<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 September 30, 1996
------------------------
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
- ----
For the transitional period from to
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Commission File Number 0-24622
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POLISH TELEPHONES AND MICROWAVE CORPORATION
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(Exact name of small business issuer as specified in its charter)
(d/b/a Telscape International, Ltd.)
Texas 75-2433637
---------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification umber)
4635 Southwest Freeway, Suite 800, Houston, Texas 77027
---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code -- 713/968-0968
----------------
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, 3,990,969
shares as of October 14, 1996
Index of Exhibits appears on page 18
<PAGE>
Polish Telephones and Microwave Corporation
Table of Contents
Form 10-QSB Report
September 30, 1996
Page
------
Part I. Financial Information
Item 1. Interim Consolidated Financial
Statements (Unaudited)
Consolidated Balance Sheet -
September 30, 1996 2
Consolidated Statements of Operation -
Nine months ended September 30, 1996 and 1995 3
Consolidated Statements of Operation -
Three months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 5
Notes to interim consolidated financial
statements 7
Item 2. Management's discussion and analysis of
financial condition and results of operations 11
Part II. Other Information
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
Signatures 17
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1996
- -----------------------
<S> <C>
Current assets:
Cash $ 402,334
Short-term investments 1,566,175
Accounts receivable (less allowance of 1,201,919
$7,700)
Inventories 1,952,740
Other assets 250,968
-------------
Total current assets 5,374,136
-------------
Property and equipment, net 774,246
-------------
Excess of cost over net assets
of business acquired 3,214,553
-------------
Other assets:
Deferred income tax 57,248
Investments in operating ventures 199,392
Other assets 182,222
-----------
Total other assets 438,862
------------
Total assets $ 9,801,797
---------------
---------------
Current liabilities:
Accounts payable $ 2,023,516
Accrued liabilities 295,467
Deferred income tax 356,732
Other liabilities 187,067
------------
Total current liabilities 2,862,782
-----------
Accrued employee benefits 14,836
------------
Minority interests 743,694
------------
Stockholders' equity:
Series B non-voting, non-participating
preferred stock 380
Common stock 11,536
Additional paid in capital 10,924,114
Unpaid capital subscriptions (600,000)
Accumulated deficit (4,155,545)
-----------
Stockholders' equity 6,180,485
-----------
Total liabilities and stockholders' equity $ 9,801,797
-----------
-------------
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------
<S> <C> <C>
1996 1995
---------- ----------
Revenues $ 2,824,497 $ 968,660
Cost of revenues 1,437,566 432,685
--------- ----------
Gross profit 1,386,931 535,975
Selling, general and administrative expense 2,225,047 1,070,283
---------- ----------
Loss from operations (838,116) (534,308)
---------- ----------
Other income (expense):
Interest, net 88,984 175,636
Foreign exchange gain (loss) 52,576 (1,747)
Other income 50,004 0
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191,564 173,889
--------- ---------
Provision for income taxes:
Foreign income tax on operations
of subsidiaries 32,539 0
-------- --------
Loss before minority interest (679,091) (360,419)
Minority interest in subsidiary's income (7,601) (1,284)
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Net loss $ (686,692) $ (361,703)
---------- --------
----------- ----------
Net loss per share $ (0.24) $ (0.18)
---------- ----------
---------- ----------
Weighted average common and common
equivalent shares outstanding 2,822,867 1,963,613
----------- --------
----------- -----------
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------
<S> <C> <C>
1996 1995
--------- ----------
Revenues $ 1,255,059 $ 240,225
Cost of revenues 551,983 101,668
----------- -----------
Gross profit 703,076 138,557
Selling, general and administrative
expense 1,089,052 323,033
----------- -----------
Loss from operations (385,976) (184,476)
----------- ----------
Other income (expense):
Interest, net 22,965 51,934
Foreign exchange gain (loss) 45,020 (1,295)
Other income 4,842 0
----------- ----------
72,827 50,639
---------- ----------
Provision for income taxes:
Foreign income tax on operations
of subsidiary (3,703) 0
Utilization of foreign operating
loss carryforwards 8,643 0
------------ -----------
4,940 0
----------- ----------
Loss before minority interest (318,089) (133,837)
Minority interest in subsidiary's
losses (income) 7,475 (7,069)
----------- -----------
Net loss $ (325,564) $ (126,768)
------------ ----------
----------- ----------
Net loss per share $ (0.09) $ (0.06)
----------- -----------
----------- ----------
Weighted average common and common
equivalent shares outstanding 3,723,394 1,977,914
----------- ----------
------------ ----------
</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
<S> <C> <C>
1996 1995
--------- --------
Operating Activities
Net loss $ (686,692) $ (361,703)
Add non-cash expenses:
Allowance for doubtful accounts (6,071) 0
Depreciation and amortization 76,450 38,878
Allowance for inventory obsolesence (571) 0
Accrued employee benefits 1,507 0
Employees profit sharing 1,357 0
Deferred income taxes 19,436 0
Interest amortized on discounted
short-term investments (8,196) (14,151)
Minority interest in subsidiary's
income (losses) 7,601 1,284
Decrease in minority interests
subscriptions receivable 44,296 27,051
Changes in operating assets and liabilities
Accounts receivable (127,996) (7,273)
Inventory (584,654) (17,365)
Other assets (84,037) 34,423
Accounts payable 218,797 (148,270)
Accrued liabilities (301,073) (29,349)
Other liabilities 38,149 (39,349)
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Net cash used in operating activities (1,391,697) (515,824)
Investing Activities
Purchase of short term investments (4,898,790) (10,804,316)
Redemption of short term investments 6,812,426 11,360,387
Purchases of property and equipment (216,501) (39,851)
Acquisition of subsidiary, net of cash
acquired (412,884) 0
Organization costs (25,000) 0
Investment in operating venture (196,462) 0
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Net cash provided by investment
activities 1,062,789 516,220
Financing Activities
Capital lease payments (5,635) 0
Stock issuances 563,622 0
---------- ---------
Net cash provided by financing
activities 557,987 0
Net increase in cash 229,079 396
Cash at beginning of period 173,255 546,267
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Cash at end of period $ 402,334 $ 546,663
---------- ----------
---------- ---------
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------
<S> <C> <C>
1996 1995
----------- ----------
Supplemental cash flow information
Interest paid 30,323 1,345
Income taxes paid 32,539 0
Noncash transactions:
Issuance of preferred and common
stock in exchange for shares
of common in connection with
reverse triangular merger
Excess of cost over net assets
acquired 2,788,086 0
Common stock (1,605) 0
Preferred stock (380) 0
Additional paid in capital (2,789,416) 0
</TABLE>
See notes to interim consolidated financial statements.
6
<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
subsidiaries (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 nine months ended September 30,
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 - Foreign operations
The consolidated financial statements include amounts for the
Company's 90% owned foreign subsidiary, DTS/ZWUT, and the Company's
wholly owned subsidiary, Telereunion, Inc. as follows:
DTS/ZWUT:
Nine months ended Three months ended
September 30, September 30,
--------------- ----------------
1996 1995 1996 1995
--------- --------- --------- --------
Net sales $ 714,815 $ 968,660 $ 35,619 $ 240,225
Net income (loss) (82,659) (6,420) (76,407) (35,344)
Total assets 1,117,563 1,012,406 1,117,563 1,012,406
Net assets 759,546 914,958 759,546 914,958
Telereunion, Inc.:
Nine months ended Three months ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
--------- -------- ------- -------
Net sales $1,726,867 - $1,055,979 -
Net income (loss) 196,086 - 171,062 -
Total assets 3,059,354 - 3,059,354 -
Net assets 211,569 - 211,569 -
7
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 Foreign operations (cont.)
The three and nine month periods ended September 30, 1996 include
operations of Telereunion, Inc. since May 17, 1996, the date of
Telereunion Inc.'s acquisition by the Company. The corresponding
periods ended September 30, 1995 do not include any operations of
Telereunion, Inc. because they predate its acquisition by the
Company. See note 5 hereto.
Note 3 Net loss per share
The net loss per common and common equivalent share is based on
the weighted average number of shares of common stock outstanding.
Common equivalent shares include stock options and warrants only
when the effect would be dilutive, 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 the nine and three months ended
September 30, 1996 and 1995, the common equivalent shares include
stock options and warrants of 648,031 and 684,558, respectively.
Note 4 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 provide
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 1996, the Company invested $196,462 for a 7.21% interest
in a venture with Elterix, a Polish company developing a private
network for 70,000 telephone lines.
8
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 Business combination
On May 17, 1996, the Company acquired all of the stock of
Telereunion, Inc. ("Telereunion"), a privately owned Delaware
corporation. Telereunion is a telecommunications equipment and
service company with operations primarily in Mexico, operating
under the name of Vextro De Mexico, S.A. De C.V. Under the terms
of the acquisition, the Company issued 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
would expire 7 years after closing. In addition, the Company
converted and amended 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 of the Company at an exercise price of
$1.35 per share.
As of September 30, 1996, the Company had incurred and
capitalized costs of $428,792 related to the Telereunion
acquisition.
The following unaudited pro forma summary financial information
presents the results of operations of the Company as if the
acquisition of Telereunion had occurred at January 1, 1995. This
summary may not be indicative of what would have occurred had the
acquisition been made as of this date or of results which may occur
in the future. The historical financial statements used to prepare
the summary will reflect the acquisition from its effective date of
the acquisition forward, using the purchase method of accounting
based on estimated fair values of assets purchased and liabilities
assumed.
Nine months ended Three months ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenue $5,112,087 $4,457,090 $1,474,413 $1,556,796
Loss from operations (822,497) (492,473) (362,174) (197,325)
Net loss (861,463) (687,069) (291,623) (480,380)
Net loss per share (.31) (.35) (.08) (.24)
9
<PAGE>
POLISH TELEPHONES AND MICROWAVE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Business combination (cont.)
On July 26, 1996, the Company entered into an Agreement and Plan of
Merger, pursuant to which the Company acquired on September 5,
1996, all the outstanding capital stock of Orion Communications, Inc.
("Orion"), a reseller of long-distance and Internet services, in
exchange for 400,000 shares of Common Stock. This transaction has
been accounted for under the pooling of interests method and,
accordingly, the accompanying consolidated statements of operation
include the results of operations of Orion since its inception on
April 10, 1996. At the time of the merger, the name of Orion was
changed to Telscape USA, Inc. In addition to the terms set forth in
the Agreement and Plan of Merger, E. Scott Crist, former President
and Chief Executive Officer of Orion, became President and Chief
Executive Officer of the Company, Mark Vance, former Chief Operating
Officer and Chief Financial Officer of Orion, became the Company's
Executive Vice President and Chief Financial Officer. E. Scott Crist
has been nominated for election to the Company's Board of Directors.
10
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ------------------------------------------------------------------------------
On May 17, 1996 the Company acquired Telereunion. Telereunion, which is a
privately owned Delaware corporation, is a telecommunications equipment and
service provider with operations primarily in the Republic of Mexico. Its
operations in Mexico are conducted through Vextro de Mexico, S.A de C.V., its
97%-owned Mexican subsidiary. Telereunion distributes Northern Telcom
telecommunications products, as well as Octel voice mail systems and provides
conference calling services in Mexico.
On September 5, 1996, the Company acquired Orion Communications, Inc.
("Orion"), a reseller of long-distance and Internet services. Orion's
operations are primarily in the United States.
Certain statements contained herein are not based on historical facts, but are
forward-looking statements that are based upon numerous assumptions about
future conditions that could prove not to be accurate. Actual events,
transactions and results may materially differ from the anticipated events,
transactions or results described in such statements. The Company's ability
to consummate such transactions and achieve such events or results is subject
to certain risks and uncertainties. Such risks and uncertainties include, but
are not limited to, the existence of demand for and acceptance of the
Company's products and services, regulatory approvals and developments,
economic conditions, the impact of competition and pricing results of
financing efforts and other factors affecting the Company's business that are
beyond the Company's control. The Company undertakes no obligation and does
not intend to update, revise or otherwise publicly release the result of any
revisions to these forward-looking statements that may be made to reflect
future events or circumstances.
The interim financial statements for 1996 include the operations of
Telereunion, Inc. from May 17, 1996 through September 30, 1996 and of Orion
Communications, Inc. from inception, April 10, 1996 through September 30, 1996.
See Note 2 to the consolidated financial statements for certain amounts
included in the Company's financial statements from Telereunion. Telereunion,
Inc.'s operations for 1995 are not included in the financial statements, as
that predates the acquisition. For selected financial data presented on a pro
forma basis as if the acquisition took place at the beginning of the period
presented see Note 5.
Revenues from the sale of products increased 422% or $1,014,834 from $240,225
- ------------
in the third quarter of 1995 to $1,255,059 in the third quarter of fiscal 1996.
Revenues increased 192% or $1,855,837 from $968,660 for the nine months ended
September 30, 1995 to $2,824,497 for the nine months ended September 30, 1996.
Sales increased due to the additional volume from the Telereunion acquisition,
which was partially offset by a decrease in revenues from DTS/ZWUT. Revenues
from Telereunion increased from $3,488,430 to $3,879,177 in the first nine
months of 1995 and 1996 respectively. The increase in revenue results from
increased levels of equipment sales in Mexico through its Vextro subsidiary,
although the revenue before May 17, 1996 is not included in the consolidated
financial results since they predate Telereunion's acquisition by the Company.
Revenues from DTS/ZWUT decreased due to a general reduction in sales during
the third quarter. In an effort to increase sales levels in Poland, the
Company is attempting to diversify its product line from mainly PBX switching
equipment from Cortelco, to a broad line of telecomm equipment from BBS Telecom
(a leading international manufacturer of state-of-art small PBX and key
systems), voice mail (Octel and Centigram), teleconferencing equipment (Vtel,
Polycom, DataBeam), advanced telecomm applications, cabling and service
contracts.
11
<PAGE>
Cost of Revenues increased by $450,315 from $101,668 in the third quarter of
- ---------------------
1995 to $551,983 in the third quarter of fiscal 1996. Cost of Revenues
increased $1,004,881 from $432,685 for the nine months ended September 30, 1995
to $1,437,566 for the nine months ended September 30, 1996. The increase in
the cost of revenues for the first nine months of 1996, compared with the same
period of 1995, reflects the overall increase in revenues realized by the
Company, as a result of the inclusion of Telereunion's operations beginning May
17, 1996. These increases are offset by decreases in cost of revenues from
DTS/ZWUT as a result of the decreased revenues experienced by DTS/ZWUT.
Gross Profit increased 407% or $564,519 from $138,557 in the third quarter of
- ---------------
1995, to $703,076 in the third quarter of fiscal 1996. There was an increase
of 159% or $850,956 from the $535,975 gross profit of the first nine months of
1995, compared with the $1,386,931 gross profit for the first nine months of
1996. This increase in gross profit was mainly attributable to the inclusion
of Telereunion's operations beginning May 17, 1996.
Selling, General and Administrative Expenses (SG&A) increased $766,039 from
- --------------------------------------------------------
$323,033 for the third quarter of 1995, to $1,089,052 for the same period of
1996. The total SG&A expenses for the nine months ended in September 30, 1996
were $2,225,047, an increase of $1,154,764 over the SG&A expenses of the same
period of 1995 of $1,070,283. This increase was mainly due to the addition of
SG&A expenses of Telereunion and Orion.
Loss from Operations increased from ($184,049) for the third quarter of 1995
- -------------------------
to ($385,976) for the same period of 1996 and increased from ($533,881) to
($838,543) for the first nine months of 1995 and 1996, respectively. This
increase for the first nine months of the year 1996 as compared to same per
1995, was generated mainly by the increase in Selling, General and
Administrative expenses as described above.
Other Income (Expense) increased $17,675 from $173,889 for the first nine
- -----------------------------
months of 1995, to 191,564 for the same period of 1996. Primary components of
this change were Interest Income, Foreign exchange gain (loss) and Other
Income. The Company has realized less interest income when comparing the first
nine months of 1996 to the same period of 1995, primarily due to a decrease in
the amount invested in short term securities, as a result of the net cash
utilized by the Company for its operations. The Company capitalized $428,792
of cost related to the acquisition of Telereunion.
Provision for Income Taxes was $32,539 for the first nine months of 1996 as
- ----------------------------------
compared to no provision for the same period of 1995. This change was mainly
attributed to a negative impact on the deferred federal taxes in the Mexican
subsidiary of Telereunion, Inc., due to a significant difference in treatment
of inventories under Mexican Tax Law. Under this law, the cost of sales for
financial statement purposes is not deductible for tax purposes, instead,
inventory purchases are deductible for tax purposes in the year in which they
are made. The provision for income taxes was $4,940 for the three months
ended September 30, 1996, while no provision was required for the same
period of 1995.
Net Loss increased to ($686,692), from ($361,703) for the first nine months of
- ------------
1996 and 1995, respectively. Net loss increased ($198,796) from ($126,768) for
the three months ended September 30, 1995 to ($325,564) for the three months
ended September 30,1996.
Liquidity and Capital Resources At September 30, 1996, the Company had cash
- ---------------------------------------
and short term investments of approximately $1,968,000. Since inception the
Company has financed its
12
<PAGE>
operations primarily through the issuance of debt and equity, and through
cash generated by operations. The Company does not maintain a line of credit
and relies on its working capital position to fund its operations on an on
going basis.
The Company's future cash requirements for the remainder of 1996, and beyond,
will depend primarily upon the level of sales, the timing of inventory
purchases, expenditures on new product lines implementation and marketing,
and upon capital expenditures for strategic acquisitions and network
development.
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 continued conversion of the Polish economy from a communist economy
to a market economy, political risks and sudden economic changes in Mexico,
competitive factors, the risks of its customers being able to obtain financing
for their purchases of the Company's products, risks of collectibility of
accounts receivable generally 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 telecommunications industry and intense
competition from other vendors with substantially greater resources and name
recognition than the Company. In addition, many of the products and services,
or their components, sold 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 and services 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 purchase of
Telereunion and the purchase of Orion Communications will have on the
Company's liquidity and capital resources. The exploitation by Telereunion
of the opportunities in the Mexican telecommunications market and the
opportunities in the US long distance resale 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), or Orion Communications 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 or Poland could result in the
need to fund any cash shortfalls of the subsidiaries operating in those
countries.
Subsequent Events On August 15, 1996, the Company announced it had signed a
- -----------------------
letter of intent to acquire the outstanding capital stock of three commonly
owned companies: Valu-Line of Longview, Inc., Valu-Line of Louisiana, Inc.,
and Shared Tenant Services, Inc. (collectively Valu-Line of Longview). Valu-
Line of Longview is a facilities based long distance reseller with switching
facilities located in Dallas, Texas.
13
<PAGE>
The total merger consideration included $8 million cash, 701,684 shares of
common stock, and $2 million in redeemable, convertible preferred stock in
exchange for 100% of Valu-Line of Longview's common stock.
On October 18, 1996, the Company announced that it had suspended its planned
acquisition of Valu-Line of Longview. The acquisition was suspended due to
valuation issues resulting from the Company's due diligence review. However,
both companies are continuing to discuss alternative methods of structuring
the transaction.
14
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other information
Litigation is currently pending against Polish Telephones and
Microwave Corporation ("PTMC") in the Dallas County District
Court, 298th Judicial District, Cause No. 96-00768. SA
Telecommunications, Inc. f/k/a SA Holdings, Inc., ("SATI"),
filed suit against Dickinson & Co. ("Dickinson"), Dickinson
Holding Corp. ("Dickinson Holding") and PTMC on May 3, 1996.
SATI claims 1)Dickinson and/or Dickinson Holding intentionally
interfered with the agreements and/or business relationship
between SATI and PTMC; 2) PTMC and/or Dickinson Holding
intentionally interfered with the agreements and/or business
relationships between SATI and Dickinson; and 3) Dickinson and/
or PTMC made material misrepresentations to SATI. SATI has
additional DTPA and breach of contract claims against Dickinson.
SATI is seeking an undisclosed damage amount plus exemplary
damages from PTMC. A nonjury trial date has been set for March 3,
1997.
Effective August 1, 1996, the Company entered into three year
employment agreements with E. Scott Crist and Mark Vance of Orion
Communications, pursuant to which each will be employed as a senior
executive of the Company. The agreements will terminate on the
third anniversary thereof unless sooner terminated. The agreements
provide that Mr. Crist and Mr. Vance will each be entitled to a
base salary of $95,000 per year. In addition, Mr. Crist and Mr.
Vance are each entitled to receive options to purchase 350,000
shares of Common Stock at $4.50 per share, vesting one-third
each year commencing August 1, 1997.
The Company has entered into a one year financial public relations
consulting agreement with Langley Financial Group, Inc. effective
June 24, 1996. The Company and Langley have agreed to terminate
the financial consulting agreement with the issuance of 20,000
shares of stock for full compensation under the agreement.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on page 18.
(b) Reports on Form 8-K.
On August 1, 1996, an amended report on Form 8-K was
filed for the reporting of the Telereunion acquisition.
The amended report included the financial statements
of Telereunion and the pro forma financial information
not previously reported in the original Form 8-K.
16
<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: By:
-------------- -------------------------
E. Scott Crist
President and Chief Executive Officer
Date: By:
-------------- ---------------------------
Mark Vance
Executive Vice President and Chief
Financial Officer
17
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
- -------------- --------------
10.1 - Employment Agreement for E. Scott Crist
10.2 - Employment Agreement for Mark Vance
10.3 - Consulting Agreement between Company and Richard
H. Langley (filed as exhibit 10.1 to the
Company's Form S-8 Registration statement
(No. 333-13249) incorporated herein by
reference)
11.1 - Statements regarding computation of per share
earnings
21.1 - Subsidiaries of the Registrant
27.1 - Financial Data Schedule
18
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, executed on this 15th day of October, 1996 and
effective as of August 1, 1996 between Telscape International,
Ltd., a Texas corporation (the "Company"), and Eugene Scott
Crist, a resident of Texas (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; 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:
Term of Employment; Office and Duties.
------------------------------------------
(a) During the Period of Employment (as hereinafter defined),
the Company, shall employ the Employee with the titles of President and Chief
Executive Officer, 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;
<PAGE>
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 attention to the business and
affairs of the Company.
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, 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.
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 Ninety-five Thousand Dollars (US $95,000)
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.
<PAGE>
(e) Vacations. Employee shall be entitled to annual vacations
---------
in accordance with the policies of the Company.
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.
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
after such termination.
(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 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
<PAGE>
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.
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 as an
individaul, in activities in competition with the business of the Company,
including but not limited to any aspect of the teleconferencing or
telecommunications. 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
as an individual. 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.
Inventions and Confidential Information.
--------------------------------------------
<PAGE>
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
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 twelve (12) 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 employment
(unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in
writing).
Indemnification.
--------------------
<PAGE>
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.
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.
Consolidation; Merger; Sale of Assets; Change of Control
-----------------------------------------------------------
<PAGE>
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. However, if in
such event, a change of control results in either: i) an elimination of
Employee from Board of Directors, or ii) Employee is no longer Chief Executive
Officer, Options defined under Section 12 of Agreement shall immediately vest
and become exercisable. 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.
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).
Options.
-----------
As part of this Agreement, Employee is entitled to incentive options of
the Company's common stock at a strike price of $4.50 per share (hereafter
"Options") subject to the 1996 Stock Option Plan. Said Options will vest
according to the following schedule as long as Employee is employed by the
Company:
116,667 on August 1, 1997;
116,666 on August 1, 1998;
116,666 on August 1, 1999.
In addition, the vesting period of these options are subject to an
exceleration clause whereby all options shall vest and become immediately
exerciseable if the Company's common stock price trades above $12 per share
for a period of 10 consecutive days.
Severability.
----------------
<PAGE>
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 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.
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.
Notices.
-----------
<PAGE>
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:
Telscape International, Ltd E. Scott Crist
c/o. 4635 Southwest Frwy 4635 Southwest Frwy, #800
Houston TX 77027 Houston TX 77027
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.
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.
Governing Law.
This Agreement shall be governed by and construed under the laws of
the State of Texas in the United States of America.
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.
<PAGE>
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:
TELSCAPE INTERNATIONAL, LTD.
By:
------------------------------------------------------
Name:
Title:
EMPLOYEE:
- --------------------------------------------------------------
Eugene Scott Crist
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, executed on this 16th day of October, 1996 and effective
as of August 1, 1996 between Telscape International, a Texas corporation (the
"Company"), and Mark Vance, an individual resident of Texas.(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, 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, shall employ the Employee as a senior executive of the
Company with the title of Chief Financial Officer, 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 Chief Executive officer of the Company. 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.
<PAGE>
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, shall terminate on the third anniversay
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 Ninety-five Thousand Dollars (US $95,000) per year. The
Board of Directors will periodically review, 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.
(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.
<PAGE>
(e) Vacations. Employee shall be entitled to annual
vacations in accordance
------------
with the policies of the Company of two weeks.
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.
(c) By the Employee, (i) if the Company's CEO
fails to elect or reelect the Employee to, or removes the Employee from, any
of the offices referred to in Section 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
<PAGE>
to discharge properly his duties in any such offices or at the direction of
the Company.
(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 two 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.
------------------------------------------------------
<PAGE>
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 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 two years
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.
-------------------------
<PAGE>
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.
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.
--------------------------------------------------------------------------
<PAGE>
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. Options.
- -------------------
As part of this agreement, Employee is entitled to incentive
options of the Company's common stock at a strike price of $4.50 per share
(hereafter "Options") subject to the 1996 Stock Option Plan. Said Options
will vest according to the following schedule as long as Employee is employed
by the company:
116,667 on August 1, 1997;
116,666 on August 1, 1998;
116,666 on August 1, 1999.
13. Severability.
--------------------
<PAGE>
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 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.
14. 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.
15. Notices.
- -------------------
<PAGE>
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:
Telscape International Telscape International
4635 Southwest Freeway 4635 Southwest Freeway
Suite 800 Suite 800
Houston, TX 77027 Houston, TX 77027
with an additional copy by like means, and by facsimile, to:
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W.
Suite 400
Washinton, 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.
16. 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.
17.. Governing Law.
- ----------------------------
This Agreement shall be governed by and construed under the laws
of the State of Texas in the United States of America.
18. 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.
<PAGE>
19. 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:
TELSCAPE INTERNATIONAL
By:
-------------------------
Name: E. Scott Crist
Title: President, CEO
EMPLOYEE:
-------------------------
Mark Vance
<PAGE>
Polish Telephones and Microwave Corporation
Earnings per Share Calculation
Nine months ended September 30, 1996
Treasury stock method - weighted average price 4.33
Period beginning date 1/1/96
Last day in period 9/30/96
Number of days in period 274
Weighted
Total No. of Average
Description Shares From To Days Shares
- -------------- -------- -------- ------ ------ --------
Common Stock:
Balance at 12/31/95 1,890,442 1/1/96 9/30/96 274 1,890,442
Shares issued 4/30/96 1,000 4/30/96 9/30/96 154 562
Shares issued 5/17/96 16,205 5/17/96 9/30/96 137 8,103
Shares issued 5/17/96 1,605,000 5/17/96 9/30/96 137 802,500
Shares issued 5/29/96 12,500 5/29/96 9/30/96 125 5,703
Shares issued 7/03/96 6,822 7/3/96 9/30/96 90 2,241
Shares issued 8/30/96 4,000 8/30/96 9/30/96 32 467
Shares issued 9/05/96 400,000 9/5/96 9/30/96 26 37,956
Retroactive treatment
Options granted
Shares 91,867
x option price 0.80
/ average market price 4.33
-------
Treasury shares 16,973
-------
Equivalent shares 74,894 1/1/96 9/30/96 274 74,894
-------
Shares 31,164
x option price 6.42
/ average market price 4.33
------
Treasury shares 0
------
Equivalent shares 0
------
Warrants outstanding
Shares 525,000
x option price 8.00
/ average market price 4.33
------
Treasury shares 0
------
Equivalent shares 0
------ ------
Total average shares and equivalent shares outstanding 2,822,867
Net loss for the period (686,692)
------------
------------
Net loss per average share outstanding (0.24)
-----------
-----------
<PAGE>
Polish Telephones and Microwave Corporation
Earnings per Share Calculation
Three months ended September 30, 1996
Treasury stock method - weighted average price 4.99
Period beginning date 7/1/96
Last day in period 9/30/96
Number of days in period 92
Weighted
Total No. of Average
Description Shares From To Days Shares
- ------------- --------- ------- ------ ----- ---------
Common Stock:
Balance at 12/31/95 1,890,442 7/1/96 9/30/96 92 1,890,442
Shares issued 4/30/96 1,000 7/1/96 9/30/96 92 1,000
Shares issued 5/17/96 16,205 7/1/96 9/30/96 92 16,205
Shares issued 5/17/96 1,605,000 7/1/96 9/30/96 92 1,605,000
Shares issued 5/29/96 12,500 7/1/96 9/30/96 92 12,500
Shares issued 7/03/96 6,822 7/3/96 9/30/96 90 6,674
Shares issued 8/30/96 4,000 8/30/96 9/30/96 32 1,391
Shares issued 9/05/96 400,000 9/5/96 9/30/96 26 113,043
Retroactive treatment
Options granted
Shares 91,867
x option price 0.80
/ average market price 4.99
--------
Treasury shares 14,728
--------
Equivalent shares 77,139 7/1/96 9/30/96 92 77,139
--------
Shares 31,164
x option price 6.42
/ average market price 4.99
--------
Treasury shares 0
--------
Equivalent shares 0
--------
Warrants outstanding
Shares 525,000
x option price 8.00
/ average market price 4.99
--------
Treasury shares 0
--------
Equivalent shares 0
-------- ---------
Total average shares and equivalent shares outstanding 3,723,394
Net loss for the period (325,564)
----------
---------
Net loss per average share outstanding (0.09)
--------
-------
<PAGE>
Polish Telephones and Microwave Corporation
Earnings per Share Calculation
Nine months ended September 30, 1995
Treasury stock method - weighted average price 1.86
Period beginning date 1/1/95
Last day in period 9/30/95
Number of days in period 273
Weighted
Total No. of Average
Description Shares From To Days Shares
- ------------- ------- ------- ----- ------ ----------
Common Stock:
Balance at 12/31/94 1,890,442 1/1/95 9/30/95 273 1,890,442
Retroactive treatment
Options granted
Shares 128,394
x option price 0.80
/ average market price 1.86
--------
Treasury shares 55,223
--------
Equivalent shares 73,171 73,171
--------
Shares 31,164
x option price 6.42
/ average market price 1.86
--------
Treasury shares 0
--------
Equivalent shares 0
--------
Warrants outstanding
Shares 525,000
x option price 8.00
/ average market price 1.86
--------
Treasury shares 0
--------
Equivalent shares 0
-------- ----------
Weighted average shares and equivalent shares outstanding 1,963,613
Net loss for the period (361,703)
-----------
------------
Net loss per average share outstanding (0.18)
-----------
-----------
<PAGE>
Polish Telephones and Microwave Corporation
Earnings per Share Calculation
Three months ended September 30, 1995
Treasury stock method - weighted average price 2.51
Period beginning date 7/1/95
Last day in period 9/30/95
Number of days in period 92
Weighted
Total No. of Average
Description Shares From To Days Shares
- ------------- -------- ------ --- ----- ------------
Common Stock:
Balance at 12/31/94 1,890,442 7/1/95 9/30/95 92 1,890,442
Retroactive treatment
Options granted
Shares 128,394
x option price 0.80
/ average market price 2.51
--------
Treasury shares 40,922
--------
Equivalent shares 87,472 87,472
--------
Shares 31,164
x option price 6.42
/ average market price 2.51
--------
Treasury shares 0
--------
Equivalent shares 0
--------
Warrants outstanding
Shares 525,000
x option price 8.00
/ average market price 2.51
--------
Treasury shares 0
--------
Equivalent shares 0
-------- ----------
Weighted average shares and equivalent shares outstanding 1,977,914
Net loss for the period (126,768)
------------
------------
Net loss per average share outstanding (0.06)
-----------
-----------
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
- Digital Telecommunication Systems / ZWUT
Warsaw, Poland
90% owned
- Polish Microwave Incorporated
Texas
100% owned
- Telereunion, Inc.
Delaware
100% owned
- Vextro de Mexico
Mexico City, Mexico
97% owned by Telereunion, Inc.
- Telscape USA, Inc.
Texas
100% owned
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 402,334
<SECURITIES> 1,566,175
<RECEIVABLES> 1,201,919
<ALLOWANCES> 7,700
<INVENTORY> 1,952,740
<CURRENT-ASSETS> 5,374,136
<PP&E> 1,123,821
<DEPRECIATION> 349,575
<TOTAL-ASSETS> 9,801,797
<CURRENT-LIABILITIES> 2,862,782
<BONDS> 0
0
380
<COMMON> 11,536
<OTHER-SE> 6,168,569
<TOTAL-LIABILITY-AND-EQUITY> 9,801,797
<SALES> 2,824,497
<TOTAL-REVENUES> 2,824,497
<CGS> 1,437,566
<TOTAL-COSTS> 1,437,566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,323
<INCOME-PRETAX> (646,552)
<INCOME-TAX> 32,539
<INCOME-CONTINUING> (679,091)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (686,692)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
