<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 31, 2000
PentaStar Communications, Inc.
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 0-27709 84-1502003
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
1522 Blake Street, Denver CO 80202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 825-4400
None
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(Former name or former address, if changed since last report.)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On March 31, 2000, PentaStar Communications, Inc., through a
wholly-owned subsidiary (together, "PentaStar"), executed and completed an
Agreement and Plan of Merger ("Agreement") whereby PentaStar acquired all the
business operations of Resource Communications, Inc. ("Resource") through a
statutory merger.
The consideration paid at closing to the shareholders of Resource
pursuant to the Agreement consisted of $925,000 of cash and the issuance of
81,250 shares of PentaStar common stock, $.0001 par value (which shares had an
agreed upon value of $1,300,000 based upon the trading price for the twenty day
period ending two days prior to closing). The cash portion of the consideration
is subject to adjustment based upon certain closing balance sheet amounts. Of
the 81,250 of issued shares, 50,000 shares were placed in escrow until March 31,
2001 for application against indemnification obligations. The remaining 31,250
shares were placed in escrow until March 15, 2001 to be released upon Resource
attaining earnings before interest, taxes and amortization (EBITA) of $400,000
for the period January 1, 2000 to December 31, 2000. If the EBITA for this
period is less than the $400,000, an amount of shares equal in value to three
times the difference between $400,000 and the amount of actual EBITA for the
period will be deducted from the escrow and returned to PentaStar. In addition,
certain shareholders of Resource may receive additional consideration through an
earn-out. This additional earn-out consideration is determined by the sum of (i)
three times EBITA for the sequential 6 month periods from January 1, 2000 to
June 30, 2001, divided by eighteen and multiplied by twelve, minus (ii) the cash
and stock consideration paid at the initial closing.
The consideration was determined based upon negotiations among parties.
The source of funds used by the Company to pay the cash portion of the
consideration was proceeds from the Company's recent initial public offering of
equity securities.
Resource, based in Dublin, California, is a full-service communications
agent, which has been furnishing communication solutions to customers for over
10 years. Resource focuses on being the single point of contact to businesses
for data, voice and Internet solutions.
Item 7. Financial Statements and Exhibits
a) Financial Statements.
In accordance with Item 7(a)(4) of Form 8-K, the financial
statements required to be filed with the Commission will be filed
by an amendment to this report no later than 60 days after the due
date of this report.
<PAGE> 3
b) Pro Forma Financial Information.
In accordance with Item 7(b)(2) of Form 8-K, any pro forma
financial information required to be filed with the Commission
will be filed by an amendment to this report no later than 60 days
after the due date of this report.
c) Exhibits.
EXHIBIT NUMBER DESCRIPTION
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2.1 Agreement and Plan of Merger Among PentaStar Communications,
Inc., PentaStar Acquisition Corp. VI, Resource Communications,
Inc. and the Shareholders of Resource Communications, Inc.
Pursuant to Item 601 (b)(2) of Regulation S-B under the
Securities Exchange Act of 1934, the exhibits to the Agreement
and Plan of Merger have been omitted. PentaStar agrees to
furnish copies of such exhibits to the Commission upon
request.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 17, 2000 PENTASTAR COMMUNICATIONS, INC.
By: /s/ David L. Dunham
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David L. Dunham
Chief Financial Officer
<PAGE> 5
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
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2.1 Agreement and Plan of Merger Among PentaStar Communications,
Inc., PentaStar Acquisition Corp. VI, Resource Communications,
Inc. and the Shareholders of Resource Communications, Inc.
Pursuant to Item 601 (b)(2) of Regulation S-B under the
Securities Exchange Act of 1934, the exhibits to the Agreement
and Plan of Merger have been omitted. PentaStar agrees to
furnish copies of such exhibits to the Commission upon
request.
<PAGE> 1
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AGREEMENT AND PLAN OF MERGER
AMONG
PENTASTAR COMMUNICATIONS, INC.,
PENTASTAR ACQUISITION CORP. VI
RESOURCE COMMUNICATIONS, INC.
AND THE
SHAREHOLDERS
OF
RESOURCE COMMUNICATIONS, INC.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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1. Definitions...........................................................................................................1
2. Merger................................................................................................................1
2.1. Basic Transaction............................................................................................1
2.2. The Closing..................................................................................................8
3. Representations and Warranties........................................................................................8
3.1. Representations and Warranties of the Shareholders...........................................................8
3.2. Representations and Warranties of Each Shareholder..........................................................19
3.3. Representations and Warranties of PentaStar.................................................................21
3.4. No Violation of Agreements, Etc.............................................................................22
3.5. Survival of Representations.................................................................................22
3.6. Representations as to Knowledge.............................................................................22
4. Pre-Closing Covenants................................................................................................22
4.1. General.....................................................................................................22
4.2. Operation and Preservation of Business......................................................................23
4.3. Full Access.................................................................................................23
4.4. Notice of Developments......................................................................................23
4.5. Exclusivity.................................................................................................23
4.6. Announcements; Securities Law Restrictions..................................................................23
4.7. Closing Date Liabilities....................................................................................23
5. Post-Closing Covenants...............................................................................................24
5.1. Further Assurances..........................................................................................24
5.2. Transition..................................................................................................24
5.3. Cooperation.................................................................................................24
5.4. Confidentiality.............................................................................................24
5.5. Post-Closing Announcements..................................................................................24
5.6. Financial Statements........................................................................................24
5.7. Satisfaction of Liabilities.................................................................................25
5.8. Repurchase of Unpaid Receivables............................................................................25
5.9. Termination of Obligations..................................................................................25
5.10. Transfer Restrictions.......................................................................................25
5.11. Filings with California Secretary of State..................................................................27
6. Conditions to Closing................................................................................................27
6.1. Conditions to Obligation of PentaStar.......................................................................27
6.2. Conditions to Obligation of the Shareholders................................................................28
7. Remedies for Breaches of This Agreement..............................................................................29
7.1. Indemnification Provisions for Benefit of PentaStar and the Surviving Corporation...........................29
</TABLE>
(i)
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<TABLE>
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7.2. Indemnification Provisions for Benefit of the Shareholders..................................................31
7.3. Matters Involving Third Parties.............................................................................31
7.4. Right of Offset.............................................................................................32
7.5. Other Remedies..............................................................................................32
7.6. Limitation..................................................................................................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....................................................................................................34
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................................................................................................35
9.13. Incorporation of Exhibits...................................................................................36
9.14. Shareholders' Agent.........................................................................................36
</TABLE>
(ii)
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EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.1(a) Defined Terms
Exhibit 1.1(b)-1 Form of Talbot-Goldberg Employment and Noncompetition Agreement
Exhibit 1.1(b)-2 Form of Dana Topping Employment and Noncompetition Agreement
Exhibit 1.1(d) Form of Noncompetition Agreement
Exhibit 1.1(e) Form of Principal Shareholder's Escrow and Contingent Stock Agreement
Exhibit 1.1(f) RCI Contracts Which After Closing May Give Rise to RCI Obligations
Exhibit 1.1(g) Form of Escrow Agreement
Exhibit 2.1(n)(iv) Examples/Earn-Out
Exhibit 3.1(a)(i) RCI Articles of Incorporation, as amended to date and certified
Exhibit 3.1(a)(ii) RCI Bylaws, as amended to date
Exhibit 3.1(b)(i) RCI Ownership and Rights with Respect to RCI Shares
Exhibit 3.1(b)(ii) RCI Subsidiaries
Exhibit 3.1(c) Notices and Consents to be Obtained by Company and/or Shareholders
Exhibit 3.1(d)(i)(A) RCI Financial Statements
Exhibit 3.1(d)(i)(B) RCI Expenses Not Realized on an Ongoing Basis
Exhibit 3.1(e)(i) RCI Absence of Certain Agreements/(Prepaid and Material Contracts)
Exhibit 3.1(e)(ii) Excluded Assets
Exhibit 3.1(e)(iii) RCI Customer Contracts
Exhibit 3.1(f)(iii) RCI Tax Returns
Exhibit 3.1(f)(v) RCI or Shareholder "S" Corporation Elections
Exhibit 3.1(f)(vi) RCI Basis in Assets/NOLs
Exhibit 3.1(h) RCI Contracts and Other Matters
Exhibit 3.1(i)(i) RCI Litigation
Exhibit 3.1(i)(ii) RCI Violations of Legal Requirements or Rights
Exhibit 3.1(k) RCI Liability Claims, Other than Those Listed on Exhibit 3.1(i)(i)
Exhibit 3.1(l) RCI Insurance Claims, Other than Those Listed on Exhibit 3.1(k)
Exhibit 3.1(m)(i) RCI Welfare Plans
Exhibit 3.1(m)(iii) RCI Benefit Arrangements
Exhibit 3.1(n)(ii) RCI Terminated Salespersons and Related Information
Exhibit 3.1(o)(i)(A) RCI Principal Customers
Exhibit 3.1(o)(i)(B) RCI Principal Providers
Exhibit 3.1(s) RCI Brokers' Fees
Exhibit 3.1(t) RCI Guarantors/Guaranties
Exhibit 3.2(a)(ii) PentaStar Investment Information
Exhibit 3.2(a)(xi) Shareholders' States of Residency
Exhibit 3.3(b)(i) PentaStar Capitalization
Exhibit 6.1(h) Form of Opinion of Shareholders' Counsel
Exhibit 6.2(e) Form of Opinion of PentaStar's Counsel
</TABLE>
<PAGE> 5
This Agreement and Plan of Merger is entered into on March 31,
2000, to be effective as of January 1, 2000, among PentaStar Communications,
Inc., a Delaware corporation ("PentaStar"), PentaStar Acquisition Corp. VI, a
Delaware corporation (the "Acquiror"), Resource Communications, Inc., a
California corporation (the "Company"), and Elizabeth Talbot-Goldberg
("Goldberg"), Dana J. Topping ("Topping"), Thomas J. Bruner, and Christopher J.
Canfield (individually, a "Shareholder" and collectively, the "Shareholders").
Recitals
A. The Shareholders own all of the issued and outstanding
capital stock of the Company.
B. The Acquiror is a newly formed, wholly owned subsidiary of
PentaStar. The Acquiror desires to acquire 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 and the Shareholders desire to make
certain representations, warranties and agreements in connection with the
Transaction and also desire to set forth various conditions precedent thereto.
Agreement
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties and covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:
1. Definitions. The terms defined in Exhibit 1.1(a) shall have the meanings
designated therein.
2. Merger.
2.1. Basic Transaction. Subject to the terms and conditions of this
Agreement and the corporation laws of the states of Delaware and California, at
the Closing, but effective for all applicable purposes as of January 1, 2000
(the "Effective Date"), 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 (the
"Surviving Corporation"). The Merger will have all the effects provided by
applicable law, including Sections 251 and 252 of the Delaware General
Corporation Law and Sections 1101 and 1108 of the California Corporations Code.
The terms of the Merger shall be as follows:
(a) General. At the Closing, the Shareholders will receive the
consideration described in Section 2.1(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 Closing Date, 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.
<PAGE> 6
(b) Certificate of Incorporation. At the Closing Date, the
Certificate of Incorporation of the Acquiror, as in effect immediately prior to
the Closing Date, will become the Certificate of Incorporation of the Surviving
Corporation, and the name of the Surviving Corporation will remain "PentaStar
Acquisition Corp. VI." Such Certificate of Incorporation may thereafter be
amended as provided therein and by the Delaware General Corporation Law.
(c) Bylaws. At the Closing Date, the Bylaws of the Acquiror,
as in effect immediately prior to the Closing Date, 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 Closing Date, the directors of the
Acquiror immediately prior to the Closing Date 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 Closing Date, the officers of the
Acquiror immediately prior to the Closing Date 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 Closing Date, 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 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 California Corporations Code, a
certificate of merger (the "Certificate of Merger") and deliver the Certificate
of Merger to the Secretary of State of the State of Delaware for filing pursuant
to the Delaware General Corporation Law on the Closing Date and deliver a
certified copy or executed counterpart of the Certificate of Merger to the
Secretary of State of the State of California for filing pursuant to the
California Corporations Code within six months of the Closing Date as provided
in Section 5.11. The Merger shall be completed upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, but
shall be effective for all applicable purposes as of January 1, 2000.
(h) Share Conversion. At the Closing Date, 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 a portion of the consideration payable
pursuant to Section 2.1(k) determined by dividing the aggregate consideration so
payable by the number of Company Shares outstanding at the Closing Date;
provided that Thomas J. Bruner, Christopher J. Canfield and their spouses will
not be entitled to receive any portion of the Earn-Out Amount. Notwithstanding
the preceding sentence, each Company Share issued and outstanding immediately
prior to the Closing Date 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
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<PAGE> 7
capital stock of 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 each
Shareholder entitled to receive PentaStar Shares in the Merger pursuant to this
Agreement will be entitled to receive an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying the Fair Market Value of
a PentaStar Share issuable pursuant to this Agreement (as set forth in Section
2.1(k) or, in the case of PentaStar Shares issued as part of the Earn-Out
Amount, as determined pursuant to Section 2.1(n)) by the fractional interest in
such PentaStar Shares to which such Person would otherwise be entitled.
(j) Estimated Closing Date Balance Sheet. In connection with
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 accounting practices of PentaStar used in
connection with its audit for the year ended December 31, 1999. 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) cash collected by the
Company after December 31, 1999 attributable to the collection by the Company of
all Past Due 12/31 Receivables, (iii) the Retained Liabilities described in
clause (b) of the definition of Retained Liabilities and each item thereof, and
(iv) all Closing Date Liabilities and each item thereof. On or before the
Closing Date, the Shareholders shall pay or cause the Company to pay all Closing
Date Liabilities, and the Estimated Closing Date Balance Sheet shall reflect
those payments. As a result, the only Liabilities reflected on the Estimated
Closing Date Balance Sheet should be the Retained Liabilities, unless the
Shareholders have failed to pay any Closing Date Liabilities prior to the
Closing.
(k) Consideration.
(i) Subject to adjustment as provided in Section
2.1(m), the aggregate consideration payable to the Shareholders pursuant to the
Merger will be as follows: (a) cash in the amount of the sum of (1) Nine Hundred
and Twenty-Five Thousand Dollars ($925,000), plus (2) the amount of cash set
forth on the Estimated Closing Date Balance Sheet, minus (3) cash collected by
the Company after December 31, 1999 attributable to the collection by the
Company of any Past Due 12/31 Receivables, minus (4) the amount of any Closing
Date Liabilities reflected on the Estimated Closing Date Balance Sheet or, if
ascertainable and not reflected on the Estimated Closing Date Balance Sheet, the
amount of any Closing Date Liabilities not paid by the Shareholders or the
Company prior to the Closing Date (the net amount described in this clause (a)
being referred to as the "Cash Portion" of the Purchase Price); plus (b) a
number of shares of PentaStar Common Stock (rounded to the nearest whole share)
determined by dividing One Million Three Hundred Thousand Dollars ($1,300,000)
by the Fair Market Value of the PentaStar Common Stock as of the Closing Date
(the "Closing Shares"); plus (c) the Earn-Out Amount payable pursuant to Section
2.1(n); provided that, Thomas J. Bruner, Christopher J. Canfield and their
spouses, shall not be entitled to receive any portion of the Earn-Out Amount
(collectively the "Purchase Price"). Notwithstanding anything to the contrary in
this Agreement, in the event that the total amount of cash payable to the
Shareholders under Section 2.1(k)(i)(a) would exceed $1,300,000, the amount of
cash so payable to the Shareholders will be reduced, and the Fair Market Value
of the PentaStar Shares payable under Section 2.1(k)(i)(b) will be
correspondingly increased, and in that event the ratio of total cash paid to
total PentaStar Shares paid under
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<PAGE> 8
this Section 2.1(k) will be one-to-one. The Purchase Price will be adjusted in
accordance with Section 2.1(m), and will be payable and issuable to the
Shareholders in accordance with the following percentages:
<TABLE>
<CAPTION>
Number of Company Percentage of
Shareholder Shares Owned Purchase Price
----------- ----------------- --------------
<S> <C> <C>
Elizabeth Talbot-Goldberg 10,000 25%
Dana J. Topping 10,000 25%
Thomas J. Bruner 10,000 25%
Christopher J. Canfield 10,000 25%
</TABLE>
(ii) The Shareholders acknowledge and agree that the
proportions in which they will share the Earn-Out Amount are different from
their relative percentage interests in the Company. The Shareholders hereby
agree to those proportions and waive any right they may have to receive all
elements of the Purchase Price in proportion to their relative stock ownership
of the Company.
(iii) On the Closing Date PentaStar will (i) pay to
the Shareholders by wire transfer to an account or accounts designated by the
Shareholders (in accordance with the percentages set forth above) the Cash
Portion of the Purchase Price; and (ii) issue the Closing Shares to the
Shareholders (in the percentages set forth above). On the Closing Date, the
Shareholders will deposit the Closing Shares with the Escrow Agent pursuant to
the Escrow Agreement. An amount equal to $800,000 in value of the Closing Shares
will be held in escrow under the Escrow Agreement during the Escrow Period to
satisfy any claims arising under Section 7.1. An amount equal to $500,000 in
value of the Closing Shares (the "EBITA Escrow") will be held in escrow under
the Escrow Agreement until March 15, 2001. If the total EBITA for Earn-Out
Period One and Earn-Out Period Two (as determined by Arthur Andersen under
Section 2.1(n)(ii)) is less than $400,000, an amount of Closing Shares included
in the EBITA Escrow equal in value to three times the difference between
$400,000 and the amount of EBITA determined for such Earn-Out Periods will be
deducted from the EBITA Escrow and returned to PentaStar. For purposes of
determining the number of Closing Shares deducted from the EBITA Escrow, if any,
each of the shares of PentaStar Common Stock will be valued at the share price
at which it was issued pursuant to Section 2.1(k). The Shareholders will have no
further liability if such EBITA is less than $400,000 except for any liability
arising under Section 7 as a result of the breach by any Shareholder of any
representation, warranty or covenant of such Shareholder.
(iv) Goldberg and Topping each designate twenty-five
percent of the total Closing Shares received by such Shareholder to be subject
to such Shareholder's Principal Shareholder's Escrow Agreement. Each Principal
Shareholder's Escrow Agreement provides that upon the occurrence of certain
conditions, the Shareholder party thereto may receive a greater or lesser number
of shares of PentaStar Common Stock than the number initially deposited with
PentaStar pursuant to the Principal Shareholder's Escrow Agreement. The parties
agree that any adjustment in the number of such shares will be treated as an
adjustment to the Purchase Price. Because the Closing Shares will be held by the
Escrow Agent pursuant to the Escrow Agreement, they will initially not be
available for delivery to PentaStar as contemplated by the Principal
Shareholder's Escrow Agreement. However, as soon as any Closing Shares are
released from the Escrow Agreement for delivery to any Shareholder, they shall
be delivered to PentaStar until the number of Closing Shares so delivered for
each Shareholder equals the number of Closing Shares designated by that
Shareholder to be subject to the Principal Shareholder's Escrow Agreement. In
the event that any Closing Shares are delivered to PentaStar or the Acquiror in
satisfaction of the indemnification obligations of the Shareholders under this
Agreement, or pursuant to a deduction from the EBITA Escrow under Section
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<PAGE> 9
2.1(k)(iii) or in satisfaction of any other obligation to PentaStar or the
Acquiror secured by such shares, the number of shares subject to the Principal
Shareholder's Escrow Agreement for each Shareholder shall be proportionately
reduced. The number of shares subject to the Principal Shareholder's Escrow
Agreement for each Shareholder following such reduction shall be determined by
multiplying the number of Closing Shares originally designated by such
Shareholder to be subject to the Principal Shareholder's Escrow Agreement by a
fraction, the numerator of which is the total number of Closing Shares owned by
such Shareholder that remain in the Escrow Account after such delivery and the
denominator of which is the total number of Closing Shares issued to such
Shareholder pursuant to the Closing.
(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 ("Arthur Andersen") in accordance with GAAP on a basis consistent
with the accounting practices of PentaStar used in connection with its audit for
the year ended December 31, 1998. PentaStar will pay the fees and expenses of
Arthur Andersen 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 held by the Company, (ii)
cash collected by the Company after December 31, 1999 attributable to the
collection by the Company of any Past Due 12/31 Receivables, (iii) the Retained
Liabilities described in clause (b) of the definition of Retained Liabilities
and each item thereof, and (iv) all Closing Date Liabilities and each item
thereof. Within 20 days after receipt of the Closing Date Balance Sheet, each of
PentaStar and the Shareholders 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. If any adjustments to the Closing
Date Balance Sheet are proposed by PentaStar or the Shareholders within such
20-day period, the dispute shall be resolved as provided in Section 2.1(o).
(m) Post-Closing Adjustments to the Purchase Price.
(i) 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 2.1(o), as the case may be, the
Cash Portion of the Purchase Price will be redetermined as provided in Section
2.1(k)(i) based on the Closing Date Balance Sheet rather than the Estimated
Closing Date Balance Sheet, and an appropriate adjusting cash payment shall be
made by the Surviving Corporation to the Shareholders or by the Shareholders to
the Surviving Corporation, as the case may be, so that, subject to the
penultimate sentence of Section 2.1(k)(i), the Cash Portion of the Purchase
Price actually paid by the Surviving Corporation equals the Cash Portion of the
Purchase Price determined on the basis of the Closing Date Balance Sheet. If the
Closing Date Balance Sheet reflects Closing Date Liabilities that have not
previously been paid by the Shareholders, such Closing Date Liabilities shall be
paid at the time the adjusting payment is made under this Section 2.1(m)(i),
either by the Surviving Corporation out of any adjusting payment due from it
hereunder or, if no such payment is due or such payment is less than the unpaid
Closing Date Liabilities, by the Shareholders. If PentaStar or the Surviving
Corporation has previously paid any such Closing Date Liability, it shall be
reimbursed for said payment at the time the adjusting payment is made under this
Section 2.1(m)(i), either by offset against any adjusting payment due hereunder
or, if no such payment is due or such payment is less than the reimbursement
amount, by the Shareholders.
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(ii) As among themselves, the Shareholders will be
liable for all amounts payable by the Shareholders under this Section 2.1(m) in
proportion to their ownership of Company Shares prior to the Closing. As between
the Shareholders and PentaStar or the Surviving Corporation, the Shareholders
will be jointly and severally liable for any amounts payable by the Shareholders
under this Section 2.1(m). Any adjustment in the Purchase Price made under this
Section 2.1(m) will be allocated as an adjustment to the consideration paid for
the Company Shares.
(n) Earn-Out. In addition to the Cash Portion of the Purchase
Price and the Closing Shares payable and issuable at the Closing pursuant to
this Section 2.1, Goldberg and Topping (collectively "GoldTop") shall be
entitled to receive the Earn-Out Amount determined and payable as provided in
this Section 2.1(n). Any amount payable to, or payable by, GoldTop under this
Section 2.1(n) will be paid to GoldTop, or paid by GoldTop, as applicable, in
proportion to their relative ownership of Company Shares prior to the Closing.
(i) PentaStar agrees that, during the Earn-Out
Period, the Surviving Corporation will continue to conduct the operations
previously conducted by the Company in Northern California as a separate
subsidiary or division of PentaStar with no other operations.
(ii) As soon as reasonably practicable after June 30,
2001 and in any event by July 31, 2001, PentaStar will cause Arthur Andersen to
determine (1) the EBITA for each of the Earn-Out Periods and the Earn-Out
Periods Total, and (2) a written calculation of the Earn-Out Amount
(collectively, the "Earn-Out Financial Statements"). Arthur Andersen's
determinations under this Section 2.1(n)(ii) shall be made in accordance with
GAAP on a basis consistent with the historical accounting practice of PentaStar.
PentaStar will promptly provide a copy of the Earn-Out Financial Statements to
GoldTop. Within 30 days after receipt of the Earn-Out Financial Statements, each
of PentaStar and GoldTop will, in a written notice to the other, either accept
the Earn-Out Financial Statements or object to them by describing in reasonably
specific detail any proposed adjustments to the Earn-Out Financial Statements
and the estimated amounts of and reasons for such proposed adjustments. The
failure by PentaStar or GoldTop to object to the Earn-Out Financial Statements
within such 30-day period will be deemed to be an acceptance by such Person of
the Earn-Out Financial Statements. If any adjustments to the Earn-Out Financial
Statements are proposed by PentaStar or GoldTop within such 30-day period, the
dispute shall be resolved as provided in Section 2.1(o). The fees and expenses
of the independent auditors for the preparation of the Earn-Out Financial
Statements will be paid by PentaStar.
(iii) Within 10 Business Days after the later of the
acceptance of the Earn-Out Financial Statements by PentaStar and GoldTop or the
resolution of any disputes under Section 2.1(o), as the case may be, but in no
event later than September 30, 2001, the Acquiror will pay the Earn-Out Amount,
if any, to GoldTop (such payment will be referred to as the "Second Closing").
The Earn-Out Amount shall be payable in a combination of cash and PentaStar
Common Stock as follows: (A) cash consideration paid in the Second Closing shall
be sufficient to ensure that the total cash consideration paid pursuant to
Section 2.1(k) and this Section 2.1(n) shall not be less than 20% of the total
consideration paid to the Shareholders pursuant to the Closing and the Second
Closing; (B) in the event the Fair Market Value of PentaStar Common Stock as
determined on the Closing Date and the last day of each of the Earn-Out Periods
is successively higher from the Closing through the end of each of the Earn-Out
Periods, the total consideration paid in the form of PentaStar Common Stock
pursuant to Section 2.1(k) and this Section 2.1(n) shall not be less than 50% of
the total consideration paid to the Shareholders pursuant to the Closing and
Second Closing, such percentage to be determined by PentaStar in its discretion;
and (C) in the event the preceding clause (B)
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<PAGE> 11
does not apply, the composition of consideration between cash and PentaStar
Common Stock paid at the Second Closing shall be determined by PentaStar in its
discretion. Notwithstanding the foregoing, the amount of cash included in the
payment of the Earn-Out Amount shall not be such as to cause the Purchase Price,
taken as a whole, not to comply with the continuity of interest test for a
tax-free reorganization under Section 368 of the Code, as determined in good
faith by PentaStar based on advice of counsel.
(iv) The amount of EBITA for each of the Earn-Out
Periods, expressed as a percentage of the Earn-Out Periods Total, will be used
to determine the pricing of PentaStar Common Stock issued at the Second Closing.
Such percentages will determine the percentage of the PentaStar Common Stock to
be priced based on the Fair Market Value of PentaStar Common Stock as of the end
of each of the Earn-Out Periods. At a minimum, EBITA for each Earn-Out Period
after Earn-Out Period One must exceed the EBITA for the immediately preceding
Earn-Out Period. If EBITA does not successively increase, as described in the
preceding sentence, then the amounts of EBITA for each Earn-Out Period,
expressed as a percentage of the Earn-Out Periods Total, will be allocated
lowest-to-highest for purposes of determining the price of PentaStar Common
Stock issued at the Second Closing in accordance with this Section 2.1(n)(iv).
Examples of the application of this Section 2.1(n)(iv) to hypothetical fact
situations are set forth in Exhibit 2.1(n)(iv). The cash portion of the Earn-Out
Amount shall be paid by wire transfer to an account or accounts designated by
GoldTop. Certain of the shares of PentaStar Common Stock issued to Goldberg and
Topping in payment of the Earn-Out Amount will be subject to each of such
Shareholder's Principal Stockholder's Escrow Agreement and retained by PentaStar
pursuant to such Agreement. The shares that will be subject to the Principal
Stockholder's Escrow Agreement in each case will be the number of shares of
PentaStar Common Stock issued in payment of the Earn-Out Amount multiplied by
the percentage designated by Goldberg or Topping, as applicable, under Section
2.1(k)(iv). Certificates representing any shares of PentaStar Common Stock
issued in payment of the Earn-Out Amount other than shares subject to the
Principal Stockholder's Escrow Agreements will be mailed to GoldTop at their
addresses for notice purposes under this Agreement.
(v) In the event that PentaStar sells or distributes
the operations conducted by the Acquiror prior to the end of the Earn-Out
Period, PentaStar shall require the purchaser or distributee to continue to
account for such operations separately and agree to assume the obligation of
PentaStar to pay the Earn-Out Amount as provided in this Section 2.1(n). In the
event that the employment of either Goldberg or Topping is terminated for Cause,
as such term is defined in the Employment Agreements, before September 30, 2001,
such Person will be entitled to receive a pro rata portion of the Earn-Out
Amount otherwise payable to such Person if his or her employment had not been
terminated for Cause. Such pro rata portion will be based upon the number of
days in the Earn-Out Period prior to the date of such termination, and the
payment of such pro rata portion will be made in accordance with this Section
2.1(n). If the employment of Goldberg or Topping is terminated other than for
Cause before September 30, 2001, the right of such Person to receive the
Earn-Out Amount will not be affected and such Person will receive the Earn-Out
Amount in accordance with this Section 2.1(n).
(o) Resolution of Disputes. If any adjustments to the Closing
Date Balance Sheet or the Earn-Out Financial Statements are proposed by
PentaStar or the Shareholders pursuant to Section 2.1(l) or 2.1(n), 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 then PentaStar and the Shareholders will
retain the Denver, Colorado office of BDO Seidman LLC to resolve such dispute,
which resolution will be final and binding. The fees and expenses of BDO Seidman
LLC will be paid by the losing party in the dispute. In the event that the
losing party is the Shareholders or GoldTop, as the case may
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<PAGE> 12
be, then the liability for such fees and expenses shall be paid as follows:
jointly and severally by the Shareholders in the case of the Closing Date
Balance Sheet, and jointly and severally by Goldberg and Topping in the case of
the Earn-Out Financial Statements. BDO Seidman LLC will be retained under a
retention letter executed by the parties that specifies that the determination
by said firm of any such disputes will be resolved in accordance with GAAP on a
basis consistent with the historical accounting practices of PentaStar, by
choosing the position of Arthur Andersen or the objecting party under Section
2.1(l) or 2.1(n), as the case may be, without change, within 30 days of the
expiration of the 20-day period described in Section 2.1(l) or 2.1(n)(ii), as
the case may be.
2.2. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Sherman & Howard
L.L.C. at 9:00 a.m. Denver, Colorado time on March 31, 2000, or as soon
thereafter as the conditions to closing set forth in Section 6 are satisfied
(the date upon which the Closing actually occurs being referred to as the
"Closing Date").
(a) 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 Shareholders. The
Shareholders jointly and severally represent and warrant to PentaStar that the
statements contained in this Section 3.1 are correct and complete as of the date
of this Agreement and 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 California, 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 qualification to do business 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 California) and the bylaws
of the Company, both as amended to date, which have been delivered to PentaStar
by the Shareholders and are attached as Exhibits 3.1(a)(i) and 3.1(a)(ii),
respectively, are complete and correct, and the Company is not in default under
or in violation of any provision of its articles of incorporation or bylaws. The
minute books (which contain the records of all meetings of or actions by the
shareholders, the board of directors, and any committees of the board of
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 100,000 shares of common stock, $.05 par value. Each Shareholder
owns, beneficially and of record, free and clear of any Encumbrance or Tax,
including any claim of any spouse, as applicable, the number of shares of the
common stock, $.05 par value, of the Company (the "Company Shares") set forth
opposite such Shareholder's name in Section 2.1(k)(i), and the Company Shares
reflected in Section 2.1(k)(i) constitute all of the issued and outstanding
capital stock of the Company. All of the issued and outstanding shares of the
Company's capital
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<PAGE> 13
stock have been duly authorized and validly issued, and are fully paid and
nonassessable, with no personal Liability attaching to the ownership thereof.
There is no authorized or outstanding stock or security convertible into or
exchangeable for, or any authorized or outstanding option, warrant or other
right to subscribe for or to purchase, or convert any obligation into, any
unissued shares of the Company's capital stock or any treasury stock, and the
Company has not agreed to issue any security so convertible or exchangeable or
any such option, warrant or other right. There are no authorized or outstanding
stock appreciation, phantom stock, profit participation or similar rights with
respect to the Company. There are no voting trusts, voting agreements, proxies
or other agreements or understandings with respect to any capital stock of the
Company. Except as set forth on Exhibit 3.1(b)(i), all of which the
Shareholders shall cause to be terminated prior to the Closing, there are no
existing rights of first refusal, buy-sell arrangements, options, warrants,
rights, calls, or other commitments or restrictions of any character relating to
any of the Shares, except those restrictions on transfer imposed by the
Securities Act and applicable state securities laws.
(ii) Except as set forth on Exhibit 3.1(b)(ii), the
Company has no Subsidiaries and no capital stock, securities convertible into
capital stock, or any other equity interest in any other corporation,
partnership, limited partnership, limited liability company, association, joint
venture or other Person. Each of the entities listed on Exhibit 3.1(b)(ii) is
wholly-owned, directly or indirectly, by the Company, is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation as set forth on Exhibit 3.1(b)(ii), and is qualified to do
business as a foreign corporation and is in good standing in the states set
forth on Exhibit 3.1(b)(ii), which are the only jurisdictions in which the
nature of the business conducted by it or the properties owned, leased or
operated by it make such qualification necessary. No Person has any right to
acquire any interest in any Subsidiary and there are no authorized or
outstanding stock appreciation, phantom stock, profit participation or similar
rights with respect to any Subsidiary. Each such Subsidiary has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
(c) Authority; No Violation. Each Shareholder and each
relative or affiliate of the Company or of a Shareholder who is a party to any
Other Seller Agreement has full and absolute right, power, authority and legal
capacity to execute, deliver and perform this Agreement and all Other Seller
Agreements to which such Shareholder, relative or affiliate is a party, and this
Agreement constitutes, and the Other Seller Agreements 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
(i) violate any Legal Requirement to which the Company, any Shareholder, or any
relative or affiliate of the Company or of any Shareholder who is a party to any
Other Seller Agreement is subject or any provision of the articles of
incorporation or bylaws of the Company or of any such affiliate, or (ii)
violate, with or without the giving of notice or the lapse of time or both, or
conflict with or result in the breach or termination of any provision of, or
constitute a default under, or give any Person the right to accelerate any
obligation under, or result in the creation of any Encumbrance upon any
properties, assets or business of the Company, of any Shareholder, or of any
such 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
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<PAGE> 14
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, 1998, the related
statements of income, shareholders' equity and cash flows for the fiscal years
then ended, and the unaudited balance sheet of the Company as of December 31,
1999 (the latter being referred to as the "Latest Balance Sheet"), and the
related statements of income, shareholders' equity and cash flows for the
12-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 12-month
period ended December 31, 1999 may be subject to customary year-end
adjustments, which adjustments will not, individually or in the aggregate, 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, 1999 will not be realized on an on-going basis after the Closing
Date.
(ii) Since the date of the Latest Balance Sheet, the
Company has not incurred or become subject to any Liability other than
Liabilities incurred in the ordinary course of business consistent with past
practices. 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.
(i) 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 (A) pursuant to which the Company is obligated to furnish any
services, product or equipment and (B) that has been prepaid with respect to any
period after the Closing Date.
(ii) Since December 31, 1999, the Company has not (A)
incurred any debt, indebtedness or other Liability, except current Liabilities
incurred in the ordinary course of business consistent with past practices; (B)
delayed or postponed the payment of accounts payable or other Liabilities or
beyond stated, normal terms; (C) sold or otherwise transferred any of its assets
or properties; (D) cancelled, compromised, settled, released, waived,
written-off or expensed any account or note receivable, right, debt or claim
involving more than $10,000 in the aggregate or accelerated the collection of
any account or note receivable; (E) changed in any significant manner the way in
which it conducts its business; (F) made or granted any individual wage or
salary increase in excess of 10% or $1.00 per hour, any general wage or salary
increase, or any additional benefits of any kind or nature; (G) except as
otherwise expressly permitted by this Section 3.1(e)(ii), (1) entered into any
contracts or agreements, or made any commitments, involving more than $10,000
individually or in the aggregate or (2) accelerated, terminated, delayed,
modified or cancelled any agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) involving more than $10,000
individually or in the aggregate; (H) 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; (I) made any
payment or transfer to or for the benefit of any shareholder, officer or
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<PAGE> 15
director or any relative or affiliate thereof or permitted any Person,
including, without limitation, any shareholder, officer, director or employee or
any relative or affiliate thereof, to withdraw assets from the Company (other
than payment to the Shareholders of the proportionate monthly amount of (1)
their respective normal annualized salaries due and payable during such period
or (2) rent due under pre-existing real property leases between the Company and
a Shareholder which are disclosed on Exhibit 3.1(g)(i)); or (J) agreed to incur,
take, enter into, make or permit any of the matters described in clauses (A)
through (I).
(iii) Exhibit 3.1(e)(iii) lists all customer
contracts entered into by the Company, by month, during the six-month period
from July through December 1999 and the current status of each such contract.
(f) Tax Matters.
(i) The Company has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any Tax Return)
have been paid. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no Encumbrances
on any of the 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 Shareholders,
there is no basis for any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no pending or threatened
dispute or claim concerning any Tax Liability of the Company. Exhibit
3.1(f)(iii) lists all federal, state, local and foreign income Tax Returns filed
with respect to the Company for taxable periods ended on or after December 31,
1993, indicates those Tax Returns that have been audited and indicates those Tax
Returns that currently are the subject of audit. The Shareholders have delivered
to PentaStar correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies filed or assessed against or
agreed to by the Company since December 31, 1993.
(iv) The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(v) Neither the Company nor any of its shareholders
has ever filed (A) an election pursuant to Section 1362 of the Code that the
Company be taxed as an "S" corporation, except as set forth on Exhibit
3.1(f)(v), or (B) a consent pursuant to Section 341(f) of the Code relating to
collapsible corporations. The Company has not made any payments, is not
obligated to make any payments and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that 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
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<PAGE> 16
Company has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent of which was the
Company) and has no Liability for the Taxes of any Person (other than the
Company) under Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract or
otherwise. The total adjusted basis of the Acquired Assets exceeds the sum of
the Company's Liabilities plus the amount of Liabilities to which the Acquired
Assets are subject.
(vi) Exhibit 3.1(f)(vi) sets forth the following
information with respect to the Company as of the most recent practicable date
(as well as on an estimated pro forma basis as of the Closing giving effect to
the consummation of the transactions contemplated hereby): (A) the basis of the
Company in the Acquired Assets; and (B) the amount of any net operating loss,
net capital loss, unused investment or other credit, unused foreign tax credit
or excess charitable contribution allocable to the 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. 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. The Company has not entered
into any contract or made any commitment to sell all or any part of its assets.
The Acquired Assets constitute all of the real, personal and mixed assets and
property, both tangible and intangible, including Intellectual Property, which
are being used or held for use by the Company in the conduct of the business and
operations of the Company, consistent with historical and current practices. 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.
(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 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:
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<PAGE> 17
(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 concerning a partnership
or joint venture;
(E) any agreement (or group of related
agreements) under which the Company has created, incurred, assumed or guaranteed
any indebtedness for borrowed money, or any capitalized lease obligation, in
excess of $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 its
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; 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.
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<PAGE> 18
(iii) All material franchises, approvals, Permits,
licenses, Orders, registrations, certificates, variances and similar rights of
the Company (all of which are in full force and effect).
(iv) Each item of Intellectual Property owned by the
Company or which is used by the Company in its business and, in each case where
the Company is not the owner, the owner of the Intellectual Property.
(v) The name of each bank or other financial
institution or entity in which the Company has an account or safe deposit box
(with the identifying account number or symbol) and the names of all persons
authorized to draw thereon or to have access thereto.
The Shareholders have delivered to PentaStar a correct and complete
copy of each written agreement and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 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 any other party is in breach or default, and 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. 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, 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 other than as reflected on the Latest Balance Sheet.
(k) Product Quality, Warranty and Liability. All services and
products sold, leased, provided or delivered by the Company to customers on or
prior to the Closing Date conform to applicable contractual commitments, express
and implied warranties, product and service specifications and quality
standards, and there is no basis for any Liability for replacement or repair
thereof or other damages in connection therewith. No service or product sold,
leased, provided or delivered by the Company to customers
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<PAGE> 19
on or prior to the Closing is subject to any guaranty, warranty or other
indemnity beyond the applicable standard terms and conditions of sale or lease.
The Company has no Liability and there is no basis for any Liability arising out
of any injury to a Person or property as a result of the ownership, possession,
provision or use of any service or product sold, leased, provided or delivered
by the Company on or prior to the Closing Date. All product or service liability
claims that have been asserted against the Company since December 31, 1995,
whether covered by insurance or not and whether litigation has resulted or not,
other than those listed and summarized on Exhibit 3.1(i)(i), are listed and
summarized on Exhibit 3.1(k).
(l) Insurance. The Company has policies of insurance covering
products and services liability and liability for fire, property damage,
personal injury and workers' compensation coverage, 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
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 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 Shareholders.
(ii) Each Company Welfare Plan has been maintained
and administered in substantial compliance with its terms and with all
applicable Legal Requirements.
(iii) Exhibit 3.1(m)(iii) lists each employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation, reduced interest
or interest free loans, mortgages, relocation assistance or post-retirement
insurance, compensation or other benefits that: (A) is not an Employee Benefit
Plan; (B) is entered into, maintained or contributed to, by the Company; and (C)
covers any employee or former employee of the Company or any relative thereof.
Such contracts, plans and arrangements as are described in this Section
3.1(m)(iii), are hereinafter referred to
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<PAGE> 20
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.
(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.
(i) The Company has not received any notice, nor, to
the best knowledge of the Shareholders, is there any reason to believe that any
Key Employee of the Company or any group of employees of the Company has any
plans to terminate his, her or its employment with the Company. To the
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best knowledge of the Shareholders, no Key Employee is subject to any agreement,
obligation, Order or other legal hindrance that impedes or might impede such
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 the Acquiror or PentaStar, to the affairs of the Acquiror or
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,
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.
(ii) Exhibit 3.1(n)(ii) lists (A) the name of each
salesperson (whether such salesperson was an employee or independent contractor)
of the Company who has left the employment of the Company in the twelve-month
period prior to the date of this Agreement, (B) the date such salesperson left
the employment of the Company and (C) the dollar amount of orders booked by the
Company during the twelve-month period prior to the date such salesperson left
the employment of the Company which were attributable to such salesperson or for
which such salesperson was responsible.
(o) Customer and Service Provider Relationships. Exhibit
3.1(o)(i)(A) lists each customer that individually or with its affiliates was,
based on the Company's revenues during the fiscal year ended December 31, 1999,
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, including Pac Bell and Cable and Wireless, or a Sub-Agent of the Company as
of the date of this Agreement (the "Principal Providers"). The Company has good
commercial working relationships with its Principal Customers and Principal
Providers and since
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<PAGE> 22
December 31, 1999, no Principal Customer or Principal Provider has cancelled or
otherwise terminated its relationship with the Company, materially decreased its
purchases from or services supplied to the Company, or threatened to take any
such action. The Shareholders have no basis to anticipate any problems with or
loss of business with respect to the Company's customer or service provider
relationships. 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 the Acquiror or PentaStar
with any Principal Customer or Principal Provider after the Closing Date.
(p) Environmental Matters. The Company is conducting and at
all times has conducted its business and operations, and has occupied, used and
operated the Premises and all other real property and facilities presently or
previously owned, occupied, used or operated by the Company, in compliance with
all Environmental Obligations and so as not to give rise to Liability under any
Environmental Obligations or to any impact on the Company's business or
activities. The Company has no Liability under any Environmental Obligation, nor
is there any basis for any such Liability.
(q) Intellectual Property. The Company owns or has the legal
right to use each item of Intellectual Property required to be identified on
Exhibit 3.1(h). 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 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 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 and has accurately processed date/time data (including
calculating, comparing, and sequencing) from, into, and between the twentieth
and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations and the date September 9, 1999 when either (i) used as a standalone
application, or (ii) integrated into or otherwise used in conjunction with the
third party hardware, software, firmware and data over which the Shareholders
and the Company have no control ("Third Party Products") with which such Company
software or other Intellectual Property was designated or intended to operate at
the time such Company software was (i) developed or (ii) first provided to the
Company's customers, or tested by the Company for such customers, whichever is
later. Notwithstanding the foregoing, the Company shall not be considered to be
in breach of the representation and warranty in the immediately preceding
sentence if the failure of such Company software to comply with such
representation and warranty is
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<PAGE> 23
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 and 3.2 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). The Shareholders acknowledge and agree that the fact that they
have made disclosures pursuant to Section 3.1 or 3.2 or otherwise of matters, or
did not have knowledge of matters, which result in Adverse Consequences to
PentaStar or the Acquiror shall not relieve the Shareholders of their obligation
pursuant to Section 7 of this Agreement to indemnify and hold PentaStar and the
Acquiror harmless from all Adverse Consequences.
3.2. Representations and Warranties of Each Shareholder. Each
Shareholder, severally but not jointly, represents and warrants to PentaStar
that the statements contained in this Section 3.2 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 3.2).
(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
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<PAGE> 24
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 information
described on Exhibit 3.2(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 information described on
Exhibit 3.2(a)(ii), 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 (A) any rights in and to the PentaStar
Shares, which rights were obtained through or from such Shareholder; or (B) 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 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 of determination regarding the fairness of the
offering of the PentaStar Shares for investment, or any recommendation or
endorsement of the offering of the PentaStar Shares; (viii) 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
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<PAGE> 25
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; and (xi) the Shareholder is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Securities Act. Exhibit 3.2(a)(xi)
sets forth each Shareholder's state of residency.
All the certificates representing PentaStar Shares shall bear the
following legend, in addition to the legend required by Section 5.10:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY STATE SECURITIES LAWS AND CAN
NOT BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH SECURITIES MAY
BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE
ACT OR APPLICABLE STATE SECURITIES LAWS.
3.3. Representations and Warranties of PentaStar. PentaStar represents
and warrants to the Shareholders 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) Organization, Good Standing, Power, Etc. PentaStar and the
Acquiror are each corporations duly organized, validly existing and in good
standing under the laws of the State of Delaware and are qualified to do
business as foreign corporations and are in good standing in all jurisdictions
in which the nature of the respective businesses conducted by each of them or
the respective properties owned, leased or operated by each of them make such
qualification necessary. This Agreement and the Other PentaStar Agreements and
the transactions contemplated hereby and thereby have been duly approved by all
requisite corporate action. Each of PentaStar and the Acquiror have full
corporate power and authority to execute, deliver and perform this Agreement and
the Other PentaStar Agreements to which it is a party, and this Agreement
constitutes, and the Other PentaStar Agreements will when executed and delivered
constitute, the legal, valid and binding obligations of PentaStar or the
Acquiror, as the case may be, and shall be enforceable in accordance with their
respective terms against PentaStar or the Acquiror, as the case may be.
(b) Capitalization.
(i) The authorized, issued and outstanding shares of
the capital stock of PentaStar are as set forth on Exhibit 3.3(b)(i).
(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 be duly authorized and validly 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
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<PAGE> 26
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.
(iii) All of the issued and outstanding capital stock
of the Acquiror is owned by PentaStar.
3.4. 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 or the Acquiror is subject or
any provision of the certificate of incorporation or bylaws of PentaStar or the
Acquiror or (ii) violate, with or without the giving of notice or the lapse of
time or both, or conflict with or result in the breach or termination of any
provision of, or constitute a default under, or give any Person the right to
accelerate any obligation under, or result in the creation of any Encumbrance
upon any properties, assets or business of PentaStar or of the Acquiror pursuant
to, any indenture, mortgage, deed of trust, lien, lease, license, agreement,
instrument or other arrangement to which PentaStar or the Acquiror is a party or
by which PentaStar or the Acquiror or any of their respective assets and
properties is bound or subject. Except for notices and consents that will be
given or obtained by PentaStar prior to the Closing, neither PentaStar nor the
Acquiror need to give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority or other Person
in order for the parties to consummate the transactions contemplated by this
Agreement.
3.5. Survival of Representations. The representations and warranties
contained in Sections 3.1, 3.2 and 3.3 and the Liabilities of the parties with
respect thereto shall survive any investigation thereof by the parties and shall
survive the Closing for four years, except that the Liabilities of the
Shareholders with respect to the representations and warranties set forth in
Sections 3.1(a), 3.1(b), 3.1(c), 3.1(f), 3.1(m), 3.1(p), 3.1(q) and 3.1(u) and
3.2 and the Liabilities of PentaStar with respect to the representations and
warranties set forth in Sections 3.3(a) and 3.3(b), shall survive without
termination.
3.6. 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.
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<PAGE> 27
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 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 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.
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; Securities Law Restrictions. Prior to the Closing,
neither any Shareholder nor the Company shall disclose to any Person, nor issue
any press release or make any public announcement concerning, the existence,
terms or subject matter of this Agreement without the prior written approval of
PentaStar, except (and only to the extent) previously publicly announced by
PentaStar. Further, neither any Shareholder nor the Company shall violate the
United States securities laws which restrict each Shareholder and the Company,
as Persons with material non-public information concerning PentaStar obtained
directly or indirectly from PentaStar, from purchasing or selling securities of
PentaStar or from communicating such information to any other Person under any
circumstances in which it is reasonably foreseeable that such Person is likely
to purchase or sell such securities.
4.7. Closing Date Liabilities. Prior to the Closing Date, the
Shareholders shall pay, or shall cause the Company to pay prior to the Closing
Date, in full all Closing Date Liabilities in excess of the amounts set forth on
the Estimated Closing Date Balance Sheet. Effective as of immediately prior to
the Closing Date, the Shareholders hereby jointly and severally assume 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.
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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. 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 the Acquiror or
PentaStar after the Closing.
5.3. Cooperation. In the event and for so long as any party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with (a) any
transaction contemplated by this Agreement or (b) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing
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
PentaStar consolidated financial statements and audits as PentaStar may request,
including, without limitation, signing management representation letters
reasonably requested by PentaStar's auditors, all at the sole cost and expense
of PentaStar, but without additional consideration to the Shareholders. The
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.
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<PAGE> 29
5.7. Satisfaction of Liabilities.
(a) Promptly following the Closing, the Shareholders will pay
all Closing Date Liabilities in excess of the amounts set forth on the Estimated
Closing Date Balance Sheet (to the extent not paid by the Shareholders at or
prior to the Closing Date) and any Taxes when due 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) The Acquiror 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 jointly and
severally guarantee that the Closing Accounts Receivable, net of any reserve
established on the Latest Balance Sheet in accordance with GAAP on a basis
consistent with the historical accounting practice of PentaStar, will be fully
paid to the Acquiror in accordance with their terms at their recorded amounts
not later than 180 days from the Closing Date. Upon demand by PentaStar at any
time after 180 days from the Closing Date, the Shareholders shall jointly and
severally pay to the Acquiror the full amount of any unpaid Closing Accounts
Receivable which is the subject of such demand; provided that, the liability of
any Shareholder for the amount of any unpaid Closing Accounts Receivable will
not exceed the amount of such Receivable multiplied by such Shareholder's
proportionate interest in the Company immediately before the Closing, expressed
as a percentage, as set forth in Section 2.1(k)(i). Upon such payment to the
Acquiror, the Closing Accounts Receivable which are so paid for by the
Shareholders shall, without further action of any party, become the property of
the Shareholders. From the Closing until 180 days after the Closing Date,
PentaStar (through the Acquiror) will apply its standard accounts receivable
collection procedures to the Closing Accounts Receivable; provided, however,
neither the Acquiror nor 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
Receivable; and, provided further, that any failure of any collection activities
of the Acquiror, PentaStar or any such collection agency or other agent will not
relieve the Shareholders from their guarantee of the Closing Accounts Receivable
as described in this Section 5.8.
5.9. Termination of Obligations. Effective as of the Closing Date,
neither the Surviving Corporation 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
Surviving Corporation or PentaStar, except as otherwise provided in this
Agreement, in an Other Seller Agreement or in any other written agreement
entered into on or after the Closing Date.
5.10. Transfer Restrictions. Unless otherwise agreed by PentaStar,
except for transfers by a Shareholder to (a) immediate family members of such
Shareholder 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 such Shareholder or family members of such 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
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<PAGE> 30
qualifies for receipt of charitable contributions under Section 170(c) of the
Code and such organization agrees to be bound by such restrictions (and a copy
of such agreement is furnished to PentaStar prior to the transfer), each
Shareholder agrees that such 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 any of the PentaStar Shares received by such
Shareholder as part of the Purchase Price. Thereafter, up to 33% of the
PentaStar Shares received as part of the Purchase Price by such Shareholder may
be resold at any time, and an additional 17% of the PentaStar Shares received as
part of the Purchase Price by the Shareholder may be resold by the Shareholder
beginning 24 months after the Closing. Any remaining PentaStar Shares 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, whether by way of merger, acquisition
or other method (except a merger or consolidation immediately after which the
Persons who were shareholders of PentaStar before the transaction own a majority
of the outstanding shares of the surviving or resulting entity) or (y) October
26, 2004. Notwithstanding anything to the contrary in this Section 5.10, (i)
none of the PentaStar Common Stock which is the subject of the Escrow Deposit
may be sold, assigned, exchanged, transferred, pledged or otherwise disposed of
unless and until released to the Company from the Escrow Deposit and (ii) none
of the PentaStar shares which are subject to the Principal Shareholder's Escrow
Agreement may be sold, assigned, exchanged, transferred, pledged or otherwise
disposed of except as set forth in the Principal Stockholder's Escrow Agreement.
Certificates for the PentaStar Shares delivered to the 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 ENTERED INTO ON MARCH 31, 2000, TO BE EFFECTIVE JANUARY 1,
2000 (THE "AGREEMENT"), BY AND AMONG THE ISSUER, PENTASTAR ACQUISITION CORP VI,
RESOURCE COMMUNICATIONS, INC. AND THE SHAREHOLDERS OF RESOURCE COMMUNICATIONS,
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 RELATING TO THIS RESTRICTIVE
LEGEND PLACED WITH THE TRANSFER AGENT) WHEN THE APPLICABLE 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.
The restrictions set forth along in this Section 5.10 shall be in
addition to any restrictions on transfer imposed by the Securities Act and
applicable state securities laws. Each Shareholder also agrees to comply with
such restrictions, and in particular recognizes that such Shareholder will not
be able to offer or sell any of the PentaStar Shares issued pursuant to Section
2.1(n) pursuant to Rule 144 promulgated under the Securities Act for at least
one year after the issuance of such shares under Section 2.1(n) even though one
or more of the holding periods set forth above in this Section 5.10 may have
expired. Notwithstanding the foregoing, the restrictions set forth in this
Section 5.10 shall cease to apply in the event that PentaStar ceases to own,
directly or indirectly, fifty percent or more of the equity interests of the
Surviving Corporation or any successor to the Surviving Corporation.
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<PAGE> 31
5.11 Filings with California Secretary of State. The Shareholders, the
Surviving Corporation and PentaStar will cooperate to ensure that, as soon as
practicable after the Closing, but in any event no later than five months after
the Closing, the Surviving Corporation will (a) obtain any tax clearance
certificates, or equivalent documents, from the California revenue authorities
and (b) file with the California Secretary of State in accordance with Section
1108 of the California Corporations Code all documentation required to make the
Merger effective in California as of the Closing Date.
6. Conditions to Closing.
6.1. Conditions to Obligation of PentaStar. The obligation of PentaStar
to consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(a) each Shareholder's representations and warranties shall be
correct and complete at and as of the Closing Date and the Closing 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 shall have performed and complied with
all of their covenants hereunder through the Closing;
(c) the Shareholders shall have given, or shall have caused
the Company to give, all notices and 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 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 Shareholders shall have delivered to PentaStar (i) a
certificate to the effect that each of the conditions specified above in
Sections 6.1(a) through (e) is satisfied in all respects, and (ii) a good
standing certificate, dated within 10 days of the Closing, from the Secretary of
State of California;
(g) the Other Seller Agreements shall have been executed and
delivered by the Shareholders, as applicable;
(h) PentaStar shall have received from counsel to the
Shareholders an opinion in form and substance as set forth in Exhibit 6.1(h)
addressed to PentaStar dated as of the Closing;
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<PAGE> 32
(i) PentaStar shall have completed its due diligence with
respect to the Company with results satisfactory to PentaStar;
(j) PentaStar shall have received from the Shareholders
evidence of the termination of all Encumbrances filed against the Acquired
Assets except Encumbrances relating to capital leases of the Company that will
remain in effect after the Closing in accordance with the second sentence of the
definition of "Closing Date Liabilities;"
(k) PentaStar shall have received the resignations, effective
as of the Closing, of each director and officer of the Company;
(l) 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;
(m) the Shareholders shall have delivered to PentaStar
possession and control of the Company and the Acquired Assets, including,
without limitation, all stock certificate books, minute books, corporate seals,
and all other corporate and financial records of the Company;
(n) the Shareholders shall have delivered, or caused the
Company to deliver, to PentaStar such other instruments, certificates and
documents as are reasonably requested by PentaStar in order to consummate the
transactions contemplated by this Agreement, all in form and substance
reasonably satisfactory to PentaStar; and
(o) the Shareholders shall have provided documentation to
PentaStar, reasonably satisfactory to PentaStar, evidencing the waiver under
California law of all claims of any spouse of any Shareholder against or to such
Shareholder's rights in the Company, the PentaStar Common Stock to be issued
pursuant to this Agreement and all other rights arising with respect to or
relevant to such Shareholder under this 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 Shareholders. The
obligation of the Shareholders to consummate the transactions contemplated by
this Agreement is subject to satisfaction of the following conditions:
(a) PentaStar's representations and warranties shall be
correct and complete at and as of the Closing Date and the Closing;
(b) PentaStar shall have performed and complied with all of
its covenants hereunder through the Closing Date;
(c) 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 or the Acquiror, as the case may be;
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<PAGE> 33
(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; and
(f) PentaStar shall have paid and issued the portion of the
Purchase Price due at the Closing pursuant to Section 2.1.
The Shareholders' Agent may waive any condition specified in this Section 6.2 at
or prior to the Closing.
7. Remedies for Breaches of This Agreement.
7.1. Indemnification Provisions for Benefit of PentaStar and the
Surviving Corporation.
(a) If any Shareholder breaches any of the representations or
warranties of any Shareholder contained herein and PentaStar gives notice
thereof to the Shareholders' Agent within the Survival Period, or if any
Shareholder breaches any covenants of any Shareholder contained herein or any
representations, warranties or covenants of any Shareholder contained in any
Other Seller Agreement and PentaStar gives notice thereof to the Shareholders'
Agent, then the Shareholders agree to jointly and severally (except that each
Shareholder's Liability with respect to Section 3.2 only shall be several and
not joint) 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 or 3.2 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 by "material," "materiality," "in all material
respects," "best knowledge," "best of knowledge" or "knowledge" or words of
similar import, or by any phrase using any such terms or words. The Shareholders
also agree to jointly and severally 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 any Shareholder not
included in the Retained Liabilities or (ii) any condition, circumstance or
activity existing prior to the Closing Date which relates to any Legal
Requirement or any act or omission of the Company or any Shareholder or any
predecessor with respect to, or any event or 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; provided, however, that if PentaStar is sued in an
action relating in whole or in part to a claim against which it is or may be
entitled to indemnification hereunder, it may, at its option, join the
Shareholders in that action and have its right to indemnification adjudicated by
the court.
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<PAGE> 34
(b) Amounts needed to cover any indemnification claims by
PentaStar or the Surviving Corporation against any Shareholder during the Escrow
Period shall be taken by PentaStar or the Surviving Corporation first out of the
Escrow Deposit, along with interest from the date of the Closing at the rate
equal to two percentage points above the prime rate quoted by PentaStar's
principal lender from time to time, and then from the non-escrowed assets of the
Shareholders pursuant to Section 7.1(a). At the end of the Escrow Period,
amounts of the Escrow Deposit which may be needed to cover pending
indemnification claims made by PentaStar or the Surviving Corporation (such
amounts to be determined by PentaStar based upon the reasonable exercise of its
business judgment) shall be retained in the Escrow Account until such claims are
resolved, and any excess amount of the Escrow Deposit shall be paid to the
Shareholders. For purposes of indemnification claims, each of the shares of
PentaStar Common Stock shall be valued at the per share price at which it was
issued pursuant to Section 2.1(k). 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 property shall be settled
by arbitration as provided in this Agreement. PentaStar and the Surviving
Corporation, 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 the Escrow Agreement. Nothing
in this Section 7.1(b) shall be construed to limit PentaStar's or the Surviving
Corporation right to indemnification to amounts on deposit in the Escrow
Account. Subject to Section 7.6, the Shareholders shall have joint and several
Liability for all amounts needed to cover indemnification claims, which amounts
shall be paid directly to PentaStar or the Surviving Corporation; provided that,
the total amount of Liability of the Shareholders in respect of indemnification
claims under this Section 7.1 will not exceed the total consideration received
by the Shareholders in the Closing and the Second Closing.
(c) During the time that any PentaStar Shares are held in the
Escrow Deposit, the Shareholder who deposited such shares shall have the right
to vote such shares and shall have the economic benefit of any dividends paid on
such shares. All such dividends shall be retained in the Escrow Deposit and
shall be available for the payment of indemnification claims under Section
7.1(b). In the event that PentaStar proposes to take any shares from the Escrow
Deposit to satisfy an indemnification claim, the Shareholders shall have the
right, in their sole discretion, to pay to the Escrow Agent an amount of cash
equal to the Fair Market Value of the shares proposed to be taken, determined as
of the date such payment is made, and receive from the Escrow Agent certificates
representing such shares. If the Shareholders exercise that right, PentaStar and
the Shareholders' Agent shall execute joint written instructions to the Escrow
Agent to deliver the cash so paid to PentaStar and to transfer the appropriate
number of shares of PentaStar Common Stock to the Shareholders. If the
Shareholders do not exercise that right, PentaStar may nonetheless require the
Shareholders to substitute cash for the shares to be taken from the Escrow
Deposit if, in the good faith opinion of PentaStar, based on advice of counsel,
the taking of shares from the Escrow Deposit would cause the Purchase Price,
taken as a whole, not to comply with the continuity of interest test for a
tax-free reorganization under Section 368 of the Code.
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<PAGE> 35
7.2. Indemnification Provisions for Benefit of the Shareholders. If
PentaStar breaches 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 3.3 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; provided, however, that if any Shareholder is sued
in an action relating in whole or in part to a claim against which he or she is
or may be entitled to indemnification hereunder, he or she may, at its option,
join PentaStar in that action and have his or her right to indemnification
adjudicated by the court.
7.3. Matters Involving Third Parties.
(a) If any Person not a party to this Agreement (including,
without limitation, any Governmental Authority) notifies any party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other party (the
"Indemnifying Party"), then the Indemnified Party 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.
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<PAGE> 36
(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 Party 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 Party 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 and the Surviving Corporation will have
the right to offset any Adverse Consequences either of them may suffer or any
other amounts due to them hereunder against any amounts payable or shares of
PentaStar Common Stock issuable pursuant to this Agreement or any Other Seller
Agreement to any Shareholder or any relative or affiliate of any Shareholder at
or after the Closing. For purposes of effecting any offset against shares of
PentaStar Common Stock, such shares shall be valued at the per share price at
which they were issued under Section 2.1(k) or 2.1(n), as applicable, and
PentaStar or the Surviving Corporation shall be entitled to select the
particular shares against which any setoff is effected.
7.5. Other Remedies. The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory, equitable or common law
remedy any party may have.
7.6. Limitation. Notwithstanding anything to the contrary in this
Section 7, the maximum liability of any Shareholder under Section 7.1(a) shall
not exceed the amount of the Purchase Price paid to or on the account of such
Shareholder.
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
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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 March 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 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 April
30, 2000 because of the failure of any condition precedent to the Shareholders'
obligations to consummate the Closing (unless the failure results primarily from
any Shareholder breaching any representation, warranty or covenant contained in
this Agreement in any material way).
8.2. Effect of Termination. The termination of this Agreement by a
party pursuant to Section 8.1 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. 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 and the Acquiror may assign their respective 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
purposes.
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<PAGE> 38
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.
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 any
Shareholder: Copy to:
Addressed to the Dennis Livingston, Esq.
Shareholders' Agent at: Livingston Mix, LLP
7950 Dublin Boulevard 170 Columbus Avenue, 5th Floor
Suite 101 San Francisco, CA 94133
Dublin, CA 94568
Telecopy: (925) 551-8185 Telecopy: (415) 362-2405
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: Chief Executive Officer Attn: B. Scott Pullara
Telecopy: (303) 825-4402 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 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.
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 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 selected by
PentaStar and the Shareholders' Agent or, if they cannot agree on another
arbitral body, the American Arbitration Association. The place of the
arbitration shall be in Denver, Colorado with respect to any action or claim
instituted by any Shareholder, and in San Francisco, California with respect to
any action or claim instituted by PentaStar or Acquiror. 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. If any
party files a judicial or administrative action asserting claims subject to
arbitration, as prescribed under this Section 9.11, and another party
successfully stays such action and/or compels arbitration of said claims, the
party filing said action shall pay the other party's costs and expenses incurred
in seeing such stay and/or compelling arbitration, including reasonable
attorneys' fees.
9.12. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement will be construed as
if drafted jointly by the parties and no presumption or burden of proof will
arise favoring or
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<PAGE> 40
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 the Acquiror, or (ii) any claims which
PentaStar or the Acquiror 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 and the Acquiror have relied upon the enforceability of this Section
9.14 in entering into this Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
March 31, 2000 to be effective as of January 1, 2000.
PENTASTAR:
PENTASTAR COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
ACQUIROR:
PENTASTAR ACQUISITION CORP. VI
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
COMPANY:
RESOURCE COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SHAREHOLDERS:
-----------------------------------------
Elizabeth Talbot-Goldberg
-----------------------------------------
Dana J. Topping
-----------------------------------------
Thomas J. Bruner
-----------------------------------------
Christopher J. Canfield
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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