectus" means each prospectus included in the Registration
Statement, or any amendments thereto, before it becomes effective under
the Act and any prospectus filed by the Company with the consent of the
Representative pursuant to Rule 424(a) of the Regulations; and the term
"Prospectus" means the final prospectus included as part of the
Registration Statement, except that if the prospectus relating to the
securities covered by the Registration Statement in the form first
filed on behalf of the Company with the Commission pursuant to Rule
424(b) of the Regulations shall differ from such final prospectus, the
term "Prospectus" shall mean the prospectus as filed pursuant to Rule
424(b) from and after the date on which it shall have first been used.
b. When the Registration Statement becomes effective, and at
all times subsequent thereto, to and including the Closing Date (as
defined in Section 3) and each Additional Closing Date (as defined in
Section 3), and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Representative
or any dealer, and during such longer period until any post-effective
amendment thereto shall become effective, the Registration Statement
(and any post-effective amendment thereto) and the Prospectus (as
amended or as supplemented if the Company shall have filed with the
Commission any amendment or supplement to the Registration Statement or
the Prospectus) will contain all statements which are required to be
stated therein in accordance with the Act and the Regulations, will
comply with the Act and the Regulations, and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and no event will have occurred which should
have been set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not then been set forth in such
an amendment or supplement; and no Preliminary Prospectus, as of the
date filed with the Commission, included any untrue statement of a
material fact
<PAGE> 3
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; except that no
representation or warranty is made in this Section 2(b) with respect to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company as stated in Section 8(b)
with respect to the Underwriters by or on behalf of the Underwriters
expressly for inclusion in any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto.
c. Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order")
suspending the effectiveness of the Registration Statement, preventing
or suspending the use of any Preliminary Prospectus, the Prospectus,
the Registration Statement, or any amendment or supplement thereto,
refusing to permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of the Shares, the
Representative's Warrants, and the Representative's Warrant Shares, nor
has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
d. Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the
Prospectus has been properly described therein. Any contract,
agreement, instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed with the
Commission as an exhibit to or has been incorporated as an exhibit by
reference into the Registration Statement.
e. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits
of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and assets
and to carry on the business in the manner described in the Prospectus.
Each of the Subsidiaries of the Company (the "Subsidiaries") is a
corporation duly organized and validly existing in good standing under
the laws of the jurisdiction of its organization, with full corporate
power and authority to own, lease, and operate its properties and to
conduct its business as described in the Prospectus. The Company and
each Subsidiary is duly qualified to do business and is in good
standing in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its business
makes such qualifications necessary. The Company has no Subsidiaries
except as disclosed in the Prospectus.
f. The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, of which _________ shares of Common
Stock are issued and
<PAGE> 4
outstanding, ___________ shares of Common Stock are reserved for
issuance upon the exercise of currently outstanding options, warrants,
and convertible notes and associated warrants, _________ shares of
Common Stock are reserved for issuance upon the exercise of the
remaining options authorized under the Company's option plan; and
1,000,000 shares of Preferred Stock, none of which are issued or
outstanding. Each outstanding share of Common Stock is validly
authorized, validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, and has not been
issued and is not owned or held in violation of any preemptive rights
of stockholders. There is no commitment, plan, or arrangement to issue,
and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company or any security
or other instrument which by its terms is convertible into, exercisable
for, or exchangeable for capital stock of the Company, except as set
forth above, and as may be properly described in the Prospectus.
g. The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly
present in all material respects with respect to the Company the
consolidated financial position, the results of operations, and the
other information purported to be shown therein at the respective dates
and for the respective periods to which they apply. Such consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles, except to the extent that certain
footnote disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
consistently applied throughout the periods involved, are correct and
complete in all material respects, and are in accordance with the books
and records of the Company. The accountants whose reports on the
audited consolidated financial statements are filed with the Commission
as a part of the Registration Statement are, and during the periods
covered by their reports included in the Registration Statement and the
Prospectus were, independent certified public accountants with respect
to the Company within the meaning of the Act and the Regulations. No
other financial statements are required by Form S-1 or otherwise to be
included in the Registration Statement or the Prospectus. There has at
no time been a material adverse change in the consolidated financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company from the latest
information set forth in the Registration Statement or the Prospectus,
except as may be properly described in the Prospectus.
h. There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, or, to
the knowledge of the Company, threatened, or proposed with respect to
the Company or any of its Subsidiaries, operations,
<PAGE> 5
businesses, properties, or assets, except as may be properly described
in the Prospectus or such as individually or in the aggregate do not
now have and will not in the future have a material adverse effect upon
the operations, business, properties, or assets of the Company. The
Company and each Subsidiary is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree
except as may be properly described in the Prospectus or such as in the
aggregate do not now have and will not in the future have a material
adverse effect upon the operations, business, properties, or assets of
the Company, nor is the Company required to take any action in order to
avoid any such violation or default.
i. The Company has good and marketable title in fee simple
absolute to all real properties and good title to all other properties
and assets which the Prospectus indicates are owned by it, free and
clear of all liens, security interests, pledges, charges, encumbrances,
and mortgages except as may be properly described in the Prospectus or
such as in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business,
properties, or assets of the Company. No real property owned, leased,
licensed, or used by the Company lies in an area which is, or to the
knowledge of the Company will be, subject to zoning, use, or building
code restrictions which would prohibit, and no state of facts relating
to the actions or inaction of another person or entity or his or its
ownership, leasing, licensing, or use of any real or personal property
exists which would prevent, the continued effective ownership, leasing,
licensing, or use of such real property in the business of the Company
as presently conducted or as the Prospectus indicates it contemplates
conducting, except as may be properly described in the Prospectus or
such as in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business,
properties, or assets of the Company.
j. Neither the Company nor any other party is now or is
expected by the Company to be in violation or breach of, or in default
with respect to complying with, any material provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding
which is material to the Company, and each such contract, agreement,
instrument, lease, license, arrangement, and understanding is in full
force and is the legal, valid, and binding obligation of the parties
thereto and is enforceable as to them in accordance with its terms. The
Company enjoys peaceful and undisturbed possession under all material
leases and licenses under which it is operating. The Company is not a
party to or bound by any contract, agreement, instrument, lease,
license, arrangement, or understanding, or subject to any charter or
other restriction, which has had or could reasonably be expected to
have in the future have a material adverse effect on the financial
<PAGE> 6
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company. The Company and each
of the Subsidiaries is not in violation or breach of, or in default
with respect to, any term of its Articles of Incorporation (or other
charter document) or by-laws.
k. All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises,
technology, know-how and other intangible properties and assets that
are material to the Company (all of the foregoing being herein called
"Intangibles") that the Company owns or has pending, or under which it
is licensed, are uncontested to the Company's knowledge. Except as
otherwise disclosed in the Registration Statement, the Intangibles are
owned by the Company, free and clear of all liens, security interests,
pledges, and encumbrances. The Company has filed an application with
the United States Patent and Trademark Office to register
"____________________" as a registered trademark. There is no right
under any Intangible necessary to the business of the Company as
presently conducted or as the Prospectus indicates it contemplates
conducting (except as may be so designated in the Prospectus). The
Company has not infringed, is not infringing, and has not received
notice of infringement with respect to asserted Intangibles of others,
except for such infringements which in the aggregate will not result in
a material adverse effect on the Company. To the knowledge of the
Company, there is no infringement by others of Intangibles of the
Company. To the knowledge of the Company, there is no Intangible of
others which has had or which could reasonably be expected in the
future to have a materially adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities, or
future prospects of the Company.
l. Neither the Company nor any of the Subsidiaries, nor any
director, officer, agent, employee, or other person associated with or
acting on behalf of the Company has, directly or indirectly: used any
corporate funds for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity; made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended by the International Anti-Bribery Act
of 1998; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment. Each of the Company and the
Subsidiaries has not accepted any material advertising allowances or
marketing allowances from suppliers to the Company or, to the extent
any advertising allowance has been accepted, the Company has provided
proper documentation to the supplier with respect to advertising as to
which the advertising allowance has been granted.
m. The Company has all requisite power and authority to
execute and deliver,
<PAGE> 7
and to perform thereunder each of this Agreement and the
Representative's Warrants. All necessary corporate proceedings of the
Company have been duly taken to authorize the execution and delivery,
and performance thereunder by the Company of this Agreement and the
Representative's Warrants. This Agreement has been duly authorized,
executed, and delivered by the Company, is a legal, valid, and binding
obligation of the Company, and is enforceable as to the Company in
accordance with its terms. The Representative's Warrants have been duly
authorized by the Company and, when executed and delivered by the
Company, will each be a legal, valid, and binding obligation of the
Company, and will be enforceable against the Company in accordance with
its terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or
other tribunal is required by the Company for the execution and
delivery, or performance thereunder by the Company of this Agreement or
the Representative's Warrants except filings under the Act which have
been or will be made before the Closing Date and such consents
consisting only of consents under "blue sky" or securities laws which
are required in connection with the transactions contemplated by this
Agreement and which have been obtained at or prior to the date of this
Agreement. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the
Company is a party, or to which any of its properties or assets are
subject, is required for the execution or delivery, or performance
thereunder of this Agreement or the Representative's Warrants; and the
execution and delivery, and performance thereunder of this Agreement
and the Representative's Warrants will not violate, result in a breach
of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a
default under any such contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate or result in a breach of any
term of the Articles of Incorporation or by-laws of the Company, or
violate, result in a breach of, or conflict with any law, rule,
regulation, order, judgment, or decree binding on the Company or to
which any of its operations, businesses, properties, or assets are
subject.
n. The issued and outstanding shares of Common Stock and all
other securities issued and sold or exchanged by the Company were not
required to be registered under any applicable state or federal
securities laws and regulations when issued and sold or exchanged and
were issued and sold or exchanged in compliance with applicable
exemptions from registration under federal and state securities laws.
o. The Shares, the Representative's Warrants and the
Representative's Warrant Shares are validly authorized and reserved for
issuance. The Shares, when issued and delivered in accordance with this
Agreement and the Representative's Warrant Shares,
<PAGE> 8
when issued and delivered upon exercise of the Representative's
Warrants, and upon payment of the exercise price therefor, will be
validly issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders, and the
Underwriters will receive good title to the Shares purchased, the
Representative will receive good title to the Representative's Warrants
purchased and any purchaser of the Representative 's Warrant Shares
will receive good title thereto, all such title free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts.
p. The Shares, the Representative's Warrants and the
Representative's Warrant Shares conform to all statements relating
thereto contained in the Registration Statement and the Prospectus.
q. Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as may otherwise be properly described in the Prospectus, the Company
has not (i) issued any securities or incurred any liability or
obligation, primary or contingent, for borrowed money, (ii) entered
into any transaction not in the ordinary course of business, or (iii)
declared or paid any dividend on its capital stock.
r. The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a
broker or finder in connection with the trans actions contemplated by
this Agreement.
s. The Company has obtained from each officer, director and
person or entity that beneficially owns the Company's Common Stock his,
her or its enforceable written agreement that for a period of 12 months
from the Effective Date, he, she or it will not, without the
Representative's prior written consent, sell, the Company's Common
Stock owned by such person prior to the Effective Date. Notwithstanding
the foregoing, commencing 180 days after the Effective Date, the
stockholders of the Company who are not officers or directors of the
Company shall have the right to sell up to 20% of the shares of Common
Stock owned by them, up to a maximum aggregate amount of 150,000 shares
of Common Stock, through and until expiration of the 12 month
restriction provided herein. Any such sales will comply with applicable
exemptions from the registration requirements of the Act. For a period
of three (3) years from the Effective Date, all public sales of the
Company's Common Stock by officers, directors and stockholders of the
Company shall be effected through or with the Representative on an
exclusive basis, provided that the Representative offers or matches the
best price reasonably available to the selling holders. The foregoing
provisions shall not apply to sales of Common Stock in an underwritten
public offering. Further, public or private sales of Common Stock by
such persons shall not
<PAGE> 9
include gifts, intra-family transfers or transfers for estate planning
purposes, which shall be exempt from the foregoing provisions. The
Company agrees not to sell its Common Stock 2 months from the Effective
Date except (i) with the Representative's prior written consent, (ii)
in an underwritten public offering, (iii) in connection with an
acquisition, (iv) upon the exercise of currently outstanding options or
warrants, (v) upon the conversion of currently outstanding convertible
debt, (vi) upon the exercise of options granted pursuant to the
Company's stock option plan, or (vii) upon exercise of the
Representative's Warrants.
t. The Company and its Subsidiaries have not, directly or
indirectly (except for the sale of Securities under this Agreement),
(i) taken any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities, or (ii)
since the filing of the Registration Statement, and except for the
transactions contemplated herein, (A) sold, bid for, purchased, or paid
anyone any compensation for soliciting purchases of the Securities, or
(B) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
u. The Company is not an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and this
transaction will not cause the Company to become an investment company
subject to registration under the 1940 Act.
v. The Company and the Subsidiaries have not distributed and,
prior to the later of (A) the Closing Date or any Additional Closing
Date and (B) the completion of the distribution of the Securities, will
not distribute any written offering material in connection with the
offering and sale of the Securities other than the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or other materials,
if any, permitted by the Act.
w. The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in which
they are engaged; and neither the Company nor its Subsidiaries has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a material adverse effect,
except as describe in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus).
x. Neither the Company nor its Subsidiaries is presently doing
business with the government of Cuba or with any person or affiliate
located in Cuba.
y. In the event the Company presents a "road show" over the
Internet, the
<PAGE> 10
Company and any contractor engaged by it to prepare and transmit such
"road show" presentation by means of the Internet shall comply with
that certain no-action request form Net Roadshow, Inc. to the
Securities and Exchange Commission on July 23, 1997, as responded to by
the Securities and Exchange Commission on July 30, 1997.
z. Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), and to the Company's best knowledge after reasonable
investigation, all hardware, firmware, software and computer systems of
the Company and its Subsidiaries and, to the Company's knowledge, of
respective material vendors and suppliers of the Company and its
Subsidiaries, will be by the Closing Date, year 2000 Compliant (as
defined below) and will continue to function in accordance with their
independent purpose without material error or material interruption as
a result of the transition to the year 2000, to the extent that data
submitted or processed is unambiguous and date specific, except such
errors or interruptions which in the aggregate would not reasonably be
expected to have a material adverse effect on the Company . The Company
will not incur any additional material costs for the Company or its
Subsidiaries to become year 2000 Compliant. For purposes of this
paragraph, "year 2000 Compliant" means, with respect to the Company,
its Subsidiaries, or its respective material vendors and suppliers,
that the hardware, firmware, software and computer systems of each of
the foregoing (i) will completely and accurately address, produce,
store and calculate data involving dates before, on or after January 1,
2000 and will not produce abnormally ending or incorrect results
involving such dates as used in any forward or regression dated based
functions, and (ii) will provide that date related functionalities and
data fields include the indication of century and millennium and will
perform calculations that involve a four-digit year.
aa. Except as otherwise provided in the Registration
Statement, no person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of
the filing or effectiveness of the Registration Statement.
bb. The Company is eligible to use Form SB-2 for registration
of the Shares, the Representative's Warrants and the Representative's
Warrant Shares.
cc. No unregistered securities of the Company, of an affiliate
of the Company or of a predecessor of the Company have been sold within
three years prior to the date hereof, except as described in the
Registration Statement.
dd. Except as set forth in the Registration Statement, there
is and at the Closing Date there will be no action, suit or proceeding
before any court, arbitration tribunal or governmental agency,
authority or body pending or, to the knowledge of the Company,
threatened which could reasonably be expected to result in judgments
against the Company not adequately covered by insurance or which
collectively could reasonably be expected to
<PAGE> 11
result in any material adverse change in the condition (financial or
otherwise), the business or the prospects of the Company or would
materially affect the properties or assets of the Company.
ee. The Company has filed all federal and state tax returns
which are required to be filed by it and has paid all taxes shown on
such returns and all assessments received by it to the extent such
taxes have become due. All taxes with respect to which the Company is
obligated have been paid or adequate accruals have been set up to cover
any such unpaid taxes.
ff. Except as set forth in the Registration Statement:
i. The Company has obtained all permits, licenses and
other authorizations which are required under the
Environmental Laws for the ownership, use and operation of
each location operated or leased by the Company (the
"Property"), all such permits, licenses and authorizations, if
any, obtained are in effect, no appeal nor any other action is
pending to revoke any such permit, license or authorization,
and the Company is in full compliance with all terms and
conditions of all such permits, licenses and authorizations,
if any, obtained by the Company.
ii. To the best knowledge of the Company's executive
officers, the Company and the Property are in compliance with
all Environmental Laws including, without limitation, all
restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in
any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
iii. The Company has not, and to the best knowledge
of the Company's executive officers, no other person has,
released, placed, stored, buried or dumped any Hazardous
Substances, Oils, Pollutants or Contaminants or any other
wastes produced by, or resulting from, any business,
commercial, or industrial activities, operations, or
processes, on, beneath, or adjacent to the Property or any
property formerly owned, operated or leased by the Company
except for inventories of such substances to be used, and
wastes generated therefrom, in the ordinary course of business
of the Company (which inventories and wastes, if any, were and
are stored or disposed of in accordance with applicable laws
and regulations and in a manner such that there has been no
release of any such substances into the environment).
iv. Except as provided to the Representative, there
exists no written or tangible report, synopsis or summary of
any asbestos, toxic waste or Hazardous
<PAGE> 12
Substances, Oils, Pollutants or Contaminants investigation
made with respect to all or any portion of the assets of the
Company (whether or not prepared by experts and whether or not
in the possession of the executive officers of the Company).
v. Definitions: As used herein:
(1) Environmental Laws means all federal,
state and local laws, regulations, rules and
ordinances relating to pollution or protection of the
environment, including, without limitation, laws
relating to Releases or threatened Releases of
Hazardous Substances, Oils, Pollutants or
Contaminants into the indoor or outdoor environment
(including, without limitation, ambient air, surface
water, groundwater, land, surface and subsurface
strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage,
Release, transport or handling of Hazardous
Substances, Oils, Pollutants or Contaminants.
(2) Hazardous Substances, Oils, Pollutants
or Contaminants means all substances defined as such
in the National Oil and Hazardous Substances
Pollutant Contingency Plan, 40 C.F.R. Section 300.6,
or defined as such under any Environmental Law.
(3) Release means any release, spill,
emission, discharge, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environmental
(including, without limitation, ambient air, surface
water, groundwater, and surface or subsurface strata)
or into or out of any property, including the
movement of Hazardous Substances, Oils, Pollutants or
Contaminants through or in the air, soil, surface
water, groundwater or any property.
3. Purchase, Sale, and Delivery of the Shares. On the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters, severally and not jointly, and the
Underwriters, severally and not jointly, agree to purchase from the Company the
number of Firm Shares set forth opposite the Underwriters' names in Schedule 1
hereto.
The purchase price per Firm Share to be paid by the Underwriters shall
be $______. The initial public offering price of the Shares shall be $______.
Payment for the Firm Shares by the Underwriters shall be made by wire
transfer or by certified or official bank check in clearing house funds, payable
to the order of the Company at the offices of Schneider Securities, Inc., 1120
Lincoln Street, Suite 900, Denver, Colorado 80203, or at such other place in
Denver, Colorado as the Representative shall determine and advise the Company by
at least two full days' notice in writing, upon delivery of the Shares to the
<PAGE> 13
Representative. Such delivery and payment shall be made at 10:00 a.m., Mountain
Time, on the third business day following the time of the initial public
offering, as defined in Section 10(a) hereof, unless the Commission declares the
Registration Statement effective after 4:30 p.m. Eastern time, in which event
delivery and payment shall be made on the fourth (4th) business day following
the time of the initial public offering. The time and date of such delivery and
payment are herein called the "Closing Date."
In addition, the Company hereby grants to the Representative the option
to purchase all or a portion of the Additional Shares as may be necessary to
cover over-allotments, at the same purchase price per Additional Share as the
price per Firm Share provided for in this Section 3. The Representative may
purchase Additional Shares when exercising such option, in its sole discretion.
This option may be exercised by the Representative on the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, at any time
and from time to time on or before the 45th day following the Effective Date of
the Registration Statement, by written notice by the Representative to the
Company. Such notice shall set forth the aggregate number of Additional Shares
as to which the option is being exercised, and the time and date, as determined
by the Representative, when such Additional Shares are to be delivered (such
time and date are herein called an "Additional Closing Date"); provided,
however, that no Additional Closing Date shall be earlier than the Closing Date
nor earlier than the third business day after the date on which the notice of
the exercise of the option shall have been given nor later than the eighth
business day after the date on which such notice shall have been given; and
further provided, that not more than two Additional Closings shall be noticed
and held following purchase of Additional Shares by the Representative.
Payment for the Additional Shares shall be made by wire transfer or by
certified or official bank check in clearing house funds payable to the order of
the Company at the offices of Schneider Securities, Inc., 1120 Lincoln Street,
Suite 900, Denver, Colorado, or at such other place in Denver, Colorado as you
shall determine and advise the Company by at least two full days' notice in
writing, upon delivery of certificates representing the Additional Shares to
you.
Certificates for the Shares purchased shall be registered in such name
or names and in such authorized denominations as you may request in writing at
least two full business days prior to the Closing Date or Additional Closing
Date, as applicable. The Company shall permit you to examine and package such
certificates for delivery at least one full business day prior to any such
closing with respect thereto.
If for any reason one or more Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 10 hereof) to purchase and pay for the
number of Firm Shares agreed to be purchased by such Underwriter, the Company
shall immediately give notice thereof to the Representative, and the
non-defaulting
<PAGE> 14
Underwriters shall have the right within 24 hours after the receipt by the
Representative of such notice, to purchase or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon among the
Representative and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, the Firm Shares which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail to make
such arrangements with respect to all such Firm Shares, the number of Firm
Shares which each non-defaulting Underwriter is otherwise obligated to purchase
under the Agreement shall be automatically increased pro rata to absorb the
remaining Firm Shares which the defaulting Underwriter or Underwriters agreed to
purchase; provided, however, that the non-defaulting Underwriters shall not be
obligated to purchase the Firm Shares which the defaulting Underwriter or
Underwriters agreed to purchase in excess of 10% of the total number of Shares
which such non-defaulting Underwriter agreed to purchase hereunder, and provided
further that the non-defaulting Underwriters shall not be obligated to purchase
any Firm Shares which the defaulting Underwriter or Underwriters agreed to
purchase if such additional purchase would cause the Underwriter to be in
violation of the net capital rule of the Commission or other applicable law. If
the total number of Firm Shares which the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company shall have the right, within 24 hours next
succeeding the 24-hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to the Representative for the purchase
of such Firm Shares on the terms herein set forth. In any such case, either the
Representative or the Company shall have the right to postpone the Closing for
not more than seven business days after the date originally fixed as the Closing
in order that any necessary changes in the Registration Statement, the
Prospectus or any other documents or arrangements may be made. If neither the
non-defaulting Underwriters nor the Company shall make arrangements within the
24-hour periods stated above for the purchase of all the Firm Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter, except
the Company shall be liable for actual expenses incurred by the Representative
as provided in Section 10 hereof, and without any liability on the part of any
non-defaulting Underwriter to the Company.
Nothing contained herein shall relieve any defaulting Underwriter of
its liability, if any, to the Company or to the remaining Underwriters for
damages occasioned by its default hereunder.
4. Offering. The Underwriters are to make a public offering of the
Shares as soon, on or after the effective date of the Registration Statement, as
the Representative deems it advisable so to do. The Shares are to be initially
offered to the public at the initial public offering price as provided for in
Section 3 (such price being herein called the "public offering price"). After
the
<PAGE> 15
initial public offering, you may from time to time increase or decrease the
price of the Shares in your sole discretion, by reason of changes in general
market conditions or otherwise.
5. Covenants of the Company. The Company covenants that it will:
a. Use its best efforts to cause the Registration Statement to
become effective as promptly as possible. If the Registration Statement
has become or becomes effective with a form of Prospectus omitting
certain information pursuant to Rule 430A of the Regulations, or filing
of the Prospectus is otherwise required under Rule 424(b), the Company
will file the Prospectus, properly completed, pursuant to Rule 424(b)
within the time period prescribed and will provide evidence
satisfactory to you of such timely filing.
b. Notify you immediately, and confirm such notice in writing,
(i) when the Registration Statement and any post-effective amendment
thereto become effective, (ii) of the receipt of any comments from the
Commission or the "blue sky" or securities authority of any
jurisdiction regarding the Registration Statement, any post-effective
amendment thereto, the Prospectus, or any amendment or supplement
thereto, and (iii) of the receipt of any notification with respect to a
Stop Order or the initiation or threatening of any proceeding with
respect to a Stop Order. The Company will use its best efforts to
prevent the issuance of any Stop Order and, if any Stop Order is
issued, to obtain the lifting thereof as promptly as possible.
c. During the time when a prospectus relating to the Shares is
required to be delivered hereunder or under the Act or the Regulations,
comply so far as it is able with all requirements imposed upon it by
the Act, as now existing and as hereafter amended, and by the
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Shares and
Representative's Warrant Shares in accordance with the provisions
hereof and the Prospectus. If, at any time when a prospectus relating
to the Shares or Representative's Warrant Shares is required to be
delivered hereunder or under the Act or the Regulations, any event
shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Representative, the
Registration Statement or the Prospectus, as then amended or
supplemented, contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, or if, in the opinion of
either of such counsel, it is necessary at any time to amend or
supplement the Registration Statement or the Prospectus to comply with
the Act or the Regulations, the Company will immediately notify you and
promptly prepare and file with the Commission an appropriate amendment
or supplement (in form and substance satisfactory to you) which will
correct such statement or omission or which will effect such compliance
and will use its best efforts to have any such amendment declared
effective as soon as possible.
<PAGE> 16
d. Deliver without charge to you such number of copies of each
Preliminary Prospectus as you may reasonably request and, as soon as
the Registration Statement or any amendment thereto becomes effective
or a supplement is filed, deliver without charge to you two signed
copies of the Registration Statement or such amendment thereto, as the
case may be, including exhibits, and two copies of any supplement
thereto, and deliver without charge to you such number of copies of the
Prospectus, the Registration Statement, and amendments and supplements
thereto, if any, without exhibits, as you may reasonably request for
the purposes contemplated by the Act.
e. Endeavor in good faith, in cooperation with you, at or
prior to the time the Registration Statement becomes effective, to
qualify the Shares and Representative's Warrant Shares for offering and
sale under the "blue sky" or securities laws of such jurisdictions as
you may designate; provided, however, that no such qualification shall
be required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a
foreign corporation doing business in such jurisdiction to which it is
not then subject. In each jurisdiction where such qualification shall
be effected, the Company will, unless you agree in writing that such
action is not at the time necessary or advisable, file and make such
statements or reports at such times as are or may be required by the
laws of such jurisdiction.
f. Make generally available (within the meaning of Section
11(a) of the Act and the Regulations) to its security holders as soon
as practicable, but not later than fifteen (15) months after the date
of the Prospectus, an earnings statement (which need not be certified
by independent certified public accountants unless required by the Act
or the Regulations, but which shall satisfy the provisions of Section
11(a) of the Act and the Regulations) covering a period of at least 12
months beginning after the effective date of the Registration
Statement.
g. For a period of 12 months after the date of the Prospectus,
not, without your prior written consent, offer, issue, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any security or
other instrument which by its terms is convertible into, exercisable
for, or exchangeable for shares of Common Stock) except as provided in
Section 3 and except (i) with the Representative's prior written
consent, (ii) in an underwritten public offering, (iii) in connection
with an acquisition, (iv) upon the exercise of currently outstanding
options or warrants, (v) upon the conversion of currently outstanding
convertible debt, (vi) upon the exercise of options granted pursuant to
the Company's stock option plan, or (vii) upon exercise of the
Representative's Warrants.
<PAGE> 17
h. For a period of five years after the Effective Date of the
registration statement, furnish you, without charge, the following:
i. Within 105 days after the end of each fiscal year,
three copies of consolidated financial statements certified by
independent certified public accountants, including a balance
sheet, statement of operations, and statement of cash flows of
the Company and its then existing Subsidiaries, with
supporting schedules, prepared in accordance with generally
accepted accounting principles, at the end of such fiscal year
and for the 12 months then ended;
ii. As soon as practicable after they have been sent
to stockholders of the Company or filed with the Commission,
three copies of each annual and interim financial and other
report or communication sent by the Company to its
stockholders or filed with the Commission;
iii. As soon as practicable, two copies of every
press release and every material news item and article in
respect of the Company or its affairs which was released by
the Company;
iv. Notice of any regular or special meeting of the
Company's Board of Directors concurrently with the sending of
such notice to the Company's directors; and
v. Such additional documents and information with
respect to the Company and its affairs and the affairs of any
of its Subsidiaries as you may from time to time reasonably
request.
i. Designate an Audit Committee and a Compensation Committee,
the members of which shall be subject to your reasonable approval,
which will generally supervise the financial affairs of the Company and
review executive compensation, respectively.
j. Furnish to you as early as practicable prior to the Closing
Date and any Additional Closing Date, as the case may be, but not less
than two full business days prior thereto, a copy of the latest
available unaudited interim consolidated financial statements of the
Company which have been read by the Company's independent certified
public accountants, as stated in their letters to be furnished pursuant
to Section 7(e).
k. File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the
Effective Date of the Registration Statement, unless such filing shall
comply with the Act and the Regulations and unless you shall previously
have been advised of such filing and furnished with a copy thereof, and
you and counsel for the Representative shall have approved such filing
in writing within a reasonable time of receipt thereof.
<PAGE> 18
l. Comply with all periodic reporting and proxy solicitation
requirements which may from time to time be applicable to the Company
as a result of the Company's registration under the Exchange Act on a
registration statement on Form 8-A.
m. Comply with all provisions of all undertakings contained in
the Registration Statement.
n. Prior to the Closing Date or any Additional Closing Date,
as the case may be, issue no press release or other communication,
directly or indirectly, and hold no press conference and grant no
interviews with respect to the Company, the financial condition,
results of operations, business, properties, assets, or liabilities of
the Company, or this offering, without your prior written consent.
o. Appoint ___________________, Inc. as its transfer agent.
p. On or prior to the Closing Date, sell to the Representative
for a total purchase price of $10, Representative's Warrants entitling
the Representative or its assigns to purchase one share of Common Stock
for each 10 Firm Shares sold to the public at a price equal to 120% of
the public offering price of the Shares, with the terms of the
Representative's Warrants, including exercise period, anti-dilution
provisions, exercise price, exercise provisions, transferability, and
registration rights, to be in the form filed as an exhibit to the
Registration Statement.
q. Until expiration of the Representative's Warrants, keep
reserved sufficient shares of Common Stock for issuance as
Representative's Warrant Shares upon full exercise of the
Representative's Warrants.
r. Adopt procedures for the application of the net proceeds it
receives from the sale of the Shares and apply the net proceeds from
the sale of the Shares substantially in the manner set forth in the
Registration Statement, which does not contemplate repayment of debt to
officers, directors, stockholders or affiliates of the Company, unless
any deviation from such application is in accordance with the
Registration Statement and occurs only after approval by the Board of
Directors of the Company and then only after the Board of Directors has
obtained the written opinion of recognized legal counsel experienced in
federal and state securities laws as to the propriety of any such
deviation.
s. Within the time period which the Prospectus is required to
be delivered under the Act, comply, at its own expense, with all
requirements imposed upon it by the Act, as now or hereafter amended,
by the Rules and Regulations, as from time to time may be enforced, and
by any order of the Commission, so far as necessary to permit the
continuance of sales or dealing in the Shares.
t. At the Closing, deliver to the Representative true and
correct copies of the Articles of Incorporation of the Company and all
amendments thereto, all such copies to be certified by the Secretary of
the Company; true and correct copies of the by-laws of the
<PAGE> 19
Company and of the minutes of all meetings of the directors and
stockholders of the Company held prior to the Closing which in any way
relate to the subject matter of this Agreement or the Registration
Statement.
u. Use all reasonable efforts to comply or cause to be
complied with the conditions precedent to the several obligations of
the Underwriters in Section 7 hereof.
v. File with the Commission all required information
concerning use of proceeds of the Public Offering in Forms 10-Q and
10-K in accordance with the provisions of the Exchange Act and to
provide a copy of such reports to the Representative and its counsel.
w. Supply to the Representative and the Representative's
counsel at the Company's cost, two bound volumes each containing
material documents relating to the offering of the Shares within a
reasonable time after the Closing, not to exceed 90 days.
x. As soon as possible prior to the Effective Date, and as a
condition of the Underwriter's obligations hereunder, (i) if requested
by the Representative, have the Company listed on an accelerated basis,
and to maintain such listing for not less than ten years from the
Closing Date, in Standard & Poor's Standard Corporation Records; and
(ii) have the Common Stock quoted on the Nasdaq SmallCap Market as of
the Effective Date, on the Closing Date, on the Additional Closing Date
and thereafter for at least ten years provided the Company is in
compliance with the Nasdaq SmallCap Market maintenance requirements.
y. Continue, for a period of at least five years following the
Effective Date of the Registration Statement, to appoint such auditors
as are reasonably acceptable to the Representative, which auditors
shall (i) prepare consolidated financial statements in accordance with
Regulation S-X under the General Rules and Regulations of the Act and
(ii) examine (but not audit) the Company's consolidated financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the
Company's 10-Q quarterly report and the mailing of quarterly financial
information to security holders.
z. Within 90 days of the Effective Date of the Registration
Statement, obtain "key man" life insurance policies in the amount of
$1,000,000 each on the lives of ____________ and ___________, with the
Company designated as the beneficiary of such policy, and pay the
annual premiums thereon for a period of not less than five years from
the Effective Date of the Registration Statement.
aa. Cause its transfer agent to furnish the Representative a
duplicate copy of the daily transfer sheets prepared by the transfer
agent during the six-month period commencing on the Effective Date of
the Registration Statement and instruct the transfer agent to timely
provide, upon the request of the Representative, duplicate copies of
such
<PAGE> 20
transfer sheets and/or a duplicate copy of a list of stockholders, all
at the Company's expense, for a period of 4 1/2 years after such
six-month period.
bb. Refrain from filing a Form S-8 registration statement for
a period of 90 days from the Effective Date of the Registration
Statement without the Representative's prior written consent. The
Company will also obtain from each holder of options to acquire Common
Stock of the Company such person's written enforceable agreement not to
sell shares of Common Stock pursuant to the exemption afforded by Rule
701 under the 1933 Act for a minimum period of 90 days from the
Effective Date without the prior written consent of the Representative.
cc. Afford the Representative the right, but not the
obligation, commencing on the Effective Date and surviving for a period
of three years, to designate an observer to attend meetings of the
Board of Directors. The designee, if any, and the Representative will
receive notice of each meeting of the Board of Directors in accordance
with Colorado law. Any such designee will receive reimbursement for all
reasonable costs and expenses incurred in attending meetings of the
Board of Directors, including but not limited to, food, lodging and
transportation, together with such other fee or compensation (but
excluding options or securities) as is paid by the Company to other
members of the Board of Directors. Moreover, to the extent permitted by
law, the Representative and its designee shall be indemnified for the
actions of such designee as an observer to the Board of Directors and
in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and/or directors, to
the extent permitted under such policy, each of the Representative and
its designee shall be an insured under such policy.
dd. The Company will not, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities, or (ii) for a period of 12 months
after the date hereof (A) sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of, the Securities, or (B) pay or
agree to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
ee. The Company will use its best efforts to maintain
insurance of the types and in the amounts which it deems adequate for
its business consistent with insurance coverage maintained by companies
of similar size and engaged in similar businesses including, but not
limited to, general liability insurance covering products and services
sold or distributed by the Company, all real and personal property
owned or leased by the Company and its Subsidiaries, and providing
coverage for theft, damage, destruction, acts of vandalism and all
other risks customarily insured against.
ff. Inform the Florida Department of Banking and Finance at
any time prior to
<PAGE> 21
the consummation of the distribution of the Firm Securities and the
Additional Securities by the Representatives if it commences engaging
in business with the government of Cuba or with any person or affiliate
located in Cuba. Such information will be provided within 90 days after
the commencement thereof or after a change occurs with respect to
previously reported information.
gg. After the Effective Date, the Company will continue to
adopt annual business plans and monthly financial projections
(including balance sheet, profit/loss statement, statement of cash
flows, revenue and earnings) and an annual budget which are agreeable
to the Board of Directors.
6. Payment of Expenses. The Company hereby agrees to pay all expenses
(subject to the last sentence of this Section 6) in connection with the
offering, including but not limited to (a) the preparation, printing, filing,
distribution, and mailing of the Registration Statement and the Prospectus,
including NASD, SEC, Nasdaq filing and/or application fees, and the printing,
filing, distribution, and mailing of this Agreement, any Agreement Among
Underwriters, Selected Dealers Agreement, preliminary and final Blue Sky
Memorandums, material to be circulated to the Underwriters by you and other
incidental or related documents, including the cost of all copies thereof and of
the Preliminary Prospectuses and of the Prospectus, and any amendments or
supplements thereto, supplied to the Representative in quantities as herein
above stated, (b) the issuance, sale, transfer, and delivery of the Firm Shares,
Additional Shares, the Representative's Warrants and the Representative's
Warrant Shares, including, without limitation, any original issue, transfer or
other taxes payable thereon and the costs of preparation, printing and delivery
of certificates representing such securities, as applicable, (c) the
qualification of the Firm Shares, Additional Shares, the Representative's
Warrants and the Representative's Warrant Shares under state or foreign "blue
sky" or securities laws, which qualification shall be undertaken by counsel to
the Representative at the Company's expense, (d) the fees and disbursements of
counsel for the Company and the accountants for the Company, (e) the listing of
the Shares on the Nasdaq SmallCap Market and (f) the Representative's
non-accountable expense allowance equal to 3% of the aggregate gross proceeds
from the sale of the Shares. Prior to or immediately following the Closing Date,
the Company shall bear the costs of tombstone announcements if requested to do
so by the Representative.
The Company has previously remitted to the Representative the sum of
$25,000, which sum has been credited as a partial payment in advance of the
non-accountable expense allowance provided for in Section 6(f) above.
7. Conditions of Underwriters' Obligations. The Underwriters'
obligation to purchase and pay for the Firm Shares and Additional Shares, as
provided herein, shall be subject to the continuing accuracy of the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
you, as of the
<PAGE> 22
date hereof and as of the Closing Date (or the Additional Closing Date, as the
case may be), to the performance by the Company of its obligations hereunder,
and to the following conditions:
a. The Registration Statement shall have become effective not
later than 5:00 p.m., Mountain time, on the date of this Agreement or
such later date and time as shall be consented to in writing by you.
b. At the Closing Date and any Additional Closing Date, you
shall have received the favorable opinion of Sherman & Howard L.L.C.,
counsel for the Company, dated the date of delivery, addressed to you,
and in form and scope satisfactory to your counsel, to the effect that:
i. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware, with full power and authority, and, after
reasonable investigation, counsel has no knowledge that the
Company does not have all necessary consents, authorizations,
approvals, orders, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to conduct its business in the manner described in
the Prospectus. The Company is duly qualified to do business
and is in good standing in every jurisdiction in which its
ownership, leasing, licensing, or use of property and assets
or the conduct of its business makes such qualification
necessary;
ii. Each Subsidiary is a corporation duly organized
and validly existing in good standing under the laws of the
jurisdiction of its organization, with full corporate power
and authority to own, lease, and operate its properties and to
conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement
thereto); and all the outstanding shares of capital stock of
each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, and are owned by the
Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any perfected security
interest, or, to the best knowledge of such counsel after
reasonable inquiry, any other security interest, lien, adverse
claim, equity or other encumbrance;
iii. The authorized capital stock of the Company as
of the date of this Agreement consisted of 20,000,000 shares
of Common Stock, of which _________ shares of Common Stock are
issued and outstanding, ________ shares of Common Stock are
reserved for issuance upon the exercise of outstanding
options, warrants and convertible notes and associated
warrants, and ________ shares of Common Stock are reserved for
issuance upon the exercise of the remaining options authorized
under the Company's option plan; and 1,000,000 shares of
Preferred
<PAGE> 23
Stock, none of which are issued and outstanding; and there
have been no changes in the authorized and outstanding capital
stock of the Company since the date of this Agreement, except
as contemplated by the Registration Statement and the
Prospectus. Each outstanding share of capital stock is validly
authorized, validly issued, fully paid, and nonassessable,
with no personal liability attaching to the ownership thereof,
has not been issued and is not owned or held in violation of
any preemptive right of stockholders. There is no commitment,
plan, or arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of, any share
of capital stock of the Company or any security or other
instrument which by its terms is convertible into, exercisable
for, or exchangeable for capital stock of the Company, except
as set forth above, and except as is properly described in the
Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into or
exchangeable for capital stock of the Company, except as
described in the Prospectus;
iv. To the knowledge of counsel, there is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending,
threat ened, or proposed (or any basis therefor) with respect
to the Company or any of its respective operations,
businesses, properties, or assets, except as is properly
described in the Prospectus or such as individually or in the
aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business,
properties, or assets of the Company;
v. Neither the Company nor any Subsidiary is in
material violation or material breach of, or in material
default with respect to, any term of its Articles of
Incorporation or by-laws;
vi. The Company has all requisite power and authority
to execute and deliver and to perform thereunder this
Agreement and the Representative's Warrants. All necessary
corporate proceedings of the Company have been taken to
authorize the execution and delivery and performance
thereunder by the Company of this Agreement and the
Representative's Warrants. Each of this Agreement and the
Representative's Warrants have been duly authorized, executed
and delivered by the Company, and is a legal, valid, and
binding obligation of the Company, and enforceable as to the
Company in accordance with its respective terms. No consent,
authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal,
state, local, or other governmental authority is required by
the Company for the execution or delivery, or performance
thereunder by the Company of this Agreement or the
Representative's Warrants (except filings under the Act which
have been made prior to the Closing Date, and
<PAGE> 24
consents consisting only of consents under "blue sky" or
securities laws which are required in connection with the
transactions contemplated by this Agreement, and which counsel
has been advised by counsel to the underwriters have been
obtained on or prior to the date the Registration Statement
becomes effective under the Act). No consent of any party to
any contract, agreement, instrument, lease, license,
arrangement, or understanding to which the Company is a party,
or to which any of its properties or assets are subject, is
required for the execution or delivery, or performance
thereunder of this Agreement or the Representative's Warrants;
and the execution and delivery and performance thereunder of
this Agreement and the Representative's Warrants will not
violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under any
such contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate or result in a
breach of any term of the Articles of Incorporation or by-laws
of the Company, or violate, result in a breach of, or conflict
with any law, rule, regulation, order, judgment, or decree
binding on the Company or to which any of its operations,
businesses, properties, or assets are subject;
vii. The Shares are, and the Representative's Warrant
Shares will be upon exercise of the Representative's Warrants,
validly authorized, validly issued, fully paid, and
nonassessable and are not issued in violation of any
preemptive rights of shareholders, and the Underwriters will
have received good title to the Shares purchased by them from
the Company upon payment therefor, free and clear of all
liens, security interests, pledges, charges, encumbrances,
shareholders' agreements, and voting trusts. The
Representative's Warrant Shares have been duly and validly
reserved for issuance pursuant to the terms of the
Representative's Warrants. The Shares, the Representative's
Warrants and the Representative's Warrant Shares conform to
all statements relating thereto contained in the Registration
Statement or the Prospectus;
viii. To the knowledge of counsel, all contracts,
agreements, instruments, leases, and licenses that are
required to be described in the Registration Statement or the
Prospectus have been properly described therein. To the
knowledge of counsel, all contracts, agreements, instruments,
leases, or licenses required to be filed as an exhibit to the
Registration Statement have been filed with the Commission as
an exhibit to or have been incorporated as an exhibit by
reference into the Registration Statement;
ix. Insofar as statements in the Prospectus purport
to summarize the status of litigation or the provisions of
laws, rules, regulations, orders, judgments,
<PAGE> 25
decrees, contracts, agreements, instruments, leases, or
licenses such statements have been prepared or reviewed by
such counsel and to the knowledge of such counsel accurately
reflect the status of such litigation and provisions purported
to be summarized and are correct in all material respects;
x. Except as provided in the Registration Statement,
no person or entity has the right to require registration of
shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration
Statement;
xi. The Registration Statement has become effective
under the Act. No Stop Order has been issued and no
proceedings for that purpose have been instituted or
threatened;
xii. The Registration Statement and the Prospectus,
and any amendment or supplement thereto, comply as to form in
all material respects with the requirements of the Act and the
Regulations;
xiii. After reasonable investigation, such counsel
has no knowledge that either the Registration Statement or the
Prospectus, or any amendment or supplement thereto, contains
any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading (except that no
opinion need be expressed as to the consolidated financial
statements and other financial data and schedules which are or
should be contained therein);
xiv. After reasonable investigation, such counsel has
no knowledge of any event which has occurred since the
Effective Date which should have been set forth in an
amendment or supplement to the Registration Statement or the
Prospectus that has not been set forth in such an amendment or
supplement;
xv. The Company is not currently offering any
securities for sale except as described in the Registration
Statement;
xvi. After reasonable investigation, such counsel has
no knowledge of any promoters, affiliates, parents or
Subsidiaries of the Company except as are described in the
Registration Statement;
xvii. The Company and its Subsidiaries own or
possess, free and clear of all liens or encumbrances and
rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, copyrights,
service marks, service names, trade names and licenses
necessary to conduct business (including without limitation,
any such licenses or rights described in the Registration
Statement as being owned or possessed by the Company or any
Subsidiary) (all of which are collectively referred to herein
as the "Intellectual Property"); there is no actual or, to the
knowledge of counsel, pending, or threatened claim, proceeding
or action by
<PAGE> 26
any person pertaining to or which challenges the exclusive
rights of the Company with respect to any of the Company's
Intellectual Property; based on a review of all the Company's
products, proposed products and Intellectual Property, to the
knowledge of counsel, such products, proposed products or
Intellectual Property do not and will not infringe on any
trademarks, copyrights, service marks, service names, trade
names or valid patents or patents pending held by third
parties known to the Company and such counsel;
xviii. The Company is not a party to any agreement
giving rise to any obligation by the Company or any Subsidiary
to pay any third-party royalties or fees of any kind
whatsoever with respect to any technology developed, employed,
used or licensed by the Company or any Subsidiary, other than
is disclosed in the Prospectus; and
xix. The Shares are eligible for quotation on the
Nasdaq SmallCap Market.
Such opinion shall be governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA
Section of Business Law (1991) and shall be subject to the
qualifications, exceptions, definitions, limitations on coverage and
other limitations set forth therein and in such opinion. Qualifications
in such opinion as to knowledge or the absence of knowledge shall be
based upon and limited to the "Actual Knowledge" (as defined in the
Accord) of the "Primary Lawyer Group" (as identified in such opinion).
In rendering such opinion, such legal counsel shall be entitled to rely
upon Public Authority Documents and upon information provided by client
officials in written Certificates provided that copies of such Public
Authority Documents and Certificates are attached as exhibits to the
written opinion of legal counsel. The term "Public Authority Documents"
shall have the meaning ascribed to it in the Legal Opinion Accord of
the ABA Section of Business Law (1991).
c. On or prior to the Closing Date and any Additional Closing
Date, as the case may be, you shall have been furnished such
information, documents, certificates, and opinions as you may
reasonably require for the purpose of enabling you to review the
matters referred to in this Section 7, and in order to evidence the
accuracy, completeness, or satisfaction of any of the representations,
warranties, covenants, agreements, or conditions herein contained, or
as you may reasonably request.
d. At the Closing Date and any Additional Closing Date, as the
case may be, you shall have received a certificate of the chief
executive officer and of the chief financial officer of the Company,
dated the Closing Date or such Additional Closing Date, as the case may
be, to the effect that the conditions set forth in Section 7(a) have
been satisfied, that as of the date of this Agreement and as of the
Closing Date or such Additional Closing
<PAGE> 27
Date, as the case may be, the representations and warranties of the
Company contained herein were and are accurate, and that as of the
Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior
thereto have been fully performed.
e. At the time this Agreement is executed and at the Closing
Date and any Additional Closing Date, as the case may be, you shall
have received letters from Arthur Andersen LLP, Certified Public
Accountants, addressed to you and dated the date of delivery but
covering a period within three business days of such date, in form and
substance satisfactory to you.
f. All proceedings taken in connection with the issuance,
sale, transfer, and delivery of the Firm Shares and the Additional
Shares shall be satisfactory in form and substance to you and to
counsel for the Representative, and you shall have received a favorable
opinion from counsel to the Company, dated as of the Closing Date or
the Additional Closing Date, as the case may be, with respect to such
of the matters set forth under Sections 7(b) and 7(c) and with respect
to such other related matters as you may reasonably request.
g. The NASD, upon review of the terms of the public offering
of the Firm Shares and the Additional Shares shall not have objected to
your participation in such offering.
h. The Company shall have received notice that the Common
Stock will be quoted on the Nasdaq SmallCap Market as of the Effective
Date.
Any certificate or other document signed by any officer of the Company
and delivered to you or to counsel for the Representative shall be deemed a
representation and warranty by such officer individually and by the Company
hereunder to the Representative as to the statements made therein. If any
condition to your obligations hereunder to be fulfilled prior to or at the
Closing Date or any Additional Closing Date, as the case may be, is not so
fulfilled, you may terminate this Agreement or, if you so elect, in writing
waive any such conditions which have not been fulfilled or extend the time for
their fulfillment.
8. Indemnification and Contribution.
a. Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriters, the
Representative, and each of their officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls
the Representative or any one of the Underwriters within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any
and all loss, liability, claim, damage, and expense whatsoever (which
shall include, for all purposes of this Section 8, but not be limited
to, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim
<PAGE> 28
whatsoever and any and all amounts paid in settlement of any claim or
litigation) as and when incurred arising out of, based upon, or in
connection with (i) any untrue statement or alleged untrue statement of
a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement, or the Prospectus (as from time to time amended
and supplemented), or any amendment or supplement thereto, or (B) in
any application or other document or communication (in this Section 8
collectively called an "application") in any jurisdiction in order to
qualify the Common Stock under the "blue sky" or securities laws
thereof or filed with the Commission or any securities exchange; or any
omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or (ii) any breach of any representation, warranty,
covenant, or agreement of the Company contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any liability
the Company may otherwise have, including liabilities arising under
this Agreement; however, the Company shall have no liability under this
Section 8 if such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company as
stated in Section 8(b) with respect to the Underwriters by or on behalf
of the Underwriters expressly for inclusion in any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or in any application, as the case may
be.
If any action is brought against the Underwriters, the
Representative or any of their officers, directors, partners,
employees, agents, or counsel, or any controlling persons of an
Underwriter or the Representative (an "indemnified party") in respect
of which indemnity may be sought against the Company pursuant to the
foregoing paragraph, such indemnified party or parties shall promptly
notify the Company in writing of the institution of such action (but
the failure so to notify shall not relieve the Company from any
liability it may have other than pursuant to this Section 8(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties
shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense
of such indemnified party or parties unless the employment of such
counsel shall have been authorized in writing by the Company in
connection with the defense of such action or the Company shall not
have promptly employed counsel satisfactory to such indemnified party
or parties to have charge of the defense of such action or such
indemnified party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those
available to the Company, in any of which events such fees and expenses
shall be borne by the Company. Anything in this paragraph to the
contrary notwithstanding, the Company shall not be liable for any
<PAGE> 29
settlement of any such claim or action effected without its written
consent. The Company agrees promptly to notify the Underwriters and the
Representative of the commencement of any litigation or proceedings
against the Company or against any of its officers or directors in
connection with the sale of the Shares, any Preliminary Prospectus, the
Registration Statement, or the Prospectus, or any amendment or
supplement thereto, or any application.
b. The Underwriters agree to indemnify and hold harmless the
Company, the Company's counsel, each director of the Company, each
officer of the Company who shall have signed the Registration
Statement, each other person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to
the Underwriters in Section 8(a), but only with respect to statements
or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement, or the Prospectus (as from time to time amended
and supplemented), or any amendment or supplement thereto, or in any
application, in reliance upon and in conformity with written
information furnished to the Company as stated in this Section 8(b)
with respect to the Underwriters by or on behalf of the Underwriters
expressly for inclusion in any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto,
or in any application, as the case may be; provided, however, that the
obligation of the Underwriters to provide indemnity under the
provisions of this Section 8(b) shall be limited to the amount which
represents the product of the number of Firm Shares and Additional
Shares sold hereunder and the initial public offering price per Share
set forth on the cover page of the Prospectus. For all purposes of this
Agreement, the amounts of the selling concession and reallowance set
forth in the Prospectus, the information under "Underwriting" and the
identification of counsel to the Representative under "Legal Matters"
constitute the only information furnished in writing by or on behalf of
the Underwriters expressly for inclusion in any Preliminary Prospectus,
the Registration Statement, or the Prospectus (as from time to time
amended or supplemented), or any amendment or supplement thereto, or in
any application, as the case may be. If any action shall be brought
against the Company or any other person so indemnified based on any
Preliminary Prospectus, the Registration Statement, or the Prospectus,
or any amendment or supplement thereto, or any application, and in
respect of which indemnity may be sought against the Underwriters
pursuant to this Section 8(b), the Underwriters shall have the rights
and duties given to the Company, and the Company and each other person
so indemnified shall have the rights and duties given to the
indemnified parties, by the provisions of Section 8(a).
c. In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this
Section 8 is for any reason held to be unavailable to the Underwriters
or the Company, then the Company shall contribute to the
<PAGE> 30
damages paid by the several Underwriters, and the several Underwriters
shall contribute to the damages paid by the Company; provided, however,
that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. In determining the amount of contribution to which
the respective parties are entitled, there shall be considered the
relative benefits received by each party from the sale of the Firm
Shares and Additional Shares (taking into account the portion of the
proceeds of the offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent
any statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters
agree that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose). No
Underwriter or person controlling such Underwriter shall be obligated
to make contribution hereunder which in the aggregate exceeds the total
public offering price of the Firm Shares and Additional Shares
purchased by such Underwriter under this Agreement, less the aggregate
amount of any damages which such Underwriter and its controlling
persons have otherwise been required to pay in respect of the same or
any substantially similar claim. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section,
each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act,
shall have the same rights to contribution as the Company. Anything in
this Section 8(c) to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 8(c) is
intended to supersede any right to contribution under the Act, the
Exchange Act, or otherwise.
9. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Representative, the Underwriters or
any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 8(b), and shall survive
termination of this Agreement or the delivery of the Firm Shares and Additional
Shares to
<PAGE> 31
the Underwriters for a period equal to the statute of limitations for claims
related hereto, but not to exceed an aggregate of five years from the date
hereof. In addition, the provisions of Sections 5(a), 6, 8, 9, 10, and 12 shall
survive termination of this Agreement, whether such termination occurs before or
after the Closing Date or any Additional Closing Date.
10. Effective Date of This Agreement and Termination Thereof.
a. This Agreement shall be executed within 24 hours of the
Effective Date of the Registration Statement and shall become effective
on the Effective Date or at the time of the initial public offering of
the Shares, whichever is earlier. The time of the initial public
offering shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the
first newspaper advertisement which is subsequently published relating
to the Shares or the time, after the Registration Statement becomes
effective, when the Shares are first released by the Representative for
offering by dealers by letter or telegram, whichever shall first occur.
The Representative or the Company may prevent this Agreement from
becoming effective without liability of any party to any other party,
except as noted below in this Section 10, by giving the notice
indicated in Section 10(c) before the time this Agreement becomes
effective.
b. The Representative shall have the right to terminate this
Agreement at any time prior to the Closing Date or any Additional
Closing Date, as the case may be, by giving notice to the Company if
there shall have been a general suspension of, or a general limitation
on prices for, trading in securities on the New York Stock Exchange or
the American Stock Exchange or in the over-the-counter market; or if
there shall have been an outbreak of major hostilities or other
national or international calamity; or if a banking moratorium has been
declared by a state or federal authority; or if a moratorium in foreign
exchange trading by major international banks or persons has been
declared; or if there shall have been a material interruption in the
mail service or other means of communication within the United States;
or if the Company shall have sustained a material or substantial loss
by fire, flood, accident, hurricane, earthquake, theft, sabotage, or
other calamity or malicious act which, whether or not such loss shall
have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the offering, sale, or delivery of the Firm
Shares and Additional Shares, as the case may be; or if there shall
have been such material and adverse change in the market for securities
in general so as to make it inadvisable to proceed with the offering,
sale, and delivery of the Shares, as the case may be, on the terms
contemplated by the Prospectus due to the impaired investment quality
of the Shares; or if the Dow Jones Industrial Average shall have fallen
by 15% or more from its closing price on the day immediately preceding
the date that the Registration Statement is declared effective by the
Commission.
<PAGE> 32
c. If the Representative elects to prevent this Agreement from
becoming effective as provided in this Section 10, or to terminate this
Agreement, it shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter. If, as so provided, the Company elects
to prevent this Agreement from becoming effective, the Company shall
notify the Representative promptly by telephone, telex, or telegram,
confirmed by letter.
d. Anything in this Agreement to the contrary notwithstanding
other than Section 10(e), if this Agreement shall not become effective
by reason of an election pursuant to this Section 10 or if this
Agreement shall terminate or shall otherwise not be carried out prior
to __________, 2000 because (i) of any reason solely within the control
of the Company or its stockholders and not due to the breach of any
representation, warranty or covenant or bad faith of the
Representative, (ii) the Company unilaterally withdraws the proposed
Public Offering from the Representative in favor of another
underwriter, (iii) the Company does not permit the Registration
Statement to become effective, (iv) of any material discrepancy in any
representation by the Company and/or its officers, directors,
stockholders, agents, advisers or representatives, made in writing,
including but not limited to the Registration Statement, to the
Representative, (v) the Company is, directly and/or indirectly,
negotiating with other persons or entities of whatsoever nature
relating to a possible Public Offering of its securities, or (vi) of
any failure on the part of the Company to perform any covenant or
agreement or satisfy any condition of this Agreement by it to be
performed or satisfied, then, in any of such events, the Company shall
be obligated to reimburse the Representative for its out-of-pocket
expenses on an accountable basis. Should the Representative be required
to account for "out-of-pocket" expenses, any expense incurred by the
Representative shall be deemed to be reasonable and unobjectionable
upon a reasonable showing by the Representative that such expenses were
incurred, directly or indirectly, in connection with the proposed
transaction and/or relationship of the parties hereto, as described
herein. In no event will the Representative be entitled to
reimbursement of accountable expenses exceeding $100,000, inclusive of
the $25,000 advanced against the non-accountable expense allowance. The
Representative will return to the Company any portion of the $25,000
payment previously received that is not used in the payment of
accountable expenses if the Public Offering is not completed.
e. Notwithstanding any election hereunder or any termination
of this Agreement, and whether or not this Agreement is otherwise
carried out, the provisions of Sections 5(a), 6, 8, 9, and 10 shall not
be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
11. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the
Representative, shall be mailed, delivered, or
<PAGE> 33
sent by facsimile transmission and confirmed by original letter, to Schneider
Securities, Inc., 1120 Lincoln Street, Suite 900, Denver, Colorado 80203,
Attention: Keith Koch, with a copy to Robert W. Walter, Esq., Berliner Zisser
Walter & Gallegos, P.C., 1700 Lincoln Street, Suite 4700, Denver, Colorado
80203; or if sent to the Company shall be mailed, delivered, or telexed or
telegraphed and confirmed by letter, to PentaStar Communications, Inc., 1522
Black Street, Denver, Colorado, 80202, Attention: ____________, with a copy to
Scott Pullara, Esq. ,Sherman & Howard L.L.C., 633 Seventeenth Street, Suite ____
Denver, Colorado 80203. All notices hereunder shall be effective upon receipt by
the party to which it is addressed.
12. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters, the Company, and the persons and
entities referred to in Section 8 who are entitled to indemnification or
contribution, and their respective successors, legal representatives, and
assigns (which shall not include any buyer, as such, of the Firm Shares and
Additional Shares) and no other person shall have or be construed to have any
legal or equitable right, remedy, or claim under or in respect of or by virtue
of this Agreement or any provision herein contained.
13. Construction. This Agreement shall be construed in accordance with
the laws of the State of Colorado, without giving effect to conflict of laws.
Time is of the essence in this Agreement. The parties acknowledge that this
Agreement was initially prepared by the Representative, and that all parties
have read and negotiated the language used in this Agreement. The parties agree
that, because all parties participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which construes
ambiguous language in favor of or against any party by reason of that party's
role in drafting this Agreement.
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement between us.
Very truly yours,
PENTASTAR COMMUNICATIONS, INC.
By:
, President
-----------
By: , Executive Vice President
-----------
Accepted as of the date first above written.
Denver, Colorado
<PAGE> 34
SCHNEIDER SECURITIES, INC.
for itself and any other Underwriters:
By:
Thomas Schneider, Chief Executive Officer
<PAGE> 35
PENTASTAR COMMUNICATIONS, INC.
(A DELAWARE CORPORATION)
SCHEDULE 1
This Schedule sets forth the name of each Underwriter referred to in
the Underwriting Agreement and the number of Shares to be sold by the Company.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------- ---------
<S> <C>
Schneider Securities, Inc.
Total 1,500,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 1.2
SELECTED DEALERS AGREEMENT
PUBLIC OFFERING OF
1,500,000 SHARES
OFFERING PRICE: $ PER SHARE
PENTASTAR COMMUNICATIONS, INC.
OCTOBER ___, 1999
Schneider Securities, Inc., on behalf of itself and other underwriters
(the "Underwriters") for which it is the representative (the "Representative"),
has severally agreed with PentaStar Communications, Inc., a Delaware corporation
(the "Company"), to purchase 1,500,000 Shares (the "Firm Shares") and the
Representative has been granted the right to purchase up to an additional
225,000 Shares (the "Additional Shares") at its option for the sole purpose of
covering over-allotments in the sale of the Firm Shares (the Firm Shares and
Additional Shares being collectively referred to as the "Shares" or a
"Security"). The Underwriters are offering the Shares to the public at an
offering price of $ per Share. Certain other capitalized terms used herein are
defined in the Underwriting Agreement and are used herein as therein defined.
The Representative is offering the Shares to certain selected dealers
(the "Selected Dealers"), when, as and if accepted by the Representative and
subject to withdrawal, cancellation or modification of the offer without notice
and further subject to the terms of (i) the Company's current Prospectus, (ii)
the Underwriting Agreement, (iii) this Agreement, and (iv) the Representative's
instructions which may be forwarded to the Selected Dealer from time to time. A
copy of the Underwriting Agreement will be delivered to you forthwith for
inspection or copying or both, upon your request therefor. This invitation is
made by the Representative only if the Shares may be offered lawfully to dealers
in your state.
<PAGE> 2
The further terms and conditions of this invitation are as follows:
1. Acceptance of Orders. Orders received by the Representative from the
Selected Dealer will be accepted only at the price, in the amounts and on the
terms which are set forth in the Company's current Prospectus, subject to
allotment in the Representative's uncontrolled discretion. The Representative
reserves the right to reject any orders, in whole or in part.
2. Selling Concession. As a Selected Dealer, you will be allowed on all
Shares purchased by you, which the Underwriters have not repurchased or
contracted to repurchase prior to termination of this Agreement at or below the
public offering price, a concession of ___% of the full 9% Underwriting
discount, i.e., $___ per Security as shown in the Company's current Prospectus.
No selling concession will be allowed to any domestic broker-dealer who is not a
member of the National Association of Securities Dealers, Inc. (the
"Association"), or to any foreign broker-dealer eligible for membership in the
Association who is not a member of the Association. Payment of such selling
concession to you will be made only as provided in Section 4 hereof. After the
Shares are released for sale to the public, the Representative is authorized to,
and may, change the public offering price and the selling concession.
3. Reoffer of Shares. Shares purchased by you are to be bona fide
reoffered by you in conformity with this Agreement and the terms of offering set
forth in the Prospectus. You agree that you will not bid for, purchase, attempt
to induce others to purchase, or sell, directly or indirectly, any Shares except
as contemplated by this Agreement and except as a broker pursuant to unsolicited
orders. You confirm that you have complied and agree that you will at all times
comply with the provisions of Regulation M of the Securities Exchange Act of
1934, as amended (the "Exchange Act") applicable to this offering. In respect of
Shares sold by you and thereafter purchased by the Representative at or below
the public offering price prior to the termination of this Agreement as
described hereinafter (or such longer period as may be necessary to cover any
short position with respect to the offering), you agree at the Representative's
option either to repurchase the Shares at a price equal to the cost thereof to
the Representative, including commissions and transfer taxes on redelivery, or
to repay the Representative such part of your Selected Dealers' concessions on
such Shares as the Representative designates.
-2-
<PAGE> 3
4. Payment for Shares. Payment for the Shares purchased by you is to be
made at the net Selected Dealers' price of $_____ per Security, at the offices
of Schneider Securities, Inc., Suite 900, 1120 Lincoln Street, Denver, Colorado
80203, Attention: Syndicate Department, at such time and on such date as the
Representative may designate, by certified or official bank check, payable in
clearing house funds to the order of the Representative, against delivery of
certificates for the Shares so purchased. If such payment is not made at such
time and on such date, you agree to pay the Representative interest on such
funds at the current interest rate. The Representative may in its discretion
deliver the Shares purchased by you through the facilities of the Depository
Trust Company or, if you are not a member, through your ordinary correspondent
who is a member unless you promptly give the Representative written instructions
otherwise.
5. Offering Representations. The Representative has been informed that
a Registration Statement in respect of the Shares is expected to become
effective under the Securities Act of 1933, as amended (the "Act"). You are not
authorized to give any information or to make any representations other than
those contained in the Prospectus or to act as agent for the Company or for the
undersigned when offering the Shares to the public or otherwise.
6. Blue Sky. Neither the Representative nor the Underwriters assume any
responsibility or obligations as to your right to sell the Shares in any
jurisdiction, notwithstanding any information furnished in that connection. The
Selected Dealer shall report in writing to the Representative the number of
Shares which have been sold by it in each state and the number of transactions
made in each such state. This state report shall be submitted to the
Representative as soon as possible after completion of billing, but in any event
not more than three days after the closing.
7. Dealer Undertakings. By accepting this Agreement, the Selected
Dealer in offering and selling the Shares in the Public Offering (i)
acknowledges its understanding of (a) the Conduct Rules (the "Rules") of the
Association and the interpretations of such Rules promulgated by the Board of
Governors of the Association (the "Interpretations") including, but not limited
to the Rule and Interpretation with respect to "Free-Riding and Withholding"
defined therein, (b) Rule 174 of
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<PAGE> 4
the rules and regulations promulgated under the Act, (c) Regulation M
promulgated under the Exchange Act, (d) Release No. 3907 under the Act, (e)
Release No. 4150 under the Act, and (f) Sections 2730, 2740, 2420 and 2750 of
the Rules and Interpretations thereunder, and (ii) represents, warrants,
covenants and agrees that it shall comply with all applicable requirements of
the Act and the Exchange Act in addition to the specific provisions cited in
subparagraph (i) above and that it shall not violate, directly or indirectly,
any provision of applicable law in connection with its participation in the
Public Offering of the Shares.
8. Conditions of Public Offering. All sales shall be subject to
delivery by the Company of certificates evidencing the Shares against payment
therefor.
9. Failure of Order. If an order is rejected or if a payment is
received which proves insufficient or worthless, any compensation paid to the
Selected Dealer shall be returned by (i) restoration by the Representative to
the Selected Dealer of the latter's remittance or (ii) a charge against the
account of the Selected Dealer with the Representative, as the latter may elect
without notice being given of such election.
10. Additional Representations, Covenants and Warranties of Selected
Dealer. By accepting this Agreement, the Selected Dealer represents that it is
registered as a broker-dealer under the Exchange Act; is qualified to act as a
dealer in the states or the jurisdictions in which it shall offer the Shares; is
a member in good standing of the Association; and shall maintain such
registrations, qualifications and membership in full force and effect and in
good standing throughout the term of this Agreement. If the Selected Dealer is
not a member of the Association, it represents that it is a foreign dealer not
registered under the Exchange Act and agrees to make no sales within the United
States, its territories or its possessions or to persons who are citizens
thereof or residents therein, and in making any sales to comply with the
Association's Rules and Interpretations with respect to Free-Riding and
Withholding. Further, the Selected Dealer agrees to comply with all applicable
federal laws including, but not limited to, the Act and Exchange Act and the
rules and regulations of the Commission thereunder; the laws of the states or
other jurisdictions in which Shares may be offered or sold by it; and the
Constitution, Bylaws, and rules of the
-4-
<PAGE> 5
Association. Further, the Selected Dealer agrees that it will not offer or sell
the Shares in any state or jurisdiction except those in which the Shares have
been qualified or qualification is not required. The Selected Dealer
acknowledges its understanding that it shall not be entitled to any compensation
hereunder for any period during which it has been suspended or expelled from
membership in the Association.
11. Employees and other Agents of the Selected Dealer. By accepting
this Agreement, the Selected Dealer assumes full responsibility for thorough and
proper training of its employees and other agents and representatives concerning
the selling methods to be used in connection with the Public Offering of the
Shares, giving special emphasis to the principles of full and fair disclosure to
prospective investors and the prohibitions against "Free-Riding and Withholding"
as set forth in Section 2110 of the Rules and the Interpretations thereunder.
12. Indemnification by the Company. The Company has agreed in Section 8
of the Underwriting Agreement to indemnify and hold harmless the Underwriters,
the Representative and each person if any, who controls the Representative or
any of the Underwriters within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act against any and all loss, liability, claim, damage,
and expense whatsoever (which shall include, for all purposes of Section 8 of
the Underwriting Agreement, but not be limited to, attorneys' fees and any and
all expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or (B) in any application or other document or communication (in the
Underwriting Agreement collectively called an "application") in any jurisdiction
in order to qualify the Shares under the "blue sky" or securities laws thereof
or filed with the Commission or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any breach of
any
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<PAGE> 6
representation, warranty, covenant, or agreement of the Company contained in the
Underwriting Agreement. The Representative has agreed to give the Company an
opportunity and the right to participate in the defense or preparation of the
defense of any action brought against the Representative, any Underwriter or any
controlling person thereof to enforce any such loss, claim, demand, liability or
expense. The agreement of the Company under this indemnity is conditioned upon
notice of any such action having been promptly given by the indemnified party to
the Company. Failure to notify the Company as provided in the Underwriting
Agreement shall not relieve the Company of its liability which it may have to
the Representative, the Underwriters, or any controlling person thereof other
than pursuant to Section 8(a) of the Underwriting Agreement. This agreement is
subject in all respects, especially insofar as the foregoing description of the
indemnification provisions set forth in the Underwriting Agreement is concerned,
to the terms and provisions of the Underwriting Agreement, a copy of which will
be made available for inspection or copying or both to the Selected Dealer upon
written request to the Representative therefor. The Selected Dealer acknowledges
and confirms that, by signing a counterpart of this Agreement, it shall be
deemed an agent of the Underwriters or a "Representative" for all purposes of
Section 8 of the Underwriting Agreement, as expressly set forth therein.
13. Indemnification by the Selected Dealer. The Selected Dealer shall
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who shall have signed the Registration Statement, each
other person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, to the same extent as the
indemnity from the Company to the Underwriters in Section 8(a) of the
Underwriting Agreement, but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Regis tration Statement, or the
Prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or in any application, in reliance upon and in conformity
with information furnished to the Representative or the Company with respect to
the Selected Dealer by or on behalf of the Selected Dealer expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any amendment or
-6-
<PAGE> 7
supplement thereto, or in any application, as the case may be, or are based upon
alleged misrepresentations or omissions to state material facts in connection
with statements made by the Selected Dealer or the Selected Dealer's employees
or other agents to the Company or the Representative orally or by any other
means; provided, however, that the obligation of the Selected Dealer to provide
indemnity hereunder shall be limited to the amount which represents the product
of the number of Firm Shares and Additional Shares sold and the initial public
offering price per Security set forth on the cover page of the Prospectus. If
any action shall be brought against the Company or any other person so
indemnified in respect of which indemnity may be sought against the Selected
Dealer pursuant to this provision, the Selected Dealer shall have the rights and
duties given to the Company in the Underwriting Agreement, and the Company and
each other person so indemnified shall have the rights and duties given to the
indemnified parties, by the provisions of Section 8(a) of the Underwriting
Agreement; and the Selected Dealer shall reimburse the Company and the
Representative for any legal or other expenses reasonably incurred by them in
connection with the investigation of or the defense of any such action or claim.
The Representative shall, after receiving the first summons or other legal
process disclosing the nature of the action being brought against it or the
Company in any proceeding with respect to which indemnity may be sought by the
Company or the Representative hereunder, notify promptly the Selected Dealer in
writing of the commencement thereof; and the Selected Dealer shall be entitled
to participate in (and, to the extent the Selected Dealer shall wish, to direct)
the defense thereof at the expense of the Selected Dealer, but such defense
shall be conducted by counsel satisfactory to the Company and the
Representative. If the Selected Dealer shall fail to provide such defense, the
Company or the Representative may defend such action at the cost and expense of
the Selected Dealer. The Selected Dealer's obligation under this Section 13
shall survive any termination of this Agreement, the Underwriting Agreement and
the delivery of and payment for the Shares under the Underwriting Agreement, and
shall remain in full force and effect regardless of the investigation made by or
on behalf of any Representative within the meaning of Section 15 of the Act.
-7-
<PAGE> 8
14. No Authority to Act as Partner or Agent. Nothing herein shall
constitute the Selected Dealers as an association or other separate entity or
partners with or agents of the Representative or with each other, but each
Selected Dealer shall be responsible for its pro rata share of any liability or
expense based upon any claims to the contrary. The Representative shall not be
under any liability for or in respect of the value, validity or form of the
Shares, or the delivery of certificates for the Shares or the performance by any
person of any agreement on its part, or the qualification of the Shares for sale
under the laws of any jurisdiction, or for or in respect of any matter in
connection with this Agreement, except for lack of good faith and for
obligations expressly assumed by the Representative in this Agreement.
15. Expenses. No expenses incurred in connection with offers and sales
of the Shares under the Public Offering will be chargeable to the Selected
Dealers. A single transfer tax, if any, on the sale of Shares by the Selected
Dealer to its customers will be paid when such Shares are delivered to the
Selected Dealer for delivery to its customers. Notwithstanding the foregoing,
the Selected Dealer shall pay its proportionate share of any transfer tax or any
other tax (other than the single transfer tax described above) if any such tax
shall at any time be assessed against the Representative and other Selected
Dealers.
16. Notices. All notices, demands or requests required or authorized
hereunder shall be deemed given sufficiently if in writing and sent by
registered or certified mail, return receipt requested and postage prepaid, or
by tested telex, telegram, cable or facsimile to, in the case of the
Representative, the address set forth above directed to the attention of the
President of the Representative, and in the case of the Selected Dealer, to the
address provided below by the Selected Dealer, directed to the attention of the
President.
17. Termination. This Agreement may be terminated by the Representative
with or without cause upon written notice to Selected Dealer to such effect; and
such notice having been given, this Agreement shall terminate at the time
specified therein. Additionally, this Agreement shall terminate upon the earlier
of the termination of the Underwriting Agreement, or at the close of business
thirty days after the Shares are released by the Representative for sale to the
public.
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<PAGE> 9
18. General Provisions. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Colorado. This
Agreement embodies the entire agreement and understanding between the
Representative and the Selected Dealer and supersedes all prior agreements and
understandings related to the subject matter hereof, and this Agreement may not
be modified or amended or any term or provision hereof waived or discharged
except in writing signed by the party against whom such amendment, modification,
waiver or discharge is sought to be enforced. All the terms of this Agreement,
whether so expressed or not, shall be binding upon, and shall inure to the
benefit of, the respective successors, legal representatives and assigns of the
parties hereto; provided, however, that none of the parties hereto can assign
this Agreement or any of its rights hereunder without the prior written consent
of the other party hereto, and any such attempted assignment or transfer without
the other party's prior written consent shall be void and without force or
effect. The headings of this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the terms and conditions of your
agreement to purchase the Shares allotted to you, please indicate your
acceptance thereof by signing and returning to Schneider Securities, Inc. the
duplicate copy of this Agreement, whereupon this letter and your acceptance
shall become and evidence a binding contract between you and the Representative.
SCHNEIDER SECURITIES, INC.
By:
--------------------------------
Title:
-----------------------------
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<PAGE> 10
Gentlemen:
The undersigned confirms its agreement to purchase __________ Shares of
PentaStar Communications, Inc., upon the terms and subject to the conditions of
the foregoing Selected Dealers Agreement, and further agrees that any agreement
by it to purchase Additional Shares during the life of such Agreement will be
upon the same terms and subject to the same conditions. The undersigned
acknowledges receipt of the Prospectus relating to the public offering of the
Shares and confirms that in agreeing to purchase such Shares it has relied on
such Prospectus and not on any other statement whatsoever written or oral.
Firm Name:
--------------------------------------
(Print or Type name of Firm)
By:
--------------------------------------------
(Authorized Agent)
- ------------------------------------------------
(Print or Type Name and Title of
Authorized Agent)
Address:
---------------------------------------
- ------------------------------------------------
Telephone No.
----------------------------------
IRS Employer Identification No.:
----------------
Dated: , 1999
--------------------
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<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
PENTASTAR COMMUNICATIONS, INC.,
OC MERGERCO 1, INC.,
DMA VENTURES, INC.,
AND
JEFFERY VERES, AS THE PRINCIPAL SHAREHOLDER
OF
DMA VENTURES, INC.
AS OF AUGUST 13, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions..............................................................................................1
2. The Merger...............................................................................................1
3. Representations and Warranties...........................................................................6
3.1. Representations and Warranties of the Company and the Shareholder...............................6
3.2. Additional Representations and Warranties of the Shareholder Relating to
Underwriting...................................................................................18
3.3. Representations and Warranties of the Shareholder..............................................18
3.4. Representations and Warranties of PentaStar....................................................20
3.5. Representations and Warranties of Acquiror.....................................................22
3.6. Survival of Representations....................................................................23
3.7. Representations as to Knowledge................................................................23
4. Pre-Closing Covenants...................................................................................23
4.1. General........................................................................................23
4.2. Operation and Preservation of Business.........................................................23
4.3. Full Access....................................................................................23
4.4. Notice of Developments.........................................................................23
4.5. Exclusivity....................................................................................24
4.6. Announcements..................................................................................24
4.7. Closing Date Liabilities.......................................................................24
5. Post-Closing Covenants..................................................................................24
5.1. Further Assurances.............................................................................24
5.2. Transition.....................................................................................24
5.3. Cooperation....................................................................................24
5.4. Confidentiality................................................................................25
5.5. Post-Closing Announcements.....................................................................25
5.6. Financial Statements...........................................................................25
5.7. Satisfaction of Liabilities....................................................................25
5.8. Repurchase of Unpaid Receivables...............................................................25
5.9. Termination of Obligations.....................................................................26
5.10. Transfer Restrictions..........................................................................26
5.11. Underwriter and Securities Act Restrictions....................................................27
6. Conditions to Closing...................................................................................27
6.1. Conditions to Obligation of PentaStar..........................................................27
6.2. Conditions to Obligation of the Shareholder....................................................29
7. Remedies for Breaches of this Agreement.................................................................29
7.1. Indemnification Provisions for Benefit of PentaStar and the Company............................29
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
7.2. Indemnification Provisions for Benefit of the Shareholder......................................30
7.3. Matters Involving Third Parties................................................................31
7.4. Right of Offset................................................................................32
7.5. Other Remedies.................................................................................32
7.6. Ceiling........................................................................................32
8. Termination.............................................................................................32
8.1. Termination of Agreement.......................................................................32
8.2. Effect of Termination..........................................................................33
8.3. Confidentiality................................................................................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........................................................................................34
9.7. Governing Law..................................................................................34
9.8. Amendments and Waivers.........................................................................34
9.9. Severability...................................................................................35
9.10. Expenses.......................................................................................35
9.11. Arbitration....................................................................................35
9.12. Construction...................................................................................36
9.13. Incorporation of Exhibits......................................................................36
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Exhibits:
<S> <C>
Exhibit 1.1(a) Defined Terms
Exhibit 1.1(b) Contracts Which After Closing May Give Rise to
DMA Obligations (Part (a) of Retained Liabilities)
Exhibit 2(k) Form of Principal Stockholder's Escrow and Contingent Stock Agreement
Exhibit 3.1(a)(i)(A) DMA's Amended Certified Articles of Incorporation and Certificate of Good
Standing
Exhibit 3.1(a)(i)(B) DMA's Amended Bylaws
Exhibit 3.1(b)(i) DMA Ownership
Exhibit 3.1(b)(ii) DMA Subsidiaries
Exhibit 3.1(c) Notices and Consents to be Obtained Prior to Closing
Exhibit 3.1(d)(i)(A) DMA Financial Statements
Exhibit 3.1(d)(i)(B) DMA Expenses Not Realized on an Ongoing Basis
Exhibit 3.1(e)(i) Absence of Certain Agreements
Exhibit 3.1(f)(iii) DMA Tax Returns
Exhibit 3.1(f)(v) DMA "S" Corporation Election
Exhibit 3.1(f)(vi) Basis in Assets/NOLs
Exhibit 3.1(h) DMA Contracts and Other Matters
Exhibit 3.1(i)(i) DMA Litigation
Exhibit 3.1(i)(ii) DMA Violations of Legal Requirements or Rights
Exhibit 3.1(k) DMA Liability Claims, Other Than Those Listed on Exhibit 3.1(i)(i)
Exhibit 3.1(l) DMA Insurance Claims
Exhibit 3.1(m)(i) Company Welfare Plans
Exhibit 3.1(m)(iii) DMA Benefit Arrangements
Exhibit 3.1(o)(i)(A) DMA Principal Customers
Exhibit 3.1(o)(i)(B) DMA Principal Providers
Exhibit 3.1(s) DMA Brokers' Fees
Exhibit 3.1(t) DMA Guarantors/Guaranties
Exhibit 3.2 Additional Shareholder Representations and Warranties Relating to
Underwriting
Exhibit 3.3(a)(ii) Other Information Relating to PentaStar
Exhibit 3.4(a) PentaStar's Certified Articles of Incorporation, Bylaws and Minute Book
Exhibit 3.4(b)(i) Capitalization of PentaStar
Exhibit 3.5(a) OC Mergerco 1, Inc.'s Certified Articles of Incorporation, Bylaws and Minute
Book
Exhibit 6.1(j) Form of Opinion of Shareholder's Counsel
Exhibit 6.1(q) Form of Employment Agreement
Exhibit 6.2(e) Form of Opinion of PentaStar's Counsel
</TABLE>
(iii)
<PAGE> 5
This Agreement and Plan of Merger is entered into as of August 13, 1999
among PentaStar Communications, Inc., a Delaware corporation ("PentaStar"), OC
Mergerco 1, Inc., a Delaware corporation (the "Acquiror," and after the
Effective Time, the "Surviving Corporation"), DMA Ventures, Inc., a Colorado
corporation (the "Company"), and its principal shareholder, Jeffery Veres (the
"Shareholder").
Recitals
A. Prior to July 30, 1999, the Shareholder owned 99.875% of the issued
and outstanding capital stock of the Company. On July 30, 1999, the Shareholder
transferred all of his capital stock to OpCom, LLC, a Colorado limited liability
company (the "LLC"), in exchange for all of the Class A membership interests in
the LLC (the "Stock/LLC Exchange").
B. The Acquiror is a newly-formed, wholly-owned subsidiary of
PentaStar. The Acquiror desires to acquire all of the business operations of the
Company through a statutory merger of the Company with and into the Acquiror,
with the Acquiror as the surviving entity (the "Transaction").
C. The Boards of Directors of each of PentaStar, the Acquiror and the
Company has determined that the Transaction is in the best interests of their
respective corporations and shareholders.
D. It is intended that the Transaction will qualify as a reorganization
under the provisions of Section 368(a)(1)(A) pursuant to Section 368(a)(2)(D) of
the Code.
E. PentaStar, the Acquiror, the Company and the Shareholder 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. The Merger. Subject to the terms and conditions of this Agreement and the
corporation laws of the states of Delaware and Colorado, at the Effective Time,
the Company will be merged with and into the Acquiror (the "Merger") and the
separate existence of the Company will cease and the Acquiror will continue as
the surviving corporation in the Merger. From and after the
<PAGE> 6
Effective Time, and without any further action on the part of any Person, the
Merger will have all the effects provided by applicable law, including Sections
251 and 252 of the Delaware General Corporation Law and Section 7-111-107 of the
Colorado Business Corporation Act and, subject to applicable law, the following
additional effects:
(a) Basic Transaction. At the Effective Time, the Shareholder will
receive the consideration described in Section 2(k), and the Company Shares
owned by the Shareholder will be canceled and will cease to represent any
interest in the Company or the Surviving Corporation. As of the Effective Time,
the stock transfer books of the Company will be closed and no transfer or
issuance of shares of capital stock of the Company will be permitted.
(b) Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Acquiror, as in effect immediately prior to
the Effective Time, will become the Certificate of Incorporation of the
Surviving Corporation, except that the name of the Surviving Corporation will
become "Access Communications, Inc.," and such Certificate of Incorporation may
thereafter be amended as provided therein and by the Delaware General
Corporation Law.
(c) Bylaws. At the Effective Time, the Bylaws of the Acquiror, as in
effect immediately prior to the Effective Time, will become 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 Effective Time, the directors of the Acquiror
immediately prior to the Effective Time will become 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 Effective Time, the officers of the Acquiror
immediately prior to the Effective Time will become 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 Effective Time, all the
properties, rights, privileges, powers, and franchises of the Company and the
Acquiror will vest in the Surviving Corporation, and all debts, liabilities, and
duties of the Company and the Acquiror will 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
-2-
<PAGE> 7
and the Colorado Business Corporation Act, a certificate of merger (the
"Certificate of Merger") and articles of merger (the "Articles 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 the Articles of Merger to the Secretary of State of the State
of Colorado for filing pursuant to the Colorado Business Corporation Act on the
Closing Date. The Merger will be effective on the date on which the Articles of
Merger and the Certificate of Merger have been duly filed with the Colorado
Secretary of State and the Delaware Secretary of State, respectively (the
"Effective Time").
(h) Share Conversion. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any shares of capital stock
of any corporation, each share of capital stock of the Company will be converted
into the right to receive the consideration payable pursuant to Section 2(k).
Each share of the capital stock of the Company issued and outstanding
immediately prior to the Effective Time and owned directly or indirectly by the
Company as treasury stock, if any, will 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 Effective Time will remain issued and
outstanding.
(i) No Fractional Shares. No certificates or scrip representing
fractional shares of any class of PentaStar Shares will be issued pursuant to
the Merger. Such fractional share interests shall not entitle the owner thereof
to any rights as a security holder of the Surviving Corporation. In lieu of any
such fractional shares of any class of PentaStar Shares, the Shareholder will be
entitled to receive an amount in cash (without interest), rounded to the nearest
cent, determined by multiplying the value of an PentaStar Share issuable
pursuant to this Agreement (as determined as of the Closing Date) by the
fractional interest in such PentaStar Shares to which such Person would
otherwise be entitled.
(j) Estimated Closing Date Balance Sheet. No earlier than ten Business
Days prior to the Closing or later than three Business Days prior to the
Closing, the Shareholder will deliver a balance sheet for the Company prepared
as of the Closing Date (the "Estimated Closing Date Balance Sheet"). The
Estimated Closing Date Balance Sheet will be prepared in accordance with GAAP on
a basis consistent with the historical accounting practices of the Company used
in connection with the preparation of the Company's audited balance sheet for
the period ended December 31, 1998. The Estimated Closing Date Balance Sheet
will set forth, in addition to other items required by GAAP, the amount of (i)
cash held by the Company, (ii) the Closing Date Liabilities and each item
thereof, and (iii) the Retained Liabilities described in clauses (b), (c) and
(d) of the definition of Retained Liabilities and each item thereof.
(k) Consideration. The consideration payable by the Acquiror to the
Shareholder pursuant to the Merger will be an amount equal to the sum of (a) (1)
cash in an amount of $500,000, plus (2) the amount of cash set forth on the
Estimated Closing Date Balance Sheet, minus (3) the amount of the Closing Date
Liabilities as set forth on the Estimated Closing Date
-3-
<PAGE> 8
Balance Sheet; plus (b) 205,000 PentaStar Shares (collectively the "Purchase
Price"). The Purchase Price will be adjusted in accordance with Section 2(m). On
the Closing Date the Surviving Corporation will (i) pay to the Shareholder by
wire transfer in immediately available funds to an account or accounts
designated by the Shareholder in cash the cash portion of the Purchase Price as
set forth in the preceding clause (a); (ii) issue 205,000 shares of PentaStar
Common Stock to the Shareholder (in such amounts as set forth above); and (iii)
pay, or make provision for payment of, the Closing Date Liabilities set forth on
the Estimated Closing Date Balance Sheet. On the Closing Date, the Shareholder
will deposit 68,265 shares of PentaStar Common Stock (out of the 205,000 shares
he receives pursuant to the Merger) with PentaStar pursuant to the Principal
Stockholder's Escrow and Contingent Stock Agreement in the form attached as
Exhibit 2(k) (the "Escrow Agreement"). The Escrow Agreement provides that upon
the occurrence of certain conditions, the Shareholder may receive a greater or
lesser number of PentaStar Shares than the number initially deposited with
PentaStar pursuant to the Escrow Agreement. The parties agree that any
adjustment in the number of such shares will be treated as an adjustment to the
Purchase Price.
(l) Closing Date Balance Sheet. Within 60 days after the Closing Date
an audited balance sheet for the Company will be prepared as of the Closing Date
(the "Closing Date Balance Sheet") and delivered to PentaStar and the
Shareholder. The Closing Date Balance Sheet will be prepared by Arthur Andersen
LLP in accordance with GAAP on a basis consistent with the historical accounting
practices of the Company used in connection with the preparation of the
Company's audited balance sheet for the period ended December 31, 1998.
PentaStar will pay the fees and expenses of Arthur Andersen LLP incurred in
connection with the preparation of the Closing Date Balance Sheet. The Closing
Date Balance Sheet will set forth, in addition to other items required by GAAP,
the amount of (i) cash on hand of the Company, (ii) the Closing Date Liabilities
and each item thereof and (iii) the Retained Liabilities described in clauses
(b), (c) and (d) of the definition of Retained Liabilities and each item
thereof.
(m) Post-Closing Adjustment to the Purchase Price. Following delivery
of the Closing Date Balance Sheet in accordance with Section 2(l), the cash
portion of the Purchase Price will be adjusted as follows:
(i) Within 20 days after receipt of the Closing Date Balance
Sheet, PentaStar or the Shareholder, as the case may be, will, in a written
notice to the other 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 PentaStar or the Shareholder to object to
the Closing Date Balance Sheet within such 20-day period will be deemed to be an
acceptance by such Person of the Closing Date Balance Sheet.
(ii) If any adjustments to the Closing Date Balance Sheet are
proposed, PentaStar and the Shareholder will 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
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<PAGE> 9
described in Section 2(m)(i), PentaStar and the Shareholder will retain the
Denver Colorado office of BDO Seidman to resolve such dispute, which resolution
will be final and binding. The fees and expenses of BDO Seidman will be shared
equally by PentaStar, on the one hand, and the Shareholder, on the other hand,
and BDO Seidman will be retained under a retention letter executed by the
parties that specifies that the determination by said firm of any such disputes
concerning the Closing Date Balance Sheet will be resolved in accordance with
GAAP on a basis consistent with the historical accounting practices of the
Company used in connection with the preparation of the Company's audited balance
sheet for the period ended December 31, 1998, by choosing the position of Arthur
Andersen LLP or the objecting party under Section 2(m)(i) without change, within
30 days of the expiration of the 10-day period described in this Section
2(m)(ii).
(iii) Within 10 Business Days after the later of the acceptance
of the Closing Date Balance Sheet by PentaStar and the Shareholder or the
resolution of any disputes under Section 2(m)(ii), as the case may be, the cash
portion of the Purchase Price will be adjusted as follows: First, to the extent
that the amount of the Closing Date Liabilities as set forth on the Closing Date
Balance Sheet is more than the amount of the Closing Date Liabilities as set
forth on the Estimated Closing Date Balance Sheet, the cash portion of the
Purchase Price will be reduced and the difference will be refunded in cash by
the Shareholder to PentaStar. If the amount of the Closing Date Liabilities as
set forth on the Closing Date Balance Sheet is less than the amount of the
Closing Date Liabilities as set forth on the Estimated Closing Date Balance
Sheet, the cash portion of the Purchase Price will be increased and the
difference will be paid in cash by PentaStar to the Shareholder. If the amount
of the Closing Date Liabilities as set forth on the Closing Date Balance Sheet
is equal to the amount of the Closing Date Liabilities as set forth on the
Estimated Closing Date Balance Sheet, no adjustment will be made in the Purchase
Price on account of any Closing Date Liabilities. Second, in addition to the
Purchase Price adjustment described above in this Section 2(m)(iii), if the
amount reflected as cash on the Closing Date Balance Sheet is less than the
amount reflected as cash on the Estimated Closing Date Balance Sheet, the cash
portion of the Purchase Price will be reduced and the difference will be
refunded in cash by the Shareholder to PentaStar. If the amount reflected as
cash on the Closing Date Balance Sheet exceeds the amount reflected as cash on
the Estimated Closing Date Balance Sheet, the cash portion of the Purchase Price
will be increased and the difference will be paid in cash by PentaStar to the
Shareholder. If the amount reflected as cash on the Closing Date Balance Sheet
is equal to the amount reflected as cash on the Estimated Closing Date Balance
Sheet, no adjustment will be made to the Purchase Price on account of any cash.
PentaStar will pay in cash to Shareholder the amount of the Purchase Price
increase required under this Section 2(m)(iii), if any, within the time period
described in the first sentence of this Section 2(m)(iii). In the event that the
amounts reflected on the final Closing Date Balance Sheet result in both a
Purchase Price reduction and a Purchase Price increase under this Section
2(m)(iii), the amounts of such reduction and increase will be offset against
each other and PentaStar or the Shareholder, as the case may be, will make a
payment to the other of the net amount of the adjustment to the Purchase Price.
(iv) Any adjustment in the Purchase Price made under this Section
2(m) will be allocated as an adjustment to the consideration paid for the
Company Shares.
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<PAGE> 10
(n) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Sherman & Howard
L.L.C. concurrently with the closing of the IPO. All transactions contemplated
by this Agreement will be effective at 12:00 a.m. local time in Denver,
Colorado, on the day of the Closing (such effective time being the "Closing
Date").
(o) Deliveries at the Closing. At the Closing, (i) the Shareholder will
deliver to PentaStar the various certificates, instruments and documents
referred to in Section 6.1 and (ii) PentaStar will deliver to the Shareholder
the various certificates, instruments and documents referred to in Section 6.2.
3. Representations and Warranties.
3.1. Representations and Warranties of the Company and the Shareholder. The
Company and the Shareholder, jointly and severally, each 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 will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were then
substituted for the date of this Agreement throughout this Section 3.1).
(a) Organization, Good Standing, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, and is not required to be qualified or authorized to do business as a
foreign corporation or required to be in good standing in any other
jurisdiction. The Company has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The copies of the articles of incorporation (certified by the
Secretary of State of the State of Colorado) and the bylaws of the Company, both
as amended to date, which have been delivered to PentaStar by the Shareholder
and are attached as Exhibits 3.1(a)(i)(A) and 3.1(a)(i)(B), respectively, are
complete and correct, and the Company is not in default under or in violation of
any provision of its articles of incorporation or bylaws. The minute books
(which contain the records of all meetings of or actions by the shareholders,
the board of directors, and any committees of the board of directors) and the
stock certificate books and the stock record books of the Company, copies of
which have been delivered to PentaStar by the Shareholder, are correct and
complete.
(b) Ownership and Capitalization.
(i) The authorized capital stock of the Company consists of
25,000,000 shares of common stock, no par value and 10,000,000 shares of
preferred stock, no par value. Prior to the Stock/LLC Exchange, the Shareholder
owned, and immediately prior to the Closing the Shareholder will own,
beneficially and of record, free and clear of any Encumbrance or Tax, 10,000,000
shares of the common stock, no par value, of the Company (the "Company Shares"),
which immediately prior to the Closing will constitute all of the issued and
outstanding capital
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<PAGE> 11
stock of the Company. All of the issued and outstanding shares of the Company's
capital stock have been duly authorized and validly issued, and are fully paid
and nonassessable, with no personal Liability attaching to the ownership
thereof. Except as set forth on Exhibit 3.1(b)(i), there is no authorized or
outstanding stock or security convertible into or exchangeable for, or any
authorized or outstanding option, warrant or other right to subscribe for or to
purchase, or convert any obligation into, any unissued shares of the Company's
capital stock or any treasury stock, and the Company has not agreed to issue any
security so convertible or exchangeable or any such option, warrant or other
right. There are no authorized or outstanding stock 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 Shareholder 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 Shares, except those
restrictions on transfer imposed by the Securities Act of 1993, as amended, 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. (i) The Shareholder and each relative or
affiliate of the Company or of the 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 the Shareholder, relative or affiliate is a party, and this
Agreement constitutes, and the Other Seller Agreements will when executed and
delivered constitute, the legal, valid and binding obligations of, and shall be
enforceable in accordance with their respective terms against, the 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 will not (A)
violate any Legal Requirement to which the Company, the Shareholder, or any
relative or affiliate of the Company or of the 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 (B) violate,
with
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<PAGE> 12
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 the 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, the Shareholder or any such relative or affiliate is a party or by
which the Company, the Shareholder, or any such relative or affiliate or any of
their respective assets and properties is bound or subject. Except for notices
that will be given and consents that will be obtained by the Shareholder prior
to the Closing (each of which is set forth in Exhibit 3.1(c)), neither the
Company, the 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 audited
balance sheets of the Company as of December 31, 1997 and December 31, 1998, the
related statements of income, shareholder's equity and cash flows for the fiscal
years then ended, the unaudited balance sheet of the Company as of June 30, 1999
(the latter being referred to as the "Latest Balance Sheet"), and the related
statements of income, shareholder's equity and cash flows for the six-month
period then ended, have been prepared in accordance with GAAP on a consistent
basis (except that the Latest Balance Sheet and the related statements of
income, shareholder's equity and cash flows for the six- month period ended June
30, 1999 may be subject to customary year-end adjustments none of which will be
material in amount), are in accordance with the books and records of the Company
(which books and records are complete and correct in all material respects), and
fairly present the financial position and results of operations of the Company
in all material respects as of such dates and for each of the periods indicated.
As of the date of each of such balance sheet, the Company had no Liability 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 Company's financial performance for the 12-month period ended
December 31, 1998 will not be realized on an on-going basis.
(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. As of the Closing, the Company will have no
Liability (and there is no basis for the assertion of any Liability), except for
the Retained Liabilities.
(e) Absence of Certain Agreements, Changes or Events. The Company is
not a party to or otherwise bound by any material contract or agreement (i)
pursuant to which the Company is obligated to furnish any services, product or
equipment and (ii) that has been prepaid with respect to any period after the
Closing Date. Except as disclosed in Exhibit 3.1(e)(i), since June 30, 1999, the
Company has not (i) incurred any debt, indebtedness or other Liability, except
current Liabilities incurred in the ordinary course of business; (ii) delayed or
postponed the
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<PAGE> 13
payment of accounts payable or other Liabilities or accelerated the collection
of any receivable beyond stated, normal terms; (iii) sold or otherwise
transferred any of its assets or properties; (iv) 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 receivable other than in the ordinary
course of business consistent with past practice; (v) changed in any significant
manner the way in which it conducts its business; (vi) 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; (vii) except as otherwise expressly permitted by this Section 3.1(e),
(A) entered into any contracts or agreements, or made any commitments, involving
more than $5,000 individually or in the aggregate or (B) 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; (viii) suffered any
material adverse fact or change, including, without limitation, to or in its
business, assets or financial condition or customer or service provider
relationships; (ix) made any payment or transfer to or for the benefit of any
shareholder, officer or director or any relative or affiliate thereof or
permitted any Person, including, without limitation, any shareholder, officer,
director or employee or any relative or affiliate thereof, to withdraw assets
from the Company (other than payment to the Shareholder of the proportionate
monthly amount of his respective normal annualized salary due and payable during
such period or due under pre-existing real property leases between the Company
and the Shareholder which are disclosed in Exhibit 3.1(h)); (x) or agreed to
incur, take, enter into, make or permit any of the matters described in clauses
(i) through (ix).
(f) Tax Matters.
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All Taxes
owed by the Company (whether or not shown on any Tax Return) have been paid. The
Company is not currently the beneficiary of any extension of time within which
to file any Tax Return. To the best knowledge of the Shareholder, no claim has
ever been made by an authority in a jurisdiction where the Company does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. There
are no Encumbrances on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.
(iii) To the best knowledge of the Shareholder, there is no basis
for any authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no pending or threatened dispute or claim
concerning any Tax Liability of the Company. Exhibit 3.1(f)(iii) lists all
federal, state, local and foreign income Tax Returns filed with respect to the
Company for taxable periods ended on or after December 31, 1992, indicates those
Tax
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<PAGE> 14
Returns that have been audited and indicates those Tax Returns that currently
are the subject of audit. The Shareholder has delivered to PentaStar correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies filed or assessed against or agreed to by the Company
since December 31, 1992.
(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 the Shareholder 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 will 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. The total adjusted basis of the Acquired Assets exceeds the sum of
the Company's Liabilities plus the amount of Liabilities to which the Acquired
Assets are subject.
(vi) Exhibit 3.1(f)(vi) sets forth the following information with
respect to the Company as of the most recent practicable date (as well as on an
estimated pro forma basis as of the Closing giving effect to the consummation of
the transactions contemplated hereby): (A) the basis of the Company in its
assets; and (B) the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax credit or excess charitable
contribution allocable to the Company.
(g) Assets and Properties.
(i) The Company has good title to, or a valid leasehold interest
or interest as a licensee in, the properties and assets used or held for use by
it, located on its Premises, or shown on the Latest Balance Sheet or acquired
after the date thereof. As of the Closing, all of the Acquired Assets will be
owned by the Company, free and clear of all Encumbrances except for the Retained
Liabilities. Since June 30, 1999, 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
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<PAGE> 15
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. The Company owns or leases all equipment and other tangible
assets necessary for the conduct of its business as presently conducted and as
presently proposed to be conducted. Each such tangible asset material to the
Company's operations has been maintained in accordance with normal industry
practice and in each case is in a condition adequate for its intended purpose.
All leases of real property between the Company and the Shareholder, or any
officer or director or any relative or affiliate thereof are on fair market
terms (including rent at fair market value). Neither the Shareholder, nor any
relative or affiliate thereof, owns any asset, tangible or intangible, which is
used in the business of the Company, other than real property leased to the
Company at fair market value which leases are disclosed in Schedule 3.1(h).
(ii) The Premises constitute all of the real property, buildings
and improvements used by the Company in its business. To the best knowledge of
the Shareholder, the Premises have been occupied, operated and maintained by the
Company 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:
(i) the following contracts and other agreements in effect as of
the Closing Date to which the Company is a party:
(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 the
Shareholder on behalf of the Company, has made a deposit in an amount greater
than $5,000;
(C) any agreement (or group of related agreements) for
the purchase or sale of supplies, products or other personal property, or for
the furnishing or receipt of services, the performance of which will extend over
a period of more than one year, result in a material loss to the Company or
involve consideration in excess of $10,000;
(D) any agreement concerning a partnership or joint
venture;
(E) any agreement (or group of related agreements)
under which it
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<PAGE> 16
has created, incurred, assumed or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation in excess of $10,000 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 the Shareholder 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.
(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.
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<PAGE> 17
(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 Shareholder has delivered to PentaStar a correct and complete copy of
each written agreement and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3.1(h)(i). With respect
to each such agreement: (A) the agreement is legal, valid, binding, enforceable
and in full force and effect; (B) the agreement will 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 Shareholder, any other party is in
breach or default, and, to the best knowledge of the Shareholder, 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) to the best knowledge of the Shareholder, 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 Shareholder, 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 Shareholder, 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 of
the Company reflected on its Latest Balance Sheet, and all notes and accounts
receivable arising on or prior to the Closing Date, arose and will arise from
bona fide transactions by the Company in the ordinary course of business and are
valid receivables with trade customers subject to no setoffs or counterclaims.
(k) Product Quality, Warranty and Liability. All services and products
sold, leased, provided or delivered by the Company to customers on or prior to
the Closing Date conform to applicable contractual commitments, express and
implied warranties, product and service specifications and quality standards,
and, to the best knowledge of the Shareholder, there is no basis for any
Liability for replacement or repair thereof or other damages in connection
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<PAGE> 18
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. To the best knowledge of the Shareholder, the Company has no
Liability and there is no basis for any Liability arising out of any injury to a
Person or property as a result of the ownership, possession, provision or use of
any service or product sold, leased, provided or delivered by the Company on or
prior to the Closing Date. All product or service liability claims that have
been asserted against the Company since January 1, 1996, whether covered by
insurance or not and whether litigation has resulted or not, other than those
listed and summarized on Exhibit 3.1(i)(i), are listed and summarized on Exhibit
3.1(k).
(l) Insurance. The Company has policies of insurance (i) covering risk
of loss on the Acquired Assets that are customary and reasonable for the
business, (ii) covering 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 Shareholder, 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 will 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 Shareholder,
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
will 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"). As of the Closing
Date and for the preceding three years, neither the Company nor any ERISA
Affiliate has sponsored, maintained, contributed to, or has had any obligation
under any Employee Benefit Plan, other than the Company Welfare Plans. Correct
and complete copies of each Company Welfare Plan have been delivered to
PentaStar by the Shareholder.
(ii) Each Company Welfare Plan has been maintained and
administered in
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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 Shareholder to PentaStar and attached hereto as part of Exhibit
3.1(m)(iii). Each Benefit Arrangement has been maintained and administered in
substantial compliance with its terms and with the requirements prescribed by
any and all Legal Requirements that are applicable to each such Benefit
Arrangement.
(iv) No Company Welfare Plan is maintained in connection with any
trust described in Section 501(c)(9) of the Code.
(v) There have been no prohibited transactions with respect to
any Company Welfare 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 Company Welfare Plan. No action, suit, proceeding, hearing or investigation
with respect to the administration or the investment of the assets of any
Company Welfare Plan (other than routine claims for benefits) is pending or, to
the best knowledge of the Shareholder, is threatened. The Shareholder has no
knowledge of any basis for any such action, suit, proceeding, hearing or
investigation.
(vi) The Company does not maintain and has never maintained nor
contributes, or ever has contributed, or ever has been required to contribute,
to any Company Welfare Plan providing health or medical benefits for current or
future retired or terminated employees, their spouses or their dependents (other
than in accordance with Code Section 4980B). No condition exists that would
prevent the Company from amending or terminating any Company Welfare Plan or
Benefit Arrangement providing health or medical benefits in respect of any
active or retired employees of the Company.
(vii) Any Company Welfare Plan that is a "group health plan" (as
defined in Code Section 5000(b)(l)) has been administered in accordance with the
requirements of Part 6 of Subtitle B of Title 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
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"group health plan" has made or will make the Company subject to any liability
under Title I of ERISA, excise Tax Liability under Code Section 4980B or has
resulted or will 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 Company Welfare 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. The Company acquires professional employment
services through a Client Service Agreement with Oasis Outsourcing, Inc.
("Oasis"). The Company is indemnified by Oasis for claims arising from employees
of such employee leasing company, their employment with the employee leasing
company, or their providing services to the Company relating to worker's
compensation, withholding tax and ERISA laws and actions taken by Oasis pursuant
to written policies. The Company has not received any notice, nor, to the best
knowledge of the Shareholder, is there any reason to believe that any executive
or key employee of the employee leasing company that leases employees to the
Company or any group of such employees has any plans to terminate his, her or
its employment with the Company. To the best knowledge of the Shareholder, no
such executive or key employee (including the Shareholder) is subject to any
agreement, obligation, Order or other legal hindrance that impedes or might
impede such executive or 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 will not be required to give any notice under the Worker
Adjustment and Retraining Notification Act, as amended, (29 U.S.C.A. ss.2101 et
seq.) or any similar Legal Requirement as a result of this Agreement, the Other
Seller Agreements or the transactions contemplated hereby or thereby. The
Company does not have any labor relations problems or disputes, nor has the
Company experienced any strikes, grievances, claims of unfair labor practices or
other collective bargaining disputes. The Company is not a party to or bound by
any collective bargaining agreement, there is no union or collective bargaining
unit at the Company's facilities, and no union organization effort has been
threatened, initiated or is in progress with respect to any employees of the
Company.
(o) Customer and Service Provider Relationships. Exhibit 3.1(o)(i)(A)
lists each customer that individually or with its affiliates was, based on the
Company's revenues during the fiscal year ended December 31, 1998, one of the
Company's ten largest customers during such fiscal year or accounted for 2% or
more of the Company's revenues during such fiscal year (the "Principal
Customers"). Exhibit 3.1(o)(i)(B) lists each Person who is a service provider to
the Company as of the date of this Agreement (the "Principal Providers"). The
Company has good
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commercial working relationships with its Principal Customers and Principal
Providers and since December 31, 1998, 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 threatened to take any such action. The Shareholder has no basis to
anticipate any problems with the Company's customer or service provider
relationships. To the best knowledge of the Shareholder, 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 will 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, to the best knowledge of the Shareholder, 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 Shareholder, the continued operation of the
business of the Company as currently conducted will not interfere with, infringe
upon, misappropriate or conflict with any Intellectual Property rights of
another Person. To the best knowledge of the Shareholder, no other Person has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of the Company or any Intellectual
Property included in the Acquired Assets. Neither the Company nor any owner of
any Intellectual Property included in the Acquired Assets has granted any
license, sublicense or permission with respect to any Intellectual Property
owned or used in the Company's business. No claims are pending or, to the best
knowledge of the Shareholder, 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 Shareholder, all of the
Intellectual Property that is owned by the Company is owned free and clear of
all Encumbrances and was not misappropriated from any Person, and all portions
of the Intellectual Property that are licensed by the Company are licensed
pursuant to valid and existing license agreements. The consummation of the
transactions contemplated by this Agreement will not result in the loss or
material diminution of any Intellectual Property or rights in Intellectual
Property.
(r) Year 2000 Warranty. To the best knowledge of the Shareholder, the
computer software owned by the Company and all other Intellectual Property used
or held for use by the Company in its business accurately processes date/time
data (including calculating, comparing, and sequencing) from, into, and between
the twentieth and twenty-first centuries, and the years
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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 third party hardware, software, firmware and
data over which the Shareholder 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 will not have as a result of the consummation of this
Agreement, any Liability to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
(t) Guaranties. The Company is not a guarantor or otherwise liable for
any Liability (including indebtedness for borrowed money) of any other Person.
Except as set forth on Exhibit 3.1(t), no Person is a guarantor or otherwise
liable for any Liability (including indebtedness for borrowed money) of the
Company.
(u) Disclosure. None of the documents or information provided to
PentaStar by the Company, the Shareholder or any agent or employee thereof in
the course of PentaStar's due diligence investigation and the negotiation of
this Agreement and Sections 3.1, 3.2 and 3.3 of this Agreement and the
disclosure Exhibits referred to therein, including the financial statements
referred to above in Section 3.1, contains any untrue statement of any material
fact or omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact which materially
adversely affects the business, condition, affairs or operations of the Company
or any of its properties or 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
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 of the Company and the Shareholder
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acknowledges and agrees that the fact that it or he has made disclosures
pursuant to Section 3.1, 3.2 or 3.3 or otherwise of matters, or did not have
knowledge of matters, which result in Adverse Consequences to PentaStar or the
Surviving Corporation shall not relieve the Shareholder of his obligation
pursuant to Section 7 to indemnify and hold PentaStar harmless from all Adverse
Consequences.
3.2. Additional Representations and Warranties of the Shareholder Relating
to Underwriting. The Shareholder represents and warrants to PentaStar that the
statements contained in Exhibit 3.2 will be correct and complete as of the
Closing Date and may be relied upon by PentaStar in making related
representations and warranties to the underwriters of PentaStar's IPO.
3.3. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to PentaStar that the statements contained in this
Section 3.3 are correct and complete as of the date of this Agreement and will
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 3.3).
(a) Investment Representations. (i) The Shareholder is acquiring the
shares of PentaStar Common Stock to be issued to the Shareholder pursuant to the
Transaction (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 the Shareholder is not an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Securities Act, the Shareholder
through the Shareholder's purchaser representative ("Purchaser Representative")
as duly designated pursuant to documentation delivered and reasonably
satisfactory to PentaStar on or before the execution of this Agreement (the
"Purchaser Representative Documents")) has been furnished all information that
the Shareholder (and the Shareholder's Purchaser Representative, if the
Shareholder is not an "accredited investor") deems necessary to enable the
Shareholder (and the Shareholder's Purchaser Representative, if the Shareholder
is not an "accredited investor") to evaluate the merits and risks of an
investment in PentaStar (including without limitation the draft dated August 13,
1999 of PentaStar's Registration Statement on SEC Form SB-2 relating to the IPO
(the "Registration Statement") and the other information described on Exhibit
3.3(a)(ii); the Shareholder (and the Shareholder's Purchaser Representative if
the Shareholder is not an "accredited investor") has had a reasonable
opportunity to ask questions of and receive answers from PentaStar concerning
PentaStar, the PentaStar Shares and any and all matters relating to the
transactions described herein or in the Registration Statement, including,
without limitation, the background and experience of the current and proposed
officers and directors of PentaStar, the plans for the operations of the
business of PentaStar, the business, operations and financial condition of ICM
Communications Integration, Inc. and any plans for additional acquisitions, and
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all such questions, if any, have been answered to the full satisfaction of the
Shareholder (and the Shareholder's Purchaser Representative, if the Shareholder
is not an "accredited investor"); (iii) no Person other than the Shareholder has
(i) any rights in and to the PentaStar Shares, which rights were obtained
through or from the Shareholder; or (ii) any rights to acquire the PentaStar
Shares, which rights were obtained through or from the Shareholder; (iv) the
Shareholder (or the Shareholder's Purchaser Representative, if the Shareholder
is not an "accredited investor") has such knowledge and expertise in financial
and business matters (including knowledge and expertise in the business and
proposed business of PentaStar) that the Shareholder (or the Shareholder's
Purchaser Representative, if the Shareholder is not an "accredited investor") is
capable of evaluating the merits and risks involved in an investment in the
PentaStar Shares; and 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 represents that he has adequate means of
providing for his current needs and has no need for liquidity in his investment
in the PentaStar Shares; the Shareholder has no reason to anticipate any
material change in his 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 will realize any gain from this investment, and that the Shareholder
could lose the total amount of his investment; (vii) the Shareholder understands
that no United States federal or state agency has made any finding or
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 the Shareholder's Purchaser Representative, if the Shareholder
is not an "accredited investor") by PentaStar or any agent, employee or
affiliate of PentaStar, and in entering into this transaction the Shareholder is
not relying upon any information, other than from the results of independent
investigation by the Shareholder (or the Shareholder's Purchaser Representative,
if the Shareholder is not an "accredited investor"); and (x) 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. The Shareholder is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act. The
Shareholder's state of residency is Colorado.
All the certificates representing PentaStar Shares shall bear the following
legend:
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<PAGE> 25
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.
3.4. Representations and Warranties of PentaStar. PentaStar represents and
warrants to the Shareholder that the statements contained in this Section 3.4
are correct and complete as of the date of this Agreement and will 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 3.4).
(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 the State of Colorado, and all other jurisdictions in
which the nature of the business 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 will when executed and delivered constitute, the legal,
valid and binding obligations of PentaStar, and shall be enforceable in
accordance with their respective terms against PentaStar. The copies of the
articles of incorporation (certified by the Secretary of State of Delaware),
bylaws and minute book of PentaStar are attached as Exhibit 3.4(a) are complete
and correct and PentaStar is not in default under or in violation of any
provision of its articles of incorporation or bylaws.
(b) Ownership and Capitalization.
(i) As of the date hereof, the authorized, issued and outstanding
shares of the capital stock of PentaStar are as set forth on Exhibit 3.4(b)(i).
Upon the Closing, the authorized, issued and outstanding shares of capital stock
of PentaStar will be as set forth in the Prospectus included in the Registration
Statement at the time the Registration Statement is declared effective by the
SEC. All 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 PentaStar's capital stock or any treasury stock is identified
on Exhibit 3.4(b)(i).
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<PAGE> 26
(ii) At the time of issuance thereof and delivery to the
Shareholder, the PentaStar Shares to be delivered to the Shareholder pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of PentaStar's Common Stock, and will 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 will 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 which PentaStar or any of its assets and properties is bound or
subject. Except for notices and consents that will be given or obtained by
PentaStar prior to the Closing, PentaStar does not need to give any notice to,
make any filing with or obtain any authorization, consent or approval of any
Governmental Authority or other Person in order for the parties to consummate
the transactions contemplated by this Agreement.
(d) At the time that the Registration Statement is declared effective
by the SEC, the Registration Statement will not contain any untrue statement of
material fact or omit to state a material fact necessary in order to make the
statements contained therein not misleading. There is no fact which materially
adversely affects the business, conditions, affairs or operations of PentaStar
or any of its properties or assets which will not be set forth in the
Registration Statement.
3.5. Representations and Warranties of Acquiror. Acquiror represents and
warrants to the Company and the Shareholder that the statements contained in
this Section 3.5 are correct and complete as of the date of this Agreement and
will 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 3.5).
(a) Organization, Good Standing, Power, Etc. Acquiror is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. This Agreement and the transactions contemplated hereby and
thereby have been duly approved by all requisite corporate action of Acquiror.
Acquiror has full corporate power and authority to execute, deliver and perform
this Agreement, and this Agreement constitutes the legal, valid and binding
obligations of Acquiror, and shall be enforceable in accordance with its terms
against
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<PAGE> 27
Acquiror. The copies of the articles of incorporation (certified by the
Secretary of State of Delaware), bylaws and minute book of Acquiror are attached
as Exhibit 3.5(a) are complete and correct and Surviving Corporation is not in
default under or in violation of any provision of its articles of incorporation
or bylaws.
(b) Ownership and Capitalization.
(i) As of the date hereof, all of the authorized, issued and
outstanding shares of the capital stock of Acquiror are owned by PentaStar.
(c) No Violation of Agreements, Etc. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and thereby will not (i) violate any Legal Requirement to
which Acquiror is subject or any provision of the certificate of incorporation
or bylaws of Acquiror or (ii) violate, with or without the giving of notice or
the lapse of time or both, or conflict with or result in the breach or
termination of any provision of, or constitute a default under, or give any
Person the right to accelerate any obligation under, or result in the creation
of any Encumbrance upon any properties, assets or business of Acquiror pursuant
to, any indenture, mortgage, deed of trust, lien, lease, license, agreement,
instrument or other arrangement to which Acquiror is a party or which Acquiror
or any of its assets and properties is bound or subject. Except for notices and
consents that will be given or obtained by Acquiror prior to the Closing,
Acquiror does not need to give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority or other Person
in order for the parties to consummate the transactions contemplated by this
Agreement.
3.6. Survival of Representations. The representations and warranties
contained in Sections 3.1, 3.2, 3.3, 3.4 and 3.5 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 Shareholder with respect to the representations and
warranties set forth in Sections 3.1(a), 3.1(b), 3.1(c), 3.1(f), 3.1(m), 3.1(p),
3.1(q) and 3.1(u), 3.2 and 3.3 and the Liabilities of PentaStar and Acquiror
with respect to the representations and warranties set forth in Sections 3.4(a)
and 3.4(b), and Sections 3.5(a), 3.5(b) and 3.5(d), respectively, shall survive
without termination.
3.7. Representations as to Knowledge. The representations and warranties
contained in Section 3 hereof will 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 Shareholder, inquiry of
the applicable employees of the Company), with due diligence, to the best
efforts of such party and be exercised always in a reasonable manner and within
reasonable times.
4. Pre-Closing Covenants. The parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
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4.1. General. Each of the parties will use its reasonable best efforts to
take all actions necessary, proper or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including the
satisfaction, but not the waiver, of the closing conditions set forth in Section
6) and the other agreements contemplated hereby. Without limiting the foregoing,
the Shareholder will, and will cause the Company to, give any notices, make any
filings and obtain any consents, authorizations or approvals needed to
consummate the transactions contemplated by this Agreement.
4.2. Operation and Preservation of Business. The Shareholder will not cause
or permit the Company to engage in any practice, take any action or enter into
any transaction outside the ordinary course of its business; provided, however,
that in no event will any action be taken or fail to be taken or any transaction
be entered into which would result in a breach of any representation, warranty
or covenant of the Company or the Shareholder. The Shareholder will cause the
Company to keep its business and properties, including its current operations,
physical facilities, working conditions and relationships with customers,
service providers, lessors, licensors and employees intact.
4.3. Full Access. The Shareholder will cause the Company to permit
PentaStar and its agents to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of the
Company, to all premises, properties, personnel, books, records (including Tax
records), contracts and documents of or pertaining to the Company.
4.4. Notice of Developments. The Shareholder will give prompt written
notice to PentaStar of any material development which occurs after the date of
this Agreement and before the Closing and affects the business, assets,
Liabilities, financial condition, operations, results of operations, future
prospects, representations, warranties, covenants or disclosure Exhibits of the
Company. No such written notice, however, will be deemed to amend or supplement
any disclosure Exhibit or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.
4.5. Exclusivity. The Shareholder will not and the Shareholder will not
cause or permit the Company to (a) solicit, initiate or encourage the submission
of any proposal or offer from any Person relating to the acquisition of any
capital stock or other voting securities, or any portion of the assets of, the
Company (including any acquisition structured as a merger, consolidation or
share exchange) or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. The Shareholder will not vote shares of the Company's stock in favor
of any such transaction. The Shareholder will notify PentaStar immediately if
any Person makes any proposal, offer, inquiry or contact with respect to any of
the foregoing.
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4.6. Announcements. Prior to the Closing, no party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other parties.
4.7. Closing Date Liabilities. Effective as of immediately prior to the
Closing Date, the Shareholder assumes, and agrees to pay, all Closing Date
Liabilities in excess of the amounts set forth on the Estimated Closing Date
Balance Sheet without further action by the Shareholder, the Company or any
other Person.
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 will 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. The Shareholder will not take any action at any time that
is designed or intended to have the effect of discouraging any customer,
supplier, lessor, licensor or other business associate of the Company from
establishing or continuing a business relationship with PentaStar after the
Closing except where such action is approved in writing by PentaStar.
5.3. Cooperation. In the event and for so long as any party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with (a) any
transaction contemplated by this Agreement or (b) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving any of the Acquired Assets or the Company's business, each of the
other parties will 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. Each party will treat and hold as confidential all
Confidential Information concerning the other parties and its or his business or
assets, refrain from using any such Confidential Information and deliver
promptly to the other or destroy, at the request and option of the disclosing
party, all of such Confidential Information in its or his possession.
5.5. Post-Closing Announcements. Following the Closing, the Shareholder
will not issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of
PentaStar.
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5.6. Financial Statements. The Shareholder will, 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, all at the sole cost and expense
of PentaStar, but without additional consideration to the Shareholder. The
Shareholder acknowledges that PentaStar may be required by applicable law to
include audited financial statements with respect to the business of the Company
in reports filed with governmental agencies and that the inability to audit the
financial statements as of the Closing Date promptly after the Closing could
have a material adverse effect on PentaStar.
5.7. Satisfaction of Liabilities.
(a) Promptly following the Closing, the Shareholder will assume
Liability for, and pay, all Closing Date Liabilities in excess of the amounts
set forth on the Estimated Closing Date Balance Sheet or the Closing Date
Balance Sheet, as applicable, and any Taxes attributable to the transactions
contemplated by this Agreement.
(b) The Shareholder, at his expense, promptly will 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 will pay and perform, as and when due (except to the
extent the validity thereof or the Liability therefor is being contested by
PentaStar), the Retained Liabilities.
5.8. Repurchase of Unpaid Receivables. The Shareholder guarantees that the
Closing Accounts Receivables, net of any reserve established in accordance with
GAAP on the Latest Balance Sheet, will be fully paid to PentaStar in accordance
with their terms at their recorded amounts not later than 180 days from the
Closing Date. Upon demand by PentaStar at any time after 180 days from the
Closing Date, the Shareholder will pay to PentaStar the full amount of any
unpaid Closing Accounts Receivable which is the subject of such demand. Upon
such payment to PentaStar, the Closing Accounts Receivable which are so paid for
by the Shareholder shall, without further action of any party, become the
property of the Shareholder. From the Closing until 180 days after the Closing
Date, PentaStar will apply its standard accounts receivable collection
procedures to the Closing Accounts Receivables; provided, however, that
PentaStar will 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 Receivables; and, provided further, that any
failure of any collection activities of PentaStar or any such collection agency
or other agent will not relieve the Shareholder from his guarantee of the
Closing Accounts Receivables as described in this Section 5.8.
5.9. Termination of Obligations. Effective as of the Closing Date, neither
the Company nor PentaStar shall have any Liability to the Shareholder or any
relative or affiliate thereof or of the Company, except as otherwise provided in
this Agreement or in an Other Seller Agreement.
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Effective as of the Closing Date, the Shareholder shall not have any Liability
to the Company or PentaStar, except as otherwise provided in this Agreement or
in an Other Seller Agreement.
5.10. Transfer Restrictions. Unless otherwise agreed by PentaStar, except
for transfers to (a) immediate family members who agree to be bound by the
restrictions set forth in this Section 5.10 (and a copy of such agreement is
furnished to PentaStar prior to the transfer), (b) trusts, limited partnerships
or other estate planning entities for the benefit of the Shareholder or family
members of the Shareholder, the trustees, partners or other persons having
authority to bind the trust, limited partnership or other estate planning entity
of which agree to be bound by such restrictions (and a copy of such agreement is
furnished to PentaStar prior to the transfer), or (c) any charitable
organization that qualifies for receipt of charitable contributions under
Section 170(c) of the Code and such organization agrees to be bound by such
restrictions, the Shareholder will not sell, assign, exchange, transfer, pledge,
or otherwise dispose of at any time prior to the date which is 18 months after
the Closing of any shares of PentaStar Shares received by the Shareholder as
part of the Purchase Price. Thereafter, up to 33.33% of the PentaStar Shares
received at the Closing as part of the Purchase Price by the Shareholder may be
resold at any time, and an additional 16.67% of the PentaStar Shares received at
the Closing as part of the Purchase Price by the Shareholder may be resold by
the Shareholder beginning 24 months after the Closing. Any remaining PentaStar
Shares, other than those subject to the Escrow Agreement, may not be sold until
the earlier to occur of (x) sale of all or substantially all of the assets or
outstanding shares of PentaStar or (y) five years after the Closing Date.
Certificates for the PentaStar Shares delivered to the Shareholder pursuant to
the Agreement will 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 DATED AS OF AUGUST 13, 1999 (THE "AGREEMENT"), BY AND AMONG
THE ISSUER AND OC MERGERCO 1, INC., ICM COMMUNICATIONS INTEGRATION, INC. AND THE
SHAREHOLDER OF ICM COMMUNICATIONS INTEGRATION, INC. PRIOR TO THE EXPIRATION OF
THE HOLDING PERIOD 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 PLACED WITH THE TRANSFER AGENT) WHEN THE HOLDING PERIOD HAS
EXPIRED.
PentaStar shall issue separate certificates to the Shareholder representing the
shares of PentaStar Shares subject to each of the three periods of restriction
contemplated by this Section 5.10.
5.11. Underwriter and Securities Act Restrictions. The restrictions set
forth in Section 5.10
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shall be in addition to any restrictions on transfer imposed by the underwriters
in connection with the IPO (not to exceed eighteen months) and by the Securities
Act. The Shareholder also agrees to comply with such restrictions.
6. Conditions to Closing.
6.1. Conditions to Obligation of PentaStar. The obligation of PentaStar to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(a) the Shareholder's and the Company's representations and warranties
shall be correct and complete at and as of the Closing Date and the Closing and
any written notices delivered to PentaStar pursuant to Section 4.5 and the
subject matter thereof shall be satisfactory to PentaStar;
(b) the Shareholder and the Company shall have performed and complied
with all of their covenants hereunder through the Closing;
(c) the Shareholder and the Company shall have given all notices and
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 unfavorable Order
would (i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation or (iii) affect adversely the right of the
Acquiror to own the Company or the Acquired Assets and conduct the Company's
business, and no such Order shall be in effect;
(e) there shall have been no material adverse change in the Company,
the Acquired Assets or the Company's business between the date of execution of
this Agreement and the Closing;
(f) no Person other than the Shareholder shall hold any beneficial or
legal ownership interest in the equity of the Company;
(g) the LLC shall have been liquidated and dissolved;
(h) the Shareholder shall have delivered to PentaStar (i) a certificate
to the effect that each of the conditions specified above in Sections 6.1(a)
through (g) is satisfied in all respects, (ii) a good standing certificate,
dated within 10 days of the Closing, from the Secretary of State of the State of
Colorado, and (iii) a certificate setting forth the amount of the Retained
Liabilities (other than the Retained Liabilities described in clause (a) of the
definition thereof).
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(i) the Other Seller Agreements shall have been executed and delivered
by the Shareholder, as applicable;
(j) PentaStar shall have received from counsel to the Shareholder an
opinion in form and substance as set forth in Exhibit 6.1(j) addressed to
PentaStar and the underwriters of the IPO dated as of the Closing;
(k) the Registration Statement shall have been declared effective by
the SEC and not be subject to any stop order proceeding and the underwriters
named therein shall have agreed to acquire and shall have acquired PentaStar's
Common Stock on a firm commitment basis on terms satisfactory to PentaStar;
(l) PentaStar shall have received from the Shareholder or the Company
evidence of the termination of all Encumbrances filed against the Acquired
Assets;
(m) PentaStar shall have received the resignations, effective as of the
Closing, of each director and officer of the Company;
(n) stock certificates representing the Shares duly endorsed in blank
or accompanied by stock powers duly executed in blank, shall have been delivered
by the Shareholder to PentaStar;
(o) the Company 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;
(p) the Shareholder and the Company 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; and
(q) the Shareholder shall have entered into the Escrow Agreement.
PentaStar may waive any condition specified in this Section 6.1 at or prior to
the Closing.
6.2. Conditions to Obligation of the Shareholder. The obligation of the
Shareholder to consummate the transactions contemplated by this Agreement is
subject to satisfaction of the following conditions:
(a) PentaStar's and Acquiror's representations and warranties shall be
correct and complete at and as of the Closing Date and the Closing;
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(b) PentaStar shall have performed and complied with all of its
covenants hereunder through the Closing Date;
(c) PentaStar shall have delivered to the Shareholder a certificate to
the effect that each of the conditions specified above in Sections 6.2(a) and
(b) is satisfied in all respects;
(d) the Other PentaStar Agreements shall have been executed and
delivered by PentaStar;
(e) the Shareholder shall have received from counsel to PentaStar an
opinion in form and substance as set forth in Exhibit 6.2(e), addressed to the
Shareholder and dated as of the Closing;
(f) PentaStar shall have paid and deposited the Purchase Price pursuant
to Section 2; and
(g) the Registration Statement shall have been declared effective by
the SEC and not be subject to any stop order proceeding and the underwriters
named therein shall have agreed to acquire and shall have acquired PentaStar's
Common Stock on a firm commitment basis on terms satisfactory to PentaStar.
The Shareholder may waive any condition specified in this Section 6.2 at or
prior to the Closing.
7. Remedies for Breaches of this Agreement.
7.1. Indemnification Provisions for Benefit of PentaStar and the Company.
(a) If the Shareholder breaches (or if any Person other than PentaStar
alleges facts that, if true, would mean the Shareholder has breached) any of the
representations or warranties of the Shareholder or the Company contained herein
and PentaStar gives notice thereof to the Shareholder within the Survival
Period, or if the Shareholder breaches any covenants of the Shareholder or the
Company contained herein or any representations, warranties or covenants of the
Shareholder contained in any Other Seller Agreement and PentaStar gives notice
thereof to the Shareholder, then the Shareholder agrees to indemnify and hold
harmless PentaStar and the Surviving Corporation from and against any Adverse
Consequences PentaStar or the Surviving Corporation may suffer resulting from,
arising out of, relating to or caused by any of the foregoing regardless of
whether the Adverse Consequences are suffered during or after the Survival
Period. In determining whether there has been a breach of any representation or
warranty contained in Section 3.1, 3.2 and 3.3, and in determining for purposes
of the preceding sentence the amount of Adverse Consequences suffered by
PentaStar or the Surviving Corporation, such representations and warranties
shall not be qualified (other than by (A) the reference to "knowledge" set forth
in the last sentence of Section 3.1(o) and (B) the references to "material" set
forth in Section 3.1(u)) by "material," "materiality," "in all material
respects," "best
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knowledge," "best of knowledge" or "knowledge" or words of similar import, or by
any phrase using any such terms or words. The Shareholder also agrees to
indemnify and hold harmless PentaStar and the Surviving Corporation from and
against any Adverse Consequences PentaStar or the Surviving Corporation may
suffer which result from, arise out of, relate to or are caused by (i) any
Liability of the Company or the Shareholder not included in the Retained
Liabilities (other than Closing Date Liabilities in an amount not exceeding the
amount of the Closing Date Liabilities set forth on the Estimated Closing Date
Balance Sheet or the Closing Date Balance Sheet, as applicable) 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 the
Shareholder or any predecessor with respect to, or any event or circumstance
related to, the Company's, the Shareholder's or any predecessor's ownership, use
or operation of any of the Acquired Assets, the Premises or any other assets or
properties or the conduct of its or their business, regardless, in the case of
(i) or (ii), of (A) whether or not such Liability, act, omission, event,
circumstance or matter was known or disclosed to PentaStar, was disclosed on any
Exhibit hereto or is a matter with respect to which the 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. 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 will be resolved by arbitration
pursuant to this Agreement.
7.2. Indemnification Provisions for Benefit of the Shareholder. If
PentaStar breaches (or if any Person other than the Shareholder alleges facts
that, if true, would mean PentaStar has breached) any of its representations or
warranties contained herein and the Shareholder gives notice of a claim for
indemnification against PentaStar within the Survival Period, or if PentaStar
breaches any of its covenants contained herein or any of its representations,
warranties or covenants contained in any Other PentaStar Agreement and the
Shareholder gives notice thereof to PentaStar, then PentaStar agrees to
indemnify and hold harmless the Shareholder from and against any Adverse
Consequences the Shareholder 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 3.4 and in determining the amount of Adverse Consequences
suffered by the Shareholder 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. PentaStar also agrees to indemnify and hold harmless the Shareholder
for any Liability of the Company, the facts or circumstances giving rise to
which occur after the Closing Date. If any dispute arises concerning whether any
indemnification is owing which cannot be resolved by negotiation among the
parties within 30 days of notice of claim for indemnification from the party
claiming indemnification to the party against whom such claim is asserted, the
dispute will be resolved by arbitration pursuant to this Agreement.
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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 will 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 will 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 will 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 will 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 will 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 will 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
will 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 will 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 Parties will
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<PAGE> 37
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Parties will 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 will have the right to offset any Adverse
Consequences it may suffer against any amounts payable pursuant to this
Agreement or any Other Seller Agreement to the Shareholder or any relative or
affiliate of the Shareholder at or after the Closing.
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.
7.6. Ceiling. Notwithstanding any other provision of this Agreement, the
maximum amount that the Shareholder will be required to indemnify PentaStar and
the Surviving Corporation under this Section 7 will not exceed, in the
aggregate, the sum of (a) the cash received by the Shareholder under this
Agreement and (b) the value of the PentaStar Shares issued to the Shareholder
pursuant to Section 2(k) (as such value is determined on the Closing Date by
reference to the initial offering price of shares of PentaStar Common Stock
issued in the IPO).
8. Termination.
8.1. Termination of Agreement. The parties may terminate this Agreement as
provided below:
(a) PentaStar and the Shareholder may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(b) PentaStar may terminate this Agreement by giving written notice to
the Shareholder at any time prior to the Closing (i) in the event the
Shareholder has breached any representation, warranty or covenant contained in
this Agreement in any material way, PentaStar has notified the Shareholder of
the breach, and the breach has not been cured within 10 days after the notice of
breach or (ii) if the Closing has not occurred on or before January 31, 2000
because of the failure of any condition precedent to PentaStar's obligations to
consummate the Closing (unless the failure results primarily from PentaStar
breaching any representation, warranty or covenant contained in this Agreement
in any material way); or
(c) the Shareholder may terminate this Agreement by giving written
notice to PentaStar at any time prior to the Closing (i) if PentaStar has
breached any representation, warranty or covenant contained in this Agreement in
any material way, the Shareholder has notified PentaStar of the breach, and the
breach has not been cured within 10 days after the notice
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of breach or (ii) if the Closing has not occurred on or before January 31, 2000
because of the failure of any condition precedent to the Shareholder's
obligations to consummate the Closing (unless the failure results primarily from
the Shareholder breaching any representation, warranty or covenant contained in
this Agreement in any material way).
8.2. Effect of Termination. The termination of this Agreement by a party
pursuant to Section 8.1 will in no way limit any obligation or liability of any
other party based on or arising from a breach or default by such other party
with respect to any of its representations, warranties, covenants or agreements
contained in this Agreement, and the terminating party will be entitled to seek
all relief to which it is entitled under applicable law.
8.3. Confidentiality. If this Agreement is terminated, each party will
treat and hold as confidential all Confidential Information concerning the other
parties which it acquired from such other parties in connection with this
Agreement and the transactions contemplated hereby.
9. Miscellaneous.
9.1. No Third-Party Beneficiaries. This Agreement will 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 will be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. The Shareholder may not assign this Agreement or any of his
rights, interests or obligations hereunder without the prior written approval of
PentaStar. PentaStar may assign its rights and obligations hereunder as
permitted by law, 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 will be deemed the execution
of this Agreement. This Agreement may be delivered by facsimile and facsimile
signatures will be treated as original signatures for all applicable purposes.
9.5. Headings. The section headings contained in this Agreement are
inserted for convenience only and will not affect in any way the meaning or
interpretation of this Agreement. Terms used with initial capital letters will
have the meanings specified, applicable to both singular and plural forms, for
all purposes of this Agreement. The singular or plural includes the other, as
the context requires or permits. The word "include" (and any variations) is used
in an illustrative sense rather than a limiting sense.
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9.6. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if it is sent by
registered or certified mail, return receipt requested, postage prepaid, or by
courier, telecopy or facsimile, and addressed to the intended recipient as set
forth below:
If to the
Shareholder: Copy to:
Addressed to the William J. Bourke
the Shareholder at: Clanahan, Tanner, Downing & Knowlton, P.C.
9160 South Princeton Street 730 17th Street, Suite 500
Highlands Ranch, Colorado 80126 Denver, Colorado 80202
Telecopy: (303) 846-8980 Telecopy: (720) 359-9501
If to PentaStar: Copy to:
PentaStar Communications, Inc. Sherman & Howard L.L.C.
1522 Blake Street 633 Seventeenth Street, Suite 3000
Denver, Colorado 80202 Denver, Colorado 80202
Attn: President Attn: B. Scott Pullara
Telecopy: (303) 620-9016 Telecopy: (303) 298-0940
Notices will 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 will 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 Shareholder. No waiver by any party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, will 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 will be
effective unless set forth in writing and signed by the party against whom such
waiver is asserted.
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<PAGE> 40
9.9. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.10. Expenses. Except as otherwise provided in Section 8.2, (a) PentaStar
shall bear its own costs and expenses (including, without limitation, legal fees
and expenses) incurred either before or after the date of this Agreement in
connection with this Agreement or the transactions contemplated hereby and (b)
the Shareholder will 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 the Shareholder either before or after
the date of this Agreement in connection with this Agreement or the transactions
contemplated hereby (collectively, "Seller Transaction Expenses"); provided,
however, that prior to the Closing Date the Company may use any cash to pay
Seller Transaction Expenses.
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, will be submitted to binding arbitration
in Denver, Colorado before the Judicial Arbiter Group, but under the Commercial
Arbitration Rules of the American Arbitration Association under the authority of
federal and state arbitration statutes, and shall not be the subject of
litigation in any forum. If the Judicial Arbiter Group is unavailable to conduct
the arbitration, then it shall be before another arbitral body in Denver,
Colorado selected by PentaStar and the Shareholder 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 will be final and
binding, and judgment on the award by the arbitrators may be entered in any
court of competent jurisdiction. THIS SUBMISSION AND AGREEMENT TO ARBITRATE WILL
BE SPECIFICALLY ENFORCEABLE. The prevailing party or parties in any such
arbitration or in any action to enforce this Agreement will be entitled to
recover, in addition to any other relief awarded by the arbitrator, all
reasonable costs and expenses, including fees and expenses of the arbitrators
and attorneys, incurred in connection therewith. If each party prevails on
specific issues in the arbitration, the arbitrator may allocate the costs
incurred by all parties on a basis the arbitrator deems appropriate.
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 will be construed as
if drafted jointly by the parties and no presumption or burden of
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<PAGE> 41
proof will arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement. The word "including" will mean
including without limitation. The parties intend that each representation,
warranty and covenant contained herein will 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 will 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.
[THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY,
SIGNATURE PAGE FOLLOWS]
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<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PENTASTAR:
PENTASTAR COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
--------------------------------------
Name: Craig J. Zoellner
--------------------------------------
Title: President
--------------------------------------
ACQUIROR:
OC MERGERCO 1, INC.
By: /s/ Craig J. Zoellner
--------------------------------------
Name: Craig J. Zoellner
--------------------------------------
Title: President
--------------------------------------
COMPANY:
DMA VENTURES, INC.
By: /s/ Jeffery Veres
--------------------------------------
Name: Jeffery Veres
--------------------------------------
Title: President
--------------------------------------
SHAREHOLDER:
/s/ Jeffery Veres
-------------------------------------------------
Jeffery Veres
[SIGNATURE PAGE TO ACCESS AGREEMENT AND PLAN OF MERGER]
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<PAGE> 43
EXHIBIT 1.1(a)
DEFINED TERMS
Acquiror has the meaning given it in the preamble to this Agreement.
Acquired Assets means all right, title and interest of the Company in
and to all of the tangible and intangible assets of the Company.
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.
Articles of Merger has the meaning given it in Section 2(g).
Benefit Arrangement has the meaning set forth in Section 3.1(m)(iii).
Business Day means any day on which commercial banks are open for
business in Denver, Colorado.
Cash Covered Accrued Commission Liability means accrued sales
commissions payable by the Company resulting from any sale by the Company prior
to the Closing Date, if and only to the extent that the Company has not received
payment prior to the Closing Date of the amount in respect of which such accrued
sales commission was earned.
Certificate of Merger has the meaning given it in Section 2(g).
Client Services Agreement means the agreement between the Company and
Oasis under which the Company acquires professional services.
Closing and Closing Date have the meanings given in Section 2(n).
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.
Closing Date Balance Sheet has the meaning given it in Section 2(l).
Exhibit 1.1(a) - 1
<PAGE> 44
Closing Date Liabilities means all Liabilities of the Company, but
excluding Retained Liabilities.
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning given it in the preamble to this Agreement,
except that for purposes of Sections 3.1, 3.2 and 3.3, 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.
Effective Time has the meaning set forth in Section 2(g).
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 Jeffery Veres in the form of Exhibit 6.1(q).
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.
Exhibit 1.1(a) - 2
<PAGE> 45
ERISA Affiliate means any entity which is controlled by, or is under
common control with, the Company, as determined under ERISA Section 4001(a)(14).
Escrow Agreement has the meaning set forth in Section 2(k).
Estimated Closing Date Balance Sheet has the meaning given it in
Section 2(j).
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.
IPO means the initial public offering of PentaStar's Common Stock
pursuant to the Registration Statement.
Indemnified Party has the meaning given it in Section 7.3(a).
Indemnifying Party has the meaning given it in Section 7.3(a).
Intellectual Property means all trade, corporate, business and product
names, trademarks, trademark rights, service marks, copyrights, patents, patent
rights, trade secrets, business, customer and technical information, and
computer software, all registrations, licenses and applications pertaining
thereto, and all related documentation and goodwill.
Latest Balance Sheet has the meaning given in it 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).
LLC has the meaning given it in Recital A.
Exhibit 1.1(a) - 3
<PAGE> 46
Merger has the meaning given it in Section 2.
Oasis has the meaning given it in Section 3.1(n).
PentaStar has the meaning given it in the preamble to this Agreement.
PentaStar Common Stock means the common stock par value $0.01 per
share, of PentaStar.
PentaStar Shares has the meaning set forth in Section 3.3(a).
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 Escrow
Agreement and the other documents and instruments to be executed and delivered
by PentaStar pursuant to this Agreement.
Other Seller Agreements means the Employment Agreement, the Escrow
Agreement and other documents and instruments to be executed and delivered by
the Shareholder or any relative or affiliate of the Company or of the
Shareholder pursuant to this Agreement.
Permits means all permits, licenses, consents, franchises,
authorizations, approvals, privileges, waivers, exemptions, variances,
exclusionary or inclusionary Orders and other concessions, whether governmental
or private, including, without limitation, those relating to environmental,
public health, welfare or safety matters.
Person means an individual, partnership, corporation, association,
joint stock company, trust, joint venture, limited liability company,
unincorporated organization or Governmental Authority.
Premises means the real property, buildings and improvements thereon
constituting the business premises of the Company located at 7076 South Alton
Way, Building A, Englewood, CO 80112.
Principal Customer has the meaning given it in Section 3.1(o).
Principal Provider has the meaning given it in Section 3.1(o).
Prospectus means the final prospectus included as a part of the
Registration Statement at the time such Registration Statement is declared
effective by the SEC.
Purchase Price has the meaning given it in Section 2(k).
Exhibit 1.1(a) - 4
<PAGE> 47
Purchaser Representative has the meaning given it in Section 3.3(a).
Purchaser Representative Documents has the meaning given it in Section
3.3(a).
Registration Statement has the meaning given it in Section 3.3(a).
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(b) with respect to the period after the Closing Date, (b) trade
payables incurred in the ordinary course of business which are not past due
based upon their normal, stated terms, (c) accrued liabilities incurred in the
ordinary course of business which are not past due based upon their normal,
stated terms (e.g., payroll), but excluding accrued bonus, accrued profit
sharing, accrued rent and accrued Liabilities for Taxes and (d) Cash Covered
Accrued Commission Liabilities. Retained Liabilities will not include any other
Liability.
Right means any right, property interest, concession, patent,
trademark, trade name, copyright, know-how or other proprietary right of another
Person.
SEC means the United States Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Shareholder has the meaning given it in the preamble to this Agreement.
Shares means all of the issued and outstanding capital stock of the
Company.
Stock/LLC Exchange has the meaning given it in Recital A.
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 3.6.
Surviving Corporation has the meaning given it in the preamble to this
Agreement.
Tax means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, documentary, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
Exhibit 3.1(h)(i) - 5
<PAGE> 48
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.
Third Party Claim has the meaning given it in Section 7.3(a).
Third Party Product has the meaning given it in Section 3.1(r).
Transaction has the meaning given it in Recital B.
Exhibit 3.1(h)(i) - 6
<PAGE> 49
EXHIBIT 3.2
(a) The Company is a corporation duly organized and validly existing in
good standing under the laws of the jurisdiction of its organization, with full
corporate power and authority to own, lease, and operate its properties and to
conduct its business as described in the Prospectus. The Company is duly
qualified to do business and is in good standing in every jurisdiction in which
its ownership, leasing, licensing, or use of property and assets or the conduct
of its business makes such qualifications necessary.
(b) The financial statements of the Company included in the
Registration Statement and the Prospectus fairly present in all material
respects with respect to the Company the financial position, the results of
operations, and the other information purported to be shown therein at the
respective dates and for the respective periods to which they apply. Such
financial statements have been prepared in accordance with generally accepted
accounting principles, except to the extent that certain footnote disclosures
regarding any stub period may have been omitted in accordance with the
applicable rules of the Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), consistently applied throughout the periods
involved, are correct and complete in all material respects, and are in
accordance with the books and records of the Company. There has at no time been
a material adverse change in the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the Company
from the latest information set forth in the Registration Statement or the
Prospectus, except as may be properly described in the Prospectus.
(c) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, or, to the knowledge
of the Company, threatened, or proposed with respect to the Company or any of
its operations, businesses, properties, or assets, except as may be properly
described in the Prospectus or such as individually or in the aggregate do not
now have and will not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company. The Company is not
in violation of, or in default with respect to, any law, rule, regulation,
order, judgment, or decree except as may be properly described in the Prospectus
or such as in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties, or assets of
the Company, nor is the Company required to take any action in order to avoid
any such violation or default.
(d) The Company has good and marketable title in fee simple absolute to
all real properties and good title to all other properties and assets which the
Prospectus indicates are owned by it, free and clear of all liens, security
interests, pledges, charges, encumbrances, and mortgages except as may be
properly described in the Prospectus or such as in the aggregate do not now have
and will not in the future have a material adverse effect upon the operations,
business, properties, or assets of the Company. No real property owned, leased,
licensed, or used by the Company lies in an area which is, or to the knowledge
of the Company will be, subject to zoning, use, or building code restrictions
which would prohibit, and no state of facts relating to the actions or inaction
of another person or entity or his or its ownership, leasing, licensing, or use
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<PAGE> 50
of any real or personal property exists which would prevent, the continued
effective ownership, leasing, licensing, or use of such real property in the
business of the Company as presently conducted or as the Prospectus indicates it
contemplates conducting, except as may be properly described in the Prospectus
or such as in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties, or assets of
the Company.
(e) Neither the Company nor any other party is now or is expected by
the Company to be in violation or breach of, or in default with respect to
complying with, any material provision of any contract, agreement, instrument,
lease, license, arrangement, or understanding which is material to the Company,
and each such contract, agreement, instrument, lease, license, arrangement, and
understanding is in full force and is the legal, valid, and binding obligation
of the parties thereto and is enforceable as to them in accordance with its
terms. The Company enjoys peaceful and undisturbed possession under all material
leases and licenses under which it is operating. The Company is not a party to
or bound by any contract, agreement, instrument, lease, license, arrangement, or
understanding, or subject to any charter or other restriction, which has had or
could reasonably be expected to have in the future a material adverse effect on
the financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company. The Company is not in violation
or breach of, or in default with respect to, any term of its Articles of
Incorporation (or other charter document) or by-laws.
(f) All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises, technology,
know-how and other intangible properties and assets that are material to the
Company (all of the foregoing being herein called "Intangibles") that the
Company owns or has pending, or under which it is licensed, are uncontested to
the knowledge of the Company. Except as otherwise disclosed in the Registration
Statement, the Intangibles are owned by the Company, free and clear of all
liens, security interests, pledges, and encumbrances. There is no right under
any Intangible necessary to the business of the Company as presently conducted
or as the Prospectus indicates it contemplates conducting (except as may be so
designated in the Prospectus). The Company has not infringed, is not infringing,
and has not received notice of infringement with respect to asserted Intangibles
of others. To the knowledge of the Company, there is no infringement by others
of Intangibles of the Company, except for such infringements which in the
aggregate would not result in a material adverse effect on the Company. To the
knowledge of the Company, there is no Intangible of others which has had or
could reasonably be expected in the future to have a materially adverse effect
on the financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company.
(g) Neither the Company nor any director, officer, agent, employee, or
other person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended
by the International Anti-Bribery Act of 1998; or made any bribe, rebate,
payoff, influence payment, kickback, or
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<PAGE> 51
other unlawful payment. The Company has not accepted any material advertising
allowances or marketing allowances from suppliers to the Company or, to the
extent any advertising allowance has been accepted, the Company has provided
proper documentation to the supplier with respect to advertising as to which the
advertising allowance has been granted.
(h) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of PentaStar to facilitate the sale or resale of shares
("Shares") of PentaStar's Common Stock to be purchased by the underwriter as
described in the Prospectus, or (ii) since the filing of the Registration
Statement, (A) sold, bid for, purchased, or paid anyone any compensation for
soliciting purchases of the Shares, or (B) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other securities of
PentaStar.
(i) The Company has not distributed written offering material in
connection with the offering and sale of the Shares to be purchased by the
underwriter as described in the Prospectus.
(j) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged. The Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect, except as described in or contemplated
by the Prospectus.
(k) The Company is not presently doing business with the government of
Cuba or with any person or affiliate located in Cuba.
(l) Except as disclosed in the Prospectus, and to the Company's best
knowledge after reasonable investigation, all hardware, firmware, software and
computer systems of the Company and, to the Company's knowledge, of respective
material vendors and suppliers of the Company, will be by the Closing Date, year
2000 Compliant (as defined below) and will continue to function in accordance
with their independent purpose without material error or material interruption
as a result of the transition to the year 2000, to the extent that data
submitted or processed is unambiguous and date specific, except for such errors
and interruptions which in the aggregate could not reasonably be expected to
have a material adverse effect on the Company. The Company will not incur any
additional material costs for the Company to become year 2000 Compliant. For
purposes of this paragraph, "year 2000 Compliant" means, with respect to the
Company or its respective material vendors and suppliers, that the hardware,
firmware, software and computer systems of each of the foregoing (i) will
completely and accurately address, produce, store and calculate data involving
dates before, on or after January 1, 2000 and will not produce abnormally ending
or incorrect results involving such dates as used in any forward or regression
dated based functions, and (ii) will provide that date related functionalities
and data fields include the indication of century and millennium and will
perform calculations that involve a four-digit year.
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<PAGE> 52
(m) Except as set forth in the Prospectus, there is no action, suit or
proceeding before any court, arbitration tribunal or governmental agency,
authority or body pending or, to the knowledge of the Company, threatened which
could reasonably be expected to result in judgments against the Company not
adequately covered by insurance or which collectively could reasonably be
expected to result in any material adverse change in the condition (financial or
otherwise), the business or the prospects of the Company or would materially
affect the properties or assets of the Company.
(n) Except as set forth in the Prospectus:
i. The Company has obtained all permits, licenses and
other authorizations which are required under the
Environmental Laws for the ownership, use and operation of
each location operated or leased by the Company (the
"Property"), all such permits, licenses and authorizations, if
any, obtained are in effect, no appeal nor any other action is
pending to revoke any such permit, license or authorization,
and the Company is in full compliance with all terms and
conditions of all such permits, licenses and authorizations,
if any, obtained by the Company.
ii. To the best knowledge of the Company's executive
officers, the Company and the Property are in compliance with
all Environmental Laws including, without limitation, all
restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in
any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
iii. The Company has not, and to the best knowledge
of the Company's executive officers, no other person has,
released, placed, stored, buried or dumped any Hazardous
Substances, Oils, Pollutants or Contaminants or any other
wastes produced by, or resulting from, any business,
commercial, or industrial activities, operations, or
processes, on, beneath, or adjacent to the Property or any
property formerly owned, operated or leased by the Company
except for inventories of such substances to be used, and
wastes generated therefrom, in the ordinary course of business
of the Company (which inventories and wastes, if any, were and
are stored or disposed of in accordance with applicable laws
and regulations and in a manner such that there has been no
release of any such substances into the environment).
iv. Except as provided to PentaStar in writing, there
exists no written or tangible report, synopsis or summary of
any asbestos, toxic waste or Hazardous Substances, Oils,
Pollutants or Contaminants investigation made with respect to
all or any portion of the assets of the Company (whether or
not prepared by experts and whether or not in the possession
of the executive officers of the Company).
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<PAGE> 53
v. Definitions: As used herein:
(1) Environmental Laws means all federal,
state and local laws, regulations, rules and
ordinances relating to pollution or protection of the
environment, including, without limitation, laws
relating to Releases or threatened Releases of
Hazardous Substances, Oils, Pollutants or
Contaminants into the indoor or outdoor environment
(including, without limitation, ambient air, surface
water, groundwater, land, surface and subsurface
strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage,
Release, transport or handling of Hazardous
Substances, Oils, Pollutants or Contaminants.
(2) Hazardous Substances, Oils, Pollutants
or Contaminants means all substances defined as such
in the National Oil and Hazardous Substances
Pollutant Contingency Plan, 40 C.F.R. ss.300.6, or
defined as such under any Environmental Law.
(3) Release means any release, spill,
emission, discharge, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environmental
(including, without limitation, ambient air, surface
water, groundwater, and surface or subsurface strata)
or into or out of any property, including the
movement of Hazardous Substances, Oils, Pollutants or
Contaminants through or in the air, soil, surface
water, groundwater or any property.
(o) The Company is not a party to any agreement giving rise to any
obligation by the Company or any subsidiary to pay any third party royalties or
fees of any kind whatsoever with respect to any technology developed, employed,
used or licensed by the Company or any subsidiary, other than as disclosed in
the Prospectus.
(p) The issued and outstanding shares of common stock of the Company
and all other securities issued and sold or exchanged by the Company were not
required to be registered under any applicable state or federal securities laws
and regulations when issued and sold or exchanged and were issued and sold or
exchanged in compliance with applicable exemptions from registration under
federal and state securities laws.
-5-
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
AMONG
PENTASTAR COMMUNICATIONS, INC.,
OC MERGERCO 2, INC.,
ICM COMMUNICATIONS INTEGRATION, INC.
AND
THE SHAREHOLDERS
OF
ICM COMMUNICATIONS INTEGRATION, INC.,
DATED AS OF AUGUST 13, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions...........................................................................................................1
2. The Merger............................................................................................................1
3. Representations and Warranties........................................................................................7
3.1. Representations and Warranties of the Company and the Shareholders...........................................7
3.2. Additional Representations and Warranties of the Shareholders Relating to Underwriting......................18
3.3. Representations and Warranties of Each Shareholder..........................................................18
3.4. Representations and Warranties of PentaStar.................................................................20
3.5. Representations and Warranties of Acquiror..................................................................21
3.6. Survival of Representations.................................................................................22
3.7. Representations as to Knowledge.............................................................................22
4. Pre-Closing Covenants................................................................................................22
4.1. General.....................................................................................................22
4.2. Operation and Preservation of Business......................................................................22
4.3. Full Access.................................................................................................23
4.4. Notice of Developments......................................................................................23
4.5. Exclusivity.................................................................................................23
4.6. Announcements...............................................................................................23
4.7. Closing Date Liabilities. .................................................................................23
4.8. License Agreement...........................................................................................23
4.9. Agreement with NCI..........................................................................................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.................................................................................24
5.8. Repurchase of Unpaid Receivables............................................................................25
5.9. Termination of Obligations..................................................................................25
5.10. Transfer Restrictions.......................................................................................25
5.11. Underwriter and Securities Act Restrictions,................................................................26
6. Conditions to Closing................................................................................................26
6.1. Conditions to Obligation of PentaStar.......................................................................26
6.2. Conditions to Obligation of the Shareholders................................................................28
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
7. Remedies for Breaches of This Agreement..............................................................................29
7.1. Indemnification Provisions for Benefit of PentaStar and the Company.........................................29
7.2. Indemnification Provisions for Benefit of the Shareholders..................................................30
7.3. Matters Involving Third Parties.............................................................................31
7.4. Right of Offset.............................................................................................32
7.5. Other Remedies..............................................................................................32
7.6. Basket......................................................................................................32
8. Termination..........................................................................................................32
8.1. Termination of Agreement....................................................................................32
8.2. Effect of Termination.......................................................................................32
8.3. Confidentiality.............................................................................................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 and Terms..........................................................................................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
</TABLE>
(ii)
<PAGE> 4
Exhibits to ICM Merger Agreement:
<TABLE>
<S> <C>
Exhibit 1.1(a) Defined Terms
Exhibit 1.1(b) Form of Employment and Noncompetition Agreement
between PentaStar and Schillinger
Exhibit 1.1(c) Form of Noncompetition Agreement
Exhibit 1.1(d) Contracts Which After Closing May Give Rise to
ICM Obligations (Part (a) of Retained
Liabilities)
Exhibit 2(k)(i) Form of Norwest Escrow Agreement
Exhibit 2(k)(ii) Form of Principal Stockholder's Escrow and
Contingent Stock Agreement
Exhibit 3.1(a)(i)(A) ICM's Amended Certified Articles of
Incorporation
Exhibit 3.1(a)(i)(B) ICM's Amended Bylaws
Exhibit 3.1(b)(i) ICM Stock and Stock Restrictions to be
Terminated by Shareholders Prior to Closing
Exhibit 3.1(b)(ii) Network Communication Integration Disclosure
and ICM Subsidiaries
Exhibit 3.1(c) Notices/Consents to be Obtained Prior to
Closing
Exhibit 3.1(d)(i)(A) ICM Financial Statements
Exhibit 3.1(d)(i)(B) ICM Expenses
Exhibit 3.1(e)(i) Material Contracts Obligating ICM
Exhibit 3.1(e)(iv) ICM Cancelled and Doubtful Accounts and Notes
Exhibit 3.1(e)(vi) Wage/Salary Increases
Exhibit 3.1(f)(iii) ICM Tax Returns
Exhibit 3.1(f)(v) ICM "S" Corporation Election
Exhibit 3.1(f)(vi) ICM Carryforwards
Exhibit 3.1(g)(i) Encumbrances
Exhibit 3.1(h) ICM Contracts and Other Matters
Exhibit 3.1(i)(i) ICM Litigation
Exhibit 3.1(i)(ii) ICM Violations of Legal Requirements or Rights
Exhibit 3.1(k) ICM Liability Claims, Other Than Those on
Listed Exhibit 3.1(i)(i) and Termination
Agreements
Exhibit 3.1(l) ICM Insurance Claims, Other Than Those Listed
on Exhibit 3.1(k)
Exhibit 3.1(m)(i) Company Welfare Plans and Simple IRA Plans
Sponsored by Company
Exhibit 3.1(m)(iii) ICM Benefit Arrangements
Exhibit 3.1(n) ICM Employees who may Terminate Employment
Exhibit 3.1(o)(i)(A) ICM Principal Customers
Exhibit 3.1(o)(i)(B) ICM Principal Providers
Exhibit 3.1(o)(i)(C) US West Contract
Exhibit 3.1(s) ICM Brokers' Fees
Exhibit 3.1(t) ICM Guarantors/Guaranties
Exhibit 3.2 Additional Shareholders Representations and
Warranties Relating to Underwriting
Exhibit 3.3(a)(ii) Other Information Relating to PentaStar
Exhibit 3.3(a)(x) Shareholders' Information and Exceptions to
Accredited Investor Status
Exhibit 3.4(b)(i) Capitalization of PentaStar
Exhibit 3.5(a) OC Mergerco 2, Inc.'s Certified Articles of
Incorporation, Bylaws and Minute Book
Exhibit 4.8 License Agreement
Exhibit 4.9 NCI Agreement and Note
Exhibit 6.1(i) Form of Opinion of Shareholders' Counsel
Exhibit 6.2(e) Form of Opinion of PentaStar's Counsel
</TABLE>
(iii)
<PAGE> 5
This Agreement and Plan of Merger is entered into as of August
13, 1999 among PentaStar Communications, Inc., a Delaware corporation
("PentaStar"), OC Mergerco 2, Inc., a Delaware corporation (the "Acquiror," and
after the Effective Time, the "Surviving Corporation"), ICM Communications
Integration, Inc. (the "Company"), and the Persons identified on the signature
page hereto as Shareholders (individually, a "Shareholder" and collectively, the
"Shareholders").
Recitals
A. Prior to July 30, 1999, the Shareholders owned all of the
issued and outstanding capital stock of the Company. On July 30, 1999, the
Shareholders transferred all of such capital stock to OpCom, LLC, a Colorado
limited liability company (the "LLC"), in exchange for all of the Class B
membership interests in the LLC (the "Stock/LLC Exchange").
B. The Acquiror is a newly-formed, wholly-owned subsidiary of
PentaStar. The Acquiror desires to acquire all of the business operations of the
Company through a statutory merger of the Company with and into the Acquiror,
with the Acquiror as the surviving entity (the "Transaction").
C. The Boards of Directors of each of PentaStar, the Acquiror
and the Company has determined that the Transaction is in the best interests of
their respective corporations and shareholders.
D. It is intended that the Transaction will qualify as a
reorganization under the provisions of Section 368(a)(1)(A) pursuant to Section
368(a)(2)(D) of the Code.
E. PentaStar, the Acquiror, the Company 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. The Merger. Subject to the terms and conditions of this Agreement and the
corporation laws of the states of Delaware and Washington, at the Effective
Time, the Company will be merged with and into the Acquiror (the "Merger") and
the separate existence of the Company will cease and the Acquiror will continue
as the surviving corporation in the Merger. From and after the Effective Time,
and without any further action on the part of any Person, the Merger will have
all the effects provided by applicable law, including Sections 251 and 252 of
the Delaware General Corporation Law and Section 23B.11.070 of the Washington
Business Corporation Act and, subject to applicable law, the following
additional effects:
<PAGE> 6
(a) Basic Transaction. At the Effective Time, the Shareholders
will receive the consideration described in Section 2(k), and the Company Shares
owned by the Shareholders will be canceled and will cease to represent any
interest in the Company or the Surviving Corporation. As of the Effective Time,
the stock transfer books of the Company will be closed and no transfer or
issuance of shares of capital stock of the Company will be permitted.
(b) Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Acquiror, as in effect immediately prior to
the Effective Time, will become the Certificate of Incorporation of the
Surviving Corporation, except that the name of the Surviving Corporation will
become "ICM Communications Integration, Inc.," and such Certificate of
Incorporation may thereafter be amended as provided therein and by the Delaware
General Corporation Law.
(c) Bylaws. At the Effective Time, the Bylaws of the Acquiror,
as in effect immediately prior to the Effective Time, will become 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 Effective Time, the directors of the
Acquiror immediately prior to the Effective Time will become 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 and 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 Effective Time, the officers of the
Acquiror immediately prior to the Effective Time will become 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 and 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 Effective Time, all the
properties, rights, privileges, powers, and franchises of the Company and the
Acquiror will vest in the Surviving Corporation, and all debts, liabilities, and
duties of the Company and the Acquiror will 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 Washington Business Corporation
Act, a certificate of merger (the "Certificate of Merger") and articles of
merger (the "Articles 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 the Articles of Merger to the
Secretary of State of the State of Washington for filing pursuant to the
Washington Business Corporation Act on the Closing Date. The Merger shall become
effective on the date on which the Articles of Merger and the Certificate of
Merger have been duly filed with the Washington Secretary of State and the
Delaware Secretary of State, respectively (the "Effective Time").
(h) Share Conversion. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of capital
stock of any corporation, each share of capital
-2-
<PAGE> 7
stock of the Company will be converted into the right to receive the
consideration payable pursuant to Section 2(k). Each share of the capital stock
of the Company issued and outstanding immediately prior to the Effective Time
and owned directly or indirectly by the Company as treasury stock, if any, will
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 Effective
Time will remain issued and outstanding.
(i) Fractional Shares. No certificates or scrip representing
fractional shares of any class of PentaStar Shares will be issued pursuant to
the Merger. Such fractional share interests shall not entitle the owner thereof
to any rights as a security holder of the Surviving Corporation. In lieu of any
such fractional shares of any class of PentaStar Shares, each Shareholder will
be entitled to receive an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying the value of an PentaStar Share issuable
pursuant to this Agreement (as determined as of the Closing Date) by the
fractional interest in such PentaStar Shares to which such Person would
otherwise be entitled.
(j) Estimated Closing Date Balance Sheet. No earlier than ten
Business Days prior to the Closing or later than three Business Days prior to
the Closing, the Shareholders will deliver a balance sheet for the Company
prepared as of the Closing Date (the "Estimated Closing Date Balance Sheet").
The Estimated Closing Date Balance Sheet will be prepared in accordance with
GAAP on a basis consistent with the historical accounting practices of the
Company used in connection with the preparation of the Company's audited balance
sheet for the period ended December 31, 1998. The Estimated Closing Date Balance
Sheet will set forth, in addition to other items required by GAAP, the amount of
(i) Cash held by the Company, (ii) the Closing Date Liabilities and each item
thereof, and (iii) the Retained Liabilities described in clauses (b), (c) and
(d) of the definition of Retained Liabilities and each item thereof.
(k) Consideration. The consideration payable by the Acquiror
to the Shareholders pursuant to the Merger will be an amount equal to the sum of
(a) (1) cash in an amount of $1,923,000, plus (2) the amount of Cash set forth
on the Estimated Closing Date Balance Sheet, minus (3) the amount of the Closing
Date Liabilities as set forth on the Estimated Closing Date Balance Sheet; plus
(b) 165,000 (which number of shares shall be subject to adjustment as set forth
below) PentaStar Shares (collectively the "Purchase Price"). The Purchase Price
will be adjusted in accordance with Section 2(m), and will be payable and
issuable to the Shareholders in accordance with the following percentages and
proportions:
<TABLE>
<CAPTION>
NUMBER OF COMPANY CASH REGULAR GUARANTEED TOTAL NUMBER OF
SHAREHOLDER SHARES OWNED CONSIDERATION SHARES SHARES PENTASTAR SHARES
- ----------- ------------ ------------- ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Dennis Schillinger 123,381.75 $ 200,000.00 100,000.00 20,000.00 120,000.00
Nicolas van Gelder 117,381.75 $ 508,669.58 14,730.30 3,682.70 18,413.10
Norma Douthit 82,254.50 $ 356,446.91 7,523.20 2,105.80 9,629.00
John Hall 82,254.50 $ 356,446.91 7,523.20 2,105.80 9,629.00
Charles Gibson 82,254.50 $ 356,446.91 7,523.20 2,105.80 9,629.00
Jeanette Murphy 12,342.00 $ 67,595.77 0.00 0.00 0.00
Rick Johnson 10,000.00 $ 54,768.89 0.00 0.00 0.00
Ed Peterson 4,131.00 $ 22,625.03 0.00 0.00 0.00
---------- ------------- ---------- --------- ----------
514,000.00 $1,923,000.00 137,299.90 30,000.10 167,300.10
</TABLE>
-3-
<PAGE> 8
The cash consideration payable set forth in the above table will be adjusted in
accordance with the foregoing clauses (a)(2) and (a)(3) in the first sentence of
Section 2(k). The Shareholders acknowledge and agree that the proportions in
which they will share the cash and PentaStar Shares payable and issuable to them
as part of the Purchase Price (as set forth immediately above) are different
from their relative percentage interests in the Company. The Shareholders hereby
agree to the proportions above and waive any right they may have to receive all
elements of the Purchase Price in proportion to their relative stock ownership
of the Company. On the Closing Date, the Surviving Corporation will (i) pay to
the Shareholders by wire transfer in immediately available funds to an account
or accounts designated by the Shareholders' Agent (in accordance with the
amounts set forth above) in cash the amount of the sum of (A) the cash portion
of the Purchase Price as set forth in the preceding clause (a) minus (B)
$500,000; (ii) issue 165,000 shares of PentaStar Common Stock to the
Shareholders (in such amounts as set forth above); and (iii) deposit $500,000 in
cash (the "Escrow Deposit") into an Escrow Account (as defined in the Escrow
Agreement the form of which is attached as Exhibit 2(k)(i)) with the Escrow
Agent; and (iv) pay, or make provision for payment of, the Closing Date
Liabilities set forth on the Estimated Closing Date Balance Sheet. The Escrow
Deposit will be held, invested, administered and disbursed according to this
Agreement and the Escrow Agreement. If the per share initial public offering
price of the PentaStar Common Stock in the IPO (the "Per Share IPO Price") is
less than $9 per share, then the aggregate number of PentaStar Shares to be
issued as part of the Purchase Price will instead be determined as follows:
X = Number of PentaStar Shares to be issued if the Per Share IPO Price
is less than $9 per share
Y = Per Share IPO Price
X = (135,000) + ($270,000/Y) (referred to as the "Guaranteed Shares")
If there is an adjustment in the Guaranteed Shares as provided pursuant to the
formula above, the Guaranteed Shares shall be distributed to the Shareholders in
the same proportion as the Shareholders own the Guaranteed Shares as set forth
above in this Section 2(k).
For example, if the Per Share IPO Price is $8 per share, then the aggregate
number of PentaStar Shares would be 168,750 rather than 165,000. The aggregate
number of PentaStar Shares would be computed as follows: (135,000) +
($270,000/8) (e.g. Guaranteed Shares), which equals 135,000 + 33,750 for a total
of 168,750 PentaStar Shares, consisting of 135,000 PentaStar Shares and 33,750
Guaranteed Shares. The 33,750 Guaranteed Shares would be distributed as follows:
(i) two thirds to Dennis Schillinger and (ii) one third to the Shareholders
(other than Dennis Schillinger) to be distributed between such Shareholders
(other than Dennis Schillinger) according to the ratio of PentaStar Shares each
Shareholder receives in the Merger to the total PentaStar Shares all
Shareholders (other than Dennis Schillinger) receive in the Merger, in each case
as described above.
If the Per Share IPO Price is more than $11 per share, then the aggregate number
of PentaStar Shares to be issued as part of the Purchase Price will instead be
determined as follows:
X = Number of PentaStar Shares if the Per Share IPO Price is more than
$11 per share
Y = Per Share IPO Price
X = (135,000) + ($330,000/Y)
-4-
<PAGE> 9
On the Closing Date, Schillinger will deposit 40,000 shares of PentaStar Common
Stock (out of the 120,000 shares he receives pursuant to the Merger) with
PentaStar, pursuant to the Principal Stockholder's Escrow and Contingent Stock
Agreement in the form attached as Exhibit 2(k)(ii) (the "Schillinger Escrow
Agreement"). The Schillinger Escrow Agreement provides that upon the occurrence
of certain conditions, Schillinger may receive a greater or lesser number of
PentaStar Shares than the number initially deposited with PentaStar pursuant to
the Schillinger Escrow Agreement. The parties agree that any adjustment in the
number of such shares will be treated as an adjustment to the Purchase Price.
(l) Closing Date Balance Sheet. Within 60 days after the
Closing Date, an audited balance sheet for the Company will be prepared as of
the Closing Date (the "Closing Date Balance Sheet") and delivered to PentaStar
and the Shareholders. The Closing Date Balance Sheet will be prepared by Arthur
Andersen LLP in accordance with GAAP on a basis consistent with the historical
accounting practices of the Company used in connection with the preparation of
the Company's audited balance sheet for the period ended December 31, 1998.
PentaStar will pay the fees and expenses of Arthur Andersen LLP incurred in
connection with the preparation of the Closing Date Balance Sheet. The Closing
Date Balance Sheet will set forth, in addition to other items required by GAAP,
the amount of (i) Cash on hand of the Company, (ii) the Closing Date Liabilities
and each item thereof and (iii) the Retained Liabilities described in clauses
(b), (c) and (d) of the definition of Retained Liabilities and each item
thereof.
(m) Post-Closing Adjustment to the Purchase Price. Following
delivery of the Closing Date Balance Sheet in accordance with Section 2(l), the
cash portion of the Purchase Price will be adjusted as follows:
(i) Within 20 days after receipt of the Closing Date
Balance Sheet, PentaStar or the Shareholders, as the case may be, will, in a
written notice to the other 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 PentaStar or the
Shareholders to object to the Closing Date Balance Sheet within such 20-day
period will be deemed to be an acceptance by such Person of the Closing Date
Balance Sheet.
(ii) If any adjustments to the Closing Date Balance
Sheet are proposed, PentaStar and the Shareholders will 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 described in Section
2(m)(i), PentaStar and the Shareholders will retain the Denver, Colorado office
of BDO Seidman to resolve such dispute, which resolution will be final and
binding. The fees and expenses of BDO Seidman will be shared equally by
PentaStar, on the one hand, and Shareholders, on the other hand, and BDO Seidman
will be retained under a retention letter executed by the parties that specifies
that the determination by said firm of any such disputes concerning the Closing
Date Balance Sheet will be resolved in accordance with GAAP on a basis
consistent with the historical accounting practices of the Company used in
connection with the preparation of the Company's audited balance sheet for the
period ended December 31, 1998, by choosing the position of Arthur Andersen LLP
or the objecting party under Section 2(m)(i) without change, within 30 days of
the expiration of the 10-day period described in this Section 2(m)(ii).
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<PAGE> 10
(iii) Within 10 Business Days after the later of the
acceptance of the Closing Date Balance Sheet by PentaStar and the Shareholders
or the resolution of any disputes under Section 2(m)(ii), as the case may be,
the cash portion of the Purchase Price will be adjusted as follows: First, to
the extent that the amount of the Closing Date Liabilities as set forth on the
Closing Date Balance Sheet is more than the amount of the Closing Date
Liabilities as set forth on the Estimated Closing Date Balance Sheet, the cash
portion of the Purchase Price will be reduced and the difference will be
refunded in cash by the Shareholders to PentaStar. If the amount of the Closing
Date Liabilities as set forth on the Closing Date Balance Sheet is less than the
amount of the Closing Date Liabilities as set forth on the Estimated Closing
Date Balance Sheet, the cash portion of the Purchase Price will be increased and
the difference will be paid in cash by PentaStar to the Shareholders in the
proportions set forth above under Section 2(k). If the amount of the Closing
Date Liabilities as set forth on the Closing Date Balance Sheet is equal to the
amount of the Closing Date Liabilities as set forth on the Estimated Closing
Date Balance Sheet, no adjustment will be made in the Purchase Price on account
of any Closing Date Liabilities. Second, in addition to the Purchase Price
adjustment described above in this Section 2(m)(iii), if the amount reflected as
Cash on the Closing Date Balance Sheet is less than the amount reflected as Cash
on the Estimated Closing Date Balance Sheet, the cash portion of the Purchase
Price will be reduced and the difference will be refunded in cash by the
Shareholders to PentaStar. If the amount reflected as Cash on the Closing Date
Balance Sheet exceeds the amount reflected as Cash on the Estimated Closing Date
Balance Sheet, the cash portion of the Purchase Price will be increased and the
difference will be paid in cash by PentaStar to the Shareholders in the
proportions set forth above under Section 2(k). If the amount reflected as Cash
on the Closing Date Balance Sheet is equal to the amount reflected as Cash on
the Estimated Closing Date Balance Sheet, no adjustment will be made to the
Purchase Price on account of any Cash. PentaStar will pay in cash to the
Shareholders, in the proportions set forth in Section 2(k), the amount of the
Purchase Price increase required under this Section 2(m)(iii), if any, within
the time period described in the first sentence of this Section 2(m)(iii). In
the event that the amounts reflected on the final Closing Date Balance Sheet
result in both a Purchase Price reduction and a Purchase Price increase under
this Section 2(m)(iii), the amounts of such reduction and increase will be
offset against each other and PentaStar or the Shareholders, as the case may be,
will make a payment to the other of the net amount of the adjustment to the
Purchase Price.
(iv) All amounts payable by the Shareholders to
PentaStar or any accounting firm under Section 2(m) will be paid as follows:
Each Shareholder will pay its pro rata share of such amount determined by
multiplying the total amount payable by a fraction, the numerator of which is
the number of Shares owned by such Shareholder immediately prior to the Closing,
and the denominator of which is total number of Shares; provided that, not
withstanding the foregoing, the Shareholders will, severally but not jointly, be
liable for any amounts payable to PentaStar under this Section 2(m). Any
adjustment in the Purchase Price made under this Section 2(m) will be allocated
as an adjustment to the consideration paid for the Company Shares.
(n) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Sherman &
Howard L.L.C. concurrently with the closing of the IPO. All transactions
contemplated by this Agreement will be effective at 12:00 a.m. local time in
Denver,
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<PAGE> 11
Colorado, on the day of the Closing (such effective time being the "Closing
Date").
(o) Deliveries at the Closing. At the Closing, (i) the
Shareholders will deliver to PentaStar the various certificates, instruments and
documents referred to in Section 6.1 and (ii) PentaStar will deliver to the
Shareholders the various certificates, instruments and documents referred to in
Section 6.2.
3. Representations and Warranties.
3.1. Representations and Warranties of the Company and the
Shareholders. The Company and the Shareholders each represent and warrant to
PentaStar that the statements contained in this Section 3.1 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were then
substituted for the date of this Agreement throughout this Section 3.1).
(a) Organization, Good Standing, Etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington, and is qualified and authorized to do business as a
foreign corporation and is in good standing in Oregon, which is the only
jurisdiction in which the nature of the business conducted by it or the
properties owned, leased or operated by it make such qualification necessary.
The Company has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
copies of the articles of incorporation (certified by the Secretary of State of
the State of Washington) 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)(A) and 3.1(a)(i)(B), respectively, are complete and correct,
and the Company is not in default under or in violation of any provision of its
articles of incorporation or bylaws. The minute books (which contain the records
of all meetings of or actions by the shareholders, the board of directors, and
any committees of the board of directors) and the stock certificate books and
the stock record books of the Company, copies of which have been delivered to
PentaStar by the Shareholders, are correct and complete.
(b) Ownership and Capitalization.
(i) The authorized capital stock of the Company
consists of 1,000,000 shares of common stock, no par value. Prior to the
Stock/LLC Exchange, each Shareholder owned, and immediately prior to the Closing
each Shareholder will own, beneficially and of record, free and clear of any
Encumbrance or Tax, the number of shares of the common stock, no par value, of
the Company (the "Company Shares") set forth opposite such Shareholder's name in
Section 2(k) above, and the Company Shares reflected in Section 2(k) constitute
all of the issued and outstanding capital stock of the Company. 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
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<PAGE> 12
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 Shares, except those
restrictions on transfer imposed by the Securities Act of 1993, as amended, 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. Exhibit 3.1(b)(ii) describes
Network Communication Integration, Inc., its relationship to the Company, the
business it conducts and the Company employees.
(c) Authority; No Violation. (i) Each Shareholder and each
relative or affiliate of the Company or of a Shareholder who is 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 will 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 will not
(A) violate any Legal Requirement to which the Company, any Shareholder, or any
relative or affiliate of the Company or of any Shareholder who is a party to any
Other Seller Agreement is subject or any provision of the articles of
incorporation or bylaws of the Company or of any such affiliate, or (B) 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
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<PAGE> 13
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 will be given and consents that will 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
audited balance sheets of the Company as of December 31, 1997 and December 31,
1998, the related statements of income, shareholders' equity and cash flows for
the fiscal years then ended, the unaudited balance sheet of the Company as of
June 30, 1999 (the latter being referred to as the "Latest Balance Sheet"), and
the related statements of income, shareholders' equity and cash flows for the
six-month period then ended have been prepared in accordance with GAAP on a
consistent basis (except that the Latest Balance Sheet and the related
statements of income, shareholders' equity and cash flows for the six-month
period ended June 30, 1999 may be subject to customary year-end adjustments,
none of which will be material in amount), are in accordance with the books and
records of the Company (which books and records are complete and correct in all
material respects), and, to the best knowledge of the Shareholders, fairly
present the financial position and results of operations of the Company in all
material respects as of such dates and for each of the periods indicated. As of
the date of each of such balance sheet, to the best knowledge of the
Shareholders, the Company had no Liability 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). To the
best knowledge of the Shareholders, the expenses itemized on Exhibit
3.1(d)(i)(B) and reflected in the Company's financial performance for the
12-month period ended December 31, 1998 will not be realized on an on-going
basis after the Closing.
(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. As of the Closing, the
Company will have no Liability (and there is no basis for the assertion of any
Liability), except for the Retained Liabilities. Notwithstanding anything to the
foregoing in this Section 3.1(d), the representations set forth in this Section
3.1(d) will not be qualified or deemed to be qualified as to the knowledge or
best knowledge with respect to Schillinger.
(e) Absence of Certain Agreements, Changes or Events. The
Company is not, except as set forth on Exhibit 3.1(e)(i), a party to or
otherwise bound by any material contract or agreement (i) pursuant to which the
Company is obligated to furnish any services, product or equipment and (ii) that
has been prepaid with respect to any period after the Closing Date. Since June
30, 1999, the Company has not (i) incurred any debt, indebtedness
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<PAGE> 14
or other Liability, except current Liabilities incurred in the ordinary course
of business; (ii) delayed or postponed the payment of accounts payable or other
Liabilities or accelerated the collection of any receivable beyond stated,
normal terms; (iii) sold or otherwise transferred any of its assets or
properties; (iv) except as disclosed in Exhibit 3.1(e)(iv), 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; (v) changed in any significant manner the way in which it conducts
its business; (vi) except as provided in Exhibit 3.1(e)(vi) made or granted any
individual wage or salary increase in excess of 10% or $1.00 per hour, as
applicable, any general wage or salary increase, or any additional benefits of
any kind or nature; (vii) except as otherwise expressly permitted by this
Section 3.1(e), (A) entered into any contracts or agreements, or made any
commitments, involving more than $5,000 individually or in the aggregate or (B)
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; (viii)
except for the cancellation or write down of accounts receivable in accordance
with its doubtful accounts as disclosed on Exhibit 3.1(e)(iv), suffered any
material adverse fact or change, including, without limitation, to or in its
business, assets or financial condition or customer or service provider
relationships; (ix) except for the payment to Nicolas van Gelder for the
purchase of 6,000 of his Company Shares pursuant to an agreement dated December
12, 1999 (a copy of which has been provided to PentaStar), made any payment or
transfer to or for the benefit of any shareholder, officer or director or any
relative or affiliate thereof or permitted any Person, including, without
limitation, any Shareholder, officer, director or employee or any relative or
affiliate thereof, to withdraw assets from the Company (other than payment to
the Shareholders of the proportionate monthly amount of their respective normal
annualized salaries due and payable during such period); (x) or agreed to incur,
take, enter into, make or permit any of the matters described in clauses (i)
through (ix).
(f) Tax Matters.
(i) The Company has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all material
respects. All material Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid. Except for the Company's 1998 federal income tax
return, the Company is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction where the Company does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Encumbrances on any of
the assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) To the best knowledge of the Shareholders, the
Company has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other third party.
(iii) To the best knowledge of the Shareholders,
there is no basis for any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no pending or threatened
dispute or claim concerning any Tax Liability of the
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<PAGE> 15
Company. Exhibit 3.1(f)(iii) lists all federal, state, local and foreign income
Tax Returns (except federal payroll Tax Returns) filed with respect to the
Company for taxable periods ended on or after December 31, 1992, 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, 1992.
(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 will 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) since the distribution of the
Company's Shares to the Shareholders in 1997 pursuant to Section 355 of the Code
and, to the best knowledge of the Shareholders, the Company 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:
(A) the basis of the Company in its assets; and (B) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax credit or excess charitable contribution allocable to the Company.
(g) Assets and Properties.
(i) The Company has good and marketable title to, or
a valid leasehold interest or interest as a licensee in, the properties and
assets used or held for use by it, located on its Premises, or shown on the
Latest Balance Sheet or acquired after the date thereof. Except as provided in
Exhibit 3.1(g)(i), as of the Closing, all of the Acquired Assets will be owned
by the Company, free and clear of all Encumbrances except for the Retained
Liabilities. Since June 30, 1999, 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
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<PAGE> 16
business and operations of the Company, consistent with historical and current
practices. The Company owns or leases all equipment and other tangible assets
necessary for the conduct of its business as presently conducted and as
presently proposed to be conducted. Each such tangible asset material to the
Company's 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 are on fair market
terms (including rent at fair market value). None of the Shareholders, nor any
relative or affiliate thereof, own any asset, tangible or intangible, which is
used in the business of the Company, other than real property leased to the
Company at fair market value which leases are disclosed in Schedule 3.1(h).
(ii) The Premises constitute all of the real
property, buildings and improvements used by the Company in its business. To the
best knowledge of the Shareholders, the Premises have been occupied, operated
and maintained by the Company 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:
(i) the following contracts and other agreements in
effect as of the Closing Date to which the Company is a party:
(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
will extend over a period of more than one year, result in a material loss to
the Company or involve consideration in excess of $10,000;
(D) any agreement in which the Company
participates in a partnership or joint venture;
(E) any agreement (or group of related
agreements) under which the
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<PAGE> 17
Company has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation in excess of $10,000 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 the
Shareholders 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;
(N) any other agreement (or group of related
agreements) the performance of which involves consideration in excess of $10,000
in any one year; or
(O) any agreement with Network
Communications Integration, Inc. ("NCI") or any affiliate thereof.
(ii) All material claims, deposits, causes of action,
choses in action, rights of recovery, rights of setoff and rights of recoupment
of the Company.
(iii) All material franchises, approvals, Permits,
licenses, Orders, registrations, certificates, variances and similar rights of
the Company (all of which are in full force and effect).
(iv) Each item of Intellectual Property owned by the
Company or which is used by the Company in its business and, in each case where
the Company is not the owner, the owner of the Intellectual Property.
(v) The name of each bank or other financial
institution or entity in which the Company has an account or safe deposit box
(with the identifying account number or symbol) and the
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<PAGE> 18
names of all persons authorized to draw thereon or to have access thereto.
The Shareholders have delivered to PentaStar a correct and complete
copy of each written agreement and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3.1(h)(i). With respect
to each such agreement, and except to the extent that such enforcement may be
limited by applicable bankruptcy, reorganization, insolvency and other laws of
general application affecting enforcement of creditors' rights generally: (A)
the agreement is legal, valid, binding, enforceable and in full force and
effect; (B) the agreement will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the consummation of
the transactions contemplated hereby; (C) neither the Company nor, to the best
knowledge of the Shareholders, any other party is in breach or default, and, to
the best knowledge of the Shareholders, no event has occurred which, with notice
or lapse of time, would constitute a breach or default, or permit termination,
modification or acceleration under the agreement; and (D) no party has
repudiated any provision of the agreement.
(i) Litigation; Compliance with Applicable Laws and Rights.
(i) There is no outstanding Order against, nor,
except as set forth on Exhibit 3.1(i)(i), is there any litigation, proceeding,
arbitration or investigation by any Governmental Authority or other Person
pending or, to the best knowledge of the Shareholders, threatened against, the
Company, its assets or its business or relating to the transactions contemplated
by this Agreement, nor is there any basis for any such action.
(ii) To the best knowledge of the Shareholders,
except as set forth on Exhibit 3.1(i)(ii), neither the Company nor the Company's
assets are in violation of any applicable Legal Requirement or Right. The
Company has not received notice from any Governmental Authority or other Person
of any violation or alleged violation of any Legal Requirement or Right, and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed or commenced or is pending or, to the best
knowledge of the Shareholders, threatened against, the Company alleging any such
violation.
(j) Notes and Accounts Receivable. Except as disclosed in
Exhibit 3(e)(iv), the notes and accounts receivable of the Company reflected on
its Latest Balance Sheet, and all notes and accounts receivable arising on or
prior to the Closing Date, arose and will arise from bona fide transactions by
the Company in the ordinary course of business and are valid receivables with
trade customers subject to no setoffs or counterclaims.
(k) Product Quality, Warranty and Liability. To the best
knowledge of the Shareholders, 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. Except as disclosed on Exhibit 3.1(k), no service or product sold,
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<PAGE> 19
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, to the best knowledge of the Shareholders, there is no basis for
any Liability arising out of any injury to a Person or property as a result of
the ownership, possession, provision or use of any service or product sold,
leased, provided or delivered by the Company on or prior to the Closing Date.
All product or service liability claims that have been asserted against the
Company since January 1, 1996, whether covered by insurance or not and whether
litigation has resulted or not, other than those listed and summarized on
Exhibit 3.1(i)(i), are listed and summarized on Exhibit 3.1(k).
(l) Insurance. The Company has policies of insurance (i)
covering risk of loss on the Acquired Assets, (ii) covering products and
services liability and liability for fire, property damage, personal injury and
workers' compensation coverage, and (iii) for business interruption, all, to the
best knowledge of the Shareholders, with responsible and financially sound
insurance carriers in adequate amounts and in compliance with governmental
requirements and in accordance with good industry practice. All such insurance
policies are valid, in full force and effect and enforceable in accordance with
their respective terms and no party has repudiated any provision thereof. All
such policies will remain in full force and effect until the Closing Date.
Neither the Company nor, to the best knowledge of the Shareholders, 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
will be paid on such policies through the Closing Date. The Company has been
covered since the inception of the Company 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 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"). As
of the Closing Date and for the preceding three years, neither the Company nor
any ERISA Affiliate has sponsored, maintained, contributed to, or has had any
obligation under any Employee Benefit Plan, other than the Company Welfare Plans
and the Company's Simple IRA Plan. Correct and complete copies of each Company
Welfare Plan have been delivered to PentaStar by the Shareholders.
(ii) Each Company Welfare Plan has been maintained
and administered in substantial compliance with its terms and with all
applicable Legal Requirements.
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<PAGE> 20
(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 (other than sales advances made in the ordinary course of
business), mortgages, relocation assistance or post-retirement insurance,
compensation or other benefits that: (A) is not an Employee Benefit Plan; (B) is
entered into, maintained or contributed to, by the Company; and (C) covers any
employee or former employee of the Company or any relative thereof. Such
contracts, plans and arrangements as are described in this Section 3.1(m)(iii),
are hereinafter referred to collectively as the "Benefit Arrangements." Copies
and descriptions (including descriptions of the number and employment
classifications of employees covered by each such Benefit Arrangement) have been
delivered by the Shareholders to PentaStar and attached hereto as part of
Exhibit 3.1(m)(iii). Each Benefit Arrangement has been maintained and
administered in substantial compliance with its terms and with the requirements
prescribed by any and all Legal Requirements that are applicable to each such
Benefit Arrangement.
(iv) No Company Welfare Plan is maintained in
connection with any trust described in Section 501(c)(9) of the Code.
(v) There have been no prohibited transactions with
respect to any Company Welfare 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 Company Welfare Plan. No action, suit, proceeding, hearing or
investigation with respect to the administration or the investment of the assets
of any Company Welfare Plan (other than routine claims for benefits) is pending
or, to the best knowledge of the Shareholders, is threatened. None of the
Shareholders has 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 will make the Company subject to any liability under
Title I of ERISA, excise Tax Liability under Code Section 4980B or has resulted
or will result in any loss of income exclusion for a participant under Code
Sections 105(h) or 106.
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<PAGE> 21
(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 Company
Welfare 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. Except as set forth on Exhibit
3.1(n), the Company has not received any notice, nor, to the best knowledge of
the Shareholders, is there any reason to believe that any executive or Key
Employee of the Company or any material group of employees of the Company has
any plans to terminate his, her or its employment with the Company. No executive
or Key Employee is subject to any agreement, obligation, Order or other legal
hindrance that impedes or might impede such executive or 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 will not be required to
give any notice under the Worker Adjustment and Retraining Notification Act, as
amended (29 U.S.C.A. Section 2101, et. seq.), or any similar Legal Requirement
as a result of this Agreement, the Other Seller Agreements or the transactions
contemplated hereby or thereby. To the best knowledge of the Shareholders, the
Company does not have any labor relations problems or disputes, nor has the
Company experienced any strikes, grievances, claims of unfair labor practices or
other collective bargaining disputes. The Company is not a party to or bound by
any collective bargaining agreement, there is no union or collective bargaining
unit at the Company's facilities, and no union organization effort has been
threatened, initiated or is in progress with respect to any employees of the
Company.
(o) Customer and Service Provider Relationships. Exhibit
3.1(o)(i)(A) lists each customer that individually or with its affiliates was,
based on the Company's revenues during the fiscal year ended December 31, 1998,
one of the Company's ten largest customers during such fiscal year or accounted
for 2% or more of the Company's revenues during such fiscal year (the "Principal
Customers"). Exhibit 3.1(o)(i)(B) lists each Person who is a service provider to
the customers 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, 1998, 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 threatened to take any such action;
provided, however, that US West, which accounts for nearly all of the Company's
revenue, is subject to a contract that terminates on December 31, 2000, a copy
of which is included in Exhibit 3.1(o)(i)(C) and pursuant to which there is no
right to extend ("US West Contract"). To the best knowledge of the Shareholders,
the Shareholders have no reasonable basis to anticipate any problems with the
Company's Principal Customer or Principal Provider relationships, subject to the
foregoing. To the best knowledge of the
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<PAGE> 22
Shareholders, 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 will
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; provided that
the Company obtains the consent of US West to the Transaction.
(p) Environmental Matters. To the best knowledge of the
Shareholders, 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). Except as provided in Exhibit 3.1(h), to the best knowledge of
the Shareholders, the continued operation of the business of the Company as
currently conducted will 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. The Company has not granted any license,
sublicense or permission with respect to any Intellectual Property owned or used
in the Company's business. No claims are pending or, to the best knowledge of
the Shareholders, threatened, that the Company is infringing or otherwise
adversely affecting the rights of any Person with regard to any Intellectual
Property. To the best knowledge of the Shareholders, all of the Intellectual
Property that is owned by the Company is owned free and clear of all
Encumbrances and was not misappropriated from any Person, and all portions of
the Intellectual Property that are licensed by the Company are licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss or material
diminution of any Intellectual Property or rights in Intellectual Property.
(r) Year 2000 Warranty. To the best knowledge of the
Shareholders, the computer software owned by the Company and all other
Intellectual Property used or held for use by the Company in its business
accurately processes 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 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
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<PAGE> 23
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 will not have as a result of the consummation of this
Agreement, any Liability to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
(t) Guaranties. The Company is not a guarantor or otherwise
liable for any Liability (including indebtedness for borrowed money) of any
other Person. Except as set forth on Exhibit 3.1(t), no Person is a guarantor or
otherwise liable for any Liability (including indebtedness for borrowed money)
of the Company.
(u) 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 Sections 3.1, 3.2 and 3.3 of this Agreement and the
disclosure Exhibits referred to therein, including the financial statements
referred to above in Section 3.1, contains any untrue statement of any material
fact or omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. To the best knowledge of the
Shareholders, there is no fact which materially adversely affects the business,
condition, affairs or operations of the Company or any of its properties or
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 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 of the Company and the Shareholders acknowledge and agree
that the fact that it or they have made disclosures pursuant to Section 3.1, 3.2
or 3.3 or otherwise of matters, or did not have knowledge of matters, which
result in Adverse Consequences to PentaStar or the Surviving Corporation shall
not relieve the Shareholders of their obligation pursuant to Article 7 to
indemnify and hold PentaStar harmless from all Adverse Consequences, to the
extent provided in this Agreement.
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<PAGE> 24
3.2. Additional Representations and Warranties of the Shareholders
Relating to Underwriting. Each Shareholder represents and warrants to PentaStar
that the statements contained in Exhibit 3.2 will be correct and complete as of
the Closing Date and may be relied upon by PentaStar in making related
representations and warranties to the underwriters of PentaStar's IPO.
3.3. Representations and Warranties of Each Shareholder. Each
Shareholder represents and warrants to PentaStar that the statements contained
in this Section 3.3 are correct and complete as of the date of this Agreement
and will 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 3.3).
(a) Investment Representations. (i) Such Shareholder is
acquiring the shares of PentaStar Common Stock to be issued to such Shareholder
pursuant to the Transaction (the "PentaStar Shares") for such Shareholder's own
account and not on behalf of any other Person; such 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) such
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 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 such Shareholder (and such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor") deems
necessary to enable such 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 draft dated August 13, 1999 of PentaStar's Registration Statement on SEC
Form SB-2 relating to the IPO (the "Registration Statement") and the other
information described on Exhibit 3.3(a)(ii); such 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 Registration
Statement, including, without limitation, the background and experience of the
current and proposed officers and directors of PentaStar, the plans for the
operations of the business of PentaStar, the business, operations and financial
condition of DMA Ventures, Inc. d/b/a Access Communications and any plans for
additional acquisitions, and all such questions, if any, have been answered to
the full satisfaction of such Shareholder (and such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor"); (iii) no
Person other than such Shareholder has (x) any rights in and to the PentaStar
Shares, which rights were obtained through or from such Shareholder; or (y) any
rights to acquire the PentaStar Shares, which rights were obtained through or
from such Shareholder; (iv) such Shareholder (or such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor") has such
knowledge and expertise in financial and business matters (including knowledge
and expertise
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<PAGE> 25
in the business and proposed business of PentaStar) that such 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 such Shareholder is financially able
to bear the economic risk of the investment in the PentaStar Shares, including a
total loss of such investment; (v) such Shareholder represents that it has
adequate means of providing for its current needs and has no need for liquidity
in its investment in the PentaStar Shares; such Shareholder has no reason to
anticipate any material change in its financial condition for the foreseeable
future; (vi) such 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 such Shareholder will realize any gain from this investment, and that such
Shareholder could lose the total amount of its investment; (vii) such
Shareholder understands that no United States federal or state agency has made
any finding or 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) such 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 such
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 such Shareholder
is not relying upon any information, other than from the results of independent
investigation by such Shareholder (or such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor"); and (x)
such Shareholder understands that the PentaStar Shares are being offered to such
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 such 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 such Shareholder to acquire the PentaStar Shares. Except as set forth on
Exhibit 3.3(a)(x) the Shareholder is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Securities Act. Exhibit 3.3(a)(x)
also sets forth each Shareholder's state of residency.
All the certificates representing PentaStar Shares shall bear the
following legend:
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
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<PAGE> 26
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.
3.4. Representations and Warranties of PentaStar. PentaStar represents
and warrants to the Shareholders that the statements contained in this Section
3.4 are correct and complete as of the date of this Agreement and will 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 3.4).
(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. 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 will when
executed and delivered constitute, the legal, valid and binding obligations of
PentaStar, and shall be enforceable in accordance with their respective terms
against PentaStar.
(b) Ownership and Capitalization.
(i) As of the date hereof, the authorized, issued and
outstanding shares of the capital stock of PentaStar are as set forth on Exhibit
3.4(b)(i). Upon the Closing, the authorized, issued and outstanding shares of
capital stock of PentaStar will be as set forth in the Prospectus included in
the Registration Statement at the time the Registration Statement is declared
effective by the SEC.
(ii) At the time of issuance thereof and delivery to
the Shareholders, the PentaStar Shares to be delivered to the Shareholders
pursuant to this Agreement will constitute valid, duly authorized and legally
issued shares of PentaStar's Common Stock, and will 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 such 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 will 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
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<PAGE> 27
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 which PentaStar
or any of its assets and properties is bound or subject. Except for notices and
consents that will be given or obtained by PentaStar prior to the Closing,
PentaStar does not need to give any notice to, make any filing with or obtain
any authorization, consent or approval of any Governmental Authority or other
Person in order for the parties to consummate the transactions contemplated by
this Agreement.
(d) At the time that the Registration Statement is declared
effective by the SEC, the Registration Statement and the Prospectus will not
contain any untrue statement of material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading.
3.5. Representations and Warranties of Acquiror. Acquiror represents
and warrants to the Company and the Shareholders that the statements contained
in this Section 3.5 are correct and complete as of the date of this Agreement
and will 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 3.5).
(a) Organization, Good Standing, Power, Etc. Acquiror is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. This Agreement and the transactions contemplated
hereby and thereby have been duly approved by all requisite corporate action of
Acquiror. Acquiror has full corporate power and authority to execute, deliver
and perform this Agreement, and this Agreement constitutes the legal, valid and
binding obligations of Acquiror, and shall be enforceable in accordance with its
terms against Acquiror. The copies of the articles of incorporation (certified
by the Secretary of State of Delaware), bylaws and minute book of Acquiror are
attached as Exhibit 3.5(a) are complete and correct and the Surviving
Corporation is not in default under or in violation of any provision of its
articles of incorporation or bylaws.
(b) Ownership and Capitalization.
(i) As of the date hereof, all of the authorized,
issued and outstanding shares of the capital stock of Acquiror are owned by
PentaStar.
(c) No Violation of Agreements, Etc. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby and thereby will not (i) violate any Legal Requirement to
which Acquiror is subject or any provision of the certificate of incorporation
or bylaws of Acquiror or (ii) violate, with or without the giving of notice or
the lapse of time or both, or conflict with or result in the breach or
termination of any provision of, or constitute a default under, or give any
Person the right to accelerate any obligation under, or result in the creation
of any Encumbrance upon any properties, assets or business of Acquiror pursuant
to any indenture, mortgage, deed of trust,
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<PAGE> 28
lien, lease, license, agreement, instrument or other arrangement to which
Acquiror is a party or which Acquiror or any of its assets and properties is
bound or subject. Except for notices and consents that will be given or obtained
by Acquiror prior to the Closing, Acquiror does not need to give any notice to,
make any filing with or obtain any authorization, consent or approval of any
Governmental Authority or other Person in order for the parties to consummate
the transactions contemplated by this Agreement.
3.6. Survival of Representations. The representations and warranties
contained in Sections 3.1, 3.2, 3.3 and 3.4 and the Liabilities of the parties
with respect thereto shall survive any investigation thereof by the parties and
shall survive the Closing for 30 months, except that the Liabilities of the
Shareholders with respect to the representations and warranties set forth in
Sections 3.1(a), 3.1(b), 3.1(c), 3.1(f), 3.1(m), 3.1(p), 3.2 and 3.3 and the
Liabilities of PentaStar with respect to the representations and warranties set
forth in Sections 3.4(a) and 3.4(b), shall survive without termination.
3.7. Representations as to Knowledge. The representations and
warranties contained in Article 3 hereof will in each and every case where an
exercise of discretion or a statement to the "best knowledge," "best of
knowledge" or "knowledge" is required on behalf of any party to this Agreement
be deemed to require that such exercise of discretion or statement be in good
faith after reasonable investigation (including, in the case of the
Shareholders, inquiry of the applicable employees of the Company), with due
diligence, to the best efforts of such party and be exercised always in a
reasonable manner and within reasonable times.
4. Pre-Closing Covenants. The parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
4.1. General. Each of the parties will use its reasonable best efforts
to take all actions necessary, proper or advisable in order to consummate and
make effective the transactions contemplated by this Agreement (including the
satisfaction, but not the waiver, of the closing conditions set forth in Section
6) and the other agreements contemplated hereby. Without limiting the foregoing,
the Shareholders will, and will cause the Company to, give any notices, make any
filings and obtain any consents, authorizations or approvals needed to
consummate the transactions contemplated by this Agreement.
4.2. Operation and Preservation of Business. The Shareholders will not
cause or permit the Company to engage in any practice, take any action or enter
into any transaction outside its ordinary course of business; provided, however,
that in no event will any action be taken or fail to be taken or any transaction
be entered into which would result in a breach of any representation, warranty
or covenant of the Company or any Shareholder. The Shareholders will cause the
Company to keep its business and properties, including its current operations,
physical facilities, working conditions and relationships with customers,
service providers, lessors, licensors and employees intact.
4.3. Full Access. The Shareholders will cause the Company to permit
PentaStar and its agents to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of the
Company, to all premises, properties, personnel, books, records (including Tax
records), contracts and documents of or pertaining to the Company.
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<PAGE> 29
4.4. Notice of Developments. The Shareholders will give prompt written
notice to PentaStar of any material development which occurs after the date of
this Agreement and before the Closing and affects the business, assets,
Liabilities, financial condition, operations, results of operations, future
prospects, representations, warranties, covenants or disclosure Exhibits of the
Company. No such written notice, however, will be deemed to amend or supplement
any disclosure Exhibit or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.
4.5. Exclusivity. No Shareholder will, and the Shareholders will not
cause or permit the Company to, (a) solicit, initiate or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any portion of the assets
of, the Company (including any acquisition structured as a merger, consolidation
or share exchange) or (b) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. No Shareholder will vote shares of the Company's stock in
favor of any such transaction. The Shareholders will notify PentaStar
immediately if any Person makes any proposal, offer, inquiry or contact with
respect to any of the foregoing.
4.6. Announcements. Prior to the Closing, no party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other parties.
4.7. Closing Date Liabilities. Effective as of immediately prior to the
Closing Date, the Shareholders, subject to the limitations on the maximum amount
payable by any Shareholder set forth in Section 7.1(a), hereby assume and agree
to pay, all Closing Date Liabilities in excess of the amounts set forth on the
Estimated Closing Date Balance Sheet without further action by the Shareholders,
the Company or any other Person.
4.8. License Agreement. On or before the Closing, the Company will
enter into the license agreement, in the form attached as Exhibit 4.8, with
International Communications Mgmt., Inc. providing for the use by the Company of
the name "ICM Communications Integration, Inc." and the logos currently used by
the Company as of the date of this Agreement (the form of which is reproduced in
Exhibit 4.8) (the "License Agreement").
4.9. Agreement with NCI. Prior to the Closing, the Company will enter
into the agreement with NCI for the provision of services by the Company to NCI
and NCI will deliver a promissory note evidencing its existing obligation to the
Company, such agreement and note to be in the form attached as Exhibit 4.9.
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
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necessary or desirable to carry out the purposes of this Agreement, each of the
parties will 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 will take any action at any time that
is designed or intended to have the effect of discouraging any customer,
supplier, lessor, licensor or other business associate of the Company from
establishing or continuing a business relationship with PentaStar after the
Closing except where such action is approved in writing by PentaStar.
5.3. Cooperation. In the event and for so long as any party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with (a) any
transaction contemplated by this Agreement or (b) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving any of the Acquired Assets or the Company's business, each of the
other parties will 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 will treat and hold as
confidential all Confidential Information concerning PentaStar, the Company's
business or the Acquired Assets, refrain from using any such Confidential
Information and deliver promptly to PentaStar or destroy, at the request and
option of PentaStar, all of such Confidential Information in its or their
possession.
5.5. Post-Closing Announcements. Following the Closing, no Shareholder
will 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 will, 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, all at the sole cost
and expense of PentaStar, but without additional consideration to the
Shareholders. The Shareholders acknowledge that PentaStar may be required by
applicable law to include audited financial statements with respect to the
business of the Company in reports filed with governmental agencies and that the
inability to audit the financial statements as of the Closing Date promptly
after the Closing could have a material adverse effect on PentaStar.
5.7. Satisfaction of Liabilities.
(a) Promptly following the Closing, the Shareholders, subject
to the limitations on the maximum amount payable by any Shareholder set forth in
Section 7.1(a), will assume
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Liability for, and pay, all Closing Date Liabilities in excess of the amounts
set forth on the Estimated Closing Date Balance Sheet or the Closing Date
Balance Sheet, as applicable, and any Taxes attributable to the transactions
contemplated by this Agreement.
(b) The Shareholders, at their expense, promptly will 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 will pay and perform, as and when due (except to
the extent the validity thereof or the Liability therefor is being contested by
PentaStar), the Retained Liabilities.
5.8. Repurchase of Unpaid Receivables. The Shareholders guarantee that
the Closing Accounts Receivables, net of any reserve established in accordance
with GAAP applied on a consistent basis on the Latest Balance Sheet, will be
fully paid to PentaStar in accordance with their terms at their recorded amounts
not later than 180 days from the Closing Date. Upon demand by PentaStar at any
time after 180 days from the Closing Date, each Shareholder shall pay to
PentaStar the full amount of any unpaid Closing Accounts Receivable which are
the subject of such demand, provided, however, that no Shareholder shall be
required to pay more than 150% of the Total Consideration Paid or Payable to
such Shareholder pursuant to 2(k). Upon such payment to PentaStar, 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. From the
Closing until 180 days after the Closing Date, PentaStar will apply its standard
accounts receivable collection procedures to the Closing Accounts Receivables;
provided, however, that PentaStar will 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
Receivables; and, provided further, that any failure of any collection
activities of PentaStar or any such collection agency or other agent will not
relieve the Shareholders from their guarantee of the Closing Accounts
Receivables as described in this Section 5.8. With respect to the foregoing, all
collections for Accounts Receivables shall be applied to the invoice to which
such collection relates; provided that if such invoice cannot be reasonably
identified by the Surviving Corporation, such collections will be applied on a
"first in, first out" or FIFO basis, with the specific exception that a payment
made by a customer will not be applied against the oldest outstanding invoice
for such customer if such invoice has been disputed by the customer.
5.9. Termination of Obligations. Effective as of the Closing Date,
neither the Company nor PentaStar shall 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, the Shareholders shall not have any Liability to the Company or
PentaStar, except as otherwise provided in this Agreement or in an Other Seller
Agreement.
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5.10. Transfer Restrictions. Unless otherwise agreed by PentaStar,
except for transfers to (a) immediate family members who agree to be bound by
the restrictions set forth in this Section 5.10 (and a copy of such agreement is
furnished to PentaStar prior to the transfer), (b) trusts, limited partnerships
or other estate planning entities for the benefit of a Shareholder or family
members of a Shareholder the trustees, partners or other persons having
authority to bind the trust, limited partnership or other estate planning entity
of which agree to be bound by such restrictions (and a copy of such agreement is
furnished to PentaStar prior to the transfer), or (c) any charitable
organization that qualifies for receipt of charitable contributions under
Section 170(c) of the Code and such organization agrees to be bound by such
restrictions, no Shareholder shall sell, assign, exchange, transfer, pledge, or
otherwise dispose at any time prior to the date which is 18 months after the
Closing of any shares of PentaStar Shares received by such Shareholder as part
of the Purchase Price. Thereafter, up to one-third of the PentaStar Shares
received at the Closing as part of the Purchase Price by such Shareholder (other
than Dennis Schillinger) may be resold at any time, an additional one-third of
the PentaStar Shares received at the Closing as part of the Purchase Price by
such Shareholder (other than Dennis Schillinger) may be resold by such
Shareholder beginning 24 months after the Closing and the remaining one-third
may be resold by such Shareholder (other than Dennis Schillinger) beginning 30
months after the Closing. Beginning 18 months after the Closing, Dennis
Schillinger may sell 33.33% of the PentaStar Shares received at the Closing as
part of the Purchase Price and beginning 24 months after the Closing, Dennis
Schillinger may sell an additional 16.67% of the PentaStar Shares received at
the Closing as part of the Purchase Price. The remaining PentaStar Shares
received by Dennis Schillinger, other than those subject to the Schillinger
Escrow Agreement, shall not be sold by Schillinger until the earlier of the
fifth anniversary of the Closing Date or the sale of all or substantially all of
the outstanding capital stock or assets of PentaStar. Certificates for the
PentaStar Shares delivered to the Shareholders pursuant to this Agreement will
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 DATED AS OF AUGUST 13, 1999 (THE "AGREEMENT"), BY AND AMONG
THE ISSUER AND OC MERGERCO 2, INC., ICM COMMUNICATIONS INTEGRATION, INC. AND THE
SHAREHOLDERS OF ICM COMMUNICATIONS INTEGRATION, INC. PRIOR TO THE EXPIRATION OF
THE HOLDING PERIOD 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 PLACED WITH THE TRANSFER AGENT) WHEN THE 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.
5.11. Underwriter and Securities Act Restrictions. The restrictions set
forth in Section 5.10 shall be in addition to any restrictions on transfer
imposed by the underwriters in connection with the IPO (not
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to exceed eighteen months after the Closing) and the Securities Act. The
Shareholders agree to comply with such additional restrictions.
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 and the Company's representations and
warranties shall be correct and complete at and as of the Closing Date and the
Closing and any written notices delivered to PentaStar pursuant to Section 4.5
and the subject matter thereof shall be satisfactory to PentaStar;
(b) the Shareholders and the Company shall have performed and
complied with all of their covenants hereunder through the Closing;
(c) the Shareholders and the Company shall have given, or
shall have caused the Company to give, all notices and procured, or shall have
caused the Company to procure, all of the third-party consents (including the
consent of US West), 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
unfavorable Order would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, or (iii) affect
adversely the right of the Acquiror to own the Company or the Acquired Assets
and conduct the Company's business, and no such Order shall be in effect;
(e) there shall have been no material adverse change in the
Company, the Acquired Assets or the Company's business between the date of
execution of this Agreement and the Closing;
(f) the LLC shall have been liquidated and dissolved;
(g) 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 (f) is satisfied in all respects, (ii) a certificate of
existence, 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, (iii) a certificate setting forth the amount of the Retained
Liabilities (other than the Retained Liabilities described in clause (a)
thereof) and (iv) a tax status letter, dated within 10 days of the Closing;
(h) the Other Seller Agreements shall have been executed and
delivered by the Shareholders, as applicable;
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(i) PentaStar shall have received from counsel to the
Shareholders an opinion in form and substance as set forth in Exhibit 6.1(i)
addressed to PentaStar dated as of the Closing;
(j) the Registration Statement shall have been declared
effective by the SEC and not be subject to any stop order proceeding and the
underwriters named therein shall have agreed to acquire and shall have acquired
PentaStar's common stock on a firm commitment basis on terms satisfactory to
PentaStar;
(k) PentaStar shall have received from the Shareholders or the
Company evidence of the termination of all Encumbrances filed against the
Acquired Assets;
(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 Company 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;
(o) the Shareholders and the Company 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; and
(p) Schillinger shall have entered into the Schillinger Escrow
Agreement; and
(q) the License Agreement shall be in full force and effect.
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;
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(b) PentaStar shall have performed and complied with all of
its covenants hereunder through the Closing Date;
(c) PentaStar shall have delivered to the Shareholders a
certificate to the effect that each of the conditions specified above in
Sections 6.2(a) and (b) is satisfied in all respects;
(d) the Other PentaStar Agreements shall have been executed
and delivered by PentaStar;
(e) 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 Registration Statement shall have been declared
effective by the SEC and not be subject to any stop order proceeding and the
underwriters named therein shall have agreed to acquire and shall have acquired
PentaStar's common stock on a firm commitment basis on terms satisfactory to
PentaStar; and
(g) PentaStar shall have paid and deposited the Purchase Price
pursuant to Section 2.
The Shareholders' Agent may waive any condition specified in this Section 6.2 at
or prior to the Closing.
7. Remedies for Breaches of This Agreement.
7.1. Indemnification Provisions for Benefit of PentaStar and the
Company.
(a) If any Shareholder breaches (or if any Person other than
PentaStar alleges facts that, if true, would mean any Shareholder has breached)
any of the representations or warranties of any Shareholder or the Company
contained herein and PentaStar gives notice thereof to the Shareholders' Agent
within the Survival Period, or if any Shareholder breaches any covenants of any
Shareholder or the Company 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, subject to
Section 7.6, each Shareholder agrees to indemnify and hold harmless PentaStar
and the Surviving Corporation from and against any Adverse Consequences
PentaStar or the Surviving Corporation 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, up to,
but in no event to exceed 150% of the Total Consideration Paid or Payable to
such Shareholder pursuant to Section 2(k). In determining for all purposes under
this Agreement (including this Section 7 and Section 8) whether there has been a
breach of any representation or warranty contained in Sections 3.1, 3.2 and 3.3
and in determining for purposes of the preceding sentence the amount of Adverse
Consequences suffered by
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PentaStar or the Surviving Corporation, such representations and warranties
shall not be qualified (other than by (A) the reference to "knowledge" set forth
in the last sentence of Section 3.1(o) and (B) the references to "material" set
forth in Section 3.1(u)) 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 Majority
Shareholder also agrees to indemnify and hold harmless PentaStar and the
Surviving Corporation from and against any Adverse Consequences PentaStar or the
Surviving Corporation may suffer up to, but in no event to exceed 150% of the
Total Consideration Paid or Payable to such Majority Shareholder pursuant to
Section 2(k), and each Minority Shareholder agrees to indemnify and hold
harmless PentaStar and the Surviving Corporation from and against any Adverse
Consequences PentaStar or the Surviving Corporation may suffer, but in no event
to exceed 100% of the Total Consideration Paid or Payable to such Minority
Shareholder pursuant to Section 2(k) 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 (other than Closing Date Liabilities in an
amount not exceeding the amount of the Closing Date Liabilities set forth on the
Estimated Closing Date Balance Sheet or the Closing Date Balance Sheet, as
applicable) 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 circumstance related to, the Company's, any Shareholder's or any
predecessor's ownership, use or operation of any of the Acquired Assets, the
Premises or any other assets or properties or the conduct of its or their
business, regardless, in the case of (i) or (ii), of (A) whether or not such
Liability, act, omission, event, circumstance or matter was known or disclosed
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. 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 will be resolved by arbitration pursuant to this Agreement.
Notwithstanding the foregoing, the Liability of the Shareholders to indemnify
PentaStar and the Surviving Corporation in the aggregate under this Section
7.1(a) shall not exceed the Total Consideration Paid or Payable to all of the
Shareholders pursuant to Section 2(k). The date of any notice of any claim for
indemnification given by PentaStar to the Shareholders' Agent shall be referred
to as a "Notice Date."
(b) Amounts needed to cover any indemnification claims
resolved in favor of PentaStar against any Shareholder during the Escrow Period
will be paid to PentaStar first out of the funds escrowed pursuant to the Escrow
Agreement, along with interest from the date of the Closing at the rate
applicable to the escrowed funds. Subject to Section 7.6 and the last sentence
of Section 7.1(a), each Shareholder shall have personal Liability for any
additional amounts needed to cover such claims, which amounts will be paid
directly to PentaStar,
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provided, however, that notwithstanding anything in this Agreement to the
contrary, the Liability of each Majority Shareholder under this Agreement shall
in no event exceed 150% of the Total Consideration Paid or Payable to such
Majority Shareholder pursuant to Section 2(k) and the Liability of each Minority
Shareholder shall in no event exceed 100% of the Total Consideration Paid or
Payable to such Minority Shareholder pursuant to Section 2(k). At the end of the
Escrow Period, amounts that may be needed to cover pending indemnification
claims made by PentaStar (such amounts to be determined by PentaStar based upon
the reasonable exercise of its business judgment) will be retained in the Escrow
Account until such claims are resolved, and any excess on deposit therein,
including any accrued interest, will be paid to the Shareholders. Nothing in
this Section 7.1(b) will be construed to limit PentaStar's or the Surviving
Corporation's right to indemnification to amounts on deposit in the Escrow
Account. PentaStar and the Shareholders' Agent shall jointly give instructions
to the Escrow Agent to carry out the intent of this Section 7.1(b). Any disputes
concerning the escrowed funds will be settled by arbitration as provided in this
Agreement. PentaStar, on the one hand, and the Shareholders jointly and
severally, on the other hand, shall each be responsible for one-half of the
fees, charges and expenses payable to the Escrow Agent pursuant to paragraph a.
of Article 2 of the Escrow Agreement and, except as otherwise determined
pursuant to Section 9.11 of this Agreement, one-half of any amounts payable
pursuant to paragraph b. of such Article 2.
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 any of its covenants contained herein or any of its
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 3.4 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, the
dispute will be resolved by arbitration pursuant to this Agreement.
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 will notify each Indemnifying
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<PAGE> 38
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 will
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 will 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 will 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 will 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 will 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 will 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 will 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 Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (iii) the Indemnifying Parties
will remain responsible for any Adverse Consequences the
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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 will have the right to offset any
Adverse Consequences it may suffer against any amounts payable 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.
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.
7.6. Basket. Notwithstanding anything to the contrary in this Section
7, the Shareholders will not have any obligation to indemnify PentaStar or the
Surviving Corporation from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by the breach of any
representation or warranty of the Shareholders or the Company set forth in
Section 3.1, 3.2 or 3.3 until PentaStar and the Surviving Corporation have
suffered Adverse Consequences by reason of any or of all such breaches in excess
of Ten Thousand Dollars ($10,000) in the aggregate, after which point the
Shareholders will be obligated to indemnify PentaStar and the Surviving
Corporation from and against the entirety of any such Adverse Consequences
exceeding Ten Thousand Dollars ($10,000).
8. Termination.
8.1. Termination of Agreement. The parties may terminate this Agreement
as provided below:
(a) PentaStar and the Shareholders' Agent may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(b) PentaStar may terminate this Agreement by giving written
notice to the Shareholders' Agent at any time prior to the Closing (i) in the
event any Shareholder has breached any representation, warranty or covenant
contained in this Agreement in any material way, PentaStar has notified the
Shareholders' Agent of the breach, and the breach has not been cured within 10
days after the notice of breach or (ii) if the Closing has not occurred on or
before January 31, 2000.
(c) the Shareholders' Agent may terminate this Agreement by
giving written notice to PentaStar at any time prior to the Closing (i) if
PentaStar has breached any representation, warranty or covenant contained in
this Agreement in any material way, the Shareholders' Agent has notified
PentaStar of the breach, and the breach has not been cured within 10 days after
the notice of breach or (ii) if the Closing has not occurred on or before
January 31, 2000).
8.2. Effect of Termination. Neither the Company, on the one hand, nor
PentaStar and the Acquiror, on the other hand, will have any liability or
obligation to the other upon termination of this Agreement for any reason
whatsoever, unless the termination is directly based on or arising from a
material breach of any representations, warranties or covenants
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contained in this Agreement of the Company and the Shareholders, on the one
hand, or PentaStar and the Acquiror, on the other hand, and such breach results
in, relates to or concerns an item, fact or circumstance that is materially
adverse to the Company, on the one hand, or PentaStar or the Acquiror, on the
other hand, as applicable. In the case of such a breach, the Company and the
Shareholders, on the one hand, or PentaStar and the Acquiror, on the other hand,
shall be entitled to seek all relief to which it or they are entitled under
applicable law from PentaStar and the Acquiror and the Company, as applicable,
but not from any Shareholder. Notwithstanding anything herein in this Agreement
to the contrary, no Shareholders shall have any liability to PentaStar or the
Acquiror upon the termination of this Agreement for any reason whatsoever.
8.3. Confidentiality. If this Agreement is terminated, each party will
treat and hold as confidential all Confidential Information concerning the other
parties which it acquired from such other parties in connection with this
Agreement and the transactions contemplated hereby.
9. Miscellaneous.
9.1. No Third-Party Beneficiaries. This Agreement will 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 will be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. No Shareholder may assign this Agreement or 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 law, 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 will be deemed the execution
of a counterpart of this Agreement. This Agreement may be delivered by facsimile
and facsimile signatures will be treated as original signatures for all
applicable purposes.
9.5. Headings and Terms. The section headings contained in this
Agreement are inserted for convenience only and will not affect in any way the
meaning or interpretation of this Agreement. Terms used with initial capital
letters will have the meanings specified, applicable to both singular and plural
forms, for all purposes of this Agreement. The singular or plural includes the
other, as the context requires or permits. The word "include" (and any
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variation) is used in an illustrative sense rather than a limiting sense.
9.6. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if it is sent by
registered or certified mail, return receipt requested, postage prepaid, or by
courier, telecopy or facsimile, and addressed to the intended recipient as set
forth below:
If to the
Shareholders: Copy to:
Addressed to the Peterson Russell Cofano, PLLC
Shareholders' Agent at: 870 Skyline Tower
ICM Communications Integration, Inc. 10900 NE 4th Street
4122 128th Avenue, S.E., Suite 300 Bellevue, Washington 98004-5873
Bellevue, Washington 98006 Attn: Pete Peterson
Attn: Dennis Schillinger Telecopy: (425) 451-0714
Telecopy: (425) 456-1301
If to PentaStar: Copy to:
PentaStar Communications, Inc. Sherman & Howard L.L.C.
1522 Blake Street 633 Seventeenth Street, Suite 3000
Denver, Colorado 80202 Denver, Colorado 80202
Attn: President Attn: B. Scott Pullara
Telecopy: (303) 620-9016 Telecopy: (303) 298-0940
Notices will 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 will 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, will 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 will be effective unless set forth in writing and signed by the party
against whom such waiver is asserted.
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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 will bear all costs and expenses (including,
without limitation, all legal, accounting and tax related fees and expenses, all
fees, commissions, expenses and other amounts payable to any broker, finder or
agent) incurred by the Company prior to the Closing or by any Shareholder either
before or after the date of this Agreement in connection with this Agreement or
the transactions contemplated hereby (collectively, "Seller Transaction
Expenses"); provided, however, that prior to the Closing Date the Company may
use any cash to pay Seller Transaction Expenses; and provided, further, that
PentaStar will pay the accounting fees and expenses necessary to prepare audited
financial statements of the Company with respect to any period prior to August
1, 1997 if PentaStar determines to have such an audit.
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, will be submitted to binding
arbitration in Denver, Colorado before the Judicial Arbiter Group, but under the
Commercial Arbitration Rules of the American Arbitration Association under the
authority of federal and state arbitration statutes, and shall not be the
subject of litigation in any forum. If the Judicial Arbiter Group is unavailable
to conduct the arbitration, then it shall be before another arbitral body in
Denver, Colorado selected by PentaStar and the Shareholder's 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
will be final and binding, and judgment on the award by the arbitrators may be
entered in any court of competent jurisdiction. THIS SUBMISSION AND AGREEMENT TO
ARBITRATE WILL BE SPECIFICALLY ENFORCEABLE. The prevailing party or parties in
any such arbitration or in any action to enforce this Agreement will be entitled
to recover, in addition to any other relief awarded by the arbitrator, all
reasonable costs and expenses, including fees and expenses of the arbitrators
-38-
<PAGE> 43
and attorneys, incurred in connection therewith. If each party prevails on
specific issues in the arbitration, the arbitrator may allocate the costs
incurred by all parties on a basis the arbitrator deems appropriate.
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 will be construed as
if drafted jointly by the parties and no presumption or burden of proof will
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The word "including" will mean including
without limitation. The parties intend that each representation, warranty and
covenant contained herein will 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 will not detract from or mitigate
the fact that the party is in breach of the first representation, warranty or
covenant.
9.13. Incorporation of Exhibits. The Exhibits identified in this
Agreement are incorporated herein by reference and made a part hereof.
9.14. Shareholders' Agent. Each Shareholder hereby authorizes and
appoints the Shareholders' Agent as its, his or her exclusive agent and
attorney-in-fact to act on behalf of each of them with respect to all matters
which are the subject of this Agreement, including, without limitation, (a)
receiving or giving all notices, instructions, other communications, consents or
agreements that may be necessary, required or given hereunder and (b) asserting,
settling, compromising, or defending, or determining not to assert, settle,
compromise or defend, (i) any claims which 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. The
Shareholders acknowledge and agree 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.
[THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY,
SIGNATURE PAGES FOLLOW]
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<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PENTASTAR:
PENTASTAR COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
----------------------------
Name: Craig J. Zoellner
----------------------------
Title: President
----------------------------
ACQUIROR:
OC MERGERCO 2, INC.
By: /s/ Craig J. Zoellner
----------------------------
Name: Craig J. Zoellner
----------------------------
Title: President
----------------------------
COMPANY:
ICM COMMUNICATIONS INTEGRATION, INC.
By: /s/ Dennis Schillinger
----------------------------
Name: Dennis Schillinger
----------------------------
Title: President
----------------------------
SHAREHOLDERS:
/s/ Dennis Schillinger
----------------------------
Dennis Schillinger
/s/ Nicolas van Gelder
----------------------------
Nicolas van Gelder
/s/ Norma Douthit
----------------------------
Norma Douthit
/s/ John Hall
----------------------------
John Hall
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
<PAGE> 45
/s/ Charles Gibson
----------------------------
Charles Gibson
/s/ Jeanette Murphy,
by Nicholas van Gelder
----------------------------
Jeanette Murphy, by Nicholas
van Gelder, her
attorney-in-fact
/s/ Rick Johnson
----------------------------
Rick Johnson
/s/ Ed Peterson
----------------------------
Ed Peterson
SPOUSES OF SHAREHOLDERS (NOT SHAREHOLDERS)
Monica Schillinger
- ----------------------------
Monica Schillinger
/s/ Kirstin van Gelder
- ----------------------------
Kirstin van Gelder
/s/ David T. Douthit
- ----------------------------
David T. Douthit
/s/ Judy Gibson
- ----------------------------
Judy Gibson
/s/ Dennis M. Baluseio, by Nicholas van Gelder
- ----------------------------------------------
Dennis M. Baluseio, by Nicholas van Gelder,
his power of attorney
/s/ Margaret Johnson
- ----------------------------
Margaret Johnson
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
<PAGE> 46
Exhibit 1.1(a)
DEFINED TERMS
Acquiror has the meaning given it in the preamble to this
Agreement.
Acquired Assets means all right, title and interest of the Company
in and to all of the tangible and intangible assets of the Company.
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.
Articles of Merger has the meaning given it in Section 2(g).
Benefit Arrangement has the meaning set forth in Section
3.1(m)(iii).
Business Day means any day on which commercial banks are open for
business in Denver, Colorado and Seattle, Washington.
Cash means cash, cash equivalents, and commissions for the most
recent Payment Period, which are undisputed and which were either customers'
orders submitted or customer installations completed during the Payment Period
and were payable pursuant to the US West Contract, but unpaid.
Cash Covered Accrued Commission Liability means accrued sales
commissions payable by the Company resulting from any sale by the Company prior
to the Closing Date, if and only to the extent that the Company has not received
payment prior to the Closing Date of the amount in respect of which such accrued
sales commission was earned.
Certificate of Merger has the meaning given it in Section 2(g).
Closing and Closing Date have the meanings given in Section 2(n).
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.
Closing Date Balance Sheet has the meaning given it in Section
2(l).
<PAGE> 47
Closing Date Liabilities means all Liabilities of the Company, but
excluding Retained Liabilities.
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning given it in the preamble to this
Agreement, except that for purposes of Sections 3.1, 3.2 and 3.3, 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.
Effective Time has the meaning given it in Section 2(g).
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 Dennis Schillinger 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. ss.6901 et seq.), as amended, and the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9601 et
seq.), as amended.
ERISA means the Employee Retirement Income Security Act of 1974,
as amended, and any regulations, rules or orders promulgated thereunder.
Exhibit 1.1(a) - 2
<PAGE> 48
ERISA Affiliate means any entity which is controlled by, or is
under common control with, the Company, as determined under ERISA Section
4001(a)(14).
Escrow Account means the account established pursuant to the
Escrow Agreement.
Escrow Agent means Norwest Bank Colorado, NA.
Escrow Agreement means the Escrow Agreement among PentaStar, the
Shareholders, the Shareholders' Agent and Norwest Bank Colorado, N.A. (the
"Escrow Agent") in the form of Exhibit 2(k)(i) with respect to the period
commencing on the Closing Date and ending on the first anniversary of the
Closing Date (the "Escrow Period").
Escrow Deposit has the meaning given it in Section 2(k).
Escrow Period has the meaning given it in the definition of Escrow
Agreement.
Estimated Closing Date Balance Sheet has the meaning given it in
Section 2(j).
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.
Guaranteed Shares is defined in Section 2(k) and refers to the
PentaStar Shares received in the Merger subject to adjustment under Section
2(k).
Hazardous Materials means any material, chemical, compound,
mixture, hazardous substance, hazardous waste, pollutant or contaminant defined,
listed, classified or regulated under any Environmental Obligation.
IPO means the initial public offering of PentaStar's Common Stock
pursuant to the Registration Statement.
Indemnified Party has the meaning given it in Section 7.3(a).
Indemnifying Party has the meaning given it in Section 7.3(a).
Intellectual Property means all trade, corporate, business and
product names, trademarks, trademark rights, service marks, copyrights, patents,
patent rights, trade secrets, business, customer and technical information, and
computer software, all registrations, licenses and applications pertaining
thereto, and all related documentation and goodwill.
Key Employee means an employee, other than an executive, whose
responsibilities are integral or material to the sustained operations of the
business or the implementation of the business plan.
Exhibit 1.1(a) - 3
<PAGE> 49
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.
License Agreement has the meaning given it in Section 4.8.
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).
LLC has the meaning given it in Recital A.
Majority Shareholder means a Shareholder owning more than three
percent (3%) of the issued and outstanding shares of the Company prior to the
Merger.
Merger has the meaning given it in Section 2.
Minority Shareholder means a Shareholder other than a Majority
Shareholder.
NASDAQ means the national automated quotation system maintained by
the National Association of Securities Dealers, Inc.
NCI has the meaning given it in Section 3.1(h)(i)(O).
Noncompetition Agreement means the Noncompetition Agreement among
PentaStar and the Shareholders (other than Schillinger) in the form of Exhibit
1.1(c).
Notice Date has the meaning given it in Section 7.1(a).
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
Escrow Agreement, the Noncompetition Agreement, the Schillinger Escrow Agreement
and the other documents and instruments to be executed and delivered by
PentaStar pursuant to this Agreement.
Other Seller Agreements means the Employment Agreement, the Escrow
Agreement, the Noncompetition Agreement, the Schillinger 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.
Payment Period means the calendar month prior to the month before
Closing.
Exhibit 1.1(a) - 4
<PAGE> 50
PentaStar has the meaning given it in the preamble to this
Agreement.
PentaStar Common Stock means the common stock of PentaStar.
PentaStar Shares has the meaning set forth in Section 3.3(a).
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.
Per Share IPO Price has the meaning given it in Section 2(k).
Person means an individual, partnership, corporation, association,
joint stock company, trust, joint venture, limited liability company,
unincorporated organization or Governmental Authority.
Premises means the real property, buildings and improvements
thereon constituting the business premises of the Company located at 4122
Factoria Boulevard, SE, Suite 300, 310, and Suite 400 (which is subleased to
NCI), Bellevue, Washington 98006 and 12300 SE Mallard Way, Suite 250, Milwaukie,
Oregon.
Principal Customer has the meaning given it in Section 3.1(o).
Principal Provider has the meaning given it in Section 3.1(o).
Prospectus means the final prospectus included as a part of the
Registration Statement at the time such Registration Statement is declared
effective by the SEC.
Purchase Price has the meaning given it in Section 2(k).
Purchaser Representative has the meaning given it in Section
3.3(a).
Purchaser Representative Documents has the meaning given it in
Section 3.3(a).
Registration Statement has the meaning given it in Section 3.3(a).
Retained Liabilities means (a) the obligations of the Company
arising after the Closing Date under those contracts which are identified by the
Company on Exhibit 1.1(d) with respect to the period after the Closing Date, (b)
trade payables incurred in the ordinary course of business which are not past
due based upon their normal, stated terms, (c) accrued liabilities incurred in
the ordinary course of business which are not past due based upon their normal,
stated terms (e.g., payroll and Simple IRA Plan), but excluding accrued bonus
(other than quarterly bonuses, payable in the ordinary course of business,
consistent with past practice), accrued profit sharing, accrued rent and accrued
Liabilities for Taxes (to the extent accrued Taxes payable exceed tax deposits,
other than personal property taxes assessed, but not payable, and with respect
to payroll taxes, only to the extent of payroll taxes due but not paid as of the
Closing Date) and (d) Cash Covered Accrued Commission Liabilities. Retained
Liabilities will not include any other Liability.
Exhibit 1.1(a) - 5
<PAGE> 51
Right means any right, property interest, concession, patent,
trademark, trade name, copyright, know-how or other proprietary right of another
Person.
SEC means the United States Securities and Exchange Commission.
Schillinger means Dennis Schillinger.
Schillinger Escrow Agreement means the Principal Stockholder's
Escrow and Contingent Stock Agreement between PentaStar and Dennis Schillinger
in the form of Exhibit 2(k)(ii).
Securities Act means the Securities Act of 1933, as amended.
Seller Transaction Expenses has the meaning given it in Section
9.10.
Shareholders has the meaning given it in the preamble to this
Agreement.
Shareholders' Agent means Dennis Schillinger (or the substituted
agent described in Section 9.14) acting as agent for the Shareholders pursuant
to Section 9.14.
Shares means all of the issued and outstanding capital stock of
the Company.
Simple IRA Plan means the Company's simple IRA plan.
Stock/LLC Exchange has the meaning given it in Recital A.
Subsidiary means, with respect to the Company, any corporation,
partnership, limited liability company or entity in which the Company has an
equity interest.
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 3.5.
Surviving Corporation has the meaning given it in the preamble to
this Agreement.
Tax means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, documentary,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated or other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
Third Party Claim has the meaning given it in Section 7.3(a).
Exhibit 1.1(a) - 6
<PAGE> 52
Third Party Product has the meaning given it in Section 3.1(r).
Total Consideration Paid or Payable means, with respect to any
Shareholder, the sum of (a) the amount of cash paid or payable to such
Shareholder under Section 2(k) and (b) the value of the PentaStar Shares paid or
payable to such Shareholder under Section 2(k). The value of such PentaStar
Shares will be determined as of the date that is 180 days after the Closing
Date, with respect to the Shareholders' obligation to pay the full amount of any
unpaid Closing Accounts Receivable under Section 5.8, or on the Notice Date with
respect to any claim for indemnification under Section 7.1(a) or 7.3 for which
notice is given by PentaStar, as applicable, with respect to the Shareholders'
Liability to pay such claim, as the case may be. The value of any PentaStar
Share under this Agreement will be the fair market value of a share of PentaStar
Common Stock as of any date of determination, as follows. If shares of PentaStar
Common Stock are not traded on any stock exchange within the United States or
listed or quoted on NASDAQ or any successor quotation system, the fair market
value of such share shall be the most recent value as reasonably determined by
the Board of Directors of PentaStar in good faith. If shares of PentaStar Common
Stock are so traded, listed or quoted, the fair market value of a share of such
shares will be (i) the closing price of a share of PentaStar Common Stock on the
principal exchange on which shares of PentaStar Common Stock are then trading,
if any (or as reported on any composite index which includes such principal
exchange), on the trading day previous to such date, or if shares were not
traded on the trading day previous to such date, then on the next preceding date
on which a trade occurred; or (ii) if PentaStar Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the PentaStar Common
Stock on the trading day previous to such date as reported by NASDAQ or such
successor quotation system.
Transaction has the meaning given it in Recital B.
US West means U.S. West Communications, Inc.
US West Contract has the meaning given it in 3.1(o).
Exhibit 1.1(a) - 7
<PAGE> 53
EXHIBIT 3.2
(a) The Company is a corporation duly organized and validly existing in
good standing under the laws of the jurisdiction of its organization, with full
corporate power and authority to own, lease, and operate its properties and to
conduct its business as described in the Prospectus. The Company is duly
qualified to do business and is in good standing in every jurisdiction in which
its ownership, leasing, licensing, or use of property and assets or the conduct
of its business makes such qualifications necessary.
(b) The financial statements of the Company included in the Registration
Statement and the Prospectus fairly present in all material respects with
respect to the Company the financial position, the results of operations, and
the other information purported to be shown therein at the respective dates and
for the respective periods to which they apply. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
except to the extent that certain footnote disclosures regarding any stub period
may have been omitted in accordance with the applicable rules of the Commission
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
consistently applied throughout the periods involved, are correct and complete
in all material respects, and are in accordance with the books and records of
the Company. There has at no time been a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company from the latest information set
forth in the Registration Statement or the Prospectus, except as may be properly
described in the Prospectus.
(c) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, or, to the knowledge
of the Company, threatened, or proposed with respect to the Company or any of
its operations, businesses, properties, or assets, except as may be properly
described in the Prospectus or such as individually or in the aggregate do not
now have and will not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company. The Company is not
in violation of, or in default with respect to, any law, rule, regulation,
order, judgment, or decree except as may be properly described in the Prospectus
or such as in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties, or assets of
the Company, nor is the Company required to take any action in order to avoid
any such violation or default.
(d) The Company has good and marketable title in fee simple absolute to all
real properties and good title to all other properties and assets which the
Prospectus indicates are owned by it, free and clear of all liens, security
interests, pledges, charges, encumbrances, and mortgages except as may be
properly described in the Prospectus or such as in the aggregate do not now have
and will not in the future have a material adverse effect upon the operations,
business, properties, or assets of the Company. No real property owned, leased,
licensed, or used by the Company lies in an area which is, or to the knowledge
of the Company will be, subject to zoning, use, or building code restrictions
which would prohibit, and no state of facts relating to the actions or inaction
of another person or entity or his or its ownership, leasing, licensing, or use
of any real or personal property exists which would prevent, the continued
effective ownership, leasing, licensing, or use of such real property in the
business of the Company as presently conducted or as the Prospectus indicates it
contemplates conducting, except as may be properly described in the Prospectus
or such as in
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<PAGE> 54
the aggregate do not now have and will not in the future have a material adverse
effect upon the operations, business, properties, or assets of the Company.
(e) Neither the Company nor any other party is now or is expected by the
Company to be in violation or breach of, or in default with respect to complying
with, any material provision of any contract, agreement, instrument, lease,
license, arrangement, or understanding which is material to the Company, and
each such contract, agreement, instrument, lease, license, arrangement, and
understanding is in full force and is the legal, valid, and binding obligation
of the parties thereto and is enforceable as to them in accordance with its
terms. The Company enjoys peaceful and undisturbed possession under all material
leases and licenses under which it is operating. The Company is not a party to
or bound by any contract, agreement, instrument, lease, license, arrangement, or
understanding, or subject to any charter or other restriction, which has had or
could reasonably be expected to have in the future a material adverse effect on
the financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company. The Company is not in violation
or breach of, or in default with respect to, any term of its Articles of
Incorporation (or other charter document) or by-laws.
(f) All patents, patent applications, trademarks, trademark applications,
trade names, service marks, copyrights, franchises, technology, know-how and
other intangible properties and assets that are material to the Company (all of
the foregoing being herein called "Intangibles") that the Company owns or has
pending, or under which it is licensed, are uncontested to the knowledge of the
Company. Except as otherwise disclosed in the Registration Statement, the
Intangibles are owned by the Company, free and clear of all liens, security
interests, pledges, and encumbrances. There is no right under any Intangible
necessary to the business of the Company as presently conducted or as the
Prospectus indicates it contemplates conducting (except as may be so designated
in the Prospectus). The Company has not infringed, is not infringing, and has
not received notice of infringement with respect to asserted Intangibles of
others, except for such infringements which in the aggregate would not result in
a material adverse effect on the Company. To the knowledge of the Company, there
is no infringement by others of Intangibles of the Company. To the knowledge of
the Company, there is no Intangible of others which has had or could reasonably
be expected in the future to have a materially adverse effect on the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of the Company.
(g) Neither the Company nor any director, officer, agent, employee, or
other person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended
by the International Anti-Bribery Act of 1998; or made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment. The Company has
not accepted any material advertising allowances or marketing allowances from
suppliers to the Company or, to the extent any advertising allowance has been
accepted, the Company has provided proper documentation to the supplier with
respect to advertising as to which the advertising allowance has been granted.
(h) The Company has not, directly or indirectly, (i) taken any action
designed to cause
-2-
<PAGE> 55
or to result in, or that has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation of the price of any security of
PentaStar to facilitate the sale or resale of shares ("Shares") of PentaStar's
common stock to be purchased by the underwriter as described in the Prospectus,
or (ii) since the filing of the Registration Statement, (A) sold, bid for,
purchased, or paid anyone any compensation for soliciting purchases of the
Shares, or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of PentaStar.
(i) The Company has not distributed written offering material in connection
with the offering and sale of the Shares to be purchased by the underwriter as
described in the Prospectus.
(j) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged. The Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect, except as described in or contemplated
by the Prospectus.
(k) The Company is not presently doing business with the government of Cuba
or with any person or affiliate located in Cuba.
(l) Except as disclosed in the Prospectus, and to the Company's best
knowledge after reasonable investigation, all hardware, firmware, software and
computer systems of the Company and, to the Company's knowledge, of respective
material vendors and suppliers of the Company, will be by the Closing Date, year
2000 Compliant (as defined below) and will continue to function in accordance
with their independent purpose without material error or material interruption
as a result of the transition to the year 2000, to the extent that data
submitted or processed is unambiguous and date specific, except for such errors
and interruptions which in the aggregate could not reasonably be expected to
have a material adverse effect on the Company. The Company will not incur any
additional material costs for the Company to become year 2000 Compliant. For
purposes of this paragraph, "year 2000 Compliant" means, with respect to the
Company or its respective material vendors and suppliers, that the hardware,
firmware, software and computer systems of each of the foregoing (i) will
completely and accurately address, produce, store and calculate data involving
dates before, on or after January 1, 2000 and will not produce abnormally ending
or incorrect results involving such dates as used in any forward or regression
dated based functions, and (ii) will provide that date related functionalities
and data fields include the indication of century and millennium and will
perform calculations that involve a four-digit year.
(m) Except as set forth in the Prospectus, there is no action, suit or
proceeding before any court, arbitration tribunal or governmental agency,
authority or body pending or, to the knowledge of the Company, threatened which
could reasonably be expected to result in judgments against the Company not
adequately covered by insurance or which collectively could reasonably be
expected to result in any material adverse change in the condition (financial or
otherwise), the business or the prospects of the Company or would materially
affect the properties or assets of the Company.
(n) Except as set forth in the Prospectus:
-3-
<PAGE> 56
i. The Company has obtained all permits, licenses and
other authorizations which are required under the Environmental
Laws for the ownership, use and operation of each location
operated or leased by the Company (the "Property"), all such
permits, licenses and authorizations, if any, obtained are in
effect, no appeal nor any other action is pending to revoke any
such permit, license or authorization, and the Company is in full
compliance with all terms and conditions of all such permits,
licenses and authorizations, if any, obtained by the Company.
ii. To the best knowledge of the Company's executive
officers, the Company and the Property are in compliance with all
Environmental Laws including, without limitation, all
restrictions, conditions, standards, limitations, prohibitions,
requirements, obligations, schedules and timetables contained in
the Environmental Laws or contained in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter
issued, entered, promulgated or approved thereunder.
iii. The Company has not, and to the best knowledge of the
Company's executive officers, no other person has, released,
placed, stored, buried or dumped any Hazardous Substances, Oils,
Pollutants or Contaminants or any other wastes produced by, or
resulting from, any business, commercial, or industrial
activities, operations, or processes, on, beneath, or adjacent to
the Property or any property formerly owned, operated or leased by
the Company except for inventories of such substances to be used,
and wastes generated therefrom, in the ordinary course of business
of the Company (which inventories and wastes, if any, were and are
stored or disposed of in accordance with applicable laws and
regulations and in a manner such that there has been no release of
any such substances into the environment).
iv. Except as provided to PentaStar in writing, there
exists no written or tangible report, synopsis or summary of any
asbestos, toxic waste or Hazardous Substances, Oils, Pollutants or
Contaminants investigation made with respect to all or any portion
of the assets of the Company (whether or not prepared by experts
and whether or not in the possession of the executive officers of
the Company).
v. Definitions: As used herein:
(1) Environmental Laws means all federal, state
and local laws, regulations, rules and ordinances relating
to pollution or protection of the environment, including,
without limitation, laws relating to Releases or
threatened Releases of Hazardous Substances, Oils,
Pollutants or Contaminants into the indoor or outdoor
environment (including, without limitation, ambient air,
surface water, groundwater, land, surface and subsurface
strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage,
Release, transport or handling of Hazardous Substances,
Oils, Pollutants or Contaminants.
-4-
<PAGE> 57
(2) Hazardous Substances, Oils, Pollutants or
Contaminants means all substances defined as such in the
National Oil and Hazardous Substances Pollutant
Contingency Plan, 40 C.F.R. ss.300.6, or defined as such
under any Environmental Law.
(3) Release means any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the
indoor or outdoor environmental (including, without
limitation, ambient air, surface water, groundwater, and
surface or subsurface strata) or into or out of any
property, including the movement of Hazardous Substances,
Oils, Pollutants or Contaminants through or in the air,
soil, surface water, groundwater or any property.
(o) The Company is not a party to any agreement giving rise to any
obligation by the Company or any subsidiary to pay any third party royalties or
fees of any kind whatsoever with respect to any technology developed, employed,
used or licensed by the Company or any subsidiary, other than as is disclosed in
the Prospectus.
(p) The issued and outstanding shares of common stock of the Company and
all other securities issued and sold or exchanged by the Company were not
required to be registered under any applicable state or federal securities laws
and regulations when issued and sold or exchanged and were issued and sold or
exchanged in compliance with applicable exemptions from registration under
federal and state securities laws.
-5-
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
PENTASTAR COMMUNICATIONS, INC.
The undersigned, _____________________, hereby certifies that:
ONE: He is the duly elected and acting President of PentaStar
Communications, Inc.
TWO: The corporation's original Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on March 15, 1999.
THREE: This Amended and Restated Certificate of Incorporation restates,
integrates and amends the corporation's Certificate of Incorporation filed on
March 15, 1999 and amended on August 13, 1999 and has been duly adopted in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware (the "DGCL").
FOUR: The text of the Amended and Restated Certificate of Incorporation
of this corporation is hereby amended and restated to read in its entirety as
follows:
ARTICLE I.
NAME
The name of this corporation is PENTASTAR COMMUNICATIONS, INC.
ARTICLE II.
REGISTERED OFFICER AND AGENT
The address of the registered office of the corporation in the State of
Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, New
Castle County, Delaware 19805. The name of its registered agent at such address
is Corporation Service Company.
ARTICLE III.
PURPOSES AND POWERS
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the DGCL.
<PAGE> 2
ARTICLE IV.
CAPITALIZATION
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Twenty One Million
(21,000,000) shares. Twenty Million (20,000,000) shares shall be Common Stock,
each having a par value of $.0001. One Million (1,000,000) shares shall be
Preferred Stock, each having a par value of $.0001.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
pursuant to the DGCL, to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each series and the qualifications,
limitations or restrictions of any wholly unissued series or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of any
series then outstanding. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V.
DIRECTORS
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
B. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "1933 Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the Closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
2
<PAGE> 3
Notwithstanding the foregoing provisions of this Article, each director
shall serve until such director's successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
C. Removal of Directors
1. Subject to the rights of the holders of any series of Preferred
Stock, neither the Board of Directors nor any individual director may be removed
without cause.
2. Subject to any limitation imposed by law, any individual
director or directors may be removed with cause by the holders of a majority of
the voting power of the corporation entitled to vote at an election of directors
(the "Voting Stock").
D. Vacancies
1. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
2. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
3
<PAGE> 4
ARTICLE VI.
BYLAWS
In furtherance and not in limitation of the powers conferred by statue,
the Board of Directors of the corporation is expressly authorized to make, alter
or repeal the bylaws of the corporation, but such authorization shall not divest
the stockholders of the power, nor limit their power, to make, alter or repeal
bylaws.
A. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
B. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
C. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
ARTICLE VII.
LIMITATION OF DIRECTORS' LIABILITY
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. Any repeal or modification of this VII shall be prospective and
shall not adversely affect any right or protection of a director under this
Article VII as in effect immediately prior to such repeal or modification with
respect to any liability that would have accrued, but for this Article VII,
prior to such repeal or modification.
ARTICLE VIII.
INDEMNIFICATION
The corporation shall, to the fullest extent permitted by Section 145
of the DGCL (or any successor section), as the same may be amended and
supplemented, indemnify any director or officer of the corporation, including
any director or officer of the corporation who was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any and all of
the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his
4
<PAGE> 5
official capacity and as to action in another capacity while holding such
office, shall continued as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors, and
administrators of such person. No amendment or repeal of this Article 8 shall
apply to or have any affect on any right to indemnification provided hereunder
with respect to any acts or omissions occurring prior to such amendment or
repeal.
ARTICLE IX.
RESERVATION OF POWER TO AMEND
The corporation reserves the right at any time and from time to time to
amend, alter, change or repeal any provision contained in this Amended and
Restated Certificate of Incorporation, as from time to time amended, in the
manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article 9.
ARTICLE X.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
The corporation shall have authority, to the fullest extent now or
hereafter permitted by the DGCL, or by any other applicable law, to enter into
any contract or transaction with one or more of its directors or officers, or
with any corporation, partnership, joint venture, trust, association or other
entity in which one or more of its directors or officers are directors or
officers or have a financial interest, notwithstanding such relationships and
notwithstanding the fact that the director or officer is present at or
participates in the meeting of the board of directors or committee thereof which
authorizes the contract or transaction.
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day
of __________, 1999 by the undersigned who affirms that the statements made
herein are true and correct.
-----------------------------------
-----------------------------------
5
<PAGE> 1
EXHIBIT 3.2
RESTATED
BYLAWS
OF
PENTASTAR COMMUNICATIONS, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - Offices...............................................................................................1
Section 1. Registered Office.............................................................................1
Section 2. Other Offices.................................................................................1
ARTICLE II - Corporate Seal.......................................................................................1
Section 3. Corporate Seal................................................................................1
ARTICLE III - Stockholders' Meetings..............................................................................1
Section 4. Place Of Meetings.............................................................................1
Section 5. Annual Meetings...............................................................................2
Section 6. Special Meetings..............................................................................4
Section 7. Notice Of Meetings............................................................................5
Section 8. Quorum........................................................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings..................................................6
Section 10. Voting Rights................................................................................6
Section 11. Joint Owners Of Stock .......................................................................6
Section 12. List Of Stockholders.........................................................................6
Section 13. Action Without Meeting.......................................................................7
Section 14. Organization.................................................................................7
ARTICLE IV - Directors............................................................................................8
Section 15. Number And Term Of Office....................................................................8
Section 16. Powers.......................................................................................8
Section 17. Classes of Directors.........................................................................8
Section 18. Vacancies....................................................................................9
Section 19. Resignation..................................................................................9
Section 20. Removal.....................................................................................10
Section 21. Meetings....................................................................................10
Section 22. Quorum And Voting...........................................................................11
Section 23. Action Without Meeting......................................................................11
Section 24. Fees And Compensation.......................................................................11
Section 25. Committees..................................................................................11
Section 26. Organization................................................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V - Officers.............................................................................................13
Section 27. Officers Designated.........................................................................13
Section 28. Tenure And Duties Of Officers...............................................................13
Section 29. Delegation Of Authority.....................................................................15
Section 30. Resignations................................................................................15
Section 31. Removal.....................................................................................15
ARTICLE VI - Execution Of Corporate Instruments And Voting Of Securities Owned By The Corporation................15
Section 32. Execution Of Corporate Instruments..........................................................15
Section 33. Voting Of Securities Owned By The Corporation...............................................16
ARTICLE VII - Shares Of Stock....................................................................................16
Section 34. Form And Execution Of Certificates..........................................................16
Section 35. Lost Certificates...........................................................................17
Section 36. Transfers...................................................................................17
Section 37. Fixing Record Dates.........................................................................17
Section 38. Registered Stockholders.....................................................................18
ARTICLE VIII - Other Securities Of The Corporation...............................................................18
Section 39. Execution Of Other Securities...............................................................18
ARTICLE IX - Dividends...........................................................................................19
Section 40. Declaration Of Dividends....................................................................19
Section 41. Dividend Reserve............................................................................19
ARTICLE X - Fiscal Year..........................................................................................19
Section 42. Fiscal Year.................................................................................19
ARTICLE XI - Indemnification.....................................................................................20
Section 43. Indemnification Of Directors, Executive Officers, Other Officers,
Employees And Other Agents..............................................................................20
ARTICLE XII - Notices............................................................................................23
Section 44. Notices.....................................................................................23
ARTICLE XIII - Amendments........................................................................................25
Section 45. Amendments..................................................................................25
ARTICLE XIV - Loans To Officers..................................................................................25
Section 46. Loans To Officers...........................................................................25
</TABLE>
ii
<PAGE> 4
RESTATED
BYLAWS
OF
PENTASTAR COMMUNICATIONS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
Section 2. Other Offices. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
Section 4. Place Of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
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<PAGE> 5
Section 5. Annual Meetings.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders:
(i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or
at the direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in the following paragraph, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each
2
<PAGE> 6
person whom the stockholder proposed to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-11
thereunder (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (B) as to any
other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (C) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number of
shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, and (iii) whether either such stockholder
or beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of the proposal, at least the percentage of the
corporation's voting shares required under applicable law to carry the proposal
or, in the case of a nomination or nominations, a sufficient number of holders
of the corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b) of
these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
3
<PAGE> 7
(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the
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purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
Section 7. Notice Of Meetings. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the
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election of directors) of the votes cast by the holders of shares of such class
or classes or series shall be the act of such class or classes or series.
Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
Section 11. Joint Owners Of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
Section 12. List Of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place
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where the meeting is to be held. The list shall be produced and kept at the time
and place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written consent has been given in accordance with
Section 228 of the Delaware General Corporation Law.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the Chief
Executive Officer, or, if the Chief Executive Officer is absent, a chairman of
the meeting chosen by a majority in interest of the stockholders entitled to
vote, present in person or by proxy, shall act as chairman. The Secretary, or,
in his absence, an Assistant Secretary directed to do so by the Chief Executive
Officer, shall act as secretary of the meeting.
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(b) The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
Directors
Section 15. Number And Term Of Office. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
Section 17. Classes of Directors. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
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Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 18. Vacancies.
(a) Unless otherwise provided in the Certificate of Incorporation, any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, except as otherwise provided by
law, be filled only by the affirmative vote of a majority of the directors then
in office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the director for which the vacancy was created
or occurred and until such director's successor shall have been elected and
qualified. A vacancy in the Board of Directors shall be deemed to exist under
this Bylaw in the case of the death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law.
Section 19. Resignation. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
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Section 20. Removal.
(a) Neither the Board of Directors nor any individual director may be
removed without cause.
(b) Subject to any limitation imposed by law, any individual director
or directors may be removed with cause by the affirmative vote of a majority of
the voting power of the corporation entitled to vote at an election of
directors.
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors shall
be held immediately before or after the annual meeting of stockholders and at
the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Unless otherwise restricted by the Certificate of
Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of Directors and publicized among all directors. No
formal notice shall be required for regular meetings of the Board of Directors.
(c) Special Meetings. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the Chief Executive Officer or any two of the directors.
(d) Telephone Meetings. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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(f) Waiver of Notice. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
Section 22. Quorum And Voting.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 24. Fees And Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers
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which may require it; but no such committee shall have the power or authority in
reference to (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the Delaware General Corporation Law to
be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) Other Committees. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall
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constitute a quorum for the transaction of business, and the act of a majority
of those present at any meeting at which a quorum is present shall be the act of
such committee.
Section 26. Organization. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the Chief Executive Officer (if a director), or if the Chief
Executive Officer is absent, the President, or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the Chief Executive Officer, shall act as
secretary of the meeting.
ARTICLE V
Officers
Section 27. Officers Designated. The officers of the corporation shall
be appointed or elected by vote of the Board of Directors. The officers shall
include a Chairman of the Board of Directors, a Chief Executive Officer, a
President and Chief Operating Officer, one or more Vice Presidents, a Secretary,
a Chief Financial Officer, a Treasurer and the Controller, all of whom shall be
elected at the annual organizational meeting of the Board of Directors. The
Board of Directors may also appoint one or more Assistant Secretaries, Assistant
Treasurers, Assistant Controllers and such other officers and agents with such
powers and duties as it shall deem necessary. The Board of Directors may assign
such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation at
any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the corporation shall be fixed by or in
the manner designated by the Board of Directors.
Section 28. Tenure And Duties Of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) Chairman of the Board of Directors. The Chairman of the Board of
Directors, when present, shall preside at all meetings of the stockholders and
the Board of Directors. The Chairman of the Board of Directors shall perform
other duties commonly incident to his office and shall also perform such other
duties and have such other powers, as the Board of Directors shall designate
from time to time. If there is no Chief Executive Officer, then the Chairman of
the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
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(c) Chief Executive Officer. The Chief Executive Officer shall be the
chief executive officer of the Corporation and, subject to the direction and
control of the Board of Directors, shall manage the business of the Corporation.
The Chief Executive Officer may execute contracts, deeds and other instruments
on behalf of the Corporation. In the absence of the chairman of the board or in
the event of his disability, inability or refusal to act, the Chief Executive
Officer shall perform the duties and exercise the power of the chairman of the
board. The Chief Executive Officer shall have full authority on behalf of the
Corporation to attend any meeting, give any waiver, cast any vote, grant any
discretionary or directed proxy to any person, and exercise any other rights of
ownership with respect to any shares of capital stock or other securities held
by the Corporation and issued by any other corporation or with respect to any
partnership, trust or similar interest held by the Corporation.
(d) President and Chief Operating Officer. The President and Chief
Operating Officer shall be the chief operating officer of the Corporation and,
subject to the direction and control of the Board of Directors and the Chief
Executive Officer, shall manage the day-to-day operations of the Corporation.
The President and Chief Operating Officer may execute contracts, deeds and other
instruments on behalf of the Corporation. The President and Chief Operating
Officer shall have full authority on behalf of the Corporation to attend any
meeting, give any waiver, cast any vote, grant any discretionary or directed
proxy to any person, and exercise any other rights of ownership with respect to
any shares of capital stock or other securities held by the Corporation and
issued by any other corporation or with respect to any partnership, trust or
similar interest held by the Corporation. The President and Chief Operating
Officer shall perform such other duties as the board, the Chairman of the Board,
or the Chief Executive Officer may from time to time prescribe or delegate to
him.
(e) Chief Financial Officer. The Chief Financial Officer shall be the
chief financial and accounting officer of the Corporation, subject to the
direction and control of the Board of Directors and the Chief Executive Officer.
The Chief Financial Officer may execute contracts, deeds and other instruments
on behalf of the Corporation. The Chief Financial Officer shall perform such
other duties as the board, the Chairman of the Board, or the Chief Executive
Officer may from time to time prescribe or delegate to him.
(f) Vice President. Each Vice President, if any, shall perform such
functions as may be prescribed by the Board of Directors or the Chief Executive
Officer. Each Vice President may execute contracts, deeds and other instruments
on behalf of the Corporation. Each Vice President shall have full authority on
behalf of the Corporation to attend any meeting, give any waiver, cast any vote,
grant any discretionary or directed proxy to any person, and exercise any other
rights of ownership with respect to any shares of capital stock or other
securities held by the Corporation and issued by any other corporation or with
respect to any partnership, trust or similar interest held by the Corporation.
Each Vice President shall perform such other duties as the Board of Directors,
the Chairman of the Board, or the Chief Executive Officer may from time to time
prescribe or delegate to him.
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(g) Secretary. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and, upon the request of a person entitled
to call a special meeting of the board of directors, he shall give notice of any
such special meeting. He shall keep the minutes of all meetings of the
stockholders, the board of directors, or any committee established by the Board
of Directors. The Secretary shall be responsible for the maintenance of all
records of the Corporation and may attest documents on behalf of the
Corporation. The Secretary shall perform such other duties as the Board of
Directors, the Chairman of the Board, or the Chief Executive Officer may from
time to time prescribe or delegate to him. Each Assistant Secretary shall have
all power and authority of the secretary unless otherwise determined by the
Board of Directors.
(h) Treasurer. The Treasurer shall be responsible for the control of
the funds of the Corporation and the custody of all securities owned by the
Corporation. The Treasurer shall perform such other duties as the Board of
Directors, the Chairman of the Board, or the Chief Executive Officer may from
time to time prescribe or delegate to him. Each assistant treasurer shall have
all power and authority of the treasurer unless otherwise determined by the
Board of Directors.
Section 29. Delegation Of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the Chief Executive Officer or to
the Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
Execution Of Corporate Instruments And
Voting Of Securities Owned By The Corporation
Section 32. Execution Of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on
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behalf of the corporation, except where otherwise provided by law or these
Bylaws, and such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 33. Voting Of Securities Owned By The Corporation. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
Shares Of Stock
Section 34. Form And Execution Of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the Chief
Executive Officer, the President or any Vice President and by the Treasurer or
Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the corporation. Any or all of the signatures
on the certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as otherwise
required by law, set forth on the face or back a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special
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rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
Section 35. Lost Certificates. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Delaware General Corporation Law.
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the corporation
may determine the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the
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resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. The Board of Directors
shall promptly, but in all events within ten (10) days after the date on which
such a request is received, adopt a resolution fixing the record date. If no
record date has been fixed by the Board of Directors within ten (10) days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 38. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
Other Securities Of The Corporation
Section 39. Execution Of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the Chief Executive Officer, the President or any Vice President, or
such other person as may be authorized by the Board of Directors, and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of
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the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
Dividends
Section 40. Declaration Of Dividends. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
Section 41. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
Fiscal Year
Section 42. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
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ARTICLE XI
Indemnification
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents.
(a) Directors and Executive Officers. The corporation shall indemnify
its directors and executive officers (for the purposes of this Article XI,
"executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law or any other applicable law; provided, however, that the
corporation may modify the extent of such indemnification by individual
contracts with its directors and executive officers; and, provided, further,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) Other Officers, Employees and Other Agents. The corporation shall
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law or any other applicable law. The
Board of Directors shall have the power to delegate the determination of whether
indemnification shall be given to any such person except executive officers to
such officers or other persons as the Board of Directors shall determine.
(c) Expenses. The corporation shall advance to any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the
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proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law or any other applicable law for the corporation
to indemnify the claimant for the amount claimed. In connection with any claim
by an executive officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such executive officer is or was a director of the corporation)
for advances, the corporation shall be entitled to raise a defense as to any
such action clear and convincing evidence that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law or any
other applicable law, nor an actual determination by the corporation (including
its Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct. In any suit brought by a director or executive officer to
enforce a right to indemnification or to an advancement of expenses hereunder,
the burden of proving that the director or executive officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) Non-Exclusivity of Rights. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting
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indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law, or by any other applicable law.
(f) Survival of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware General
Corporation Law or any other applicable law, the corporation, upon approval by
the Board of Directors, may purchase insurance on behalf of any person required
or permitted to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full to the full extent under any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position
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under the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
Notices
Section 44. Notices.
(a) Notice To Stockholders. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) Notice To Directors. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) Affidavit Of Mailing. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
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(d) Time Notices Deemed Given. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) Methods of Notice. It shall not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) Failure To Receive Notice. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) Notice To Person With Whom Communication Is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) Notice To Person With Undeliverable Address. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
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ARTICLE XIII
Amendments
Section 45. Amendments. Subject to the provisions of the Certificate of
Incorporation, these bylaws may be altered, amended or repealed at any regular
meeting of the stockholders (or at any special meeting thereof duly called for
that purpose), provided that in the notice of the special meeting, notice of
such purpose given. Subject to the laws of the State of Delaware, the
Certificate of Incorporation and the other provisions of these bylaws, the Board
of Directors may, by majority vote of the entire Board of Directors alter, amend
or repeal these bylaws, or enact such other bylaws as in their judgment may be
advisable for the regulation of the conduct of the affairs of the Corporation.
ARTICLE XIV
Loans To Officers
Section 46. Loans To Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty.
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EXHIBIT 4.2
THE REPRESENTATIVE'S WARRANTS EVIDENCED AND REPRESENTED BY THIS CERTIFICATE (THE
"REPRESENTATIVE'S WARRANTS") AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
(THE "WARRANT SHARES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND WITH THE SECURITIES ADMINISTRATORS OF CERTAIN STATES
UNDER THE SECURITIES ("BLUE SKY") LAWS OF SUCH STATES. HOWEVER, NEITHER THE
REPRESENTATIVE'S WARRANTS NOR SUCH WARRANT SHARES MAY BE SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO
SUCH REGISTRATION STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH
ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND UNDER THE
APPLICABLE BLUE SKY LAWS.
THIS REPRESENTATIVE'S WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
OTHERWISE PROVIDED HEREIN AND THE HOLDER OF THIS REPRESENTATIVE'S WARRANT, BY
ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS
REPRESENTATIVE'S WARRANT EXCEPT AS OTHERWISE PROVIDED HEREIN.
PENTASTAR COMMUNICATIONS, INC.
Representative's Warrant for the Purchase of Common Stock
No. UW-001 150,000 Representative's Warrants
THIS CERTIFIES that, for receipt in hand of $100 and other value
received, SCHNEIDER SECURITIES, INC. (the "Holder"), is entitled to subscribe
for and purchase from PENTASTAR COMMUNICATIONS, INC., a Delaware corporation
(the "Company"), upon the terms and conditions set forth herein, at any time, or
from time to time, after ______,1999, and before 5:00 p.m. Mountain time on
_______, 2004 (the "Exercise Period"), 150,000 shares of Common Stock (the
"Warrant Shares"), at a price of $______ per Warrant Share (the "Exercise
Price"), or 120% of the offering price of Common Stock to be sold by the Company
in a public offering (the "Public Offering") at or prior to the date hereof.
The term the "Holder" as used herein shall include any transferee to
whom this Representative's Warrant has been transferred in accordance with the
above. As used herein the term "this Representative's Warrant" shall mean and
include this Representative's Warrant and any Representative's Warrant or
Representative's Warrants hereafter issued as a consequence of the exercise or
transfer of this Representative's Warrant in whole or in part, and the term
"Common Stock" shall mean and include the Company's Common Stock with ordinary
voting power, which class at the date hereof is publicly traded.
1. This Representative's Warrant may not be sold, transferred,
assigned, pledged or hypothecated until ________, 2000 (12 months from the
Effective Date of the Registration Statement on which it is initially
registered) except that it may be transferred, in whole or in part, (i) to one
or more officers or partners of the Holder (or the officers or partners of any
such partner); (ii) to a member of the underwriting syndicate and/or its
officers or partners; or (iii) by operation of law. After _______, 2000, this
Representative's Warrant may be sold, transferred, assigned or hypothecated in
accordance with applicable law.
<PAGE> 2
2. a. This Representative's Warrant may be exercised during
the Exercise Period as to the whole or any lesser number of Warrant
Shares, by the surrender of this Representative's Warrant (with the
election attached hereto duly executed) to the Company at its office at
1522 Blake Street, Denver, Colorado, or such other place as is
designated in writing by the Company, together with a certified or bank
cashier's check payable to the order of the Company in an amount equal
to the Exercise Price multiplied by the number of Warrant Shares for
which this Representative's Warrant is being exercised.
b. Upon written request of the Holder, and in lieu of payment
for the Warrant Shares by check in accordance with paragraph 2(a)
hereof, the Holder may exercise the Representative's Warrant (or any
portion thereof) for and receive the number of Warrant Shares equal to
a fraction, the numerator of which equals (i) the amount by which the
Current Market Price of the Common Stock for the ten (10) trading days
preceding the date of exercise exceeds the Exercise Price per Share,
multiplied by (ii) the number of Warrant Shares to be purchased; the
denominator of which equals the Current Market Price.
c. For the purposes of any computation under this
Representative's Warrant, the "Current Market Price" at any date shall
be the closing price of the Common Stock on the business day next
preceding the event requiring an adjustment hereunder. If the principal
trading market for such securities is an exchange, the closing price
shall be the reported last sale price on such exchange on such day
provided if trading of such Common Stock is listed on any consolidated
tape, the closing price shall be the reported last sale price set forth
on such consolidated tape. If the principal trading market for such
securities is the over-the-counter market, the closing price shall be
the last reported sale price on such date as set forth by The Nasdaq
Stock Market, Inc., or, if the security is not quoted on such market,
the average of the closing bid and asked prices as set forth in the
National Quotation Bureau pink sheets or the Electronic Bulletin Board
System for such day. Notwithstanding the foregoing, if there is no
reported last sale price or average closing bid and asked prices, as
the case may be, on a date prior to the event requiring an adjustment
hereunder, then the current market price shall be determined as of the
latest date prior to such day for which such last sale price or average
closing bid and asked prices are available.
3. Upon each exercise of this Representative's Warrant, the Holder
shall be deemed to be the holder of record of the Warrant Shares issuable upon
such exercise, notwithstanding that the transfer books of the Company shall then
be closed or certificates representing such Warrant Shares shall not then have
been actually delivered to the Holder. As soon as practicable after each such
exercise of this Representative's Warrant, the Company shall issue and deliver
to the Holder a
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<PAGE> 3
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Representative's
Warrant should be exercised in part only, the Company shall, upon surrender of
this Representative's Warrant for cancellation, execute and deliver a new
Representative's Warrant evidencing the right of the Holder to purchase the
balance of the Warrant Shares (or portions thereof) subject to purchase
hereunder.
4. The Representative's Warrants shall be registered in a
Representative's Warrant Register as they are issued. The Company shall be
entitled to treat the registered holder of any Representative's Warrant on the
Representative's Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Representative's Warrant on the part of any other person. The
Representative's Warrants shall be transferable only on the books of the Company
upon delivery thereof duly endorsed by the Holder or by its duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Representative's
Warrant or Representative's Warrants to the person entitled thereto. The
Representative's Warrants may be exchanged, at the option of the Holder thereof,
for another Representative's Warrant, or other Representative's Warrants of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Warrant Shares (or portions thereof) upon
surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause the Representative's
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of the
Securities Act of 1933, as amended (the "Act"), or applicable state blue sky
laws and the rules and regulations thereunder.
5. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of this Representative's Warrant, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor. The Company covenants
that all Warrant Shares issuable upon exercise of this Representative's Warrant
shall be validly issued, fully paid, nonassessable, and free of preemptive
rights.
6. a. If the Company shall at any time subdivide its outstanding
Common Stock by recapitalization, reclassification or split-up thereof,
the number of Warrant Shares subject to this Representative's Warrant
immediately prior to such subdivision shall be proportionately
increased, and if the Company shall at any time combine the outstanding
Common Stock by recapitalization, reclassification or combination
thereof, the number of Warrant Shares subject to this Representative's
Warrant immediately prior to such
3
<PAGE> 4
combination shall be proportionately decreased. Any corresponding
adjustment to the Exercise Price shall become effective at the close of
business on the record date for such subdivision or combination.
b. If the Company after the date hereof shall distribute to
the holders of its Common Stock any securities or other assets (other
than a distribution of Common Stock or a cash distribution made as a
dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the jurisdiction of
incorporation of the Company), the Board of Directors shall be required
to make such equitable adjustment in the Exercise Price in effect
immediately prior to the record date of such distribution as may be
necessary to preserve the rights substantially proportionate to those
enjoyed hereunder by the Holder immediately prior to such distribution.
Any such adjustment made in good faith by the Board of Directors shall
be final and binding upon the Holder and shall become effective as of
the record date for such distribution.
c. No adjustment in the number of Warrant Shares subject to
this Representative's Warrant shall be required unless such adjustment
would require an increase or decrease in such number of Warrant Shares
of at least 1% of the then adjusted number of Warrant Shares issuable
upon exercise of this Representative's Warrant, provided, however, that
any adjustments which by reason of the foregoing are not required at
the time to be made shall be carried forward and taken into account and
included in determining the amount of any subsequent adjustment; and
provided further, however, that in case the Company shall at any time
subdivide or combine the outstanding Common Stock or issue any
additional Common Stock as a dividend, said percentage shall forthwith
be proportionately increased in the case of a combination or decreased
in the case of a subdivision or dividend of Common Stock so as to
appropriately reflect the same. If the Company shall make a record of
the holders of its Common Stock for the purpose of entitling them to
receive any dividend or distribution and legally abandon its plan to
pay or deliver such dividend or distribution then no adjustment in the
number of Warrant Shares subject to this Representative's Warrant shall
be required by reason of the making of such record.
d. Whenever the number of Warrant Shares purchasable upon the
exercise of this Representative's Warrant is adjusted as provided
herein, the Exercise Price shall be adjusted (to the nearest one tenth
of a cent) by respectively multiplying such Exercise Price immediately
prior to such adjustment by a fraction, the numerator of which shall be
the number of Warrant Shares purchasable upon the exercise of this
Representative's Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of Warrant Shares purchasable
immediately thereafter.
4
<PAGE> 5
e. In case of any reclassification of the outstanding Common
Stock (other than a change covered by (a) hereof or which solely
affects the par value of such Common Stock) or in the case of any
merger or consolidation of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any
reclassification or capital reorganization of the outstanding Common
Stock), or in the case of any sale or conveyance to another corporation
of the property of the Company as an entirety or substantially as an
entirety in connection with which the Company is dissolved, the Holder
of this Representative's Warrant shall have the right thereafter (until
the expiration of the right of exercise of this Representative's
Warrant) to receive upon the exercise hereof, for the same aggregate
Exercise Price payable hereunder immediately prior to such event, the
kind and amount of shares of stock or other securities or property
receivable upon such reclassification, capital reorganization, merger
or consolidation, or upon the dissolution following any sale or other
transfer, by a holder of the number of Warrant Shares obtainable upon
the exercise of this Representative's Warrant immediately prior to such
event; and if any reclassification also results in a change in Common
Stock covered by (a) above, then such adjustment shall be made pursuant
to both this paragraph (e) and paragraph (a). The provisions of this
paragraph (e) shall similarly apply to successive re- classifications,
or capital reorganizations, mergers or consolidations, sales or other
transfers.
If the Company after the date hereof shall issue or agree to
issue Common Stock, Options or Convertible Securities, other than as
described herein, and such issuance or agreement would in the opinion
of the Board of Directors of the Company materially affect the rights
of the Holders of the Representative's Warrants, the Exercise Price and
the number of Warrant Shares purchasable upon exercise of the
Representative's Warrants shall be adjusted in such matter, if any, and
at such time as the Board of Directors of the Company, in good faith,
may determine to be equitable in the circumstances. The minutes or
unanimous consent approving such action shall set forth the Board of
Director's determination as to whether an adjustment is warranted and
the manner of such adjustment. In the absence of such determination,
any Holder may request in writing that the Board of Directors make such
determination. Any such determination made in good faith by the Board
of Directors shall be final and binding upon the Holders. If the Board
fails, however, to make such determination within sixty (60) days after
such request, such failure shall be deemed a determination that an
adjustment is required.
f. i. Upon occurrence of each event requiring an
adjustment of the Exercise Price and of the number of Warrant
Shares purchasable upon exercise of this Representative's
Warrant in accordance with, and as required by, the terms
5
<PAGE> 6
hereof, the Company shall forthwith employ a firm of certified
public accountants (who may be the regular accountants for the
Company) who shall compute the adjusted Exercise Price and the
adjusted number of Warrant Shares purchasable at such adjusted
Exercise Price by reason of such event in accordance herewith.
The Company shall give to each Holder of the Representative's
Warrants a copy of such computation which shall be conclusive
and shall be binding upon such Holders unless contested by
Holders by written notice to the Company within thirty (30)
days after receipt thereof.
ii. In case the Company after the date hereof shall
propose (A) to pay any dividend payable in stock to the
holders of its Common Stock or to make any other distribution
(other than cash dividends) to the holders of its Common Stock
or to grant rights to subscribe to or purchase any additional
shares of any class or any other rights or options to holders
of its Common Stock, (B) to effect any reclassification
involving merely the subdivision or combination of outstanding
Common Stock, or (C) any capital reorganization or any
consolidation or merger, or any sale, transfer or other
disposition of its property, assets and business substantially
as an entirety, or the liquidation, dissolution or winding up
of the Company, then in each such case, the Company shall
obtain the computation described above and if an adjustment to
the Exercise Price is required, the Company shall notify the
Holders of the Representative's Warrants of such proposed
action, which shall specify the record date for any such
action or if no record date is established with respect
thereto, the date on which such action shall occur or
commence, or the date of participation therein by the holders
of Common Stock if any such date is to be fixed, and shall
also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action on
the Exercise Price and the number, or kind, or class of shares
or other securities or property obtainable upon exercise of
this Representative's Warrant after giving effect to any
adjustment which will be required as a result of such action.
Such notice shall be given at least twenty (20) days prior to
the record date for determining holders of the Common Stock
for purposes of any such action, and in the case of any action
for which a record date is not established then such notice
shall be mailed at least twenty (20) days prior to the taking
of such proposed action.
iii. Failure to file any certificate or notice or to
give any notice, or any defect in any certificate or notice,
shall not effect the legality or validity of the adjustment in
the Exercise Price or in the number, or kind, or class of
shares or other securities or property obtainable upon
exercise of the Representative's Warrants or of any
transaction giving rise thereto.
6
<PAGE> 7
g. The Company shall not be required to issue fractional
Warrant Shares upon any exercise of the Representative's Warrants. As
to any final fraction of a Share which the Holder of a Representative's
Warrant would otherwise be entitled to purchase upon such exercise, the
Company shall pay a cash adjustment in respect of such final fraction
in an amount equal to the same fraction of the market price of a share
of such stock on the business day preceding the day of exercise. The
Holder of a Representative's Warrant, by his acceptance of a
Representative's Warrant, expressly waives any right to receive any
fractional Warrant Shares.
h. Regardless of any adjustments pursuant to this section in
the Exercise Price or in the number, or kind, or class of shares or
other securities or other property obtainable upon exercise of a
Representative's Warrant, a Representative's Warrant may continue to
express the Exercise Price and the number of Warrant Shares obtainable
upon exercise at the same price and number of Warrant Shares as are
stated herein.
i. The number of Warrant Shares, the Exercise Price and all
other terms and provisions of the Company's agreement with the Holder
of this Representative's Warrant shall be determined exclusively
pursuant to the provisions hereof.
j. The above provisions of this section 6 shall similarly
apply to successive transactions which require adjustments.
k. Notwithstanding any other language to the contrary herein,
(i) the anti-dilution terms of this Representative's Warrant will not
be enforced so as to provide the Holder the right to receive, or for
the accrual of, cash dividends prior to the exercise of this
Representative's Warrant, and (ii) the anti-dilution terms of this
Representative's Warrant will not be enforced in such a manner as to
provide the Holder with disproportionate rights, privileges and
economic benefits not provided to purchasers of the Common Stock in the
Public Offering.
7. The issuance of any Warrant Shares or other securities upon the
exercise of this Representative's Warrant and the delivery of certificates or
other instruments representing such securities, or other securities, shall be
made without charge to the Holder for any tax or other charge in respect of such
issuance. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the Company shall not be
required to issue or deliver any such certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
8. a. If, at any time after ______, 1999 (the Effective Date
of the Registration
7
<PAGE> 8
Statement), and ending ______, 2006 (seven years after the Effective
Date of the Registration Statement), the Company shall file a
registration statement (other than on Form S-4, Form S-8, or any
successor form) with the Securities and Exchange Commission (the
"Commission") while Warrant Shares are available for purchase upon
exercise of this Representative's Warrant or while any Warrant Shares
(collectively, the Representative's Warrants and the underlying Warrant
Shares, the "Representative's Securities") are outstanding, the Company
shall, on two occasions only, give the Holder and all the then holders
of such Representative's Securities at least 30 days prior written
notice of the filing of such registration statement. If requested by
the Holder or by any such holder in writing within 20 days after
receipt of any such notice, the Company shall, at the Company's sole
expense (other than the fees and disbursements of counsel for the
Holder or such holder and the underwriting discounts, if any, payable
in respect of the securities sold by the Holder or any such holder),
register or qualify the Representative's Securities of the Holder or
any such holders who shall have made such request concurrently with the
registration of such other securities, all to the extent requisite to
permit the public offering and sale of the Representative's Securities
requested to be registered, and will use its best efforts through its
officers, directors, auditors and counsel to cause such registration
statement to become effective as promptly as practicable.
Notwithstanding the foregoing, if the managing underwriter of any such
offering shall advise the Company in writing that, in its opinion, the
distribution of all or a portion of the Representative's Securities
requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely
affect the distribution of such securities by the Company for its own
account, then the Holder or any such holder who shall have requested
registration of his or its Representative's Securities shall delay the
offering and sale of such Representative's Securities (or the portions
thereof so designated by such managing underwriter) for such period,
not to exceed 90 days, as the managing underwriter shall request,
provided that no such delay shall be required as to any
Representative's Securities if any securities of the Company are
included in such registration statement for the account of any person
other than the Company and the Holder unless the securities included in
such registration statement for such other person shall have been
reduced pro rata to the reduction of the Representative's Securities
which were requested to be included in such registration.
b. If at any time after _______, 1999 (the Effective Date of
the Registration Statement), and before _______, 2004 (five years after
the Effective Date of the Registration Statement), the Company shall
receive a written request from holders of Representative's Securities
who, in the aggregate, own (or upon exercise of all Representatives
Warrants will
8
<PAGE> 9
own) a majority of the total number of Warrant Shares, the Company
shall, as promptly as practicable, prepare and file with the Commission
a registration statement sufficient to permit the public offering and
sale of the Representative's Securities, and will use its best efforts
through its officers, directors, auditors and counsel to cause such
registration statement to become effective as promptly as practicable;
provided, however, that the Company shall only be obligated to file and
obtain effectiveness of one such registration statement for which all
expenses incurred in connection with such registration (other than the
fees and disbursements of counsel for the Holder or such holders and
underwriting discounts, if any, payable in respect of the
Representative's Securities sold by the Holder or any such holder)
shall be borne by the Company.
c. In the event of a registration pursuant to the provisions
of this paragraph 8, the Company shall use its best efforts to cause
the Representative's Securities so registered to be registered or
qualified for sale under the securities or blue sky laws of such
jurisdictions as the Holder or such holders may reasonably request;
provided, however, that the Company shall not be required to qualify to
do business in any state by reason of this paragraph 8(c) in which it
is not otherwise required to qualify to do business and provided
further, that the Company has no obligation to qualify the
Representative's Securities where such qualification would cause any
unreasonable delay or expenditure by the Company.
d. The Company shall keep effective any registration or
qualification contemplated by this paragraph 8 and shall from time to
time amend or supplement each applicable registration statement,
preliminary prospectus, final prospectus, application, document and
communication for such period of time as shall be required to permit
the Holder or such holders to complete the offer and sale of the
Representative's Securities covered thereby. The Company shall in no
event be required to keep any such registration or qualification in
effect for a period in excess of nine months from the date on which the
Holder and such holders are first free to sell such Representative's
Securities; provided, however, that if the Company is required to keep
any such registration or qualification in effect with respect to
securities other than the Representative's Securities beyond such
period, the Company shall keep such registration or qualification in
effect as it relates to the Representative's Securities for so long as
such registration or qualification remains or is required to remain in
effect in respect of such other securities.
e. In the event of a registration pursuant to the provisions
of this paragraph 8, the Company shall furnish to the Holder and to
each such holder such reasonable number of own) a majority of the total
number of Warrant Shares, the Company shall, as promptly as
practicable, prepare and file with the Commission a registration
statement sufficient to permit copies of the registration statement and
of each amendment and supplement thereto (in each case, including all
exhibits), such reasonable number of copies of each prospectus
contained in such registration statement and each supplement or
amendment thereto
9
<PAGE> 10
(including each preliminary prospectus), all of which shall conform to
the requirements of the Act and the rules and regulations thereunder,
and such other documents as the Holder or such holders may reasonably
request in order to facilitate the disposition of the Representative's
Securities included in such registration.
f. In the event of a registration pursuant to the provisions
of this paragraph 8, the Company shall furnish the Holder and each
holder of any Representative's Securities so registered with an opinion
of its counsel to the effect that (i) the registration statement has
become effective under the Act and no order suspending the
effectiveness of the registration statement, preventing or suspending
the use of the registration statement, any preliminary prospectus, any
final prospectus, or any amendment or supplement thereto has been
issued, nor to such counsel's actual knowledge has the Securities and
Exchange Commission or any securities or blue sky authority of any
jurisdiction instituted or threatened to institute any proceedings with
respect to such an order and (ii) the registration statement and each
prospectus forming a part thereof (including each preliminary
prospectus), and any amendment or supplement thereto, complies as to
form with the Act and the rules and regulations thereunder. Such
counsel shall also provide a Blue Sky Memorandum setting forth the
jurisdictions in which the Representative's Securities have been
registered or qualified for sale pursuant to the provisions of
paragraph 8(c).
g. The Company agrees that until all the Representative's
Securities have been sold under a registration statement or pursuant to
Rule 144 under the Act, it shall keep current in filing all reports,
statements and other materials required to be filed with the Commission
to permit holders of the Representative's Securities to sell such
securities under Rule 144.
h. The Holder and any holders who propose to register their
Representative's Securities under the Act shall execute and deliver to
the Company a selling stockholder questionnaire on a form to be
provided by the Company.
i. The Company shall not be required by the terms hereof to
file a Registration Statement if, in the opinion of counsel to the
holders of the Representative's Warrants and Warrant Shares and counsel
for the Company (or, should they not agree, in the opinion of another
counsel experienced in securities law matters acceptable to counsel for
the holders of Representative's Warrants and Warrant Shares and the
Company), the proposed public offering or other transfer as to which
such Registration Statement is requested to be filed is exempt from
applicable federal and state securities laws, rules, regulations and
would result in unaffiliated purchasers or transferees obtaining
securities that are not "restricted securities" as that term is defined
in Rule 144 under the Act.
9. a. Subject to the conditions set forth below, the Company
agrees to indemnify
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<PAGE> 11
and hold harmless the Holder, any holder of any of the Representative's
Securities, their officers, directors, partners, employees, agents and
counsel, and each person, if any, who controls any such person within
the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), from and against
any and all loss, liability, charge, claim, damage and expense
whatsoever (which shall include, for all purposes of this Section 9,
but not be limited to, attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as
and when incurred, arising out of, based upon, or in connection with
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any registration statement, preliminary prospectus or
final prospectus (as from time to time amended and supplemented), or
any amendment or supplement thereto, or (B) in any application or other
document or communication (in this Section 9 collectively called an
"application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify any of the
Representative's Securities under the securities or blue sky laws
thereof or filed with the Commission or any securities exchange; or any
omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company
with respect to the Holder or any holder of any of the Representative's
Securities by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final
prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any
representation, warranty, covenant or agreement of the Company
contained in this Representative's Warrant. The foregoing agreement to
indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this
Representative's Warrant.
If any action is brought against the Holder or any holder of
any of the Representative's Securities or any of its officers,
directors, partners, employees, agents or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which
indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the
Company in writing of the institution of such action (but the failure
so to notify shall not relieve the Company from any liability it may
otherwise have to Holder or any holder of any of the Representative's
Securities) and the Company shall promptly assume the defense of such
action, including
11
<PAGE> 12
the employment of counsel (reasonably satisfactory to such indemnified
party or parties) and payment of expenses. Such indemnified party or
parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties unless the employment of
such counsel shall have been authorized in writing by the Company in
connection with the defense of such action or the Company shall not
have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such
action or such indemnified party or parties shall have reasonably
concluded that there may be one or more legal defenses available to it
or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events
such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf
of the indemnified party or parties. Anything in this paragraph to the
contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written
consent.
b. The Holder and each holder agrees to indemnify and hold
harmless the Company, each director of the Company, each officer of the
Company who shall have signed any registration statement covering the
Representative's Securities held by the Holder and each holder and each
other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to the Holder and
each holder in paragraph 9(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any
application, in reliance upon and in conformity with written
information furnished to the Company with respect to the Holder and
each holder by or on behalf of the Holder and each holder expressly for
inclusion in any such registration statement, preliminary prospectus,
or final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be. If any action shall be brought against
the Company or any other person so indemnified based on any such
registration statement, preliminary prospectus, or final prospectus, or
any amendment or supplement thereto, or in any application, and in
respect of which indemnity may be sought against the Holder and each
holder pursuant to this paragraph 9(b), the Holder and each holder
shall have the rights and duties given to the Company, and the Company
and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of paragraph 9(a).
c. To provide for just and equitable contribution, if (i) an
indemnified party
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<PAGE> 13
makes a claim for indemnification pursuant to paragraph 9(a) or 9(b)
(subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii)
any indemnified or indemnifying party seeks contribution under the Act,
the Exchange Act or otherwise because the indemnification provided for
in this Section 9 is for any reason held to be unenforceable by the
Company and the Holder and any holder, then the Company (including for
this purpose any contribution made by or on behalf of any director of
the Company, any officer of the Company who signed any such
registration statement and any controlling person of the Company), as
one entity, and the Holder and any holder of any of the
Representative's Securities included in such registration in the
aggregate (including for this purpose any contribution by or on behalf
of the Holder or any holder), as a second entity, shall contribute to
the losses, liabilities, claims, damages and expenses whatsoever to
which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of the Company and the Holder
or any such holder in connection with the facts which resulted in such
losses, liabilities, claims, damages and expenses. The relative fault,
in the case of an untrue statement, alleged untrue statement, omission
or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission or alleged omission
relates to information supplied by the Company, by the Holder or by any
holder of Representative's Securities included in such registration,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Holder agree that it
would be unjust and inequitable if the respective obligations of the
Company and the Holder for contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims,
damages and expenses (even if the Holder and the other indemnified
parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations
referred to in this paragraph 9(c). No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this paragraph 9(c),
each person, if any, who controls the Holder or any holder of any of
the Representative's Securities within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee, agent and counsel of each such person, shall have
the same rights to contribution as such person and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who
shall have signed
13
<PAGE> 14
any such registration statement, and each director of the Company shall
have the same rights to contribution as the Company, subject in each
case to the provisions of this paragraph 9(c). Anything in this
paragraph 9(c) to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This paragraph 9(c) is
intended to supersede any right to contribution under the Act, the
Exchange Act or otherwise.
10. Unless the Representative's Securities have been registered or an
exemption from such registration is available, the Warrant Shares issued upon
exercise of the Representative's Warrants shall be subject to a stop transfer
order and the certificate or certificates evidencing any such Warrant Shares
shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, NOR HAVE THEY BEEN REGISTERED UNDER THE SECURITIES ("BLUE SKY")
LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND UNDER THE APPLICABLE STATE SECURITIES
("BLUE SKY") LAWS OR UNLESS THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND LAWS IS ESTABLISHED TO THE SATISFACTION
OF THE COMPANY, WHICH MAY NECESSITATE A WRITTEN OPINION OF SELLER'S
COUNSEL SATISFACTORY TO COMPANY COUNSEL.
11. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Representative's Warrant (and upon
surrender of any Representative's Warrant if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Representative's Warrant of like date, tenor
and denomination.
12. The Holder of any Representative's Warrant shall not have, solely
on account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Representative's Warrant.
13. This Representative's Warrant shall be construed in accordance with
the laws of the State of Colorado, without giving effect to conflict of laws.
Dated: _____, 1999
PENTASTAR COMMUNICATIONS, INC.
By:
------------------------------------------
[SEAL] Robert S. Lazzeri, Chief Executive Officer
14
<PAGE> 15
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Representative's Warrant.)
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________ Representative's Warrants to
purchase __________ shares of Common Stock of PentaStar Communications, Inc.
(the "Company"), together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ____________________________ attorney
to transfer such Representative's Warrants on the books of the Company, with
full power of substitution.
Dated:
--------------------
Signature:
---------------------------------
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Warrant in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
15
<PAGE> 16
ELECTION TO EXERCISE
(To be executed by the holder if such holder desires to
exercise the attached Representative's Warrant)
The undersigned hereby exercises his or its rights to subscribe for
__________ shares of Common Stock covered by the within Representative's Warrant
(each as defined in the within Representative's Warrant) and tenders payment
herewith in the amount of $__________ in accordance with the terms thereof, and
requests that certificates for such Warrants be issued in the name of, and
delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security or
Tax Identification Number)
and, if such number of Warrants (or portions thereof) shall not be all the
Warrants covered by the within Representative's Warrant, that a new
Representative's Warrant for the balance of the Representative's Warrants (or
portions thereof) covered by the within Representative's Warrant be registered
in the name of, and delivered to, the undersigned at the address stated below.
Name:
--------------------------------------------------------------------------
(Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------
(Signature)
Dated: Signature Guaranteed:
----------------------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Warrant in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
16
<PAGE> 1
EXHIBIT 10.1
PENTASTAR COMMUNICATIONS, INC.
STOCK OPTION PLAN
SECTION 1
INTRODUCTION
1.1 Establishment. PentaStar Communications, Inc., a Delaware
corporation, hereby establishes the PentaStar Communications, Inc. Stock Option
Plan (the "Plan") for certain key employees and key non-employees of the
Company. PentaStar Communications, Inc., together with its affiliated
corporations, as defined in Section 2.1(a) hereafter, are referred to as the
"Company," except where the context otherwise requires.
1.2 Purposes. The purposes of the Plan are to provide the key
management employees and key non-employees selected for participation in the
Plan with added incentives to continue in the long-term service of the Company
and to create in such individuals a more direct interest in the future success
of the operations of the Company by relating incentive compensation to increases
in stockholder value, so that the income of those individuals is more closely
aligned with the income of the Company's stockholders. The Plan also is designed
to encourage and provide incentives for high level performance by such
individuals.
SECTION 2
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth
below:
(a) "Affiliated Corporation" means any corporation or other
entity (including, but not limited to, a partnership) which is affiliated with
PentaStar Communications, Inc. through stock ownership or otherwise and is
treated as a common employer under the provisions of Code Sections 414(b) and
(c).
(b) "Board" means the Board of Directors of PentaStar
Communications, Inc.
(c) "Code" means the Internal Revenue Code of 1986, as it may
be amended from time to time.
(d) "Effective Date" means the effective date of the Plan,
which will be the date of approval of the Plan by the Company's stockholders.
(e) "Eligible Participants" means full-time key employees
(including, without limitation, officers and directors who also are employees of
the Company) of the Company or any Affiliated Corporation or any division
thereof, and certain non-employees selected by the Committee in its discretion
whose judgment, initiative and efforts are, or will be, important to the
successful conduct of its business.
(f) "Fair Market Value" means the officially quoted closing
price of the Stock on the Small Cap National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System,
or any other NASDAQ Market System, on a particular date. If there are no Stock
transactions on such date, the Fair Market Value shall be determined as of the
immediately preceding date on which there were Stock transactions. If no such
prices are reported on the NASDAQ System, then Fair Market Value shall mean the
average of the high and low sale prices for the Stock (or if no sales prices are
reported, the average of the high and low bid 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
<PAGE> 2
to brokers and dealers. If the Stock is not publicly traded, the Fair Market
Value of the Stock on any date shall be determined in good faith by the
Incentive Plan Committee after such consultation with outside legal, accounting
and other experts as the Incentive Plan Committee may deem advisable.
(g) "Incentive Plan Committee" means the entire Board, or a
committee consisting of at least two persons. Members of the Incentive Plan
Committee shall be appointed from time to time by the Board, shall serve at the
pleasure of the Board, and may resign at any time upon written notice to the
Board. With respect to Options granted to a person subject to Rule 16b-3 ("Rule
16b-3") of the Securities Exchange Act of 1934 or any successor rule (the "1934
Act"), unless otherwise determined by the Board, the Committee granting such
Option (i) shall be the entire Board or (ii) shall be comprised solely of two or
more "non-employee directors" as defined by Rule 16b-3. With respect to Options
granted to a "covered employee" under Section 162(m) of the Code and the rules
and regulations of the Treasury Department promulgated thereunder ("Section
162(m)"), unless otherwise determined by the Board, the Committee granting such
Option shall be comprised solely of two or more "outside directors" as defined
by Section 162(m). With respect to Options granted to a person subject to both
Rule 16b-3 and Section 162(m), unless otherwise determined by the Board, all
grants will be made in a manner that complies with both Rule 16b-3 and Section
162(m). The Incentive Plan Committee shall be so constituted at all times as to
permit the Plan to comply with Rule 16b-3 or any successor rule promulgated
under the 1934 Act.
(h) "Incentive Stock Option" means any Option designated as
such and granted in accordance with the requirements of Code Section 422.
(i) "Non-Statutory Option" means any Option other than an
Incentive Stock Option.
(j) "Option" means a right to purchase Stock at a stated price
for a specified period of time.
(k) "Option Price" means the price at which shares of Stock
subject to an Option may be purchased, determined in accordance with section
5.2(b).
(l) "Option Holder" means an Eligible Participant of the
Company designated by the Incentive Plan Committee from time to time during the
term of the Plan to receive one or more Options under the Plan.
(m) "Plan Year" means each 12-month period beginning January 1
and ending the following December 31, except that for the first year of the Plan
the Plan Year shall begin on the Effective Date and extend to the first December
31 following the Effective Date.
(n) "Share" or "Shares" means a share or shares of Stock.
(o) "Stock" means the common stock of the Company.
2.2 Gender and Number. Except where otherwise indicated by the context,
the masculine gender also shall include the feminine gender, and the definition
of any term herein in the singular also shall include the plural.
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<PAGE> 3
SECTION 3
PLAN ADMINISTRATION
The Plan shall be administered by the Incentive Plan Committee. In
accordance with the provisions of the Plan, the Incentive Plan Committee shall,
in its sole discretion, select the Eligible Participants to whom Options will be
granted, the form of each Option, the amount of each Option, and any other terms
and conditions of each Option as the Incentive Plan Committee may deem necessary
or desirable and consistent with the terms of the Plan. The Incentive Plan
Committee shall determine the form or forms of the agreements with Option
Holders, which shall evidence the particular provisions, terms, conditions,
rights and duties of the Company and the Option Holders with respect to Options
granted pursuant to the Plan, which provisions need not be identical except as
may be provided herein. The Incentive Plan Committee may from time to time adopt
such rules and regulations for carrying out the purposes of the Plan as it may
deem proper and in the best interests of the Company. The Incentive Plan
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any agreement entered into hereunder in the
manner and to the extent it shall deem expedient and it shall be the sole and
final judge of such expediency. No member of the Incentive Plan Committee shall
be liable for any action or determination made in good faith, and all members of
the Committee shall, in addition to their rights as directors, be fully
protected by the Company with respect to any such action, determination or
interpretation. The determinations, interpretations, and other actions of the
Incentive Plan Committee pursuant to the provisions of the Plan shall be binding
and conclusive for all purposes and on all persons.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. 1,000,000 Shares are authorized for issuance
under the Plan in accordance with the provisions of the Plan. Shares which may
be issued upon the exercise of Options shall be applied to reduce the maximum
number of Shares remaining available under the Plan. At all times during the
term of the Plan and while any Options are outstanding, the Company shall retain
as authorized and unissued stock, or as treasury stock, at least the number of
Shares from time to time required under the provisions of the Plan, or otherwise
assure itself of its ability to perform its obligations hereunder.
4.2 Unused and Forfeited Stock. Any Shares that are subject to an
Option under this Plan which are not used because the terms and conditions of
the Option are not met, including any Shares that are subject to an Option which
expires or is terminated for any reason, any Shares which are used for full or
partial payment of the purchase price of Shares with respect to which an Option
is exercised, and any Shares retained by the Company pursuant to Section 11.2
automatically shall become available for use under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company
shall at any time increase or decrease the number of its outstanding Shares of
Stock, or change in any way the rights and privileges of such Shares by means of
the payment of a stock dividend or any other distribution upon such Shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then in
relation to the Stock that is affected by one or more of the above events, the
numbers, rights and privileges of the following shall be increased, decreased or
changed in like manner as if such Shares had been issued and outstanding, fully
paid and nonassessable at the time of such occurrence: (i) the shares of Stock
as to which Options may be granted under the Plan; and (ii) the Shares of Stock
then included in each outstanding Option granted hereunder.
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<PAGE> 4
4.4 General Adjustment Rules. If any adjustment or substitution
provided for in this Section 4 shall result in the creation of a fractional
Share under any Option, the Company shall, in lieu of issuing such fractional
Share, pay to the Option Holder a cash sum in an amount equal to the product of
such fraction multiplied by the Fair Market Value of a Share on the date the
fractional Share otherwise would have been issued.
4.5 Determination by Incentive Plan Committee, Etc. Adjustments under
this Section 4 shall be made by the Incentive Plan Committee, whose
determinations with regard thereto shall be final and binding upon all parties.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. An Eligible Participant may be granted one or
more Options. The Incentive Plan Committee, in its sole discretion, shall
designate whether an Option is to be considered an Incentive Stock Option or a
Non-Statutory Option. The Incentive Plan Committee may grant both an Incentive
Stock Option and a Non-Statutory Option to the same Eligible Participant at the
same time or at different times. Incentive Stock Options and Non-Statutory
Options, whether granted at the same or different times, shall be deemed to have
been awarded in separate grants, shall be clearly identified, and in no event
shall the exercise of one Option affect the right to exercise any other Option
or affect the number of Shares for which any other Option may be exercised. To
the extent any Option does not qualify as an Incentive Stock Option, such Option
will be treated as a Non-Statutory Option under this Plan.
5.2 Option Agreements. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by the
Company and the Eligible Participant to whom the Option is granted (the "Option
Holder"), and which shall contain the following terms and conditions, as well as
such other terms and conditions not inconsistent therewith, as the Incentive
Plan Committee may consider appropriate in each case. In the event of any
inconsistency between the provisions of the Plan and any such agreement entered
into hereunder, the provisions of the Plan shall govern.
(a) Number of Shares. Each stock option agreement shall state
that it covers a specified number of Shares, as determined by the Incentive Plan
Committee. Notwithstanding any other provision of the Plan, the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Option Holder in any calendar year, under
the Plan or otherwise, shall not exceed $100,000. For this purpose, the Fair
Market Value of the Shares shall be determined as of the time an Option is
granted.
(b) Price. The price at which each Share covered by an Option
may be purchased shall be determined by the Incentive Plan Committee and set
forth in the stock option agreement. In no event shall the Option Price for each
Share covered by an Incentive Stock Option be less than the Fair Market Value of
the Stock on the date the Option is granted. The Option Price for each Share
covered by an Incentive Stock Option granted to an Eligible Participant who then
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company (or any parent or subsidiary corporation, as
defined in Code Section 424) must be at least 110% of the Fair Market Value of
the Stock subject to the Incentive Stock Option on the date the Option is
granted. The Option Price for each Share covered by a Non-Statutory Option may
be granted at any price, including a price less than Fair Market Value, in the
sole discretion of the Incentive Plan Committee.
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<PAGE> 5
(c) Duration of Options. Each stock option agreement shall
state the period of time, determined by the Incentive Plan Committee, within
which the Option may be exercised by the Option Holder (the "Option Period").
The Option Period must expire, in all cases, not more than ten years from the
date an Option is granted; provided, however, that the Option Period of an
Incentive Stock Option granted to an Eligible Participant who then owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (or any parent or subsidiary corporation, as defined in
Code Section 424) must expire not more than five years from the date such Option
is granted. Each stock option agreement also shall state the periods of time, if
any, as determined by the Incentive Plan Committee, when incremental portions of
each Option shall vest. Notwithstanding any other provision of the Plan, any
Option Holder who is subject to Section 16 of the 1934 Act may not exercise any
portion of an Option during the first six months following the grant of such
Option, except that this limitation shall not apply in the event of the Option
Holder's death or disability during such six-month period.
(d) Termination of Employment, Death, Disability, Etc. Except
as otherwise determined by the Incentive Plan Committee, each stock option
agreement shall provide as follows with respect to the exercise of the Option
upon termination of the employment (or termination of other relationship with
the Company) or the death of the Option Holder:
(i) If the Option Holder dies, or if the Option
Holder becomes disabled (within the meaning of Code Section 22(e)) during the
Option Period while still employed, or within the three-month period referred to
in (ii) below, the Option may be exercised by those entitled to do so under the
Option Holder's will or by the laws of descent and distribution within twelve
months following the Option Holder's death or disability, but not thereafter. In
any such case, the Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date of the Option Holder's death
or disability. With respect to Options granted to non-employees, unless
otherwise provided in the stock option agreement, any reference to termination
of employment in this section will refer to the termination of the consulting
arrangement, term as non-employee director, or termination of any other
relationship with the Company.
(ii) If the employment of the Option Holder by the
Company is terminated (which for this purpose means that the Option Holder is no
longer employed by the Company or by an Affiliated Corporation) within the
Option Period for any reason other than disability or the Option Holder's death,
the Option may be exercised by the Option Holder within three months following
the date of such termination (provided that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of termination of employment. With respect to Options granted
to non-employees, unless otherwise expressly provided in the stock option
agreement, any reference to termination of employment in this section will refer
to the termination of the consulting arrangement, term as non-employee director,
or termination of any other relationship with the Company.
(e) Transferability. Each stock option agreement shall provide
that the Option granted therein is not transferable by the Option Holder except
by will or pursuant to the laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined in Code Section 414(p), and that
such Option is exercisable during the Option Holder's lifetime only by him or
her, or in the event of disability or incapacity, by his or her guardian or
legal representative.
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<PAGE> 6
(f) Exercise, Payments, Etc.
(i) Each stock option agreement shall provide that
the method for exercising the Option granted therein shall be by delivery to the
Corporate Secretary of the Company of written notice specifying the particular
Option (or portion thereof) which is being exercised, the number of Shares with
respect to which such Option is exercised and including payment of the Option
Price. Such notice shall be in a form satisfactory to the Incentive Plan
Committee. The exercise of the Option shall be deemed effective upon receipt of
such notice by the corporate secretary and payment to the Company of the Option
Price. The purchase of such Stock shall take place at the principal offices of
the Company upon delivery of such notice, at which time the purchase price of
the Stock shall be paid in full by any of the methods or any combination of the
methods set forth in (ii) below. A properly executed certificate or certificates
representing the Stock shall be issued by the Company and delivered to the
Option Holder.
(ii) The exercise price may be paid by any of the
following methods or any combination of the following methods, as determined by
the Incentive Plan Committee:
(A) in cash;
(B) by cashier's check payable to the order
of the Company;
(C) by delivery to the Company of
certificates representing the number of Shares then owned by the Option Holder,
the Fair Market Value of which equals the purchase price of the Stock purchased
pursuant to the Option, properly endorsed for transfer to the Company; provided
however, that Shares used for this purpose must have been held by the Option
Holder for such minimum period of time as may be established from time to time
by the Incentive Plan Committee. The Fair Market Value of any Shares delivered
in payment of the purchase price upon exercise of the Option shall be the Fair
Market Value as of the exercise date and the exercise date shall be the day of
the delivery of the certificates for the Stock used as payment of the Option
Price; or
(D) by delivery to the Company of a properly
executed notice of exercise together with irrevocable instructions to a broker
to deliver to the Company promptly the amount of the proceeds of the sale of all
or a portion of the Stock or of a loan from the broker to the Option Holder
necessary to pay the exercise price.
(iii) In the discretion of the Incentive Plan
Committee, the Company may make a loan to the Option Holder, or guaranty a
third-party loan obtained by a Option Holder, to pay part or all of the Option
Price of the Shares provided that such loan or the Company's guaranty is secured
by the Shares.
(iv) In the discretion of the Incentive Plan
Committee, the Company may grant a cash bonus award to any Option Holder in an
amount necessary to pay the Option Price of all or any portion of the Options
then held by such Option Holder.
(g) Date of Grant. An option shall be considered as having
been granted on the date specified in the grant resolution of the Incentive Plan
Committee.
5.3 Stockholder Privileges. Prior to the exercise of the Option and the
transfer of Shares to the Option Holder, an Option Holder shall have no rights
as a stockholder with respect to any Shares subject to any Option granted to
such person under this Plan, and until the Option Holder becomes the holder of
record of such Stock, no adjustments shall be made for dividends or other
distributions or other rights as to which
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<PAGE> 7
there is a record date preceding the date such Option Holder becomes the holder
of record of such Stock, except as provided in Section 4.
5.4 Restrictions on Stock Issued. The Incentive Plan Committee may
provide in any stock option agreement that shares of Stock issuable upon the
exercise of an Option shall, under certain conditions, be subject to
restrictions whereby the Company has a right of first refusal with respect to
such shares or a right or obligation to repurchase all or a portion of such
shares, or restrictions on any transfer of shares for a period of time, which
restrictions may survive a Option Holder's term of employment with the Company.
SECTION 6
CHANGE IN CONTROL
6.1 Change in Control. In the event of a change in control of the
Company, as defined in Section 6.2, the Incentive Plan Committee may, in its
sole discretion, take any or none of the following actions, without the need for
stockholder approval:
(a) completely or partially accelerate the vesting and
exercise date of any outstanding Options or make all such Options fully vested
and exercisable;
(b) cause any surviving or acquiring corporation, as the case
may be, to substitute a new Option for such Option or to assume such Option and
to make such new or assumed Option, as nearly as may be practicable, equivalent
to the old Option (before giving effect to any acceleration of the vesting or
exercisability thereof), taking into account, to the extent applicable, the kind
and amount of securities, cash or other assets into or for which the Stock may
be changed, converted or exchanged in connection with the Change in Control;
(c) grant a cash bonus award to any Option Holder in an amount
necessary to pay the Option Price of all or any portion of the Options then held
by such Option Holder;
(d) make a loan, or guarantee a third-party loan, to any
Option Holder in an amount necessary to pay the Option Price of all or any
portion of the Options then held by such Option Holder;
(e) to the extent permitted in Section 10, pay cash to any or
all Option Holders in exchange for the cancellation of their outstanding Options
in an amount equal to the difference between the Option Price of such Options
and the greater of (i) the tender offer price or the per share value of the
consideration being paid to holders of the underlying Stock in the Change in
Control transaction, if applicable, or (ii) the Fair Market Value of the Stock
on the date of the cancellation of the Options; or
(f) make any other adjustments or amendments to the
outstanding Options.
Any such determinations by the Incentive Plan Committee may be made
generally with respect to all Option Holders, or may be made on a case-by-case
basis with respect to particular Option Holders.
6.2 Definition. A "change in control" shall be deemed to have occurred
if
(a) any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the 1934 Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the
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<PAGE> 8
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the 1934 Act), directly or indirectly, of more than 51% of the then outstanding
voting stock of the Company; or
(b) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 51% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation;
(c) the stockholders approve a plan of complete liquidation of
the Company; or
(d) the stockholders approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
6.3 The provisions of this Section 6 shall not apply to any transaction
undertaken for the purpose of reincorporating the Company under the laws of
another jurisdiction, if such transaction does not materially affect the
beneficial ownership of the Company's capital stock.
SECTION 7
RIGHTS OF EMPLOYEES AND OPTION HOLDERS
7.1 Employment. Nothing contained in the Plan or in any Option shall
confer upon any Eligible Participant any right with respect to the continuation
of his or her employment by the Company, or interfere in any way with the right
of the Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of such Employee from the rate in existence at the time of the
grant of an Option. Whether an authorized leave of absence, or absence in
military or government service, shall constitute a termination of employment
shall be determined by the Incentive Plan Committee at the time.
7.2 Nontransferability. No right or interest of any Option Holder in an
Option granted pursuant to the Plan shall be assignable or transferable during
the lifetime of the Option Holder, either voluntarily or involuntarily, or be
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy, except for transfers pursuant to a qualified domestic relations
order as defined in Code Section 414(p). In the event or an Option Holder's
death, an Option Holder's rights and interests in Options shall, to the extent
provided in Section 5, be transferable by testamentary will or the laws of
decent and distribution. In the opinion of the Incentive Plan Committee, if an
Option Holder is disabled from caring for his affairs because of mental
condition, physical condition or age, such Option Holder's Options shall be
exercised by such person's guardian, conservator or other legal personal
representative upon furnishing the Incentive Plan Committee with evidence
satisfactory to the Incentive Plan Committee of such status.
-8-
<PAGE> 9
SECTION 8
GENERAL RESTRICTIONS
8.1 Investment Representations. The Company may require any person to
whom an Option is granted, as a condition of exercising such Option or receiving
Stock under the Option, to give written assurances, in the substance and form
satisfactory to the Company and its counsel, to the effect that such person is
acquiring the Stock subject to the Option for his own account for investment and
not with any present intention of selling or otherwise distributing the same,
and to such other effects as the Company deems necessary or appropriate in order
to comply with federal and applicable state securities laws. Legends evidencing
such restrictions may be placed on the certificates evidencing the Stock.
8.2 Compliance with Securities Laws. Each Option shall be subject to
the requirement that, if at any time counsel to the Company shall determine that
the listing, registration or qualification of the Shares subject to such Option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance or purchase of Shares thereunder, such
Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Incentive Plan Committee. Nothing
herein shall be deemed to require the Company to apply for or to obtain such
listing, registration or qualification.
SECTION 9
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by an Option
Holder as a result of the exercise of an Option shall not constitute "earnings"
with respect to which any other employee benefits of such Option Holder are
determined, including without limitation benefits under any pension, profit
sharing, life insurance or salary continuation plan.
SECTION 10
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan; provided, however, that no amendment or modification may
become effective without approval of the amendment or modification by the
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval otherwise is necessary
or desirable.
No amendment, modification or termination of the Plan shall in any
manner adversely affect any Options theretofore granted under the Plan, without
the consent of the Option Holder holding such Options.
SECTION 11
WITHHOLDING
11.1 Withholding Requirement. The Company's obligations to deliver
Shares upon the exercise of an Option shall be subject to the Option Holder's
satisfaction of all applicable federal, state and local income and other tax
withholding requirements.
-9-
<PAGE> 10
11.2 Withholding With Stock. At the time an Option is exercised by the
Option Holder, the Committee, in its sole discretion, may permit the Option
Holder to pay all such amounts of tax withholding, or any part thereof, by
transferring to the Company, or directing the Company to withhold from Shares
otherwise issuable to such Option Holder, Shares having a value equal to the
amount required to be withheld or such lesser amount as may be determined by the
Committee at such time. The value of Shares to be withheld shall be based on the
Fair Market Value of the Stock on the date that the amount of tax to be withheld
is to be determined.
SECTION 12
BROKERAGE ARRANGEMENTS
The Incentive Plan Committee, in its discretion, may enter into
arrangements with one or more banks, brokers or other financial institutions to
facilitate the disposition of shares acquired upon exercise of Stock Options,
including, without limitation, arrangements for the simultaneous exercise of
Stock Options and sale of the Shares acquired upon such exercise.
SECTION 13
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company or any Affiliated Corporation now has lawfully put into
effect, including, without limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
SECTION 14
REQUIREMENTS OF LAW
14.1 Requirements of Law. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
14.2 Federal Securities Law Requirements. With respect to persons
subject to Section 16 of the 1934 Act, transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 or its successors under
the 1934 Act. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee.
14.3 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Delaware.
-10-
<PAGE> 11
SECTION 15
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board
of Directors, and no Option shall be granted after such termination. If not
sooner terminated under the preceding sentence, the Plan shall fully cease and
expire at midnight on the date that is ten years from the Effective Date of the
Plan. Options outstanding at the time of the Plan termination may continue to be
exercised in accordance with their terms.
-11-
<PAGE> 1
EXHIBIT 10.4
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made effective as of
September 1, 1999, regardless of its date of execution, between BIBD, LLC, a
Colorado limited liability company ("BIBD") and Optimal Communications, Inc., a
Delaware corporation (the "Company").
RECITALS
The Company was formed to acquire, own and operate various
communications and Internet services businesses. BIBD and the Company have
agreed that BIBD's business expertise will be valuable to the Company and that
such expertise is important to the Company's success. BIBD and the Company
desire to set forth their understanding pursuant to which BIBD has agreed to
provide certain consulting services to the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
I. DEFINITIONS
For purposes of this Agreement, the following terms shall be defined as
follows:
1.1 Affiliate means a person or entity, which controls, is controlled
by, or is under common control with another person or entity.
1.2 Consulting Fee means an annual amount based on the Company's sales
run rate determined per the following table (subject to annual adjustment as
provided below):
<TABLE>
<CAPTION>
Sales Run Rate Monthly Consulting Fee
-------------- ----------------------
<S> <C>
Less than $10 million $12,000
$10 million $15,000
$15 million $18,000
$20 million $21,000
</TABLE>
The Company's sales run rate means the Company's sales for the 12-month period
ending with the month preceding the month for which a payment of Consulting Fee
is being calculated. For that purpose, the Company's sales shall be deemed to
include the prior 12 month's sales of all entities acquired, or whose assets are
acquired, by the Company prior to the date of acquisition (excluding any sales
relating to portions of such entities or their assets which are not acquired),
even though the Company was not in existence or did not own the acquired entity
when those sales occurred.
<PAGE> 2
Consulting Agreement
Page 2 of 6
In January 2000, the annual amounts of the Consulting Fee reflected in the
foregoing table should be increased by a proportion equal to the proportionate
increase in the Index released in January 2000 over the Index released in
January 1999. In January of each succeeding year during the term of this
Agreement, the annual amounts of the Consulting Fee established in January of
the preceding year shall be increased by a proportion equal to the proportionate
increase in the Index released in January of that year over the Index released
in January of the preceding year. If the Index shall have decreased, the
Consulting Fee shall not decrease.
1.3 Index means the Consumer Price Index - All Urban Consumers, All
Items for the Denver-Boulder metropolitan area, as released from time to time.
II. CONSULTING SERVICES
BIBD shall provide management level consulting services concerning
business planning, acquisitions and other matters to the Company consistent with
policies established by the Company's Board of Directors (the "Board"), and
shall report to the Board. BIBD and its partners, employees and agents who
provide services to the Company pursuant to this Agreement shall be independent
contractors as to the Company, and not its employees. As independent
contractors, neither BIBD nor its partners, agents or employees shall, unless
otherwise expressly granted by the Company's Board of Directors, have the right
or authority to execute documents in the name of the company or to otherwise
bind the Company; provided, however, that nothing contained in this Article II
shall limit or diminish any rights or powers which any such partners, employees
or agents may have as directors or officers of the Company.
III. COMPENSATION
3.1 Compensation. BIBD shall be entitled to receive from the Company on
the first day of each calendar month a payment of the Consulting Fee then in
effect based on the Company's sales run rate for the 12-month period ending with
the preceding month.
3.2 Benefits and Expense Reimbursement. The Company shall reimburse
BIBD and its members and employees who perform services for or on behalf of the
Company hereunder for all reasonable out-of-pocket costs incurred by them,
including out-of-pocket costs incurred prior to the date hereof. The Company
shall provide or reimburse the members of BIBD for medical, dental, disability
and other similar insurance benefits for up to six members or employees of the
members of BIBD who are providing services for the Company hereunder on the same
basis as provided to Company officers.
<PAGE> 3
Consulting Agreement
Page 3 of 6
IV. TERM
4.1 Term. Unless previously terminated by mutual agreement of the
parties or unless terminated by the Company for cause pursuant to Section 4.2,
this Agreement shall continue until the earliest to occur of the following
events: (i) the Company sells all or substantially all of its assets on a
consolidated basis in any single transaction or series of related transactions
for cash to a person or entity that is not an Affiliate; (ii) the Company is
acquired for cash by a person or entity that is not an Affiliate of BIBD,
including without limitation, through the purchase for cash of all or
substantially all of the Company's outstanding stock or through a cash merger or
consolidation; or (iii) the Company files, or there is filed against the
Company, a proceeding under Chapter 11 of the Federal Bankruptcy Code.
4.2 Terminate for Cause. The Company may terminate this Agreement for
cause if (i) BIBD or any member, employee or authorized agent of BIBD commits
gross negligence in the performance of BIBD's duties hereunder, (ii) BIBD or any
member, employee or authorized agent of BIBD willfully engages in any improper
activity which is contrary to the best interests of the Company, (iii) BIBD or
any member, employee or authorized agent of BIBD willfully violates or
disregards written instructions from the Board with respect to BIBD's duties
hereunder, (iv) BIBD or any member, employee or authorized agent of BIBD engages
in any activity which has a direct material adverse effect upon the Company or
its business, or (v) if BIBD commits a material breach of a material provision
of this Agreement. BIBD shall be given 10 days' notice of any action which the
Company deems to be cause for termination hereunder and BIBD shall be terminated
only if BIBD fails to cure such action or offense within such 10-day period or
repeats or continues the action or offense after such notice. If the action of
offense was taken or committed by an employee or authorized agent of BIBD
without BIBD's express authorization or actual prior knowledge, solely for the
purpose of determining the Company's right to terminate this Agreement under
this Section 4.2, BIBD shall be deemed to have cured the action or offense if it
replaces the employee or agent within the 10-day period.
4.3 Termination. BIBD may terminate this agreement with 30 days written
notice to the Company.
V. NONCOMPETITION
BIBD expressly covenants and agrees that, during the term of this
Agreement and for one year thereafter, neither BIBD nor any member of BIBD will,
directly or indirectly, as an officer, agent, principal, employee, consultant,
or otherwise, engage in any activity which, at that time, competes to a material
extent with the Company. Nothing herein will preclude BIBD or any member from
acquiring or holding securities representing less than five-percent (5%) of
<PAGE> 4
Consulting Agreement
Page 4 of 6
the outstanding securities of any class of equity security registered under the
Securities Exchange Act of 1934, as amended.
VI. CONFIDENTIALITY AND NON-DISCLOSURE
BIBD acknowledges that information, observations and data obtained by
BIBD and its partners and other personnel during the term of this Agreement
concerning the business or affairs of the Company (the "Confidential
Information") are the property of the Company. BIBD will not disclose to any
person or use for its own account any Confidential Information without the
written consent of the Board. Nothing herein shall prevent the disclosure of
Confidential Information (i) which becomes generally known to and available for
use by the public other than as a result of a disclosure by BIBD, (ii) with
respect to which BIBD's duty of confidentiality is waived by the Company, (iii)
if required by applicable law, regulation or order of any governmental agency or
court of competent jurisdiction, (iv) which was known to the public when
received by BIBD or (v) which is lawfully obtained by BIBD from other sources.
BIBD agrees that upon termination of this Agreement, it will deliver to the
Company all memoranda, notes, plans, records, reports and other documents
containing Confidential Information, and all copies thereof, that BIBD may then
possess or have under its control.
VII. GENERAL PROVISIONS
7.1 Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by the parties hereto and their
respective permitted successors and assigns. BIBD may not assign any of its
rights or obligations hereunder, except to an Affiliate.
7.2 Notices. All notices hereunder shall be in writing and shall be
deemed to have been duly given when delivered in person, upon confirmation of
receipt if given by facsimile, or three days after being deposited in the United
States mail, certified mail, return receipt requested, postage prepaid, as
follows:
To the Company:
Optimal Communications, Inc.
1522 Blake Street, 2nd Floor
Denver, Colorado 80202
Attention: CEO
Fax: 303-620-9016
To BIBD:
1522 Blake Street, 3rd Floor
Denver, Colorado 80202
Attention: Richard M. Tyler
Fax: 303-620-9016
<PAGE> 5
Consulting Agreement
Page 5 of 6
or to such other address as either party shall have specified by notice in
writing to the other party.
7.3 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or other jurisdiction, but
this Agreement will be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision had never been contained
herein.
7.4 Complete Agreement. This Agreement embodies the complete Agreement
and understanding between the parties and supersedes and preempts any prior
understandings, agreements or representations by or between the parties, written
or oral, which relate to the subject matter hereof.
7.5 CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND
NOT THE LAW OF CONFLICTS, OF THE STATE OF COLORADO.
7.6 Remedies. Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of the provisions of this Agreement and to exercise all
other rights in its favor at law or in equity. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of Articles V and VI of this Agreement and that any party may in
its sole discretion apply for specific performance and injunctive relief in
order to enforce or prevent any violations of the provisions of Article V or VI.
7.7 Amendments and Waivers. This Agreement may be amended only pursuant
to a duly authorized written agreement signed by all of the parties hereto. No
waiver of rights hereunder shall be effective unless such waiver is set forth in
writing signed by the party whose rights are being waived.
7.8 Arbitration. Any disputes arising under this Agreement, including,
without limitation, those involving claims for specific performance or
injunctive relief, shall be submitted to binding arbitration under the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be conducted in Denver, Colorado, before a single arbitrator
selected by BIBD and the Company, or, if they are unable to agree on an
arbitrator, before a panel of three arbitrators, one selected by BIBD, one
selected by the Company and the third selected by the two arbitrators. Failing
the selection of any required arbitrator, the selection of any required
arbitrator, the selection shall be made by the American Arbitration Association.
The award of the arbitrators shall be final and
<PAGE> 6
Consulting Agreement
Page 6 of 6
binding and any court of competent jurisdiction may enter judgment on the award.
This submission and agreement to arbitrate shall be specifically enforceable.
7.9 Attorneys' Fees. The prevailing party or parties in any arbitration
or in any action to enforce or interpret this Agreement shall be entitled to all
reasonable out-of-pocket costs and expenses, including fees of the arbitrators
and reasonable attorneys' fees, incurred in connection therewith.
IN WITNESS WHEREOF, the parties have executed this Agreement as of day
and year first above written.
OPTIMAL COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
-----------------------------
Craig J. Zoellner
Its: President
Date: August 10, 1999
---------------
BIBD, LLC
BY: BACE Industries, LLC, Member
By: /s/ Richard M. Tyler
-----------------------------
Richard M. Tyler
Its: Member
Date: August 10, 1999
---------------
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (this "Agreement") is
entered into as of August 13, 1999 between PentaStar Communications, Inc., a
Delaware corporation (the "Employer") and Jeffrey A. Veres, (the "Employee").
RECITALS
The Employer desires to employ the Employee, and the Employee desires
to be employed by the Employer.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties agree as
follows:
I. DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms will have the meanings set forth below:
1.1 "Access" means the stock and assets of DMA Ventures, Inc. (d/b/a
Access Communications) acquired by Employer as of the date of the IPO;
1.2 "Affiliate" means, with respect to any person: a) any person in
which such person holds an equity or profits interest; b) any person
controlling, controlled by or under common control with such person; c) any
director, executive officer, partner or trustee of such person; d) any spouse or
adult child of such person; or e) any trust in which a substantial portion of
the beneficial interest is held by any of the foregoing persons.
1.3 "Base Compensation" means a salary at the rate of $10,000 per
month.
1.4 "Bonus Plan" means the bonus plan to be adopted by Employer whereby
Employee is entitled to receive five-percent of the earnings derived from
Access, before interest, taxes and amortization expense, on an annual basis
during the Employee's employment under the terms and conditions of the plan.
1.5 "Business" means: a) the businesses conducted or planned to be
conducted by the Employer or any Affiliate of the Employer, as of the date of
this Agreement or conducted by the Employer or any Affiliate of the Employer at
any time during the Employee's employment by the Employer; b) any portion of the
business conducted by any Person whose business is acquired by the Employer or
any Affiliate of the Employer, whether by acquisition of stock, assets or
otherwise, at any time (i) within the one-year period prior to the closing date
of such acquisition or (ii) during the Employer's employment by the Employer;
and c) any other businesses related to business access to local telephone
service, long distance service, Internet service and wireless service providers.
<PAGE> 2
Employment and Noncompetition Agreement
Jeffrey A. Veres
Page 2 of 6
1.6 "Change of Control" means: a) the Employer sells all or
substantially all of its assets in a single transaction or series of related
transactions to a non-Affiliate; b) the stockholders of Employer sell all or
substantially all of the outstanding stock of Employer in a single transaction
or series of related transactions to a non-Affiliate of Employer; or c) Employer
is merged with a non-Affiliated entity and is not the survivor of such merger.
1.7 "Commencement Date" means the date on or after the date of this
Agreement on which the Employee actually commences full-time employment with the
Employer. The Commencement Date shall be the date upon which the IPO occurs.
1.8 "IPO" means the successful completion of an initial public offering
of the Employer's stock.
1.9 "Person" means any natural person, corporation, trust, partnership,
limited liability company, joint venture, unincorporated organization,
government or governmental agency, or other entity.
II. EMPLOYMENT TERMS AND CONDITIONS
2.1 Employment. The Employer agrees to employ the Employee, and the
Employee agrees to serve the Employer, subject to the terms and conditions set
forth in this Agreement.
2.2 Compensation.
a) For the Employee's full-time performance of services, the
Employee shall be paid the Base Compensation on regular monthly paydays. Unless
this Agreement has been previously terminated, Base Compensation shall begin to
accrue on the date of the IPO, with the first such monthly payment due on the
last day of the month in which the IPO occurs in respect of that month.
b) Employee shall be eligible to participate in the Bonus Plan
under the terms and conditions of that plan.
2.3 Additional Benefits. The Employer shall provide to the Employee
individual coverage in a group medical/health insurance plan. The Employer may
provide the Employee with the opportunity to participate in any profit sharing
plan that the Employer may establish under the terms of that plan.
2.4 Expense Reimbursement. Upon submission to the Employer of
documentation reasonably satisfactory to it, the Employer will reimburse the
Employee for all reasonable business-related expenses and reasonable
transportation, hotel, meal and other travel expenses reasonably incurred by
Employee on business travel away from the Employer's principal office, all in
accordance with policies of the Employer established from time to time by the
Employer.
2.5 Services. The Employee will be initially employed in the position
of Regional Manager. The Employee shall have as his primary business focus the
performance of services
<PAGE> 3
Employment and Noncompetition Agreement
Jeffrey A. Veres
Page 3 of 6
to Employer. The Employee shall report to and be subject to the direction of the
Employer, and will perform such additional or different duties as the Employer
may designate from time to time.
2.6 Term of Employment. The term of employment shall be for the lesser
of five years from the IPO or until a Change of Control. However, this Agreement
and the Employee's employment under this Agreement shall be terminable
immediately, without prior notice, for Cause. The Employee's employment shall
terminate on the first to occur of the Employee's termination, resignation,
death or disability (meaning that the Employee has become disabled to an extent
which substantially impairs the Employee's ability to perform the Employee's
obligations under this Agreement, with or without reasonable accommodation). The
Employee's disability due to illness or injury for an aggregate of 30 days or
less during any 12-month period shall not be deemed a disability that
substantially impairs the Employee's ability to perform the Employee's
obligations under this Agreement. For purposes of this Agreement, "Cause" for
termination exists if the Employee: a) has been convicted of, or pleads guilty
or nolo contendere to, a felony; b) is grossly negligent in the exercise of the
Employee's authority or the performance of the Employee's duties; c) willfully
engages in any activity which is contrary to the best interest of the Employer
or any of its subsidiaries; d) willfully violates or disregards instructions
from the Employer; or e) fails to devote his full efforts and working time to
the business of the Employer, or if the Employee or any of his Affiliates
breaches any provision of Article III of this Agreement.
III. NONCOMPETITION; CONFIDENTIALITY
3.1 Noncompetition.
a) The Employee covenants and agrees that for a period which
is the greater of three years from the IPO or one year after the Employee's
employment with the Employer terminates ("Noncompete Period"), neither the
Employee nor any of the Employee's Affiliates will, directly or indirectly,
either by providing financial assistance or through any manner of ownership, or
as a director, officer, employee, consultant, principal, agent or otherwise,
engage in any activity anywhere in the United States that is competitive with
the Business; provided, however, that nothing is this Agreement will prohibit
the Employee or the Employee's Affiliates from "beneficially owning" (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
equity securities or interest of or in another corporation, partnership, joint
venture, business trust or other business organization or association engaged in
an activity that, if engaged in by the Employee or the Employee's Affiliates,
would be prohibited by the first clause of this sentence, so long as the equity
securities or interest so owned by the Employee and the Employee's Affiliates
(including any such equity securities or interest owned by any "associate" of
the Employee and the Employee's Affiliates within the meaning of Rule 12b-2
under the Securities Exchange Act of 1934, as amended) do not represent, in the
aggregate, more than five-percent (5%) of the profits or interest in the issuer
thereof.
b) The Employee and the Employer intend that the covenant
contained in Section 3.1a) be deemed to be a series of separate covenants made
by the Employee, one for each state of the United States and similar political
subdivisions of other countries. Except for the geographical coverage, the terms
of each such separate covenant contained in Section 3.1a) will be deemed to be
identical to the terms of the covenant contained in Section 3.1a).
<PAGE> 4
Employment and Noncompetition Agreement
Jeffrey A. Veres
Page 4 of 6
3.2 No Competitive Hiring. During the Noncompete Period the Employee
will not, and will cause each of the Employee's Affiliates not to attempt to
solicit, solicit or assist others in any attempt to solicit for employment any
employee or officer of the Employer or any Affiliate of the Employer (except any
employee whose employment by such Employer or Affiliate has terminated) without
the Employer's prior written consent.
3.3 Corporate Opportunities. During the Noncompete Period, the Employee
will, and will cause the Employee's Affiliates to, promptly refer to the
Employer any information or inquiry concerning any opportunity involving the
Business.
3.4 Confidential Information. The Employee acknowledges that
information, observations and data obtained by the Employee concerning the
Business or the business or affairs including customer lists and contacts of the
Employer, or any of its respective Affiliates (the "Confidential Information")
are confidential information, trade secrets and the property of the Employer.
The Employee and the Employee's Affiliates will not disclose to any unauthorized
person or use any Confidential Information without the prior written consent of
the Employer for the personal gain of the Employee or any of the Employee's
Affiliates; provided however, that such restriction on disclosure shall not
apply if the disclosure was made by the Employee in the direct pursuit of the
business interests of the Employer. Nothing herein shall prevent the disclosure
of Confidential Information (i) which becomes generally known to and available
for use by the public other than as a result of disclosure by any person or
entity owing a duty of confidentiality to the Employer or (ii) as may be
required by applicable law, regulation or order of any governmental agency or
court of competent jurisdiction. Immediately upon termination of the Employee's
employment with the Employer, the Employee will deliver to the Employer all
memoranda, notes, plans, records, reports, and other documents and information
(and all copies thereof in any form) relating to the Confidential Information,
the Business or the business and affairs of the Employer, which the Employee may
then possess or have under the Employee's control.
3.5 Inventions. For purposes of this Section 3.5, "Invention" means any
invention, improvement, discovery or idea useable by and of benefit to the
Business (whether patentable or not, and including those which may be subject to
copyright protection) generated, conceived or reduced to practice by the
Employee alone or in conjunction with others, during or after normal business
hours, whether before or during the term of this Agreement, and all associated
rights to patents, copyrights and applications therefor. The Employee agrees
promptly to disclose to the Employer all Inventions. All Inventions shall be the
exclusive property of the Employer and hereby are assigned to the Employer. The
Employee will, at the Employer's reasonable expense, provide the Employer with
all assistance it requires to protect, perfect and use its rights to and its
interest in Inventions anywhere in the world and to vest in the Employer such
rights and interest.
IV. MISCELLANEOUS
4.1 Specific Performance. The Employer and the Employee acknowledge and
agree that any breach of the Employee's covenants set forth in Articles III
hereof will result in irreparable damage to the Employer for which there will be
no adequate remedy at law. Therefore, the Employer and the Employee agree that
the Employer may in its sole discretion
<PAGE> 5
Employment and Noncompetition Agreement
Jeffrey A. Veres
Page 5 of 6
seek an order enjoining any breach of such covenants, without prejudice to any
other right or remedy to which the Employer may be entitled at law or in equity.
4.2 Arbitration. Any disputes arising under this Agreement, except
those involving claims for specific performance or other equitable relief for
any breach of Article III, shall be submitted to binding arbitration under the
Rules of the American Arbitration Association. The arbitration shall be
conducted only in Denver, Colorado before a single arbitrator selected by the
Employee and the Employer, or, if they are unable to agree on an arbitrator,
before a panel of three arbitrators, one selected by the Employee, one selected
by the Employer and a third selected by the other arbitrators. The award of the
arbitrators shall be final and binding and judgment on the award may be entered
by any court of competent jurisdiction. THIS SUBMISSION AND AGREEMENT TO
ARTIBRATE SHALL BE SPECIFICALLY ENFORCEABLE.
4.3 Attorneys' Fees and Costs. The prevailing party or parties in any
arbitration or in any other action to enforce this Agreement shall be entitled
to all reasonable costs and expenses, including attorneys' fees, incurred in
connection therewith.
4.4 Binding Contract. The mutual reliance by the Employer and the
Employee upon the existence of this Agreement shall constitute sufficient
consideration for the validity and enforceability of each of its provisions.
4.5 Severability. The Employer and the Employee agree that the terms of
this Agreement, and in particular the restrictions on the Employee set forth in
Article III, are reasonable and fair in light of the transactions contemplated
hereby. Whenever possible, each provision of this Agreement will be interpreted
so as to be fully effective and valid under applicable law. In the event that
any provision of this Agreement shall be determined to be unenforceable in any
respect as written, such provision shall be deemed to have been automatically
modified to the minimum extent necessary to make it enforceable and the
provision shall be enforced as so modified. If any provision contained in this
Agreement is determined to be void or unenforceable in whole or in part or is so
modified, it shall not be deemed to affect or impair the validity of any other
provision contained in this Agreement.
4.6 Waiver and Amendment. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Employee and by the Secretary for the Employer. 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, and if the party
against who in such waiver is asserted is the Employer, no waiver shall be
effective unless agreed to by the board of directors of Employer.
4.7 Assignment. This Agreement shall inure to the benefit of and be
enforceable by the Employer and its successors and assigns, including, without
limitation, any limited liability company or corporation formed by the Employer
or the general partners of the Employer, but shall not be assignable or
delegable in whole or in part by the Employee.
<PAGE> 6
Employment and Noncompetition Agreement
Jeffrey A. Veres
Page 6 of 6
4.8 Headings. The headings contained in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
4.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
4.10 Complete Agreement. This Agreement embodies the complete agreement
and understanding among the parties and supersedes and preempts any prior
understandings, agreements or representations by the parties, written or oral,
which may relate to the subject matter hereof.
4.11 CHOICE OF LAW. EXCEPT FOR THE FEDERAL ARBITRATION ACT, WHICH SHALL
APPLY TO SECTION 4.2, THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF COLORADO.
4.12 Termination. This Agreement shall terminate if the Agreement and
Plan of Merger dated the date hereof, to which Employer and Employee are
parties, shall terminate.
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
date first above written.
EMPLOYEE PentaStar Communications, Inc.
/s/ Jeffrey A. Veres By: /s/ Craig J. Zoellner
- -------------------- ---------------------
Jeffrey A. Veres
Craig J. Zoellner
-----------------
(Print name)
Its: President
---------
<PAGE> 1
EXHIBIT 10.6
PRINCIPAL STOCKHOLDER'S ESCROW
AND CONTINGENT STOCK AGREEMENT
This Escrow and Contingent Stock Agreement (this "Agreement") is
entered into as of August ___, 1999, among PentaStar Communications, Inc., a
Delaware corporation ("PentaStar" or the "Escrow Agent"), OC Mergerco 1, Inc., a
Delaware corporation (the "Acquiror") and Jeffrey Veres ("Veres"), who is the
principal stockholder of DMA Ventures, Inc., a Colorado corporation ("Access")
(collectively, the "Parties").
RECITALS
A. PentaStar, the Acquiror, Access, and Veres are parties to an agreement
and plan of merger dated August 13, 1999, under which Access will be
merged into the Acquiror in a transaction intended to qualify as a
tax-free reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Merger Transaction").
B. In the Merger Transaction, Veres will receive 205,000 shares of
PentaStar common stock and $500,000 of cash in return for his shares of
Access.
C. At the time of the Merger Transaction, the value of Access cannot be
determined with certainty.
D. The purpose of this Agreement is to provide for certain adjustments in
the amount of stock consideration Veres will receive in the Merger
Transaction.
NOW, THEREFORE, the parties to this Agreement agree as follows:
ARTICLE 1: DIRECTIONS
1.01 ESCROWED PROPERTY:
Veres will deposit with the Escrow Agent 68,265 shares of PentaStar
common stock (the "Shares"), which will be held by the Escrow Agent in
a separate account the sole assets of which will consist of the Shares
and certain shares of PentaStar common stock issued in connection with
the acquisition by PentaStar of other third party companies (the
"Escrow Account"). The certificates for the Shares shall be delivered
with appropriate stock powers duly executed in blank.
1.02 INSTRUCTIONS:
The Escrow Agent shall hold and disburse the Shares pursuant to the
instructions set forth in Schedule A, attached hereto and incorporated
herein by reference.
<PAGE> 2
1.03 ASSIGNMENT OF INTEREST:
The assignment, transfer, conveyance, or hypothecation of any right,
title, or interest in and to the subject matter of this Agreement is
prohibited by any party, and no such assignment will be given effect.
ARTICLE 2: RIGHTS OF VERES IN THE SHARES
During the term of this Agreement, (i) the Shares shall be reflected as
issued and outstanding on PentaStar's financial statements and other books and
records; (ii) Veres shall have all ownership rights with respect to the Shares,
including rights to vote such Shares and rights to any dividends paid by
PentaStar with respect to the Shares, and the books and records of PentaStar
will reflect such ownership. Upon the death or termination of employment of
Veres, the Shares will remain in the Escrow Account subject to disbursement to
Veres's legal heirs in accordance with Exhibit A.
ARTICLE 3: PROVISIONS CONCERNING ESCROW AGENT
3.01 ESCHEAT:
The Parties are aware that under Colorado law, escrowed property which is
presumed abandoned may escheat to the State. The Escrow Agent shall have
no liability to Veres, his respective heirs, legal representatives, and
successors, should any or all of the Shares become escheatable or escheat
by operation of law.
3.02 NON-LIABILITY:
The Escrow Agent shall not be liable for any act or omission while acting
in good faith and in the exercise of its own best judgment. Any act or
omission by the Escrow Agent pursuant to the advice of its attorneys
shall be conclusive evidence of such good faith. The Escrow Agent shall
have the right to consult with counsel at its expense whenever any
question arises concerning the Agreement and shall incur no liability for
any delay reasonably required to obtain such advice of counsel. The
Escrow Agent shall not be liable for the alteration, modification or
elimination of any right permitted or given under the instructions set
forth in Schedule A and/or in any document deposited under this Agreement
pursuant to any statute of limitations or by reason of laches. The Escrow
Agent shall have no further responsibility or liability whatsoever to
Veres following a partial or complete distribution of the Shares pursuant
to this Agreement. The Escrow Agent shall not incur any liability with
respect to any act or omission in reliance upon any document, including
any written notice or instructions provided for in this Agreement. In
performing its obligations hereunder, the Escrow Agent shall be entitled
to presume, without inquiry, the due execution, validity and
effectiveness of all documents it receives, and also the truth and
accuracy of any information contained therein. The Escrow Agent shall not
be responsible or liable for any diminution in value of the Shares,
whatsoever, for any reason.
3.03 DISAGREEMENTS:
If any disagreement or dispute arises between the Parties to this
Agreement concerning the meaning or validity of any provision hereunder
or concerning any other matter relating to this Agreement, the Escrow
Agent:
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<PAGE> 3
a. Shall be under no obligation to act, except under process or order
of court, or until it has been adequately indemnified to its full
satisfaction, and shall sustain no liability for its failure to
act pending such process, court order or indemnification; and
b. May, in its sole and absolute discretion, interplead the Shares or
that portion of Shares it then holds with the District Court of
the City and County of Denver, State of Colorado, and name the
Parties in such interpleader action. Upon filing the interpleader
action, the Escrow Agent shall be relieved of all liability as to
the Shares. The Parties by signing this Agreement submit
themselves to the jurisdiction of such Court and do appoint the
Clerk of such Court as their agent for the service of all process
in connection with such proceedings. In no event shall the
institution of such interpleader action impair the rights of the
Escrow Agent described in Section 4.06 of this Article.
ARTICLE 4: GENERAL TERMS AND CONDITIONS
4.01 EXTENSION OF BENEFITS:
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective heirs, legal representatives, successors,
and assigns of all the Parties and the Escrow Agent.
4.02 GOVERNING LAW:
This Agreement shall be construed and enforced in accordance with the
laws of the State of Colorado, without regard to the provisions of the
laws of the State of Colorado or any other State regarding conflicts of
laws.
4.03 NOTICES:
All notices, requests, demands, and other communications required under
this Agreement shall be in writing and shall be deemed to have been duly
given if delivered personally or by certified mail, return receipt
requested, and postage prepaid. If any notice is mailed, it shall be
deemed given on the date such notice is deposited in the United States
mail. If any notice is personally delivered, it shall be deemed given
upon the date of such delivery. If notice is given to a party, it shall
be mailed or delivered to the addresses set forth below the signature
blocks. It shall be the responsibility of the Parties to notify the
Escrow Agent in writing of any name or address changes.
4.04 ENTIRE AGREEMENT:
With respect to the subject matter hereof, this Agreement sets forth the
entire agreement and understanding of the Parties.
4.05 AMENDMENT:
This Agreement may be amended, modified, superseded, rescinded, or
canceled only by a written instrument executed by the Parties.
4.06 WAIVERS:
The failure of any party to this Agreement at any time or times to
require performance of any provision under this Agreement shall in no
manner affect the right at a later time to enforce the same performance.
A waiver by any party to this Agreement of any such
3
<PAGE> 4
condition or breach of any term, covenant, representation, or
warranty contained in this Agreement, in any one or more instances, shall
neither be construed as a further or continuing waiver of any such
condition or breach nor a waiver of any other condition or breach of any
other term, covenant, representation, or warranty contained in this
Agreement.
4.07 HEADINGS:
Section headings of this Agreement have been inserted for convenience of
reference only and shall in no way restrict or otherwise modify any of
the terms of provisions of this Agreement.
4.08 COUNTERPARTS:
This Agreement may be executed in one or more counterparts, each of which
when executed shall be deemed to be an original, and such counterparts
shall together constitute one and the same instrument. This Agreement may
be delivered by facsimile, and facsimile signatures shall be treated as
original signatures for all applicable purposes.
4.09 ARBITRATION.
Any disputes arising under or in connection with this Agreement,
including, without limitation, those involving claims for specific
performance or other equitable relief, will be submitted to binding
arbitration in Denver, Colorado before the Judicial Arbiter Group, but
under the Commercial Arbitration Rules of the American Arbitration
Association under the authority of federal and state arbitration
statutes, and shall not be the subject of litigation in any forum. If the
Judicial Arbiter Group is unavailable to conduct the arbitration, the it
shall be before the American Arbitration Association. EACH PARTY, BY
SIGNING THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES
ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR
OTHER FORUMS, INCLUDING THE RIGHT TO JURY TRIAL. The arbitrator shall
have full authority to order specific performance and other equitable
relief and award damages and other relief available under this Agreement
or applicable law, but shall have no authority to add to, detract from,
change or amend the terms of this Agreement or existing law. All
arbitration proceedings, including settlements and awards, shall be
confidential. The decision of the arbitrators will be final and binding,
and judgment on the award by the arbitrators may be entered in any court
of competent jurisdiction. THIS SUBMISSION AND AGREEMENT TO ARBITRATE
WILL BE SPECIFICALLY ENFORCEABLE. The prevailing party or parties in any
such arbitration in any action to enforce this Agreement will be entitled
to recover, in addition to any other relief awarded by the arbitrator,
all reasonable costs and expenses, including fees and expenses of
arbitrators and attorneys, incurred in connection therewith. If each
party prevails on specific issues in the arbitration, the arbitrator may
allocate the costs incurred by all parties on a basis the arbitrator
deems appropriate.
4
<PAGE> 5
IN WITNESS WHEREOF, the Parties to this Agreement have each caused this
Agreement to be duly executed on this ____ day of August, 1999.
PENTASTAR COMMUNICATIONS, INC.
By:
------------------------------- -----------------------------
Its: JEFFREY VERES
------------------------------
OC MERGERCO 1, INC.
By:
--------------------------------
Its:
------------------------------
5
<PAGE> 6
SCHEDULE A TO THE ESCROW AGREEMENT
DISBURSEMENT OF THE SHARES AND
POTENTIAL ISSUANCE OF ADDITIONAL PENTASTAR SHARES
1. Upon the occurrence of the earlier of (i) a sale of substantially all of
the assets or the outstanding stock of PentaStar, or (ii) August ___,
2004 (the "Valuation Event"), the number of Adjusted Shares shall be
determined pursuant to the formula set forth below.
2. If the number of Adjusted Shares exceeds the number of Shares, (a) the
Escrow Agent shall distribute all of the Shares to Veres within 60 days
of the date of the Valuation Event; and (b) within such 60 day period,
PentaStar shall issue to Veres additional shares of PentaStar Common
Stock equal to such excess (the "Additional Shares"). The Parties agree
that a portion of the Additional Shares shall be treated as imputed
interest under Section 483 of the Internal Revenue Code and reported as
interest for all applicable tax purposes. Notwithstanding the foregoing,
in no event shall the number of Additional Shares exceed the number of
shares of PentaStar Common Stock issued to Veres at the closing in the
Merger Transaction but not deposited in the Escrow Account.
3. If the number of Shares exceeds the number of Adjusted Shares, then
within 60 days of the date of the Valuation Event, (a) the Escrow Agent
shall retain such excess number of Shares in its Treasury and (b) the
Escrow Agent shall distribute the remainder of the Shares (which shall
equal the number of Adjusted Shares), to Veres.
4. The number of Adjusted Shares shall be calculated under the following
formula:
Adjusted Shares = (Total Escrowed Shares) x (Veres Percentage)
Veres Percentage = Veres' Adjusted EBITA
Total Operating Partner EBITA
Veres Adjusted EBITA = (26.77%**) x (Access Measurement Period EBITA)
[**calculate percentage based on total consideration (cash and stock) received
by all Access shareholders in Access merger that is represented by the Shares
Veres placed in this escrow -- such calculation will be done at Closing]
Access Measurement Period EBITA = Access' earnings before interest, income
taxes, and amortization (determined in accordance with generally accepted
accounting principles) for the twelve-month period ending on the earlier to
occur of (i) the date of termination of Veres' employment with PentaStar and
(ii) date of the Valuation Event. For these purposes, Access' earnings will
include earnings of Access (and its subsidiaries, if any) before and after the
acquisition of Access by PentaStar, and, if Access is merged into PentaStar,
Access earnings shall include those earnings of PentaStar attributable to the
metropolitan area in which Access operated prior to such merger.
i
<PAGE> 7
Total Escrowed Shares = the total number of shares of PentaStar Common Stock
received by Principal Shareholders prior to the date of the Valuation Event,
which Shares are placed in the Escrow Account under escrow agreements similar to
this Agreement.
Principal Shareholders = those owners of business entities (including Access)
acquired by PentaStar prior to the date of the Valuation Event who are active in
the operation of such business both before and after such acquisition, and who
enter into an agreement, the terms and conditions of which are substantially
similar to this Agreement.
Total Operating Partner EBITA = the total adjusted EBITA of all Principal
Shareholders (including Veres), where the Adjusted EBITA for each such Principal
Shareholder is calculated in the same manner as the Veres Adjusted EBITA is
calculated, as described above.
EXAMPLES
EXAMPLE 1: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that Access EBITA for 2003 = $3 million, and
that total Operating Partner EBITA (as defined above) for 2003 is $10 million.
Also, assume that 1 million total shares of PentaStar common stock (including
the Shares) are placed in the Escrow Account by all Principal Shareholders. The
Veres Adjusted EBITA = 26.77% X $3 million, which equals $803,100. The Veres
Percentage = $803,100 over $10 million, which = 8.03%. The number of Adjusted
Shares for Veres = 1 million (the total number of Shares placed in escrow) X
0.0803 (the Veres Percentage), which = 80,310. Consequently, Veres will receive
the Shares back from the Escrow Account, plus 12,045 additional shares of
PentaStar common stock directly from PentaStar.
EXAMPLE 2: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that Access EBITA for 2003 = $1 million, and
that total Operating Partner EBITA (as defined above) for 2003 is $10 million.
Also, assume that 1 million total shares of PentaStar common stock (including
the Shares) are placed in the Escrow Account by all Principal Shareholders. The
Veres Adjusted EBITA = 26.77% X $1 million, which equals $267,700. The Veres
Percentage = $267,700 over $10 million, which = 2.68%. The number of Adjusted
Shares for Veres = 1 million (the total number of Shares placed in escrow) X
0.0268 (the Veres Percentage), which = 26,770. Consequently, Veres will receive
26,770 of the Shares back, and the remaining 41,495 Shares will be retained by
PentaStar.
ii
<PAGE> 1
EXHIBIT 10.7
PRINCIPAL STOCKHOLDER'S ESCROW
AND CONTINGENT STOCK AGREEMENT
This Escrow and Contingent Stock Agreement (this "Agreement") is
entered into as of August ___, 1999, among PentaStar Communications, Inc., a
Delaware corporation ("PentaStar" or the "Escrow Agent"), OC Mergerco 2, Inc.,
a Delaware corporation (the "Acquiror") and Dennis Schillinger ("Schillinger"),
who is the principal stockholder of ICM Communications Integration, Inc., a
Washington corporation ("ICM") (collectively, the "Parties").
RECITALS
A. PentaStar, the Acquiror, Schillinger and ICM are parties to an
agreement and plan of merger dated August 13, 1999, under which ICM
will be merged into the Acquiror in a transaction intended to qualify
as a tax-free reorganization under Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Merger Transaction").
B. In the Merger Transaction, Schillinger will receive 120,000 shares of
PentaStar common stock and $200,000 of cash in return for his shares
of ICM.
C. At the time of the Merger Transaction, the value of ICM cannot be
determined with certainty.
D. The purpose of this Agreement is to provide for certain adjustments in
the amount of stock consideration Schillinger will receive in the
Merger Transaction.
NOW, THEREFORE, the parties to this Agreement agree as follows:
ARTICLE 1: DIRECTIONS
1.01 ESCROWED PROPERTY:
Schillinger will deposit with the Escrow Agent 40,000 shares of
PentaStar common stock (the "Shares"), which will be held by the
Escrow Agent in a separate account the sole assets of which will
consist of the Shares and certain shares of PentaStar common stock
issued in connection with the acquisition by PentaStar of other third
party companies (the "Escrow Account"). The certificates for the
Shares shall be delivered with appropriate stock powers duly executed
in blank.
1.02 INSTRUCTIONS:
The Escrow Agent shall hold and disburse the Shares pursuant to the
instructions set forth in Schedule A, attached hereto and incorporated
herein by reference.
1.03 ASSIGNMENT OF INTEREST:
The assignment, transfer, conveyance, or hypothecation of any right,
title, or interest in and to the subject matter of this Agreement by
any party is prohibited, and no such assignment will be given effect.
<PAGE> 2
ARTICLE 2: RIGHTS OF SCHILLINGER IN THE SHARES
During the term of this Agreement, (i) the Shares shall be reflected as
issued and outstanding on PentaStar's financial statements and other books and
records; (ii) Schillinger shall have all ownership rights with respect to the
Shares, including rights to vote such Shares and rights to any dividends paid
by PentaStar with respect to the Shares, and the books and records of PentaStar
will reflect such ownership. Upon the death or termination of employment of
Schillinger, the Shares will remain in the Escrow Account subject to
disbursement to Schillinger or his legal heirs in accordance with Exhibit A.
ARTICLE 3: PROVISIONS CONCERNING ESCROW AGENT
3.01 ESCHEAT:
The parties are aware that under Colorado law, escrowed property which
is presumed abandoned may escheat to the State. The Escrow Agent shall
have no liability to Schillinger, his respective heirs, legal
representatives, and successors, should any or all of the Shares
become escheatable or escheat by operation of law.
3.02 NON-LIABILITY:
The Escrow Agent shall not be liable for any act or omission while
acting in good faith and in the exercise of its own best judgment. Any
act or omission by the Escrow Agent pursuant to the advice of its
attorneys shall be conclusive evidence of such good faith. The Escrow
Agent shall have the right to consult with counsel at its expense
whenever any question arises concerning the Agreement and shall incur
no liability for any delay reasonably required to obtain such advice
of counsel. The Escrow Agent shall not be liable for the alteration,
modification or elimination of any right permitted or given under the
instructions set forth in Schedule A and/or in any document deposited
under this Agreement pursuant to any statute of limitations or by
reason of laches. The Escrow Agent shall have no further
responsibility or liability whatsoever to Schillinger following a
partial or complete distribution of the Shares pursuant to this
Agreement. The Escrow Agent shall not incur any liability with respect
to any act or omission in reliance upon any document, including any
written notice or instructions provided for in this Agreement. In
performing its obligations hereunder, the Escrow Agent shall be
entitled to presume, without inquiry, the due execution, validity and
effectiveness of all documents it receives, and also the truth and
accuracy of any information contained therein. The Escrow Agent shall
not be responsible or liable for any diminution in value of the
Shares, whatsoever, for any reason.
3.03 DISAGREEMENTS:
If any disagreement or dispute arises between the parties to this
Agreement concerning the meaning or validity of any provision
hereunder or concerning any other matter relating to this Agreement,
the Escrow Agent:
a. Shall be under no obligation to act, except under process or
order of court, or until it has been adequately indemnified
to its full satisfaction, and shall sustain no liability for
its failure to act pending such process, court order or
indemnification; and
b. May, in its sole and absolute discretion, interplead the
Shares or that portion of Shares it
2
<PAGE> 3
then holds with the District Court of the City and County of
Denver, State of Colorado, and name the parties in such
interpleader action. Upon filing the interpleader action, the
Escrow Agent shall be relieved of all liability as to the
Shares. The parties by signing this Agreement submit
themselves to the jurisdiction of such Court and do appoint
the Clerk of such Court as their agent for the service of all
process in connection with such proceedings. In no event
shall the institution of such interpleader action impair the
rights of the Escrow Agent described in Section 4.06 of this
Article.
ARTICLE 4: GENERAL TERMS AND CONDITIONS
4.01 EXTENSION OF BENEFITS:
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective heirs, legal representatives,
successors, and assigns of all the parties and the Escrow Agent.
4.02 GOVERNING LAW:
This Agreement shall be construed and enforced in accordance with the
laws of the State of Colorado, without regard to the provisions of the
laws of the State of Colorado or any other State regarding conflicts
of laws.
4.03 NOTICES:
All notices, requests, demands, and other communications required
under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered personally or by certified mail, return
receipt requested, and postage prepaid. If any notice is mailed, it
shall be deemed given on the date such notice is deposited in the
United States mail. If any notice is personally delivered, it shall be
deemed given upon the date of such delivery. If notice is given to a
party, it shall be mailed or delivered to the addresses set forth
below the signature blocks. It shall be the responsibility of the
parties to notify the Escrow Agent in writing of any name or address
changes.
4.04 ENTIRE AGREEMENT:
With respect to the subject matter hereof, this Agreement sets forth
the entire agreement and understanding of the parties.
4.05 AMENDMENT:
This Agreement may be amended, modified, superseded, rescinded, or
canceled only by a written instrument executed by the parties.
4.06 WAIVERS:
The failure of any party to this Agreement at any time or times to
require performance of any provision under this Agreement shall in no
manner affect the right at a later time to enforce the same
performance. A waiver by any party to this Agreement of any such
condition or breach of any term, covenant, representation, or warranty
contained in this Agreement, in any one or more instances, shall
neither be construed as a further or continuing waiver of any such
condition or breach nor a waiver of any other condition or breach of
any other term, covenant, representation, or warranty contained in
this Agreement.
3
<PAGE> 4
4.07 HEADINGS:
Section headings of this Agreement have been inserted for convenience
of reference only and shall in no way restrict or otherwise modify any
of the terms of provisions of this Agreement.
4.08 COUNTERPARTS:
This Agreement may be executed in one or more counterparts, each of
which when executed shall be deemed to be an original, and such
counterparts shall together constitute one and the same instrument.
This Agreement may be delivered by facsimile, and facsimile signatures
shall be treated as original signatures for all applicable purposes.
4.09 ARBITRATION.
Any disputes arising under or in connection with this Agreement,
including, without limitation, those involving claims for specific
performance or other equitable relief, will be submitted to binding
arbitration in Denver, Colorado before the Judicial Arbiter Group, but
under the Commercial Arbitration Rules of the American Arbitration
Association under the authority of federal and state arbitration
statutes, and shall not be the subject of litigation in any forum. If
the Judicial Arbiter Group is unavailable to conduct the arbitration,
the it shall be before the American Arbitration Association. EACH
PARTY, BY SIGNING THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND
INTELLIGENTLY WAIVES ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO SEEK
REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO JURY TRIAL.
The arbitrator shall have full authority to order specific performance
and other equitable relief and award damages and other relief
available under this Agreement or applicable law, but shall have no
authority to add to, detract from, change or amend the terms of this
Agreement or existing law. All arbitration proceedings, including
settlements and awards, shall be confidential. The decision of the
arbitrators will be final and binding, and judgment on the award by
the arbitrators may be entered in any court of competent jurisdiction.
THIS SUBMISSION AND AGREEMENT TO ARBITRATE WILL BE SPECIFICALLY
ENFORCEABLE. The prevailing party or parties in any such arbitration
in any action to enforce this Agreement will be entitled to recover,
in addition to any other relief awarded by the arbitrator, all
reasonable costs and expenses, including fees and expenses of
arbitrators and attorneys, incurred in connection therewith. If each
party prevails on specific issues in the arbitration, the arbitrator
may allocate the costs incurred by all parties on a basis the
arbitrator deems appropriate.
IN WITNESS WHEREOF, the Parties to this Agreement have each caused this
Agreement to be duly executed on this ____ day of August, 1999.
4
<PAGE> 5
PENTASTAR COMMUNICATIONS, INC.
By:
------------------------------ --------------------------------
Its: DENNIS SCHILLINGER
-----------------------------
OC MERGERCO 2, INC.
By:
------------------------------
Its:
-----------------------------
5
<PAGE> 6
SCHEDULE A TO THE ESCROW AGREEMENT
DISBURSEMENT OF THE SHARES AND
POTENTIAL ISSUANCE OF ADDITIONAL PENTASTAR SHARES
1. Upon the occurrence of the earlier of (i) a sale of substantially all
of the assets or the outstanding stock of PentaStar, or (ii) August
___, 2004 (the "Valuation Event"), the number of Adjusted Shares (as
defined below) shall be determined pursuant to the formula set forth
below.
2. If the number of Adjusted Shares exceeds the number of Shares, (a) the
Escrow Agent shall distribute all of the Shares to Schillinger within
60 days of the date of the Valuation Event; and (b) within such 60 day
period, PentaStar shall issue to Schillinger additional shares of
PentaStar Common Stock equal to such excess (the "Additional Shares").
The parties agree that a portion of the Additional Shares shall be
treated as imputed interest under Section 483 of the Internal Revenue
Code and reported as interest for all applicable tax purposes.
Notwithstanding the foregoing, in no event shall the number of
Additional Shares exceed the number of shares of PentaStar Common
Stock issued to Schillinger at the closing in the Merger Transaction
but not deposited in the Escrow Account.
3. If the number of Shares exceeds the number of Adjusted Shares, then
within 60 days of the date of the Valuation Event, (a) the Escrow
Agent shall retain such excess number of Shares in its Treasury and
(b) the Escrow Agent shall distribute the remainder of the Shares
(which shall equal the number of Adjusted Shares) to Schillinger.
4. The number of Adjusted Shares shall be calculated under the following
formula:
Adjusted Shares = (Total Escrowed Shares) x (Schillinger Percentage)
Schillinger Percentage = Schillinger's Adjusted EBITA
-----------------------------
Total Operating Partner EBITA
Schillinger Adjusted EBITA = (11.19%**) x (ICM Measurement Period
EBITA)
[**calculate percentage based on total consideration (cash and stock) received
by all ICM shareholders in ICM merger that is represented by the Shares
Schillinger placed in this escrow -- such calculation will be done at Closing]
ICM Measurement Period EBITA = ICM's earnings before interest, income taxes,
and amortization (determined in accordance with generally accepted accounting
principles) for the twelve-month period ending on the earlier to occur of (i)
the date of termination of Schillinger's employment with PentaStar and (ii) the
date of the Valuation Event. For these purposes, ICM's earnings will include
earnings of ICM (and its subsidiaries, if any) before and after the
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<PAGE> 7
acquisition of ICM by PentaStar, and, if ICM is merged into PentaStar, ICM's
earnings shall include those earnings of PentaStar attributable to the
metropolitan area in which ICM operated prior to such merger.
Total Escrowed Shares = the total number of shares of PentaStar Common Stock
received by Principal Shareholders prior to the date of the Valuation Event,
which shares are placed in the Escrow Account under escrow agreements similar
to this Agreement.
Principal Shareholders = those owners of business entities (including ICM)
acquired by PentaStar prior to the date of the Valuation Event who are active
in the operation of such business both before and after such acquisition, and
who enter into an agreement, the terms and conditions of which are
substantially similar to this Agreement.
Total Operating Partner EBITA = the total adjusted EBITA of all Principal
Shareholders (including Schillinger), where the Adjusted EBITA for each such
Principal Shareholder is calculated in the same manner as the Schillinger
Adjusted EBITA is calculated, as described above.
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<PAGE> 8
EXAMPLES
EXAMPLE 1: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that ICM EBITA for 2003 = $3 million, and
that total Operating Partner EBITA (as defined above) for 2003 is $10 million.
Also, assume that 2 million total shares of PentaStar common stock (including
the Shares) are placed in the Escrow Account by all Principal Shareholders. The
Schillinger Adjusted EBITA = 11.19% X $3 million, which equals $335,700. The
Schillinger Percentage = $335,700 over $10 million, which = 3.36%. The number
of Adjusted Shares for Schillinger = 2 million (the total number of Shares
placed in escrow) X 0.0336 (the Schillinger Percentage), which =67,200.
Consequently, Schillinger will receive the Shares back from the Escrow Account,
plus 27,200 additional shares of PentaStar common stock directly from
PentaStar.
EXAMPLE 2: Assume that all of the outstanding stock of PentaStar is sold on
December 31, 2003. Assume further that ICM EBITA for 2003 = $1 million, and
that total Operating Partner EBITA (as defined above) for 2003 is $10 million.
Also, assume that 2 million total shares of PentaStar common stock (including
the Shares) are placed in the Escrow Account by all Principal Shareholders. The
Schillinger Adjusted EBITA = 11.19% X $1 million, which equals $111,900. The
Schillinger Percentage = $111,900 over $10 million, which = 1.12%. The number
of Adjusted Shares for Schillinger = 2 million (the total number of Shares
placed in escrow) X 0.0112 (the Schillinger Percentage), which = 22,400.
Consequently, Schillinger will receive 22,400 of the Shares back, and the
remaining 17,600 Shares will be retained by PentaStar.
iii
<PAGE> 1
EXHIBIT 10.8
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is made this 1st day of September,
1999, between BACE Real Estate, LLC ("Landlord") and Optimal Communications,
Inc. ("Tenant").
1. Premises.
In consideration of the payment of Rent, defined below, and
the keeping and performance by Tenant of the covenants and agreements
hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby rents
from Landlord those certain premises depicted on Exhibit A, attached hereto and
by this reference incorporated herein (the "Premises"), said Premises consisting
of approximately 1875 rentable square feet of space comprising Suite 200 of the
building located at 1522 Blake Street, Denver, Colorado 80202 (the "Building"),
together with a non-exclusive license, subject to the provisions hereof, to use
the Common Areas, defined below.
2. Term.
The term of this Lease shall commence on September 1, 1999
(the "Commencement Date"), and terminate on August 31, 2002, unless sooner
terminated pursuant to this Lease. The said three-year term in hereinafter
referred to as the "Primary Lease Term."
3. Base Rent.
A. Tenant shall pay to Landlord, as rent for the Primary Lease
Term, the annual sum of $36,000 U.S. Dollars (the "Base Rent") which sum shall
be payable in equal monthly installments of $3,000 commencing on the
Commencement Date, and continuing thereafter on the first day of each succeeding
calendar month. All Base Rent, additional rent or other rentals or sums due
hereunder shall be paid in advance without notice, abatement, deduction or
offset at the office of Landlord or to such other person or at such other place
as Landlord may designate in writing. The installments of the Rent (defined
below) for the first and last months of the term hereof shall be prorated based
upon the number of days during each of said months that the Primary Lease Term
is in effect.
B. As of the beginning of each Lease Year, defined below, the
Base Rent due hereunder shall be adjusted by the percentage increase in the U.S.
Department of Labor Consumer Price Index (commonly referred to as the Cost of
Living Index) for All Items, All Urban Consumers, Denver-Boulder published for
the most current month. The Base Rent then being paid shall be increased by an
amount equal to the amount arrived at by multiplying the percentage increase in
the Cost of Living Index for the preceding Lease Year times the then payable
monthly rental. The increased monthly rental as so determined shall commence as
of the first day of the month immediately following the end of the current Lease
Year and shall continue until readjusted as herein provided. Landlord shall
endeavor to give to Tenant a statement of the increase on or
<PAGE> 2
before the beginning of each Lease Year, but failure by Landlord to do so shall
not constitute a waiver by Landlord of its right to increase the Base Rent. If
the Cost of Living Index is discontinued, Landlord and Tenant shall agree upon
comparable statistics on the cost of living for the computations under this
subparagraph (2), and such statistics shall be published by an agency of the
United States Government or by a responsible financial periodical or recognized
authority. If Landlord and Tenant fail to agree on a replacement index, they
will submit the question of a replacement index to an arbitrator in accordance
with the rules and regulations of the American Arbitration Association.
4. Expense and Tax Adjustments.
A. Definitions. In addition to the terms elsewhere
defined in this Lease, the following terms shall have the following meanings
with respect to the provisions of this Lease.
(1) "Rent" shall mean Base Rent and any
additional rent to be paid hereunder pursuant to Paragraph 4B below.
(2) "Tenant's Pro Rata Share I" shall mean that
fraction, the numerator of which is the total number of square feet of the
Premises (i.e., 1875 square feet) and the denominator of which is the square
footage of the Building (i.e., 6875 square feet), and is equal to 27.3%.
"Tenant's Pro Rata Share II" shall mean that fraction, the numerator of which is
the total number of square feet of the Premises (i.e., (1875 square feet) and
the denominator of which is the square footage of the second and third floors of
the Building (i.e., 3750 square feet) and is equal to 50%. At such time, if
ever, as any space is added to or subtracted from the Premises, Tenant's Pro
Rata Share I and II shall be increased or decreased accordingly.
(3) "Lease Year" shall mean such 12-month period
beginning with the date the Primary Lease Term commenced, or any anniversary
thereof, and ending on the day prior to the Commencement Date one-year later. If
the Lease Year is not concurrent with a calendar year, then Landlord reserves
the right at any time to make all adjustments provided for herein on a calendar
year basis, with an appropriate proration of the Lease Years in which such
conversion is made and in which the term ends, and "Lease Year" as used in this
Lease shall thereafter be deemed to refer to "calendar year."
(4) "Operating Expenses I" shall mean all
operating expenses of any kind or nature incurred in connection with the
operation and maintenance of the Building as determined by Landlord, other than
those Operating Expenses II defined below. Operating Expenses I shall include,
but not be limited to:
(a) All real property taxes and
assessments levied against the Building by any governmental or
quasi-governmental authority. The foregoing shall include any taxes,
assessments, surcharges, or service or other fees of a nature not presently in
effect which shall hereafter be levied on the Building as a result of the use,
ownership or operation of the Building or for any other reason, whether in lieu
of or in addition to any current real estate taxes and assessments; provided,
however, that any taxes which shall be levied on the rentals of the Building
shall be determined as if the Building were Landlord's only property and
provided further, that in no event shall the term "taxes or assessments," as
used herein, include any federal, state or local income taxes levied or assessed
on Landlord, unless such taxes are a specific substitute for real property
taxes. Expenses incurred by Landlord for tax consultants and in contesting the
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<PAGE> 3
amount or validity of any such taxes or assessments shall be included in such
computations (all of the foregoing are collectively referred to herein as the
"Taxes"). "Assessments" shall include any and all so-called special assessments,
license tax, business license fee, business license tax, commercial rental tax,
levy, charge or tax, imposed by any authority having the direct power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, water, drainage or other improvement or special district
thereof, against the Premises, the Building, or against any legal or equitable
interest of Landlord therein. For the purposes of this Lease, any special
assessments shall be deemed payable in such number of installments as is
permitted by law, whether or not actually so paid. Notwithstanding any other
language in this Lease, if any assessment, tax, levy, repayment of bonds, or
charge of any kind arising from the existence of any special governmental
districts or improvements ("special assessment"), which has been regularly
assessed upon the Premises or any property of which the Premises form a part,
expires, is revoked, is eliminated, or is reduced in any way (a "reduction"),
the Landlord shall be entitled to continue to receive an expense payment equal
to the amount of the original special assessment passed on to the Tenant. Any
reduction of special assessments shall not reduce the rent or other payments
that the Tenant is required to pay to Landlord; rather, the Landlord shall be
sole beneficiary and recipient of all economic benefits arising from such
reductions.
(b) Costs of water and sanitary and
storm drainage service.
(c) Costs of maintenance, repairs and
replacements, including costs under HVAC and other mechanical maintenance
contracts; and maintenance, repairs and replacements of equipment used in
connection with such maintenance and repair work.
(d) Costs of maintenance and replacement
of landscaping; and costs of maintenance, repairs and replacement of the
sidewalk in front of the Building.
(e) Insurance premiums, including fire
and all-risk coverage together with loss of rent endorsement; commercial general
liability insurance; and any other insurance carried by Landlord on the Building
or any component parts thereof. All such insurance shall be in such amounts as
may be required by any mortgagee or ground lessor of Landlord or as Landlord may
reasonably determine.
(f) Labor costs, including wages and
other payments, costs to Landlord of worker's compensation and disability
insurance, payroll taxes, welfare fringe benefits and all reasonable and
necessary legal fees and other costs or expenses incurred in resolving any labor
disputes.
(g) Professional building management
fees at prevailing market rates.
(h) Legal, accounting, inspection, and
other consultation fees (including, without limitation, fees charged by
consultants retained by Landlord for services that are designed to produce a
reduction in Operating Expenses I and II or reasonably to improve the operation,
maintenance or state of repair of the Building) incurred in the ordinary course
of operating the Building.
(i) The costs of capital improvements
and structural repairs and replacements made in or to the Building in order to
conform to changes, subsequent to the
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<PAGE> 4
Commencement Date, in any applicable laws, ordinances, rules, regulations, or
orders of any governmental or quasi-governmental authority having jurisdiction
over the Building (herein, "Required Capital Improvements"); the costs of any
capital improvements and structural repairs and replacements designed primarily
to reduce Operating Expenses I or II (herein, "Cost Savings Improvements"); and
reasonable annual reserves and reasonable expenditures for other capital
improvements, structural repairs and replacements reasonably necessary to permit
Landlord to maintain the Building as a first class building (the "Capital
Improvements"). The expenditures for Required Capital Improvements, Costs
Savings Improvements and Capital Improvements shall be amortized over the useful
life of such capital improvement or structural repair or replacement (consistent
with the Internal Revenue Code as reasonable determined by Landlord).
(j) Costs incurred by Landlord or its
accountants in engaging experts or other consultants to assist them in making
the computations required hereunder.
(k) Any other expense, which under
generally accepted accounting principles, would be considered a normal
maintenance or operating expense. If Landlord selects an accrual accounting
basis for calculating Operating Expenses I, Operating Expenses I shall be deemed
to have been paid when such expenses have accrued in accordance with generally
accepted accounting principles.
(5) "Operating Expenses II" shall mean all
operating expenses of any kind or nature incurred in connection with the
operation and maintenance of the Building as determined by Landlord, other than
those Operating Expenses I defined above:
(a) Costs incurred in connection with
obtaining and providing energy for the Building, including but not limited to
costs of propane, butane, natural gas, steam, electricity, solar energy and fuel
oils, coal or any other energy sources.
(b) Costs incurred by Landlord for
janitorial expenses.
(6) "Operating Expenses I and II" shall not
include:
(a) Costs of repairs or other work
occasioned by fire, windstorm or other insured casualty to the extent of
insurance proceeds received;
(b) Leasing commissions, advertising
expenses, and other costs incurred in leasing space in the Building;
(c) Costs of repairs or rebuilding
necessitated by condemnation;
(d) Any interest on borrowed money or
debt amortization except as specifically set forth above;
(e) Depreciation on the Building.
(7) Notwithstanding anything contained herein to
the contrary, if any lease entered into by Landlord with any tenant in the
Building provides for a separate basis of computation for any Operating Expenses
I or II with respect to its leased premises, then, to the extent that Landlord
determines that an adjustment should be made in making the computations
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<PAGE> 5
herein provided for, Landlord shall be permitted to modify the computation of
any Building square footages and Operating Expenses I and II for a particular
Lease Year in order to eliminate or otherwise modify any such expenses which are
paid for in whole or in part by such tenant. Furthermore, in making any
computations contemplated hereby, Landlord shall also be permitted to make such
adjustments and modifications to the provisions of this Paragraph 4 as shall be
reasonably necessary to achieve the intention of the parties hereto.
(8) Tenant acknowledges that the Building is a
mixed-use project, consisting of both retail and office use. Accordingly, any
services, repairs or costs that are made only for the benefit of the office
tenants or alternatively only for the benefit of the retail tenants will be
charged only to such benefited group.
B. Adjustment Mechanism.
(1) It is hereby agreed that starting with the
second Lease Year, and during each subsequent Lease Year thereafter, Tenant
shall pay to Landlord as additional rent, any projected increases in Tenant's
Pro Rata Share I of the Operating Expenses I and Tenant's Pro Rata Share II of
the Operating Expenses II in the Current Lease Year over calendar 1999
(hereinafter referred to collectively as "Tenant's Pro Rata Share of Operating
Expense Increases." Commencing with the 13th rental payment under this Lease,
Tenant shall pay to Landlord an estimate of such Tenant's Pro Rata Share of
Operating Expense Increases, which payment Tenant shall pay to Landlord monthly
in an amount equal to one-twelfth (1/12) of Tenant's Pro Rata Share of Operating
Expense Increases for such Lease Year, as reasonably estimated by Landlord, with
an adjustment to be made between the parties at a later date as hereinafter
provided. As soon as practicable following the end of any Lease Year, but not
later than the first day of December, beginning with the end of the first Lease
Year, Landlord shall notify Tenant of the difference, if any, between Tenant's
actual Pro Rata Share of Operating Expense Increases for the Lease Year just
completed and the estimated amount of Tenant's Pro Rata Share of Operating
Expense Increases (which was paid in accordance with this subparagraph) for such
year. Such statement shall also set forth the amount of the estimated Tenant's
Pro Rata Share of Operating Expense Increases reimbursement for the new Lease
Year computed in accordance with the foregoing provisions. To the extent that
actual Tenant's Pro Rata Share of Operating Expense Increases for any period
covered by such statement is greater than the estimate which Tenant previously
paid during the Lease Year just completed, Tenant shall pay to Landlord the
difference in cash within 30 days following receipt of said statement from
Landlord. To the extent that actual Tenant's Pro Rata Share of Operating Expense
Increases for the period covered by the statement is less than the estimate
which Tenant previously paid during the Lease Year just completed, Landlord
shall pay to Tenant the difference within 30 days after the date of the
statement. In addition, until Tenant receives such statement, Tenant's monthly
reimbursement for the new Lease Year shall continue to be paid at the rate for
the previous Lease Year, but Tenant shall commence payment to Landlord of the
monthly installments of reimbursement on the basis of the new statement
beginning on the first day of the month following the month in which Tenant
receives such statement. If the statement reflects a change in the monthly
reimbursement amount, such difference shall be adjusted by increasing or
decreasing the first monthly reimbursement payment after the statement is given
in order to bring the reimbursement amount for the new Lease Year current as of
such date.
(2) Tenant's obligation with respect to Tenant's
Pro Rata Share of Operating Expense Increases shall survive the expiration or
early termination of this Lease, and subsequent
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<PAGE> 6
to such expiration or termination, Tenant shall pay the actual Tenant's Pro Rata
Share of Operating Expense Increases for the portion of the final Lease Year of
the Lease during which Tenant was obligated to pay such expenses. If Tenant
occupies the Premises for less than a full calendar year during the first or
last Lease Years of the term hereof, Tenant's Pro Rata Share of Operating
Expense Increases for such partial year shall be prorated based upon the number
of calendar months and days during which Tenant occupied the Premises. Tenant
shall pay any Tenant's Pro Rata Share of Operating Expense Increases within 30
days following receipt of notice thereof. Landlord's obligation to refund any
excess payments shall likewise survive the expiration of this Lease.
(3) Tenant shall have the right, at any time within 30 days
after a statement of actual Operating Expenses I and II for a particular Lease
Year has been rendered by Landlord as provided herein, at its sole cost and
expense, to examine Landlord's books and records relating to the determination
of Operating Expenses I and II; provided, however, that Tenant shall give
Landlord prior written notice of its intent to exercise such right, the
inspection may not take place outside of normal business hours, and Tenant shall
not interfere with Landlord's normal business activities. Unless Tenant objects
to the rental adjustment within said 30-day period, such statement and
adjustment shall be deemed conclusive.
(4) In the event that the Building is not fully occupied
during any particular Lease Year, Landlord shall adjust those Operating Expenses
I and II for the particular Lease Year, or portion thereof, as the case may be,
which are affected by the occupancy rates to reflect an occupancy of not less
than 90% of all such Useable Area.
5. Security Deposit.
Within 30 days from the Commencement Date Tenant shall deposit
with Landlord a security deposit in the amount of $3,000 (the "Security
Deposit") as security for Tenant's faithful performance of Tenant's obligations
under this Lease. If Tenant fails to pay Rent or other charges due hereunder, or
otherwise defaults under this Lease, Landlord may use, apply or retain all or
any portion of said Security Deposit for the payment of any amount due Landlord
or to reimburse or compensate Landlord for any liability, cost, expense, loss or
damage which Landlord may suffer or incur by reason thereof. If Landlord uses or
applies all or any portion of said security deposit, or if Tenant defaults in
any way under the terms of this Lease regardless of whether Tenant cures its
default, upon receiving written request from Landlord, Tenant shall deliver to
Landlord an additional security deposit equal to three months of monthly Base
Rent within 10 days of receiving Landlord's written request for additional
security deposit. Failure to keep posted or pay a required security deposit may
be deemed in Landlord's discretion, a default under this Lease. Landlord shall
not be required to keep all or any part of the Security Deposit separate from
its general accounts. Landlord shall, at the expiration or earlier termination
of the term hereof and after Tenant has vacated the Premises, return to Tenant
(or, at Landlord's option, to the last assignee, if any, of Tenant's interest
herein) within 60 days that portion of the Security Deposit not used or applied
by Landlord. Unless otherwise expressly agreed in writing by Landlord, no part
of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any monies to
be paid by Tenant under this Lease.
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<PAGE> 7
6. Character of Occupancy.
A. The Premises are to be used for general office use, and for
no other purpose without the prior written consent of Landlord, which shall be
in Landlord's sole discretion.
B. Tenant shall not use or permit the Premises to be used for
any act which will increase the existing rate of insurance upon the Building, or
cause a cancellation of any insurance policy covering the Building, or any part
thereof, nor shall Tenant sell, or permit to be kept, used, or sold in or about
the Premises any article which may be prohibited by Landlord's insurance
policies or by law. Tenant shall not use any apparatus, machinery or device in
or about the Premises that shall make any noise or set up any vibration that
will unreasonably disturb other tenants. Tenant agrees not to connect any
apparatus, machinery or device to any mechanical, electrical or other Building
system without the prior consent of Landlord. Tenant shall not commit waste or
suffer or permit waste to be committed, nor shall Tenant permit any nuisance in
or about the Premises.
C. Tenant shall not use the Premises or permit anything to be
done in or about the Premises that will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or hereafter
enacted or promulgated. Tenant, at its sole cost and expense, shall be
responsible for compliance with all laws, statutes, ordinances or governmental
rules or regulations with respect to Tenant's use or occupancy of the Premises
or pertaining to the Premises.
7. Services and Utilities.
A. Landlord shall:
(1) ventilate the Premises and furnish the heating or
air conditioning when it may be required for the reasonably comfortable
occupancy of the Premises. Tenant agrees to cooperate fully at all times with
Landlord and to abide by all regulations and requirements which Landlord may
prescribe for the proper functioning and protection of the heating, ventilating
and air conditioning system. Throughout the term of this Lease, Landlord shall
have free access to any and all mechanical installations of Building, including,
but not limited to, air conditioning, fan, ventilating and machine rooms,
telephone rooms and electrical closets. Tenant agrees that there shall be no
construction of partitions or other obstructions that might interfere with
Landlord's free access to such areas, or interfere with the moving of Landlord's
equipment to or from the enclosures containing said installations. Tenant
further agrees that neither Tenant nor its agents, servants, employees,
contractors, visitors or licensees shall at any time enter those enclosures or
tamper with, adjust, touch or otherwise in any manner affect Landlord's
mechanical installations;
(2) provide electricity for normal and usual lighting
and office business machines only. Tenant agrees not to use any apparatus or
device in, or upon, or about the Premises which may in any way increase the
amount of such electricity usually furnished or supplied to the Premises, and
Tenant further agrees not to connect any apparatus or device to the wires,
conduits or pipes, or other means by which such electricity is supplied for the
purpose of using additional or unusual amounts of electricity without the
consent of Landlord. If Tenant uses unusual amounts of electricity, in the sole
discretion of Landlord, Landlord may install a meter and thereby measure
Tenant's electricity consumption for all purposes. Tenant shall pay Landlord for
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the cost of the meter and the cost of the installation thereof, and throughout
the duration of Tenant's occupancy, Tenant shall keep the meter in good working
order and repair at Tenant's own cost and expense, in default of which Landlord
may cause such meter to be replaced or repaired and collect the cost thereof
from Tenant as additional rent. Tenant agrees to pay for electricity consumed,
as shown on the meter, as and when bills are rendered, and on default in making
such payment Landlord may pay such charges and collect same from Tenant. At all
times Tenant's use of electric current shall never exceed the capacity of the
feeders to the Building or the risers or wiring installation;
(3) furnish water for drinking and lavatory purposes only, but
if Tenant requires, uses or consumes water for any purpose in addition to
ordinary drinking and lavatory purposes, then in Landlord's sole discretion,
Landlord may install a water meter and thereby measure Tenant's water
consumption for all purposes. Tenant shall pay Landlord for the cost of the
meter and the cost of the installation thereof, and throughout the duration of
Tenant's occupancy, Tenant shall keep the meter and installation equipment in
good working order and repair at Tenant's own cost and expense, in default of
which Landlord may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant. Tenant agrees to pay for water consumed,
as shown on the meter, as and when bills are rendered, and on default in making
such payment Landlord may pay such charges and collect the same from Tenant; and
(4) cause the Premises to be kept clean, provided the same are
used exclusively as ordinary desk-type offices, and are kept reasonably in order
by Tenant, and if to be kept clean by Tenant, no one other than persons approved
by Landlord shall be permitted to enter the Premises for such purposes. Tenant
shall pay to Landlord the cost of removal of any of Tenant's refuse and rubbish
to the extent that the same exceeds the refuse and rubbish usually attendant
upon the use of the Premises exclusively as ordinary desk-type offices.
Tenant shall at all times maintain at its own cost and expense
all plumbing facilities and related equipment within the Premises in good order,
condition and repair to the satisfaction of Landlord. Tenant hereby indemnifies
Landlord against any and all claims, liabilities, losses, damages, costs and
expenses whatsoever (including, but not limited to, attorneys' fees and
expenses) whether suffered by Landlord or other occupants or persons in the
Building or any of the areas used in connection with the operation thereof
arising out of the foregoing, unless caused by or due solely to the negligence
of Landlord, Landlord's agents, servants or employees. Landlord shall not be
obligated to clean or provide supplies for any such plumbing facilities or
equipment attached thereto, and if the rooms in which any such facilities or
equipment are located require cleaning in excess of that normally provided by
Landlord for ordinary desk-type office space, Tenant shall, at Tenant's expense,
cause any such excess cleaning to be performed only by a contractor approved in
writing in advance by Landlord. Landlord reserves the right, without limiting
the generality of the foregoing, to require that any such cleaning be performed
by Landlord's regular cleaning contractor for the Building. Nothing herein
contained shall be construed to confer upon Tenant the right to install any
plumbing facilities without the prior consent of Landlord.
Landlord reserves the right to stop service of any plumbing,
heating, ventilation, air conditioning and electric or other mechanical systems,
or cleaning services, when necessary, by reason of accident or emergency or of
inspection, repairs, alterations, additions or improvements which in the
judgment of Landlord are desirable or necessary to be made, until same shall
have
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been completed, and shall further have no responsibility or liability for
failure to supply any of such services in such instance.
Tenant shall take good care of any and all floor and window
coverings installed at any time in any portion of the Premises, and Tenant shall
make, as and when needed, all repairs in and to the said coverings and shampoo
and/or clean any of said coverings as necessary to preserve them in good order,
condition and appearance by persons approved by Landlord. Upon the expiration or
other termination of the term of this Lease, Tenant shall surrender the said
coverings to Landlord in as good order, condition and repair as they were upon
the installation thereof by Landlord, ordinary wear excepted. Tenant agrees that
Landlord shall not be liable for failure to supply any heating,
air-conditioning, elevator, electrical, janitorial, lighting or other services
that Landlord is required to supply under this Lease during any period when
Landlord uses reasonable diligence to supply such services, or during any period
when Landlord is required to reduce or curtail such services pursuant to any
applicable laws, rules or regulations now or hereafter in force or effect, it
being understood that Landlord may discontinue, reduce or curtail such services,
or any of them (either temporarily or permanently), at such times as may be
necessary by reason of accident, strikes, lockouts, riots, acts of God,
application of applicable laws, statutes, rules and regulations, or due to any
other happening beyond the control of Landlord. In the event of any such
interruption, reduction or discontinuance of Landlord's services (either
temporarily or permanently), Landlord shall not be liable for damages to persons
or property as a result thereof, nor shall the occurrence of any such event be
construed in any way as an eviction of Tenant.
B. All utilities required by Tenant and not provided by
Landlord, as set forth above, shall be contracted for by Tenant in Tenant's own
name with the appropriate utility suppliers. Tenant shall pay for all such
utilities as from time to time invoiced by the supplier of such utilities. If
any such services are not separately metered to Tenant, Tenant shall pay a
reasonable proportion, to be determined by Landlord, of all charges jointly
metered with other premises.
8. Quiet Enjoyment.
Landlord agrees to warrant and defend Tenant in the quiet
enjoyment and possession of the Premises during the term of this Lease so long
as Tenant complies with the provisions hereof.
9. Maintenance, Repairs, Alterations and Additions.
A. Maintenance and Repairs:
(1) Landlord shall maintain the Building, and all
portions of the Building not the obligation of Tenant or any other tenant in the
Building, in good order, condition and repair.
(2) Tenant shall, at Tenant's sole cost and expense,
maintain the Premises in good order, condition and repair, ordinary wear and
tear excepted, including, without limitation, the interior surfaces of the
ceilings, walls and floors, all doors and plate glass windows, furnishings and
fixtures installed within the Premises, and all equipment installed by or at the
expense of Tenant.
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(3) In the event that Tenant fails to maintain the
Premises in good order, condition and repair, Landlord shall give Tenant prior
written notice to do such acts as are required to so maintain the Premises. In
the event that Tenant fails to commence such work within 30 days after written
demand by Landlord, and diligently prosecute it to completion, then Landlord
shall have the right, but shall not be obligated, to do such acts and expend
such funds at the expense of Tenant as are reasonably required to perform such
work. Landlord shall have no liability to Tenant for any damage, inconvenience
or interference with Tenant's use of the Premises as a result of performing any
such work.
(4) Landlord and Tenant shall each do all acts
required to comply with all applicable laws, ordinances, regulations and rules
of any public authority relating to their respective maintenance obligations as
set forth herein.
B. Alterations and Additions.
(1) Tenant shall make no alterations, additions or
improvements (other than decorating or any other minor, primarily cosmetic
changes) to the Premises or any part thereof without obtaining the prior written
consent of Landlord, which consent shall not be unreasonably withheld. Landlord
may condition its consent to any alternations, additions or improvements upon
such reasonable requirements as Landlord may deem necessary in its sole
discretion, including without limitation the manner in which the work is done,
the right to approve the contractor by whom the work is to be performed, and the
times during which the work is to be accomplished.
(2) All alterations and additions to the Premises
including, by way of illustration but not by limitation, telephone systems,
partitions, paneling, fixtures, carpeting, drapes, other window coverings, and
light fixtures (but not including movable furniture, personal property or trade
fixtures) shall be deemed to be a part of the real estate and the property of
Landlord and shall remain upon and be surrendered with the Premises as a part
thereof without molestation, disturbance or injury at the end of said term
(whether by lapse of time or otherwise) or upon any default.
(3) If Landlord authorizes persons requested by
Tenant to perform any alterations, repairs, modifications or additions to the
Premises, then, prior to the commencement of any such work, Tenant shall upon
request deliver to Landlord, certificates issued by insurance companies
qualified to do business in the State of Colorado evidencing that worker's
compensation, liability insurance and property damage insurance, all in amounts,
with companies and on forms satisfactory to Landlord, are in force and effect
and maintained by all contractors and subcontractors engaged by Tenant to
perform such work. All such policies shall name Landlord as an additional
insured. Each such certificate shall provide that the insurance policy may not
be canceled or modified without 10 days' prior written notice to Landlord.
Further, Tenant shall permit Landlord to post notices in the Premises in
locations which will be visible by persons performing any work on the Premises
stating that Landlord is not responsible for the payment for such work and
setting forth such other information as Landlord may deem necessary. All Tenant
alterations, repair and maintenance work shall be performed in such a manner as
not to interfere with, delay, or impose any additional expenses upon Landlord in
the maintenance or operation of the Building or upon other tenants use of
premises in the Building.
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10. Entry by Landlord.
Landlord and its agents shall have the right to enter the
Premises at all reasonable times after prior written notice, except in
emergencies, for the purpose of: (1) examining or inspecting the same; (2)
supplying services to be provided by Landlord hereunder; (3) showing the same to
prospective purchasers or tenants of the Building; and (4) making such
alterations, repairs, improvements or additions to the Building which are the
obligation of Landlord, in a manner which will not unreasonably interfere with
Tenant's use of the Premises. If Tenant shall not be personally present to open
and permit an entry into the Premises at any time when such entry by Landlord is
necessary or permitted hereunder, Landlord may enter by means of a master key
without affecting this Lease. Such entry shall not be construed as a
manifestation by the Landlord of an intent to terminate this Lease. Tenant shall
not, without the prior consent of Landlord, change the locks or install
additional locks on any entry door or doors to the Building.
11. Mechanics' Liens.
Tenant shall pay or cause to be paid all costs for work done
by Tenant or caused to be done by Tenant on the Premises of a character which
will or may result in liens on Landlord's interest therein. Tenant will keep the
Premises and Building free and clear of all mechanics' liens and other liens on
account of work done or claimed to have been done for Tenant or persons claiming
under it. Tenant hereby agrees to indemnify Landlord for, save Landlord harmless
from, and defend Landlord against all liability, loss, damage, costs or
expenses, including attorneys' fees and interest, incurred on account of any
claims of any nature whatsoever, including lien claims of laborers, materialmen,
or others for work actually or allegedly performed for, or for materials or
supplies actually or allegedly furnished to Tenant or persons claiming under
Tenant. Should any liens be filed or recorded against the Premises or any
portion of the Building, or should any action affecting the title thereto be
commenced, Tenant shall cause such liens to be removed of record within 30 days
after notice from Landlord. If Tenant desires to contest any claim of lien,
Tenant shall furnish to Landlord adequate security, in a form chosen by the
Landlord's sole discretion, of at least 150% of the amount of the claim, plus
estimated costs and interest and, if a final judgment establishing the validity
or existence of any lien for any amount is entered, Tenant shall pay and satisfy
the same at once. If Tenant shall be in default in paying any charge for which a
mechanic's lien or suit to foreclose the lien has been recorded or filed, and
shall not have caused the same to be released of record or shall not have given
Landlord security as aforesaid, Landlord may (but without being required to do
so) pay such lien or claim and any costs or obtain a bond or title insurance
protection against such lien, and the amount so paid, together with reasonable
attorneys' fees, costs and interest, incurred in connection therewith, shall be
immediately due from Tenant to Landlord.
12. Damage to Property, Injury to Persons.
A. Tenant hereby indemnifies and agrees to hold Landlord
harmless from and to defend Landlord against any and all claims of liability for
any injury (including death) or damage to any person or property whatsoever
occurring in, on or about the Premises or any part thereof, or the Building,
when such injury or damage is caused in whole or in part by the act, neglect,
fault or omission to act on the part of Tenant, its agents, contractors, or
employees. Tenant further indemnifies and agrees to hold Landlord harmless from
and to defend Landlord against any and all claims arising, in full or in part,
from (i) any breach or default in the performance of any obligation
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on Tenant's part to be performed under this Lease, or (ii) any act or negligence
of Tenant, or any of its agents, contractors, or employees, and (iii) all costs,
reasonable attorneys' fees and liabilities incurred as a result of any claim,
action or proceeding arising from (i) or (ii). Tenant shall not be liable to
Landlord for any damage by or from any act or negligence of any owner or
occupant of adjoining or contiguous property. Tenant agrees to pay for all
damage to the Premises or the Building caused by Tenant's misuse or neglect of
the Premises or any portion of the Building.
B. Neither Landlord nor its agents shall be
liable for any damage to property entrusted to Landlord, its agents or
employees, or the building manager, if any, nor for the loss or damage to any
property by theft, casualty or otherwise, by any means whatsoever, nor for any
injury (including death) or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, or rain which may
leak from any part of the Building or from the pipes, appliances or plumbing
works therein or from the roof, street or subsurface, or from any other place,
or resulting from dampness or any other cause whatsoever. Landlord or its agents
shall not be liable for interference with the light, view or other incorporeal
hereditaments.
C. In case any action or proceeding is brought
against Landlord by reason of any breached obligation of Tenant under this
Lease, or arising, in full or in part, from any act or negligence of Tenant, or
of its agents or employees, Tenant, upon reasonable prior written notice from
Landlord, shall defend the same at Tenant's expense.
D. Tenant agrees to carry and maintain, for the
mutual benefit of Landlord and Tenant, during the Primary Lease Term of this
Lease and any extension hereof, comprehensive commercial general liability
insurance to the limit of not less than $1,000,000 single limit coverage, with
$2,000,000 aggregate, with respect to the business carried on, in or from the
Premises and the use and occupancy thereof, covering bodily injury, death and
damage of Property of others with endorsement for assumed contractual liability
with respect to claims against which Tenant has agreed to indemnify Landlord, as
well as personal injury insurance, premises operations insurance, broad form
property damage insurance and independent contractor's insurance. All such
insurance shall be procured from a responsible insurance company or companies
authorized to do business in the State of Colorado, and shall be otherwise
satisfactory to Landlord. All such policies shall provide that the same may not
be canceled or altered except upon 10 days' prior written notice to Landlord.
Tenant shall provide certificates of such insurance to Landlord within 30 days
after this Lease goes into effect, and Tenant shall provide additional
certificates to Landlord upon request from time to time. All such insurance
carried by Tenant pursuant to Paragraph 12 and Paragraph 13 shall be written as
primary policies, not contributing with and not in addition to coverage that
Landlord may carry. Such certificates shall disclose that such insurance names
the Landlord as an additional insured, shall disclose the name of Tenant's
insurance agency, and shall disclose that Tenant's insurance provides all the
protection for Landlord required by this Lease, in addition to the other
requirements set forth herein. The limits of said insurance shall not, under any
circumstances, limit the liability of Tenant hereunder. The Tenant specifically
declares that the name, address and telephone number of Tenant's insurance agent
("insurance agency"), which has assisted Tenant in the acquisition of the
insurance required by this Lease, are as follows: ______________________________
________________________________________________________________________________
____________________________________________________________________________.
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13. Insurance, Casualty and Restoration of Premises.
A. Landlord shall maintain fire and extended coverage
insurance (with coverage at Landlord's option by endorsement or otherwise, for
all risks, vandalism and malicious mischief, sprinkler damage, boilers and
rental loss) in the amount of the full replacement value of the Building from
such companies and on such terms and conditions as Landlord from time to time
deems appropriate. Tenant shall maintain fire and extended coverage insurance
(including sprinkler damage, vandalism, plate glass and malicious mischief), in
the amount of the full replacement value, on trade fixtures, furniture,
furnishings and all property within the Premises, and on the ceiling, interior
walls, floor coverings, glass, and on all tenant finish work, if any. Tenant
shall also maintain worker's compensation insurance satisfying Tenant's
obligations and liabilities under the workmen's compensation laws of Colorado.
All such insurance carried to Tenant will also comply with the provision of
Paragraph 12D above.
B. In the event that the Premises or the Building are damaged
by fire or other insured casualty and insurance proceeds in an amount sufficient
to repair the damages have been made available therefore by the holder or
holders of any mortgages or deeds of trust encumbering the Building, the damage
shall be repaired by and at the expense of Landlord to the extent of such
available insurance proceeds, provided that such repairs and restoration can, in
Landlord's reasonable opinion, be made within 180 days after the occurrence of
such damage, without the payment of overtime or other premiums. Until such
repairs and restoration are completed the Rent shall be abated in proportion of
the part of the Premises which is unusable to Tenant in the conduct of its
business. (But there shall be no abatement of Rent by reason of any portion of
the Premises being unusable for a period equal to one day or less.) If the
damage is due to the act)s), fault or neglect, in full or in part, of Tenant or
its employees, agents or invitees, there shall be no abatement of Rent. Landlord
agrees to notify Tenant within 60 days after such casualty if it estimates that
it will be unable to repair and restore the Premises within said 180-day period.
Such notice will set forth the approximate length of time Landlord estimates
will be required to complete such repairs and restoration. If landlord estimates
it cannot make such repairs and restoration within said 180-day period, then
either party, by written notice to the other, may cancel this Lease as of the
date of occurrence of such damage, provided that such notice is given to the
other party within 15 days after Landlord notifies Tenant of the estimated time
for completion of such repairs and restoration. If no notice is given by either
party to terminate this Lease, this Lease shall continue in effect and the Rent
shall be apportioned in the manner provided above.
C. Except as provided in this Paragraph, there shall be no
abatement of Rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business or property arising from the making of any
repairs, alternations or improvements in or to the fixtures, appurtenances and
equipment in the Building. Tenant understands that the Landlord will not carry
insurance of any kind on Tenant's furniture and furnishings or on any trade
fixtures or equipment or personal property, and agrees that Landlord shall not
be obligated to repair any damage thereto or to replace the same. Landlord shall
not be required to repair any injury or damage by fire or other cause, or to
make any repairs or replacements of improvements installed in the Premises by or
for Tenant.
D. In case sufficient insurance proceeds are unavailable,
Landlord elects not to rebuild for any reason, or the Building throughout shall
be so damaged or injured, whether by fire or otherwise (though the Premises may
not be affected, or if affected, can be repaired within said
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180 days), then Landlord, within 60 days after the happening of such injury, may
decide not to reconstruct or rebuild the Building, then, notwithstanding
anything contained herein to the contrary, upon notice in writing to that effect
given by Landlord to Tenant within said 60 days, Tenant shall pay the Rent,
properly apportioned up to the date of the damage, this Lease shall terminate
from the date of delivery of said written notice, and both parties hereto shall
be freed and discharged from all further obligations hereunder.
E. Landlord and Tenant hereby waive any and all rights of
recovery against one another and their officers, agents and employees for damage
to real or personal property occurring as a result of the use or occupancy of
the Premises or the Building to the extent of insurance coverage which would be
included in a standard "all-risk" policy of hazard insurance. Landlord and
Tenant each agree that all policies of insurance obtained by them pursuant to
the provisions of this Lease shall contain endorsements or provisions waiving
the insurer's rights of subrogation with respect to claims against the other,
and each shall notify its insurance companies of the existence of the waiver and
indemnity provisions set forth in this Lease.
F. Tenant's policy or policies shall remain in full force and
effect through the term of this Lease and any renewal lease periods. Tenant's
policy or policies shall, in every instance, serve as a primary insurance policy
and any insurance of Landlord shall be deemed solely excess coverage. Before
Landlord's insurance must contribute to the payment of any claim, Tenant's
policy or policies shall be fully and completely exhausted. The exhaustion of
Tenant's insurance shall not relieve Tenant of any duties undertaken by Tenant
through this Lease or other principles of law. If Tenant fails to procure and
maintain any insurance required by this Lease, the Landlord may, but shall not
be required to, procure and maintain the same, but at the expense of the Tenant.
Tenant specifically grants Landlord the right to contact Tenant's insurance
agency to obtain any and all information relating to the nature, existence and
amount of Tenant's insurance policies, including requesting copies thereof.
14. Condemnation.
If any portion of the Premises which materially affects
Tenant's ability to continue to use the remainder thereof for the purposes set
forth herein is taken by right of eminent domain or by condemnation, or is
conveyed in lieu of any such taking, then this Lease may be terminated at the
option of either Landlord or Tenant. Such option shall be exercised by either
party giving notice to the other of such termination within 30 days after such
taking or conveyance; whereupon this Lease shall forthwith terminate and the
Rent shall be duly apportioned as of the date of such taking or conveyance. Upon
such termination, Tenant shall surrender to Landlord the Premises and all of
Tenant's interest therein under this Lease, and Landlord may re-enter and take
possession of the Premises or remove Tenant therefrom. If any portion of the
Premises is taken which does not materially affect Tenant's right to use the
remainder of the Premises for the purposes set forth herein, this Lease shall
continue in full force and effect and Landlord shall promptly perform any repair
or restoration work required to restore the Premises, insofar as possible, to
its former condition, and the rental owing hereunder shall be adjusted, if
necessary, in such proportion as the size of the part so taken bears to the
whole. Tenant shall have no rights under this paragraph if the proceeding cause
only a taking or conveyance of parts of the Building other than Tenant's
Premises. In the event of taking or conveyance as described herein, Landlord
shall receive the award or consideration for the lands and improvements so
taken. Landlord and Tenant shall cooperate with one another in making claims for
condemnation awards. Tenant shall
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have no rights to any such condemnation award made to Landlord, but Tenant shall
be entitled to claim separate award for loss of any of its separate property and
for relocation expenses.
15. Assignment and Subletting.
A. Tenant shall not assign, sublet, mortgage or encumber this
Lease, or any interest herein, or any part of the Premises, or suffer or permit
the Premises or any part thereof to be used by others, without the prior written
consent of Landlord. At least 60 days prior to the beginning of any assignment,
sublease, mortgage, encumbrance or prohibited use, Tenant shall notify Landlord
in writing of any portion of the premises or its interest which Tenant wishes to
sublet or assign, specifying the terms and conditions of such transaction
including complete financial information and providing a signed financial
statement for the subtenant or assignee, and the names, addresses and phone
numbers of the guarantors of the sublease or assignment. Tenant shall, at the
time of requesting Landlord's consent, provide to Landlord, in a form which
Landlord may accept or reject, an assignment or sublease which will be signed by
the named assignee or subtenant containing the terms specified in Tenant's
notice to Landlord. Such notice shall also specifically request Landlord's
consent to the assignment or sublease. At Landlord's request, at least one
natural person must guarantee all subleases or assignments; otherwise, the
request for consent shall not be approved. The 60-day period mentioned herein
shall not commence until Landlord receives proper and complete written notice
from the Tenant.
B. Landlord shall have the right to disapprove any proposed
subletting or assignment if the subtenant or assignee, in Landlord's reasonable
judgment, is not a suitable tenant for the Premises, would burden the common
areas of the Building more than Tenant did, or would use the Premises in
violation of any laws, regulation, rule, or covenant contained in any lease or
agreement applicable to the Building, or would not have sufficient financial
capability, as judged by the Landlord's discretion. Notwithstanding the
foregoing, if the proposed assignee or subtenant is an existing tenant of the
Building, then the Landlord, at its option, may cancel this Lease with respect
to the portion of the Premises which the existing tenant proposes to occupy and
enter directly into a new lease for such part of the Premises with such proposed
tenant.
C. If Landlord fails to respond to Tenant's written notice
under 15A. within 60 days of receiving all required information, such failure to
respond shall be considered a rejection by Landlord of the proposed subletting
or assignment.
D. If this Lease or any interest herein is assigned, or if the
Premises or any part thereof be sublet or occupied by other than Tenant, without
the prior, written consent of Landlord, Landlord may, in its sole discretion,
collect rent from the assignee, subtenant or occupant, and apply the net amount
collected to the rent herein reserved, but no such assignment, subletting,
occupancy or collection shall be deemed a waiver of this paragraph 15, or an
acceptance of the assignee, subtenant or occupant, or a release of Tenant from
the further performance of the terms and conditions contained in this Lease. The
consent of Landlord to an assignment or subletting shall not relieve Tenant from
primary liability hereunder or from the obligation to obtain the written consent
of Landlord to any further assignment or subletting.
E. If the total of the rental and other payments reserved in
any sublease (for all or any part of the Premises) exceeds the rental or pro
rata portion of the rental, as the case may be, for such space reserved in this
Lease, Tenant shall pay to Landlord each month, as additional rent, at the same
time as the monthly installments of Rent become due hereunder, an amount
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equal to 100% of the excess of the rental and other payments ("excess rental")
reserved in the sublease over the rental reserved in this Lease applicable to
the space so subleased. Tenant agrees that all of Tenant's design fees, broker's
commissions, tenant improvements, legal fees, and other costs incurred by the
Tenant in reletting the space shall not be calculated or counted in determining
whether there is excess rental and shall not be used to reduce Landlord's 100%
entitlement. However, all payments received or to be received, regardless of
description or classification, by Tenant from sublessee or any other person
shall be included in totaling excess rental. A failure by Tenant to pay the said
100% shall be a default and breach of this Lease.
F. Neither this Lease nor any interest herein may be assigned
involuntarily by operation of law or otherwise. Any such assignment or
subletting without Landlord's written consent first obtained shall be null and
void. A merger, consolidation, sale of the majority of the assets of the Tenant,
or sale of a majority of the stock or ownership interests of the Tenant, or
transfer of control, directly or indirectly, of any partnership, LLC membership
or other similar interest in the Tenant shall constitute an assignment of this
Lease for the purposes of this Paragraph 15.
G. Notwithstanding any assignment or sublease, Tenant shall
remain fully liable under the terms and conditions of this Lease (as a primary
obligor and not as a surety or guarantor) and shall not be released from
performing any of the terms, covenants and conditions in this Lease. In addition
to the Tenant, any sublessee or assignee shall specifically be responsible for
all payments, conditions, covenants and agreements in this Lease; otherwise, any
sublease or assignment shall be void.
H. All assignees or sublessee must comply with any and all use
restrictions required by the Landlord and by law, and qualify as the type of
tenant which will benefit Landlord's total operations as judged by Landlord's
sole discretion. Without limiting Landlord's discretion, Landlord and Tenant
agree that no assignee or sublessee shall qualify unless the assignee or
sublessee tenders to Landlord an additional security deposit equal to three
months of rental payments. Landlord shall have the right to transfer, assign or
sell, in whole or in part, any or all of its rights and obligations hereunder or
in the Building and Premises referred to herein. In such event and upon
Landlord's transferee assuming Landlord's obligations hereunder, Landlord shall
have no further responsibility, obligations or liabilities to Tenant and
Landlord shall be fully completely released from any previous responsibilities,
liabilities or obligations to Tenant.
I. If the Premises are sublet in their entirety or if this
Lease is assigned, any rights of Tenant to renew this Lease or to lease
additional space in the Building shall be extinguished thereby, and will not be
transferred to the subtenant or assignee.
16. Estoppel Certificate.
Tenant and Landlord agree, at any time and from time to time,
upon not less than 10 days' prior written request by the other party, to
execute, acknowledge and deliver to the requesting party an estoppel certificate
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that it is in full force and effect as modified,
and stating the modifications), that there have been no defaults thereunder by
Landlord or Tenant (or if there have been defaults, setting forth the nature
thereof), the date of which the Rent and other charges have been paid in
advance, if any, and such other matters as are reasonably requested by the
requesting party, it being intended that any such statement delivered pursuant
to this Paragraph
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may be relied upon by any prospective purchaser or lender on all or any portion
of the requesting party's interest herein, or a holder of any mortgage or deed
of trust encumbering the Building. Tenant's failure to deliver such statement as
provided herein shall constitute an event of default (as that term is defined
elsewhere in this Lease).
17. Default.
The happening of any one or more of the following events shall
constitute an "event of default:"
A. Tenant shall fail to pay when due any installment of Base
Rent, additional rent or any other charge or payment of any kind set forth in
this Lease;
B. Tenant shall vacate or abandon the Premises;
C. This Lease or the estate of Tenant hereunder shall be
transferred to or shall pass to or devolve upon any other person or party except
in a manner permitted herein;
D. This Lease or the Premises or any part thereof shall be
taken upon execution or by other process of law directed against Tenant, or
shall be taken upon or subject to any attachment at the instance of any creditor
or claimant against Tenant, and said attachment shall not be discharged or
disposed or within 15 days after the levy thereof;
E. Tenant shall file a petition in bankruptcy or insolvency or
for reorganization or arrangement under the bankruptcy laws of the United States
or under any insolvency act of any state, or shall voluntarily take advantage of
any such law or act by answer or otherwise, or shall be dissolved, or shall make
an assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they mature;
F. Involuntary proceedings under any such bankruptcy law or
insolvency act or for the dissolution of Tenant shall be instituted against
Tenant, or a receiver or trustee of all or substantially all of the property of
Tenant shall be appointed, and such proceeding shall not be dismissed or such
receivership or trusteeship vacated within 60 days after such institution or
appointment;
G. Tenant shall fail to take possession of the Premises within
30 days after the Commencement Date of the Primary Lease Term;
H. Tenant shall fail to perform any of the other agreements,
terms, covenants or conditions hereof on Tenant's part to be performed, and such
non-performance shall continue for a period of 30 days after written notice
thereof by Landlord to Tenant.
18. Remedies for Default.
A. Upon the happening of any event of default as hereinabove
described, Landlord shall have the right, at its election, then or at any time
thereafter and while any such event of default shall continue, either:
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(1) To give Tenant written notice of intention to
terminate this Lease on the date of giving notice or on any later date specified
therein, whereupon Tenant's right to possession of the Premises shall cease and
this Lease shall be terminated, except as to Tenant's liability, as if the
expiration of the term fixed in such notice were the end of the term herein
originally demised; or
(2) To re-enter and take possession of the Premises
and repossess the same as of Landlord's former estate, and expel Tenant and
those claiming through or under Tenant, and remove the effects of both, without
being liable for prosecution therefor, without being deemed guilty of any manner
of trespass, and without prejudice to any remedies for arrears of Rent or
preceding breach of covenants or conditions. Should Landlord elect to re-enter
as provided in this subparagraph (2), or should Landlord take possession
pursuant to legal proceedings or pursuant to any notice provided for by law,
Landlord shall without terminating this Lease, use reasonable efforts to relet
the Premises in Landlord's or Tenant's name, but for the account of Tenant, for
such term or terms (which may be greater or less than the period which would
otherwise have constituted the balance of the term of this Lease) and on such
conditions and upon such other terms as Landlord may reasonably determine, and
Landlord may collect and receive the rents therefore. Landlord shall be entitled
to keep, without obligation to Tenant, all of the proceeds and rent paid as a
result of reletting, regardless of any excess rent or proceeds received.
Landlord shall in no way be responsible or liable for any failure to relet the
Premises after exercising good faith efforts therefor, but shall make every
reasonable effort to mitigate its damages. No such re-entry or taking possession
of the Premises by Landlord shall be construed as an election on Landlord's part
to terminate this Lease unless a written notice of such intention is given to
Tenant. No notice from Landlord hereunder or under a forcible entry and detainer
statute or similar law shall constitute an election by Landlord to terminate
this Lease unless such notice specifically so states. Landlord reserves the
right following any such re-entry or reletting to exercise its right to
terminate this Lease by giving Tenant written notice to that effect, in which
event the Lease will terminate as specified in said notice; or
(3) Without resuming possession of the Premises or
terminating this Lease, sue monthly for and recover all rents, other required
payments due under this Lease, and all other sums including damages and legal
fees owing hereunder which may accrue at any time and from time to time.
B. In the event that Landlord does not elect to terminate this
Lease as permitted in subparagraph A(1) of this Paragraph, but on the contrary,
elects to take possession as provided in subparagraph A(2) hereof, Tenant shall
pay to Landlord (i) the Rent and other sums as herein provided, which would be
payable hereunder if such repossession had not occurred, less (ii) the net
proceeds, if any, of any reletting of the Premises after deducting Landlord's
reasonable expenses in connection with such reletting, including, but without
limitation, all repossession costs, brokerage commissions, reasonable attorneys'
fees, court costs, expenses of employees, alteration and repair costs and
expenses or preparation for such reletting. Landlord shall be entitled to keep,
without obligation to Tenant, all of the proceeds and rent paid as a result of
reletting, regardless of any excess rent or proceeds received. If, in connection
with any relating, the new lease term extends beyond the existing term, or the
Premises covered thereby include other premises not part of the Premises, a fair
apportionment of the Rent received from such reletting and the expenses incurred
in connection therewith will be made in determining the net proceeds from such
reletting. Any Rent concessions will be apportioned over the term of the new
lease. Tenant shall pay such Rent and other sums to Landlord monthly on the days
on which the
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Rent would have been payable hereunder if possession had not been retaken, and
Landlord shall be entitled to receive the same from Tenant on each such day.
Under no circumstances shall Tenant be relieved of its responsibility for all
rental or other payments that have become past due. The parties agree that
calculations of reasonable rental value of the Premises over the remainder of
the term may not be used to reduce or affect past due amounts arising before
reletting. All past due rental and other payments not made before the date of
reletting must be paid in full by Tenant.
C. In the event that this Lease is terminated as a result of
an uncured default by Tenant under paragraph 17, Tenant shall remain liable to
Landlord for damages in an amount equal to the Rent and other sums which would
have been owed by Tenant hereunder for the balance of the term had this Lease
not been terminated, less the net proceeds, if any, of any reletting of the
Premises by Landlord subsequent to such termination, after deducting all
Landlord's expenses in connection with such reletting, including, but without
limitation, the expenses enumerated above. Landlord shall be entitled to collect
such damages from Tenant monthly on the days on which the Rent and other amounts
would have been payable hereunder if this Lease had not been terminated, and
Landlord shall be entitled to receive the same from Tenant on each such day.
Landlord agrees to take steps to mitigate its damages in the event of Tenant's
default. Alternatively, at the option of Landlord, in the event that this Lease
is terminated, Landlord shall be entitled to recover forthwith against Tenant,
as damages for the loss of the bargain and not as a penalty, an aggregate sum
which, at the time of such termination of this Lease, represents the amount, if
any, by which the aggregate of the Rent and all other sums payable by Tenant
hereunder which would have accrued for the balance of the term exceeds the
reasonable rental value of the Premises (such rental value to be computed on the
basis of a tenant paying not only Rent, but also such other charges as are
required to be paid by Tenant under the terms of this Lease) for the balance of
such term, both discounted to present worth at the Federal Reserve discount
rate. Under no circumstances shall Tenant be relieved of its responsibility for
all rental or other payments that have become past due. The parties agree that
calculations of reasonable rental value of the Premises over the remainder of
the term may not be used to reduce or affect past due amounts arising before
termination. All past due rental and other payments not made before the date of
termination must be paid in full by Tenant.
D. Suit or suits for the recovery of the amounts and damages
set forth herein may be brought by Landlord, from time to time, at Landlord's
election; and nothing herein shall be deemed to require Landlord to await the
date that this Lease or the term hereof would have expired had there been no
such default by Tenant, or no such termination, as the case may be. Each right
and remedy provided for in this Lease shall be cumulative and shall be in
addition to every other right or remedy provided for in this Lease or now or
hereafter existing at law or in equity or by statute or otherwise, including,
but not limited to, suits for injunctive relief and specific performance. The
exercise or beginning of the exercise by Landlord of any one or more of the
rights or remedies provided for in this Lease or now or hereafter existing at
law or in equity or by statute or otherwise shall not preclude the simultaneous
or later exercise by Landlord of any or all other rights or remedies provided
for in this Lease or now or hereafter existing at law or in equity or by statute
or otherwise. All costs of any kind incurred by the Landlord in connection with
any obligations of, allegations made by, and any amounts and damages owed by
Tenant, including all legal fees and costs incurred by Landlord from the date
any such matter is turned over to an attorney, shall also be recoverable by
Landlord from Tenant in a judgment, through set-off against any security deposit
or other monies held, by execution, or by any other lawful means.
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E. No failure by Landlord to insist upon the strict
performance of any agreement, term, covenant or condition hereof or to exercise
any right or remedy consequent upon a breach thereof, and no acceptance of full
or partial Rent during the continuance of any such breach, shall constitute a
waiver of any such breach or any such agreement, term, covenant or condition. No
agreement, term, covenant or condition hereof to be performed or complied with
by Tenant, and no breach thereof, shall be waived, altered or modified except by
written instrument executed by Landlord. No waiver of any breach shall affect or
alter this Lease, but each and every agreement, term, covenant and condition
hereof shall continue in full force and effect with respect to any other then
existing or subsequent breach. Notwithstanding any termination of this Lease,
the same shall continue in full force and effect as to any provisions hereof
which require observance or performance by Landlord or Tenant subsequent to
termination.
(1) Nothing contained in this Paragraph 18 shall
limit or prejudice the right of Landlord to prove and obtain as liquidated
damages in any bankruptcy, insolvency, receivership, reorganization or
dissolution proceeding an amount equal to the maximum allowed by any statute or
rule of law governing such proceeding and in effect at the time when such
damages are to be proved.
(2) Notwithstanding anything in this Paragraph 18 to
the contrary, any such proceeding or action involving bankruptcy, insolvency,
reorganization, arrangement, assignment for the benefit of creditors, or
appointment of a receiver or trustee, as specified in subparagraphs 17E and 17F
above, shall be considered to be an event of default only when such proceeding,
action or remedy shall be taken or brought by or against the then holder of the
leasehold estate under this Lease.
F. Any rents or other amounts owing hereunder which are not
paid within five days after the due date are subject to a late charge equal to
10% of the amount due for each month that the installment of Rent or other
amounts remain unpaid. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Landlord will incur by reason of
late payment by Tenant. Acceptance of such late charge or late installment of
Base Rent or any other sum by Landlord shall in no event constitute a waiver of
Tenant's default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder, or existing
by statute, or law or in equity. Any and all Base Rent, Tenant's Pro Rata Share
of Operating Expense Increases, late payment charges, legal fees, costs,
expenses or other amounts owing hereunder which are not paid when they first
become due shall bear interest at the rate of 18% per annum from the day on
which they become due until received by Landlord. Similarly, any amounts paid by
Landlord to cure any defaults of Tenant hereunder, which Landlord shall have the
right, but not the obligation to cure, if not repaid by Tenant immediately,
shall bear interest at the 18% per annum rate from the date of Landlord's
payment until the date Tenant delivers reimbursement to Landlord.
G. In the event of a breach or threatened breach by Tenant of
any of the terms, covenants, conditions, provisions or agreements of this Lease,
Landlord shall additionally have the right of injunction, and Tenant agrees to
pay the premium for any bond required in connection with such injunction. Any
mention in this Lease of any particular remedy shall not preclude Landlord from
any other remedy, at law or in equity.
H. In the event of Tenant's breach of its obligations
hereunder, then, in addition to all other amounts due Landlord, Tenant shall be
required to pay to Landlord immediately and
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Landlord shall be entitled to recover, in cash or certified funds, all
concessions and incentives which Landlord provided to Tenant at the inception of
this Lease or any renewal including, but not limited to, rent concessions and
incentives, tenant finish concessions, moving expenses and brokerage fees.
19. Removal of Tenant's Property, Security Agreement and
Landlord's Lien.
To the extent Tenant has any rights in them, all trade
fixtures, equipment, movable furniture and personal property of Tenant not
removed from the Premises upon the vacation or abandonment thereof or upon any
default under this Lease for any cause whatsoever after written notice from
Landlord shall conclusively be deemed to have been abandoned and may be
appropriated, sold, stored, destroyed or otherwise disposed of by Landlord
without notice to Tenant or any other person and without an obligation by
Landlord to account therefore, except for providing credit to Tenant's account
in an amount equal the excess of proceeds received over the legal fees and costs
incurred. Tenant shall owe and pay Landlord for all expenses of any kind,
including legal fees, incurred in connection with the disposition of such
property.
To the extent Tenant has any rights in them, Tenant, as
debtor, hereby grants to Landlord, as secured party, a security interest in any
and all fixtures, equipment, furniture, furnishings, inventory, machinery,
products, goods and other personal property which is or shall be placed at any
time in the Premises, together with all additions, substitutions, proceeds and
products therefrom (collectively, "collateral") to secure any and all of
Tenant's indebtedness arising now or in the future under this Lease. Landlord
and Tenant acknowledge that this Lease is also a security agreement under the
Uniform Commercial Code of Colorado. Landlord's security interest and lien shall
extend to all property falling within the above categories of collateral even if
acquired after the execution of this Lease and security agreement; and shall
extend to such collateral even if it is later removed from the Premises. Tenant
acknowledges that Landlord has a Landlord's lien on the collateral that Landlord
may enforce by gaining control of the Premises and collateral through any means
(including the changing of locks or the removal of the collateral from the
Premises without notice to the Tenant). Tenant acknowledges that the collateral
is or will be used or bought primarily for business purposes. Tenant further
agrees to execute a UCC-1 financing statement at the Commencement Date of this
Lease or at any other later time requested by Landlord, to further Landlord's
security interest and lien. Tenant understands that this Lease, security
agreement and the UCC-1 financing statement may be filed by Landlord with any
appropriate office to evidence or to support the enforcement of Landlord's
security interest and lien.
20. Holding Over.
Should Tenant hold over after the termination of this Lease
and continue to pay Rent, and should Landlord accept such Rent, without any
express written agreement as to such holding over, Tenant shall become a tenant
from month-to-month only upon each and all of the terms herein provided as may
be applicable to such month-to-month tenancy, but any such holding over shall
not constitute an extension of this Lease. During such holding over, Tenant
shall pay monthly base rentals equal to 150% of the last monthly installment of
Base Rent paid hereunder.
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21. Control of Common Areas.
All driveways, entrances and exits thereto and other
facilities furnished by Landlord, including all, truckways or ways, loading
areas, sidewalks. landscaped areas, stairways and other areas and improvements
provided by Landlord both inside and outside the Building, (all of the foregoing
are hereinafter collectively referred to as "Common Areas") for the general use
in common of tenants, their officers, employees, agents, invitees, licensees,
visitors and customers (all of the foregoing are hereinafter collectively
referred to as "Permitted Users"), shall be at all times subject to the
exclusive control and management of Landlord, and Landlord shall have the right
at any time and from time to time to establish, modify and enforce reasonable
rules and regulations with respect to all such Common Areas. Landlord shall have
the right to construct, maintain and operate lighting facilities within the
Common Areas; to employ personnel to operate and police same; to close all or
any portion of the Common Areas to such extent as may in the opinion of Landlord
be legally sufficient to prevent a dedication thereof or the accrual of any
rights to any person or the public therein; to withdraw any Common Areas from
the Building and from use of the tenants thereof; and to do and perform such
other acts in and to the Common Areas as, in the use of the good business
judgment, Landlord shall determine to be advisable with a view to the
improvement of the convenience and use thereof by the Permitted Users. All
reasonable expenses incurred by Landlord in the maintenance and operation of the
Common Areas shall be included in the definition of "Operating Expenses" set
forth in Paragraph 4 hereof.
22. Broker's Fee.
Except for a fee to St. Charles Town Company, LLC, which shall
be paid by Landlord, Tenant and Landlord each represent and warrant to the other
that it has had no dealings with any person, firm, broker or finder in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and that no broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction. Tenant and Landlord do each hereby agree to indemnify, protect,
defend and hold the other harmless from and against liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealing or actions of the indemnifying party,
including any costs, expenses, attorneys' fees reasonably incurred with respect
thereto.
23. Surrender and Notice.
Upon the expiration or other termination of the term of this
Lease. Tenant shall promptly quit the Premises and surrender the Premises to
Landlord broom clean, in good order and condition, except for ordinary wear and
tear and loss by fire or other casualty (unless caused, whether by action or
inaction, by Tenant, its agents, servants, employees or invitees). Tenant shall
remove all of its movable furniture and other effects and such alterations,
additions and improvements as Landlord shall require Tenant to remove pursuant
to Paragraph 9 hereof. In the event that Tenant fails to vacate the Premises in
a timely manner as required. Tenant shall be responsible to Landlord for all
reasonable costs incurred by Landlord as a result of such failure, including,
but not limited to, any amounts required to be paid to third parties who were to
have occupied the Premises.
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24. Acceptance of Premises by Tenant.
Taking possession of the Premises by Tenant shall be
conclusive evidence as against Tenant that said Premises were in the condition
agreed upon between Landlord and Tenant, and Tenant accepts the Premises in its
"as is" condition.
25. Subordination and Attornment.
This Lease, at Landlord's option, shall be subordinate to any
mortgage, deed of trust (now or hereafter placed upon the Building) or ground
lease (now or hereafter placed upon the Building), and to any and all advances
made under any; mortgage or deed of trust and to all renewals, modifications,
consolidations, replacements and extensions thereof or any ground lease. Tenant
agrees, with respect to any of the foregoing documents, that no documentation
other than this Lease shall be required to evidence such subordination. Tenant
agrees to execute such documents as may be required of Tenant to evidence such
subordination and by failing to do so within 10 days after written notice,
Tenant shall be in default hereunder.
26. Payments After Termination.
No payments of money by Tenant to Landlord after the
termination of this Lease, in any manner, or after giving of any notice of
default by Landlord to Tenant, shall reinstate, continue or extend the term of
this Lease or affect any notice given to Tenant prior to the payment of such
money, it being agreed that after the service of notice of the commencement of a
suit or after any final judgment granting Landlord possession of the Premises.
Landlord may receive and collect any sums of Rent due, or any other sums of
money due under the terms of this Lease, or may otherwise exercise any of its
rights and remedies hereunder. The payment of such sums of money, whether as
Rent or otherwise, shall not waive said notice, or in any manner affect any suit
theretofore commenced or judgment theretofore obtained.
27. Authorities for Action and Notice.
A. Except as herein otherwise provided, Landlord may act in
any matter provided for herein by and through its building manager or any other
person who shall from time to time be designated by Landlord in writing.
B. All notices or demands required or permitted to be given to
Landlord hereunder shall be in writing, and shall be deemed duly served three
days after deposited in the United States Mail, with proper postage prepaid,
certified or registered, return receipt requested, addressed to Landlord at 1522
Blake Street, Denver, Colorado 80202, or at the most recent address of which
Landlord has notified Tenant in writing. All legal papers, notices or demands
required to be given to Tenant hereunder or by law shall be in writing, and
shall be deemed duly served three days after deposited in the United States
mail, with the proper postage prepaid, certified or registered, return receipt
requested, addressed to Tenant at the Premises or upon immediate delivery or
posting at the Premises.
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28. Tenant's Personal Property Taxes.
A. Tenant shall pay before delinquency any and all taxes,
assessments, license taxes, fees and other charges levied, assessed or imposed
and which become payable during the term of this Lease upon Tenant's operations
at, occupancy of or conduct of business at the Premises or upon Tenant's
leasehold improvements, equipment, inventory, furniture, appliances, trade
fixtures and any other personal property of any kind installed or located at the
Premises. Tenant shall be permitted to challenge the imposition of any such tax
following notice of such challenge to Landlord, on the condition that, at
Landlord's request, Tenant will post security in connection with such challenge
as necessary to protect Landlord's interest in the Premises from any lien or
judgment against Tenant which may arise in connection with Tenant's action.
B. As provided in Colo. Rev. Stat., as amended from time to
time, and any other applicable laws, regulations and municipal ordinances, the
Premises, and all improvements made to or installed in the Premises (whether
constructed by, for or at the expense of Landlord or Tenant), and all items
referred to in Paragraph 9(B)(2) which are placed in the Premises shall be
deemed property owned by Landlord, and shall be exempt from any lien for sales
taxes, use taxes and all other taxes imposed by the taxing authorities of the
State of Colorado or the City and County of Denver. In order to secure this
exemption from the date of execution of this Lease, upon execution of this
Lease, at Landlord's request, Landlord and Tenant shall execute a memorandum of
this Lease for filing with the Colorado Department of Revenue.
29. Signs and Advertising.
Tenant shall not install, place, inscribe, paint or otherwise
attach and shall not permit any sign, advertisement, notice, marquee or awning
on any part of the outside of the Premises (including any portion of the
Premises fronting on any interior corridor or lobby) or on any part of the
inside of the Premises which is visible from outside of the Premises or on any
other part of the building without the prior written consent of Landlord in each
instance. Any permitted sign shall comply with the requirements of any
governmental or quasi-governmental authority having jurisdiction over the
Building, and Tenant shall be solely responsible for such compliance. Landlord
shall have the right to remove all non-permitted signs without notice to Tenant
and at the expense of Tenant. Tenant shall, at its own expense, maintain in
first-class condition all permitted signs and shall, on the expiration or
termination of this Lease, and at its own expense, remove all such permitted
signs and repair any damage caused by such removal. Tenant's obligation under
this paragraph shall survive the expiration or termination of this Lease.
30. Hazardous Activities.
Tenant shall not do anything or permit anything to be done in
or about the Premises that is hazardous or that in any manner will violate,
suspend, void or make inoperative or tend or increase the rate of any insurance
policies carried by Landlord upon the Premises or any other part of the Building
Complex. Without limiting the foregoing, Tenant will comply with all applicable
environmental laws and permitting requirements impacting the operations of
Tenant on the Premises, and Tenant shall indemnify and hold Landlord harmless
from any claims arising out of Tenant's use or disposal of toxic or hazardous
materials on the Premises or the Building. It is understood and agreed that this
indemnity by Tenant shall not cover any claims to the extent they
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arise from the actions of Landlord or any other tenant in the Building or party
not controlled by Tenant.
31. OSHA and ADA.
Tenant shall fully comply with the Occupational Safety and
Health Act of 1970 (OSHA) as amended, the Americans with Disabilities Act of
1990 (ADA) as amended, and other applicable laws, rules and regulations
governing the welfare of Tenant's employees. It shall be the Tenant's obligation
to fully comply with the provisions and standards contained in such laws
regarding the Premises. Tenant shall defend, hold harmless and indemnify
Landlord from any obligations, responsibilities, liabilities, losses,
construction costs, design costs, penalties, and damages (including attorney's
and legal assistants' fees and costs) arising under any such laws. Tenant shall
be required to provide and pay for attorneys and other professionals requested
or employed by Landlord to handle, analyze, supervise or defend any claims
arising out of an alleged failure to comply with such laws.
32. Miscellaneous.
A. Rules and regulations as may hereafter be adopted by
Landlord for the safety, care and cleanliness of the Premises and the
preservation of good order therein, are hereby expressly made a part hereof, and
Tenant agrees to obey all such rules and regulations. The violation of any of
such rules and regulations by Tenant shall be deemed an event of default of this
Lease by Tenant, affording Landlord all those remedies set out herein. Landlord
shall not be responsible to Tenant for the failure of any other tenant or
occupant of the Building to comply with any of said rules and regulations.
B. The term "Landlord" as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, shall be limited
to mean and include only the owner or owners of the Premises at the time in
questions. In the event of any transfer or transfers of the title to the
Premises, the Landlord herein named (and in the case of any subsequent transfers
or conveyances, the then grantor) shall be automatically released, from and
after the date of such transfer or conveyance, from all liability with respect
to the performance of any covenants or obligations on the part of Landlord
contained in this Lease thereafter to be performed; provided that the grantee
assumes the duty to perform Landlord's covenants and obligations hereunder, and
provided that any funds in which Tenant has an interest in the hands of Landlord
or the then grantor at the time of such transfer shall be turned over to the
grantee. Any amount then due and payable to Tenant by Landlord or the then
grantor under any provisions of this Lease shall be paid to Tenant at the time
or any transfer or conveyance. All personal and separate liability of Landlord
or any officer or partner of Landlord, of every kind or nature, if any, is
waived by Tenant, and by every person now or later claiming by, through or under
Tenant; and Tenant shall look solely to the equity of Landlord in the Building
for any claims against Landlord. Such exculpation of liability is absolute and
without exception.
C. The termination or mutual cancellation of this Lease shall
not work a merger, and such termination or mutual cancellation shall, at the
option of Landlord, either terminate all subleases and subtenancies or operate
as an assignment to Landlord of any or all of such subleases or subtenancies.
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D. This Lease shall be construed as though the covenants
herein between Landlord and Tenant are independent, and not dependent. Tenant
shall not be entitled to any setoff of the Rent or other amounts owing hereunder
against Landlord if Landlord fails to perform its obligations set forth herein;
provided, however, that the foregoing shall in no way impair the right of Tenant
to commence a separate action against Landlord for any violation by Landlord of
the provision hereof so long as notice is first given to Landlord and to any
holder of a mortgage or deed of trust covering the Building or any portion
thereof, and an opportunity is granted to Landlord and such holder to correct
such violation as provided in subparagraph H of this paragraph.
E. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws effective during the term
of this Lease then and in that event, it is the intention of the parties hereto
that the remainder of this Lease shall not be affected thereby; and it is also
the intention of the parties to this Lease that in lieu of each clause or
provisions of this Lease that is illegal, invalid or unenforceable, there shall
be added as a part of this Lease a legal, valid and enforceable clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible.
F. The captions of each paragraph are added as a matter of
convenience only and shall be considered to be of no effect in the construction
of any provision or provisions of this Lease.
G. Except as herein specifically set forth, all terms,
conditions and covenants to be observed and performed by the parties hereto
shall be applicable to and binding upon their respective heirs, administrators,
executors, successors and assignees.
H. In the event of any alleged default on the part of Landlord
hereunder, Tenant shall give written notice to Landlord in the manner herein set
forth and shall afford Landlord a reasonable opportunity to cure any such
default. Notice to Landlord of any such alleged default shall be ineffective
unless Tenant shall also send notice of such default by certified or registered
mail, with proper postage prepaid, to each holder of a mortgage or deed of trust
covering the Building or any portion thereof of whose address Tenant has been
notified in writing, and unless Tenant shall afford such holder a reasonable
opportunity to cure any alleged default on Landlord's behalf. In no event will
Landlord, any holder of a mortgage, or any holder of a deed of trust be
responsible for any consequential damages incurred by Tenant, including, but not
limited to, lost profits or interruption of business, as a result of any alleged
default by Landlord.
I. If the Tenant under this Lease is more than one entity or
person, the obligations imposed upon Tenant under this Lease shall be joint and
several.
J. No act or thing done by Landlord or Landlord's agent during
the term hereof, including, but not limited to, any agreement to accept
surrender of the Premises or to amend or modify this Lease, shall be deemed to
be binding upon Landlord unless such act or things shall be done by Landlord or
a party designated in writing by Landlord as so authorized to act. The delivery
of keys to Landlord or Landlord's agent, employees or officers shall not operate
as a termination of this Lease or a surrender of the Premises. No payment by
Tenant, or receipt by Landlord of a lesser amount than the Base Rent, or making
of any endorsement or statement on any check, or delivery of any letter
accompanying any check or payment shall be deemed an accord and satisfaction;
and Landlord may accept any such check or payment without prejudice to
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Landlord's right to recover the balance of such rent or to pursue any other
remedy available to Landlord.
K. Tenant acknowledges and agrees that Tenant has not relied
upon any statements, representations, agreements or warranties with respect to
the Premises, the actions or future actions of the Landlord, the nature or
condition of the Building, or otherwise, except such statements, representations
agreements or warranties as are expressly contained herein. All prior
statements, representations, misrepresentations, negligent misrepresentations,
agreements or warranties of any kind, regardless of their character or accuracy,
shall be deemed merged and fully integrated herein. This Lease contains the
entire agreement of the parties hereto and no statements, representations,
misrepresentations, negligence misrepresentations, agreements or warranties,
oral or otherwise, shall be of any force or effect unless they are expressly set
forth herein. No amendment or modification of this Lease shall be valid or
binding unless expressed in a writing and executed by Landlord and Tenant in the
same manner as the execution of this Lease with the express statement that the
writing is an amendment to this Lease.
L. Time is of the essence hereof. If the last day permitted
for the performance of any act required or permitted under this Lease falls on a
Saturday, Sunday or holiday, the time for such performance will be extended to
the next succeeding business day.
M. Tenant and the parties executing this Lease on behalf of
Tenant represent to Landlord that such parties are authorized to do so by
requisite action of Tenant's board of directors, shareholders, members or
partners, as the case may be, and agree, upon request, to deliver to Landlord a
resolution or similar document to that effect.
N. Any obligation of the Landlord hereunder, which is delayed
or not performed due to acts of God, strike, riot, war, weather, failure to
obtain labor and materials at reasonable cost, or any other reason beyond the
control of the Landlord shall not constitute a default hereunder and shall be
performed within a reasonable time after the end of such cause for delay or
nonperformance.
O. Tenant shall not record this Lease or a memorandum hereof
without the prior written consent of Landlord. In the event that Tenant violates
this provision, this shall be deemed an event of default of this Lease by
Tenant, affording Landlord all those remedies set out herein. If Tenant records
this Lease or a memorandum hereof, then Tenant shall immediately execute and
record a Quit Claim Deed releasing all claims to the Premises, and, it Tenant
fails to do so upon demand, Tenant hereby appoints Landlord as Tenant's
attorney-in-fact to do so in Tenant's name, place and stead.
P. This Lease may be executed in two or more duplicate
originals. Each duplicate original shall be deemed to be an original hereof, and
it shall not be necessary for a party hereto to produce more than one such
original as evidence hereof.
Q. Tenant shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all of Tenant's income, leasehold improvements, equipment,
furniture, fixtures and personal property owned by Tenant located in the
Premises. In the event that any or all of Tenant's leasehold improvements,
equipment, furniture, fixtures and personal property shall be assessed and taxed
with the Building, Tenant shall pay to Landlord as additional Rent hereunder its
share of such taxes within 10 days
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after delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's property.
R. The respective parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matter whatsoever arising out of
or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or
damage, or the enforcement of any remedy under any statute, emergency or
otherwise.
S. In the event of any litigation between Landlord and Tenant,
the prevailing party in such litigation shall be entitled to an award of its
reasonable attorneys' and legal assistants' fees and costs.
T. Each person and party signing below represents that all
necessary action has been taken to authorize and empower the signers to properly
sign this Lease. Upon the request of Landlord, Tenant will provide evidence of
such authority. The individual(s) signing below for Tenant agree that they shall
be personally responsible and liable for all of Tenant's obligations under this
Lease if there is any lack of authority which compromises the binding nature of
their signatures.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the
day and year first above written.
LANDLORD:
BACE Real Estate, LLC
By: BACE Industries, LLC, Member
By: /s/ Richard M. Tyler
-------------------------
Richard M. Tyler
Its: Member
Date: August 10, 1999
---------------
TENANT:
Optimal Communication, Inc.
By: /s/ Craig J. Zoellner
--------------------------
Its: President
---------
Date: August 10, 1999
---------------
Attachments: Exhibit A
28
<PAGE> 1
EXHIBIT 10.9
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement"), dated as of March 31,
1999, is between Optimal Communications, Inc., a Delaware corporation (the
"Corporation") and Robert S. Lazzeri ("Purchaser") (Corporation and Purchaser
are collectively "the Parties").
RECITALS
Whereas, the Corporation has authorized capital stock consisting of
1000 shares of Class A Common Stock having the rights and power set forth in the
Certificate of Incorporation of the Corporation (as amended from time to time);
Whereas, the Purchaser is purchasing 137.3626 shares of Class A Common
Stock of the Corporation;
Whereas, the Corporation and the Purchaser have agreed to make certain
provisions to restrict the transfer of the Purchaser's stock and to provide for
non-competition and confidentiality;
Now, therefore, in consideration of the covenants and agreements made
herein, the Purchaser and the Corporation agree as follows:
ARTICLE I
NONCOMPETITION
1.1 Purchaser expressly covenants and agrees that, for the longer of
two years from the date of this agreement or one year from the termination of
the Purchaser's employment with the Corporation, or with any parent or
subsidiary of the Corporation, Purchaser will not, directly or indirectly, as an
officer, agent, principal, employee, consultant, or otherwise, engage in any
activity which, at that time, competes to a material extent with the
Corporation. Nothing herein will preclude Purchaser from acquiring or holding
securities representing less than five-percent (5%) of the outstanding
securities of any class of equity security registered under the Securities
Exchange Act of 1934, as amended.
<PAGE> 2
Stock Purchase Agreement
Page 2 of 5
ARTICLE II
CONFIDENTIALITY AND NON-DISCLOSURE
2.1 Purchaser acknowledges that information, observations and data
obtained by Purchaser concerning the business or affairs of the Corporation (the
"Confidential Information") are the property of the Corporation. Purchaser will
not disclose to any person or use for its own account any Confidential
Information without the written consent of the Corporation. Nothing herein shall
prevent the disclosure of Confidential Information (i) which becomes generally
known to and available for use by the public other than as a result of a
disclosure by Purchaser, (ii) with respect to which Purchaser's duty of
confidentiality is waived by the Corporation, (iii) if required by applicable
law, regulation or order of any governmental agency or court of competent
jurisdiction, (iv) which was known to the public when received by Purchaser, or
(v) which is lawfully obtained by Purchaser from other sources. Purchaser agrees
that upon the written request of the Corporation, it will deliver to the
Corporation all memoranda, notes, plans, records, reports and other documents
containing Confidential Information, and all copies thereof, that Purchaser may
then possess or have under its control. The obligations set forth in this
Confidentiality and Non-Disclosure paragraph shall continue for a period of
three years.
ARTICLE III
TRANSFER OF SECURITIES
3.1 Transfers. Purchaser shall not sell, transfer or otherwise dispose
of, hypothecate or otherwise encumber (voluntarily or involuntarily) (any such
sale, transfer, disposition, hypothecation or encumbrance being referred to as a
"transfer") any common stock of the Corporation ("Common Stock") without the
written approval of the Corporation except as expressly permitted in any
subsection of this Article III.
(a) Purchaser may transfer shares of Common Stock to an
immediate family member or an entity owned by Purchaser and their immediate
family members (an "Affiliate"); provided, that (i) Purchaser first delivers to
the Corporation the written representation of Purchaser and such Affiliate,
expressly for the benefit of the Corporation and the other Parties, that such
transfer is not being made for purposes of circumventing the provisions of this
Article III and that such Affiliate agrees to be bound by the terms and
provisions of this Agreement and (ii) the Corporation determines, in its
reasonable discretion, that such representation is true.
(b) Purchaser may transfer shares of Common Stock pursuant to
a registered public offering or pursuant to Rule 144 (other than Subsection (k)
thereof) promulgated under the Securities Act or any successor rule or
regulation then in place.
<PAGE> 3
Stock Purchase Agreement
Page 3 of 5
(c) Any purported transfer of Common Stock by a party which is
not permitted by the foregoing provisions of this Section, or which is in
violation of such provisions, shall be void and of no force and effect
whatsoever.
ARTICLE IV
MISCELLANEOUS
4.1 Equitable Relief. The Purchaser and the Corporation recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the Purchaser
and the Corporation may have specific performance, injunction, injunctive or
other equitable relief (in addition to damages) as a remedy for the enforcement
hereof, without providing damages.
4.2 Assignment. Except as otherwise expressly provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the Purchaser
and the Corporation. No such assignment shall relieve the assignor from any
liability hereunder. No assignment hereof shall be effective until the Purchaser
making an assignment hereof delivers to the Corporation an executed counterpart
of this Agreement by the transferee or an agreement in writing executed by the
transferee to be bound by the terms hereof to the same extent as if such
transferee was a Purchaser hereto.
4.3 Shares Subject to this Agreement. All shares of Common Stock now
owned or hereafter acquired by the Purchaser shall be subject to the terms of
this Agreement.
4.4 Legend. Certificates evidencing shares of Common Stock owned by the
Parties shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED OR SOLD, UNLESS IT HAS BEEN
REGISTERED UNDER SUCH SECURITIES ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THIS SECURITY IS SUBJECT TO RESTRICTIONS ON
TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH IN THE STOCK PURCHASE
AGREEMENT, DATED AS OF MARCH 31, 1999, AS IT MAY BE AMENDED FROM TIME
TO TIME, A COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION AT ITS
PRINCIPAL EXECUTIVE OFFICES.
<PAGE> 4
Stock Purchase Agreement
Page 4 of 5
4.5 Notices. Any and all notices, designations, consents, offers,
acceptances or any other communications provided for herein shall be given in
writing by personal delivery, overnight courier or facsimile, which shall be
addressed, or sent, to the respective addresses set forth on the signature pages
hereto or such other address as designated by the Parties by like notice from
time to time.
4.6 Counterparts. This Agreement may be executed in two or more
counterparts and each counterpart shall be deemed to be an original and which
counterparts together shall constitute one and the same agreement of the Parties
hereto.
4.7 Section Headings. Headings contained in this Agreement are inserted
only as a matter of convenience and in no way define, limit or extend the scope
or intent of this Agreement or any provisions hereof.
4.8 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to the conflicts of laws principles
thereof.
4.9 Entire Agreement. This Agreement contains the entities
understanding of the Parties hereto respecting the subject matter hereof, and
supersedes all prior agreements, discussions and understandings.
4.10 Cumulative Rights. The rights of the Purchaser and the Corporation
under this Agreement are cumulative and in addition to all similar and other
rights of the Parties under other agreements, including the Investment
Agreement.
4.11 Severability. Should any particular provision of this Agreement be
adjudicated to be invalid or unenforceable, such provision shall be deemed
deleted and the reminder of the Agreement, nevertheless, shall remain unaffected
and fully enforceable; further, to the extent any provision herewith is deemed
unenforceable by virtue of its scope but may be made enforceable by limitation
thereof, the Parties hereto agree the same shall, nevertheless, be enforceable
to the fullest extent possible.
4.12 No Waiver. No delay on the part of any party hereunder in
exercising any right, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude other or further exercise thereof, or
the exercise of any other right, power of privilege.
4.13 Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
4.14 Attorneys' Fees. In the event of any action or suit based upon or
arising out of any actual or alleged breach by any party of any representation,
warranty or agreement in this Agreement, the prevailing party shall be entitled
to recover its
<PAGE> 5
Stock Purchase Agreement
Page 5 of 5
reasonable attorneys' fees and expenses of such action or suit from the other
party, in addition to any other relief ordered by the court.
PURCHASER:
Robert S. Lazzeri
/s/ Robert S. Lazzeri
- -----------------------------
Address of Record: 5046 Christensen Dr., Littleton, CO. 80123
--------------------------------------------
OPTIMAL COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
---------------------------------
Craig J. Zoellner
---------------------------------
(Print Name)
Title: President
-----------
Address of Record: 1522 Blake Street, Denver, Colorado 80202
------------------------------------------
<PAGE> 6
ADDENDUM
THIS ADDENDUM to the Stock Purchase Agreement dated March 31, 1999 (the
"Agreement") by and between Optimal Communications, Inc. (the "Corporation") and
Robert S. Lazzeri ("Purchaser") adds additional stock transfer restrictions to
the Agreement as follows:
Transfer Restrictions. Unless otherwise agreed by the Corporation, except for
transfers to: a) immediate family members who agree to be bound by the
restrictions set forth in this Addendum (and a copy of such agreement is
furnished to the Corporation prior to the transfer); b) trusts, limited
partnerships or other estate planning entities for the benefit of the Purchaser
or family members of the Purchaser, the trustees, partners or other persons
having authority to bind the trust, limited partnership or other estate planning
entity of which agree to be bound by such restrictions (and a copy of such
agreement is furnished to the Corporation 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, the Purchaser will not sell, assign, exchange, transfer,
pledge, or otherwise dispose of at any time prior to the date which is 18 months
after the initial public offering of the Corporation's stock ("IPO") of any
shares of the Corporation's stock owned by the Purchaser or received by the
Purchaser as part of any stock option plan of the Corporation ("Shares").
Thereafter, up to 33.33% of the Shares may be resold at any time, and an
additional 16.67% of the Shares may be resold by the Purchaser beginning 24
months after the IPO. Any remaining Shares may not be sold until the earlier to
occur of 1) the sale of all or substantially all of the assets or outstanding
shares of the Corporation, or 2) five years after the IPO. Certificates for the
Shares will bear a legend substantially in the form set forth on page 3 of the
Stock Purchase Agreement.
PURCHASER:
Robert S. Lazzeri
/s/ Robert S. Lazzeri
---------------------
OPTIMAL COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
---------------------
Craig J. Zoellner
(Print Name)
Its: President
---------
<PAGE> 1
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement"), dated as of March 31,
1999, is between Optimal Communications, Inc., a Delaware corporation (the
"Corporation") and Black Diamond Capital, LLC ("Purchaser") (Corporation and
Purchaser are collectively "the Parties").
RECITALS
Whereas, the Corporation has authorized capital stock consisting of
1000 shares of Class A Common Stock having the rights and power set forth in the
Certificate of Incorporation of the Corporation (as amended from time to time);
Whereas, the Purchaser is purchasing 214.2857 shares of Class A Common
Stock of the Corporation;
Whereas, the Corporation and the Purchaser have agreed to make certain
provisions to restrict the transfer of the Purchaser's stock and to provide for
non-competition and confidentiality;
Now, therefore, in consideration of the covenants and agreements made
herein, the Purchaser and the Corporation agree as follows:
ARTICLE I
NONCOMPETITION
1.1 Purchaser expressly covenants and agrees that for three years from
the date of this agreement, Purchaser will not, nor will any member of
Purchaser, directly or indirectly, as an officer, agent, principal, employee,
consultant, or otherwise, engage in any activity which, at that time, competes
to a material extent with the Corporation. Nothing herein will preclude
Purchaser from acquiring or holding securities representing less than
five-percent (5%) of the outstanding securities of any class of equity security
registered under the Securities Exchange Act of 1934, as amended.
<PAGE> 2
Stock Purchase Agreement
Page 2 of 5
ARTICLE II
CONFIDENTIALITY AND NON-DISCLOSURE
2.1 Purchaser and all members of Purchaser acknowledge that
information, observations and data obtained by Purchaser or its members
concerning the business or affairs of the Corporation (the "Confidential
Information") are the property of the Corporation. Purchaser and its members
will not disclose to any person or use for its own account any Confidential
Information without the written consent of the Corporation. Nothing herein shall
prevent the disclosure of Confidential Information (i) which becomes generally
known to and available for use by the public other than as a result of a
disclosure by Purchaser or its members, (ii) with respect to which Purchaser's
and its members' duty of confidentiality is waived by the Corporation, (iii) if
required by applicable law, regulation or order of any governmental agency or
court of competent jurisdiction, (iv) which was known to the public when
received by Purchaser and its members, or (v) which is lawfully obtained by
Purchaser and its members from other sources. Purchaser and its members agree
that upon the written request of the Corporation, it will deliver to the
Corporation all memoranda, notes, plans, records, reports and other documents
containing Confidential Information, and all copies thereof, that Purchaser and
its members may then possess or have under its control. The obligations set
forth in this Confidentiality and Non-Disclosure paragraph shall continue for a
period of three years.
ARTICLE III
TRANSFER OF SECURITIES
3.1 Transfers. Purchaser shall not sell, transfer or otherwise dispose
of, hypothecate or otherwise encumber (voluntarily or involuntarily) (any such
sale, transfer, disposition, hypothecation or encumbrance being referred to as a
"transfer") any common stock of the Corporation ("Common Stock") without the
written approval of the Corporation except as expressly permitted in any
subsection of this Article III.
(a) Purchaser may transfer shares of Common Stock to an entity
owned by Purchaser (an "Affiliate"); provided, that (i) Purchaser first delivers
to the Corporation the written representation of Purchaser and such Affiliate,
expressly for the benefit of the Corporation and the other Parties, that such
transfer is not being made for purposes of circumventing the provisions of this
Article III and that such Affiliate agrees to be bound by the terms and
provisions of this Agreement and (ii) the Corporation determines, in its
reasonable discretion, that such representation is true.
<PAGE> 3
Stock Purchase Agreement
Page 3 of 5
(b) Purchaser may transfer shares of Common Stock pursuant to
a registered public offering or pursuant to Rule 144 (other than Subsection (k)
thereof) promulgated under the Securities Act or any successor rule or
regulation then in place.
(c) Any purported transfer of Common Stock by a party which is
not permitted by the foregoing provisions of this Section, or which is in
violation of such provisions, shall be void and of no force and effect
whatsoever.
ARTICLE IV
MISCELLANEOUS
4.1 Equitable Relief. The Purchaser and the Corporation recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the Purchaser
and the Corporation may have specific performance, injunction, injunctive or
other equitable relief (in addition to damages) as a remedy for the enforcement
hereof, without providing damages.
4.2 Assignment. Except as otherwise expressly provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the Purchaser
and the Corporation. No such assignment shall relieve the assignor from any
liability hereunder. No assignment hereof shall be effective until the Purchaser
making an assignment hereof delivers to the Corporation an executed counterpart
of this Agreement by the transferee or an agreement in writing executed by the
transferee to be bound by the terms hereof to the same extent as if such
transferee was a Purchaser hereto.
4.3 Shares Subject to this Agreement. All shares of Common Stock now
owned or hereafter acquired by the Purchaser shall be subject to the terms of
this Agreement.
4.4 Legend. Certificates evidencing shares of Common Stock owned by the
Parties shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED OR SOLD, UNLESS IT HAS BEEN
REGISTERED UNDER SUCH SECURITIES ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THIS SECURITY IS SUBJECT TO RESTRICTIONS ON
TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH IN THE STOCK PURCHASE
AGREEMENT, DATED AS OF MARCH 31, 1999, AS IT MAY BE AMENDED FROM TIME
TO TIME, A COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION AT ITS
PRINCIPAL EXECUTIVE OFFICES.
<PAGE> 4
Stock Purchase Agreement
Page 4 of 5
4.5 Notices. Any and all notices, designations, consents, offers,
acceptances or any other communications provided for herein shall be given in
writing by personal delivery, overnight courier or facsimile, which shall be
addressed, or sent, to the respective addresses set forth on the signature pages
hereto or such other address as designated by the Parties by like notice from
time to time.
4.6 Counterparts. This Agreement may be executed in two or more
counterparts and each counterpart shall be deemed to be an original and which
counterparts together shall constitute one and the same agreement of the Parties
hereto.
4.7 Section Headings. Headings contained in this Agreement are inserted
only as a matter of convenience and in no way define, limit or extend the scope
or intent of this Agreement or any provisions hereof.
4.8 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to the conflicts of laws principles
thereof.
4.9 Entire Agreement. This Agreement contains the entities
understanding of the Parties hereto respecting the subject matter hereof, and
supersedes all prior agreements, discussions and understandings.
4.10 Cumulative Rights. The rights of the Purchaser and the Corporation
under this Agreement are cumulative and in addition to all similar and other
rights of the Parties under other agreements, including the Investment
Agreement.
4.11 Severability. Should any particular provision of this Agreement be
adjudicated to be invalid or unenforceable, such provision shall be deemed
deleted and the reminder of the Agreement, nevertheless, shall remain unaffected
and fully enforceable; further, to the extent any provision herewith is deemed
unenforceable by virtue of its scope but may be made enforceable by limitation
thereof, the Parties hereto agree the same shall, nevertheless, be enforceable
to the fullest extent possible.
4.12 No Waiver. No delay on the part of any party hereunder in
exercising any right, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude other or further exercise thereof, or
the exercise of any other right, power of privilege.
4.13 Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
4.14 Attorneys' Fees. In the event of any action or suit based upon or
arising out of any actual or alleged breach by any party of any representation,
warranty or
<PAGE> 5
Stock Purchase Agreement
Page 5 of 5
agreement in this Agreement, the prevailing party shall be entitled to recover
its reasonable attorneys' fees and expenses of such action or suit from the
other party, in addition to any other relief ordered by the court.
PURCHASER:
Black Diamond Capital, LLC
By: /s/ Blair McNea
-----------------------------------
Blair McNea
-----------------------------------
(Print Name)
Its: Member
-----------------------------------
Address of Record: 7101 LaVista Place, Suite 100, Niwot, Colorado 80503
----------------------------------------------------
OPTIMAL COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
-----------------------------------
Craig J. Zoellner
-----------------------------------
(Print Name)
Title: President
-----------------
Address of Record: 1522 Blake Street, Denver, Colorado 80202
-----------------------------------------
<PAGE> 6
ADDENDUM
THIS ADDENDUM to the Stock Purchase Agreement dated March 31, 1999 (the
"Agreement") by and between Optimal Communications, Inc. (the "Corporation") and
Black Diamond Capital, LLC ("Purchaser") adds additional stock transfer
restrictions to the Agreement as follows:
Transfer Restrictions. Unless otherwise agreed by the Corporation, except for
transfers to: a) Purchaser's Members and their immediate family members who
agree to be bound by the restrictions set forth in this Addendum (and a copy of
such agreement is furnished to the Corporation prior to the transfer); b)
trusts, limited partnerships or other estate planning entities for the benefit
of the Purchaser, Members of the Purchaser or the family members of the
Purchaser's Members, the trustees, partners or other persons having authority to
bind the trust, limited partnership or other estate planning entity of which
agree to be bound by such restrictions (and a copy of such agreement is
furnished to the Corporation 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, the Purchaser or Purchaser's Members will not sell, assign,
exchange, transfer, pledge, or otherwise dispose of at any time prior to the
date which is 18 months after the initial public offering of the Corporation's
stock ("IPO") of any shares of the Corporation's stock owned by the Purchaser or
Purchaser's Members or received by the Purchaser or Purchaser's Members as part
of any stock option plan of the Corporation ("Shares"). Thereafter, up to 33.33%
of the Shares may be resold at any time, and an additional 16.67% of the Shares
may be resold by the Purchaser or Purchaser's Members beginning 24 months after
the IPO. Any remaining Shares may not be sold until the earlier to occur of 1)
the sale of all or substantially all of the assets or outstanding shares of the
Corporation, or 2) five years after the IPO. Certificates for the Shares will
bear a legend substantially in the form set forth on page 3 of the Stock
Purchase Agreement.
PURCHASER:
Black Diamond Capital, LLC
By: /s/ Blair McNea
----------------------------
Blair McNea
----------------------------
(Print Name)
Its: Member
----------------------------
OPTIMAL COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
----------------------------
Craig J. Zoellner
----------------------------
(Print Name)
Its: President
----------------------------
<PAGE> 1
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement"), dated as of March 31,
1999, is between Optimal Communications, Inc., a Delaware corporation (the
"Corporation") and Jeffrey A. Veres ("Purchaser") (Corporation and Purchaser are
collectively "the Parties").
RECITALS
Whereas, the Corporation has authorized capital stock consisting of
1000 shares of Class A Common Stock having the rights and power set forth in the
Certificate of Incorporation of the Corporation (as amended from time to time);
Whereas, the Purchaser is purchasing 64.1026 shares of Class A Common
Stock of the Corporation;
Whereas, the Corporation and the Purchaser have agreed to make certain
provisions to restrict the transfer of the Purchaser's stock and to provide for
non-competition and confidentiality;
Now, therefore, in consideration of the covenants and agreements made
herein, the Purchaser and the Corporation agree as follows:
ARTICLE I
NONCOMPETITION
1.1 Purchaser expressly covenants and agrees that, for the longer of
two years from the date of this agreement or one year from the termination of
the Purchaser's employment with the Corporation, or with any parent or
subsidiary of the Corporation, Purchaser will not, directly or indirectly, as an
officer, agent, principal, employee, consultant, or otherwise, engage in any
activity which, at that time, competes to a material extent with the
Corporation. Nothing herein will preclude Purchaser from acquiring or holding
securities representing less than five-percent (5%) of the outstanding
securities of any class of equity security registered under the Securities
Exchange Act of 1934, as amended. It is mutually agreed by the Parties that
Purchaser's ownership of and employment by DMA Ventures, Inc. (dba Access
Communications) does not constitute competing with the Corporation so long as
DMA Ventures, Inc. only does business in Colorado.
<PAGE> 2
Stock Purchase Agreement
Page 2 of 5
ARTICLE II
CONFIDENTIALITY AND NON-DISCLOSURE
2.1 Purchaser acknowledges that information, observations and data
obtained by Purchaser concerning the business or affairs of the Corporation (the
"Confidential Information") are the property of the Corporation. Purchaser will
not disclose to any person or use for its own account any Confidential
Information without the written consent of the Corporation. Nothing herein shall
prevent the disclosure of Confidential Information (i) which becomes generally
known to and available for use by the public other than as a result of a
disclosure by Purchaser, (ii) with respect to which Purchaser's duty of
confidentiality is waived by the Corporation, (iii) if required by applicable
law, regulation or order of any governmental agency or court of competent
jurisdiction, (iv) which was known to the public when received by Purchaser, or
(v) which is lawfully obtained by Purchaser from other sources. Purchaser agrees
that upon the written request of the Corporation, it will deliver to the
Corporation all memoranda, notes, plans, records, reports and other documents
containing Confidential Information, and all copies thereof, that Purchaser may
then possess or have under its control. The obligations set forth in this
Confidentiality and Non-Disclosure paragraph shall continue for a period of
three years.
ARTICLE III
TRANSFER OF SECURITIES
3.1 Transfers. Purchaser shall not sell, transfer or otherwise dispose
of, hypothecate or otherwise encumber (voluntarily or involuntarily) (any such
sale, transfer, disposition, hypothecation or encumbrance being referred to as a
"transfer") any common stock of the Corporation ("Common Stock") without the
written approval of the Corporation except as expressly permitted in any
subsection of this Article III.
(a) Purchaser may transfer shares of Common Stock to an
immediate family member or an entity owned by Purchaser and their immediate
family members (an "Affiliate"); provided, that (i) Purchaser first delivers to
the Corporation the written representation of Purchaser and such Affiliate,
expressly for the benefit of the Corporation and the other Parties, that such
transfer is not being made for purposes of circumventing the provisions of this
Article III and that such Affiliate agrees to be bound by the terms and
provisions of this Agreement and (ii) the Corporation determines, in its
reasonable discretion, that such representation is true.
(b) Purchaser may transfer shares of Common Stock pursuant to
a registered public offering or pursuant to Rule 144 (other than Subsection (k)
thereof) promulgated under the Securities Act or any successor rule or
regulation then in place.
<PAGE> 3
Stock Purchase Agreement
Page 3 of 5
(c) Any purported transfer of Common Stock by a party which is
not permitted by the foregoing provisions of this Section, or which is in
violation of such provisions, shall be void and of no force and effect
whatsoever.
ARTICLE IV
MISCELLANEOUS
4.1 Equitable Relief. The Purchaser and the Corporation recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the Purchaser
and the Corporation may have specific performance, injunction, injunctive or
other equitable relief (in addition to damages) as a remedy for the enforcement
hereof, without providing damages.
4.2 Assignment. Except as otherwise expressly provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the Purchaser
and the Corporation. No such assignment shall relieve the assignor from any
liability hereunder. No assignment hereof shall be effective until the Purchaser
making an assignment hereof delivers to the Corporation an executed counterpart
of this Agreement by the transferee or an agreement in writing executed by the
transferee to be bound by the terms hereof to the same extent as if such
transferee was a Purchaser hereto.
4.3 Shares Subject to this Agreement. All shares of Common Stock now
owned or hereafter acquired by the Purchaser shall be subject to the terms of
this Agreement.
4.4 Legend. Certificates evidencing shares of Common Stock owned by the
Parties shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED OR SOLD, UNLESS IT HAS BEEN
REGISTERED UNDER SUCH SECURITIES ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THIS SECURITY IS SUBJECT TO RESTRICTIONS ON
TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH IN THE STOCK PURCHASE
AGREEMENT, DATED AS OF MARCH 31, 1999, AS IT MAY BE AMENDED FROM TIME
TO TIME, A COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION AT ITS
PRINCIPAL EXECUTIVE OFFICES.
<PAGE> 4
Stock Purchase Agreement
Page 4 of 5
4.5 Notices. Any and all notices, designations, consents, offers,
acceptances or any other communications provided for herein shall be given in
writing by personal delivery, overnight courier or facsimile, which shall be
addressed, or sent, to the respective addresses set forth on the signature pages
hereto or such other address as designated by the Parties by like notice from
time to time.
4.6 Counterparts. This Agreement may be executed in two or more
counterparts and each counterpart shall be deemed to be an original and which
counterparts together shall constitute one and the same agreement of the Parties
hereto.
4.7 Section Headings. Headings contained in this Agreement are inserted
only as a matter of convenience and in no way define, limit or extend the scope
or intent of this Agreement or any provisions hereof.
4.8 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to the conflicts of laws principles
thereof.
4.9 Entire Agreement. This Agreement contains the entities
understanding of the Parties hereto respecting the subject matter hereof, and
supersedes all prior agreements, discussions and understandings.
4.10 Cumulative Rights. The rights of the Purchaser and the Corporation
under this Agreement are cumulative and in addition to all similar and other
rights of the Parties under other agreements, including the Investment
Agreement.
4.11 Severability. Should any particular provision of this Agreement be
adjudicated to be invalid or unenforceable, such provision shall be deemed
deleted and the reminder of the Agreement, nevertheless, shall remain unaffected
and fully enforceable; further, to the extent any provision herewith is deemed
unenforceable by virtue of its scope but may be made enforceable by limitation
thereof, the Parties hereto agree the same shall, nevertheless, be enforceable
to the fullest extent possible.
4.12 No Waiver. No delay on the part of any party hereunder in
exercising any right, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude other or further exercise thereof, or
the exercise of any other right, power of privilege.
4.13 Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
4.14 Attorneys' Fees. In the event of any action or suit based upon or
arising out of any actual or alleged breach by any party of any representation,
warranty or agreement in this Agreement, the prevailing party shall be entitled
to recover its
<PAGE> 5
Stock Purchase Agreement
Page 5 of 5
reasonable attorneys' fees and expenses of such action or suit from the other
party, in addition to any other relief ordered by the court.
PURCHASER:
Jeffrey A. Veres
/s/ Jeffrey A. Veres
- ------------------------------------
Address of Record: ___9160 S. Princeton St., Highlands Ranch, CO 80126
OPTIMAL COMMUNICATIONS, INC.
By: /s/ CRAIG J. ZOELLNER
---------------------------------
Craig J. Zoellner
---------------------------------
(Print Name)
Title: President
Address of Record: 1522 Blake Street, Denver, Colorado 80202
-----------------------------------------
<PAGE> 6
ADDENDUM
THIS ADDENDUM to the Stock Purchase Agreement dated March 31, 1999 (the
"Agreement") by and between Optimal Communications, Inc. (the "Corporation") and
Jeffrey A. Veres ("Purchaser") adds additional stock transfer restrictions to
the Agreement as follows:
Transfer Restrictions. Unless otherwise agreed by the Corporation, except for
transfers to: a) immediate family members who agree to be bound by the
restrictions set forth in this Addendum (and a copy of such agreement is
furnished to the Corporation prior to the transfer); b) trusts, limited
partnerships or other estate planning entities for the benefit of the Purchaser
or family members of the Purchaser, the trustees, partners or other persons
having authority to bind the trust, limited partnership or other estate planning
entity of which agree to be bound by such restrictions (and a copy of such
agreement is furnished to the Corporation 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, the Purchaser will not sell, assign, exchange, transfer,
pledge, or otherwise dispose of at any time prior to the date which is 18 months
after the initial public offering of the Corporation's stock ("IPO") of any
shares of the Corporation's stock owned by the Purchaser or received by the
Purchaser as part of any stock option plan of the Corporation ("Shares").
Thereafter, up to 33.33% of the Shares may be resold at any time, and an
additional 16.67% of the Shares may be resold by the Purchaser beginning 24
months after the IPO. Any remaining Shares may not be sold until the earlier to
occur of 1) the sale of all or substantially all of the assets or outstanding
shares of the Corporation, or 2) five years after the IPO. Certificates for the
Shares will bear a legend substantially in the form set forth on page 3 of the
Stock Purchase Agreement.
PURCHASER:
Jeffrey A. Veres
/s/ Jeffrey A. Veres
----------------------------------------
OPTIMAL COMMUNICATIONS, INC.
By: /s/ CRAIG J. ZOELLNER
------------------------------------
Craig J. Zoellner
------------------------------------
(Print Name)
Its: President
-----------------------------------
<PAGE> 1
EXHIBIT 10.12
LOCK-UP AGREEMENT
THIS Lock-Up Agreement dated March 31, 1999 (the "Agreement") by and
between Optimal Communications, Inc. (the "Corporation") and BACE Investments,
LLC("Purchaser") adds additional stock transfer restrictions to the Agreement as
follows:
Transfer Restrictions. Unless otherwise agreed by the Corporation, except for
transfers to: a) Purchaser's Members and their immediate family members who
agree to be bound by the restrictions set forth in this Addendum (and a copy of
such agreement is furnished to the Corporation prior to the transfer); b)
trusts, limited partnerships or other estate planning entities for the benefit
of the Purchaser, Members of the Purchaser or the family members of the
Purchaser's Members, the trustees, partners or other persons having authority to
bind the trust, limited partnership or other estate planning entity of which
agree to be bound by such restrictions (and a copy of such agreement is
furnished to the Corporation 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, the Purchaser or Purchaser's Members will not sell, assign,
exchange, transfer, pledge, or otherwise dispose of at any time prior to the
date which is 18 months after the initial public offering of the Corporation's
stock ("IPO") of any shares of the Corporation's stock owned by the Purchaser or
Purchaser's Members or received by the Purchaser or Purchaser's Members as part
of any stock option plan of the Corporation ("Shares"). Thereafter, up to 33.33%
of the Shares may be resold at any time, and an additional 16.67% of the Shares
may be resold by the Purchaser or Purchaser's Members beginning 24 months after
the IPO. Any remaining Shares may not be sold until the earlier to occur of 1)
the sale of all or substantially all of the assets or outstanding shares of the
Corporation, or 2) five years after the IPO. Certificates for the Shares will
bear a legend substantially in the form set forth on page 3 of the Stock
Purchase Agreement.
PURCHASER:
BACE Investments, LLC
By: /s/ Richard M. Tyler
----------------------------
Richard M. Tyler
----------------------------
(Print Name)
Its: Member
----------------------------
OPTIMAL COMMUNICATIONS, INC.
By: /s/ Craig J. Zoellner
----------------------------
Craig J. Zoellner
----------------------------
(Print Name)
Its: President
----------------------------
<PAGE> 1
EXHIBIT 10.13
BUSINESS LEASE
(Net, Net, Net)
THIS LEASE is made this 10th day of April, 1996, between Jeff
& Linda Veres (the "Lessor") and Access Communications (the "Lessee").
In consideration of the payment of the rent and the
performance of the covenants and agreements by the Lessee set forth below, the
Lessor does hereby lease to the Lessee the following described property situate
in the County of Arapahoe, in the State of Colorado, the street address of which
is 7076 S. Alton Way, Building A, Englewood, CO 80112.
TO HAVE AND TO HOLD the same with all the appurtenances unto
the said Lessee from twelve o'clock noon on the 10th day of April, 1996, and
until twelve o'clock noon on the 9th day of April, 2016 in and for a rental for
the full term of $720,000, payable in monthly installments of $3000, on or
before twelve o'clock noon on the 5th day of each calendar month during the term
of this lease at the office of the Lessor at 9160 S. Princeton St., Highlands
Ranch, CO 80126, Colorado, without notice.
The Lessee, in consideration of the leasing of the premises
agrees as follows:
1. To pay the rent for the premises above-described.
2. To pay to the Lessor those items listed below, or the
Lessee's proportional share thereof, which for the purposes of this Lease is
deemed to be 100%, which amount shall be considered as additional rent, and
shall be due on the presentation of the appropriate bill to the Lessee:
(a) all taxes, assessments, and other governmental
charges which are levied against and may create a statutory lien upon the leased
premises which are levied or assessed during the term of this Lease;
(b) all premiums for fire and extended coverage
insurance, property damage, and liability insurance in such amounts as the
Lessor may reasonably require; and
(c) all costs and expenses of repairing and
maintaining the building, all of its components, and all land surrounding the
building.
3. To keep the improvements upon the premises, including sewer
connections, plumbing, wiring and glass in good repair, all at Lessee's expense,
and at the expiration of this lease to surrender the premises in as good a
condition as when the Lessee entered the premises, loss by fire, inevitable
accident, and ordinary wear excepted. To keep all sidewalks on and around the
premises free and clear of ice and snow, and to keep the entire exterior
premises free from all litter, dirt, debris and obstructions; to keep the
premises in a clean and sanitary condition as required by the ordinances of the
city and county in which the property is situate.
4. To sublet no part of the premises, and not to assign the
lease or any interest therein without the written consent of the Lessor.
<PAGE> 2
5. To use the premises only as Office/Warehouse and to use the
premises for no purposes prohibited by the laws of the United States or the
State of Colorado, or of the ordinances of the city or town in which said
premises are located, and for no improper or questionable purposes whatsoever,
and to neither permit nor suffer any disorderly conduct, noise or nuisance
having a tendency to annoy or disturb any persons occupying adjacent premises.
6. To neither hold nor attempt to hold the Lessor liable for
any injury or damage, either proximate or remote, occurring through or caused by
the repairs, alterations, injury or accident to the premises, or adjacent
premises, or other parts of the above premises not herein demised, or by reason
of the negligence or default of the owners or occupants thereof or any other
person, nor to hold the Lessor liable for any injury or damage occasioned by
defective electric wiring, or the breakage or stoppage of plumbing or sewerage
upon said premises or upon adjacent premises, whether breakage or stoppage
results from freezing or otherwise; to neither permit nor suffer said premises,
or the walls or floors thereof, to be endangered by overloading, nor said
premises to be used for any purpose which would render the insurance thereon
void or the insurance risk more hazardous, nor make any alterations in or
changes in, upon, or about said premises without first obtaining the written
consent of the Lessor therefore, but to permit the Lessor to place a "For Rent"
card or sign upon the leased premises at any time after sixty (60) days before
the end of this lease.
7. To allow the Lessor to enter upon the premises at any
reasonable hour.
8. To pay all charges for water and water rents, and for
heating and lighting of the building in which said premises are located.
IT IS EXPRESSLY UNDERSTOOD AND AGREED BETWEEN LESSOR AND
LESSEE AS FOLLOWS:
9. No assent, express or implied, to any breach of any one or
more of the agreements hereof shall be deemed or taken to be a waiver of any
succeeding or other breach. Any payment by Lessee, or acceptance by Lessor, of a
lesser amount than due shall be treated only as a payment on account. Further,
failure of the Lessor to timely bill for taxes, insurance or repairs, as
required herein, shall not be deemed a waiver of the Lessee's liability to pay
same.
10. If, after the expiration of this lease, the Lessee shall
remain in possession of the premises and continue to pay rent without a written
agreement as to such possession, then such tenancy shall be regarded as a
month-to-month tenancy, at a monthly rental, payable in advance, equivalent to
the last month's rent paid under this lease, and subject to all the terms and
conditions of this lease.
11. If the premises are left vacant and any part of the rent
reserved hereunder is not paid, then the Lessor may, without being obligated to
do so, and without terminating this lease, retake possession of the said
premises and rent the same for such rent, and upon such conditions as the Lessor
may think best, making such change and repairs as may be required, giving credit
for the amount of rent so received less all expenses of such changes and
repairs, and the Lessees shall be liable for the balance of the rent herein
reserved until the expiration of the term of this lease.
<PAGE> 3
12. The Lessor acknowledges receipt of a deposit in the amount
of $________ to be held by the Lessor for the faithful performance of all of the
terms, conditions and covenants of this lease. The Lessor may apply the deposit
to cure any default under the terms of this lease and shall account to the
Lessee for the balance. The Lessee may not apply the deposit hereunder to the
payment of the rent reserved hereunder or the performance of other obligations.
13. If any part of the rent provided to be paid herein is not
paid when due, or if any default is made in any of the agreements by the Lessee
contained herein, it shall be lawful for the Lessor to declare the term ended,
and to enter into the premises, either with or without legal process, and to
remove the Lessee or any other person occupying the premises, using such force
as may be necessary, without being liable to prosecution, or in damages
therefor, and to repossess the premises free and clear of any rights of the
Lessee. If, at any time, this lease is terminated under this paragraph, the
Lessee agrees to peacefully surrender the premises to the Lessor immediately
upon termination, and if the Lessee remains in possession of the premises, the
Lessee shall be deemed guilty of forcible entry and detainer of the premises,
and, waiving notice, shall be subject to forcible eviction with or without
process of law.
14. In the event of any dispute arising under the terms of
this lease, or in the event of non-payment of any sums arising under this lease
and in the event the matter is turned over to any attorney, the party prevailing
in such dispute shall be entitled, in addition to other damages or costs, to
receive reasonable attorney's fees from the other party.
15. In the event any payment required hereunder is not made
within ten (10) days after the payment is due, a late charge in the amount of
five percent (5%) of the payment will be paid by the Lessee.
16. In the event of a condemnation or other taking by any
governmental agency, all proceeds shall be paid to the Lessor hereunder, the
Lessee waiving all right to any such payments.
17. This lease is made with the express understanding and
agreement that, in the event the Lessee becomes insolvent, or is declared a
bankrupt, then, in either event, the Lessor may declare this lease ended, and
all rights of the Lessee hereunder shall terminate and cease.
THIS LEASE shall be binding on the parties, their personal
representatives, successors and assigns.
ADDITIONAL PROVISIONS
Lease is negotiable in 5 yr increments in the years of 2001,
2006, 2011, and 2016.
/s/ Linda and Jeff Veres /s/ Linda Veres, V.P. Access Communications
- ------------------------------- -------------------------------------------
LESSOR LESSEE
<PAGE> 4
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (this "Amendment") is made as of the 13th
day of August, 1999, between Jeff and Linda Veres ("Lessor") and DMA Ventures,
Inc., d/b/a Access Communications ("Lessee"), to amend that certain Business
Lease dated April 10, 1996 (the "Lease").
For ten dollars and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby amend
the Lease as follows:
1. TERM. The expiration date of the Lease set forth in the third full
paragraph of the Lease is amended to provide that the Lease term will expire on
December 31, 2001.
2. EXTENSION.
a. On the condition that Lessee is not then in default, Lessee shall
have the option to extend the term of the Lease for an additional period of five
years (the "Option Period") on the same terms, covenants and conditions of the
Lease, except that the monthly rent during the Option Period will be determined
pursuant to paragraph b below. Lessee will exercise its option by giving Lessor
written notice at least 60 days prior to the expiration of the initial term of
the Lease.
b. Lessor and Lessee agree that the initial monthly rent for the Option
Period will be determined as follows:
i. Lessor and Lessee will have 15 days after Lessor receives
notice of Lessee's exercise of the option within which to agree on the then-fair
market rental value of the premises. If they agree on the initial monthly rent
within the 15 days, they will amend the Lease by stating the monthly rent for
the Option Period to be the then-fair market rental value.
ii. If they are unable to agree on the initial monthly rent for
the Option Period within 15 days, then the initial monthly rent for the Option
Period will be the then-fair market rental value of the premises as determined
in accordance with paragraph iv below.
iii. The "then-fair market rental value of the premises" means the
amount that a lessor under no compulsion to lease the premises and a lessee
under no compulsion to lease the premises would determine as rent for the Option
Period as of the commencement of the Option Period, taking into consideration
the uses permitted under the Lease, the quality, size, design and location of
the premises, and the rent for comparable premises located in the vicinity of
the premises.
iv. Within seven days after the expiration of the 15-day period
set forth in paragraph ii above, Lessor and Lessee will each appoint a real
estate appraiser with at least two years' full time commercial appraisal
experience in the area in which the premises are located to appraise the
then-fair market rental value of the premises. If either Lessor or Lessee does
not appoint an appraiser within 10 days after the other has given notice of the
name of its appraiser, the single appraiser appointed will be the sole appraiser
and will set the then-fair market rental value of the premises. If two
appraisers are appointed pursuant to this paragraph, they will meet promptly and
attempt to set the then-fair market rental value of the
<PAGE> 5
premises. If they are unable to agree within 30 days after the second appraiser
has been appointed, they will attempt to elect a third appraiser meeting the
qualifications stated in this paragraph within 10 days after the last day the
two appraisers are given to set the then-fair market rental value of the
premises. If they are unable to agree on the third appraiser, either Lessor or
Lessee, by giving 10 days' prior notice to the other, can apply to the then
presiding Judge of the Arapahoe County District Court for the selection of a
third appraiser who meets the qualifications stated in this paragraph. Lessor
and Lessee will bear one-half of the cost to appoint a third appraiser and
one-half of the cost of the third appraiser's fee. The third appraiser, however
selected, must be a person who has not previously acted in any capacity for
either Lessor or Lessee.
Within 30 days after the selection of the third appraiser, the majority
of the appraisers will set the then-fair market rental value of the premises. If
a majority of the appraisers are unable to set the then-fair market rental value
of the premises within 30 days after selection of the third appraiser, the two
appraisals that are closest in value will be averaged and the average will be
the then-fair market rental value of the premises.
3. NO OTHER CHANGES. Except as set forth in this Amendment, the Lease
is in full force and effect and unmodified. This Amendment may be signed in two
or more counterparts, all of which, when taken together will constitute one
original agreement.
DMA VENTURES, INC.
D/B/A ACCESS COMMUNICATIONS
/s/ JEFF VERES By: /s/ Jeff Veres
- ---------------------------------- ---------------------------------
JEFF VERES
/s/ LINDA VERES Its: President
- ---------------------------------- --------------------------------
LINDA VERES
<PAGE> 1
EXHIBIT 10.14
ESCROW AGREEMENT
ESCROW AGREEMENT, effective as of the ___ day of August, 1999, by and
among certain of the shareholders listed on Exhibit A to this Escrow Agreement
(the "Shareholders" or "Shareholder") of PENTASTAR COMMUNICATIONS, INC., a
Delaware corporation, (the "Company"), SCHNEIDER SECURITIES, INC. (the
"Representative") and AMERICAN SECURITIES TRANSFER & TRUST, INC. (the "Escrow
Agent").
WHEREAS, the Shareholders are the record and beneficial owners of
certain of the Company's $0.0001 par value common stock ("Common Stock") all as
more fully reflected on Exhibit A to this Escrow Agreement;
WHEREAS, the Company and the Representative of the several underwriters
(the "Underwriters") intend to enter into an underwriting agreement (the
"Underwriting Agreement") pursuant to which the Company will sell Common Stock
in a public offering pursuant to the registration provisions of the Securities
Act of 1933, as amended (the "1933 Act");
WHEREAS, as a condition to closing the proposed public offering of the
Company (the "Offering"), the Representative has required the Shareholders to
deposit an aggregate of 200,000 shares of Common Stock owned by such
Shareholders in Escrow with the Escrow Agent as reflected on Exhibit A (the
"Escrow Shares"); and
WHEREAS, the Shareholders wish to deposit the Escrow Shares in
Escrow in order to fulfill the requirements of the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, terms and conditions hereinafter set forth, the parties to this
Escrow Agreement agree as follows:
SECTION 1. DESIGNATION AND DEPOSIT OF ESCROW SHARES.
a. The Escrow Shares to be deposited in Escrow pursuant to
this Escrow Agreement consist of 200,000 shares of Common Stock of the
Company and are owned of record as of the date of this Escrow Agreement
by the Shareholders identified on Exhibit A.
b. On the date on which the Securities and Exchange Commission
declares the Company's Registration Statement on Form SB-2 (Reg. No.
333-_____) effective under the 1933 Act (the "Effective Date"), the
Shareholders shall deliver to the Escrow Agent any and all certificates
representing the Escrow Shares and a stock power endorsed in blank with
a medallion guarantee. Promptly after the Effective Date, the Escrow
Agent shall deliver a receipt therefor and, if requested by a
Shareholder, a new certificate representing each Shareholder's shares
of Common Stock represented by the certificates delivered but which are
not subject to this Escrow Agreement.
<PAGE> 2
SECTION 2. TITLE OF ACCOUNT. All certificates representing the
Escrow Shares delivered to the Escrow Agent pursuant to this Agreement shall be
deposited on the Effective Date by the Escrow Agent in an account designated
substantially as follows: "PentaStar Communications, Inc. Escrow Share
Account" (the "Escrow Account").
SECTION 3. TRANSFER OF ESCROW SHARES DURING ESCROW PERIOD.
a. During the Escrow Period (as defined below) none of the
Escrow Shares deposited in the Escrow Account shall be sold, pledged,
hypothecated or otherwise transferred or delivered out of the Escrow
Account except:
i. transfers by operation of law; and
ii. transfers of ownership of certificates
representing the Escrow Shares, certificates for which have
been deposited to the Escrow Account, shall remain subject to
the restrictions imposed hereby, including those persons, if
any, who become holders, by any means provided herein, of the
Escrow Shares during the Escrow Period.
SECTION 4. DURATION OF ESCROW PERIOD.
a. The Escrow Period shall commence on the Effective Date and
shall terminate on the earlier of the date on which all Escrow Shares
have been returned to the Shareholders pursuant to Sections 6(a), 6(b),
6(c) or 6(d) below.
b. This Agreement shall be of no force or effect in the event
the Underwriting Agreement is not executed on the Effective Date in
accordance with its terms.
SECTION 5. RECEIPT OF DISTRIBUTIONS AND DIVIDENDS. During the term of
the Escrow Period, if the Company issues any distributions, dividends, rights or
other property with respect to the Common Stock, then, in such event, the
Company shall be authorized to send evidence of such distributions, dividends,
rights or other property directly to the Escrow Agent, which is hereby
authorized to hold and retain possession of all such evidences of distributions,
dividends, rights or other property until termination of the Escrow Period in
accordance with Section 6 below. In the event the Escrow Shares are distributed
to the Shareholders pursuant to Sections 6(a), 6(b), 6(c), 6(d), 6(e) or 6(f)
below, then the Escrow Agent will distribute evidences of such distributions,
dividends, rights, or other property in the form the Escrow Agent received such
distributions, dividends, rights or other property from the Company. If the
Company recapitalizes, splits or combines its shares, such shares shall be
substituted, on a pro rata basis for the Escrow Shares. The Company will notify
the Escrow Agent of the occurrence of the events listed in this section.
2
<PAGE> 3
SECTION 6. RELEASE AND DELIVERY OF ESCROW SHARES.
a. In the event the Escrow Agent receives written notice from
the Representative and the Company confirming that the Company had pro
forma (based on a full 12-month period for all acquired operations)
diluted earnings per share of $0.50 in fiscal year 2000, the Escrow
Agent shall return to each Shareholder its share of the Escrow Shares
as are listed on Exhibit A. The Escrow Agent shall return the Escrow
Shares only to the entity named as the holder of record in Exhibit A to
this Escrow Agreement, as modified by any transfers made pursuant to
Section 3 above.
b. In the event the Escrow Agent receives written notice from
the Representative and the Company confirming the Company had pro forma
(based on a full 12-month period for all acquired operations) diluted
earnings per share of $1.25 in fiscal year 2001, the Escrow Agent shall
return to each Shareholder a certificate for its share of the Escrow
Shares as are listed on Exhibit A. The Escrow Agent shall return each
certificate only to the entity named as the holder of record in Exhibit
A hereto, as modified by any transfers made pursuant to Section 3
above.
3
<PAGE> 4
c. In the event the Escrow Agent receives written notice from
the Representative and the Company confirming that the Company has been
merged or consolidated with another company which is the survivor to
the transaction or in which the stockholders of the Company own less
than 50% of the outstanding capital stock of the surviving entity, or
that the Company has sold all or substantially all of its assets and
the relevant transaction was approved by the holders of a majority of
the Company's outstanding voting securities exclusive of the Escrow
Shares held hereunder, the Escrow Agent shall contemporaneously with
the closing of any such transaction return to each Shareholder a
certificate for its pro rata share of the Escrow Shares as are listed
on Exhibit A. The Escrow Agent shall return each certificate only to
the person named as the holder of record in Exhibit A hereto, as
modified by any transfers made pursuant to Section 3 above.
d. In the event none of the criteria for release specified in
subparagraphs (a), (b) or (c) above is reached by the Company, the
Escrow Shares shall remain in the Escrow Account until a date that is
seven years from the Effective Date. Upon termination of the Escrow
Period pursuant to the provisions of this Section 6(d), the Escrow
Agent shall, as promptly as possible, return to each Shareholder a
certificate for its share of the Escrow Shares as are listed on Exhibit
A remaining in the Escrow Account by means of registered mail, return
receipt requested. The Escrow Agent shall return each certificate only
to the person named as the holder of record in Exhibit A hereto, as
modified by any transfers made pursuant to Section 3 above.
e. At such time as the Escrow Agent shall have returned all
Escrow Shares as provided in this Section, the Escrow Agent shall be
discharged completely and released from any and all further liabilities
and responsibilities under this Escrow Agreement.
f. The determination of the criteria described above shall be
solely the responsibility of the Company and the Representative, and
the Escrow Agent shall have no liability or responsibility therefor.
SECTION 7. VOTING RIGHTS. During the Escrow Period, the Shareholder,
or any transferee receiving all or a portion of the Escrow Shares pursuant to
Section 3 of this Escrow Agreement, shall have the right to vote the Escrow
Shares (to the extent the Escrow Shares have voting rights) in the Escrow
Account at any and all shareholder meetings without restriction, except as is
set forth in Section 6.f of this Escrow Agreement.
SECTION 8. LIMITATION OF LIABILITY OF ESCROW AGENT. In acting pursuant
to this Escrow Agreement, the Escrow Agent shall be protected fully in every
reasonable exercise of its discretion and shall have no obligation hereunder to
either the Shareholders or to any other party except as expressly set forth
herein. In performing any of its duties hereunder, the Escrow Agent shall not
incur any liability to any person for any damages, losses or expenses, except
for willful default or negligence and it shall, accordingly, not incur any such
liability with respect to (1) any action taken or omitted in good faith upon
advice of its counsel, counsel for the Company or counsel for the Representative
given with respect to any question relating to the duties and responsibilities
of the Escrow Agent under this Agreement, and (2) any action taken or omitted in
reliance upon any instrument, including written notices provided for herein, not
only to its due execution and validity and effectiveness of its provisions, but
also to the truth and accuracy of any information
4
<PAGE> 5
contained therein, which the Escrow Agent shall in good faith believe to be
genuine, to have been signed and presented by a proper person or persons and to
be in compliance with the provisions of this Agreement.
SECTION 9. INDEMNIFICATION. The Company, the Representative and the
Shareholders shall indemnify and hold harmless the Escrow Agent against any and
all losses, claims, damages, liabilities and expenses, including reasonable
costs of investigation and counsel fees and disbursements, which may be imposed
upon the Escrow Agent or incurred by the Escrow Agent in connection with its
acceptance of appointment as Escrow Agent or the performance of its duties
hereunder, including any litigation arising from this Escrow Agreement or
involving the subject matter of this Escrow Agreement.
SECTION 10. PAYMENT OF FEES. The Company shall be responsible for all
reasonable fees and expenses of the Escrow Agent incurred by it in the course of
performing under this Escrow Agreement.
SECTION 11. CHANGE OF ESCROW AGENT. In the event the Escrow Agent
notifies the Company and the Representative that its acceptance of the duties of
Escrow Agent has been terminated by the Escrow Agent, or in the event the Escrow
Agent files for protection under the United States Bankruptcy Code or is
liquidated or ceases operations for any reason, the Company and the
Representative shall have the right to jointly designate a replacement Escrow
Agent who shall succeed to the rights and duties of the Escrow Agent hereunder.
Any such replacement Escrow Agent shall be a trust or stock transfer company
experienced in stock transfer, escrow and related matters and shall have a
minimum net worth of $5 million. Upon appointment of such successor Escrow
Agent, the Escrow Agent shall be discharged from all duties and responsibilities
hereunder.
SECTION 12. NOTICES. All notices, demands or requests required or
authorized hereunder shall be deemed given sufficiently if in writing and sent
by registered mail or certified mail, return receipt requested and postage
prepaid and by facsimile or cable:
In the case of the Representative to:
Schneider Securities, Inc.
The Chancery
1120 Lincoln Street, Suite 900
Denver, Colorado 80203
Attention: Thomas J. O'Rourke, President
With a copy to (which shall not constitute notice):
Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos, P.C.
One Norwest Center, Suite 4700
1700 Lincoln Street
Denver, Colorado 80203-4547
5
<PAGE> 6
In the case of the Escrow Agent to:
American Securities Transfer & Trust, Inc.
12039 West Alameda Parkway, Suite Z-2
Lakewood, Colorado 80228
In the case of the Company to:
PentaStar Communications, Inc.
1522 Blake Street
Denver, Colorado 80202
With a copy to (which shall not constitute notice):
B. Scott Pullara, Esq.
Sherman & Howard L.L.C.
633 Seventeenth Street, Suite 3000
Denver, Colorado 80202
In the case of the Shareholders to:
BACE Investments, LLC
1522 Blake Street
Denver, Colorado 80202
Black Diamond Capital, LLC
7101 LaVista Place, Suite 100
Niwot, Colorado 80503
6
<PAGE> 7
SECTION 13. COUNTERPARTS. This Escrow Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Escrow Agreement. Facsimile signatures shall
be accepted as original signatures for all purposes.
SECTION 14. GOVERNING LAW. The validity, interpretation and
construction of this Escrow Agreement and of each part hereof shall be governed
by the laws of the State of Colorado.
IN WITNESS WHEREOF, the Shareholders, the Company, the Representative
and the Escrow Agent have executed this Escrow Agreement to be effective as of
the day and year first above written.
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By:
--------------------------------------
Title:
-----------------------------------
PENTASTAR COMMUNICATIONS, INC.
By:
--------------------------------------
Title:
-----------------------------------
SCHNEIDER SECURITIES, INC.
By:
--------------------------------------
Title:
-----------------------------------
7
<PAGE> 8
THE SHAREHOLDERS:
BACE INVESTMENTS, LLC
By:
----------------------------------
Craig J. Zoellner
BLACK DIAMOND CAPITAL, LLC
By:
----------------------------------
Blair W. McNea
8
<PAGE> 9
EXHIBIT A
TO ESCROW AGREEMENT
NAME TOTAL SHARES
---- ------------
BACE INVESTMENTS, LLC 140,000
BLACK DIAMOND CAPITAL, LLC 60,000
9
<PAGE> 1
EXHIBIT 21.1
Subsidiaries
OC Mergerco 1, Inc., a Delaware corporation
OC Mergerco 2, Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
for PentaStar Communications, Inc. dated August 10, 1999; ICM Communications
Integration Inc, dated July 23, 1999; and DNV Ventures, Inc., dba. Access
Communations dated August 6, 1999 ( No. ) (and to all references to our Firm)
included in this Registration Statement on Form SB-2 dated August 16, 1999.
/s/ ARTHUR ANDERSEN
Denver, Colorado,
August 16, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 221 215
<SECURITIES> 0 0
<RECEIVABLES> 1,855 1,880
<ALLOWANCES> (420) (342)
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,080 2,222
<PP&E> 807 799
<DEPRECIATION> (230) (230)
<TOTAL-ASSETS> 2,951 3,298
<CURRENT-LIABILITIES> 1,770 1,994
<BONDS> 185 156
0 0
0 0
<COMMON> 1 114
<OTHER-SE> 977 1,034
<TOTAL-LIABILITY-AND-EQUITY> 2,951 3,298
<SALES> 0 0
<TOTAL-REVENUES> 6,657 2,996
<CGS> 0 0
<TOTAL-COSTS> 5,476 2,745
<OTHER-EXPENSES> 0 8
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,140 224
<INCOME-TAX> 412 91
<INCOME-CONTINUING> 728 133
<DISCONTINUED> (370) (76)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 358 57
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
