EXHIBIT 10.14
EXECUTIVE EMPLOYMENT AGREEMENT
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AGREEMENT, made and entered into as of the 14th day of November, 1996, by
and between Netco Communications Corporation, a Minnesota corporation (the
"Corporation"), and Allen L. Witters ("Executive").
RECITALS:
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WHEREAS, the Executive is the Chief Technology Officer of the Corporation;
WHEREAS, the Executive's leadership and services have constituted a
major factor in the successful growth and development of the Corporation's
business; and
WHEREAS, the Corporation desires to employ and retain the unique
experience, ability and services of the Executive as a principal executive
officer; and
WHEREAS, the Corporation and the Executive desire to record the terms of
Executive's continued employment by the Corporation;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1.) Term of Employment. Subject to the terms and conditions of this
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Agreement, the Corporation hereby employs Executive and Executive hereby accepts
employment for the period commencing October 1, 1996, and ending December 31,
1998, and thereafter for successive one year periods ending December 31 of each
succeeding year unless and until the employment is terminated in accordance with
the provisions of this Agreement. Each December 31, commencing December 31,
1998, shall be designated the "Annual Renewal Date."
2.) Duties, Responsibilities, and Authority. During the term of this
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Agreement, Executive shall serve as Chief Technology Officer of the Corporation.
As such, Executive shall be responsible for the overall management and direction
of the technology, infrastructure and technical network operations of the
Corporation, and he shall have such duties as are generally appropriate to his
position and such authority as shall be required to enable him to perform these
duties, including but not limited to the authorities and duties currently
prescribed in the Articles of Incorporation and the Bylaws of the Corporation,
subject to the power of the shareholders and/or directors of the Corporation to
amend or modify such Articles of Incorporation or Bylaws. The Executive shall
exert his best efforts and devote
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substantially all of his time and attention to the Corporation's business. The
Executive shall be in charge of the development of technology and infrastructure
of the Corporation, and shall have full authority and responsibility, subject
only to the direction, approval, and control of the Corporation's Chief
Executive Officer, and to the general direction, approval and control of the
Corporation's Board of Directors, for formulating technology policies and
administering the Corporation's technology services and products in all
respects. His powers shall include authority, upon consultation of the
Corporation's Chief Executive Officer, to hire and fire Corporation personnel in
his department and, with the permission of the Corporation's Chief Executive
Officer, to retain consultants when he deems necessary to implement Corporation
policies.
3.) Location of Employment. Executive's services shall be rendered
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principally in Minneapolis, Minnesota and Executive shall not be required,
without his consent, to change his residence or work location from either
Hennepin County or Ramsey County, Minnesota by virtue of his employment with the
Corporation.
4.) Compensation, Benefits, Expenses.
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(a) Salary. The Corporation shall pay Executive a base salary at an annual
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rate of $150,000.00 commencing October 1, 1996. Salary shall be paid in
accordance with the Corporation's regular payroll procedure, but not less
frequently than monthly. Executive's base salary shall be reviewed
periodically (at intervals of not more than 12 months) by the Board of
Directors of the Corporation ("the Board of Directors" or "Board") or a
committee thereof for the purpose of considering increases thereof. In
evaluating increases in salary, such factors as corporate performance,
individual merit, inflation and other appropriate considerations shall be
taken into account.
(b) Stock Option. In addition to any other compensation or benefits to
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which the Executive may be entitled under this Agreement or otherwise,
Executive shall receive options to acquire Four Hundred Thousand (400,000)
shares of the capital stork of the Corporation in accordance with the terms
of that certain Stock Option Agreement which is attached hereto and marked
Exhibit A.
(c) Bonus and Other Compensation. The Executive shall be entitled to
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additional bonus and other compensation as may be established from time to
time by the Board of Directors based upon an annual business plan which
shall set goals (which shall include achievement of revenue and profit
measures which are reasonable at the time established) for the Corporation.
(d) Vacation. During each year of his employment, Executive will be
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entitled to reasonable vacations not exceeding five weeks per year,
holidays
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and time off when ill, all at full pay. Vacations shall be at such time or
times and for such periods as Employer and Executive shall agree.
(e) Automobiles. The Corporation recognizes the Executive's need for an
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automobile or automobiles for business purposes. It, therefore, shall
provide the Executive with a reasonably suitable automobile or automobiles,
including all related maintenance, repairs, insurance and other costs
associated with such automobiles during the term of this Agreement or any
renewal or extension thereof.
(f) Expenses. The Corporation recognizes that Executive will have to incur
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certain out-of-pocket expenses related to his services and the
Corporation's business and that it will be extremely difficult to account
for such expenses. It is understood that Executive's compensation is
intended to cover all such out-of-pocket expenses. The Corporation,
however, shall reimburse Executive for any specific expenditures incurred
for travel, lodging, entertainment, and the like upon submission of
appropriate receipts and documentation sufficient to substantiate them as
reasonable and necessary business expenses.
(g) Employee Benefits. This Agreement shall not be in lieu of any rights,
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benefits and privileges to which Executive may be entitled as an employee
of the Corporation under any retirement, pension, profit-sharing,
insurance, group life insurance, hospitalization, surgical and major
medical coverage, and long-term disability or other plans which may now be
in effect or which may hereafter be adopted. Executive shall have the same
rights and privileges to participate in such plans and benefits as any
other employee during his period of employment. In addition, to the extent
appropriate for a senior executive of the Corporation, Executive shall be
entitled to participate in any pension and retirement plans, bonus plans
and such other fringe benefit programs or plans as are or may be made
available from time to time to executive and/or other salaried Executives
of the Corporation.
5.) Termination.
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(a) Events of Termination. This Agreement may be terminated upon the
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occurrence of any one of the following events:
(1) Voluntary. Executive may terminate this Agreement at any time
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during the term of this Agreement by giving 30 days prior written
notice of termination to the Board.
(2) Involuntary Without Cause. The Board, without cause, may
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terminate this Agreement on any Annual Renewal Date during the
term of this Agreement upon written notice to Executive at least
90 days prior to an Annual Renewal Date.
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(3) Involuntary With Cause. The Board, upon written notice effective
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immediately, may terminate this Agreement at any time during the
term of this Agreement for cause. "Cause" for purposes of such
termination shall mean the following:
a. admission or conviction of an act of dishonesty by Executive
with respect to the material interests of the Corporation;
b. willful misfeasance or willful nonfeasance of a duty
intended to injure or having the effect of injuring the
reputation, business relationships of the Corporation,
provided that for purposes hereof Executive shall not be
deemed to have committed willful misfeasance or willful
nonfeasance by reason of any act or failure to act by
Executive done in good faith;
c. conviction of Executive upon a charge of any crime involving
moral turpitude or any felony reflecting unfavorably upon
the Corporation; or
d. Failure, neglect or refusal by Executive to perform his
duties and responsibilities as set forth in this agreement
(other than by reason of disability due to physical or
mental illness or by reason of permitted vacations or
holidays) without the same being corrected upon ninety (90)
business days prior written notice from the Corporation
specifying such non-performance.
(4) Bankruptcy. This Agreement may be terminated by either party
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upon written notice to the other effective immediately if the
other party to this Agreement:
a. is adjudicated as a bankrupt;
b. is subject to the entry of an order, judgment, or decree by
any court of competent jurisdiction approving a petition
appointing a trustee, receiver, or liquidator of all or a
substantial part of the party's assets;
c. makes or attempts to make an assignment for the benefit of
creditors; or
d. institutes or attempts to institute voluntary bankruptcy
proceedings.
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(5) Death. This Agreement shall terminate upon the death of the Executive.
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(6) Disability. This Agreement shall terminate upon the permanent
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disability of Executive. For the purposes of this Agreement, Executive
shall be deemed permanently disabled if any ailment, illness or other
incapacity prevents him from performing his duties as specified in
this Agreement for a period of six consecutive months or for an
aggregate of six months in any twelve month period from the date of
this Agreement.
(7) Purchase of Executive's Shares by WorldCom Inc. This Agreement shall
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terminate on the Annual Renewal Date next following sale by Executive
of all shares and options to purchase shares of the Corporation owned
by him to WorldCom Inc. pursuant to Section 4.02 of that certain
Preferred Stock, Subordinated Note and Warrant Purchase Agreement
between WorldCom Inc. and the Corporation ("Preferred Stock Purchase
Agreement").
(b) Consequences of Termination.
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(1) In the event of the termination of this Agreement in accordance with
Subparagraph 5(a)(1) or 5(a)(3) above (voluntary termination or
involuntary termination with cause), Executive shall be entitled to
the base salary earned by him prior to the date of termination as
provided herein computed on a pro rata basis to and including such
date of termination. In addition, Executive shall also be reimbursed
for his reasonable business expenses incurred prior to the date of
termination.
(2) In the event of the termination of this Agreement in accordance with
Subparagraph 5(a)(7) above (purchase of Executive's shares by
WorldCom), Executive shall be entitled to the base salary earned by
him prior to the date of termination as provided herein computed on a
pro rata basis to and including such date of termination. In addition,
Executive shall also be reimbursed for his reasonable business
expenses incurred prior to the date of termination. In the event
termination pursuant to Subparagraph 5(a)(7) above occurs on or prior
to December 31, 1999, then, to the extent that the consideration
received by Executive in exchange for his options to purchase shares
of the Corporation is a non-cash consideration, all stock options
under the Stock Option Agreement (Exhibit A) that have not theretofore
vested (including any and all options or rights received or exchanged
therefor by Executive as a consequence of
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the transaction occurring pursuant to Section 4.02 of the Preferred
Stock Purchase Agreement) shall immediately vest and become
exercisable in accordance with the provisions of said Stock Option
Agreement thereto applicable. In addition, in the event termination
pursuant to Subparagraph 5(a)(7) occurs on or prior to December 31,
2000, then Executive shall also receive a lump sum payment in the
amount of Seventy Five Thousand Dollars ($75,000).
(3) If the Corporation terminates this Agreement without cause pursuant to
Subparagraph 5(a)(2) above (involuntary without cause), Executive
shall be entitled to receive a severance cash payment as liquidated
damages for, and in lieu of, any and all damages which he may incur as
a result of such termination in an amount equal to the greater of (i)
the Executive's then base salary for two years, or (ii) the amounts
reasonably estimated to be due hereunder for the two year period
following the Annual Renewal Date upon which the termination becomes
effective, which shall be payable within 30 days from the date of
termination plus, in either case, one half of the cash bonus
(determined pursuant to Paragraph 4(c) above relating to Bonus and
Other Compensation), to which Executive would have been entitled had
he continued in the employment of the Corporation for the year
following termination, which payment shall be payable in accordance
with Paragraph 4(b). Additionally, If the Corporation terminates this
Agreement without cause pursuant to Subparagraph 5(a)(2) above, all
stock options under the Stock Option Agreement (Exhibit A) that have
not theretofore vested shall immediately vest and become exercisable
in accordance with the provisions of said Stock Option Agreement.
(4) In the event this Agreement is terminated due to the death (pursuant
to Subparagraph 6(a)(5)) or disability (pursuant to Subparagraph
6(a)(6)) of Executive, Executive (or his estate) shall be entitled to
his then base salary for a period of six months, plus the cash bonus
payable with respect to the fiscal year of death or disability, in
accordance with normal payment procedures under this Agreement.
6.) Non-Competition. Executive covenants and agrees that:
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(a) During the term of this Agreement, he shall not without the prior written
consent of the Corporation, directly or indirectly, as an Executive, employer,
agent, principal, proprietor, partner, stockholder, consultant, director, or
corporate officer, engage in any business engaged in the high-
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speed, transaction based electronic data transportation and delivery business
(the "Competitive Business") or render any services to any business that is
engaged in a Competitive Business.
(b) For a period of two years (the "Non-Competition Period") after Executive
has ceased to be employed by the Corporation or any subsidiary of the
Corporation, Executive shall not without the prior written consent of the
Corporation:
(1) directly or indirectly engage in, or
(2) be employed by any person, firm, partnership, association, corporation
or business organization, entity or enterprise that is, or is about to
become, directly or indirectly engaged in,
any Competitive Business. For purposes hereof, "Competitive Business" shall mean
engaging or having a material interest, directly or indirectly as owner,
employee, officer, director, partner, venturer or stockholder, capital investor,
consultant, agent, principal advisor or otherwise, either alone or in
association with others, in the operation of a high speed, transaction based,
electronic data transportation and delivery business; provided, however, that
the restrictions contained in this Subparagraph (b) shall not apply to any
business that does not meet both of the following requirements:
(1) the Corporation or a subsidiary of the Corporation shall have operated
such business, or had such business in the planning or development
stage therein, during the 120-day period immediately prior to
Executive's ceasing to be employed by the Corporation or any
subsidiary of the Corporation, and
(2) Executive, during such period, shall have had substantial planning
development, administrative or operational responsibilities for such
business of the corporation or such subsidiary of the Corporation in
such area.
(c) Executive shall not during the Non-Competition Period (i) solicit any
employee of the Corporation to engage in a Competitive Business, or (ii)
personally solicit customers of the Corporation in a manner which is competitive
with the Corporation.
(d) If the scope of any restrictions contained in Subparagraphs 6(a), (b) or
(c) hereof are too broad to permit enforcement of such restrictions to their
full extent, then such restrictions shall be enforced to the maximum extent
permitted by law, and Executive hereby consents and agrees that such scope may
be judicially modified accordingly in any proceeding brought to enforce such
restrictions. Ownership of less than five (5%) percent of the outstanding
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stock of a corporation traded on a national securities exchange shall not
be deemed to breach or conflict with the provisions of Subparagraphs (a) or
(b) of this Section 6.
7.) Trade Secrets. Executive shall not at any time during the term of
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this Agreement or thereafter, or in any manner, either directly or indirectly,
divulge, disclose or communicate to any person, firm or corporation in any
manner whatsoever any information concerning any matters affecting or relating
to the business of the Corporation, including without limiting the generality of
the foregoing, any of its customers, the prices it obtains or has obtained from
the sale of, or at which it sells or has sold, its products, or any other
information concerning the business of the Corporation, its manner of operation,
its plans, processes, or other data without regard to whether all of the
foregoing matters will be deemed confidential, material, or important, the
parties hereto stipulating that as between them, the same are important,
material, and confidential and gravely affect the effective and successful
conduct of the business of the Corporation, and the Corporation's good will, and
that any breach of the terms of this paragraph shall be a material breach of
this Agreement.
8.) Disclosure and Assignment. Except as provided elsewhere in this
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Agreement, Executive shall treat as for the Corporation's sole benefit and fully
and promptly disclose to the Corporation, without additional compensation, all
ideas, discoveries, inventions and improvements, whether patentable or not,
relating to high-speed, transaction based electronic data transportation and
delivery services, which while the Executive is employed by the Corporation are
made, conceived or reduced to practice by Executive, alone or with others,
during or after usual working hours, either on or off the job, and Executive
hereby assigns to the Corporation all such ideas, discoveries, inventions and
improvements relating to high-speed, transaction based electronic data
transportation and delivery to be the Corporation's exclusive property.
9.) Disclosure and Right of First Refusal. Paragraph 8 of this Agreement
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shall not apply to any ideas, discoveries, inventions and improvements for which
no equipment, supplies, facility or trade secret information of the Corporation
was used, and which was developed entirely on Executive's own time, and (1)
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which does not relate (a) directly to high-speed, transaction based electronic
data transportation and delivery or (b) to the Corporation's actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Executive for the Corporation. Executive will,
nonetheless, promptly disclose all such ideas, discoveries, inventions and
improvements to the Corporation and offer to the Corporation the right of first
refusal to enter into a license or purchase agreement covering the subject idea,
discovery, invention or improvement on terms mutually agreed to by Executive and
the Corporation. In the event the Corporation and Executive cannot agree on
terms and Executive receives an offer to enter into a license or purchase
agreement with some other party on terms more favorable to that other party than
the terms offered to the
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Corporation, then the Corporation shall have the right and Executive shall
have the obligation to offer to the Corporation the idea, discovery, invention
or improvement on such terms as offered to the other party. When such an offer
is made to the Corporation pursuant to the preceding sentence, it must be
accepted by the Corporation within thirty, (30) days; or if not accepted, the
right of first refusal hereunder as to that offer shall terminate.
NOTICE: Paragraph 9 hereof requires Executive to assign rights to
inventions to the Corporation or its successors. Minnesota Statutes (S) 181.78
limits the scope of agreements requiring the inventions be assigned to
employers. The statute states that such assignment agreements do not apply:
"to an invention for which no equipment, supplies, facility
or trade secret information of the employer was used and
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which was developed entirely on the Executive's own time,
and (1) which does not relate (a) directly to the business
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of the employer or (b) to the employer's actual or
demonstrably anticipated research or development, or (2)
which does not result from any work performed by the
Executive for the employer." (Underlining added).
Please note that Paragraph 9 of this Agreement uses these statutory terms
to define the inventions which are not automatically assigned to the Corporation
but instead are subject to a right of first refusal in favor of the Corporation.
10.) Assistance to the Corporation. Executive shall give the Corporation,
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at the Corporation's expense, all assistance the Corporation reasonably requires
to perfect, protect, and exercise the rights to all ideas, discoveries,
inventions or improvements acquired by the Corporation pursuant to the
assignment provisions of Paragraph 8 of this Agreement or the right of first
refusal provisions of Paragraph 9 of this Agreement.
11.) Documents and Tangible Property. All documents or other tangible
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property relating in any way to the business of the Corporation which are
conceived or generated by Executive or come into Executive's possession during
Executive's employment shall be and remain the Corporation's exclusive property,
and Executive agrees to return all such documents and tangible property to the
Corporation upon termination of Executive's employment by the Corporation or at
such earlier or later time the Corporation may request Executive to do so.
12.) Remedies for Breach of Covenants of Executive. The covenants set
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forth in Paragraphs 6, 7, 8, 9, 10 and 11 of this Agreement shall continue to be
binding upon Executive, notwithstanding the termination of his employment with
the Corporation for any reason whatsoever. Such covenants shall be deemed and
construed as separate agreements independent of any other provisions of this
Agreement. The existence of any claim or cause of action by Executive against
the
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Corporation, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Corporation or any or all of such
covenants. It is expressly agreed that the remedy at law for the breach of any
such covenant is inadequate and that temporary and permanent injunctive relief
shall be available to prevent the breach or any threatened breach thereof,
without the necessity of proof of actual damages; provided, however, that it is
expressly agreed that the provisions of Subparagraph 6(b) shall immediately
become void and no longer of any effect whatsoever in the event of a merger or
consolidation of the Corporation into another corporation in which the
Corporation is not the surviving corporation or which requires the stockholders
of the Corporation to exchange their shares of Common Stock of the Corporation
for any other class of capital stock, expressly excepting any transaction
involving the issuance of the capital stock of WorldCom Inc. The termination of
such provision shall be effective on the effective date of such merger or
consolidation.
13.) Notices. Any notices to be given hereunder by either party to the
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other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Personal delivery to the Corporation shall mean personal delivery to the
Chairman of the Board of Directors. Mailed notices shall be addressed to the
respective addresses shown below. Either party may change its address for notice
by giving written notice in accordance with the terms of this Paragraph 13.
(a) If to Executive:
Allen L. Witters
9640 Eden Prairie Road
Eden Prairie, Minnesota 55487
(b) If to the Corporation:
Netco Communications Corporation
104 Union Plaza
333 North Washington Ave.
Minneapolis, MN 55401
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
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14.) Successors and Assigns; Sale of Business.
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(a) The Corporation's rights and obligations under this Agreement shall
inure to the benefit of and shall be binding upon the Corporation's
successors and assigns.
(b) In the event of a merger or consolidation of the Corporation with any
other corporation or corporations, the sale by the Corporation of a major
portion of its assets or of its business and goodwill, or any other
corporate reorganization involving the Corporation, this Agreement shall be
assigned and transferred to such successor in interest as an asset of the
Corporation; and the Corporation agrees that it shall make it a condition
of such sale or transfer agreement that the purchaser or assignee shall
assume the Corporation's obligations under this Agreement.
(c) In the event of any such assignment, the Executive agrees to continue
to perform his duties according to the terms of this Agreement to or for
such assignee or transferee of this Agreement; provided, however, the
Corporation shall remain secondarily liable as a guarantor of such
assignee's or transferee's obligations to the Executive under this
Agreement. The Executive acknowledges that his services are unique and
personal, and, accordingly, the Executive may not assign his rights (except
the right to receive payments due to him) or delegate his duties or
obligations under this Agreement.
15.) General Provisions.
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(a) Law Governing. This Agreement shall be governed by and construed in
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accordance with the laws of the State of Minnesota.
(b) Invalid Provisions. If any provision of this Agreement is held to be
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illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of
this Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid or
enforceable.
(c) Entire Agreement. This Agreement sets forth the entire understanding
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of the parties and supersedes all prior agreements or understandings,
whether written or oral, with respect to the subject matter hereof. The
prior Employment Agreement dated September 24, 1994 between the parties
hereto
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is terminated. No terms, conditions, warranties, other than those contained
herein, and no amendment or modifications hereto shall be binding unless
made in writing and signed by the parties hereto.
(d) Binding Effect. This Agreement shall extend to and be binding upon
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and inure to the benefit of the parties hereto, their respective heirs,
representatives, successors and assigns. This Agreement may not be assigned
by Executive.
(e) Waiver. The failure of either party to insist in any one or more
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instances upon performance of any term or condition of this Agreement
shall not be construed a waiver of its future performance. The obligations
of either party with respect to such term, covenant or condition shall
continue in full force and effect.
(f) Titles. Titles of the paragraphs herein are used solely for
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convenience and shall not be used for interpretation or construing any
word, clause, paragraph, or provision of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
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counterparts each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Corporation and Executive have executed this
Agreement as of the date and year first written
"EXECUTIVE" NETCO COMMUNICATIONS
CORPORATION
/s/ Allen L. Witters /s/ Edward J. Driscoll, III
___________________________ By: ________________________________
Allen L. Witters Edward J. Driscoll, III
Chief Executive Officer
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Exhibit A to
Executive Employment Agreement
STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of and effective this 14th day of
November 1996, by and between NETCO COMMUNICATIONS CORPORATION, a Minnesota
corporation (hereinafter referred to as the "Corporation") and ALLEN WITTERS, a
resident of the State of Minnesota (hereinafter referred to as the "Executive").
WHEREAS, the Corporation considers it desirable and in its best
interests that the Executive be given an inducement to acquire a proprietary
interest in the Corporation and an added incentive to advance the interests of
the Corporation, by possessing an option to purchase common shares of the
Corporation.
NOW THEREFORE, in consideration of the premises and of the mutual promises
and consideration provided herein, the parties agree as follows:
Section I - Grant of Option
1.01 Grant of Option. The Corporation grants to Executive an Option
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(the "Option") to purchase FOUR HUNDRED THOUSAND (400,000) common shares of the
Corporation at a purchase price of $4.81 per share.
Section III - Term and Duration
2.01 Term and Duration. The Option shall have a term commencing with the
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date first above written and expiring on December 31, 2007.
Section III - Vesting
3.01 Vesting of Option. Subject to earlier vesting and exercise provisions
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of Paragraph 3.02 hereof, the Option shall vest and may be exercised in
incremental amounts at the rate of fifty (50) shares for each Installed Customer
Site that becomes first installed during a calendar quarter during the term of
the Option, commencing with the calendar quarter ending March 31, 1997, and for
each successive calendar quarter through expiration of the term of the Option.
3.02 Earlier Vesting of Option. The provisions of Paragraph 3.01 to the
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contrary notwithstanding, the Option shall immediately vest and become
immediately exercisable in its entirety in any of the following events:
A-1
Allen Witters
Stock Option Agreement
November 14, 1996
(a) Executive's employment by the Corporation is terminated "involuntarily
without cause" as that phrase is defined in that certain Employment
Agreement (the "Employment Agreement") between the Corporation and the
Executive, dated of even date with this Stock Option Agreement;
(b) The Employment Agreement is terminated pursuant to Section 5(a)(7) of
the Employment Agreement prior to December 31, 1999.
(c) An Acquisition or Change of Control occurs during the period
commencing January 1, 1997 and ending January 31, 1999.
3.03 Definitions. For purposes of this Section 3, the following words shall
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have the meanings ascribed to them.
(a) Acquisition. "Acquisition" means either (i) the purchase of all or
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substantially all of the assets of the Corporation by any person or
party, or (ii) the merger or consolidation of the Corporation with any
person or party; provided that neither (i) the purchase of all or
substantially all of the assets of the Corporation by WorldCom Inc.,
nor (ii) a merger or consolidation in which the shares of the
Corporation are exchanged for shares WorldCom Inc., of a class that is
registered under the Securities Exchange Act of 1934 shall be deemed
to be an "acquisition" for purposes hereof.
(b) Change of Control. "Change of Control" means the election by
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shareholders of the Corporation of a majority of directors of the
Corporation who were not recommended by the Corporation's executive
management for nomination for election as directors, provided that
election of a majority of the directors of the Corporation who receive
the affirmative vote of WorldCom Inc., shall not be deemed a change of
control.
(c) Customer. "Customer" shall mean a customer of the Corporation who has
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subscribed to, and agreed to pay for, Use Fees for use of the
Corporation's WAM!NET Service.
(d) Installed Customer Site. "Installed Customer Site" shall mean a
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customer that has been continually connected to the Corporation's
WAM!NET Service for at least Ninety (90) days or has begun either (i)
to pay minimum monthly Use Fees under a service agreement
A-2
Allen Witters
Stock Option Agreement
November 14, 1996
or (ii) to incur use charges under an agreement having no minimum
monthly Use Fees.
(e) Use Fees. "Use Fees" shall mean fees payable by a Customer for use of
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WAM!NET Services, and shall include fees payable by a Customer
relating to remote proofing and digital image archiving and
retrieval services.
(f) WAM!NET Service. "WAM!NET Service" shall mean the Corporation's
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WAM!NET(TM) Electronic Data Transportation and Delivery Service (the
"WAM!NET Service") as presently configured or as may be configured in
the future, and shall include services relating to remote proofing and
digital image archiving and retrieval services.
Section IV - Exercise and Payment
4.01 Method of Exercise. The Option shall be exercised by written notice to
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the Board of the Corporation at the Corporation's principal place of business,
accompanied by payment in cash or exercise of the Conversion Right as provided,
respectively, in Paragraphs 4.02 or 4.03 hereof, or by some combination thereof.
The notice shall specify how many shares are being acquired for cash in
accordance with Paragraph 4.02 hereof, and how many by exercise of the
Conversion Right in accordance with Paragraph 4.03 hereof. The notice shall also
be accompanied by any document reasonably required by the Corporation to be
executed by Executive acknowledging the applicable restrictions on the transfer
of the common shares being purchased as set forth under Section 7.02 of this
Agreement.
4.02 Payment in Cash. The notice specified in Paragraph 4.01 hereof shall
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be accompanied by payment of the option price for the shares being purchased for
cash, which shall be in the form of cash or cashier's check or certified check
or, in the sole discretion of the Board, or the Committee if such exists, by
such other form of payment acceptable to the Corporation.
4.03 Payment by Exercise of Conversion Right. In the alternative, the
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notice specified in Paragraph 4.01 hereof shall be accompanied by payment for
the shares being purchased by exercise of the Conversion Right provided in this
paragraph. The holder of this option shall have the right to require the
Corporation to convert this option, to the extent then vested, to shares of
Common Stock of the Corporation at any time prior to December 31, 2006. Upon
exercise of the Conversion Right, the Corporation shall deliver to the holder of
this Option (without payment of the exercise price in cash or check as provided
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Stock Option Agreement
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in Paragraph 4.02 hereof) shares of the Corporation's common Stock in number
equal to the quotient obtained by dividing
(a) the value of the Option at the time the Conversion Right is exercised
(determined by subtracting the aggregate Option exercise price at the
time the Conversion Right is exercised) from the aggregate Fair Market
Value, as determined immediately prior to the exercise of the
Conversion Right, of the aggregate Fair Market Value of the shares for
which the Option may be exercised by
(b) the Fair Market Value of one share of common stock immediately prior
to the exercise of the Conversion Right.
The immediately preceding formula is illustrated by the following example where
(i) the number of optioned shares being acquired by exercise of the Conversion
Right is 10,000, (ii) the per share exercise price of the Option is $4.81, and
(iii) the applicable Fair Market Value is $14.43: [(10,000 x 14.43) - (10,000 x
4.81)] / 14.43 = [144,300 - 48,100] / 14.43 = 96,200/14.43 = 6,667 shares.
4.04 Delivery of Certificates. Upon receipt of the Notice of Exercise,
------------------------
together with any document specified in Paragraph 4.01 hereof accompanied by
payment in accordance with either Paragraph 4.02 or 4.03 hereof, the Corporation
will deliver to the holder of this Option a certificate or certificates for the
number of shares of common stock issuable thereupon, together with a payment in
cash in lieu of any fraction of a share. The Corporation shall make prompt
delivery of a certificate or certificates representing such common shares,
provided that if any law or regulation requires the Corporation to take any
action with respect to the common shares specified in such notice before the
issuance thereof, then the date of delivery of such common shares shall be
extended for the period necessary to take such action.
4.05 Fair Market Value. "Fair Market Value" of a share of the
-----------------
Corporation's common stock as of a particular date (the "Determination Date")
shall mean:
(a) If the Corporation's common stock is traded on an exchange or is
quoted on NASDAQ then the average closing or last sale prices,
respectively, reported for the ten (10) business days immediately
preceding the Determination Date;
(b) If the Corporation's common stock is not traded on an exchange or on
NASDAQ but is traded in the over-the-counter securities market, then
the average closing bid and asked prices reported for
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Stock Option Agreement
November 14, 1996
the ten (10) business days immediately preceding the Determination
Date; and
(c) If the Corporation's common stock is not publicly traded, then the
Fair Market Value as determined in good faith by the Company's Board
of Directors upon advice of a national investment banking firm whom,
upon request of the holder of this Option, the Corporation shall
select and retain to render such valuation.
Section V - Termination
5.01 Termination of Option. Except as herein otherwise provided, the
---------------------
Option granted under this Agreement, to the extent not theretofore exercised,
shall terminate upon the first to occur of the following events:
(a) Ninety (90) days following the Executive's voluntary termination of
Executive's employment by the Corporation.
(b) Ninety (90) days following the Executive's termination of employment
by the Corporation "involuntarily for cause" as that phrase is defined
in the Employment Agreement.
(c) The expiration of twelve months from the date of Executive's death
should Executive die within three months of termination of employment
by the Corporation.
(d) 11:59 PM Minneapolis, Minnesota, local time on December 31, 2007.
5.02 Governing Date. No provision of this Agreement to the contrary
--------------
withstanding, neither the Option nor any right claimed thereby or hereby,
therein or herein, or thereunder or hereunder shall be exercisable by anyone
after Dec. 31, 2007.
Section VI - Reclassification, Consolidation or Merger
6.01 Reclassification, Split or Dividend. If and to the extent that the
-----------------------------------
number of issued common shares of the Corporation shall be increased or reduced
by change in par value, split up, reverse split, reclassification, distribution
of a dividend payable in stock, or the like, the number of common shares subject
to the Option and the option price per share shall be proportionately adjusted.
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Stock Option Agreement
November 14, 1996
6.02 Consolidation or Merger. If the Corporation is reorganized or
-----------------------
consolidated or merged with another corporation, the Executive shall be entitled
to receive an option (the "New Option") covering common shares of such
reorganized, consolidated or merged Corporation in the same proportion, at an
equivalent price, and subject to the same conditions as the Option. For purposes
of the preceding sentence, the excess of the fair market value of the common
shares subject to the Option immediately after the reorganization, consolidation
or merger over the aggregate option price of such common shares shall not be
more than the excess of the aggregate fair market value of all common shares
subject to the Option immediately before such reorganization, consolidation or
merger over the aggregate option price of such common shares, and the New
Option or assumption of the Option shall not give the Executive additional
benefits which he does not have under this Option, or deprive him of benefits
which he has under this Option.
VII - Rights and Restrictions
7.01 Rights Prior to Exercise of Option. This Option is non-
----------------------------------
transferable by Executive, except in the event of his death, and during his
lifetime is exercisable only by him. No person shall have any rights as a
stockholder with respect to any common shares purchasable hereunder until
payment of the option price in accordance with Section 4.02 or 4.03 hereof, and
delivery to him of such common shares as herein provided.
7.02 Restriction on Disposition. All common shares acquired by
--------------------------
Executive pursuant to this Agreement shall be subject to the restrictions on
sale, encumbrance and other disposition contained in the Corporation's By-Laws,
or imposed by applicable state and federal laws or regulations regarding the
registration or qualification of such acquisition of common shares, and may not
be sold or otherwise disposed of except in accordance with applicable exemptions
from registration under applicable federal and state laws or pursuant to
registration thereunder.
7.03 Refusal Option. All common shares acquired by Executive pursuant
--------------
to this Agreement shall be subject to the Right of Refusal Agreement among
Executive, Edward J. Driscoll, III and WorldCom Inc.
VIII - Miscellaneous
8.01 Binding Effect. This Agreement shall inure to the benefit of and
--------------
be binding upon the parties hereto and their respective heirs, executors,
administrators successors and assigns.
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Stock Option Agreement
November 14, 1996
8.02 Construction. This Agreement shall be construed in accordance with
------------
the laws of the State of Minnesota, excluding the conflicts of laws provisions
thereof. This Agreement shall also be construed, to the extent practicable,
consistently with the Employment Agreement between the Corporation and the
Executive dated as of the date first above written.
In witness whereof, the parties have signed this Incentive Stock Option
Agreement the day and year first above written.
"Executive" "Corporation"
Netco Communications Corporation
By: /s/ Allen Witters By: /s/ Edward J. Driscoll, III
_______________________ _______________________________
Allen Witters Edward J. Driscoll, III
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