EMPLOYMENT/STOCK REPURCHASE
AGREEMENT
This Employment/Stock Repurchase Agreement
(hereinafter “Agreement” is entered into on this
13 th
day of October, 1999 by ROLLA P.
HUFF (hereinafter “Executive”) and MGC COMMUNICATIONS,
INC., a Nevada corporation (hereinafter the “Company”).
Executive and Company are collectively designated herein as the
“Parties” and “Party” shall mean either one
of the Parties.
The Parties, for and in consideration of the
promises, covenants, terms, conditions and obligations hereinafter
set forth, agree as follows:
1. Employment . Company hereby employs
Executive and Executive hereby accepts employment by Company upon
all terms and conditions as are hereinafter set forth.
A. Executive shall be employed by Company no
later than November 1, 1999, as its President and Chief Executive
Officer. Executive shall report directly and solely to
Company’s Board of Directors. The duties and responsibilities
of Executive as President and Chief Executive Officer shall be
those of the chief executive officer of similar companies and as
defined in the by-laws of Company, and shall be without
consideration of other positions Executive may hold with Company.
Executive’s services are mutually agreed to be unique
personal services. Executive acknowledges that Company is relying
upon Executive’s experience, expertise and other
qualifications in entering into this Agreement. Executive shall not
assign or delegate any right, obligation or duty hereunder to any
other person or entity without the express written consent of the
Company.
B. During Executive’s period of service
hereunder, Executive agrees to perform such services not
inconsistent with his position as shall from time to time be
assigned to him by Company’s Board of Directors. During the
term of this Agreement, except for disability, illness and vacation
periods, Executive shall devote his full productive time, attention
and energies to the position of President and Chief Executive
Officer of Company.
C. Executive’s expenditure of reasonable
amounts of time in connection with outside activities, not
competitive with the business of Company, such as outside
directorships or charitable activities, shall not be considered in
contravention of this Agreement so long as such activities do not
materially interfere with his performance of this Agreement.
Further, it is understood and agreed by the Parties hereto that
Executive is entitled to engage in passive and personal investment
activities not materially interfering with his performance of this
Agreement.
D. Company shall cause Executive to be elected
to Company’s Board of Directors and to be nominated for
reelection to the Board so long as he continues to serve as
President and Chief Executive Officer of Company.
3. Term of Agreement . This Agreement
shall be effective as of a date, not later than November 1, 1999,
mutually agreeable to the Parties (the “Effective
Date”) and Executive’s employment hereunder shall
continue until October 31, 2002, unless sooner terminated by either
Party as provided in Item 11 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 11
hereof.
4. Compensation . During the term of this
Agreement, Company agrees to pay to Executive, and Executive agrees
to accept from Company, in full payment for services rendered by
Executive and work to be performed by him under the terms of this
Agreement, the following:
A. An annual base salary (“Base
Salary”) of Five Hundred Thousand Dollars ($500,000.00),
payable in installments in accordance with Company’s payroll
practices. The base salary may be increased annually in the
discretion of the Board of Directors of Company based on
Company’s performance and Executive’s personal
accomplishments.
B. Executive shall be entitled to a bonus of up
to one hundred percent (100%) of his Base Salary each calendar year
based on either (i) Company’s achievement of certain annual
targets to be established by Company’s Board of Directors in
conjunction with the establishment of Company’s operating
budget each year, or (ii) in the event such targets are not met or
an additional bonus is warranted, in the discretion of
Company’s Board of Directors.
C. Company shall pay Executive a cash signing
bonus of One Million Dollars ($1,000,000) payable within fifteen
(15) days of Executive’s commencement of employment
hereunder. The cash signing bonus shall be repaid by Executive to
Company in full in the event of Executive’s resignation from
Company without “Good Reason” (as defined in Item 11B)
or termination for “Cause” (as defined in Item 11A)
before completion of three (3) years of employment with Company. In
such event, the repayment of the cash signing bonus shall be made
within thirty (30) days of Executive’s termination of
employment.
D. In the event Executive’s employment
with Company shall cease within one (1) year after a “Change
of Control” (as defined in Item 10), shall be terminated by
Company without Cause or shall be terminated by Executive with Good
Reason, Company shall pay to Executive severance pay in an
aggregate amount (not less than One Million Dollars ($1,000,000))
equal to two (2) times the total amount of Base Salary and
incentive bonus paid by Company to Executive during the twelve (12)
month period immediately preceding the date of his termination of
employment. Such amount shall be paid by Company to Executive in
twenty-four (24) equal monthly installments beginning on the date
that is one (1) month after the date of his termination of
employment.
E. Company shall also reimburse Executive for
all reasonable and necessary expenses actually incurred by
Executive in performing services hereunder to the extent approved
by Company. Executive shall prepare and submit to Company a
periodic statement of charges in such detail and supported by such
receipts, evidence and documentation as Company may reasonably
require.
A. Company shall provide Employee such vacation
time, sick leave and fringe benefits, including but not limited to
participation in any pension, 401(k), health insurance and employee
benefit plans that may be maintained by Company from time to time
as are made generally available to other senior management
employees of Company in accordance with Company policies. Company
reserves the right to change the benefits available under its
benefit plans at any time or times.
B. Company shall pay on behalf of Executive his
automobile expenses and the annual dues for Executive’s
membership in a country club which shall be subject to
Company’s approval if the aggregate of such automobile
expenses and dues are in excess of $3,000 per month, which approval
shall not be unreasonably withheld.
C. Company shall pay Executive’s living
expenses (including living quarters and local transportation costs)
while Executive is in Las Vegas for business and shall pay
Executive’s travel costs to and from Las Vegas on business.
Any such amounts paid by Executive shall be reimbursed by Company
upon presentation of receipts for such expenses.
6. Deductions . Deductions shall be made
from Executive’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.
7. Fiduciary Relationship . Both Parties
acknowledge and agree that a fiduciary and confidential
relationship has commenced and will continue to exist between them
and that said relationship will continue during the term of this
Agreement.
A. Executive shall be eligible to participate in
any stock option plans maintained by Company and any additional or
successor plans created from time to time.
B. As of the date hereof, Executive shall be
granted a stock option for the purchase of 400,000 shares of
Company’s Common Stock. Such option shall: (i) have an
exercise price equal to $20.00 per share; (ii) vest in four (4)
equal annual installments at the rate of 25% on each of the first
four anniversaries of the grant; (iii) accelerate and become fully
vested in the event of a Change of Control (as defined in Item 10
hereof) or in the event Executive’s employment is terminated
by him with Good Reason as provided in Item 11B; and (iv) be
non-qualified options to the extent required by the Internal
Revenue Code.
C. As of the first anniversary of the Effective
Date, Executive shall, if he is then employed by Company, be
granted a stock option for the purchase of an additional 200,000
shares of Company’s Common Stock. Such option shall: (i) have
an exercise price equal to the greater of $30.00 per share or the
closing price of Company’s Common Stock on the date of grant
as reported in the Nasdaq National Market; (ii) vest in four (4)
equal annual installments at the rate of 25% on each of the first
four anniversaries of the grant; (iii) accelerate and become fully
vested in the event of a Change of Control (as defined in Item 10
hereof) or in the event Executive’s employment is terminated
by him with Good Reason as provided in Item 11B; and (iv) be
non-qualified options to the extent required by the Internal
Revenue Code.
D. In addition to the stock options grants
pursuant to Paragraphs B and C above, Executive shall be eligible
for additional grants on an annual basis.
9. Stock Sale and Company Option to
Repurchase Executive’s Shares .
A. Upon the Effective Date, Company shall sell
to Executive 150,000 shares of its common stock (the “Note
Shares”) for a purchase price equal to 150,000 multiplied by
the closing price of Company’s Common Stock as of the date of
this Agreement as reported in the Nasdaq National
Market.
B. The purchase price for the Note Shares shall
be paid by Executive’s execution and delivery to Company of a
non-recourse promissory note (the “Note”) in favor of
Company. The Note will be secured by the Note Shares pursuant to a
stock pledge agreement in a form reasonably agreeable to the
Parties. 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, with no interest payment required prior to the maturity of
the Note. The Note may be prepaid at any time without penalty, and
prepayment will be required within 30 days after termination of
employment by Company for Cause pursuant to Item 11A or by
Executive’s resignation without Good Reason. Executive
acknowledges that his holding period for Note Shares will not begin
until he has paid for such shares for purposes of determining
whether he has met the one-year holding period required before
being able to sell such shares under Rule 144 under the Securities
Act of 1933.
C. Company shall forgive the Note in full
(principal and interest) in the event: (i) Executive is in the
continuous employment of Company during the three (3) year period
beginning on the Effective Date, (ii) Executive’s employment
with Company is terminated by Company without Cause prior to the
date that is three (3) years after the Effective Date, (iii)
Executive’s employment with Company is terminated by
Executive with Good Reason, (iv) Executive’s employment is
terminated as a result of disability, or (v) of a Change of Control
(as defined in Item 10 hereof).
D. If Executive is at any time prior to the date
that is three (3) years after the Effective Date, not an employee
of Company for any reason whatsoever other than as a result of
termination of employment by Company without Cause, termination of
employment by Executive with Good Reason, death, disability or a
Change of Control (the date of such termination of employment being
referred to herein as the “Termination Date”), then
Company shall have the option to purchase, whereupon Executive
shall be obligated to sell, any portion or all of the Note Shares
in Company owned by Executive or any Affiliate of his on the
Termination Date. In such event, such Note Shares shall be sold
free and clear of any and all liens and encumbrances. The purchase
price for the Note Shares shall be the amount per share paid by
executive for such Note Shares (including any interest paid or
accrued on the Note with respect to the Note Shares being
repurchased).
E. The option provided herein shall be
exercised, if at all, by delivery of written notice by Company
within ninety (90) days after the Termination Date.
F. 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 Company may
designate by written notice to Executive 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 Note Shares to effectuate the foregoing. At the
closing, the purchase price shall be paid by the cancellation of
the Note up to but not in excess of the purchase price for the Note
Shares being repurchased with the balance of such purchase price
payable in cash.
G. The repurchase 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 Company. The Board of Directors of Company shall make the
determination of any such adjustments and shall provide Executive
with written notice thereof.
H. All certificates representing Note 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
Company pursuant to the terms of an Employment/Stock Repurchase
Agreement dated October 13, 1999, a copy of which is on file with
Company.
A. In the event of a Change of Control (as
defined in Paragraph B below), Executive’s obligation to
repay his cash signing bonus shall terminate, the stock options
theretofore granted to Executive pursuant to Item 8B and 8C
sh