U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to _____________
Commission file number 0-20843
POINTE COMMUNICATIONS CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
1325 NORTHMEADOW PARKWAY
ROSWELL, GEORGIA 30076
(Address of Principal Executive Offices)
(770) 432-6800
(Issuer's Telephone Number, Including Area Code)
________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
(770) 432-6800
(Issuer's Telephone Number, Including Area Code)
________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 15, 1999: 51,017,963
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
September 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,204,888 $ 1,255,199
Restricted cash 720,028 185,000
Accounts receivable, net of allowance for
doubtful accounts of $1,038,074 and $900,000
at September 30, 1999 and December 31, 1998, respectively 4,679,614 3,686,153
Accounts receivable-- affiliate, net 371,204 215,337
Notes receivable 690,030 -
Inventory, net 1,453,075 652,187
Prepaid expenses and other 586,720 263,249
--------------- --------------
Total current assets 39,705,559 6,257,125
--------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Equipment and machinery 20,490,456 14,168,428
Earth station facility 1,234,071 835,527
Software 2,171,713 1,732,700
Furniture and fixtures 930,974 578,698
Other 1,464,093 1,157,344
--------------- --------------
26,291,306 18,472,697
Accumulated depreciation and amortization (5,987,954) (3,984,392)
--------------- --------------
Property and equipment, net 20,303,352 14,488,305
--------------- --------------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $2,032,386 and $1,544,360,
at September 30, 1999 and December 31, 1998, respectively 17,798,578 17,709,865
Acquired customer bases, net of accumulated
amortization of $1,232,661 and $969,182
at September 30, 1999 and December 31, 1998, respectively 913,835 844,543
Other intangibles, net of accumulated
amortization of $1,590,981 and $1,184,062
at September 30, 1999 and December 31, 1998, respectively 1,453,496 1,848,762
Other 2,032,025 1,073,279
--------------- --------------
Total other assets 22,197,934 21,476,449
--------------- --------------
TOTAL ASSETS $ 82,206,845 $ 42,221,879
=============== ==============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Balance Sheets.
<PAGE>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
September 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of notes payable $ 5,487,130 $ 3,728,062
Current portion of lease obligations 2,319,650 1,273,298
Lines of credit 750,000 1,000,000
Loans from stockholders 200,000 670,000
Accounts payable 4,734,389 6,214,952
Accounts payable-- affiliate - 68,000
Accrued liabilities 4,459,181 2,346,622
Unearned revenue 2,209,168 2,928,990
--------------- --------------
Total current liabilities 20,159,518 18,229,924
--------------- --------------
LONG TERM LIABILITIES:
Capital and financing lease obligations 9,487,028 7,128,451
Convertible debentures 1,000,000 1,180,000
Senior subordinated notes 712,778 690,278
Notes payable and other long term obligations 21,995,233 626,022
--------------- --------------
Total long term liabilities 33,195,039 9,624,751
--------------- --------------
MINORITY INTEREST 1,981,959 1,981,959
--------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000 shares
authorized, 10,539 and - shares issued and
outstanding at September 30, 1999 and
December 31, 1998, respectively 101 -
Common stock, $0.00001 par value; 100,000,000 shares
authorized; 46,017,963 and 45,339,839 shares outstanding
at September 30, 1999 and December 31, 1998, respectively 460 454
Additional paid-in-capital 74,244,598 43,137,654
Accumulated deficit (47,374,830) (30,752,863)
--------------- --------------
Total stockholders' equity 26,870,329 12,385,245
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 82,206,845 $ 42,221,879
=============== ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Balance Sheets.
<PAGE>
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
Sept. 30, 1999 Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1998
----------------- ----------------- ----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Communications services and products $ 12,429,472 $ 35,942,615 $ 8,274,547 $ 16,092,879
Internet connection services 535,979 1,730,428 734,440 2,210,278
----------------- ----------------- ----------------- -----------------
Total revenues 12,965,451 37,673,042 9,008,987 18,303,157
----------------- ----------------- ----------------- -----------------
COSTS AND EXPENSES:
Cost of services and products 12,504,624 34,885,784 7,234,752 14,304,982
Selling, general, and administrative 4,869,379 11,576,811 2,317,111 6,457,010
Nonrecurring Charge - - 185,812 185,812
Depreciation and amortization 1,109,634 3,221,028 793,143 2,299,709
----------------- ----------------- ----------------- -----------------
Total costs and expenses 18,483,637 49,683,623 10,530,818 23,247,513
----------------- ----------------- ----------------- -----------------
OPERATING LOSS (5,518,186) (12,010,581) (1,521,831) (4,944,356)
----------------- ----------------- ----------------- -----------------
INTEREST EXPENSE, NET (487,376) (3,111,432) (313,587) (851,556)
OTHER INCOME 15,532 15,532 - 1,645,769
----------------- ----------------- ----------------- -----------------
NET LOSS BEFORE INCOME TAXES (5,990,031) (15,106,481) (1,835,418) (4,150,143)
INCOME TAX BENEFIT - - - -
----------------- ----------------- ----------------- -----------------
NET LOSS $ (5,990,031) $ (15,106,481) $ (1,835,418) $ (4,150,143)
================= ================= ================= =================
NET LOSS PER SHARE -
BASIC AND DILUTED $ (0.15) $ (0.36) $ (0.04) $ (0.10)
================= ================= ================= =================
SHARES USED IN COMPUTING
NET LOSS PER SHARE 45,595,251 45,465,792 44,650,816 40,800,401
================= ================= ================= =================
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
<PAGE>
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
Nine Months
Ended
Sept. 30, 1999
----------------
(Unaudited)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (15,106,481)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,221,028
Bad debt expense 203,413
Amortization of discounts on debt and lease
obligations 1,756,440
Other (64,550)
Changes in operating assets and liabilities:
Accounts receivable, net (1,196,874)
Accounts receivable-- affiliate, net (155,866)
Notes receivable (690,030)
Inventory (800,888)
Prepaid expenses (323,471)
Other assets (1,432,275)
Accounts payable, accrued and other liabilities 587,265
Accounts payable-- affiliate (68,000)
Unearned revenue (719,822)
----------------
Total adjustments 316,369
----------------
Net cash used in operating activities (14,790,112)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,647,733)
Restricted cash (557,028)
Acquisition of businesses (137,140)
----------------
Net cash used in investing activities (4,341,901)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Class B Notes, net 20,836,296
Proceeds from issuance of preferred stock, net 28,068,784
Repayment of lease obligations, net (827,563)
Repayment of lines of credit, net (250,000)
Repayment of loans from shareholders, net (470,000)
Repayment of convertible debentures (80,000)
Proceeds from notes payable, net 1,804,185
----------------
Net cash provided by financing activities 49,081,702
----------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 29,949,689
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,255,199
----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,204,888
================
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this Statement.
<PAGE>
POINTE COMMUNICATIONS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Section 310 of Regulation
S-B of the Securities and Exchange Commission ("SEC"). The accompanying
unaudited condensed consolidated financial statements reflect, in the opinion of
management, all adjustments necessary to achieve a fair statement of financial
position and results for the interim periods presented. All such adjustments are
of a normal recurring nature. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
2. Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
3. Basic net loss per share is computed using the weighted average number of
shares outstanding. Diluted net loss per share is computed using the weighted
average number of shares outstanding, adjusted for common stock equivalents,
when dilutive. For the periods presented, the effect of common stock equivalents
was antidilutive, as a result, basic and diluted net loss per share are the
same. The following table has been added to reconcile Net loss per the
Statement of Operations to Net loss used in calculating Net loss per share. The
difference represents payment of dividends on the Class A Preferred Stock with
additional shares of Preferred Stock.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income/(loss). . . . . . (5,990,031) (1,835,418) (15,106,481) (4,150,143)
Preferred stock dividend . . (928,188) - (1,375,574) -
---------------- ---------------- ---------------- ----------------
Net income/(loss) available
for common stockholders . (6,918,219) (1,835,418) (16,482,055) (4,150,143)
================ ================ ================ ================
Net loss per share . . . . . $ (0.15) $ (0.04) $ (0.36) $ (0.10)
================ ================ ================ ================
Shares used in computing
net loss per share . . . . 45,595,251 44,650,816 45,449,923 40,800,401
================ ================ ================ ================
</TABLE>
<PAGE>
4. There was no provision for or cash payment of income taxes for the three
or nine months ended September 30, 1999 and 1998, respectively, as the Company
had net taxable losses for 1999 and 1998, respectively, and anticipates a net
taxable loss for the year ended December 31, 1999.
5. During the quarter ended September 30 1999, the Company completed a $21
million private placement offering of Convertible Promissory Notes (the
"Notes"). The Notes accrue interest at 12% per annum compounded quarterly and
payable in kind at maturity. The Notes are manditorily convertible upon the
earlier of December 31, 1999, or the closing of the Pensat Transaction (which
includes a merger with Pensat Communications International, Inc. and the
issuance Class C Convertible Senior Preferred Stock) at which time they
automatically convert into 7,000 shares of the Company's $0.01 par value Class B
Convertible Senior Preferred Stock (the "Preferred Stock") and warrants to
purchase Common Stock. The Preferred Stock is convertible into Common Stock of
the Company at a conversion price equal to the conversion price of the Class C
Convertible Preferred Stock contemplated to be issued in connection with the
Pensat Transaction, not to exceed $2.16 per share. If the Notes have not been
converted prior to December 31, 1999, the conversion price of the Preferred
Stock will be equal to $1.75. The number of warrants to be issued to the Holders
of the Notes will be equal to 75% of the number of shares of Common Stock to be
issued upon conversion of the Preferred Stock. The exercise price of the
warrants will be 108% of the conversion price of the Preferred Stock. There was
no underwriter used in the transaction. Net proceeds from this offering totaled
$20.8 million and will be used to fund network expansion, repay indebtedness and
fund operations. The Preferred Stock earns dividends at a rate of 12% per annum,
which are cumulative and payable in either cash or shares of Preferred Stock at
the Company's discretion. The dividend and liquidation rights of the Preferred
Stock will be parri passu with the Class A Convertible Senior Preferred Stock.
The Company will be required to file a registration statement with the SEC
within 120 days after conversion of the Notes to register the shares of common
stock issued or issuable upon conversion of the Preferred Stock (including
shares issued as dividends) and the exercise of the warrants.
6. During the quarter, HTC Communications, LLC ("HTC"), a California limited
liability company licensed as a Competitive Local Exchange Carrier ("CLEC") in
California merged with and into the Company. As consideration for the merger
the Company will issue 600,000 shares of Common Stock to the members of HTC
subject to the satisfaction by the members of opening two competitive local
exchange markets for the Company within twelve months of the closing date of the
merger. At the same time, the Company entered into thirty-six month employment
agreements with two of the members of HTC for the purpose of development and
oversight of the Company's CLEC operations. In addition to base compensation
and participation in the recently adopted Market Value Appreciation Stock Option
Plan (Note 7), the agreements entitle the employees to receive options to
purchase up to a total of 1.1 million shares of the Company's Common Stock at a
strike price of $1.90, under the Company's Pay for Performance plan (note 7).
Vesting of such options is according to a schedule, which includes a specified
number of shares for opening each of eight CLEC markets for the Company over
the term of the employment agreements.
7. During the quarter, the Company's Board of Directors adopted two new
stock option plans and an employee stock purchase plan. The new option plans
include the Executive Market Value Appreciation Plan (the "Market Value Plan")
and the Pay for Performance Stock Option Plan (the "Pay for Performance Plan";
collectively the "Plans"). Options granted under the Plans are intended to
qualify as Incentive Stock Options to the extent possible within the meaning of
section 422 of the Code. The Market Value Plan calls for a maximum aggregate
number of 5,000,000 shares of the Company's common stock to be optioned under
the plan. The Term of the plan is from adoption by the Board until January 31,
2009. The term of the options shall not exceed ten years from the date of
grant. Options become vested on December 31st of each year outstanding at the
rate of 5% of the options granted for each $1.00 of increase in the Company's
stock price, and they become contingently vested in an equal number of shares
but may not exercise until fully vested. The contingently vested options become
fully vested on the following December 31st assuming the stock price is at least
the same as that on the previous December 31st when they became contingently
vested. Any optioned shares that have not vested after the seventh full year
shall vest pro rata on December 31st of years eight, nine and ten. The Pay for
Performance Plan calls for a maximum aggregate number of 2,000,000 shares of the
Company's common stock to be optioned under the plan. The Term of the plan is
from adoption by the Board until January 31, 2009. The term of the options
shall not exceed ten years from the date of grant. Options become eligible for
accelerated vesting based upon achievement of Company, division and individual
objectives as determined on December 31st of the year of grant. Options
eligible for accelerated vesting vest ratably on three consecutive December 31st
beginning in the year of grant. Optionees are eligible to vest in up to 120% of
the amount granted. Any optioned shares that have not vested after the fifth
year shall vest pro rata on December 31st of years six and seven. During the
quarter, the Company granted options to purchase 3.6 million shares under the
Market Value Plan and options to purchase 550,000 shares under the Pay for
Performance plan all at an exercise price of $1.75.
<PAGE>
8. During the quarter, the Company issued 300,000 shares of Common Stock to
acquire the remaining 22% minority ownership in Charter Communications de
Venezuela.
9. Subsequent to quarter end, the $5,000,000 Promissory Note issued March 8,
1999 which was due November 8, 1999 was repaid. Simultaneous with the repayment
the note holders exercised their warrants to purchase 5,000,000 shares of common
stock at $1.00 per share.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Pointe Communications Corporation (formerly Charter Communications
International, Inc., "PointeCom" or the "Company") began operations in 1995
predominately offering International Private Line ("IPL") services between the
U.S. and Panama. Subsequently, the Company has secured various communications
licenses in the U.S., Panama, Costa Rica, Venezuela, El Salvador, Nicaragua,
Mexico, and Honduras, acquired ten companies, entered the prepaid long distance
and telecommuting services markets and increased revenue from $544,000 for the
year ended 31, 1995 to $37.6 million for the nine months ended September 30,
1999. Licenses held by the Company, which vary by country, typically allow the
Company to offer an array of services including international private line, long
distance, Internet access, and data transmission. The Company has established
an infrastructure including satellite earth stations, interconnection
agreements, peripheral infrastructure, and sales and marketing channels in all
of the above countries, except Honduras, to service existing and future
customers. The Company also enjoys strong relationships with the responsible
government agencies, telephone company authorities and international carriers.
During late 1998, the Company adopted a strategy to position itself as a
cost efficient, reliable, full-service Competitive Local Exchange Carrier
("CLEC") tailored specifically to the needs of the Hispanic Community in the US
and in South & Central America. In the U.S., the Company's focus is on
major cities with large Hispanic populations. Internationally, the Company
targets complementary markets with telecommunications traffic patterns that
correspond with the paired U.S. target markets. The Company's strategy assumes
that there exists (i) a significant population in the U.S. that is dissatisfied
with its current telecommunications service, (ii) substantial demand for
telecommunications services in the U.S. Hispanic population, (iii) a lack of
ready access to telephony services in Latin America for a substantial portion of
the population, and (iv) a natural synergy and cost advantage in providing local
services in both the U.S. and Latin America to meet basic telephony needs along
with bundled services to meet more advanced communications requirements between
the U.S. and Latin America.
In an effort enhance its CLEC management team and to gain accelerated
access to the West Coast during the third quarter, HTC Communications, LLC
("HTC"), a California limited liability company licensed as a Competitive Local
Exchange Carrier ("CLEC") in California merged with and into the Company. The
management team from HTC assumed leadership of the Company's CLEC operations.
Their management team has over 70 years of combined experience in the
telecommunications industry including a CEO who was formerly General Manager of
a division at Pacific Bell, responsible for marketing and offering services to
more than 1.1 million Hispanic customers and generating over $350 million in
annual revenues. Funding for the newly adopted strategy was obtained during the
second and third quarters of 1999. Construction of central switching facilities
and co-location sites at the various Incumbent Local Exchange Carriers ("ILECs")
end offices is currently under way in Los Angeles and Miami. These initial
sites are expected to be operational by the end of the first quarter of 2000.
As a complement to its strategy to become a full-service CLEC in the US and
Latin America, the Company is establishing an Asynchronous Transfer Mode ("ATM")
fiber transport network for both voice and data switching. The network
initially includes Houston, Texas; Atlanta, Georgia; Miami, Florida; New York,
New York; Los Angeles, California; San Salvador, El Salvador; and Lima; Peru.
Future plans include similar network infrastructure in other U.S. and South
American and Central American locations. The network will allow the Company to
efficiently carry traffic for its CLEC operation and will also serve to expand
the market reach and lower the cost basis of its existing prepaid long distance
services business. Additionally, the network allows the Company to enter the
wholesale carrier business by capitalizing on unique partnering opportunities
with interconnected foreign Postal, Telephone and Telegraph companies ("PTTs").
The network became partially operational during the first quarter of 1999,
however, due to unforeseen technical difficulties with the leading edge
technology, the Company has yet to realize the anticipated results. The network
is expected to carry significant traffic toward the end of the fourth quarter or
beginning of the first quarter of 2000.
<PAGE>
As previously reported, the Company agreed in principle to merge with
Pensat International Communications, Inc. ("Pensat") with the Company being the
surviving entity. Pensat, headquartered in Washington, D.C., is an FCC
approved, 214 facilities-based licensed carrier, and an international provider
of telecommunications services and products. Pensat has developed a Global
Network Consortium (GNC), a strategic alliance of international
telecommunication providers from various countries that offer communications
products and services. Pensat's principal markets are in Latin America and the
Caribbean and it has offices in Washington, D.C., New York City and Omaha. In
addition to its U.S. operations, Pensat also has network facilities and
operations in Spain, Venezuela, Chile and Brazil. Pensat's management comes
with many combined years of experience focused on the international
telecommunications market. Pensat provides expanded network capacity to
countries where the Company currently does not have a presence, which enables
the Company to expand upon its US Hispanic to Latin America "paired market"
strategy. Management anticipates that the merger will enable the Company to
increase revenue while at the same time reduce marginal cost as a result of
network efficiencies. Additionally, Management believes the merger will enable
the Company to capitalize on economies of scale as duplicate overhead costs are
identified and eliminated. The closing of the transaction is subject to Pensat
raising capital in order to have a required amount of funds on hand at
closing, completion of due diligence, negotiation and execution of a definitive
agreement and shareholder approval. Since the previous quarterly report,
Management has continued to negotiate with management of Pensat to agree on the
terms of a definative agreement. Although no assurance can be given, Management
anticipates that this agreement will be signed in the fourth quarter and will
close in the first quarter of 2000.
See "Liquidity and Capital Resources" for a discussion of the Company's
ability to meet the capital requirements associated with its expansion plans.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the three months
ended September 30, 1999 and 1998. Operating results for any period are not
necessarily indicative of results for any future period. Dollar amounts (except
per share data) are shown in thousands.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
% of % of
Revenues Revenues
---------- -------
<S> <C> <C> <C> <C>
Revenues:
Communications
services & products $ 12,429 95.9% $ 8,275 91.9%
Internet connection
services. . . . . . 536 4.1 734 8.1
--------- ---------- -------- -------
Total revenues. 12,965 100.0 9,009 100.0
Cost and expenses:
Cost of services
& products. . . . . 12,505 96.5 7,235 80.3
Selling, general and
Administrative. . . 4,869 37.5 2,317 25.7
Nonrecurring charge . . . - - 186 2.1
Depreciation and
Amortization. . . . 1,109 8.5 793 8.8
--------- ---------- -------- -------
Total costs
and expenses . . 18,483 142.5 10,531 116.9
--------- ---------- -------- -------
Operating loss . . . . <5,518> <42.5> <1,522> <16.9>
--------- ---------- -------- -------
Interest expense, net . . <487> <3.7> <313> <3.5>
Other income. . . . . . . 15 - - -
--------- ---------- -------- -------
Net loss. . . . . . . . . <5,990> <46.2> <1,835> <20.4>
--------- ---------- -------- -------
Net loss per share. . . . $ <0.15> $ <0.04>
Shares used in computing:
net loss per share. . . . 45,595 44,651
</TABLE>
<PAGE>
Consolidated revenues for the combined lines of business for the three
months ended September 30, 1999 and 1998, were $12,965,000 and $9,009,000
respectively. The increase in revenue was principally the result of increased
prepaid calling card sales, primarily driven by increased distribution of
"off-net" card sales within the U.S. Hispanic community. Other increases came
from international private line, mainly to Costa Rica. Cost of services and
products for the quarter ended September 30, 1999, were $12,505,000 and
$7,235,000 for the comparable quarter in 1998, yielding gross profit margins of
3.5% for 1999 and 19.7% for the same period in 1998. Gross profit margins were
adversely affected by the fact that prepaid calling card revenues, which
generally carry a lower margin than the Company's other products, represented a
higher proportion of total revenues in 1999 than in 1998. Also, adversely
affecting margins was a one-time charge of approximately $450,000 related
primarily to a settlement with Satelites Mexicanos, SA de CV for satellite
services on their Region I satellite. The settlement entitles the Company to
use the space segment for approximately another year; however, the Company is
not able to use the space at this time since all international satellite traffic
is carried on the Region II and Satmex V satellites. Therefore, management has
accrued for future satellite lease costs in this quarter. Further, contributing
to the decreased margins were significant dedicated costs associated with the
carrier terminating services business with little associated revenue.
Management expects margins to increase during the fourth quarter of 1999 as
carrier terminating revenues are added with little additional fixed cost and as
the Company expands its ATM based network.
Selling, general, and administrative ("SG&A") expenses for the third
quarter of 1999 were $4,869,000 or 37.5% of sales compared to $2,317,000 or
25.7% of sales for the same quarter in 1998. The overall increase in expenses
was primarily attributable to expansion of the Company's operations. A
significant area of increase came from addition of management, marketing,
engineering and administrative additions necessary to fulfill the Company's
Competitive Local Exchange Carrier ("CLEC") business plan. This trend is
expected to continue throughout the year as the Company executes upon its plan
which anticipates revenues from its CLEC operations beginning during the second
quarter of 2000.
Depreciation and amortization expense was $1,109,000 for the third quarter
of 1999 compared to $793,000 for the third quarter of 1998. The increase is
attributable to the increase in property, plant and equipment and amortization
of intangibles resulting from acquisitions completed during 1998 and 1999.
Interest expense was $487,000 and $313,000 for the quarters ended September
30, 1999 and 1998, respectively. Interest expense increased during 1999 because
of a number of new debt instruments entered into in late 1998 and during the
first quarter of 1999. These include $11.0 million in bridge loans, $6.2
million in capital leases and $750,000 in new promissory notes. Approximately
$179,000 of the interest expense during the third quarter of 1999 was related to
amortization of discounts associated with warrants issued in conjunction with
various debt instruments.
There was no income tax benefit recorded in either 1999 or 1998, as
management recorded a valuation reserve because of the uncertainty of the timing
of future taxable income. The net loss for the quarters ended September 30,
1999 and 1998, were approximately $5,990,000 or $0.15 per share and $1,835,000
or $0.04 per share, respectively.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily financed its operations to date through private
sales of equity securities and debt to affiliates and outside investors. During
the first quarter of 1999, in private placement offerings, the Company entered
into three promissory notes with principal amounts totaling $9.0 million. In
conjunction with the notes, the Company issued warrants to purchase 1.52 million
and 5 million shares of common stock at $1.00 per share exercisable for three
years and eight months, respectively. During the second quarter, the Company
completed a private placement of $30.24 million of $0.01 par value Class A
Convertible Senior Preferred Stock (the "Preferred Stock") and warrants to
purchase 10,800,000 shares of common stock. The net proceeds from the private
placement totaled $28.1 million. During the third quarter of 1999, the Company
completed a $21.0 million private placement offering of 12% Convertible
Promissory Notes (convertible into Class B Convertible Senior Preferred Stock).
Proceeds from these offerings have been used to repay $6.0 million of promissory
notes as well as $2.8 million of other various notes and capital leases,
purchase assets of approximately $4.0 million and offset the Company's operating
cash flow deficit of approximately $14.8 million.
The Company estimates that it will need approximately $55.0 million to fund
existing operations through the end of 2000, including approximately $3.7
million to fund debt due over the next twelve months, $50.0 million to fund
capital expenditures and $1.3 million to fund operating cash flow. As of the
end of the third quarter, the Company had approximately $31.2 million on hand.
During the first quarter of 1999, the Company entered into a $25.0 million
master lease facility. As of September 30, 1999, the Company had drawn down
$6.0 million under the master lease. Additionally, the Company is negotiating a
$15.0 million line of credit with another major vendor. The Company intends to
use these vendor lines of credit to finance the majority of its acquisition of
capital assets for the next year. To fund the Company's operations, additional
means of financing will be sought if necessary and may include, but would not be
limited to, bank loans and private placements of debt and/or equity.
Additionally, the Company may realize proceeds from the exercise of outstanding
warrants and options. However, there can be no assurance that the Company will
be able to raise any such capital on terms acceptable to the Company, if at all.
Failure of the Company to raise all or a significant portion of the funds needed
could materially and adversely affect the Company's continuing and its planned
operations.
The Company has not generated net cash from operations for any period
presented. The net cash used in operating activities for the nine months ended
September 30, 1999 was $14.7 million. Management anticipates that the Company
will not generate cash from operations during 2000. However, anticipated net
operating cash generated from prepaid calling card products and services as well
as carrier wholesale services are anticipated to mitigate net operating cash
expenditures expected during the development of the CLEC business. While the
Company believes it currently has adequate resources available to achieve its
potential expansion plans noted in "Management's Discussion and Analysis"
through the end of 2000, any increases in the Company's growth rate, shortfalls
in anticipated revenues or increases in anticipated expenses could have a
material adverse effect on the Company's liquidity and capital resources and
would either require the Company to raise additional capital from public or
private debt or equity or scale back operations. Additionally, the Company does
not currently have adequate resources available to achieve all of its potential
expansion plans noted in "Management's Discussion and Analysis" subsequent to
the 2000 and will not engage in such expansion until adequate capital sources
have been arranged. Accordingly, the Company anticipates additional future
private placements and/or public offerings of debt or equity securities will be
necessary to fund such plans. If such sources of financing are insufficient or
unavailable, the Company will be required to significantly change or scale back
its operating plans to the extent of available funding. The Company may need to
raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisitions of complementary businesses or the
development of new products, or to otherwise respond to unanticipated
competitive pressures. There can be no assurance that the Company will be able
to raise any such capital on terms acceptable to the Company or at all.
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use", which is effective for fiscal
years beginning after December 15, 1998. This statement requires capitalization
of certain costs of internal-use software. The Company adopted this statement
during the first quarter of 1999 and it did not have a material impact on the
Company's financial statements.
In April 1998, the AICPA issued Statement of Position 98-5 (SOP 98-5),
"Reporting on the Costs of Start-Up Activities," which is effective for fiscal
years beginning after December 15, 1998. SOP 98-5 requires entities to expense
certain start-up costs and organization costs as they are incurred. The Company
adopted this statement during the first quarter of 1999 and it did not have a
material impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued Statement No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB No. 133", which amends
statement No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The statement establishes accounting and
reporting standards for derivative instruments and transactions involving hedge
accounting. The Company does not expect it to have a material impact on its
financial statements.
YEAR 2000
The Year 2000 Issue ("Y2K") is a problem resulting from computer programs
being written using two digits rather than four digits to define the applicable
year. Date-sensitive software may recognize a date using 00 as the year 1900
rather than 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. A team of employees has been assigned to evaluate risks to
the Company with regard to Y2K. Three general areas were addressed: (a)
hardware, firmware and software used in the providing of telecommunications
services, (b) vendors and their hardware or software products and applications,
and (c) internal information systems and physical facilities. A Contingency
Plan has been developed by the team to evaluate and prepare for the risks to
these general areas. The Plan provides an overview of the various businesses
and business processes, identifies the critical systems and network elements,
identifies the various vendors used by the Company and lists the facilities and
physical plant elements that could be affected by the Y2K issue. The team
used third party and proprietary checking software to identify the Y2K
compliance of the hardware and software used in the providing of
telecommunications services and its internal systems. The team did not identify
any major areas of noncompliance. In addition, letters were mailed to each
vendor used by the Company in order to request certification of the vendors'
Y2K compliance. Approximately, 50% to 60% of the vendors have responded to
date. The Company expects that the cost of its Y2K compliance program will be
approximately $200,000. Nevertheless, achieving Y2K compliance is dependent on
many factors, some of which are not completely within the Company's control.
Should either the Company's internal systems or the internal systems of one or
more significant vendors or suppliers fail to achieve Y2K compliance, the
Company's business and its results of operations could be adversely affected.
FORWARD-LOOKING STATEMENTS
This report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ from those projected in any forward-looking statements for the reasons
set forth herein and as set forth in the "Risk Factors" as well as in other
sections of the Company's report filed on Form 10-KSB for the year ended
December 31, 1998, or for other unforseen reasons. The forward-looking
statements contained herein are made as of the date of this report and the
Company assumes no obligation to update such forward-looking statements, or to
update the reasons why actual results could differ from those projected in such
forward-looking statements.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
1. During the quarter ended September 30 1999, the Company completed a $21
million private placement offering of Convertible Promissory Notes (the "Notes")
to accredited investors. The private placement was exempt under section 4(2)
of the Act. The Notes accrue interest at 12% per annum compounded quarterly
which is payable in kind at maturity. The Notes mature upon the earlier of
December 31, 1999, or the closing of the Pensat Transaction (which includes a
merger with Pensat Communications International, Inc. and the issuance Class C
Convertible Senior Preferred Stock) at which time they automatically convert
into 7,000 shares of the Company's $0.01 par value Class B Convertible Senior
Preferred Stock (the "Preferred Stock") and warrants to purchase common stock.
The Preferred Stock is convertible into Common Stock of the Company at a
conversion price equal to the conversion price of the Class C Convertible
Preferred Stock contemplated to be issued in connection with the Pensat
Transaction, not to exceed $2.16 per share. If the Notes have not been
converted prior to December 31, 1999, the conversion price of the Preferred
Stock will be equal to $1.75. The number of warrants to be issued to the
holders of the Notes will be equal to 75% of the number of shares of common
stock to be issued upon conversion of the Preferred Stock. The exercise price
of the warrants will be 108% of the conversion price of the Preferred Stock.
There was no underwriter used in the transaction. Net proceeds from this
offering totaled $20.8 million and will be used to fund network expansion, repay
indebtedness and fund operations. The Preferred Stock earns dividends at a rate
of 12% per annum, which are cumulative and payable in either cash or shares of
Preferred Stock at the Company's discretion. The dividend and liquidation
rights of the Preferred Stock will be parri passu with the Class A Convertible
Senior Preferred Stock. The Company will be required to file a registration
statement with the SEC within 120 days after conversion of the Notes to register
the shares of common stock issued or issuable upon conversion of the Preferred
Stock (including shares issued as dividends) and the exercise of the warrants.
2. During the quarter, the Company's Board of Directors adopted two new
stock option plans and an employee stock purchase plan. The new option plans
include the Executive Market Value Appreciation Plan (the "Market Value Plan")
and the Pay for Performance Stock Option Plan (the "Pay for Performance Plan";
collectively the "Plans"). Options granted under the Plans are intended to
qualify as Incentive Stock Options to the extent possible within the meaning of
section 422 of the Code. The Market Value Plan calls for a maximum aggregate
number of 5,000,000 shares of the Company's common stock to be optioned under
the plan. The Term of the plan is from adoption by the Board until January 31,
2009. The term of the options shall not exceed ten years from the date of
grant. Options become vested on December 31st of each year outstanding at the
rate of 5% of the options granted for each $1.00 of increase in the Company's
stock price, and they become contingently vested in an equal number of shares
but may not exercise until fully vested. The contingently vested options become
fully vested on the following December 31st assuming the stock price is at least
the same as that on the previous December 31st when they became contingently
vested. Any optioned shares that have not vested after the seventh full year
shall vest pro rata on December 31st of years eight, nine and ten. The Pay for
Performance Plan calls for a maximum aggregate number of 2,000,000 shares of the
Company's common stock to be optioned under the plan. The Term of the plan is
from adoption by the Board until January 31, 2009. The term of the options
shall not exceed ten years from the date of grant. Options become eligible for
accelerated vesting based upon achievement of Company, division and individual
objectives as determined on December 31st of the year of grant. Options
eligible for accelerated vesting vest ratably on three consecutive December 31st
beginning in the year of grant. Optionees are eligible to vest in up to 120% of
the amount granted. Any optioned shares that have not vested after the fifth
year shall vest pro rata on December 31st of years six and seven. During the
quarter, the Company granted options to purchase 3.6 million shares under the
Market Value Plan and options to purchase 550,000 shares under the Pay for
Performance plan all at an exercise price of $1.75.
<PAGE>
3. In conjunction with two employment agreements, on August 31, 1999, the
Company granted options to purchase up to a total of 1.1 million shares of the
Company's common stock under the Pay for Performance Stock Option Plan. Vesting
of such options is according to a schedule, which includes a specified number of
shares for opening each of eight CLEC markets for the Company over the term of
the employment agreements. The Options were granted under the Pay for
Performance Plan and are intended to qualify as Incentive Stock Options to the
extent possible within the meaning of section 422 of the Code.
4. On September 1, 1999, in a private placement transaction to accredited
investors, the Company issued 300,000 shares of common stock to acquire the
remaining 22% minority ownership in Charter Communications de Venezuela. The
private placement was exempt under section 4(2) of the Act. There was no
underwriter used in the transaction.
5. The Company issued 83,333 shares of common stock upon conversion of
100,000 principal value 18% Convertible Debenture issued in August 1997. The
conversion occurred during the quarter, no additional consideration was
received. In September 1999, the Company issued 156,018 shares upon exercise of
stock purchase rights granted in conjunction with the October 1998 acquisition
of Rent-A-Line Telephone Company, LLC ("Rent-A-Line"). As consideration the
rights holders forgave promissory notes due from Rent-A-Line totaling $64,550.
The private placement was exempt under 4(2) of the Act. No underwriter was used
in the transaction.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B
Exhibit 27 Financial Data Schedule
Exhibit 10.27 Securities Purchase Agreement
Exhibit 10.28 Promissory Note
Exhibit 10.29 Certificate of Designations
Exhibit 10.30 Voting Agreement
Exhibit 10.31 Executive Market Value Appreciation Stock Option Plan
Exhibit 10.32 Executive Market Value Appreciation Stock Option Form
Exhibit 10.33 Pay for Performance Stock Option Plan
Exhibit 10.34 Pay for Performance Stock Option Form
(b) REPORTS ON FORM 8-K
Reports on Form 8-K were filed during the quarter for which this report is
filed as follows:
None.
<PAGE>
SIGNATURES
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 thereunto duly authorized.
POINTE COMMUNICATIONS CORPORATION
Date: November 15, 1999 By: /s/ Stephen E. Raville
----------------------------------
Stephen E. Raville
Chief Executive Officer
Date: November 15, 1999 By: /s/ Patrick E. Delaney
----------------------------------
Patrick E. Delaney
Chief Financial Officer
<PAGE>
POINTE COMMUNICATIONS CORPORATION
SECURITIES PURCHASE AGREEMENT
SEPTEMBER ___, 1999
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit A Form of Convertible Promissory Note
Exhibit B Form of Certificate of Designations
Exhibit C Form of Warrant Agreement
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Legal Opinion of Gardere & Wynne L.L.P.
Schedule 1 Schedule of Investors and Amount of Investment
Schedule 2.2 Capitalization: Rights to Purchase Capital Stock of the Company
Schedule 2.3 Subsidiaries
Schedule 2.7 Litigation
Schedule 2.8 Material Intellectual Property
Schedule 2.10 Material Agreements
Schedule 2.13 Conflicts of Interest
Schedule 2.14 Registration Rights and Voting Rights
Schedule 2.16 Title to Property and Assets
Schedule 2.17 Employee Benefit Plans
Schedule 2.18 Tax Returns and Audits
Schedule 2.20 Permits
Schedule 2.23 Financial Statements
Schedule 2.24 Changes
Schedule 2.27 Finder's Fee
Schedule 2.28 Insurance
</TABLE>
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
---------
September ___, 1999, is made by and among POINTE COMMUNICATIONS CORPORATION, a
Nevada corporation (the "Company"), TSG CAPITAL FUND III, L.P., a Delaware
-------
limited partnership, and its Affiliates ("TSG"), Opportunity Capital Partners
---
II, L.P., a Delaware limited partnership and its Affiliates ("OCP II"), and
------
Opportunity Capital Partners III, L.P., a Delaware limited partnership and its
Affiliates ("OCP III") (hereinafter, TSG, OCP II and OCP III shall each be
--------
referred to as a "Purchaser" and shall collectively be referred to as
---------
"Purchasers").
- ------------
WITNESSETH:
----------
WHEREAS, the Company is interested in having investors provide additional
capital to the Company through debt or equity investments; and
WHEREAS, subject to the terms and conditions set forth herein, the Company
desires to borrow from Purchasers, and Purchasers desire to loan to the Company
an aggregate of $21,000,000, as set forth on Schedule 1 attached hereto (the
----------
"Loan") in exchange for the issuance by the Company of a convertible promissory
- ------
note to each of TSG, OCP II and OCP III in the form of Exhibit "A" attached
-----------
hereto (the "Note" or collectively, the "Notes"), which shall be convertible
---- -----
into, upon the occurrence of certain events set forth in the Notes, an aggregate
of 7,000 shares (plus additional shares for accrued interest) of the Company's
Class B Convertible Senior Preferred Stock (the "Class B Preferred Stock"), par
-----------------------
value $0.01 per share, and warrants to purchase shares of the Company's common
stock, par value $0.00001 per share (the "Common Stock"); and
-------------
WHEREAS, the Company desires to issue the Notes on the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. LOAN TO THE COMPANY.
----------------------
1.1 Loan Amount. Subject to the terms and conditions of this Agreement
-----------
and as consideration for the issuance of the Notes to Purchasers, Purchasers
shall pay and deliver to the Company cash equal to the Loan Amount
($21,000,000), which shall be payable at the Closing by cashier's check or wire
transfer of funds to such account as may be specified by the Company in writing.
"Loan Amount" shall mean the aggregate amount loaned to the Company by the
Purchasers in exchange for the Notes as set forth on Schedule 1 attached hereto.
----------
<PAGE>
1.2 Issuance of the Notes. At the Closing, the Company shall issue:
------------------------
(i) to TSG a Note in the principal amount of $20,000,000 convertible into shares
of the Class B Preferred Stock ; (ii) to OCP II, a Note in the principal amount
of $900,000 convertible into shares of Class B Preferred Stock; and (iii) to OCP
III, a Note in the principal amount of $100,000 convertible into shares of Class
B Preferred Stock .
1.3 The Closing.
------------
a) Subject to the satisfaction or, to the extent permissible by
law, waiver by the parties hereto on the Closing Date of the conditions
described in Sections 3 and 4 of this Agreement, the funding of the Loan Amount
and issuance of the Notes (the "Closing") shall occur on such date as the
-------
Company and Purchasers may mutually agree, on or prior to September 10, 1999
(such date on which the Closing takes place being the "Closing Date"). The
------------
Closing shall take place at the offices of the Company, 1325 Northmeadow
Parkway, Suite 110, Roswell, Georgia 30076, or at such other place as the
Company and Purchasers may mutually agree upon in writing.
b) At or before the Closing, each party shall cause to be
prepared, and at the Closing the parties shall execute, deliver, and file each
document, agreement, and instrument required or contemplated by this Agreement
to be so executed, delivered, and filed in connection with the transactions
contemplated hereby which have not been theretofore accomplished.
c) The parties shall, from time to time after the Closing Date at
the request of any other party and without further consideration, execute and
deliver or cause to be executed and delivered to such other party such further
instruments of transfer, assignment, conveyance, and assumption, and shall take
or cause to be taken such other action as reasonably requested, as may be
necessary to carry into effect the transactions contemplated hereby.
1.4 Conversion of Note into Class B Preferred Stock and Warrants.
------------------------------------------------------------------
(a) Subject to the terms and conditions set forth in the Notes,
the Company agrees to issue to Purchasers upon conversion of the Notes (i)
shares of the Company's Class B Convertible Senior Preferred Stock, par value
$0.01 per share (the "Class B Preferred Shares"), having the rights, privileges
------------------------
and preferences set forth in the Certificate of Designations attached hereto as
Exhibit B (the "Certificate"), and (ii) warrants to TSG to purchase an aggregate
- --------- -----------
of 8,571,429 shares, warrants to OCP II to purchase an aggregate of 385,714
shares, and warrants to OCP III to purchase an aggregate of 42,857 shares (as
such numbers may be adjusted as provided herein) of the Company's Common Stock
at an exercise price determined in accordance with Section 5.3 (b) of the
Warrant Agreement in the form attached hereto as Exhibit C (the "Warrant
--------- -------
Agreement") (as such price per share may be adjusted as provided herein) (the
- ---------
"Warrants"), which Warrants shall be subject to the terms and conditions set
- ---------
forth in the Warrant Agreement.
b) The parties agree to execute the Registration Rights Agreement
in substantially the form attached hereto as Exhibit D upon conversion of the
---------
Notes.
<PAGE>
(c) The parties agree that the number of Class B Preferred Shares and
Warrants (together, the "Securities") to be issued by the Company to Purchasers
----------
upon conversion, and the exercise price of the Warrants, shall be equitably
adjusted, subject to the agreement of each party, to reflect any spin-off,
split-up, reclassification, combination of shares, recapitalization or similar
corporate reorganization, or any consolidation or merger under which the
surviving entity is or becomes the "Company" as defined in this Agreement, in
any such case which occurs between the effective date of this Agreement and the
Closing Date.
(d) The parties further agree that if the Pensat Transaction
(hereinafter defined) is consummated on or before December 31, 1999, the
exercise price of the Warrants shall automatically be adjusted pursuant to
Section 5.3 (b) of the Warrant Agreement. "Pensat Transaction" shall mean the
------------------
transactions contemplated by that certain letter of intent and term sheet
between the Company and Pensat International Communications, Inc. ("Pensat"),
------
dated July 26, 1999, including, but not limited to, the purchase by Pensat or
affiliates thereof, or other parties, of Class C Preferred Stock for an
aggregate purchase price of at least $20,000,000.
(e) The parties further agree that the number of Warrants to be
issued by the Company to Purchasers upon conversion of the Notes shall be
adjusted to maintain the ratio of 0.75 Warrants for each Common Share issuable
upon conversion of the Class B Preferred Shares issued pursuant to the principal
amount of the Notes without regard to interest earned on the Notes.
1.5 Use of Proceeds. The Company hereby agrees that it shall apply the
---------------
net proceeds received hereunder from the Loan (after deduction of all costs and
expenses of such Loan) to build out and interconnect its competitive local
exchange, long distance and Internet networks, to repay debt and to fund working
capital and capital expenditures of the Company.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
--------------------------------------------------------------
Company hereby represents and warrants to and covenants with the Purchasers as
follows (except as set forth on the Schedules hereto, which exceptions shall be
deemed to be representations and warranties as if made hereunder):
<PAGE>
2.1 Organization, Qualifications and Corporate Power. The Company is a
------------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and authority to
own and hold its properties and to carry on its business as now conducted and as
proposed to be conducted. The Company has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to sell, issue and
deliver the Notes, Securities upon conversion of the Notes, and the shares of
Common Stock issuable upon conversion of the Class B Preferred Shares or upon
exercise of the Warrants (collectively, the "Underlying Shares") to Purchasers.
-----------------
The Company is duly qualified to conduct business and is in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on the business (as now conducted or as proposed to be
conducted), financial condition, operating results, assets, properties or
prospects of the Company or its subsidiaries, taken as a whole (each such
effect, a "Material Adverse Effect"). The Company has delivered to Purchasers
-----------------------
complete and correct copies of the Company's Articles of Incorporation
(including all amendments thereto) and Bylaws, in each case in effect as of the
date hereof (the "Existing Articles" and "Existing Bylaws," respectively).
------------------ ---------------
2.2 Capitalization.
--------------
(a) The authorized capital stock of the Company will consist,
immediately prior to the Closing, of: (1) 100,000,000 shares of Common Stock, of
which 46,449,125 shares are issued and outstanding, and (2) 100,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"), of which
---------------
10,229 shares of Class A Convertible Senior Preferred Stock (convertible into
21,919,562 shares of Common Stock) are issued and outstanding.
(b) The Company has reserved: (1) 3,000,000 shares of Common Stock
under its Incentive Stock Option Plan (the "Employee Plan"); (2) 1,000,000
-------------
shares of Common Stock under its Executive Long-Term Plan (the "Executive
---------
Plan"); and (3) 1,000,000 shares of Common Stock under its Non-Employee Director
Stock Option Plan (the "Director Plan"); (4) 5,000,000 shares of Common Stock
-------------
under its Executive Market Value Appreciation Stock Option Plan (the "Market
------
Appreciation Plan"); (5) 2,000,000 shares of Common Stock under its Pay for
- ------------------
Performance Stock Option Plan (the "Pay for Performance Plan") (such shares
------------------------
collectively, the "Reserved Option Shares"), in each case, for issuance upon
------------------------
exercise of incentive or non-qualified stock options granted or expected to be
granted to certain executive officers, non-employee directors and employees of
the Company or of any subsidiary of the Company pursuant to the terms and
conditions of the Employee Plan, the Executive Plan, the Director Plan, the
Market Value Appreciation Plan and the Pay for Performance Plan (collectively,
the "Plans"). The Company has reserved 464,241 shares of Common Stock for
-----
issuance upon exercise of non-qualified stock options expected to be given to
certain consultants and former employees of the Company outside of the Plans
(the "Other Reserved Option Shares"). Each Plan has been duly adopted by the
------------------------------
Company's Board of Directors and the Employee Plan, Executive Plan and Director
Plan have been approved by the Company's shareholders to the extent necessary to
be qualified under the Internal Revenue Code of 1986, as amended. The Market
Value Appreciation Plan and the Pay for Performance Plan will be presented as an
item for the shareholders to consider and vote upon at the next shareholder
meeting. As of the date hereof: 1,267,500 options to purchase Reserved Option
Shares are outstanding under the Employee Plan; 600,000 options to purchase
Reserved Option Shares are outstanding under the Director Plan; 690,000 options
to purchase Reserved Option Shares are outstanding under the Executive Plan;
3,600,000 options to purchase Reserved Option Shares are outstanding under the
Market Value Appreciation Plan; 1,110,000 options to purchase Reserved Option
Shares are outstanding under the Pay for Performance Plan; and 464,241 options
to purchase shares of Common Stock are outstanding outside of the Plans (the
"Other Options"). 1,732,500 Reserved Option Shares remain available for issuance
- --------------
under the Employee Plan; 310,000 Reserved Option Shares remain available for
issuance under the Executive Plan; 400,000 Reserved Option Shares remain
available for issuance under the Director Plan; 1,400,000 Reserved Option Shares
remain available for issuance under the Market Value Appreciation Plan; and
890,000 Reserved Option Shares remain available for issuance under the Pay for
Performance Plan.
<PAGE>
(c) The Company has additional convertible securities, warrants or
rights outstanding, which are convertible into or give holders the right to
purchase shares of Common Stock, as follows: (1) $1,080,000 par value
convertible debentures, which are convertible into 900,000 shares of Common
Stock; (2) rights issued in conjunction with the acquisition of Rent-A-Line
Telephone Company LLC, the terms of which provide holders with the right to
purchase up to 625,000 shares of Common Stock; (3) warrants issued in return for
services or in various financing activities, the terms of which provide holders
the right to purchaser 13,225,121 shares of Common Stock; (4) 2,000 shares of
Series A Preferred Stock issued by Telecommute Solutions, Inc. ("TCS"), which
provide holders with the right to purchase 2,643 shares of TCS common stock or
666,667 shares of Common Stock; (5) contingent obligations issued in conjunction
with the acquisition of Galatel, Inc., which provide for the grant to the former
owners of Galatel of up to 93,750 shares of Common Stock; (6) contingent
obligations issued in conjunction with the acquisition by the Company of a
customer list to provide the former owner of such list with warrants to purchase
up to 180,000 shares of Common Stock; (7) 10,229 shares of Class A Convertible
Senior Preferred Stock which is convertible into 21,919,562 shares of Common
Stock; and (8) warrants issued to the owners of the Company's Class A
Convertible Senior Preferred Stock which provide the holders the right to
purchase 10,800,000 shares of Common Stock.
(d) Except as set forth in Schedule 2.2 or provided in this
-------------
Agreement: (i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any securities of the
Company or any of its subsidiaries is authorized or outstanding as of the date
hereof; (ii) none of the Company or any of its subsidiaries has any obligation
(contingent or otherwise) (y) to issue any subscription, warrant, option,
convertible security or other such right or (z) to issue or distribute to
holders of any securities of the Company or any of its subsidiaries any
evidences of indebtedness or assets of the Company or any of its subsidiaries;
and (iii) none of the Company or any of its subsidiaries has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
(e) All of the outstanding shares of the Company's capital stock
have been duly authorized and validly issued, are fully-paid and nonassessable
and were issued in compliance with all applicable federal and state securities
laws and regulations. Except as set forth in Schedule 2.2, there are no
-------------
statutory or contractual shareholders preemptive rights, rights of first refusal
or any similar rights relating to the issuance and sale of securities of the
Company or any of its subsidiaries.
<PAGE>
2.3 Subsidiaries. Except as set forth in Schedule 2.3, the Company
------------ ------------
does not own, directly or indirectly, any shares of capital stock, partnership
interests or other participation rights or other interests in the nature of an
equity interest in any corporation, association, partnership, joint venture
company, trust, estate, limited liability company, limited liability
partnership, joint stock company, unincorporated organization or other entity,
or any option, warrant or other security convertible into or exchangeable for
any of the foregoing. Each of the Company's subsidiaries is a corporation or a
limited liability company, as the case may be, duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Company's subsidiaries has the requisite corporate
or limited liability company, as the case may be, power and authority to own and
hold its properties and to carry on its business as conducted and as proposed to
be conducted. Each of the Company's subsidiaries is duly qualified to conduct
business and is in good standing under the laws of each jurisdiction in which
the failure to so qualify would have a Material Adverse Effect.
2.4 Authorization and Validity of Investment Agreements.
--------------------------------------------------------
(a) All corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization, execution and
delivery of this Agreement, the Warrant Agreement, and the Registration Rights
Agreement in the form attached hereto as Exhibit D (the "Registration Rights
--------- -------------------
Agreement" and with the Certificate, this Agreement and the Warrant Agreement,
- ---------
and all other documents and instruments to be executed in connection therewith
collectively, the "Investment Agreements") has been taken. All corporate action
---------------------
on the part of the Company, its officers, directors and, upon the occurrence of
the Shareholders Meeting referenced in Section 6.6, shareholders necessary for:
(i) the performance of all obligations of the Company hereunder and under the
other Investment Agreements, and (ii) the authorization, issuance, sale and
delivery of the Securities and the Underlying Shares to Purchasers pursuant to
the terms of the Investment Agreements has been taken.
(b) (1) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, and (2) the other
Investment Agreements, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms; except in each case of
subclause (1) and (2) (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors, rights generally; (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies; or (iii) to the extent the indemnification
provisions contained in the Investment Agreements may be limited by applicable
federal or state securities laws.
<PAGE>
2.5 Compliance with Securities Laws; Valid Issuance of Securities. The
-------------------------------------------------- ----------
Securities to be issued to Purchasers upon conversion of the Notes, when issued,
sold and delivered in accordance with the terms hereof for the consideration
expressed herein, will be duly and validly issued, fully-paid and nonassessable
with the rights, powers and privileges as set forth herein, in the Company's
Articles of Incorporation, as amended by the Articles of Amendment and in the
Warrant Agreement, and will be free and clear of all liens, charges, claims,
encumbrances and restrictions other than restrictions on transfer under the
Investment Agreements and applicable federal and state securities laws, and will
be issued pursuant to an exemption from the registration requirements of all
applicable federal and state securities laws. After the Shareholders Meeting
referenced in Section 6.6 of this Agreement, the Underlying Shares issuable upon
conversion of the Class B Preferred Shares and the exercise of the Warrants
purchased hereunder shall be duly and validly reserved for issuance, and upon
issuance in accordance with the terms of the Company's Articles of
Incorporation, as amended, and the Warrant Agreements, shall be duly and validly
issued, fully-paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under the Investment Agreements and applicable
federal and state securities laws, and will be issued pursuant to an exemption
from the registration requirements of all applicable federal and state
securities laws. The issuance, sale and delivery of the Securities and the
Underlying Shares are not subject to any preemptive right of any shareholder of
the Company or to any right of first refusal or other right in favor of any
person.
2.6 Governmental Consents. No consent, approval, order or
----------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, foreign, state or local governmental authority is
required on the part of the Company or any of its subsidiaries in connection
with the consummation of the transactions contemplated by the Investment
Agreements, except for filings pursuant to applicable state securities laws and
Regulation D of the Securities Act of 1933, as amended (the "Securities Act").
--------------
2.7 Litigation. Except as set forth in Schedule 2.7, there is no
---------- -------------
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its subsidiaries,
nor, to the Company's knowledge, is there any reasonable basis for the
foregoing. None of the Company or any of its subsidiaries is a party or
expressly subject to the provisions of any order, writ, injunction, judgment or
decree of any court, administrative agency, government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its subsidiaries currently pending or which the Company or any
of its subsidiaries intends to initiate.
<PAGE>
2.8 Intellectual Property. Set forth on Schedule 2.8 attached hereto
---------------------- ------------
is a list of all material patents, pending patent applications, trademarks,
service marks, trade names, copyrights, licenses, computer codes or computer
software, proprietary rights, proprietary processes and other intellectual
property rights (collectively "Intellectual Property") owned by, or licensed to,
---------------------
the Company or any of its subsidiaries, with an indication as to which of such
items are owned by the Company or any of its subsidiaries and which are licensed
to the Company or its subsidiaries. The Company's and its subsidiaries, legal
rights to use the Intellectual Property owned by or licensed to the Company and
its subsidiaries is sufficient for the use thereof in their respective
businesses as now conducted and as proposed to be conducted, except where the
failure would not have a Material Adverse Effect. None of the Company or any of
its subsidiaries has received any communications alleging that the Company or
any of its subsidiaries has violated or, by conducting its business as now
conducted or as proposed to be conducted, would violate any of the rights in the
Intellectual Property of any other individual, corporation, association,
partnership, joint venture, trust, estate, limited liability company, limited
liability partnership, joint stock company, unincorporated organization or
government or any agency or political subdivision thereof, or other entity or
organization (each, a "Person"). To the Company's knowledge, none of the
------
Company or any of its subsidiaries is infringing upon the right or claimed right
of any Person with respect to any of the Intellectual Property. None of the
Company or any of its subsidiaries has licensed any of the Intellectual Property
to any other Person, nor does any other Person have an option or any other right
to acquire any of the Intellectual Property other than in the ordinary course of
business (except for the Intellectual Property that is in the public domain).
To the Company's knowledge, none of the employees of the Company or any of its
subsidiaries is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any order, writ,
injunction, judgment, instrument or decree of any court, administrative agency,
government agency or instrumentality that would interfere with the use of such
employee's best efforts to promote the interests of the Company or any of its
subsidiaries or that would conflict with the business of the Company or such
subsidiary (as currently conducted or proposed to be conducted). None of the
execution or delivery of the Investment Agreements, nor the carrying on of the
business of the Company or any of its subsidiaries (as currently conducted or
proposed to be conducted) by their respective employees, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract or respective other
agreement, covenant or instrument under which any such employee is obligated.
It is not, nor will it be necessary, to use any inventions of any of the current
employees of the Company or its subsidiaries (or Persons the Company currently
intends to hire) made prior to their employment with the Company or its
subsidiaries and to which the Company or its subsidiaries do not otherwise have
rights.
2.9 Compliance.
----------
(a) None of the Company or any of its subsidiaries is in violation
or in default of any provisions of its respective Articles of Incorporation,
bylaws or of any order, writ, injunction, judgment, instrument, decree or
contract to which it is a party or by which it is bound or, to its knowledge, of
any provision of federal or state statute, rule or regulation applicable to the
Company or any of its subsidiaries which violations or defaults would, either
individually or in the aggregate, have a Material Adverse Effect. The
execution, delivery and performance of the Investment Agreements and the
consummation of the transactions contemplated hereby or thereby do not and will
not, with or without the passage of time and/or the giving of notice: (i) result
in any such violation or be in conflict with or constitute a default under any
such provision, order, writ, injunction, judgment, instrument, decree or
contract; (ii) result in the creation of any lien, security interest, charge or
encumbrance upon the capital stock or any assets of the Company or any of its
subsidiaries; or (iii) give any third party the right to modify, terminate or
accelerate any obligation under any such provision, order, writ, injunction,
judgment, instrument, decree or contract.
<PAGE>
2.10 Material Contracts. Schedule 2.10 lists each contract relating to
------------------ -------------
the Company or any of its subsidiaries that: (a) represents a contract upon
which the Company or such subsidiary is substantially dependent or which is
otherwise material to the Company or such subsidiary; (b) provides for
borrowings or similar extensions of credit; (c) limits or restricts the ability
of the Company or such subsidiary to compete or otherwise to operate in any
manner or place; (d) provides for a guaranty or indemnity (other than customary
indemnities for infringement of Intellectual Property rights); (e) grants a
power of attorney, agency or similar authority to another Person; (f) contains a
right of first refusal with respect to the sale or acquisition of the capital
stock or assets of the Company or any of its subsidiaries; (g) contains a right
or obligation (other than in the ordinary course of business) of any officer or
director of the Company or any of its subsidiaries, or any of their respective
affiliates or associates; (h) is an employment or consulting agreement to which
the Company or any of its subsidiaries is a party; or (i) was not made in the
ordinary course of business (collectively, "Material Contracts"). True copies
------------------
of each Material Contract, including all amendments and supplements thereto,
have been made available to Purchasers. Except as set forth in Schedule 2.10,
-------------
each Material Contract is valid and subsisting and no breach or default, alleged
breach or default, or event which would (with the passage of time, notice or
both) constitute a breach or default thereunder on the part of the Company or
any of its subsidiaries, or, to the knowledge of the Company, on the part of any
other party thereto, has occurred.
2.11 Absence of Undisclosed Liabilities. Since June 30, 1999 none of
------------------------------------
the Company or any of its subsidiaries has: (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock; (ii) made any loans or advances to any Person,
other than ordinary advances for expenses incurred in the ordinary course of
business consistent with past practices; or (iii) sold, exchanged or otherwise
disposed of any of its assets or rights, other than in the ordinary course of
business consistent with past practices. Except as set forth in the Financial
Statements (as defined) and the schedules hereto, the Company has no material
liabilities or obligations, contingent or otherwise, other than (i) liabilities
paid or incurred in the ordinary course of business subsequent to the Statement
Date (as defined), and (ii) obligations under contracts and commitments incurred
in the ordinary course of business, which, in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company.
2.12 Disclosure.
----------
(a) As of its filing date, each document filed with the Securities
and Exchange Commission (the "Commission") by the Company, as amended or
----------
supplemented prior to the Closing Date, if applicable, pursuant to the
Securities Act and/or the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (i) complied in all material respects with the applicable
- --------------
requirements of the Securities Act and/or Exchange Act and (ii) did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. As of the date
hereof, the Company has filed all documents with the Commission as required by
the Exchange Act and the policies, rules and regulations of the Commission.
<PAGE>
(b) None of the representations or warranties of the Company
contained in this Agreement, the schedules and exhibits attached hereto, the
other Investment Agreements or any certificate furnished or to be furnished to
Purchasers at Closing (when read together) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. There is no fact which has not been disclosed to
Purchasers in writing of which the Company has knowledge, and which has had or
would reasonably be anticipated to have a Material Adverse Effect, and the
Company is not aware of any impending or contemplated event or occurrence that
would cause any of the representations or warranties contained herein not to be
true and complete on the date of such event or occurrence as if made on that
date.
2.13 Conflicts of Interest. Except as set forth in Schedule 2.13, none
--------------------- -------------
of the Company or any of its subsidiaries is indebted, directly or indirectly,
to any of its respective officers or directors or to their respective spouses or
immediate family members, for any amount whatsoever other than in connection
with expenses or advances of expenses incurred in the ordinary course of
business consistent with past practices or relocation expenses of employees.
Except as set forth in Schedule 2.13, no director, officer or any affiliates
-------------
thereof, (as such term is defined in Rule 405 under the Securities Act), or any
members of their immediate families (x) are, directly or indirectly, indebted to
the Company or any of its subsidiaries or, (y) have any direct or indirect
ownership interest in any Person (A) with which the Company or any of its
subsidiaries is affiliated or (B) with which the Company or any of its
subsidiaries has a material business relationship, or (C) which competes with
the Company or any of its subsidiaries; except that for purposes of this clause
(y), officers, directors or affiliates thereof or any members of their immediate
families may own stock in (but not exceeding one percent (1%) of the outstanding
capital stock of) any publicly traded companies that may compete with the
Company. To the Company's knowledge, none of the officers or directors of the
Company or any members of their immediate families are, directly or indirectly,
interested in any material contract of the Company or any of its subsidiaries.
None of the Company or any of its subsidiaries is a guarantor or indemnitor of
any indebtedness of any other Person.
2.14 Registration Rights and Voting Rights. Except as set forth in
-----------------------------------------
Schedule 2.14 and contemplated in the Registration Rights Agreement, there are
- --------------
no agreements, written or oral, between the Company and any Person relating to
the registration of its capital stock under federal or state securities laws,
including piggyback registration rights. Except as set forth in Schedule 2.14,
-------------
to the Company's knowledge, no stockholders of the Company have entered into any
agreements with respect to the voting of shares of the capital stock of the
Company.
2.15 Private Placement. Subject to and in reliance in part on the
------------------
truth and accuracy of the representations of each Purchaser set forth in this
Agreement, the offer, sale and issuance of the Securities as contemplated by
this Agreement is exempt from the registration requirements of the Securities
Act and any applicable state securities laws and none of the Company or any of
its subsidiaries nor any authorized agent acting on its behalf will take any
action hereafter that would cause the loss of such exemption.
2.16 Title to Property and Assets. Except as set forth in Schedule
-------------------------------- --------
2.16, the Company and each of its subsidiaries owns its property and assets free
- ----
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business or liens
for taxes that are not delinquent or being contested in good faith and do not
materially impair the ownership or use of such property or assets by the Company
or such subsidiary. Except as set forth in Schedule 2.16 with respect to the
-------------
property and assets it leases, each of the Company and its subsidiaries is in
compliance with such leases and holds a valid leasehold interest free of any
liens, claims or encumbrances.
<PAGE>
2.17 Employee Matters. Except as described in Schedule 2.17 attached
----------------- -------------
hereto, neither the Company nor any of its subsidiaries is a party to or bound
by, or has any liability under, any material employment contract or any deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation or benefit agreement, plan
or arrangement, of any kind including without limitation any multiemployer plan.
2.18 Tax Returns and Audits. Except as set forth in Schedule 2.18, the
---------------------- -------------
Company and its subsidiaries have accurately prepared and timely filed all
federal, state, foreign, local and other tax returns required by law to be
filed, except where failure to do so would not reasonably be expected to have a
Material Adverse Effect, have paid or made provision for the payment of all
taxes shown on such returns to be due and all additional assessments. Adequate
provisions have been made and are reflected in the Financial Statements to the
extent required by generally accepted accounting principles applied on a
consistent basis and as in effect in the United States ("GAAP") for all current
taxes and other charges to which the Company or any of its subsidiaries is
subject and which are not currently due and payable. There are no additional
assessments or adjustments pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries for any period.
2.19 Labor Agreements and Actions. None of the Company or any of its
------------------------------
subsidiaries is bound by or subject to (and none of their assets or properties
are bound by or subject to) any written or oral contract, commitment, agreement
or arrangement with any labor union, and no labor union has requested or, to the
knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company or any of its subsidiaries. There is
no strike or other labor dispute involving the Company or any of its
subsidiaries pending, or to the knowledge of the Company, threatened, which
could have a Material Adverse Effect, nor is the Company aware of any labor
organization activity involving the employees, representatives or agents of the
Company or any of its subsidiaries. The Company and its subsidiaries have
complied with all applicable federal and state equal employment opportunity laws
and regulations and with all other laws and regulations related to employment
and labor issues except where the failure to comply would not have a Material
Adverse Effect.
2.20 Permits. Except as set forth in Schedule 2.20, the Company and
------- -------------
its subsidiaries have all franchises, permits, licenses and any other
governmental authority necessary for the conduct of their businesses as now
being conducted, the lack of which could have a Material Adverse Effect. None
of the Company or any of its subsidiaries is in default in any material respect
under any of such franchises, permits, licenses or other authority.
2.21 Corporate Documents. The Existing Articles and Existing Bylaws
--------------------
are in the form provided to counsel for Purchasers. The copy of the minute
books of the Company provided to counsel for Purchasers contains minutes of all
meetings of directors and shareholders of the Company and all actions by written
consent without a meeting by the directors and stockholders of the Company since
the date of the Company's incorporation and reflects all actions by the
directors (and any committee of directors) and shareholders of the Company with
respect to all transactions referred to in such minutes accurately in all
material respects.
<PAGE>
2.22 Real Property Holding Corporation. The Company is not a United
------------------------------------
States real property holding corporation within the meaning of Internal Revenue
Code Section 897(c)(2) and Section 1.897-2(c) of the Treasury Regulations
promulgated thereunder.
2.23 Financial Statements. Attached hereto as Schedule 2.23 are
--------------------- --------------
complete and correct copies of (i) the unaudited balance sheet of the Company
for the quarterly period ended June 30, 1999; (ii) audited consolidated
financial statements of the Company containing audited balance sheets and
statements of income at and for the Company's fiscal years ended December 31,
1996, 1997 and 1998 and (iii) an unaudited balance sheet and statement of income
of the Company at and for the six-month period ended March 31, 1999 (the
"Statement Date") (the items referred to in clauses (i) through (iii),
- -----------------
collectively, the "Financial Statements"). The Financial Statements have been
--------------------
prepared from the books and records of the Company and have been prepared in
accordance with GAAP (except as indicated in the notes thereto) and fairly
present the consolidated financial condition and operating results of the
Company and its subsidiaries as of the dates and for each period presented in
accordance with GAAP.
2.24 Changes. Since the Statement Date and except as set forth in
-------
Schedule 2.24, there has not been:
- --------------
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except for changes in the ordinary course of business or that have
not resulted in a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by
insurance, resulting in a Material Adverse Effect;
(c) any waiver, release or compromise by the Company or any of its
subsidiaries of a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
subsidiaries except in the ordinary course of business or that has not resulted
in a Material Adverse Effect;
(e) any material change to a material contract or agreement by
which the Company, or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, representative, agent, officer, director or
stockholder of the Company or any of its subsidiaries;
<PAGE>
(g) any sale, assignment or transfer of any patents, pending
patent applications, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, software source code and object code and
proprietary rights and processes or other material intangible assets of the
Company or any of its subsidiaries;
(h) any resignation or termination of employment of any officer,
director, key employee, key representative or key agent of the Company or any of
its subsidiaries and to the Company's knowledge, the Company does not know of
any impending resignation or termination of employment of any such officer,
director, key employee, key representative or key agent;
(i) receipt of notice that there has been a loss of, or order
cancellation by, any major advertiser or major customer of the Company or any of
its subsidiaries;
(j) any mortgage, pledge, transfer of a security interest in, lien
or encumbrance, created by the Company or any of its subsidiaries, with respect
to any of its capital stock, properties or assets, except liens for taxes not
yet due or payable;
(k) any loans or guarantees made by the Company or any of its
subsidiaries to or for the benefit of its employees, representatives, agents,
officers or directors, or any members of their immediate families, other than
ordinary advances for expenses incurred in the ordinary course of business;
(1) any declaration, setting aside or payment or other
distribution with respect to any of the capital stock of the Company or any of
its subsidiaries, or any direct or indirect redemption, purchase, or other
acquisition of any of such capital stock by the Company or any of its
subsidiaries; or
(m) any arrangement or commitment by the Company or any of its
subsidiaries to do anything described in this Section 2.24, subject to
materiality and other qualifiers as may be set forth in this Section 2.24.
<PAGE>
2.25 Environmental and Safety Laws. The Company, its subsidiaries, the
-----------------------------
operation of their respective businesses and any real property that they own,
lease or otherwise occupy or use are in compliance with all applicable
Environmental Laws and orders or directives of any governmental authorities
having jurisdiction under such Environmental Laws except where the failure to
comply would not result in a Material Adverse Effect. Neither the Company nor
any of its subsidiaries has received any citation, directive or notice of any
proceedings, claims or other actions from any governmental authority arising out
of the ownership or occupation of its properties or premises or the conduct of
its respective operations, nor is it aware of any basis therefor. To the
Company's knowledge, no material expenditure on behalf of the Company or any of
its subsidiaries will be required in order to comply with any Environmental Law.
As used herein, "Environmental Laws" means any federal, state, municipal, local
------------------
or foreign law, statute, ordinance, code, rule or regulation pertaining to land
use, air, soil, surface water, groundwater (including protection, cleanup,
removal, remediation or damage thereof), public or employee health or safety or
any other environmental matter, including, without limitation, the following
laws as the same may be amended from time to time: (i) Clean Air Act (42 U.S.C.
7401, et seq.), (ii) Clean Water Act (33 U.S.C. 1251, et seq.), (iii) Resource
-- --- -- ---
Conservation and Recovery Act (42 U.S.C. 6901, et seq.), (iv) Comprehensive
-- ---
Environmental Response Compensation Liability Act, as amended (42 U.S.C. 9601,
et seq.) ("CERCLA"), (v) Safe Drinking Water Act (42 U.S.C. 300f, et seq.),
- -- --- -- ---
(vi) Toxic Substance Control Act (15 U.S.C. 2601, et seq.), (vii) Rivers and
- ---- -- ---
Harbors Act (33 U.S.C. 401, et seq.), (viii) Endangered Species Act (16 U.S.C.
-- ---
1531, et seq.), and (ix) Occupational Safety and Health Act (29 U.S.C. 651, et
-- --- --
seq.), together with any other applicable federal, state or local laws relating
- ---
to emissions, discharges, releases or threatened releases of any Hazardous
Substance (as defined herein) into ambient air, land, surface water, ground
water, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, discharge or handling of any Hazardous Substance. As used herein,
"Hazardous Substances" means any pollutant, contaminant, hazardous or toxic
- ----------------------
substance, material, constituent or waste or any pollutant that is labeled or
regulated as such terms are defined in any Environmental Law or that is labeled
or regulated as such by (i) the United States of America, (ii) any state,
commonwealth, territory or possession of the United States of America and (iii)
any political subdivision thereof (including counties, municipalities and the
like) or any agency, authority or instrumentality of any of the foregoing,
including any court, tribunal, department, bureau, commission or board,
including, without limitation, asbestos and asbestos-containing materials and
any material or substance that is: (i) designated as a "hazardous substance"
pursuant to Section 307 of the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251, et seq. (33 U.S.C. 1317), (ii) defined as a "hazardous waste,,
-- ---
pursuant to Section 1004 of the Federal Solid Waste Disposal Act, 42 U.S.C.
Section 6901, et seq. (42 U.S.C. 6903), (iii) defined as a "hazardous
-- ---
substance" pursuant to Section 101 of CERCLA or (iv) is so designated or defined
under any other applicable Environmental Law.
2.26 FCPA. The Company and its subsidiaries have complied in all
----
material respects with the United States Foreign Corrupt Practices Act of 1977,
as amended (the "FCPA"), and have obtained all consents, licenses, approvals,
----
authorizations, rights, and privileges in connection with the conduct of its
business required by the FCPA and have otherwise conducted their business in
compliance with all material respects with the FCPA. Each of the Company's and
its subsidiaries internal management and accounting practices and controls are
adequate to ensure compliance in all material respects with the FCPA.
2.27 Finder's Fee. Except as set forth in Schedule 2.27, the Company
------------- -------------
represents that it neither is nor will be obligated for any finder's fee or
commission in connection with the transactions contemplated by the Investment
Agreements, the documents referred to herein and the transactions contemplated
hereby and thereby.
2.28 Insurance. Schedule 2.28 sets forth all insurance policies and
--------- --------------
bonds that are material to the Company and its subsidiaries, and such policies
and bonds are in full force and effect and, to the knowledge of the Company, no
defaults exist under any of them. In the past three years neither the Company
nor any of its subsidiaries has been refused insurance for which it applied or
had any policy of insurance terminated (except at its request).
<PAGE>
2.29 Year 2000.
----------
(a) To the Company's knowledge, none of the computer software,
computer firmware, computer hardware (whether general or special purpose) or
other similar or related items of automated, computerized or software systems
that are used or relied on by the Company or by any of its subsidiaries in the
conduct of their respective businesses will malfunction, will cease to function,
will generate incorrect data or will produce incorrect results when processing,
providing or receiving (i) date-related data from, into and between the
twentieth and twenty-first centuries or (ii) date-related data in connection
with any valid date in the twentieth and twenty-first centuries.
(b) To the Company's knowledge, none of the products and services
sold, licensed, rendered, or otherwise provided by the Company or by any of its
subsidiaries in the conduct of their respective businesses will malfunction,
will cease to function, will generate incorrect data or will produce incorrect
results when processing, providing or receiving (i) date-related data from, into
and between the twentieth and twenty-first centuries or (ii) date-related data
in connection with any valid date in the twentieth and twenty-first centuries.
(c) Neither the Company nor any of its subsidiaries has made any
other representations or warranties regarding the ability of any product or
service sold, licensed, rendered, or otherwise provided by the Company or by any
of its Subsidiaries in the conduct of their respective businesses to operate
without malfunction, to operate without ceasing to function, to generate correct
data or to produce correct results when processing, providing or receiving (i)
date-related data from, into and between the twentieth and twenty-first
centuries and (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries.
2.30 Other. The Company is not governed by the provisions of Sections
-----
78.411 through 78.444, inclusive of the Nevada Revised Statutes.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each Purchaser hereby
--------------------------------------------
represents and warrants to the Company, on such Purchaser's own behalf, that:
3.1 Accredited Investor: Authorization. Purchaser is an "accredited
------------------------------------
investor" within the meaning of Rule 501 promulgated under the Securities Act
and has the corporate, partnership or individual, as the case may be, power and
authority to enter into and perform this Agreement and the other Investment
Agreements and to consummate the transactions contemplated hereby and thereby.
This Agreement has been duly authorized, executed and delivered by Purchaser and
constitutes the legal, valid and binding obligation of Purchaser, enforceable in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors, rights
generally and except as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
<PAGE>
3.2 No Conflict with Other Agreements. The execution, delivery and
-------------------------------------
performance of the Investment Agreements and the consummation of the
transactions contemplated hereby or thereby will not, with or without the
passage of time and/or the giving of notice, result in a violation or default of
any provisions of Purchaser's charter, bylaws or other organizational document
or of any order, writ, injunction, judgment, instrument, decree or material
contract to which it is a party or by which it is bound or, to its knowledge, of
any material provision of federal or state statute, rule or regulation
applicable to Purchaser.
3.3 Investment Knowledge. Purchaser has sufficient knowledge and
---------------------
experience in financial and business matters so as to be capable of evaluating
the risks and merits of its investment in the Company and is capable of bearing
the economic risks of such investment, including a complete loss of its
investment.
3.4 Distribution. The Securities (including Class B Preferred Shares
------------
issuable as dividends and the Underlying Shares) are being acquired for
Purchaser's own account with the present intention of holding such securities
for purposes of investment and not with a view to or for resale in connection
with any distribution thereof in violation of any securities laws. Purchaser
further represents that it understands and agrees that, until registered under
the Securities Act or transferred pursuant to the provisions of Rule 144 as
promulgated by the Securities and Exchange Commission (such securities,
"Unrestricted Securities"), all certificates evidencing any of the Securities
-----------------
(including Class B Preferred Shares issuable as dividends and the Underlying
Shares), whether upon initial issuance or upon any transfer thereof, shall bear
a legend, prominently stamped or printed thereon, reading substantially as
follows:
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), or the securities laws of
any state. These securities have been acquired for investment and not with a
view to distribution or resale in violation of any securities laws. Such shares
may not be offered for sale, sold, delivered after sale, transferred, pledged or
hypothecated in the absence of an effective registration statement covering such
shares under the Act and any applicable state securities laws or an exemption
therefrom."
4. CONDITIONS OF PURCHASERS' OBLIGATIONS AT THE CLOSING. The
----------------------------------------------------------
obligations of Purchasers to the Company under this Agreement are subject to the
fulfillment, on or before the Closing of each of the following conditions,
unless otherwise waived in writing by Purchasers.
4.1 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by the Company on
or before the Closing. Each of the representations and warranties of the
Company contained in this Agreement shall be deemed made as of the date of this
Agreement. All such representations and warranties shall be true and correct on
and as of the Closing date with the same force and effect as if made at that
time, and there shall be no material adverse change in the circumstances
surrounding such representations and warranties between the date of this
Agreement and the date of Closing.
<PAGE>
4.2 Qualifications. All authorizations, approvals or permits, if any,
--------------
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.3 Opinion of Company Counsel. Purchasers shall have received from
-----------------------------
Gardere & Wynne L.L.P., counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit E.
----------
4.4 Supporting Documents. Purchasers shall have received the
---------------------
following:
(a) A copy of resolutions of the Board of Directors of the Company
authorizing and approving the transactions contemplated hereby and a copy of
resolutions of the Board of Directors of the Company authorizing and approving
the adoption of the Certificate, all such resolutions to be certified by the
Secretary of the Company;
(b) A Certificate of Incumbency executed by the Secretary of the
Company certifying the names, titles and signatures of the officers authorized
to execute the Note and the Investment Agreements and further certifying that
the Articles of Incorporation, as amended, and Bylaws of the Company delivered
to legal counsel for each Purchaser at the time of the execution of this
Agreement have been validly adopted and have not been amended or modified; and
(c) Such additional supporting documentation and other information
with respect to the transactions contemplated hereby as legal counsel for each
Purchaser may reasonably request.
4.5 Pensat Documents. Purchasers shall have received copies of all
-----------------
then existing documentation relating to the Pensat Transaction.
4.6 Agreement of Shareholders. Prior to the Closing Date, the Company
--------------------------
shall have obtained the written consent of a majority of its shareholders
entitled to vote on such matters to vote in favor of the following: (i) to amend
the Articles of Incorporation of the Company increasing the number of authorized
shares of Common Stock of the Company at the Shareholders Meeting to be held
pursuant to Section 6.6 of this Agreement, and (ii) to vote in favor of the
election of the director designated by TSG to the Board of Directors, at the
Shareholders Meeting to be held pursuant to Section 6.6 of this Agreement.
-----------
4.7 Certificate of Designations. The Company shall have filed the
-----------------------------
Certificate with the Secretary of State of Nevada, which Certificate shall
continue to be in full force and effect as of the Closing.
4.8 Payment of Expenses. The Company shall have paid in accordance
---------------------
with Section 10.9 the expenses and disbursements of TSG.
<PAGE>
4.9 SBA Forms. The Company shall have executed any Small Business
----------
Administration forms requested by OCP II or OCP III in connection with the
transactions contemplated herein.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
-------------------------------------------------------------
obligations of the Company to Purchasers under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived by the Company in writing.
5.1 Performance. All covenants, agreements, obligations and conditions
-----------
contained in this Agreement to be performed by each Purchaser on or prior to the
Closing shall have been performed or complied with in all material respects.
The representations and warranties of each Purchaser contained in this Agreement
shall be deemed made as of the date of this Agreement. All such representations
and warranties shall be true and correct on and as of the Closing date with the
same force and effect as if made at that time, and there shall be no material
adverse change in the circumstances surrounding such representations and
warranties between the date of this Agreement and the date of Closing.
5.2 Minimum Investment. In addition to the other conditions specified
-------------------
in this Section 5, it shall be a further condition to the obligations of the
Company, that it shall have received an aggregate of at least: (i) $20,000,000
from TSG; (ii) $900,000 from OCP II; and (iii) $100,000 from OCP III, in
connection with the issuance of the Notes hereunder.
6. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company covenants and
----------------------------------------
agrees as follows:
6.1 Corporate Existence. The Company will maintain its corporate
--------------------
existence in good standing in the State of Nevada and comply with all applicable
laws and regulations of the United States or of any state or political
subdivision thereof and of any foreign jurisdiction, and of any government
authority of any of the foregoing, where failure to so comply would have a
Material Adverse Effect.
6.2 Books of Account and Reserves. The Company will keep books of
---------------------------------
record and account in order to prepare its Financial Statements. The Company
will employ a certified public accounting firm of established national
reputation selected by the Board of Directors of the Company who are
"independent" within the meaning of the accounting regulations of the Securities
and Exchange Commission (the "Accountants"). The Company will have annual
-----------
audits made by such Accountants in the course of which such Accountants shall
make such examinations, in accordance with generally accepted auditing
standards, as will enable them to give such reports or opinions with respect to
the financial statements of the Company as will satisfy the requirements of the
Securities and Exchange Commission in effect at such time with respect to
reports or opinions of accountants.
<PAGE>
6.3 Furnishing of Financial Statements and Information. The Company
-----------------------------------------------------
will deliver to each Purchaser and each of their respective transferees,
successors and assigns (together with their respective Affiliates (as defined))
that holds a Note or, after conversion, to OCP II and OCP III and to any holder
of at least 10% of the Class B Preferred Shares (or the Common Stock issuable
upon conversion thereof) while any Class B Preferred Shares are outstanding (and
each recipient that receives such information agrees to keep confidential such
information as the Company designates as confidential in writing):
(a) annually, as soon as available, but in any event by the end of
each fiscal year, an operating plan and budget for the following year;
(b) as soon as available, but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
statements of income, operations and cash flows of the Company for such monthly
period and for the period from the beginning of the fiscal year to the end of
such month, and unaudited balance sheets of the Company as of the end of such
monthly period, setting forth in each case comparisons to the annual operating
plan and budget and to the corresponding period in the preceding fiscal year,
and all such statements shall be prepared in accordance with GAAP (provided,
however, that such statements need not comply with the footnote disclosure
requirements of GAAP);
(c) as soon as available, but in any event within 45 days after
the end of each quarterly accounting period in each fiscal year, unaudited
statements of income, operations and cash flows of the Company for such
quarterly period and for the period from the beginning of the fiscal year to the
end of such quarter, and unaudited balance sheets of the Company as of the end
of such quarterly period, setting forth in each case comparisons to the annual
operating plan and budget and to the corresponding period in the preceding
fiscal year, and all such statements shall be prepared in accordance with GAAP
(provided, however, that such statements need not comply with the footnote
disclosure requirements of GAAP);
(d) as soon as available, but in any event within 90 days after
the end of each fiscal year, audited statements of income, operations, retained
earnings and cash flows of the Company for such fiscal year and balance sheets
of the Company as of the end of such fiscal year, all prepared in accordance
with GAAP, all in reasonable detail and duly certified by the Accountants, who
shall have given the Company an opinion, unqualified as to the scope of the
audit, regarding such statements setting forth in each case comparisons to the
annual operating plan and budget of the preceding fiscal year;
(e) promptly after the Company learns of the commencement or
written threats of the commencement of any material lawsuit, legal or equitable,
or of any material administrative, arbitration or other proceeding against the
Company or its business, assets or properties, written notice of the nature and
extent of such suit or proceeding;
(f) promptly upon transmission thereof, copies of all reports,
proxy statements, registration statements and notifications filed by it with the
Securities and Exchange Commission pursuant to any act administered by the
Securities and Exchange Commission or furnished to stockholders of the Company
or to any national securities exchange;
<PAGE>
(g) with reasonable promptness, notice of any default in any
agreement of the Company or any of its subsidiaries which is reasonably expected
to result in a Material Adverse Effect;
(h) with reasonable promptness, such other financial data relating
to the business, affairs and financial condition of the Company and as is
available to the Company and as from time to time the Purchasers may reasonably
request; and
(i) provide copies of definitive documents relating to the Pensat
Transaction at least seven (7) days prior to the closing of the Pensat
Transaction in substantially the form to be executed at such closing.
"Affiliate" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by or is under common control with such
first-named Person. For the purposes of this definition, "control," (including
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise. In
addition, in the case of Purchasers, an "Affiliate," of any Purchaser shall
include the partners thereof and the Company shall not be deemed to be an
"Affiliate," of any Purchaser.
6.4 Key Person Insurance. Within 90 days after the Closing, the
----------------------
Company shall obtain and thereafter at all times maintain one or more key person
life insurance policies on the life of Stephen Raville in an aggregate amount of
not less than $10,000,000, with the proceeds of such insurance policies payable
to the Company. Copies of such keyman insurance policies shall be delivered to
each Purchaser upon request.
6.5 Subsidiaries. The Company shall (i) cause each such subsidiary to
------------
comply with the covenants set forth in Sections 6.1, 6.2, and 6.3 and (ii) all
references in Section 6.3 to financial statements shall be deemed to refer to
consolidated financial statements.
6.6 Shareholder Meeting. At the next meeting of its shareholders, such
-------------------
meeting to be held prior to December 31, 1999 (the "Shareholder Meeting"), the
-------------------
Board of Directors of the Company shall submit and recommend an appropriate
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of Common Stock of the Company to at least 200,000,000.
6.7 Board of Directors. Pursuant to Section 3.02 of the Bylaws of the
-------------------
Company, the Board of Directors of the Company (the "Board") shall pass a
-----
resolution to increase the number of directors on the Board from eight (8) to
nine (9) to accommodate TSG's designee to the Board. Upon funding of the Loan
Amount, TSG shall have the right to appoint one member to the Board.
<PAGE>
6.8 Access and Visitation. The Company will permit each Purchaser to
-----------------------
visit and inspect the Company's properties, and to examine the Company's books
and records with the Company management at such reasonable times as shall be
requested by such Purchaser.
7. NEGATIVE COVENANTS OF THE COMPANY. The Company will be limited and
----------------------------------
restricted as follows:
7.1 Restrictive Agreements Prohibited. Neither the Company nor any of
----------------------------------
its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of the Investment Agreements or its
obligations under the Certificate.
7.2 No Amendment of Certificate. The Company shall not amend, alter or
---------------------------
repeal or otherwise change any of the terms or provisions of the Certificate
prior to conversion of the Notes into shares of Class B Preferred Stock.
7.3 No Issuance of Senior Securities. Prior to conversion of the Notes
--------------------------------
into shares of the Class B Preferred Stock, the Company shall not create,
authorize, issue or increase the authorized amount of, any preferred stock or
any other class or series of any equity securities, or any warrants, options or
other rights convertible or exchangeable into any class or series of any equity
securities of the Company, having a preference or priority over the Class B
Preferred Stock as to the right to received dividends or amounts distributable
upon liquidation of the Company.
7.4 Affiliate Transactions. The Company will not enter into any
-----------------------
transactions with any Affiliate unless conducted on an arm's-length basis, at
fair market value. For purposes of this Section 7.2, (i) "Affiliate" shall mean
any entity directly or indirectly controlling, controlled by or under direct or
indirect common control with the Company (or any of its subsidiaries) and
includes (a) any person who is a director or beneficial owner of at least 5% of
such person's equity securities, (b) any person (other than wholly-owned
Subsidiaries) of which the Company or any Affiliate owns at least 10% of such
person's equity securities or (c) immediate family members of any such person
specified in clauses (a) or (b) and (ii) "Subsidiary" shall mean any entity of
which the Company owns, directly or indirectly, at least a majority of the
outstanding capital stock or a partnership in which the Company (or a subsidiary
of the Company) serves as general partner.
8. CONVERSION OF CLASS B PREFERRED SHARES AND EXERCISE OF WARRANTS.
---------------------------------------------------------- ---------
8.1 Conversion of Preferred Shares. Each Purchaser may, at its option,
------------------------------
at any time and from time to time, after conversion of the Note and amendment of
the Articles of Incorporation as contemplated by Section 6.6 above, convert all
or any portion of the Class B Preferred Shares into Common Stock at the rate and
upon the terms and conditions and subject to the adjustments set forth in the
Certificate.
<PAGE>
8.2 Exercise of Warrants. Each Purchaser may, at its option, exercise
---------------------
any Warrant, or any portion thereof, after conversion of the Note and issuance
of the Warrants, and after amendment of the Articles of Incorporation as
contemplated by Section 6.6 above, in exchange for Common Stock at the rate and
upon the terms and conditions set forth in the applicable Warrant Agreement.
8.3 Underlying Shares Fully Paid; Reservation of Common Stock. The
-------------------------------------------------------------
Company covenants and agrees that all Underlying Shares shall be issued upon the
exercise of the conversion privilege referred to in Section 8.1 and the right of
exercise referred to in Section 8.2 and shall, upon issuance in accordance with
the terms of the Company's Articles of Incorporation, as amended, and the
Warrant Agreements, respectively, be fully paid and non-assessable, and that the
issuance thereof shall not give rise to any preemptive rights on the part of any
Person. The Company further covenants and agrees that the Company will at all
times from and after the Shareholder Meeting have authorized and reserved a
sufficient number of shares of its Common Stock for the purpose of issuing the
Underlying Shares.
8.4 Adjustment of Number of Shares. The number of shares of Common
----------------------------------
Stock issuable upon conversion of Class B Preferred Shares as well as the number
of shares of Common Stock issuable upon exercise of any Warrant (and the
exercise price payable in connection with such exercise) shall be subject to
adjustment from time to time as set forth in the Certificate and in the Warrant
Agreements.
9. PREEMPTIVE RIGHTS.
------------------
9.1 After conversion of the Notes, each Purchaser and its transferees,
successors and assigns (each, a "Holder") shall be entitled to a preemptive
------
right to purchase its pro rata share of all or any part of any New Securities
--------
(as defined) which the Company may, from time to time, sell and issue. Such
Holder's pro rata share, for purposes of this preemptive right, is the ratio
---------
that the number of whole shares of Common Stock into which the shares of Class B
Preferred Shares held by such Holder (including any additional shares of Class B
Preferred Shares issued to such holder) are convertible plus the number of
shares of Common Stock then held by the Holder as a result of the conversion of
Class B Preferred Shares together with the number of shares such Holder is
entitled to purchase pursuant to Warrants bears to the total number of shares of
Common Stock of the Company on a fully-diluted basis.
<PAGE>
9.2 Except as set forth in the next sentence, "New Securities" shall
--------------
mean any shares of capital stock of the Company, including Common Stock, whether
now authorized or not, and rights, options or warrants to purchase said shares
of capital stock, and securities of any type whatsoever that are, or may become,
convertible into said shares of capital stock. Notwithstanding the foregoing,
"New Securities" does not include (i) securities offered to the public generally
pursuant to a registration statement filed with the Commission and declared
effective under the Securities Act,(ii) securities issued in connection with the
acquisition of another entity by the Company by merger, purchase of
substantially all of the assets or other reorganization or in a transaction
governed by Rule 145 under the Securities Act, (iii) options exercisable for
Common Stock issued to employees, officers, directors or consultants of the
Company outstanding as of the first date on which Class B Preferred Shares were
first issued (the "First Issue Date") or options issued to employees, officers,
----------------
directors or consultants of the Company pursuant to the Employee Plan, the
Executive Plan, the Director Plan, the Market Value Appreciation Plan, or the
Pay for Performance Plan or a stock option plan adopted by the Board of
Directors of the Company and approved by a majority of the holders of Class B
Preferred Shares after the First Issue Date, (iv) shares of Common Stock issued
on conversion of outstanding Class B Preferred Shares; (v) shares of Common
Stock issued upon exercise of rights, convertible securities or warrants (A)
outstanding as of the First Issue Date or (B) issued in connection with the sale
of Class B Preferred Shares hereunder, (vi) stock issued pursuant to any rights
or agreements, including without limitation convertible securities, options and
warrants, provided, that, the preemptive rights established by this Section 9
-------- ----
shall apply with respect to the initial sale or grant by the Company of
interests in its capital stock pursuant to such rights or agreements, or (vii)
stock issued in connection with any stock split, stock dividend or
recapitalization by the Company.
9.3 In the event the Company proposes to undertake an issuance of New
Securities, it shall give the Holders of the Notes or Class B Preferred Shares
written notice of its intention, describing the type of New Securities, and the
price and terms upon which the Company proposes to issue the same. Each Holder
of Class B Preferred Shares shall have thirty (30) days from the date of receipt
of any such notice to agree to purchase up to its respective pro rata share of
--- ----
such New Securities for the price and upon the terms specified in the notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
9.4 In the event a Holder fails to exercise such preemptive right
within said thirty-day period (each such Holder a "Non-Electing Holder"), the
-------------------
Company shall give the Holders that have elected to exercise such preemptive
right within said thirty-day period (each such Holder an "Electing Holder")
---------------
written notice of each Non-Electing Holder's failure to exercise its preemptive
right to purchase its pro rata share of the New Securities (such securities, the
--- ----
"Additional New Securities"). Each Electing Holder shall have ten (10) days
---------------------------
from the date of receipt of any such notice to elect to purchase up to its pro
---
rata share of the Additional New Securities by giving written notice to the
- ----
Company and stating therein the quantity of such New Securities to be purchased.
9.5 In the event any Electing Holder fails to exercise its preemptive
right pursuant to Section 9.4 within said forty-day period, the Company shall
have ninety (90) days thereafter to sell or enter into an agreement (pursuant to
which the sale of Additional New Securities covered thereby shall be closed, if
at all, within sixty (60) days from the date of said agreement) to sell the
Additional New Securities not elected to be purchased by Electing Holders at the
price and upon the terms no more favorable to the purchasers of such securities
than specified in the Company's notice. In the event the Company has not sold
the Additional New Securities or entered into an agreement to sell the
Additional New Securities within said ninety-day period (or sold and issued
Additional New Securities in accordance with the foregoing within sixty (60)
days from the date of said agreement), the Company shall not thereafter issue or
sell any of such Additional New Securities, without first offering such
securities in the manner provided above.
<PAGE>
9.6 In the event no Holders exercise their respective preemptive right
pursuant to Section 9.3 within said thirty-day period, the Company shall have
ninety (90) days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within sixty (60) days from the date of said agreement) to sell the New
Securities not elected to be purchased by Holders of the Class B Preferred
Shares at the price and upon the terms no more favorable to the purchasers of
such securities than specified in the Company's notice. In the event the
Company has not sold the New Securities or entered into an agreement to sell the
New Securities within said ninety-day period (or sold and issued New Securities
in accordance with the foregoing within sixty (60) days from the date of said
agreement), the Company shall not thereafter issue or sell any of such New
Securities, without first offering such securities in the manner provided above.
10. MISCELLANEOUS.
-------------
10.1 Survival of Warranties. The warranties, representations and
------------------------
covenants of the Company and Purchasers contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
10.2 Transfer; Successors and Assigns. The terms and conditions of
-----------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
10.3 No Third Party Beneficiaries. Nothing express or implied in this
-----------------------------
Agreement is intended to confer, nor shall anything herein confer, upon any
other than the parties hereto and the respective successors or assigns of such
parties, any rights, remedies, obligations or liabilities whatsoever.
10.4 GOVERNING LAW. THIS AGREEMENT AND ALL ACTS AND TRANSACTIONS
--------------
PURSUANT HERETO AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE
GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
10.5 WAIVER OF JURY TRIAL. THE COMPANY AND EACH PURCHASER DO HEREBY
-----------------------
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE SUCH RIGHT ANY PARTY
OR THEIR SUCCESSORS OR ASSIGNS MAY HAVE TO A JURY TRIAL IN EVERY JURISDICTION IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES HERETO OR
THEIR SUCCESSORS OR ASSIGNS AGAINST ANY OTHER PARTY HERETO OR THEIR RESPECTIVE
AFFILIATES, SUCCESSORS OR ASSIGNS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENT EXECUTED AND DELIVERED BY
ANY PARTY IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ANY ACTION TO
RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIMS OR DEFENSES ASSERTING THAT THIS
AGREEMENT WAS FRAUDULENTLY INDUCED OR OTHERWISE VOID OR VOIDABLE).
<PAGE>
10.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
10.7 Titles and Subtitles. The titles and subtitles used in this
----------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.8 Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed effectively given and received upon delivery
in person, or two business days after delivery by overnight courier service or
by telecopier transmission with acknowledgment of transmission receipt, or five
business days after deposit via certified or registered mail, return receipt
requested, addressed to the party to be notified at such party's address as set
forth below or on Schedule 1 hereto, or as subsequently modified by written
-----------
notice, and (a) if to the Company:
Pointe Communications Corporation
1325 Northmeadow Parkway
Suite 110
Roswell, GA 30076
Attention: Stephen E. Raville
Facsimile: (770) 319-2834
with a copy to (which shall not constitute notice):
Gardere & Wynne, LLP
3000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201-4761
Attention: W. Robert Dyer Jr.
Facsimile: (214) 999-3574
(b) if to TSG:
TSG Capital Fund III, L.P.
177 Broad Street, 12th Floor
Stamford, CT 06901
Attention: Darryl B. Thompson
Facsimile: (203) 406-1590
with a copy to (which shall not constitute notice):
Mayer, Brown & Platt
1675 Broadway
New York, NY 10019
Attention: Kathleen A. Walsh
Facsimile: (212) 262-1910
<PAGE>
(c) if to OCP II:
Opportunity Capital Partners II, L.P.
2201 Walnut Avenue, Suite 210
Fremont, California 94538
Attention: Lewis E. Byrd
Facsimile: (510) 494-5439
with a copy to (which shall not constitute notice):
Folger Levin & Kahn, L.L.P.
Embarcadero Center West
275 Battery Street, 23rd Floor
San Francisco, California 94111
Attention: Christopher Conner, Esq.
Facsimile: (415) 986-2827
(d) if to OCP III:
Opportunity Capital Partners III, L.P.
2201 Walnut Avenue, Suite 210
Fremont, California 94538
Attention: Lewis E. Byrd
Facsimile: (510) 494-5439
with a copy to (which shall not constitute notice):
Folger Levin & Kahn, L.L.P.
Embarcadero Center West
275 Battery Street, 23rd Floor
San Francisco, California 94111
Attention: Christopher Conner, Esq.
Facsimile: (415) 986-2827
10.9 Expenses. Each party shall bear its own costs and expenses;
--------
provided, however, that the Company shall pay and be responsible for the
reasonable legal fees and out-of-pocket expenses incurred by TSG and TSG's
counsel, not to exceed in the aggregate $100,000, incurred with respect to this
Agreement, the documents referred to herein and the transactions contemplated
hereby and thereby.
10.10 Amendments and Waivers. Any term of this Agreement may be
------------------------
amended or waived, and this Agreement may be terminated, with the written
consent of the parties hereto.
<PAGE>
10.11 Severabilitv. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
10.12 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of the Notes or of any of the Class B
Preferred Shares (or the Common Stock issuable upon conversion thereof) or to
the Company, upon any breach or default of the Company or by any Purchaser under
this Agreement, shall impair any such right, power or remedy of such holder or
the Company, as the case may be, nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder or the Company, as the case may be, of any
breach or default under this Agreement, or any waiver on the part of any holder
or the Company, as the case may be, of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
10.13 Further Assurances. The Company and each Purchaser shall take
-------------------
such additional actions and execute and deliver such additional agreements and
other instruments and documents as necessary or appropriate to effect the
transactions contemplated by this Agreement in accordance with its terms.
10.14 Entire Agreement. This Agreement, and the documents referred to
-----------------
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled. Other than the
Investment Agreements there are no other agreements existing between the Company
and Purchasers.
10.15 Notice to OCP II and OCP III. The Company may send a single copy
----------------------------
of any notice or delivery required to be made by Company to the Purchasers
hereunder for both OCP II and OCP III at their common address, as set forth in
Section 10.8 of this Agreement, in full satisfaction of such requirement.
10.16 Voting Agreement. Each of TSG, OCP II and OCP III hereby agree
-----------------
that, with respect to the rights of the holders of the Class B Preferred Stock
to designate, elect and remove a director as set forth in Section 3 (c) of the
Certificate, so long as TSG owns at least 35% in the aggregate of the Class B
Preferred Stock originally issued to it, (i) TSG shall have the right to
designate the director to be elected by the holders of the Class B Preferred
Stock (the "Class B Director") and each of OCP II and OCP III agree to vote in
favor of the Class B Director so designated by TSG, and (ii) the Class B
Director shall be subject to removal only at the request of TSG and each of OCP
II and OCP III agree to vote in favor of such removal if so requested by TSG.
[Signature Pages Follow]
<PAGE>
The parties have executed this Agreement as of the date first written
above.
COMPANY:
POINTE COMMUNICATIONS CORPORATION,
a Nevada corporation
By:
Patrick E. Delaney
Chief Financial Officer
PURCHASERS:
TSG CAPITAL FUND III, L.P.,
a Delaware limited partnership
By: TSG Associates III, L.L.C.,
Its General Partner
By:
---------------------------------
Name:
Title:
OPPORTUNITY CAPITAL PARTNERS II, L.P.,
a Delaware limited partnership
By: Thompson Capital Management, L.P.
Its General Partner
By: /S/ Lewis E. Byrd
---------------------------------
Lewis E. Byrd
Partner
<PAGE>
OPPORTUNITY CAPITAL PARTNERS III, L.P.,
a Delaware limited partnership
By: JM Capital Management, L.P.
Its General Partner
By: /S/ Lewis E. Byrd
---------------------------------
Lewis E. Byrd
General Partner
<PAGE>
EXHIBIT A
---------
FORM OF CONVERTIBLE PROMISSORY NOTE
[ATTACHED]
<PAGE>
EXHIBIT B
---------
FORM OF CERTIFICATE OF DESIGNATIONS
[ATTACHED]
<PAGE>
EXHIBIT C
---------
FORM OF WARRANT AGREEMENT
[ATTACHED]
<PAGE>
EXHIBIT D
---------
FORM OF REGISTRATION RIGHTS AGREEMENT
[ATTACHED]
<PAGE>
EXHIBIT E
---------
FORM OF LEGAL OPINION OF GARDERE & WYNNE, L.L.P.
[ATTACHED]
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
Purchaser Name Loan Amount
- -------------------------------------- ------------
<S> <C>
TSG Capital Fund III, L.P. $ 20,000,000
Opportunity Capital Partners II, L.P. $ 900,000
Opportunity Capital Partners III, L.P. $ 100,000
------------
Total $ 21,000,000
</TABLE>
<PAGE>
THE SECURITIES REPRESENTED BY THIS NOTE AND THE PREFERRED STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND, ACCORDINGLY, THE
----------
SECURITIES REPRESENTED BY THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.
POINTE COMMUNICATIONS CORPORATION
12% CONVERTIBLE PROMISSORY NOTE
$20,000,000.00 New York, New York September __, 1999
Pointe Communications Corporation, a Nevada corporation (the "Company"),
-------
for value received, hereby promises to pay to the order of TSG Capital Fund III,
L. P., a Delaware limited partnership ("Holder"), the principal sum of Twenty
------
Million and No/100 Dollars ($20,000,000.00), together with interest on the
outstanding amount of such principal sum, payable in accordance with the terms
set forth below.
THIS NOTE IS SUBORDINATED TO SENIOR INDEBTEDNESS (AS DEFINED HEREIN) OF THE
COMPANY.
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 Definitions. For all purposes of this Note, except as otherwise
-----------
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles as
promulgated from time to time by the Association of Independent Certified Public
Accountants; and
(3) the words "herein," "hereof" and "hereunder" and other words of
------ ------ ---------
similar import refer to this Note as a whole and not to any particular Article,
Section, or other subdivision.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday, and Friday
-------------
that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to be closed.
"Class B Preferred Stock" means shares of the Class B Convertible Senior
--------------------------
Preferred Stock, par value $0.01 per share, of the Company, whose rights are
substantially in accordance with the Certificate of Designations attached hereto
as Exhibit A.
<PAGE>
"Class C Preferred Stock" means a class of preferred stock with terms
--------------------------
substantially in accordance with Exhibit B hereto, as such terms may be modified
by the board of directors of the Company at the time of authorization of
issuance of such Class C Preferred Stock.
"Common Stock" means the common stock of the Company, par value $0.00001
-------------
per share.
"Event of Default" has the meaning specified in Section 3.1.
------------------ ------------
"Maturity Date," when used with respect to this Note, means December 31,
--------------
1999 (or such earlier date upon which this Note is due and payable under Section
-------
3.3).
- ---
"Note" means this 12% Convertible Promissory Note, as hereafter amended,
----
modified, substituted, or replaced.
"Pensat Transaction" means the transaction contemplated by that certain
-------------------
letter of intent and term sheet between the Company and Pensat International
Communications, Inc. ("Pensat"), dated July 26, 1999, including, but not limited
------
to, the purchase by Pensat or affiliates thereof, or other parties, of Class C
Preferred Stock for an aggregate purchase price of at least $20,000,000.
"Person" means any individual, corporation, entity, limited liability
------
partnership or company, partnership, joint venture, association, joint stock
company, trust, unincorporated organization, or government or any agency or
political subdivision thereof.
"Senior Indebtedness" means any and all obligations of the Company in
--------------------
respect of the principal, premium, if any, unpaid interest and fees on any
indebtedness (including borrowed money, purchase money and equipment leasing)
and which is evidenced by bonds, notes, debentures or similar instruments, or
representing any deferrals, renewals, extensions or refundings of any such
indebtedness; provided, however, that indebtedness of the Company consisting of
-------- -------
trade payables or indebtedness that by its terms is pari passu with, or
---- -----
subordinate or subject in right of payment to, this Note shall not constitute
Senior Indebtedness.
ARTICLE 2
PAYMENTS; SUBORDINATION
2.1 Interest. From the date of this Note through the Maturity Date,
--------
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at 12% per annum compounding quarterly, calculated on the basis of a 365
day year. Interest shall be fully cumulative and shall be payable in kind (by
issuance of shares of stock) upon the Mandatory Conversion of the Note as set
forth in Section 4.1 (a).
-----------------
Page 2
<PAGE>
2.2 Payment of Principal and Interest. The principal and accrued and
-----------------------------------
unpaid interest of this Note shall be due and payable in full on the Maturity
Date.
2.3 No Prepayments. Subject to Holder's right to convert or the
---------------
Company's right to require the Holder to convert, the Company may not prepay
this Note in whole or in part.
Page 3
<PAGE>
2.4 Manner of Payment. Payments of principal and interest on this Note
-----------------
will be made by delivery of Company checks to Holder at its address as set forth
in this Note or by wire transfers pursuant to instructions from Holder. If the
date upon which the payment of principal or interest is required to be made
pursuant to this Note occurs other than on a Business Day, then such payment of
principal and interest shall be due and payable and made on, and shall include
unpaid interest accrued through, the next occurring Business Day following such
payment date.
2.5 Subordination.
-------------
(1) Holder by acceptance hereof covenants and agrees, expressly for the
benefit of all present and future holders of Senior Indebtedness, that the
payment of the principal of, and interest on, and all other obligations under
this Note are hereby expressly subordinate and junior to the prior payment in
full of all Senior Indebtedness.
(4) Upon any dissolution, reorganization, arrangement with creditors,
assignment for the benefit of creditors, winding, up or voluntary or involuntary
liquidation, whether or not in bankruptcy, insolvency, or receivership
proceedings, or the sale of all or substantially all of the assets of the
Company, the Company shall not pay, and the holder of this Note shall not be
entitled to receive, any amount in respect of the principal of or interest on
this Note unless and until the Senior Indebtedness shall have been paid in full.
(2) Upon any such dissolution, reorganization, arrangement with
creditors, assignment for the benefit of creditors, winding-up, or voluntary or
involuntary liquidation or the sale of all or substantially all of the assets of
the Company, any payment or distribution of assets of the Company, whether in
cash, property, or securities, which the holder of this Note would be entitled
to receive but for the provisions hereof shall be paid by the liquidating
trustee or agent or other person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly
to the holders of Senior Indebtedness, or their representatives, ratably
according to the aggregate amounts remaining unpaid on Senior Indebtedness held
or represented by each, to the extent necessary to pay the Senior Indebtedness
after giving effect to any concurrent payment or distribution to the holders of
Senior Indebtedness. In the event the holder of this Note shall receive any
payment or distribution on account of this Note that it is not entitled to
receive under the provisions of this Section 2.5, such holder will hold any
-----------
amount so received in trust for the holders of the Senior Indebtedness and will
forthwith turn over such payment to such holders of the Senior Indebtedness in
the form received (together with any necessary endorsements) to be applied on
the Senior Indebtedness.
Page 4
<PAGE>
(3) In the event of any default or event of default of any loan
documents executed in connection with any Senior Indebtedness, including,
without limitation, any default in the payment of the principal of or interest
on or fees in connection with any Senior Indebtedness, and for so long as such
default or event of default shall continue unwaived by the obligee thereof, or
if payment on this Note would cause any such default or event of default, the
Company shall not pay, and the holder of this Note shall not be entitled to
receive, any amount in respect of this Note, and the holder of this Note shall
not ask for, sue for, take, demand, receive or accept from the Company, by
set-off or in any other manner, any payment or distribution in respect of this
Note.
(4) Subject to the payment in full of all Senior Indebtedness in the
manner and to the extent set forth herein, the holder of this Note shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of the assets of the Company applicable to the Senior
Indebtedness until this Note shall be paid in full, and for the purpose of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness by or on behalf of the Company or by or on behalf of the holder of
this Note shall, as between the Company and the holder of this Note, be deemed
to be payment by the Company in respect of this Note. The provisions of this
subsection (e) are intended to be solely for the purpose of defining the
- ---------------
relative rights of the holder of this Note on the one hand, and the holders of
Senior Indebtedness, on the other hand. Nothing contained herein shall or is
intended to impair, as between the Company, its creditors other than the holders
of Senior Indebtedness, and the holder of this Note, the unconditional and
absolute obligation of the Company to pay the holder of this Note the amounts
due hereunder in accordance with its terms or affect the relative rights of the
holder of this Note and the creditors of the Company other than the holders of
Senior Indebtedness.
(5) The holder of this Note shall not be entitled to exercise any
remedies hereunder or permitted by applicable law upon default under this Note
for a period of 180 days from the date of such default so long as any Senior
Indebtedness is outstanding; provided that such period shall be extended and
--------
continue, if any of the Senior Indebtedness has matured (upon acceleration of
such maturity or otherwise) and the holder of such Senior Indebtedness is
pursuing collection thereof, until such Senior Indebtedness has been paid in
full.
(6) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 2.5 shall not apply to, or affect the right of, the
-----------
holder of this Note to convert this Note into Class B Preferred Stock pursuant
to the provisions of ARTICLE IV hereof or to hold the Class B Preferred Stock
----------
received upon such conversion free and clear of any claim of the holders of
Senior Indebtedness under this Section 2.5.
------------
Page 5
<PAGE>
ARTICLE 3
REMEDIES
3.1 Events of Default. An "Event of Default" occurs if:
------------------- ------------------
(1) the Company defaults in the payment of the principal or interest on
this Note when such principal or interest becomes due and payable and such
default remains uncured for a period of five (5) days after written notice
thereof has been provided to the Company; or
(1) the Company defaults in the performance of any covenant made by the
Company in this Note (other than as set forth in Section 3.1(a)), and such
--------------
default remains uncured for a period of thirty (30) days after written notice
thereof has been provided to the Company; or
(2) a court of competent jurisdiction enters (i) a decree or order for
relief in respect of the Company in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree or order adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment, or composition of or in respect of the Company under
any applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator, or other similar official of the
Company or of any substantial part of the property of the Company or ordering
the winding up or liquidation of the affairs of the Company and any such decree
or order of relief or any such other decree or order remains unstayed for a
period of ninety (90) days from its date of entry; or
(2) the Company commences a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization, or other
similar law or any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the Company files a petition, answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
Company makes an assignment for the benefit of creditors, or admits in writing
its inability to pay its debts generally as they become due.
3.2 Past Due Rate. Upon the occurrence and during the continuance of
---------------
an Event of Default described in Section 3.1(a), interest shall thereafter
--------------
accrue on all such past due amounts at the rate of 15% per annum calculated on
the basis of a 365 day year.
3.3 Acceleration of Maturity. Upon the occurrence and during the
--------------------------
continuance of an Event of Default described in Section 3.1(a) or (b), the
-------------- ---
entire principal balance and accrued but unpaid interest thereof shall, at the
option of Holder, upon written notice to the Company, at once become due and
payable; provided, that all Senior Indebtedness must first be paid in full
--------
before any such accelerated payment shall be made in respect of this Note if
there is any continuing default or event of default with respect to such Senior
Indebtedness . This Note shall become immediately due and payable if an Event
of Default described in Section 3.1(c) or (d) occurs.
--------------- ---
Page 6
<PAGE>
ARTICLE 4
CONVERSION OF NOTE
4.1 Conversion Privilege and Conversion Price. Subject to and upon
---------------------------------------------
compliance with the provisions of this ARTICLE IV, all of this Note shall be
----------
converted into 6,667 (plus such additional shares equal to the accrued and
unpaid interest on the Note) fully paid and nonassessable shares (the "Shares")
------
of Class B Preferred Stock as follows:
Mandatory Conversion. The unsecured convertible debt evidenced by this Note
- ---------------------
will convert into Class B Preferred Stock upon the earlier of:
(1) The Maturity Date. If the outstanding principal amount of this
-------------------
Note shall not have been paid or converted before the Maturity Date, then
effective at 12:01 a.m. on the Maturity Date, the outstanding principal amount
of this Note shall automatically, without any action on the part of the Company
or the Holder, be converted into the Shares (which shares shall be convertible
into Common Stock of the Company at a conversion price of $1.75 per share); or
(2) The Closing of the Pensat Transaction. Effective upon the closing
--------------------------------------
of the Pensat Transaction (as defined herein), the outstanding principal amount
of this Note shall automatically, without any action on the part of the Company
or the Holder, be converted into the Shares (which shares shall be convertible
into Common Stock of the Company at a conversion price equal to the conversion
price of the Class C Convertible Preferred Stock issued in connection with, or
as part of, the Pensat Transaction, not to exceed $2.16 per share).
4.2 Effect of Conversion. Upon any conversion pursuant to this Article
-------------------- -------
IV, this Note shall only represent the right to receive the Shares for all
- --
amounts unpaid on the Note.
Page 7
<PAGE>
ARTICLE 5
ADJUSTMENT OF CONVERSION SHARES
5.1 Stock Dividends, Stock Splits and Reverse Splits. If the Company
--------------------------------------------------
shall at any time (a) subdivide its outstanding shares of Common Stock into a
greater number of shares or (b) declare a dividend or make any other
distribution upon any shares of the Company, payable in Common Stock, then the
number of Shares shall be proportionately increased. If the outstanding shares
of Common Stock shall at any time be combined into a smaller number of shares,
the number of Shares shall be proportionately reduced.
5.2 Reorganizations and Asset Sales. If any capital reorganization or
---------------------------------
reclassification of the capital stock of the Company, or any consolidation,
merger, or share exchange of the Company with another Person, or the sale,
transfer, or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that holders of Class B Preferred
Stock shall be entitled to receive capital stock, securities or assets in
exchange for their shares of Class B Preferred Stock, then, if this Note shall
not have been converted into shares of Class B Preferred Stock prior to any such
transaction, the following provisions shall apply:
(1) As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, or other disposition,
lawful and adequate provisions shall be made whereby the holder of this Note
shall thereafter have the right to purchase and receive upon the terms and
conditions specified in this Note and in lieu of the shares immediately
theretofore receivable upon the exercise of the rights represented hereby, such
shares of capital stock, securities, or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Class B
Preferred Stock equal to the number of Shares immediately theretofore so
receivable had such reorganization, reclassification, consolidation, merger,
share exchange, or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of such holder
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the number of shares receivable upon the exercise) shall
thereafter be applicable, as nearly as possible, in relation to any shares of
capital stock, securities, or assets thereafter deliverable upon the exercise of
this Note.
(1) In the event of a merger, share exchange, or consolidation of the
Company with or into another Person as a result of which a number of shares of
Class B Preferred stock or their equivalent of the successor Person greater or
lesser than the number of shares of Class B Preferred Stock outstanding
immediately prior to such merger, share exchange or consolidation are issuable
to holders of Class B Preferred Stock, then the number of Shares into which this
Note is convertible in effect immediately prior to such merger, share exchange
or consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Class B Preferred Stock.
5.3 De Minimis Adjustments. No adjustment in the number of Shares
------------------------
purchasable hereunder shall be required unless such adjustment would require an
increase or decrease of at least one share of Class B Preferred Stock
purchasable upon conversion of the Note; provided, however, that any adjustments
-------- -------
which by reason of this Section 5.3 are not required to be made shall be carried
-----------
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest full share, as applicable. No fractional shares of
Class B Preferred Stock or scrip shall be issued upon conversion.
Page 8
<PAGE>
5.4 Notice of Adjustment. Whenever the number of Shares issuable upon
----------------------
the conversion of this Note shall be adjusted as herein provided, or the rights
of the holder hereof shall change by reason of other events specified herein,
the Company shall compute the adjusted number of Shares in accordance with the
provisions hereof and shall prepare a certificate setting forth the adjusted
number of Shares or specifying the other shares of stock, securities, or assets
receivable as a result of such change in rights, and showing in reasonable
detail the facts and calculations upon which such adjustments or other changes
are based. The Company shall cause to be mailed to the Holder copies of such
certificate, together with a notice stating that the number of Shares has been
adjusted, and setting forth the adjusted number of Shares or other securities or
assets purchasable upon conversion of this Note.
5.5 Notifications to Holder. If at any time the Company proposes:
-------------------------
(1) to declare any dividend upon Class B Preferred Stock payable in
capital stock to the holders of Class B Preferred Stock;
(2) to offer for subscription pro rata to all of the holders of its
Class B Preferred Stock any additional shares of capital stock of any class or
other rights;
(3) to effect any capital reorganization, or reclassification of the
capital stock of the Company, or consolidation, merger, or share exchange of the
Company with another Person, or sale, transfer, or other disposition of all or
substantially all of its assets;
(4) to consumate or terminate the Pensat Transaction; or
(5) to effect a voluntary or involuntary dissolution, liquidation, or
winding up of the Company;
then, in any one or more of such cases, the Company shall, if known at the time
of such notice, give Holder (i) written notice of the date on which the books of
the Company shall close or a record shall be taken for such dividend,
distribution, or subscription rights or for determining rights to vote in
respect of any such issuance, reorganization, reclassification, consolidation,
merger, share exchange, sale, transfer, disposition, dissolution, liquidation,
or winding up, and (ii) in the case of any such issuance, reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation, or winding up, written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause shall also, if known at the time of such notice, (i) specify, in the case
of any such dividend, distribution, or subscription rights, the date on which
the holders of Class B Preferred Stock shall be entitled thereto, and such
notice in accordance with the foregoing clause (ii) specify the date on which
the holders of Class B Preferred Stock shall be entitled to exchange their Class
B Preferred Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation, or winding up, as the case may
be.
ARTICLE 6
MISCELLANEOUS
6.1 Collection; Fees. If this Note is placed in the hands of an
-----------------
attorney for collection, and if it is collected through any legal proceedings at
law or in equity or in bankruptcy, receivership, or other court proceedings, the
Company hereby undertakes to pay all costs and expenses of collection including,
but not limited to, court costs and the reasonable attorneys' fees of Holder.
Page 9
<PAGE>
6.2 Benefits of Note. Nothing in this Note, express or implied, shall
------------------
give to any Person, other than the Company, Holder and their successors any
benefit or any legal or equitable right, remedy or claim under or in respect of
this Note.
6.3 Successors and Assigns. All covenants and agreements in this Note
------------------------
contained by or on behalf of the Company and Holder shall bind and inure to the
benefit of the respective successors and permitted assigns of the Company and
Holder.
6.4 Restrictions on Transfer. Notwithstanding anything to the contrary
-------------------------
contained herein, neither this Note, nor the rights of Holder hereunder, may be
transferred, assigned or pledged by Holder other than pursuant to written
agreement between the Company and Holder.
6.5 Notice; Address of Parties. All notices, requests, consents,
-----------------------------
directions, and other instruments and communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
duly given if delivered personally, if sent by third party courier or overnight
delivery service, if mailed first-class, postage prepaid, registered or
certified mail, or if sent by telecopy, telecommunication or other similar form
of communication (with receipt confirmed), as follows:
(1) If to the Company, addressed to it as follows:
Pointe Communications Corporation
1325 Northmeadow Parkway, Suite 110
Roswell, Georgia 30076
Attn: Patrick E. Delaney
Facsimile: (770) 319-2834
with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attn: W. Robert Dyer, Jr., Esq.
Facsimile: (214) 999-3574
(2) If to Holder, addressed to it as follows:
TSG Capital Fund III, L.P.
177 Broad Street , 12th Floor
Stamford, CT 06901
Attn: Darryl B. Thompson
Facsimile: (203) 406-1590
Page 10
<PAGE>
with a copy (which shall not constitute notice) to:
Mayer, Brown & Platt
1675 Broadway
New York, NY 10019
Attn: Kathleen A. Walsh
Facsimile: (212) 262-1910
or such other address as the Company or Holder hereto shall specify pursuant to
this Section 6.5 from time to time.
------------
6.6 Severability Clause. In case any provision in this Note shall be
--------------------
invalid, illegal, or unenforceable in any jurisdiction, the validity, legality,
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
-------- -------
does not destroy the essence of the bargain provided for hereunder.
6.7 Governing Law. This Note shall be governed by, and construed in
--------------
accordance with, the internal laws of the State of New York (without regard to
principles of choice of law).
6.8 Usury. It is the intention of the parties hereto to conform
-----
strictly to the applicable laws of the State of New York and the United States
of America, and judicial or administrative interpretations or determinations
thereof regarding the contracting for, charging and receiving of interest for
the use, forbearance, and detention of money (hereinafter referred to in this
Section 6.8 as "Applicable Law"). Holder shall have no right to claim, to
- ------------ ---------------
charge, or to receive any interest in excess of the maximum rate of interest, if
any, permitted to be charged on that portion of the amount representing
principal which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating, and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(hereinafter referred to in this Section 6.8 as "Interest") at any time
------------ --------
contracted for, charged, or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or if it has been accelerated prior to
maturity, Holder shall refund to the Company the amount of such excess, and
shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging, or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
6.9 Stock Legends. Certificates for shares of Class B Preferred Stock
--------------
or other securities issued upon conversion of this Note shall bear the following
legend:
Page 11
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A TRANSACTION
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES REPRESENTED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR
TRANSFER IS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE
ISSUER, IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
SUCH LAWS.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
POINT COMMUNICATIONS CORPORATION,
a Nevada corporation
By: /S/ Patrick E. Delaney
-----------------------------
Patrick E. Delaney
Chief Financial Officer
Page 12
<PAGE>
EXHIBIT "A"
-----------
CERTIFICATE OF DESIGNATIONS
[TO BE ATTACHED]
Page 13
<PAGE>
EXHIBIT "B"
-----------
TERMS OF CLASS C CONVERTIBLE SENIOR PREFERRED STOCK
1. Issuer: Pointe Communications Corporation ("PointeCom"), as part of the
------
Pensat Transaction
2. Price Per Share of Preferred Stock: $ To Be Determined ($20,000,000 in
------------------------------------ ----------------
the aggregate).
1. Warrants: As additional consideration for the preferred stock financing,
--------
each holder of preferred stock will be issued (for a nominal purchase price)
Warrants to acquire one share of common stock of PointeCom for every two shares
of common stock issuable upon conversion of the Class C preferred stock held by
such holder. The Warrants will have an exercise price per share of common stock
(subject to adjustment) equal to the conversion price of the preferred stock
plus $0.225, and will be exercisable at any time during the five-year period
following the date of issuance. All of the Warrants will have (i) registration
rights for the underlying shares of common stock, (ii) customary anti-dilution
protection provisions, and (iii) a standard cashless exercise provision. If
the common stock has traded for a period of at least 20 consecutive trading days
at a price per share of at least $5 (subject to customary adjustment), then the
issuer can cause the holders of Warrants to exercise the Warrants (subject to
the option of any such holder to effect a cashless exercise of such holder's
Warrants).
3. Investors: To be determined.
---------
4. Use of Proceeds: To build out networks and fund working capital.
-----------------
5. Dividends: Twelve percent (12%) compounding quarterly, with dividends
---------
being fully cumulative and payable in-kind or in cash, at the issuer's option.
6. Ranking: Senior in right of payment to the common stock and any other
-------
class or series of preferred stock subsequently issued; outstanding at the time
of issuance will be $50,000,000 of convertible senior preferred stock, with
regard to which it is pari passu; junior to all indebtedness. So long as any
shares of preferred stock are outstanding, issuer will not pay dividends or make
distributions on or repurchase or redeem any shares of stock ranking junior to
the preferred stock.
7. Liquidation Preference: Liquidation preference (to be paid prior to any
-----------------------
payment or distribution to holders of capital stock ranking junior to the
preferred stock and pari passu with the then outstanding convertible senior
preferred stock) equal to offering price plus accrued dividends, if applicable.
A merger or consolidation of the issuer that results in a majority of the shares
of the surviving entity not being owned by PointeCom's shareholders, or a sale
of all or substantially all of its assets shall be deemed to be "liquidation"
for purposes of the liquidation preference.
Page 14
<PAGE>
8. Conversion Feature:
-------------------
- - Price The average trading price of PointeCom's common stock over the
20 trading days prior to June 30, 1999, multiplied by 124%.
- - Optional Each share of the preferred stock shall be convertible, at any
time at the option of the holder, into 100 shares of PointeCom's common stock
---
for each share of preferred stock, subject to the anti-dilution provisions
below.
- - Mandatory The issuer can force conversion (i) in conjunction with a
"Qualified Offering" or (ii) after the first-year anniversary of the date of
issue if each of the following three conditions is satisfied; (x) the common
stock shall have been listed for trading on the New York Stock Exchange, the
NASDAQ National Market System or the American Stock Exchange; (y) common stock
shall have traded on such national exchange for a period of at least 20
consecutive trading days at a price per share of at least $5 (subject to
customary adjustment), and (z) the average daily trading volume of common stock
during such 20 consecutive trading day period shall be at least $1,000,000.
9. Private Offering: The preferred stock will be offered pursuant to
-----------------
Section 4(2) of the Securities Act of 1933 and Regulation D thereunder.
10. Registration Rights: PointeCom will be required to file a registration
--------------------
statement for the underlying shares of common stock issuable upon conversion of
the preferred stock and upon exercise of the Warrants (on Form S-3 pursuant to
rule 415, if available), no later than 120 days after the issue date.
11. Representation and Warranties: Customary.
-------------------------------
12. Affirmative Covenants: Customary.
----------------------
13. Voting Rights: Customary class votes on specified matters. On all
--------------
other matters, holders or preferred stock shall be entitled to vote as a single
class, on an as converted basis, with the holders of common stock and
outstanding shares of convertible senior preferred stock.
14. Anti-dilution Provisions: Customary provisions and adjustment
-------------------------
provisions applicable to issuance of additional private equity securities issued
-
at prices below the per share price of the preferred stock (weighted average
basis).
15. Transaction with any Non-wholly Owned Affiliate: PointeCom will not
---------------------------------------------------
enter into any transactions with any Affiliate unless conducted on an
arm's-length basis, at fair market value.
16. Right of First Offer: If PointeCom privately offers any equity
-----------------------
securities in the future, the holders of the preferred stock shall have the
right to purchase a pro-rata amount of such securities.
Page 15
<PAGE>
17. Transfers: Any transfers (subject to exceptions for transfers to
---------
affiliates) of preferred stock (or common stock if converted while unregistered)
must be approved by the Company, such consent not to be unreasonably withheld.
18. Investor Representations: Customary representations, including that the
------------------------
investor is an "accredited investor" as defined in Regulation D of the
Securities Act of 1933, as amended.
19. Governing Law: New York.
--------------
20. Professional Fees and Expenses: Upon closing, the reasonable legal fees
------------------------------
and reasonable out-of-pocket expenses incurred by investors and investors'
counsel in connection with this offering will be paid out of the gross proceeds
from the offering.
21. Closing Documents: Closing documents shall include preferred stock
------------------
Purchase Agreement, Stockholders Agreement, Registration Rights Agreement
(together the "Transaction Documents") and appropriate amendments to the
Company's charter documents.
22. Definitions: "Affiliate" shall mean any entity directly or indirectly
-----------
controlling, controlled by or under direct or indirect common control with
PointeCom (or Subsidiary) and includes (a) any person who is a director or
beneficial owner of at least 5% of such person's equity securities, (b) any
person of which PointeCom or any Affiliate of PointeCom owns at least 10% of
such person's equity or (c) family members of any such Person specified in
clauses (a) or (b).
"Qualified Offering" shall mean the sale by PointeCom of its common stock or
other equity interest in a firm commitment underwritten public offering at a
purchase price per share in excess of $4 per share (subject to customary
adjustment) with net aggregate proceeds to PointeCom in excess of $30 million.
"Subsidiary" shall mean any entity which the Company owns, directly or
indirectly, at least a majority of the outstanding capital stock or a
partnership in which the Company (or a Subsidiary) serves as general partner.
23. Reports: The Company shall deliver to each holder of preferred stock:
-------
(i) quarterly unaudited financial reports;
(ii) quarterly operating reports;
(iii) an annual audited financial report along with the Company's
business plan or operating budget; and
(iv) the Company's annual financial plan and such other information
concerning the Company's business or financial condition as such holder of
Preferred Stock may reasonably request.
In addition, the Company will permit each holder of preferred stock to visit and
inspect the Company's properties, to examine the Company's books of account and
records and to discuss the Company's affairs with Company management, all at
such reasonable times as shall be requested by such holder of preferred stock.
Page 16
<PAGE>
24. Conditions to Closing and Escrow: Closing of sale of the Class C
------------------------------------
Convertible Senior Preferred Stock shall be conditioned upon, and shall be
concurrent with, consummation of the merger between PointeCom and Pensat. The
cash proceeds from sale of such shares of preferred stock and the Transaction
Documents shall be deposited into an escrow at least 10 days prior to the
closing date of such merger, with the escrow to terminate and the cash and
Transaction Documents to be delivered concurrent with consummation of the
merger. If these conditions have been satisfied within 30 days, the escrow
shall terminate and the cash and Transaction Documents returned to the
depositing parties. The escrow agent shall be approved by the investors, Pensat
and PointeCom.
25. Estimated Closing Date: December ____, 1999.
------------------------
Page 17
<PAGE>
CERTIFICATE OF DESIGNATIONS OF
POINTE COMMUNICATIONS CORPORATION
Pointe Communications Corporation (the "Corporation"), a corporation
organized and existing under the laws of the State of Nevada, certifies that
pursuant to the authority contained in Article V of its Articles of
Incorporation, as amended (the "Articles of Incorporation") and in accordance
with the provisions of Section 78.1955 of the Nevada Revised Statutes (the
"NRL"), the Board of Directors of the Corporation (the "Board of Directors") has
adopted the following resolution which resolution remains in full force and
effect on the date hereof.
RESOLVED, that pursuant to the authority vested in the Board of Directors
by the Articles of Incorporation, the Board of Directors does hereby designate,
create, authorize and provide for the issuance of Class B Convertible Senior
Preferred Stock (the "Class B Preferred Stock"), par value $0.01 per share
consisting of 10,000 shares, no shares of which have heretofore been issued by
the Corporation, having the following voting powers, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions thereof as follows:
Section 1. Dividends.
---------
(1) Priority of Dividends. No dividends shall be declared or set
----------------------
aside for the Common Stock or any other class or series of the Corporation's
capital stock that ranks junior to the Class B Preferred Stock (collectively,
the "Junior Stock") unless prior thereto all accumulated and unpaid dividends on
the Class B Preferred Stock shall be declared, set aside and paid. (At the date
hereof, all outstanding capital stock of the Corporation ranks junior to the
Class A and Class B Preferred Stock.) So long as any Class B Preferred Stock
remains outstanding, without the prior written consent of the holders of a
sixty-six and two-thirds percent (66 2/3%) (a "Supermajority") of the
outstanding shares of Class B Preferred Stock, the Corporation shall not, nor
shall it permit any of its subsidiaries to, redeem, purchase or otherwise
acquire directly or indirectly any Junior Stock, nor shall the Corporation
directly or indirectly pay or declare any dividend or make any distribution upon
any Junior Stock, if at the time of any such redemption, purchase, acquisition,
dividend or distribution the Corporation has failed to pay the full amount of
all accumulated and unpaid dividends on the Class B Preferred Stock or the
Corporation has failed to make any redemption of the Class B Preferred Stock
required hereunder.
<PAGE>
(2) If the Board of Directors determines to pay dividends due and
payable pursuant to this Section 1 in cash, and in the event that funds legally
available for distribution of such dividends on any Dividend Payment Date (as
defined in paragraph (c) of this Section 1) are insufficient to fully pay the
cash dividend due and payable on such Dividend Payment Date to all holders of
outstanding Class B Preferred Stock, then all funds legally available for
distribution shall be paid in cash to holders of Class B Preferred Stock in
accordance with the number of shares of Class B Preferred Stock held by each
such holder. Any remaining dividend amount owed to holders of the Class B
Preferred Stock shall be accrued in accordance with paragraph (c) of this
Section 1. The holders of the Class B Preferred Stock shall have senior
preference and priority to the dividends of the Corporation on any Junior Stock
and pari passu to the Class A Preferred Stock.
(3) Stock Dividend Rate; Dividend Payment Dates. Each holder of
---------------------------------------------
Class B Preferred Stock shall be entitled to receive when and as declared by the
Board, out of funds legally available therefor, cumulative dividends, in
preference and priority to dividends on any Junior Stock and pari passu with
dividends on the Class A Preferred Stock, that shall accrue daily, and compound
quarterly, on each share of the Class B Preferred Stock at the rate of twelve
percent (12%) per annum (subject to adjustment pursuant to Section 8) on the sum
of the Liquidation Price (as defined) thereof plus all accumulated and unpaid
dividends thereon, from and including the date on which such stock was first
issued (the "Original Issue Date") to and including the date on which such share
ceases to be outstanding. The accrued dividends will be appropriately adjusted
for stock splits, stock dividends, combinations, recapitalizations,
reclassifications, mergers, consolidations and other similar events (each, a
"Recapitalization Event" and collectively, "Recapitalization Events") which
affect the number of outstanding shares of the Class B Preferred Stock. Accrued
dividends on the Class B Preferred Stock shall be payable out of funds legally
available therefor on September 30, 1999 and thereafter quarterly on December
31, March 31, June 30, and September 30 of each year (each a "Dividend Payment
Date"), to the holders of record of the Class B Preferred Stock as of the close
of business on the applicable record date. Such dividends shall accrue whether
or not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends,
and such dividends shall be fully cumulative and shall accrue on a daily basis
based on a 365-day or 366-day year, as the case may be, without regard to the
occurrence of a Dividend Payment Date and whether or not such dividends have
been declared and whether or not there are any unrestricted funds of the
Corporation legally available for the payment of dividends. The amount of
dividends "accrued" with respect to any share of Class B Preferred Stock as of
the first Dividend Payment Date after the Original Issue Date, or as of any
other date after the Original Issue Date that is not a Dividend Payment Date,
shall be calculated on the basis of the actual number of days elapsed from and
including the Original Issue Date, in the case of the first Dividend Payment
Date and any date of determination prior to the first Dividend Payment Date, or
from and including the last preceding Dividend Payment Date, in the case of any
other date of determination, to and including such date of determination which
is to be made, in each case based on a year of 365 or 366 days, as the case may
be. Whenever the Board declares any dividend pursuant to this Section 1, notice
of the applicable record date and related Dividend Payment Date shall be given
in accordance with Section 4(k) hereof.
(4) Pro Rata Declaration and Payment of Dividends. All dividends
----------------------------------------------
paid with respect to shares of the Class B Preferred Stock pursuant to this
Section 1 shall be declared and paid pro rata to all the holders of the shares
--- ----
of Class B Preferred Stock outstanding as of the applicable record date.
2 -
<PAGE>
(5) Payment of Dividends with Additional Shares. Notwithstanding
--------------------------------------------
any other provision of this Section 1, in the sole discretion of the
Corporation, any dividends accruing on the Class B Preferred Stock may be paid
in lieu of cash dividends by the issuance on the applicable Dividend Payment
Date, ratably among the holders of Class B Preferred, of that number of
additional shares of Class B Preferred Stock (including fractional shares)
("Additional Shares") in an aggregate number equal to (i) the aggregate amount
of the dividend to be paid divided by (ii) the Stated Value then existing as of
such applicable Dividend Payment Date. If and when any Additional Shares are
issued under this Section 1(e) for the payment of accrued divi-dends, such
Additional Shares shall be deemed to be validly issued and outstanding and
fully-paid and nonassessable.
Section 2. Liquidation, Dissolution or Winding Up.
------------------------------------------
(1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, any merger as a result of which
the stockholders of the Corporation do not have a majority of the voting power
of the stockholders of the surviving entity, or consolidation of the Corporation
with another entity (whether or not the Corporation is the surviving entity) or
the sale of substantially all of its assets (each such event, a "Liquidation"),
except as provided in paragraph (b) of this Section 2, the holders of shares of
Class B Preferred Stock then outstanding shall be entitled, ratably in
proportion to the number of shares of Class B Preferred Stock held by such
holders, to be paid out of the assets of the Corporation available for
distribution to its stockholders before payment to the holders of Junior Stock
by reason of their ownership thereof, an amount equal to $3,000.00 per share of
Class B Preferred Stock (subject to appropriate adjustment for any
Recapitalization Events) (the "Stated Value"), plus an amount equal to all
accumulated and unpaid dividends on such share of Class B Preferred Stock since
the Original Issue Date thereof as of such time of determination (collectively,
the "Liquidation Price" per share). Upon such payment, the Class B Preferred
Stock will be retired. Notwithstanding the foregoing, the Pensat Transaction
(hereinafter defined) shall not be deemed a Liquidation for purposes of this
Section 2. "Pensat Transaction" shall mean the transactions contemplated by
that certain letter of intent and term sheet between the Company and Pensat
International Communications, Inc. ("Pensat"), dated July 26, 1999, including,
but not limited to, the purchase by Pensat or affiliates thereof, or other
parties, of Class C Preferred Stock for an aggregate purchase price of at least
$20,000,000.
(2) If upon any such Liquidation the remaining assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of shares of Class A Preferred Stock and Class B Preferred
Stock the full amount to which they shall be entitled, then the entire assets of
the Corporation shall be distributed among the holders of shares of Class A
Preferred Stock and Class B Preferred Stock, ratably in proportion to the full
amount to which such holders are entitled.
(3) After the payment of all preferential amounts required to be
paid to the holders of Class A Preferred Stock and Class B Preferred Stock, upon
a Liquidation, the holders of shares of the Junior Stock then outstanding shall
be entitled to receive the remaining assets and funds of the Corporation
available for distribution to its shareholders.
3 -
<PAGE>
(4) In the event of a distribution pursuant to this Section 2,
such distribution shall be paid in cash or in the event and to the extent that
cash is not available for distribution, in securities or property. Whenever
such distribution shall be in securities or property other than cash, the value
of such securities or property other than cash shall be the fair market value of
such securities or other property as determined by the Board of Directors in
good faith.
Section 3. Voting Rights.
--------------
(1) Each holder of shares of Class B Preferred Stock shall be
entitled to votes equal in the aggregate to the number of votes to which the
number of whole shares of Common Stock into which such shares of Class B
Preferred Stock held by such holder are convertible would be entitled (as
adjusted from time to time pursuant to Section 4 hereof), at each meeting of the
shareholders of the Corporation (and for purposes of written actions of
shareholders in lieu of meetings) with respect to any and all matters presented
to the shareholders of the Corporation for their action or consideration, and
shall be entitled to notice of any shareholders' meeting in accordance with the
Bylaws of the Corporation. Except as otherwise provided herein or required by
law, holders of shares of Class B Preferred Stock shall vote with the holders of
shares of Common Stock and any other class of stock of the Corporation entitled
to vote and not as a separate class. Holders of shares of the Class B Preferred
Stock shall have the right to vote as a class on all matters requiring their
vote or approval under, and in the manner set forth in, the NRL and as provided
herein, including voting on the director pursuant to paragraph (c) below.
Except as otherwise provided herein, any class vote pursuant to this Section 3
or required by law shall be determined by the holders of a Supermajority of the
shares of capital stock of such class voting as a class as of the applicable
record date.
4 -
<PAGE>
(2) For so long as any shares of Class B Preferred Stock remain
outstanding, the Corporation shall not amend, alter or repeal or otherwise
change any provision of these Articles of Incorporation, as amended (whether by
merger, consolidation or otherwise), the resolutions of its Board authorizing
and designating the Class B Preferred Stock, or the preferences, special rights
or other powers of the Class B Preferred Stock, in each case so as to affect
adversely any of the rights, powers, preferences or privileges of the Class B
Preferred Stock, without the written consent or affirmative vote of the holders
of at least a Supermajority of the then outstanding shares of Class B Preferred
Stock, given in writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class, in person or by proxy; provided, however,
that no amendment or modification to the Class B Preferred Stock shall be
effective without the consent of Opportunity Capital Partners II, L.P. ("OCP
II") and Opportunity Capital Partners III, L.P. ("OCP III"), if such amendment
or modification would adversely affect the shares of Class B Preferred Stock
held by OCP II and OCP III in a manner different from the effect of the
amendment or modification on the shares of Class B Preferred Stock held by TSG
Capital Fund III, L.P. For this purpose, without limiting the generality of
the foregoing, amendments, alterations, repeals or other changes to any
provision of these Articles of Incorporation, as amended (whether by merger,
consolidation or otherwise), considered to affect adversely any of the rights,
powers, preferences or privileges of the Class B Preferred Stock shall include,
but are not limited to: (i) the creation, authorization, issuance, or increase
in the authorized amount of, any preferred stock (except for increases in the
authorized amount of and issuance of shares of Class A Preferred Stock or Class
B Preferred Stock solely for the purpose of paying dividends pursuant to Section
1(e) hereof) or any other class or series of any equity securities, or any
warrants, options or other rights convertible or exchangeable into any class or
series of any equity securities of the Corporation, having a preference or
priority over or ranking pari passu with the Class B Preferred Stock as to the
---- -----
right to receive dividends or amounts distributable upon Liquidation of the
Corporation; (ii) those that reduce the dividend rates on the Class B Preferred
Stock or cancel accumulated and unpaid dividends; (iii) those that change the
relative seniority rights of the holders of the Class B Preferred Stock as to
the payment of dividends in relation to the holders of any other capital stock
of the Corporation; or (iv) those that reduce the amount payable to the holders
of the Class B Preferred Stock upon a Liquidation or change the seniority of the
liquidation preferences of the holders of the Class B Preferred Stock relative
to the rights upon a Liquidation of the holders of any other capital stock of
the Corporation.
(3) In addition to and distinct from the matters described in
Sections 3(a) and 3(b) above, the holders of the Class B Preferred Stock shall
have the right to designate one individual to be a member of the Board of
Directors. The director duly designated to the Board of Directors in accordance
with this Section 3(c) shall be subject to removal only at the request of the
holders of the Class B Preferred Stock and in accordance with Nevada Revised
Statutes 78.335. If the holders of the Class B Preferred Stock for any reason
fail to designate anyone to fill any such directorship, such position shall
remain vacant until such time as the holders of the Class B Preferred Stock
designate a director to fill such position and shall not be filled by resolution
or vote of the Board of Directors or the Corporation's other shareholders.
Section 4. Conversion at the Option of a Holder.
------------------------------------------
The holders of the Class B Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(1) Right to Convert. From and after the amendment of the
------------------
Articles of Incorporation of the Corporation to increase the authorized shares
of Common Stock to at least 200,000,000 each share of Class B Preferred Stock
shall be convertible at the option of the holder thereof, at any time, into such
number of fully-paid and nonassessable shares of Common Stock as determined by
dividing the Conversion Value (as defined) by the Conversion Price (as defined)
then in effect (as appropriately adjusted in accordance with this Section 4).
No additional consideration shall be paid by a holder of Class B Preferred Stock
upon exercise of its respective Conversion Rights pursuant to this paragraph
(a).
(1) Conversion Value. The "Conversion Value" for each share
-----------------
of Class B Preferred Stock shall be the Liquidation Price per share of Class B
Preferred Stock.
5 -
<PAGE>
(2) Conversion Price. The conversion price at which shares
-----------------
of Common Stock shall be deliverable upon conversion of Class B Preferred Stock
without the payment of additional consideration by the holder thereof shall
initially be $1.75 (the "Conversion Price"). Such initial Conversion Price (and
therefore the corresponding rate at which shares of Class B Preferred Stock may
be converted into shares of Common Stock), shall be subject to adjustment as
provided in this Section 4.
(2) Fractional Shares. No fractional shares of Common Stock shall
-----------------
be issued upon conversion of the Class B Preferred Stock. In lieu of any
fractional shares to which a holder of Class B Preferred Stock would otherwise
be entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price.
(3) Mechanics of Conversion.
-------------------------
(1) In order for a holder of Class B Preferred Stock to
convert shares of Class B Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Class
B Preferred Stock at the office of the transfer agent for the Class B Preferred
Stock (or at the principal office of the Corporation if the Corporation serves
as its own transfer agent), together with written notice that such holder elects
to convert all or any number of the shares of Class B Preferred Stock
represented by such certificate or certificates and stating therein the name or
names in which the holder desires the certificate or certificates for shares of
the Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. Each date of receipt of such certificates and notice by the
transferring agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be a conversion date (each, a "Conversion Date"). The
Corporation shall, as soon as practicable after each Conversion Date and no
later than two (2) days after the Conversion Date, (i) issue and deliver at such
office to such holder of Class B Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
as aforesaid, together with cash in lieu of any fraction of a share in
accordance with paragraph (b) above, or (ii) in lieu of delivering physical
certificates representing the shares of Common Stock, provided the Corporation's
transfer agent is participating in the Depositary Trust Issuer Fast Automated
Securities Transfer ("FAST") program, upon request of the holder, the
Corporation shall use its best efforts to cause its transfer agent to
electronically transmit the shares of Common Stock issuable upon conversion of
the Class B Preferred Stock to the holder by crediting the account of the
holder's prime broker with Depositary Trust Company through its Deposit
Withdrawal Agent Commission system. Such conversion shall be deemed to have
been made immediately prior to the close of business on the applicable
Conversion Date, and the person entitled to receive certificates of Common Stock
on such date shall be regarded for all corporate purposes as the holder of the
number of shares of Common Stock to which it is entitled upon the conversion on
such Conversion Date.
6 -
<PAGE>
(2) The Corporation shall, at all times when any of the Class B
Preferred Stock shall remain outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Class B Preferred Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding Class B Preferred Stock.
(3) All shares of Class B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares shall immediately cease
and terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock and cash in lieu of fractional shares
in exchange therefor. Any shares of Class B Preferred Stock so converted shall
be retired and canceled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized Class B Preferred Stock, accordingly.
(4) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------------
(1) Special Definitions. For purposes of this Section 4(d),
--------------------
the following definitions shall apply:
(1) "Option" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities (as defined), excluding (1) options granted to employees, officers,
directors or consultants of the Corporation or rights, warrants, or other
convertible securities which, in each case, are outstanding as of the First
Issue Date (as defined), (2) any warrants issued on the First Issue Date or in
connection with or as a direct result of the issuance of the Class B Preferred
Stock pursuant to the Securities Purchase Agreement dated as of September 7,
1999, by and among the Corporation, TSG, OCP II, and OCP III (the "Securities
Purchase Agreement") or the Pensat Transaction, or (3) options granted to
employees, officers, directors or consultants pursuant to stock option plans
existing on the First Issue Date or adopted by the Board of Directors and
approved by the Compensation Committee of the Board of Directors after the First
Issue Date.
(2) "First Issue Date" shall mean the first date on which
shares of Class B Preferred Stock were first issued.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock, other than (1) securities excluded from the
definition of "Option" in subparagraph (A) of this Section 4(d)(i), or (2)
outstanding on the First Issue Date or issued under the Securities Purchase
Agreement or the Pensat Transaction.
(4) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued (or, pursuant to subparagraph (iii) below, deemed to be
issued) by the Corporation after the First Issue Date, other than shares of
Common Stock issued or issuable:
7 -
<PAGE>
(1) upon the conversion of shares of Class A and B
Preferred Stock outstanding;
(2) as a dividend or distribution on Class A and B
Preferred Stock;
(3) by reason of a dividend, stock split, split-up or
other distribution on shares of the Class A and B Preferred Stock or Common
Stock;
(4) upon the exercise of securities excluded from the
definition of "Option" in subparagraph (A) of this Section 4(d)(i) and
"Convertible Securities" under subparagraph (c) of this Section 4 (d) (i); or
(5) in connection with an acquisition or other
transaction by the Corporation, in either case approved by the holders of at
least a Supermajority of the then outstanding shares of the Class B Preferred
Stock, unless the Corporation agrees to include such issuance in the definition
of "Additional Shares of Common Stock" in connection with obtaining the approval
of the holders of at least a Supermajority of the then outstanding shares of the
Class B Preferred Stock to such acquisition or other transaction; or
(6) by reason of a dividend, stock split, split-up or
other distribution on shares of Common Stock excluded from the definition of
"Additional Shares of Common Stock" by the foregoing clauses (1), (2), (3), (4)
and (5) or this clause (6).
(2) No Adjustment of Conversion Price. No adjustment in the
-------------------------------------
number of shares of Common Stock into which the Class B Preferred Stock is
convertible shall be made, by adjustment in the Conversion Price thereof: (A)
unless the consideration per share (determined pursuant to subparagraph (v)
below) for an Additional Share of Common Stock issued or deemed to be issued
pursuant to subparagraph (iii) below by the Corporation is less than the
Conversion Price in effect immediately prior to, the issuance of such Additional
Share of Common Stock, or (B) if prior to such issuance, the Corporation
receives written notice from the holders of at least a Supermajority of the then
outstanding shares of Class B Preferred Stock agreeing that no such adjustment
shall be made as the result of the issuance of such Additional Shares of Common
Stock.
8 -
<PAGE>
(3) Issue of Securities Deemed Issue of Additional Shares of
--------------------------------------------------------------
Common Stock. If the Corporation at any time or from time to time after the
- -------------
First Issue Date shall issue any Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issuance, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to subparagraph (v) below) of
such Additional Shares of Common Stock would be less than the Conversion Price
in effect immediately prior to such issuance, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(1) No further adjustment in the Conversion Price shall be
made upon the subsequent issuance of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
conversion price computed upon the original issuance thereof, and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(3) No readjustment pursuant to clause (B) above shall have
the effect of increasing the Conversion Price to an amount which exceeds the
Conversion Price on the original adjustment date; and
(4) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of any such Option or Convertible
Security which had not been exercised or converted prior to such change been
made upon the basis of such change in the number of shares of Common Stock, but
no further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(5) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue date
thereof, and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible Securities or Options for
Common Stock, the only Additional Shares of Common Stock issued were the shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Company upon
such exercise; or for the issue of all such Convertible Securities which were
actually converted or exchanged, plus the additional consideration, if any,
actually received by the Company upon such conversion or exchange; and
9 -
<PAGE>
(2) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the consideration
received by the Company for the Additional Shares of Common Stock deemed to have
been then issued was the consideration actually received by the Company for the
issue of all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Company upon the issue of the Convertible
Securities with respect to which such Options were actually exercised.
(4) Adjustment of Conversion Price Upon Issuance of Additional
--------------------------------------------------------------
Shares of Common Stock. In the event the Corporation shall at any time after
- -------------------------
the First Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to subparagraph
(iii) above, but excluding shares issued as a dividend or distribution as
provided in paragraph (f) below or upon a stock split or combination as provided
in paragraph (e) below), for a consideration per share (determined pursuant to
subparagraph (v) below) less than the Conversion Price in effect immediately
prior to such issuance, then and in each such case, such Conversion Price shall
be reduced, concurrently with such issuance, to a Conversion Price equal to the
price determined by dividing (a) the sum of (1) the product derived by
multiplying the Conversion Price in effect immediately prior to such issuance by
the number of shares of Common Stock outstanding immediately prior to such
issuance (together with the number of shares of Common Stock then issuable upon
conversion of the outstanding shares of Class B Preferred Stock and the
conversion or exercise of any Convertible Securities or Options), plus (2) the
aggregate consideration received by the Corporation (as determined pursuant to
subparagraph (v) below) upon such issuance, by (b) the number of shares of
Common Stock outstanding immediately after such issuance (together with the
number of shares of Common Stock then issuable upon conversion of the
outstanding shares of Class B Preferred Stock and the conversion or exercise of
any Convertible Securities or Options).
In the event the Corporation issues convertible preferred stock in
connection with and as part of the Pensat Transaction, the Conversion Price
shall be adjusted to be equal to the conversion price of the convertible
preferred stock issued in connection with the Pensat Transaction on the date of
issuance of such shares, but in no event higher than $2.16.
No adjustment of the Conversion Price, however, shall be made in an amount
less than $.01 per share, and any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.01 per share or more. Any adjustments to the Conversion Price shall be
rounded to the nearest $.01 per share.
(5) Determination of Consideration. For purposes of this Section
-------------------------------
4(d), the consideration received by the Corporation for the issuance of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
-------------------
10 -
<PAGE>
(1) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash,
be computed at the fair market value thereof at the time of such issuance, as is
reasonably determined in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common Stock are
issued together with other shares of securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
is reasonably determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
-------------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to subparagraph (iii) above, relating to
Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or receivable by
the Corporation as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(5) Adjustment for Stock Splits and Combinations. If the
-------------------------------------------------
Corporation shall at any time or from time to time after the First Issue Date
effect a subdivision of the outstanding Common Stock, the Conversion Price then
in effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the
First Issue Date combine the outstanding shares of Common Stock, the Conversion
Price then in effect immediately before the combination shall be proportionately
increased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective.
11 -
<PAGE>
(6) Adjustment for Certain Dividends and Distributions. In the
------------------------------------------------------
event the Corporation at any time, or from time to time after the First Issue
Date, shall make or issue a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Conversion Price then in
effect shall be decreased as of the time of such issuance, by multiplying the
Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(7) Adjustments for Other Dividends and Distributions. In the
-----------------------------------------------------
event the Corporation at any time or from time to time after the First Issue
Date shall make or issue a dividend or other distribution payable in securities
of the Corporation other than shares of Common Stock, then and in each such
event provision shall be made so that the holders of the Class B Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had their Class B Preferred Stock been converted
into Common Stock on the date of such event and had thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period
giving application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Class B Preferred
Stock.
(8) Adjustment for Reclassification, Exchange, or Substitution.
-------------------------------------------------------------
If the Common Stock issuable upon the conversion of the Class B Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Class B Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Class B Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
12 -
<PAGE>
(9) Adjustment for Merger or Reorganization. In case of any
-------------------------------------------
consolidation or merger of the Corporation with or into another corporation,
each share of Class B Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Class B Preferred Stock would have been entitled if it
had converted its shares immediately prior to such consolidation or merger; and,
in such case, appropriate adjustment (as determined in good faith by the Board
of Directors) shall be made in the application of the provisions in this Section
4 set forth with respect to the rights and interest thereafter of the holders of
the Class B Preferred Stock, to the end that the provisions set forth in this
Section 4 (including provisions with respect to changes in and other adjustments
of the Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be practicable, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Class B Preferred Stock.
(10) No Impairment. The Corporation will not, by amendment of
--------------
these Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Class B Preferred Stock.
(11) Notice of Record Date. In the event:
------------------------
(1) that the Corporation shall propose to declare a dividend
(or any other distribution) on its Common Stock, whether payable in cash,
property, Common Stock or other securities of the Corporation, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(2) that the Corporation shall propose to subdivide or
combine its outstanding shares of Common Stock;
(3) that the Corporation shall propose to effect any
reclassification or recapitalization of the Common Stock of the Corporation
outstanding (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or any
consolidation or merger of the Corporation into or with another corporation; or
(4) that the Corporation shall propose to effect the
Liquidation of the Corporation;
then in connection with each such event, the Corporation shall cause to be filed
at its principal office or at the office of the transfer agent of the Class B
Preferred Stock and shall cause to be mailed to each of the holders of the Class
B Preferred Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten (10) days prior to the record
date specified in (A) below or at least twenty (20) days before the date
specified in (B) below, a notice stating:
13 -
<PAGE>
(1) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(2) the date on which such reclassification, consolidation,
merger, or Liquidation is expected to become effective, and the date as of which
it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, or Liquidation.
(12) Certificate as to Adjustments. Upon the occurrence of each
-------------------------------
adjustment or readjustment pursuant to this Section 4, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Class B Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Class B Preferred
Stock furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments; (ii) the Conversion Price
then in effect; and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the conversion of
Class B Preferred Stock.
(13) Stock to be Reserved. The Corporation will at all times
-----------------------
after the amendment of the Articles of Incorporation increasing the number of
authorized shares of Common Stock to at least 200,000,000, reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon the conversion of Class B Preferred Stock as herein provided, such number
of shares of Common Stock as shall then be issuable upon the conversion of all
outstanding shares of Class B Preferred Stock. The Corporation covenants that
all shares of Common Stock which shall be so issued shall be duly and validly
issued and fully-paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and, without limiting the generality
of the foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value per share of
the Common Stock is at all times equal to or less than the Conversion Price in
effect at the time. The Corporation will take all such action as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any requirement of
any national securities exchange or market upon which the Common Stock may be
listed. The Corporation will not take any action which results in any
adjustment of the Conversion Price if the total number of shares of Common Stock
issued and issuable after such action upon conversion of the Class B Preferred
Stock would exceed the total number of shares of Common Stock then authorized by
these Articles of Incorporation, as amended.
14 -
<PAGE>
(14) Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of the Class B Preferred Stock, shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Class B Preferred
Stock which is being converted.
Section 5. Mandatory Conversion.
---------------------
(1) The Corporation may require the conversion of all of the
outstanding Class B Preferred Stock (i) in conjunction with a Qualified Offering
(as defined) or (ii) at any time after the first year anniversary of the First
Issue Date if: (1) the Common Stock shall have been listed for trading on the
New York Stock Exchange, the Nasdaq National Market System or the American Stock
Exchange (each, an "Exchange"); (2) the Common Stock shall have traded on such
Exchange for a period of at least 20 consecutive trading days at a price per
share of at least $5.00 (subject to appropriate adjustment for Recapitalization
Events); and (3) the average daily trading volume of the Common Stock during
such 20 consecutive trading day period shall be at least $1,000,000; provided,
--------
that, the shares of Common Stock issuable upon such conversion shall have been
---
Registered (as defined) and listed on each securities exchange, over-the-counter
market or on the Nasdaq National Market on which similar securities issued by
the Corporation are then listed. "Registered" shall refer to a registration
effected by preparing and filing with the Securities and Exchange Commission
(the "Commission") a registration statement in compliance with the Securities
Act of 1933, as amended, and the declaration or ordering by the Commission of
the effectiveness of such registration statement. A mandatory conversion
pursuant to a Qualified Offering shall only be effected at the time of and
subject to the closing of the Qualified Offering and upon written notice of such
mandatory conver-sion delivered to all holders of Class B Preferred Stock at
least seven (7) days prior to such closing. The Corporation shall deliver
written notice of a mandatory conversion pursuant to clause (ii) of this
paragraph (a) to all holders of Class B Preferred Stock at least seven (7) days
prior to such conversion. For purposes of this paragraph (a), the term
"Qualified Offering" shall mean the sale by the Corporation of its Common Stock
or other equity interests in a firm commitment underwritten public offering at a
purchase price per share in excess of $4.00 per share (subject to appropriate
adjustment for Recapitalization Events) yielding net aggregate proceeds to the
Corporation in excess of $30,000,000, other than any offering of Common Stock
deemed to occur pursuant to the Pensat Transaction.
(2) On the date fixed for conversion, all rights with respect to
the Class B Preferred Stock so converted will terminate upon conversion. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the date of such conversion and the surrender of the certificate or certificates
for Class B Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Section 4(c) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
15 -
<PAGE>
(3) All certificates evidencing shares of Class B Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and canceled and the
shares of Class B Preferred Stock represented thereby converted into Common
Stock for all purposes as of the date of conversion set forth in paragraph (a)
above, notwithstanding the failure of the holder or holders thereof to surrender
such certificates.
Section 6. Mandatory Exchange.
-------------------
(1) The Corporation shall be required to exchange all of the
shares of Class B Preferred Stock for shares of Common Stock on the twelfth
anniversary of the First Issue Date for shares of Class B Preferred Stock;
provided, that, the shares of Class B Preferred Stock so issued shall have been
- -------- ----
Registered and listed on each securities exchange, over-the-counter market or on
the Nasdaq National Market on which similar securities issued by the Corporation
are then listed.
(2) The exchange price shall be paid by the Corporation in shares
of Common Stock and shall be in an amount equal to the Liquidation Price, as
defined in Section 2 (a) of this Certificate (the "Exchange Price"). The number
of shares of Common Stock to be issued shall be determined by dividing (i) the
Exchange Price by (ii) the average trading price per share of Common Stock for
the 20 consecutive trading days immediately prior to the date fixed for
redemption discounted by five percent (5%).
(3) The Corporation shall provide each holder of Class B Preferred
Stock with a written notice of exchange (addressed to the holder at its address
as it appears on the stock transfer books of the Corporation), not earlier than
sixty (60) nor later than twenty (20) days before the date fixed for exchange.
The notice of exchange shall specify (i) the class of shares to be exchanged;
(ii) the date fixed for exchange; (iii) the Exchange Price; and (iv) the place
the holders of Class B Preferred Stock may obtain payment of the Exchange Price
upon surrender of their certificates. If shares of Common Stock are available
on the date fixed for exchange, then whether or not shares are surrendered for
payment of the Exchange Price, the shares shall no longer be outstanding and the
holders thereof shall cease to be shareholders of the Corporation with respect
to the shares exchanged on and after the date fixed for exchange and shall be
entitled to receive the Exchange Price without interest upon the surrender of
the share certificate.
Section 7. Preemptive Rights.
------------------
16 -
<PAGE>
(1) Each holder of the Class B Preferred Stock shall be entitled
to a preemptive right to purchase its pro rata share of all or any part of any
--- ----
New Securities (as defined) which the Corporation may, from time to time, sell
and issue. Such holder's pro rata share, for purposes of this preemptive right,
--- ----
is the ratio that the number of whole shares of Common Stock into which the
shares of Class B Preferred Stock held by such holder (including any Additional
Shares) are convertible plus the number of shares of Common Stock then held by
the holder as a result of the conversion of Class B Preferred Stock together
with the number of shares such Holder is entitled to purchase pursuant to
Warrants bears to the total number of shares of Common Stock of the Corporation
on a fully-diluted basis.
(2) Except as set forth in the next sentence, "New Securities"
shall mean any shares of capital stock of the Corporation, including Common
Stock, whether now authorized or not, and rights, options or warrants to
purchase said shares of capital stock, and securities of any type whatsoever
that are, or may become, convertible into said shares of capital stock.
Notwithstanding the foregoing, "New Securities" does not include (i) securities
offered to the public generally pursuant to a registration statement filed with
the Commission and declared effective under the Securities Act, (ii) securities
issued in connection with the acquisition of another entity by the Corporation
by merger, purchase of substantially all of the assets or other reorganization
or in a transaction governed by Rule 145 under the Exchange Act, (iii) options
exercisable for Common Stock issued to employees, officers, directors or
consultants of the Company outstanding as of the First Issue Date or options
issued to employees, officers, directors or consultants of the Corporation
pursuant to the Employment Plan, the Executive Plan or the Director Plan or a
stock option plan adopted by the Board of Directors and approved by a
Supermajority the holders of Class B Preferred Stock after the First Issue Date,
(iv) shares of Common Stock issued on conversion of outstanding Class B
Preferred Stock; (v) shares of Common Stock issued upon exercise of rights,
convertible securities or warrants (A) outstanding as of the First Issue Date or
(B) issued in connection with the sale of Class B Preferred Stock under the
Securities Purchase Agreement, (vi) stock issued pursuant to any rights or
agreements, including without limitation convertible securities, options and
warrants, provided, that, the preemptive rights established by this Section 7
-------- ----
shall apply with respect to the initial sale or grant by the Corporation of
interests in its capital stock pursuant to such rights or agreements, or (vii)
stock issued in connection with any stock split, stock dividend or
recapitalization by the Corporation.
(3) In the event the Corporation proposes to undertake an issuance
of New Securities, it shall give the holders of the Class B Preferred Stock
written notice of its intention, describing the type of New Securities, and the
price and terms upon which the Corporation proposes to issue the same. Each
holder of Class B Preferred Stock shall have ten (10) days from the date of
receipt of any such notice to agree to purchase up to its respective pro rata
--- ----
share of such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Corporation and stating therein the
quantity of New Securities to be purchased.
(4) In the event a holder fails to exercise such preemptive right
within said forty-day period (each such holder a "Non-Electing Holder"), the
Corporation shall give the holders that have elected to exercise such preemptive
right within said forty-day period (each such holder an "Electing Holder")
written notice of each Non-Electing Holder's failure to exercise its preemptive
right to purchase its pro rata share of the New Securities (such securities, the
--- ----
"Additional New Securities"). Each Electing Holder shall have ten (10) days
from the date of receipt of any such notice to elect to purchase up to its pro
---
rata share of the Additional New Securities by giving written notice to the
- ----
Corporation and stating therein the quantity of such New Securities to be
purchased.
17 -
<PAGE>
(5) In the event any Electing Holder fails to exercise its
preemptive right pursuant to paragraph (d) above within said thirty-day period,
the Corporation shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of Additional New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of said
agreement) to sell the Additional New Securities not elected to be purchased by
Electing Holders at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Corporation notice. In the
event the Corporation has not sold the Additional New Securities or entered into
an agreement to sell the Additional New Securities within said ninety-day period
(or sold and issued Additional New Securities in accordance with the foregoing
within sixty (60) days from the date of said agreement), the Corporation shall
not thereafter issue or sell any of such Additional New Securities, without
first offering such securities in the manner provided above.
(6) In the event no holders exercise their respective preemptive
right pursuant to paragraph (c) above within said thirty-day period, the
Corporation shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within sixty (60) days from the date of said agreement) to
sell the New Securities not elected to be purchased by holders of the Class B
Preferred Stock at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Corporation's notice. In
the event the Corporation has not sold the New Securities or entered into an
agreement to sell the New Securities within said ninety-day period (or sold and
issued New Securities in accordance with the foregoing within sixty (60) days
from the date of said agreement), the Corporation shall not thereafter issue or
sell any of such New Securities, without first offering such securities in the
manner provided above.
Section 8. Events of Noncompliance.
-------------------------
(1) Definition. An Event of Noncompliance shall have occurred if:
----------
(1) the Corporation fails to pay on any Dividend Payment Date the
full amount of dividends then accrued on the Class B Preferred Stock, whether or
not such payments are legally permissible or are prohibited by any agreement to
which the Corporation is subject;
(2) the Corporation fails to exchange the Class B Preferred Stock
as required hereunder, whether or not such redemption is legally permissible or
is prohibited by any agreement to which the Corporation is subject;
(3) subject to subparagraph (iv) below, the Corporation breaches
any provision of that certain Registration Rights Agreement dated as of
September 7, 1999, by and among Pointe Communications Corporation, TSG, OCP II,
and OCP III (the "Registration Rights Agreement") and fails to cure such breach
within 45 days of notice thereof (in which case, the Event of Noncompliance
shall be deemed to have occurred on the original date of such breach); or
18 -
<PAGE>
(4) the Corporation breaches Section 2.1(a) of the Registration
Rights Agreement.
(2) Consequences of Events of Noncompliance.
-------------------------------------------
(1) If an Event of Noncompliance has occurred, (1) the dividend
rate on the Class A Preferred Stock set forth in Section 1(a) shall be deemed to
increase immediately by an increment of twelve (12) percentage points and (2)
all dividends on the Class B Preferred Stock thereafter shall be paid by the
issuance of Additional Shares as set forth in Section 1(e). Any increase of the
dividend rate resulting from the operation of this subparagraph shall terminate
as of the close of business on the date on which no Event of Noncompliance
exists.
(2) If any Event of Noncompliance of the type described in
subparagraph 8(a)(i) has occurred, for each such occurrence of the failure to
pay on any Dividend Payment Date the full amount of dividends then accrued on
the Class B Preferred, whether or not such payments are legally permissible or
are prohibited by any agreement to which the Corporation is subject, the
Conver-sion Price shall be reduced immediately by fifty percent (50%) from the
Conversion Price in effect immediately prior to such adjustment. In no event
shall any Conversion Price adjustment be rescinded.
(3) If any Event of Noncompliance exists, each holder of Class B
Preferred Stock shall also have any other rights which such holder is entitled
to under the Securities Purchase Agreement or any other contract or agreement
with such holder at any time and any other rights which such holder may have
pursuant to applicable law.
The foregoing was duly adopted by the Board of Directors as of September 7,
1999, pursuant to the provisions of the General Corporation Law of the Nevada
Revised Statutes.
19 -
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by the undersigned as of September __, 1999.
POINTE COMMUNICATIONS CORPORATION
By:______________________________
Name: Patrick E. Delaney
Title: Executive Vice President
By:______________________________
Name: Charles M. Cushing, Jr.
Title: Secretary
ACKNOWLEDGMENT
State of ________________)
) ss:
County of _______________)
On this ___ day of September, 1999, before me, the undersigned Notary
Public, duly commissioned and sworn, personally appeared Patrick E. Delaney,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the Executive Vice President of the entity that executed the within
instrument, and known to me to be the person who executed the within instrument
on behalf of the entity therein named, and acknowledged to me that such entity
duly executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate above written.
______________________________
(Notary Public in and for the aforesaid County and
State)
[SEAL] My Commission Expires on:
______________________________
20 -
<PAGE>
VOTING AGREEMENT
----------------
VOTING AGREEMENT (this "Agreement"), dated this 31st day of August, 1999,
---------
among POINTE COMMUNICATIONS CORPORATION, a Nevada corporation having its
principal place of business at 1325 Northmeadow Parkway, Suite 110, Roswell,
Georgia (the "Company"), and the other parties signatory hereto (each being
referred to herein as a "Stockholder" and collectively as the "Stockholders").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to that certain Securities Purchase Agreement (the
"Purchase Agreement") dated _________ __, 1999 between the Company, TSG Capital
Fund III, L.P. ("TSG"), Opportunity Capital Fund II, L.P. and Opportunity
---
Capital Fund III, L.P., TSG is making a loan to the Company in exchange for the
issuance by the Company of a convertible promissory note, which shall be
convertible into shares of the Company's Class B Convertible Senior Preferred
Stock (the "Class B Preferred Stock") par value $0.01 per share, and warrants to
-----------------------
purchase shares of the Company's common stock, par value $0.00001 per share (the
"Common Stock"); and
- --------------
WHEREAS, as a condition to enter into the Purchase Agreement, TSG has
required that each of the Stockholders agree, and each Stockholder has agreed to
vote in favor of increasing the authorized Common Stock of the Company and to
vote in favor of the election of the director designated by TSG to the Board of
Directors of the Company; and
WHEREAS, in consideration of this Agreement, TSG has entered into the
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
<PAGE>
AGREEMENT
1. Agreement to Increase Authorized Common Stock. Each Stockholder hereby
----------------------------------------------
agrees to vote to increase the authorized capital stock of the Company from
100,000,000 shares of Common Stock to 200,000,000 shares of Common Stock, or
such other amount as deemed appropriate or necessary by the Board of Directors
of the Company, in order to reserve the amount of Common Stock required to
convert each of the shares of Class B Preferred Stock into shares of Common
Stock in accordance with the terms of the Class B Preferred Stock as set forth
in the Certificate of Incorporation of the Company.
2. Agreement to Vote in Favor of TSG Director. Each Stockholder hereby
----------------------------------------------
agrees to vote in favor of the election of the director designated by TSG to the
Board of Directors of the Company at the Shareholder Meeting (as such term is
defined in the Purchase Agreement).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on the date and year first above written.
TSG CAPITAL FUND III, L.P.
By: TSG Associates III, L.L.C., its General Partner
By: /s/ Darryl Thompson
-----------------------
Name: Daryl Thompson
Title: Partner
STOCKHOLDERS
By: /s/ Stephen E. Raville
-----------------------
Name: Star Insurance Co.
By: Stephen E. Raville
Shares: 6,489,798
By: /s/ Partrick E. Delaney
-----------------------
Name: Patrick E. Delaney
Shares: 2,756,423
By: /s/ Gerald F. Schmidt
---------------------------
Name: Cordova Capital Partners LP
By: Gerald F. Schmidt
Shares: 3,000,000
By: /s/ David C. Lee
----------------------
Name: Sandler Capital Partners IV, L.P.
By: David C. Lee
Shares: 7,713,164
By: /s/ Rafic A. Bizri
------------------------
Name: Oger Pensat Holdings, LTD
By: Rafic A. Bizri
Shares: 10,872,799
By: /s/ William P. O'Reilly
-----------------------------
Name: William P. O'Reilly
Shares: 416,573
<PAGE>
1999
POINTE COMMUNICATIONS CORPORATION
EXECUTIVE MARKET VALUE APPRECIATION
STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available executive personnel for positions of
substantial responsibility, to provide additional incentive to such individuals,
to reward such individuals for exemplary service and to promote the success of
the Company's business by aligning employee financial interests with long-term
shareholder value. Options granted hereunder may be either Incentive Stock
Options or Nonqualified Stock Options, at the discretion of the Board and as
reflected in the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Committee, if the Committee has been
-----
appointed, or the Board of Directors of the Company, if the Committee has not
been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Compensation Committee appointed by the
---------
Board of Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
(d) "Common Shares" shall mean the $.00001 par value per share common
--------------
capital stock of the Company.
(e) "Company" shall mean Pointe Communications Corporation, a Nevada
-------
corporation, and any successor thereto.
(f) "Continuous Status as an Employee" shall mean the absence of any
-----------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of any leave of absence
authorized in writing by the Company prior to its commencement.
(g) "Employee" shall mean any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company.
Notwithstanding the foregoing, for purposes of any Incentive Stock Option
granted hereunder, "Employee" includes only employees within the meaning of
Section 422 of the Code.
(h) "Incentive Stock Option" shall mean any option intended to qualify
-----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(i) "Nonqualified Stock Option" shall mean an option not intended to
--- ----------------------------
qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the Plan and
------
represented by a written option agreement.
(k) "Optioned Shares" shall mean the Common Shares subject to an
----------------
Option.
(l) "Optionee" shall mean an Employee who receives an Option.
--------
(m) "Parent" shall mean a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this Pointe Communications Corporation Executive
----
Market Value Appreciation Stock Option Plan, including any amendments hereto.
(o) "Share" shall mean one Common Share, as adjusted in accordance
-----
with Section 11 of the Plan.
(p) "Subsidiary" shall mean (i) in the case of an Incentive Stock
----------
Option, a "subsidiary corporation," whether now or hereafter existing, as
defined in Section 424(f) of the Code, and (ii) in the case of a Nonqualified
Stock Option, in addition to a subsidiary corporation as defined in (i), a
limited liability company, partnership or other entity in which the Company
controls fifty percent (50%) or more of the voting power or equity interests.
<PAGE>
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11
--------------------------
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 5,000,000 Common Shares. The Shares may be authorized,
but unissued, or reacquired Common Shares. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
-----------------------------
(a) Procedure. The Plan shall be administered by the Board of
---------
Directors of the Company.
(i) The Board of Directors may appoint a Compensation Committee
consisting of not less than two members of the Board of Directors to administer
the Plan on behalf of the Board of Directors, subject to such terms and
conditions as the Board of Directors may prescribe. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board of
Directors.
(ii) From time to time the Board of Directors may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, or
fill vacancies however caused.
(b) Powers of the Board. Subject to the provisions of the Plan, the
----------------------
Board shall have the authority, in its discretion (i) to grant Incentive Stock
Options or Nonqualified Stock Options; (ii) to determine, in accordance with
Section 8(b) of the Plan, the fair market value of the Shares; (iii) to
determine, in accordance with Section 8(a) of the Plan, the exercise price per
Share of Options to be granted; (iv) to determine the Employees to whom, and the
time or times at which, Options shall be granted and the number of Shares to be
represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend,
and rescind rules and regulations relating to the Plan; (vii) to determine the
terms and provisions of each Option granted (which need not be identical and may
include, as conditions to exercise (as well as, in the case of Nonqualified
Stock Options, conditions to grant), vesting, forfeiture, performance criteria,
noncompete and such other restrictions, provisions and conditions as the Board
may determine) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to reduce the exercise price per share of outstanding and
unexercised Options; (ix) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option; (x) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted by the Board; and (xi) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations, and
-----------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY.
-----------
(a) Employees. Options may be granted only to Employees.
---------
(b) Type of Option. Each Option shall be designated in the written
----------------
option agreement as either an Incentive Stock Option or a Nonqualified Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate fair market value of the stock with respect to which options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company and any Parent
or Subsidiary of the Company) exceeds $100,000, such options shall be treated as
Nonqualified Stock Options.
(c) Ordering and Timing. For purposes of Section 5(b), options shall
---------------------
be taken into account in the order in which they were granted, and the fair
market value of stock shall be determined as of the time the option with respect
to such stock is granted.
(d) No Deemed Employment Rights. Nothing in the Plan or any Option
------------------------------
granted hereunder shall confer upon any Optionee any right with respect to
continuation of employment with the Company, nor shall it interfere in any way
with the Optionee's right or the Company's right to terminate the employment
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by
-------------
the Board. It shall continue in effect until January 31, 2009, unless sooner
terminated under Section 14 of the Plan.
<PAGE>
7. TERM OF OPTION. The term of each Option shall be no more than ten
----------------
(10) years from the date of grant. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns
Shares representing more than ten percent (10%) of the voting power of all
classes of shares of the Company or any Parent or Subsidiary, the term of the
Option shall be no more than five (5) years from the date of grant.
8. EXERCISE PRICE AND CONSIDERATION.
-----------------------------------
(a) Exercise Price. The per Share exercise price under each Option shall be
--------------
such price as is determined by the Board, subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
the Incentive Stock Option, owns shares representing more than ten percent (10%)
of the voting power of all classes of shares of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the fair market value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than one hundred percent (100%) of the fair market value
per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option, the per Share
exercise price may be less than, equal to, or greater than the fair market value
per Share on the date of grant, as determined by the Board in its discretion.
(b) Fair Market Value. The fair market value per Share shall be
-------------------
determined by the Board in its discretion and, in the case of an Incentive Stock
Option, in accordance with Section 422 of the Code.
(c) Type of Consideration. The consideration to be paid for the
-----------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board at the time of grant and may consist, without
limitation, of cash, check, promissory note or "cashless exercise" based on the
equity buildup in the Option.
(d) Withholding. Prior to issuance of the Shares upon exercise of an
-----------
Option, the Optionee shall pay any federal, state, and local withholding
obligations of the Company, if applicable.
9. EXERCISE OF OPTION.
--------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board at the time of grant, and as shall not violate the
terms of the Plan. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise
has been given to the Company and all other events have occurred for exercise,
all in accordance with the terms of the Option. Payment for the Shares upon
exercise of the Option may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the share certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Shares, notwithstanding the prior exercise of
the Option. The Company shall issue (or cause to be issued) such share
certificate promptly upon payment in full for the Shares pursuant to the terms
of the Option. In the event that the exercise of an Option is treated in part
as the exercise of an Incentive Stock Option and in part as the exercise of a
Nonqualified Stock Option pursuant to Section 5(b), the Company shall issue a
share certificate evidencing the Shares treated as acquired upon the exercise of
an Incentive Stock Option and a separate share certificate evidencing the Shares
treated as acquired upon the exercise of a Nonqualified Stock Option, and shall
identify each such certificate accordingly in its share transfer records. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the share certificate is issued, except as provided in
Section 11 of the Plan. Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
<PAGE>
(b) Termination of Status as Employee. In the event of termination of
----------------------------------
an Optionee's Continuous Status as an Employee, such Optionee may exercise
Options to the extent exercisable on the date of termination. In the case of an
Incentive Stock Option (and unless specified otherwise in the Option Agreement
in the case of a Nonqualified Stock Option), such exercise must occur within
three (3) months (or such shorter time as may be specified in the grant) after
the date of such termination (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement). To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or does not exercise the Option within the time specified herein or
therein (whichever first occurs), the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
-----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee as a result of total and permanent disability (i.e., the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
twelve (12) months), the Optionee may exercise the Option, but only to the
extent of the right to exercise that had accrued as of the date of termination.
In the case of an Incentive Stock Option (and unless specified otherwise in the
Option Agreement in the case of a Nonqualified Stock Option), such exercise must
occur within twelve (12) months (or such shorter time as is specified in the
grant) from the date on which the Employee ceased working as a result of the
total and permanent disability (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement). To
the extent that the Optionee was not entitled to exercise such Option within the
time specified herein or therein (whichever first occurs), the Option shall
terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 9(b)
------------------
above, in the event of the death of an Optionee --
(i) who is at the time of death an Employee of the Company, the
Option may be exercised, at any time within six (6) months following the date of
death (but in no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued as of the date
of death; or
(ii) whose Option has not yet expired but whose Continuous Status
as an Employee terminated prior to the date of death, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
(e) Extension of Exercise Dates. Notwithstanding subsections (b), (c),
---------------------------
and (d) above, the Board shall have the authority to extend the expiration date
of any outstanding option in circumstances in which it deems such action to be
appropriate (provided that no such extension shall extend the term of an Option
beyond the date on which the Option would have expired if no termination of the
Employee's Continuous Status as an Employee had occurred).
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold,
--------------------------------
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee; provided, however,
that the Board may permit further transferability, on a general or specific
basis, and may impose conditions and limitations on any permitted
transferability.
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, SALE OR MERGER.
-----------------------------------------------------------------
Subject to any required action by the shareholders of the Company, the number of
Shares covered by each outstanding Option, and the number of Shares which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per Share covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination, or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding, and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of any class, or securities convertible into shares of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an Option. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. The Board may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise an Option as to all or any
part of the Optioned Shares, including Shares as to which the Option would not
otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless such successor corporation does
not agree to assume the Option or to substitute an equivalent Option, in which
case the Board shall, to the extent required by law or otherwise as determined
by the Board, in lieu of such assumption or substitution, provide for the
Optionee to have the right to exercise the Option as to all of the Optioned
Shares, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
---------------------------
for all purposes, be the date on which the Company completes the corporate
action relating to the grant of an Option and all conditions to the grant have
been satisfied, provided that conditions to the exercise of an Option shall not
defer the date of grant. Notice of a grant shall be given to each Employee to
whom an Option is so granted within a reasonable time after the determination
has been made.
13. SUBSTITUTIONS AND ASSUMPTIONS. The Board shall have the right to
-------------------------------
substitute or assume Options in connection with mergers, reorganizations,
separations, or other transactions to which Section 424(a) of the Code applies,
provided such substitutions and assumptions are permitted by Section 424 of the
Code and the regulations promulgated thereunder. The number of Shares reserved
pursuant to Section 3 may be increased by the corresponding number of Options
assumed and, in the case of a substitution, by the net increase in the number of
Shares subject to Options before and after the substitution.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
------------------------------------------
terminate the Plan from time to time in such respects as the Board may deem
advisable (including, but not limited to, amendments which the Board deems
appropriate to enhance the Company's ability to claim deductions related to
stock option exercises); provided, however, that any increase in the number of
Shares subject to the Plan, other than in connection with an adjustment under
Section 11 of the Plan, shall require approval of or ratification by the
shareholders of the Company.
(a) Employees in Foreign Countries. The Board shall have the authority
------------------------------
to adopt such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in which
the Company or its Parent or Subsidiaries may operate to assure the viability of
the benefits from Options granted to Employees employed in such countries and to
meet the objectives of the Plan.
(b) Effect of Amendment or Termination. Any such amendment or
--------------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
--------------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, any applicable state securities laws, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
<PAGE>
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
----------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. SHAREHOLDER APPROVAL. The Plan, as amended, is subject to approval
--------------------
by the shareholders of the Company and shall become effective on the date of
such approval.
18. GOVERNING LAW. The validity, construction, interpretation and
--------------
effect of this Plan shall exclusively be governed by and determined in
accordance with the laws of the State of Georgia, except to the extent preempted
by federal law.
<PAGE>
1999
POINTE COMMUNICATIONS CORPORATION
1999 EXECUTIVE MARKET VALUE APPRECIATION STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT is entered into by and between Pointe Communications
Corporation (the "Company" ) and _________ (the "Optionee") in accordance with
the terms and conditions of the 1999 Executive Market Value Appreciation Stock
Option Plan adopted by the Company (the "Plan"), a copy of which is on file at
the principal office of the Company.
The Company and the Optionee hereby agree as follows:
1. OPTION OF SHARES. Subject to the terms and conditions hereof, the
------------------
Optionee shall have the right from the date hereof through the term hereof to
purchase up to _______ shares of the $.00001 par value common stock of the
Company (such ______ shares hereinafter referred to as the "Optioned Shares" and
this option hereinafter referred to as the "Option"). The number of Optioned
Shares which may be purchased by Optionee hereunder are referred to as "Vested
Optioned Shares."
2. OPTION PRICE. The price per share for each of the Optioned Shares to be
-------------
paid by the Optionee shall be $1.40 per share (hereinafter referred to as the
"Option Price"), such Option Price having been determined in accordance with the
Plan.
3. EXERCISE AND TERM OF OPTION. This Option may be exercised only by
-------------------------------
delivery by the Optionee to the Company or the Company's delegate of written
notice of exercise executed by the Optionee on the exercise form set forth as
Exhibit A attached hereto and made a part hereof, which exercise form shall
- ----------
identify this Option, together with the number of Vested Optioned Shares with
respect to which the Optionee is exercising the Option; in addition, upon
exercise, Optionee shall execute and deliver the agreements referenced in
Sections 3 and 4 of Exhibit B hereto. Notwithstanding any provisions herein to
---------
the contrary, the determination of Vested Optioned Shares which can be purchased
at any time by the Optionee shall be as set forth in Exhibit B attached hereto
---------
and made a part hereof. In addition, this Option shall not be exercisable
either in whole or in part (and the Option shall become null and void) after
whichever of the following first occurs:
(i) January 31, 2009;
(ii) if the Optionee was not, at all times during the period beginning
on the date hereof and ending on the date three (3) months before the proposed
date of exercise of this Option, in Continuous Status as an Employee; except if
such cessation of Continuous Status as an Employee was caused by the death of
the Optionee, in which case such period shall end on the date six (6) months
following the date of death, and except if such cessation of Continuous Status
as an Employee occurred before the Option otherwise expired and was as a result
of the total and permanent disability of the Optionee as defined in the Plan, in
which case, such period shall end on the date twelve (12) months from the date
of Optionee's cessation in Continuous Status as an Employee by reason of such
disability; or
(iii) the violation by the Optionee of the terms of that certain
Non-competition Agreement of even date herewith between the Optionee and the
Company; or
(iv) the effective date of the liquidation or dissolution of the
Company.
4. OPTION NON-TRANSFERABLE. During the lifetime of the Optionee, this
------------------------
Option shall be exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee and, subject to Paragraph 5 below, no other person
shall acquire any rights in this Option.
5. DEATH OF OPTIONEE AND TRANSFER OF OPTION. In the event of the death of
------------------------------------------
the Optionee, the unexercised portion of this Option owned by the deceased
Optionee shall be exercisable to the extent provided in Paragraph 3 by the
executors or administrators of the estate of the Optionee or by any person or
persons who shall have acquired the Option directly from the Optionee by bequest
or inheritance. Such exercise shall be effected in accordance with the terms
set forth in Paragraph 3 as if such executor, administrator or legatee was the
Optionee herein. This Option shall not be transferable by the Optionee otherwise
than by will or by the laws of descent and distribution.
<PAGE>
6. MEDIUM AND TIME OF PAYMENT. The Option Price shall be payable by the
------------------------------
Optionee (or his successors in accordance with Paragraph 5 above) in cash, or
otherwise in the manner set forth in Exhibit A hereto.
----------
7. DELIVERY OF STOCK CERTIFICATES. Except as provided in Exhibit B or
--------------------------------- ---------
Exhibit C, as promptly as practicable after the receipt by the Company of full
- ----------
payment for Vested Optioned Shares which have been properly exercised, the
Company shall deliver to the Optionee a stock certificate representing the stock
of the Company so purchased.
8. STATUS OF OPTION. This Option is intended to be an Incentive Stock
------------------
Option.
9. OTHER TERMS AND CONDITIONS. In addition to the terms and conditions set
---------------------------
forth herein, this Option is subject to and governed by the other terms and
conditions set forth in the Plan, which other terms and conditions are hereby
incorporated by reference. In the case of express conflict, the provisions of
this Option Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of this ___ day of __________, 1999.
COMPANY:
POINTE COMMUNICATIONS CORPORATION
By:_____________________________________
Title:____________________________________
[CORPORATE SEAL]
OPTIONEE:
_______________________________________
Name:
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISEOF EXERCISE
The undersigned Optionee hereby exercises his option to purchase __________
Vested Optioned Shares subject to the Option Agreement between Pointe
Communications Corporation and the undersigned Optionee dated
____________________. The undersigned Optionee hereby delivers, together with
this written statement of exercise, payment (by cash, check or wire transfer) of
the full Option Price multiplied by the exercised Vested Optioned Shares;
provided, however, if Optionees Continuous Status as an Employee has
terminated, and all or a portion of the Vested Optioned Shares are to be finally
determined at the Valuation Date occurring at December 31 of this calendar year,
Optionee has also delivered, together with this statement of exercise, a
promissory note in the form attached hereto, obligating Optionee to make payment
in full of the Option Price for such Vested Optioned Shares in accordance with
such promissory note.
(OPTIONEE'S INITIALS)
_______
If Optionee has initialed this paragraph, Optionee shall have elected a
"cashless" exercise to purchase the number of Vested Optioned Shares set forth
above, and Optionee hereby authorizes and directs the Company to withhold from
the issuance that number of Vested Optioned Shares which, when multiplied by the
Market Price per share of the Vested Optioned Shares on the date hereof, is
equal to the Option Price multiplied by the exercised Vested Optioned Shares
(and such withheld Vested Optioned Shares shall no longer be issuable pursuant
to this Option). For purposes hereof, "Market Price" shall have the meaning set
forth on the second page of this Exhibit A.
This _____ day of _______________, _____.
OPTIONEE:
____________________________________
______________ hereby acknowledges receipt of the above notice of exercise
and payment of the Option Price (and/or receipt of the promissory note, as the
case may be), this _____ day of _______________, _____.
POINTE COMMUNICATIONS CORPORATION
By:_________________________________
Title:_______________________________
[CORPORATE SEAL]
<PAGE>
EXHIBIT A (Page 2)
EXHIBIT A (Page 2)
--------------------
"Market Price" means the average of the closing prices of the Company's
common stock on all domestic securities exchanges on which it may be at the time
listed or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day or, if on any day such security is not so listed, the average of
the representative bid and asked prices quoted in the NASDAQ System as of 4:00
p.m., New York time, on such day or, if on any such day such security is not
quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of twenty-one (21) days consisting of
the day as of which "Market Price" is being determined and the twenty (20)
consecutive business days prior to such day; provided that if such securities
are listed on any domestic securities exchange, the term "business days" as used
in this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair market value thereof determined conclusively by
the Committee appointed by the Company to administer the Plan.
<PAGE>
EXHIBIT B
---------
DETERMINATION OF VESTED OPTIONED SHARES
The Option may be exercised with respect to the Vested Optioned Shares existing
as of the Valuation Date immediately preceding the date of exercise of the
Option and, if the Optionee's Continuous Status as an Employee has terminated,
the Option may also be exercised with respect to any Contingent Options which
become Vested Optioned Shares as of the Valuation Date falling on December 31 of
the calendar year in which such Continuous Status as an Employee terminates.
The annual valuation date ("Valuation Date") shall be December 31 of each year,
with the stock value being determined as of the Valuation Date by an average of
the closing prices for the ten (10) business days prior to and subsequent to the
Valuation Date. Each year, if the value of the stock as of the Valuation Date
is greater than the highest stock value for all prior Valuation Dates (such
increase being referred to as the "Current Increase"), Optionee shall as of such
Valuation Date become vested in his options based on such Current Increase at
the rate of five percent (5%) of the options for each $1.00 of Current Increase
(such vested shares herein referred to as "Vested Optioned Shares") and as of
such Valuation Date Optionee shall also become contingently vested in an equal
number of options ("Contingent Options"); the Contingent Options shall
thereafter become Vested Optioned Shares at the next Valuation Date at which the
stock value is equal to or greater than the value at the current Valuation Date.
This vesting schedule can be illustrated with the following example:
<TABLE>
<CAPTION>
Date of Grant 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
of Options End of Year 1 End of Year 2 End of Year 3 End of Year 4 End of Year 5
- -------------- --------------- --------------- ------------------ ------------------ --------------------
<S> <C> <C> <C> <C> <C>
Stock Value
1.00 $ 3.00 $ 2.00 $ 4.00 $ 5.00 $ 5.00
- -------------- --------------- --------------- ------------------ ------------------ --------------------
3-1=2 no change 4-3=1 5-4=1 5-5=0
2x5%=10% 1x5%=5% 1X5%=5% 0 X 5%=0%
Year 1 Vested Year 3 Vested Year 4 Vested No year 5 Vested
Optioned =10% Optioned = 5% Optioned = 5% Optioned Shares or
Shares Shares Shares Contingent Options
Year 1 Year 3 Year 4
Contingent Contingent Contingent
Options = 10% Options = 5% Options = 5%
Prior Contingent Prior Contingent Prior Contingent
Options Becoming Options Becoming Options Becoming
Vested Optioned Vested Optioned Vested Optioned
Shares = 10% Shares = 5% Shares = 5%
TOTAL VESTED TOTAL VESTED TOTAL VESTED TOTAL VESTED TOTAL VESTED
OPTIONED=10% OPTIONED=10% OPTIONED=25% OPTIONED=35% OPTIONED=40%
SHARES SHARES SHARES SHARES SHARES
</TABLE>
Using the above example, an Optionee with a total of 50,000 shares subject
to his Option would have the number of Vested Optioned Shares at the times set
forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
End of End of End of End of End of
Year 1 Year 2 Year 3 Year 4 Year 5
- ------ ------ ------ ------ ------
5,000 5,000 12,500 17,500 20,000
</TABLE>
<PAGE>
As a further example, if such Optionee's Continuous Status as an Employee
terminates on June 1, 2001 prior to exercising any of his Option, subject to the
other terms herein regarding exercise of the Option subsequent to termination of
employment, such Optionee may after such termination timely exercise his Option
with respect to the 5,000 Vested Optioned Shares which would exist as of the
December 31, 2000 Valuation Date plus the 5,000 Contingent Options which would
become Vested Optioned Shares as of the December 31, 2001 Valuation Date; in
such a case, such Optionee would pay the Option Price upon exercise for the
5,000 Optioned Shares which are Vested Optioned Shares upon the date of
exercise, and Optionee would execute and deliver a promissory note in accordance
with Exhibit A to the Option Agreement for the 5,000 Contingent Options which
may become Vested Optioned Shares as of the December 31, 2001 Valuation Date.
In addition to the foregoing calculation, all Optioned Shares which have
not become Vested Optioned Shares pursuant to the foregoing formula shall, on a
pro rata basis (equally over three years), become Vested Optioned Shares upon
the Valuation Dates at the end of years eight, nine and ten of the Option
(December 31, 2006, December 31, 2007 and December 31, 2008, respectively).
2. Notwithstanding the foregoing vesting schedule, if Optionee's
Continuous Status as an Employee has not terminated at the time of a Change of
Control (as defined below), then upon a Change of Control, all Optioned Shares
shall thereupon become Vested Optioned Shares. For purposes of this paragraph,
a "Change of Control" shall be deemed to have occurred if there is a Control
Transaction (as defined below) that results in a new Group of shareholders of
the Company directly or indirectly owning more than fifty percent (50%) of the
total number of outstanding shares entitled to vote of the Company. As used
herein, "Control Transaction" shall mean (i) any tender offer for or acquisition
of capital stock of the Company or (ii) any merger, consolidation, or sale of
all or substantially all of the assets of the Company, but expressly excludes
any transaction with Pensat or affiliates thereof or any public offering of
capital stock by the Company. As used herein, "Group" shall mean persons who
act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the
Securities Exchange Act of 1934, as amended.
3. As an absolute condition to exercise, Optionee shall execute and
deliver (in form acceptable to the Company) the Agreement Concerning Shares in
substantially the form attached to the Option as Exhibit C.
4. As an absolute condition to exercise, Optionee shall execute and
deliver a binding written release, in form satisfactory to the Company,
releasing any and all claims of any kind or nature relating to the employment
relationship (including claims for wrongful termination or discrimination of any
kind) that Optionee may have against the Company and/or its officers, agents,
employees, directors and shareholders.
5. Notwithstanding any provision in the Plan or Option Agreement to the
contrary if Optionee is terminated for Cause, Optionee shall forfeit the right
to exercise the Option in its entirety as to all Optioned Shares, whether or not
they are Vested Optioned Shares at that time. As used herein, "Cause" means (1)
egregious and willful misconduct by Optionee in connection with his employment,
including without limitation, dishonesty or the continued intentional abuse of
the Company's customers or employees, or (2) final conviction of a felonious
crime, or (3) repeated instances of drug or alcohol abuse or unauthorized
absences during scheduled work hours, or (4) repeated material failure to meet
reasonable performance criteria as established by the Company and communicated
by the Company to Optionee in writing which Optionee fails to cure within ninety
(90) days.
6. If this Option is an Incentive Stock Option, the provisions of this
Exhibit B are intended to be construed as conditions to the exercise of this
Option and not as conditions to the grant of this Option.
<PAGE>
EXHIBIT C
---------
AGREEMENT CONCERNING SHARES
In consideration of the issuance to me of shares of common stock of Pointe
Communications Corporation., a Nevada corporation (the "Company"), and other
good and valuable consideration, the receipt and sufficiency of which I hereby
acknowledge and accept, I hereby agree as follows:
1. COVERED SHARES. This agreement applies to the shares of common
stock of the Company set forth opposite my signature below and to any additional
shares of stock of the Company (of any class) that I or my successors in
interest may acquire hereafter.
2. SECURITIES LAW MATTERS. I represent and warrant to the Company and
its officers and directors that:
- I am a resident of ____________________ and no other state.
- I am acquiring the shares for my own account to hold for investment,
with no present intention of dividing my participation with others or
reselling or participating, directly or indirectly, in a distribution
of the shares, and I will not sell, transfer or otherwise sell the
shares in violation of applicable state or federal securities laws.
- The Company has made available to me, prior to the date hereof, the
opportunity to ask questions of and receive answers concerning all
aspects of the Company and to obtain any additional information
relating to the Company and the shares that the Company possesses or
that the Company could acquire without unreasonable effort or expense;
and all such materials and information that I have requested have been
made available to me and have been examined by me.
- I have been represented by such financial, legal, and other
professional advisors (each of whom has been selected by me), if any,
as I have found necessary to consult concerning the shares and this
agreement. I and such advisors (if any) have sufficient knowledge and
experience in business and financial matters to evaluate the Company
and the shares and the merits and risks of this investment in the
Company and to protect my own interests in connection with this
agreement, without need for the additional information that would be
required to be included in registration statements under federal or
state securities laws. I am capable of bearing the economic risk of
this investment, and my circumstances are such that my financial
condition, well being and lifestyle would not be materially adversely
affected if I were to suffer a partial or total loss of my investment
in the Company.
- Without limiting the generality of the foregoing, I understand that as
the owner of a minority interest in the Company, I will lack voting
control over decisions relating to the Company and its affairs.
I understand that the shares have not been registered under state or federal
securities laws, in reliance on the exemptions authorized by Sections 10-5-9(9)
and 10-5-9(13) of the Georgia Securities Act of 1973, as amended, Section 4(2)
of the federal Securities Act of 1933, as amended, and exemptive provisions of
any other applicable federal or state securities laws. I understand and agree
that stop-transfer instructions will be noted on the appropriate records of the
Company and that there will be placed on any certificates for the shares a
legend stating in substance:
These securities have not been registered under the federal Securities Act of
1933 (the "1933 Act") or the securities laws of any state. These securities
have been issued or sold in reliance on the exemptions from registration
contained in Sections 10-5-9(9) and 10-5-9(13) of the Georgia Securities Act of
1973, as amended, Section 4(2) of the 1933 Act, and exemptive provisions of any
other applicable federal or state securities laws, and may not be sold or
transferred except in a transaction which is exempt under such Acts or laws or
pursuant to effective registrations under such Acts or laws.
<PAGE>
3. RESTRICTION ON TRANSFER. No interest in, or any part of, the shares
may be sold, assigned, pledged, or otherwise transferred, voluntarily or
involuntarily, except as permitted by this agreement or as may be approved in
writing by the Company. Any attempt to transfer shares in violation of this
agreement is ineffective, and the shares shall remain subject to this agreement.
4. SALE SUBJECT TO RIGHT OF REFUSAL. I may transfer my shares if and
only if the following conditions are met (and provided that no shares may be
transferred to anyone who is ineligible to become a qualified shareholder under
any applicable provision of federal or state tax law that the Company has
adopted): (i) I must notify the Company in writing that I desire to sell my
shares pursuant to a bona fide offer from a third party, a certified copy of
which must be attached to the notice, and I must offer to sell the shares to the
Company upon terms identical to those of the bona fide offer; (ii) the Company
will then have the right to purchase the shares for 30 days after receiving the
notice; (iii) if the Company does not exercise the right of refusal within the
prescribed period, I may sell the shares pursuant to the bona fide offer,
provided the transferee agrees in writing to be bound by the restrictions of
this agreement and provided the sale is closed within 30 days after the
expiration of the foregoing right of refusal. To exercise its right of refusal
under this agreement, the Company must give written notice to me within the
prescribed period. The Company may assign its rights pursuant to this paragraph
to any person.
5. LEGEND. Upon the execution of this agreement (and in connection
with the issuance to me of any additional shares), the parties hereto shall
cause the certificates representing my shares to be endorsed substantially as
follows: "The transfer of these securities is restricted, and the securities
are subject to certain other restrictions, pursuant to an Agreement Concerning
Shares dated ___________, _____, a copy of which may be examined at the office
of the corporation."
6. MANDATORY SALE. If shareholders of the Company arrange to sell more
than a simple majority of shares in the Company of the same class as my shares
or arrange to sell all or substantially all of the assets of the Company, in
each case to a third party in a bona fide, arm's length sale, then these
shareholders may require me to sell all (or a corresponding amount proportionate
to the percentage these shareholders as a group are selling) of my shares to the
third party, or vote all of my shares in favor of the asset sale, at a price and
on terms and conditions no less favorable than those at which these shareholders
are selling or voting their shares. I expressly acknowledge and agree that the
other shareholders of the Company are intended third party beneficiaries of this
paragraph 6 and may directly enforce its provisions against me.
7. REPURCHASE OPTION. The Company shall have the option exercisable by
giving notice to me within six (6) months following my termination of Continuous
Status as an Employee (as defined in the TeleCommute Solutions Stock Option
Plan) to repurchase my shares at their fair market value. Fair market value
shall be determined by mutual agreement of the parties within ten (10) days
after receipt by me of the aforesaid notice; provided, however, if the parties
are not able to reach agreement within this ten-day period, then fair market
value will be determined by an experienced, independent appraiser selected by
the Company in good faith, the cost of which will be shared equally by the
Company and me. Any determination of fair market value pursuant to the
preceding sentence will be conclusive and binding on me. The Company shall
exercise its option by notifying me of such exercise in writing, within ten (10)
days of which the Company shall deliver certificates for such Shares, duly
endorsed in blank, free and clear of all liens and encumbrances, and the Company
shall concurrently deliver payment therefor; provided, however, if fair market
value is determined by appraisal, the deliveries will occur within five (5) days
after I receive notice of the appraised value. If I fail to so deliver such
certificates, the Company may cancel such shares of record and deposit payment
into escrow, for release to me pending delivery of the endorsed share
certificates.
8. DEPOSIT OF SHARES. For so long as my shares are subject to this
agreement, I agree to deposit the certificates representing same with counsel
designated by the Company to hold for my benefit subject to the terms hereof.
9. NOTICES. Whenever this agreement provides that notice is to be
given, the notice shall be in writing and, in the case of notice to the Company,
shall be deemed given when received by the Company's President, and in the case
of notice to me or to another shareholder, shall be deemed given when received
or, if mailed by U.S. mail, postage prepaid, addressed to the person at the
person's address then appearing on the Company's records, on the third calendar
day after the date the notice is deposited in the mail.
<PAGE>
10. MISCELLANEOUS. The provisions of Sections 3, 4, 6, 7 and 8 hereof
shall be applicable only for so long as the Company's shares of common stock are
not traded on a national or regional stock exchange. This agreement shall be
governed by and construed in accordance with the laws of the State of Georgia.
This agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes any and all prior agreements
and understandings (between me and any of the Company and its other
shareholders) with respect to the subject matter hereof. This agreement may be
modified only by a written instrument signed by all parties. In connection with
any sale or surrender of shares to the Company or another purchaser pursuant to
this agreement, I shall endorse and deliver the certificates for the shares, and
both the Company (by signing below) and I agree to execute such other documents
as may reasonably be required to carry out this agreement. When used herein, if
required by the context, the masculine, feminine, or neuter gender shall include
the other two genders, and the singular shall include the plural and vice versa.
The section headings and any other captions set forth herein are for convenience
of reference only and shall not be used in interpreting this agreement. If any
action at law or in equity is necessary to enforce the terms of this agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs, and
necessary disbursements in addition to any other relief to which such party may
be entitled. This agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute but one and the same instrument.
Executed effective as of May 17, 1999.
Signature, Name
and Address:
-
Pointe Communications Corporation
By:________________________________
Title:_____________________________
<PAGE>
EXHIBIT D
---------
NONCOMPETITION AGREEMENT
AGREEMENT entered into as of the ____ day of __________, _____, between
Pointe Communications Corporation, a Nevada corporation ("Employer"), and
________________________ ("Employee").
Employer is in the business of providing services and solutions in the
telecommuting industry (the "Business"). Employee currently is, or at the time
of his termination was, employed by Employer as _________________________ of
Employer (the "Capacity").
To protect Employer's legitimate interests, Employer and Employee find it
necessary and appropriate to restrict competition and certain other activities
by Employee, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the issuance of Employer stock
to Employee as compensation, the premises, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
accepted by Employee, Employee agrees with Employer as follows:
1. USE AND DISCLOSURE OF CONFIDENTIAL INFORMATION. During the period
of two (2) years after Employee's employment has terminated for any reason
whatsoever (or, in the case of trade secrets, for so long as the information in
question remains a trade secret) and during any period Employee is employed by
Employer hereafter, Employee shall not, without the prior written consent of
Employer, directly or indirectly, divulge, disclose or publish to any person or
entity, or reproduce or use in any way, except only as required for the benefit
of Employer, any Confidential Information (as defined herein). Upon Employer's
request and, in any event, upon the termination of Employee's employment with
Employer for any reason whatsoever, Employee shall immediately return any
reproductions of Confidential Information to Employer. For purposes of this
Agreement, "Confidential Information" means any trade secrets and any
information relating to Employer's business that is competitively sensitive and
not generally known by the public, including processes, policies, procedures,
techniques, designs, drawings, know-how, show-how, technical information,
technology, specifications, products, computer programs (including computer
programs developed, improved or modified by Employee for or on behalf of
Employer for use in Employer's business), algorithms, systems, methods of
operation, order entry forms, price lists, customer lists, customer information,
solicitation leads, marketing research data, marketing and advertising materials
and methods and manuals and forms, all of which pertain to the Business.
Confidential Information does not include any information which (i) is available
in published print or otherwise known to the public, unless published or made
known as a result of acts or omissions of Employee, or (ii) is lawfully obtained
by Employee in writing from a third party who did not acquire such confidential
information or trade secret, directly or indirectly, from Employee or Employer.
2. COMPETITION. During the period of eighteen (18) months after
Employee's employment has terminated for any reason whatsoever and during any
period Employee is employed by Employer hereafter, Employee shall not, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, firm or entity (except on behalf of Employer)--
H:\ACCOUNTI\OPTION PLANS\EXECAGREE99.DOC
(a) Engage in the Business, in the same Capacity as Employee has
been employed by Employer, anywhere within ________________________________
________________________________________________________________________________
__________ (the "Territory"), provided that, if Employee's employment with
Employer is ended, the prohibition of this Section 2(a) applies only to the
locations within such Territory where Employee actually was working during the
six months immediately preceding the time Employee's employment with Employer
ended;
(b) Initiate any action to solicit in competition with the
Business of Employer or to divert or attempt to divert from Employer the
Business of any person, firm or entity for which Employer provided services in
connection with the Business at any time during the period of twenty-four (24)
months immediately preceding the time of such solicitation, diversion or attempt
to divert and with whom Employee had material contact in the course of
Employee's employment with Employer; or
<PAGE>
(c) Initiate any action to hire for any other employer any
employee of the Employer or directly or indirectly cause any employee of the
Employer to leave his employment in order to work for another.
3. REPURCHASE OPTION. If Employee breaches his obligations under
Section 2 hereof, Employer shall have the option to repurchase any and all
shares acquired by Employee pursuant to the TeleCommute Solutions Stock Option
Plan (the "Plan") at a purchase price equal to Employee's Option Price
thereunder. Employer shall exercise its option by notifying Employee of such
exercise in writing, within ten (10) days of which Employee shall deliver
certificates for such shares, duly endorsed in blank, free and clear of all
liens and encumbrances, and Employer shall concurrently deliver payment
therefor. If Employee fails to so deliver such certificates, Employer may
cancel such shares of record and deposit payment into escrow, for release to
Employee pending delivery of the endorsed share certificates.
4. INJUNCTION. As any breach by Employee of any of the covenants
contained in this Agreement would result in irreparable injury to Employer, and
as the damages arising out of any such breach would be difficult to ascertain,
Employee agrees that, in addition to all other remedies provided by law or in
equity, Employer shall be entitled to an injunction against any such breach,
whether actual or contemplated.
5. SETOFF. Employer shall be entitled to set off against any
compensation, commissions and other payments of any kind owed to Employee any
amounts owing to Employer as a result of a breach of this Agreement or
otherwise.
6. MODIFICATION. Should any provision of this Agreement be declared
unenforceable by a court of competent jurisdiction, the parties request that
such court modify such provision in a manner consistent with the intent of this
Agreement so that it shall be enforceable as modified to the greatest extent, in
the largest territory, and for the longest duration as may be permitted by law.
7. SEVERABILITY. If any provision of this Agreement shall for any
reason be held illegal or unenforceable, such provision shall be deemed
severable from the remaining provisions of this Agreement and shall in no way
affect or impair the validity or enforceability of the remaining provisions of
this Agreement.
8. CUMULATIVE RIGHTS. Any rights and remedies of Employer pursuant to
this Agreement shall be in addition to and cumulative of, and shall in no way
limit or supersede, any other rights and remedies Employer may have under law or
in equity or pursuant to any other agreement with Employee.
9. MISCELLANEOUS. As to the subject matter hereof, this Agreement
supersedes any and all other agreements, either oral or in writing, between the
parties hereto and constitutes the entire agreement between the parties. Any
modification of this Agreement will be effective only if it is in writing signed
by the party to be charged. Failure or delay of either party to insist upon
compliance with any provision hereof will not operate and is not to be construed
as a waiver or amendment of the provision or the right of the aggrieved party to
insist upon compliance with such provision or to take remedial steps to recover
damages or other relief for noncompliance. Any express waiver of any provision
of this Agreement will not operate and is not to be construed as a waiver of any
subsequent breach, whether occurring under similar or dissimilar circumstances.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors, assigns, heirs, executors and personal
representatives, but neither this Agreement nor any rights hereunder shall be
assignable by Employee. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled. The captions
set forth herein are for convenience of reference only and shall not be used in
interpreting this Agreement. "Including" means including without limitation.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Georgia.
<PAGE>
EXECUTED as of the date first above written.
EMPLOYEE:
Name: __________________________________________
EMPLOYER:
Pointe Communications Corporation
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
<PAGE>
1999
POINTE COMMUNICATIONS CORPORATION
PAY FOR PERFORMANCE
STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions at the Company, to
provide additional incentive to such individuals, to reward such individuals for
exemplary service and to promote the success of the Company's business by
aligning employee financial interests with attainment of performance goals.
Options granted hereunder may be either Incentive Stock Options or Nonqualified
Stock Options, at the discretion of the Board and as reflected in the terms of
the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Committee, if the Committee has been
-----
appointed, or the Board of Directors of the Company, if the Committee has not
been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Compensation Committee appointed by the
---------
Board of Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
(d) "Common Shares" shall mean the $.00001 par value per share common
--------------
capital stock of the Company.
(e) "Company" shall mean Pointe Communications Corporation, a Nevada
-------
corporation, and any successor thereto.
(f) "Continuous Status as an Employee" shall mean the absence of any
-----------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of any leave of absence
authorized in writing by the Company prior to its commencement.
(g) "Employee" shall mean any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company.
Notwithstanding the foregoing, for purposes of any Incentive Stock Option
granted hereunder, "Employee" includes only employees within the meaning of
Section 422 of the Code.
(h) "Incentive Stock Option" shall mean any option intended to qualify
-----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(i) "Nonqualified Stock Option" shall mean an option not intended to
--- ----------------------------
qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the Plan and
------
represented by a written option agreement.
(k) "Optioned Shares" shall mean the Common Shares subject to an
----------------
Option.
(l) "Optionee" shall mean an Employee who receives an Option.
--------
(m) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this Pointe Communications Corporation Pay for
----
Performance Stock Option Plan, including any amendments hereto.
(o) "Share" shall mean one Common Share, as adjusted in accordance
-----
with Section 11 of the Plan.
(p) "Subsidiary" shall mean (i) in the case of an Incentive Stock
----------
Option, a "subsidiary corporation," whether now or hereafter existing, as
defined in Section 424(f) of the Code, and (ii) in the case of a Nonqualified
Stock Option, in addition to a subsidiary corporation as defined in (i), a
limited liability company, partnership or other entity in which the Company
controls fifty percent (50%) or more of the voting power or equity interests.
<PAGE>
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11
--------------------------
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 2,000,000 Common Shares. The Shares may be authorized,
but unissued, or reacquired Common Shares. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
-----------------------------
(a) Procedure. The Plan shall be administered by the Board of
---------
Directors of the Company.
(i) The Board of Directors may appoint a Compensation Committee
consisting of not less than two members of the Board of Directors to administer
the Plan on behalf of the Board of Directors, subject to such terms and
conditions as the Board of Directors may prescribe. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board of
Directors.
(ii) From time to time the Board of Directors may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, or
fill vacancies however caused.
(b) Powers of the Board. Subject to the provisions of the Plan, the
----------------------
Board shall have the authority, in its discretion (i) to grant Incentive Stock
Options or Nonqualified Stock Options; (ii) to determine, in accordance with
Section 8(b) of the Plan, the fair market value of the Shares; (iii) to
determine, in accordance with Section 8(a) of the Plan, the exercise price per
Share of Options to be granted; (iv) to determine the Employees to whom, and the
time or times at which, Options shall be granted and the number of Shares to be
represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend,
and rescind rules and regulations relating to the Plan; (vii) to determine the
terms and provisions of each Option granted (which need not be identical and may
include, as conditions to exercise (as well as, in the case of Nonqualified
Stock Options, conditions to grant), vesting, forfeiture, performance criteria,
noncompete and such other restrictions, provisions and conditions as the Board
may determine) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to reduce the exercise price per share of outstanding and
unexercised Options; (ix) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option; (x) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted by the Board; and (xi) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations, and
-----------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY.
-----------
(a) Employees. Options may be granted only to Employees.
---------
(b) Type of Option. Each Option shall be designated in the written
----------------
option agreement as either an Incentive Stock Option or a Nonqualified Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate fair market value of the stock with respect to which options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company and any Parent
or Subsidiary of the Company) exceeds $100,000, such options shall be treated as
Nonqualified Stock Options.
(c) Ordering and Timing. For purposes of Section 5(b), options shall
---------------------
be taken into account in the order in which they were granted, and the fair
market value of stock shall be determined as of the time the option with respect
to such stock is granted.
(d) No Deemed Employment Rights. Nothing in the Plan or any Option
------------------------------
granted hereunder shall confer upon any Optionee any right with respect to
continuation of employment with the Company, nor shall it interfere in any way
with the Optionee's right or the Company's right to terminate the employment
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
--------------
Board. It shall continue in effect until January 31, 2009, unless sooner
terminated under Section 14 of the Plan.
<PAGE>
7. TERM OF OPTION. The term of each Option shall be no more than ten
----------------
(10) years from the date of grant. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns
Shares representing more than ten percent (10%) of the voting power of all
classes of shares of the Company or any Parent or Subsidiary, the term of the
Option shall be no more than five (5) years from the date of grant.
8. EXERCISE PRICE AND CONSIDERATION.
-----------------------------------
(a) Exercise Price. The per Share exercise price under each Option
---------------
shall be such price as is determined by the Board, subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
the Incentive Stock Option, owns shares representing more than ten percent (10%)
of the voting power of all classes of shares of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the fair market value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than one hundred percent (100%) of the fair market value
per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option, the per Share
exercise price may be less than, equal to, or greater than the fair market value
per Share on the date of grant, as determined by the Board in its discretion.
(b) Fair Market Value. The fair market value per Share shall be
-------------------
determined by the Board in its discretion and, in the case of an Incentive Stock
Option, in accordance with Section 422 of the Code.
(c) Type of Consideration. The consideration to be paid for the
-----------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board at the time of grant and may consist, without
limitation, of cash, check, promissory note or "cashless exercise" based on the
equity buildup in the Option.
(d) Withholding. Prior to issuance of the Shares upon exercise of an
-----------
Option, the Optionee shall pay any federal, state, and local withholding
obligations of the Company, if applicable.
9. EXERCISE OF OPTION.
--------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board at the time of grant, and as shall not violate the
terms of the Plan. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise
has been given to the Company and all other events have occurred for exercise,
all in accordance with the terms of the Option. Payment for the Shares upon
exercise of the Option may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the share certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Shares, notwithstanding the prior exercise of
the Option. The Company shall issue (or cause to be issued) such share
certificate promptly upon payment in full for the Shares pursuant to the terms
of the Option. In the event that the exercise of an Option is treated in part
as the exercise of an Incentive Stock Option and in part as the exercise of a
Nonqualified Stock Option pursuant to Section 5(b), the Company shall issue a
share certificate evidencing the Shares treated as acquired upon the exercise of
an Incentive Stock Option and a separate share certificate evidencing the Shares
treated as acquired upon the exercise of a Nonqualified Stock Option, and shall
identify each such certificate accordingly in its share transfer records. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the share certificate is issued, except as provided in
Section 11 of the Plan. Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
<PAGE>
(b) Termination of Status as Employee. In the event of termination of
----------------------------------
an Optionee's Continuous Status as an Employee, such Optionee may exercise
Options to the extent exercisable on the date of termination. In the case of an
Incentive Stock Option (and unless specified otherwise in the Option Agreement
in the case of a Nonqualified Stock Option), such exercise must occur within
three (3) months (or such shorter time as may be specified in the grant) after
the date of such termination (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement). To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or does not exercise the Option within the time specified herein or
therein (whichever first occurs), the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
-----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee as a result of total and permanent disability (i.e., the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
twelve (12) months), the Optionee may exercise the Option, but only to the
extent of the right to exercise that had accrued as of the date of termination.
In the case of an Incentive Stock Option (and unless specified otherwise in the
Option Agreement in the case of a Nonqualified Stock Option), such exercise must
occur within twelve (12) months (or such shorter time as is specified in the
grant) from the date on which the Employee ceased working as a result of the
total and permanent disability (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement). To
the extent that the Optionee was not entitled to exercise such Option within the
time specified herein or therein (whichever first occurs), the Option shall
terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 9(b)
------------------
above, in the event of the death of an Optionee --
(i) who is at the time of death an Employee of the Company, the
Option may be exercised, at any time within six (6) months following the date of
death (but in no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued as of the date
of death; or
(ii) whose Option has not yet expired but whose Continuous Status
as an Employee terminated prior to the date of death, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
(e) Extension of Exercise Dates. Notwithstanding subsections (b), (c),
---------------------------
and (d) above, the Board shall have the authority to extend the expiration date
of any outstanding option in circumstances in which it deems such action to be
appropriate (provided that no such extension shall extend the term of an Option
beyond the date on which the Option would have expired if no termination of the
Employee's Continuous Status as an Employee had occurred).
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold,
--------------------------------
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee; provided, however,
that the Board may permit further transferability, on a general or specific
basis, and may impose conditions and limitations on any permitted
transferability.
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, SALE OR MERGER.
-----------------------------------------------------------------
Subject to any required action by the shareholders of the Company, the number of
Shares covered by each outstanding Option, and the number of Shares which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per Share covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination, or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding, and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of any class, or securities convertible into shares of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an Option. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. The Board may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise an Option as to all or any
part of the Optioned Shares, including Shares as to which the Option would not
otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless such successor corporation does
not agree to assume the Option or to substitute an equivalent Option, in which
case the Board shall, to the extent required by law or otherwise as determined
by the Board, in lieu of such assumption or substitution, provide for the
Optionee to have the right to exercise the Option as to all of the Optioned
Shares, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
---------------------------
for all purposes, be the date on which the Company completes the corporate
action relating to the grant of an Option and all conditions to the grant have
been satisfied, provided that conditions to the exercise of an Option shall not
defer the date of grant. Notice of a grant shall be given to each Employee to
whom an Option is so granted within a reasonable time after the determination
has been made.
13. SUBSTITUTIONS AND ASSUMPTIONS. The Board shall have the right to
-------------------------------
substitute or assume Options in connection with mergers, reorganizations,
separations, or other transactions to which Section 424(a) of the Code applies,
provided such substitutions and assumptions are permitted by Section 424 of the
Code and the regulations promulgated thereunder. The number of Shares reserved
pursuant to Section 3 may be increased by the corresponding number of Options
assumed and, in the case of a substitution, by the net increase in the number of
Shares subject to Options before and after the substitution.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
------------------------------------------
terminate the Plan from time to time in such respects as the Board may deem
advisable (including, but not limited to, amendments which the Board deems
appropriate to enhance the Company's ability to claim deductions related to
stock option exercises); provided, however, that any increase in the number of
Shares subject to the Plan, other than in connection with an adjustment under
Section 11 of the Plan, shall require approval of or ratification by the
shareholders of the Company.
(a) Employees in Foreign Countries. The Board shall have the authority
------------------------------
to adopt such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in which
the Company or its Parent or Subsidiaries may operate to assure the viability of
the benefits from Options granted to Employees employed in such countries and to
meet the objectives of the Plan.
(b) Effect of Amendment or Termination. Any such amendment or
--------------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
--------------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, any applicable state securities laws, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
----------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
<PAGE>
17. SHAREHOLDER APPROVAL. The Plan, as amended, is subject to approval
--------------------
by the shareholders of the Company and shall become effective on the date of
such approval.
18. GOVERNING LAW. The validity, construction, interpretation and
--------------
effect of this Plan shall exclusively be governed by and determined in
accordance with the laws of the State of Georgia, except to the extent preempted
by federal law.
<PAGE>
1999
POINTE COMMUNICATIONS CORPORATION
PAY FOR PERFORMANCE STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT is entered into by and between Pointe Communications
Corporation (the "Company" ) and _________ (the "Optionee") in accordance with
the terms and conditions of the 1999 Pay for Performance Stock Option Plan
adopted by the Company (the "Plan"), a copy of which is on file at the principal
office of the Company.
The Company and the Optionee hereby agree as follows:
1. OPTION OF SHARES. Subject to the terms and conditions hereof, the
------------------
Optionee shall have the right from the date hereof through the term hereof to
purchase up to _______ shares of the $.00001 par value common stock of the
Company (such ______ shares hereinafter referred to as the "Optioned Shares" and
this option hereinafter referred to as the "Option"). The number of Optioned
Shares which may be purchased by Optionee hereunder are referred to as "Vested
Optioned Shares."
2. OPTION PRICE. The price per share for each of the Optioned Shares to be
-------------
paid by the Optionee shall be $_____ per share (hereinafter referred to as the
"Option Price"), such Option Price having been determined in accordance with the
Plan.
3. EXERCISE AND TERM OF OPTION. This Option may be exercised only by
-------------------------------
delivery by the Optionee to the Company or the Company's delegate of written
notice of exercise executed by the Optionee on the exercise form set forth as
Exhibit A attached hereto and made a part hereof, which exercise form shall
- ----------
identify this Option, together with the number of Vested Optioned Shares with
respect to which the Optionee is exercising the Option; in addition, upon
exercise, Optionee shall execute and deliver the agreements referenced in
Sections 3 and 4 of Exhibit B hereto. Notwithstanding any provisions herein to
---------
the contrary, the determination of Vested Optioned Shares which can be purchased
at any time by the Optionee shall be as set forth in Exhibit B attached hereto
---------
and made a part hereof. In addition, this Option shall not be exercisable
either in whole or in part (and the Option shall become null and void) after
whichever of the following first occurs:
(i) January 31, 2006;
(ii) if the Optionee was not, at all times during the period
beginning on the date hereof and ending on the date three (3) months before the
proposed date of exercise of this Option, in Continuous Status as an Employee;
except if such cessation of Continuous Status as an Employee was caused by the
death of the Optionee, in which case such period shall end on the date six (6)
months following the date of death, and except if such cessation of Continuous
Status as an Employee occurred before the Option otherwise expired and was as a
result of the total and permanent disability of the Optionee as defined in the
Plan, in which case, such period shall end on the date twelve (12) months from
the date of Optionee's cessation in Continuous Status as an Employee by reason
of such disability; or
(iii) the violation by the Optionee of the terms of that certain
Non-Competition Agreement of even date herewith between the Optionee and the
Company; or
(iv) the effective date of the liquidation or dissolution of the
Company.
4. OPTION NON-TRANSFERABLE. During the lifetime of the Optionee, this
------------------------
Option shall be exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee and, subject to Paragraph 5 below, no other person
shall acquire any rights in this Option.
5. DEATH OF OPTIONEE AND TRANSFER OF OPTION. In the event of the death of
------------------------------------------
the Optionee, the unexercised portion of this Option owned by the deceased
Optionee shall be exercisable to the extent provided in Paragraph 3 by the
executors or administrators of the estate of the Optionee or by any person or
persons who shall have acquired the Option directly from the Optionee by bequest
or inheritance. Such exercise shall be effected in accordance with the terms
set forth in Paragraph 3 as if such executor, administrator or legatee was the
Optionee herein. This Option shall not be transferable by the Optionee otherwise
than by will or by the laws of descent and distribution.
<PAGE>
6. MEDIUM AND TIME OF PAYMENT. The Option Price shall be payable by the
------------------------------
Optionee (or his successors in accordance with Paragraph 5 above) in cash, or
otherwise in the manner set forth in Exhibit A hereto.
----------
7. DELIVERY OF STOCK CERTIFICATES. Except as provided in Exhibit B or
--------------------------------- ---------
Exhibit C, as promptly as practicable after the receipt by the Company of full
- ----------
payment for Vested Optioned Shares which have been properly exercised, the
Company shall deliver to the Optionee a stock certificate representing the stock
of the Company so purchased.
8. STATUS OF OPTION. This Option is intended to be an Incentive Stock
------------------
Option.
9. OTHER TERMS AND CONDITIONS. In addition to the terms and conditions set
---------------------------
forth herein, this Option is subject to and governed by the other terms and
conditions set forth in the Plan, which other terms and conditions are hereby
incorporated by reference. In the case of express conflict, the provisions of
this Option Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of this 9th day of August, 1999.
COMPANY:
POINTE COMMUNICATIONS CORPORATION
By:_______________________________________
Title:____________________________________
[CORPORATE SEAL]
OPTIONEE:
_______________________________________
Name:
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISEOF EXERCISE
The undersigned Optionee hereby exercises his option to purchase __________
Vested Optioned Shares subject to the Option Agreement between Pointe
Communications Corporation and the undersigned Optionee dated
____________________. The undersigned Optionee hereby delivers, together with
this written statement of exercise, payment (by cash, check or wire transfer) of
the Option Price multiplied by the exercised Vested Optioned Shares.
(OPTIONEE'S INITIALS)
_______
If Optionee has initialed this paragraph, Optionee shall have elected a
"cashless" exercise to purchase the number of Vested Optioned Shares set forth
above, and Optionee hereby authorizes and directs the Company to withhold from
the issuance that number of Vested Optioned Shares which, when multiplied by the
Market Price per share of the Vested Optioned Shares on the date hereof, is
equal to the Option Price multiplied by the exercised Vested Optioned Shares
(and such withheld Vested Optioned Shares shall no longer be issuable pursuant
to this Option). For purposes hereof, "Market Price" shall have the meaning set
forth on the second page of this Exhibit A.
This _____ day of _______________, _____.
OPTIONEE:
____________________________________
______________ hereby acknowledges receipt of the above notice of exercise
and payment of the Option Price, this _____ day of _______________, _____.
POINTE COMMUNICATIONS CORPORATION
By:_________________________________
Title:_______________________________
[CORPORATE SEAL]
<PAGE>
EXHIBIT A (Page 2)
--------------------
"Market Price" means the average of the closing prices of the
Company's common stock on all domestic securities exchanges on which it may be
at the time listed or, if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 p.m., New York time, on such day or, if on any such day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of twenty-one
(21) days consisting of the day as of which "Market Price" is being determined
and the twenty (20) consecutive business days prior to such day; provided that
if such securities are listed on any domestic securities exchange, the term
"business days" as used in this sentence means business days on which such
exchange is open for trading. If at any time such security is not listed on any
domestic securities exchange or quoted in the NASDAQ System or the domestic
over-the-counter market, the "Market Price" shall be the fair market value
thereof determined conclusively by the Committee appointed by the Company to
administer the Plan.
<PAGE>
EXHIBIT B
DETERMINATION OF VESTED OPTIONED SHARES
The Option may be exercised with respect to the Vested Optioned Shares
existing at the date of proper exercise of the Option, as determined by the
following performance-based formula:
TOTAL # Optioned Shares ("TS") = ________________
Performance objectives to be measured as of December 31, 1999 by conclusive
review and determination of Board of Directors
Weighted Percentage ("WP") is the weighted average percentage of attainment
of objectives as set forth below
Vested Optioned Shares @ 12/31/99 = (1/3) (WP) (TS)
12/31/00 = (2/3) (WP) (TS)
12/31/01 = (WP) (TS)
<TABLE>
<CAPTION>
A B C
<S> <C> <C> <C>
Payout Company Objectives (75%)* Unit Objectives (25%)** Individual Objectives (0%)***
120% Revenues > 100% of Target > 100% of Target Far Exceeds
100% Revenues 85% - 100% of Target 85% - 100% of Target Consistently Exceeds
80% Revenues 70% - 85% of Target 70% - 85% of Target Meets Criteria
0% Revenues < 70% of Target < 70% of Target < Meets Criteria
</TABLE>
As an example, if the Option has a total of 20,000 Optioned Shares, and the
Company has revenues of 90% of target, the Unit has profits of 100% of target,
and the Optionee has individual overall evaluation of meets criteria, the
calculation of Vested Optioned Shares would be as follows:
Objective A: 100% x 75% = 75%
Objective B: 100% x 25% = 25%
Objective C: 80% x 0% = 0%
100%
100% x 20,000 Optioned Shares = 20,000 earned
20,000 x 1/3 = 6,667 or 1/3 shares as cumulative Vested Optioned Shares at
12/31/99
20,000 x 2/3 = 13,333 or 2/3 shares as cumulative Vested Optioned Shares as
of 12/31/2000
20,000 cumulative Vested Optioned Shares as of 12/31/2001
In addition to the foregoing calculation, all Optioned Shares which have
not become Vested Optioned Shares pursuant to the foregoing formula shall, on a
pro rata basis (equally over two years), become Vested Optioned Shares upon the
December 31st at the end of years six and seven of the Option (December 31, 2005
and December 31, 2006, respectively).
<PAGE>
2. Notwithstanding the foregoing vesting schedule, if Optionee's
Continuous Status as an Employee has not terminated at the time of a Change of
Control (as defined below), then upon a Change of Control, all Optioned Shares
shall thereupon become Vested Optioned Shares. For purposes of this paragraph,
a "Change of Control" shall be deemed to have occurred if there is a Control
Transaction (as defined below) that results in a new Group of shareholders of
the Company directly or indirectly owning more than fifty percent (50%) of the
total number of outstanding shares entitled to vote of the Company. As used
herein, "Control Transaction" shall mean (i) any tender offer for or acquisition
of capital stock of the Company or (ii) any merger, consolidation, or sale of
all or substantially all of the assets of the Company, but expressly excludes
any transaction with Pensat or affiliates thereof or any public offering of
capital stock by the Company. As used herein, "Group" shall mean persons who
act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the
Securities Exchange Act of 1934, as amended.
3. As an absolute condition to exercise, Optionee shall execute and deliver
(in form acceptable to the Company) the Agreement Concerning Shares in
substantially the form attached to the Option as Exhibit C.
4. As an absolute condition to exercise, Optionee shall execute and
deliver a binding written release, in form satisfactory to the Company,
releasing any and all claims of any kind or nature relating to the employment
relationship (including claims for wrongful termination or discrimination of any
kind) that Optionee may have against the Company and/or its officers, agents,
employees, directors and shareholders.
5. Notwithstanding any provision in the Plan or Option Agreement to the
contrary if Optionee is terminated for Cause, Optionee shall forfeit the right
to exercise the Option in its entirety as to all Optioned Shares, whether or not
they are Vested Optioned Shares at that time. As used herein, "Cause" means (1)
egregious and willful misconduct by Optionee in connection with his employment,
including without limitation, dishonesty or the continued intentional abuse of
the Company's customers or employees, or (2) final conviction of a felonious
crime, or (3) repeated instances of drug or alcohol abuse or unauthorized
absences during scheduled work hours, or (4) repeated material failure to meet
reasonable performance criteria as established by the Company and communicated
by the Company to Optionee in writing which Optionee fails to cure within ninety
(90) days.
6. If this Option is an Incentive Stock Option, the provisions of this
Exhibit B are intended to be construed as conditions to the exercise of this
Option and not as conditions to the grant of this Option.
<PAGE>
EXHIBIT C
---------
AGREEMENT CONCERNING SHARES
In consideration of the issuance to me of shares of common stock of Pointe
Communications Corporation., a Nevada corporation (the "Company"), and other
good and valuable consideration, the receipt and sufficiency of which I hereby
acknowledge and accept, I hereby agree as follows:
1. COVERED SHARES. This agreement applies to the shares of common
stock of the Company set forth opposite my signature below and to any additional
shares of stock of the Company (of any class) that I or my successors in
interest may acquire hereafter.
2. SECURITIES LAW MATTERS. I represent and warrant to the Company and
its officers and directors that:
- I am a resident of ____________________ and no other state.
- I am acquiring the shares for my own account to hold for investment,
with no present intention of dividing my participation with others or
reselling or participating, directly or indirectly, in a distribution
of the shares, and I will not sell, transfer or otherwise sell the
shares in violation of applicable state or federal securities laws.
- The Company has made available to me, prior to the date hereof, the
opportunity to ask questions of and receive answers concerning all
aspects of the Company and to obtain any additional information
relating to the Company and the shares that the Company possesses or
that the Company could acquire without unreasonable effort or expense;
and all such materials and information that I have requested have been
made available to me and have been examined by me.
- I have been represented by such financial, legal, and other
professional advisors (each of whom has been selected by me), if any,
as I have found necessary to consult concerning the shares and this
agreement. I and such advisors (if any) have sufficient knowledge and
experience in business and financial matters to evaluate the Company
and the shares and the merits and risks of this investment in the
Company and to protect my own interests in connection with this
agreement, without need for the additional information that would be
required to be included in registration statements under federal or
state securities laws. I am capable of bearing the economic risk of
this investment, and my circumstances are such that my financial
condition, well being and lifestyle would not be materially adversely
affected if I were to suffer a partial or total loss of my investment
in the Company.
- Without limiting the generality of the foregoing, I understand that as
the owner of a minority interest in the Company, I will lack voting
control over decisions relating to the Company and its affairs.
I understand that the shares have not been registered under state or federal
securities laws, in reliance on the exemptions authorized by Sections 10-5-9(9)
and 10-5-9(13) of the Georgia Securities Act of 1973, as amended, Section 4(2)
of the federal Securities Act of 1933, as amended, and exemptive provisions of
any other applicable federal or state securities laws. I understand and agree
that stop-transfer instructions will be noted on the appropriate records of the
Company and that there will be placed on any certificates for the shares a
legend stating in substance:
These securities have not been registered under the federal Securities Act of
1933 (the "1933 Act") or the securities laws of any state. These securities
have been issued or sold in reliance on the exemptions from registration
contained in Sections 10-5-9(9) and 10-5-9(13) of the Georgia Securities Act of
1973, as amended, Section 4(2) of the 1933 Act, and exemptive provisions of any
other applicable federal or state securities laws, and may not be sold or
transferred except in a transaction which is exempt under such Acts or laws or
pursuant to effective registrations under such Acts or laws.
<PAGE>
3. RESTRICTION ON TRANSFER. No interest in, or any part of, the shares
may be sold, assigned, pledged, or otherwise transferred, voluntarily or
involuntarily, except as permitted by this agreement or as may be approved in
writing by the Company. Any attempt to transfer shares in violation of this
agreement is ineffective, and the shares shall remain subject to this agreement.
4. SALE SUBJECT TO RIGHT OF REFUSAL. I may transfer my shares if and
only if the following conditions are met (and provided that no shares may be
transferred to anyone who is ineligible to become a qualified shareholder under
any applicable provision of federal or state tax law that the Company has
adopted): (i) I must notify the Company in writing that I desire to sell my
shares pursuant to a bona fide offer from a third party, a certified copy of
which must be attached to the notice, and I must offer to sell the shares to the
Company upon terms identical to those of the bona fide offer; (ii) the Company
will then have the right to purchase the shares for 30 days after receiving the
notice; (iii) if the Company does not exercise the right of refusal within the
prescribed period, I may sell the shares pursuant to the bona fide offer,
provided the transferee agrees in writing to be bound by the restrictions of
this agreement and provided the sale is closed within 30 days after the
expiration of the foregoing right of refusal. To exercise its right of refusal
under this agreement, the Company must give written notice to me within the
prescribed period. The Company may assign its rights pursuant to this paragraph
to any person.
5. LEGEND. Upon the execution of this agreement (and in connection
with the issuance to me of any additional shares), the parties hereto shall
cause the certificates representing my shares to be endorsed substantially as
follows: "The transfer of these securities is restricted, and the securities
are subject to certain other restrictions, pursuant to an Agreement Concerning
Shares dated ___________, _____, a copy of which may be examined at the office
of the corporation."
6. MANDATORY SALE. If shareholders of the Company arrange to sell more
than a simple majority of shares in the Company of the same class as my shares
or arrange to sell all or substantially all of the assets of the Company, in
each case to a third party in a bona fide, arm's length sale, then these
shareholders may require me to sell all (or a corresponding amount proportionate
to the percentage these shareholders as a group are selling) of my shares to the
third party, or vote all of my shares in favor of the asset sale, at a price and
on terms and conditions no less favorable than those at which these shareholders
are selling or voting their shares. I expressly acknowledge and agree that the
other shareholders of the Company are intended third party beneficiaries of this
paragraph 6 and may directly enforce its provisions against me.
7. REPURCHASE OPTION. The Company shall have the option exercisable by
giving notice to me within six (6) months following my termination of Continuous
Status as an Employee (as defined in the Pointe Communications Corporation Stock
Option Plan) to repurchase my shares at their fair market value. Fair market
value shall be determined by mutual agreement of the parties within ten (10)
days after receipt by me of the aforesaid notice; provided, however, if the
parties are not able to reach agreement within this ten-day period, then fair
market value will be determined by an experienced, independent appraiser
selected by the Company in good faith, the cost of which will be shared equally
by the Company and me. Any determination of fair market value pursuant to the
preceding sentence will be conclusive and binding on me. The Company shall
exercise its option by notifying me of such exercise in writing, within ten (10)
days of which the Company shall deliver certificates for such Shares, duly
endorsed in blank, free and clear of all liens and encumbrances, and the Company
shall concurrently deliver payment therefor; provided, however, if fair market
value is determined by appraisal, the deliveries will occur within five (5) days
after I receive notice of the appraised value. If I fail to so deliver such
certificates, the Company may cancel such shares of record and deposit payment
into escrow, for release to me pending delivery of the endorsed share
certificates.
8. DEPOSIT OF SHARES. For so long as my shares are subject to this
agreement, I agree to deposit the certificates representing same with counsel
designated by the Company to hold for my benefit subject to the terms hereof.
9. NOTICES. Whenever this agreement provides that notice is to be
given, the notice shall be in writing and, in the case of notice to the Company,
shall be deemed given when received by the Company's President, and in the case
of notice to me or to another shareholder, shall be deemed given when received
or, if mailed by U.S. mail, postage prepaid, addressed to the person at the
person's address then appearing on the Company's records, on the third calendar
day after the date the notice is deposited in the mail.
<PAGE>
10. MISCELLANEOUS. The provisions of Sections 3, 4, 6, 7 and 8 hereof
shall be applicable only for so long as the Company's shares of common stock are
not traded on a national or regional stock exchange. This agreement shall be
governed by and construed in accordance with the laws of the State of Georgia.
This agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes any and all prior agreements
and understandings (between me and any of the Company and its other
shareholders) with respect to the subject matter hereof. This agreement may be
modified only by a written instrument signed by all parties. In connection with
any sale or surrender of shares to the Company or another purchaser pursuant to
this agreement, I shall endorse and deliver the certificates for the shares, and
both the Company (by signing below) and I agree to execute such other documents
as may reasonably be required to carry out this agreement. When used herein, if
required by the context, the masculine, feminine, or neuter gender shall include
the other two genders, and the singular shall include the plural and vice versa.
The section headings and any other captions set forth herein are for convenience
of reference only and shall not be used in interpreting this agreement. If any
action at law or in equity is necessary to enforce the terms of this agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs, and
necessary disbursements in addition to any other relief to which such party may
be entitled. This agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute but one and the same instrument.
Executed effective as of May 17, 1999.
Signature, Name
and Address:
-
Pointe Communications Corporation
By:________________________________
Title:_____________________________
<PAGE>
EXHIBIT D
---------
NONCOMPETITION AGREEMENT
AGREEMENT entered into as of the ____ day of __________, _____, between
Pointe Communications Corporation, a Nevada corporation ("Employer"), and
________________________ ("Employee").
Employer is in the business of providing services and solutions in the
telecommuting industry (the "Business"). Employee currently is, or at the time
of his termination was, employed by Employer as _________________________ of
Employer (the "Capacity").
To protect Employer's legitimate interests, Employer and Employee find it
necessary and appropriate to restrict competition and certain other activities
by Employee, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the issuance of Employer stock
to Employee as compensation, the premises, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
accepted by Employee, Employee agrees with Employer as follows:
1. USE AND DISCLOSURE OF CONFIDENTIAL INFORMATION. During the period
of two (2) years after Employee's employment has terminated for any reason
whatsoever (or, in the case of trade secrets, for so long as the information in
question remains a trade secret) and during any period Employee is employed by
Employer hereafter, Employee shall not, without the prior written consent of
Employer, directly or indirectly, divulge, disclose or publish to any person or
entity, or reproduce or use in any way, except only as required for the benefit
of Employer, any Confidential Information (as defined herein). Upon Employer's
request and, in any event, upon the termination of Employee's employment with
Employer for any reason whatsoever, Employee shall immediately return any
reproductions of Confidential Information to Employer. For purposes of this
Agreement, "Confidential Information" means any trade secrets and any
information relating to Employer's business that is competitively sensitive and
not generally known by the public, including processes, policies, procedures,
techniques, designs, drawings, know-how, show-how, technical information,
technology, specifications, products, computer programs (including computer
programs developed, improved or modified by Employee for or on behalf of
Employer for use in Employer's business), algorithms, systems, methods of
operation, order entry forms, price lists, customer lists, customer information,
solicitation leads, marketing research data, marketing and advertising materials
and methods and manuals and forms, all of which pertain to the Business.
Confidential Information does not include any information which (i) is available
in published print or otherwise known to the public, unless published or made
known as a result of acts or omissions of Employee, or (ii) is lawfully obtained
by Employee in writing from a third party who did not acquire such confidential
information or trade secret, directly or indirectly, from Employee or Employer.
2. COMPETITION. During the period of eighteen (18) months after
Employee's employment has terminated for any reason whatsoever and during any
period Employee is employed by Employer hereafter, Employee shall not, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, firm or entity (except on behalf of Employer)--
(a) Engage in the Business, in the same Capacity as Employee has
been employed by Employer, anywhere within ________________________________
________________________________________________________________________________
__________ (the "Territory"), provided that, if Employee's employment with
Employer is ended, the prohibition of this Section 2(a) applies only to the
locations within such Territory where Employee actually was working during the
six months immediately preceding the time Employee's employment with Employer
ended;
(b) Initiate any action to solicit in competition with the
Business of Employer or to divert or attempt to divert from Employer the
Business of any person, firm or entity for which Employer provided services in
connection with the Business at any time during the period of twenty-four (24)
months immediately preceding the time of such solicitation, diversion or attempt
to divert and with whom Employee had material contact in the course of
Employee's employment with Employer; or
<PAGE>
(c) Initiate any action to hire for any other employer any
employee of the Employer or directly or indirectly cause any employee of the
Employer to leave his employment in order to work for another.
Employee acknowledges that Employer has conducted and expects to conduct
its Business throughout the Territory and that Employer expects that during the
aforesaid period, Employer will continue to expand its Business throughout the
Territory and that this expectation is realistic; that Employee shall be engaged
in Employer's Business, in the Capacity, with respect to Employer's activities
throughout the Territory; and that because of Employee's association with
Employer, Employer's Business would be seriously and irreparably harmed if
Employee were to compete with Employer in the manner prohibited above.
3. REPURCHASE OPTION. If Employee breaches his obligations under
Section 2 hereof, Employer shall have the option to repurchase any and all
shares acquired by Employee pursuant to the TeleCommute Solutions Stock Option
Plan (the "Plan") at a purchase price equal to Employee's Option Price
thereunder. Employer shall exercise its option by notifying Employee of such
exercise in writing, within ten (10) days of which Employee shall deliver
certificates for such shares, duly endorsed in blank, free and clear of all
liens and encumbrances, and Employer shall concurrently deliver payment
therefor. If Employee fails to so deliver such certificates, Employer may
cancel such shares of record and deposit payment into escrow, for release to
Employee pending delivery of the endorsed share certificates.
4. INJUNCTION. As any breach by Employee of any of the covenants
contained in this Agreement would result in irreparable injury to Employer, and
as the damages arising out of any such breach would be difficult to ascertain,
Employee agrees that, in addition to all other remedies provided by law or in
equity, Employer shall be entitled to an injunction against any such breach,
whether actual or contemplated.
5. SETOFF. Employer shall be entitled to set off against any
compensation, commissions and other payments of any kind owed to Employee any
amounts owing to Employer as a result of a breach of this Agreement or
otherwise.
6. MODIFICATION. Should any provision of this Agreement be declared
unenforceable by a court of competent jurisdiction, the parties request that
such court modify such provision in a manner consistent with the intent of this
Agreement so that it shall be enforceable as modified to the greatest extent, in
the largest territory, and for the longest duration as may be permitted by law.
7. SEVERABILITY. If any provision of this Agreement shall for any
reason be held illegal or unenforceable, such provision shall be deemed
severable from the remaining provisions of this Agreement and shall in no way
affect or impair the validity or enforceability of the remaining provisions of
this Agreement.
8. CUMULATIVE RIGHTS. Any rights and remedies of Employer pursuant to
this Agreement shall be in addition to and cumulative of, and shall in no way
limit or supersede, any other rights and remedies Employer may have under law or
in equity or pursuant to any other agreement with Employee.
9. MISCELLANEOUS. As to the subject matter hereof, this Agreement
supersedes any and all other agreements, either oral or in writing, between the
parties hereto and constitutes the entire agreement between the parties. Any
modification of this Agreement will be effective only if it is in writing signed
by the party to be charged. Failure or delay of either party to insist upon
compliance with any provision hereof will not operate and is not to be construed
as a waiver or amendment of the provision or the right of the aggrieved party to
insist upon compliance with such provision or to take remedial steps to recover
damages or other relief for noncompliance. Any express waiver of any provision
of this Agreement will not operate and is not to be construed as a waiver of any
subsequent breach, whether occurring under similar or dissimilar circumstances.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors, assigns, heirs, executors and personal
representatives, but neither this Agreement nor any rights hereunder shall be
assignable by Employee. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled. The captions
set forth herein are for convenience of reference only and shall not be used in
interpreting this Agreement. "Including" means including without limitation.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Georgia.
EXECUTED as of the date first above written.
EMPLOYEE:
<PAGE>
__________________________________________________
Name: __________________________________________
EMPLOYER:
Pointe Communications Corporation
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 31204888
<SECURITIES> 0
<RECEIVABLES> 5717688
<ALLOWANCES> (1038074)
<INVENTORY> 1453075
<CURRENT-ASSETS> 39705559
<PP&E> 26291306
<DEPRECIATION> (5987954)
<TOTAL-ASSETS> 82206845
<CURRENT-LIABILITIES> 20159518
<BONDS> 12195039
0
101
<COMMON> 455
<OTHER-SE> 47869773
<TOTAL-LIABILITY-AND-EQUITY> 82206845
<SALES> 0
<TOTAL-REVENUES> 12965451
<CGS> 0
<TOTAL-COSTS> 12504624
<OTHER-EXPENSES> 5979013
<LOSS-PROVISION> 203413
<INTEREST-EXPENSE> 487376
<INCOME-PRETAX> (5990031)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5990031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5990031)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
