PHONETIME, INC.
OPTION AGREEMENT
Date of Grant: May 9, 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 Xxxxxx Xxxxxxxx (the "Optionee"), who is an
employee of PTI.
WHEREAS, the Compensation Committee appointed by the Board of Directors
of PTI (the "Committee") on May 9, 1997, adopted, and the Shareholders
subsequently approved, the PhoneTime, Inc. Stock Option Plan (the "Plan");
WHEREAS, the Plan provides for the granting of stock options by PTI to
employees of PTI or any subsidiaries to purchase, or to exercise certain
rights with respect to, shares of Common Stock, no par value, of PTI (the
"Stock"), in accordance with the terms and provisions thereof;
WHEREAS, the Compensation Committee considers the Optionee to be a
person who is eligible for a grant of Stock Options under the Plan, and has
determined that it would be in the best interests of PTI to grant the options
documented herein;
WHEREAS, the Company's has 64 4/19 shares of Common Stock issued and
outstanding as of the Date of Grant; and
WHEREAS, capitalized terms used but not defined herein have the meanings
ascribed thereto in the Plan.
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 of the Plan or hereinafter
set forth, PTI, with the approval and at the direction of the Committee,
hereby grants to the Optionee, as of the Date of Grant, an Option to purchase
up to 1.498 shares of Stock at an Option Price of $0.01 per share (the "Option
Price") as adjusted in the event of any stock split or dividend. Such option
is hereinafter referred to as the "Option" and the shares of stock purchasable
upon exercise of the Option are hereinafter sometimes referred to as the
"Option Shares."
b. The Option (and the Option Shares) shall be subject to the
following restrictions:
1. Contemporaneously with the execution of this Agreement,
a subsidiary of the Company is acquiring certain equipment from Interactive
Telephone Company, the Company is entering into certain agreements with the
Optionee, and the Company is obtaining a license to use certain software from
Godot Soft, LLC (collectively, the "Related Transactions"). The Company shall
have the right to offset any obligation to issue Option Shares hereunder
against any obligation or liability of Interactive Telephone Company, Godot
Soft, LLC or the Optionee to the Company or any subsidiary pursuant to the
Related Transactions. In the event that Optionee has exercised the Option in
whole or in part prior to such offset, the Company shall have the right to
redeem the Option Shares having a value equal to the obligation or liability
to be offset, by repayment to Optionee of the exercise price therefor. In
determining the number of Option Shares to be redeemed or forfeited, the value
per share shall be the value determined by the Board (or a committee thereof)
in accordance with the Plan in its most recent action prior to the date of
such offset and no revaluation shall be required in connection with such
offset.
2. (a) In the event that the Licensed Products (as defined
in the Software License Agreement of even date herewith between Optionee and
PTI, as amended from time to time, the "Option Agreement") fail to meet the
Acceptance Standard prior to the end of the Acceptance Period (each as defined
in the Option Agreement), PTI shall have the right to withhold payments under
the Note and reduce the number of Option Shares, as follows (for purposes of
computing the following, the Option Shares shall have an assumed valuation of
$667,557 per share, as adjusted in the event of any stock split or stock
dividend):
(i) If the Licensed Products meet at least eighty
percent (80 percent ) but less than one hundred
percent (100 percent) of the
Acceptance Standard, PTI shall be entitled to
withhold an amount equal to $1,000,000 multiplied
by the percentage shortfall, in any combination
of note payments and Option Shares elected by
PTI. For example, if the Licensed Products meet
95 percent of the Acceptance Standard prior to
the end of the Acceptance Period, PTI shall be
entitled to withhold Note payments or reduce
Option Shares in an amount equal to $50,000.
(ii) If the Licensed Products fail to meet at least
eighty percent (80 percent) of the Acceptance
Standard prior to the end of the Acceptance
Period, PTI shall be entitled to withhold an
amount equal to $1,000,000 in any combination of
Note payments and Option Shares elected by PTI.
(b) In the event that the Option is exercised in
whole or in part at any time prior to the end of the Acceptance Period, 2/7 of
the Option Shares issued pursuant to such exercise (the "Escrowed Shares")
shall be delivered to an escrow agent mutually acceptable to PTI and the
Optionee and shall be held in escrow for the remainder of such Acceptance
Period and released in accordance with subsection (a) above
3. In the event that Optionee's employment is terminated for
Cause or as a result of a Voluntary Termination (each as defined in that
certain Employment Agreement of even date herewith between Optionee and PTI
and Optionee), in either case within one (1) year of the Date of Grant, PTI
shall have the right to repurchase the Option Shares (or terminate the Option
with respect to Option Shares if unexercised) at a purchase price or
termination payment equal to the fair market value per share as adjusted in
the event of any stock split or stock dividend (the value per share as
determined by the Board (or a committee thereof) in accordance with the Plan
in its most recent action prior to the date of termination and no revaluation
shall be required in connection with such purchase or termination.
2. Termination of Option.
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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 from the Date of Grant (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.
3. Exercise of Options.
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a. 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.
b. 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 the Committee, which may be granted or withheld in the Committee's
sole discretion, in whole or in part through the surrender of previously
acquired shares of Stock at the Fair Market Value thereof on the exercise
date.
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 full payment for such Option Shares in accordance with the terms
of the Plan and this Agreement. The obligation of PTI to deliver Stock shall,
however, be subject to the condition that if at any time the Committee shall
determine in its discretion that the listing, registration or qualification of
the Option or the Option Shares upon any securities exchange or under any
state or Federal law, or the consent or approval of any governmental or
regulatory body, or an agreement by the Optionee with respect to the
disposition of Option Shares, is necessary or desirable as a condition of, or
in connection with, the Option or the issuance or purchase of Stock
thereunder, the Option may not be exercised in whole or in part until such
listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee, and, if it would otherwise expire, the term of the Option shall be
extended until thirty (30) days after receipt by Optionee of the foregoing.
c. If the Optionee fails to pay for any of the Option Shares
specified in such notice or fails to accept delivery thereof, the Optionee's
right to purchase such Option Shares may be terminated by PTI. The date
specified in the Optionee's notice as the date of exercise shall be deemed the
date of exercise of the Option, provided that payment in full for the Option
Shares to be purchased upon such exercise shall have been received by such
date.
d. In the event that Optionee exercises the Option in whole or in
part prior to April 15, 1998, PTI shall make a one-year loan of up to
$350,000, secured by a pledge of the Option Shares, on or about such date, to
enable Optionee to pay any federal or state income taxes imposed as a result
of such exercise. The loan shall be for a one year term from such date and
shall bear interest at a rate equal to: (i) the applicable federal rate as
established pursuant to Section 7872 of the Internal Revenue Code, if PTI does
not have a class of publicly traded equity securities; or (ii) twelve percent
(12 percent) if PTI has a class of publicly traded equity securities at the
time of the loan.
4. Non-Assignability of Option.
---------------------------
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.
5. Employment Not Affected.
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Nothing in the Plan or this Agreement shall confer upon the Optionee the
right to continue in the employment of PTI or affect any right which PTI has
to terminate the employment of the Optionee.
6. Stock for Investment.
--------------------
The Optionee shall upon each exercise of a part or all of the Option
represent and warrant that his purchase of Stock pursuant to such Option is
for investment only, for the Optionee's account only and not with a view to
any distribution thereof.
7. Rights as a Shareholder.
-----------------------
The Optionee shall have no rights as a shareholder of PTI unless and
until certificates for shares of Stock are issued to him.
8. 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.
9. Incorporation of Plan by Reference.
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The Option is granted pursuant to the terms of the Plan, the terms of
which are incorporated herein by reference, and the Option shall in all
respects be interpreted in accordance with the Plan, which may be amended from
time to time in accordance with the terms thereof.
10. 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
of Grant.
Attest: PHONETIME, INC.
/s/ Xxxxxxx Xxxxxx By: /s/ Xxxxx Xxxxxx
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Xxxxxxx Xxxxxx President
/s/ Xxxxxxx Xxxxxx /s/ Xxxxxx Xxxxxxxx
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Xxxxxxx Xxxxxx Xxxxxx Xxxxxxxx
Xxxxxx Xxxxxxxx
