EXHIBIT 10.10
EXECUTION COPY
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") dated as of September 1,
1998, is entered into by and between CellStar Telecom, Inc., a Delaware
corporation ("CellStar") and Xxxx Telecom, Inc., a Florida corporation ("TTI").
RECITALS
WHEREAS, pursuant to the provisions of that certain letter agreement dated
as of September 1, 1998 by and among CellStar, Ltd., TTI, Xxxxx Xxxx and
Xxxxxxxxx X. Xxxxxx (the "Letter Agreement"), TTI has agreed to grant to
CellStar an option to purchase (i) 1,043 shares of TTI Class A convertible
preferred stock, par value $.01 per share (the "A Convertible Preferred Stock")
or voting common stock, par value $.01 per share (the "Voting Common Stock"), as
CellStar may elect, and (ii) 17,988 shares of TTI Class B Convertible Preferred
Stock, par value $.01 per share (the " B Convertible Preferred Stock," and
together with the A Convertible Preferred Stock, the "Preferred Stock") or
nonvoting common stock, par value $.01 per share (the "Nonvoting Common Stock,"
and together with the Voting Common Stock, the "Common Stock"), as CellStar may
elect; and
WHEREAS, CellStar and TTI desire to enter into this Agreement for the
purpose of setting forth certain representations, warranties and agreements
relating to such option;
NOW, THEREFORE, in consideration of the premises and of the mutual
provisions, agreements and covenants contained herein and in the Letter
Agreement, CellStar and TTI hereby agree as follows:
AGREEMENT
1. Grant of Option. TTI hereby grants to CellStar an option (the "Option") to
purchase from TTI (a) 1,043 shares of A Convertible Preferred Stock (the "A
Preferred Shares") or Voting Common Stock (the "Voting Common Shares"), as
CellStar may elect, and (b) 17,988 shares of B Convertible Preferred Stock (the
"B Preferred Shares," and together with the A Preferred Shares, the "Preferred
Shares") or Nonvoting Common Stock (the "Nonvoting Common Shares, " and together
with the Preferred Shares and the Voting Common Shares, the "Shares"), as
CellStar may elect, for an aggregate exercise price of two million dollars
($2,000,000) or $105.0916925 per share (the "Exercise Price"). Upon the closing
of the sale of shares of Voting Common Stock, at a price of at least
$105.0916925 per share (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other similar recapitalizations affecting such
shares) in a public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, that has been effected with the
consent of CellStar, which consent shall be provided by CellStar in good faith
(subject to acting in the best interests of the
shareholders of CellStar Corporation), a new Option representing a number of
shares of Voting Common Stock equal to the number of Shares of, if any, with
respect to which this Option shall not then have been exercised shall be issued
to CellStar. Upon any exercise of the Option, the Exercise Price shall be
rounded to the nearest cent. The parties hereto acknowledge and agree that (i)
the aggregate fair market value of the Option granted hereunder, together with
the aggregate fair market value of that certain Warrant dated as of September 1,
1998 granted to CellStar by TTI (the "Warrant"), each calculated as of the date
hereof, does not exceed $1,000, and (ii) the fair market value of the Option and
the Warrant substantially depends on the financial success of TTI, which success
is contingent upon TTI's obtaining additional debt or equity financing.
2. Option Term. The Option shall be exercisable by CellStar with respect to
the Shares, in whole or in part, at any time or from time to time, during the
period commencing on the date hereof through and including the fifth anniversary
of the date hereof (the "Option Term").
3. Exercise of Option. CellStar may exercise the Option by providing written
notice of the exercise of the Option or any portion thereof to TTI specifying
the whole number of Shares for which the Option is exercised (the "Exercise
Notice"), whether Preferred Shares, Voting Common Shares or Nonvoting Common
Shares, accompanied by payment in full of the applicable Exercise Price in cash
or by company check for each Share being purchased by CellStar. Alternatively,
CellStar may specify in its Exercise Notice that it is crediting the payment of
the Exercise Price first to accrued interest and then to principal payable by
TTI to CellStar, Ltd. under that certain Promissory Note dated September 1, 1998
executed by TTI in favor of CellStar, Ltd. or to accounts receivable owed by TTI
to CellStar, Ltd. rather than paying the Exercise Price in cash or by company
check. In the event of any exercise of the rights represented by this Option,
certificates for the Shares so purchased, registered in the name of CellStar,
shall be delivered to CellStar within a reasonable time, not exceeding five
business days after the Option shall have been so exercised. CellStar shall for
all purposes be deemed to have become the holder of record of such Shares on the
date on which the Exercise Notice and payment of the aggregate applicable
Exercise Price are delivered to TTI, irrespective of the date of delivery of
such certificates. No fractional Shares will be issued upon any exercise of the
Option.
4. Covenants as to Shares. TTI shall at all times reserve and keep available
out of its authorized and unissued Preferred Stock and Common Stock, solely for
the purpose of providing for the exercise of the Option, such number of shares
of Preferred Stock and Common Stock as shall, from time to time, be sufficient
therefor. TTI covenants that all shares of Preferred Stock and Common Stock
issuable upon exercise of the Option, upon receipt by TTI of the full Exercise
Price therefor, and any shares of Common Stock issuable upon conversion of the
Preferred Shares, shall be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and will not
be issued in violation of any preemptive rights of stockholders, optionholders,
warrantholders and any other persons and CellStar will receive good title to the
securities
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purchased by it, free and clear of all liens, security interests, claims,
pledges, charges, stockholders' agreements, voting trusts or encumbrances of any
kind.
5. Investment Representations and Resale Restrictions.
(a) If TTI in its good faith discretion determines that as a matter of law
such procedure is or may be desirable, it may require CellStar, upon any
acquisition of Shares pursuant to the exercise of the Option and as a
condition to TTI's obligation to deliver certificates representing such
shares, to execute and deliver to TTI a written statement representing and
warranting that CellStar's acquisition of Shares pursuant to the exercise
of the Option, and of any shares of Common Stock issuable upon conversion
of the Preferred Shares, is for CellStar's own account, for investment
purposes and not with a view to the resale or distribution thereof.
(b) CellStar acknowledges and agrees that neither the Option nor the Shares
acquired upon the exercise of the Option (1) have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), nor under any
state or other applicable securities laws and (2) may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under the Securities Act and the rules and
regulations promulgated thereunder and any applicable state securities laws
or pursuant to an exemption from registration under the Securities Act and
any applicable state or other securities laws.
(c) Unless registered pursuant to the Securities Act, the certificate or
certificates evidencing the Shares issued upon any exercise of the Option
shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS."
6. Adjustment of Exercise Price and Number of Shares Subject to Option. The
Exercise Price applicable to (i) Voting Common Shares and A Convertible
Preferred Shares and (ii) Nonvoting Common Shares and B Convertible Preferred
Shares shall each, from and after the date hereof, be subject to adjustment from
time to time as hereinafter provided. Upon each adjustment of the applicable
Exercise Price, CellStar shall thereafter be entitled to purchase, at the
applicable Exercise Price resulting from such adjustment, the number of shares
of Voting Common Stock, Nonvoting Common Stock, A
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Preferred Stock or B Preferred Stock, as the case may be, obtained by
multiplying the applicable Exercise Price in effect immediately prior to such
adjustment by the number of shares of Voting Common Stock, Nonvoting Common
Stock, A Preferred Stock or B Preferred Stock, as the case may be, purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the applicable Exercise Price resulting from such adjustment. For
purposes of this Section 6, "Voting Stock" shall mean collectively, the Voting
Common Stock and the A Convertible Preferred Stock, and "Nonvoting Stock" shall
mean collectively, the Nonvoting Common Stock and the B Convertible Preferred
Stock.
(a) Except (i) in the case of any shares of Voting Stock issued as a
dividend or other distribution payable in respect of any shares of Voting
Stock, or Nonvoting Stock issued as a dividend or other distribution
payable in respect of Nonvoting Stock, or (ii) upon the exercise of a
Convertible Security (as defined below), in the event TTI shall at any time
issue or sell any shares of Voting Stock, Nonvoting Stock or any
Convertible Securities without consideration or for a consideration per
share, or having an exercise or conversion price per share of Voting Stock
or Nonvoting Common Stock, as the case may be, less than the applicable
Exercise Price in effect immediately prior to the time of such issue or
sale, the Exercise Price per share of Voting Stock and the Exercise Price
per share of Nonvoting Stock shall each be reduced concurrently with such
issue or sale, to an amount calculated by:
(1) dividing a sum equal to (A) the total number of shares
of Stock (as defined below) outstanding at the date
hereof, multiplied by the applicable Exercise Price at
the date of adjustment, plus (B) the aggregate of the
amounts of all consideration received and/or to be
received by TTI upon the issuance of Additional Shares
of Stock (as defined below), by
(2) the sum of (A) the total number of shares of Stock
outstanding at the date hereof, and (B) the number of
Additional Shares of Stock which shall have been
issued.
For purposes of this Section 6(a), "Stock" shall mean (i) the Voting Stock when
calculating the adjustment to the Exercise Price of the Voting Common Shares or
the A Preferred Shares, and (ii) the Nonvoting Stock, when calculating the
adjustment to the Exercise Price of the Nonvoting Common Shares or the B
Preferred Shares. "Additional Shares of Stock" shall mean any and all shares of
Common Stock and Preferred Stock issued or sold by TTI subsequent to the date
hereof, and shall include the maximum number of shares of Common Stock and
Preferred Stock issuable upon the conversion, exchange or exercise of any
Convertible Securities issued or sold by TTI subsequent to the date hereof. A
"Convertible Security" shall refer to any options, rights or other obligations
or shares of capital stock of TTI or other obligations including without
limitation, options, warrants or rights that are convertible into or exercisable
or exchangeable for Common Stock or Preferred Stock.
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(b) (i) In case TTI shall at any time subdivide its outstanding shares of
either Voting Common Stock or A Convertible Preferred Stock into a greater
number of shares or issue a dividend or distribution payable either in shares of
Voting Common Stock or A Convertible Preferred Stock, the applicable Exercise
Price of the Voting Common Shares and the A Preferred Shares in effect
immediately prior to such subdivision shall be reduced to a price determined by
dividing (x) the number of shares of Voting Stock outstanding immediately prior
to such subdivision or distribution, multiplied by the applicable Exercise Price
in effect immediately prior to such subdivision or distribution by (y) the
number of shares of Voting Stock outstanding immediately after such subdivision
or distribution.
(ii) In case TTI shall at any time subdivide its outstanding shares of
Nonvoting Common Stock or B Convertible Preferred Stock into a greater number of
shares or issue a dividend or distribution payable either in shares of Nonvoting
Common Stock or B Convertible Preferred Stock, the applicable Exercise Price of
the Nonvoting Common Shares and the B Preferred Shares in effect immediately
prior to such subdivision shall be reduced to a price determined by dividing (x)
the number of shares of Nonvoting Common Stock outstanding immediately prior to
such subdivision or distribution, multiplied by the applicable Exercise Price
per share in effect immediately prior to such subdivision or distribution by (y)
the number of shares of Nonvoting Common Stock outstanding immediately after
such subdivision or distribution.
(c) (i) In case TTI shall at any time combine its outstanding shares of
either Voting Common Stock or A Convertible Preferred Stock into a lesser number
of shares, the applicable Exercise Price of the Voting Common Shares or the A
Preferred Shares in effect immediately prior to such combination shall be
increased to a price determined by dividing (x) the number of shares of Voting
Stock outstanding immediately prior to such combination, multiplied by the
applicable Exercise Price in effect immediately prior to such combination by (y)
the number of shares of Voting Stock outstanding immediately after such
combination.
(ii) In case TTI shall at any time combine its outstanding shares of
either Nonvoting Common Stock or B Convertible Preferred Stock into a lesser
number of shares, the applicable Exercise Price of the Nonvoting Common Shares
or the B Preferred Shares in effect immediately prior to such combination shall
be increased to a price determined by dividing (x) the number of shares of
Nonvoting Stock outstanding immediately prior to such combination, multiplied by
the applicable Exercise Price in effect immediately prior to such combination by
(y) the number of shares of Nonvoting Stock outstanding immediately after such
combination.
(d) If any capital reorganization or reclassification of the capital
stock of TTI, or consolidation or merger of TTI with another corporation, or the
sale of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Voting Stock or Nonvoting Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for any Voting Stock or Nonvoting Stock, then,
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lawful and adequate provision shall be made whereby CellStar shall thereafter
have the right to purchase and receive, upon the basis and upon the terms and
conditions specified in this Agreement and in lieu of the shares of Voting Stock
or Nonvoting Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for (i) at the
option of CellStar either (A) the number of shares of Voting Common Stock
issuable hereunder or (B) the number of A Preferred Shares issuable hereunder or
(C) the number of outstanding shares of Voting Common Stock equal to the number
of shares of Voting Common Stock as the A Preferred Shares issuable hereunder
was convertible into and (ii) at the option of CellStar either (A) the number of
shares of Nonvoting Common Stock issuable hereunder or (B) the number of B
Preferred Shares issuable hereunder or (C) the number of outstanding shares of
Nonvoting Common Stock equal to the number of shares of Nonvoting Common Stock
as the B Preferred Shares issuable hereunder was convertible into, had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provision shall be made with respect to the
rights and interests of CellStar to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the applicable
Exercise Price) shall thereafter be applicable, as nearly as may be, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof.
(e) Upon any adjustment of the applicable Exercise Price, then and in each
such case TTI shall give written notice thereof, by first-class mail, postage
prepaid, addressed to CellStar in the manner provided in Section 8(d) hereof,
which notice shall state the applicable Exercise Price resulting from such
adjustment setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. TTI shall, within two business days
of CellStar's request therefor, provide to CellStar access to all books, records
and other information reasonably necessary for CellStar to confirm the
calculation of any adjustment of the applicable Exercise Price.
7. Representations and Warranties. TTI represents and warrants to CellStar
that (a) it is a corporation duly organized and validly existing and in good
standing under the laws of the State of Florida, (b) this Agreement has been
duly authorized by all necessary corporate action and will, upon its execution
and delivery, constitute the legal, valid and binding obligation of TTI,
enforceable in accordance with its terms, and (c) Telecom's authorized capital
stock consists of (i) 5,000,000 shares of Voting Common Stock, par value $.01
per share, of which 6,100 shares are issued and outstanding as of the date
hereof, (ii) 5,000,000 shares of Nonvoting Common Stock, par value $.01 per
share, of which 133,463 shares are issued and outstanding as of the date hereof,
(iii) 1,043 shares of Class A Convertible Preferred Stock, par value $.01 per
share, none of which is issued and outstanding as of the date hereof, and (iv)
17,988 shares of Class B Convertible Preferred Stock, par value $.01 per share,
none of which is issued and outstanding as of the date hereof. The record and
beneficial owners of all of the outstanding shares of the Company's Common Stock
are set forth in Schedule I hereto. Telecom further represents and warrants
that, except as set forth on Schedule I hereto, there are no options, warrants
or rights to purchase or otherwise acquire shares of Convertible Preferred
Stock,
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Common Stock or any other capital stock of TTI or any other equity interest
therein outstanding as of the date hereof, other than any such options, warrants
or rights which have been issued or granted to CellStar.
8. Miscellaneous.
(a) No term hereof may be changed, waived, discharged, or terminated
except by a written instrument executed by the parties hereto.
(b) This Agreement shall be governed and interpreted and enforced in
accordance with the internal laws of the State of Florida, without regard to
principles of conflicts of laws thereof.
(c) Each provision of this Agreement shall be interpreted in such a manner
as to be effective, valid and enforceable under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable
under any applicable law or rule in any jurisdiction, such provision will be
ineffective only to the extent of such invalidity, illegality or
unenforceability in such jurisdiction, without invalidating the remainder of
this Agreement in such jurisdiction or any provision hereof in any other
jurisdiction.
(d) All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person or by registered or
certified mail, return receipt requested, postage and fees prepaid, first class
mail to: (i) TTI at Xxxx Telecom, Inc., 0000 XX 00xx Xxxxxx, Xxxxx 000, Xxxxx
Xxxxxxx, 00000, Attention: President, and (ii) CellStar Telecom, Inc. at 0000
Xxxxxxxxxx Xxxxx, Xxxxxxxxxx, Xxxxx 00000, Attention: General Counsel, with a
copy to Steel Xxxxxx & Xxxxx LLP, 000 Xxxxx Xxxxxxxx Xxxx., Xxxxx, Xxxxxxx
00000, Attention: Xxxxx X. Xxxxx.
Any party hereto may change the addresses set forth above by written notice
to the other party given in accordance with the provisions of this Section 8(d).
All such notices shall be deemed to be given when delivered in person, or if
placed in the mail as aforesaid, then four (4) days thereafter.
(e) This Agreement and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors and assigns of TTI and CellStar.
This Agreement may be assigned by CellStar only to any of its Affiliates,
including without limitation CellStar, Ltd., upon written notice of such
assignment to TTI. "Affiliate" shall mean any corporation, limited liability
company, partnership, joint venture, limited partnership, trust or
unincorporated organization directly or indirectly controlling or controlled by
or under direct or indirect common control with Cellstar.
(f) This Agreement is intended as a full integration of the parties'
understandings, constitutes the entire agreement of the parties and supersedes
all prior agreements and undertakings, both written and oral, between the
parties, or any of them, with respect to the subject matter hereof.
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(g) This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement. The parties hereby acknowledge and agree
that facsimile signatures of this Agreement shall have the same force and effect
as original signatures.
(h) If any party shall commence any action or proceeding against another
party in order to enforce the provisions hereof, or to recover damages as the
result of the alleged breach of any of the provisions hereof, the prevailing
party therein shall be entitled to recover all reasonable costs incurred in
connection therewith, including, but not limited to, reasonable attorneys' fees
and expenses, whether at the trial or appellate level.
(i) This Stock Option Agreement and the Letter Agreement are to be
construed so as to be consistent and not in conflict, but should a conflict
nonetheless arise between this Stock Option Agrement and the Letter Agreement,
the conflict will be resolved by giving the conflicting provision of this Stock
Option Agreement full force and effect.
[Signatures follow immediately on next page]
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IN WITNESS WHEREOF, CellStar and TTI have caused this Agreement to be
executed as of the date first written above by their respective officers duly
authorized.
CELLSTAR TELECOM, INC. XXXX TELECOM, INC.
By: /s/ XXXXXXX X. XXXXXXX By: /s/ X.X. XXXXXX
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Name: Xxxxxxx X. Xxxxxxx Name: X.X. Xxxxxx
Title: U.S. Region President Title: President and CEO
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Schedule I
Record and Beneficial Owners of
Xxxx Telecom, Inc. Common Stock
Shares of Shares of
Shareholder Voting Common Stock Nonvoting Common Stock Total
----------- ------------------- ---------------------- -----
CellStar Telecom, Inc. 1,100 27,447 28,447
Xxxxx Xxxx 4,000 35,516 39,516
Xxxx Xxxx 30,000 30,000
Xxxxx Xxxx Wine 10,000 10,000
Xxxx Xxxx 10,000 10,000
X. X. Xxxxxx 1,000 19,000 20,000
Xxxx Xxxxxxxx 1,500 1,500
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Options Granted to Xxxxx Xxxx (the "Executive")
The Executive was granted the following options on July 20, 1998, in
connection with his Employment Agreement: Options at a purchase Price (the
"Option Exercise Price") equal to (x) 100,000,000, divided by (y) the number of
shares outstanding on the Commencement Date on a fully diluted basis (the
"Outstanding Share Amount") for a number of shares of common stock equal to the
quotient of (A) 100,000, divided by (B) the Option Exercise Price, (ii) options
(the "Financing Options") to purchase a number of shares of common stock equal
to the quotient of (I) 200,000, divided by (II) the Option Exercise Price, for
an exercise price equal to the Option Exercise Price; provided, that in the
event the Qualified Financing results in gross proceeds to the Company of $150
million or more, then the number of shares for which the Financing Options can
be exercised shall be equal to the quotient of (x) 250,000, divided by (y) the
Option Exercise Price, and (iii) options (the "IPO Options") to purchase a
number of shares of common stock equal to the quotient of (A) 150,000, divided
by (B) the Option Exercise Price, for an exercise price equal to the Option
Exercise Price. The Options shall vest as follows: (i) the Signing Options
shall vest three years from date of grant, (ii) the Financing Options shall vest
three years from the date of the consummation of Qualified Financing but in all
events ten years from the Commencement Date, and (iii) the IPO Options shall
vest three years from the date of the consummation of a Qualified Public
Offering, but in all events ten years from the Commencement Date. All Options
will expire on the earlier of (i) 10 years from the date of grant, (ii) 90 days
after termination of employment for any reason other than Cause (as hereinafter
defined), or (iii) immediately upon termination of employment for Cause.
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FORM OF ASSIGNMENT
[To be signed only upon transfer of Option]
For value received, the undersigned hereby sells, assigns and transfers
unto _____________________, the rights represented by the within Option to
purchase shares of [Voting Common Stock][Nonvoting Common Stock][A Convertible
Preferred Stock][B Convertible Preferred Stock], $.01 par value, of XXXX
TELECOM, INC., to which the within Option relates, and appoints
_______________________ attorney to transfer such right on the books of XXXX
TELECOM, INC. with full power of substitution in the premises.
Date:
-------------------- ------------------------------
(Signature)
------------------------------
(Address)
Signed in the presence of:
--------------------------
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FORM OF SUBSCRIPTION
The undersigned, the holder of the within Option, hereby irrevocably
elects to exercise the purchase right represented by such Option for, and to
purchase thereunder, ___________ shares of [Voting Common Stock][Nonvoting
Common Stock][A Convertible Preferred Stock][B Convertible Preferred Stock],
$.01 par value, of XXXX TELECOM, INC. and herewith tenders payment of
$________________________ in full payment of the purchase price for such shares
or [hereby notifies Xxxx Telecom, Inc. that it is crediting $________ against
[that certain Promissory Note dated September 1, 1998 executed by the Company in
favor of CellStar, Ltd.] or [the accounts receivable owed to CellStar, Ltd.
represented by Invoice No. _______] in full payment for the purchase price for
such shares], and requests that the certificates for such shares be issued in
the name of, and be delivered to ___________________________, whose address is
________________________________________________.
Date:
------------------------- ------------------------------
(Signature)
------------------------------
(Address)
Signed in the presence of:
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