SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 9, 1998 (May 29, 1998)
Telscape International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Texas 0-24622 75-2433637
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2700 Post Oak Blvd., Ste. 1000, Houston, TX 77056
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 968-0968
____________________________________________________________
(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On May 29, 1998, pursuant to a stock purchase agreement ("Agreement"),
Telscape International, Inc. ("Telscape") through its newly-formed subsidiary
Interlink Communications Holding Co., Inc., a Delaware corporation (the
"Purchaser" or "Interlink Holding Co."), acquired all of the outstanding shares
of California Microwave Services Division, Inc., a Delaware corporation
("CMSD"), from California Microwave, Inc., a Delaware corporation ("Seller").
The Purchaser subsequently merged with and into CMSD and the surviving
corporation changed its name to Interlink Communications, Inc. ("Interlink").
Interlink operates a teleport and network operations facility located in
Mountain View, California and manufactures certain technological equipment in
Sunnyvale, California ("Interlink Business").
Under the terms of the Agreement, the Purchaser paid cash of $8,154,000,
subject to post-closing adjustments to the purchase price based on changes in
the closing date balance sheet as defined in the Agreement. The purchase was
financed with convertible debentures as described below.
On May 1, 1998 Telscape issued $3,000,000 in 8% Convertible Subordinated
Debentures (the "Convertible Subordinated Debentures") maturing three years from
closing (the "First Draw") to Deere Park Capital Management, LLC, an Illinois
limited liability company ("Deere Park"). Under the terms of a Securities
Purchase Agreement (the "SPA") dated May 1, 1998 by and between Deere Park and
Telscape, Telscape has the option to issue up to another $2,000,000 in
Convertible Subordinated Debentures on similar terms for a period of one year,
subject to Telscape meeting certain requirements. On May 28, 1998, Telscape
issued an additional $1,000,000 of the Convertible Subordinated Debentures (the
"Second Draw") to Deere Park. The Convertible Subordinated Debentures are
convertible by the holder into shares of the Company's common stock at a price
equal to $26 per share for the First Draw and $29 per share for the Second Draw
until November 1, 1998, and thereafter, at the lesser of (i) $26 per share for
the First Draw and $29 per share for the Second Draw or (ii) a price equal to
the average of the three highest of the five lowest closing prices of Telscape's
common stock for the 20 trading days preceding the conversion date. However,
should the common stock trade below $15.00 per share for the First Draw and
$16.66 per share for the Second Draw for three consecutive trading days,
Telscape may elect to redeem all or part of such Convertible Subordinated
Debentures at one hundred and seven percent of face value plus any accrued
interest. Telscape's obligation to make interest payments on the Convertible
Subordinated Debentures is terminated in the event Telscape's common stock
closes, for twenty consecutive trading days, at or above $30 per share for the
First Draw and at or above $33.50 per share for the Second Draw, adjusted,
without limitation, for any stock splits or combinations. In connection with the
Convertible Subordinated Debentures, the holders also received warrants to
purchase an aggregate of 8,952 shares of Telscape's common stock at an exercise
price of $16.76 per share for the First Draw and warrants to purchase an
aggregate of 2,427 shares of Telscape's common stock at $20.60 per share for the
Second Draw. The warrants have a term of three years from the effectiveness of
the registration statement covering such warrants. If Telscape exercises its
option under the SPA to issue the remaining $1,000,000 in
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Convertible Subordinated Debentures, additional warrants would be issued based
on a predefined formula. In addition, Telscape is required to file a
registration statement with the Securities and Exchange Commission to register
the shares of common stock issuable upon the conversion of the Convertible
Subordinated Debentures or the exercise of the warrants.
Telscape is required to pay an exit fee in connection with any prepayment
of principal to be made under the Convertible Subordinated Debentures (the "Exit
Fee"). The Exit Fee varies depending upon the date of payment, and is equal to
(i) 6.6% if the payment is made within 90 days after closing of each respective
advance, (ii) 7.2% if payment is made after 90 days and up to 180 days after
closing of each respective advance, (iii) 8.8% if payment is made after 180 days
and up to 270 days after closing of each respective advance, and (iv) 10.0% if
payment is made after 270 days after closing of each respective advance. The
Exit Fee is adjusted on a pro rata basis to the extent that the prepayment is
made between periods except that a minimum Exit Fee of 6.6% is required if the
prepayment is made prior to 90 days after closing.
On May 29, 1998, Telscape issued $5,000,000 in 8% Convertible Debentures
(the "Convertible Debentures") maturing one year from closing to Gordon Brothers
Capital, LLC, a Delaware limited liability company ("Gordon Brothers"). The
Convertible Debentures are convertible by the holders into shares of Telscape's
common stock at a price equal to $29 per share until November 1, 1998, and
thereafter, at the lesser of (i) $29 per share or (ii) a price equal to the
average of the three highest of the five lowest closing prices of Telscape's
common stock for the 20 trading days preceding the conversion date. However,
should the common stock trade below $16.66 for three consecutive trading days,
Telscape may elect to redeem all or part of such Convertible Debentures at one
hundred and seven percent of face value plus any accrued interest. Telscape's
obligation to make interest payments on the Convertible Debentures is terminated
(i) in the event Telscape's common stock closes, for twenty consecutive trading
days, at or above $33.50 per share, adjusted, without limitation, for any stock
splits or combinations, (ii) a registration statement covering such Convertible
Debentures is effective, and (iii) there exists no event of default under the
Convertible Debentures. The Convertible Debentures are secured by a pledge of
Telscape's stock in Telereunion, Inc. and Telscape's preferred stock in
Interlink. In addition, the Convertible Debentures are guaranteed by Interlink
and such guaranty is collateralized by a security agreement covering all of
Interlink's assets. In connection with the Convertible Debentures, the holders
also received warrants to purchase an aggregate of 12,136 shares of Telscape's
common stock at an exercise price of $20.60 per share. The warrants have a term
of three years from the effectiveness of the registration statement covering
such warrants. In addition, Telscape is required to file a registration
statement with the Securities and Exchange Commission to register the shares of
common stock issuable upon the conversion of the Convertible Debentures or the
exercise of the warrants.
Telscape is required to pay an exit fee in connection with any prepayment
of principal to be made under the Convertible Debentures (the "Exit Fee"). The
Exit Fee varies depending upon the date of payment, and is equal to (i) 6.5% if
the payment is made within 90 days after May 29, 1998, (ii) 13.0% if payment is
made after 90 days and up to 180 days after May 29, 1998, (iii) 19.0% if payment
is made after 180 days and up to 270 days after May 29, 1998, and (iv) 25.0% if
payment is made after 270 days and up to
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365 days after May 29, 1998. The Exit Fee with respect to any payment made after
May 28, 1999 shall be equal to (a) 25.0% plus (b) 25.0% multiplied by the number
of days elapsed from May 28, 1999 divided by 365. The Exit Fee is adjusted on a
pro rata basis to the extent that a prepayment is made between periods during
the first twelve months except that a minimum Exit Fee of 6.5% is required if
the prepayment is made prior to 90 days after closing.
On May 18, 1998, Interlink Holding Co. entered into an Equity Purchase
Agreement (the "EPA") with E. Russell Hardy, Stephen Strohman, Monty J. Moore,
and Salvador Giblas (collectively, the "Management") and Telscape. Under the
terms of the EPA, Telscape was sold 89,500 shares of Interlink Holding Co.
Convertible Participating Preferred Stock. Each share of Interlink Holding Co.'s
Convertible Participating Preferred Stock is convertible into one share of
common stock and is entitled to vote together with the common stock on an as
converted basis. Under the terms of the EPA, Management (i) acquired for $0.01
per share 10,500 shares of Interlink Holding Co. common stock, and (ii) was
granted options to purchase from 5,938 to 11,875 shares of Interlink Holding Co.
common stock at a maximum purchase price of $950,000 based on a predetermined
formula provided Interlink meets certain EBITDA performance requirements.
However, if a minimum threshold of EBITDA is not met, no shares may be purchased
under the options.
(b) Certain property and telecommunications equipment was acquired in
connection with the acquisition of Interlink, which was utilized in the
Interlink Business. The Purchaser intends to continue the use of such property
and equipment in a substantially similar manner.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Historical financial statements of Interlink and pro forma financial
information are not required under Rule 3-05(b)(2)(i) of Regulation S-X.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Telscape International, Inc.
----------------------------
Registrant
June 9, 1998 By: /s/ Todd M. Binet
------------------------
Todd M. Binet
Executive Vice President and Chief Financial Officer
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INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
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*10.1 Stock Purchase Agreement dated May 18, 1998, by and among Telscape
International, Inc.; California Microwave, Inc., and California
Microwave Services Divisions, Inc. together with a Form of Supply
Agreement between California Microwave, Inc. and California Microwave
Services Division, Inc. as Exhibit B.
10.2 Securities Purchase Agreement between Deere Park Capital Management,
LLC ("Deere Park") and Telscape International, Inc. dated as of May 1,
1998; Registration Rights Agreement dated as of May 1, 1998 between
Telscape International, Inc. and Deere Park Form of Convertible
Subordinated Debenture for $3,000,000 dated May 1, 1998; Form of Stock
Purchase Warrant to Purchase 8,952 shares of Common Stock of Telscape
International, Inc. dated May 1, 1998 (all filed as Exhibit 4.4 to the
Company's Report on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
*10.3 A Form of Convertible Subordinated Debenture in the principal amount of
$1,000,000 between Deere Park and Telscape International, Inc. dated as
of May 28, 1998; and a form of Stock Purchase Warrant to Purchase 2,427
shares of Common Stock of Telscape International, Inc. dated May 28,
1998.
*10.4 Securities Purchase Agreement dated May 29, 1998 by and between Telscape
International, Inc. and Gordon Brothers Capital, LLC ("Gordon
Brothers"); together with a Form of Convertible Debenture in the
principal amount of $5,000,000 payable to Gordon Brothers Capital, LLC
attached as Exhibit A; a Form of Stock Purchase Warrant for Gordon
Brothers for 12,136 shares of Common Stock of Telscape International,
Inc. as Exhibit B; and a Registration Rights Agreement by and between
Gordon Brothers and Telscape International, Inc. as Exhibit C.
*10.5 Equity Purchase Agreement by and between Interlink Communications
Holding Co., Inc. and each of Telscape International, Inc., E. Russell
Hardy, Stephen Strohman, Monty J. Moore, and Salvador Giblas dated as of
May 18, 1998.
*10.6 Form of Employment Agreement by and between California Microwave
Services Division, Inc. and E. Russell Hardy dated as of May 18, 1998.
*10.7 Form of Employment Agreement by and between California Microwave
Services Division, Inc. and Stephen Strohman dated as of May 18, 1998.
*10.8 Form of Employment Agreement by and between California Microwave
Services Division, Inc. and Monty J. Moore dated as of May 18, 1998.
<PAGE>
*10.9 Form of Consulting Agreement by and between California Microwave
Services Division, Inc. and Salvador Giblas dated as of May 18, 1998.
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*Filed herewith
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
AMONG
CALIFORNIA MICROWAVE, INC.,
CALIFORNIA MICROWAVE SERVICES DIVISION, INC.
AND
TELSCAPE INTERNATIONAL, INC.
dated as of May 18, 1998
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TABLE OF CONTENTS
PAGE
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SECTION 1 Definitions.............................................. 1
SECTION 2 Stock Purchase........................................... 4
2.1 Sale of Stock............................................ 4
2.2 Excluded Assets.......................................... 5
2.3 Assumption of Certain Liabilities........................ 6
2.4 Excluded Liabilities..................................... 6
2.5 Purchase Price........................................... 6
2.6 Post-Closing Adjustment of Purchase Price; Preparation of
Adjusted Schedule 2.3 and Closing Date Balance Sheet..... 7
2.7 Due To/From Parent....................................... 9
2.8 The Closing.............................................. 9
2.9 Deliveries............................................... 9
2.10 Continued Employment by Buyer of Certain
Employees of the Company................................. 10
2.11 GE Agreement............................................. 10
2.12 Books and Records........................................ 10
2.13 Further Assurances....................................... 10
SECTION 3 Representations and Warranties of the Seller and
the Company.............................................. 11
3.1 Organization and Qualification........................... 11
3.2 Authorization............................................ 11
3.3 Investment in Others..................................... 11
3.4 Capitalization........................................... 11
3.5 Government Approvals and Filings......................... 12
3.6 Third-Party Consents..................................... 12
3.7 No Violation............................................. 12
3.8 Financial Statements..................................... 12
3.9 Accounts Receivable...................................... 13
3.10 Inventories.............................................. 13
3.11 Personal Property........................................ 13
3.12 Intellectual Property.................................... 13
3.13 Contracts................................................ 14
3.14 Litigation............................................... 16
3.15 Compliance with Laws..................................... 16
3.16 Environmental Matters.................................... 16
3.17 Employee Matters......................................... 17
3.18 Leased Property.......................................... 17
3.19 Absence of Certain Changes............................... 17
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3.20 Tax Representations...................................... 18
3.21 Affiliate Transactions................................... 18
3.22 Undisclosed Liabilities.................................. 19
3.23 Certificate, By-Laws, and Minutes........................ 19
3.24 Disclosure............................................... 19
SECTION 4 Representations and Warranties of Buyer.................. 19
4.1 Organization............................................. 19
4.2 Authorization............................................ 20
4.3 Governmental Approvals................................... 20
4.4 Third Party Consents..................................... 20
4.5 No Violation............................................. 20
4.6 Investment Intent........................................ 20
4.7 Disclosure............................................... 20
SECTION 5 Other Tax Matters........................................ 21
5.1 Cooperation.............................................. 21
5.2 Retention................................................ 21
5.3 Section 338(h)(10) Election.............................. 21
5.4 Allocation of Purchase Price............................. 21
SECTION 6 Indemnification.......................................... 22
6.1 Indemnity to the Seller.................................. 22
6.2 Indemnity to Buyer....................................... 23
6.3 Third Party Claims....................................... 23
6.4 Procedures for Asserting Claims.......................... 25
6.5 Expiration of Representations and Warranties, etc........ 26
6.6 Exclusive Remedy......................................... 27
SECTION 7 Conditions to the Obligations of Buyer................... 27
7.1 Representations and Warranties........................... 27
7.2 Performance.............................................. 27
7.3 Governmental Approvals and Filings....................... 27
7.4 Third Party Consents..................................... 28
7.5 Officers' Certificates................................... 28
7.6 No Injunction............................................ 28
7.7 No Material Adverse Change............................... 28
7.8 Supply Agreement......................................... 28
7.9 Release of Liens......................................... 28
7.10 Leases................................................... 28
SECTION 8 Conditions to the Seller's Obligations................... 29
8.1 Representations and Warranties........................... 29
8.2 Performance.............................................. 29
8.3 Governmental Approvals and Filings....................... 29
8.4 Officer's Certificate.................................... 29
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8.5 No Injunction............................................ 29
8.6 Supply Agreement......................................... 30
8.7 Execution of Sublease.................................... 30
SECTION 9 Certain Covenants........................................ 30
9.1 Operation of Business Prior to Closing................... 30
9.2 Communications with Customers and Suppliers.............. 30
9.3 Non-Competition.......................................... 30
9.4 Novations................................................ 31
9.5 Use of Business Names by Buyer........................... 31
9.6 Consents; Cooperation.................................... 32
9.7 Notice of Developments................................... 33
9.8 Non-Solicitation......................................... 33
9.9 Pre-Closing Access....................................... 33
9.10 Cooperation with Respect to Borregas Avenue
Lease.................................................... 34
SECTION 10 Termination.............................................. 34
10.1 Termination.............................................. 34
10.2 Procedure and Effect of Termination...................... 35
SECTION 11 Miscellaneous Provisions; Other Agreements............... 35
11.1 Expenses................................................. 35
11.2 Brokerage................................................ 35
11.3 Amendment and Notification............................... 35
11.4 Waiver................................................... 35
11.5 Notices.................................................. 36
11.6 Binding Nature; Assignment............................... 37
11.7 Governing Law and Jurisdiction........................... 37
11.8 Press Releases........................................... 38
11.9 Headings................................................. 38
11.10 Entire Agreement......................................... 38
11.11 Counterparts............................................. 38
11.12 Attorneys' Fees.......................................... 38
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EXHIBIT A Balance Sheet
EXHIBIT B Supply Agreement
EXHIBIT C Form of Sublease
EXHIBIT D Form of Sublease
Schedule 2.2(a) Excluded Assets
Schedule 2.3 Assumed Liabilities
Schedule 2.10 Employees
Schedule 3.6 Third Party Consents
Schedule 3.8 Financial Statements
Schedule 3.10 Inventories
Schedule 3.11 Liens, List of Fixed Assets
Schedule 3.12 Intellectual Property
Schedule 3.13(a) Contracts
Schedule 3.13(b) Defaults and Enforceability
Schedule 3.13(c)(i) Required Consents
Schedule 3.13(c)(ii)Other Consents
Schedule 3.14 Litigation
Schedule 3.16 Environmental Matters
Schedule 3.19(b) Absence of Certain Changes
Schedule 3.21 Affiliate Transactions
Schedule 3.22 Liabilities
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STOCK PURCHASE AGREEMENT
This Agreement (the "Agreement") is entered into as of May 18, 1998,
among California Microwave, Inc., a Delaware corporation (the "Seller"),
California Microwave Services Division, Inc. (the "Company") and Telscape
International, Inc., a Texas corporation ("Buyer").
RECITALS:
A. The Seller and Buyer have agreed, subject to the conditions
hereafter set forth (i) that Buyer shall acquire all of the outstanding capital
stock of the Company, and (ii) that Buyer shall assume certain liabilities, as
specified herein.
B. The business of the Company is comprised of the satellite hub
operations of the Company located in Mountain View, California which provide,
via leased (to its customers) satellite communications links, data broadcast and
interactive communication services and the products operation of the Company in
Sunnyvale, California which manufactures and sells the Equatorial, radar test
equipment, frequency converter, frequency source, amplifier and Radiolink
product lines and the warranty sales and depot services relating to those
product lines.
C. Capitalized terms used herein without separate definitions have the
meanings given to such terms in Section 1.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties and covenants hereinafter set forth, the parties
hereby agree as follows:
SECTION 1
Definitions
As used herein, the terms defined in the first paragraph of this
Agreement or elsewhere in this Agreement shall have the meanings defined for
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them therein, and the following terms shall have the following respective
meanings.
1.1 "Assets" shall have the meaning set forth in Section 2.1 hereof.
1.2 An "Affiliate" of a person or entity shall mean a person or entity
that directly or indirectly controls, is controlled by or is under common
control with that person or entity.
1.3 "Assumed Liabilities" has the meaning set forth in Section 2.4.
1.4 "Balance Sheet" shall mean the balance sheet of the Company, dated
April 25, 1998 and attached hereto as Exhibit A.
1.5 "Benefit Arrangement" shall mean an employment, severance or other
similar contract, arrangement or policy and each plan or arrangement providing
for medical and dental benefits or reimbursements, welfare benefits, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, severance benefits, supplemental unemployment benefits,
vacation and holiday benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or other
fringe benefits.
1.6 "Business" shall mean the business currently conducted by the
Company and described in Recital B to this Agreement.
1.7 "Closing" shall mean the closing of the transactions contemplated
by this Agreement.
1.8 "Closing Date" shall mean May 22, 1998, or such later date on
which all of the conditions to Closing set forth in Sections 7 and 8 shall have
been satisfied.
1.9 "Closing Date Balance Sheet" shall mean the balance sheet prepared
and agreed upon pursuant to Section 2.6.
1.10 "CMI Corporate Assets" means the assets owned or used by Seller,
including the leasehold improvements on the approximately 12,000 square
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feet of space used by Seller's corporate headquarters at the 1143 Borregas
Avenue, Sunnyvale facility, which are described in Schedule 2.2(a) attached to
this Agreement.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.12 "Contracts" has the meaning set forth in Section 3.13(a).
1.13 "Environmental Liability" shall mean any loss, damage, claim or
cost (including reasonable attorneys fees) related to any federal, state or
local environmental laws, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act 42 USC Section 9601, et
seq., Resource Conservation and Recovery Act 42 USC Section 6901, et seq., Clean
Water Act 33 USC Section 1251, et seq., Clean Air Act 42 USC Section 7401, et
seq., Toxic Substances Control Act 15 USC Section 2601, et seq., Oil Pollution
Act of 1990 33 USC Section 1001, et seq., all as amended.
1.14 "Fixed Assets" shall mean those fixed assets owned by the Company
and used in the Business, including without limitation, the fixed assets located
at the Company's Borregas Avenue, Sunnyvale facility (excluding the CMI
Corporate Assets) and at the Company's 300 Ferguson Drive, Mountain View
facility.
1.15 "GAAP" shall mean United States generally accepted accounting
principles, consistently applied and consistent with past practices.
1.16 "Intangible Assets" shall mean long-term assets (other than
prepaid expenses) that lack physical existence under GAAP, e.g., goodwill,
patents, copyrights and trademarks.
1.17 "Intellectual Property" shall mean all patents, patent
applications (whether or not filed), registered and unregistered copyrights,
copyright applications, inventions, trade secrets, research and development
data, and Know-how, computer software or other intellectual property, the
trademarks, service marks, tradenames, logos and any applications or canceled
rights pertaining thereto, in each case primarily used in the conduct of the
Business (other than the Excluded Intellectual Property).
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1.18 "Know-how" shall include, but not be limited to, all technical
information, trade secrets, product design rights, specifications, manuals,
reports, documents (i.e., active and archived books, records, personal computer
and paper files, other papers, tapes, microfilms, information storage media of
any kind and other similar documents), drawings, procedures, processes,
programs, devices, software and other source/object code, datafeed designs,
facility layouts, product quality plans, CPE listings, training materials, flow
charts, recorded media, research and development data, notebooks, marketing
information, original brochure artwork, customer lists (including contact names,
addresses and phone numbers), engineering changes, boilerplate proposals, other
tangible embodiments of information, and proprietary rights other than
copyrights, patents, and trademarks in every country of the world.
1.19 "Permitted Liens" shall mean Liens (i) for Taxes not yet due and
payable, (ii) removed or discharged on or prior to the Closing Date or (iii) on
or related to the Property that are of public record and that would appear as a
title exception in a policy of title insurance with respect to the Property.
1.20 "Property" means the real property and improvements thereon which
are the subject of the leases listed in Schedule 3.13(a) of this Agreement.
1.21 "Taxes" shall mean all federal, state, local and foreign taxes,
including income, employment (including social security, withholding and state
disability), excise, property, sales, use, franchise, and other taxes, together
with all interest, additions to tax and penalties relating thereto.
1.22 "To Seller's and the Company's knowledge", as used herein, shall
refer to the actual knowledge of George L. Spillane, E. Russell Hardy, Stephen
Strohman, Monty J. Moore and James Dale.
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SECTION 2
Stock Purchase
2.1 SALE OF STOCK. Subject to and upon the terms and conditions set
forth in this Agreement, at the Closing, Seller shall sell, assign and transfer
to Buyer, and Buyer shall purchase and acquire from Seller, all of the
outstanding capital stock of the Company, free and clear of any liens or
encumbrances or rights or claims of others. With the exceptions stated in
Section 2.2, the assets held by the Company at the time of transfer of the
outstanding capital stock of the Company to Buyer (the "Assets") shall include
(subject only to the obtaining of any requisite consents or novations in
accordance with the provisions of this Agreement), without limitation:
(a) all of the Fixed Assets, Intellectual Property and Contracts
of the Business;
(b) all of the accounts receivable of the Business;
(c) all inventories of raw material, work in process finished
products, goods, spare parts, replacement and component parts and office and
other supplies of the Business;
(d) all of the other assets that are reflected on the Closing
Date Balance Sheet;
(e) all of the books and records primarily relating to the
Business (including those located at Iron Mountain);
(f) all rights under express or implied warranties from Seller's
suppliers with respect to the Assets; and
(g) all rights under licenses (including Federal Communications
Commission ("FCC") fixed sites, transportable and blanket authority licenses),
permits and governmental authorizations relating to the Assets and the
operations associated therewith; provided that all rights under FCC licenses
shall be transferred only upon receipt of any required FCC approval.
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2.2 EXCLUDED ASSETS. Notwithstanding anything contained in Section 2.1
hereof to the contrary, the Assets do not include any of the following
(hereafter referred to collectively as the "Excluded Assets"):
(a) the CMI Corporate Assets and the other assets listed on
Schedule 2.2(a);
(b) the name and mark "California Microwave" and any name or mark
derived from or including the foregoing (the "Excluded Intellectual Property");
(c) all cash and cash equivalents and similar type investments,
such as certificates of deposit, treasury bills and other marketable securities;
(d) all books and records relating to or used in the business of
Seller and not primarily relating to or used in the Business (including those
located at Iron Mountain);
(e) all insurance policies maintained by Seller and all rights of
action, lawsuits, claims and demands, rights of recovery and set-off, and
proceeds, under or with respect to such insurance policies, except to the extent
the coverage thereof remains available after the Closing for claims relating to
the Assets or Assumed Liabilities that are not reflected in the value of the
Assets or Assumed Liabilities as shown on the Closing Date Balance Sheet or
Adjusted Schedule 2.3;
(f) except to the extent reflected on the Closing Date Balance
Sheet, all right, title and interest of the Seller in and to prepaid Taxes of
the Business, and any claims for any refund, rebate or abatement with respect to
Taxes of the Business for any period or portion thereof through the Closing Date
and any interest payable with respect thereto; and
(g) all rights to causes of action, lawsuits, claims and demands
of any nature available to or being pursued by Seller with respect to (i) the
assets and matters listed in clauses (a) through (f) of this Section 2.2 or (ii)
the Excluded Liabilities.
2.3 ASSUMPTION OF CERTAIN LIABILITIES. Effective as of the Closing,
and to the extent such liabilities and obligations are reflected in the Adjusted
Schedule 2.3 provided for in Section 2.6 hereof, Buyer shall assume and shall
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thereafter pay, perform or be responsible for the liabilities and obligations
relating to the Business listed on Schedule 2.3 attached hereto, subject to
adjustments therein that occur in the ordinary course of business prior to the
Closing and are reflected on Adjusted Schedule 2.3. The liabilities and
obligations listed on Schedule 2.3 were incurred by the Business prior to April
25, 1998, but were not assumed by the Company.
2.4 EXCLUDED LIABILITIES. Other than for (a) the liabilities assumed
pursuant to Section 2.3 above, (b) all liabilities and obligations to be
performed from and after the Closing Date under or relating to Contracts
included in the Assets (other than liabilities and obligations relating to any
failure to comply with, or any violation of, any Contract prior to the Closing);
and (c) all other liabilities and obligations of the Company relating to or
arising out of the operation of the Business to the extent reflected on the
Closing Date Balance Sheet (collectively, the "Assumed Liabilities"), as of the
Closing neither Buyer nor the Company shall be responsible for any debts,
claims, commitments, liabilities or obligations of Seller or the Business of any
kind whatsoever (including, without limitation, any liabilities relating to the
employees of the Seller or the Company arising prior to or as a result of the
Closing ("Seller's Employee Liabilities"), other than liabilities that arise as
of the Closing out of agreements or arrangements entered into by Buyer or its
Affiliates with any of such employees ("Buyer's Employee Liabilities") or any
debts, claims, commitments, liabilities or obligations relating to the Assets
(collectively, the "Excluded Liabilities").
2.5 PURCHASE PRICE. The purchase price payable by Buyer to Seller for
the outstanding capital stock of the Company and for the covenant not to compete
provided for in Section 9.3 shall be $8,154,843, payable in cash at the Closing
by wire transfer of immediately available funds to such bank account as is
specified by Seller in written instructions given to Buyer at least three days
prior to the Closing, plus assumption of the Assumed Liabilities (the "Purchase
Price").
2.6 POST-CLOSING ADJUSTMENT OF PURCHASE PRICE; PREPARATION OF
ADJUSTED SCHEDULE 2.3 AND CLOSING DATE BALANCE SHEET.
(a) CALCULATION OF ADJUSTMENT. The Purchase Price shall be
adjusted as follows:
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(i) It shall be increased by the amount that the Closing
Date Net Assets (as hereinafter defined) are greater than $1,665,031 (the
"Target Net Assets"); or
(ii) it shall be decreased by the amount that the Closing
Date Net Assets are less than the Target Net Assets.
(iii) The Target Net Assets shall be the net book value of
the Company as reflected on the Balance Sheet less the amount of liabilities
shown on Schedule 2.3.
(iv) The "Closing Date Net Assets" shall be the net book
value of the Company as reflected on the Closing Date Balance Sheet less the
amount of liabilities shown on Schedule 2.3 as adjusted to reflect the changes
therein occurring between April 24, 1998 and the Closing ("Adjusted Schedule
2.3").
(v) The Closing Date Balance Sheet shall be prepared in
accordance with GAAP, except that the Closing Date Balance Sheet accounts
receivable and inventory reserves shall be determined in a manner consistent
with that used in determining the accounts receivable and inventory reserves
reflected on the Balance Sheet. The Closing Date Balance Sheet shall not reflect
any Intangible Assets not reflected on the Balance Sheet without the written
consent of Buyer.
(vi) The amount of any decrease or increase to the Purchase
Price pursuant to this Section 2.6(a) plus interest from the Closing Date at the
Prime Rate (as hereinafter defined) shall be paid by Seller or Buyer, as the
case may be, by wire transfer in immediately available funds within five (5)
business days after the Closing Date Balance Sheet is agreed to by Seller and
Buyer or is determined by the Neutral Auditor (as hereinafter defined). For
purposes of this Agreement, "Prime Rate" means the prime rate of interest in
effect on the Closing Date as stated in the "Money Rates" section of the Wall
Street Journal.
(b) PREPARATION OF CLOSING DATE BALANCE SHEET AND ADJUSTED
SCHEDULE 2.3. As soon as practicable, and in any event within thirty (30) days
after the Closing Date, Seller shall cause the balance sheet for the Company as
of the close of business on the Closing Date (the "Closing Date Balance Sheet")
to
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be prepared in accordance with GAAP, except that the Closing Date Balance Sheet
accounts receivable and inventory reserves shall be determined in a manner
consistent with that used in determining the accounts receivable and inventory
reserves reflected on the Balance Sheet. Also, as soon as practicable, and in
any event within 30 days after the Closing, Seller shall cause the Adjusted
Schedule 2.3 to be prepared on a basis consistent with Schedule 2.3. The
Adjusted Schedule 2.3 and Closing Date Balance Sheet shall be accompanied by a
certificate of Seller's Chief Financial Officer stating that the same present
fairly, in all material respects, the financial condition of the Business as of
the Closing Date. Buyer shall provide Seller and Neutral Auditor such access to
the books and records as may reasonably be required for the preparation and/or
review of the Adjusted Schedule 2.3 and Closing Date Balance Sheet.
(c) REVIEW OF ADJUSTED SCHEDULE 2.3 AND CLOSING DATE BALANCE
SHEET. After receipt of the Adjusted Schedule 2.3 and Closing Date Balance
Sheet, Buyer shall have thirty (30) days to review it. Buyer and its authorized
representatives shall have full access to all books and records and appropriate
employees of the Seller and the Company and its accountants to the extent
required to complete their review of the Adjusted Schedule 2.3 and Closing Date
Balance Sheet, including work papers used in preparation thereof. Unless the
Buyer delivers written notice to Seller on or prior to the 45th day after
receipt of the Adjusted Schedule 2.3 and Closing Date Balance Sheet specifying
in reasonable detail all disputed items and the basis therefor, the parties
shall be deemed to have accepted and agreed to the Adjusted Schedule 2.3 and
Closing Date Balance Sheet. If Buyer so notifies the Seller of an objection to
the Adjusted Schedule 2.3 and/or the Closing Date Balance Sheet, the parties
shall, within thirty (30) days following the date of such notice (the
"Resolution Period"), attempt to resolve their differences in good faith and any
resolution by them as to any disputed amount shall be set forth in a written
statement signed by each of Seller and Buyer and shall be final, binding,
conclusive and nonappealable for all purposes under this Agreement.
(d) RESOLUTION. If at the conclusion of the Resolution Period the
parties have not reached an agreement on the objections, then all amounts
remaining in dispute may, at the election of either party, be submitted to Price
Waterhouse or another large international accounting firm not otherwise engaged
by either party that is mutually acceptable to Buyer and Seller (the "Neutral
Auditor"). Each party agrees to execute, if requested by the Neutral Auditor, a
reasonable engagement letter. All fees and expenses relating to the work, if
any,
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to be performed by the Neutral Auditor shall be borne equally by Seller and
Buyer, unless the Neutral Auditor finds one party acted in bad faith in which
case that party pays all. Except as provided in the preceding sentence, all
other costs and expenses incurred by the parties in connection with resolving
any dispute hereunder before the Neutral Auditor shall be borne by the party
incurring such cost and expense. The Neutral Auditor shall act as an arbitrator
to determine, based solely on the presentations by Seller and Buyer, and not by
independent review, only those issues still in dispute and such determination
shall be within the range of positions taken by Seller and Buyer with respect to
the applicable disputed item. The Neutral Auditor's determination shall be made
within thirty (30) days of its engagement (which engagement shall be made no
later than five (5) business days after election by either party to submit the
objections to the Neutral Auditor) or as soon thereafter as possible, shall be
set forth in a written statement delivered to Seller and Buyer and shall be
final, binding, conclusive and nonappealable for all purposes hereunder.
2.7 DUE TO/FROM PARENT. As of the date of the Balance Sheet, the
Company opened Due to Parent and Due from Parent Accounts, each of which shows a
zero balance on the Balance Sheet. At the time of payment of the purchase price
adjustment pursuant to Section 2.6 hereof, Buyer shall remit to Seller the
amount by which the Due to Parent Account exceeds the Due from Parent Account or
Seller shall remit to Buyer the amount by which the Due from Parent Account
exceeds the Due to Parent Account, as the case may be, in each case together
with interest from the Closing Date at the Prime Rate on the amount payable.
2.8 THE CLOSING. The Closing shall take place at the offices of
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation,
Three Embarcadero Center, 7th Floor, San Francisco, California at 10:00 a.m.,
local time, on the Closing Date, or at such other place or time as may be agreed
to by the Seller and Buyer.
2.9 DELIVERIES. At the Closing, Seller shall deliver to Buyer (a) such
assignments and other good and sufficient instruments of transfer as shall be
satisfactory in form and substance to Buyer, and shall be effective to vest in
Buyer good and marketable title, free and clear of any liens and encumbrances or
rights and claims of others, to all of the outstanding stock of the Company, (b)
all of the Company's minute books and stock books, and (c) such resignations of
members of the Board of Directors and officers of the Company as Buyer shall
request prior
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to the Closing Date. In addition, the parties shall deliver the certificates and
documents referred to in Sections 7 and 8 hereof.
2.10 CONTINUED EMPLOYMENT BY BUYER OF CERTAIN EMPLOYEES OF THE
COMPANY. Buyer intends after the Closing to continue the employment of the
employees currently employed by the Company (i) at the Company's Mountain View,
California facility and (ii) the Company's Sunnyvale, California facility and
listed on Schedule 2.10 attached hereto. Such employees shall have comparable
jobs in terms of position, salary and job location (each of which is specified
next to such employee's name on Schedule 2.10 attached hereto) and shall, on
their date of employment by Buyer, be eligible to participate in the medical,
dental, life insurance, profit sharing, deferred pay and vacation plans, if any,
available to employees of Buyer generally. Nothing herein, however, is intended
to create any third-party beneficiary rights.
2.11 GE AGREEMENT. Subject to receiving the required consent under the
"Agreement for the Sale of Assets" between GE Capital Spacenet Services, Inc.
and California Microwave, Inc., dated as of March 31, 1995 (the "GE Agreement"),
the Company shall continue to receive the benefits of Section 2.10 of the GE
Agreement to the extent they remain applicable. Pursuant to the GE Agreement, GE
Americom presently provides the Company with C-band space segment on Spacenet IV
that permits the Company to provide services to data broadcast customers on
eight (8) 5 MHz channels using 87,187 bits per second (bps) of satellite
capacity at a monthly charge of $86,315. Seller is presently providing services
to one Equastar (2-way service) customer, GTE GSC FSD-NWWS, and pays GE Americom
$28,800 per month for use of the required 5 MHz channels on Spacenet IV,
transponder number 3; this price is guaranteed for the remainder of the term of
this Agreement.
2.12 BOOKS AND RECORDS. From and after the Closing and until the sixth
anniversary thereof, (i) Seller agrees to grant to Buyer, upon reasonable notice
and during normal business hours, reasonable access to any books and records
that pertain to the operations of the Business but that are not books and
records that primarily relate to the Business or otherwise included in the
Assets and reasonable access to all books and records primarily relating to the
Business that are located at Iron Mountain, and (ii) Buyer agrees to grant to
Seller, upon reasonable notice and during normal business hours, reasonable
access to any books and records included in the Assets that pertain to the
operation of the
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Business on or prior to the Closing Date, for any reasonable business purpose of
Seller.
2.13 FURTHER ASSURANCES. Each party agrees, at any time and from time
to time after the Closing Date, upon reasonable request from the other party, to
do, execute, acknowledge and deliver, as appropriate, such further acts, deeds,
assignments, transfers, conveyances, and powers of attorney as may reasonably be
required for the better assigning, transferring, granting, conveying, assuring
and confirming to such other party, or its successors and assigns, of any of the
assets, properties or liabilities to be assigned to it or retained by such party
as provided herein.
SECTION 3
Representations and Warranties of the Seller and the Company
Except as disclosed in the Schedules dated as of the date hereof and
delivered to Buyer concurrently herewith, the Seller and the Company represent
and warrant to Buyer as follows:
3.1 ORGANIZATION AND QUALIFICATION. The Seller and the Company are
corporations duly organized, validly existing and in good standing under the
laws of the state of Delaware. The Company has full corporate power and
authority to carry on the Business as it is now being conducted and to own or
hold under lease the properties and assets of the Business owned or held under
lease. The Company is duly qualified or licensed to do business as a foreign
corporation and is in good standing in every state in which the Business is
conducted that requires such qualification and where the failure to be so
qualified would have a material adverse effect on the business.
3.2 AUTHORIZATION. The Seller and the Company have the full corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The Seller and the Company have taken all
action required to authorize the execution and delivery of this Agreement, the
performance of Seller's and the Company's obligations hereunder and the
consummation of the transactions contemplated hereby. The Agreement is a valid
and binding agreement of the Seller and the Company, enforceable against the
Seller and the Company in accordance with its terms, subject to laws
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of general application relating to bankruptcy, insolvency and the enforcement of
creditors' rights and general equitable principles.
3.3 INVESTMENT IN OTHERS. The Company does not own any investment
(whether as a debt, equity or other interest) in any other corporation or
business entity, nor does the Company directly or indirectly control any other
corporation or business entity.
3.4 CAPITALIZATION. The authorized and outstanding shares of capital
stock of the Company are 10,000 shares and 1,000 shares, respectively, of $.001
par value common stock. All of the outstanding shares are owned by Seller free
of any rights or claims of others, are duly and validly issued and outstanding
and are fully paid and nonassessable. There are no outstanding rights, options,
warrants, conversion rights, preemptive rights or other rights or agreements for
the purchase or acquisition from the Company of any shares of its capital stock.
3.5 GOVERNMENT APPROVALS AND FILINGS. Other than filings required by
the Federal Communications Commission and government novations, no approval or
declaration, filing or registration with any governmental or regulatory
authority is required to be made or obtained by the Seller and the Company in
connection with the execution and delivery by the Seller and the Company of this
Agreement, the performance by the Seller and the Company of their obligations
hereunder or the consummation by the Seller and the Company of the transactions
contemplated hereby.
3.6 THIRD-PARTY CONSENTS. No consent, approval or authorization of, or
notice to, any third party is required to be obtained or given by the Seller and
the Company in connection with the execution or delivery by the Seller or the
Company of this Agreement, the performance by the Seller and the Company of
their obligations hereunder or the consummation by the Seller and the Company of
the transactions contemplated hereby, except for any consents required by
customer contracts, required novations of government contracts set forth on
Schedules 3.13(c)(1) and 3.13(c)(2) and for consents, approvals, authorizations
or notices which are set forth on Schedule 3.6 to this Agreement.
3.7 NO VIOLATION. Neither the execution and delivery of the Agreement
nor the consummation of the transactions contemplated hereby will: (a) violate
any provisions of the Certificate of Incorporation or Bylaws of the Seller or
the Company, each as amended to date; (b) violate, be in conflict with,
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constitute a default under, or cause the termination or the acceleration of the
maturity of any material obligation of the Seller or the Company; (c) result in
the creation or imposition of any security interest, lien or other encumbrance
upon any of the Assets (other than Permitted Liens); or (d) violate any statute
or law, or any judgment, decree, order, regulation or rule of any court or
governmental authority to which the Seller or the Company, or any of the Assets,
is bound or subject other than violations which are not reasonably likely to
have a material adverse effect on the Assets or the operation, condition
(financial or otherwise) or employee, supplier and customer relationships of the
Business (a "Material Adverse Effect").
3.8 FINANCIAL STATEMENTS. Seller has delivered to Buyer (a) the
unaudited balance sheet and the related unaudited statement of operations of the
Business as at and for the fiscal year ended June 30, 1997; (b) the unaudited
balance sheet and the related statement of operations of the Business as at and
for the ten-month period ended April 24, 1998; and (c) the Balance Sheet. Such
financial statements are in accordance with the books and records of the
Business, have been prepared in accordance with GAAP (except with respect to the
lack of footnotes and other presentation items) and fairly present in all
material respects the financial condition and results of operations of the
Business as at and for the periods specified (with the exception that the
statements do not reflect any allocation of the CMI corporate expenses set forth
in Schedule 3.8 and the Balance Sheet must be read in conjunction with Schedule
2.3).
3.9 ACCOUNTS RECEIVABLE. All of the accounts receivable of the Company
represent valid obligations and are from sales actually made or services
actually performed in the ordinary course of business, and, subject to the
reserve therefor on the Balance Sheet or to be reflected on the Closing Date
Balance Sheet, as applicable, Seller knows of no reason such accounts are not
collectible in the ordinary course of business.
3.10 INVENTORIES. Except as set forth on Schedule 3.10 to this
Agreement, and net of reserves as reflected in the Balance Sheet or to be
reflected in the Closing Date Balance Sheet, the inventories of the Company are
of such quality as to be usable or saleable in the ordinary course of business.
3.11 PERSONAL PROPERTY. The Company has good and marketable title to
all of the personal property of the Business included in the Assets (except
property with respect to which the Company is lessee, as to which the Company
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holds a valid leasehold interest) free and clear of all liens, claims,
encumbrances, security interests, rights of others, assessments, charges,
servitudes, claims, interests in land, impositions, easements, rights of way,
zoning restrictions, restrictions on use of property or imperfections of title
of the Company or its properties (collectively, "Liens"), except for Permitted
Liens, the rights of lessors under leases which are identified in Schedule 3.13
to this Agreement and other Liens identified in Schedule 3.11 which will be
released prior to Closing. The Assets of the Company are in good operating
condition (subject to normal wear and tear) and constitute all of the assets
used in the conduct of the Business (other than Excluded Assets) as currently
conducted by the Company and constitute all assets owned or used by the Company
which are necessary for the conduct of the Business as currently conducted.
Schedule 3.11 to this Agreement contains a list that is true and complete in all
material respects of the Fixed Assets.
3.12 INTELLECTUAL PROPERTY. Schedule 3.12 identifies all Intellectual
Property included in the Assets of the Company. Except as set forth on Schedule
3.12, to Seller's and the Company's knowledge the Business is being carried on
without conflicts with or infringement of patents, patent applications,
licenses, copyrights, trade secrets, trademarks, or other intellectual property
rights of others. The Seller and the Company do not know of any claim alleging
such a conflict or infringement, or of any conflicts or infringements currently
pending. Schedule 3.12 to this Agreement contains a list that is true and
complete in all material respects of the Intellectual Property. The Intellectual
Property included and the Excluded Intellectual Property constitute all of the
intellectual property used in the conduct of the Business as currently conducted
by the Company and constitute all intellectual property owned or used by the
Company which is necessary for the conduct of the Business as currently
conducted.
3.13 CONTRACTS.
(a) Schedule 3.13(a) contains a complete and correct list of all
agreements, contracts, commitments, orders, licenses, leases, and other
instruments and arrangements (whether written or oral) of the types described
below to which the Company is or at the Closing will be a party or by which it
or any of its assets is or at the Closing will be bound in connection with the
Business, the Assets or the Assumed Liabilities (collectively, the "Contracts"):
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(i) leases, licenses, permits, franchises and government
approvals;
(ii) employment, consulting, agency, collective bargaining
or other similar contracts, agreements, and other instruments and arrangements
relating to or for the benefit of employees, sales representatives,
distributors, dealers, agents, or (if material) independent contractors;
(iii) loan agreements, indentures, letters of credit,
mortgages, security agreements, pledge agreements, deeds of trust, bonds, notes,
guarantees, and other agreements and instruments relating to the borrowing of
money or obtaining of or extension of credit;
(iv) licenses, licensing arrangements and other contracts
providing in whole or in part for the use of, or limiting the use of, any
Intellectual Property;
(v) brokerage or finder's agreements;
(vi) joint venture, partnership and similar contracts
involving a sharing of profits or expenses (including but not limited to joint
research and development and joint marketing contracts);
(vii) asset purchase agreements and other acquisition or
divesture agreements, including but not limited to any agreements relating to
the sale, lease or disposal of any Assets (other than sales of inventory in the
ordinary course of business) or involving continuing indemnity or other
obligations;
(viii) vany contract with respect to which any amount could
reasonably be expected to be paid or received thereunder in the future;
(ix) sales agency, manufacturer's representative, marketing
or distributorship agreements;
(x) contracts, agreements or arrangements with respect to
the representation of the Business in foreign countries;
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(xi) any agreement, understanding, contract or commitment
(written or oral) with (x) any employee, agent, consultant, distributor, dealer
or franchisee, or (y) any Affiliate;
(xii) any collective bargaining agreements with any unions,
guilds, shop committees or other collective bargaining groups;
(xiii) any guarantee of the payment or performance of any
person or agreement to indemnify any person, or act as a surety, or other
agreement to be contingently or secondarily liable for the obligations of any
person other than the endorsement of checks in the ordinary course of business;
and
(xiv) any other contracts, agreements or commitments that
are material to the Business.
(b) There does not exist under any Contract any event of default
or event or condition that, after notice or lapse of time or both, would
constitute a violation, breach or event or default thereunder on the part of
Seller or the Company or, to the knowledge of Seller, any other party thereto
except as set forth in Schedule 3.13(b). Except as set forth in Schedule
3.13(b), each Contract is a legal, valid, binding and enforceable obligation of
the Company and, to the knowledge of Seller and the Company, the other parties
thereto.
(c) Except as set forth in Schedules 3.13(c)(1) and (2), no
consent of any third party is required under any Contract as a result of or in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
3.14 LITIGATION. Other than as listed on Schedule 3.14, there is no
action, suit, claim, proceeding or investigation pending or, to the knowledge of
the Seller and the Company, threatened against or involving the Business or the
Assets, and the Seller and the Company know of no basis for the commencement of
any action, suit, claim, proceeding or investigation involving the Business.
There is no outstanding judgment, order, writ, injunction or decree involving
the Business.
3.15 COMPLIANCE WITH LAWS. The Seller and the Company have complied
and are in compliance with all laws, rules, regulations, statutes,
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ordinances, orders, judgments and decrees applicable to the Business and the
operations, properties, employees and equipment of the Business, except for such
noncompliance as would not be reasonably likely to result in a Material Adverse
Effect, and to Seller's and the Company's knowledge, no condition exists which
will result in a violation of any such laws, rules, regulations, statutes,
ordinances, orders, judgments or decrees.
3.16 ENVIRONMENTAL MATTERS. To Seller's and the Company's knowledge,
(i) the Business and the Assets are currently in compliance in all material
respects with all applicable environmental, health and safety laws and
requirements; (ii) there are no past or present events, conditions or
circumstances which may give rise to any liabilities under any environmental,
health or safety laws or requirements now in force arising from the operations
of the Business, including, but not limited to, any liabilities associated with
any past operations of the Business; (iii) the Business has obtained all
environmental, health and safety permits necessary for its operations and all
such permits are in good standing and the Business is in compliance in all
material respects with all terms and conditions of such permits; (iv) the
Business has kept all material records and has made all material filings
required by applicable federal, state and local environmental laws; (v) the
Business has not been required to and has not filed any notice under federal or
state law (including, but not limited to the laws referred to in Section 1.13
hereof), indicating past, present or future treatment, storage, or disposal of
any hazardous substance or waste as those terms are defined in the laws referred
to in Section 1.13 or any state law equivalent, or reporting a release or spill
of a hazardous substance or contaminant at, on, under or about any of the
Assets; (vi) except as shown on Schedule 3.16, there has been no disposal,
discharge or release of any hazardous waste or substance relating to any of the
Assets; (vii) except as shown on Schedule 3.16, there is not now, nor has there
ever been on any of the Assets (a) any above ground or underground storage tanks
or surface impoundments, (b) any friable asbestos-containing material, or (c)
any electrical or other equipment containing polychlorinated biphenyls; (viii)
no environmental lien has attached to any of the Assets or the Business; and
(ix) the Business has no liability pursuant to any environmental, health or
safety laws. Neither Seller nor the Company has had notice or communication from
any federal, state or local regulatory authority of any claim, investigation,
order, violation, or noncompliance related to Environmental Liabilities.
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3.17 EMPLOYEE MATTERS.
(a) The employees of the Company (the "Business Employees") are
not covered by any collective bargaining agreement.
(b) There is no strike, labor dispute, work slowdown or work
stoppage actually pending or, to the knowledge of the Seller and the Company,
threatened against the Seller and the Company relating to the Business.
(c) With respect to the Business Employees, the Seller and the
Company are in compliance in all material respects with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and each Benefit Arrangement has been maintained
in compliance in all material respects with all applicable laws and the
documents and agreements, if any, governing such Benefit Arrangements, in each
case except for such noncompliance as would not be reasonably likely to result
in a Material Adverse Effect.
3.18 LEASED PROPERTY. All lease agreements relating to the Business
are valid, binding and enforceable in accordance with their terms, and are in
full force and effect; there are no existing defaults by the Seller and the
Company thereunder or, to Seller's and the Company's knowledge, of any other
party thereto. Subject to obtaining any requisite consents to the assignment of
the lease agreements, the consummation of the transactions contemplated hereby
will not have a material adverse effect on the right of the Company to the
continued use and possession of the leased property on the terms and conditions
specified in the lease agreements therefor for the purposes for which the leased
property is now used by the Business.
3.19 ABSENCE OF CERTAIN CHANGES.
(a) Since April 25, 1998, the Company has not with respect to the
Business entered into any transaction which is not in the usual and ordinary
course of business and there has been no material adverse change in the
Business.
(b) Since April 25, 1998, the Company has conducted its
operations related to the Business in the ordinary course of business, has used
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commercially reasonable efforts to maintain its respective businesses, assets,
relations with employees, suppliers, licenses and operations related to the
Business as an ongoing business in accordance with past custom and practice.
Without limiting the generality of the foregoing, except as disclosed on
Schedule 3.19(b) since April 25, 1998, in each case as related to the Business:
(i) the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than in the ordinary
course of business;
(ii) no party (including the Seller or the Company) has
accelerated, terminated, modified, or canceled any contract, lease, sublease,
license, or sublicense (or series of related contracts, leases, subleases,
licenses, and sublicenses), excluding all purchase orders and sales orders,
involving more than $25,000 to which the Company is a party or by which it or
its assets is bound;
(iii) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than $25,000 or
outside the ordinary course of business;
(iv) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of any other person
other than in the ordinary course of business;
(v) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims), except for
any right or claim (or series of rights or claims) under any purchase order or
sales orders, either involving more than $10,000 or outside the ordinary course
of business; and
(vi) the Company has not committed to any of the foregoing.
3.20 TAX REPRESENTATIONS. All Taxes attributable to the Seller and its
Affiliates relating to the Business that are or were due and payable (without
regard to whether such taxes have been assessed) have been paid, except where
failure to do so would not materially and adversely affect the Business.
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3.21 AFFILIATE TRANSACTIONS. Except as set forth on Schedule 3.21,
none of the Seller's or the Company's Affiliates, officers, directors or any of
their employees related to or employed in the Business, is presently a party to
any material transaction with the Company with respect to the Business, the
Assets of the Company or the Assumed Liabilities, including, without limitation,
any arrangement (other than for services in the ordinary course of business as
officers, directors or employees of the Seller or the Company) providing for (a)
the furnishing of material services by, (b) the rental of material real or
personal property from, (c) any loan to, or (d) otherwise requiring material
payments to, any such person.
3.22 UNDISCLOSED LIABILITIES. Except as set forth on Schedule 3.22, to
Seller's and the Company's knowledge, neither the Company nor the Seller has any
liabilities with respect to the Business (and except as set forth on Schedule
3.22, to Seller's and the Company's knowledge, there is no basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against the Seller or the Company giving rise to any liability
with respect to the Business), except for (a) liabilities set forth on the
Balance Sheet or Schedule 2.3, (b) liabilities which have arisen in the ordinary
course of business, and (c) liabilities set forth in any of the Schedules to
this Agreement.
3.23 CERTIFICATE, BY-LAWS, AND MINUTES. The Company has heretofore
delivered to Buyer accurate and complete copies of its Certificate of
Incorporation, By-Laws, and director and shareholder minutes and written
consents. Nothing contained in any of the foregoing prevents or adversely
affects the consummation of the transactions contemplated by this Agreement.
3.24 DISCLOSURE. To Seller's and the Company's knowledge, no
representation or warranty of the Seller and the Company contained in the
Agreement, or in any statement or certificate furnished Buyer pursuant to the
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
made herein or therein, in the light of the circumstances in which they were
made, not misleading.
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SECTION 4
Representations and Warranties of Buyer
Buyer represents and warrants to the Seller and the Company as
follows:
4.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, and has all
requisite power and authority to own its properties and to carry on its
businesses as now being conducted.
4.2 AUTHORIZATION. Buyer has full corporate power and authority to
enter into the Agreement and to consummate the transactions contemplated hereby,
and has taken all action required to authorize the execution and delivery of the
Agreement, the performance of its obligations hereunder and the consummation by
them of the transactions contemplated hereby. This Agreement is a valid and
binding agreement of Buyer enforceable against it in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the enforcement of creditors' rights and general equitable principles.
4.3 GOVERNMENTAL APPROVALS. Other than filings required by the Federal
Communications Commission and government novations, no approval or declaration,
filing or registration with any governmental or regulatory authority is required
to be made or obtained by Buyer in connection with its execution or delivery of
the Agreement, the performance of its obligations hereunder or its consummation
of the transactions contemplated hereby, except for approvals which will be
obtained, or declarations, filings or registrations which will be made, on or
before the Closing Date.
4.4 THIRD PARTY CONSENTS. No consent, approval or authorization of, or
notice to, any third party is required to be obtained or made by Buyer in
connection with the execution and delivery by Buyer of this Agreement, the
performance by Buyer of its obligations hereunder or the consummation by Buyer
of the transactions contemplated hereby, except for consents, approvals,
authorizations or notices which will be obtained or made on or before the
Closing Date and except for government novations.
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4.5 NO VIOLATION. Neither the execution and delivery of the Agreement
nor the consummation of the transactions contemplated hereby will: (a) violate
any provisions of the Certificate of Incorporation or Bylaws of the Buyer, each
as amended to date; (b) violate, be in conflict with, constitute a default
under, or cause the termination or the acceleration of the maturity of any
material obligation of the Buyer; (c) violate any statute or law, or any
judgment, decree, order, regulation or rule of any court or governmental
authority to which the Buyer, is bound or subject other than violations which
are not reasonably likely to have a material adverse effect on the business,
operation or financial condition of the Buyer.
4.6 INVESTMENT INTENT. Buyer is acquiring the shares of common stock
of the Company without a view to the distribution thereof in violation of
applicable securities laws.
4.7 DISCLOSURE. To Buyer's knowledge, no representation or warranty of
Buyer contained in the Agreement, or in any statement or certificate furnished
to the Seller pursuant to the Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements made herein or therein, in the light of the
circumstances in which they were made, not misleading.
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SECTION 5
Other Tax Matters
5.1 COOPERATION. Buyer and the Seller shall each at their own expense
cooperate with, and make available to, each other such tax data and other
information as may be reasonably required in connection with (i) the preparation
or filing of any tax return, election, consent or certification, or any claim
for refund or the preparation of Seller's consolidated financial statements,
(ii) any determinations of liability for Taxes, or (iii) any audit, examination
or other proceeding in respect of Taxes ("Tax Data"). Such cooperation shall
include without limitation making their respective employees and independent
auditors reasonably available on a mutually convenient basis for all reasonable
purposes, including without limitation to provide explanations and background
information and to permit the copying of books, records, schedules, workpapers,
notices, revenue agent reports, settlement or closing agreements and other
documents containing the Tax Data ("Tax Documentation"). If a third party is
retained in connection with any review hereunder, the party retaining such third
party shall be responsible for any fees and expenses of such third party.
5.2 RETENTION. The Tax Data and the Tax Documentation shall be
retained until one year after the expiration of all applicable statutes of
limitations (including extensions thereof); PROVIDED, HOWEVER, that in the event
an audit, examination, investigation or other proceeding has been instituted
prior to the expiration of an applicable statute of limitations, the Tax Data
and Tax Documentation relating thereto shall be retained until there is a final
determination thereof (and the time for any appeal has expired).
5.3 SECTION 338(h)(10) ELECTION. Seller and Buyer agree to jointly
file, not later than the 15th day of the ninth month beginning after the month
in which the Closing occurs, an election pursuant to Section 338(h)(10) of the
Internal Revenue Code.
5.4 ALLOCATION OF PURCHASE PRICE. Buyer shall prepare an allocation of
the Purchase Price among the Assets of the Company in accordance with the Code
and shall deliver such allocation to Seller within thirty (30) days following
the Closing. Buyer and Seller shall use their commercially reasonable efforts to
agree upon a final allocation of the Purchase Price prior to the Closing, and
such
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allocation (if agreed upon) shall be the basis upon which each of Buyer and
Seller prepare any tax returns with respect to the transactions contemplated by
this Agreement.
SECTION 6
Indemnification
6.1 INDEMNITY TO THE SELLER. Subject to the provisions of Section 6.5
hereof relating to the survival of representations and warranties and the other
limitations contained herein, from and after the Closing, Buyer agrees to
indemnify, defend and hold harmless the Seller and each of its Affiliates,
officers, directors, employees, agents and shareholders (collectively, the
"Seller Indemnitees") against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including without limitation, losses resulting
from the defense, settlement and/or compromise of a claim and/or demand and/or
assessment, reasonable attorneys', accountants' and expert witnesses' fees,
costs and expenses of investigation, and the costs and expenses of enforcing the
indemnification provided hereunder (hereafter individually a "Loss" and
collectively "Losses") incurred by any of the Seller Indemnitees and arising out
of or relating to: (i) any Assumed Liabilities; (ii) any misrepresentation or
breach of any representation or warranty made by Buyer in this Agreement or in
any written statement, certificate or schedule furnished by Buyer pursuant to
the provisions of this Agreement; and (iii) any breach of any covenant,
agreement or obligation of Buyer contained in this Agreement or any other
agreement, instrument or document executed by Buyer in connection with this
Agreement. Notwithstanding the foregoing, damages based on a breach of
representation or warranty shall constitute Losses for the purpose of this
Section 6.1 only to the extent of the direct damages incurred (excluding
consequential damages, whether or not foreseeable).
Buyer shall not be required to indemnify Seller Indemnitees with
respect to any claim for indemnification resulting from or arising out of
matters described above pursuant to this Section, other than for any breach of
the representations contained in Sections 4.1 and 4.2 hereof or Buyer's Employee
Liabilities, unless and until the aggregate amount of all claims against Seller
Indemnitees exceeds $150,000 and then only to the extent such aggregate amount
exceeds $150,000. Claims thereafter may be asserted regardless of
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amount. Other than for any breach of the representations contained in Sections
4.1 and 4.2 hereof, Buyer's maximum liability to Seller Indemnitees shall not
exceed $4,250,000 in the aggregate.
6.2 INDEMNITY TO BUYER. Subject to the provisions of Section 6.5
hereof relating to the survival of representations and warranties and the other
limitations contained herein, from and after the Closing, the Seller agrees to
indemnify, defend and hold harmless Buyer and the Company and their Affiliates,
officers, directors, employees, agents and shareholders (collectively, the
"Buyer Indemnitees") against all Losses incurred by any of the Buyer Indemnitees
and arising out of or relating to: (i) all Excluded Liabilities (with the
exception that as to any Environmental Liability, this indemnity shall extend
only to any Environmental Liability directly allocable to Seller's or the
Company's occupancy of or operations on the Property prior to the Closing); (ii)
any misrepresentation or breach of any representation or warranty made by the
Seller in this Agreement or in any written statement, certificate or schedule
furnished by the Seller pursuant to the provisions of this Agreement; and (iii)
any breach of any covenant, agreement or obligation of the Seller contained in
this Agreement or any other agreement, instrument or document executed by Seller
in connection with this Agreement. Notwithstanding the foregoing, damages based
on a breach of representation or warranty shall constitute Losses for the
purpose of this Section 6.2 only to the extent of the direct damages incurred
(excluding consequential damages, whether or not foreseeable).
Seller shall not be required to indemnify Buyer Indemnitees with
respect to any claim for indemnification resulting from or arising out of
matters described above pursuant to this Section, other than for any breach of
the representations contained in the first two sentences of Section 3.1, Section
3.2, Section 3.4 and Section 3.20 or any Environmental Liability for which
Seller is responsible hereunder or Seller's Employee Liabilities, unless and
until the aggregate amount of all claims against Buyer Indemnitees exceeds
$150,000 and then only to the extent such aggregate amount exceeds $150,000.
Claims thereafter may be asserted regardless of amount. Other than for any
breach of the representations contained in the first two sentences of Section
3.1, Section 3.4, the first sentence of Section 3.11, Section 3.20 or any
Environmental Liability for which Seller is responsible hereunder, Seller's
maximum liability to Buyer Indemnitees under this Section shall not exceed
$4,250,000 in the aggregate.
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6.3 THIRD PARTY CLAIMS.
(a) The Buyer, on behalf of any Buyer Indemnitee wishing to claim
indemnification under Section 6.2, and the Seller, on behalf of any Seller
Indemnitee wishing to claim indemnification under Section 6.1, upon learning of
any claim, action, suit, proceeding and/or investigation as to which such Buyer
Indemnitee or Seller Indemnitee may be entitled to be indemnified pursuant to
Section 6 of this Agreement (as applicable, an "Indemnified Party"), shall
notify the other party (the "Indemnifying Party") pursuant to this Section 6 in
writing; provided, however, that no failure so to notify the Indemnifying Party
shall relieve the Indemnifying Party of any obligation to indemnify the
Indemnified Party unless and to the extent such failure so to notify prejudices
the position of the Indemnifying Party in responding to such claim, action, suit
and/or proceeding.
(b) If the facts giving rise to any indemnification provided for
in this Section 6 involve any actual and/or threatened claim and/or demand by
any person other than the Indemnified Party, the Indemnified Party shall tender
to the Indemnifying Party the defense or prosecution of such claim and any
litigation resulting therefrom. The Indemnifying Party shall be entitled to
assume the defense of such claim. The Indemnifying Party shall then take all
steps reasonably necessary in the defense, prosecution or settlement of such
claim or litigation and will hold the Indemnified Party harmless from and
against all Losses caused by and/or arising out of any settlement thereof
approved by the Indemnified Party (which approval shall not be unreasonably
withheld or delayed) or any judgment in connection therewith (other than the
Indemnified Party's expenses of participation in such defense, prosecution
and/or settlement). If the defense or prosecution of a third party claim is
assumed by the Indemnifying Party, the Indemnified Party shall be entitled, at
its own expense, to participate in such settlement or defense through counsel
chosen by the Indemnified Party. If the Indemnifying Party does not assume the
defense of any such claim or legal proceeding resulting therefrom within 30 days
after the date of receipt of the notice referred to in Subsection 6.4 below (or,
if earlier, by the tenth day preceding the day on which an answer or other
pleading must be served in order to prevent judgment by default in favor of the
person asserting such claim), (a) the Indemnified Party may defend against such
claim or legal proceeding, in such manner as it may deem appropriate, including,
but not limited to, settling such claim or legal proceeding, after giving notice
of the same to the Indemnifying Party, on such terms as the Indemnified Party
may deem appropriate, and (b) the
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Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. In the event
that the Indemnifying Party proposes a settlement to any such claim or legal
proceeding, which settlement is satisfactory to the party instituting such claim
or legal proceeding and includes (i) an unconditional release of the Indemnified
Party from all liability with respect to such claim or litigation or the
dismissal of such claim or litigation against the Indemnified Party with
prejudice and (ii) provision that all damages and settlement payments are to be
made by the Indemnifying Party and the Indemnified Party withholds its consent
to such settlement, then in any such case the Indemnifying Party shall have no
obligation to indemnify the Indemnified Party under this Section against and in
respect of the amount by which the damages resulting from a final judgment
relating to such claim or legal proceeding exceeds the amount of the proposed
settlement.
6.4 PROCEDURES FOR ASSERTING CLAIMS.
(a) The Indemnified Party shall give written notice to the
Indemnifying Party of any claim for Losses for which the Indemnified Party
claims a right of indemnification under this Section 6 (a "Claim Notice"). If
known to the Indemnified Party, any such Claim Notice shall include (i) a
summary description of the facts upon which such claim is based and shall
specify the estimated amount of the Loss thereof and (ii) the amount which is
payable to the Indemnified Party pursuant to this Section 6.
(b) The Indemnifying Party shall have 30 days (or such shorter
time as may be required to avoid materially prejudicing the Indemnified Party's
position) following delivery of the Claim Notice to make such investigation of
the claim as it deems necessary or desirable. In connection with the
Indemnifying Party's evaluation of any Claim Notice, the Indemnified Party
shall, at the Indemnifying Party's expense, provide the Indemnifying Party with
reasonable access to the books and records of the Indemnified Party and, subject
to the implementation of reasonable procedures to protect the confidentiality of
such information, supply such factual and technical information as the
Indemnifying Party may reasonably require in connection with the evaluation of
such Claim Notice. On or prior to the expiration of such 30-day (or shorter)
period, the Indemnifying Party shall, by written notice to the Indemnified Party
(a "Response Notice"), either (i) admit liability in whole, or (ii) admit that
the claim is so covered by this Section 6 but dispute the amount of the claim,
or (iii) dispute that any amount of the claim is so covered. If the Indemnifying
Party fails to deliver a
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timely Response Notice to the Indemnified Party with respect to a specified
claim for indemnification, then the Indemnifying Party shall have been deemed to
admit liability in whole with respect to such Indemnified Party's claim for
indemnification.
(c) If the Indemnifying Party delivers to the Indemnified Party a
timely Response Notice pursuant to Section 6.4(b) disputing the amount of the
claim or disputing that the claim is covered by this Section 6 or if any other
dispute arises with respect to this Agreement, then the Indemnifying Party and
the Indemnified Party shall use their commercially reasonable best efforts to
resolve such dispute. In the event the Indemnifying Party and the Indemnified
Party resolve the dispute, they shall both execute a memorandum setting forth
such resolution and, if applicable, the amount payable by the Indemnifying Party
to the Indemnified Party. In the event the Indemnifying Party and the
Indemnified Party are unable to resolve such dispute within 30 days from the
Indemnified Party's receipt of the Response Notice pursuant to Section 6.4(b),
the Indemnifying Party and the Indemnified Party shall determine whether they
can agree upon a third-party impartial arbitrator (the "Arbitrator") to whom to
submit the matter in dispute for final and binding arbitration pursuant to Title
9 of the California Code of Civil Procedure (Section 1280, et seq.) (the
"California Arbitration Law").
If the Indemnifying Party and the Indemnified Party fail to agree on
the Arbitrator within 10 days, each party shall select an Arbitrator who shall
be a member of the American Arbitration Association (the "AAA"). If one party
does not so select such an Arbitrator within the time specified, then the issue
shall be resolved solely by the Arbitrator chosen by the other party in
accordance with the foregoing procedure. If each party does select such an
Arbitrator as provided herein, then within five (5) days of the appointment of
the second of the two Arbitrators, the two Arbitrators shall select a third
Arbitrator. If the two original Arbitrators are unable to agree upon the
selection of a third Arbitrator, then either party may request that the San
Francisco AAA appoint a third Arbitrator. All Arbitrators selected for
arbitration hereunder shall be members of the AAA, shall not be affiliated with
any of the parties and shall have expertise in the subject matter which is the
basis of the dispute. In the event AAA is no longer in business and/or will not
perform such service at the time of the disputes, the Arbitrator shall be
selected by a judicial court of competent jurisdiction.
The Arbitrator(s) and the Indemnifying Party and the Indemnified Party
shall meet within ten days of the election of the Arbitrator(s) for a
preliminary conference regarding procedures to be followed in connection with
the arbitration.
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Within thirty (30) days thereafter, the parties shall meet in San Jose,
California, with such Arbitrator(s) at a place and time designated by the
Arbitrator(s) after consultation with the parties and present their respective
positions on the dispute. Each party shall have no longer than eight hours to
present is position, the entire proceeding before the arbitrator shall be on no
more than three consecutive days, and the award shall be made in writing no more
than 30 days following the end of the proceeding. Such award shall be a final
and binding determination of the dispute and shall be fully enforceable as an
arbitration award in accordance with the California Arbitration law. The
Arbitrator(s) shall have discretion to award attorneys' fees and expenses in
connection with such proceeding. Each party shall bear one-half of the
Arbitrator(s)' fees and expenses.
6.5 EXPIRATION OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties contained in this Agreement shall survive the
Closing for a period of 24 months; provided that the representations and
warranties stated in Section 3.2, Section 3.4 and Section 4.2 shall survive
indefinitely and the representations and warranties contained in Section 3.16
and Section 3.20 shall survive the Closing for the applicable statute of
limitations.
6.6 EXCLUSIVE REMEDY. The indemnifications provided for in this
Section 6 shall be the sole and exclusive post-Closing remedies available to
either party against the other party for any claims under or based upon this
Agreement.
SECTION 7
Conditions to the Obligations of Buyer
The obligations of Buyer to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction or written waiver of
Buyer (provided that no such waiver shall constitute a waiver of the Buyer
Indemnitees' rights under Section 6 hereof or in any way relieve the Seller of
any obligation under Section 6 hereof), on or before the Closing Date, of each
of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Seller and the Company in this Agreement (including all
Exhibits and Schedules hereto) or in any written statement, list or certificate
furnished pursuant to an express requirement hereof (a) that is qualified as to
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materiality shall be true and correct and (b) that is not qualified as to
materiality shall be true and correct in all material respects, in each case on
and as of the Closing Date and will be deemed to be made again as of the Closing
Date.
7.2 PERFORMANCE. With respect to agreements, covenants, obligations
contained in this Agreement and required to be performed or complied with by the
Seller and the Company on or prior to the Closing Date, the Seller and the
Company shall have performed or complied with, in all material respects, such
agreements, covenants and obligations.
7.3 GOVERNMENTAL APPROVALS AND FILINGS. All approvals and all
declarations, filings and registrations with government agencies required to
consummate the transactions contemplated hereby shall have been obtained or
made, and shall be in full force and effect, provided that with respect to
required FCC consents and government novations, such FCC consents and government
novations shall be obtained within 120 days of the Closing Date or as soon as
reasonably possible thereafter.
7.4 THIRD PARTY CONSENTS. All approvals, consents and authorizations
from and notices to third parties required to consummate the transactions
contemplated hereby (except for those set forth on Schedule 3.13(c)(2) or as
otherwise provided in Section 7.3 hereof) shall have been obtained and shall be
in full force and effect.
7.5 OFFICERS' CERTIFICATES. The Seller and the Company shall represent
in a certificate signed by an officer of Seller and an officer of the Company,
both acting in such capacity and delivered to Buyer at the Closing that the
conditions set forth in Sections 7.1 and 7.2 have been satisfied and that there
has been no material adverse change in the properties, business, operations,
financial conditions or prospects of the Company.
7.6 NO INJUNCTION. There shall not be in effect any preliminary or
permanent injunction or other order issued by any state or federal court which
prevents the transactions contemplated hereby, and no proceedings with respect
to any such injunction or order shall be pending.
7.7 NO MATERIAL ADVERSE CHANGE. The properties, operations and
financial condition of the Business shall not have been adversely affected in
any material way as a result of any fire, accident, other casualty or otherwise,
nor shall
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there have occurred any material adverse change since April 25, 1998 in the
properties, results of operations, or financial condition of the Business.
7.8 SUPPLY AGREEMENT. Seller shall have entered into a supply
agreement, providing for the supply by Seller to the Company of satellite
communications products, substantially in the form of Exhibit B hereto (the
"Supply Agreement"), and the Supply Agreement shall be in full force and effect
as of the Closing Date.
7.9 RELEASE OF LIENS. As of the Closing, all Liens (other than
Permitted Liens) on the Assets shall have been released.
7.10 LEASES. Buyer shall have received the consent of the landlord to
the Sublease (as defined in Section 8.7) and Buyer shall have received the
consent of the landlord to the assignment to Buyer of the lease for Seller's
Mountain View facility, provided however, that if such landlord's consent is not
required for assignment to Buyer of the lease for Seller's Mountain View
facility, then landlord shall so indicate in writing.
SECTION 8
Conditions to the Seller's Obligations
The obligations of the Seller to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction or written
waiver of Seller (provided that no such waiver shall constitute a waiver of the
Seller Indemnitees' rights under Section 6 hereof or in any way relieve the
Buyer of any obligation under Section 6 hereof), on or before the Closing Date,
of each of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by Buyer in this Agreement or in any written statement, list or
certificate furnished pursuant to an express requirement hereof (a) that is
qualified as to materiality shall be true and correct and (b) that is not
qualified as to materiality shall be true and correct in all material respects,
in each case on and as of the Closing Date and will be deemed to be made again
as of the Closing Date.
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8.2 PERFORMANCE. With respect to agreements, covenants and obligations
of this Agreement required to be performed or complied with by Buyer on or prior
to the Closing Date, Buyer shall have performed or complied with, in all
material respects, such agreements, covenants and obligations.
8.3 GOVERNMENTAL APPROVALS AND FILINGS. All approvals and all
declarations, filings and registrations with government agencies required to
consummate the transactions contemplated hereby shall have been obtained or
made, and shall be in full force and effect, provided that with respect to
required FCC consents and government novations, such FCC consents and government
novations shall be obtained within 120 days of the Closing Date or as soon as
reasonably possible thereafter.
8.4 OFFICER'S CERTIFICATE. Buyer shall represent in a certificate
signed by an officer of Buyer acting in such capacity and delivered to Seller at
Closing that the conditions set forth in Sections 8.1 and 8.2 have been
satisfied.
8.5 NO INJUNCTION. There shall not be in effect any preliminary or
permanent injunction or other order issued by any state or federal court which
prevents the transactions contemplated hereby, and no proceedings with respect
to any such injunction or order shall be pending.
8.6 SUPPLY AGREEMENT. Buyer shall have entered into the Supply
Agreement and the Supply Agreement shall be in full force and effect as of the
Closing Date.
8.7 EXECUTION OF SUBLEASE. Seller and the Company shall have entered
into a sublease (or such other arrangement as is mutually satisfactory to Seller
and Buyer) for the use by the Company of approximately 29,000 square feet of the
Borregas Avenue facility in substantially the form of Exhibit C hereto (the
"Sublease") and the Sublease shall be in full force and effect as of the Closing
Date.
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SECTION 9
Certain Covenants
9.1 OPERATION OF BUSINESS PRIOR TO CLOSING. The Business shall be
operated by Seller and the Company in the ordinary course in substantially the
same manner as heretofore conducted from the date hereof to the Closing. The
Business shall be operated by the Seller and the Company in a manner that will
not cause any of the Seller's and the Company's representations and warranties
set forth in Section 3.19 to be untrue when taken or at the Closing Date. From
the date hereof until Closing, Seller and the Company agree to pay the
liabilities reflected on Schedule 2.3 and liabilities incurred in the ordinary
course of the Business of the Company in accordance with past practices.
9.2 COMMUNICATIONS WITH CUSTOMERS AND SUPPLIERS. The Seller and Buyer
will mutually agree upon all communications with suppliers and customers
relating to this Agreement and the transactions contemplated hereunder prior to
the Closing Date.
9.3 NON-COMPETITION. For three years following the Closing, neither
Seller nor any of its Affiliates shall engage or be interested, directly or
indirectly (except as a holder of not more than five percent of the combined
voting power of the outstanding stock of a publicly held company), (a) in
manufacturing or selling the products currently being manufactured or sold by
the Business, or (b) in providing the satellite services currently being
provided by the Business, except that this provision shall not preclude (i)
Seller or any of its Affiliates from being acquired by any person or entity that
provides such products or services or restrict the activities of any such person
or entity after the acquisition (provided that such acquisition is not merely in
connection with a reincorporation or similar reorganization of Seller), or (ii)
Seller or any of its Affiliates from manufacturing or selling any of the
products that the Seller or any of its Affiliates (other than the Company)
currently manufactures or sells.
Inasmuch as the remedy at law for any breach by Seller of the covenant
contained in this Section 9.3 is inadequate, the Buyer shall be entitled to
injunctive relief to enforce the same.
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9.4 NOVATIONS. Seller agrees to use its commercially reasonable
efforts to obtain any novation required in connection with any of the Contracts
listed on Schedule 3.13(c) within 90 days of the Closing Date and agrees pending
the obtaining of such novations to take all commercially reasonable action
necessary to assure the receipt by Buyer of all benefits accruing under those
Contracts from and after Closing.
9.5 USE OF BUSINESS NAMES BY BUYER.
(i) Concurrently with the Closing, Buyer agrees to amend the
Certificate of Incorporation of the Company to change the name of the Company to
a name that does not include "California Microwave."
(ii) Buyer acknowledges that Seller has the absolute and
exclusive proprietary right to all names, marks, trade names, trademarks,
service names and service marks (collectively, "Names") incorporating
"California Microwave" or any similar Name and to all corporate symbols or logos
(collectively, "Logos") incorporating California Microwave or any similar name.
All rights of Seller and its Affiliates to the same and the goodwill represented
thereby and pertaining thereto are being retained by Seller. Buyer agrees that
it will not, and will cause the Business not to, use the California Microwave
Name or any similar Name or any Logo incorporating such Name or any similar Name
in any manner, including in connection with the sale of any products or services
or otherwise in the conduct of the Business, except as expressly permitted by
clause (iii) of this Section 9.5.
(iii) For a period of nine (9) months from the Closing Date (the
"Window Period"), Seller shall and hereby irrevocably grants, effective as of
the Closing Date, on a fully-paid, royalty-free basis, the Buyer the right to
use the California Microwave Logo and the California Microwave Name in
connection with the operation of the Business as currently conducted including,
during the Window Period, to (A) use any molds or castings included in the
equipment or machinery included in the Assets despite the appearance thereon and
on the products manufactured therewith of the California Microwave Name or the
California Microwave Logo, (B) market and sell all such products produced by the
Business and (C) use any other assets on hand included in the Acquired Assets,
including, without limitation, any catalogs, invoices, packaging material or
stationery, bearing the California Microwave Name or California Microwave Logo
(PROVIDED, HOWEVER, that Buyer shall use its commercially reasonable efforts to
cease its use of the
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California Microwave Name and the California Microwave Logo within six (6)
months). Immediately upon the expiration of the Window Period, Buyer shall cease
to use in any manner the California Microwave Name or the California Microwave
Logo incorporating such Name and remove or obliterate such Name or the
California Microwave Logo from any molds, castings, products or other assets and
clearly and prominently mark the new name of the Business thereon. At all times
following the Closing, Buyer shall not indicate that Buyer or the Business is
affiliated with Seller or any of its affiliates.
9.6 CONSENTS; COOPERATION. Seller, the Company and Buyer will use
their commercially reasonable efforts:
(a) to obtain prior to the earlier of the date required (if so
required) or the Closing Date, all authorizations, consents, orders, permits or
approvals of, or notices to, or filings, registrations or qualifications with,
all governmental authorities or any other person or entity that are required on
their respective parts, for the consummation of the transactions contemplated by
this Agreement;
(b) to defend, consistent with applicable principles and
requirements of law, any lawsuit or other legal proceeding, whether judicial or
administrative, whether brought derivatively or on behalf of third persons
(including governmental authorities) challenging this Agreement or the
transactions contemplated hereby;
(c) to furnish to each other such information and assistance as
may reasonably be requested in connection with the foregoing; and
(d) to (i) take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement (excluding
satisfying the closing conditions in Section 7 or 8 hereof insofar as they
relate to the truth of representations and warranties but including otherwise
satisfying the closing conditions in Sections 7 and 8) and (ii) refrain from
taking any action which reasonably could be expected to render any
representation or warranty contained in this Agreement untrue or incorrect in
any material respect (except to the extent a representation or warranty or
covenant is qualified by materiality in which case the Seller will refrain from
taking any action that would render such representation or warranty untrue or
incorrect) as of Closing.
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<PAGE>
9.7 NOTICE OF DEVELOPMENTS. The Seller and the Company will give
prompt notice to the Buyer of any fact, to the Seller's and Company's knowledge,
that would, if it were true on the Closing Date, constitute a breach of the
Seller's and the Company's representations and warranties in this Agreement.
Each party to this Agreement will give prompt written notice to the other of any
material development affecting the ability of such party to consummate the
transactions contemplated by this Agreement. No disclosure by any party to this
Agreement pursuant to this Section 9.7, however, shall be deemed to amend or
supplement any Schedule to this Agreement or to prevent or cure any
misrepresentation, breach of representation or warranty, or breach of covenant.
9.8 NON-SOLICITATION.
(a) The Seller agrees that for a period of three (3) years from
the Closing Date neither the Seller, nor any direct or indirect subsidiary of
Seller shall, for themselves or for any other person or entity, directly
solicit, hire or take away or directly attempt to solicit, hire or take away any
of E. Russell Hardy, Stephen Strohman, Monty J. Moore, Salvador Giblas, Don
Hoshi, Robert Lopez and James Dale (collectively, the "Key Transferred
Employees").
(b) The Seller agrees that for a period of three (3) years from
the Closing Date neither the Seller nor any direct or indirect subsidiary of
Seller shall, for themselves or for any other person or entity directly solicit
or directly attempt to solicit any employee of the Company who is not a Key
Transferred Employee and for a period of nine (9) months neither the Seller nor
any direct or indirect subsidiary of Seller shall, for themselves or for any
other person or entity, directly hire any employee of the Company who is not a
Key Transferred Employee.
9.9 PRE-CLOSING ACCESS. Between the date hereof and the Closing,
Seller and the Company will during normal business hours (a) provide to Buyer
and its representatives full access to the premises, property, files, books,
records, documents, and other information concerning the Business, (b) furnish
to Buyer and its representatives financial, technical, legal and operating data
and other information pertaining to the Business, (c) make available for
inspection and copying by Buyer copies of any documents relating to the
foregoing and (d) permit Buyer and its representatives to conduct reasonable
interviews of the employees, representatives and auditors of Seller concerning
the Business; provided, however, that any such investigation will be conducted
in such a manner as not to
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interfere unreasonably with the operation of the Business. During the period
from the date hereof to the Closing, all information provided to Buyer or its
representatives by or on behalf of Seller or its representatives will be
maintained by Buyer in the strictest confidence. From and after the Closing
Date, the Seller will maintain any information retained by it (whether pursuant
to the terms of this Agreement or otherwise) that relates to the Business in the
strictest confidence.
9.10 COOPERATION WITH RESPECT TO BORREGAS AVENUE LEASE. From and after
the Closing Date, Buyer and Seller shall use their commercially reasonable
efforts to obtain consent to the assignment to the Company of the Borregas
facility lease. In the event such assignment occurs, the Company will sublease
to Seller approximately 12,000 square feet on substantially the same terms as
set forth in Exhibit D.
SECTION 10
Termination
10.1 TERMINATION. This Agreement may be terminated and abandoned at
any time prior to the Closing:
(a) with the mutual consent of Buyer and Seller;
(b) by Buyer, if Seller and the Company have (a) breached in any
respect any representation or warranty qualified as to materiality or (b)
breached in any material respect any representation or warranty that is not
qualified as to materiality or any covenant or agreement contained in this
Agreement, and such breach has not been remedied within five days after receipt
of written notice from Buyer specifying such breach and demanding that such
breach be remedied;
(c) by Seller and the Company, if Buyer has (a) breached in any
respect any representation or warranty qualified as to materiality or (b)
breached in any material respect any representation or warranty that is not
qualified as to materiality or any covenant or agreement contained in this
Agreement, and such breach has not been remedied within five days after receipt
of written notice from Seller specifying such breach and demanding that such
breach be remedied;
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(d) by either Buyer or Seller and the Company if the Closing has
not occurred by May 29, 1998, (the "Cut-Off Date") or if any condition contained
in Section 7 or 8 of this Agreement becomes incapable of fulfillment by the
Cut-Off Date; provided that this Agreement may not be terminated by any party
that is in breach of any representation, warranty or covenant of such party
contained in this Agreement if such breach has caused the Closing not to occur
by the Cut-Off Date; or
(e) by Buyer at any time prior to 5 p.m. New York City time on
May 15, 1998, if the results of Buyer's due diligence investigation of the
Business, the Assets and the Assumed Liabilities (including but not limited to
legal, environmental, financial and accounting due diligence investigations
thereof) are not satisfactory to Buyer in its sole discretion.
10.2 PROCEDURE AND EFFECT OF TERMINATION. Any termination of this
Agreement shall be effected by written notice signed by the party or parties
having the right to terminate this Agreement in accordance with Section 10.1
hereof, which written notice shall specify the provision of Section 10.1
pursuant to which such termination is being made. Upon such termination, this
Agreement shall become null and void and of no further force and effect, except
for the provisions of Section 11.1 relating to expenses and Section 11.8
relating to announcements, and except that such termination shall not relieve
any party then in breach of any representation, warranty, covenant or agreement
contained in this Agreement from liability in respect of such breach.
SECTION 11
Miscellaneous Provisions; Other Agreements
11.1 EXPENSES. Except as otherwise specifically provided herein, each
party hereto shall bear its own fees and expenses in connection with this
Agreement.
11.2 BROKERAGE. The parties represent to each other that none of them
has retained any broker or paid or agreed to pay any brokerage fee, finder's fee
or commission to any agent or broker for or on account of this Agreement or the
transactions contemplated herein.
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11.3 AMENDMENT AND NOTIFICATION. Subject to the provisions of Section
11.6 relating to assignability, this Agreement may be amended, modified and
supplemented only by written agreement of Buyer and the Seller.
11.4 WAIVER. Any breach of any obligation, covenants, agreement or
condition contained herein may be expressly waived by the party or parties
having the right to a remedy for such breach, in writing, setting forth with
particularity the breach being waived and the scope of the waiver, but such
waiver shall not operate as a waiver of, or estoppel with respect to, any other
breach.
11.5 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, via reputable overnight courier service,
or facsimile transmission with receipt confirmed (provided a copy is also sent
by mail):
(a) If to Seller and Company (prior to the Closing), to:
California Microwave, Inc.
1143 Borregas Avenue
Sunnyvale, California 94089
Attention: George L. Spillane
Facsimile No: 408/743-3482
with a copy to:
Howard, Rice, Nemerovski, Canady,
Falk & Rabkin
A Professional Corporation
Three Embarcadero Center
Seventh Floor
San Francisco, California 94111
Attention: Richard W. Canady, Esq.
Facsimile No: 415/217-5910
or to such other persons or addresses as the Seller shall furnish to Buyer in
writing.
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<PAGE>
(b) If to the Buyer, to:
Telscape International, Inc.
2700 Post Oak Boulevard
Suite 1000
Houston, Texas 77056
Attention: Scott Crist
Facsimile No: 713/968-0930
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attention: Andrew M. Ray, Esq.
Facsimile No: 202/424-7643
or to such other persons or addresses as Buyer shall furnish to the Seller in
writing.
(c) If to the Company (after the Closing), to:
California Microwave Services Division, Inc.
1143 Borregas Avenue
Sunnyvale, California 94089
Attention: Robin Thompson
Facsimile No: 408/743-0963
or to such other persons or addresses as Company (after the Closing) shall
furnish to the Seller and the Buyer in writing.
11.6 BINDING NATURE; ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other parties
hereto, which consent will not be unreasonably withheld or delayed, and any
attempted assignment without such prior written consent shall be null and void;
provided however that Buyer may, without the consent of Seller, assign (a) its
rights and
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interest in this Agreement to any of its lenders provided that such assignment
shall not relieve Buyer of any of its liabilities or obligations hereunder and
(b) all of its rights and interest in this Agreement and liabilities and
obligations hereunder to an Affiliate of Buyer, and such assignee shall, upon
execution of an instrument of assignment by Buyer and such assignee (and
subsequent delivery to Seller of such instrument), become the "Buyer" for all
purposes of this Agreement and all references in this Agreement to the Buyer
shall be deemed to refer to such assignee for all purposes of this Agreement
provided that such assignment shall not relieve Buyer of any of its liabilities
or obligations hereunder.
11.7 GOVERNING LAW AND JURISDICTION. This Agreement shall be governed
by and construed in accordance with the laws of the State of California, without
reference to the principles of conflicts of law.
11.8 PRESS RELEASES. Each of the parties to this Agreement hereby
agrees that no press release or similar public announcement or communication
will be made or caused to be made concerning the execution or performance of
this Agreement or the transactions contemplated hereunder unless specifically
approved in advance by Buyer and the Seller, subject to any applicable
disclosure obligations pursuant to law provided that the party proposing to
issue any press release or similar public announcement or communication in
compliance with any such disclosure obligations shall use commercially
reasonable efforts to consult in good faith with the other party before doing
so.
11.9 HEADINGS. The headings contained in this Agreement are inserted
for convenience only and shall not constitute a part hereof.
11.10 ENTIRE AGREEMENT. This Agreement, together with the Exhibits and
Schedules hereto and any agreements entered into concurrently herewith that
refer to this Agreement, constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof, and supersedes all prior and
contemporaneous agreements, understandings, documents, negotiations and
discussions, whether oral or written, of the parties hereto.
11.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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11.12 ATTORNEYS' FEES. If any dispute arises hereunder, the prevailing
party shall be entitled to recovery of reasonable attorneys' fees.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed the day and year first above written.
CALIFORNIA MICROWAVE, INC.,
a Delaware corporation
By:
Title:
CALIFORNIA MICROWAVE SERVICES
DIVISION, INC., a Delaware corporation
By:
Title:
TELSCAPE INTERNATIONAL, INC.
By:
Title:
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<PAGE>
EXHIBIT B
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "AGREEMENT") is dated _____ ___, 1998 and is
entered into between California Microwave, Inc., a Delaware corporation
("SELLER"), and California Microwave Services Division, Inc., a Delaware
corporation ("BUYER").
RECITALS
A. Seller, Buyer and Telscape International, Inc. have entered into an
stock purchase agreement dated as of ________ __, 1998, as amended (the
"PURCHASE AGREEMENT"), with respect to the acquisition by Telscape
International, Inc. from Seller of all of the outstanding capital stock of
Buyer.
B. The business of Buyer is comprised of (i) the satellite hub operations
located in Mountain View, California, which provide, via leased (to its
customers) satellite communications links, data broadcast and interactive
communication services and (ii) the products operation in Sunnyvale, California,
which manufactures and sells the Equatorial, radar test equipment, frequency
converter, frequency source, amplifier and Radiolink product lines and the
warranty sales and depot services relating to those product lines (collectively,
such businesses are the "BUSINESS").
C. On and after the date hereof (the "Closing Date"), Seller and Buyer
desire to continue certain arrangements pursuant to which Seller supplies
certain products to Buyer.
NOW THEREFORE, as a condition to the closing of the transactions
contemplated by the Purchase Agreement, and in consideration of the mutual
covenants, representations and warranties made herein, and of the mutual
benefits to be derived hereby, the parties hereto agree as follows:
1. SUPPLY OF PRODUCTS BY SELLER. Upon the terms and subject to the
conditions hereof, for three years from the Closing Date, Seller shall sell to
Buyer, and Buyer shall purchase from Seller, all of the Business's requirements
of the products listed on EXHIBIT A and any extensions and improvements of those
products (the "PRODUCTS"). Without limiting the obligation of Buyer to purchase
its requirements of Products under the preceding sentence, the quantities of
Products to be purchased by Buyer pursuant to this Section shall be at the sole
discretion of Buyer and no minimum quantities of Products are required to be
purchased hereunder. Notwithstanding the preceding two sentences, if Seller
<PAGE>
provides written notice to Buyer specifying any Products subject to this Section
that Seller intends to discontinue providing to its customers, Seller will be
relieved of any obligation to sell to Buyer, and Buyer will be relieved of any
obligation to buy from Seller, any such Products as of six months from the date
that Seller so notifies Buyer. Exhibit A may be amended to add or delete
products therefrom or for any other purpose by written agreement of Buyer and
Seller.
2. PRICES. Seller shall sell the Products at prices no less favorable than
the prices given to other Customers of such products in like quantities, except
that in no event shall such prices be greater for a given Product than (i) those
prices listed opposite such Products' name on EXHIBIT A attached hereto and (ii)
the lowest price provided by Seller to Buyer for any such Product during the six
calendar months preceding the date of the most recent purchase order of Buyer so
long as, in the case of item (ii), Buyer has purchased at least $_______ of
Products from Seller during such six month period.
As used in this Agreement, "Customer" shall mean any end user,
reseller, agent, government entity or distributor.
3. ADDITIONAL TERMS AND CONDITIONS. Any sale of the Products by Seller
under this Agreement shall be subject to and governed by the then-current
standard terms and conditions (including as to warranty) of Seller, which terms
and conditions shall be no less favorable than those given to other Customers
for the same or similar Products in like quantities.
4. SPECIFICATIONS. Seller shall manufacture and deliver the Products in
accordance with the electrical, mechanical, physical, environmental and other
specifications as in effect as of the Closing Date, or if the Product is
non-standard, then according to the specifications agreed to in writing by Buyer
and Seller from time to time. In the event an improvement or a technical change
in the specifications of the Products is made by the Seller, then it shall be
required to provide Products that meet such improved or changed specifications.
5. MAINTENANCE OF STANDARDS. If Seller fails to maintain the quality,
delivery or performance standards currently applicable to the Products, or fails
to achieve standards of quality or performance specified by Buyer with respect
to new variations of standard Products, then Buyer shall have such remedies as
may be provided in the then-current standard terms and conditions of Seller, and
if Seller fails to cure any such deficiency in any Product to be sold by it
hereunder within sixty (60) days after written notice thereof by Buyer, Buyer
shall no longer be obligated to purchase such Product pursuant to this
Agreement.
6. ORDERING. Each order by Buyer for Products of Seller (a "PURCHASE
ORDER") will specify each Product being purchased, the quantity, any appropriate
specifications corresponding to each such Product, and the date of delivery,
provided that the number of days from the date of the Purchase Order through the
date of delivery is at least sixty (60) days. Notwithstanding the foregoing, the
parties hereafter may agree in writing to use a blanket purchase agreement with
specific agreed call out schedules in lieu of the foregoing ordering mechanism.
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7. DELIVERY.
(a) All Products sold hereunder will be delivered freight paid FOB
(Seller's plant).
(b) Buyer reserves the right to inspect the Products sold by Seller
and to confirm the quantity of the Products within thirty (30) days from the
date of delivery. Any claims for discrepant deliveries shall be reported by
Buyer to Seller in writing within such 30-day period. If Buyer fails to make
such a claim within the time specified, such order will be deemed accepted by
Buyer. Upon Seller receiving notice from Buyer of such discrepancy, Buyer will
have such remedies as may be provided in the then-current standard terms and
conditions of Seller.
(c) Seller will keep Buyer promptly and regularly informed of
difficulties that Seller expects in meeting Buyer's needs for delivery in
accordance with lead time(s) stated in any Purchase Order.
8. RAW AND PACKAGING MATERIALS. Seller will purchase and supply all raw
materials and packaging materials necessary for the manufacture of the Products
sold by it hereunder. Seller will be responsible for the sampling and testing of
all such raw materials and packaging materials and for ensuring an adequate
inventory of such raw materials and packaging materials to supply the Products
sold by it hereunder within the delivery time provided for in Section 6.
9. TERMS OF SALE. With respect to any Products sold hereunder, Seller will
invoice Buyer at the time of delivery. Each invoice will be itemized in
reasonable detail. Buyer will pay to Seller the undisputed amount of such
invoice within 30 days of the date of delivery of the Product.
10. CONFIDENTIALITY. Each party will preserve the confidentiality of the
other party's Confidential Information (defined below), will not use same except
in connection with the performance of its obligations hereunder, and will return
same upon request by the other party. This Section will survive expiration or
earlier termination of this Agreement for a period of three years thereafter.
"CONFIDENTIAL INFORMATION" means all proprietary information (including but not
limited to formulas, compilations, data, know-how, specifications, techniques,
inventions, devices, projections, drawings and plans, whether of a technical,
operational, financial or other nature) which hereafter is, or in the past has
been, disclosed in writing and marked as confidential by either party (the
"DISCLOSING Party") to the other party (the "RECEIVING PARTY"), and which is of
such a nature that its value would be impaired if disclosed to third parties,
but shall not include any such information that: (i) becomes part of the public
domain through no fault of the Receiving Party; (ii) at the time of receipt is
known to the Receiving Party as shown by its written records; (iii) becomes
known to the Receiving Party from another source and the Receiving Party is not
aware that such source is under an obligation to another person or entity to
keep such information confidential; (iv) is required to be disclosed by the
Receiving Party as a result of judicial or administrative process or by other
requirements of law; or (v) was independently
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developed by the Receiving Party, without reference to the Confidential
Information, provided such independent development can be reasonably supported
by the Receiving Party's written records.
11. TERM. This Agreement shall commence on the date first set forth above
and shall expire on the third anniversary of the Closing Date unless earlier
terminated pursuant to Section 12.
12. TERMINATION.
(a) Either party may terminate this Agreement for any material
breach of this Agreement by the other party if the party seeking to terminate
has specified such breach in writing and such breach has not been cured by the
breaching party within thirty (30) days after receipt of the written notice.
(b) Termination under this Section will be effected by notice given
by the terminating party to the other party.
(c) Any termination of this Agreement will not affect any of the
rights of either party hereto that arose prior to such termination or any
liability resulting from either party's breach of this Agreement.
13. CONSEQUENCES OF TERMINATION. Upon expiration or earlier termination of
this Agreement, each party will promptly return to the other all documents,
samples and other tangible items containing or representing Confidential
Information and all copies thereof, and certify, if requested by the other
party, that it has complied with the terms of this sentence. This Section will
survive expiration or earlier termination of this Agreement.
14. SALES CONVEY NO RIGHT TO MANUFACTURE OR COPY. The Products offered for
sale hereunder are offered for sale and are sold by each party subject in every
case to the condition that such sale does not convey any license, expressly or
by implication, to manufacture, duplicate or otherwise copy or reproduce any of
the Products, unless expressly provided in such sale.
15. EXPORT CONTROL COMPLIANCE. Buyer agrees to comply fully with the
United States Export Control Administration Regulations, the United States
Department of State International Traffic in Arms Regulations and any other
United States government regulations applicable to the export or disclosure of
Products provided hereunder or Confidential Information hereunder insofar as
they may control or limit the sale or use of Products. Buyer also agrees to
comply fully with the United States Foreign Corrupt Practices Act.
16. FORCE MAJEURE. Except for Buyer's payment obligations to Seller for
the Products previously delivered or provided hereunder, failure of either party
to perform its obligations under this Agreement (including but not limited to
failure to make sales or deliveries of the Products) shall be excused to the
extent that such failure is attributable to any cause beyond the reasonable
control of the defaulting party, including, without limitation, acts of God,
fires, earthquakes, wars, sabotage,
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accidents, embargo, riots, labor disputes, actions of any government or
governmental agency or failure of same to act where action is required, and the
inability of such party to obtain material from its suppliers or to obtain
equipment or transportation; and the time during which such party may perform
will be extended to coincide with the time performance has been prevented,
hindered or delayed as a result of the foregoing. Should either party wish to
claim relief from its obligations hereunder by reason of this Section, such
party shall give notice to the other party without delay of the occurrence of
the event or circumstances in question.
17. GOVERNING LAW. This Agreement shall be governed in all respects,
including, without limitation, as to validity, interpretation and effect, by the
internal laws of the State of California, without giving effect to the conflict
of laws rules thereof. The parties hereby agree that this Agreement shall not be
governed by the United Nations Convention on Contracts for the International
Sale of Goods.
18. ASSIGNMENT. The Agreement shall not be assignable or otherwise
transferable by either party hereto without the prior written consent of the
other party, which consent will not be unreasonably withheld. This Agreement
will bind and inure to the benefit of the successors and permitted assigns of
the parties hereto. References to a party herein also are deemed to be
references to any successor or permitted assign of such party.
19. ALL NOTICES, consents, approvals, requests, demands, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if: (a)
delivered personally, (b) mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, or (c) sent by next-day or overnight
mail or delivery or (d) sent by facsimile transmission or telegram.
If to Buyer, to
California Microwave Services Division, Inc.
1143 Borregas Avenue
Sunnyvale, California 94089
Facsimile: 408-743-4772
Attention: Robin Thompson
If to Seller, to
California Microwave, Inc.
1143 Borregas Avenue
Sunnyvale, CA 94089
Facsimile:408/743-3482
Attn: George L. Spillane
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
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All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, and (z) if by facsimile or telegram, on the next
day following the day on which such facsimile or telegram was sent, provided
that a copy is also sent by certified or registered mail.
20. GENERAL.
(a) It is agreed that each of parties hereto is acting as an
independent contractor and nothing contained in this Agreement shall be
construed to constitute either as a partner, agent or employee of the other.
Neither party is authorized to act for or bind the other except as specifically
provided herein.
(b) The failure of a party at any time to require performance by the
other party of any provision hereof shall in no way affect the right of the
party thereafter to enforce same against the other party, nor shall waiver by
either party of the breach of any provision hereof be taken or held to be a
waiver of any succeeding breach of such provision or as a waiver of the
provision itself or as a waiver of a breach of any other provision.
(c) If any term or provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, such
provision will be narrowed (or deleted, if necessary) to the minimum extent
necessary to make it and the rest of this Agreement enforceable.
(d) This Agreement or any provision hereof may not be waived or
discharged orally, but only by a statement in writing signed by the party
against whom enforcement of the waiver or discharge is sought.
(e) This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the parties relating thereto.
The terms of this Agreement may not be amended except by a writing signed by
both parties.
(f) This Agreement may be executed with counterpart signature pages
or in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
(g) The agreements that comprise this Agreement and any terms and
conditions of either party that apply to a sale of products or services
hereunder shall have the following order of priority in the event of a conflict
between any of them: (i) this Agreement and (ii) the terms and conditions of
Seller then in effect with respect to such sale.
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(h) The headings contained in this Agreement are inserted for
reference only and shall not be used to aid in the construction hereof.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
CALIFORNIA MICROWAVE, INC.
By:
Name:
Title:
CALIFORNIA MICROWAVE SERVICES DIVISION, INC.
By:
Name:
Title:
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EXHIBIT 10.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
CONVERTIBLE SUBORDINATED DEBENTURE
$1,000,000 Issued: May 28, 1998
Due: May 28, 2001
FOR VALUED RECEIVED, TELSCAPE INTERNATIONAL, INC., a corporation
organized and existing under the laws of the State of Texas (herein referred to
as the "COMPANY"), for value received, acknowledges itself indebted and hereby
promises to pay to DEERE PARK CAPITAL MANAGEMENT, LLC, an Illinois limited
liability company (the "REGISTERED OWNER"), as nominee, on the due date written
above (the "DUE DATE"), the sum of One Million Dollars and No Cents
($1,000,000), along with interest accrued thereon from the date hereof at the
rate of eight percent (8%) per annum; PROVIDED, HOWEVER, that following the
occurrence and during the continuance of a Default (as defined below), the
Company shall pay to Registered Owner interest from the date of such Default at
the rate of twelve percent (12%) per annum on the outstanding balance of this
Debenture. Payment of interest shall be made monthly in arrears on the last day
of each calendar month (commencing May 31, 1998), and, after maturity, upon
demand of Registered Owner.
This Convertible Debenture is issued pursuant to the terms of that
certain Securities Purchase Agreement of even date herewith between the Company
and the Registered Owner (the "SECURITIES PURCHASE AGREEMENT"), to which
reference is hereby made for additional provisions governing the obligations of
the Company. Capitalized terms used in this Debenture which are not defined
herein shall have the meanings assigned to them in the Securities Purchase
Agreement
1. PAYMENT OF PRINCIPAL AND INTEREST. The principal and interest
outstanding under this Debenture shall be made at the principal office of the
Registered Owner, located at 40 Skokie Boulevard, Suite 110, Northbrook,
Illinois 60062. All computations of interest under this Debenture shall be made
on the basis of a year of 365 days, for the actual number of days elapsed. The
date of issuance of this Debenture shall be included in the calculation of
interest. The date of redemption of this Debenture shall be excluded from the
calculation of interest. Whenever any payment to be made under this Debenture
shall be stated to be due on a Saturday,
<PAGE>
Sunday, or public or bank holiday or the equivalent for banks generally under
the laws of the State of Illinois (any other day being a "BUSINESS Day"), such
payment may be made on the next succeeding business day.
2. PREPAYMENT. The Company may prepay the Convertible Debenture at any
time prior to its maturity; PROVIDED, HOWEVER, that only a prepayment of the
entire principal amount and all accrued and unpaid interest owing on the
Convertible Debenture may be made and an exit fee (the "EXIT FEE") shall be
payable by the Company upon any such prepayment. The Exit Fee shall be an amount
which is a function of the number of days after the Closing Date that the
prepayment of the Convertible Debenture occurs (the "FULL PREPAYMENT DATE"), as
set forth in the following table:
Number of Days after Closing Date that
Full PREPAYMENT OCCURS EXIT FEE
0-90 6.6% of face amount of debenture
91-180 7.2% of face amount of debenture
181-270 8.8% of face amount of debenture
271 and thereafter 10% of face amount of debenture
Notwithstanding the foregoing or anything to the contrary contained in this
Convertible Debenture, for each repayment period set forth in the table above
(other than the 0-90 day period and any day after 365 days), the applicable Exit
Fee shall be reduced PRO RATA based upon the actual number of days between the
Full Prepayment Date and the ending date of the applicable repayment period
3. TERMINATION OR SUSPENSION OF COMPANY'S OBLIGATION TO MAKE PAYMENTS.
If the Common Stock closes at $33.50 or higher for twenty (20) consecutive
Trading Days, as adjusted, without limitation, for any stock splits or
combinations, the Company's obligation to make interest payments on the
Convertible Debentures is terminated.
4. SECURITY. This Debenture is not secured by any mortgage, pledge,
encumbrance, security agreement or other security device, and only the full
faith and credit of the Company are pledged for the payment of all principal and
interest due under this Debenture.
5. CONVERSION.
(a) CONVERSION CALCULATION. At any time after the effectiveness
of Registration Statement, the Registered Owner is entitled to convert
all, or any part thereof, of the unpaid principal and interest
outstanding under this Debenture (the "OUTSTANDING DEBENTURE AMOUNT")
into that number of fully paid and non-assessable shares of Common Stock
(as defined in the Securities Purchase Agreement), at a price calculated
as follows:
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<PAGE>
(i) if the Registered Owner converts the Outstanding
Debenture Amount within the first six (6) months from the Initial
Closing Date, the conversion price shall be equal to $29 per
share (the "New Fixed Conversion Price"), or
(ii) if the Registered Owner converts the Outstanding
Debenture Amount on the first day of the seventh month following
the Initial Closing Date, or at any time thereafter, the
conversion price shall be equal to the lesser of the New Fixed
Conversion Price or the Variable Conversion Price (as defined in
the Securities Purchase Agreement).
Notwithstanding anything to the contrary, the Company shall have the
option to pay the outstanding interest of the Convertible Debentures
then issued upon receipt of the Conversion Notice (as defined below) in
cash.
(b) EXERCISE OF CONVERSION. To exercise its right of conversion,
Registered Owner shall surrender the Debenture to the Company at its
registered office, accompanied by a written notice in the form annexed
hereto as EXHIBIT A, properly completed (the "CONVERSION NOTICE").
Within five (5) Trading Days following its receipt of the Debenture and
Conversion Notice, the Company shall, assuming it has not elected to
exercise its right to redeem pursuant to Paragraph 6 below, issue and
deliver (i) a certificate or certificates for the number of full
Conversion Shares issuable, registered in Registered Owner's name, and
(ii) if less than the entire remaining outstanding principal balance of
the Debenture is being converted, a replacement note in the remaining
outstanding principal amount of the Debenture. Such conversion shall be
deemed to have been effected and the number of Conversion Shares
issuable in connection with such conversion shall be determined as of
the close of business on the date on which the Debenture and Conversion
Notice shall have been received by the Company.
6. REDEMPTION. If at any time during the term of this Agreement the
price per share of Common Stock has closed below the Redemption Floor Price, as
adjusted pursuant Section 8.1 of the Securities Purchase Agreement, for three
(3) consecutive Trading Days, the Company may elect to redeem all or part of the
Convertible Debentures, if the Investor subsequently issues a Conversion Notice
and converts any Convertible Debenture, at one hundred seven percent (107%) of
par, plus any accrued interest or unpaid dividends, by providing written notice
via facsimile to the Investor on the Trading Day immediately following the third
consecutive Trading Day that the Common Stock has closed below the Redemption
Floor Price, as adjusted pursuant Section 8.1 of the Securities Purchase
Agreement, of its intent to redeem and the extent of the redemption. Such
written notice shall be valid and irrevocable for ten (10) Trading Days and
shall automatically expire at the end of such 10-Trading Day period.
7. REGISTRATION RIGHTS AGREEMENT. The resale of the shares of Common
Stock issuable upon conversion of this Debenture is subject to the provisions of
the Registration Rights Agreement of even date herewith by and between the
Company and the Registered Owner.
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<PAGE>
8. DEFAULT.
(a) DEFAULT. If any of the following events ("DEFAULTS") shall
occur:
(i) the Company fails to pay within five (5) days when due
or declared due (whether by scheduled maturity, required payment,
acceleration, demand or otherwise) any principal or interest due
hereunder or any amount payable to the Registered Owner under the
Securities Purchase Agreement; or
(ii) the Company shall fail to perform or observe any
covenant or agreement contained in Article VI of the Securities
Purchase Agreement (other than with respect to any payment
covenants, as to which subsection (i) shall apply), as the case
may be, on its part to be performed or observed, and any such
failure shall remain unremedied for thirty (30) days after
written notice thereof shall have been given to the Company by
the Registered Owner;
then the Registered Owner may declare all or any portion of the principal and
interest due hereunder and all amounts due under the Securities Purchase
Agreement to be immediately due and payable.
(b) RIGHTS AND REMEDIES. In the event of a Default, the
Registered Owner shall have, in addition to any other rights and
remedies contained in the Securities Purchase Agreement, all of which
shall rights and remedies shall be cumulative, and non-exclusive, to the
extent permitted by law, the Registered Owner shall have the right to
immediately convert any remaining Outstanding Debenture Amount without
further regard to the limitations set forth in Section 5 of this
Debenture.
9. SUBORDINATION. The Company and the Registered Owner shall enter into
a Subordination Agreement at such time as the Company deems it appropriate in
form and substance similar that Subordination Agreement attached as Exhibit D to
the Securities Purchase Agreement.
10. TRANSFER. THIS DEBENTURE IS REGISTERED IN THE NAME OF THE REGISTERED
OWNER ON THE DEBENTURE REGISTER MAINTAINED BY THE COMPANY, AND IS TRANSFERABLE
UPON THE WRITTEN ORDER OF THE REGISTERED OWNER. THIS DEBENTURE (AND THE COMMON
STOCK OF THE COMPANY INTO WHICH IT MAY BE CONVERTED) HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED WITHOUT THE REGISTRATION
THEREOF UNDER THE SECURITIES ACT, AND ANY APPLICABLE STATE SECURITIES LAW, OR AN
OPINION OF COUNSEL TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
11. CONSENT TO JURISDICTION. THE COMPANY AND THE REGISTERED OWNER (I)
HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR ANY STATE COURT
LOCATED IN COOK COUNTY, ILLINOIS FOR THE PURPOSES OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS
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<PAGE>
DEBENTURE, AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER. THE COMPANY AND THE REGISTERED OWNER CONSENTS TO PROCESS BEING SERVED
IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THE SECURITIES PURCHASE
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
12. AMENDMENTS. No amendment or waiver of any provision of this
Convertible Debenture, nor consent to any departure by the Company therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Registered Owner, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by the Registered Owner, do any of the following: (i) reduce the
principal of or interest on this Convertible Debenture, (ii) postpone the dates
fixed for the payment of principal of or interest on the Convertible Debenture
or (iii) affect adversely the right to convert this Convertible Debenture as
provided in Section 5 hereof.
13. EXPENSES. The Company agrees to promptly pay all costs and expenses
(including attorneys' fees, expenses and disbursements, and costs of settlement
and the fees, expenses and disbursements of experts or advisors) incurred by the
Registered Owner in enforcing any obligations of or in collecting any payments
due from the Company under this Convertible Debenture and the Securities
Purchase Agreement.
IN WITNESS WHEREOF, TELSCAPE INTERNATIONAL, INC. has caused this
Debenture to be duly executed this 28th day of May, 1998.
TELSCAPE INTERNATIONAL, INC.
By:__________________________
Its:_________________________
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<PAGE>
EXHIBIT A
[FORM OF CONVERSION NOTICE]
TO: Telscape International, Inc.
The undersigned owner of this Debenture hereby: (i) irrevocably
exercises the option to convert this Debenture, or the portion hereof below
designated, for Common Stock of Telscape International, Inc. (the "Conversion
Shares") in accordance with the terms hereof and (ii) directs that such
Conversion Shares deliverable upon the conversion, together with any check in
payment for fractional shares and interest and any Debenture or Debentures
representing any unconverted principal amount hereof, be issued and delivered to
the registered holder hereof unless a different name has been indicated below.
If Conversion Shares are to be delivered or registered in the name of a person
other than the undersigned, the undersigned will pay all taxes with respect
thereto, and the Company will not be required to issue or deliver a certificate
for such Conversion Shares until the undersigned has paid to the Company the
amount of such tax or has established to the satisfaction of the Company that
such tax has been paid.
Dated:_____________
_____________________________
Signature
Fill in for registration of shares if to be delivered, and of Debentures if to
be issued, otherwise than to and in the name of the registered holder.
_____________________________
Social Security or Other
Taxpayer Identifying Number
_____________________________
(Name)
_____________________________
(Street Address)
_____________________________
(City, State and Zip Code)
(Please print name and address)
Principal Amount to be Converted (if less than all):
$_____________________________
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<PAGE>
STOCK PURCHASE WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Warrant A-2
May 28, 1998
Warrant to Purchase 2,427 Shares of Common Stock of
Telscape International, Inc.
Telscape International., a Texas corporation (the "COMPANY"), hereby
acknowledges that Deere Park Capital Management, LLC ("INVESTOR"), as nominee,
or any other Warrant Holder is entitled, on the terms and conditions set forth
below, to purchase from the Company, at any time beginning on the eleventh
(11th) Trading Day after the effectiveness of the Registration Statement and
continuing for three years thereafter, the above number of fully paid and
nonassessable shares of Common Stock, par value $0.001 per share, of the Company
(the "COMMON STOCK") at the Purchase Price (hereinafter defined), as the same
may be adjusted pursuant to Section 5 herein. The resale of the shares of Common
Stock or other securities issuable upon exercise or exchange of this Warrant is
subject to the provisions of the Registration Rights Agreement of even date
herewith (the "REGISTRATION RIGHTS AGREEMENT") between the Company and the
Investor.
1. DEFINITIONS.
(a) "AGREEMENT" shall mean the Securities Purchase Agreement of even
date herewith between the Company and the Investor.
(b) "INVESTOR" shall mean Deere Park Capital Management, LLC, an
Illinois limited liability company.
(c) "PURCHASE PRICE" shall be $20.60 per share.
(d) "WARRANT HOLDER" shall mean the Investor or any permitted
assignee of all or any portion of this Warrant.
(e) "WARRANT SHARES" shall mean the shares of Common Stock or other
securities issuable upon exercise of this Warrant.
<PAGE>
(f) Other capitalized terms used herein which are defined in the
Agreement shall have the same meanings herein as therein.
2. EXERCISE OR EXCHANGE OF WARRANT.
(a) This Warrant may be exercised by the Warrant Holder, in whole or
in part, at any time and from time to time by surrender of this Warrant,
together with the form of exercise attached hereto as Exhibit A (the "EXERCISE
FORM") duly executed by Warrant Holder, together with the full Purchase Price
(as defined in Section 1) for each share of Common Stock as to which this
Warrant is exercised, to the Company at the address set forth in Section 13
hereof. In the event that the Warrant is not exercised in full, the number of
Warrant Shares shall be reduced by the number of such Warrant Shares for which
this Warrant is exercised, and the Company, at its expense, shall forthwith
issue and deliver to or upon the order of the Warrant Holder a new Warrant of
like tenor in the name of the Warrant Holder or as the Warrant Holder may
request, reflecting such adjusted Warrant Shares.
(b) The "DATE OF EXERCISE" of the Warrant shall be the date that the
completed Exercise Form is delivered to the Company, together with the original
Warrant and payment in full of the Purchase Price.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) Trading Days (as defined in the Securities Purchase
Agreement) thereafter, the Company at its expense (including, without
limitation, the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Warrant Holder, or as the Warrant
Holder may lawfully direct, a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock to which the Warrant Holder
shall be entitled on such exercise, together with any other stock or other
securities or property (including cash, where applicable) to which the Warrant
Holder is entitled upon such exercise in accordance with the provisions hereof.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, "FAIR
MARKET VALUE" shall equal the closing bid price of the Common Stock on the
Nasdaq National Market or Small-Cap Market, the American Stock Exchange or the
New York Stock Exchange, whichever is the principal trading exchange or market
for the Common Stock (the "PRINCIPAL MARKET") on the date of exercise hereof, or
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market or Small-Cap Market,
the closing bid price on the over-the-counter market as furnished by any New
York Stock Exchange member firm that
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<PAGE>
makes a market in the Common Stock reasonably selected from time to time by the
Company for that purpose, or, if the Common Stock is not traded over-the-counter
and the average price cannot be determined as contemplated above, the fair
market value of the Common Stock shall be as reasonably determined in good faith
by the Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall insure that a registration statement under the
Securities Act covering the resale or other disposition thereof of the Warrant
Shares by the Warrant Holder is effective to the extent provided by the
Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation, including,
without limitation, the notification of the Nasdaq National Market, for the
legal and valid issuance of this Warrant and the Warrant Shares to the Warrant
Holder.
(c) From the date hereof through the last date on which this Warrant
is exercisable, the Company shall take all steps necessary and within its
control to insure that the Common Stock remains listed or quoted on the
Principal Market and shall not amend its Articles of Incorporation or By-Laws so
as to adversely affect any rights of the Warrant Holder under this Warrant;
provided, however, that increasing the number of authorized shares shall not be
deemed a material adverse effect.
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable as Warrant Shares.
(e) The Warrant Shares, when issued in accordance with the terms
hereof; will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable. The
Company has authorized and reserved for issuance to the Warrant Holder the
requisite number of shares of Common Stock to be issued pursuant to this
Warrant.
(f) With a view to making available to the Warrant Holder the
benefits of Rule 144 promulgated under the Securities Act ("RULE 144") and any
other rule or regulation of the Securities and Exchange Commission (the "SEC"),
that may at any time permit Warrant Holder to sell securities of the Company to
the public without registration, the Company agrees to use its best efforts to:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144, at all times; and (ii) file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
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<PAGE>
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of and
kind of securities purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights under
this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the Purchase Price, but the aggregate purchase price payable for the
total number of Warrant Shares purchasable under this Warrant as of such date
shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the Company
declares a dividend or other distribution on Common Stock payable in Common
Stock or other securities or rights convertible into or exchangeable for Common
Stock ("COMMON STOCK EQUIVALENTS"), without payment of any consideration by
holders of Common Stock for the additional shares of Common Stock or the Common
Stock Equivalents (including the additional shares of Common Stock issuable upon
exercise or conversion thereof), then the number of shares of Common Stock for
which this Warrant may be exercised shall be increased as of the record date (or
the date of such dividend distribution if no record date is set) for determining
which holders of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Purchase
Price shall be adjusted so that the aggregate amount payable for the purchase of
all the Warrant Shares issuable hereunder immediately after the record date (or
on the date of such distribution, if applicable), for such dividend shall equal
the aggregate amount so payable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of a
dissolution or liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets without payment
of any consideration by holders of Common Stock (other than cash, Common Stock
or securities convertible into or exchangeable for Common Stock), then, in any
such case, the Warrant Holder shall be entitled to receive, upon exercise of
this Warrant, with respect to each share of Common Stock issuable upon such
exercise, the amount of cash or evidences of indebtedness or other securities or
assets which such Warrant Holder would have been entitled to receive with
respect to each such share of Common Stock as a result of the happening of such
event had this Warrant been exercised immediately prior to the record date or
other date determining the shareholders entitled to participate in such
distribution (the "DETERMINATION DATE") or, in lieu thereof, if the Board of
Directors of the Company should so determine at the time of such distribution, a
reduced Purchase Price determined by multiplying the Purchase Price on the
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<PAGE>
Determination Date by a fraction, the numerator of which is the result of such
Purchase Price reduced by the value of such distribution applicable to one share
of Common Stock (such value to be determined in good faith by the Company's
Board of Directors) and the denominator of which is such Purchase Price.
(d) MERGER, CONSOLIDATION, ETC. If at any time after the date hereof
there shall be a merger or consolidation of the Company with or into, or a
transfer of all or substantially all of the assets of the Company to, another
entity (a "CONSOLIDATION EVENT"), then the Warrant Holder shall be entitled to
receive upon such transfer, merger or consolidation becoming effective, and upon
payment of the aggregate Purchase Price then in effect, the number of shares or
other securities or property of the Company or of the successor corporation
resulting from such merger or consolidation, which would have been received by
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
been exercised immediately prior to such transfer, merger or consolidation
becoming effective or to the applicable record date thereof, as the case may be.
The Company shall not effect any Consolidation Event unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation to deliver to the Warrant Holder such shares of stock and/or
securities as the Warrant Holder is entitled to receive had this Warrant been
exercised in accordance with the foregoing; provided, however, that if as of the
third business day prior to the consummation of the Consolidation Event the
closing bid price of the Common Stock shall be equal to at least 200% of the
Purchase Price, then the Warrant shall be automatically exchanged on the date of
consummation of the Consolidation Event, as provided in Section 2 hereof.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reclassification of any securities as to which purchase rights
under this Warrant exist, into the same or a different number of securities of
any other class or classes, then the Warrant Holder shall thereafter be entitled
to receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Purchase Price then in effect, the number of shares or other
securities or property resulting from such reorganization or reclassification,
which would have been received by the Warrant Holder for the shares of stock
subject to this Warrant had this Warrant at such time been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company issues
or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of its Common Stock or any such convertible securities (other than issuance of
shares of Common Stock upon conversion thereof, shares or options issued or
which may be issued to employees, directors or consultants as of the date hereof
or shares issued upon exercise of options, warrants or rights outstanding as of
the date hereof) at an effective purchase price per share which is less than the
Purchase Price then in effect and more than fifteen percent (15%) less than the
fair market value (as hereinabove defined) of the Common Stock on the Trading
Day next preceding such issue or sale, then in each such case, the Purchase
Price in effect immediately prior to such issue or sale shall be reduced
effective concurrently with such issue or sale to an amount
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<PAGE>
determined by multiplying the Purchase Price then in effect by a fraction, (x)
the numerator of which shall be the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such issue or sale, including, without
duplication, those deemed to have been issued under the Warrants plus (2) the
number of shares of Common Stock which the aggregate consideration received by
the Company for such additional shares would purchase at such fair market value
then in effect and (y) the denominator of which shall be the number of shares of
Common Stock of the Company outstanding immediately after such issue or sale
including, without duplication, those deemed to have been issued under the
Warrants. For purposes of the foregoing fraction, Common Stock outstanding shall
include, without limitation, any equity offerings then outstanding, whether or
not they are exercisable or convertible when such fraction is to be determined.
The foregoing price adjustment shall not apply to the issuance of shares of
Common Stock which may be issued upon exercise of options under the Company's
employee or director stock option plans, upon the conversion or exchange of
convertible or exchangeable securities or upon the exercise of warrants, or
other rights, which options, convertible or exchangeable securities, warrants or
other rights are outstanding on the date of execution and delivery of this
Warrant.
The number of shares which may be purchased shall be increased
proportionately to any reduction in Purchase Price pursuant to this paragraph
5(f), so that after such adjustments the aggregate Purchase Price payable
hereunder for the increased number of shares of Common Stock shall be the same
as the aggregate Purchase Price in effect immediately prior to such adjustments.
Notwithstanding anything else contained in this Warrant to the contrary,
there shall be no adjustment of the Purchase Price or the number of shares of
Common Stock issuable pursuant to the exercise of this Warrant in the event that
during the term of this Warrant, the Company issues shares of Common Stock, or
securities convertible into Common Stock to the Purchaser.
(g) ADJUSTMENTS; ADDITIONAL SHARES, SECURITIES OR ASSETS. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, the Warrant Holder shall, upon exercise of this Warrant, become
entitled to receive shares and/or other securities or assets (other than Common
Stock) then, wherever appropriate, all references herein to shares of Common
Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 5.
6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms 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 action as may be necessary or
appropriate in order to protect the rights of the Warrant Holder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, and (b) will take all such action as
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<PAGE>
may be reasonably necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or number of
Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 5
hereof, the Company shall execute and deliver (by first class mail, postage
prepaid) to the Warrant Holder a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Purchase Price and number
of shares purchasable hereunder after giving effect to such adjustment.
8. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the Warrant
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Warrant Shares, including (without limitation) the right to vote
such shares, receive dividends or other distributions thereon or be notified of
stockholder meetings. However, in the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company shall mail to each Warrant
Holder, at least 10 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
9. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of the Warrant and,
in the case of any such loss, theft or destruction of the Warrant, upon delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
10. CONSENT TO JURISDICTION. THE COMPANY (I) HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS OR ANY STATE COURT LOCATED IN COOK COUNTY,
ILLINOIS FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS WARRANT AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY
SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO
THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT
IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER.
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<PAGE>
THE COMPANY CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR
NOTICES TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE
GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS
PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Registration Rights
Agreement and the Agreement contain the entire understanding of the parties with
respect to the matters covered hereby and thereby. No provision of this Warrant
may be waived or amended other than by a written instrument signed by the party
against whom enforcement of any such amendment or waiver is sought.
12. RESTRICTED SECURITIES.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued
in a transaction exempt from the registration requirements of the Securities Act
in reliance upon the provisions of Section 4(2) promulgated by the SEC under the
Securities Act of 1933. This Warrant and the Warrant Shares issuable upon
exercise of this Warrant may not be resold except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Securities Act and applicable state laws.
(b) LEGEND. The Warrant and any Warrant Shares issued upon exercise
thereof (until a registration statement has been declared effective by the SEC
with respect to the Warrant Shares, at which time, such legend shall be removed,
and the Warrant Shares shall be freely tradeable), shall bear the following
legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
(c) ASSIGNMENT. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Warrant Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in
part. The Warrant Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company shall
effect the assignment within ten (10) days, and shall deliver to the assignee(s)
designated by
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the Warrant Holder after delivery to the Company of the original Warrant or
Warrants for cancellation, a Warrant or Warrants of like tenor and terms for the
appropriate number of shares.
13. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: Telscape International, Inc.
2700 Post Oak Boulevard
Suite 1000
Houston, Texas 77056
Attention: Todd M. Binet, Executive Vice President
Facsimile No.: (713) 968-0930
to the Warrant Holder: Deere Park Capital Management, LLC
40 Skokie Boulevard, Suite 110
Northbrook, IL 60062
Attention: Douglas A. Gerrard, President
Facsimile: (847) 509-8529
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 13 by giving at least 10 days prior
written notice of such changed address or facsimile number to the other party
hereto.
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14. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
TELSCAPE INTERNATIONAL, INC.
By:_____________________________
Title:__________________________
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EXHIBIT A
FORM OF WARRANT EXERCISE
I/we hereby exercise Telscape International, Inc. (the "Company") Common
Stock Purchases Warrant #_________________.
(a) Number of Shares of the Company common stock covered
in Purchase Warrant #______________ __________________
(b) Total Exercise price (____________ per share) $_________________
_____________________________________ ________________________________
Signature Employment Identification Number
___________________________________________
Name (please print)
_______________________________________________________________________
Address
_______________________________________________________________________
___________________________________________
Telephone Number
_________________________________________ ____________________________
Signature Employment Identification No.
_________________________________________
Name (please print)
_______________________________________________________________________
Address
_______________________________________________________________________
__________________________________________
Telephone Number
I wish to register my shares of the Company common stock as follows:
a. ( ) Individual Ownership
b. ( ) Husband and Wife as Community Property
c. ( ) Joint Tenants w/Right to Survivorship (JTRS)
d. ( ) Tenants in Common
e. ( ) Other_________________________________
Dated:___________________________________, 19__.
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to
transfer the Warrant)
FOR VALUED RECEIVED, the undersigned holder of the attached Warrant
hereby sells, assigns and transfers unto the persons below named the right to
purchase ______________ shares of the Common Stock of TELSCAPE INTERNATIONAL,
INC. evidenced by the attached Warrant and does hereby irrevocably constitute
and appoint ______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated:
_______________________________
Signature
Fill in for new Registration of Warrant:
_________________________________________
Name
_________________________________________
Address
_________________________________________
Please print name and address of assignee
(including zip code number)
NOTICE: The signature to the foregoing Assignment must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
BETWEEN
GORDON BROTHERS CAPITAL, LLC
AND
TELSCAPE INTERNATIONAL, INC.
DATED AS OF MAY 29, 1998
THIS SECURITIES PURCHASE AGREEMENT dated as of May 29, 1998 (the
"Agreement"), by and between GORDON BROTHERS CAPITAL, LLC, a limited liability
company organized and existing under the laws of the State of Delaware (the
"Investor"), and TELSCAPE INTERNATIONAL, INC., a corporation organized and
existing under the laws of the State of Texas (the "Company").
RECITALS
A. The parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue to the Investor, and the Investor
shall purchase from the Company the Company's 8% Convertible Debenture, the form
of which is attached as Exhibit A hereto (the "Convertible Debenture"), for a
purchase price of up to $5,000,000.
B. Except as otherwise provided in this Agreement, such investment will
be made in reliance upon the provisions of Section 4(2) promulgated by the
Securities and Exchange Commission under the United States Securities Act of
1933, as amended, and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to the
purchase of the Convertible Debenture hereunder.
NOW, THEREFORE, in consideration of the foregoing Recitals which are
hereby incorporated by this reference and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "CLOSING" means the consummation of the purchase and sale of
the Convertible Debenture pursuant to Section 2.1 hereof.
Section 1.2 "CLOSING DATE" means the date the Investor purchases the
Convertible Debenture pursuant to Section 2.1 hereof.
Section 1.3 "COMMON STOCK" means the Company's common stock, par value
$.001 per share.
Section 1.4 "CONVERSION NOTICE" means the written form of notice given
to notify the Company that the Investor is exercising its option to convert the
Convertible Debenture to Common Stock, and directing the Company or its transfer
agent to issue and deliver to the party
<PAGE>
indicated, a certificate or certificates representing the Common Shares received
upon conversion, a form of which is attached as an exhibit to the form of the
Convertible Debenture attached hereto as EXHIBIT A.
Section 1.5 "EFFECTIVE DATE" means the date on which the SEC declares
effective the Registration Statement described in Section 6.4 hereof.
Section 1.6 "EXCHANGE ACT" means the United States Securities Exchange
Act of 1934, as amended.
Section 1.7 "EXERCISE PRICE" See Section 2.6(a) hereof.
Section 1.8 "FIXED CONVERSION PRICE" See Section 2.5 hereof.
Section 1.9 "LOOKBACK PERIOD" means the twenty (20) Trading Days on the
Principal Market immediately preceding the date of conversion by the Investor of
the Convertible Debenture.
Section 1.10 "MATERIAL ADVERSE EFFECT" means a material adverse effect
on the business, operations, properties, prospects, or financial condition of
the Company.
Section 1.11 "NASD" means the National Association of Securities
Dealers, Inc.
Section 1.12 "PRINCIPAL MARKET" means the NASDAQ National Market, the
NASDAQ Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Company's Common Stock.
Section 1.13 "REDEMPTION FLOOR PRICE" means $16.66.
Section 1.14 "REGISTRATION RIGHTS AGREEMENT" See Section 2.6(b) hereof.
Section 1.15 "REGISTRATION STATEMENT" See Section 6.4 hereof.
Section 1.16 "SEC" means the Securities and Exchange Commission.
Section 1.17 "SECURITIES ACT" means the United States Securities Act of
1933, as amended.
Section 1.18 "SEC DOCUMENTS" means registration statements, reports and
documents, including proxy statements filed with the SEC pursuant to the
Securities Act or Exchange Act since December 31, 1996.
Section 1.19 "SUBSCRIPTION DATE" means the date of this Agreement.
Section 1.20 "TRADING DAY" means any day during which the Principal
Market shall be open for business.
Section 1.21 "VARIABLE CONVERSION PRICE" See Section 2.5 hereof.
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<PAGE>
Section 1.22 "WARRANT FORMULA" See Section 2.6(a) hereof.
Section 1.23 "WARRANTS" See Section 2.6(a) hereof.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURE
Section 2.1 INVESTMENTS. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), the
Company shall issue and sell to the Investor, and the Investor shall purchase
from the Company, the Convertible Debenture.
Section 2.2 PURCHASE. The Company agrees to sell and the Investor agrees
to purchase the Convertible Debenture in the principal amount of up to
$5,000,000 (the "Convertible Debenture").
Section 2.3. CLOSING.
(a) With respect to the sale of the Convertible Debenture, on or before
the Closing Date, (i) the Company shall deliver to the Investor the Convertible
Debenture, substantially in the form of EXHIBIT A attached hereto, to be
purchased by the Investor pursuant to Section 2.2, and (ii) the Investor shall
deliver or cause to be delivered to the Company the amount of the Convertible
Debenture (up to $5,000,000) by wire transfer of immediately available funds to
one or more accounts designated by the Company.
(b) In addition, on or prior to the Closing Date, the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein.
Section 2.4 TERMINATION OR SUSPENSION OF COMPANY'S OBLIGATION TO MAKE
PAYMENTS ON THE CONVERTIBLE DEBENTURE. If (i) the Common Stock closes at $33.50
or higher for twenty (20) consecutive Trading Days, as adjusted, without
limitation, for any stock splits or combinations, (ii) the Registration
Statement shall have been declared and shall then be effective and (iii) no
Default (as defined in the Convertible Debenture) shall exist, then the
Company's obligation to make interest payments on the Convertible Debenture
shall terminate. If the Company's obligation to make interest payments on the
Convertible Debenture terminates in accordance with the foregoing sentence, any
and all interest accrued in accordance with this Agreement or the Convertible
Debenture prior to such date of termination shall be due and payable on the last
day of the then current calendar month, without diminution or reduction
notwithstanding the termination of the Company's obligation to pay interest
accruing after such twentieth consecutive Trading Day. It is understood and
agreed that such termination shall not affect the Company's obligation to pay
the Exit Fee upon the payment of the principal of this Debenture.
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<PAGE>
Section 2.5 CONVERSION; PREPAYMENT; REDEMPTION.
(a) CONVERSION.
(i) The Investor may, on or prior to November 1, 1998, convert
the Convertible Debenture into Common Stock at any time or from time to
time at a price equal to $29 per share, as adjusted for any stock splits
or combinations (the "Fixed Conversion Price").
(ii) Beginning on November 2, 1998, and at any time and from time
to time thereafter, the Investor may, at its option, convert the
Convertible Debenture into Common Stock at a price equal to the lesser
of (i) the Fixed Conversion Price or (ii) a price equal to 100% of the
average of the three highest of five lowest closing prices of the Common
Stock during the Lookback Period (the "Variable Conversion Price").
(b) PREPAYMENT; REDEMPTION.
(i) The Company may, upon at least two Business Days' prior
written notice, prepay the Convertible Debenture in whole at any time
and in part from time to time. Each partial prepayment made pursuant to
this clause (i) shall be in a minimum principal amount of $500,000 and
in an integral multiple of $500,000 in excess thereof. Any notice of
prepayment given to the Investor pursuant to this clause (i) shall be
irrevocable and binding on the Company and shall specify the date of
prepayment. Each prepayment made pursuant to this clause (i) shall be
accompanied by the payment of (A) accrued interest to the date of such
prepayment on the amount prepaid and (B) an Exit Fee (as defined in the
Convertible Debenture) on the amount of such prepayment in accordance
with the terms of Paragraph 2 of the Convertible Debenture.
(ii) If at any time during the term of the Convertible Debenture
the price per share of Common Stock has closed below the Redemption
Floor Price for the Convertible Debenture for three (3) consecutive
Trading Days, the Company may elect to redeem all or part of the
Convertible Debenture, if the Investor subsequently issues a Conversion
Notice and converts the Convertible Debenture, at one hundred seven
percent (107%) of par, plus any accrued interest or unpaid dividends
(but without any Exit Fee), by providing written notice via facsimile to
the Investor on the Trading Day immediately following the third
consecutive Trading Day that the Common Stock has closed below the
Redemption Floor Price, or such price per share as adjusted, of its
intent to redeem and the extent of the redemption. Such written notice
shall be valid and irrevocable for ten (10) Trading Days and shall
automatically expire at the end of such 10-day period.
Section 2.6 WARRANTS.
(a) On the Closing Date, the Company will issue to the Investor
warrants, exercisable beginning on the Effective Date (the "Warrants") and then
exercisable at any time over the following three year period, to purchase an
aggregate number of shares of Common Stock equal to the face amount of the
Convertible Debenture being simultaneously issued, multiplied by 5%, and divided
by the average closing price for the five (5) Trading Days immediately preceding
the Closing Date (the "Warrant Formula"), at an exercise price equal to the
average closing price for the five (5) Trading Days immediately preceding the
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<PAGE>
Closing Date (the "Exercise Price"). The Warrants shall be in form and substance
similar to that warrant which is attached hereto as EXHIBIT B.
(b) The shares of Common Stock to be issued upon exercise of the
Warrants shall be registered for resale on the Registration Statement to be
filed in accordance with Section 6.4 hereof. The resale by the Investor of
Common Stock issuable upon exercise of the Warrants shall be subject to a
registration rights agreement (the "Registration Rights Agreement") to be
entered into between the Company and the Investor on the Closing Date. The
Registration Rights Agreement shall be in form and substance similar to that
agreement which is attached hereto as EXHIBIT C.
(c) The Company agrees that a breach of its obligations under this
Section 2.6 could cause the Investor irreparable injury and that monetary
damages may not be an adequate remedy for any such breach. In the event of a
breach or threatened breach by the Company of this Section 2.6, the Company
agrees that the Investor is entitled to equitable relief in any court of
competent jurisdiction, including the remedy of specific performance, in
addition to all other remedies available to the Investor at law or in equity.
ARTICLE III
CONDITIONS TO CLOSING
Section 3.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS TO ISSUE AND SELL
CONVERTIBLE DEBENTURE BY THE COMPANY AND TO PURCHASE CONVERTIBLE DEBENTURE BY
THE INVESTOR.
(a) CONDITIONS PRECEDENT TO COMPANY'S OBLIGATION. The obligation
hereunder of the Company to issue and sell the Convertible Debenture to the
Investor at the Closing is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below:
(i) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement and as
of the date of each Closing as though made at each such time.
(ii) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to the
Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which, in the reasonable opinion of the Company
and its legal counsel, prohibits or materially adversely affects any of
the transactions contemplated by this Agreement, and no proceeding shall
have been
5
<PAGE>
commenced which may have the effect of prohibiting or materially
adversely affecting any of the transactions contemplated by this
Agreement.
(b) CONDITIONS PRECEDENT TO THE INVESTOR'S OBLIGATIONS. The obligation
hereunder of the Investor to purchase the Convertible Debenture is subject to
the satisfaction, at or before the Closing Date, of each of the conditions set
forth below:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each Transaction Party (as defined in
the Security Agreement hereinafter referred to) in any Transaction
Document (as defined in the Security Agreement hereinafter referred to)
to which it is a party shall be true and correct in all material
respects as of the Closing Date as though made on the Closing Date, and
as to all events and circumstances occurring or existing to and
including the Closing Date, and no Default (as defined in the
Convertible Debenture) or "Event of Default" (as defined in the General
Security Agreement dated the date hereof (as amended or otherwise
modified from time to time, the "Security Agreement"), by Interlink
Communications, Inc. in favor of the Investor), or event which with the
giving of notice or the passage of time, or both, would constitute an
Event of Default, shall have occurred and be continuing.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or materially adversely affects
any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced which may have the effect of
prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.
(iv) ADVERSE CHANGES. Since December 31, 1997, no event which had
or is reasonably likely to have a Material Adverse Effect has occurred.
(v) LEGAL OPINIONS. The Company shall have caused to be delivered
to the Investor an opinion of the Company's independent counsel in form
and substance reasonably acceptable to the Investor and its counsel.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Investor a certificate dated as of the Closing Date executed by an
executive officer of the Company and to the effect that all the
conditions to the Closing have been satisfied as at the date of each
such certificate.
(viii) DELIVERY OF DOCUMENTS. The Company shall have delivered
and the Investor shall have received, on or before the Closing Date,
each in form and substance reasonably satisfactory to the Investor,
dated as of the Closing Date:
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(A) Convertible Debenture, substantially in the
form of Exhibit A hereto;
(B) Stock Purchase Warrant, substantially in the
form of Exhibit B hereto;
(C) Registration Rights Agreement, substantially in
the form of Exhibit C hereto;
(D) Security Agreement by Interlink Communications,
Inc. in favor of the Investor;
(E) Assignments for Security (Trademark) by
Interlink Communications, Inc. in favor of the Investor;
(F) Guaranty made by Interlink Communications, Inc.
in favor of the Investor;
(G) Pledge Agreement made by the Company in favor
of the Investor, with respect to the issued and outstanding shares of
Convertible Participating Preferred Stock of Interlink Communications, Inc. and
the issued and outstanding equity securities of Telereunion, Inc. and the
promissory notes made by Interlink Communications, Inc. to the Company;
(H) side letter agreement made by the Investor and
agreed to and accepted by the Company and Interlink Communications, Inc. with
respect to the release of equity securities of Telereunion, Inc. pledged
pursuant to clause (G) above;
(I) stock certificates evidencing the shares
of stock being pledged pursuant to clause (G) above, together with undated stock
powers endorsed in blank, and the promissory notes made by Interlink
Communications, Inc. to the Company, duly endorsed in blank by the Company;
(J) appropriate financing statements on Form UCC-1,
duly executed by Interlink Communications, Inc. and appropriate for filing in
such office or offices as may be necessary or, in the opinion of the Investor,
desirable to perfect the security interests purported to be created by the
Security Agreement;
(K) certified copies of requests for copies of
information on Form UCC-11, listing all effective financing statements which
name as debtor the Company, Interlink Communications Holding Co., Inc.,
Interlink Communications, Inc. or California Microwave Services Division, Inc.,
together with results of judgment and tax lien searches on each such Person,
none of which, except as otherwise agreed to in writing by the Investor, shall
cover any of the collateral in which the Investor has purportedly been granted a
security interest;
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(L) Subordination Agreement dated the date hereof
(the "Subordination Agreement"), duly executed by Interlink Communications,
Inc., as obligor, and the Company, as subordinated creditor, in favor of the
Investor; and
(M) copies of the Stock Purchase Agreement, the
Subordinated Notes, the Subordinated Credit Agreement and the related Pledge
Agreement (all as defined in the Subordination Agreement), certified by an
authorized officer of the Company.
(ix) CONSUMMATION OF ACQUISITION. Concurrently with the purchase
of the Convertible Debenture, (i) the Company shall have purchased
pursuant to the Stock Purchase Agreement dated as of May 18, 1998 (the
"Stock Purchase Agreement"), by and among California Microwave, Inc.,
California Microwave Services Division, Inc. and the Company (no
provision of which shall have been amended or otherwise modified or
waived without the written consent of the Investor), and shall have
become the owner, free and clear of all liens and security interests of
all of the issued and outstanding shares of Convertible Participating
Preferred Stock of Interlink Communications, Inc., (ii) the proceeds of
the Convertible Debenture shall have been applied in full to pay the
purchase price payable pursuant to the Stock Purchase Agreement and the
closing and other costs relating thereto and (iii) each of the parties
thereto shall have fully performed all of the obligations to be
performed by it under the Stock Purchase Agreement.
(x) OTHER. The Investor shall have received and been reasonably
satisfied with such other certificates and documents as shall have been
reasonably requested by the Investor in order for the Investor to
confirm the Company's satisfaction of the conditions set forth in this
Agreement.
Section 3.2 DUE DILIGENCE REVIEW. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any such registration statement or
amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company to confirm the accuracy of the Registration Statement.
The Company shall not disclose non-public information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company
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identifies such information as being non-public information and provides the
Investor and such advisors and representatives with the opportunity to accept or
refuse to accept such non-public information for review. The Company may, as a
condition to disclosing any non-public information hereunder, require the
Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose non-public
information to the Investor, its respective advisors or representatives, and the
Company represents that it does not disseminate non-public information to any
investor who purchases stock in the Company in a public offering, to money
managers or to securities analysts; PROVIDED, HOWEVER, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and
underwriters, if any, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement, would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 3.2 shall limit the
Investor's respective advisors or representatives from obtaining or receiving
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
advisors or representatives from notifying the Company of their opinion that
based on such due diligence, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading;
PROVIDED, HOWEVER, that in no event shall the Investor's advisors or
representatives disclose to the Investor the nature of the specific event or
circumstances constituting any non-public information discovered by such
advisors or representatives in the course of their due diligence (without the
written consent of the Investor prior to disclosure of such information).
The Investor's advisors or representatives shall make complete
disclosure to the Investor's independent counsel, if any, of all events or
circumstances constituting non-public information discovered by such advisors or
representatives in the course of their due diligence upon which such advisors or
representatives form the opinion that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in the light of the circumstances in which they were made,
not misleading. Upon receipt of such disclosure, the Investor's independent
counsel shall consult with the Company's independent counsel in order to address
the concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto. In the event after
such consultation the Investor's independent counsel believes that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading, (x) the Company shall file with the SEC an
amendment to the Registration Statement
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responsive to such alleged untrue statement or omission and provide the
Investor, as promptly as practicable with copies of the Registration Statement
and related prospectus, as so amended, (y) if the Company disputes the existence
of any such material misstatement or omission, (i) the Company's independent
counsel shall provide the Investor's independent counsel with an opinion stating
that nothing has come to their attention that would lead them to believe that
the Registration Statement or the related prospectus, as of the date of such
opinion contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or the related prospectus or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading and (ii) in the event the
dispute relates to the adequacy of financial disclosure and the Investor shall
reasonably request, the Company's independent auditors shall provide to the
Company a letter outlining the performance of such "agreed upon procedures" as
shall be reasonably requested by the Investor and the Company shall provide the
Investor with a copy of such letter, or (z) if the Company disputes the
existence of any such material misstatement or omission, and the dispute relates
to the timing of disclosure of a material event and the Company's independent
counsel is unable to provide the opinion referenced in clause (y) above to the
Investor, then this Agreement shall be suspended for a period of up to thirty
(30) days, at the end of which, if the dispute still exists between the
Company's independent counsel and the Investor's independent counsel, the
Company shall either (i) amend the Registration Statement as provided above,
(ii) provide to the Investor the Company's independent counsel opinion and a
copy of the letter of the Company's independent auditors referenced above, or
(iii) this Agreement shall be suspended for an additional period of up to thirty
(30) days; provided, however, that at the end of such sixty (60) day period, if
the dispute still exists between the Company's independent counsel and the
Investor's independent counsel, the Company shall either (i) amend the
Registration Statement as provided above, (ii) provide the Company's independent
counsel opinion referenced above, or (iii) the obligation of the Investor to
purchase the Convertible Debenture or shares of Common Stock pursuant to this
Agreement shall terminate.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 4.1 INTENT. The Investor (which for purposes of this Article IV
shall include each beneficial owner of the Common Stock and the Convertible
Debenture, as determined pursuant to Rule 13d-3 under the Exchange Act) is
entering into this Agreement for its own account and the Investor has no present
arrangement (whether or not legally binding) at any time to sell the Convertible
Debenture or Common Stock to or through any person or entity; provided, however,
that by making the representations herein, the Investor does not agree to hold
the Convertible Debenture or Common Stock for any minimum or other specific term
and reserves the right to dispose of the Convertible Debenture or Common Stock
at any time in accordance with federal and state securities laws applicable to
such disposition.
Section 4.2 SOPHISTICATED AND ACCREDITED INVESTOR. The Investor is a
sophisticated Investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited Investor (as defined
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in Rule 501 of Regulation D), and the Investor has such experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in the Convertible Debenture or Common Stock. The Investor
acknowledges that an investment in the Convertible Debenture or Common Stock is
speculative and involves a high degree of risk. The Investor acknowledges that
the Convertible Debenture and the Warrants to be issued pursuant to this
Agreement are "restricted securities" within the meaning of the Securities Act
and the rules and regulations promulgated thereunder and may not be resold in
the absence of an effective registration statement under the Securities Act or
an available exemption from the Securities Act registration requirements.
Section 4.3 AUTHORITY. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.4 NOT AN AFFILIATE. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 4.5 ORGANIZATION AND STANDING. The Investor represents and
warrants that it is a limited liability company duly organized, validly
existing, and in good standing under the laws of Delaware.
Section 4.6 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on the Investor, or
the provision of any indenture, instrument or agreement to which the Investor is
a party or is subject, or by which the Investor or any of its assets is bound,
or conflict with or constitute a material default thereunder, or result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
the Investor to any third party, or require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which the Investor is subject or
to which any of its assets, operations or management may be subject.
Section 4.7 DISCLOSURE; ACCESS TO INFORMATION. The Investor has received
all documents, records, books and other information pertaining to the Investor's
investment in the Company that have been requested by the Investor. The Investor
further acknowledges that it understands that the Company is subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Investor has reviewed or received copies
of any such reports that have been requested by it.
Section 4.8 MANNER OF SALE. At no time was the Investor presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 5.1 COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the NASDAQ Small-Cap
Market.
Section 5.2 NO GENERAL SOLICITATION IN REGARD TO THIS TRANSACTION.
Neither the Company nor any of its affiliates nor any distributor or any person
acting on its or their behalf has conducted any general solicitation (as that
term is used in Rule 502(c) of Regulation D) with respect to any of the Common
Stock, nor have they made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Common Stock under the Securities Act or any state "blue
sky" law.
Section 5.3 Intentionally Omitted.
Section 5.4 VALID ISSUANCE OF CONVERTIBLE DEBENTURES AND STOCK.
(a) All of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable. As of the date of this Agreement, the Company has authorized
capitalization consisting of 25,000,000 shares of Common Stock, par value $.001
per share, 5,000,000 shares of Preferred Stock, par value $.001 per share, and
1,000,000 shares of Series A Preferred Stock, par value $.001 per SHARE. Stock
options granted or reserved for issuance to employees and directors of the
Company are as described in Schedule 5.4 hereto. As of May 26, 1998, there were
issued and outstanding 4,651,195 shares of Common Stock. As of the date of this
Agreement, the Company has no other capital stock issued and outstanding and no
other outstanding securities convertible into Common Stock other than as set
forth in Schedule 5.4 hereto.
(b) The Convertible Debenture has been duly authorized and, when issued
in accordance with this Agreement, will be a validly issued 8% Convertible
Debenture, with no personal liability attaching to the ownership thereof.
Additionally, the Convertible Debenture will be free and clear of all liens,
charges, restrictions, claims and encumbrances imposed by or through the Company
except as set forth in the Registration Rights Agreement and the holders of
outstanding Common Stock of the Company are not and shall not be entitled to
preemptive or other rights afforded by the Company to subscribe for the capital
stock or other securities of the Company as a result of the issuance or
conversion of the Convertible Debenture or issuance to or exercise of the
Warrants by the Investor hereunder.
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(c) Upon conversion of the Convertible Debenture, or the exercise of
the Warrants, in accordance with the terms and conditions of this Agreement, the
Convertible Debenture or such Warrants, such Common Stock will be duly and
validly issued, fully paid and nonassessable.
Section 5.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Texas and has the requisite corporate power to own its properties and to carry
on its business as now being conducted. Except as disclosed in Schedule 5.5, the
Company does not have any subsidiaries. The Company and each subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 5.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Convertible Debenture and the Warrants, (ii) the execution,
issuance and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or shareholders is required, and (iii) this
Agreement has been duly executed and delivered by the Company and constitutes
valid and binding obligations of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 5.7 CORPORATE DOCUMENTS. The Company has furnished or made
available or will furnish and make available prior to the Closing Date to the
Investor true and correct copies of the Company's Articles of Incorporation, as
amended and in effect on the date hereof (the "Articles"), and the Company's
By-Laws, as amended and in effect on the date hereof (the "By-Laws").
Section 5.8 NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Convertible Debenture and the Warrants do not and will not (i) result in a
violation of the Company's Articles of Incorporation or By-Laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or (iii)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect); nor is the Company otherwise in
violation of, in conflict with or in default under any of the foregoing;
provided that, for purposes of
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the Company's representations and warranties as to violations of foreign law,
rule or regulation referenced in clause (iii), such representations and
warranties are made only to the best of the Company's knowledge insofar as the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby are or may
be affected by the status of the Investor under or pursuant to any such foreign
law, rule or regulation). The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations which either singly or in the aggregate do not and will
not have a Material Adverse Effect. The Company is not required under federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Convertible Debenture or the Warrants
in accordance with the terms hereof (other than any SEC, NASD or state
securities filings which may be required to be made by the Company subsequent to
any Closing, and any registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 5.9 SEC DOCUMENTS. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 5.10 NO MATERIAL ADVERSE EFFECT. Since December 31, 1997, no
Material Adverse Effect has occurred or exists with respect to the Company or
its subsidiaries.
Section 5.11 NO UNDISCLOSED LIABILITIES. The Company and its
subsidiaries have no liabilities or obligations which are material, individually
or in the aggregate, and are not disclosed in the SEC Documents or otherwise
publicly announced, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since the filing of the
Company's most recent SEC Document, and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or upon any of
its subsidiaries.
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Section 5.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since the filing of
the Company's most recent SEC Document, no event or circumstance has occurred or
exists with respect to the Company or its subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 5.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Convertible Debenture or the Warrants or
the shares issuable on the exercise of the Warrants under the Securities Act or
any state "blue sky" law.
Section 5.14 LITIGATION AND OTHER PROCEEDINGS. Except as may be set
forth on Schedule 5.14 and in the SEC Documents, there are no lawsuits or
proceedings pending or to the best knowledge of the Company threatened, against
the Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which could reasonably be expected to
have a Material Adverse Effect on the Company or which could reasonably be
expected to materially adversely affect the transactions contemplated by this
Agreement. Except as set forth on Schedule 5.14 or in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or, so
far as is known by the Company, requested of any court, arbitrator or
governmental agency which could reasonably be expected to result in a Material
Adverse Effect on the Company or which could reasonably be expected to
materially adversely affect the transactions contemplated by this Agreement.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Registration Rights Agreement shall
remain in full force and effect and the Company shall comply in all respects
with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
its Common Stock incident to the conversion of the Convertible Debenture and
incident to the exercise of the Warrants; such amount of reserved shares of
Common Stock to be calculated based upon the minimum conversion price therefor
under the terms of this Agreement, and assuming the full exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered hereunder and the number of shares so reserved shall
be increased to reflect (a) potential increases in the Common Stock which the
Company may thereafter be so obligated to issue by reason of adjustments to the
purchase price therefor and the issuance of the Warrants and (b) stock splits
and stock dividends and distributions.
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Section 6.3 LISTING OF COMMON STOCK. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable but in any event within thirty (30) days after the Closing Date
inform the Nasdaq National Market Inc. of the transactions contemplated by this
Agreement, complete and file the applicable application and pay the required fee
as and when due and payable, and take such other actions as may be necessary to
cause the additional shares of Common Stock issuable under this Agreement
(including Common Stock issuable upon conversion of the Convertible Debenture
and exercise of the Warrants) to be listed. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Principal Market,
it will include in such application the Common Stock issuable under this
Agreement (including Common Stock issuable upon conversion of the Convertible
Debenture and exercise of the Warrants), and will take such other action as is
necessary or desirable to cause the Common Stock to be listed on such other
Principal Market as promptly as possible.
Section 6.4 REGISTRATION OF THE COMMON STOCK WITH THE SEC. Within ninety
(90) days following the Closing Date (if the Company is eligible to file on Form
S-3) or one hundred twenty (120) days following the Closing Date (if the Company
is not eligible to file on Form S-3), a registration statement on Form S-3 or
otherwise appropriate form (the "Registration Statement") for the registration
of the resale by the Investor of Common Stock to be issued upon conversion of
the Convertible Debenture and upon exercise of the Warrants under the Securities
Act shall have been declared effective by the SEC and no stop order or
suspension or withdrawal of the effectiveness of or with respect to any such
Registration Statement or any other suspension of the use of any such
Registration Statement or related prospectus shall have been issued by the SEC
or any state securities commission as long as the Registration Rights Agreement
is in effect; the Company shall be in compliance in all material respects with
the terms of the Registration Rights Agreement.
Section 6.5 LEGAL OPINIONS. The Company shall have caused to be
delivered to the Investor, (i) within five (5) Trading Days prior to the
Effective Date of the Registration Statement and (ii) to the extent provided by
Section 3.2, an opinion of the Company's independent counsel in form and
substance reasonably acceptable to the Investor and their counsel, addressed to
the Investor stating, inter alia, that, subject to such qualifications relating
to the absence of independent inquiry and to such counsel's actual knowledge as
are contained in the opinion delivered to the Investor by counsel to the Company
on the Closing Date, nothing shall have come to such counsel's attention that
causes such counsel to believe that the Registration Statement (if applicable,
as amended to the date thereof) contains an untrue statement of material fact or
omits a material fact required to make the statements contained therein, not
misleading or that the underlying prospectus (if applicable, as so amended or
supplemented) contains an untrue statement of material fact or omits a material
fact required to make the statements contained therein, in light of the
circumstances in which they were made, not misleading, except with respect to
the financial statements and the notes thereto and the schedules and other
financial and statistical data derived therefrom in the Registration Statement
or the Prospectus, as to which such counsel shall express no opinion; provided,
however, that in the event that such an opinion cannot be delivered by the
Company's independent counsel to the Investor, the Company shall promptly revise
the Registration Statement so that such opinion can be delivered, such opinion
shall be promptly delivered after such revision becomes effective. The Company's
independent counsel shall also
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deliver to the Investor on the Closing Date an opinion in form and substance
satisfactory to the Investor and its counsel addressing, among other things,
corporate matters and the exemption from registration under the Securities Act
of the issuance of the Convertible Debenture and the Warrants by the Company to
the Investor under this Agreement.
Section 6.6 EXCHANGE ACT REGISTRATION. The Company will cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
said Act, and will not take any action or file any document (whether or not
permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act. The Company will take all action to continue the listing and
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section 6.7 LEGENDS. The certificates evidencing the Common Stock to be
issued to the Investor upon the conversion of the Convertible Debenture and the
exercise of the Warrants, subject to the continued effectiveness of the
appropriate registration statement, shall be free of legends, so-called "stop
transfer," or "stock transfer restrictions," or other restrictions upon transfer
by the Investor to a bona fide third party which is not an affiliate of the
Company. Notwithstanding the absence of such legends or restrictions, the
Investor agrees to comply with Securities Act prospectus delivery requirements
in any sale of Common Stock not made in compliance with Rule 144 or another
available exemption. Immediately following the Effective Date, the Investor
shall have the right to surrender the Convertible Debenture in exchange for
certificates free of legends, "stop transfer" or "stock transfer restrictions,"
or other restrictions upon transfer, and the Company agrees to perform whatever
acts are reasonably necessary to facilitate such exchange on a timely basis.
Section 6.8 CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.9 ADDITIONAL SEC DOCUMENTS. The Company will furnish to the
Investor upon request copies of all SEC Documents furnished or submitted to the
SEC.
Section 6.10 "BLACKOUT PERIOD". The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of Common
Stock by the Investor: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the registration statement or for amendments or supplements
to the registration statement or related prospectus; (ii) the issuance by the
SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of the registration statement or the initiation or
threatening of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Common Stock for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose; (iv) the
happening of any event which makes any statement made in the registration
statement or related prospectus or any document incorporated or deemed to be
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incorporated therein by reference untrue in any material respect or which
requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of the registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate; and the Company
will promptly furnish to the Investor and counsel for the Investor any such
supplement or amendment to the related prospectus, which shall be subject to
review and comment by such parties and shall thereafter be promptly filed with
the SEC.
Section 6.11 PENALTIES FOR FAILURE TO OBTAIN OR MAINTAIN EFFECTIVENESS
OF A REGISTRATION STATEMENT.
(a) In the event the Company fails to file a Registration Statement and
obtain the effectiveness of a Registration Statement within the applicable
period set forth in Section 6.4, or the effectiveness of the Registration
Statement is suspended or a current prospectus meeting the requirements of
Section 10 of the Securities Act is not available for delivery by the Investor
(such suspension or failure of delivery is referred to herein as a
"suspension"), and such occurrence is not the result of any information provided
or failed to be provided by the Investor or some unforeseeable catastrophe
affecting the operation of the SEC, the Company shall pay to the Investor within
five (5) days following the end of the first 30-day period following the date by
which such Registration Statement was required to have been declared effective,
or following the date of suspension, in cash, an aggregate amount equal to two
percent (2%) of the principal amount of the Convertible Debenture then
outstanding, and for each 30-day period thereafter an aggregate amount equal to
three (3%) of the principal amount of the Convertible Debenture then
outstanding. If the Registration Statement is declared effective after the
passage of such 90-day period, the applicable payment will be reduced PRO RATA
based upon the actual number of days between (i) the date on which such
Registration Statement is declared effective, and (ii) the end of such 30-day
period. All amounts payable hereunder shall be paid to the Investor by cashier's
check or wire transfer in immediately available funds to such account or
accounts as shall be designated in writing by the Investor.
(b) The parties agree that the actual damages suffered by the Investor
if the Company fails to file and obtain the effectiveness of a Registration
Statement may be difficult to ascertain with precision and that the parties have
agreed to this liquidated damage provision in view of such uncertainty and not
as a penalty.
Section 6.12 LEGAL FEES AND EXPENSES. The Company shall pay upon
demand or otherwise 50% of all reasonable legal fees and expenses incurred by
the Investor in connection with negotiation, drafting, documentation and closing
of the transactions contemplated by this Agreement, the Warrants and the
Registration Rights Agreement except as otherwise expressly provided in Section
3.2 of the Registration Rights Agreement.
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ARTICLE VII
LEGENDS; INVESTOR COVENANTS
Section 7.1 LEGENDS. The Convertible Debenture and each Warrant will
bear the following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Convertible Debenture and Common Stock (and to any
substitute or replacement transfer agent for the Convertible Debenture and
Common Stock contemporaneous with the Company's appointment of any such
substitute or replacement transfer agent) irrevocable instructions. Such
instructions shall be irrevocable by the Company from and after the date hereof
or from and after the issuance thereof to any such substitute or replacement
transfer agent, as the case may be, except as otherwise expressly provided in
the Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the
Convertible Debenture and Common Stock from time to time upon transfer of the
Convertible Debenture and Common Stock by the Investor to issue certificates
evidencing Common Stock free of the Legend during the following periods and
under the following circumstances and without consultation by the transfer agent
with the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) At any time after the Effective Date: (i) incident to the conversion
of shares of the Convertible Debenture; (ii) incident to the exercise of any
Warrant; or (iii) upon any surrender of one or more certificates evidencing
Common Stock which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered; and
(b) At any time upon any surrender of the Convertible Debenture or
Common Stock which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered and containing representations that (i) the Investor has a bona fide
intention to dispose of such stock pursuant to Rule 144 under the Securities Act
or is otherwise permitted to dispose thereof without limitation as to amount or
manner of sale pursuant to Rule 144(k) under the Securities Act; or (ii) the
Investor has sold, pledged or otherwise transferred or agreed to sell, pledge or
otherwise transfer such stock in a manner other than pursuant to an effective
registration statement, to a transferee who will upon such transfer be entitled
to freely tradeable securities; provided that in connection with an event
described in clause (i) or (ii), the transfer agent shall be entitled to receive
an opinion of counsel to
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the Investor that in such circumstances the Legend may be removed and that the
transferee (provided that such transferee is not an affiliate of the Company)
shall be entitled to hold freely tradable securities.
Section 7.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend
has been or shall be placed on the Convertible Debenture and Common Stock and no
instructions or "stop transfers," so called, "stock transfer restrictions," or
other restrictions have been or shall be given to the Company's transfer agent
with respect thereto other than as expressly set forth in this Article VII.
Section 7.3 INVESTOR'S COMPLIANCE. Nothing in this Article VII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Convertible Debenture and
Common Stock.
Section 7.4 COVENANTS OF THE INVESTOR. The Investor agrees that any
short sales made by the Investor with respect to Common Stock will be (i)
followed by a notice of conversion with respect to an equivalent number of
shares of Common Stock within five (5) Trading Days of such short sale, and (ii)
made in compliance with all applicable federal and state securities laws.
ARTICLE VIII
JURY TRIAL WAIVER
Section 8.1 JURY TRIAL WAIVER. THE COMPANY AND THE INVESTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM CONCERNING THIS SECURITIES PURCHASE AGREEMENT OR ANY
AMENDMENT, MODIFICATION OR OTHER DOCUMENT NOW OR HEREAFTER DELIVERED IN
CONNECTION WITH ANY OF THE FOREGOING, AND AGREE THAT ANY SUCH ACTION, PROCEEDING
OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
ARTICLE IX
CHOICE OF LAW AND VENUE
Section 9.1 CHOICE OF LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby irrevocably
and unconditionally:
(a) Submits for itself and its property in any action, suit or
proceeding relating to this Agreement, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts thereof;
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(b) Agrees that any such action, suit or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action, suit or proceeding in any such court or
that such action, suit or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) Irrevocably consents to the service of any and all process in
any such action, suit or proceeding by the mailing of copies of such process by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company, at its address set forth in Section 11.1 of
this Agreement or at such other address of which the Investor shall have been
notified pursuant thereto;
(d) Agrees that nothing herein shall affect the right of the
Investor to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) Waives any right it may have to claim or recover in any legal
action, suit or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
ARTICLE X
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; PUBLICITY
Section 10.1 ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by any party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Warrants, Convertible Debenture and Common Stock purchased or acquired by
the Investor hereunder with respect to the Convertible Debenture and Common
Stock held by such person, and (b) the Investor's interest in this Agreement may
be assigned at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investor) upon the prior written consent of the
Company, which consent shall not to be unreasonably withheld, PROVIDED that if
any Default has occurred and is continuing, this Agreement may be assigned at
any time by the Investor without the consent of the Company.
Section 10.2 ENTIRE AGREEMENT, AMENDMENT. This Agreement, the
Registration Rights Agreement, and the other documents delivered or to be
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject hereof and thereof, and
no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
Section 10.3 PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
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ARTICLE XI
NOTICES; COST AND EXPENSES; INDEMNIFICATION
Section 11.1 NOTICES. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice:
(a) if to the Company, to: Telscape International, Inc.
2700 Post Oak Boulevard
Suite 1000
Houston, Texas 77056
Attention: Todd M. Binet, Executive
Vice President
Facsimile No.: (713) 968-0930
with a copy to: Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington D.C. 20007
Attention: Andrew M. Ray, Esq.
Facsimile No.: (202) 424-7643
(b) if to the Investor, to: Gordon Brothers Capital, LLC
126 East 56th Street
New York, New York 10022
Attention: Natalie Jacobson
Facsimile No.: (212) 752-9753
with copies to: Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Lawrence S. Goldberg, Esq.
Facsimile No.: (212) 593-5955
Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the second business day following delivery
of such notice by a reputable air courier service.
Section 11.2 INDEMNIFICATION.
(a) INDEMNIFICATION OF INVESTOR. The Company agrees to indemnify and
hold harmless the Investor and each person, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act as follows:
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(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement of
a material fact contained in the Registration Statement (or any
amendment thereto), including any prospectus, or in any offering
circular or other document, as applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statement therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any prospectus (or any amendment or supplement thereto), or
in any offering circular or other document, as applicable, or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
11.2(d) below) any such settlement is effected with the written consent
of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Investor), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above; provided, however, that
this indemnity shall not apply to any loss, liability, claim, damage or
expense to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by the
Investor expressly for use in the Registration Statement (or any
amendment thereto), including any prospectus (or any amendment or
supplement thereto), or in any offering circular or other document, as
applicable.
(b) INDEMNIFICATION OF COMPANY. The Investor agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including any prospectus (or any amendment or supplement thereto), or in
offering circular or other document, as applicable, in reliance upon and in
conformity with written information furnished to the Company by the Investor
expressly for use in the Registration Statement (or any amendment or supplement
thereto) or in any offering circular or other document, as applicable.
(c) ACTION AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it
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in respect of which indemnity may be sought hereunder, but failure to so notify
an indemnifying party shall not relieve such indemnifying party from any
liability hereunder to the extent it is not materially prejudiced as a result
thereof and in any event shall not relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 11.2(a) above, counsel to the
indemnified parties shall be selected by the Investor, and in the case of
parties indemnified pursuant to Section 11.2(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, unless the named parties to any
such litigation (including impleaded parties) include both such indemnified
parties and one or more of the indemnifying parties and their affiliates, and
representation of such parties by the same counsel would be inappropriate due to
actual or potential conflicting defenses, in which case such parties with a
conflicting defense shall be represented by one counsel selected by such
parties. No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry or any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section or Section 11.3 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of an any indemnified
party.
(d) SETTLEMENT WITHOUT CONSENT OR FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for the fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 11.2(a)(ii) effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
Section 11.3 CONTRIBUTION. If the indemnification provided for in
Section 11.2 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to herein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and of the Investor on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company
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on the one hand and the Investor on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Investor and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 11.3 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11.3.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 11.3
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 11.3, the Investor shall
not be required to contribute any amount in excess of the amount by which the
total price at which the shares of Common Stock sold by the Investor to the
public exceeds the amount of any damages which the Investor would have otherwise
been required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 11.3, each person, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as such Investor,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as the Company.
ARTICLE XII
MISCELLANEOUS
Section 12.1 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which together shall constitute one instrument.
Section 12.2 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.2
and 11.3 hereof shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any indemnified party or by or on behalf of the Company, and (iii) the
consummation of the sale or successive resales of the Common Stock. In the event
that any
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provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that such severability
shall be ineffective if it materially changes the economic benefit of this
Agreement to any party.
Section 12.3 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.4 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg L.P. or any other reputable pricing service chosen by the Investor
and reasonably acceptable to the Company.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first
written above.
GORDON BROTHERS CAPITAL, LLC
By: /s/ Warren Feder
Its: President
TELSCAPE INTERNATIONAL, INC.
By: /s/ Todd M. Binet
Its: Executive Vice President
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LIST OF EXHIBITS AND SCHEDULES
Exhibits
A Form of Convertible Debenture
B Form of Warrant
C Form of Registration Rights Agreement
SCHEDULES
5.4 Common Stock Equivalents
5.5 List of Subsidiaries
5.14 Litigation and Other Proceedings
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
CONVERTIBLE DEBENTURE
$5,000,000 Issued: May 29, 1998
Due Date: May 28, 1999
FOR VALUE RECEIVED, TELSCAPE INTERNATIONAL, INC., a corporation
organized and existing under the laws of the State of Texas (herein referred to
as the "COMPANY"), for value received, acknowledges itself indebted and hereby
promises to pay to GORDON BROTHERS CAPITAL, LLC, a Delaware limited liability
company (the "REGISTERED OWNER") on the due date written above (the "DUE DATE"),
the sum of Five Million Dollars and No Cents ($5,000,000), along with interest
accrued thereon from the date hereof at the rate of eight percent (8%) per annum
and Exit Fee (as hereinafter defined) as applicable; PROVIDED, HOWEVER, that
following the occurrence and during the continuance of a Default (as defined
below), the Company shall pay to Registered Owner interest from the date of such
Default at the rate of twelve percent (12%) per annum on the outstanding balance
of this Convertible Debenture. Payment of interest shall be made monthly in
arrears on the last day of each calendar month (commencing June 30, 1998) and,
after maturity, upon demand of Registered Owner.
This Convertible Debenture is issued pursuant to the terms of that
certain Securities Purchase Agreement of even date herewith between the Company
and the Registered Owner (the "SECURITIES PURCHASE AGREEMENT"), to which
reference is hereby made for additional provisions governing the obligations of
the Company. Capitalized terms used in this Convertible Debenture which are not
defined herein shall have the meanings assigned to them in the Securities
Purchase Agreement
1. PAYMENT OF PRINCIPAL AND INTEREST. The principal and interest
outstanding under this Convertible Debenture shall be made at the principal
office of the Registered Owner, located at 126 East 56th Street, New York, NY
10022. All computations of interest under this Convertible Debenture shall be
made on the basis of a year of 365 days, for the actual number of days elapsed.
Interest shall accrue from and including the date that the purchase price of
this Convertible Debenture is paid. The date of redemption of this Convertible
Debenture shall be excluded from the calculation of interest. Whenever any
payment to be made under this Convertible Debenture shall be stated to be due on
a Saturday, Sunday, or public or bank holiday or the equivalent for banks
generally under the laws of the State of New York (any other day being a
"BUSINESS DAY"), such payment may be made on the next succeeding business day.
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2. PREPAYMENT. The Company may, upon at least two Business Days' prior
written notice, prepay this Convertible Debenture in whole at any time and in
part from time to time. Each partial prepayment made pursuant to this paragraph
shall be in a minimum principal amount of $500,000 and in an integral multiple
of $500,000 in excess thereof. Any notice of prepayment given to the Registered
Owner pursuant to this paragraph 2 shall be irrevocable and binding on the
Company and shall specify the date of prepayment. Each prepayment made pursuant
to this paragraph 2 shall be accompanied by the payment of (a) accrued interest
to the date of such prepayment on the amount prepaid and (b) the applicable exit
fee (the "EXIT FEE") relating to such prepayment amount. The Exit Fee shall be
an amount which is a function of the number of days after the Closing Date that
the prepayment or payment of the Convertible Debenture occurs (the "PAYMENT
DATE"), as set forth in the following table:
Number of Days after Closing
Date that Payment Occurs
("PAYMENT PERIOD") EXIT FEE
PART A
0-90 6 1/2% of principal payment on Convertible Debenture
91-180 13% of principal payment on Convertible Debenture
181-270 19% of principal payment on Convertible Debenture
271-365 25% of principal payment on Convertible Debenture
PART B
After the Due Date, the Exit Fee shall be equal to twenty
five percent (25%) of any subsequent principal payment, PLUS
twenty five percent (25%) of such subsequent principal
payment times a fraction, the numerator of which is the
number of days elapsed from the Due Date as of such
subsequent principal payment date and the 366 days and
thereafter denominator of which is 365.
Notwithstanding the foregoing or anything to the contrary contained in this
Convertible Debenture, for each repayment period set forth above in Part A
(other than the 0-90 day period), the applicable Exit Fee shall be reduced PRO
RATA based upon the actual number of days between the Payment Date and the
ending date of the APPLICABLE PAYMENT PERIOD.
3. TERMINATION OR SUSPENSION OF COMPANY'S OBLIGATION TO MAKE PAYMENTS.
If (i) the Common Stock closes at $33.50 or higher for twenty (20) consecutive
Trading Days, as adjusted, without limitation, for any stock splits or
combinations, (ii) the Registration Statement shall have been declared and shall
then be effective and (iii) no Default shall exist, then the
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Company's obligation to make interest payments on this Convertible Debenture
shall terminate. If the Company's obligation to make interest payments on this
Convertible Debenture terminates in accordance with the foregoing sentence, any
and all interest accrued in accordance with this Convertible Debenture prior to
such date of termination shall be due and payable on the last day of the then
current calendar month, without diminution or reduction notwithstanding the
termination of the Company's obligation to pay interest accruing after such
twentieth consecutive Trading Day. It is understood and agreed that such
termination shall not affect the Company's obligation to pay the Exit Fee upon
the payment of the principal of this Debenture.
4. SECURITY. This Convertible Debenture shall be secured by the Pledge
Agreement made by the Company in favor of the Investor, the Guaranty made by
Interlink Communications, Inc. in favor of the Investor, and the Security
Agreement made by Interlink Communications, Inc. in favor of the Investor, each
as amended or otherwise modified from time to time.
5. CONVERSION.
(a) CONVERSION CALCULATION. The Registered Owner is entitled at
any time and from time to time to convert all, or any part thereof, of
the unpaid principal and interest (but without any Exit Fee) outstanding
under this Convertible Debenture (the "OUTSTANDING DEBENTURE AMOUNT")
into that number of fully paid and non-assessable shares of Common Stock
(as defined in the Securities Purchase Agreement), at a price calculated
as follows:
(i) if the Registered Owner converts the Outstanding
Debenture Amount on or prior to November 1, 1998, the conversion
price shall be equal to the Fixed Conversion Price (as defined in
the Securities Purchase Agreement), or
(ii) if the Registered Owner converts the Outstanding
Debenture Amount on November 2, 1998, or at any time thereafter,
the conversion price shall be equal to the lesser of the Fixed
Conversion Price or the Variable Conversion Price (as defined in
the Securities Purchase Agreement).
Notwithstanding anything to the contrary, the Company shall have the
option to pay the outstanding interest of this Convertible Debenture
then accrued upon receipt of the Conversion Notice (as defined below) in
cash.
(b) EXERCISE OF CONVERSION. To exercise its right of conversion,
the Registered Owner shall surrender this Convertible Debenture to the
Company at its registered office, accompanied by a written notice in the
form of EXHIBIT A hereto, properly completed (the "CONVERSION NOTICE").
Within five (5) Trading Days following its receipt of this Convertible
Debenture and Conversion Notice, the Company shall, assuming it has not
elected to exercise its right to redeem pursuant to Paragraph 6 below,
issue and deliver (i) a certificate or certificates for the number of
full Conversion Shares issuable, registered in the Registered Owner's
name, and (ii) if less than the entire remaining outstanding principal
balance of this Convertible Debenture is being converted, a replacement
note in the remaining outstanding principal amount of this Convertible
Debenture. Such conversion shall be deemed to have been effected and the
number of Conversion Shares issuable in connection with such conversion
shall be determined as of the close of
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business on the date on which this Convertible Debenture and Conversion
Notice shall have been received by the Company. No Exit Fee shall be
payable on the portion of the Convertible Debenture being converted.
6. REDEMPTION. If at any time during the term of this Agreement the
price per share of Common Stock has closed below the Redemption Floor Price for
three (3) consecutive Trading Days, the Company may elect to redeem all or part
of this Convertible Debenture, if the Investor subsequently issues a Conversion
Notice and converts any Convertible Debenture, at one hundred seven percent
(107%) of par, plus any accrued interest or unpaid dividends (but without any
Exit Fee), by providing written notice via facsimile to the Investor on the
Trading Day immediately following the third consecutive Trading Day that the
Common Stock has closed below the Redemption Floor Price, as adjusted pursuant
Section 8.1 of the Securities Purchase Agreement, of its intent to redeem and
the extent of the redemption. Such written notice shall be valid and irrevocable
for ten (10) Trading Days and shall automatically expire at the end of such
10-Trading Day period.
7. REGISTRATION RIGHTS AGREEMENT. The resale of the shares of Common
Stock issuable upon conversion of this Convertible Debenture is subject to the
provisions of the Registration Rights Agreement of even date herewith by and
between the Company and the Registered Owner.
8. DEFAULT.
(a) DEFAULT. If any of the following events ("DEFAULTS") shall
occur and be continuing:
(i) the Company fails to pay within five (5) days when due
or declared due (whether by scheduled maturity, required payment,
acceleration, demand or otherwise) any principal or interest due
hereunder or any amount payable to the Registered Owner under the
Securities Purchase Agreement; or
(ii) the Company shall fail to perform or observe any
covenant or agreement contained in Article VI of the Securities
Purchase Agreement (other than with respect to any payment
covenants, as to which subsection (i) shall apply), as the case
may be, on its part to be performed or observed, and any such
failure shall remain unremedied for thirty (30) days after
written notice thereof shall have been given to the Company by
the Registered Owner; or
(iii) any "Event of Default" shall occur and be continuing
under the General Security Agreement dated the date hereof (as
amended or otherwise modified from time to time, the "Security
Agreement"), by Interlink Communications, Inc. in favor of the
Investor;
then the Registered Owner may declare all or any portion of the principal and
interest due hereunder, the Exit Fee and all amounts due under the Securities
Purchase Agreement to be immediately due and payable.
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<PAGE>
(b) RIGHTS AND REMEDIES. In the event of a Default, the
Registered Owner shall have, in addition to any other rights and
remedies contained in the Securities Purchase Agreement, under the other
Transaction Documents (as defined in the Security Agreement), at law or
otherwise, all of which such rights and remedies shall be cumulative,
and non-exclusive, to the extent permitted by law, the Registered Owner
shall have the right to immediately convert any remaining Outstanding
Debenture Amount. It is understood and agreed that the Exit Fee will be
due and payable with respect to any payment of principal hereunder
(whether before or after the occurrence of Default), except for any
payment of principal pursuant to Section 6 hereof; PROVIDED, HOWEVER,
that no Exit Fee shall be payable on the portion of any Outstanding
Debenture Amount which is converted.
9. TRANSFER. THIS CONVERTIBLE DEBENTURE IS REGISTERED IN THE NAME OF THE
REGISTERED OWNER ON THE DEBENTURE REGISTER MAINTAINED BY THE COMPANY, AND IS
TRANSFERABLE UPON THE WRITTEN ORDER OF THE REGISTERED OWNER. THIS CONVERTIBLE
DEBENTURE (AND THE COMMON STOCK OF THE COMPANY INTO WHICH IT MAY BE CONVERTED)
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
WITHOUT THE REGISTRATION THEREOF UNDER THE SECURITIES ACT, AND ANY APPLICABLE
STATE SECURITIES LAW, OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
10. CONSENT TO JURISDICTION. The Company hereby irrevocably and
unconditionally:
(a) Submits for itself and its property in any action, suit or
proceeding relating to this Convertible Debenture, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
thereof;
(b) Agrees that any such action, suit or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action, suit or proceeding in any such court or
that such action, suit or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) Irrevocably consents to the service of any and all process in
any such action, suit or proceeding by the mailing of copies of such process by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company, at its address set forth in Section 11.1 of the
Securities Purchase Agreement or at such other address of which the Registered
Holder shall have been notified pursuant thereto;
(d) Agrees that nothing herein shall affect the right of the
Registered Holder to effect service of process in any other manner permitted by
law or shall limit the right to sue in any other jurisdiction; and
(e) Waives any right it may have to claim or recover in any legal
action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
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<PAGE>
11. AMENDMENTS. No amendment or waiver of any provision of this
Convertible Debenture, nor consent to any departure by the Company therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Registered Owner, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
12. EXPENSES. The Company agrees to promptly pay all reasonable costs
and expenses (including attorneys' fees, expenses and disbursements, and costs
of settlement and the fees, expenses and disbursements of experts or advisors)
incurred by the Registered Owner in enforcing any obligations of or in
collecting any payments due from the Company under this Convertible Debenture
and the Securities Purchase Agreement.
13. JURY TRIAL WAIVER. THE COMPANY AND THE REGISTERED HOLDER (BY ITS
ACCEPTANCE HEREOF) HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING THIS
CONVERTIBLE DEBENTURE OR ANY AMENDMENT, MODIFICATION OR OTHER DOCUMENT NOW OR
HEREAFTER DELIVERED IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREE THAT ANY
SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
IN WITNESS WHEREOF, TELSCAPE INTERNATIONAL, INC. has caused this
Convertible Debenture to be duly executed this 29th day of May, 1998.
TELSCAPE INTERNATIONAL, INC.
By: /s/ Todd M. Binet
Its: Executive Vice President
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<PAGE>
EXHIBIT A
[FORM OF CONVERSION NOTICE]
TO: Telscape International, Inc.
The undersigned owner of this Convertible Debenture hereby: (i)
irrevocably exercises the option to convert this Convertible Debenture, or the
portion hereof below designated, for Common Stock of Telscape International,
Inc. (the "Conversion Shares") in accordance with the terms hereof and (ii)
directs that such Conversion Shares deliverable upon the conversion, together
with any check in payment for fractional shares and interest and the Convertible
Debenture representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If Conversion Shares are to be delivered or registered in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes with respect thereto, and the Company will not be required to
issue or deliver a certificate for such Conversion Shares until the undersigned
has paid to the Company the amount of such transfer tax or has established to
the satisfaction of the Company that such transfer tax has been paid.
Dated:______________________
-------------------------
Signature
Fill in for registration of shares if to be delivered, and of this Convertible
Debenture if to be issued, otherwise than to and in the name of the registered
holder.
-------------------------
Social Security or Other
Taxpayer Identifying Number
-----------------------------
(Name)
-----------------------------
(Street Address)
-----------------------------
(City, State and Zip Code)
(Please print name and address)
Principal Amount to be Converted (if
less than all):
$___________________________________
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<PAGE>
STOCK PURCHASE WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Warrant A-51
May 29, 1998
Warrant to Purchase 12,136 Shares of Common Stock of
Telscape International, Inc.
Telscape International., a Texas corporation (the "COMPANY"), hereby
acknowledges that Gordon Brothers Capital, LLC ("INVESTOR") or any other Warrant
Holder is entitled, on the terms and conditions set forth below, to purchase
from the Company, at any time, from time to time thereafter beginning after the
effectiveness of the Registration Statement and continuing for three years, with
respect to the above number of fully paid and nonassessable shares of Common
Stock, par value $0.001 per share, of the Company (the "COMMON STOCK") at the
Purchase Price (hereinafter defined), as the same may be adjusted pursuant to
Section 5 herein. The resale of the shares of Common Stock or other securities
issuable upon exercise or exchange of this Warrant is subject to the provisions
of the Registration Rights Agreement of even date herewith (the "REGISTRATION
RIGHTS AGREEMENT") between the Company and the Investor.
1. DEFINITIONS.
(a) "AGREEMENT" shall mean the Securities Purchase Agreement of
even date herewith between the Company and the Investor.
(b) "INVESTOR" shall mean Gordon Brothers Capital, LLC, a
Delaware limited liability company.
(c) "PURCHASE PRICE" shall be the average closing price for the
five (5) Trading Days immediately preceding the Closing Date, which is $20.60.
(d) "WARRANT HOLDER" shall mean the Investor or any permitted
assignee of all or any portion of this Warrant.
(e) "WARRANT SHARES" shall mean the shares of Common Stock or
other securities issuable upon exercise of this Warrant.
<PAGE>
(f) Other capitalized terms used herein which are defined in the
Agreement shall have the same meanings herein as therein.
2. EXERCISE OR EXCHANGE OF WARRANT.
(a) This Warrant may be exercised by the Warrant Holder, in whole
or in part, in accordance with the terms hereof by surrender of this Warrant,
together with the form of exercise attached hereto as Exhibit A (the "EXERCISE
FORM") duly executed by the Warrant Holder, together with the full Purchase
Price (as defined in Section 1 hereof) for each share of Common Stock as to
which this Warrant is exercised, to the Company at the address set forth in
Section 13 hereof. In the event that the Warrant is not exercised in full, the
number of Warrant Shares shall be reduced by the number of such Warrant Shares
for which this Warrant is exercised, and the Company, at its expense, shall
forthwith issue and deliver to or upon the order of the Warrant Holder a new
Warrant of like tenor in the name of the Warrant Holder or as the Warrant Holder
may request, reflecting such reduced number of Warrant Shares.
(b) The "DATE OF EXERCISE" of the Warrant shall be the date that
the completed Exercise Form is delivered to the Company, together with the
original Warrant and payment in full of the Purchase Price.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon
as practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) Trading Days (as defined in the Agreement) thereafter, the
Company at its expense (including, without limitation, the payment by it of any
applicable transfer taxes) will cause to be issued in the name of and delivered
to the Warrant Holder, or as the Warrant Holder may lawfully direct, a
certificate or certificates for the number of fully paid and non-assessable
shares of Common Stock to which the Warrant Holder shall be entitled on such
exercise, together with any other stock or other securities or property
(including cash, where applicable) to which the Warrant Holder is entitled upon
such exercise in accordance with the provisions hereof.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall be entitled to an amount of cash equal to
the fair market value of such fractional share. For purposes of this Warrant,
"FAIR MARKET VALUE" shall equal the closing bid price of the Common Stock on the
Nasdaq National Market or Small-Cap Market, the American Stock Exchange or the
New York Stock Exchange, whichever is the principal trading exchange or market
for the Common Stock (the "PRINCIPAL MARKET") on the date of exercise hereof, or
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market or Small-Cap Market,
the closing bid price on the over-the-counter market as furnished by any New
York Stock Exchange member firm that makes a market in the Common Stock
reasonably selected from time to time by the Company for that purpose, or, if
the Common Stock is not traded over-the-counter and the average price cannot be
determined as contemplated above, the fair market value of
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<PAGE>
the Common Stock shall be as reasonably determined in good faith by the
Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall file and cause to declared effective a
registration statement under the Securities Act covering the resale or other
disposition thereof of the Warrant Shares by the Warrant Holder to the extent
provided by the Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation,
including, without limitation, the notification of the Nasdaq National Market,
for the legal and valid issuance of this Warrant and the Warrant Shares to the
Warrant Holder.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps necessary and within
its control to insure that the Common Stock remains listed or quoted on the
Principal Market and shall not amend its Articles of Incorporation or By-Laws so
as to materially and adversely affect any rights of the Warrant Holder under
this Warrant; provided, however, that increasing the number of authorized shares
shall not be deemed a material adverse effect.
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable as Warrant Shares.
(e) The Warrant Shares, when issued in accordance with the terms
hereof; will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable. The
Company has authorized and reserved for issuance to the Warrant Holder the
requisite number of shares of Common Stock to be issued pursuant to this
Warrant.
(f) With a view to making available to the Warrant Holder the
benefits of Rule 144 promulgated under the Securities Act ("RULE 144") and any
other rule or regulation of the Securities and Exchange Commission (the "SEC"),
that may at any time permit Warrant Holder to sell securities of the Company to
the public without registration, the Company agrees to use its best efforts to:
(i) make and keep public information available, as those terms are defined in
Rule 144, at all times; and (ii) file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of and
kind of securities purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number
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<PAGE>
of Warrant Shares as to which this Warrant is exercisable as of the date of such
subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the Purchase Price, but the aggregate purchase price payable for the
total number of Warrant Shares purchasable under this Warrant as of such date
shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into or exchangeable for
Common Stock ("COMMON STOCK EQUIVALENTS"), without payment of any consideration,
or with payment of consideration less than eighty-five percent of the fair
market value of such Common Stock or Common Stock Equivalents, by holders of
Common Stock for the additional shares of Common Stock or Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
exercise or conversion thereof), then the number of shares of Common Stock for
which this Warrant may be exercised shall be increased as of the record date (or
the date of such dividend distribution if no record date is set) for determining
which holders of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend (but taking into
account any consideration paid), and the Purchase Price shall be adjusted so
that the aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date (or on the date of such
distribution, if applicable) for such dividend shall equal the aggregate amount
so payable.
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of a
dissolution or liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets without payment
of any consideration, or with payment of consideration that is less than
eighty-five percent of the fair market value of such shares of capital stock,
evidence of indebtedness or assets so distributed, by holders of Common Stock
(other than cash, Common Stock or securities convertible into or exchangeable
for Common Stock), then, in any such case, the Warrant Holder shall be entitled
to receive, upon exercise of this Warrant, with respect to each share of Common
Stock issuable upon such exercise, the amount of cash or evidences of
indebtedness or other securities or assets (taking into account any
consideration paid) which such Warrant Holder would have been entitled to
receive with respect to each such share of Common Stock as a result of the
happening of such event had this Warrant been exercised immediately prior to the
record date or other date determining the shareholders entitled to participate
in such distribution (the "DETERMINATION DATE") or, in lieu thereof, if the
Board of Directors of the Company should so determine at the time of such
distribution, a reduced Purchase Price determined by multiplying the Purchase
Price on the Determination Date by a fraction, the numerator of which is the
result of such Purchase Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined in good
faith by the Company's Board of Directors) and the denominator of which is such
Purchase Price.
(d) MERGER, CONSOLIDATION, ETC. If at any time after the date
hereof there shall be a merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "CONSOLIDATION EVENT"), then the Warrant Holder
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<PAGE>
shall be entitled to receive upon such transfer, merger or consolidation
becoming effective, and upon payment of the aggregate Purchase Price then in
effect, the number of shares or other securities or property of the Company or
of the successor corporation resulting from such merger or consolidation, which
would have been received by Warrant Holder for the shares of stock subject to
this Warrant had this Warrant been exercised immediately prior to such transfer,
merger or consolidation becoming effective or to the applicable record date
thereof, as the case may be. The Company shall not effect any Consolidation
Event unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligation to deliver to the Warrant Holder
such shares of stock and/or securities as the Warrant Holder is entitled to
receive had this Warrant been exercised in accordance with the foregoing;
provided, however, that if as of the third business day prior to the
consummation of the Consolidation Event the closing bid price of the Common
Stock shall be equal to at least 200% of the Purchase Price, then the Warrant
shall be automatically exchanged on the date of consummation of the
Consolidation Event, as provided in Section 2 hereof.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reclassification of any securities as to which purchase rights
under this Warrant exist, into the same or a different number of securities of
any other class or classes, then the Warrant Holder shall thereafter be entitled
to receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Purchase Price then in effect, the number of shares or other
securities or property resulting from such reorganization or reclassification,
which would have been received by the Warrant Holder for the shares of stock
subject to this Warrant had this Warrant at such time been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of its Common Stock or any such convertible securities (other than issuance of
shares of Common Stock upon conversion thereof, shares or options issued or
which may be issued to employees, directors or consultants pursuant to the
Company's stock option or stock purchase plans as of the date hereof or shares
issued upon exercise of options, warrants or rights outstanding as of the date
hereof) at an effective purchase price per share which is less than the Purchase
Price then in effect and more than fifteen percent (15%) less than the fair
market value (as herein above defined) of the Common Stock on the Trading Day
next preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying the
Purchase Price then in effect by a fraction, (x) the numerator of which shall be
the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale, including, without duplication, those deemed to
have been issued under the Warrants plus (2) the number of shares of Common
Stock which the aggregate consideration received by the Company for such
additional shares would purchase at such fair market value then in effect and
(y) the denominator of which shall be the number of shares of Common Stock of
the Company outstanding immediately after such issue or sale including, without
duplication, those deemed to have been issued under the Warrants. For purposes
of the foregoing fraction, Common Stock outstanding shall include, without
limitation, any equity offerings then outstanding, whether or not they are
exercisable or convertible when such fraction is to be determined.
5
<PAGE>
The foregoing price adjustment shall not apply to the issuance of shares
of Common Stock which may be issued upon exercise of options under the Company's
employee or director stock option plans, upon the conversion or exchange of
convertible or exchangeable securities or upon the exercise of warrants, or
other rights, which options, convertible or exchangeable securities, warrants or
other rights are outstanding on the date of execution and delivery of this
Warrant.
The number of shares which may be purchased shall be increased
proportionately to any reduction in Purchase Price pursuant to this paragraph
5(f), so that after such adjustments the aggregate Purchase Price payable
hereunder for the increased number of shares of Common Stock shall be the same
as the aggregate Purchase Price in effect immediately prior to such adjustments.
Notwithstanding anything else contained in this Warrant to the contrary,
there shall be no adjustment of the Purchase Price or the number of shares of
Common Stock issuable pursuant to the exercise of this Warrant in the event that
during the term of this Warrant, the Company issues shares of Common Stock, or
securities convertible into Common Stock to the Purchaser.
(g) ADJUSTMENTS; ADDITIONAL SHARES, SECURITIES OR ASSETS. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, the Warrant Holder shall, upon exercise of this Warrant, become
entitled to receive shares and/or other securities or assets (other than Common
Stock) then, wherever appropriate, all references herein to shares of Common
Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 5.
6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms 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 action as may be necessary or
appropriate in order to protect the rights of the Warrant Holder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, and (b) will take all such action as may be
reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or number
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 5
hereof, the Company shall execute and deliver (by first class mail, postage
prepaid) to the Warrant Holder a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Purchase Price and number
of shares purchasable hereunder after giving effect to such adjustment.
8. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the Warrant
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Warrant Shares, including (without limitation) the right to vote
such shares, receive dividends or other distributions
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<PAGE>
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Company
shall mail to each Warrant Holder, at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Warrant and, in the case of any such loss, theft or destruction of the Warrant,
upon delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. CONSENT TO JURISDICTION. The Company hereby irrevocably and
unconditionally:
(a) Submits for itself and its property in any action, suit or
proceeding relating to this Warrant, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts thereof;
(b) Agrees that any such action, suit or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action, suit or proceeding in any such court or
that such action, suit or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) Irrevocably consents to the service of any and all process in
any such action, suit or proceeding by the mailing of copies of such process by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company, at its address set forth in Section 13 of this
Warrant or at such other address of which the Investor shall have been notified
pursuant thereto;
(d) Agrees that nothing herein shall affect the right of the
Investor to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) Waives any right it may have to claim or recover in any legal
action, suit or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Registration Rights
Agreement and the Agreement contain the entire understanding of the parties with
respect to the matters covered hereby and thereby. No provision of this Warrant
may be waived or amended other than by a written instrument signed by the party
against whom enforcement of any such amendment or waiver is sought.
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<PAGE>
12. RESTRICTED SECURITIES.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been
issued in a transaction exempt from the registration requirements of the
Securities Act in reliance upon the provisions of Section 4(2) under the
Securities Act of 1933 and the rules promulgated thereunder by the SEC. This
Warrant and the Warrant Shares issuable upon exercise of this Warrant may not be
resold except pursuant to an effective registration statement or an exemption to
the registration requirements of the Securities Act and applicable state laws.
(b) LEGEND. The Warrant and any Warrant Shares issued upon
exercise thereof (until a registration statement has been declared effective by
the SEC with respect to the Warrant Shares, at which time, such legend shall be
removed, and the Warrant Shares shall be freely tradable), shall bear the
following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
(c) ASSIGNMENT. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Warrant Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in
part. The Warrant Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company shall
effect the assignment within ten (10) days, and shall deliver to the assignee(s)
designated by the Warrant Holder after delivery to the Company of the original
Warrant or Warrants for cancellation, a Warrant or Warrants of like tenor and
terms for the appropriate number of shares.
13. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
8
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to the Company: Telscape International, Inc.
2700 Post Oak Boulevard
Suite 1000
Houston, Texas 77056
Attention: Todd M. Binet, Executive Vice
President
Facsimile: (713) 968-0930
to the Warrant Holder: Gordon Brothers Capital, LLC
126 East 56th Street
New York, New York 10022
Attention: Natalie Jacobson
Facsimile: (212) 752-9753
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 13 by giving at least 10 days
prior written notice of such changed address or facsimile number to the other
party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of New York. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
TELSCAPE INTERNATIONAL, INC.
By: /s/ Todd M. Binet
Name: Todd M. Binet
Title: Executive Vice President
9
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EXHIBIT A
FORM OF WARRANT EXERCISE
I/we hereby exercise Telscape International, Inc. (the "Company") Common
Stock Purchases Warrant A-____.
(a) Number of Shares of the Company common stock conferred
in Purchase Warrant A-_____: ________________ shares.
(b) Total Exercise price ($_________ per share): $___________
_____________________________________ ________________________________
Name: Employment Identification Number
Title:
Address: _______________________________________________________________
________________________________________________________________________
______________________________________
Telephone Number
______________________________________ ________________________________
Name: Employment Identification Number
Title:
Address: _______________________________________________________________
________________________________________________________________________
______________________________________
Telephone Number
a. ( ) Individual Ownership
b. ( ) Husband and Wife as Community Property
c. ( ) Joint Tenants w/Right to Survivorship (JTRS)
d. ( ) Tenants in Common
e. ( ) Other_______________________________
Dated:_________________________, _____.
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to
transfer the Warrant)
FOR VALUED RECEIVED, the undersigned holder of the attached Warrant
hereby sells, assigns and transfers unto the persons below named the right to
purchase __________ shares of the Common Stock of TELSCAPE INTERNATIONAL, INC.
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint __________________ attorney to transfer the said Warrant on the books of
the Company, with full power of substitution in the premises.
Dated:
________________________________________
Signature
Fill in for new Registration of Warrant:
________________________________________
Name
________________________________________
Address
________________________________________
Please print name and address of assignee
(including zip code number)
NOTICE: The signature to the foregoing Assignment must correspond to the name
as written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as
of May 29, 1998 (the "Effective Date"), is made and entered into among TELSCAPE
INTERNATIONAL, INC., a Texas corporation (the "COMPANY"), and GORDON BROTHERS
CAPITAL, LLC, a Delaware limited liability company, (the "INVESTOR").
RECITALS:
A. The Company and the Investor have entered into that certain
Securities Purchase Agreement, dated of even date herewith (the "SECURITIES
PURCHASE AGREEMENT"), pursuant to which the Company will issue to the Investor
its 8% Convertible Debenture (the "CONVERTIBLE DEBENTURE"), for an aggregate
purchase price of up to $5,000,000.
B. Pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Securities Purchase Agreement, the
Company has issued to the Investor Stock Purchase Warrants of even date
herewith, exercisable from time to time commencing on the Effective Date of the
Registration Statement (the "WARRANTS"), for the purchase of shares of Common
Stock as computed in accordance with the Warrant Formula (as defined in the
Securities Purchase Agreement) at the Exercise Price (as defined in the
Securities Purchase Agreement).
C. Pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Securities Purchase Agreement, the
Company has agreed to provide the Investor with certain registration rights with
respect to the Registrable Securities (as defined below).
NOW, THEREFORE, in consideration of the premises, the
representations, warranties, covenants and agreements contained herein, in the
Convertible Debenture, in the Warrants and in the Securities Purchase Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. Capitalized terms defined in the Securities
Purchase Agreement, the Convertible Debenture, or the Warrants shall have the
same meanings herein as are ascribed to them therein. In addition, the following
terms shall have the meanings ascribed below:
"REGISTRABLE SECURITIES" means all of the Common Stock and any other
securities issued or issuable upon conversion of the Convertible Debenture and
the exercise of the Warrants as provided therein until (i) a registration
statement under the Securities Act covering the offering of such securities has
been declared effective by the SEC and such securities have been disposed
<PAGE>
of pursuant to such effective registration statement, (ii) such securities are
sold under circumstances in which all of the applicable conditions of Rule 144
(or any similar provision then in force) under the Securities Act ("RULE 144")
are met, (iii) such securities have been otherwise transferred and the Company
has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, which counsel shall be reasonably acceptable to the
Investor, such securities may be sold without any time, volume or manner
limitation pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
"REGISTRATION STATEMENT" See Section 2.1 (a).
ARTICLE II
REGISTRATION RIGHTS
Section 2.1. REGISTRATION STATEMENTS.
(a) Subject to the terms and conditions of this Agreement and in
accordance with the provisions of Section 6.4 of the Securities Purchase
Agreement, the Company shall file with the SEC a registration statement on Form
S-3 or otherwise appropriate form (the "REGISTRATION STATEMENT") under the
Securities Act for the registration of the resale by the Investor of Common
Stock to be issued upon conversion of the Convertible Debenture and exercise of
the Warrants.
(b) The Registration Statement shall be declared effective by the SEC no
later than one hundred twenty (120) days from the Closing Date (if the Company
is not eligible to file the Registration Statement on Form S-3) or ninety (90)
days from the Closing Date (if the Company is eligible to file the Registration
Statement on Form S-3) and shall remain in effect until such time as no
Registrable Securities remain unsold.
(c) In the event the Company fails to obtain the effectiveness of a
Registration Statement within the time period set forth in Section 2.1(b) or the
effectiveness of the Registration Statement is suspended or a current prospectus
meeting the requirements of Section 10 of the Securities Act is not available
for delivery by the Investor, and such occurrence is not the result of any
information provided or failed to be provided by the Investor or some
unforeseeable catastrophe affecting the operation of the SEC, the Company shall
pay to the Investor the amounts set forth in Section 6.11 of the Securities
Purchase Agreement.
ARTICLE III
REGISTRATION PROCEDURES
Section 3.1. FILINGS; INFORMATION. Whenever the Company is required to
effect or cause the registration of Registrable Securities pursuant to Section
2.1 hereof, the Company will use its best efforts to effect the registration of
such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any such
request:
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<PAGE>
(a) The Company will as expeditiously as possible, prepare and file with
the SEC the Registration Statement and use its best efforts to cause such filed
Registration Statement to be declared effective as soon as possible and to
remain effective thereafter (pursuant to Rule 415 under the Securities Act or
otherwise), and the Company will as expeditiously as possible prepare and file
with the SEC such amendments and supplements to such Registration Statement and
the prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective for the time periods prescribed in Section
2.1(b) hereof and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition by the
Investor set forth in such Registration Statement.
(b) The Company will (i) prior to filing a Registration Statement or
prospectus or any amendment or supplement thereto (excluding amendments deemed
to result from the filing of documents incorporated by reference therein),
furnish to the Investor and counsel for the Investor, copies of such
Registration Statement, prospectus, amendment or supplement as proposed to be
filed, together with exhibits thereto, (ii) provide the Investor and counsel an
adequate and appropriate opportunity to review and comment on such documents,
(iii) not file any such documents to which the Investor or counsel shall have
reasonably objected on the grounds that such filing does not comply in all
material respects with the requirements of the Securities Act or of the rules or
regulations thereunder, and (iv) thereafter furnish to the Investor and its
counsel for their review such number of copies of such Registration Statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such Registration Statement (including each
preliminary prospectus) and such other documents or information as the Investor
or counsel may reasonably request in order to facilitate the disposition of the
Registrable Securities.
(c) After the filing of the Registration Statement, the Company will
promptly notify the Investor of any stop order issued or threatened by the SEC
that the Company has knowledge of in connection therewith and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered.
(d) The Company will use its reasonable good faith efforts to (i)
register or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions in the United States as the Investor may
reasonably (in light of its intended plan of distribution) request, and (ii)
cause such Registrable Securities to be registered with or approved by such
other governmental agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things that may be reasonably necessary or advisable to
enable the Investor to consummate the disposition of the Registrable Securities;
provided that the Company will not be required to (A) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (d), (B) subject itself to taxation in any such
jurisdiction or (C) consent or subject itself to general service of process in
any such jurisdiction.
(e) The Company will immediately notify the Investor upon the occurrence
of any of the following events in respect of a Registration Statement or related
prospectus in respect of an
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<PAGE>
offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement, for amendments
or supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation or threatening of any proceeding for that purpose; (iii) receipt of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose that the Company has knowledge of; (iv) the happening of any event which
makes any statement made in the Registration Statement or related prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or which requires the making of any changes in
the Registration Statement, related prospectus or documents so that, in the case
of the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (vi) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investor and counsel for the Investor any such supplement or amendment to the
related prospectus in accordance with paragraph (b) hereof.
(f) The Company will enter into customary agreements and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities (the Investor may, at its option,
require that any or all of the representations, warranties and covenants of the
Company also be made to and for the benefit of the Investor).
(g) The Company will make available to the Investor (and will deliver to
Investor's counsel), subject to restrictions imposed by the United States
federal government or any agency or instrumentality thereof, copies of all
correspondence between the SEC and the Company, its counsel or auditors and will
also make available for inspection by the Investor and any attorney, accountant
or other professional retained by the Investor (collectively, the "INSPECTORS"),
all financial and other records, pertinent corporate documents and properties of
the Company (collectively, the "RECORDS") as shall be reasonably necessary to
enable the Investor to exercise its due diligence responsibility, and cause the
Company's officers and employees to supply all information reasonably requested
by any Inspectors in connection with such Registration Statement. Records which
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement or (ii) the disclosure
or release of such Records is requested or required pursuant to oral questions,
interrogatories, requests for information or documents or a subpoena or other
order from a court of competent jurisdiction or other process; provided that
prior to any disclosure or release pursuant to clause (ii), the Inspectors shall
provide the Company with prompt notice of any such request or requirement so
that the Company may seek an appropriate
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<PAGE>
protective order or waive such Inspectors' obligation not to disclose such
Records; and, provided further, that if failing the entry of a protective order
or the waiver by the Company permitting the disclosure or release of such
Records, the Inspectors, upon advice of counsel, are compelled to disclose such
Records, the Inspectors may disclose that portion of the Records which counsel
has advised the Inspectors that the Inspectors are compelled to disclose. The
Investor agrees that information obtained by it solely as a result of such
inspections (not including any information obtained from a third party who,
insofar as is known to the Investor after reasonable inquiry, is not prohibited
from providing such information by a contractual, legal or fiduciary obligation
to the Company) shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such information is made generally available to the
public. The Investor further agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of the Records deemed confidential.
(h) The Company will otherwise comply with all applicable rules and
regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(i) The Company will appoint a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effective date of such Registration Statement.
The Company may require the Investor to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the SEC, the NASD or the Principal Market. The Investor agrees to
provide such information requested in connection with such registration within
ten (10) business days after receiving such written request and the Company
shall not be responsible for (and the penalties specified in Section 2.1(c)
hereof shall not apply in respect of) any delays in obtaining or maintaining the
effectiveness of the Registration Statement caused by the Investor's failure to
timely provide such information. The Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3.1(e) hereof, the Investor will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.1(e) hereof, and,
if so directed by the Company, the Investor will deliver to the Company all
copies, other than permanent file copies then in the Investor's possession, of
the most recent prospectus covering such Registrable Securities at the time of
receipt of such notice. In the event the Company shall give such notice, the
Company shall extend the period during which such Registration Statement shall
remain effective (including the period referred to in Section 3.1(a) hereof) by
the number of days during the period from and including the date of the giving
of notice pursuant to Section 3.1(e) hereof to the date when the Company shall
make available to the Investor a prospectus supplemented or amended to conform
with the requirements of Section 3.1 (e) hereof.
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<PAGE>
Section 3.2. REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all expenses incurred in connection with the
registration thereunder including, without limitation, the following (the
"REGISTRATION EXPENSES"): (i) all registration and filing fees, (ii) fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) printing expenses, (iv) the Company's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v) the fees
and expenses incurred in connection with the listing of the Registrable
Securities, (vi) reasonable fees and disbursements of counsel for the Company
and customary fees and expenses, if any, for independent certified public
accountants retained by the Company, (vii) the fees and expenses of any special
experts retained by the Company in connection with such registration and (viii)
reasonable fees and expenses (which shall not exceed the sum of (i) $1,000 of
such fees and expenses, and (ii) 50% of any additional fees and expenses in
excess thereof up to $5,000, it being understood that the Company shall not have
liability for such fees and expenses in excess of $3,000 in the aggregate
pursuant to this clause) of counsel for the Investor retained as the Investor's
counsel with respect to such Registration Statement. The Company shall have no
obligation to pay any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities, such costs to be borne by the Investor.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
Section 4.1 INDEMNIFICATION.
(a) INDEMNIFICATION OF INVESTOR. The Company agrees to indemnify and
hold harmless the Investor, its members, partners, Affiliates (as defined
below), officers, directors, employees and duly authorized agents, and each
Person (as defined below) or entity, if any, who controls the Investor within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with the partners, Affiliates, officers, directors, employees and
duly authorized agents of such controlling Person or entity (collectively, the
"CONTROLLING PERSONS"), from and against any loss, claim, damage, liability,
reasonable attorneys' fees, costs or expenses and costs and expenses of
investigating and defending any such claim (collectively, "DAMAGES"), joint or
several, and any action in respect thereof to which the Investor, its partners,
Affiliates, officers, directors, employees and duly authorized agents, and any
such Controlling Person may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or prospectus relating to
the Registrable Securities or any preliminary prospectus, or arises out of, or
are based upon, any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are based upon information furnished
in writing to the Company by the Investor expressly for use therein, and shall
reimburse the Investor, its partners, Affiliates, officers, directors, employees
and duly authorized agents, and each such Controlling Person for any legal and
other expenses reasonably incurred by the Investor, its partners, Affiliates,
officers, directors, employees and duly authorized agents, or any such
Controlling Person in investigating or defending or preparing to
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<PAGE>
defend against any such Damages or proceedings; provided, however, that the
Company shall not be liable to the Investor to the extent that any such Damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Investor failed to send or deliver a copy of
the final prospectus with or prior to the delivery of written confirmation of
the sale by the Investor to the Person asserting the claim from which such
Damages arise, and (ii) the final prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission.
For purposes of this agreement, "AFFILIATE" shall mean, as to any
Person, any other Person that directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person; and "PERSON" shall mean an individual, corporation, partnership,
limited liability company, business trust, association, joint-stock company,
trust, unincorporated organization, joint venture or governmental authority or
other regulatory body.
(b) INDEMNIFICATION OF COMPANY. The Investor agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each of its Controlling Persons from and against any
Damages, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including any prospectus (or any amendment or
supplement thereto), or offering circular or other document, as applicable, in
reliance upon and in conformity with written information furnished to the
Company by the Investor expressly for use in the Registration Statement (or any
amendment or supplement thereto), or in any offering circular or other document,
as applicable.
(c) ACTION AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of his indemnity
agreement. In the case of parties indemnified pursuant to Section 4.1(a) hereof,
counsel to the indemnified parties shall be selected by the Investor, and in the
case of parties indemnified pursuant to Section 4.1(b) hereof, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or
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consent to the entry or any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 4.1 or Section 4.2 hereof
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of an any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT OR FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for the fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 4.1(a) hereof effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
Section 4.2 CONTRIBUTION. If the indemnification provided for in this
Article IV is unavailable to the indemnified parties in respect of any Damages
referred to herein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Damages as between the Company on the one
hand and the Investor on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of the Investor in connection with
such statements or omissions, as well as other equitable considerations. The
relative fault of the Company on the one hand and the Investor on the other hand
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Investor and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 4.2 were determined by a pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 4.2. The
amount paid or payable by an indemnified party as a result of the Damages
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
Notwithstanding the provisions of this Section 4.2, the Investor shall
in no event be required to contribute any amount in excess of the amount by
which the total proceeds from the public sale of the Registrable Securities
(less underwriting discounts and commissions) exceeds the amount of any Damages
which the Investor has otherwise paid in accordance with this Agreement.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
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For purposes of this Section 4.2, each person, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Investor, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as the Company.
ARTICLE V
MISCELLANEOUS
Section 5.1. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate one (1) year from the end of
the exercise period of the Warrant; PROVIDED, HOWEVER, that the provisions of
Article IV hereof shall survive any termination of this Agreement.
Section 5.2. RULE 144. The Company covenants that it will file all
reports required to be filed by it under the Act and the Exchange Act and that
it will take such further action as holders of Registrable Securities may
reasonably request, all to the extent required from time to time to enable the
Investor to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144,
as such Rule may be amended from time to time, or (b) any successor or similar
rule or regulation hereafter adopted by the SEC. If at any time the Company is
not required to file such reports, it will, upon the request of any holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144. Upon the request of the
Investor, the Company will deliver to the Investor a written statement as to
whether it has complied with such requirements.
Section 5.3. AMENDMENT AND MODIFICATION. Any provision of this Agreement
may be waived, provided that such waiver is set forth in a writing executed by
the party against whom the enforcement of such waiver is sought. The provisions
of this Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the Company has obtained the
written consent of the holders of a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, the waiver of any provision hereof
with respect to a matter that relates exclusively to the rights of holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and does not directly or indirectly affect the rights of
other holders of Registrable Securities may be given by holders of at least a
majority of the Registrable Securities being sold by such holders; provided that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.
No course of dealing between or among any Persons having any interest in this
Agreement will be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any person under or by reason of
this Agreement.
-9-
<PAGE>
Section 5.4. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. The Investor
may assign its rights under this Agreement to any subsequent holder of the
Convertible Debenture, the Warrants or the Registrable Securities, provided that
the Company shall have the right to require any holder of the Registrable
Securities to execute a counterpart of this Agreement as a condition to such
holder's claim to any rights hereunder. This Agreement, together with the
Securities Purchase Agreement, the Convertible Debenture and the Warrants, set
forth the entire agreement and understanding among the parties as to the subject
matter hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
Section 5.5. SEPARABILITY. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
Section 5.6. NOTICES. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice:
(a) if to the Company, to: Telscape International, Inc.
2700 Post Oak Boulevard
Suite 1000
Houston, Texas 77056
Attention: Todd M. Binet, Executive
Vice President
Facsimile No.: (713) 968-0930
with a copy to: Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, DC 20007
Attention: Andrew M. Ray, Esq.
Facsimile No.: (202) 424-7643
(b) if to the Investor, to: Gordon Brothers Capital, LLC
126 East 56th Street
New York, NY 10022
Attention: Natalie Jacobson
Facsimile No.: (212) 752-9753
-10-
<PAGE>
with copies to: Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attention: Lawrence S. Goldberg, Esq.
Facsimile No.: (212) 593-5955
Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the second business day following delivery
of such notice by a reputable air courier service.
Section 5.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 5.8. SUBMISSION TO JURISDICTION. The parties hereby agree that
all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall, at the option of either party, be litigated only in a
state or federal court located in the New York, New York. The parties consent to
the jurisdiction and venue of the foregoing court and consent that any process
or notice of motion or other application to said court or a judge thereof may be
served inside or outside the State of New York by registered mail, return
receipt requested, directed to the party for which it is intended at its address
set forth in this Agreement (and service so made shall be deemed complete five
(5) days after the same has been posted as aforesaid) or by personal service or
in such other manner as may be permissible under the rules of said court.
Section 5.9. WAIVER OF JURY TRIAL. Each of the Company and the Investor
hereby waives any right to a trial by jury in any action, proceeding or
counterclaim concerning any rights under this Agreement or under any amendment,
waiver, consent, instrument, document or the Agreement delivered or which in the
future may be delivered in connection herewith, or arising from any relationship
existing in connection with this Agreement, and agrees that any such action,
proceeding or counterclaim shall be tried before a court and not before a jury.
The Company certifies that no officer, representative, agent or attorney of the
Investor has represented, expressly or otherwise, that the Company would not, in
the event of any action, proceeding or counterclaim, seek to enforce the
foregoing waivers. The Company hereby acknowledges that this provision is a
material inducement for the Investor entering into this Agreement.
Section 5.10. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
Section 5.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
-11-
<PAGE>
Section 5.12. FURTHER ASSURANCES. Each party hereto shall cooperate and
take such action as may be reasonably requested by another party in order to
carry out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
Section 5.13. REMEDIES. In the event of a breach or a threatened breach
by any party to this Agreement of its obligations under this Agreement, any
party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense or objection in any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
*****
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, hereunto duly authorized, as of the date first set
forth above.
TELSCAPE INTERNATIONAL, INC.
By: /s/ Todd M. Binet
Name: Todd M. Binet
Title: Executive Vice
President
GORDON BROTHERS CAPITAL, LLC
By: /s/ Warren Feder
Name: Warren Feder
Title: President
-13-
EXHIBIT 10.5
EQUITY PURCHASE AGREEMENT
THIS EQUITY PURCHASE AGREEMENT (this "AGREEMENT") is made as of May
18, 1998 by and among Interlink Communications Holding Co., Inc., a Delaware
corporation (the "COMPANY"), and each of the purchasers set forth on SCHEDULE I
attached hereto (each, a "PURCHASER" and, collectively, the "PURCHASERS").
WHEREAS, the Purchasers desire to purchase, and the Company desires
to sell, 10,500 shares of the Company's Common Stock, par value $.01 per share
(the "COMMON STOCK") and 89,500 shares of the Company's Convertible
Participating Preferred Stock, par value $.01 per share (the "PREFERRED Stock"
and together with the Common Stock, the "STOCK").
NOW THEREFORE, the parties hereto agree as follows:
Section 1. AUTHORIZATION AND CLOSING.
1A. AUTHORIZATION OF THE STOCK. As of the Closing (as defined below)
the Company shall have authorized the issuance and sale of the Common Stock and
the Preferred Stock, each having the rights and preferences set forth in the
Company's amended and restated certificate of incorporation in the form attached
hereto as EXHIBIT 1A (the "CERTIFICATE OF INCORPORATION"), to each Purchaser in
the amounts set forth opposite such Purchaser's name on SCHEDULE I attached
hereto.
1B. PURCHASE AND SALE OF THE STOCK. At the Closing, the Company
shall sell to each Purchaser and, subject to the terms and conditions set forth
herein, each Purchaser shall purchase from the Company, the Stock set forth
opposite such Purchaser's name on SCHEDULE I attached hereto at a price of $.01
per share of the Common Stock and $3,000,000 in the aggregate for all of the
shares of the Preferred Stock to be purchased hereunder.
1C. THE CLOSING. The closing of the purchase and sale of the Stock
pursuant to Section 1B (the "CLOSING") shall take place on the date of, and
contemporaneously with, the closing of the transactions contemplated by that
certain Stock Purchase Agreement of even date herewith among Telscape
International, Inc. ("TELSCAPE"), California Microwave Services Division, Inc.
("CMSD") and California Microwave, Inc. (the "SPA"), or on such other date
thereafter and at such place as may be mutually agreeable to the Company and the
Purchasers. At the Closing, the Company shall (i) deliver to the Purchasers
stock certificates evidencing the Stock to be purchased by each Purchaser at the
Closing, registered in such Purchaser's name, upon payment of the purchase price
thereof by a cashier's or certified check (or by wire transfer of immediately
available funds to such account as designated by the Company), and (ii) file and
cause to become effective the Certificate of Incorporation with the Secretary of
State of the State of Delaware. Notwithstanding any other provision of this
Agreement, if the transactions contemplated by the SPA are not consummated or if
the SPA is terminated prior to the closing, this Agreement shall be null and
void and of no further force and effect without any further action of the
parties hereto.
Section 2. CONDITIONS OF EACH PURCHASER'S OBLIGATION AT THE CLOSING.
The obligation of each Purchaser to purchase and pay for the Stock at the
Closing is subject to the satisfaction as of the Closing of the following
conditions:
2A. REPRESENTATIONS AND WARRANTIES; COVENANTS; SPA. The
representations and warranties contained in Section 3 hereof shall be true and
correct in all material respects at and as of the Closing, the Company shall
have performed in all material respects all of the covenants required to be
performed by it hereunder prior to the Closing, and the transactions
contemplated by the SPA shall be consummated contemporaneously with the Closing.
2B. COMPLIANCE WITH APPLICABLE LAWS. The purchase of the Stock by
each Purchaser hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject such Purchaser to any penalty,
liability, other onerous condition under or pursuant to any applicable law or
governmental regulation, and shall be permitted by laws and regulations of the
jurisdictions to which such Purchaser is subject.
2C. WAIVER. Any condition specified in this Section 2 may be waived
with respect to a Purchaser only if such waiver is set forth in a writing
executed by such Purchaser.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a
material inducement to each Purchaser to enter into this Agreement and purchase
the Stock, the Company hereby represents and warrants to each Purchaser that:
3A. ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has all requisite corporate power and authority
and all material licenses, permits and authorizations necessary to own and
operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement.
3B. AUTHORIZATION: NO BREACH. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby to
which the Company is a party have been duly authorized by the Company. This
Agreement and all other agreements contemplated hereby each constitutes a valid
and binding obligation of the Company, enforceable in accordance with its terms.
The execution and delivery by the Company of this Agreement, the offering, sale
and issuance of the Stock hereunder and the fulfillment of and compliance with
the respective terms hereof and thereof by the Company, do not and shall not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the capital stock or assets of the
Company or any of its subsidiaries pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice to any court or administrative or governmental body
pursuant to, the Certificate of Incorporation or by-laws of the Company or any
of its subsidiaries, or any law, statute, rule or regulation to which the
Company is subject (other than notices to be filed pursuant to applicable state
securities laws), or any agreement. instrument, order judgment or decree to
which the Company or any of its subsidiaries is a party or by which it is bound.
3C. DISCLOSURE. Neither this Agreement nor any of the schedules,
attachments written statements, documents, certificates or other items prepared
or supplied to each Purchaser by or on behalf of the Company with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading.
4. OPTION. The Company hereby grants to each Purchaser (other than
Telscape) (each, an "OPTIONEE") an option (the "OPTION") to purchase the maximum
number of shares of Common Stock set forth next to such Optionee's name on
SCHEDULE II attached hereto (the "MAXIMUM SHARES") for the maximum exercise
price set forth next to such Optionee's name on such SCHEDULE II (the "MAXIMUM
EXERCISE PRICE"), which Option shall be exercisable as follows:
If the Company's EBITDA Then, each Optionee shall be entitled
for the twelve months to purchase the following percentage
ending June 30, 1999 is: of such Optionee's Maximum Shares
at the following percentage of such
Optionee's Maximum Exercise Price:
Equal to or greater than $2,600,000 100%
Equal to or greater than $2,500,000
but less than $2,600,000 90%
Equal to or greater than $2,400,000
but less than $2,500,000 80%
Equal to or greater than $2,300,000
but less than $2,400,000 70%
Equal to or greater than $2,200,000
but less than $2,300,000 60%
Equal to or greater than $1,500,000
but less than $2,200,000 50%
Less than $1,500,000 0%
provided, however, that in the event of any acquisition or disposition of any
business, company or division, or any material asset, by the Company, or entry
into the ownership, active management or operation of any business other than
the Business (as defined in the SPA), including reasonable extensions thereof,
Telscape, on behalf of the Company, and the Optionees shall negotiate in good
faith to adjust the EBITDA targets specified above to give effect to such
acquisition, disposition or entering into other businesses. For purposes of this
Section 4, "EBITDA" shall mean for any specified period the consolidated net
income of the Company and its subsidiaries for such period: (a) plus (without
duplication and to the extent included in determining such net income) (i) net
interest expense, (ii) provision for income taxes, and (iii) depreciation and
amortization, and (b) minus (without duplication and to the extent included in
determining such net income) (i) any amount by which the total inventory reserve
is less than $857,114, (ii) any amount by which the total accounts receivable
reserve is less than $82,890, (iii) any gains (or plus losses), together with
any related provision for income taxes on such gains (or losses), realized in
connection with any sale of assets other than the sale of inventory in the
ordinary course of business (including without limitation dispositions pursuant
to sale and leaseback transactions), (iv) extraordinary gains (or plus losses),
together with any related provision for income taxes on such extraordinary gains
(or losses) and (v) any gains (or plus losses) from discontinued operations,
together with any related provision for income taxes on such gains (or losses)
from discontinued operations. All calculations under this definition of EBITDA
shall be determined in accordance with United States generally accepted
accounting principles.
EBITDA shall be determined by the Company not later than July 15, 1999,
and each Optionee must exercise his Option no later than September 15, 1999 (the
"OPTION PERIOD"). Any Option not exercised during the Option Period shall expire
and no longer be exercisable. The Company shall accept a note from any Optionee
for up to 80% of the applicable exercise price payable upon exercise of an
Option, which note shall be substantially in the form attached hereto as EXHIBIT
4(A)(I) or 4(A)(II). In addition, the Company shall, at the request of an
Optionee, lend such Optionee an amount equal to such Optionee's federal and
state tax liability arising by virtue of such Optionee's exercise of this Option
not later than the date on which such tax liability is due and payable, and such
amount shall be represented by a note similar to the notes attached hereto as
EXHIBIT 4(A)(I) and 4(A)(II). Any such notes shall be secured by a pledge of the
Common Stock that is the subject of the exercised Option pursuant to a pledge
agreement which shall be substantially in the form attached hereto as EXHIBIT
4(B). The Company shall reserve for issuance the aggregate number of Maximum
Shares issuable upon exercise of the Options until expiration of the Option
Period.
5. MISCELLANEOUS.
5A. REMEDIES. Each holder of the Stock purchased hereunder shall
have all rights and remedies set forth in this Agreement and the Certificate of
Incorporation and all rights and remedies which such holders have been granted
at any time under any other agreement or contract and all of the rights which
such holders have under any law. Any person or entity having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
5B. STOCKHOLDER INVESTMENT REPRESENTATIONS. Each Purchaser hereby
represents with respect to such Purchaser (and not with respect to any other
Purchaser) that such Purchaser: (i) is an "accredited investor" within the
meaning of Rule 501 of Regulation D of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and that such Purchaser has made such inquiry and has
had access to and has received and considered such information as such Purchaser
has deemed appropriate in making the decision to purchase the Stock purchased
hereunder; (ii) is acquiring the Stock purchased hereunder or acquired pursuant
hereto for such Purchaser's own account with the present intention of holding
such securities for purposes of investment only; and (iii) has no intention of
selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws; PROVIDED that nothing
contained herein shall prevent such Purchaser and subsequent holders of the
Stock from transferring such securities in compliance with the provisions of the
Stockholders Agreement of even date herewith among the Company, such Purchaser
and certain other stockholders of the Company (as amended from time to time
after the Closing in accordance with its terms, the "STOCKHOLDERS AGREEMENT").
Each certificate for Stock purchased hereunder shall be imprinted with a legend
in accordance with the provisions of the Stockholders Agreement.
5C. CONSENT TO AMENDMENTS. Except as otherwise expressly provided
herein, no amendment, modification or waiver of any of the provisions of this
Agreement shall be effective against any Purchaser unless such Purchaser has
consented to such amendment, modification or waiver in writing. No other course
of dealing between the Company and any Purchaser or any delay in exercising any
rights hereunder or under the Certificate of Incorporation shall operate as a
waiver of any rights.
5D. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser, the Company or on their behalf.
5E. REVERSION OF CERTAIN COMMON STOCK. In the event Salvador Giblas
does not (i) enter into a Consulting Agreement with the Company of even date
herewith; (ii) enter, on or before July 15, 1999, into an Employment Agreement
with the Company substantially in the form of Employment Agreements with the
Company entered into by E. Russell Hardy, Stephen A. Strohman and Monty J. Moore
(other than with respect to the bonus payable with respect to the twelve month
period ending June 30, 1999); and (iii) commence employment with the Company on
or before July 15, 1999, then the shares set forth on Schedule I hereto to be
issued to Salvador Giblas under this Equity Purchase Agreement on the Closing
Date shall revert (a) on the Closing Date in the event Salvador Giblas does not
enter into a Consulting Agreement with the Company of even date herewith or (b)
on July 15, 1999 in the event of (ii) or (iii) above, one-third (1/3) each to E.
Russell Hardy, Stephen Strohman and Monty J. Moore as if they had been
originally issued or obligated to be issued to them on the date on which E.
Russell Hardy, Stephen Strohman and Monty J. Moore entered into this Equity
Purchase Agreement and any obligation of Salvador Giblas hereunder shall
terminate.
5F. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto.
5G. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
5H. COUNTERPARTS. This Agreement may be executed simultaneously in
separate counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
5I. DESCRIPTIVE HEADINGS: INTERPRETATION. The descriptive headings
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement. The use of the word "including" in this Agreement shall be by
way of example rather than by limitation.
5J. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal. substantive laws of the State of
Delaware without giving effect to the conflict of laws rules thereof.
5K. NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be made as set forth in the Stockholders Agreement.
5L NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
5M ARBITRATION. Any dispute among the parties arising out of or
relating to this Agreement or breach hereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association. The
arbitration shall be conducted by three (3) neutral arbitrators who sit in San
Jose, California. Any award made by such arbitrators shall be binding
and conclusive for all purposes hereof, may include injunctive relief, as well
as orders for specific performance and may be entered as a final judgement in
any court of competent jurisdiction. No arbitration arising out of or relating
to this Agreement shall include, by consolidation or joinder or in any other
manner, parties other than the parties hereto and other persons substantially
involved in common questions of fact or law whose presence is required if
complete relief is to be afforded in arbitration. The costs and expense of such
arbitration shall be born in accordance with the determination of the
arbitrators and may include reasonable attorney fees. Each party hereunder
further agrees that service of process may be made upon it by registered or
certified mail or personal service at the address for notices provided herein.
IN WITNESS WHEREOF, the parties hereto have executed this Equity
Purchase Agreement on the day and year first above written.
COMPANY:
INTERLINK COMMUNICATIONS
HOLDING CO., INC.
By:________________________
Name:
Title:
PURCHASERS:
TELSCAPE INTERNATIONAL, INC.
By:___________________________
Name:
Title:
________________________________
E. Russell Hardy
________________________________
Stephen Strohman
________________________________
Monty J. Moore
________________________________
Salvador Giblas
<PAGE>
SCHEDULE I
PURCHASER COMMON STOCK PREFERRED STOCK
- --------- ------------ ---------------
Telscape International, Inc. -0- 89,500
E. Russell Hardy 3,000 -0-
Stephen Strohman 3,000 -0-
Monty J. Moore 3,000 -0-
Salvador Giblas 1,500 -0-
<PAGE>
SCHEDULE II
PURCHASER MAXIMUM MAXIMUM
--------- SHARES EXERCISE PRICE
------ --------------
E. Russell Hardy 3,393.00 271,440.00
Stephen Strohman 3,393.00 271,440.00
Monty J. Moore 3,393.00 271,440.00
Salvador Giblas 1,696.00 135,680.00
--------- ----------
11,875.00 950,000.00
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of May 18, 1998,
between California Microwave Services Division, Inc., a Delaware corporation
(the "COMPANY"), and E. Russell Hardy ("EXECUTIVE").
W I T N E S S E T H:
WHEREAS, Executive is a highly valued and trusted employee of the
Company; and
WHEREAS, the Company desires to offer Executive continued employment upon
the terms and conditions set forth herein and Executive desires to accept such
employment; and
NOW THEREFORE in consideration of the mutual benefits to be derived from
this Agreement, the Company and Executive 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 Executive with the title of Chief Executive Officer, with the
duties and responsibilities prescribed for such office in the Bylaws of the
Company, and with such additional duties and responsibilities consistent with
such positions as may from time to time be assigned to Executive by the Board of
Directors of the Company (the "Board"). Executive agrees to perform such duties
and discharge such responsibilities in accordance with the terms of this
Agreement and in a manner as is customary for persons situated in a similar
executive capacity. Executive shall also function in such other executive
capacity for Affiliates of the Company as may be reasonably requested by the
Board.
(b) During the Period of Employment, Executive shall devote substantially
all of his working time and attention to the business and affairs of the
Company, other than during vacations and periods of illness or incapacity (in
each case, which shall be of a duration that is consistent with the policies of
the Company); provided, however, that nothing in this Agreement shall preclude
Executive from devoting time required: (i) for serving as a director, principal
or officer of any organization or entity involving no conflict of interest with
the Company with the prior consent of the Company (such consent not to be
unreasonably withheld); (ii) delivering lectures, fulfilling speaking
engagements or participating in activities of professional associations
including chambers of commerce; (iii) engaging in charitable and community
activities; and (iv) managing personal investments; PROVIDED THAT, such
activities do not interfere with the performance of his duties hereunder and
attention to the business and affairs of the Company.
<PAGE>
(c) For purposes of this Agreement, an "Affiliate" of a person or entity
shall mean a person or entity that directly or indirectly controls, is
controlled by or is under common control with such person or entity.
2. TERM; PERIOD OF EMPLOYMENT
The period of employment hereunder (the "Period of Employment") shall
commence on the Closing Date (as defined in that certain Stock Purchase
Agreement of even date herewith among Telscape International, Inc. ("Telscape"),
California Microwave, Inc. ("CMI") and the Company, ( the "SPA"))(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 Executive; provided
however, that notwithstanding any other provision of this Agreement or any such
extension, the Period of Employment shall not expire prior to (a) the first
anniversary of a Change of Control (as hereinafter defined) if such Change of
Control occurs after June 30, 1999 or (b) the second anniversary of a Change of
Control if such Change of Control occurs on or prior to June 30, 1999.
3. COMPENSATION AND BENEFITS.
For all services rendered by Executive 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, Executive shall be compensated as follows:
(a) BASE SALARY. The Company shall pay Executive a fixed salary ("Base
Salary") at a rate of US $175,000 per year. The Board will periodically review,
at least annually, Executive's Base Salary with a view to increasing such Base
Salary if, in the judgment of the Board, the earnings of the Company or the
services of Executive 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.
(ii) If EBITDA for the twelve months ending June 30, 1999 exceeds
$2,600,000 (the "Threshold"), then the Company shall pay to Executive a cash
bonus, which shall not exceed $105,000 (the "Cap"), in an amount (not to exceed
the Cap) determined by multiplying (a) 12.16% by (b) the amount by which EBITDA
for such twelve month period exceeds the Threshold. "EBITDA" shall mean for any
specified period the consolidated net income as determined in accordance with
GAAP of the Company and its subsidiaries for such period: (a) plus (without
duplication and to the extent included in determining such net income) (i) net
interest expense, (ii) provision for income taxes, and (iii) depreciation and
amortization, and (b) minus (without duplication and to the extent included in
determining such net income) (i) the difference between the total inventory
reserve amount on the Closing Date Balance Sheet (as
2
<PAGE>
defined in the SPA) lower than $857,114, (ii) the difference between the total
accounts receivable reserve amount on the Closing Date Balance Sheet lower than
$82,890, (iii) any gains (or plus losses), together with any related provision
for income taxes on such gains (or losses), realized in connection with any sale
of assets other than the sale of inventory in the ordinary course of business
(including without limitation dispositions pursuant to sale and leaseback
transactions), (iv) extraordinary gains (or plus losses), together with any
related provision for income taxes on such extraordinary gains (or losses) and
(v) any gains (or plus losses) from discontinued operations, together with any
related provision for income taxes on such gains (or losses) from discontinued
operations.
(ii) The Board shall negotiate in good faith with Executive to set
bonus targets and bonus amounts for each twelve month period occurring after
June 30, 1999 during the Period of Employment.
(c) FRINGE BENEFITS. During the Period of Employment, Executive 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 as well as those specific benefits described in Schedule A
attached hereto. Except as specifically set forth herein or therein, the terms
of, and participation by Executive in, any such plan or program shall be
determined by the Board in its sole discretion. In the event of Executive's
Disability, the Executive and his family shall continue to be covered by all of
the Company's life, medical, health and dental plans, and salary continuation
plans (if any), at the Company's expense, for the lesser of the term of such
disability or the remaining term of the Period of Employment. In the event of
Executive's death, Executive'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 Executive'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 Executive.
(e) VACATIONS. Executive shall be entitled to annual vacations in
accordance with the policies of the Company, but in no event less than two weeks
and Executive shall be eligible for such benefit immediately.
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4. BUSINESS EXPENSES.
The Company shall pay or reimburse Executive for all reasonable travel or
other expenses incurred by Executive in connection with the performance of his
duties under this Agreement, including reimbursement for attending meetings of
the Board, 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 Executive's death, Disability (as
hereinafter defined) or for Cause (as hereinafter defined). For purposes of this
Agreement, 'Cause' shall mean Executive's conviction of a crime involving an act
or acts of dishonesty, fraud or moral turpitude by Executive with regard to the
Company, which act or acts constitute a felony and the willful and continued
failure to substantially perform Executive'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 Executive,
in the reasonable judgment of a physician approved by the Board (which approval
shall not be unreasonably withheld), to perform his duties of employment for the
Company 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 Executive 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; provided, that in the event
of Executive's death, such termination shall occur automatically as of the date
of death. In the event of any termination under this Subsection 5(a), the
Company shall pay all amounts then due to Executive 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
Executive 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 Executive the Base Salary for the longer of (i) a
period of one year after such termination; and (ii) the period beginning on the
date of such termination and ending on the second anniversary of the Closing
Date.
(c) By Executive, if the Board fails to elect or reelect Executive to, or
removes Executive from the office referred to in Section 1(a) or discontinues or
denies to Executive any of the compensation or benefits referred to in Sections
3, 4 or 13 of their Agreement (other than in accordance with the terms of this
Agreement). 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 Executive the Base Salary
for the longer of (i) a period of one year after such termination; and (ii) the
period beginning on the
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date of such termination and ending on the second anniversary of the Closing
Date.
(d) During any period in which payments are payable by the Company to
Executive pursuant to Sections 5(b) or 5(c) hereof (such payments being
hereinafter collectively referred to as "Termination Payments"), Executive and
his family shall continue to be covered by the Company's life (other than in the
case of termination by reason of Executive's death), medical, health and death
plans. Such coverage shall be at the Company's expense to the same extent as if
Executive were still employed by the Company.
6. NON-COMPETITION.
During the Period of Employment hereunder and for the one year period
thereafter, Executive shall not, anywhere within the United States of America or
anywhere else in the world in which the Company is then doing business, engage
as an individual in activities in competition with the business of the Company,
including but not limited to any aspect of the Business (as defined in the SPA).
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, Executive
shall not, within any jurisdiction in which 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 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.
Notwithstanding the foregoing, if the Company terminates Executive without
Cause, then the restrictions contained in this Section 6 shall terminate and be
of no further force and effect as of the date on which the last Termination
Payment is made to Executive.
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. 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. By
reason of his being a senior executive of the Company, Executive has or will
have access to, and has obtained or will obtain, specialized knowledge, trade
secrets and confidential information about the Company's operations wherever it
does business. Therefore, Executive hereby agrees as follows, recognizing that
the Company is relying on these agreements in entering into this Agreement:
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(i) During and for three years after the Period of Employment
hereunder, Executive 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, or
its Affiliates, 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, Executive information, and other confidential information acquired
by him in the course of his past or future services for the Company. Executive
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 Affiliates' 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, Executive will not induce or
otherwise attempt to influence any executive of the Company, to leave the
Company's employment (unless the Board shall have authorized such employment and
the Company shall have consented thereto in writing).
8. INDEMNIFICATION.
The Company will indemnify Executive (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
Executive, and Executive shall be entitled to the protection of any insurance
policies (in accordance with the terms thereof) 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
Executive with respect to the subject matter of this Agreement and the
enforcement of the rights hereunder, the Company shall reimburse Executive 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 Executive,
or
(ii) final judgment or order in favor of Executive.
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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 (any of which is a "Change of Control") 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 a Change in Control, 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 Executive 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 Change
of Control not occurred.
11. SURVIVAL OF OBLIGATIONS.
Sections 5, 6, 7, 8 and 9 shall survive the termination for any reason of
this Agreement (whether such termination is by the Company, by Executive, upon
the expiration of this Agreement or otherwise). Notwithstanding the foregoing,
if the Company terminates Executive without Cause, then the restrictions
contained in Section 6 shall terminate and be of no further force and effect as
of the date on which the last Termination Payment is made to Executive.
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
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 Executive 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
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
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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. TELSCAPE OPTIONS.
On the Closing Date, Telscape shall grant to Executive options to buy up
to 10,000 shares (the "Option Shares') of Telscape's common stock, par value
$.001 per share (the "Common Stock"), at a price per share equal to the Fair
Market Value of a share of Common Stock as of the Closing Date. The Option
Shares shall vest in three equal installments on each anniversary of the Closing
(as defined in the SPA) and shall be otherwise subject to the terms and
conditions of Telscape's customary option agreements. For purposes of this
Agreement, "Fair Market Value" means the average of the closing prices of the
sales of Common Stock on all securities exchanges on which the Common Stock may
at the time be listed, or, if there have been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day the Common Stock is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York City time, or, if on any day the Common
Stock is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau Incorporated, or any similar successor
organization, as applicable, averaged over a period of 20 days consisting of the
day immediately preceding the Closing Date and the 20 consecutive business days
prior to such day; provided that if at any time the Common Stock is not listed
on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the Fair Market Value of a share of Common Stock shall
be the fair value of a share of Common Stock determined in good faith by the
board of directors of Telscape.
14. ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the Schedules hereto contain the entire agreement
between the Company and Executive 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.
Any notice provided for in this Agreement shall be in writing and shall be
mailed certified, first class mail (postage prepaid return receipt requested )
or sent by reputable overnight courier service (charges prepaid) as follows:
NOTICES TO EXECUTIVE:
E. Russell Hardy
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c/o California Microwave Services Division, Inc.
1143 Borregas Avenue
Sunnyvale, California 94089
NOTICES TO THE COMPANY:
California Microwave Services Division, Inc.
c/o Telscape International, Inc.
2700 Post Oak Blvd., Suite 1000
Houston, Texas 77056
Attention: Todd Binet
Phone: (713) 968-0968
or at such address or to the attention of such other Person as the recipient
party has specified by prior written notice to the sending party. Notices will
be deemed to have been given hereunder when received as indicated on the return
receipt or courier bill of lading or other delivery records.
16. ASSIGNABILITY.
Except as otherwise provided in Section 10, 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.
All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of California, without giving effect to any choice of law or conflict of
law rules or provisions (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. In furtherance of the foregoing, the
internal law of the State of California shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
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
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order to effectuate the terms and purposes of this Agreement.
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.
20. ARBITRATION
Any dispute among the parties arising out of or relating to this Agreement
or breach hereof, shall be settled by arbitration in accordance with the Rules
of the American Arbitration Association. The arbitration shall be conducted by
three (3) neutral arbitrators who sit in San Jose, California. Any award made by
such arbitrators shall be binding and conclusive for all purposes hereof, may
include injunctive relief, as well as orders for specific performance and may be
entered as a final judgement in any court of competent jurisdiction. No
arbitration arising out of or relating to this Agreement shall include, by
consolidation or joinder or in any other manner, parties other than the parties
hereto and other persons substantially involved in common questions of fact or
law whose presence is required if complete relief is to be afforded in
arbitration. The costs and expense of such arbitration shall be born in
accordance with the determination of the arbitrators and may include reasonable
attorney fees. Each party hereunder further agrees that service of process may
be made upon it by registered or certified mail or personal service at the
address for notices provided herein.
21. EFFECTIVE DATE.
Notwithstanding any other provision of this Agreement to the contrary,
this Agreement shall not become effective until the Closing Date and as of the
Closing (as defined in the SPA), and in the event the Closing does not occur,
this Agreement shall be null and void and of no further force and effect without
any further action of the parties hereto.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
CALIFORNIA MICROWAVE SERVICES
DIVISION, INC.
By: __________________________
Name:
Title:
______________________________
E. Russell Hardy
For Purposes of Section 13 Only:
TELSCAPE INTERNATIONAL, INC.
By:____________________________
Name:
Title:
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SCHEDULE A
EXECUTIVE FRINGE BENEFITS
Throughout the Period of Employment, each of E. Russell Hardy, Monty J.
Moore and Stephen A. Strohman shall be entitled to the following Executive
Fringe Benefits in accordance with Section 3 of this Agreement regardless of the
policies of the Company with regard to employees generally or other executives
specifically and in addition to the Fringe Benefits listed in the body of the
Agreement:
Full (100%) Company paid or reimbursement of costs of complete annual
physical exam;
Full (100%) Company paid or reimbursement of life insurance at two (2)
times Base Salary; and
Company paid or reimbursement of costs of individual personal tax
preparation expenses up to and including $2,500 if by BDO Seidman or up
and including $2,000 if by a tax preparer of Executive's choosing.
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of May 18, 1998,
between California Microwave Services Division, Inc., a Delaware corporation
(the "COMPANY"), and Stephen Strohman ("EXECUTIVE").
W I T N E S S E T H:
WHEREAS, Executive is a highly valued and trusted employee of the
Company; and
WHEREAS, the Company desires to offer Executive continued employment upon
the terms and conditions set forth herein and Executive desires to accept such
employment; and
NOW THEREFORE in consideration of the mutual benefits to be derived from
this Agreement, the Company and Executive 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 Executive with the title of President, Satellite Services, with
the duties and responsibilities prescribed for such office in the Bylaws of the
Company, and with such additional duties and responsibilities consistent with
such positions as may from time to time be assigned to Executive by the Board of
Directors of the Company (the "Board"). Executive agrees to perform such duties
and discharge such responsibilities in accordance with the terms of this
Agreement and in a manner as is customary for persons situated in a similar
executive capacity. Executive shall also function in such other executive
capacity for Affiliates of the Company as may be reasonably requested by the
Board.
(b) During the Period of Employment, Executive shall devote substantially
all of his working time and attention to the business and affairs of the
Company, other than during vacations and periods of illness or incapacity (in
each case, which shall be of a duration that is consistent with the policies of
the Company); provided, however, that nothing in this Agreement shall preclude
Executive from devoting time required: (i) for serving as a director, principal
or officer of any organization or entity involving no conflict of interest with
the Company with the prior consent of the Company (such consent not to be
unreasonably withheld); (ii) delivering lectures, fulfilling speaking
engagements or participating in activities of professional associations
including chambers of commerce; (iii) engaging in charitable and community
activities; and (iv) managing personal investments; PROVIDED THAT, such
activities do not interfere with the performance of his duties hereunder and
attention to the business and affairs of the Company.
<PAGE>
(c) For purposes of this Agreement, an "Affiliate" of a person or entity
shall mean a person or entity that directly or indirectly controls, is
controlled by or is under common control with such person or entity.
2. TERM; PERIOD OF EMPLOYMENT
The period of employment hereunder (the "Period of Employment") shall
commence on the Closing Date (as defined in that certain Stock Purchase
Agreement of even date herewith among Telscape International, Inc. ("Telscape"),
California Microwave, Inc. ("CMI") and the Company, ( the "SPA"))(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 Executive; provided
however, that notwithstanding any other provision of this Agreement or any such
extension, the Period of Employment shall not expire prior to (a) the first
anniversary of a Change of Control (as hereinafter defined) if such Change of
Control occurs after June 30, 1999 or (b) the second anniversary of a Change of
Control if such Change of Control occurs on or prior to June 30, 1999.
3. COMPENSATION AND BENEFITS.
For all services rendered by Executive 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, Executive shall be compensated as follows:
(a) BASE SALARY. The Company shall pay Executive a fixed salary ("Base
Salary") at a rate of US $175,000 per year. The Board will periodically review,
at least annually, Executive's Base Salary with a view to increasing such Base
Salary if, in the judgment of the Board, the earnings of the Company or the
services of Executive 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.
(ii) If EBITDA for the twelve months ending June 30, 1999 exceeds
$2,600,000 (the "Threshold"), then the Company shall pay to Executive a cash
bonus, which shall not exceed $105,000 (the "Cap"), in an amount (not to exceed
the Cap) determined by multiplying (a) 12.16% by (b) the amount by which EBITDA
for such twelve month period exceeds the Threshold. "EBITDA" shall mean for any
specified period the consolidated net income as determined in accordance with
GAAP of the Company and its subsidiaries for such period: (a) plus (without
duplication and to the extent included in determining such net income) (i) net
interest expense, (ii) provision for income taxes, and (iii) depreciation and
amortization, and (b) minus (without duplication and to the extent included in
determining such net income) (i) the difference between the total inventory
reserve amount on the Closing Date Balance Sheet (as
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defined in the SPA) lower than $857,114, (ii) the difference between the total
accounts receivable reserve amount on the Closing Date Balance Sheet lower than
$82,890, (iii) any gains (or plus losses), together with any related provision
for income taxes on such gains (or losses), realized in connection with any sale
of assets other than the sale of inventory in the ordinary course of business
(including without limitation dispositions pursuant to sale and leaseback
transactions), (iv) extraordinary gains (or plus losses), together with any
related provision for income taxes on such extraordinary gains (or losses) and
(v) any gains (or plus losses) from discontinued operations, together with any
related provision for income taxes on such gains (or losses) from discontinued
operations.
(ii) The Board shall negotiate in good faith with Executive to set
bonus targets and bonus amounts for each twelve month period occurring after
June 30, 1999 during the Period of Employment.
(c) FRINGE BENEFITS. During the Period of Employment, Executive 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 as well as those specific benefits described in Schedule A
attached hereto. Except as specifically set forth herein or therein, the terms
of, and participation by Executive in, any such plan or program shall be
determined by the Board in its sole discretion. In the event of Executive's
Disability, the Executive and his family shall continue to be covered by all of
the Company's life, medical, health and dental plans, and salary continuation
plans (if any), at the Company's expense, for the lesser of the term of such
disability or the remaining term of the Period of Employment. In the event of
Executive's death, Executive'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 Executive'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 Executive.
(e) VACATIONS. Executive shall be entitled to annual vacations in
accordance with the policies of the Company, but in no event less than two weeks
and Executive shall be eligible for such benefit immediately.
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4. BUSINESS EXPENSES.
The Company shall pay or reimburse Executive for all reasonable travel or
other expenses incurred by Executive in connection with the performance of his
duties under this Agreement, including reimbursement for attending meetings of
the Board, 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 Executive's death, Disability (as
hereinafter defined) or for Cause (as hereinafter defined). For purposes of this
Agreement, 'Cause' shall mean Executive's conviction of a crime involving an act
or acts of dishonesty, fraud or moral turpitude by Executive with regard to the
Company, which act or acts constitute a felony and the willful and continued
failure to substantially perform Executive'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 Executive,
in the reasonable judgment of a physician approved by the Board (which approval
shall not be unreasonably withheld), to perform his duties of employment for the
Company 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 Executive 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; provided, that in the event
of Executive's death, such termination shall occur automatically as of the date
of death. In the event of any termination under this Subsection 5(a), the
Company shall pay all amounts then due to Executive 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
Executive 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 Executive the Base Salary for the longer of (i) a
period of one year after such termination; and (ii) the period beginning on the
date of such termination and ending on the second anniversary of the Closing
Date.
(c) By Executive, if the Board fails to elect or reelect Executive to, or
removes Executive from the office referred to in Section 1(a) or discontinues or
denies to Executive any of the compensation or benefits referred to in Sections
3, 4 or 13 of their Agreement (other than in accordance with the terms of this
Agreement). 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 Executive the Base Salary
for the longer of (i) a period of one year after such termination; and (ii) the
period beginning on the
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date of such termination and ending on the second anniversary of the Closing
Date.
(d) During any period in which payments are payable by the Company to
Executive pursuant to Sections 5(b) or 5(c) hereof (such payments being
hereinafter collectively referred to as "Termination Payments"), Executive and
his family shall continue to be covered by the Company's life (other than in the
case of termination by reason of Executive's death), medical, health and death
plans. Such coverage shall be at the Company's expense to the same extent as if
Executive were still employed by the Company.
6. NON-COMPETITION.
During the Period of Employment hereunder and for the one year period
thereafter, Executive shall not, anywhere within the United States of America or
anywhere else in the world in which the Company is then doing business, engage
as an individual in activities in competition with the business of the Company,
including but not limited to any aspect of the Business (as defined in the SPA).
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, Executive
shall not, within any jurisdiction in which 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 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.
Notwithstanding the foregoing, if the Company terminates Executive without
Cause, then the restrictions contained in this Section 6 shall terminate and be
of no further force and effect as of the date on which the last Termination
Payment is made to Executive.
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. 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. By
reason of his being a senior executive of the Company, Executive has or will
have access to, and has obtained or will obtain, specialized knowledge, trade
secrets and confidential information about the Company's operations wherever it
does business. Therefore, Executive hereby agrees as follows, recognizing that
the Company is relying on these agreements in entering into this Agreement:
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(i) During and for three years after the Period of Employment
hereunder, Executive 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, or
its Affiliates, 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, Executive information, and other confidential information acquired
by him in the course of his past or future services for the Company. Executive
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 Affiliates' 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, Executive will not induce or
otherwise attempt to influence any executive of the Company, to leave the
Company's employment (unless the Board shall have authorized such employment and
the Company shall have consented thereto in writing).
8. INDEMNIFICATION.
The Company will indemnify Executive (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
Executive, and Executive shall be entitled to the protection of any insurance
policies (in accordance with the terms thereof) 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
Executive with respect to the subject matter of this Agreement and the
enforcement of the rights hereunder, the Company shall reimburse Executive 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:
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(i) settlement requiring the Company to make a payment to Executive,
or
(ii) final judgment or order in favor of Executive.
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 (any of which is a "Change of Control") 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 a Change in Control, 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 Executive 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 Change
of Control not occurred.
11. SURVIVAL OF OBLIGATIONS.
Sections 5, 6, 7, 8 and 9 shall survive the termination for any reason of
this Agreement (whether such termination is by the Company, by Executive, upon
the expiration of this Agreement or otherwise). Notwithstanding the foregoing,
if the Company terminates Executive without Cause, then the restrictions
contained in Section 6 shall terminate and be of no further force and effect as
of the date on which the last Termination Payment is made to Executive.
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
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 Executive 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
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
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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. TELSCAPE OPTIONS.
On the Closing Date, Telscape shall grant to Executive options to buy up
10,000 shares (the "Option Shares') of Telscape's common stock, par value $.001
per share (the "Common Stock"), at a price per share equal to the Fair Market
Value of a share of Common Stock as of the Closing Date. The Option Shares shall
vest in three equal installments on each anniversary of the Closing (as defined
in the SPA) and shall be otherwise subject to the terms and conditions of
Telscape's customary option agreements. For purposes of this Agreement, "Fair
Market Value" means the average of the closing prices of the sales of Common
Stock on all securities exchanges on which the Common Stock may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 P.M., New York City time, or, if on any day the Common Stock is not
quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor organization,
as applicable, averaged over a period of 20 days consisting of the day
immediately preceding the Closing Date and the 20 consecutive business days
prior to such day; provided that if at any time the Common Stock is not listed
on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the Fair Market Value of a share of Common Stock shall
be the fair value of a share of Common Stock determined in good faith by the
board of directors of Telscape.
14. ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the Schedules hereto contain the entire agreement
between the Company and Executive 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.
Any notice provided for in this Agreement shall be in writing and shall be
mailed certified, first class mail (postage prepaid return receipt requested )
or sent by reputable overnight courier service (charges prepaid) as follows:
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NOTICES TO EXECUTIVE:
Stephen Strohman
c/o California Microwave Services Division, Inc.
1143 Borregas Avenue
Sunnyvale, California 94089
NOTICES TO THE COMPANY:
California Microwave Services Division, Inc.
c/o Telscape International, Inc.
2700 Post Oak Blvd., Suite 1000
Houston, Texas 77056
Attention: Todd Binet
Phone: (713) 968-0968
or at such address or to the attention of such other Person as the recipient
party has specified by prior written notice to the sending party. Notices will
be deemed to have been given hereunder when received as indicated on the return
receipt or courier bill of lading or other delivery records.
16. ASSIGNABILITY.
Except as otherwise provided in Section 10, 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.
All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of California, without giving effect to any choice of law or conflict of
law rules or provisions (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. In furtherance of the foregoing, the
internal law of the State of California shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
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
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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.
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.
20. ARBITRATION.
Any dispute among the parties arising out of or relating to this Agreement
or breach hereof, shall be settled by arbitration in accordance with the Rules
of the American Arbitration Association. The arbitration shall be conducted by
three (3) neutral arbitrators who sit in San Jose, California. Any award made by
such arbitrators shall be binding and conclusive for all purposes hereof, may
include injunctive relief, as well as orders for specific performance and may be
entered as a final judgement in any court of competent jurisdiction. No
arbitration arising out of or relating to this Agreement shall include, by
consolidation or joinder or in any other manner, parties other than the parties
hereto and other persons substantially involved in common questions of fact or
law whose presence is required if complete relief is to be afforded in
arbitration. The costs and expense of such arbitration shall be born in
accordance with the determination of the arbitrators and may include reasonable
attorney fees. Each party hereunder further agrees that service of process may
be made upon it by registered or certified mail or personal service at the
address for notices provided herein.
21. EFFECTIVE DATE.
Notwithstanding any other provision of this Agreement to the contrary,
this Agreement shall not become effective until the Closing Date and as of the
Closing (as defined in the SPA), and in the event the Closing does not occur,
this Agreement shall be null and void and of no further force and effect without
any further action of the parties hereto.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
CALIFORNIA MICROWAVE SERVICES
DIVISION, INC.
By: __________________________
Name:
Title:
________________________________
Stephen Strohman
For Purposes of Section 13 Only:
TELSCAPE INTERNATIONAL, INC.
By:____________________________
Name:
Title:
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SCHEDULE A
EXECUTIVE FRINGE BENEFITS
Throughout the Period of Employment, each of E. Russell Hardy, Monty J.
Moore and Stephen A. Strohman shall be entitled to the following Executive
Fringe Benefits in accordance with Section 3 of this Agreement regardless of the
policies of the Company with regard to employees generally or other executives
specifically and in addition to the Fringe Benefits listed in the body of the
Agreement:
Full (100%) Company paid or reimbursement of costs of complete annual
physical exam;
Full (100%) Company paid or reimbursement of life insurance at two (2)
times Base Salary; and
Company paid or reimbursement of costs of individual personal tax
preparation expenses up to and including $2,500 if by BDO Seidman or up
and including $2,000 if by a tax preparer of Executive's choosing.
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of May 18, 1998,
between California Microwave Services Division, Inc., a Delaware corporation
(the "COMPANY"), and Monty J. Moore ("EXECUTIVE").
W I T N E S S E T H:
WHEREAS, Executive is a highly valued and trusted employee of the
Company; and
WHEREAS, the Company desires to offer Executive continued employment upon
the terms and conditions set forth herein and Executive desires to accept such
employment; and
NOW THEREFORE in consideration of the mutual benefits to be derived from
this Agreement, the Company and Executive 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 Executive with the title of Vice President and Chief Financial
Officer, with the duties and responsibilities prescribed for such office in the
Bylaws of the Company, and with such additional duties and responsibilities
consistent with such positions as may from time to time be assigned to Executive
by the Board of Directors of the Company (the "Board"). Executive agrees to
perform such duties and discharge such responsibilities in accordance with the
terms of this Agreement and in a manner as is customary for persons situated in
a similar executive capacity. Executive shall also function in such other
executive capacity for Affiliates of the Company as may be reasonably requested
by the Board.
(b) During the Period of Employment, Executive shall devote substantially
all of his working time and attention to the business and affairs of the
Company, other than during vacations and periods of illness or incapacity (in
each case, which shall be of a duration that is consistent with the policies of
the Company); provided, however, that nothing in this Agreement shall preclude
Executive from devoting time required: (i) for serving as a director, principal
or officer of any organization or entity involving no conflict of interest with
the Company with the prior consent of the Company (such consent not to be
unreasonably withheld); (ii) delivering lectures, fulfilling speaking
engagements or participating in activities of professional associations
including chambers of commerce; (iii) engaging in charitable and community
activities; and (iv) managing personal investments; PROVIDED THAT, such
activities do not interfere with the performance of his duties hereunder and
attention to the business and affairs of the Company.
<PAGE>
(c) For purposes of this Agreement, an "Affiliate" of a person or entity
shall mean a person or entity that directly or indirectly controls, is
controlled by or is under common control with such person or entity.
2. TERM; PERIOD OF EMPLOYMENT
The period of employment hereunder (the "Period of Employment") shall
commence on the Closing Date (as defined in that certain Stock Purchase
Agreement of even date herewith among Telscape International, Inc. ("Telscape"),
California Microwave, Inc. ("CMI") and the Company, ( the "SPA"))(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 Executive; provided,
however that, notwithstanding any other provision of this Agreement or any such
extension, the Period of Employment shall not expire prior to (a) the first
anniversary of a Change of Control (as hereinafter defined) if such Change of
Control occurs after June 30, 1999 or (b) the second anniversary of a Change of
Control if such Change of Control occurs on or prior to June 30, 1999.
3. COMPENSATION AND BENEFITS.
For all services rendered by Executive 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, Executive shall be compensated as follows:
(a) BASE SALARY. The Company shall pay Executive a fixed salary ("Base
Salary") at a rate of US $125,000 per year. The Board will periodically review,
at least annually, Executive's Base Salary with a view to increasing such Base
Salary if, in the judgment of the Board, the earnings of the Company or the
services of Executive 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.
(ii) If EBITDA for the twelve months ending June 30, 1999 exceeds
$2,600,000 (the "Threshold"), then the Company shall pay to Executive a cash
bonus, which shall not exceed $75,000 (the "Cap"), in an amount (not to exceed
the Cap) determined by multiplying (a) 8.68% by (b) the amount by which EBITDA
for such twelve month period exceeds the Threshold. "EBITDA" shall mean for any
specified period the consolidated net income as determined in accordance with
GAAP of the Company and its subsidiaries for such period: (a) plus (without
duplication and to the extent included in determining such net income) (i) net
interest expense, (ii) provision for income taxes, and (iii) depreciation and
amortization, and (b) minus (without duplication and to the extent included in
determining such net income) (i) the difference between the total inventory
reserve amount on the Closing Date Balance Sheet (as
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defined in the SPA) lower than $857,114, (ii) the difference between the total
accounts receivable reserve amount on the Closing Date Balance Sheet lower than
$82,890, (iii) any gains (or plus losses), together with any related provision
for income taxes on such gains (or losses), realized in connection with any sale
of assets other than the sale of inventory in the ordinary course of business
(including without limitation dispositions pursuant to sale and leaseback
transactions), (iv) extraordinary gains (or plus losses), together with any
related provision for income taxes on such extraordinary gains (or losses) and
(v) any gains (or plus losses) from discontinued operations, together with any
related provision for income taxes on such gains (or losses) from discontinued
operations.
(ii) The Board shall negotiate in good faith with Executive to set
bonus targets and bonus amounts for each twelve month period occurring after
June 30, 1999 during the Period of Employment.
(c) FRINGE BENEFITS. During the Period of Employment, Executive 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 as well as those specific benefits described in Schedule A
attached hereto. Except as specifically set forth herein or therein, the terms
of, and participation by Executive in, any such plan or program shall be
determined by the Board in its sole discretion. In the event of Executive's
Disability, the Executive and his family shall continue to be covered by all of
the Company's life, medical, health and dental plans, and salary continuation
plans (if any), at the Company's expense, for the lesser of the term of such
disability or the remaining term of the Period of Employment. In the event of
Executive's death, Executive'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 Executive'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 Executive.
(e) VACATIONS. Executive shall be entitled to annual vacations in
accordance with the policies of the Company, but in no event less than two weeks
and Executive shall be eligible for such benefit immediately.
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4. BUSINESS EXPENSES.
The Company shall pay or reimburse Executive for all reasonable travel or
other expenses incurred by Executive in connection with the performance of his
duties under this Agreement, including reimbursement for attending meetings of
the Board, 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 Executive's death, Disability (as
hereinafter defined) or for Cause (as hereinafter defined). For purposes of this
Agreement, 'Cause' shall mean Executive's conviction of a crime involving an act
or acts of dishonesty, fraud or moral turpitude by Executive with regard to the
Company, which act or acts constitute a felony and the willful and continued
failure to substantially perform Executive'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 Executive,
in the reasonable judgment of a physician approved by the Board (which approval
shall not be unreasonably withheld), to perform his duties of employment for the
Company 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 Executive 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; provided, that in the event
of Executive's death, such termination shall occur automatically as of the date
of death. In the event of any termination under this Subsection 5(a), the
Company shall pay all amounts then due to Executive 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
Executive 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 Executive the Base Salary for the longer of (i) a
period of one year after such termination; and (ii) the period beginning on the
date of such termination and ending on the second anniversary of the Closing
Date.
(c) By Executive, if the Board fails to elect or reelect Executive to, or
removes Executive from the office referred to in Section 1(a) or discontinues or
denies to Executive any of the compensation or benefits referred to in Sections
3, 4 or 13 of their Agreement (other than in accordance with the terms of this
Agreement). 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 Executive the Base Salary
for the longer of (i) a period of one year after such termination; and (ii) the
period beginning on the
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date of such termination and ending on the second anniversary of the Closing
Date.
(d) During any period in which payments are payable by the Company to
Executive pursuant to Sections 5(b) or 5(c) hereof (such payments being
hereinafter collectively referred to as "Termination Payments"), Executive and
his family shall continue to be covered by the Company's life (other than in the
case of termination by reason of Executive's death), medical, health and death
plans. Such coverage shall be at the Company's expense to the same extent as if
Executive were still employed by the Company.
6. NON-COMPETITION.
During the Period of Employment hereunder and for the one year period
thereafter, Executive shall not, anywhere within the United States of America or
anywhere else in the world in which the Company is then doing business, engage
as an individual in activities in competition with the business of the Company,
including but not limited to any aspect of the Business (as defined in the SPA).
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, Executive
shall not, within any jurisdiction in which 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 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.
Notwithstanding the foregoing, if the Company terminates Executive without
Cause, then the restrictions contained in this Section 6 shall terminate and be
of no further force and effect as of the date on which the last Termination
Payment is made to Executive.
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. 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. By
reason of his being a senior executive of the Company, Executive has or will
have access to, and has obtained or will obtain, specialized knowledge, trade
secrets and confidential information about the Company's operations wherever it
does business. Therefore, Executive hereby agrees as follows, recognizing that
the Company is relying on these agreements in entering into this Agreement:
(i) During and for three years after the Period of Employment
hereunder, Executive 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, or
its Affiliates, including but not limited to confidential information concerning
their products, methods, product purchasing arrangements
5
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and agreements, product distribution arrangements and agreements, engineering
designs, system designs and standards, analytical techniques, technical
information, customer information, Executive information, and other confidential
information acquired by him in the course of his past or future services for the
Company. Executive 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 Affiliates' 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, Executive will not induce or
otherwise attempt to influence any executive of the Company, to leave the
Company's employment (unless the Board shall have authorized such employment and
the Company shall have consented thereto in writing).
8. INDEMNIFICATION.
The Company will indemnify Executive (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
Executive, and Executive shall be entitled to the protection of any insurance
policies (in accordance with the terms thereof) 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
Executive with respect to the subject matter of this Agreement and the
enforcement of the rights hereunder, the Company shall reimburse Executive 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 Executive,
or
(ii) final judgment or order in favor of Executive.
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
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partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination (any of which is a "Change of
Control") 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 a Change in Control, 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 Executive 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 Change of Control not occurred.
11. SURVIVAL OF OBLIGATIONS.
Sections 5, 6, 7, 8 and 9 shall survive the termination for any reason of
this Agreement (whether such termination is by the Company, by Executive, upon
the expiration of this Agreement or otherwise). Notwithstanding the foregoing,
if the Company terminates Executive without Cause, then the restrictions
contained in Section 6 shall terminate and be of no further force and effect as
of the date on which the last Termination Payment is made to Executive.
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
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 Executive 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
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.
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13. TELSCAPE OPTIONS.
On the Closing Date, Telscape shall grant to Executive options to buy up
10,000 shares (the "Option Shares') of Telscape's common stock, par value $.001
per share (the "Common Stock"), at a price per share equal to the Fair Market
Value of a share of Common Stock as of the Closing Date. The Option Shares shall
vest in three equal installments on each anniversary of the Closing (as defined
in the SPA) and shall be otherwise subject to the terms and conditions of
Telscape's customary option agreements. For purposes of this Agreement, "Fair
Market Value" means the average of the closing prices of the sales of Common
Stock on all securities exchanges on which the Common Stock may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 P.M., New York City time, or, if on any day the Common Stock is not
quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor organization,
as applicable, averaged over a period of 20 days consisting of the day
immediately preceding the Closing Date and the 20 consecutive business days
prior to such day; provided that if at any time the Common Stock is not listed
on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the Fair Market Value of a share of Common Stock shall
be the fair value of a share of Common Stock determined in good faith by the
board of directors of Telscape.
14. ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the Schedules hereto contain the entire agreement
between the Company and Executive 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.
Any notice provided for in this Agreement shall be in writing and shall be
mailed certified, first class mail (postage prepaid return receipt requested )
or sent by reputable overnight courier service (charges prepaid) as follows:
NOTICES TO EXECUTIVE:
Monty J. Moore
c/o California Microwave Services Division, Inc.
1143 Borregas Avenue
Sunnyvale, California 94089
NOTICES TO THE COMPANY:
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California Microwave Services Division, Inc.
c/o Telscape International, Inc.
2700 Post Oak Blvd., Suite 1000
Houston, Texas 77056
Attention: Todd Binet
Phone: (713) 968-0968
or at such address or to the attention of such other Person as the recipient
party has specified by prior written notice to the sending party. Notices will
be deemed to have been given hereunder when received as indicated on the return
receipt or courier bill of lading or other delivery records.
16. ASSIGNABILITY.
Except as otherwise provided in Section 10, 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.
All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of California, without giving effect to any choice of law or conflict of
law rules or provisions (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. In furtherance of the foregoing, the
internal law of the State of California shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
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.
19. HEADINGS OF NO EFFECT.
The paragraph headings contained in this Agreement are for reference
purposes only and
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<PAGE>
shall not in any way affect the meaning or interpretation of this Agreement.
20. ARBITRATION.
Any dispute among the parties arising out of or relating to this Agreement
or breach hereof, shall be settled by arbitration in accordance with the Rules
of the American Arbitration Association. The arbitration shall be conducted by
three (3) neutral arbitrators who sit in San Jose, California. Any award made by
such arbitrators shall be binding and conclusive for all purposes hereof, may
include injunctive relief, as well as orders for specific performance and may be
entered as a final judgement in any court of competent jurisdiction. No
arbitration arising out of or relating to this Agreement shall include, by
consolidation or joinder or in any other manner, parties other than the parties
hereto and other persons substantially involved in common questions of fact or
law whose presence is required if complete relief is to be afforded in
arbitration. The costs and expense of such arbitration shall be born in
accordance with the determination of the arbitrators and may include reasonable
attorney fees. Each party hereunder further agrees that service of process may
be made upon it by registered or certified mail or personal service at the
address for notices provided herein.
21. EFFECTIVE DATE.
Notwithstanding any other provision of this Agreement to the contrary,
this Agreement shall not become effective until the Closing Date and as of the
Closing (as defined in the SPA), and in the event the Closing does not occur,
this Agreement shall be null and void and of no further force and effect without
any further action of the parties hereto.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
CALIFORNIA MICROWAVE SERVICES
DIVISION, INC.
By: __________________________
Name:
Title:
_____________________________
Monty J. Moore
For Purposes of Section 13 Only:
TELSCAPE INTERNATIONAL, INC.
By:____________________________
Name:
Title:
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SCHEDULE A
EXECUTIVE FRINGE BENEFITS
Throughout the Period of Employment, each of E. Russell Hardy, Monty J.
Moore and Stephen A. Strohman shall be entitled to the following Executive
Fringe Benefits in accordance with Section 3 of this Agreement regardless of the
policies of the Company with regard to employees generally or other executives
specifically and in addition to the Fringe Benefits listed in the body of the
Agreement:
Full (100%) Company paid or reimbursement of costs of complete annual
physical exam;
Full (100%) Company paid or reimbursement of life insurance at two (2)
times Base Salary; and
Company paid or reimbursement of costs of individual personal tax
preparation expenses up to and including $2,500 if by BDO Seidman or up
and including $2,000 if by a tax preparer of Executive's choosing.
EXHIBIT 10.9
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made as of May 18, 1998 (this "AGREEMENT"), between
California Microwave Services Division, Inc., a Delaware corporation
(the "COMPANY"), and Salvador Giblas ("CONSULTANT").
WHEREAS, Consultant is a highly valued and trusted Executive of the Company;
and
WHEREAS, the Company desires for Consultant to return from his leave of absence
and rejoin the Management Team as an Executive of the Company; and
WHEREAS, the Company desires to offer Consultant employment upon his return and
Consultant desires to accept such employment.
In consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
EMPLOYMENT. The Company shall retain Consultant to provide consulting
services as set forth herein, and Consultant hereby agrees to provide such
consulting services for the Company, upon the terms and conditions set forth in
this Agreement for the period specified in paragraph 4 hereof (the "CONSULTING
PERIOD").
POSITION AND DUTIES.
During the Consulting Period, Consultant shall provide consulting
services (the "Duties") to the Company as specified in the "Statement of Work",
attached as Exhibit "A" and incorporated herein.
During the Consulting Period, Consultant shall report to the
President, Satellite Services, of the Company, and Consultant shall devote his
best efforts to accomplish the Duties specified in the Statement of Work.
CONSULTING FEE AND EXPENSES.
During the Consulting Period, Consultant shall be entitled to
receive from the Company as compensation for his performance of the Duties
hereunder the consulting fees (the "CONSULTING FEES") specified in Exhibit "`B"
attached hereto and incorporated herein.
The Company shall reimburse Consultant for all reasonable expenses
incurred by him in the course of performing the Duties provided for in this
Agreement which are consistent with the Company's policies in effect from time
to time with respect to travel and other business
<PAGE>
expenses, subject to the Company's requirements with respect to reporting and
documentation of such expenses.
TERM.
The Consulting Period shall commence on June 30, 1998, and shall
terminate no later than July 15, 1999; provided that (i) the Consulting Period
shall terminate prior to such date upon Consultant's resignation, death or
Disability (as defined below) and (ii) the Consulting Period may be terminated
by the Company at any time prior to such date for Cause (as defined below) or
without Cause.
If the Consulting Period is terminated by the Company, whether for
Cause or without cause, Consultant shall only be entitled to receive the unpaid
pro rata portion of the Consulting Fee which was earned by Consultant in
accordance with paragraph 3(a) of this Agreement through the date of such
termination.
Consultant shall immediately cease to incur expenses as of the date
of termination of the Consulting Period (other than expenses reasonably incurred
by Consultant to return home should Consultant be traveling at the request of
the Company as of the date of termination). The Company shall reimburse
Consultant for such expenses and all other previously incurred but unreimbursed
expenses of Consultant through the date of termination of the Consulting Period
in accordance with paragraph 3(b) of this Agreement.
The Company may offset any amounts Consultant owes it against any
amounts the Company owes Consultant hereunder.
For purposes of this Agreement, "CAUSE" shall mean Consultant's
conviction of a crime involving an act or acts of dishonesty, fraud or moral
turpitude by Consultant with regard to the Company, which act or acts constitute
a felony and the willful and continued failure to substantially perform
Consultant'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 Consultant, in the reasonable judgment
of a physician approved by the Board (which approval shall not be unreasonably
withheld), to perform his duties of employment for the Company 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 Consultant
specify the event relied upon for termination pursuant to this Subsection 5(a),
and the Consulting Period hereunder shall be deemed terminated as of the date of
such notice; provided, that in the event of Consultant's death, such termination
shall occur automatically as of the date of death. In the event of any
termination under this Subsection 5(a), the Company shall pay all amounts then
due to Consultant 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 Consultant under this
Agreement..
NON-COMPETITION. During the Consulting Period hereunder and for the one
year period thereafter, the Consultant shall not, anywhere within the United
States of America or anywhere
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<PAGE>
else in the world in which the Company is then doing business, engage as an
individual in activities in competition with the business of the Company,
including, but not limited to, any aspect of the Business (as defined in the
Stock Purchase Agreement of even date herewith among the Company, California
Microwave, Inc. and Telescape International, Inc.). In addition, for one year
following the later of the last day of the Consulting Period or the payment of
the last Consulting Fee hereunder, the Consultant shall not, within any
jurisdiction in which 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. Investments in less than five
percent (5%) of the outstanding securities of any class of a publicly-traded
company shall not be prohibited by this Section 5. Should the Company terminate
Consultant without Cause, then this Section 5 shall be null and void.
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. 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. By reason of his being a senior executive of the Company, the
Consultant has or will have access to, and has obtained or will obtain,
specialized knowledge, trade secrets and confidential information about the
Company's operations wherever it does business. Therefore, Consultant hereby
agrees as follows, recognizing that the Company is relying on these agreements
in entering into this Agreement:
During and for three years after the Consulting Period hereunder,
Consultant 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, including,
but not limited to, confidential information concerning its products, methods,
product purchasing arrangements and agreements, engineering designs, systems
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. Consultant
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 Business 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.
During the Consulting Period hereunder, and for one year following
the last day of the Consulting Period, Consultant will not induce or otherwise
attempt to influence any employee of the Company to leave the employ of the
Company (unless the Board of Directors shall have authorized such employment and
the Company shall have consented thereto in writing).
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<PAGE>
SURVIVAL OF OBLIGATIONS. Sections 5, 6, 7, 8 and 18 of this Agreement
shall survive its termination for any reason, regardless of whether such
termination is by the Company, by Consultant, upon the expiration of the
Consulting Period or otherwise; provided, however, that should the Company
terminate Consultant without Cause, Section 5 shall not survive the termination
of this Agreement.
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 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, illegal or unenforceable had never been contained
herein and such provision or part reformed so that it would be valid, legal and
unenforceable in such jurisdiction to the maximum extent possible. In
furtherance and not in limitation of the foregoing, the Company and Consultant
each intend that the covenants contained in Sections 5 and 6 of this Agreement
shall be deemed to be a series of separate covenants, one for each state,
territory or jurisdiction of 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 provision 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 proceedings, a court
shall refuse to enforce any one or more of such separate covenants because the
total time thereof or the geographical area covered thereby is deemed to be
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.
CONSULTANT'S REPRESENTATIONS. Consultant hereby represents and warrants to
the Company that (i) the execution, delivery and performance of this Agreement
by Consultant do not and shall not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Consultant is a party or by which he is bound, (ii) Consultant is not a
party to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity, and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Consultant, enforceable in accordance with
its terms. Consultant hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
NOTICES. Any notice provided for in this Agreement shall be in writing and
shall be either sent via reputable overnight courier, charges prepaid, or mailed
by certified first class mail, return receipt requested, to the recipient at the
address below indicated:
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<PAGE>
NOTICES TO CONSULTANT:
Salvador Giblas
c/o California Microwave Services Division, Inc.
1143 Borregas Avenue
Sunnyvale, California 94089
NOTICES TO THE COMPANY:
California Microwave Services Division, Inc.
1143 Borregas Avenue
Sunnyvale, California 94089
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when received as
evidenced by the date on the overnight courier, bill of lading or other delivery
records or the certified mail return receipt.
COMPLETE AGREEMENT. This Agreement, those documents expressly referred to
herein and the other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
NO STRICT CONSTRUCTION. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
The parties hereto have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.
COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to
the benefit of and be enforceable by Consultant, the Company and their
respective heirs, successors and assigns, except that Consultant may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
CHOICE OF LAW. All issues and questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of California, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
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<PAGE>
jurisdiction other than the State of California. In furtherance of the
foregoing, the internal law of the State of California shall control the
interpretation and construction of this Agreement (and all schedules and
exhibits hereto), even though under that jurisdiction's choice of law or
conflict of law analysis, the substantive law of some other jurisdiction would
ordinarily apply.
AMENDMENT AND WAIVER. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Consultant, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
CONSULTING ARRANGEMENT. This Agreement is intended to provide a consulting
arrangement only and Consultant shall be deemed to be an independent contractor,
and not an employee, of the Company during the Consulting Period.
EMPLOYMENT AGREEMENT. Upon termination of the Consulting Period (other
than termination by the Company for Cause or upon Consultant's death),
Consultant shall become a full-time employee of the Company, and shall serve as
the Vice President, Sales of the Company at an annual salary of $100,000 per
annum, and on terms and conditions substantially similar to those set forth in
[the Employment Agreements of even date herewith between the Company and each of
E. Russell Hardy, Stephen Strohman and Monty J. Moore (except with respect to
the bonus payable with respect to the twelve month period ending June 30, 1999)
(the "Employment Agreements"), and Company and Consultant shall execute an
employment agreement containing such terms and otherwise substantially in the
form of the Employment Agreements as of the date of such termination.
ARBITRATION. Any dispute among the parties arising out of or relating to
this Agreement or breach hereof, shall be settled by arbitration in accordance
with the Rules of the American Arbitration Association. The arbitration shall be
conducted by three (3) neutral arbitrators who sit in San Jose, California. Any
award made by such arbitrators shall be binding and conclusive for all purposes
hereof, may include injunctive relief, as well as orders for specific
performance and may be entered as a final judgement in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by
consolidation or joinder or in any other manner, parties other than the parties
hereto and other persons substantially involved in common questions of fact or
law whose presence is required if complete relief is to be afforded in
arbitration. The costs and expense of such arbitration shall be born in
accordance with the determination of the arbitrators and may include reasonable
attorney fees. Each party hereunder further agrees that service of process may
be made upon it by registered or certified mail or personal service at the
address for notices provided herein.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement
as of the date first written above.
CALIFORNIA MICROWAVE SERVICES
DIVISION, INC.
By: __________________________
Name:
Title:
______________________________
Salvador Giblas
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<PAGE>
EXHIBIT "A"
STATEMENT OF WORK
During the term of this Agreement, CONSULTANT will perform services defined as
follows:
Routine Duties shall include:
Retrieving and responding to Internet mail received from the Company and others
requesting information pertaining to the Company's products and services
Assisting the Company's employees, via the Internet and via telephone, with
providing responses to customer or potential customer issues
Directly interacting with customers or potential customers via telephone or
via the Internet
Contributing marketing, business planning and sales information no less often
than bi-weekly, or in response to specific requests from the Company
Occasional Duties shall include:
Writing proposals, preparing quotations and developing sales support materials
Traveling for the purpose of meeting with customers, potential customers
and/or Company employees
Such other Duties as may be requested from time-to-time by the President,
Satellite Services.
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<PAGE>
EXHIBIT "B"
For the performance of the Duties described in the Statement of Work, Consultant
shall be entitled to receive compensation as follows:
Routine Duties -- US $3,000.00 per month or partial month
Occasional Duties -- US $1,000 per day*
"Such other" Duties -- As mutually agreed by the parties
- --------
* With the prior written approval of such duties by the President, Satellite
Services or his designee.
9
