1
Exhibit 10.7
USFI, INC.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
As of 1 March 1997
Xx. Xxxxx X. Xxxxx
c/o TelePassport GmbH
Xxxxxxxxxxxxxx 0
D-60325 Frankfurt a. M
Germany
Dear Georg:
Reference is made to the Memorandum of Understanding dated October 17, 1996 (the
"MOU") between us with respect to the sale by you of 100% of the shares of
capital stock (the "Stock") of TelePassport GmbH, a corporation organized under
the laws of Germany (Registration No. HR B 38781 of the local court of
Frankfurt) (the "GmbH"). This letter will confirm our mutual understanding to
replace and supersede the MOU with this letter agreement. By signing this letter
agreement (the "Agreement"), you confirm that this Agreement is valid, legal and
binding upon you, and that neither you nor GmbH (upon instructions from you)
will contact or discuss with any other party (other than your attorneys,
financial and other advisers with respect to the sale contemplated hereby) any
proposal for a sale of GmbH or the stock thereof from the date hereof through
the earlier of the Closing (as hereinafter defined) or 31 July 1997.
Pursuant to the terms and conditions of this Agreement, you ("Hofer") agree to
sell, transfer and convey by notarial deed, and USFI, Inc. ("USFI") agrees to
buy 100% of the shares of GmbH in exchange for the consideration detailed below.
Hofer understands that it is contemplated that TelePassport Inc., a Delaware
corporation, will succeed to the business of USFI and will engage in an initial
public offering (the "IPO") of its Class B stock (one vote per share) (the
"Class B Stock"). The rights of USFI under the Agreement may be assigned to any
affiliate without the prior written consent of Hofer. Reference herein to USFI
and to the stock to be delivered to Hofer hereby shall, where applicable, mean
TelePassport Inc. and its Class B Stock. The closing of the sale of the Stock
(the "Closing") shall be contingent on the closing of the IPO and shall occur
simultaneously with the closing of the IPO, subject to the terms and conditions
herein.
A. The purchase price for the Stock shall be $4,000,000, payable as
follows: Three hundred thousand dollars ($200,000) of the purchase
price will be paid in cash at the Closing and the balance in Class B
Stock (valued at the per share IPO offering price) of which Class B
Stock equal in value to $2,600,000 shall be issued at Closing and shall
vest immediately and Class B Stock equal in value to $1,200,000 (the
"Escrow Shares") shall be issued at Closing and shall immediately be
deposited in escrow with Xxxx Marks & Xxxxx LLP, as escrow agent (the
"Escrow Agent") pursuant to an escrow agreement (the "Escrow
Agreement") substantially in the form attached hereto as Exhibit A
(together with executed stock powers). The Escrow Shares
2
Xx. Xxxxx X. Xxxxx
Effective as of 1 March 1997
Page 2
shall vest ratably over the period of 36 months from Closing at the
rate of 1/36 per month, subject to the terms of the Escrow Agreement
and the following: (1) in the event the Escrow Agent receives a Buyer
Return Notice (as defined in the Escrow Agreement) that Hofer was
terminated from his employment with GmbH for "Cause" (as defined in the
Employment Agreement) or otherwise resigned from such employment, then
all of the remaining unvested Escrow Shares held by the Escrow Agent
shall cease to vest and the Escrow Agent shall return such unvested
shares to USFI, (2) in the event the Escrow Agent receives a Buyer
Claim Notice (as defined in the Escrow Agreement) that Hofer is in
material breach of any of the terms or provisions of this Agreement
which survive the Closing, then the Escrow Agent shall cease to release
the remaining unvested Escrow Shares pursuant to the monthly vesting
schedule until Escrow Shares (valued at the market value of the shares
based upon the average closing sale price for the 20 trading days
ending 5 trading days prior to the Buyer Claim Notice) equal to the
amount of damages or losses claimed to be incurred by Buyer pursuant to
such notice ("Holdback Shares") shall have been withheld for resolution
of such dispute pursuant to the Escrow Agreement and the balance of the
unvested Escrow Shares after deducting the Holdback Shares shall
continue to be released each month pursuant hereto, and (3) in the
event of the death or Disability (as such term is defined in the
Employment Agreement of Hofer referred to in Paragraph E hereof) the
Escrow Shares then held in escrow shall immediately vest and except for
any Escrow Shares then subject to a Buyer Claim Notice shall thereupon
be distributed to Hofer. "Dollars" or $ when used herein shall refer to
US dollars.
The resale of the Class B Stock issued to Hofer hereunder will be
subject to a lock-up agreement required by TelePassport Inc.'s
underwriters from all of USFI's executives (anticipated to be 180 days)
and to United States securities regulations and all stock certificates
delivered will carry the normal legend to such effect.
B. It is anticipated that (a) GmbH will generate for USFI during the six
calendar months immediately preceding the closing of the IPO minimum
TelePassport gross USFI TelePassport Callback, Express, GNS and Tele 2
revenues of three million eight hundred and ninety thousand dollars
($3,890,000) and (b) if USFI provides through purchase or lease
(equipped, furnished and installed) 60 Teles ISDN routers
(approximately five hundred thousand dollars US purchase price for the
lot), GmbH will generate additional revenue of five hundred thousand
dollars ($500,000) during the same period and also enter into one
long-term contract for each of the 60 routers. A long- term contract is
at least twelve months in length. Each contract carries an approximate
guaranteed value of $60,000. The liability which is created for the
purchase of the router inventory will not be considered a liability
under this Agreement.
C. GmbH is presently indebted to Hofer in the amount of DM 162,400. At, or
prior to the closing of the IPO, Hofer shall cause GmbH to repay him
the amount of such loan which shall not exceed DM 170,000. USFI
acknowledges that upon the Closing, Hofer shall have no obligation with
respect to the liabilities of GmbH which are set forth in Schedule
M(ii) hereof. To this end, USFI
3
Xx. Xxxxx X. Xxxxx
Effective as of 1 March 1997
Page 3
agrees that at Closing (i) the personal guarantees of Hofer to USFI in
respect of any loans made by USFI to GmbH prior to Closing shall be
cancelled, and (ii) TelePassport Inc. shall cause all personal
guarantees of Hofer to any bank in respect of such liabilities
described on Schedule M(ii) to be cancelled and, if necessary, replaced
by an entity other than Hofer or repaid.
D. GmbH will be paid commissions twice monthly through the IPO closing,
the first portion of $50,000 to be paid before the tenth day of each
following month and the balance by the 30th day of each such following
month. USFI shall use reasonable efforts to provide commission
statements and billing records on data files to GmbH by the 20th day of
each following month. USFI acknowledges that to the extent it is unable
to provide such information within this time period, it could effect
Xxxxx'x ability to cause GmbH to comply with the provisions of
Paragraph M(vi). In the event of any such delay by USFI, GmbH shall
continue to use its good faith efforts to comply with such provisions.
E. At Closing, Hofer shall sign an employment agreement with GmbH for a
term of three (3) years, substantially in the form attached hereto as
Exhibit B (the "Employment Agreement"), and pursuant thereto Hofer
shall hold the office of Geschaeftsfehrer of USFI GmbH, USFI Austria
and GmbH at an initial base salary of one hundred fifty thousand
dollars ($150,000). During the term of the employment agreement, Hofer
will be eligible to receive an annual bonus as determined by the
shareholders of GmbH or their designee. The base salary will be
reviewed once every twelve months and adjusted to at least a minimum
amount necessary to keep current with increases in cost of living in
Germany. The usual USFI protective documents executed by other
executive officers of USFI with comparable responsibilities, such as
Code of Ethics substantially in the form attached hereto as Exhibit C,
shall be attached thereto and be a part thereof. Upon the Closing,
Hofer will receive options to acquire 75,000 shares of Class B Stock at
the IPO offering price and on the terms generally accorded to other
USFI employees. The parties acknowledge and agree that such 75,000
shares assumes 30,000,000 shares of capital stock of TelePassport Inc.
are outstanding on the closing of the IPO (after giving effect to such
closing, including the exercise of the underwriters' over-allotment
option and the Class B Stock issued to Hofer hereby) and if the actual
number of shares outstanding is different, the 75,000 shall be adjusted
proportionately and consistent with options granted to other employees.
The parties acknowledge and agree that the number of shares of stock of
TelePassport Inc. currently contemplated to be outstanding on the IPO
closing (after giving effect to such closing, including the exercise of
the underwriters' over-allotment option and the Class B Stock issued to
Hofer hereby) is 18,000,000.
E.1 Hofer and Xx. Xxxxxxx, on behalf of USFI, will discuss the
possible granting of options to acquire USFI stock to
employees of GmbH.
E.2 At Closing, Hofer and USFI shall enter into a "piggyback"
registration rights agreement in the form of Exhibit E
covering the shares of Class B Stock issued to Hofer hereby.
4
Xx. Xxxxx X. Xxxxx
Effective as of 1 March 1997
Page 4
F. A USFI GmbH corporate mid-size vehicle will be made available for
Xxxxx'x use as is customary in Germany during the term of employment
with GmbH pursuant to the Employment Agreement.
G. An apartment will be made available to Hofer during the period of
employment pursuant to the Employment Agreement as is customary in
Germany at his level. The approximate rent and services is two thousand
five hundred DM (One thousand seven hundred dollars USD).
X. Xxxxx'x employment agreement will provide for a benefits package
(health, medical and life insurance) consistent with the requirements
of German law, to the extent such benefits cover German residents, and
commensurate with those generally provided to other executive officers
of TelePassport Inc. with comparable responsibilities, provided that
the aggregate cost of all the benefits to Hofer shall not exceed the
aggregate cost of such benefits to any such executive officer in the
United States, adjusted for cost differences for such benefits between
Germany and the United States.
I. If USFI or one of its affiliates does not purchase TelePassport Telekom
GmbH (TelePassport Austria) within 60 days of the closing of the IPO,
Hofer agrees to divest himself from his ownership position in
TelePassport Telekom GmbH (TelePassport Austria) and from TelePassport
AG, Vaduz, Liechtenstein within 120 days after he receives written
notice from USFI that such purchase will not occur.
J. At Closing, Hofer will also convey or cause to be conveyed all rights
Hofer may directly or indirectly have in the TelePassport name (or any
derivative thereof) throughout the world and USFI will acquire such
rights from Hofer in exchange for payment to Hofer or his designee an
aggregate amount equal to the sum of the direct costs incurred by Hofer
in acquiring, maintaining and conveying the TelePassport name or any
derivative thereof (and any rights related thereto), including legal
fees (the "Intellectual Property Price"). The Intellectual Property
Price shall be determined by Hofer in good faith but shall not exceed
$19,100.
X. Xxxxx agrees that between the date hereof and until the earlier to
occur of (i) termination of this Agreement if a Closing does not occur
by 31 July 1997 and (ii) termination of his employment by GmbH,
pursuant to the terms of the Employment Agreement if a Closing does
occur, he will refer all reasonable business opportunities relating to
the telecommunications industry wherever located, including those in
Germany and Austria, to USFI for evaluation and acceptance by USFI
(within a reasonable time) if it so elects.
L. This Agreement may be converted by both sides into a more formal
contract form. This Agreement is to be governed by the laws of the
United States, except that German law shall apply to the transfer of
the Stock by notarial deed. The parties agree that jurisdiction for any
dispute between them shall be in the state or federal courts in the
State of New York and that service of process in any such dispute may
be served by mail. To the extent that accounting principles are
5
Xx. Xxxxx X. Xxxxx
Effective as of 1 March 1997
Page 5
needed to understand this document, the accounting principles of the
United States apply. Where there are language difficulties, this
original English document shall prevail.
X. Xxxxx represents, warrants and covenants that:
(i) all information supplied by Hofer with respect to GmbH,
including but not limited to financial statements, is and will be true
and correct;
(ii) GmbH has no liabilities except as reflected in the financial
statements delivered to USFI or which are immaterial and arose in the
ordinary course of business after the date of any such financial
statements; all of such liabilities being described on Schedule M(ii)
hereto;
(iii) GmbH has no material obligations and is not a party to any
material contract other than those obligations and contracts that are
listed on Schedule M(iii) hereto; GmbH has no contracts or other
arrangements with Hofer, any of his family members or any entities
affiliated with Hofer or his family members other than Xxxxx'x existing
employment agreement without any penalty or additional costs with GmbH
which shall terminate at the Closing;
(iv) the execution, delivery and performance of this Agreement does
not require the consent of any person or party and will not conflict
with, violate or result in a default under any agreement, contract,
license or understanding to which Hofer or GmbH is a party or by which
either is bound other than such consents that are listed on Schedule
M(iv) hereto;
(v) between the date hereof and the Closing, Hofer will cause GmbH
to operate only in the ordinary course and consistent with past
practices and will not permit GmbH to incur or suffer to exist any
material obligation or liability or increase the compensation payable
to any person by more than 5% without the consent of USFI;
(vi) no later than 30 days after the close of each calendar month,
Hofer shall cause GmbH to deliver to USFI an income statement for the
previous month and a balance sheet as of the last day of that month;
(vii) the Stock represents all of the issued and outstanding shares of
GmbH. The Stock is owned of record and beneficially by Hofer and is
validly issued, fully-paid and non-assessable. There are no outstanding
securities convertible into exchangeable for or having a right to
acquire equity securities of GmbH. The sale of the Stock pursuant
thereto will provide USFI at Closing with legal and valid title to such
shares, free of all liens, security interests or other encumbrances;
(viii) Hofer has the power to cause the conveyance of the TelePassport
name to USFI pursuant to this Agreement; Hofer has no knowledge of any
claim to the TelePassport name by any other person or party; Hofer has
not granted or conveyed to any person or party (other than USFI
6
Xx. Xxxxx X. Xxxxx
Effective as of 1 March 1997
Page 6
pursuant hereto) any direct or indirect rights relating to the
TelePassport name (or any derivative thereof); and
(ix) the representations and warranties contained herein will be true
and correct on the date of Closing as though made on such date.
N. Between the date hereof and the Closing, USFI agrees to loan to GmbH a
minimum of $300,000 in the aggregate and, at the sole discretion of
USFI, a maximum of $500,000 in the aggregate, at such times, in such
amounts, for such purposes, and secured in such manner, as USFI shall
reasonably approve. Interest on such loans will be at the rate of 12%
per annum. If the Closing does not occur by July 31, 1997, such loans
shall be repaid not later than September 30, 1997. Such loans to GmbH
by USFI shall be evidenced by one or more promissory notes executed by
GmbH, substantially in the form attached hereto as Exhibit D, and all
obligations of GmbH thereunder shall be absolutely guaranteed by Hofer
personally. Upon the execution and delivery of this Agreement, USFI
shall provide a loan to GmbH in the amount of $200,000 pursuant to the
terms hereof, which shall be part of the $300,000 principal amount
required to be provided to GmbH hereby.
O. This Agreement shall terminate if the IPO closing does not occur on or
before 31 July 1997, provided, however, that any party whose breach of
any provision of this Agreement caused or resulted in the failure of
the Closing hereunder to occur simultaneously with the IPO closing
shall not be relieved from liability with respect hereto. Paragraphs A,
I, K, L, M, N, O, P, Q and R of this Agreement shall survive the
execution and delivery of this Agreement and Closing and shall remain
in full force and effect, provided that any claim with respect to the
breach of any provision of Paragraph M (other than clause (vii)
thereof) must be asserted prior to the later of (a) one year from the
date of Closing or (b) 90 days after completion of the audit of GmbH's
financial statements for the year ended December 31, 1997.
P. For the applicable periods specified in this Paragraph P, Hofer shall
not, without USFI's prior written consent, directly or indirectly,
engage in any of the following:
(1) Hofer shall not own, manage, control or participate in the
ownership, management or control of, or be employed or engaged by or
otherwise affiliated or associated with, whether as a sole proprietor,
shareholder (except as a passive holder of not more than three (3)
percent of the outstanding shares of a corporation or other entity),
owner, partner, joint venturer, employee, agent, manager, salesman,
consultant, advisor, independent contractor, officer, director,
promotor or otherwise, whether or not for compensation, with respect to
any corporation, partnership, proprietorship, firm, association or
other business entity, including, without limitation, any
not-for-profit entity, which is engaged in (a) any telecommunications
business presently conducted by USFI or any of its affiliates, or (b)
any other telecommunications business conducted by USFI or any of its
affiliates during the applicable period specified in paragraph (4) of
this Paragraph P,
7
Xx. Xxxxx X. Xxxxx
Effective as of 1 March 1997
Page 7
(each such business described in clauses (a) and (b) above hereinafter
referred to individually and collectively as the "Business").
(2) Hofer shall not solicit any past, present or prospective customers
or suppliers of GmbH, USFI or any of their affiliates, or other persons
in a business relationship with GmbH, USFI or any of their affiliates
for business or patronage in any way relating to any aspect of any of
the Business, other than on behalf of the GmbH, USFI or their
affiliates in the course of Xxxxx'x employment. Hofer shall not
request, directly or indirectly, customers or suppliers of GmbH, USFI
or any of their affiliates, or other persons in a business relationship
with GmbH, USFI or any of their affiliates, to cancel, curtail or
divert their business with GmbH, USFI or any of their affiliates, or
otherwise take action with respect to such customers or suppliers or
other persons which might have an adverse effect on the Business.
(3) Hofer shall not induce or attempt to induce any person who is an
employee, officer or agent of GmbH, USFI or any of their affiliates to
terminate or otherwise adversely affect such relationship with such
entities, nor shall Hofer solicit for employment, employ or engage,
directly or indirectly, for on behalf of Hofer or any third party, any
such employee, officer or agent.
(4) The provisions of paragraph (1) of this Paragraph P shall be
operative and binding for a period beginning as of the Closing and
ending (a) on the 6 month anniversary of the termination of Xxxxx'x
employment with GmbH in the event Hofer resigns or is terminated with
Cause (in accordance with the terms and provisions of the Employment
Agreement) or (b) upon expiration of the term of the Employment
Agreement provided Hofer gives notice (in accordance with the terms of
the Employment Agreement) to GmbH at least 90 days prior to such
expiration that he does not intend to continue his employment with GmbH
or any affiliate after such expiration, or if Hofer gives such notice
less than 90 days prior to such expiration, then 90 days after such
notice is given. The provisions of paragraphs (2) and (3) of this
Paragraph P. shall be operative and binding for a period commencing as
of the Closing and ending on the second anniversary of Xxxxx'x
termination of employment with GmbH (in accordance with the Employment
Agreement). Hofer acknowledges that the Business is conducted on a
worldwide basis and agrees therefore that each of the respective
covenants set forth in this Paragraph P. shall not be restricted by
geographic region.
Q. The parties hereto acknowledge that the damages incurred by either if
the other breaches this Agreement will not only be substantial but also
irreparable and that the legal remedy of damages will be insufficient.
Accordingly, the parties agree that in addition to any other remedies
which may be available to them, they shall be entitled to specific
performance of this Agreement and/or injunctive relief (including a
preliminary injunction or temporary retraining order).
R. If any term or provision of this Agreement is finally determined by a
court of law to be invalid, illegal or incapable of being enforced by
any rule of law or public policy, all other provisions of this
Agreement shall nevertheless remain in full force and effect.
8
Xx. Xxxxx X. Xxxxx
Effective as of 1 March 1997
Page 8
X. Xxxxx agrees to permit USFI's accountants Ernst & Young to immediately
commence the audit of the financial statements of GmbH and agrees to
cooperate with them in connection therewith.
Please confirm your agreement with the foregoing by countersigning a copy of
this Agreement where indicated below and returning it to us. If we do not
receive a countersigned copy of this Agreement, the MOU shall remain in effect
unmodified by this Agreement.
Very truly yours,
USFI, INC.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------
Name:
Title:
Agreed to:
/s/ XXXXX X. XXXXX
------------------
XXXXX X. XXXXX
9
EXHIBIT A
Escrow Agreement
(omitted)
EXHIBIT B
Employment Agreement
(omitted)
EXHIBIT C
Code of Ethics
(omitted)
EXHIBIT D
Promissory Note
(omitted)
EXHIBIT E
Registration Rights Agreement
(omitted)
SCHEDULE M(ii)
Liabilities
(omitted)
SCHEDULE M(iii)
Material Contracts
(omitted)
SCHEDULE M(iv)
Required Consents
(omitted)
