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Exhibit 10.5
USFI, INC.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
11 March 1997
Xx. Xxxxx Xxxxx
Xx. Xxxxxxxx Xxxxxxx
Xx. Xxxxx X. Xxxxx
TelePassport Telekom GmbH
Gentlemen:
This letter will confirm our mutual understanding with respect to the sale by
you (collectively the "Shareholders") to USFI, Inc. or its successor ("USFI") of
all of the issued and outstanding stock (the "Stock") of TelePassport Telekom
GmbH, an Austrian corporation ("Telekom"). Each of you agrees that neither you
nor Telekom will contact or talk to any other party (other than your attorneys
and financial advisers with respect to the sale contemplated hereby) about the
sale of Telekom 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, the Shareholders agree
to sell, transfer and convey by notarial deed or other appropriate instrument of
conveyance satisfactory to USFI, Inc. ("USFI") and USFI agrees to buy 100% of
the shares of Telekom in exchange for the consideration detailed below. The
Shareholders understand 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 the Shareholders. Reference
herein to USFI and to the stock to be delivered to the Shareholders 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 $300,000, payable in Class B
Stock (valued at the per share IPO offering price). The stock will be
issued 40% to Xxxxx Xxxxx ("Xxxxx"), 40% to Xxxxxxxx Xxxxxxx
("Xxxxxxx") and 20% to Xxxxx Xxxxx ("Hofer). All of the shares (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
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Xx. Xxxxx Xxxxx
Xx. Xxxxxxxx Xxxxxxx
Xx. Xxxxx X. Xxxxx
Shares attributable to each of the Shareholders 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 Xxxxx, Xxxxxxx and/or Hofer was
terminated from his employment with Telekom (or in the case of Hofer,
TelePassport GmbH) for "Cause" (as defined in the Employment Agreement)
or otherwise resigned from such employment, then all of the remaining
unvested Escrow Shares attributable to him 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 his respective Escrow Agreement) that any
of the Shareholders are 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
attributable to any such Shareholder 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
respective Employment Agreement of Xxxxx or Xxxxxxx referred to in
Paragraph E hereof or in Xxxxx'x Employment Agreement with TelePassport
GmbH) the Escrow Shares then held in escrow for such Shareholder shall
immediately vest and except for any Escrow Shares then subject to a
Buyer Claim Notice shall thereupon be distributed to such Shareholder.
"Dollars" or $ when used herein shall refer to US dollars.
The resale of the Class B Stock issued to the Shareholders 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. USFI will provide through purchase or lease (equipped, furnished and
installed) Teles ISDN routers costing approximately $100,000 and the
Shareholders will guarantee one long-term contract for each of the
additional 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 or lease of
the router inventory supplied by USFI will not be considered a
liability under this agreement.
C. Telekom is presently indebted to the Shareholders in the aggregate
amount of $91,171. At, or prior to the closing of the IPO, the
Shareholders shall cause Telekom to repay Xxxxx and Xxxxxxx advances to
the Company which shall not exceed $78,671 to Xxxxx
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Xx. Xxxxx Xxxxx
Xx. Xxxxxxxx Xxxxxxx
Xx. Xxxxx X. Xxxxx
and $12,500 to Xxxxxxx. All other loans, advances or other payables to
Shareholders will be contributed to capital. USFI acknowledges that
upon the Closing, the Shareholders shall have no obligation with
respect to the liabilities of Telekom which are set forth in Schedule
H(ii) hereof. To this end, USFI agrees that at Closing (i) TelePassport
Inc. shall cause all personal guarantees of Shareholders to any bank in
respect of such liabilities described on Schedule H(ii) to be cancelled
and, if necessary, replaced by an entity other than the Shareholders or
repaid.
D. At Closing, Xxxxx and Xxxxxxx shall sign employment agreements with
Telekom for a term of three (3) years, substantially in the form
attached hereto as Exhibit B (the "Employment Agreements") at an
initial base salary of fifty thousand dollars ($50,000). During the
term of the employment agreements, Xxxxx and Xxxxxxx will be eligible
to receive an annual bonus as determined by the shareholders of Telekom
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 Austria. 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.
D.1 In addition to the base salary detailed above, the Employment
Agreements of Xxxxx and Xxxxxxx will provide, among other
things for such employees to share equally,
(i) an override of 1 1/2% of TelePassport revenue
generated in Austria by agents; and
(ii) an override of 2 1/2% of TelePassport revenue
generated in Austria by direct sales to customers in
Austria,
provided that, to the extent other employees of Telekom
participate in commissions, they will be paid out of the
percentages in (i) and (ii) above.
D.2 Xxxxx and Xx. Xxxxxxx, on behalf of USFI, will discuss the
possible granting of options to acquire USFI stock to
employees of Telekom.
D.3 100% of the non-TelePassport commissions received with respect
to persons who are customers of Telekom as of the Closing or
who are located in Austria and become customers after Closing
will become revenue of Telekom.
X. Xxxxx and Xxxxxxx'x Employment Agreements will provide for a benefits
package (health, medical and life insurance) consistent with the
requirements of Austrian law, to the extent
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Xx. Xxxxx Xxxxx
Xx. Xxxxxxxx Xxxxxxx
Xx. Xxxxx X. Xxxxx
such benefits cover Austrian residents, as well as such other benefits
as TelePassport generally provides to employees with comparable
responsibilities, provided that the aggregate cost of all the benefits
to each of Xxxxx and Xxxxxxx shall not exceed the aggregate cost of
benefits to any similar employee in the United States.
X. Xxxxx and Xxxxxxx agree 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
Telekom, pursuant to the terms of the Employment Agreement if a Closing
does occur, they 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.
G. 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 Austrian law shall apply to the transfer of
the Stock by notarial deed or other instrument of conveyance. 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 needed to understand this
document, the accounting principles of the United States apply. Where
there are language difficulties, this original English document shall
prevail.
H. Each Shareholder represents, warrants and covenants that:
a) all information supplied by them with respect to Telekom, including
but not limited to financial statements, is and will be true and
correct;
b) Telekom 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 H(ii)
hereto;
c) Telekom has no material obligations and is not a party to any
material contract other than those obligations and contracts that are
listed on Schedule H(iii) hereto; Telekom has no contracts or other
arrangements with any Shareholder, any of his family members or any
entities affiliated with any Shareholder or his family members which
cannot be terminated without any penalty or additional costs;
d) 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 any Shareholder or
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Xx. Xxxxx Xxxxx
Xx. Xxxxxxxx Xxxxxxx
Xx. Xxxxx X. Xxxxx
Telekom is a party or by which either is bound other than such consents
that are listed on Schedule H(iv) hereto;
e) between the date hereof and the Closing, the Shareholders will cause
Telekom to operate only in the ordinary course and consistent with past
practices and will not permit Telekom 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;
f) no later than 30 days after the close of each calendar month,
Shareholders shall cause Telekom to deliver to USFI an income statement
for the previous month and a balance sheet as of the last day of that
month;
g) the Stock represents all of the issued and outstanding shares of
Telekom. The Stock is owned of record and beneficially by the
Shareholders and is validly issued, fully-paid and non-assessable.
There are no outstanding securities convertible into, exchangeable for
or providing a right to acquire equity securities of Telekom. The sale
of the Stock pursuant hereto will provide USFI at Closing with legal
and valid title to such shares, free of all liens, security interests
or other encumbrances;
h) The Shareholders acknowledge that any right they may have to the
TelePassport name or any derivative thereof is being conveyed to USFI
pursuant to this Agreement; the Shareholders have no knowledge of any
claim to the TelePassport name by any of them or any other person or
party; the Shareholders have not granted or conveyed to any person or
party (other than USFI pursuant hereto) any direct or indirect rights
relating to the TelePassport name (or any derivative thereof); and
i) the representations and warranties contained herein will be true and
correct on the date of Closing as though made on such date.
I. 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. Xxxxxxxxxx X,
X, X, X, X, X, X, X and L 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 H (other than clause (g) 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 Telekom's financial
statements for the year ended December 31, 1997.
J. For the applicable periods specified in this Paragraph J, each of the
Shareholders agrees
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Xx. Xxxxx Xxxxx
Xx. Xxxxxxxx Xxxxxxx
Xx. Xxxxx X. Xxxxx
that he shall not, without USFI's prior written consent, directly or
indirectly:
(1) 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 J, (each
such business described in clauses (a) and (b) above hereinafter
referred to individually and collectively as the "Business").
(2) Solicit any past, present or prospective customers or suppliers of
Telekom, USFI or any of their affiliates, or other persons in a
business relationship with Telekom, 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 Telekom, USFI or their affiliates in
the course of his employment. He shall not request, directly or
indirectly, customers or suppliers of Telekom, USFI or any of their
affiliates, or other persons in a business relationship with Telekom,
USFI or any of their affiliates, to cancel, curtail or divert their
business with Telekom, 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) Induce or attempt to induce any person who is an employee, officer
or agent of Telekom, USFI or any of their affiliates to terminate or
otherwise adversely affect such relationship with such entities, nor
shall he solicit for employment, employ or engage, directly or
indirectly, for on behalf of him or any third party, any such employee,
officer or agent.
(4) The provisions of paragraph (1) of this Paragraph J shall be
operative and binding for a period beginning as of the Closing and
ending (a) on the 6 month anniversary of the respective termination of
Xxxxx and Xxxxxxx'x employment, as the case may be, with Telekom in the
event he 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 respective Employment Agreement provided
he gives notice (in accordance with the terms of his Employment
Agreement) to Telekom at least 90 days prior to such expiration that he
does not intend to continue his employment with Telekom or any
affiliate after such
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Xx. Xxxxx Xxxxx
Xx. Xxxxxxxx Xxxxxxx
Xx. Xxxxx X. Xxxxx
expiration, or if he 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 J shall be operative and
binding for a period commencing as of the Closing and ending on the
second anniversary of Xxxxx or Xxxxxxx'x (as the case may be)
termination of employment with Telekom (in accordance with his
Employment Agreement). Xxxxx and Xxxxxxx acknowledge that the Business
is conducted on a worldwide basis and agree therefore that each of the
respective covenants set forth in this Paragraph J shall not be
restricted by geographic region.
K. 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).
L. 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.
Please confirm your agreement with the foregoing by countersigning a copy of
this Agreement where indicated below and returning it to us.
Very truly yours,
USFI, INC.
By:_______________________________
Agreed to:
/s/ Xxxxx Xxxxx
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XXXXX XXXXX
/s/ Xxxxxxxx Xxxxxxx
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XXXXXXXX XXXXXXX
/s/ Xxxxx X. Xxxxx
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XXXXX X. XXXXX
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EXHIBIT A
ESCROW AGREEMENT
(omitted)
EXHIBIT B
EMPLOYMENT AGREEMENTS
(omitted)
EXHIBIT C
CODE OF ETHICS
(omitted)
(OMITTED)
SCHEDULE H(ii)
List of Liabilities
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(OMITTED)
SCHEDULE H(iii)
MATERIAL CONTRACTS
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(OMITTED)
SCHEDULE H(iv)
REQUIRED CONSENTS
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