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EXHIBIT 2.13
July 18, 2000
Telecomm Industries Corp.
1743 Quincy Avenue
Naperville, Illinois 60540
Re: Purchase Agreement dated April 15, 2000
Gentlemen:
This letter agreement serves as an amendment to the Purchase
Agreement dated as of April 15, 2000 (the "Agreement") by and among PentaStar
Communications, Inc., PentaStar Corporation and Telecomm Industries Corp. All
capitalized terms used in this letter agreement without definition have the
respective meanings given to them in the Agreement.
The parties hereby amend the Agreement as follows:
1. Clause (B) of the second sentence of Section 2.3(a)(iv) of the
Agreement and clause (B) of the fourth sentence of Section 2.3(a)(v) of the
Agreement are each amended in their entirety to read as follows:
(B) the aggregate amount of accounts receivable (including
residual payment rights) and notes receivable received by the
Company after February 29, 2000 (whether by collection of cash,
offset of accounts payable or otherwise, and whether or not any
cash or other amount received in respect thereof is on hand or
has been used by the Company) as a result of the accelerated
collection thereof beyond normal stated terms or outside of the
normal course of business consistent with past practices,
2. As of the date of this letter agreement, the Company has not
obtained the third party consents, estoppels and nondisturbance agreements set
forth on Exhibit A hereto (collectively, the "Outstanding Third Party Consents
and Agreements"). With respect to the Outstanding Third Party Consents and
Agreements, PentaStar, the Acquiror and the Company agree as follows: (a) the
Closing shall occur even though the Outstanding Third Party Consents and
Agreements will not have been obtained by the Closing; (b) PentaStar and the
Acquiror have
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not waived the obligation of the Company to obtain the Outstanding Third Party
Consents and Agreements or to indemnify and hold harmless PentaStar and the
Acquiror for any Adverse Consequences which either of them may suffer resulting
from, arising out of, relating to or caused by the failure of the Company to
obtain any of such Outstanding Third Party Consents and Agreements; and (c) the
Company shall continue to be obligated to obtain the Outstanding Third Party
Consents and Agreements.
3. Before abandoning use of or disconnecting service on any of
the telephone numbers of the Company at the Chicago, Illinois, Naperville,
Illinois, Evansville, Indiana, Schererville, Indiana, South Bend, Indiana,
Louisville, Kentucky, Columbus, Ohio, Dayton, Ohio or Brooklyn Heights, Ohio
Premises, the Company shall offer to the Acquiror the right to such number, and
the Acquiror shall not be obligated to make any payment to the Company for such
number.
4. Pursuant to Section 4.4 of the Agreement the Company was
required to provide to the Acquiror, by May 15, 2000, a detailed list (based
upon a physical inventory) of all tangible assets which the Company believes are
to be included in the Acquired Assets, which list is to also set forth the book
value (purchase price less accumulated depreciation) of each such tangible asset
(the "Tangible Assets List"). The purpose of the May 15, 2000 delivery
requirement was to provide PentaStar with sufficient time prior to the Closing
to determine if the Tangible Assets List accurately reflected the tangible
assets which are to be included in the Acquired Assets, as contemplated by fifth
and sixth sentences of Section 3.1(g)(i). With respect to the Tangible Assets
List, PentaStar, the Acquiror and the Company agree as follows: (a) the Closing
shall occur even though the Tangible Assets List will not have been delivered by
the Closing; (b) PentaStar and the Acquiror have not waived any representation,
warranty or covenant of the Company contained in the Agreement or the obligation
of the Company to deliver the Tangible Assets List or to indemnify and hold
harmless PentaStar and the Acquiror for any Adverse Consequences which either of
them may suffer resulting from, arising out of, relating to or caused by the
failure of the Company to deliver the Tangible Assets List by May 15, 2000; (c)
the Company shall deliver the Tangible Assets List to PentaStar by July 31,
2000; and (d) regardless of what assets appear or do not appear on the Tangible
Assets List, the Acquired Assets include, without limitation, those assets set
forth on Exhibit B hereto. Further, the Company shall use its best efforts
following the Closing to consolidate servers, hubs, routers and PBXs for the
Company's own use and any servers, hubs, routers and PBXs freed-up as a result
of such consolidation shall also be Acquired Assets.
5. The Acquiror, the Company and SBC Global Services, Inc.
("Ameritech") are party to a letter agreement dated of approximately even date
herewith, pursuant to which the Acquiror is to make a wire transfer of money to
Ameritech. The Company agrees that any such wire transfer by the Acquiror is to
be made on behalf of the Company out of the cash portion of
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the Purchase Price which would otherwise be deliverable to the Company pursuant
to Section 2.3(a) of the Agreement.
6. Following the Closing, employees of the Acquiror may sell
products or services identified on Exhibit C on behalf of the Company, in which
event the Company shall compensate the Acquiror for such sales. Exhibit C
represents the Acquiror's and the Company's agreement as to material terms
governing such sales. Within 60 days following the Closing, the Acquiror and the
Company shall negotiate and execute a more formal agreement concerning such
arrangement, which shall include the understanding set forth on Exhibit C. Until
such more formal agreement is executed, this Section 6 and Exhibit C shall
govern such relationship. In addition, within 60 days following the Closing, the
Acquiror and the Company shall use good faith efforts to negotiate and execute a
separate agreement relating to the Acquiror and the Company each referring to
the other customer and sales opportunities, with a compensation structure that
is consistent with the Company's current referral arrangements.
7. Section 2.3(d) of the Agreement is amended in its entirety to
read as follows:
(d) The allocation of the total consideration for the Acquired
Assets and Assumed Liabilities for Tax reporting purposes shall
be as follows: (i) to cash and cash equivalents, the amount
thereof; (ii) to Closing Shares, the amount thereof less an
appropriate discount for the Closing Shares' lack of liquidity
and the risk of the Division operating as a stand-alone entity;
(iii) to the Assumed Liabilities, the amount thereof; (iv) to the
potential Earn-Out Amount, the estimated amount thereof of
PentaStar Common Stock and cash, less an appropriate discount for
the PentaStar Common Stock's lack of liquidity and the risk of
the Division operating as a stand-alone entity. Once the Earn-Out
Amount is known, through the passage of time and the occurrence
of performance on the part of the Acquiror, the allocation of the
total consideration shall be as follows: (i) to cash and cash
equivalents, the amount thereof; (ii) to PentaStar Common Stock
(whether issued as Closing Shares or in respect of the Earn-Out
Amount), the amount thereof less a 2% discount for each month on
shares of PentaStar Common Stock are subject to the transfer
restrictions in Section 5.8 of this Agreement (for example, if
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33% of the PentaStar Common Stock (whether issued as Closing
Shares or in respect of the Earn-Out Amount) is subject, at the
time of completion of the Earn-Out Period, pursuant to Section
5.8 to not being sold, assigned, exchanged, transferred, pledged
or otherwise disposed of for five remaining months, then 33% of
the total PentaStar Common Stock (whether issued as Closing
Shares or in respect of the Earn-Out Amount) received by the
Company shall be discounted 10%); and (iii) to the Assumed
Liabilities, the amount thereof. The Company will allocate the
total consideration against its Tax basis in the Acquired Assets,
Assumed Liabilities and recorded net operating losses to
calculate its recorded gain on the transaction for Tax purposes.
The Acquiror will allocate the total consideration against an
estimated fair market value of the Acquired Assets and the
Assumed Liabilities to calculate its recorded goodwill on the
transaction for Tax purposes. The parties acknowledge that such
allocations for Tax reporting purposes were determined pursuant
to arm's length bargaining regarding the fair market values of
the total consideration paid in accordance with the provisions of
Code Section 1060. The parties further agree to prepare and file
all Tax Returns (including Form 8594 under the Code) in a manner
consistent with such allocations.
8. (a) The first sentence of Section 2.3(a)(i) of the Agreement
is amended by adding thereto the following to appear immediately before
"(collectively the "Purchase Price")":
; and (E) an amount of cash equal to $164,683
Such $164,683 is not a part of the Clause A Amount and shall be paid at the
Closing by wire transfer to the Company or its designee.
(b) The Merrill Lynch Long-Term Debt Obligation includes the
principal payment due July 1, 2000 and accrued interest thereon in the aggregate
amount (for such past due principal payment and accrued interest) of
approximately $140,000.
(c) If the "Net Cash Flow" (as defined below) of the Acquiror for
the period of July 1 through September 30, 2000 (and, for purposes of
calculating Net Cash Flow for this Section 8(c) only, the Closing shall be
treated as if it occurred on July 1, 2000) (the "Three Month Net Cash Flow
Amount") is less than $369,451, then the Company shall owe the Acquiror an
amount (not to exceed $304,683) equal to the difference (the "Difference")
between $369,451 and the Three Month Net Cash Flow Amount. If a Difference is so
owed by the Company to the Acquiror, the Acquiror shall have the right, at its
option, to offset any Interim Cash Payment, Earn-Out Amount or other amount
payable by the Acquiror to the Company pursuant to the Agreement against the
Difference (and if no such amounts become payable to the
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Company or the amount thereof is less than the Difference, the Company shall pay
such Difference (or any balance thereof) to the Acquiror upon demand by the
Acquiror) or to obtain the Difference from the Escrow Deposit pursuant to
Section 7.1(b) of the Agreement. Any PentaStar Shares included in the Earn-Out
Amount which are the subject of offset or obtained by the Acquiror from the
Escrow Deposit pursuant to the preceding sentence shall be valued at the per
share price at which they were issued pursuant to the Purchase Agreement. If the
Three Month Net Cash Flow Amount is equal to or greater than the $369,451, then
neither the Company nor the Acquiror shall owe any amount to the other in
respect thereof. "Net Cash Flow" means net cash received by the Acquiror, less
net cash disbursed by the Acquiror (which shall include any disbursements made
to Merrill Lynch on or before September 1 and October 1, 2000 pursuant to the
Merrill Lynch Long-Term Debt Obligation (currently estimated to be $106,592
each) and the $140,000 of assumed debt referenced in Section 8(b) above), less
accounts payable which are past due at September 30, 2000 based upon their
stated, normal terms, plus any prepayments of accounts payable that were not due
by September 30, 2000 based upon their stated, normal terms.
9. Attached as Exhibit D is the Estimated Closing Date Balance
Sheet delivered by the Company to PentaStar.
10. Notwithstanding anything in the Agreement to the contrary,
the amount of the Merrill Lynch Short-Term Debt Obligation assumed by the
Acquiror pursuant to clause (c) of the definition of Assumed Liabilities shall
not exceed $1,059,298. However, at the Closing the Acquiror is being required to
pay to Merrill Lynch on behalf of the Company $1,260,349 in respect of the
Merrill Lynch Short-Term Debt Obligation, a difference of $201,051. The
Borrowing Base Debt (as defined below) of the Acquiror as of the Closing Date
shall be determined by Arthur Andersen by no later than August 10, 2000. If the
Borrowing Base Debt of the Acquiror so determined is less than $1,260,349, then
the Acquiror shall have the right to offset against any Interim Cash Payments an
amount of $1.00 for each $1.00 that such Borrowing Base Debt is below
$1,260,349, and if any such cash offset is taken the amount of such cash offset
shall be replaced by PentaStar Shares having a value equal thereto based upon
the per share price at which the Closing Shares are issued. For purposes of this
Section 10, Borrowing Base Debt shall mean 80% of Ameritech accounts receivable
for Upfront Commission Payments (as defined in the Authorized Distributor
Agreement between Ameritech and the Company (and assigned to the Acquiror
pursuant to the Purchase Agreement) dated January 1, 1999, the "Ameritech
Agreement") and 80% of Residual Payments (as defined in the Ameritech Agreement)
expected to be received during the 90 days following the Closing Date.
By signing below, you acknowledge and agree that (a) this letter
agreement amends the Agreement as set forth above and only as set forth above
and (b) the Agreement, as amended by this letter agreement, remains in full
force and effect and nothing in this letter agreement shall constitute a waiver
by any party of any right or claim under the Agreement.
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Very truly yours,
PENTASTAR COMMUNICATIONS, INC. PENTASTAR CORPORATION
By: /s/ Robert S. Lazzeri /s/ Robert S. Lazzeri
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Name: Robert S. Lazzeri Name: Robert S. Lazzeri
Title: Chief Executive Officer Title: Chief Executive Officer
Agreed and accepted this 18th day of July 2000.
TELECOMM INDUSTRIES CORP.
By: /s/ Paul Satterthwaite
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Name: Paul Satterthwaite
---------------------------------
Title: President/CEO
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