[LETTERHEAD OF XXXX X. XXXXXXXXX, ATTORNEY-AT-LAW,
XXXXXXX AND BERLIN, CHARTERED]
MEMORANDUM
VIA FACSIMILE
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TO: PhoneTime, Inc.
InterExchange, Inc.
FROM: Xxxx Xxxxxxxxx
DATE: June 29, 1997
RE: Escrow Agreement
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This letter agreement (the "Escrow Agreement") sets forth the terms
pursuant to which I will act as escrow agent ("Escrow Agent") on behalf of
PhoneTime, Inc. ("PTI") and InterExchange, Inc. ("IX").
As of the date hereof, PTI and IX are entering into an agreement (the
"Primary Agreement") pursuant to which IX will provide certain services to
PTI. In connection with such Primary Agreement, PTI is executing four
separate warrant agreements to each of Xxxxx Xxxxxx, Xxxxxxx Xxxxxxx, Xxxx
Xxxxx and Xxxxxxx Xxxxxx pursuant to which, subject to the terms as set forth
in the respective warrant agreements, each of such individuals will be granted
warrants to purchase stock in PTI. In addition, in connection with the
Primary Agreement, PTI has agreed to enter into an additional warrant
agreement in a form attached hereto (the "Employee Warrant Agreement")
pursuant to which, subject to the terms as set forth in such Employee Warrant
Agreement, PTI will grant the holder of such Employee Warrant Agreement,
warrants (the "Employee Warrants") to purchase stock in PTI.
As of the date hereof, IX has not yet decided which of its employees,
independent contractors, shareholders (or combination thereof) it wishes to
give the Employee Warrant. To permit IX to have time to make such decision,
PTI will allow IX to designate in the future the employee(s), independent
contractor(s), or shareholder(s) it wishes to receive such Employee Warrant.
Xxxxxx Agent agrees to hold in escrow the Employee Warrant until IX has
provided to me and to PTI written instructions as to which employee(s),
independent contractor(s),
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shareholder(s) or combination thereof are to receive the Employee Warrant. At
such time, Xxxxxx Agent will revise the Employee Warrant to designate the
holders set forth in IX's instruction letter and deliver the Employee Warrant
to such holder(s). For purposes of the foregoing, all parties understand and
agree that the Warrants given in the Employee Warrant may be divided up among
more than one individual but that the total Employee Warrants granted will not
exceed those set forth in the attached Employee Warrant Agreement. Further,
at IX's request, the Employee Warrants given to such individuals may contain a
provision that would require any such holder to forfeit any unvested portion
of the Employee Warrant if such holder ceases to be employed by or provide
services to (in the case of an independent contractor) IX. In the case of any
such forfeiture, the portion of the Employee Warrant forfeited would, at IX's
request, be transferred either to IX or a shareholder, employee or independent
contractor of IX designated by IX.
The obligation of Escrow Agent to comply with the foregoing provisions
is subject to the following conditions which are hereby agreed to by PTI and
IX:
1. The Escrow Agent shall not be required to take any action in
violation of any law, Federal securities, state securities or otherwise;
2. The Escrow Agent shall not be required to deliver any Warrant if, at
such time, the Warrant has expired or been forfeited due to provisions in such
Warrant that relate to the Primary Agreement;
3. PTI and IX agree, jointly and severally, to indemnify and hold
harmless Escrow Agent for any loss or liability whatsoever that the Escrow
Agent may incur in performance of his duties hereunder and further, PTI and IX
each agree that neither party may bring an action against the escrow agent
relating to this agreement except in the case of fraud or willful misconduct;
4. In the event of any disagreement between PTI and IX hereunder
regarding the disposition of the Employee Warrants, the Escrow Agent shall not
be required to take any action hereunder and, in addition, shall have the
option to deliver the Employee Warrants into court pending resolution of any
such disagreement.
5. The term of this Escrow Agreement shall be for two years. At the end
of such term, if any portion of the Employee Warrant is still being held by
Escrow Agent, IX and PTI shall be required to mutually agree upon a successor
to Xxxxxx Agent who shall assume all of Escrow Agent's responsibilities
hereunder. In addition, upon the death or disability of Escrow Agent, IX and
PTI shall mutually agree upon a successor to Xxxxxx Agent who shall assume all
of Escrow Agent's responsibilities hereunder.
If you agree with the terms set forth above, please execute below
whereupon the terms set forth herein shall become the binding agreement of the
parties.
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INTEREXCHANGE, INC.
By: /s/ Xxxx Xxxxx
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PHONETIME, INC.
By: /s/ Xxxxx Xxxxxx
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/s/ Xxxx Xxxxxxxxx
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Xxxx Xxxxxxxxx
THESE WARRANTS AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THESE
WARRANTS (THE "WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE SECURITIES LAWS.
THE WARRANT SHARES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION, PROVIDED THAT
THE SELLER DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION.
June 29, 1997
PHONETIME, INC.
WARRANTS FOR THE PURCHASE OF SHARES OF COMMON STOCK
FOR VALUE RECEIVED, PhoneTime, Inc., a New York corporation (the
"Company"), hereby certifies that (the "Holder"), is
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entitled, subject to the provisions contained herein, to purchase from the
Company fully paid and non-assessable shares of Common Stock (as defined
below) subject to adjustment as provided herein. The number of Warrant Shares
and the Exercise Price thereof shall be determined as follows:
(a) From and after the earlier of: (X) March 31, 1998 or (Y)
sixty (60) days after the closing of an initial public offering ("IPO")
by the Company (the "First Vesting Date"), the Holder shall be entitled
to (i) that number of Warrant Shares having a fair market value as of the
First Vesting Date equal to $33,333, at an aggregate Exercise Price
equal to $.01, and (ii) that number of Warrant Shares having a fair
market value as of the First Vesting Date equal to $66,667, at an
aggregate Exercise Price equal to $33,000, but if and only if that
certain Agreement dated June 29, 1997 between the Company and
InterExchange, Inc. ("IX") (as it may be amended from time to time, the
"Primary Agreement") has not been terminated on or before such date
(except if the Primary Agreement was terminated by IX by virtue of a
default by the Company) and no material default by IX has occurred and is
uncured as of such date. On or after the First Vesting Date, the
Warrants granted under Subsections (i) and (ii) above may be exercised
independent of each other.
(b) From and after January 1, 1999 (the "Second Vesting Date"),
the Holder shall be entitled to: (i) that number of Warrant Shares
having a fair market value as of the Second Vesting Date equal to
$33,333, at an aggregate Exercise Price equal to $.01, and (ii) that
number of Warrant Shares having a fair market value as of the Second
Vesting Date equal to $66,667, at an aggregate Exercise Price equal to
$33,000, but if and only if the Primary Agreement has not been
terminated on or before such date (except if the Primary Agreement was
terminated by IX by virtue of a default by the Company) and no material
default by IX has occurred and is uncured as of such date. On or after
the Second Vesting Date, the Warrants granted under Subsections (i) and
(ii) above may be exercised independent of each other.
(c) From and after December 1, 1999 (the "Third Vesting Date"),
the Holder shall be entitled to: (i) that number of Warrant Shares
having a fair market value as of the Third Vesting Date equal to
$33,333, at an aggregate Exercise Price equal to $.01, and (ii) that
number of Warrant Shares having a fair market value as of the Third
Vesting Date equal to $66,667, at an aggregate Exercise Price equal to
$33,000, but if and only if the Primary Agreement has not been
terminated (other than as a result of its expiration or except if the
Primary Agreement was terminated by IX by virtue of a default by the
Company) on or before such date and no material default by IX has
occurred and is uncured as of such date. On or after the Third Vesting
Date, the Warrants granted under Subsections (i) and (ii) above may be
exercised independent of each other.
(d) For purposes of the foregoing, "fair market value" per share
as of a particular date shall mean (i) the average closing sales price
per share of Common Stock on the principal national securities exchange,
if any, on which the Common Stock shall then be listed for the preceding
twenty days on which there was a sale of such Common Stock on such
exchange, or (ii) if the Common Stock is not then listed on a national
securities exchange, the average closing sales price per share of Common
Stock entered on a national inter-dealer quotation system for the
preceding twenty days on which there was a sale of such Common Stock on
such national inter-dealer quotation system, or (iii) if no closing or
last sales price per share of Common Stock is entered on a national
inter-dealer quotation system, the average of the closing bid and asked
prices for the Common Stock in the over-the-counter market for the
preceding twenty days on which there was a quotation for such Common
Stock in such market or (iv) if no price can be determined under the
preceding alternatives, then the price per share as determined by the
Company's Board of Directors in good faith.
(e) Notwithstanding Sections (a), (b), (c) and (d) above, in the
event that a "change in control" (as defined below) of PTI occurs, then
all of the Warrants set forth in Subsections (a), (b) and (c) above shall
vest and be immediately exercisable and, all determinations of fair
market value, as required above, except as to Warrants that have already
vested, shall be as of the date the "change in control" occurs. A
"change in control" shall mean the occurrence of any merger, sale of
substantially all of the assets, sale of stock or consolidation such
that a "person" or "group" (within the meanings of Section 13(d) and 14
(d)(2) of the Securities Exchange Act of 1934), other than Xxxxx Xxxxxx,
becomes the "beneficial owner" of voting stock representing more than 50%
of the voting stock of the Company.
The term "Common Stock" means the Common Stock, no par value per share,
of the Company as constituted on the date hereof. The shares of Common Stock
deliverable upon such exercise, are hereinafter referred to as "Warrant
Shares" or "Warrant Stock." For purposes of the foregoing, references to the
"Company" shall mean PhoneTime, Inc. and any successor thereto including any
successor corporation resulting from the merger or consolidation of PhoneTime,
Inc.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of these Warrants, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of these Warrants, if mutilated, the Company
shall execute and deliver new Warrants of like tenor and date.
The Holder agrees with the Company that these Warrants are issued, and
all the rights hereunder shall be held subject, to all of the conditions,
limitations and provisions set forth herein, including the following:
1. Exercise of Warrants. Each Warrant granted above may be exercised in
whole or in part, at any time, after satisfaction of the conditions set
forth above but prior to the fifth anniversary of the Vesting Date of
the respective Warrant by presentation and surrender of such Warrant to
the Company at its principal office (which on the date hereof is 30-60
Whitestone Expressway, Flushing, New York 11354), with the Warrant
Exercise Form attached hereto duly executed and accompanied by payment
(either in cash or by certified or official bank check or checks,
payable to the order of the Company) of the Exercise Price for the
number of shares specified in such form. If these Warrants are
exercised in part only, the Company shall, upon surrender of these
Warrants for cancellation, execute and deliver new Warrants evidencing
the rights of the Holder thereof to purchase the balance of Warrant
Stock purchasable hereunder. Upon receipt by the Company of these
Warrants, together with the Exercise Price, at its office, or by the
Company's stock transfer agent at its office, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the
Warrant Stock issuable upon such exercise, notwithstanding that the
transfer books of the Company shall then be closed or that certificates
representing such Warrant Stock shall not then be actually delivered to
the Holder.
2. Reservation of Shares and Adjustments. The Company will at all times
reserve for issuance and delivery upon exercise of these Warrants all
shares of Warrant Stock of the Company from time to time receivable upon
exercise of these Warrants. All such shares shall be duly authorized
and, when issued upon such exercise, shall be validly issued, fully paid
and non-assessable and free and clear of all preemptive rights. For
each Warrant granted hereunder, the number of shares of Common Stock
issuable upon the exercise of such Warrant shall be adjusted in the
event of any stock split or stock dividend that occurs after the Vesting
Date of such Warrant so that the Holder would be entitled to receive the
same number of shares of Common Stock as if the Warrant had been
exercised immediately before the stock split or stock dividend.
3. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of these Warrants,
but the Company shall pay the Holder an amount in cash equal to the fair
market value of such fractional share in lieu of each fraction of a
share otherwise issuable upon any exercise of these Warrants, as
determined by the Board of Directors of the Company in its reasonable
discretion.
4. Restrictions on Transfer of Warrants, Warrant Stock. In connection
with an IPO, Xxxxxx agrees to execute a "lockup" agreement if requested
by the managing underwriter provided the "lockup" period does not exceed
6 months. The Warrant Stock may not be sold, transferred or otherwise
disposed of unless registered under the Securities Act of 1933 (the
"Securities Act") and any applicable state securities laws or pursuant
to available exemptions from such registration, provided that the seller
delivers to the Company an opinion of counsel reasonably satisfactory to
the Company confirming the availability of such exemption. Unless the
shares of Warrant Stock have been registered under the Securities Act,
upon exercise of any of these Warrants and the issuance of any of the
shares of Warrant Stock, all certificates representing such securities
shall bear on the fact thereof substantially the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR UNDER
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION,
PROVIDED THAT THE SELLER DELIVERS TO THE COMPANY AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY CONFIRMING THE AVAILABILITY OF
SUCH EXEMPTION.
5. Notices. All notices required hereunder shall be in writing and shall
be deemed given when telegraphed, delivered personally or within two
days after mailing when mailed by certified or registered mail, return
receipt requested, to the Company at its principal office, or to the
Holder at the address set forth on the record books of the Company, or
at such other address of which the Company or the Holder has been
advised by notice in writing hereunder.
6. Applicable Law. These Warrants shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving
effect to conflicts of law principles.
IN WITNESS WHEREOF, the Company has caused these Warrants to be signed
on its behalf, in its corporate name, by its duly authorized officer, all as
of the day and year first above written.
PHONETIME, INC.
By:
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Name:
Title:
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise Warrants to
purchase ________ shares of Common Stock of PhoneTime, Inc., a New York
corporation, and hereby makes payment of $_______________ in full satisfaction
therefor.
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Signature
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Signature, if jointly held
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Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
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(if other than to the Holder of the within Warrants)
Name
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(Please typewrite or print in block letters)
Address
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Social Security or Taxpayer Identification Number
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