1
EXHIBIT 10.3
EMPLOYMENT AND STOCK REPURCHASE AGREEMENT
THIS EMPLOYMENT AND STOCK REPURCHASE AGREEMENT (the "Agreement") is
made and entered into as of the 15th day of May, 1997, by and between MGC
COMMUNICATIONS, INC., a Nevada corporation (the "Company") and ▇▇▇▇ ▇▇▇▇▇▇▇
("Employee").
W I T N E S S E T H T H A T:
The parties, for and in consideration of the mutual and reciprocal
covenants and agreements hereinafter contained, do contract and agree as
follows:
1. Employment: Company hereby employs Employee and Employee hereby
accepts employment by Company upon all of the terms and conditions as are
hereinafter set forth.
2. Duties: Employee shall devote his full-time and effort to the
business of Company. Employee shall serve Company in the capacity of Vice
President of Operations, and shall perform his assigned duties and carry out
his responsibilities to the best of his skills and abilities. Employee's duties
and responsibilities shall include, but shall not be limited to, overseeing the
Company's product delivery and support functions (including the NevTEL
operations in Nevada) and such further duties which are consistent with
Employee's abilities and training as shall be reasonably assigned to him from
time to time by the President or Board of Directors of the Company.
3. Term of Agreement: This Agreement shall be effective as of May 15,
1997 (the "Effective Date") and Employee's employment hereunder shall continue
until May 14, 1998, unless sooner terminated by either party as provided in
Item 12 herein. Thereafter, this Agreement shall be automatically renewed on a
year-to-year basis after the expiration of the initial or any subsequent term
of this Agreement unless terminated by either party as provided in Item 12
hereof.
4. Limitations of Executive Duties: Employee shall not, without
consent first being given by the President or Board of Directors of the
Company:
A. Take part in activities detrimental to the best interests of
Company, including rendering any services to any other firm or entity which
conflict or interfere with the performance of Employee's duties hereunder.
B. Enter into any contract, oral or written, in the name of, for or
on behalf of Company.
C. Use any money belonging to Company or pledge its credit.
2
D. Commit or suffer to be committed any act whereby Company's
property may be subject to attachment or seizure.
E. Cause Company to become a guarantor, surety or endorser or give
any note for the benefit of any other person whomsoever.
Employee shall indemnify and hold Company harmless from and against
any and all damages, actions, causes of action, claims and other liabilities,
contingent or otherwise, directed toward Company by others as a result of
Employee's violation of any of the provisions hereof.
5. No Outside Employment: It is the specific intention of the parties
that Employee shall devote 100% of his business time and energy as an employee
of Company and shall not, during the term of this Agreement, either directly or
indirectly, be employed by, actively engaged in or associated with any other
business whether within Company's industry or not. Any such outside employment
by Employee shall be a breach of this Agreement as a result of which Company
shall have the right to terminate this Agreement as provided in Item 12 hereof.
6. Compensation: During the term of this Agreement, Company agrees to
pay to Employee, and Employee agrees to accept from Company, in full payment
for services rendered by Employee and work to be performed by him under the
terms of this Agreement, the following:
A. An annual base salary of One Hundred Five Thousand Dollars
($105,000.00), payable in installments in accordance with the Company's payroll
practices.
B. Employee may be entitled to a bonus up to fifty percent (50%) of
his Base Salary each calendar year based on Employee's performance as
determined by the Company's Board of Directors and the Company's performance as
measured by EBITDA (earnings before interest, taxes, depreciation and
amortization) as determined by the Company's certified public accountants. The
Company currently intends that approximately ten percent (10%) of the Company's
EBITDA each year will fund a bonus pool to be used to pay bonuses to Employee
and others, as determined by the Company's senior management. If Employee
purchases shares of stock in the Company financed by a promissory note to the
Company, then seventy percent (70%) of Employee's bonus shall be paid over to
or retained by the Company to be applied against Employee's obligations to the
Company thereunder.
7. Vacation and Fringe Benefits: Company shall provide Employee such
vacation time, sick leave and fringe benefits, including but not limited to
participation in any pension, medical reimbursement and employee benefit plans
that may be maintained by Company from time to time as are made generally
available to other employees of Company in accordance with Company policies. In
connection therewith, the Company shall pay seventy-five percent (75%) of the
cost of coverage of Employee and his family under the Company's medical/dental
insurance plan. In addition to the vacation time otherwise allowable to
Employee, Employee shall be entitled to an unpaid leave of absence during the
period from June 6, 1997 through June 29, 1997. The Company reserves the right
to change the benefits available under its benefit plans at any time or times.
-2-
3
8. Moving Expenses. The Company shall pay or reimburse Employee for up
to $15,000 of Employee's moving expenses (including temporary living expenses,
house hunting trips, household relocation and miscellaneous moving expenses).
Such amount will be payable fifteen percent (15%) within the first week of
employment, an additional fifteen percent (15%) at the end of the second month
of employment and the remaining seventy percent (70%) at the time of Employee's
household move provided that same is completed within six (6) months of
Employee's employment commencement date. In the event Employee's employment
with the Company is terminated prior to May 14, 1998 for any reason whatsoever,
Employee shall be required to repay to the Company all amounts paid by the
Company under this Item.
9. Deductions: Deductions shall be made from Employee's salary for
social security, Medicare, federal and state withholding taxes, and any other
such taxes as may from time to time be required by governmental authority.
10. Fiduciary Relationship. Both parties acknowledge and agree that a
fiduciary and confidential relationship has existed and will continue to exist
between them and that said relationship will continue during the term of this
Agreement.
11. Working Facilities and Expenses.
A. Company shall furnish to Employee an office supplied, furnished
and equipped as may be reasonably necessary for the conduct of Company's
business.
B. During the term of this Agreement, Company agrees to reimburse
Employee, after presentation of receipts and other appropriate documentation,
for all reasonable, ordinary and necessary travel costs and other necessary
expenses incurred by Employee in performing his duties pursuant to this
Agreement to the extent such expenses have been approved by the President of
Company.
12. Termination:
A. Employee's employment hereunder shall be terminated upon his
death or disability, in which event, Company shall not be liable for any
compensation, bonus or fringe benefits after the date of Employee's death or
disability.
B. Employee may, without cause, terminate this Agreement by giving
to Company thirty (30) days written notice and such termination shall be
effective on the date (the "Termination Date"), which shall be the date
specified by Employee but in no event earlier than the thirtieth (30th) day
following the date of such notice or such earlier date specified by Company
after receipt of Employee's notice of termination. In such event, Employee
shall continue to render his services up to the Termination Date if so
requested by Company.
C. Company may, without cause, terminate this Agreement at any time
by giving to Employee thirty (30) days written notice and such termination
shall be effective on the date specified by Company but in no event earlier
than the thirtieth (30th) day following the date of such notice. At the option
of Company, Employee shall immediately cease performing his duties
-3-
4
hereunder upon receipt of the notice. If terminated without cause pursuant to
this Paragraph C, Employee shall continue to receive his full base salary and
related fringe benefits for a period of thirty (30) days following the date of
such notice.
D. Employee may terminate this Agreement immediately for "cause".
Cause shall be defined as failure of Company to make any payment or provide any
benefit to Employee hereunder, which failure is not cured within ten (10) days
after Company's receipt of written notice of such default. Any termination
under this Paragraph D shall take effect immediately upon Company's receipt of
written notice from Employee.
E. Company may terminate this Agreement immediately for "cause".
Cause shall be defined as any of the following: (i) Employee shall commit a
felony or other act involving moral turpitude, (ii) Employee shall commit any
act of prohibitive conduct as set forth in Item 4 of this Agreement, (iii)
Employee shall commit any act, specifically including but not limited to drug
or alcohol abuse, which act is materially harmful to Company, (iv) intentional
or gross neglect of Employee's duties, (v) intentional disruption of or
interference with Company's normal business operations, (vi) outside employment
of Employee prohibited by Item 5 hereof, (vii) failure to comply with Company
policies after receipt of written notice of the violation and failure to cure
such violation within ten (10) days after receipt of such notice; (viii)
repeated failure to comply with Company policies after receipt of written
notice of any prior violation of such policies; or (ix) breach of any other
provision of this Agreement after receipt of written notice of the breach and
failure to cure such breach within ten (10) days after receipt of such notice.
Any termination under this Paragraph E shall take effect immediately upon
Employee's receipt of written notice from Company to Employee. The failure of
Company to terminate Employee's employment hereunder for cause as a result of
any of the foregoing at any one or more times shall not affect Company's
ability to terminate Employee's employment hereunder for cause as a result of
the subsequent occurrence of any act giving rise to "cause" hereunder.
13. Specific Covenants and Agreements:
A. For purposes of this Agreement, the following terms and
provisions shall have the following meanings:
1. "Confidential Information" shall mean all of the Company's
technical information, trade secrets, training materials, notebooks, video
tapes or discs, operating procedures, processes, business plans, financial
information relating to or arising out of Company's business operations,
computer programs, specialized software and databases, sales and marketing
information, methods of organizing and financing Company's business, personnel
records, pricing information and financial information concerning or relating
to the business, accounts, employees, agents, members, sponsors, creditors,
suppliers and affairs of Company, whether the same were produced by Employee as
an employee of Company or any other employee or agent of Company and all
physical embodiments or repositories of the foregoing, all of which are hereby
agreed to be the property of and confidential to Company. Notwithstanding the
foregoing, any and all such information as described in this Item 131A, which
may constitute common and/or public knowledge shall be specifically excluded
from this definition of "Confidential Information."
-4-
5
2. "Prohibited Geographic Area" shall mean the State of Nevada.
3. "Prohibited Time Period" shall mean the period beginning on
the date of execution hereof and ending on the date that is six (6) months after
the termination of this Agreement for any reason whatsoever.
4. "Prohibited Business" shall mean the provision of local, long-
distance and related telephone services.
B. Employee agrees that during the Prohibited Time Period, Employee
shall not, for any reason, without the prior written consent of Company, on his
own behalf or in the service or on behalf of others, participate, whether as an
owner, stockholder, partner, employee, consultant, agent, independent
contractor or otherwise, in any entity involved in the Prohibited Business,
which entity seeks to hold meetings in the Prohibited Geographic Area or to
communicate with telecommunication personnel located in the Prohibited
Geographic Area.
C. Employee hereby acknowledges and agrees that (i) Company has
expended considerable and substantial time, effort and capital resources to
develop the Confidential Information, (ii) the Confidential Information is
innovative and must receive confidential treatment to protect Company's
competitive position in the market and Company's proprietary interest therein
from irreparable damage, (iii) Employee, by virtue of his relationship with
Company, has had and will have access to the Confidential Information, and (iv)
the Confidential Information and all physical embodiments or other repositories
of the same shall be and at all times remain the sole and exclusive property of
Company. Employee covenants and agrees that throughout the period of Employee's
employment with Company and at any time after the termination of Employee's
employment with Company for any reason whatsoever, Employee shall not directly
or indirectly use, publish, disseminate, divulge or otherwise disclose to any
person or entity any of Company's Confidential Information, other than in the
performance of his duties hereunder. In the event of a breach or threatened
breach by Employee of the provisions of this Item, Company shall be entitled to
an injunction restraining Employee from disclosing, in whole or in part, the
list of Company's clients or any other Confidential Information, or from
rendering any services to any person, firm, corporation, association or other
entity to whom such list or other Confidential Information, in whole or in
part, has been disclosed or is threatened to be disclosed. Upon receipt of a
written request by Company, Employee agrees to surrender and return to Company
all documents, records, memoranda, notebooks and similar repositories of
Confidential Information of every character or description.
D. The parties hereto acknowledge and agree that (i) the covenants
contained in Paragraphs A, B and C of this Item are reasonably necessary to
protect the interest of Company in whose favor said covenants are imposed; (ii)
the restrictions imposed by Paragraphs A, B and C of this Item are not greater
than are necessary for the protection of Company in light of the substantial
harm that Company will suffer should Employee breach any such covenant; (iii)
the period of restriction and geographical area of restriction contained in
Paragraphs A, B and C of this Item are fair and reasonable in that they are
reasonably required for the protection of Company; (iv) the nature, kind and
character of the activities Employee is prohibited to engage in as described in
Paragraphs A, B and C of this Item are reasonable and necessary to protect
Company and shall not
-5-
6
be interpreted or construed as prohibiting Employee from rendering any other
services or performing any other activities not referenced therein, and (v) the
covenants and agreements of Employee contained in Paragraphs A, B and C of this
Item have been specifically negotiated by the parties and are material
inducements to Company to enter into this Agreement, and, but for such
covenants made by Employee herein, Company would not have entered into this
Agreement.
E. Employee acknowledges and agrees that each of the covenants and
agreements contained in Paragraphs A, B and C of this Item of this Agreement is
made by him in consequence of and as a specific inducement to Company to enter
into this Agreement and to protect and preserve the benefit of this Agreement
to Company; that each of the covenants contained in Paragraphs A, B and C of
this Item is reasonable and necessary to protect and preserve the benefits
received by Company under this Agreement; irreparable loss and damage will be
suffered by Company should Employee breach any of such covenants and
agreements; each of such covenants and agreements is separate, distinct and
severable not only from the other of such covenants and agreements but also
from the other and remaining provisions of this Agreement; that the
unenforceability of any such covenant or agreement shall not affect the
validity or enforceability of any other such covenant or agreements or any
other provision or provisions of this Agreement; and that, in addition to other
remedies available to it, Company shall be entitled to both temporary and
permanent injunctions to prevent a breach or contemplated breach by Employee of
any of such covenants or agreements. In the event Company should seek an
injunction hereunder, Employee hereby waives any requirement that Company
submit proof of the economic value of any Confidential Information or that
Company post a bond or any other security.
F. If the provisions of this Item should ever be adjudicated to
exceed the time, geographic or other limitations permitted by applicable law in
any jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic or other limitation permitted by
applicable law.
G. The covenants and agreements on the part of Employee contained in
Paragraphs A, B and C of this Item shall be construed as agreements independent
of any other agreement between Company and Employee. The existence of any claim
or cause of action of Employee against Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Company of each of such covenants and agreements.
H. Nothing contained in this Item shall restrict Employee from being
a stockholder of any corporation that directly or indirectly competes with
Company provided the stock of such competing corporation is publicly held and
listed on a regional or national stock exchange.
14. Option Grants and Company Option to Repurchase Employee's Shares.
A. Through September 30, 1997, Employee may purchase up to 50,000
shares of Common Stock of Employer at a purchase price of $2.00 per share. This
option shall lapse at midnight September 30, 1997.
B. Through September 30, 1997, Employee may purchase up to 100,000
shares of Common Stock of Employer at $2.50 per share. At Employee's election,
the Company
-6-
7
will finance the purchase price of this tranche of stock, and Employee will
execute a full recourse promissory note (the "Note") in favor of the Company.
The Note will be secured by Employee's Common Stock in MGC. The term of the
Note will be three (3) years, and the Note will bear interest at the rate of
7.5% per annum on the unpaid balance. The Note may be prepaid at any time
without penalty, and prepayment will be required within 45 days after
termination of employment. The Note will be repaid over the term of the Note at
Employee's discretion; however, at a minimum, 70% of Employee's annual bonus
will be applied to reduction of outstanding principal and accrued interest.
C. The Restriction and Representations set forth in paragraph 6 of
Share Option Agreement of even date herewith are incorporated herein by
reference.
D. The Company shall have the option to repurchase certain shares of
stock in the Company (the "Shares") owned by Employee upon the terms set forth
in this Item. The terms of Paragraph B below shall apply to all Shares (up to
50,000) purchased by Employee at a price of $2.00 per share prior to September
30, 1997 and all Shares (up to 100,000) purchased by Employee at a price of
$2.50 per share prior to September 30, 1997 (collectively, the "Restricted
Shares").
B. If Employee is at any time prior to June 1, 2000, not an employee
of the Company as a result of Employee's resignation from the Company or as a
result of the Company's termination of Employee's employment for cause as
provided herein (the date of his termination of employment being hereinafter
referred to as the "Termination Date"), then the Company shall have the option
to purchase, whereupon Employee or his legal representative shall be obligated
to sell any portion or all of the Restricted Shares in the Company owned by
Employee or any Affiliate of his on the Termination Date, and such Restricted
Shares shall be sold free and clear of any and all liens and encumbrances. The
purchase price for all of the Restricted Shares shall be the amount per share
paid by Employee for such Restricted Shares (excluding any interest paid as a
result of Employee's making deferred payments for such Shares).
C. The option provided herein shall be exercised, if at all, by
delivery of written notice by the Company within ninety (90) days after the
Termination Date.
D. The closing of the purchase and sale hereunder shall occur within
thirty (30) days following the exercise of said option and at a time and place
as the Company may designate by written notice to Employee at least five (5)
days in advance of such closing. The parties hereto hereby agree to execute any
and all instruments and documents to transfer full and complete title to such
Restricted Shares to effectuate the foregoing. At the closing, the purchase
price shall be paid in cash.
E. The number of Restricted Shares and the purchase price per Share
set forth in this Item shall be adjusted appropriately in the event of any
stock split, stock dividend or other similar change in the capitalization of
the Company. The Board of Directors of the Company shall make the determination
of any such adjustments and shall provide Employee with written notice thereof.
-7-
8
F. All certificates representing Restricted Shares shall bear the
following restrictive legend (in addition to any other legends required to be
placed thereon):
The Shares represented by this certificate are subject to repurchase
by the Company pursuant to the terms of an Employment/Stock Repurchase
Agreement dated May 15, 1997, a copy of which is on file with the
Company.
15. Assignment: This Agreement, as it relates to the employment of
Employee, is a personal contract and the rights and interests of Employee
hereunder may not be sold, transferred, assigned, pledged or hypothecated.
However, this Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns including, without limitation, any
corporation or other entity into which the Company is merged or which acquires
all or substantially all of the outstanding common stock or assets of the
Company.
16. Breach by Company. If there is a dispute regarding the payment of any
sum by Company hereunder, Company shall not be deemed to have failed to have
made a payment hereunder if pending the resolution of such dispute, Company
pays the amount in dispute into court or into an escrow account at Company's
bank or with Company's corporate counsel.
17. Remedies Not Exclusive. The rights, remedies and benefits herein
expressly specified are cumulative and not exclusive of any rights, remedies or
benefits which any party may otherwise have.
18. Invalid Provisions: The invalidity of any one or more of the clauses
or words contained in this Agreement shall not affect the reasonable
enforceability of the remaining provisions of this Agreement, all of which are
inserted herein conditionally upon being valid in law; and in the event that
one or more of the words or clauses contained herein shall be invalid, this
instrument shall be construed as if such invalid words or clauses had not been
inserted or, alternatively, said words or clauses shall be reasonably limited
to the extent that the applicable court interpreting the provisions of this
Agreement considers to be reasonable.
19. Specific Performance: The parties hereby agree that any violation by
Employee of the covenants and agreements contained herein shall cause
irreparable damage to Company, and Company may, as a matter of course, enjoin
and restrain said violation by Employee by process issued out of a court of
competent jurisdiction, in addition to any other remedies that said court may
see fit to award.
20. Binding Effect: All the terms of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns.
21. Jurisdiction: Each of the undersigned further agrees that any action
or proceeding brought or initiated in respect of this Agreement may be brought
or initiated in the State Court of ▇▇▇▇▇ County, Nevada, and each of the
undersigned consents to the exercise of personal jurisdiction and the placement
of venue in any of such courts, or in any jurisdiction allowed by law, in any
such
-8-
9
action or proceeding and further consents that service of process may be
effected in any such action or proceeding in such manner as may be permitted by
law. Each of the undersigned further agrees that no such action shall be
brought against any party hereunder except in one of the courts above named.
22. Attorney's Fees: In the event an action is taken by either party to
enforce this Agreement or resolve a dispute in connection herewith, the
prevailing party shall be entitled to recover the costs incurred with the
prosecution and defense of such action, including reasonable attorney's fees.
23. Waiver of Breach or Violation Not Deemed Continuing: The waiver by
either party of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach hereof.
24. Entire Agreement; Law Governing: This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the subject matter hereof, by and between Company and Employee, and
contains all the covenants and agreements among the parties with respect to
such subject matter. This Agreement, along with a Share Option Agreement of
even date herewith, supersede the terms of an employment letter dated May 8,
1997, between the parties hereto except to the extent such letter grants
Employee the right to purchase Restricted Shares (as defined in Item 14
hereof). This Agreement shall be construed in accordance with the laws of the
State of Nevada.
25. Item Headings: The item headings contained in this Agreement are for
convenience only and shall in no manner be construed as a part of this
Agreement.
26. CERTIFICATION BY EMPLOYEE: EMPLOYEE CERTIFIES THAT HE HAS READ THE
ENTIRE CONTENTS OF THIS AGREEMENT BEFORE SUBSCRIBING HIS NAME HERETO; THAT HE
WAS ENCOURAGED AND AFFORDED SUFFICIENT OPPORTUNITY BY COMPANY TO OBTAIN
INDEPENDENT LEGAL ADVICE PRIOR TO HIS EXECUTING THIS AGREEMENT; THAT HE FULLY
UNDERSTANDS ALL THE TERMS, CONDITIONS, RESTRICTIONS AND PROVISIONS SET FORTH IN
THIS AGREEMENT, PARTICULARLY INCLUDING, BUT NOT LIMITED TO THE RESTRICTIVE
COVENANTS CONTAINED HEREIN, AND THAT HE ACKNOWLEDGES THAT EACH SAID TERM,
CONDITION, RESTRICTION AND PROVISION IS FAIR AND REASONABLE INSOFAR AS IT
PERTAINS TO HIM; THAT HE HAS RECEIVED A COPY OF THIS AGREEMENT AS SIGNED BY
HIM; AND THAT HIS BEING BOUND BY THIS AGREEMENT IS A CONDITION PRECEDENT TO THE
EXECUTION HEREOF BY COMPANY.
-9-
10
IN WITNESS WHEREOF, Company has hereunto caused this Agreement to be
executed by a duly authorized officer and its seal to be affixed and Employee
has hereunto set his hand and seal as of the day and year first above written.
EMPLOYEE: [SEAL]
-------------------
▇▇▇▇ ▇▇▇▇▇▇▇
EMPLOYER:
MGC COMMUNICATIONS, INC.
By:
------------------------------
President
[CORPORATE SEAL]
-10-