PHONETIME, INC.
OPTION AGREEMENT
Date of Grant: May 26, 1997
This Agreement (the "Agreement") dated as of the date of grant first
stated above (the "Date of Grant"), is entered into between PhoneTime, Inc., a
New York corporation ("PTI"), and Xxxx X. Xxxxxxxxx (the "Optionee"), who is
an employee of PTI.
WHEREAS, Optionee has entered into an Employment Agreement (the
"Employment Agreement") with PTI;
WHEREAS, in consideration for entering into such Employment Agreement,
PTI wishes to grant to Optionee options to acquire shares of Common Stock, no
par value, of PTI (PTI common stock is hereinafter referred to as "Common
Stock"), in accordance with the terms and provisions herein;
WHEREAS, the Company has 65.708 shares of Common Stock issued and
outstanding.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Grant of Option; Restrictions.
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a. Subject to the terms and conditions hereinafter set forth, PTI,
unconditionally and irrevocably, hereby grants to the Optionee, as of the Date
of Grant, an Option to purchase up to 2.738 shares of Common Stock (as such
number of shares may be adjusted herein) at an aggregate Option Price of $3.57
million (the "Option Price"). Such option is hereinafter referred to as the
"Option" and the shares of stock purchasable upon exercise of the Option (as
such number of shares may be adjusted herein) are hereinafter sometimes
referred to as the "Option Shares." The number of shares of Common Stock to be
issued to Optionee upon exercise of the Option is based upon PTI's
representations under Section 7 herein and, if exercised immediately, would
result in Optionee's owning four percent (4 percent) of the Capital Stock of
PTI(computed after taking into account the issuance of the Option Shares).
The number of shares of Common Stock to be issued to Optionee upon exercise
of the Option shall be adjusted upward in the event of any change in the
capitalization of or outstanding capital stock of PTI due to stock split,
stock dividend, recapitalization, stock issuance, issuance of any securities
convertible or exchangeable into capital stock, grant of any right to obtain
any of the foregoing, entering into of any binding agreement to undertake any
of the foregoing or similar event that occurs prior to or simultaneously upon
closing of an initial public offering ("IPO") of the Company in order to
prevent dilution to Optionee. The foregoing antidilution right shall not
apply in the case of: (i) shares of Common Stock issued in connection with
acquisitions by PTI of operating businesses from third parties to the extent
any such shares are issued for fair market value consideration; or (ii) shares
of Common Stock issued to the public in connection with an IPO (it being
understood that Optionee's antidilution right shall apply in connection with
the issuance of shares pursuant to any stock option plan or other agreement
if the plan is approved, shares reserved or agreement entered into on or
prior to the closing of an IPO even if the actual grants of options or
issuance of shares under such plan or pursuant to such agreement do not take
place until after closing of an IPO); or (iii) any issuance of Common Stock
after the IPO unless pursuant to a binding agreement, grant or stock option
plan executed, issued or otherwise put in place on or prior to the closing of
an IPO. In the event PTI takes any action set forth above on or prior to the
closing of an IPO but after Optionee has already fully exercised the Option,
Optionee shall be granted options to purchase additional Common Stock, without
additional consideration, such that the total number of Option Shares would
represent four percent (4 percent) of the outstanding Common Stock of
PTI(computed after taking into account the issuance of such Option Shares).
Notwithstanding any of the foregoing, Optionee's anti dilution rights shall
not apply to any additional issuances of shares of Common Stock by PTI to the
extent that the aggregate amount of such additional issuances does not exceed
two and one half percent (2 1/2 percent) of the number of shares of common
stock outstanding on the Date of Grant.
b. PTI agrees that the Option granted herein is fully vested,
irrevocable, unconditional, not subject to forfeiture for any reason and
unrelated to Optionee's continued employment with PTI.
c. In the event that PTI is merged or consolidated into any entity
or acquired by any entity, Optionee's rights hereunder shall be to obtain
options to acquire common stock of such successor entity on equivalent terms
to the terms set forth herein.
2. Exercise of Options, Term.
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a. The Option and all rights with respect thereto, to the extent
such rights shall not have been exercised, shall terminate and become null and
void after the expiration of ten (10) years after the date hereof (the "Option
Term"). The Option shall be exercisable immediately in whole or in part and
shall remain exercisable until the end of the Option Term.
b. In the event of the death of the Optionee, the Option may be
exercised by the Optionee's estate or by a person who acquires the right to
exercise such Option by bequest or inheritance or by reason of the death of
the Optionee, provided that such exercise occurs within the sooner of the
remaining Option Term of the Option and one year after the Optionee's death.
c. The Optionee may exercise the Option with respect to all or any
part of the number of Option Shares then exercisable hereunder by giving the
Secretary of PTI written notice of intent to exercise. The notice of exercise
shall specify the number of Option Shares as to which the Optionee is
exercising and the date of exercise thereof, which date shall be at least five
(5) days after the giving of such notice unless an earlier time shall have
been mutually agreed upon. In the case where the Optionee exercises less than
the full Option, the price payable shall be determined by multiplying the
Option Price by the aggregate number of Option Shares purchased, divided by
the total number of purchasable Option Shares.
d. Full payment (in U.S. dollars) by the Optionee of the Option Price
for the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written
consent of PTI, which may be granted or withheld in the PTI's sole
discretion, in whole or in part through the surrender of previously acquired
shares of Common Stock at the fair market value thereof on the exercise date.
Notwithstanding the foregoing, in the event that Optionee exercises the Option
in whole or in part prior to December 31, l997, PTI shall make a loan to
Optionee of up to the entire Option Price, secured by a pledge of the Option
Shares, on the date of such exercise, to enable Optionee to obtain the funds
to pay the Option Price. The loan shall be noninterest bearing for one and
one half years and thereafter bear interest at a rate equal to the applicable
federal rate as established pursuant to Section 7872 of the Internal Revenue
Code. The principal of the loan and all outstanding interest shall be due and
payable the earlier of: (i) two years after the date of the loan; (ii) one
year after PTI has closed an IPO; or (iii) at the time of any sale of
"control" (as defined in regulations promulgated under the Securities Exchange
Act of l934) of PTI.
e. On the exercise date specified in the Optionee's notice or as soon
thereafter as is practicable, PTI shall cause to be delivered to the Optionee,
a certificate or certificates for the Option Shares then being purchased (out
of theretofore authorized and unissued Stock or Treasury Stock, as PTI may
elect) upon payment for such Option Shares in accordance with the terms of
this Agreement.
3. Non-Assignability of Option.
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The Option is not assignable or transferable by the Optionee except by
will or by the laws of descent and distribution. During the life of the
Optionee, the Option is exercisable only by the Optionee or by the Optionee's
guardian or legal representative.
4. Stock for Investment.
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The Optionee shall upon each exercise of a part or all of the Option
represent and warrant that his purchase of Common Stock pursuant to such
Option is for investment only, for the Optionee's account only and not with a
view to any distribution thereof.
5. Rights as a Shareholder.
------------------------
The Optionee shall have no rights as a shareholder of PTI unless and
until Optionee has exercised the Option.
6. Notice.
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Any notice to PTI provided for in this instrument shall be addressed to
it in care of its Secretary at its executive offices at 00-00 Xxxxxxxxxx
Xxxxxxxxxx, Xxxxxxxx, Xxx Xxxx 00000, and any notice to the Optionee shall be
addressed to the Optionee at the current address shown on the payroll records
of PTI. Any notice shall be deemed to be duly given if and when properly
addressed and posted by registered or certified mail, postage prepaid.
7. Representations and Warranties of PTI.
-------------------------------------
As an inducement to Optionee to enter into this Agreement and the
Employment Agreement, PTI hereby represents and warrants to Optionee as
follows: (i) PTI is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York; (ii) The outstanding
capital stock of PTI consists of 65.745 shares of Common Stock. The Option
Shares to be issued to Optionee pursuant to an exercise of the Option, when so
issued, will be duly and validly authorized, issued and outstanding, fully
paid, non-assessable and free of preemptive rights; (iii) Except for the
65.745 shares of Common Stock outstanding, there is no outstanding right,
subscription, warrant, call unsatisfied preemptive right, option, or other
agreement of any kind to purchase or otherwise to receive from PTI any capital
stock or any other security of PTI, and there is no outstanding security of
any kind convertible into such capital stock; (iv) PTI has heretofore
delivered to Optionee true and complete copies of its Certificate of
Incorporation and By-Laws as in effect on the date hereof; (v) PTI has full
power and authority to execute and deliver this Agreement and to consummate
the transactions herein. The execution, delivery and performance of this
Agreement by PTI has been duly authorized and approved by PTI's Board of
Directors, and no other corporate authorizations or proceedings are necessary.
This Agreement has been duly executed by PTI and is the legal, valid and
binding agreement of PTI, enforceable in accordance with its terms; and (vi)
None of the representations or warranties of PTI contained herein, or
information otherwise furnished to Optionee is false or misleading in any
material respect or omits to state a fact herein or therein necessary to make
the statements herein misleading in any material respect.
8. Governing Law.
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The validity, construction, interpretation and effect of this instrument
shall exclusively be governed by and determined in accordance with the law of
the State of New York, except to the extent preempted by federal law, which
shall to the extent govern.
IN WITNESS WHEREOF, PTI has caused its duly authorized officers to
execute and attest this Agreement, and to apply the corporate seal hereto, and
the Optionee has placed his or her signature hereon, effective as of the date
hereof.
Attest: PHONETIME, INC.
/s/ Xxxxxxx Xxxxxx By: /s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx, CEO
/s/ X.X. Xxxxxxxxx /s/ Xxxx X. Xxxxxxxxx
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Xxxx X. Xxxxxxxxx
