<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
For the quarterly period ended March 31, 1996
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the transitional period from to
---------- -----------
Commission File Number 0-24622
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POLISH TELEPHONES AND MICROWAVE CORPORATION
---------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Texas 75-2433637
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
433 East Las Colinas Boulevard, Suite 815, Irving, Texas 75075
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code -- 214/831-8722
------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: $.001 par value, 1,891,442
shares as of May 10, 1996
Index of Exhibits appears on page 14
<PAGE>
Polish Telephones and Microwave Corporation
Table of Contents
Form 10-QSB Report
March 31, 1996
PAGE
----
Part I. Financial Information
Item 1. Interim Consolidated Financial
Statements (Unaudited)
Consolidated Balance Sheet -
March 31, 1996 2
Consolidated Statements of Operations -
Three months ended March 31, 1995 and 1996 3
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and 1996 4
Notes to interim consolidated financial
statements 5
Item 2. Management's discussion and analysis of
financial condition and results of operations 8
Part II. Other Information
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits
(b) Reports on Form 8-K
Signatures 13
<PAGE>
Polish Telephones and Microwave Corporation
Consolidated Balance Sheet
Unaudited
<TABLE>
<CAPTION>
MARCH 31,
1996
---------
<S> <C>
Current assets:
Cash $ 510,082
Short-term investments 2,909,524
Accounts receivable 190,870
Inventory 440,520
Other assets 131,399
-----------
Total current assets 4,182,395
Property and equipment:
Machinery and equipment 206,381
Demonstration equipment 57,483
---------
263,864
Accumulated depreciation (112,683)
---------
Net property and equipment 151,181
Other assets:
Prepaid expenses 105,216
Investments in operating ventures 101,869
---------
Total other assets 207,085
Total assets $ 4,540,661
---------
---------
Current liabilities:
Accounts payable $ 349,538
Accrued liabilities 43,854
---------
Total current liabilities 393,392
Minority interests 738,431
Stockholders' equity:
Preferred stock, $.001 par value, 4,000,000
shares authorized, no shares issued and
outstanding, without defined preference rights 0
Series A preferred stock, $.001 par value
1,000,000 shares authorized, no shares issued and
outstanding 0
Common stock, $.001 par value, 10,000,000
shares authorized, 1,890,442 shares issued and
outstanding 1,890
Additional paid in capital 8,113,238
Unpaid capital subscriptions (600,000)
Accumulated deficit (4,106,290)
---------
Stockholders' equity 3,408,838
---------
Total liabilities and equity $ 4,540,661
---------
---------
</TABLE>
See notes to interim consolidated financial statements
2
<PAGE>
Polish Telephones and Microwave Corporation
Consolidated Statements of Operations
unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
---------- ----------
<S> <C> <C>
Revenues $ 509,238 $ 340,606
Cost of revenues 318,161 208,210
---------- ----------
Gross profit 191,077 132,396
Selling, general and admin. expense 401,544 347,676
---------- ----------
Loss from operations (210,467) (215,280)
---------- ----------
Other income (expense):
Interest income 41,472 64,118
Interest expense (1,647) (176)
Foreign exchange gain (loss) (2,928) 5,300
---------- ----------
36,897 69,242
Provision for income taxes:
Foreign income tax on operations
of subsidiary 11,605 0
Utilization of foreign operating
loss carryforwards (4,457) 0
---------- ----------
7,148 0
Loss before minority interest (180,718) (146,038)
Minority interest in subsidiary's
losses (income) (390) 4,116
---------- ----------
Net loss $ (181,108) $ (141,922)
---------- ----------
Net loss per share $ (0.09) $ (0.07)
---------- ----------
Weighted average common and common
equivalent shares outstanding 2,031,397 1,988,266
---------- ----------
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE>
Polish Telephones and Microwave Corporation
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
------ ------
<S> <C> <C>
Operating Activities
Net loss $ (181,108) $ (141,922)
Add non-cash expenses:
Depreciation 12,321 10,699
Interest amortized on discounted
short-term investments (10,245) (17,000)
Minority interest in subsidiary's
income (losses) 390 (4,116)
Decrease in minority interests
subscriptions receivable 42,595 8,831
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable, net (85,979) 121,233
Increase in inventory (29,520) (96,811)
Decrease in other assets 1,653 15,086
Increase in prepaid expenses (57,825) (39,349)
Increase (decrease) in accounts payable 170,833 (43,318)
Increase (decrease) in accrued liabilities 10,019 (29,350)
---------- -----------
Net cash provided by operating activities (126,866) (216,017)
Investing Activities
Purchase of short term investments (2,899,279) (3,943,600)
Redemption of short term investments 3,471,615 3,963,160
Purchases of property and equipment (9,704) (9,333)
Investment in operating venture (98,939) 0
---------- -----------
Net cash used in investment activities 463,693 10,227
Net increase in cash 336,827 (205,790)
Cash at beginning of year 173,255 546,267
---------- -----------
Cash at end of period $ 510,082 $ 340,477
---------- -----------
---------- -----------
</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Financial Statements
The accompanying unaudited Interim Consolidated Financial Statements
include the accounts of Polish Telephones and Microwave Corporation and
subsidiary (the "Company").
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Regulation SB. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended March
31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and
footnotes included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1995.
Note 2 - Income Taxes
There is no provision for federal or state income taxes and for foreign
income taxes for the first quarter of 1995, since the Company had
incurred operating losses since inception. In addition, the Company
has fully reserved the potential future tax benefits resulting from the
utilization of U.S. net operating loss carryforwards, Polish operating
loss carryforwards and other temporary timing differences.
Note 3 - Foreign operations
The consolidated financial statements include amounts for the Company's
90% owned foreign subsidiary, DTS/ZWUT, as follows:
THREE MONTHS ENDED
----------------------
3/31/96 3/31/95
------- ---------
Net sales $ 509,238 $ 340,606
Net income (loss) 3,904 (20,584)
Total assets 1,156,499 996,316
Net assets 846,109 887,954
5
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Net Income (loss) per share
The net income (loss) per common and common equivalent share is based
on the weighted average number of shares of common stock outstanding.
For 1995, common equivalent shares include stock options for 128,394
shares granted at prices below the average market price of $3.36 per
share, as if they were outstanding for the entire quarter, calculated
by the treasury stock method in accordance with Securities and Exchange
Commission Staff Accounting Bulletin requirements.
For 1996, common equivalent shares include stock options and warrants
for 376,394 shares granted at prices below the average fair market
price at which the Company's common stock traded during the period, as
if they were outstanding for the entire quarter, calculated by the
treasury stock method as described above.
The average market price during each of the periods presented has been
used in the calculation of equivalent shares in all periods presented
as this results in the maximum dilutive effect.
Note 5 - Investment in operating ventures
During 1995, the Company made an investment of $2,930 in a Polish joint
venture "TELINFO". The joint venture was formed to provided
telecommunication services in a rural area of Poland. The Company has
a 34 percent interest in the joint venture and has no continuing
obligation to fund or guarantee the liabilities of the joint venture.
Currently, the joint venture has no significant operations but is
seeking a telephone operator's license for the Suwalki, Poland area.
During the first quarter of 1996, the Company invested $98,939 for a 5%
interest in a venture with Elterix, a Polish company developing a
private network for 70,000 telephone lines.
6
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Business combination
On April 29, 1996, the Company signed a definitive agreement to acquire
all of the stock of Telereunion, a privately owned Delaware
corporation. Telereunion is a telecommunications equipment and service
company with operations primarily in Mexico. Under the terms of the
acquisition, the Company will issue to the shareholders of Telereunion
1,605,000 shares of common stock of the Company, 380,000 shares of
non-voting, non-participating preferred stock having an aggregate
liquidation preference of $380,000 and warrants to purchase up to
2,595,000 additional shares at $2.19. The warrants would vest and
become exercisable, if at all, as the combined companies meet certain
specified financial objectives and would expire 7 years after closing.
In addition, the Company will convert and amend certain non-qualified
options outstanding under the Telereunion 1995 Stock Option and
Appreciation Rights Plan to provide for the right to acquire an
aggregate of 216,618 shares of Common Stock for an exercise price of
$1.35 per share.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------
REVENUES from the sale of products increased by $168,632 from $340,606 in the
first quarter of 1995 to $509,238 in the first quarter of fiscal 1996. In
the first quarter of 1996, sales of Point-to-Point microwave equipment
totaled approximately $85,000, while sales of switching equipment totaled
approximately $420,000 during this period. For the first quarter of 1995,
sales of Point-to-Point microwave and switching equipment approximated
$150,000 and $190,000, respectively.
COST OF REVENUES increased by $109,951 from $208,210 in the first quarter of
1995 to $318,161 in the first quarter of fiscal 1996. The increase in the
cost of revenues for the first quarter of 1996 as compared to the same period
in 1995, reflects the increase in sales revenue realized by the Company.
GROSS PROFIT as a percentage of sales decreased by 1% from 39% in the first
quarter of 1995 to 38% for the first quarter of 1996. In dollar terms, gross
profit increased $58,681, from $132,396 to $191,077 over the same time period.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") increased by
approximately $53,868 from $347,676 in the first quarter of fiscal 1995 to
$401,544 in the first quarter of fiscal 1996. The increase in SG&A reflects
the Company's continuing efforts to expand its sales and marketing as well as
technical capabilities, including the Company's efforts to establish itself
in the Point-to-Point and Point-to-Multipoint microwave markets. In
addition, the Company incurred non-recurring expenses of approximately
$53,000 relating to a severance package for its former Chairman and Chief
Executive Officer who resigned on February 29, 1996.
LOSS FROM OPERATIONS decreased by $4,813 from ($215,280) in the first quarter
of fiscal 1995 to ($210,467) in the first quarter of fiscal 1996.
OTHER INCOME decreased by $32,345 from $69,242 in the first quarter of fiscal
1995 to $36,897 in the first quarter of fiscal 1996. Primary components of
this change were interest income and foreign exchange gain (loss). The
Company has realized less interest income when comparing the first quarter of
1996 to the first quarter of 1995, primarily due to a decrease in the amount
invested in short term securities as a result of the use by the Company of
funds for its operations.
Additionally, the Company experienced a negative impact in the quarter to
quarter comparison regarding foreign exchange gain (loss). In the first
quarter of 1995, the Company posted an exchange gain of $5,300, while in the
first quarter of 1996 the Company experienced an exchange loss of $2,928.
NET LOSS increased by $39,186, from a loss of $141,922 in the first quarter
of 1995 to a loss of $181,108, in the first quarter of 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 1996 the Company had cash and
equivalents of approximately $3,400,000. Since inception, the Company has
financed its operations primarily through the issuance of debt and equity and
through cash generated by operations.
On August 10, 1994, the Company issued 1,050,000 shares of its common stock
and 525,000 redeemable common stock purchase warrants in its initial public
offering for net cash proceeds of approximately $6,000,000. Approximately
$630,000 of these funds were utilized to repay existing indebtedness of the
Company. Remaining net proceeds have been and will be used primarily for the
expansion of current operations, implementation of new product lines,
inventory acquisition, working capital and other general corporate purposes.
The Company's future cash requirements for the remainder of 1996 and beyond
will depend primarily upon the level of sales, expenditures on product
development and enhancements and marketing and the timing of inventory
purchases.
OUTLOOK AND UNCERTAINTIES
Future trends for the revenues and profitability of the Company are difficult
to predict. The Company continues to face many risks and uncertainties,
including general and specific market economic risks, the risks associated
with the continuing conversion of the Polish economy from a communist economy
to a market economy, competitive factors, the risks of its customers being
able to obtain financing for their purchases of the Company's products, risks
of the collectibility of accounts receivable general and the availability of
products that will be approved for use in the Company's foreign markets. In
addition, the Company believes that the markets in which it participates
could be subject to numerous factors that will contribute to the slow growth
of its business in those markets, such as the lack of capital for the
creation of infrastructure, lack of governmental support for the
telecommunication industry and intense competition from other vendors with
substantially greater resources and name recognition than the Company. In
addition, many of the products or components of the products manufactured by
the Company are subject to price fluctuations which are beyond the Company's
control and can affect the Company's ability to price its products
competitively and, thus, the overall profitability of the Company.
Furthermore, the Company faces the challenge of maintaining product lines
that reflect the rapidly improving and changing technology of the
telecommunications industry.
It is also difficult to predict what effect the Company's proposed purchase
of the stock of Telereunion will have on the Company's liquidity and capital
resources. The exploitation of the opportunities presented by the Mexican
telephone market are expected to require substantial capital. To the extent
Telereunion does not have a positive net cash flow from its operations, it
can be expected that the Company would have to fund any shortfalls from its
working capital. In addition, any capital expenditures needed to expand the
operations of Vextro de Mexico (a subsidiary of Telereunion) would likely be
funded out of the working capital of the Company. Any such fundings would
reduce the funds available to finance and expand the Company's operations in
eastern Europe. In addition, further economic crises in Mexico could result
in the need to fund any cash flow shortfalls of Telereunion and Vextro.
9
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
On April 29, 1996, the Company executed a definitive agreement to
acquire all of the issued and outstanding shares of Telereunion, Inc.,
a Delaware corporation ("Telereunion"). The acquisition will be
completed by means of a merger between Telereunion and a newly formed
subsidiary of the Company. Upon consummation of the merger, the
subsidiary will change its name to Telereunion, Inc. Telereunion
distributes Northern Telcom telecommunications products, as well as
Octel voice mail systems and provides conference calling services in
Mexico. Telereunion's operations are conducted through Vextro de
Mexico, S.A de C.V. ("Vextro"), its 97% owned subsidiary organized
under the laws of the Republic of Mexico. Although, the acquisition is
subject to a number of conditions, management expects that all such
conditions will be satisfied in the near term.
Under the terms of the acquisition, the Company will issue to the
stockholders of Telereunion, in exchange for the issued and outstanding
shares of common stock of Telereunion,: (i) an aggregate of 1,605,000
shares of the common stock, $.001 par value per share, of the Company
(the "Common Stock"), (ii) warrants for the purchase of an aggregate of
2,500,000 shares of Common Stock at an exercise price of $2.19 per
share and having a term of seven years (the "Series A Common Stock
Warrants"), (iii) warrants for the purchase of an aggregate of 95,000
shares of Common Stock at an exercise price of $2.19 per share and
having a term of seven years (the "Series B Common Stock Warrants"),
and (iv) an aggregate of 380,000 shares of a new series of non-voting,
non-participating preferred stock, $.001 par value per share, of the
Company (the "Series B Preferred Stock"). In addition, the Company
will convert and amend certain non-qualified options outstanding under
the Telereunion 1995 Stock Option and Appreciation Rights Plan to
provide for the right to acquire an aggregate of 216,618 shares of
Common Stock for an exercise price of $1.35 per share. The options
will be fully vested and immediately exercisable. The consideration to
be paid by the Company for the issued and outstanding common stock of
Telereunion has been determined by negotiation between the parties.
The exercise price for the Series A Common Stock Warrants and the
Series B Common Stock Warrants was calculated based upon the average of
the closing price for a share of Common Stock quoted on the Nasdaq
Small Cap market for the twenty (20) trading days immediately preceding
December 22, 1995, the date of execution of the letter of intent with
respect to this acquisition. The Series A Common Stock Warrants will
vest and become exercisable, if at all, upon the Company meeting
certain fiscal year earnings per share targets, computed in accordance
with the terms of the Series A Common Stock Warrants, as follows: (i)
1,000,000 shares if earnings per share equals at least $.315 per share;
(ii) an additional 1,000,000 shares if earnings per share (computed to
include the effect of the vesting of 2,000,000 shares under the Series
A Common Stock Warrants) equals at least $.458 per share; and (iii) an
additional 500,000 shares if earnings per share (computed to include
the effect of the vesting of all of the Series A
10
<PAGE>
Common Stock Warrants) equals at least $.75 per share. The Series B
Common Stock Warrants will vest and become exercisable,
if at all, upon the Company achieving a $5,000,000 increase in net
shareholder's equity, computed in accordance with the terms of the
Series B Common Stock Warrants. Both the Series A Common Stock
Warrants and the Series B Common Stock Warrants are subject to
accelerated vesting if the closing price for the Company's Common Stock
as quoted on The Nasdaq Stock Market or any other reliable public
market is at least $12.00 per share for a period of 90 consecutive
trading days during the warrants' terms.
The Series B Preferred Stock is redeemable by the Company for a price
of $1.00 per share upon the attainment of a specified increase in net
stockholder's equity or upon the attainment of a specified operating
cash flow target. If a redemption event does not occur within eighteen
months of its issuance, the Series B Preferred Stock is automatically
terminated.
In addition to the foregoing terms, three stockholders of Telereunion
who are the principal executive officers of Telereunion and its
operating subsidiaries will receive three year employment agreements.
The Company will also increase the size of its Board of Directors by
one member, from its pre-acquisition size of six members to seven. The
three "management" stockholders of Telereunion will join the Board as
new directors and four of the six pre-acquisition directors of the
Company will comprise the remaining members of the Board. It is
anticipated that Messrs. Panno, Varghese, Kirkland and Efird and
Messrs. Landa, Mora and Gudino will comprise the Board of Directors of
the Company after consummation of the acquisition.
Mr. Christopher Efird, who is a director of the Company, is also a
director of Telereunion. In addition, Mr. Efird is an employee of
Benchmark Equity Group ("Benchmark"), a stockholder of Telereunion.
Upon consummation of the acquisition, Mr. Efird will receive, as
compensation for his services as an employee of Benchmark, 65,625
shares of Common Stock, 37,500 Series A Common Stock Warrants and
11,875 Series B Common Stock Warrants, which shares and warrants
constitute a portion of the Common Stock and warrants to be issued to
Benchmark at the closing of the acquisition. Mr. Efird originally
joined the Board of the Company on November 17, 1995.
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on page 14.
(b) Reports on Form 8-K.
On March 8, 1996 the Company filed a report on Form 8-K reporting the
resignation of Krishna Murthy, its President, Chief Executive Officer
and Chairman of the Board.
On March 19, 1996 the Company filed a report on Form 8-K announcing the
election of Mr. Darrel Kirkland as a Director of the Company. Mr.
Kirkland filled the seat which was left vacant by the resignation of
Krishna Murthy.
12
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the issuer has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
POLISH TELEPHONES AND MICROWAVE
CORPORATION
Date: 5/10/96 By: /s/ GARY PANNO
----------------- ----------------------
Gary Panno
President and CEO
Date: 5/10/96 By: /s/ DONALD J. HOFF
----------------- ----------------------
Donald J. Hoff
Controller
13
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
- ----------- -----------
4.1 - Form of Statement of the establishment of the Series B
non-voting, non-participating Preferred Stock
10.1 - Employment Agreement between the Company and Gary Panno
10.2 - Consulting Agreement between the Company and Roy A. Varghese
10.3 - Agreement of Plan of Merger
10.4 - Form of Series A Common Stock Warrant
10.5 - Form of Series B Common Stock Warrant
10.6 - Form of Employment Agreement for Manuel Landa, Ricardo Orea
Gudino and Oscar Garcia Mora
10.7 - Form of Non-Qualified Stock Option Certificate and
Agreement, as amended, for Manuel Landa, Ricardo Orea Gudino
and Oscar Garcia Mora
10.8 - Form of Warrant for Robert Chamberlain
11.1 - Statements regarding computation of per share earnings
27.1 - Financial Data Schedule
14
<PAGE>
EXHIBIT A
STATEMENT OF THE ESTABLISHMENT OF THE
SERIES B NON-VOTING, NON-PARTICIPATING PREFERRED STOCK,
$0.001 PAR VALUE PER SHARE, OF
POLISH TELEPHONES AND MICROWAVE CORPORATION
1. The name of the corporation is Polish Telephones and Microwave
Corporation (the "Company").
2. The following resolution establishing a series of the class of
Preferred Stock, $0.001 par value per share, of the Company entitled "Series
B Non-Voting, Non-Participating Preferred Stock, $0.001 Par Value Per Share",
was adopted by a vote of the Board of Directors of the Company pursuant to
Article IV of the Articles of Incorporation of the Company, as amended:
RESOLVED THAT, pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its Articles of
Incorporation, a series of the Preferred Stock of Polish Telephones and
Microwave Corporation (the "Company"), be and it hereby is created, and that
the designation and amount thereof and the voting powers, preferences, and
relative, participating, optional, and other special rights of the shares of
such series, and the qualifications, limitations, or restrictions thereof are
as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series will be
designated as "Series B Non-Voting, Non-Participating Preferred Stock" and
the number of shares constituting such series will be 380,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(a) The holders of shares of Series B Non-Voting, Non-Participating
Preferred Stock will not be entitled to have declared thereon or to be
paid or receive any dividends or other distributions whatsoever, whether
preferred or participating, except as expressly set forth in Section 5
below.
Section 3. VOTING RIGHTS.
(a) Except as set forth in Section 7 below and except for those
voting rights expressly provided as to all classes of stock of a Texas
corporation under the Texas Business Corporation Act, as amended, the
holders of shares of Series B Non-Voting, Non-Participating Preferred
Stock will not have any voting rights.
Section 4. REDEMPTION.
Upon the attainment (a) by the Company of an increase in net
shareholders equity of the Company of at least $5,000,000 computed by
comparing (i) the net shareholders equity of the Company on a pro forma
basis after giving effect to the acquisition of
1
<PAGE>
Telereunion, Inc., a Delaware corporation ("Telereunion") by the Company
as of the date of the consummation of such acquisition to (ii) the net
shareholders equity of the Company as set forth in a consolidated
balance sheet of the Company as of any date occurring during the
18-month period immediately following the consummation of the
acquisition of Telereunion by the Company, which balance sheet shall be
contained in a periodic report of the Company on Form 10-KSB or Form
10-QSB as filed with the Securities and Exchange Commission or (b) by
Telereunion of at least $380,000 of net cash flow (defined for purposes
hereof as income less non-cash charges) in any period of 12 consecutive
months during the 18-month period immediately following the consummation
of the acquisition of Telereunion by the Company as shown on any
quarterly or annual income statement of Telereunion prepared in
accordance with generally accepted accounting principles (each of clause
(a) and clause (b) above being referred to herein as a "Redemption
Condition"), whichever shall first occur, if either, then subject to the
provisions of Section 5 below, the Company shall without further action,
to the extent permitted by law, redeem the then outstanding shares of
the Series B Non-Voting, Non-Participating Preferred Stock for an amount
equal to $1.00 per share, up to a maximum of $380,000 in the aggregate,
if all of the authorized shares of Series B Non-Voting,
Non-Participating Preferred Stock are then outstanding. Within 30 days
of the fulfillment of the condition to the redemption of the Series B
Non-Voting, Non-Participating Preferred Stock, the Company shall pay the
holders of the then outstanding shares of Series B Non-Voting,
Non-Participating Preferred Stock the redemption price for the Series B
Non-Voting, Non-Participating Preferred Stock as set forth above (the
"Redemption Price") in cash upon the surrender of the stock certificates
representing each holder's shares of the Series B Non-Voting,
Non-Participating Preferred Stock for cancellation. The number of
shares of Series B Non-Voting, Non-Participating Preferred Stock shall
not be increased or the subject of any split, reverse split or other
recapitalization without the prior consent of the holders of 80% of the
shares of the Common Stock, $0.001 par value per share, of the Company
outstanding from time to time.
Section 5. LIQUIDATION, DISSOLUTION, OR WINDING UP.
(a) If a Redemption Condition has been met, but a liquidation
(voluntary or otherwise), dissolution, or winding up of the Company
occurs prior to the payment of the Redemption Price to the holders of
the Series B Non-Voting Non-Participating Preferred Stock pursuant to
Section 4 above, the Company may, at its sole option and election, make
a distribution to the holders of the shares of Series B Non-Voting,
Non-Participating Preferred Stock as set forth below in connection with
such liquidation, dissolution or winding up in lieu of paying the
Redemption Price to such holders. If the Company makes such an
election, no distribution will be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution,
or winding up) to the Series B Non-Voting, Non-Participating Preferred
Stock unless, prior thereto, the holders of shares of Series B Junior
Participating Preferred Stock have received an amount equal to $1.00 for
each shares of Series B Non-Voting Preferred Stock (the "Series B
Liquidation Preference"). Following the payment of the full amount of
the Series B Liquidation
2
<PAGE>
Preference, no additional distributions will be made to the holders of
shares of Series B Non-Voting Preferred Stock.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series B Liquidation
Preference and the liquidation preferences of all other series of
preferred stock, if any, that rank on a parity with the Series B
Non-Voting, Non-Participating Preferred Stock, then such remaining
assets will be distributed ratably to the holders of such parity shares
in proportion to their respective liquidation preferences.
Section 6. CONSOLIDATION, MERGER, ETC. In case the Company enters into
any consolidation, merger, combination, or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash, and/or any other property, then in any such case the shares
of Series B Non-Voting, Non-Participating Preferred Stock will at the same
time be similarly exchanged or changed into securities of the issuer of the
securities for which the Common Stock is exchanged or which the Common Stock
is changed into, which securities have a liquidation preferred equivalent to
that of the shares of Series B Non-Voting, Non-Participating Preferred Stock
and shall otherwise be equivalent to the Series B Non-Voting,
Non-Participating Preferred Stock with respect to payment of dividends,
voting rights, redemption rights, and preference upon the dissolution and
liquidation of the Company.
Section 7. AMENDMENT. The Articles of Incorporation of the Company will
not be further amended in any manner that would materially alter or change
the powers, preferences, or special rights of the Series B Non-Voting,
Non-Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
shares of the Series B Non-Voting, Non-Participating Preferred Stock, voting
separately as a class.
Section 8. FRACTIONAL SHARES. Shares of the Series B Non-Voting,
Non-Participating Preferred Stock may be issued in fractions of a share that
entitle the holder, in proportion to such holder's fractional shares, to
participate in distributions and to have the benefit of all other rights of
holders of shares of Series B Non-Voting, Non-Participating Preferred Stock.
3. The foregoing resolution was adopted by the Board of Directors of the
Company on, on March ____, 1996.
4. The foregoing resolution was adopted by all necessary action on the part
of the Company.
3
<PAGE>
This Statement of the Establishment of the Series B Non-Voting,
Non-Participating Preferred Stock, $0.001 Par Value Per Share, of Polish
Telephones and Microwave Corporation is executed on behalf of the Company on
________________, 1996.
POLISH TELEPHONES AND MICROWAVE CORPORATION
By ________________________________________
Authorized Officer
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of April 1, 1996, by and
among Polish Telephones and Microwave Corporation, a Texas corporation (the
"Company"), and Gary Panno, an individual (the "Employee).
WHEREAS, the Company wishes to continue to employ Employee and Employee
wishes to continue in the employ of the Company for the period and on the
terms and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing promises and the
covenants, conditions, representations and warranties contained herein, the
parties hereto agree as follows:
1. EMPLOYMENT. Employee shall continue to perform services for the
Company in the position of President and Chief Executive Officer, and
Employee shall perform such duties and responsibilities as may be assigned
from time to time by the Company's Board of Directors (the "Board")
consistent with Employee's position. From time to time, the Company may
change Employee's title as it may determine appropriate in light of the
Company's current structure and staffing provided that the title shall
properly reflect Employee's status as an executive. During the term of his
employment with the Company, Employee will devote his best efforts and 50% of
his business time and attention (except for vacation periods as set forth
below and reasonable periods of illness or other incapacitates permitted by
the Company's general employment policies) to the business of the Company.
2. TERM OF AGREEMENT. The term of this Agreement shall commence as of
April 1, 1996 (the "Effective Date"), and shall continue until March 31, 1997
(the "Term") unless Employee's services are terminated pursuant to the
provisions of Section 7 hereof. At the end of the Term, if Employee is still
employed by the Company pursuant to this Agreement, the term of this Agreement
may be extended by mutual written consent of the parties hereto, and all of the
terms and conditions of this Agreement shall thereafter apply during such
extended term.
3. LOCATION OF SERVICES. Employee's services under this Agreement
shall be performed primarily at the facilities of the Company located in
Irving, Texas, or at such other facilities as the Company and Employee may
agree upon from time to time. Employee acknowledges and agrees that Employee's
job responsibilities may require extensive travel, and Employee agrees to travel
as necessary to discharge those duties.
4. STANDARD TERMS; PROPRIETARY INFORMATION. The employment relationship
between the parties shall also be governed by the general employment policies
and practices of the Company, including those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies or practices, this Agreement shall control.
5. COMPENSATION.
5.1 BASE COMPENSATION. Effective as of the Effective Date, the
Company shall pay to Employee base compensation at the annualized rate of sixty
thousand dollars ($60,000)
<PAGE>
through the end of the Term. Employee's base compensation shall be reviewed
by the Board annually, and the Board may, but is not required to, change such
base compensation. Employee's base compensation shall be payable in
installments consistent with the Company's normal payroll practices for its
executive employees.
5.2 BONUS. During the Term, Employee shall be entitled to receive
such annual bonuses as the Board may determine based upon performance objectives
to be adopted by the Board, payable to Employee in lump sum within thirty (30)
days following completion of the financial audit for each fiscal year.
6. BENEFITS.
6.1 GENERAL. Except as otherwise expressly provided in this
Section 6, for as long as Employee is employed by the Company, Employee shall
be entitled to all fringe benefits that the Company may make available from
time to time for all executive employees. Without limitation, such fringe
benefits shall include those available, if any, under any health and benefits
package, life insurance and disability programs, and participation in any
plan or program designed for all executive employees by the Company. Employee
shall be entitled to paid vacation in accordance with the Company's standard
employment policies and practices for executive employees, as the same may be
in effect from time to time. In addition, Employee shall be entitled to take
all Company holidays as the same may be designated by the Company from time to
time for all employees. Employee shall receive such additional fringe benefits,
if any, as the Board shall determine in its sole discretion from time to time.
6.2 BUSINESS EXPENSES. The Company shall reimburse Employee for
all ordinary and necessary expenses incurred by Employee, including
disbursements, in the performance of Employee's duties for the Company upon
presentation within the time period specified by the Company of an itemized
statement of all expenses incurred showing the date, nature, receipt, purpose
and amount of each item, subject to prior approval of the Company as required
of executive employees.
6.2 TERMINATION OF BENEFITS. All unvested benefits provided under
this Section 6 shall terminate concurrently with termination of Employee's
employment hereunder for any reason whatsoever. Nothing herein shall vest any
rights in any profit sharing or bonus plans, general expense or automotive
reimbursements, and similar fringe benefits that the Company may provide, if
any, beyond the date on which Employee's employment is terminated for any
reason.
7. TERMINATION OF EMPLOYMENT.
7.1 TERMINATION FOR CAUSE. Notwithstanding any other provision of
this Agreement, Employee's employment with the Company may be terminated for
any cause at any time by the Company, upon reasonable notice to Employee.
For the purposes of this Agreement, "cause" shall mean (a) gross or habitual
failure to perform pursuant to the terms of this Agreement and such
performance failure is not corrected within thirty (30) days after written
notice by the Company or the Board to Employee thereof; or (b) misconduct,
including, but not limited, to (i) conviction of a crime or entry of a plea
of NOLO CONTENDERE with regard to a crime involving moral turpitude or
dishonesty, (ii) any breach of the Confidentiality Agreement, (iii)
Employee's repeated insubordination or refusal to comply with any reasonable
request of the Board relating to the scope or performance of Employee's
duties, (iv) conduct that in the good
<PAGE>
faith and reasonable determination of the Board demonstrates Employee's gross
unfitness to serve or (v) indictment by a grand jury.
7.2 TERMINATION WITHOUT CAUSE. The Company may terminate Employee's
employment under this Agreement without cause at any time upon written notice
to Employee.
7.3 TERMINATION FOR DEATH OR DISABILITY. Employment hereunder
shall automatically terminate upon Employees' death or disability. Disability,
for purposes of this Agreement, shall mean a physical or mental disability that
interferes with Employee's ability to perform duties pursuant to this Agreement
for a continuous period of six (6) months or more.
8. POST-TERMINATION COMPENSATION.
8.1 TERMINATION BY THE COMPANY FOR CAUSE. Notwithstanding any
other provision of this Agreement to the contrary, if Employee's Employment
is terminated for cause pursuant to Section 7.1, the Company shall make no
further salary payments except those earned prior to the date of termination
and shall make no further bonus payments.
8.2 TERMINATION BY THE COMPANY WITHOUT CAUSE. If the Company
terminates this Agreement without cause as defined in Section 7.2 hereof,
then the Company shall pay Employee severance equal to Employee's base
compensation as determined pursuant to Section 5.1 for the balance of the
term of this Agreement. The Company shall make no further bonus payments.
8.3 TERMINATION BY EMPLOYEE'S DEATH OR DISABILITY. If employment
shall terminate by reason of Employee's death or disability, the Company shall
pay Employee or Employee's estate severance equal to six (6) months base
compensation, payable in a lump sum. The Company shall make no further bonus
payments.
9. NONCOMPETITION. Until two (2) years after termination of Employee's
employment with the Company, Employee shall not (a) either directly or
indirectly, carry on, engage in or have any interest in any business that
competes with the Company, excepting ownership by Employee of no more than one
percent (1%) of the publicly traded common stock or any corporation, (b) without
the express written consent of the Company, accept employment with, or in any
manner agree to provide, for compensation, services for any other person or
entity that competes directly or indirectly with the Company, or (c) materially
disrupt, damage, impair or interfere with the business of the Company, whether
by way of interfering with or soliciting its employees, disrupting its
relationship with customers, agents, representatives or vendors, or otherwise.
10. ARBITRATION. Any and all disputes or controversies, whether of law
or fact of any nature whatsoever, arising from or respecting this Agreement
shall be decided by arbitration by the Judicial Arbitration Mediation Services,
Inc. ("JAMS") in accordance with the rules and regulations of JAMS, or by any
other body mutually agreed upon by the parties. Pre-arbitration discovery
shall be permitted at the request of any party under appropriate protection for
proprietary and confidential business information.
Before filing a demand for arbitration, a party must send the other
parties written notice indentifying the matter in dispute and involving the
procedures in this paragraph. Such written notice shall be sent promptly after
the party knew or reasonably should have known of an
<PAGE>
alleged violation of this Agreement. Within fifteen (15) days after such
written notice is given, one or more principals of each party shall meet at a
mutually agreeable location in Dallas, Texas, for the purpose of determining
whether they can resolve the dispute themselves by written agreement. If the
parties fail to resolve the dispute by written agreement within the fifteen-day
(15-day) period, the complaining party may then initiate the arbitration process
by filing a demand with JAMS or such other body as the parties may agree upon.
Nothing in this paragraph shall prevent a party from seeking temporary equitable
relief from JAMS or such other body as the parties may mutually agree upon
during the fifteen-day (15-day) period in necessary to prevent irreparable harm.
The arbitrators shall be selected as follows: the Company and
Employee shall each select one (1) independent, qualified arbitrator and the
two (2) arbitrators so selected shall select the third arbitrator. Any party
may disqualify any individual arbitrator who is a present or past employee,
owner, officer, director, relative or consultant to any party hereto or a
competing organization.
Arbitration shall take place in Dallas, Texas, or any other
location mutually agreeable to the parties. At the request of any party,
arbitration proceedings will be conducted in the utmost secrecy and, in such
case, all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for inspection
only by the Company or Employee, their respective attorneys, and their
respective experts, consultants or witnesses who shall agree, in advance and
in writing, to receive all such information confidentially and to maintain
such information in secrecy, and make no use of such information except for
the purposes of the arbitration, until such information shall become
generally known.
The arbitrators, who shall act by majority vote, shall be able to
decree any and all relief of an equitable nature, including but not limited
to such relief as a temporary restraining order, a temporary injunction, or a
permanent injunction, and shall also be able to award damages, with or without
any accounting costs. The decree or judgment of an award rendered by the
arbitrators may be entered in any court having jurisdiction over the parties.
Reasonable notice of the time and place of arbitration shall be
given to persons other than the parties, if such notice is required by law,
in which case such persons or their authorized representatives shall have the
right to attend or participate in the arbitration hearing in such manner as the
law shall require.
If any action is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
that party may be entitled.
11. POWER OF AUTHORITY. Each party executing this Agreement hereby
covenants, represents and warrants that he or she has full power of authority
to execute this Agreement, that no other consents or approvals or any other
third parties are required or necessary for this Agreement to be so binding
(except as otherwise herein expressly stated) and that this Agreement shall
be fully enforceable in accordance with its terms.
12. HEIRS, ADMINISTRATORS AND SUCCESSORS. Except as otherwise provided
herein, this Agreement shall inure to the benefit of and be binding upon, the
heirs, administrators and successors of each of the parties hereto.
<PAGE>
13. NONASSIGNABILITY. The Company may assign the benefit of this
Agreement to any successor in interest that results from a merger,
reorganization or acquisition. Otherwise, no party to this Agreement may
assign any right hereunder or delegate any duty hereunder without the written
consent of the other party affected by such assignment or delegation.
14. NO ORAL MODIFICATION. This Agreement may only be changed or modified
and any provisions hereof may only be waived in or by a writing signed by a
party against whom enforcement or any waiver, change or modification is sought.
15. GOVERNING LAW. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the State
of Texas.
16. SEVERABILITY. If any portion of this Agreement shall be held illegal,
unenforceable, void or voidable by any court, each of the remaining terms hereof
shall nevertheless remain in full force and effect as a separate contract.
17. RIGHT OF SETOFF. Whenever the Company owes Employee any amounts of
money by virtue of this Agreement or otherwise, the Company shall be entitled
to setoff against any such sums due to Employee the amount of any claims that
the Company has against Employee. This right of setoff shall also apply to
amounts due on the date of termination.
18. COUNTERPARTS. This Agreement constitutes the entire agreement and
understanding of the parties pertaining to the matters set forth herein, and
prior agreements, understandings or representations are hereby terminated and
canceled in their entirety and are of no further force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY;
POLISH TELEPHONES AND MICROWAVE CORPORATION
A Texas Corporation
By. _____________________________________
Christopher H. Efird
By. _____________________________________
Darrel O. Kirkland
By. _____________________________________
Roy A. Varghese
EMPLOYEE:
_________________________________
Gary Panno
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into as
of April 1, 1996, by and between Polish Telephones and Telephones
Corporation, a Texas corporation whose corporate offices are at 433 E. Las
Colinas Blvd., Suite 815, Irving, Texas 75039 (the "Company"), and Roy
Abraham Varghese of 2926 Berkshire Drive, Mesquite, Texas 75150 (the
"Consultant").
WHEREAS, the Company is engaged in the manufacture and sale of
telecommunications equipment; and
WHEREAS, the Consultant is capable of providing business and management
consulting services and is willing to provide the services desired by the
Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Consultant hereby agree as follows:
ARTICLE I
MANAGEMENT CONSULTING SERVICES
1.1 GENERAL DUTIES. During the term of this Agreement, the Consultant
shall on a best efforts basis provide consulting services to the Company
relating to strategic and management matters involving the Company,
including, but not limited to, the following:
(a) consultation regarding strategic marketing and financial planning
for the Company;
(b) assistance with legal and management affairs related to the
operations of the Company;
(c) review and analysis of the financial condition, results of
operations and cash flows of the Company;
(d) analysis and consultation regarding business strategy of the
Company;
ARTICLE II
COMPENSATION
2.1 FEE TO CONSULTANT. As compensation for the Consultant's services
hereunder, the Company shall pay to the Consultant a retainer of $1,000.00
per month during the term of this Agreement commencing on January 1, 1996.
Such compensation shall be paid in full on the 1st day of each month.
1
<PAGE>
2.2 TAXES. The Consultant shall be responsible for any and all income
or withholding taxes applicable to the fees paid to Consultant hereunder.
2.3 COMPENSATION FOR SERVICES IN 1995. Consultant provided the Company
with the services listed in 1.1 from June 1995 to December 1995 and
accordingly shall be additionally paid a fee of $1,000 for each month from
June 1995 to December 1995.
ARTICLE III
TERM AND TERMINATION
3.1 TERM. This Agreement shall be effective upon the date hereof and
shall continue in force for an initial term of one year, unless earlier
terminated in accordance with Section 3.2. Thereafter, this Agreement shall
be automatically renewed for two year periods, unless terminated in
accordance with Section 3.2.
3.2 TERMINATION. This Agreement shall be terminated upon the earliest
to occur of the following: (a) upon the written agreement of the parties
hereto to terminate or (b) upon the end of the then current term if the
Company gives written notice to Consultant that this Agreement shall not be
renewed.
3.3 RETURN OF RECORDS. Upon termination of this Agreement for any
reason, the Consultant shall return to the Company all records, documents,
information and data (including data stored in computers), and all copies of
the foregoing, that relate to the Company.
ARTICLE IV
GENERAL PROVISIONS
4.1 INDEMNIFICATION. Each party agrees to indemnify, defend and hold
the other harmless from any and all claims, actions, damages, liabilities,
cost and expenses, including reasonable attorneys' fees and expenses and
including claims of third parties, arising out of or relating to such
indemnitor's performance under this Agreement. This indemnity shall not
apply unless the party claiming indemnification informs the indemnitor as
soon as practicable of any claim or action giving rise to such indemnity and
gives the indemnitor full opportunity to control the response to, and defense
and settlement of, such claim or action. The indemnification rights provided
under this Section 4.1 are in addition to all other rights or remedies that
an indemnified party may have at law, in equity or otherwise.
4.2 LIABILITY LIMITATION. In no event shall either party be liable
hereunder for punitive damages or for indirect or
2
<PAGE>
consequential damages including, without limitation, lost profits of any
party, including third parties.
4.3 RELATIONSHIP OF PARTIES. It is the express intention and
understanding of the Company and the Consultant that the relationship of the
Consultant to the Commpany shall be at all times that of an independent
contractor, with the Consultant having full and complete liberty to use his
own free and uncontrolled will, judgment and discretion as to the method and
manner of performing the obligations of the Consultant hereunder. Nothing
herein contained or done pursuant to this Agreement shall constitute the
Consultant a partner or joint venturer of the Company.
4.4 NOTICES. All notices that are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in
all respects if given in writing and delivered personally, by commercial
messenger service or by registered or certified mail, postage prepaid, to the
other party at the following address or to such other address as either party
shall provide to the other party in writing in accordance with this Section
4.6:
If to the Consultant:
Roy Abraham Varghese
2926 Berkshire Drive
Mesquite, Texas 75150
If to the Company:
433 E. Las Colinas Blvd., Suite 815
Irving, Texas 75039
4.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, all of which together
shall constitute one and the same instrument.
4.6 BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be binding on,
and inure to the Company and the Consultant and their respective
representatives, successors and assigns, but neither this Agreement nor any
of the rights, interests of obligations herunder shall be assigned or
delegated by either of the Company or the consultant, whether by operation of
law or otherwise, without the prior written consent of the other party, nor
is this Agreement intended to confer upon any other person other than the
Company and the Consultant any rights or remedies hereunder. Any assignment
or delegation in violation of this Agreement shall be null and void.
4.7 WAIVER. No delay or omission by either party to exercise any right
hereunder shall impair such right or be construed as a waiver thereof. All
remedies provided for in this Agreement shall be cumulative and in addition
to, and not in lieu
3
<PAGE>
of, any other remedies available to either party at law, in equity or
otherwise.
4.8 SEVERABILITY. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, then each party shall be relieved
of its obligations arising under such provision to the extent such provision
is declared or found to be illegal, unenforceable or void, and each provision
not so affected shall be enforced to the full extent permitted by law.
4.9 ENTIRE AGREEMENT. This Agreement contains the entire undertanding
of the parties relating to the subject matter of this Agreement and
supersedes all prior written or oral and all contemporaneous oral agreements
and understandings relating to such subject matter. This Agreement cannot be
modified, amended or terminated except in writing signed by the party against
whom enforcement is sought.
4.10 GOVERNING LAW; CHOICE OF VENUE. This Agreement shall be governed
by, and construed and interpreted in accordance with, the substantive laws of
the State of Texas, United States of America, without giving effect to any
conflict of laws principle or rule that might result in the application of
the laws of another jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
THE COMPANY:
POLISH TELEPHONES AND MICROWAVE
CORPORATION
By: /s/ GARY PANNO
--------------------------------
--------------------------------
--------------------------------
THE CONSULTANT:
ROY ABRAHAM VARGHESE
By: /s/ ROY A. VARGHESE
--------------------------------
4
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 29, 1996 (this
"AGREEMENT"), by and among Polish Telephones and Microwave Corporation, a
Texas corporation (the "PARENT"), PTMC Acquisition Sub, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Parent (the "MERGER SUB"),
Telereunion, Inc. (the "COMPANY") and the stockholders of the Company listed
on the signature pages of this Agreement (the "STOCKHOLDERS"). The Parent
and Merger Sub are sometimes referred to in this Agreement as the "PARENT
COMPANIES."
BACKGROUND
Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DELAWARE LAW"),
Merger Sub will merge with and into the Company (the "MERGER") and, pursuant
to such Merger the issued and outstanding shares of the Common Stock, $0.001
par value per share of the Company (the "COMPANY COMMON STOCK"), will be
converted into the right to receive shares of common stock, $0.001 par value
per share, of the Parent (the "PARENT COMMON STOCK"), shares of the Series B
Non-Voting, Non-Participating Preferred Stock, $0.001 par value per share, of
the Parent (the "PARENT PREFERRED STOCK") and certain Warrants to purchase
shares of the Parent Common Stock, as set forth in this Agreement.
The Board of Directors of the Company has determined that the Merger is
fair to, and in the best interests of, the Company and its stockholders and
has approved and adopted this Agreement and the transactions contemplated by
this Agreement.
The Board of Directors of the Parent has determined that the Merger is
fair to, and in the best interests of, the Parent and its stockholders and
has approved and adopted this Agreement and the transactions contemplated by
this Agreement.
The Board of Directors of Merger Sub has approved and adopted this
Agreement and the Parent, as the sole stockholder of Merger Sub, will adopt
this Agreement promptly after the execution by the parties.
For federal income tax purposes, it is intended that the Merger qualify
as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "CODE").
THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth in this
Agreement and other good and valuable consideration, the receipt and
sufficiency of which all parties mutually acknowledge, the parties, intending
to be legally bound, agree as follows:
1
<PAGE>
ARTICLE I
THE MERGER; THE CONVERSION OF SECURITIES
1.1 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the applicable provisions of the
Delaware Law, at the Effective Time (as defined in SECTION 1.3), Merger Sub
will be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Merger Sub will cease and the Company will
continue as the surviving corporation of the Merger (the "SURVIVING
CORPORATION").
1.2 CLOSINGS.
(a) Unless this Agreement has been terminated pursuant to SECTION
8.1 before the Closing Date, and subject to the satisfaction or waiver of the
conditions set forth in SECTIONS 6.1 and 6.2, the consummation of the Merger
(the "CLOSING") will take place at the offices of Hughes & Luce, L.L.P., 1717
Main Street, Dallas, Texas as soon as practicable (but in any event within
two business days) after the satisfaction or waiver of the conditions as set
forth in SECTIONS 6.1 and 6.2, or at such other date, time, and place as the
Parent and the Company agree; provided, that the conditions set forth in
SECTION 6.1 and 6.2 have been satisfied or waived at or prior to such time.
The date on which the Closing takes place is referred to as the "CLOSING
DATE." As promptly as practicable on the Closing Date, the parties will
cause the Merger to be consummated by filing a certificate of merger (the
"CERTIFICATE OF MERGER") with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, the Delaware Law (the date and time of such filing,
or such later date or time agreed upon by the Parent and the Company and set
forth in the Certificate of Merger, being the "EFFECTIVE TIME"). For all Tax
purposes, the Closing will be effective at the end of the day on the Closing
Date.
(b) Upon the terms and subject to the conditions set forth in this
Agreement, on the Closing Date (as defined in SECTION 1.2(a)) and at the
Closing (as defined in SECTION 1.2(a)):
(i) the Parent Companies will execute and deliver the other
agreements, instruments and documents referred to in SECTION 6.1; and
(ii) the Company will execute and deliver the other agreements,
instruments and documents referred to in SECTION 6.2.
1.3 MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF COMPANY COMMON
STOCK. At the Effective Time, by virtue of the Merger and without any action
on the part of the Parent Companies, the Company, or their respective
stockholders, including, without limitation, the Stockholders:
2
<PAGE>
(a) subject to the other provisions of this ARTICLE I, the
outstanding shares of Company Common Stock (or fraction thereof) issued and
outstanding immediately prior to the Effective Time will be converted into:
(i) 1,605,000 shares of the Parent Common Stock;
(ii) 380,000 shares of the Parent Preferred Stock. The
rights and preferences of the Parent Preferred Stock will conform to a
certificate of designation substantially in the form of EXHIBIT A.
(iii) warrants for the purchase of 2,500,000 shares of Parent
Common Stock (the "SERIES A COMMON STOCK WARRANTS") substantially in the
form of EXHIBIT B.
(iv) warrants for the purchase of 95,000 shares of Parent
Common Stock (the "SERIES B COMMON STOCK WARRANTS") substantially in the
form of EXHIBIT C.
(The Parent Common Stock, the Parent Preferred Stock, the Series A
Common Stock Warrants and the Series B Common Stock Warrants are
collectively referred to herein as the "PARENT SECURITIES".) The Parent
Securities will be allocated among the Stockholders as set forth on
SCHEDULE 1.3(a) hereto (which allocation does not contemplate the
issuance of any fractional shares of the Parent's capital stock or
warrants to purchase the issuance of any such fractional shares).
Notwithstanding the foregoing, if between the date of this Agreement and the
Effective Time the outstanding shares of the Parent Common Stock or Company
Common Stock have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares,
or similar occurrence, the number of the Parent Securities into which the
Company Common Stock will be converted will be correspondingly and
proportionately adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination, or exchange of shares.
(b) Notwithstanding any provision of this Agreement to the contrary,
each share of Company Common Stock held in the treasury of the Company
immediately prior to the Effective Time will be canceled and extinguished
without any conversion thereof and no payment will be made with respect
thereto.
(c) All shares of the Company Common Stock will cease to be
outstanding and will automatically be canceled and retired, and each
certificate previously evidencing the Company Common Stock outstanding
immediately prior to the Effective Time (other than Company Common Stock
described in SECTION 1.3(b)) (the "CONVERTED SHARES") will thereafter
represent the right to receive that number of the Parent Securities
determined in accordance with SECTION 1.3(a) (the "MERGER CONSIDERATION").
The holders of certificates previously evidencing Converted Shares will cease
to have any rights with respect to such Converted Shares except as otherwise
provided in this Agreement or by applicable law. Such certificates
previously evidencing Converted Shares will be exchanged for certificates
evidencing (i) the whole shares of the Parent
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Common Stock, (ii) the whole shares of the Parent Preferred Stock, (iii) the
Series A Common Stock Warrants to purchase whole shares of the Parent Common
Stock and (iv) the Series B Common Stock Warrants to purchase whole shares of
the Parent Common Stock into which such Converted Shares have been converted
upon the surrender of such certificates in accordance with the provisions of
SECTION 1.7, without interest. No fractional shares of the Parent Common
Stock will be issued in connection with the Merger. In addition, after the
Closing the Telereunion 1995 Stock Option and Appreciation Rights Plan (the
"TELEREUNION OPTION PLAN") shall be converted and amended as necessary to
provide for the right to acquire shares of the Parent Common Stock in the
stead of the Company Common Stock on the same terms and subject to the same
conditions as now set forth in such Plan as in effect on the date of this
Agreement. In addition, each option agreement currently in effect and
entered into pursuant to the Telereunion Option Plan (the "OPTION AGREEMENT")
shall be amended after the Effective Time so as to provide for the right to
exercise the option granted by such option agreement (the "OPTIONS") to
acquire shares of the Parent Common Stock in the stead of the Company Common
Stock and so as to prevent the enlargement or dilution of the Option holder's
and the Company's rights and obligations under such Option Agreement. With
respect to each option intended to qualify under SECTION 422 of the Code, the
amendments shall be consistent with the provisions of 424(a) of the Code.
Consistent with the provisions above, the amendments to each Option Agreement
shall be determined by the Board of Directors of the Parent. The
determinations of the Board of Directors of the Parent made in good faith
shall not be subject to review by anyone, and shall be final, binding and
conclusive on all persons ever interested hereunder.
(d) Each share of common stock, par value $.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time will be
converted into one share of common stock, par value $.01 per share, of the
Surviving Corporation.
1.4 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger will be as provided in the applicable provisions of the Delaware Law.
1.5 CERTIFICATE OF INCORPORATION; BYLAWS. At the Effective Time, the
articles of incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, will be the articles of incorporation of the Surviving
Corporation and thereafter will continue to be its articles of incorporation
until amended as provided in such articles of incorporation and pursuant to
the Delaware Law. The bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, will be the bylaws of the Surviving Corporation and
thereafter will continue to be its bylaws until amended as provided in such
bylaws and pursuant to the Delaware Law.
1.6 DIRECTORS AND OFFICERS. The directors of the Company immediately
prior to the Effective Time will be the directors of the Surviving
Corporation, each to hold office in accordance with the articles of
incorporation and bylaws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time will be the officers of
the Surviving Corporation, each to hold office in accordance with the bylaws
of the Surviving Corporation, in each case until their respective successors
are duly elected or appointed and qualified.
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1.7 EXCHANGE AND SURRENDER OF CERTIFICATES.
(a) As soon as practicable after the Effective Time, each holder of
a certificate previously evidencing Converted Shares will be entitled, upon
surrender of such certificate to the Parent or its transfer agent, to receive
in exchange for such certificate a certificate or certificates representing
the number of (i) the whole shares of the Parent Common Stock, (ii) the whole
shares of the Parent Preferred Stock, (iii) the Series A Common Stock
Warrants to purchase whole shares of the Parent Common Stock and (iv) the
Series B Common Stock Warrants to purchase whole shares of the Parent Common
Stock into which the Converted Shares so surrendered have been converted as
described in SECTION 1.3, in such denominations and registered in such names
as such holder may request consistent with the provisions of this Agreement.
Until so surrendered and exchanged, each certificate previously evidencing
Converted Shares will represent solely the right to receive (i) the whole
shares of the Parent Common Stock, (ii) the whole shares of the Parent
Preferred Stock, (iii) the Series A Common Stock Warrants to purchase whole
shares of the Parent Common Stock and (iv) the Series B Common Stock Warrants
to purchase whole shares of the Parent Common Stock into which the Converted
Shares have been converted as set forth in SECTION 1.3(a). Unless and until
any such certificates are so surrendered and exchanged, no dividends or other
distributions payable to the holders of record of the Parent Common Stock or
the Parent Preferred Shares (including, without limitation, the amount of any
redemption price with respect to the Parent Preferred Stock) as of any time
on or after the Effective Time will be paid to the holders of such
certificates previously evidencing Converted Shares; provided, however, that,
upon any such surrender and exchange of such certificates, there will be paid
to the record holders of the certificates issued and exchanged therefor (i)
the amount, without interest, of dividends and other distributions, (including,
without limitation, the amount of any redemption price paid with respect to the
Parent Preferred Stock) if any, with a record date on or after the Effective
Time theretofore paid with respect to such whole shares of the Parent Common
Stock or Parent Preferred Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions or payments, if any, with a record
date on or after the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such whole shares of the
Parent Common Stock or Parent Preferred Stock. Notwithstanding the foregoing,
no party to this Agreement (or the Parent's transfer agent) will be liable to
any former holder of Converted Shares for any cash, the Parent Common Stock,
the Parent Preferred Stock or dividends or distributions (including without
limitation, the amount of any redemption price paid with respect to the Parent
Preferred Stock) thereon or any Series A Common Stock Warrants or Series B
Common Stock Warrants delivered to a public official pursuant to applicable
abandoned property, escheat, or similar law.
(b) All of the Parent Securities issued upon the surrender for
exchange of certificates previously representing Converted Shares in accordance
with the terms of this Agreement will be deemed to have been issued in full
satisfaction of all rights pertaining to such Converted Shares. At and after
the Effective Time, there will be no further registration of transfers on the
stock transfer books of the Surviving Corporation of Company Common Stock that
was outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates that previously evidenced Converted Shares are
presented to the Surviving Corporation for any reason, they will be canceled
and exchanged as provided in this ARTICLE I.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company, Manuel Landa, Ricardo Orea and Oscar Garcia (the "Management
Stockholders"), jointly and severally, and the remaining Stockholders,
severally but not jointly with the other Stockholders, hereby represent and
warrant to Parent as follows:
2.1 ORGANIZATION.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of Delaware and has full corporate
power to own its properties and to conduct its business as presently
conducted. The Company is duly authorized, qualified or licensed to do
business and is in good standing as a foreign corporation in each country,
state, or other jurisdiction in which its assets are located or in which
its business or operations as presently conducted make such qualification
necessary.
(b) Each of Vextro de Mexico S.A. de C.V. and Servicios Corporativos
Vextro, S.C. (collectively, the "SUBSIDIARIES" and each individually, a
"SUBSIDIARY") is a Sociedad Anonima de Capital Variable duly organized,
validly existing and in good standing under the laws of Mexico and has full
power to own its properties and to conduct its business as presently
conducted. Each of the Subsidiaries is duly authorized, qualified or
licensed to do business and is in good standing as a foreign entity in each
country, state or other jurisdiction in which its assets are located or in
which its business or operations as presently conducted make such
qualification necessary, except that the transformation of Servicios from
Sociedad de Civil (Civil Legal Entity) into a stock corporation is in the
process of being recorded with the Public Registry of Commerce.
2.2 AUTHORITY.
(a) The Company has all requisite corporate and other power and
authority to execute, deliver and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement by
the Company has been duly authorized by all necessary action, corporate or
otherwise, on the part of the Company. This Agreement has been duly
executed and delivered by the Company and is the legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent enforceability may be affected by
(i) bankruptcy, insolvency, moratorium and other similar laws affecting
creditor's rights generally; or (ii) principles of equity.
(b) Each Stockholder has all requisite power and authority to
execute, deliver and perform under this Agreement. The execution, delivery
and performance of this Agreement by each Stockholder has been duly
authorized by all necessary action, corporate or otherwise, on the part of
such Stockholder. This Agreement has been duly executed and delivered by
each Stockholders and is the legal, valid and binding agreement of each
of the
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Stockholders, enforceable against each of the Stockholders in accordance
with its terms, except to the extent enforceability may be affected by
(i) bankruptcy, insolvency, moratorium and other similar laws affecting
creditor's rights generally; or (ii) principles of equity. The Stockholders
other than the Management Stockholders shall be deemed to make this
representation and warranty as to themselves only.
2.3 MINUTE BOOKS. The Company and the Stockholders have made available
to the Parent true, correct and complete copies of certificates of incorporation
or equivalent instrument, bylaws or equivalent instrument, minute books, stock
certificate books and stock record books of the Company and the Subsidiaries.
The minute books of the Company and the Subsidiaries contain minutes or consents
reflecting all actions taken by the directors (including any committees) and
stockholders of each of the Company and the Subsidiaries.
2.4 CAPITALIZATION.
(a) The authorized capital stock of the Company consists solely of
50,000,000 shares of common stock, $.001 par value per share, of which
3,315,002 shares are issued and outstanding; and 10,000,000 shares of
"blank check" preferred stock, no shares of which are issued or
outstanding. The Company Common Stock is validly issued, fully paid and
nonassessable and held by the Stockholders free and clear of preemptive
or similar rights. The Company Common Stock constitutes all of the issued
and outstanding capital stock of the Company. There are no outstanding
options, warrants, convertible or exchangeable securities or other rights,
agreements, arrangements or commitments obligating the Company, the
Stockholders or any other person or entity to issue or sell any securities
or ownership interests in the Company except options to purchase 454,908
shares of the capital stock of the Company outstanding under the
Telereunion Option Plan more specifically described on SCHEDULE 2.4(a) (the
"Options"), which options, pursuant to the Merger, shall be converted into
options to purchase Parent Common Stock; and warrants to purchase 663,000
shares of capital stock, more specifically described on SCHEDULE 2.4(a)
(the "TELEREUNION WARRANTS"), which Telereunion Warrants will expire and
no longer be exercisable upon the effectiveness of the Merger. Except as
set forth on SCHEDULE 2.4(a), there are no stockholders' agreements,
voting agreements, voting trusts or similar agreements binding on the
Company or any of the Stockholders or applicable to any of the Shares.
All of the outstanding capital stock of the Company has been offered and
sold in compliance with all applicable securities laws, rules and
regulations.
(b) The authorized capital stock of Vextro consists solely of
1,666,667 shares of common stock, no par value per share, of which
1,666,667 shares are issued and outstanding. The capital stock of Vextro
is validly issued, fully paid and nonassessable and are held by the
stockholders of Vextro free and clear of preemptive or similar rights.
The Company owns of record and beneficially 1,616,667 shares (the "VEXTRO
SHARES") of Vextro's common stock free and clear of all liens, claims,
security interests and rights of others of any description. The Vextro
Shares constitute 97% of the issued and outstanding capital stock of the
Subsidiary. There are no outstanding options, warrants, convertible or
exchangeable securities or other rights, agreements, arrangements or
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commitments obligating Vextro, the Company, the Stockholders or any other
person or entity to issue or sell any securities or ownership interests in
Vextro. There are no stockholders' agreements, voting agreements, voting
trusts or similar agreements binding on any of the Company, the
Stockholders or applicable to any of the shares of capital stock of Vextro.
All of the outstanding capital stock of Vextro has been offered and sold
in compliance with all applicable securities laws, rules and regulations.
The remaining issued and outstanding shares of the capital stock of Vextro
are owned by those persons whose names and addresses and stock ownership
are set forth in SCHEDULE 2.4(b).
(c) The authorized capital stock of Servicios consists solely of
10,000 shares of common stock, no par value per share, of which 10,000
shares are issued and outstanding. The shares of capital stock of Servicios
are validly issued, fully paid and nonassessable and are held by the
stockholders of Servicios free and clear of preemptive or similar rights.
The Company owns of record and beneficially 9,700 shares (the "SERVICIOS
SHARES") of Servicios' common stock free and clear of all liens, claims,
security interests and rights of others of any description. The Servicios
Shares constitute 97% of the issued and outstanding capital stock of the
Subsidiary. There are no outstanding options, warrants, convertible or
exchangeable securities or other rights, agreements, arrangements or
commitments obligating Servicios, the Stockholders or any other person or
entity to issue or sell any securities or ownership interests in Servicios.
There are no stockholders' agreements, voting agreements, voting trusts or
similar agreements binding on any of the Stockholders or applicable to any
of the shares of capital stock of Servicios. All of the outstanding
capital stock of Servicios has been offered and sold in compliance with
all applicable securities laws, rules and regulations. The remaining
issued and outstanding shares of the capital stock of Servicios are owned
by those persons whose names and addresses and stock ownership are set
forth in SCHEDULE 2.4(c).
2.5 TITLE TO THE SHARES.
(a) The Stockholders own the Company Common Stock, Options and
Telereunion Warrants of record and beneficially as set forth on SCHEDULE
2.5(a), free and clear of any lien, pledge, security interest, liability,
charge, right of first refusal or first offer, option, or other encumbrance
or claim of any person or entity (a "LIEN"). At the Effective Time by
virtue of the Merger, the Parent will acquire the entire legal and
beneficial interest in all of the Company Common Stock, free and clear of
any Liens.
(b) The Company owns the Vextro Shares of record and beneficially as
set forth on SCHEDULE 2.5(b), free and clear of any Liens. At the
Effective Time by virtue of the Merger, the Company will retain the entire
legal and beneficial interest in all of the Vextro Shares, free and clear
of any Liens and such Vextro Shares will not be subject to any law or other
right that could result in the loss of any legal or beneficial interest
therein by the Company or Vextro.
(c) The Company owns the Servicios Shares of record and beneficially
as set forth on SCHEDULE 2.5(b), free and clear of any Liens. At the
Effective Time the Company
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will retain the entire legal and beneficial interest in all of the
Servicios Shares, free and clear of any Liens and such Servicios Shares
will not be subject to any law or other right that could result in the
loss of any legal or beneficial interest therein by the Company or
Servicios.
2.6 NO VIOLATION. Neither the execution or delivery of this Agreement
by the Company and the Stockholders nor the consummation of the Merger and
the other transactions contemplated hereby by the Company and the Stockholders,
will conflict with or result in the breach of any term or provision of, or
violate, or constitute a default under, or result in the creation of any Lien
on assets of the Company or any Subsidiary pursuant to, or relieve any third
party of any obligation to the Company or any Subsidiary, or give any third
party the right to terminate or accelerate any obligation under, any charter
provision, bylaw, Material Agreement (as defined in SECTION 2.20(a)), Permit
(as defined in SECTION 2.14), order, law or regulation to which the Company,
any of the Stockholders or either of the Subsidiaries is a party or by which
the Company, any of the Stockholders, either of the Subsidiaries or any of their
respective assets is in any way bound or obligated.
2.7 GOVERNMENTAL CONSENTS. Except as described in SCHEDULE 2.7 and
except for the notice required to be provided to the Mexican National Registry
of Foreign Investments relating to the Company's acquisition of Vextro's and
Servicio's capital stock, no consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
governmental or quasi-governmental agency, association, authority, commission,
board or other body (collectively, a "GOVERNMENTAL BODY") is required on the
part of the Company or any Subsidiary, or any of the Stockholders in connection
with the transactions contemplated by this Agreement.
2.8 FINANCIAL STATEMENTS. Attached as SCHEDULE 2.8 are true and
complete copies of (a) the audited balance sheets of the Company and the
audited combined balance sheets of Vextro and Servicios (the "LATEST BALANCE
SHEETS") as of December 31, 1995 (the "LATEST BALANCE SHEET DATE"), and (b)
the audited combined financial statements of Vextro and Servicios as of
December 31, 1994 and the related audited consolidated statements of
operations and cash flows for the 12 month periods ended December 31, 1995
and 1994 (collectively, the "FINANCIAL STATEMENTS"). The Financial
Statements present fairly the financial condition of the Company and Vextro
and Servicios at the dates specified and the results of its operations for
the periods specified and have been prepared in accordance with generally
accepted accounting principles, consistently applied, subject in the case of
the unaudited statements to changes resulting from normal period-end
adjustments for recurring accruals (which will not be material individually
or in the aggregate). The Financial Statements do not contain any items of a
special or nonrecurring nature, except as expressly stated therein. The
Financial Statements have been prepared from the books and records of the
Company, and the books and records of Vextro and Servicios, respectively,
which accurately and fairly reflect all the transactions of, acquisitions and
dispositions of assets by, and incurrence of liabilities by the Company and
Vextro and Servicios, respectively. All accounts receivable reflected on the
Latest Balance Sheets arose in the ordinary course of business and are fully
collectible in the ordinary course of business, without resort to litigation,
at the face amount thereof, less any reserve reflected in the Latest Balance
Sheets, and will not be subject to counterclaim, set-off or other reduction.
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2.9 ABSENCE OF UNDISCLOSED LIABILITIES. At the Closing, (a) the
aggregate amount of the indebtedness for borrowed money of the Company and of
the Subsidiaries (which excludes accounts payable arising in the ordinary
course of business) will not exceed $25,000 and $25,000 respectively and (b)
the aggregate book value of the assets minus the aggregate book value of the
liabilities (in each case, as determined in accordance with generally
accepted accounting principles, consistently applied) of the Company and of
the Subsidiaries will be at least $200,000. Neither the Company nor either
of the Subsidiaries has any direct or indirect debts, obligations or liabilities
of any nature, whether absolute, accrued, contingent, liquidated or otherwise,
and whether due or to become due, asserted or unasserted, known or unknown
(collectively, "LIABILITIES"), except for (i) Liabilities specifically
identified in the Latest Balance Sheets and (ii) obligations to be performed in
the ordinary course of business under the Material Agreements.
2.10 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the Latest Balance Sheet
Date, except as specifically contemplated by this Agreement, there has not
been: (a) any material adverse change in the condition (financial or otherwise),
results of operations, business, prospects, assets or Liabilities of the
Company or either of the Subsidiaries or with respect to the manner in which
the Company or either of the Subsidiaries conducts business or operations;
(b) any payment or transfer of assets (including without limitation any
dividend, stock repurchase or other distribution or any repayment of
indebtedness) to any Stockholder except as specifically described in SCHEDULE
2.10; (c) any breach or default (or event that with notice or lapse of time
would constitute a breach or default), termination or threatened termination
under any Material Agreement; (d) any material theft, damage, destruction,
casualty loss, condemnation or eminent domain proceeding affecting any of the
Company's or any Subsidiary's assets, whether or not covered by insurance;
(e) any sale, assignment or transfer of any of the assets of the Company or
either Subsidiary, except in the ordinary course of business and consistent
with past practices; (f) any waiver by the Company or a Subsidiary of any
material rights related to the Company or such Subsidiary's business, operations
or assets; (g) any other transaction, agreement or commitment entered into by
the Company or any Subsidiary, or the Stockholders affecting the business,
operations or assets of the Company or any Subsidiary, except in the ordinary
course of business and consistent with past practices; or (h) any agreement or
understanding to do or that will result in any of the foregoing.
2.11 TAXES. All required United States or any Mexican federal, state,
local and other tax returns, notices and reports (including, as applicable,
without limitation income, property, sales, use, franchise, withholding,
social security and unemployment tax returns) relating to or involving
transactions with the Company or any Subsidiary have been accurately prepared
and duly and timely filed, and all taxes required to be paid with respect to
the periods covered by any such returns have been timely paid. No tax
deficiency has been proposed or assessed against the Company or any
Subsidiary, and neither the Company nor any Subsidiary has executed any
waiver of any statute of limitations on the assessment or collection of any
tax. No tax audit, action, suit, proceeding, investigation or claim is now
pending or threatened against either the Company or any Subsidiary, and no
issue or question has been raised (and is currently pending) by any taxing
authority in connection with any of the Company's or any Subsidiary's tax
returns or reports. The Company and the Subsidiaries have withheld or
collected from each payment made to each of their employees the full amount
of all taxes required to be withheld or collected therefrom and has paid the
same to the proper tax receiving officers or authorized depositories.
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2.12 LITIGATION. Except as described in SCHEDULE 2.12, there are
currently no pending or threatened lawsuits, administrative proceedings or
reviews, or formal or informal complaints or investigations by any
individual, corporation, partnership, Governmental Body or other entity
(collectively, a "PERSON") against or relating to the Company or any
Subsidiary or any of their directors, employees or agents (in their
capacities as such) or to which any assets of the Company or any Subsidiary
are subject. Neither the Company nor any Subsidiary are subject to or bound
by any currently existing judgment, order, writ, injunction or decree.
2.13 COMPLIANCE WITH LAWS. The Company and the Subsidiaries are
currently complying with and have at all times complied with, and the use,
operation and maintenance of its assets comply with and have at all times
complied with, and neither the Company, any Subsidiary, the assets of any of
them, nor the use, operation or maintenance of assets of any of them is in
material violation or contravention of, any applicable statute, law,
ordinance, decree, order, rule or regulation of any Governmental Body,
including without limitation all United States or Mexican federal, state and
local laws relating to occupational health and safety, employment and labor
matters.
2.14 PERMITS. The Company and the Subsidiaries own or possess from each
appropriate Governmental Body all right, title and interest in and to all
permits, licenses, authorizations, approvals, quality certifications,
franchises or rights (collectively, "Permits") issued by any Governmental
Body necessary to conduct their respective businesses, including the Permit
granted to Vextro by The Ministry of Communications and Transportation
(No. 42-STVA-94 6495) dated November 29, 1994. Each of such Permits is
described in SCHEDULE 2.14. No loss or expiration of any such Permit is
pending or threatened or reasonably foreseeable, other than expiration in
accordance with the terms thereof of Permits that may be renewed in the
ordinary course of business without lapsing.
2.15 ENVIRONMENTAL MATTERS.
(a) Without limiting the generality of the other representations and
warranties set forth in this ARTICLE II: (i) the Company and the
Subsidiaries have conducted their businesses in compliance with all
applicable Environmental Laws (hereinafter defined), including without
limitation by having all Permits required under any Environmental Laws for
the operation of their respective businesses; (ii) none of the properties
owned or leased by the Company or the Subsidiaries contains any Hazardous
Substance (hereinafter defined) in amounts exceeding the levels permitted
by applicable Environmental Laws; (iii) neither the Company nor any
Subsidiary has received any notices, demand letters or requests for
information from any Governmental Body or other Person indicating that the
Company or any Subsidiary may be in violation of, or liable under, any
Environmental Law or relating to any of the properties identified in
SCHEDULE 2.18; (iv) no reports have been filed, or are required to be
filed, by the Company or any Subsidiary concerning the release of any
Hazardous Substance or the threatened or actual violation of any
Environmental Law; (v) no Hazardous Substance has been disposed of,
released or transported in violation of any applicable Environmental Law
from any properties owned or leased by the Company or any Subsidiary or as
a result of any activity of the Company or any Subsidiary; (vi) there have
been no environmental investigations, studies, audits,
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tests, reviews or other analyses regarding compliance or noncompliance
with any Environmental Law conducted by or which are in the possession of
the Company or any Subsidiary relating to the activities of the Company or
any Subsidiary or any of the real property identified in SCHEDULE 2.18 that
have not been delivered to the Parent prior to the date hereof; (vii) there
are no underground storage tanks on, in or under any properties owned or
leased by the Company or any Subsidiary, and no underground storage tanks
have been closed or removed from any of such properties; and (viii) neither
the Company, either Subsidiary nor any of the properties of the Company or
the Subsidiaries are subject to any material Liabilities or expenditures
relating to any suit, settlement, court order, administrative order,
regulatory requirement, judgment or claim asserted or arising under any
Environmental Law.
(b) As used herein, "ENVIRONMENTAL LAW" means, as applicable to the
Parent, any subsidiary of the Parent, Telereunion or any Subsidiary any
United States, Mexican or Polish environmental federal, state, provincial,
local or other law, statute, ordinance, rule, regulation, code, legal
doctrine, Permit, license, authorization, approval, consent, order,
judgment, decree, injunction, requirement or agreement with any
Governmental Body relating to (i) the protection, preservation or
restoration of the environment (including without limitation air, water
vapor, surface water, groundwater, drinking water, surface land, subsurface
land, plant and animal life or any other natural resource) or to human
health or safety or (ii) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances, in each case as
amended and in effect on the date of the Closing.
(c) As used herein, "HAZARDOUS SUBSTANCE" means any substance listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated by any
Governmental Body or any Environmental Law, including without limitation
any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste, industrial substance or
petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde,
foam insulation, lead or polychlorinated biphenyls.
2.16 EMPLOYEE MATTERS. Set forth on SCHEDULE 2.16 is a complete list of
all current employees of each of the Company and the Subsidiaries, including
date of employment, current title and compensation, and date and amount of
last increase in compensation. The consummation of the transactions
contemplated by this Agreement will not accelerate the time of payment or
vesting or increase the amount of compensation due to any director, officer
or employee (present or former) of the Company or of any Subsidiary or result
a change in any of the pre-existing labor conditions of any of the employees
of the Company or any Subsidiary or be a reason for the termination of any
labor relationship attributable to the Company or any Subsidiary. Neither the
Company nor any Subsidiary has any collective bargaining, union or labor
agreements, contracts or other arrangements with any group of employees,
labor union or employee representative. No
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organization effort is currently being made or threatened by or on behalf of
any labor union with respect to employees of the Company or any Subsidiary.
Neither the Company nor any Subsidiary has experienced, nor is there any
basis for, any strike, material labor trouble, work stoppage, slow down or
other interference with or impairment of the business of the Company or any
Subsidiary.
2.17 EMPLOYEE BENEFIT PLANS.
(a) None of the Company or the Subsidiaries currently maintains or
has ever maintained any employee benefit, retirement, pension, welfare
benefit or other plan for the benefit of the employees of the Company or
any Subsidiary that is governed by the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Code or any other United States
federal or state law, statute or regulation. None of the Company nor any
Subsidiary nor any Affiliate of the Company has any liability to any such
employee benefit, retirement, pension, welfare benefit or other plan for
the benefit of the employees of the Company or any Subsidiary, that is
governed by ERISA, the Code or any other United States federal or state
law, statute or regulation or to any Governmental Body, whether in the
manner of damages, fines, penalties, payments or other liabilities. None
of the Company, any Subsidiary or any Affiliate of the Company has ever
been required to make any filing or file any report or return with any
United States federal or state Governmental Body in connection with any
employee benefit matter.
(b) SCHEDULE 2.17 lists all employee pension, welfare and other
benefit plans maintained by the Company and/or any Subsidiary or to which
the Company or any Subsidiary has any liability or must make any
contribution or payment under the provisions of any Mexican laws governing
employee benefits of any description, ever maintained or contributed to
(or required to be contributed to) by the Company, any Subsidiary or any
Affiliate (the "BENEFIT PLANS"). As used in this SECTION 2.17, "Affiliate"
means any corporation, trade or business the employees of which, together
with the employees of the Company and/or any Subsidiary, are required to
be treated as employed by a single employer under the provisions of ERISA
or Section 414 of the Internal Revenue Code of 1986, as amended (the
"CODE").
(c) No voluntary employees' beneficiary association or other funding
arrangement (other than insurance contracts) are being used to fund or
implement any Benefit Plan. Neither the Company nor any Subsidiary has
made any written or oral representations to any employee or former
employee promising or guaranteeing any employer payment or funding for the
continuation of benefits or coverage under any Benefit Plan for any period
of time beyond the end of the current plan year (except to the extent
required by applicable law, which representations are described in
SCHEDULE 2.17).
(d) SCHEDULE 2.17 lists each plan or policy providing for "fringe
benefits" (including but not limited to vacation, paid holidays, personal
leave, employee discount, educational benefit or similar program), and any
other deferred compensation, bonus, stock option, employee stock purchase,
severance, group insurance, disability, unemployment, supplemental
unemployment, layoff, consulting or stock appreciation
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rights plan, and any other similar plan, policy, arrangement, commitment
or understanding (whether written or oral) not required to be listed under
paragraph (a) or (b) above that is maintained by the Company or any
Subsidiary for employees or provides benefits or describes policies or
procedures applicable to any employee, former employee, director or former
director of the Company or any Subsidiary (the "EMPLOYEE BENEFIT PLANS").
(e) Neither the Company, any Subsidiary nor any Affiliate maintain,
or has ever maintained, contributed to, been required to contribute to or
had any employees participating in, any benefit plan other than those set
forth on SCHEDULE 2.17 or maintained by the Mexican Social Security
Institute. The Company, the Subsidiaries and all Affiliates of the
Company are in full compliance with all the requirements and obligations
arising under the Social Security Law and the Retirement Savings Systems
and the law, statutes and regulations of the Republic of Mexico and any
Governmental Body thereof governing such systems. None of the Company,
any Subsidiary or any Affiliate of the Company has any liability to make
any payment, contribution or other liability to any Governmental Body in
connection with the Mexican social security system except as set forth in
SCHEDULE 2.17.
(f) The Benefit Plans are legally valid and binding agreements and
obligations of the Company and the Subsidiaries and are in full force and
effect under the laws of the Republic of Mexico. The Benefit Plans comply
and have complied at all times in the past both as to form and operation
with the provisions of all laws, statutes and regulations of the Republic
of Mexico governing or applying to such Benefit Plans. No audit or
investigation of any of the Benefit Plans is being conducted or has been
threatened by any Governmental Body.
(g) Neither the Company nor any Subsidiary has any Liabilities to any
Person with respect to any Benefit Plan, except for (i) Liabilities that
are fully funded by assets set aside in trust or irrevocably dedicated for
that purpose, the fair market value of which assets exceed the Liabilities
to which they are set aside or dedicated, and (ii) Liabilities that have
been fully accrued on the Financial Statements. Except as otherwise
provided by the laws of the Republic of Mexico, the Company and the
Subsidiaries may terminate any Benefit Plan immediately following the
Closing without any Liability (on the part of the Company or the Parent)
to any Person except to the extent such Liabilities have been accrued or
funded as described in the preceding sentence.
(h) Except as set forth on SCHEDULE 2.17(h) other than provisions for
severance payments that may be mandated under applicable Mexican law, there
are no agreements that will provide payments to any officer, employee,
Stockholder, or highly compensated individual that will be "parachute
payments" of the type described under Code Section 280G that are
nondeductible to the Company or any Subsidiary, or subject to tax under
Code Section 4999 or any Mexican law analog of such section of the Code
for which the Company, any Subsidiary, or any Affiliate would have
withholding liability.
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(i) True and complete copies of all documents related to the Benefit
Plans and their operations and compliance with the requirements of law
relating thereto have been delivered to the Parent.
2.18 TITLE TO ASSETS. Set forth in SCHEDULE 2.18 is a complete list
(including the street address, where applicable) of (a) all real property
currently owned by the Company or any Subsidiary; (b) all real property
currently leased or otherwise used by the Company or any Subsidiary; (c) each
vehicle owned or leased by the Company or any Subsidiary; and (d) each asset
of the Company or any Subsidiary with a book value or fair market value
greater than $25,000. The Company and the Subsidiaries have good and
marketable title to all of their respective assets, including without
limitation the assets listed on SCHEDULE 2.18, the assets reflected on the
Latest Balance Sheets and all assets used by either the Company or any
Subsidiary in the conduct of its respective businesses (except for assets
disposed of in the ordinary course of business and consistent with past
practices since the Latest Balance Sheets Date and except for assets held
under leases or licenses disclosed pursuant to SECTION 2.20); and all such
assets are owned free and clear of any Liens, except for (A) Liens for
current taxes not yet due; (B) minor imperfections of title and encumbrances
that do not materially detract from or interfere with the present use or
value of such properties; and (C) Liens disclosed on SCHEDULE 2.18.
2.19 CONDITION OF PROPERTIES. All facilities, machinery, equipment,
fixtures, vehicles and other tangible property owned, leased or used by the
Company and/or the Subsidiaries are in good operating condition and repair,
normal wear and tear excepted, are reasonably fit and usable for the purposes
for which they are being used, will not likely require major overhaul or
repair in the foreseeable future, are adequate and sufficient for the Company's
and/or the respective Subsidiary's respective business and conform with all
applicable laws, rules and regulations. Each of the Company and the
Subsidiaries maintains policies of insurance issued by insurers of recognized
responsibility insuring the Company and the Subsidiaries and their respective
assets and businesses against such losses and risks, and in such amounts, as
are customary in the case of corporations of established reputation engaged
in the same or similar businesses and similarly situated in Mexico.
2.20 MATERIAL AGREEMENTS.
(a) SCHEDULE 2.20(a) lists each agreement and arrangement (whether
written or oral and including all amendments thereto) to which either of
the Company or any Subsidiary are a party or a beneficiary or by which
either the Company, any Subsidiary, or any of their respective assets are
bound and that is material to the Company or any Subsidiary, as the case
may be (collectively, the "MATERIAL AGREEMENTS"), including without
limitation (i) any real estate leases; (ii) any agreement evidencing,
securing or otherwise relating to any indebtedness for which the Company
or either of the Subsidiaries is liable; (iii) any capital or operating
leases or conditional sales agreements relating to vehicles, equipment or
other assets of the Company or any Subsidiary; (iv) any supply,
distribution or manufacturing agreements or arrangements pursuant to which
the Company or either of the Subsidiaries is entitled or obligated to
acquire any assets from a third party; (v) any licensing, franchising,
servicing, consulting, or other agreements; (vi) any marketing, sales
or advertising agreements; (vii) any insurance policies;
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(viii) any employment, consulting, noncompetition, separation, collective
bargaining, union or labor agreements or arrangements; (ix) any agreement
with or for the benefit of any Stockholder, director, officer or employee
of the Company or any Subsidiary, or any affiliate or family member
thereof; and (x) any other agreement or arrangement pursuant to which the
Company or any Subsidiary could be required to make or entitled to receive
aggregate payments in excess of $10,000.
(b) The Company has delivered to the Parent a copy of each Material
Agreement. Each Material Agreement is valid, binding and in full force and
effect and enforceable in accordance with its terms; each of the Company
and any Subsidiary has performed all of its obligations under each Material
Agreement, and there exists no breach or default (or event that with notice
or lapse of time would constitute a breach or default) under any Material
Agreement; there has been no termination or notice of default or any
threatened termination under any Material Agreement, no consent of any
Person is required in connection with the transactions contemplated by this
Agreement in order to preserve the rights of the Company or any Subsidiary
under or to prevent any disadvantage to the Company or any Subsidiary in
respect of any Material Agreement.
2.21 CUSTOMERS. Set forth in SCHEDULE 2.21 is a complete list of each
customer of each of the Company and the Subsidiaries that has accounted for
more than $25,000 of revenues during any year since January 1, 1994, or is
expected to account for revenues exceeding such amount during the next twelve
months (the "Material Customers"), and indicating the amount of revenues
attributable to each Material Customer during the years ended December 31, 1994
and 1995. During the year ended December 31, 1995, the Subsidiaries earned an
aggregate of $17,005,301 Pesos in revenues from the Material Customers.
2.22 INTELLECTUAL PROPERTY RIGHTS. Set forth in SCHEDULE 2.22 is a
complete list of all registered patents, trademarks, service marks, trade
names and copyrights, and applications for and licenses (to or from the Company
or any Subsidiary) with respect to any of the foregoing (collectively,
"Registered Intellectual Property"), owned by the Company or any Subsidiary or
with respect to which the Company or any Subsidiary has any rights. The Company
or any Subsidiary have the sole and exclusive right to use all Registered
Intellectual Property and other computer software and software licenses,
intellectual property, proprietary information, trade secrets, trademarks,
trade names, copyrights, material and manufacturing specifications, drawings
and designs (collectively, "INTELLECTUAL PROPERTY") used by the Company or
any Subsidiary or necessary in connection with the operation of the Company's
or any Subsidiary's business, without infringing on or otherwise acting
adversely to the rights or claimed rights of any Person, and neither the
Company nor either of the Subsidiaries is obligated to pay any royalty or
other consideration to any Person in connection with the use of any such
Intellectual Property. No other Person is infringing the rights of the
Company or any Subsidiary in any such Intellectual Property.
2.23 SUBSIDIARIES AND INVESTMENTS. Neither the Company nor any
Subsidiary owns any direct or indirect equity or debt interest in any other
Person, including without limitation any interest in a partnership or joint
venture, and is not obligated or committed to acquire any such interest.
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2.24 COMPETING INTERESTS. None of the Company, any Subsidiary, the
Stockholders or any director, officer, relative or affiliate of any of the
foregoing owns, directly or indirectly, an interest in any Person that is a
competitor, customer or supplier of the Company or any Subsidiary or that
otherwise has material business dealings with the Company or any Subsidiary.
2.25 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. Neither
the Company, any Subsidiary nor any of their respective officers, directors,
employees, agents, stockholders or other representatives or any other
business entity or enterprise with which the Company or either of the
Subsidiaries is or has been affiliated or associated, has, directly or
indirectly, made or authorized any payment, contribution or gift of money,
property or services, whether or not in contravention of applicable law, (a)
as a kickback or bribe to any Person or (b) to any political organization, or
the holder of or any aspirant to any elective or appointive public office,
except for personal political contributions not involving the direct or
indirect use of funds of the Company or any Subsidiary. Neither the Company
nor any Subsidiary has violated any United States or Mexican federal or state
antitrust statutes, rules or regulations, including without limitation those
relating to unfair competition, price fixing, bid rigging or collusion.
2.26 NO MISREPRESENTATIONS. The Stockholders have disclosed to the
Parent all facts and information that would be material to a purchase of the
Company. Neither the Company, any Subsidiary nor any of the Stockholders has
received any appraisal, report or other similar information relating to the
value or condition of the Company, any Subsidiary or any of their respective
assets. The representations, warranties and statements made by the Stockholders
in or pursuant to this Agreement (including the Schedules hereto) are true,
complete and correct in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make any such representation, warranty or statement, under the circumstances
in which it is made, not misleading.
ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Stockholders acknowledge that none of the Parent Securities nor any
securities of the Parent issuable pursuant thereto have been or will be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon the exemption provided by Section 4(2) of the Securities Act
for transactions by an issuer not involving any public offering or under any
securities laws of Mexico and, in connection therewith, the Stockholders,
jointly and severally, represent and warrant as follows:
3.1 RECEIPT OF INFORMATION. The Stockholders have received copies
(excluding exhibits) of the following documents, in each case as filed with
the Securities and Exchange Commission (the "SEC"): (a) the Parent's Annual
Report on Form 10-KSB for the year ended December 31, 1995 (the "1995 10-K");
(b) the Parent's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1995 (the "Latest 10-Q"); (c) the Parent's Proxy Statement for
its Annual Meeting of Stockholders held in 1995; and (d) all Current Reports
on Form 8-K filed by the Parent with the SEC since March 31, 1995 (collectively,
the "SEC FILINGS"). The Stockholders have received all information concerning
the Parent and DTS as they required in
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order to evaluate the terms and conditions of this Agreement, the Merger and
the Parent Securities. The Stockholders have had the opportunity to ask any
questions they might have concerning the Parent's operations and financial
condition.
3.2 LEGEND. The Stockholders acknowledge that the certificates for the
Parent Securities will bear a restrictive legend in substantially the following
form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE SHARES MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL FOR THE COMPANY TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
3.3 INVESTMENT. Each Stockholder confirms that the Parent Securities
and any securities of the Parent issuable pursuant thereto will be acquired
for investment for the account of such Stockholder only, not as nominee or
agent, and not with a view to the resale or distribution of any part thereof
in a manner which would require registration under the Securities Act or any
applicable Mexican or state securities laws, and that Stockholder has no
present intention of selling, granting any participation in, or otherwise
distributing the same.
3.4 RESTRICTION ON RESALE. Each Stockholder understands that the Parent
Securities and any securities of the Parent issued pursuant thereto have not
been and will not be registered under the Securities Act or any Mexican or state
securities law. The Stockholders can resell such securities in the United
States only pursuant to an effective registration statement or pursuant to an
exemption from registration under the Securities Act and otherwise in accordance
with any applicable United States or Mexican federal or state securities laws.
3.5 ACCREDITED INVESTOR; ABILITY TO UNDERSTAND THE INVESTMENT. Each
Stockholder is an "accredited investor" as that term is defined in Rule 501
of Regulation D promulgated pursuant to the Securities Act of 1933. Further,
by reason of each Stockholder's business and financial experience, each has
acquired the experience and knowledge of business and financial matters
necessary to evaluate effectively, and the capacity to protect his or her
interests in, investments of this nature. Each Stockholder has carefully
evaluated his or her financial resources and investment position and the
risks associated with this investment and is able to bear the economic risk
of investment in the Parent Securities. Further, each Stockholder acknowledges
that he or she has read this Agreement and fully understands its terms and
conditions, the terms on which the Merger will be effected and the respective
terms of the Parent Securities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
The Parent represents and warrants to the Stockholders as follows:
4.1 ORGANIZATION.
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(a) The Parent is a corporation duly organized, validly existing
and in good standing under the laws of Texas and has full corporate power
to own its properties and to conduct its business as presently conducted.
The Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of Delaware and has full corporate power to
own its properties and to conduct its business as presently conducted.
The Parent is duly authorized, qualified or licensed to do business and is
in good standing as a foreign corporation in each country, state, or other
jurisdiction in which its assets are located or in which its business or
operations as presently conducted make such qualification necessary.
(b) Digital Telecommunication Systems/ZWUT, ("DTS") is a Polish
limited liability company duly organized, validly existing and in good
standing under the laws of Poland and has full power to own its properties
and to conduct its business as presently conducted. DTS is duly
authorized, qualified or licensed to do business and is in good standing
as a foreign entity in each country, state or other jurisdiction in which
its assets are located or in which its business or operations as presently
conducted make such qualification necessary. The Parent owns 90% of the
issued and outstanding capital stock of DTS, free and clear of any Lien.
There are no outstanding options, warrants, convertible or exchangeable
securities or other rights, agreements, arrangements or commitments
obligating DTS or any other person or entity to issue or sell any
securities or ownership interests in DTS. There are no stockholders'
agreements, voting agreements, voting trusts or similar agreements binding
on any of the stockholders of DTS or applicable to any of the outstanding
shares of the capital stock of DTS.
4.2 AUTHORITY. Each of the Parent Companies has all requisite power
and authority to execute, deliver and perform under this Agreement. The
execution, delivery and performance of this Agreement by each of the Parent
Companies has been duly authorized by all necessary action, corporate or
otherwise, on the part of such Parent Company. This Agreement has been duly
executed and delivered by each of the Parent Companies and is a legal, valid
and binding agreement of such Parent Company, enforceable against such Parent
Company in accordance with its terms except to the extent enforceability may
be affected by (i) bankruptcy, insolvency, moratorium and other similar laws
affecting creditor's right generally; or (ii) principles of equity.
4.3 NO VIOLATION. The execution, delivery and performance of this
Agreement by the Parent will not conflict with or result in the breach of any
term or provision of, or violate or constitute a default under any charter
provision or bylaw or under any agreement that is material to the Parent or
DTS, as the case may be, or any instrument, order, law or regulation to which
Parent is a party or by which the Parent is in any way bound or obligated.
The execution, delivery and performance of this Agreement by the Merger Sub
will not conflict with or result in the breach of any term or provision of,
or violate or constitute a default under any charter provision or bylaw or
under any agreement that is material to the Merger Sub, or any instrument,
order, law or regulation to which the Merger Sub is a party or by which the
Merger Sub is in any way bound or obligated.
4.4 GOVERNMENTAL CONSENTS. Except as described in SCHEDULE 4.4, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any
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Governmental Body is required on the part of The Parent or the Merger Sub in
connection with the transactions contemplated by this Agreement.
4.5 SEC FILINGS. True and complete copies of the SEC Filings are
attached hereto as SCHEDULE 4.5. The SEC Filings do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make any statement contained therein, under the circumstances in which it is
made, not misleading. All of such SEC Filings have been timely filed.
Parent agrees to provide the Stockholders a copy of its Annual Report on Form
10-KSB for the year ended December 31, 1995 at such time as that report
becomes available.
4.6 PARENT SECURITIES. When issued and delivered in accordance with
this Agreement, the Parent Securities will be duly authorized, validly
issued, fully paid and nonassessable, free of any preemptive or other similar
rights of any Person.
4.7 MINUTE BOOKS. The Parent has made available to the Stockholders
true, correct and complete copies of certificates of incorporation or
equivalent instrument, bylaws or equivalent instrument, minute books, stock
certificate books and stock record books of the Parent and DTS. The minute
books of the Parent and DTS contain minutes or consents reflecting all
actions taken by the directors (including any committees) and stockholders of
each of the Parent and DTS.
4.8 CAPITALIZATION. The authorized capital stock of the Parent
consists solely of 10,000,000 shares of common stock, $0.001 par value per
share ("PARENT COMMON STOCK"), of which 1,890,442 shares of Parent Common
Stock are issued and outstanding, 4,000,000 shares of Preferred Stock, $0.001
par value, of which no shares are issued and outstanding, and 1,000,000
shares of Series A Preferred Stock, $0.001 par value, of which no shares are
issued and outstanding. The Parent Common Stock is validly issued, fully
paid and nonassessable and is held by the Parent's stockholders free and
clear of preemptive or similar rights. The Parent Common Stock constitutes
all of the issued and outstanding capital stock of the Company. Except as
set forth on SCHEDULE 4.8, there are no outstanding options, warrants,
convertible or exchangeable securities or other rights, agreements,
arrangements or commitments obligating the Parent or any other person or
entity to issue or sell any securities or ownership interests in the Parent.
There are no stockholders' agreements, voting agreements, voting trusts or
similar agreements binding on any of the Parent's stockholders or applicable
to any shares of Parent Common Stock. All of the outstanding capital stock
of the Parent has been offered and sold in compliance with all applicable
securities laws, rules and regulations.
4.9 FINANCIAL STATEMENTS. The unaudited consolidated balance sheet of
the Parent (the "LATEST BALANCE SHEET") as of September 30, 1995 (the "LATEST
BALANCE SHEET DATE") and the related unaudited consolidated statement of
operations and cash flow for the nine months then ended contained in Parent's
Latest 10-QSB, and the audited consolidated balance sheet of the Parent as of
December 31, 1994 and the related audited consolidated statements of
operations and cash flows for the two years then ended contained in the
Parent's 1995 10-KSB (collectively, the "FINANCIAL STATEMENTS") present
fairly the financial condition of the Parent at the dates specified and the
results of its operations for the periods specified and have been prepared in
accordance with generally accepted accounting principles, consistently
applied, subject in the case of the unaudited statements to changes resulting
from normal
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period-end adjustments for recurring accruals (which will not be material
individually or in the aggregate). The Parent Financial Statements do not
contain any items of a special or nonrecurring nature, except as expressly
stated therein. The Parent Financial Statements have been prepared from the
books and records of the Parent, which accurately and fairly reflect all the
transactions of, acquisitions and dispositions of assets by, and incurrence
of liabilities by the Parent. All accounts receivable reflected on the
Parent's Latest Balance Sheet arose in the ordinary course of business and
are fully collectible in the ordinary course of business, without resort to
litigation, at the face amount thereof, less any reserve reflected in the
Parent's Latest Balance Sheet, and will not be subject to counterclaim,
set-off or other reduction.
4.10 ABSENCE OF UNDISCLOSED LIABILITIES. At the Closing, (a) the
aggregate amount of the indebtedness for borrowed money of the Parent and of
DTS (which excludes accounts payable arising in the ordinary course of
business) will not exceed $25,000 and $100,000, respectively and (b) the
aggregate book value of the assets minus the aggregate book value of the
liabilities (in each case, as determined in accordance with generally
accepted accounting principles, consistently applied) of the Parent and of
DTS will be at least $3,475,000. Neither the Parent nor DTS has any
Liabilities, except for (i) Liabilities specifically identified in the
Parent's Latest Balance Sheet and (ii) obligations to be performed in the
ordinary course of business under the agreements that are material to the
Parent or DTS, as the case may be.
4.11 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the Parent's Latest
Balance Sheet Date, except as specifically contemplated by this Agreement,
there has not been: (a) any material adverse change in the condition
(financial or otherwise), results of operations, business, prospects, assets
or Liabilities of the Parent or DTS or with respect to the manner in which
the Parent or DTS conducts business or operations; (b) any payment or
transfer of assets (including without limitation any dividend, stock
repurchase or other distribution or any repayment of indebtedness) to any
stockholder of the Parent; (c) any breach or default (or event that with
notice or lapse of time would constitute a breach or default), termination or
threatened termination under any agreement that is material to the Parent or
DTS, as the case may be; (d) any material theft, damage, destruction,
casualty loss, condemnation or eminent domain proceeding affecting any of the
Parent's or DTS's assets, whether or not covered by insurance; (e) any sale,
assignment or transfer of any of the assets of the Parent or DTS, except in
the ordinary course of business and consistent with past practices; (f) any
waiver by the Parent or DTS of any material rights related to the Parent or
DTS's business, operations or assets; (g) any other transaction, agreement or
commitment entered into by either of the Parent or DTS affecting the
business, operations or assets of the Parent or DTS, except in the ordinary
course of business and consistent with past practices; or (h) any agreement
or understanding to do or that will result in any of the foregoing.
4.12 TAXES. All required United States or Polish federal, state, local
and other tax returns, notices and reports (including without limitation
income, property, sales, use, franchise, withholding, social security and
unemployment tax returns) relating to or involving transactions with the
Parent or DTS have been accurately prepared and duly and timely filed, and
all taxes required to be paid with respect to the periods covered by any such
returns have been timely paid. No tax deficiency has been proposed or
assessed against the Parent or DTS, and neither the Parent nor DTS has
executed any waiver of any statute of limitations on the assessment or
collection of any tax. No tax audit, action,
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suit, proceeding, investigation or claim is now pending or threatened against
either the Parent or DTS, and no issue or question has been raised (and is
currently pending) by any taxing authority in connection with any of the
Parent's or DTS's tax returns or reports. The Parent and DTS have withheld
or collected from each payment made to each of their employees the full
amount of all taxes required to be withheld or collected therefrom and has
paid the same to the proper tax receiving officers or authorized depositories.
4.13 LITIGATION. There are currently no pending or threatened lawsuits,
administrative proceedings or reviews, or formal or informal complaints or
investigations by any individual, corporation, partnership, Governmental Body
or other Person against or relating to the Parent or DTS or any of their
directors, employees or agents (in their capacities as such) or to which any
assets of the Parent or DTS are subject. Neither the Parent nor DTS are
subject to or bound by any currently existing judgment, order, writ,
injunction or decree.
4.14 COMPLIANCE WITH LAWS. The Parent and DTS are currently complying
with and have at all times complied with, and the use, operation and
maintenance of its assets comply with and have at all times complied with,
and neither the Parent, DTS, the assets of either of them, nor the use,
operation or maintenance of assets of either of them is in violation or
contravention of, any applicable statute, law, ordinance, decree, order, rule
or regulation of any Governmental Body, including without limitation all
United States or Polish federal, state and local laws relating to
occupational health and safety, employment and labor matters.
4.15 PERMITS. The Parent and DTS own or possess from each appropriate
Governmental Body all right, title and interest in and to all Permits issued
by any Governmental Body necessary to conduct their respective businesses.
No loss or expiration of any such Permit is pending or threatened or
reasonably foreseeable, other than expiration in accordance with the terms
thereof of Permits that may be renewed in the ordinary course of business
without lapsing.
4.16 ENVIRONMENTAL MATTERS.
(a) Without limiting the generality of the other representations and
warranties set forth in this ARTICLE II: (i) the Parent and DTS have
conducted their businesses in compliance with all applicable Environmental
Laws, including without limitation by having all Permits required under any
Environmental Laws for the operation of their respective businesses;
(ii) none of the properties owned or leased by the Parent or DTS contains
any Hazardous Substance in amounts exceeding the levels permitted by
applicable Environmental Laws; (iii) neither the Parent nor DTS has
received any notices, demand letters or requests for information from any
Governmental Body or other Person indicating that the Parent or DTS may be
in violation of, or liable under, any Environmental Law or relating to any
of the properties identified in SCHEDULE 4.19; (iv) no reports have been
filed, or are required to be filed, by the Parent or DTS concerning the
release of any Hazardous Substance or the threatened or actual violation
of any Environmental Law; (v) no Hazardous Substance has been disposed of,
released or transported in violation of any applicable Environmental Law
from any properties owned or leased by the Parent or DTS or as a result of
any activity of the Parent or DTS; (vi)
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there have been no environmental investigations, studies, audits, tests,
reviews or other analyses regarding compliance or noncompliance with any
Environmental Law conducted by or which are in the possession of the Parent
or DTS relating to the activities of the Parent or DTS or any of the real
property identified in SCHEDULE 4.19 that have not been delivered to Parent
prior to the date hereof; (vii) there are no underground storage tanks
on, in or under any properties owned or leased by the Parent or DTS, and
no underground storage tanks have been closed or removed from any of such
properties; (viii) there is no asbestos or asbestos containing material
present in any of the properties owned or leased by the Parent or DTS, and
no asbestos has been removed from any of such properties; and (ix) neither
the Parent, DTS nor any of the properties of the Parent or DTS is subject
to any material Liabilities or expenditures relating to any suit,
settlement, court order, administrative order, regulatory requirement,
judgment or claim asserted or arising under any Environmental Law.
4.17 EMPLOYEE MATTERS. Set forth on SCHEDULE 4.17 is a complete
list of all current employees of each of the Parent and DTS, including date
of employment, current title and compensation, and date and amount of last
increase in compensation. The consummation of the transactions contemplated
by this Agreement will not accelerate the time of payment or vesting or
increase the amount of compensation due to any director, officer or employee
(present or former) of the Parent or of DTS or result a change in any of the
pre-existing labor conditions of any of the employees of the Parent or DTS or
be a reason for the termination of any labor relationship attributable to the
Parent or DTS. Neither the Parent nor DTS has any collective bargaining,
union or labor agreements, contracts or other arrangements with any group of
employees, labor union or employee representative. No organization effort is
currently being made or threatened by or on behalf of any labor union with
respect to employees of the Parent or DTS. Neither the Parent nor DTS has
experienced, nor is there any basis for, any strike, material labor trouble,
work stoppage, slow down or other interference with or impairment of the
business of the Parent or DTS.
4.18 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.18 lists all "employee pension benefit plans," as
defined in Section 3(2) of the ERISA or the Polish equivalent of ERISA,
ever maintained or contributed to (or required to be contributed to) by
the Parent, DTS or any Affiliate (the "PARENT PENSION PLANS"). As used in
this SECTION 4.18, "Affiliate" means any corporation, trade or business
the employees of which, together with the employees of the Parent and/or
DTS, are required to be treated as employed by a single employer under the
provisions of ERISA or Section 414 of the Code.
(b) SCHEDULE 4.18 lists each "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA) or the Polish equivalent of ERISA that
the Parent, DTS, or any Affiliate maintains, contributes to or is required
to contribute to on behalf of any employee or former employee, including
any multiemployer welfare plan (the "PARENT WELFARE BENEFIT PLANS"), and
sets forth the amount of any Liability of the Parent, DTS, or any Affiliate
for any payment past due with respect to each Parent Welfare Benefit Plan
as of the date of the Closing. No voluntary employees' beneficiary
association or other funding
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arrangement (other than insurance contracts) are being used to fund or
implement any Welfare Benefit Plan. Neither the Parent nor DTS has made
any written or oral representations to any employee or former employee
promising or guaranteeing any employer payment or funding for the
continuation of benefits or coverage under any Parent Welfare Benefit Plan
or other similar plan for any period of time beyond the end of the current
plan year (except to the extent required under Code Section 4980B).
(c) SCHEDULE 4.18 lists each plan or policy providing for "fringe
benefits" (including but not limited to vacation, paid holidays, personal
leave, employee discount, educational benefit or similar program), and any
other deferred compensation, bonus, stock option, employee stock purchase,
severance, group insurance, disability, unemployment, supplemental
unemployment, layoff, consulting or stock appreciation rights plan, and
any other similar plan, policy, arrangement, commitment or understanding
(whether written or oral) not required to be listed under paragraph (a) or
(b) above that is maintained by the Parent or DTS for employees or provides
benefits or describes policies or procedures applicable to any employee,
former employee, director or former director of the Parent or DTS (the
"PARENT EMPLOYEE BENEFIT PLANS").
(d) SCHEDULE 4.18 lists and specifically identifies each multiemployer
plan (as defined in Section 3(37) of ERISA) or Polish law analog to which
the Parent or DTS or any Affiliate contribute or has at any time
contributed or had an obligation to contribute (the "Parent Multiemployer
Plans").
(e) Neither the Parent, DTS nor any Affiliate maintain, or has ever
maintained, contributed to, been required to contribute to or had any
employees participating in, any "defined benefit plan" (as defined in
Section 3(35) of ERISA) or Polish law analog.
(f) The Parent Pension Plans, the Parent Welfare Benefit Plans and
the Parent Employee Benefit Plans and related trusts and insurance
contracts, including any Parent Multiemployer Plans (collectively, the
"PARENT PLANS"), are legally valid and binding and in full force and
effect. All of the Parent Plans comply currently, and have complied in
the past, both as to form and operation, with the provisions of all laws,
rules and regulations governing or applying to such Parent Plans; all
necessary governmental approvals for the Parent Pension Plans and the
Parent Welfare Benefit Plans have been obtained; and a favorable
determination as to the qualification under the Code of each of the Parent
Pension Plans and each amendment thereto has been made by the Internal
Revenue Service, and nothing has occurred since the date of such
determination letters that could adversely affect the qualification of
such plans or the tax exempt status of the related trust. All reports and
filings required by any Governmental Body (including without limitation
Form 5500 Annual Reports, Summary Annual Reports and Summary Plan
Descriptions) with respect to each Parent Plan have been timely and
completely filed, and have been distributed to participants as required
by applicable law. Neither the Parent, DTS, any Affiliate or any plan
fiduciary of any Parent Plan has engaged in any transaction in violation
of Section 406(a) or (b) of ERISA or Polish law analog or any "prohibited
transaction" (as defined in Code Section 4975(c)(1)) that would subject
the Parent or DTS
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to any taxes, penalties or other Liabilities resulting from such
transaction. None of the Parent Plans is being audited or investigated by
any Governmental Body.
(g) Neither the Parent nor DTS has any Liabilities to any Person with
respect to any Parent Plan, except for (i) Liabilities that are fully
funded by assets set aside in trust or irrevocably dedicated for that
purpose, the fair market value of which assets exceed the Liabilities to
which they are set aside or dedicated, and (ii) Liabilities that have been
fully accrued on the Parent Financial Statements.
(h) With respect to each Pension Plan that is subject to Title I,
Subtitle B, Part 3 of ERISA or any Polish law which has a similar intent
and function, (i) the funding method used in connection with such Parent
Pension Plan is acceptable under ERISA or the Polish law which has a
similar intent and function; (ii) the actuarial assumptions used in
connection with funding each Parent Pension Plan, in the aggregate, are
reasonable (taking into account the experience of such Parent Pension Plan
and reasonable expectations); and (iii) no "accumulated funding deficiency"
(as defined in Section 302(a)(2) of ERISA), whether or not waived, exists
with respect to any plan year.
(i) With respect to each Parent Pension Plan that is subject to the
minimum funding requirements of Code Section 412: (i) the Parent, DTS and
their Affiliates have paid all premiums (and interest charges and penalties
for late payment, if applicable) due the Pension Benefit Guaranty
Corporation ("PBGC") with respect to each such Pension Plan and each plan
year thereof for which such premiums are required; (ii) there has been
no "reportable event" (as defined in Section 4043(b) of ERISA and the
regulations of the PBGC under such Section) for which the 30 day notice is
not waived; (iii) no filing has been made by the Parent, DTS, or any
Affiliate with the PBGC (and no proceeding has been commenced by the PBGC)
to terminate any such Plan; (iv) no amendment has occurred that has
required or could require the Parent or DTS, to provide security to any
such Parent Plan under Code Section 401(a)(29); (v) all installment
contributions required pursuant to Code Section 412(m) have been paid by
the Parent, DTS, and each Affiliate before the due date for such
contribution as set forth in Code Section 412(m) for each such Parent
Plan; and (vi) no partial termination has occurred or is expected to occur
in connection with the transactions contemplated by this Agreement or
otherwise.
(j) With respect to each Parent Multiemployer Plan, (i) the Parent,
DTS and their Affiliates has or will have, as to the Closing, made all
contributions to each Parent Multiemployer Plan required by the terms of
such Parent Multiemployer Plan or any collective bargaining agreement; and
(ii) neither the Parent, DTS, nor the Company and the Subsidiaries would be
subject to any withdrawal liability under Part 1 of Subtitle E of Title IV
of ERISA or Polish law analog if, as of the Closing, the Parent, DTS, or
any of their Affiliates were to engage in a complete withdrawal (as defined
in ERISA Section 4203 or Polish law analog from any Parent Multiemployer
Plan. Neither the Parent, DTS, nor any of their Affiliates has at any time
(A) incurred any Liabilities under the provisions of Section 4062 of
ERISA; (B) withdrawn as a substantial employer so as to become subject to
the provisions of Section 4063 of ERISA; (C) ceased making contributions
to
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any Parent Multiemployer Plan; or (D) made a complete or partial withdrawal
from a Parent Multiemployer Plan so as to incur withdrawal liability as
defined in section 4201 of ERISA or Polish law analog (without regard to
subsequent reduction or waiver of such liability under Section 4207 or
4208 of ERISA).
(k) There are no agreements that will provide payments to any officer,
employee, stockholder, or highly compensated individual that will be
"parachute payments" under Code Section 280G or Polish law analog that are
nondeductible to the Parent or DTS, or subject to tax under Code
Section 4999 or Polish law analog for which the Parent, DTS, or their
Affiliates would have withholding liability.
(l) True and complete copies of the following documents have been
delivered to the Stockholders: (i) each Parent Plan and each related trust
agreement or annuity contract (or other funding instrument); (ii) the most
recent determination letter issued by the Internal Revenue Service with
respect to each Parent Pension Plan; (iii) Annual Reports on Form 5500
Series required to be filed with any Governmental Body for each Parent
Welfare Benefit Plan and each Parent Pension Plan for the two most recent
plan years; and (iv) the three most recent actuarial reports for each
Parent Pension Plan.
4.19 TITLE TO ASSETS. Set forth in SCHEDULE 4.19 is a complete list
(including the street address, where applicable) of (a) all real property
currently owned by the Parent or DTS; (b) all real property currently leased
or otherwise used by the Parent or DTS; (c) each vehicle owned or leased by
the Parent or DTS; and (d) each asset of the Company or DTS with a book value
or fair market value greater than $10,000. The Parent and DTS have good and
marketable title to all of their respective assets, including without
limitation the assets listed on SCHEDULE 4.19, the assets reflected on the
Parent's Latest Balance Sheet and all assets used by either the Parent or DTS
in the conduct of its respective businesses (except for assets disposed of in
the ordinary course of business and consistent with past practices since the
Parent's Latest Balance Sheet Date and except for assets held under leases or
licenses disclosed pursuant to SECTION 4.21); and all such assets are owned
free and clear of any Liens, except for (A) Liens for current taxes not yet
due; (B) minor imperfections of title and encumbrances that do not materially
detract from or interfere with the present use or value of such properties;
and (C) Liens disclosed on SCHEDULE 4.19.
4.20 CONDITION OF PROPERTIES. All facilities, machinery, equipment,
fixtures, vehicles and other tangible property owned, leased or used by the
Parent and DTS are in good operating condition and repair, normal wear and
tear excepted, are reasonably fit and usable for the purposes for which they
are being used, will not likely require major overhaul or repair in the
foreseeable future, are adequate and sufficient for the Parent's or DTS's
respective business and conform with all applicable laws, rules and
regulations. Each of the Parent and DTS maintains policies of insurance
issued by insurers of recognized responsibility insuring the Parent and DTS
and their respective assets and businesses against such losses and risks, and
in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or similar businesses and similarly situated.
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4.21 MATERIAL AGREEMENTS.
(a) SCHEDULE 4.21 lists each agreement and arrangement (whether
written or oral and including all amendments thereto) to which either of
the Parent or DTS are a party or a beneficiary or by which either the
Parent, DTS, or any of their respective assets are bound and that is
material to the Parent or DTS, as the case may be (collectively, the
"Material Agreements"), including without limitation (i) any real estate
leases; (ii) any agreement evidencing, securing or otherwise relating to
any indebtedness for which the Parent or DTS is liable; (iii) any capital
or operating leases or conditional sales agreements relating to vehicles,
equipment or other assets of the Parent or DTS; (iv) any supply,
distribution or manufacturing agreements or arrangements pursuant to which
the Parent or DTS is entitled or obligated to acquire any assets from a
third party; (v) any licensing, franchising, servicing, consulting, or
other agreements; (vi) any marketing, sales or advertising agreements;
(vii) any insurance policies; (viii) any employment, consulting,
noncompetition, separation, collective bargaining, union or labor
agreements or arrangements; (ix) any agreement with or for the benefit of
any stockholder, director, officer or employee of the Parent or DTS, or
any affiliate or family member thereof; and (x) any other agreement or
arrangement pursuant to which the Parent or DTS could be required to make
or entitled to receive aggregate payments in excess of $10,000.
(b) The Parent has delivered to the Stockholders a copy of each
Parent Material Agreement. Each Parent Material Agreement is valid,
binding and in full force and effect and enforceable in accordance with
its terms; each of the Parent and DTS has performed all of its obligations
under each Material Agreement, and there exists no breach or default (or
event that with notice or lapse of time would constitute a breach or
default) under any Material Agreement; there has been no termination or
notice of default or any threatened termination under any Material
Agreement; and no consent of any Person is required in connection with
the transactions contemplated by this Agreement in order to preserve the
rights of the Parent or DTS under or to prevent any disadvantage to the
Parent or DTS in respect of any Parent Material Agreement.
4.22 CUSTOMERS. Set forth in SCHEDULE 4.22 is a complete list of each
customer of each of the Parent and DTS that has accounted for more than
$10,000 of revenues during any month since January 1, 1994, or is expected to
account for revenues exceeding such amount during any of the next twelve
months (the "Parent Material Customers"), and indicating the amount of
revenues attributable to each Parent Material Customer during the years ended
December 31, 1994 and 1995. During the year ended December 31, 1995, the
Parent earned no in revenues from the Parent Material Customers, and DTS
earned an aggregate of $1,086,041 in revenues from the Parent Material
Customers.
4.23 INTELLECTUAL PROPERTY RIGHTS. Set forth in SCHEDULE 4.23 is a
complete list of all registered patents, trademarks, service marks, trade
names and copyrights, and applications for and licenses (to or from the
Parent or DTS) with respect to any of the foregoing (collectively,
"REGISTERED INTELLECTUAL PROPERTY"), owned by the Parent or DTS or with
respect to which the Parent or DTS has any rights. The Parent or DTS have
the sole and exclusive right to use all Registered Intellectual Property and
other computer software and software licenses, intellectual property,
proprietary information, trade secrets, trademarks, trade names, copyrights,
material and manufacturing
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specifications, drawings and designs (collectively, "INTELLECTUAL PROPERTY")
used by the Parent or DTS or necessary in connection with the operation of
the Parent's or DTS's business, without infringing on or otherwise acting
adversely to the rights or claimed rights of any Person, and neither the
Parent nor DTS is obligated to pay any royalty or other consideration to any
Person in connection with the use of any such Intellectual Property. No
other Person is infringing the rights of the Parent or DTS in any such
Intellectual Property.
4.24 SUBSIDIARIES AND INVESTMENTS. Neither the Parent nor DTS own any
direct or indirect equity or debt interest in any other Person, including
without limitation any interest in a partnership or joint venture, and is not
obligated or committed to acquire any such interest.
4.25 COMPETING INTERESTS. Neither the Parent nor DTS nor any director,
officer, relative or affiliate of any of the foregoing owns, directly or
indirectly, an interest in any Person that is a competitor, customer or
supplier of the Parent or DTS or that otherwise has material business
dealings with the Parent or DTS.
4.26 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. Neither
the Parent, DTS nor any of their respective officers, directors, employees,
agents, stockholders or other representatives or any other business entity or
enterprise with which the Parent or DTS is or has been affiliated or
associated, has, directly or indirectly, made or authorized any payment,
contribution or gift of money, property or services, whether or not in
contravention of applicable law, (a) as a kickback or bribe to any Person or
(b) to any political organization, or the holder of or any aspirant to any
elective or appointive public office, except for personal political
contributions not involving the direct or indirect use of funds of the Parent
or DTS. Neither the Parent nor DTS has violated any United States or Polish
federal or state antitrust statutes, rules or regulations, including without
limitation those relating to unfair competition, price fixing, bid rigging or
collusion.
4.27 NO MISREPRESENTATIONS. The Parent has disclosed to the Stockholders
all facts and information that would be material to an investment in the Parent.
Neither the Parent nor DTS has received any appraisal, report or other similar
information relating to the value or condition of the Parent, DTS or any of
their respective assets. The representations, warranties and statements made
by the Stockholders in or pursuant to this Agreement (including the Schedules
hereto) are true, complete and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make any such representation, warranty or statement, under
the circumstances in which it is made, not misleading.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 CONDUCT OF BUSINESS.
(a) Prior to the Closing, the Company will; the Company will cause the
Subsidiaries to; and the Stockholders will cause the Company and the
Subsidiaries to, (a) operate in the ordinary
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course of business and consistent with past practices and use its best
efforts to preserve the goodwill of the Company and the Subsidiaries and of
its employees, customers, suppliers, Governmental Bodies and others having
business dealings with the Company or any Subsidiary; (b) except as
contemplated by this Agreement, not engage in any transaction outside the
ordinary course of business, including without limitation, by making any
material expenditure, investment or commitment or entering into any material
agreement or arrangement of any kind; (c) maintain all insurance policies and
all Permits that are required for the Company or any Subsidiary to carry on
their respective businesses; (d) maintain books of account and records in the
usual, regular and ordinary manner and consistent with past practices; and
(e) take no action that would result in a breach (as of the Closing) of the
representations and warranties set forth in SECTION 2.10.
(b) Prior to the Closing, the Parent and DTS will (a) operate in the
ordinary course of business and consistent with past practices and use its
best efforts to preserve the goodwill of the Company and the Subsidiaries and
of their respective employees, customers, suppliers, Governmental Bodies and
others having business dealings with the Company or any Subsidiary; (b)
except as contemplated by this Agreement, not engage in any transaction
outside the ordinary course of business, including without limitation, by
making any material expenditure, investment or commitment or entering into
any material agreement or arrangement of any kind; (c) maintain all insurance
policies and all Permits that are required for the Company or any Subsidiary
to carry on their respective businesses; (d) maintain books of account and
records in the usual, regular and ordinary manner and consistent with past
practices; and (e) take no action that would result in a breach (as of the
Closing) of the representations and warranties set forth in SECTION 4.11.
5.2 NO-SHOP PROVISIONS. (a) Until the earlier of the Closing or June
30, 1996, the Company and the Stockholders will each comply and cause the
Company and the Subsidiaries to comply with the following no-shop provisions:
(a) the Company and the Stockholders will each negotiate exclusively and in
good faith with Parent with respect to the sale of the Company; (b) neither
the Company, any Subsidiary nor any Stockholder will, directly or indirectly
(through agents or otherwise), encourage or solicit any inquiries or accept
any proposals by, or engage in any discussions or negotiations with or
furnish any information to, any other Person concerning a sale of a substantial
portion of the assets or business of the Company or any Subsidiary (whether
through an asset sale, stock sale, merger or otherwise); and (c) the Company,
the Subsidiaries and the Stockholders will promptly communicate to Parent the
material substance of any inquiry or proposal concerning any such transaction
that may be received by any of them.
(b) Until the earlier of the Closing or June 30, 1996, the Parent will
comply and cause DTS to comply with the following no-shop provisions: (a) the
Parent will negotiate exclusively and in good faith with the Stockholders and
the Company with respect to the sale of the Company; (b) neither the Parent
nor DTS will, directly or indirectly (through agents or otherwise), encourage
or solicit any inquiries or accept any proposals by, or engage in any
discussions or negotiations with or furnish any information to, any other
Person concerning a sale of a substantial portion of the assets or business
of the Parent (whether through an asset sale, stock sale, merger or
otherwise); and (c) the Parent will promptly communicate to the Company and
the Stockholders the material substance of any inquiry or proposal concerning
any such transaction that may be received by the Parent.
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5.3 ACCESS AND INFORMATION.
(a) The Company and the Stockholders will afford to the Parent and its
authorized representatives full access to the plants, properties, books and
records of or relating to the Company and the Subsidiaries to permit the
Parent to investigate the Company and the Subsidiaries as the Parent deems
desirable. The Company and the Stockholders will also permit the Parent
to discuss the Company's and/or any Subsidiary's businesses and operations
with the executive officers and directors of the Company and/or any
Subsidiary. The Parent will also be permitted to discuss the Company
and/or any Subsidiary with the customers of the Company or any Subsidiary
upon prior notification to the Company or any Subsidiary of its intent to
contact said customers.
(b) The Parent will afford to the Stockholders and their authorized
representatives full access to the plants, properties, books and records of
or relating to the Parent and DTS to permit the Stockholders to investigate
the Parent and DTS as the Stockholders deem desirable. The Parent will
also permit the Stockholders to discuss the Parent's and DTS's business
and operations with the executive officers and directors of the Parent
and DTS, respectively. The Stockholders will also be permitted to discuss
the Parent with the customers of the Parent upon prior notification to the
Parent of its intent to contact said customer.
5.4 SUPPLEMENTAL DISCLOSURE. (a) The Company and the Stockholders will
promptly supplement or amend each of the Schedules hereto with respect to any
matter that arises or is discovered after the date hereof that, if existing
or known at the date hereof, would have been required to be set forth or
listed in the Schedules hereto; provided that, for purposes of determining
the rights and obligations of the parties hereunder (other than the obligations
of the Company and the Stockholders under this SECTION 5.4(a)), any such
supplemental or amended disclosure will not be deemed to have been disclosed
to Parent unless Parent otherwise expressly consents in writing.
(b) The Parent will promptly supplement or amend each of the Schedules
hereto pertaining to the Parent with respect to any matter that arises or is
discovered after the date hereof that, if existing or known at the date
hereof, would have been required to be set forth or listed in the Schedules
hereto pertaining to the Parent, provided that, for purposes of determining
the rights and obligations of the parties hereunder (other than the
obligations of the Parent under this SECTION 5.4(b)), any such supplemental
or amended disclosure will not be deemed to have been disclosed to the
Stockholders unless the Stockholders otherwise expressly consent in writing.
5.5 INFORMATION FOR FILINGS. The Company and the Stockholders will
furnish Parent with all information concerning the Stockholders and the
Company and the Subsidiaries as is required for inclusion in any application
or filing made by Parent to any Governmental Body in connection with the
transactions contemplated by this Agreement.
5.6 FULFILLMENT OF CONDITIONS BY THE STOCKHOLDERS. The Company and the
Stockholders agree not to take any action that would cause the conditions on
the obligations of the parties to effect the transactions contemplated hereby
not to be fulfilled, including without limitation by taking or causing to be
taken any action that would cause the representations and warranties made by
the
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Company or the Stockholders herein not to be true and correct as of the Closing.
The Company will cause to be fulfilled, and the Stockholders will take all
reasonable steps within their power to cause to be fulfilled, the conditions
precedent to Parent's obligations to consummate the transactions contemplated
hereby that are dependent on the actions of the Stockholders or the Company.
5.7 FULFILLMENT OF CONDITIONS BY PARENT. Parent agrees not to take any
action that would cause the conditions on the obligations of the parties to
effect the transactions contemplated hereby not to be fulfilled, including
without limitation by taking or causing to be taken any action that would
cause the representations and warranties made by Parent herein not to be true
and correct as of the Closing. Parent will take all reasonable steps within
its power to cause to be fulfilled the conditions precedent to the Company's
and the Stockholder's obligations to consummate the transactions contemplated
hereby that are dependent on the actions of Parent.
5.8 ASSISTANCE AFTER CLOSING. For a period of 90 days following the
Closing, the Stockholders will provide all assistance reasonably requested by
Parent to assist in the transition of the Company's business from ownership
by the Stockholders to ownership by Parent.
5.9 PUBLICITY. The Parent, the Company and the Stockholders will
cooperate with each other in the development and distribution of all news
releases and other public disclosures relating to the transactions
contemplated by this Agreement. Neither Parent, on the one hand, nor the
Company, any Subsidiary or the Stockholders, on the other hand, will issue or
make, or allow to have issued or made, any press release or public
announcement concerning the transactions contemplated by this Agreement
without the advance approval in writing of the form and substance thereof by
the other parties, unless otherwise required by applicable legal or stock
exchange requirements.
5.10 TRANSACTION COSTS. If the transactions contemplated by this
Agreement are consummated, the Parent will pay all attorneys', accountants',
finders', brokers', investment banking and other fees, costs and expenses
incurred by the Company, any Subsidiary or the Stockholders prior to the
Closing, or by the Stockholders after the Closing, in connection with the
preparation, negotiation, execution and performance of this Agreement or any
of the transactions contemplated by this Agreement, including without
limitation, the consulting fee to be paid to the Company's consultant, Robert
Chamberlain, described in SECTION 8.10. The Parent will pay all attorneys',
accountants', finders', brokers', investment banking and other fees, costs
and expenses that it incurs in connection with the preparation, negotiation,
execution and performance of this Agreement or any of the transactions
contemplated by this Agreement; provided that (in addition to any other
remedies that Parent may have under this Agreement), the Stockholders,
jointly and severally, agree to reimburse the Parent for all of its
out-of-pocket expenses incurred in connection with the transactions
contemplated by this Agreement if the Parent terminates this Agreement as a
result of any breach by the Stockholders of any of their representations,
warranties or covenants hereunder, and provided further that (in addition to
any other remedies that the Stockholders may have under this Agreement), The
Parent agrees to reimburse the Stockholders for all of their respective
out-of-pocket expenses incurred in connection with the transactions
contemplated by this Agreement if the Stockholders terminate this Agreement
as a result of any breach by Parent of any of its representations, warranties
or covenants hereunder. If the transactions contemplated by this Agreement
are not
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consummated by reason other than a breach of any representation, warranty or
covenant of any party hereto, each party shall bear its own attorneys',
accountants', finders', brokers', investment banking and other fees, costs
and expenses that it incurred in connection therewith.
5.11 NONDISCLOSURE. (a) Each Stockholder acknowledges and agrees that
all customer, prospect and marketing lists, sales data, intellectual
property, proprietary information and trade secrets of the Parent and DTS
(collectively, the "PARENT CONFIDENTIAL INFORMATION") are valuable, special
and unique assets and are and will be owned exclusively by the Parent and
DTS. Each Stockholder agrees to treat and will use its reasonable efforts to
ensure that the Company and each Subsidiary treats the Parent Confidential
Information as confidential and not to disclose any Parent Confidential
Information to any Person or make use of any Parent Confidential Information
for his own purposes or for the benefit of any other Person (other than the
Parent or DTS).
(b) The Parent acknowledges and agrees that all customer, prospect and
marketing lists, sales data, intellectual property, proprietary information
and trade secrets of the Company and any Subsidiary (collectively, the
"COMPANY CONFIDENTIAL INFORMATION") are valuable, special and unique assets
and are and will be owned exclusively by the Surviving Corporation or the
Subsidiaries. The Parent agrees to treat and will use its reasonable efforts
to ensure that each executive officer of the Parent treats all Company
Confidential Information as confidential and not disclose any Company
Confidential Information to any Person or make use of any Company
Confidential Information for their own purposes or for the benefit of any
other Person (other than Parent or the Company).
5.12 NONCOMPETITION. If the transactions contemplated by this
Agreement are consummated, for a period of one year following the discharge
of any Stockholder as an executive officer of the Company or any Subsidiary,
no such Stockholder will, directly or indirectly, on his own behalf or as an
officer, director, employee, consultant or other agent of any Person (other
than the Company or Parent): (a) engage in the telecommunications business
(the "BUSINESS") in Mexico or any other territory in which the Company or any
Subsidiary conduct business (the "TERRITORY"); (b) influence or attempt to
influence any customer or potential customer of the Company or any Subsidiary
in the Territory to acquire any services offered by the Company or any
Subsidiary from any other person; or (c) affiliate himself with, or own any
economic interest of any kind in, any business or Person engaged in the
Business in the Territory. Parent will obtain an agreement from its
executive officers on the Closing Date that for a period of one year
following the discharge of such executive officer as an executive officer of
Parent, such executive officer will not, directly or indirectly, on his own
behalf or as an officer, director, employee, consultant or other agent of any
Person (other than the Company or Parent): (a) engage in the Business in the
Territory; (b) influence or attempt to influence any customer or potential
customer of the Company or any Subsidiary in the Territory to acquire any
services offered by the Company or any Subsidiary from any other person; or
(c) affiliate himself with, or own any economic interest of any kind in, any
business or Person engaged in the Business in the Territory. Notwithstanding
the foregoing, the Stockholders and the executive officers of Parent may own
publicly traded securities of another entity that conducts Business in the
Territory so long as their holdings constitute less than 5% of the outstanding
securities of a class.
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5.13 ELECTION OF DIRECTORS. Immediately upon the Closing of the
transactions contemplated in this Agreement (i) two of the current six
directors of the Parent shall resign as directors of the Parent and (ii) the
remaining pre-closing Board of Directors of the Parent shall (A) increase the
size of the Board of Directors to seven (7) members, and (B) elect Manuel
Landa, Oscar Garcia and Ricardo Orea to the Board of Directors of the Parent,
to serve until the next annual meeting of the Parent's shareholders or until
their successors shall be elected and qualified.
5.14 ELECTION OF OFFICER. Immediately upon the Closing of the
transactions contemplated in this Agreement, Manuel Landa shall be elected as
Executive Vice President of Operations of the Parent.
5.15 NASDAQ LISTING. Parent will diligently seek approval for continued
listing on the NASDAQ Small Cap Market.
ARTICLE VI
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of the Parent
and the Merger Sub under this Agreement are subject to the satisfaction at or
prior to the Closing of the following conditions, but compliance with any
such conditions may be waived by Parent in writing:
(a) All representations and warranties of the Company and/or the
Stockholders contained in this Agreement are true and correct in all
material respects at and as of the Closing with the same effect as though
such representations and warranties were made at and as of the Closing.
(b) The Company and the Stockholders have performed and complied with
all the covenants and agreements and satisfied the conditions required by
this Agreement to be performed, complied with or satisfied by them at or
prior to the Closing, including without limitation the delivery of all
items required to be delivered by them pursuant to SECTION 1.3.
(c) There is no pending or threatened litigation in any court or any
proceeding before or by any Governmental Body against the Stockholders,
the Company, any Subsidiary or Parent to restrain or prohibit or obtain
damages or other relief with respect to this Agreement or the consummation
of the transactions contemplated hereby.
(d) All necessary contractual and governmental consents, approvals,
orders or authorizations have been obtained and all necessary contractual
or governmental notices have been given.
(e) The Parent has completed a comprehensive due diligence review of
the legal, business, financial and technical affairs of the Company and the
Subsidiaries and their respective assets and operations, the results of
which are satisfactory to the Parent.
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(f) The Parent has received the approval of its Board of Directors
for the execution, delivery and performance of this Agreement. The Merger
Sub has received the approval of its board of directors for the execution,
delivery and performance of this Agreement.
(g) The Stockholders have delivered to Parent a closing certificate
substantially in form of EXHIBIT D.
(h) The Company has delivered to Parent a closing certificate
substantially in the form of EXHIBIT E.
(i) The Stockholders have delivered to Parent and the Merger Sub
certificates of the secretary of the Company and the Subsidiaries
substantially in form of EXHIBIT F.
(j) The Parent has received a fairness opinion in form and substance
reasonably satisfactory to Parent from a reputable, disinterested
investment banking firm chosen by Parent stating that the terms of this
Agreement and the transactions contemplated hereby are fair to the Parent's
stockholders from a financial standpoint.
(k) The Stockholders have delivered to Parent a legal opinion of their
counsel substantially in form of EXHIBIT G.
(l) The Parent shall have determined to its reasonably satisfaction
and after due inquiry with the staff of the NASDAQ-SM- Small Cap Market,
that it will not be required to reapply for the listing of the Parent
Company Stock on the NASDAQ-SM- Small Cap Market as a result of the
consummation of the Merger.
(m) The Stockholders have delivered to Parent an agreement to transfer
and return to the Parent, without the payment of consideration to the
Stockholders in any form whatsoever, the Parent Preferred Shares in the
event the Parent Preferred Shares do not become redeemable in accordance
their terms. Such agreement shall be substantially in form of EXHIBIT H.
(n) The Parent and each of Manuel Landa, Oscar Garcia and Ricardo Orea
shall have executed and delivered employment agreements in the forms
attached hereto as EXHIBIT I.
(o) The Merger shall have been approved by all necessary corporate
action of the Company, including, without limitation, the vote of the board
of directors approving the Merger and this Agreement and the submission of
the Merger to the Stockholders and the vote of the Stockholders approving
the Merger in accordance with the Delaware Law.
(p) Parent shall have received satisfactory written evidence that the
Registration Rights Agreement dated August 10, 1995 and the Share
Disposition Agreement dated July 28, 1995 shall have been terminated at or
prior to the Closing.
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(q) Parent shall have received satisfactory written evidence that
Benchmark Equity Group and its affiliates and the Management Stockholders
have waived any fee arising from or relating to that certain Letter
Agreement dated as of July 28, 1995 concerning the sale of the Company, and
that such Letter Agreement has been terminated at or prior to the Closing.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS. The
obligations of the Company under this Agreement are subject to the
satisfaction at or prior to the Closing of the following conditions, but
compliance with any such conditions may be waived by the Company in writing:
(a) All representations and warranties of Parent contained in this
Agreement are true and correct in all material respects at and as of the
Closing with the same effect as though such representations and warranties
were made at and as of the Closing.
(b) Parent has performed and complied with the covenants and
agreements and satisfied the conditions required by this Agreement to be
performed, complied with or satisfied by Parent at or prior to the Closing.
(c) There is no pending or threatened litigation in any court or any
proceeding before or by any Governmental Body against the Stockholders,
the Company, any Subsidiary, or Parent to restrain or prohibit or obtain
damages or other relief with respect to this Agreement or the consummation
of the transactions contemplated hereby.
(d) All necessary governmental consents, approvals, orders or
authorizations have been obtained and all necessary governmental notices
have been given.
(e) The Stockholders have completed a comprehensive due diligence
review of the legal, business, financial and technical affairs of the
Parent and its assets and operations, the results of which are satisfactory
to the Stockholders.
(f) Parent has delivered to the Stockholders a legal opinion of
Parent's counsel in form and substance reasonably satisfactory to the
Stockholders.
(g) Since the date of the Parent's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1995, the Parent shall not have
suffered a material adverse change in the condition (financial or
otherwise), results of operations, business, prospects, assets or
Liabilities of the Parent or with respect to the manner in which the
Parent conducts its business or operations.
(h) The Company and each of Manuel Landa, Oscar Garcia and Ricardo
Orea shall have executed and delivered employment agreements in the forms
attached hereto as EXHIBIT I.
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ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION OF PARENT. Each of the Management Stockholders,
jointly and severally, and each of the other Stockholders, severally but not
jointly, will indemnify and hold Parent, its subsidiaries (including the
Company and the Subsidiaries) and their respective directors, officers,
employees and agents (collectively, the "Parent Parties") harmless from any
and all liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all court costs and reasonable attorneys' fees
(collectively, "CLAIMS"), that any Parent Party may suffer or incur as a
result of or relating to:
(a) the breach or inaccuracy, or any alleged breach or inaccuracy,
of any of the representations, warranties, covenants or agreements made
by the Company and/or such Stockholder, in the case of Stockholders other
than the Management Stockholders, and/or any Management Stockholder, in
the case of the Management Stockholders, in this Agreement or pursuant
hereto; or
(b) any lawsuit, claim or proceeding of any nature existing at or
prior to the Closing, or arising out of any act or transaction of such
Stockholder, in the case of Stockholders other than the Management
Stockholders, and/or any Management Stockholder, in the case of the
Management Stockholders, the Company, or any Subsidiary occurring prior
to the Closing, or arising out of facts or circumstances that existed at
or prior to the Closing that is related to the Company or any Subsidiary,
their respective assets or the operation of their respective businesses.
The indemnification obligations of the Stockholders shall not be effective
until the aggregate amount of all liabilities, obligations, claims,
contingencies, damages, costs and expenses that the Parent may suffer or
incur exceeds $50,000, at which time the Stockholders shall be obligated to
indemnify and hold harmless the Parent with respect to the aggregate amount
of all such matters in accordance with the terms of this provision.
Notwithstanding the foregoing, the indemnification obligations of the
Stockholders shall be limited to the amount of consideration received by such
Stockholder in the transactions contemplated by this Agreement.
7.2 INDEMNIFICATION OF STOCKHOLDERS. The Parent will indemnify and hold
Stockholders, their subsidiaries and their respective directors, officers,
employees and agents (collectively, the "SELLER PARTIES") harmless from any
and all liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all court costs and reasonable attorneys' fees
(collectively, "CLAIMS"), that any Seller Party may suffer or incur as a
result of or relating to:
(a) the breach or inaccuracy, or any alleged breach or inaccuracy,
of any of the representations, warranties, covenants or agreements made
by the Parent in this Agreement or pursuant hereto; or
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(b) any lawsuit, claim or proceeding of any nature arising out of any
act or transaction of the Parent, the Company, or any Subsidiary occurring
after the Closing, or arising out of facts or circumstances that did not
exist at or prior to the Closing that is related to the Company or any
Subsidiary, their respective assets or the operation of their respective
businesses.
The indemnification obligations of the Parent shall not be effective until
the aggregate amount of all liabilities, obligations, claims, contingencies,
damages, costs and expenses that the Stockholders may suffer or incur exceeds
$50,000, at which time the Parent shall be obligated to indemnify and hold
harmless the Stockholders with respect to the aggregate amount of all such
matters.
7.3 SURVIVAL. All representations and warranties made in or pursuant to
this Agreement will survive the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby for a period of
three (3) years. All statements contained in any schedule, certificate or
other writing delivered in connection with this Agreement or the transactions
contemplated hereby will constitute representations and warranties under this
Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated and abandoned (a) at any time prior to the Closing
by mutual written consent of Parent, the Merger Sub, the Company and the
Stockholders; or (b) by either Parent, on the one hand, or the Company and
the Stockholders, on the other hand, if a condition to performance by the
terminating party or parties hereunder has not been satisfied or waived prior
to June 30, 1996. Notwithstanding clause (b) above, (i) Parent may not
terminate this Agreement if the event giving rise to its termination right
results from Parent's willful failure to perform or observe any of its
covenants or agreements set forth herein or if Parent is, at such time, in
breach of this Agreement, and (ii) no Stockholder may terminate this
Agreement if the event giving rise to its termination right results from the
willful failure of any Stockholder to perform or observe any of its covenants
or agreements set forth herein or if any Stockholder is, at such time, in
breach of this Agreement.
8.2 WARRANTS. The parties hereto acknowledge and agree that the
issuance, vesting and right to exercise of the Series A Common Stock Warrants
and the Series B Common Stock Warrants is in no way related to or conditioned
upon the employment or continued employment by the Parent or any of affiliate
of Parent of the holder of any such warrant or any person affiliated with or
related to any holder of any such warrant.
8.3 NOTICES. All notices that are required or may be given pursuant to
this Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by telecopy or
by registered or certified mail, postage prepaid, to the parties at the
following addresses (or to the attention of such other person or such other
address as any party may provide to the other parties by notice in accordance
with this SECTION 8.2):
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If to Parent:
Polish Telephones and Microwave Corporation
433 East Las Colinas Blvd.
Suite 815
Irving, Texas 75039
Attention: Chief Executive Officer
Telecopy: (214) 831-8723
If to the Company prior to the Closing:
Telereunion, Inc. c/o Vextro
Ave Coyoa cam 1523
Col Del Valle
Mexico City, DF 03100
Attention: Mr. Manuel Landa
Telecopy: 011-525-5242984
With a copy to:
Ralph De Martino
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W.
Suite 400
Washington, D.C. 20036-2492
If to any of the Stockholders:
Telereunion, Inc. c/o Vextro
Ave Coyoa cam 1523
Col Del Valle
Mexico City, DF 03100
Attention: Mr. Manuel Landa
Telecopy: 011-525-5242984
With a copy to:
Ralph De Martino
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W.
Suite 400
Washington, D.C. 20036-2492
38
<PAGE>
Any such notice or other communication will be deemed to have been given and
received (whether actually received or not) on the day it is personally
delivered or delivered by courier or overnight delivery service, or if sent
by telecopy or if mailed, when actually received.
8.4 ATTORNEYS' FEES AND COSTS. If attorneys' fees or other costs are
incurred to secure performance of any obligations hereunder, or to establish
damages for the breach thereof or to obtain any other appropriate relief,
whether by way of prosecution or defense, the prevailing party will be
entitled to recover reasonable attorneys' fees and costs incurred in
connection therewith.
8.5 FURTHER ASSURANCES. Each party agrees to execute any and all
documents and to perform such other acts as may be necessary or expedient to
further the purposes of this Agreement and the transactions contemplated
hereby.
8.6 NO BROKERS. Each party to this Agreement represents to the other
party that it has not incurred and will not incur any liability for brokerage
fees or agents' commissions in connection with this Agreement or the
transactions contemplated hereby, and agrees that it will indemnify and hold
harmless the other party against any claim for brokerage and finders' fees or
agents' commissions in connection with the negotiation or consummation of the
transactions contemplated by this Agreement.
8.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, all of which together
will constitute one and the same instrument.
8.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder will be assigned or delegated by any Stockholders,
the Company or the Parent, without the prior written consent of the other
parties. This Agreement is not intended to confer any rights or benefits to
any Person (including without limitation any employees of the Company or any
Subsidiary) other than the parties hereto.
8.9 ENTIRE AGREEMENT. This Agreement and the related documents
contained as Exhibits and Schedules hereto or expressly contemplated hereby
contain the entire understanding of the parties relating to the subject
matter hereof and supersede all prior written or oral and all contemporaneous
oral agreements and understandings relating to the subject matter hereof.
This Agreement cannot be modified or amended except in writing signed by the
party against whom enforcement is sought. The Exhibits and Schedules to this
Agreement are hereby incorporated by reference into and made a part of this
Agreement for all purposes.
8.10 GOVERNING LAW. This Agreement will be governed by and construed
and interpreted in accordance with the substantive laws of the State of
Texas, without giving effect to any conflicts of law rule or principle that
might require the application of the laws of another jurisdiction. The
parties agree to submit any dispute arising under this Agreement to binding
arbitration. Such arbitration shall be conducted in Dallas, Texas by the
American Arbitration Association pursuant to its Commercial Arbitration Rules
as in effect from time to time.
8.11 CONSULTING FEE. If the transactions contemplated by this Agreement
are consummated, the Parent shall award Robert Chamberlain, as compensation
for consulting services provided by Mr.
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Chamberlain to the Company, options to purchase 79,191 shares of Parent
Common Stock at an exercise price of $2.19 per share. If the transactions
contemplated by this Agreement are not consummated, neither the Parent, DTS
or any of their Affiliates shall have an obligation to pay consulting or any
other fees or expenses to Robert Chamberlain, and any such consulting or any
other fees or expenses owing to Mr. Chamberlain shall be an obligation of the
Company.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
POLISH TELEPHONES AND MICROWAVE
CORPORATION
By: ___________________________
Name: ___________________________
Title: ___________________________
PTMC ACQUISITION SUB, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
TELEREUNION, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
STOCKHOLDERS:
___________________________________
Manuel Landa
____________________________________
Ricardo Orea
____________________________________
Oscar Garcia
Benchmark Equity Group
By: ___________________________
Name: ___________________________
Title: ___________________________
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Willowtree Developments Ltd.
By: ____________________________
Name: ___________________________
Title: ___________________________
Bollington Developments Ltd.
By: ____________________________
Name: ___________________________
Title: ___________________________
Trafford Park Holdings Ltd.
By: ____________________________
Name: ___________________________
Title: ___________________________
Four M. International, Ltd.
By: ____________________________
Name: ___________________________
Title: ___________________________
_______________________________________
Anthony Vaccaro
_______________________________________
Ken McDonald
_______________________________________
Ken Zimmer
_______________________________________
Scott Brown
_______________________________________
J.B.Manning
_______________________________________
Scott Mednick
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_______________________________________
Asher Rabinowitz
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EXHIBITS
A Form of Certificate of Designation
B Form of Series A Common Stock Warrants
C Form of Series B Common Stock Warrant
D Form of Stockholders Closing Certificate
E Form of Company Closing Certificate
F Form of Secretary's Certificate
G Form of Opinion of Counsel to Stockholders
H Form of Transfer and Return Agreement
I Form of Employment Agreement
SCHEDULES
1.3(a) Allocation of Parent Securities
2.4(a) Options and Warrants
2.4(b) Other Owners of Subsidiary Shares
2.4(c) Servicios Stockholders
2.5(a) List of Stockholders
2.7 Governmental Consents
2.8 Financial Statements
2.10 Payments to Stockholders
2.12 Litigation
2.14 Permits
2.16 Employees
2.17 Employee Benefit Plans
2.17(h) Certain Employment Agreements
2.18 Real Estate and Other Assets
2.20(a) Material Agreements
2.20(b) Contractual Consents
2.21 Customers
2.22 Intellectual Property
4.4 Parent Governmental Consents
4.5 SEC Filings
4.8(b) Outstanding Options for Parent Stock
4.17 Parent Employees
4.18 Parent Employee Benefit Plans
4.19 Parent Real Estate and Other Assets
4.20 Parent Material Agreements
4.22 Parent Customers
4.23 Parent Intellectual Property
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SERIES A COMMON STOCK WARRANT
THESE SECURITIES (A) HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933 AND (B) ARE SUBJECT TO THE TERMS OF
AND PROVISIONS OF AN AGREEMENT AND PLAN OF MERGER, DATED
AS OF APRIL 29, 1996 BETWEEN POLISH TELEPHONES AND
MICROWAVE CORPORATION, PTMC ACQUISITION SUB, INC.,
TELEREUNION, INC. AND CERTAIN OF STOCKHOLDERS OF
TELEREUNION, INC. (AS SUCH AGREEMENT MAY BE SUPPLEMENTED,
MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENT"). COPIES OF THE AGREEMENT IS AVAILABLE AT THE
OFFICES OF POLISH TELEPHONES AND MICROWAVE CORPORATION.
WARRANT TO PURCHASE SHARES OF COMMON STOCK, $0.001 PAR VALUE
PER SHARE, OF POLISH TELEPHONES AND MICROWAVE CORPORATION
THIS CERTIFIES that, for value received, _____________________________
(the "Warrantholder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to purchase from Polish Telephones and Microwave
Corporation, a Texas corporation (the "Company"), that number of fully paid and
nonassessable shares of the Company's common stock, $0.001 par value per share
(the "Common Stock"), at the purchase price per share (the "Exercise Price") as
set forth in Section 1 below. The number of shares and Exercise Price are
subject to adjustment as provided in Section 10 below.
1. NUMBER OF SHARES; EXERCISE PRICE; TERM.
(a) This Warrant is exercisable for _____________ shares (the "Shares")
of Common Stock at a purchase price of $2.19 per share (the "EXERCISE PRICE").
(b) Subject to the terms and conditions set forth in this Warrant,
this Warrant will be exercisable during the term commencing on the date of this
Warrant and ending on May __, 2003 subject to the following vesting schedule:
(i) This Warrant will vest and become fully exercisable as to 40% of the
Shares upon the attainment by the Company in any fiscal year after the
consummation by the Company of its acquisition of all the outstanding shares
of the capital stock of Telereunion, Inc., a Delaware corporation
("Telereunion"), of earnings (before depreciation, amortization and non-cash
charges
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against the earnings of the Company arising as a result of the vesting of this
Warrant and the other similar warrants issued in connection with the acquisition
of the outstanding capital stock of Telereunion) per share of $0.315, computed
in accordance with generally accepted accounting principles, EXCEPT that only
1,000,000 of the 2,500,000 shares of Common Stock issuable upon exercise of this
Warrant and the other similar warrants issued in connection with the acquisition
of the outstanding capital stock of Telereunion (the "Total Warrant Shares")
will be included in the calculation of the earnings per share of the Company in
all instances regardless of whether the closing price for a share of Common
Stock quoted on the NASDAQ (as defined below) on the date on which such
calculation is made is more or less than the Exercise Price;
(ii) This Warrant will vest and become fully exercisable as to an
additional 40% of the Shares upon the attainment by the Company in any fiscal
year after the consummation by the Company of its acquisition of all the
outstanding shares of the capital stock of Telereunion of earnings (before
depreciation, amortization and non-cash charges against the earnings of the
Company arising as a result of the vesting of this Warrant and the other
similar warrants issued in connection with the acquisition of the outstanding
capital stock of Telereunion) per share of $0.458, computed in accordance
with generally accepted accounting principles, EXCEPT that only 2,000,000 of
the Total Warrant Shares will be included in the calculation of the earnings
per share of the Company in all instances regardless of whether the closing
price for a share of Common Stock quoted on the NASDAQ on the date on which
such calculation is made is more or less than the Exercise Price; and PROVIDED
that the percentage of the Shares as to which this Warrant will vest and become
fully exercisable pursuant to this clause (ii) will be increased to 80% of the
Shares if there has been no vesting of the Warrant and the right to exercise
this Warrant pursuant to the immediately preceding clause (i); and
(iii) This Warrant will vest and become fully exercisable as to an
additional 20% of the Shares upon the attainment by the Company in any fiscal
year after the consummation by the Company of its acquisition of all the
outstanding shares of the capital stock of Telereunion of earnings (before
depreciation, amortization and non-cash charges against the earnings of the
Company arising as a result of the vesting of this Warrant and the other
similar warrants issued in connection with the acquisition of the outstanding
capital stock of Telereunion) per share of $0.75, computed in accordance with
generally accepted accounting principles, PROVIDED that 2,500,000 of the
Total Warrant Shares will be included in the calculation of the earnings per
share of the Company in all instances regardless of whether the closing price
for a share of Common Stock quoted on the NASDAQ on the date on which such
calculation is made is more or less than the Exercise Price; and PROVIDED
that the percentage of the Shares as to which this Warrant will vest and
become fully exercisable pursuant to this clause (ii) will be increased to
100% of the Shares if there has been no vesting of the Warrant and the right
to exercise this Warrant pursuant to the immediately preceding clause (ii).
(iv) Notwithstanding the foregoing, this Warrant will vest and become
fully exercisable as to any of the Total Warrant Shares not already vested
and exercisable if the closing price for a share of Common Stock quoted on
The Nasdaq Stock Market or other reliable public market (e.g., either the New
York Stock Exchange or the American Stock Exchange) equals or exceeds $12.00
for any ninety (90) consecutive trading days.
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2. TRANSFER AND EXCHANGE. This Warrant and all options and rights under
this Warrant are transferable, as to all or any part of the number of Shares
issuable under the terms of this Warrant, by the holder of this Warrant, in
person or by duly authorized attorney, on the books of the Company upon
surrender of the Warrant at the principal offices of the Company, together
with the attached, properly endorsed, Assignment Form. Absent any such transfer,
the Company may deem and treat the registered holder of this Warrant at any time
as the absolute owner of the Warrant for all purposes and will not be affected
by any notice to the contrary. If this Warrant is transferred in part, the
Company will, at the time of surrender, issue to the transferee a Warrant
covering the number of issuable Shares transferred and to the transferor a
Warrant covering the number of issuable Shares not transferred.
3. EXERCISE.
(a) This Warrant may be exercised as to all or any of the Shares as
to which this Warrant has vested and become fully exercisable at any time
or from time to time on or after the date on which such vesting of the
Warrant occurs as to such Shares, on any Business Day (as defined in
Section 9 below). In order to exercise this Warrant, in whole or in part,
the holder will deliver to the Company at its principal offices (i) a
written notice of such holder's election to exercise its Warrant,
substantially in the form of the Warrant Exercise Notice attached to this
Warrant, (ii) payment of the Exercise Price, in an amount equal to the
aggregate purchase price for all Shares to be purchased pursuant to such
exercise, and (iii) the Warrant. Upon receipt of such notice, the Company
will, as promptly as practicable, and in any event within ten (10) Business
Days, execute, or cause to be executed, and deliver to such holder a
certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise. The stock certificate
or certificates so delivered will be in such denominations as may be
specified in such notice and will be registered in the name of such holder,
or such other name as designated in such notice. A Warrant will be deemed
to have been exercised, such certificate or certificates will be deemed to
have been issued, and such holder or any other person or entity so
designated or named in such notice will be deemed to have become a holder
of record of such shares for all purposes, as of the date that such notice
(together with payment of the Exercise Price and the Warrant) is received
by the Company. If the Warrant has been exercised in part, the Company
will, at the time of delivery of such certificate of certificates, either
deliver to such holder a new Warrant evidencing the rights of such holder
to purchase a number of Shares with respect to which the Warrant has not
been exercised, which new Warrant will, in all other respects, be identical
to this Warrant, or, at the request of such holder, appropriate notation
may be made on the Warrant and the Warrant returned to such holder.
(b) Payment of the Exercise Price will be made, at the option of the
holder, by (i) company or individual check (subject to collection),
certified or official bank check or (ii) cancellation of any debt owed by
the Company to the holder. If the holder surrenders a combination of cash
or cancellation of any debt owed by the Company to the holder, the holder
will specify the respective number of shares of Common Stock to be
purchased with each form of consideration, and the foregoing provisions
will be applied to each form of consideration with the same effect as if
the Warrant were being separately exercised with respect to each
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<PAGE>
form of consideration; PROVIDED, HOWEVER, that a holder may designate that
any cash to be remitted to a holder in payment of debt be applied, together
with other monies, to the exercise of the portion of the Warrant being
exercised for cash.
(c) In lieu of exercising this Warrant in the manner set forth in
paragraph 3(b) above, this Warrant may be exercised by surrender of the
Warrant without payment of any other consideration, commission or
remuneration, together with the cashless exercise subscription form at the
end hereof, duly executed. The number of shares to be issued in exchange
for the Warrant shall be the product of (x) the excess of the Market Price
(as defined below) of the Common Stock on the date of surrender of the
Warrant and the exercise subscription form OVER the Exercise Price per
share and (y) the number of shares subject to issuance upon exercise of
the Warrant, divided by the Market Price of the Common Stock on such date.
Upon such exercise and surrender of this Warrant, the Company will (i)
issue a certificate or certificates in the name of the holder for the
largest number of whole shares of the Common Stock to which the holder
shall be entitled and, in lieu of any fractional share of the Common Stock
to which the Holder shall be entitled, pay cash equal to the fair value of
such fractional share (determined in such reasonable manner as the Board
of Directors of the Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of this Warrant,
pursuant to the provisions of this Warrant.
(d) The market price of a share of the Common Stock (the "Market
Price") on any date of determination shall be (i) the average of the last
reported sale price of the Common Stock on the five business days
immediately preceding the date of determination as reported on the Nasdaq
Market ("NASDAQ") or (ii) if there is no such reported sale on any of the
dates in question, the average of the closing bid and asked quotations as
so reported on NASDAQ for such dates.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares will be issued upon the exercise of this Warrant.
In lieu of any fractional share to which a holder would otherwise be entitled,
such holder will be entitled to receive, at its option, either (i) a cash
payment equal to the excess of fair market value for such fractional share
above the Exercise Price for such fractional share (as mutually determined by
the Company and the holder) or (ii) a whole share if the holder tenders the
Exercise Price for one whole share.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares
upon the exercise of this Warrant will be made without charge to the holder
for any issue or transfer tax or other incidental expense in respect of the
issuance of such certificates, all of which taxes and expenses will be paid
by the Company.
6. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the holder
to any voting rights, dividend rights or other rights as a shareholder of the
Company prior to exercise.
7. WARRANT REGISTER. The Company will, at all times while this Warrant
remains outstanding and exercisable, keep and maintain at its principal office
a register in which the registration,
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transfer, and exchange of the Warrants will be provided for. The Company will
not at any time, except upon the dissolution, liquidation, or winding up of the
Company, close such register so as to result in preventing or delaying the
exercise or transfer of any Warrant.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated, or destroyed, the Company will issue a new Warrant
of like denomination, tenor, and date upon receipt of and appropriate affidavit
and indemnity executed by the Holder. Any such new Warrant will constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated, or destroyed Warrant is at any time enforceable by
any person or entity.
9. BUSINESS DAYS. A "Business Day" is any day other than Saturday,
Sunday, or legal holiday. If the last or appointed day for the taking of any
action or the expiration of any right required or granted in this Warrant is
not a Business Day, then such action may be taken or such right may be
exercised on the following Business Day.
10. ADJUSTMENTS.
(a) ADJUSTMENT EVENTS. The Warrant will be exercisable for the number
of shares of Common Stock in such manner that, following the complete and full
exercise of this Warrant, the amount of Common Stock and other property issued
to the holder of this Warrant will equal the aggregate number of shares of
Common Stock set forth in Section 1(a), as adjusted, to the extent necessary,
to give effect to the following events:
(i) (A) The holder of this Warrant will be entitled to an
adjustment as set forth in Section 10(a)(i)(B), if at any time or
from time to time, the holders of any class of Common Stock or any
option, warrant, right, or similar security exercisable into or
exchangeable for Common Stock ("Common Stock Equivalent") have
received, or (on or after the record date fixed for the determination
of shareholders eligible to receive) have become entitled to receive,
without payment therefor, (I) property (other than cash) by way of
dividend or distribution; or (II) property (including cash) by way of
spin-off, split-up, reclassification (including any reclassification
in connection with a consolidation or merger in which the Company is
the surviving corporation), recapitalization, combination of shares
into a smaller number of shares, or similar corporate restructuring.
(B) In each such case, the holder of this Warrant will be
entitled to receive for each share of Common Stock issuable under
this Warrant as of the record date fixed for such distribution, the
greatest per share amount of property received or receivable by any
holder of any class of Common Stock or Common Stock Equivalent. With
respect to any subsequent distribution, all such consideration
receivable pursuant to this Section 10(a)(i) will be deemed
outstanding and owned by the holder when determining the amount of
consideration due to the holder upon exercise of the Warrant.
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<PAGE>
(C) This Section 10(a)(i) does not apply to additional
shares of Common Stock issued as a stock dividend or in a stock-split.
(ii) If at any time there occurs any stock split, stock
dividend, reverse stock split, or other subdivision of the Common
Stock, then the number of shares of Common Stock to be received and
the Exercise Price to be paid will be proportionately adjusted.
(iii) (A) The following events will constitute "Reorganization
Events": (I) any reclassification or change of outstanding shares of
any class of Common Stock or Common Stock Equivalent (other than a
change in par value, or from par value to no par value, or from no
par value to par value), or (II) any consolidation of the Company
with, or merger or share exchange of the Company with or into,
another entity, or (III) any sale of all or substantially all of the
property, assets, business, income or revenue generating capacity,
or goodwill of the Company.
(B) Upon the occurrence of a Reorganization Event, the
Company, or the successor or other entity, as the case may be, will
provide that the holder of this Warrant will receive the highest per
share kind and amount of consideration (including cash) received or
receivable upon such Reorganization Event by any holder of any class
of Common Stock or Common Stock Equivalent for each Share issuable
under this Warrant immediately prior to such Reorganization Event (as
adjusted pursuant to Section 10(a)(i)). Any such successor entity,
which thereafter will be deemed to be the Company for purposes of this
Warrant, will provide for adjustments that are as nearly equivalent
as may be possible to the adjustments provided for by this Section 10.
(v) In case any event occurs as to which the preceding Sections
10(a)(i) through (iii) are not strictly applicable, but as to which
the failure to make any adjustment would not fairly protect the
purchase rights represented by the Warrants in accordance with the
essential intent and principles of this Section 10, then, in each such
case, the holder and the Company will negotiate for 30 days in good
faith in an attempt to reach a mutually agreeable solution. If, at
the end of such 30-day period the Company and the holder have not
reached such an agreement, the holder may appoint an independent
investment bank or firm of independent public accountants reasonably
acceptable to the Company, which will give its opinion as to the
adjustment, if any, on a basis consistent with the essential intent
and principles established in this Section 10, necessary to preserve
the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly deliver a copy of such opinion to
the holder and will make the adjustments described in such opinion.
The fees and expenses of such investment bank or independent public
accountants will be borne equally by the Company and the holder.
(b) ROUNDING. Any calculation under this Section 10 will be made to
the nearest one ten-thousandth of a share and the number of issuable Shares
resulting from such
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<PAGE>
calculation will be rounded up to the next whole share of Common Stock
comprising issuable Shares.
(c) NOTICE OF EVENTS.
(i) In the event of (A) any setting by the Company of a record
date with respect to the holders of any class of the capital stock of
the Company for the purpose of determining which of such holders are
entitled to dividends, repurchases of securities or other
distributions, or any right to subscribe for, purchase or otherwise
acquire any shares of such capital stock or other property or to
receive any other right; or (B) any capital reorganization of the
Company, or reclassification or recapitalization of the capital stock
of the Company or any transfer of all or a majority of the assets,
business, or revenue or income generating capacity of the Company, or
consolidation, merger, share exchange, reorganization, or similar
transaction involving the Company; or (C) any voluntary or involuntary
dissolution, liquidation, or winding up of the Company; or (D) any
proposed issue or grant by the Company of any capital stock of the
Company, or any right or option to subscribe for, purchase, or
otherwise acquire any capital stock of the Company (other than the
issue of Issuable Warrant Shares upon exercise of this Warrant), then,
in each such event, the Company will deliver or cause to be delivered
to the holders a notice specifying, as the case may be, (I) the date
on which any such record is to be set for the purpose of such
dividend, distribution, or right, and stating the amount and character
of such dividend, distribution, or right; (II) the date as of which
the holders of record will be entitled to vote on any reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
share exchange, conveyance, dissolution, liquidation, or winding-up;
(III) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding-up is to take place
and the time, if any is to be fixed, as of which the holders of record
of any class of capital stock of the Company will be entitled to
exchange their shares of capital stock for securities or other
property deliverable upon such event; (IV) the amount and character
of any capital stock, property, or rights proposed to be issued or
granted, the consideration to be received therefor, and, in the case
of rights or options, the exercise price thereof, and the date of
such proposed issue or grant and the persons or class of persons to
whom such proposed issue or grant will be offered or made; and (V)
such other information as the holders may reasonably request. Any
such notice will be deposited in the United States mail, postage
prepaid, at least thirty (30) days prior to the date therein
specified, and notwithstanding anything in this Agreement or this
Warrant to the contrary the holders may exercise this Warrant within
thirty (30) days from the receipt of such notice.
(ii) If there is any adjustment as provided above in Section
10(a), the Company will immediately cause written notice thereof to
be sent to the holder, which notice will be accompanied by a
certificate of the independent public accountants of the Company
setting forth in reasonable detail the facts requiring any such
adjustment in the number of shares receivable after such adjustment.
At the request of the holder and
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<PAGE>
upon surrender of this Warrant of such holder, the Company will
reissue this Warrant of such holder in a form conforming to such
adjustments.
11. ASSURANCES. The Company will not by any action including, without
limitation, amending, or permitting the amendment of, the charter documents,
bylaws, or similar instruments of the Company or through any reorganization,
reclassification, transfer of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities, or any other similar voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of the holder against impairment
or dilution. Without limiting the generality of the foregoing, the Company
will, with respect to this Warrant, (i) take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock, free and clear of
all liens, encumbrances, equities, and claims and (ii) use its best efforts to
obtain all such authorizations, exemptions, or consents from any public
regulatory body having jurisdiction as may be necessary to enable the Company
to perform its obligations under this Warrant.
12. MISCELLANEOUS.
(a) EMPLOYMENT OF HOLDER. The parties hereto acknowledge and
agree that the issuance, vesting and exercise of this Warrant is in no way
tied to, or conditioned upon, the employment by the Company or any affiliate
of the Company of the holder hereof or any person who is affiliated with or is
related to the holder hereof.
(b) SUCCESSORS. This Warrant will be binding upon any successors or
assigns of the Company.
(C) GOVERNING LAW. THIS WARRANT WILL CONSTITUTE A CONTRACT UNDER
THE LAWS OF TEXAS AND FOR ALL PURPOSES WILL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF SAID STATE, WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION
OF THE LAWS OF ANY OTHER JURISDICTION.
(d) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the holder relating hereto, the prevailing
party will be entitled to reasonable attorneys' fees and expenses incurred in
enforcing this Warrant.
(f) NOTICE. Any notice required or permitted under this Warrant
will be deemed effectively given upon personal delivery to the party to be
notified or upon deposit with the United States Post Office, by certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated below for such party, or at such other address as such other party
may designate by ten-day advance written notice.
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<PAGE>
IN WITNESS WHEREOF, POLISH TELEPHONES AND MICROWAVE CORPORATION has caused
this Warrant to be executed by its officer thereunto duly authorized.
Dated: May __, 1996
POLISH TELEPHONES AND MICROWAVE
CORPORATION
By: ________________________________
Title: _____________________________
Address: Waterway Tower
433 Las Colinas Boulevard
Suite 815
Irving, Texas 75039
Attn: President
WARRANT HOLDER:
________________________________
________________________________
________________________________
________________________________
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<PAGE>
WARRANT EXERCISE NOTICE
To: Polish Telephones and Microwave Corporation
1. The undersigned hereby elects to purchase ___________ shares of
Common Stock (the "SHARES"), of Polish Telephones and Microwave Corporation
(the "Company") pursuant to the terms of the attached Warrant, and tenders
payment of the purchase price in cash or cancellation of indebtedness owed by
the Company to the undersigned, as provided in Section 3(b), and/or by surrender
of this Warrant (or a portion hereof) in accordance with Section 3(c) of such
Warrant, in each case as indicated in the accompanying instruction letter from
the undersigned.
2. Please issue a certificate or certificates representing said Shares
in the following names:
NAME NUMBER OF ISSUABLE SHARES
---- -------------------------
3. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the following names:
NAME NUMBER OF SHARES
---- ----------------
Dated: _____________, 19__.
By: __________________________________
[Name]
[Title, if applicable]
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to (Please Print):
whose address is_____________________________
_____________________________________________
Dated:___________________, 19__.
Holder's Signature:_____________________________
Holder's Address: _______________________________
Signature Guaranteed: ____________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
SERIES B COMMON STOCK WARRANT
THESE SECURITIES (A) HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933 AND (B) ARE SUBJECT TO THE TERMS OF AND PROVISIONS
OF AN AGREEMENT AND PLAN OF MERGER, DATED AS OF APRIL 29, 1996
BY AND AMONG POLISH TELEPHONES AND MICROWAVE CORPORATION,
PTMC ACQUISITION SUB, INC., TELEREUNION, INC. AND CERTAIN OF
STOCKHOLDERS OF TELEREUNION, INC. (AS SUCH AGREEMENT MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME,
THE "AGREEMENT"). COPIES OF THE AGREEMENT IS AVAILABLE AT THE
OFFICES OF POLISH TELEPHONES AND MICROWAVE CORPORATION.
WARRANT TO PURCHASE SHARES OF COMMON STOCK, $0.001 PAR VALUE
PER SHARE, OF POLISH TELEPHONES AND MICROWAVE CORPORATION
THIS CERTIFIES that, for value received, _____________________________
(the "Warrantholder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to purchase from Polish Telephones and Microwave
Corporation, a Texas corporation (the "Company"), that number of fully paid and
nonassessable shares of the Company's common stock, $0.001 par value per share
(the "Common Stock"), at the purchase price per share (the "Exercise Price") as
set forth in Section 1 below. The number of shares and Exercise Price are
subject to adjustment as provided in Section 10 below.
1. NUMBER OF SHARES; EXERCISE PRICE; TERM.
(a) This Warrant is exercisable for _____________ shares (the
"Shares") of Common Stock at a purchase price of $2.19 per share (the "Exercise
Price").
(b) Subject to the terms and conditions set forth in this Warrant,
this Warrant will be exercisable (i) upon the attainment by the Company of an
increase in net shareholders equity of the Company of at least $5,000,000
computed by comparing (A) the net shareholders equity of the Company on a pro
forma basis after giving effect to the acquisition of Telereunion, Inc., a
Delaware corporation ("Telereunion") by the Company as of the date of the
consummation of such acquisition to (B) the net shareholders equity of the
Company as set forth in a consolidated balance sheet of the Company as of any
date occurring during the 18-month period immediately following the
consummation of the acquisition of Telereunion by the Company,
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<PAGE>
which balance sheet shall be contained in any periodic report of the Company
on Form 10-KSB or Form 10-QSB as filed with the Securities and Exchange
Commission or (ii) if the closing price for a share of Common Stock quoted on
The NASDAQ Stock Market or other reliable public market (e.g., either the New
York Stock Exchange or the American Stock Exchange) equals or exceeds $12.00
for any ninety (90) consecutive trading days. If the condition for vesting
is not satisfied within the 18 month period immediately following the
consummation of the acquisition of Telereunion by the Company, this Warrant
will expire and no longer be exercisable. In any event, this Warrant will
expire on and no longer be exercisable after May ___, 2003.
2. TRANSFER AND EXCHANGE. This Warrant and all options and rights
under this Warrant are transferable, as to all or any part of the number of
Shares issuable under the terms of this Warrant, by the holder of this
Warrant, in person or by duly authorized attorney, on the books of the
Company upon surrender of the Warrant at the principal offices of the
Company, together with the attached, properly endorsed, Assignment Form.
Absent any such transfer, the Company may deem and treat the registered
holder of this Warrant at any time as the absolute owner of the Warrant for
all purposes and will not be affected by any notice to the contrary. If this
Warrant is transferred in part, the Company will, at the time of surrender,
issue to the transferee a Warrant covering the number of issuable Shares
transferred and to the transferor a Warrant covering the number of issuable
Shares not transferred.
3. EXERCISE.
(a) This Warrant may be exercised as to all or any of the Shares as
to which this Warrant has vested and become fully exercisable at any time
or from time to time on or after the date on which such vesting of the
Warrant occurs as to such Shares, on any Business Day (as defined in
Section 9 below). In order to exercise this Warrant, in whole or in part,
the holder will deliver to the Company at its principal offices (i) a
written notice of such holder's election to exercise its Warrant,
substantially in the form of the Warrant Exercise Notice attached to this
Warrant, (ii) payment of the Exercise Price, in an amount equal to the
aggregate purchase price for all Shares to be purchased pursuant to such
exercise, and (iii) the Warrant. Upon receipt of such notice, the Company
will, as promptly as practicable, and in any event within ten (10) Business
Days, execute, or cause to be executed, and deliver to such holder a
certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise. The stock certificate
or certificates so delivered will be in such denominations as may be
specified in such notice and will be registered in the name of such holder,
or such other name as designated in such notice. A Warrant will be deemed
to have been exercised, such certificate or certificates will be deemed to
have been issued, and such holder or any other person or entity so
designated or named in such notice will be deemed to have become a holder
of record of such shares for all purposes, as of the date that such notice
(together with payment of the Exercise Price and the Warrant) is received
by the Company. If the Warrant has been exercised in part, the Company
will, at the time of delivery of such certificate of certificates, either
deliver to such holder a new Warrant evidencing the rights of such holder
to purchase a number of Shares with respect to which the Warrant has not
been exercised, which new Warrant will, in all other respects, be identical
to this Warrant, or, at the request of such holder, appropriate notation
may be made on the Warrant and the Warrant returned to such holder.
2
<PAGE>
(b) Payment of the Exercise Price will be made, at the option of the
holder, by (i) company or individual check (subject to collection),
certified or official bank check or (ii) cancellation of any debt owed by
the Company to the holder. If the holder surrenders a combination of cash
or cancellation of any debt owed by the Company to the holder, the holder
will specify the respective number of shares of Common Stock to be
purchased with each form of consideration, and the foregoing provisions
will be applied to each form of consideration with the same effect as if
the Warrant were being separately exercised with respect to each form of
consideration; PROVIDED, HOWEVER, that a holder may designate that any
cash to be remitted to a holder in payment of debt be applied, together
with other monies, to the exercise of the portion of the Warrant being
exercised for cash.
(c) In lieu of exercising this Warrant in the manner set forth in
paragraph 3(b) above, this Warrant may be exercised by surrender of the
Warrant without payment of any other consideration, commission or
remuneration, together with the cashless exercise subscription form at the
end hereof, duly executed. The number of shares to be issued in exchange
for the Warrant shall be the product of (x) the excess of the Market Price
(as defined below) of the Common Stock on the date of surrender of the
Warrant and the exercise subscription form OVER the Exercise Price per
share and (y) the number of shares subject to issuance upon exercise of
the Warrant, divided by the Market Price of the Common Stock on such date.
Upon such exercise and surrender of this Warrant, the Company will (i)
issue a certificate or certificates in the name of the holder for the
largest number of whole shares of the Common Stock to which the holder
shall be entitled and, in lieu of any fractional share of the Common
Stock to which the Holder shall be entitled, pay cash equal to the fair
value of such fractional share (determined in such reasonable manner as
the Board of Directors of the Company shall determine), and (ii) deliver
the other securities and properties receivable upon the exercise of this
Warrant, pursuant to the provisions of this Warrant.
(d) The market price of a share of the Common Stock (the "Market
Price") on any date of determination shall be (i) the average of the last
reported sale price of the Common Stock on the five business days
immediately preceding the date of determination as reported on the Nasdaq
Market ("NASDAQ") or (ii) if there is no such reported sale on any of the
dates in question, the average of the closing bid and asked quotations as
so reported on NASDAQ for such dates.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares will be issued upon the exercise of this Warrant.
In lieu of any fractional share to which a holder would otherwise be entitled,
such holder will be entitled to receive, at its option, either (i) a cash
payment equal to the excess of fair market value for such fractional share
above the Exercise Price for such fractional share (as mutually determined by
the Company and the holder) or (ii) a whole share if the holder tenders the
Exercise Price for one whole share.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares
upon the exercise of this Warrant will be made without charge to the holder for
any issue or transfer tax or other
3
<PAGE>
incidental expense in respect of the issuance of such certificates, all of
which taxes and expenses will be paid by the Company.
6. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the holder
to any voting rights, dividend rights or other rights as a shareholder of the
Company prior to exercise.
7. WARRANT REGISTER. The Company will, at all times while this Warrant
remains outstanding and exercisable, keep and maintain at its principal office
a register in which the registration, transfer, and exchange of the Warrants
will be provided for. The Company will not at any time, except upon the
dissolution, liquidation, or winding up of the Company, close such register so
as to result in preventing or delaying the exercise or transfer of any Warrant.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated, or destroyed, the Company will issue a new Warrant
of like denomination, tenor, and date upon receipt of and appropriate affidavit
and indemnity executed by the Holder. Any such new Warrant will constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated, or destroyed Warrant is at any time enforceable by any
person or entity.
9. BUSINESS DAYS. A "Business Day" is any day other than Saturday,
Sunday, or legal holiday. If the last or appointed day for the taking of any
action or the expiration of any right required or granted in this Warrant is
not a Business Day, then such action may be taken or such right may be exercised
on the following Business Day.
10. ADJUSTMENTS.
(a) ADJUSTMENT EVENTS. The Warrant will be exercisable for the number
of shares of Common Stock in such manner that, following the complete and full
exercise of this Warrant, the amount of Common Stock and other property issued
to the holder of this Warrant will equal the aggregate number of shares of
Common Stock set forth in Section 1(a), as adjusted, to the extent necessary,
to give effect to the following events:
(i) (A) The holder of this Warrant will be entitled to an
adjustment as set forth in Section 10(a)(i)(B), if at any time or
from time to time, the holders of any class of Common Stock or any
option, warrant, right, or similar security exercisable into or
exchangeable for Common Stock ("Common Stock Equivalent") have
received, or (on or after the record date fixed for the determination
of shareholders eligible to receive) have become entitled to receive,
without payment therefor, (I) property (other than cash) by way of
dividend or distribution; or (II) property (including cash) by way of
spin-off, split-up, reclassification (including any reclassification
in connection with a consolidation or merger in which the Company is
the surviving corporation), recapitalization, combination of shares
into a smaller number of shares, or similar corporate restructuring.
(B) In each such case, the holder of this Warrant will be
entitled to receive for each share of Common Stock issuable under this
Warrant as of
4
<PAGE>
the record date fixed for such distribution, the greatest per share
amount of property received or receivable by any holder of any class
of Common Stock or Common Stock Equivalent. With respect to any
subsequent distribution, all such consideration receivable pursuant
to this Section 10(a)(i) will be deemed outstanding and owned by the
holder when determining the amount of consideration due to the holder
upon exercise of the Warrant.
(C) This Section 10(a)(i) does not apply to additional
shares of Common Stock issued as a stock dividend or in a stock-split.
(ii) If at any time there occurs any stock split, stock dividend,
reverse stock split, or other subdivision of the Common Stock, then
the number of shares of Common Stock to be received and the Exercise
Price to be paid will be proportionately adjusted.
(iii) (A) The following events will constitute "Reorganization
Events": (I) any reclassification or change of outstanding shares of
any class of Common Stock or Common Stock Equivalent (other than a
change in par value, or from par value to no par value, or from no
par value to par value), or (II) any consolidation of the Company
with, or merger or share exchange of the Company with or into, another
entity, or (III) any sale of all or substantially all of the property,
assets, business, income or revenue generating capacity, or goodwill
of the Company.
(B) Upon the occurrence of a Reorganization Event, the
Company, or the successor or other entity, as the case may be, will
provide that the holder of this Warrant will receive the highest per
share kind and amount of consideration (including cash) received or
receivable upon such Reorganization Event by any holder of any class
of Common Stock or Common Stock Equivalent for each Share issuable
under this Warrant immediately prior to such Reorganization Event
(as adjusted pursuant to Section 10(a)(i)). Any such successor
entity, which thereafter will be deemed to be the Company for purposes
of this Warrant, will provide for adjustments that are as nearly
equivalent as may be possible to the adjustments provided for by this
Section 10.
(v) In case any event occurs as to which the preceding Sections
10(a)(i) through (iii) are not strictly applicable, but as to which
the failure to make any adjustment would not fairly protect the
purchase rights represented by the Warrants in accordance with the
essential intent and principles of this Section 10, then, in each
such case, the holder and the Company will negotiate for 30 days in
good faith in an attempt to reach a mutually agreeable solution. If,
at the end of such 30-day period the Company and the holder have not
reached such an agreement, the holder may appoint an independent
investment bank or firm of independent public accountants reasonably
acceptable to the Company, which will give its opinion as to the
adjustment, if any, on a basis consistent with the essential intent
and principles established in this Section 10, necessary to preserve
the purchase rights represented by this Warrant. Upon receipt of
5
<PAGE>
such opinion, the Company will promptly deliver a copy of such opinion
to the holder and will make the adjustments described in such opinion.
The fees and expenses of such investment bank or independent public
accountants will be borne equally by the Company and the holder.
(b) ROUNDING. Any calculation under this Section 10 will be made
to the nearest one ten-thousandth of a share and the number of issuable Shares
resulting from such calculation will be rounded up to the next whole share of
Common Stock comprising issuable Shares.
(c) NOTICE OF EVENTS.
(i) In the event of (A) any setting by the Company of a record
date with respect to the holders of any class of the capital stock
of the Company for the purpose of determining which of such holders
are entitled to dividends, repurchases of securities or other
distributions, or any right to subscribe for, purchase or otherwise
acquire any shares of such capital stock or other property or to
receive any other right; or (B) any capital reorganization of the
Company, or reclassification or recapitalization of the capital stock
of the Company or any transfer of all or a majority of the assets,
business, or revenue or income generating capacity of the Company, or
consolidation, merger, share exchange, reorganization, or similar
transaction involving the Company; or (C) any voluntary or involuntary
dissolution, liquidation, or winding up of the Company; or (D) any
proposed issue or grant by the Company of any capital stock of the
Company, or any right or option to subscribe for, purchase, or
otherwise acquire any capital stock of the Company (other than the
issue of Issuable Warrant Shares upon exercise of this Warrant),
then, in each such event, the Company will deliver or cause to be
delivered to the holders a notice specifying, as the case may be,
(I) the date on which any such record is to be set for the purpose of
such dividend, distribution, or right, and stating the amount and
character of such dividend, distribution, or right; (II) the date as
of which the holders of record will be entitled to vote on any
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up; (III) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up is to take place and the time, if any is
to be fixed, as of which the holders of record of any class of capital
stock of the Company will be entitled to exchange their shares of
capital stock for securities or other property deliverable upon such
event; (IV) the amount and character of any capital stock, property,
or rights proposed to be issued or granted, the consideration to be
received therefor, and, in the case of rights or options, the exercise
price thereof, and the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant will
be offered or made; and (V) such other information as the holders may
reasonably request. Any such notice will be deposited in the United
States mail, postage prepaid, at least thirty (30) days prior to the
date therein specified, and notwithstanding anything in this Agreement
or this Warrant to
6
<PAGE>
the contrary the holders may exercise this Warrant within thirty (30)
days from the receipt of such notice.
(ii) If there is any adjustment as provided above in Section
10(a), the Company will immediately cause written notice thereof to
be sent to the holder, which notice will be accompanied by a
certificate of the independent public accountants of the Company
setting forth in reasonable detail the facts requiring any such
adjustment in the number of shares receivable after such adjustment.
At the request of the holder and upon surrender of this Warrant of
such holder, the Company will reissue this Warrant of such holder in
a form conforming to such adjustments.
11. ASSURANCES. The Company will not by any action including, without
limitation, amending, or permitting the amendment of, the charter documents,
bylaws, or similar instruments of the Company or through any reorganization,
reclassification, transfer of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities, or any other similar voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of the holder against
impairment or dilution. Without limiting the generality of the foregoing,
the Company will, with respect to this Warrant, (i) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock, free and
clear of all liens, encumbrances, equities, and claims and (ii) use its best
efforts to obtain all such authorizations, exemptions, or consents from any
public regulatory body having jurisdiction as may be necessary to enable the
Company to perform its obligations under this Warrant.
12. MISCELLANEOUS.
(a) EMPLOYMENT OF HOLDER. The parties hereto acknowledge and agree
that the issuance, vesting and exercise of this Warrant is in no way tied to
or conditioned upon the employment by the Company or any affiliate of the
Company of the holder hereof or any person affiliated with or related to the
holder hereof.
(b) SUCCESSORS. This Warrant will be binding upon any successors or
assigns of the Company.
(C) GOVERNING LAW. THIS WARRANT WILL CONSTITUTE A CONTRACT UNDER
THE LAWS OF TEXAS AND FOR ALL PURPOSES WILL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SAID STATE, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF
THE LAWS OF ANY OTHER JURISDICTION.
(d) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the holder relating hereto, the prevailing
party will be entitled to reasonable attorneys' fees and expenses incurred in
enforcing this Warrant.
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<PAGE>
(e) NOTICE. Any notice required or permitted under this Warrant
will be deemed effectively given upon personal delivery to the party to be
notified or upon deposit with the United States Post Office, by certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated below for such party, or at such other address as such other party
may designate by ten-day advance written notice.
IN WITNESS WHEREOF, POLISH TELEPHONES AND MICROWAVE CORPORATION has
caused this Warrant to be executed by its officer thereunto duly authorized.
Dated: May __, 1996
POLISH TELEPHONES AND MICROWAVE
CORPORATION
By: ________________________________
Title: _____________________________
8
<PAGE>
Address: Waterway Tower
433 East Las Colinas Boulevard
Suite 815
Irving, Texas 75039
Attn: President
WARRANT HOLDER:
________________________________
________________________________
________________________________
________________________________
9
<PAGE>
WARRANT EXERCISE NOTICE
To: Polish Telephones and Microwave Corporation
1. The undersigned hereby elects to purchase ___________ shares of
Common Stock (the "SHARES"), of Polish Telephones and Microwave Corporation
(the "COMPANY") pursuant to the terms of the attached Warrant, and tenders
payment of the purchase price in cash or cancellation of indebtedness owed by
the Company to the undersigned, as provided in Section 3(b), and/or by surrender
of this Warrant (or a portion hereof) in accordance with Section 3(c) of such
Warrant, in each case as indicated in the accompanying instruction letter from
the undersigned.
2. Please issue a certificate or certificates representing said Shares in
the following names:
NAME NUMBER OF ISSUABLE SHARES
---- -------------------------
3. Please issue a new Warrant for the unexercised portion of the attached
Warrant in the following names:
NAME NUMBER OF SHARES
---- ----------------
Dated:______________, 19__.
By: __________________________________
[Name]
[Title, if applicable]
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to (Please Print):
whose address is __________________________
___________________________________________
Dated:_____________________, 19__.
Holder's Signature: ______________________________
Holder's Address: ________________________________
Signature Guaranteed: _________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, executed on this ___ day of April, 1996 and effective as of
January 1, 1996 between TeleReunion, Inc., a Delaware corporation (the
"Company"), and ______________, an individual resident of Mexico, D.F. (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Employee is a highly valued and trusted employee of the
Company's subsidiary, Vextro de Mexico S.A. de C.V. ("Vextro"); and
WHEREAS, the Company desires to offer the Employee continued employment
upon the terms and conditions set forth herein and the Employee desires to
accept such employment; and
NOW THEREFORE in consideration of the mutual benefits to be derived from
this Agreement, the Company and the Employee hereby agree as follows:
1. TERM OF EMPLOYMENT; OFFICE AND DUTIES.
(a) During the Period of Employment (as hereinafter defined), the
Company, through Vextro or one or more of its other subsidiaries, shall
employ the Employee as a senior executive of the Company with the titles of
Vice President, with the duties and responsibilities prescribed for such
offices in the Bylaws of the Company and such subsidiaries, and with such
additional duties and responsibilities consistent with such positions as may
from time to time be assigned to the Employee by the Board of Directors of
the Company (the "Board of Directors"). Employee agrees to perform such
duties and discharge such responsibilities in accordance with the terms of
this Agreement.
(b) During the Period of Employment, the Employee shall devote
substantially all of his working time and attention to the business and
affairs of the Company and its subsidiaries, other than during vacations
(which shall be of a duration that is consistent with the policies of the
Company) and periods of illness or incapacity; provided, however, that
nothing in this Agreement shall preclude the Employee from devoting time
required: (i) for serving as a director or officer of any organization or
entity involving no conflict of interest with the Company; (ii) delivering
lectures, fulfilling speaking engagements or participating in activities of
professional associations including chambers of commerce; and (iii) engaging
in charitable and community activities; PROVIDED THAT, such activities do not
interfere with the performance of his duties hereunder and devoting
substantially all of his working time and attention to the business affairs
of the Company, its subsidiaries, and the Company's Parent.
2. TERM; PERIOD OF EMPLOYMENT
The period of employment hereunder (the "Period of Employment") shall
commence on the date hereof (the "Effective Date") and, unless sooner
terminated pursuant to this Agreement,
<PAGE>
shall terminate on the third anniversary of the Effective Date. The Period
of Employment may be extended by the written agreement of the Company and
Employee.
3. COMPENSATION AND BENEFITS.
For all services rendered by the Employee in any capacity during the
Period of Employment, including without limitation, services as an executive
officer, director, or member of any committee of the Company or any
subsidiary, affiliate or division thereof, the Employee shall be compensated
as follows:
(a) BASE SALARY. The Company shall pay the Employee a fixed
salary ("Base Salary") at a rate of Eighty Thousand Dollars (US $80,000) per
year. The Board of Directors will periodically review, at least annually,
the Employee's Base Salary with a view to increasing such Base Salary if, in
the judgment of the Board of Directors, the earnings of the Company or the
services of the Employee merit such an increase. Annual increases in Base
Salary, once granted, shall not be subject to revocation and shall become a
part of the Base Salary. Base Salary will be payable in accordance with the
customary payroll practices of the Company, but in no event less frequently
than monthly.
(b) BONUS. The Company may pay the Employee a bonus if, in the
judgment of the Board of Directors, the earnings of the Company or the
services of the Employee merit such bonus.
(c) FRINGE BENEFITS. During the Period of Employment, the
Employee shall be entitled to participate in such fringe benefit, insurance,
deferred compensation and stock option plans or programs of the Company, if
any, to the extent that his position, tenure, salary, age, health and other
qualifications make him eligible to participate, subject to the rules and
regulations applicable thereto. Such additional benefits shall include, but
not be limited to, paid sick leave and individual health insurance, all in
accordance with the policies of the Company. Except as specifically set
forth herein, the terms of, and participation by the Employee in, any such
plan or program shall be determined by the Board of Directors in its sole
discretion. In the event of the Employee's disability, the Employee and his
family shall continue to be covered by all of the Company's life, medical,
health and dental plans, at the Company's expense, for lesser of the term of
such disability or the remaining term of the Period of Employment. In the
event of the Employee's death, the Employee's family shall continue to be
covered by all of the Company's medical, health and dental plans, at the
Company's expense, for twenty-four (24) months following the Employee's death.
(d) WITHHOLDING AND EMPLOYMENT TAX. Payment of all compensation
hereunder shall be subject to customary withholding tax and other employment
taxes and deductions as may be required with respect to compensation paid by
an employer/corporation to an employee.
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<PAGE>
(e) VACATIONS. Employee shall be entitled to annual vacations of
two weeks in accordance with the policies of the Company or, if more
generous, as required by the laws of Mexico.
4. BUSINESS EXPENSES.
The Company shall pay or reimburse the Employee for all reasonable
travel or other expenses incurred by the Employee in connection with the
performance of his duties under this Agreement, including reimbursement for
attending meetings of the Board of Directors, in accordance with such
procedures as the Company may from time to time establish for senior officers
and as required to preserve any deductions for income taxation purposes to
which the Company may be entitled.
5. TERMINATION OF EMPLOYMENT.
Notwithstanding any other provision of this Agreement, the Period of
Employment may be terminated:
(a) By the Company, in the event of the Employee's death,
Disability (as hereinafter defined) or for Cause (as hereinafter defined).
For purposes of this Agreement, "Cause" shall mean Employee's conviction of a
crime involving an act or acts of dishonesty, fraud or moral turpitude by the
Employee, which act or acts constitute a felony and the willful and continued
failure to substantially perform Employee's duties hereunder after receipt of
written notice from the Company specifically setting forth such failure. For
purposes of this Agreement, "Disability" shall mean the inability of
Employee, in the reasonable judgment of a physician appointed by the Board of
Directors, to perform his duties of employment for the Company or any of its
subsidiaries because of any physical or mental disability or incapacity,
where such disability shall exist for an aggregate period of more than 120
days in any 365-day period or for any period of 90 consecutive days. The
Company shall by written notice to the Employee specify the event relied upon
for termination pursuant to this Subsection 5(a), and the Period of
Employment hereunder shall be deemed terminated as of the date of such
notice. In the event of any termination under this Subsection 5(a), the
Company shall pay all amounts then due to the Employee under Section 3(a) of
this Agreement, in addition to any severance payments required by law, and,
if such termination was due to Cause, the Company shall have no further
obligations to Employee under this Agreement.
(b) By the Company, for any reason and in its sole and absolute
discretion, provided that in such event the Company shall, in addition to any
severance payments required by law, as liquidated damages or severance pay,
or both, continue to pay to the Employee the Base Salary for a period of one
year.
(c) By the Employee, (i) if the Company's Board of Directors fails
to elect or reelect the Employee to, or removes the Employee from, any of the
offices referred to in Section
3
<PAGE>
1(a) or (ii) if the Employee is not elected or re-elected, or is removed from
the Board of Directors of the Company other than for Cause or failure to
discharge properly his duties in any such offices or at the direction of the
Company. In the event of any termination under this Section 5(c), the
Company shall, in addition to any severance payments required by law, as
liquidated damages or severance pay, or both, continue to pay to the Employee
the Base Salary for a period of one year after such termination.
(d) During any period in which payments are payable by the Company
to Employee pursuant to Sections 5(b) or 5(c) hereof (such payments being
hereinafter collectively referred to as "Termination Payments"), Employee and
his family shall continue to be covered by the Company's life, medical,
health and death plans. Such coverage shall be at the Company's expense to
the same extent as if Employee were still employed by the Company.
6. NON-COMPETITION.
During the Period of Employment hereunder and for the one year period
thereafter, the Employee shall not, anywhere within the United Mexican
States, the United States of America or anywhere else in the world in which
the Company (or any of its subsidiaries) is then doing business, engage in
activities in competition with the business of the Company, including but not
limited to any aspect of the teleconferencing or telecommunications
businesses, whether as an individual, investor, partner, joint venturer,
consultant, employee, agent, salesman, officer or director or otherwise. In
addition, for one year following the later of the last day of the Period of
Employment or the payment of the last Termination Payment hereunder, the
Employee shall not, within any jurisdiction in which the Company or any
subsidiary of the Company is then doing business, or within a one hundred
(100) mile radius of any such jurisdiction, engage in activities in
competition with the business of the Company or any subsidiary, either as an
individual, investor, partner, joint venturer, consultant, employee, agent,
salesman, officer or director or otherwise. Investments in less than five
percent of the outstanding securities of any class of a publicly-traded
company shall not be prohibited by this Section 6.
7. INVENTIONS AND CONFIDENTIAL INFORMATION.
The parties hereto recognize that a major need of the Company is to
preserve its specialized knowledge, trade secrets, and confidential
information. The strength and good will of the Company is derived from the
specialized knowledge, trade secrets, and confidential information generated
from experience with the activities undertaken by the Company and its
subsidiaries. The disclosure of this information and knowledge to
competitors would be beneficial to them and detrimental to the Company, as
would the disclosure of information about the marketing practices, pricing
practices, costs, profit margins, design specifications, analytical
techniques, and similar items of the Company and its subsidiaries. By reason
of his being a senior executive of the Company, the Employee has or will have
access to, and has obtained or will obtain, specialized knowledge, trade
secrets and confidential information about the Company's operations and the
operations of its subsidiaries, which operations extend throughout the United
4
<PAGE>
Mexican States. Therefore, the Employee hereby agrees as follows,
recognizing that the Company is relying on these agreements in entering into
this Agreement:
(i) During and after the Period of Employment hereunder the
Employee will maintain as confidential and will not use, disclose
to others, or publish or otherwise make available to any other
party any inventions or any confidential business information about
the affairs of the Company and its subsidiaries, including but not
limited to confidential information concerning their products,
methods, product purchasing arrangements and agreements, product
distribution arrangements and agreements, engineering designs,
system designs and standards, analytical techniques, technical
information, customer information, employee information, and other
confidential information acquired by him in the course of his past
or future services for the Company. Employee agrees to hold as the
Company's property all memoranda, books, papers, letters, formulas
and other data, and all copies thereof and therefrom, in any way
relating to the Company's or its subsidiaries' businesses and
affairs, whether made by him or otherwise coming into his
possession, and on termination of his employment, or on demand of
the Company, at any time, to deliver the same to the Company within
twenty four (24) hours of such termination or demand.
(ii) During the Period of Employment hereunder and for one year following
the last day of the Period of Employment, the Employee will not
induce or otherwise attempt to influence any employee of the
Company or its subsidiaries, to leave such entity's employ or hire
any such employee (unless the Board of Directors shall have
authorized such employment and the Company shall have consented
thereto in writing).
8. INDEMNIFICATION.
The Company will indemnify the Employee (and his legal representatives)
to the fullest extent permitted by the laws of the state in which the Company
is incorporated, as in effect at the time of the subject act or omission, or
the Certificate of Incorporation and Bylaws of the Company, as in effect at
such time or on the date of this Agreement, whichever affords greater
protection to the Employee, and the Employee shall be entitled to the
protection of any insurance policies the Company may elect to maintain
generally for the benefit of its directors and officers, against all costs,
charges and expenses whatsoever incurred or sustained by him or his legal
representative in connection with any action, suit or proceeding to which he
(or his legal representatives or other successors) may be made a party by
reason of his being or having been a director or officer of the Company or
any of its subsidiaries.
5
<PAGE>
9. LITIGATION EXPENSES.
In the event of any litigation or other proceeding between the Company
and the Employee with respect to the subject matter of this Agreement and the
enforcement of the rights hereunder, the Company shall reimburse the Employee
for all of his reasonable costs and expenses relating to such litigation or
other proceeding, including, without limitation, his reasonable attorneys'
fees and expenses, provided that such litigation or proceeding results in:
(i) settlement requiring the Company to make a payment to the
Employee, or
(ii) final judgment or order in favor of the Employee.
10. CONSOLIDATION; MERGER; SALE OF ASSETS; CHANGE OF CONTROL.
Nothing in this Agreement shall preclude the Company from combining,
consolidating or merging with or into, transferring all or substantially all
of its assets to, or entering into a partnership or joint venture with,
another corporation or other entity, or effecting any other kind of corporate
combination provided that the corporation resulting from or surviving such
combination, consolidation or merger, or to which such assets are
transferred, or such partnership or joint venture assumes this Agreement and
all obligations and undertakings of the Company hereunder. Upon such a
consolidation, merger, transfer of assets or formation of such partnership or
joint venture, this Agreement shall inure to the benefit of, be assumed by,
and be binding upon such resulting or surviving transferee corporation or
such partnership or joint venture, and the term "Company," as used in this
Agreement, shall mean such corporation, partnership or joint venture, or
other entity and this Agreement shall continue in full force and effect and
shall entitle the Employee and his heirs, beneficiaries and representatives
to exactly the same compensation, benefits, perquisites, payments and other
rights as would have been their entitlement had such combination,
consolidation, merger, transfer of assets or formation of such partnership or
joint venture not occurred.
11. SURVIVAL OF OBLIGATIONS.
Sections 5, 6, 7, 8, 9 and 10 shall survive the termination for any
reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement or otherwise).
12. SEVERABILITY.
In case any one or more of the provisions or part of a provision
contained in this Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect in any jurisdiction, such invalidity,
illegality or unenforceability shall be deemed not to affect any other
jurisdiction or any other provision or part of a provision of this Agreement,
nor shall such
6
<PAGE>
invalidity, illegality or unenforceability affect the validity, legality or
enforceability of this Agreement or any provision or provisions hereof in any
other jurisdiction; and this Agreement shall be reformed and construed in
such jurisdiction as if such provision or part of a provision held to be
invalid or illegal or unenforceable had never been contained herein and such
provision or part reformed so that it would be valid, legal and enforceable
in such jurisdiction to the maximum extent possible. In furtherance and not
in limitation of the foregoing, the Company and the Employee each intend that
the covenants contained in Sections 6 and 7 shall be deemed to be a series of
separate covenants, one for each state, territory or jurisdiction of the
United Mexican States and the United States of America and any foreign
country referenced therein. If, in any judicial proceeding, a court shall
refuse to enforce any of such separate covenants, then such unenforceable
covenants shall be deemed eliminated from the provisions hereof for the
purpose of such proceedings to the extent necessary to permit the remaining
separate covenants to be enforced in such proceedings. If, in any judicial
proceeding, a court shall refuse to enforce any one or more of such separate
covenants because the total time thereof or the geographic area covered
thereby is deemed to be excessive or unreasonable, then it is the intent of
the parties hereto that such covenants, which would otherwise be
unenforceable due to such excessive or unreasonable period of time or
geographic area, be enforced for such lesser period of time as shall be
deemed reasonable and not excessive by such court.
13. ENTIRE AGREEMENT; AMENDMENT.
This Agreement contains the entire agreement between the Company and the
Employee with respect to the subject matter hereof and thereof. This
Agreement may not be amended, waived, changed, modified or discharged except
by an instrument in writing executed by or on behalf of the party against
whom enforcement of any amendment, waiver, change, modification or discharge
is sought. No course of conduct or dealing shall be construed to modify,
amend or otherwise affect any of the provisions hereof.
7
<PAGE>
14. NOTICES.
All notices, request, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given (i) upon delivery,
if personally delivered, (ii) the next business day, if delivered with all
charges prepaid to a recognized overnight delivery service for next day
delivery, or (iii) five days after mailing, if mailed, postage prepaid, via
first class mail, in each such case as follows:
(a) To the Company: (b) To the Employee:
TeleReunion, Inc. ____________________
c/o Vextro de Mexico, S.A. de C.V. c/o Vextro de Mexico, S.A. de C.V.
Av. Coyoacan 1523 Av. Coyoacan 1523
Col. Del Valle Col. Del Valle
03100 Mexico, D.F. 03100 Mexico, D.F.
Attn: Secretary
with an additional copy by like means, and by facsimile, to:
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W.
Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esquire
and/or to such other persons and addresses as any party shall have specified
in writing to the other.
15. ASSIGNABILITY.
This Agreement shall not be assignable by either party and shall be
binding upon, and shall inure to the benefit of, the heirs, executors,
administrators, legal representatives, successors and assigns of the parties.
In the event that all or substantially all of the business of the Company is
sold or transferred, then this Agreement shall be binding on the transferee
of the business of the Company whether or not this Agreement is expressly
assigned to the transferee.
16. GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of the
United Mexican States.
8
<PAGE>
17. WAIVER AND FURTHER AGREEMENT.
Any waiver of any breach of any terms or conditions of this Agreement
shall not operate as a waiver of any other breach of such terms or conditions
or any other term or condition, nor shall any failure to enforce any
provision hereof operate as a waiver of such provision or of any other
provision hereof. Each of the parties hereto agrees to execute all such
further instruments and documents and to take all such further action as the
other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
18. HEADINGS OF NO EFFECT.
The paragraph headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
TELEREUNION, INC.
By:
---------------------------------
Name:
Title:
EMPLOYEE:
--------------------------------------
9
<PAGE>
NON-QUALIFIED STOCK OPTION CERTIFICATE AND AGREEMENT
Pursuant to the
Telereunion, Inc.
1995 Stock Option and Appreciation Rights Plan
THIS AGREEMENT is effective as of September 30, 1995, by and between
Telereunion, Inc., a Delaware corporation (the "Company") and
__________________ (the "Optionee").
WHEREAS, the Optionee is a valued and trusted officer, director,
employee or consultant of the Company and the Company considers it desirable
and in its best interests that the Optionee be given an inducement to acquire
a proprietary interest in the Company and an added incentive to advance the
interest of the Company by possessing an option to purchase the Common Stock,
$.001 par value, of the Company, in accordance with the Telereunion, Inc.
1995 Stock Option and Appreciation Rights Plan as amended (the "1995 Plan")
adopted by the Board of Directors of the Company in July 28, 1995 and
approved by the shareholders of the Company in April 1995 and as thereafter
amended.
Now, therefore, in consideration of the premises, it is agreed by and
between the parties as follows:
1. The Company hereby grants to the Optionee the right, privilege and
option to purchase 51,636 shares of the Common Stock, $.001 par value, of the
Company subject in all respects to the terms and provisions of the 1995 Plan,
as it may be amended from time to time, which 1995 Plan and amendments, if
any, are incorporated by reference herein (the "Options").
2. The Options represent options which do not qualify as "incentive stock
options" under Section 422A of the Internal Revenue Code of 1986, as amended.
3. The option price as determined by the Board of Directors of the
Company is Sixty-Five ($.65) per share.
4. The Options shall vest and become immediately exercisable.
5. Options that are the subject of this Agreement, to the extent not
theretofore exercised, shall expire on September 30, 2005 (being the
expiration of ten (10) years from the effective date of grant of this Option)
and shall terminate in accordance with Section 6 of the 1995 Plan.
6. The Options may not be exercised if the issuance of shares upon
such exercise would constitute a violation of any applicable federal or state
securities or other law or valid regulation. Optionee, as a condition to his
exercise of any Options, shall represent to the Company that the shares of
Common Stock which he acquires upon exercise of any Options are being
acquired by him for investment and not with a present view to distribution or
resale, unless counsel for the Company is then of the opinion that such a
representation is not required under
<PAGE>
the Securities Act of 1933, as amended, or any other applicable law,
regulation or rule of any governmental agency. Optionee agrees as a
condition precedent to exercise of any portion of the Options that he shall
furnish whatever documentation may be reasonably requested by the Company to
ensure compliance with the applicable law and the terms and conditions of
this Certificate and the 1995 Plan.
7. The Options granted hereby may not be transferred in any manner
otherwise than by will or the laws of descent or distribution and may be
exercised during the lifetime of the Optionee only by the Optionee. The
terms of this Certificate shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Subject to any provision herein that may provide for the earlier
termination of the Options, no Option may be exercised more than ten (10)
years from the date of grant of the Options. During such period, the Options
may be exercised only in accordance with the terms hereof and the provisions
of the 1995 Plan.
9. Capitalized terms used herein and not defined herein shall have the
meaning set forth in the 1995 Plan.
Dated:______________________
ATTEST: Telereunion, Inc.
_____________________________ By:______________________________
Manuel Landa Rangel, President
and Chief Executive Officer
Optionee acknowledges receipt of a copy of the 1995 Plan, a copy of
which is annexed hereto, and represents that he is familiar with the terms
and provisions thereof, and hereby accepts the Options subject to all the
terms and provisions thereof. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of
Directors upon any questions arising under the 1995 Plan. Optionee
authorizes the Company in accordance with all applicable laws to withhold any
compensation payable to him and any taxes required to be withheld by federal,
state or local law as a result of the exercise of the Options.
Dated:______________________ OPTIONEE:
_________________________________
2
<PAGE>
FIRST AMENDMENT TO
STOCK OPTION AGREEMENT
Reference is made to the Non-Qualified Stock Option Certificate and
Agreement, dated effective as of September 30, 1995 (the "Original
Agreement"), between Telereunion, Inc., a Delaware corporation
("Telereunion"), and the undersigned optionee (the "Optionee"). Unless
otherwise indicated, capitalized terms used in this Amendment have the
meanings assigned to such terms in the Original Agreement.
Pursuant to the Original Agreement, the Optionee was granted the option
(the "Option") to purchase _________ shares of common stock, $.001 par value
per share, of Telereunion at an exercise price of $.65 per share, on the
terms and subject to the conditions set forth in the Original Agreement.
Pursuant to that certain Agreement and Plan of Merger (the "Agreement") dated
April 29, 1996 between Polish Telephones and Microwave Corporation, a Texas
corporation (the "Company"), PTMC Acquisition Sub, Inc., a Delaware
corporation, Telereunion, and the stockholders of Telereunion referenced
therein, the Company acquired all of the issued and outstanding common stock
of Telereunion. Under the terms of the Agreement, certain options
outstanding under Telereunion's 1995 Stock Option and Appreciation Rights
Plan, as amended (the "Plan"), including the Option, are to be converted and
amended to provide for the right to acquire shares of common stock, $.001 par
value per share, of the Company ("Common Stock") at an exercise price of
$1.35 per share. The Company and the Optionee desire to convert and amend
the Original Agreement to provide for the right to purchase shares of Common
Stock, to reduce the number of shares of Common Stock subject to the Option
and to increase the exercise price of the Option, as set forth in this
Amendment. Therefore, the Company and the Optionee hereby agree as follows:
1. The name of the corporation that issued the Option, and whose common
stock may be acquired upon exercise of the Option, is hereby changed to
Polish Telephones and Microwave Corporation, a Texas corporation.
2. The total number of shares of Common Stock that may be acquired upon
exercise in full of the Option is hereby decreased to 25,000 shares.
3. The exercise price per share applicable to the Option is hereby
increased to $1.35 per share.
4. Except as expressly set forth in the three preceding paragraphs, all
of the terms and conditions of the Original Agreement will remain in effect
following the date hereof.
<PAGE>
IN WITNESS WHEREOF, the Company and the Participant have executed this
Amendment to be effective as of May __, 1996.
POLISH TELEPHONES AND
MICROWAVE CORPORATION
By:__________________________________
Gary Panno
Chairman of the Board and
Chief Executive Officer
OPTIONEE
_____________________________________
[NAME]
<PAGE>
THESE SECURITIES (A) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT
OF 1933.
WARRANT TO PURCHASE SHARES OF COMMON STOCK, $0.001 PAR VALUE
PER SHARE, OF POLISH TELEPHONES AND MICROWAVE CORPORATION
THIS CERTIFIES that, for value received, Robert Chamberlain (the
"Warrantholder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, to purchase from Polish Telephones and
Microwave Corporation, a Texas corporation (the "Company"), that number
of fully paid and nonassessable shares of the Company's common stock,
$0.001 par value per share (the "Common Stock"), at the purchase price
per share (the "Exercise Price") as set forth in Section 1 below. The
number of shares and Exercise Price are subject to adjustment as
provided in Section 10 below.
1. NUMBER OF SHARES; EXERCISE PRICE; TERM.
(a) This Warrant is exercisable for 79,191 shares (the "Shares")
of Common Stock at a purchase price of $2.19 per share (the "EXERCISE
PRICE").
(b) Subject to the terms and conditions set forth in this
Warrant, this Warrant will be exercisable during the term commencing on
the date of this Warrant and ending on, May , 2001.
2. TRANSFER AND EXCHANGE. This Warrant and all options and
rights under this Warrant are transferable, as to all or any part of the
number of Shares issuable under the terms of this Warrant, by the holder
of this Warrant, in person or by duly authorized attorney, on the books
of the Company upon surrender of the Warrant at the principal offices of
the Company, together with the attached, properly endorsed, Assignment
Form. Absent any such transfer, the Company may deem and treat the
registered holder of this Warrant at any time as the absolute owner of
the Warrant for all purposes and will not be affected by any notice to
the contrary. If this Warrant is transferred in part, the Company will,
at the time of surrender, issue to the transferee a Warrant covering the
number of issuable Shares transferred and to the transferor a Warrant
covering the number of issuable Shares not transferred.
1
<PAGE>
3. EXERCISE.
(a) This Warrant may be exercised as to all or any of the from
time to time on any Business Day (as defined in Section 9 below). In
order to exercise this Warrant, in whole or in part, the holder will
deliver to the Company at its principal offices (i) a written notice of
such holder's election to exercise its Warrant, substantially in the
form of the Warrant Exercise Notice attached to this Warrant, (ii)
payment of the Exercise Price, in an amount equal to the aggregate
purchase price for all Shares to be purchased pursuant to such exercise,
and (iii) the Warrant. Upon receipt of such notice, the Company will,
as promptly as practicable, and in any event within ten (10) Business
Days, execute, or cause to be executed, and deliver to such holder a
certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise. The stock
certificate or certificates so delivered will be in such denominations
as may be specified in such notice and will be registered in the name of
such holder, or such other name as designated in such notice. A Warrant
will be deemed to have been exercised, such certificate or certificates
will be deemed to have been issued, and such holder or any other person
or entity so designated or named in such notice will be deemed to have
become a holder of record of such shares for all purposes, as of the
date that such notice (together with payment of the Exercise Price and
the Warrant) is received by the Company. If the Warrant has been
exercised in part, the Company will, at the time of delivery of such
certificate or certificates, either deliver to such holder a new Warrant
evidencing the rights of such holder to purchase a number of Shares with
respect to which the Warrant has not been exercised, which new Warrant
will, in all other respects, be identical to this Warrant, or, at the
request of such holder, appropriate notation may be made on the Warrant
and the Warrant returned to such holder.
(b) Payment of the Exercise Price will be made, at the option of
the holder, by (i) company or individual check (subject to collection),
certified or official bank check or (ii) cancellation of any debt owed
by the Company to the holder. If the holder surrenders a combination of
cash or cancellation of any debt owed by the Company to the holder, the
holder will specify the respective number of shares of Common Stock to
be purchased with each form of consideration, and the foregoing
provisions will be applied to each form of consideration with the same
effect as if the Warrant were being separately exercised with respect to
each form of consideration; PROVIDED, HOWEVER, that a holder may
designate that any cash to be remitted to a holder in payment of debt be
applied, together with other monies, to the exercise of the portion of
the Warrant being exercised for cash.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares will be issued upon the exercise of this
Warrant. In lieu of any fractional share to which a holder would otherwise
be entitled, such holder will be entitled to receive, at its option, either
(i) a cash payment equal to the excess of fair market value for such
fractional share above the Exercise Price for such fractional share (as
mutually determined by the Company and the holder) or (ii) a whole share if
the holder tenders the Exercise Price for one whole share.
2
<PAGE>
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares
upon the exercise of this Warrant will be made without charge to the holder
for any issue or transfer tax or other incidental expense in respect of the
issuance of such certificates, all of which taxes and expenses will be paid
by the Company.
6. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the holder
to any voting rights, dividend rights or other rights as a shareholder of the
Company prior to exercise.
7. WARRANT REGISTER. The Company will, at all times while this Warrant
remains outstanding and exercisable, keep and maintain at its principal
office a register in which the registration, transfer, and exchange of the
Warrant will be provided for. The Company will not at any time, except upon
the dissolution, liquidation, or winding up of the Company, close such
register so as to result in preventing or delaying the exercise or transfer
of any Warrant.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated, or destroyed, the Company will issue a new Warrant
of like denomination, tenor, and date upon receipt of and appropriate
affidavit and indemnity executed by the Holder. Any such new Warrant will
constitute an original contractual obligation of the Company, whether or not
the allegedly lost, stolen, mutilated, or destroyed Warrant is at any time
enforceable by any person or entity.
9. BUSINESS DAYS. A "Business Day" is any day other than Saturday,
Sunday, or legal holiday. If the last or appointed day for the taking of any
action or the expiration of any right required or granted in this Warrant is
not a Business Day, then such action may be taken or such right may be
exercised on the following Business Day.
10. ADJUSTMENTS.
(a) ADJUSTMENT EVENTS. The Warrant will be exercisable for the number
of shares of Common Stock in such manner that, following the complete and
full exercise of this Warrant, the amount of Common Stock and other property
issued to the holder of this Warrant will equal the aggregate number of
shares of Common Stock set forth in Section 1(a), as adjusted, to the extent
necessary, to give effect to the following events:
(i) (A) The holder of this Warrant will be entitled to an
adjustment as set forth in Section 10(a)(i)(B), if at any time or
from time to time, the holders of any class of Common Stock or any
option, warrant, right, or similar security exercisable into or
exchangeable for Common Stock ("Common Stock Equivalent") have
received, or (on or after the record date fixed for the
determination of shareholders eligible to receive) have become
entitled to receive, without payment therefor, (I) property (other
than cash) by way of dividend or distribution; or (II) property
(including cash) by way of spin-off, split-up, reclassification
(including any reclassification in connection with a consolidation
or merger in which the Company is the surviving corporation),
recapitalization,
3
<PAGE>
combination of shares into a smaller number of shares, or similar
corporate restructuring.
(B) In each such case, the holder of this Warrant
will be entitled to receive for each share of Common Stock issuable
under this Warrant as of the record date fixed for such
distribution, the greatest per share amount of property received or
receivable by any holder of any class of Common Stock or Common
Stock Equivalent. With respect to any subsequent distribution, all
such consideration receivable pursuant to this Section 10(a)(i)
will be deemed outstanding and owned by the holder when determining
the amount of consideration due to the holder upon exercise of the
Warrant.
(C) This Section 10(a)(i) does not apply to
additional shares of Common Stock issued as a stock dividend or in
a stocksplit.
(ii) If at any time there occurs any stock split, stock
dividend, reverse stock split, or other subdivision of the Common
Stock, then the number of shares of Common Stock to be received and
the Exercise Price to be paid will be proportionately adjusted.
(iii) (A) The following events will constitute
"Reorganization Events": (I) any reclassification or change of
outstanding shares of any class of Common Stock or Common Stock
Equivalent (other than a change in par value, or from par value to
no par value, or from no par value to par value), or (II) any
consolidation of the Company with, or merger or share exchange of
the Company with or into, another entity, or (III) any sale of all
or substantially all of the property, assets, business, income or
revenue generating capacity, or goodwill of the Company.
(B) Upon the occurrence of a Reorganization Event,
the Company, or the successor or other entity, as the case may be,
will provide that the holder of this Warrant will receive the
highest per share kind and amount of consideration (including cash)
received or receivable upon such Reorganization Event by any holder
of any class of Common Stock or Common Stock Equivalent for each
Share issuable under this Warrant immediately prior to such
Reorganization Event (as adjusted pursuant to Section 10(a)(i)).
Any such successor entity, which thereafter will be deemed to be
the Company for purposes of this Warrant, will provide for
adjustments that are as nearly equivalent as may be possible to the
adjustments provided for by this Section 10.
(v) In case any event occurs as to which the preceding
Sections 10(a)(i) through (iii) are not strictly applicable, but as
to which the failure to make any adjustment would not fairly
protect the purchase rights represented by the Warrants in
accordance with the essential intent and principles of this Section
10, then, in each such case, the holder and the Company will
negotiate for 30 days in
4
<PAGE>
good faith in an attempt to reach a mutually agreeable solution.
If, at the end of such 30-day period the Company and the holder have
not reached such an agreement, the holder may appoint an
independent investment bank or firm of independent public
accountants reasonably acceptable to the Company, which will give
its opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established in this
Section 10, necessary to preserve the purchase rights represented
by this Warrant. Upon receipt of such opinion, the Company will
promptly deliver a copy of such opinion to the holder and will make
the adjustments described in such opinion. The fees and expenses
of such investment bank or independent public accountants will be
borne equally by the Company and the holder.
(b) ROUNDING. Any calculation under this Section 10 will be
made to the nearest one ten-thousandth of a share and the number of
issuable Shares resulting from such calculation will be rounded up to
the next whole share of Common Stock comprising issuable Shares.
(c) NOTICE OF EVENTS.
(i) In the event of (A) any setting by the Company of a
record date with respect to the holders of any class of the capital
stock of the Company for the purpose of determining which of such
holders are entitled to dividends, repurchases of securities or
other distributions, or any right to subscribe for, purchase or
otherwise acquire any shares of such capital stock or other property
or to receive any other right; or (B) any capital reorganization of
the Company, or reclassification or recapitalization of the capital
stock of the Company or any transfer of all or a majority of the
assets, business, or revenue or income generating capacity of the
Company, or consolidation, merger, share exchange, reorganization,
or similar transaction involving the Company; or (C) any voluntary
or involuntary dissolution, liquidation, or winding up of the
Company; or (D) any proposed issue or grant by the Company of any
capital stock of the Company, or any right or option to subscribe
for, purchase, or otherwise acquire any captial stock of the
Company (other than the issue of Issuable Warrant Shares upon
exercise of this Warrant), then, in each such event, the Company
will deliver or cause to be delivered to the holders a notice
specifying, as the case may be, (I) the date on which any such
record is to be set for the purpose of such dividend, distribution,
or right, and stating the amount and character of such dividend,
distribution, or right; (II) the date as of which the holders of
record will be entitled to vote on any reorganization,
reclassification, recapitalization, transfer, consolidation,
merger, share exchange, conveyance, dissolution, liquidation, or
wihding-up; (III) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation,
merger, share exchange, conveyance, dissolution, liquidation, or
winding-up is to take place and the time, if any is to be fixed, as
of which the holders of record of any class of capital stock of the
Company will be entitled to exchange their shares of capital stock
for securities or other property deliverable upon such event; (IV)
the
5
<PAGE>
amount and character of any capital stock, property, or rights
proposed to be issued or granted, the consideration to be received
therefor, and, in the case of rights or options, the exercise price
thereof, and the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant
will be offered or made; and (V) such other information as the
holders may reasonably request. Any such notice will be deposited
in the United States mail, postage prepaid, at least thirty (30)
days prior to the date therein specified, and notwithstanding
anything in this Agreement or this Warrant to the contrary the
holders may exercise this Warrant within thirty (30) days from the
receipt of such notice.
(ii) If there is any adjustment as provided above in
Section 10(a), the Company will immediately cause written notice
thereof to be sent to the holder, which notice will be accompanied
by a certificate of the independent public accountants of the
Company setting forth in reasonable detail the facts requiring any
such adjustment in the number of shares receivable after such
adjustment. At the request of the holder and upon surrender of
this Warrant of such holder, the Company will reissue this Warrant
of such holder in a form conforming to such adjustments.
11. ASSURANCES. The Company will not by any action including, without
limitation, amending, or permitting the amendment of, the charter documents,
bylaws, or similar instruments of the Company or through any reorganization,
reclassification, transfer of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities, or any other similar voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of the holder against
impairment or dilution. Without limiting the generality of the foregoing,
the Company will, with respect to this Warrant, (i) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock, free and
clear of all liens, encumbrances, equities, and claims and (ii) use its best
efforts to obtain all such authorizations, exemptions, or consents from any
public regulatory body having jurisdiction as may be necessary to enable the
Company to perform its obligations under this Warrant.
12. MISCELLANEOUS.
(a) SUCCESSORS. This Warrant will be binding upon any successors
or assigns of the Company.
(b) GOVERNING LAW. THIS WARRANT WILL CONSTITUTE A CONTRACT UNDER
THE LAWS OF TEXAS AND FOR ALL PURPOSES WILL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF SAID STATE, WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION
OF THE LAWS OF ANY OTHER JURISDICTION.
6
<PAGE>
(c) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the holder relating hereto, the prevailing
party will be entitled to reasonable attorneys' fees and expenses incurred
in enforcing this Warrant.
(d) NOTICE. Any notice required or permitted under this Warrant
will be deemed effectively given upon personal delivery to the party to be
notified or upon deposit with the United States Post Office, by certified
mail, postage prepaid and addressed to the party to be notified at the
address indicated below for such party, or at such other address as such
other party may designate by tenday advance written notice.
IN WITNESS WHEREOF, POLISH TELEPHONES AND MICROWAVE CORPORATION has
caused this Warrant to be executed by its officer thereunto duly authorized.
Dated: May ___, 1996
POLISH TELEPHONES AND MICROWAVE
CORPORATION
By: ________________________________
Title:______________________________
Address: Waterway Tower
433 Las Colinas Boulevard
Suite 815
Irving, Texas 75039
Attn: President
WARRANT HOLDER:
________________________________
Robert Chamberlain
7
<PAGE>
WARRANT EXERCISE NOTICE
To: Polish Telephones and Microwave Corporation
1. The undersigned hereby elects to purchase ___________ shares of
Common Stock (the "SHARES"), of Polish Telephones and Microwave Corporation
(the "COMPANY") pursuant to the terms of the attached Warrant, and tenders
payment of the purchase price.
2. Please issue a certificate or certificates representing said Shares
in the following names:
NAME NUMBER OF ISSUABLE SHARES
---- -------------------------
3. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the following names:
NAME NUMBER OF ISSUABLE SHARES
---- -------------------------
Dated:________________, 19__.
By: ________________________________
[Name]
[Title, if applicable]
8
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to (Please Print):
whose address is__________________________________
__________________________________________________
Dated:_______________________, 19__.
Holder's Signature:_____________________________
Holder's Address:_____________________________
Signature Guaranteed:______________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
9
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
EARNINGS PER SHARE CALCULATION
THREE MONTHS ENDED MARCH 31, 1996
Treasury stock method - weighted average price 3.28
Period beginning date 1/1/96
Last day in period 3/31/96
Number of days in period 91
WEIGHTED
TOTAL NO. OF AVERAGE
DESCRIPTION SHARES FROM TO DAYS SHARES
----------- ------ ----- -- ------ --------
Common Stock:
Balance at 12/31/95 1,890,442 1/1/96 3/31/96 91 1,890,442
Retroactive treatment
Options granted
Shares 128,394
x option price 0.80
/ average market price 3.28
---------
Treasury shares 31,316
---------
Equivalent shares 97,078 1/1/96 3/31/96 91 97,078
---------
Shares 31,164
x option price 6.42
/ average market price 3.28
---------
Treasury shares 0
---------
0
---------
Shares 58,000
x option price 2.25
/ average market price 3.28
---------
Treasury shares 39,787
---------
Equivalent shares 18,213 1/1/96 3/31/96 91 18,213
---------
Shares 10,000
x option price 3.06
/ average market price 3.28
---------
Treasury shares 9,329
---------
Equivalent shares 671 1/1/96 3/31/96 91 671
---------
Shares 20,000
x option price 1.75
/ average market price 3.28
---------
Treasury shares 10,671
---------
Equivalent shares 9,329 1/1/96 3/31/96 91 9,329
---------
Shares 10,000
x option price 4.25
/ average market price 3.28
---------
Treasury shares 0
---------
Equivalent shares 0
---------
<PAGE>
Earnings per share calculation
Quarter ended March 31, 1996 (Cont.)
Warrants outstanding
Shares 525,000
x option price 8.00
/ average market price 3.28
---------
Treasury shares 0
---------
Equivalent shares 0
---------
Shares 150,000
x option price 2.94
/ average market price 3.28
---------
Treasury shares 134,337
---------
Equivalent shares 15,663 1/1/96 3/31/96 91 15,663
--------- ---------
Total average shares and equivalent shares outstanding 2,031,397
---------
---------
Net loss for the period (181,108)
---------
---------
Net loss per average share outstanding (0.09)
---------
---------
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
EARNINGS PER SHARE CALCULATION
THREE MONTHS ENDED MARCH 31, 1995
Treasury stock method - weighted average price 3.36
Period beginning date 1/1/95
Last day in period 3/31/95
Number of days in period 90
WEIGHTED
TOTAL NO. OF AVERAGE
DESCRIPTION SHARES FROM TO DAYS SHARES
----------- ------ ----- -- ------ --------
Common Stock:
Balance at 12/31/94 1,890,442 1/1/95 3/31/95 90 1,890,442
Retroactive treatment
Options granted
Shares 128,394
x option price 0.80
/ average market price 3.36
---------
Treasury shares 30,570
---------
Equivalent shares 97,824 1/1/95 3/31/95 90 97,824
---------
Shares 31,164
x option price 6.42
/ average market price 3.36
---------
Treasury shares 0
---------
0
---------
Warrants outstanding
Shares 525,000
x option price 8.00
/ average market price 3.36
---------
Treasury shares 0
---------
Equivalent shares 0
---------
Total average shares and equivalent shares outstanding 1,988,266
---------
---------
Net loss for the period (141,922)
---------
---------
Net loss per average share outstanding (0.07)
---------
---------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
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0
0
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</TABLE>
