STOCK OPTION AGREEMENT
THIS
STOCK OPTION AGREEMENT (“Agreement”) is made
and entered into by and between ZST Digital Networks, Inc. (“Company”), a Delaware
corporation, and Xxxx Xxxx, M.D. (“Optionee”), effective
on October 20, 2009. (Company and Optionee are sometimes referred to
herein as “party” or
collectively as the “parties.”)
RECITALS
WHEREAS, the Company has entered into
an employment agreement dated as of October 8, 2009 for the purpose of retaining
the services of the Optionee in the service of the Company (or any Parent or
Subsidiary) (the “Employment
Agreement”);
WHEREAS, Optionee is to render valuable
services to the Company (or a Parent or Subsidiary), and this Agreement is
executed pursuant to, and is intended to carry out the purposes of, the
Employment Agreement in connection with the Company’s grant of an option to
Optionee. All capitalized terms in this Agreement shall have the
meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as
follows:
1. Grant of
Option. The Company hereby grants to Optionee, on October 20,
2009 (the “Grant
Date”), an option to purchase up to Twenty-Five Thousand (25,000) shares
of Common Stock (the “Option
Shares”). The Option Shares shall be purchasable from time to
time during the option term specified in Paragraph 2 at $8.00 per share (the
“Exercise
Price”).
2. Option
Term. This option shall have a term of five (5) years measured
from the Grant Date (the “Expiration Date”) and
shall accordingly expire at the close of business on the Expiration Date, unless
sooner terminated in accordance with Paragraph 5.
3. Limited
Transferability.
(a) This
option shall be neither transferable nor assignable by Optionee other than by
will or the laws of inheritance following Optionee’s death and may be exercised,
during Optionee’s lifetime, only by Optionee. However, Optionee may
designate one or more persons as the beneficiary or beneficiaries of this
option, and this option shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee’s death while holding this option. Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and
conditions of this Agreement, including (without limitation) the limited time
period during which this option may, pursuant to Paragraph 5, be exercised
following Optionee’s death.
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(b) As
a Non-Statutory Option, this option may be assigned in whole or in part during
Optionee’s lifetime to one or more members of Optionee’s family or to a trust
established for the exclusive benefit of one or more such family members or to
Optionee’s former spouse, to the extent such assignment is in connection with
the Optionee’s estate plan or pursuant to a domestic relations
order. The assigned portion shall be exercisable only by the person
or persons who acquire a proprietary interest in the option pursuant to such
assignment. The terms applicable to the assigned portion shall be the
same as those in effect for this option immediately prior to such
assignment.
4. Dates of
Exercise. This option shall become immediately exercisable on
the Grant Date, but to the extent exercised, will be subject to a repurchase
right of the Company specified in Paragraph 10, which will lapse as follows: 50%
of this option and Option Shares will vest six (6) months after the Grant Date
and the remaining 50% will vest twelve (12) months after the Grant Date (the
“Vesting
Schedule”).
5. Cessation
of Service. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become
applicable:
(a) Should
Optionee cease to remain in Service for any reason (other than Optionee’s
termination of his employment without Good Reason or the Company’s termination
of Optionee’s employment for Cause) while this option is outstanding, then
Optionee (or any person or persons to whom this option is transferred pursuant
to a permitted transfer under Paragraph 3) shall have a period of thirty
(30) days (commencing with the date of such cessation of Service) during which
to exercise this option, but in no event shall this option be exercisable at any
time after the Expiration Date.
(b) During
the limited period of post-Service exercisability, this option may not be
exercised in the aggregate for more than the number of Option Shares in which
Optionee is, at the time of Optionee’s cessation of Service, vested pursuant to
the Vesting Schedule or the special vesting acceleration provisions of Paragraph
6. Upon the expiration of such limited exercise period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding for any vested Option Shares for which the option has not been
exercised. To the extent Optionee is not vested in one or more Option
Shares at the time of Optionee’s cessation of Service, this option shall
immediately terminate and cease to be outstanding with respect to those
shares.
(c) Should
Optionee’s Service be terminated by Optionee without Good Reason or by the
Company for Cause, then this option shall terminate immediately and cease to
remain outstanding.
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6. Accelerated
Vesting. In the event that Optionee’s Service is terminated by
the Company for Cause or by Optionee for Good Reason, then the Option Shares at
the time subject to this option but not otherwise vested shall automatically
vest in full so that this option shall become exercisable for all of the Option
Shares as fully vested shares and may be exercised for any or all of those
Option Shares as vested shares pursuant to the terms of Section 5.
7. Adjustment
in Option Shares. Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company’s receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Stockholder
Rights. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the record holder
of the purchased shares.
9. Manner of
Exercising Option.
(a) In
order to exercise this option with respect to all or any part of the Option
Shares for which this option is at the time exercisable, Optionee (or any other
person or persons exercising the option) must take the following
actions:
(i) Execute
and deliver to the Company a Purchase Agreement for the Option Shares for which
the option is exercised.
(ii) Pay
the aggregate Exercise Price for the purchased shares in cash or check made
payable to the Company.
Should
the Common Stock be registered under Section 12 of the 1934 Act at the time the
option is exercised, then the Exercise Price may also be paid as
follows:
(A) in
shares of Common Stock held by Optionee (or any other person or persons
exercising the option) for the requisite period necessary to avoid a charge to
the Company’s earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date; or
(B) to
the extent the option is exercised for vested Option Shares, through a special
sale and remittance procedure pursuant to which Optionee (or any other person or
persons exercising the option) shall concurrently provide irrevocable
instructions (a) to a Company-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable income and
employment taxes required to be withheld by the Company by reason of such
exercise and (b) to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the
sale.
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Except to
the extent the sale and remittance procedure is utilized in connection with the
option exercise, payment of the Exercise Price must accompany the Purchase
Agreement delivered to the Company in connection with the option
exercise.
(iii) Furnish
to the Company appropriate documentation that the person or persons exercising
the option (if other than Optionee) have the right to exercise this
option.
(iv) Execute
and deliver to the Company such written representations as may be requested by
the Company in order for it to comply with the applicable requirements of
applicable securities laws.
(v) Make
appropriate arrangements with the Company (or Parent or Subsidiary employing or
retaining Optionee) for the satisfaction of all applicable income and employment
tax withholding requirements applicable to the option exercise.
(b) As
soon as practical after the Exercise Date, the Company shall issue to or on
behalf of Optionee (or any other person or persons exercising this option) a
certificate for the purchased Option Shares, with the applicable appropriate
legends affixed thereto.
(c) In
no event may this option be exercised for any fractional shares.
10. REPURCHASE
RIGHTS. ALL
OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO
CERTAIN RIGHTS OF THE COMPANY AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN
ACCORDANCE WITH THE TERMS SPECIFIED IN THE PURCHASE
AGREEMENT.
11. Compliance
with Laws and Regulations.
(a) The
exercise of this option and the issuance of the Option Shares upon such exercise
shall be subject to compliance by the Company and Optionee with all applicable
requirements of law relating thereto and with all applicable regulations of any
Stock Exchange on which the Common Stock may be listed for trading at the time
of such exercise and issuance.
(b) The
inability of the Company to obtain approval from any regulatory body having
authority deemed by the Company to be necessary to the lawful issuance and sale
of any Common Stock pursuant to this option shall relieve the Company of any
liability with respect to the non-issuance or sale of the Common Stock as to
which such approval shall not have been obtained. The Company,
however, shall use its best efforts to obtain all such
approvals.
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(c) The
Company intends that this option not be considered to provide for the deferral
of compensation under Section 409A of the Code and that this Agreement shall be
so administered and construed. Further, the Company may modify this
award to the extent necessary to fulfill this intent.
12. Successors
and Assigns. Except to the extent otherwise provided in
Paragraph 3, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the Company and its successors and assigns and Optionee,
Optionee’s assigns and the legal representatives, heirs and legatees of
Optionee’s estate.
13. Notices. Any
notice required to be given or delivered to the Company under the terms of this
Agreement shall be in writing and addressed to the Company at its principal
corporate offices. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the address indicated
below Optionee’s signature line on the this Agreement. All notices
shall be deemed effective upon personal delivery or upon deposit in the U.S.
mail, postage prepaid and properly addressed to the party to be
notified.
14. Construction. This
Agreement and the option evidenced hereby are made and granted pursuant to the
Employment Agreement and are in all respects limited by and subject to the terms
of the Employment Agreement. All decisions of the Board with respect
to any question or issue arising under the Employment Agreement or this
Agreement shall be conclusive and binding on all persons having an interest in
this option.
15. Governing
Law. The interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of Delaware without resort
to that State’s conflict-of-laws rules.
[SIGNATURES
ON FOLLOWING PAGE]
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WHEREFORE, the parties hereto have
executed this Agreement on the dates indicated below.
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By:
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/s/ Xxxxx Xx
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Name:
Xxxxx Xx
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Title:
Chief Executive Officer
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XXXX
XXXX, M.D.
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/s/ Xxxx
Xxxx
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Address
for Notice:
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APPENDIX
The following definitions shall be in
effect under the Agreement:
A. Agreement
shall mean this Stock Option Agreement.
B. Board
shall mean the Company’s Board of Directors or the Compensation Committee or
other similar committee of the Board acting in its capacity.
C. Cause shall mean (i) the
commission of an act or acts of dishonesty, fraud, embezzlement, or
misappropriation of funds or proprietary information by Optionee in connection
with his employment duties or responsibilities; or (ii) Optionee’s conviction
of, or plea of nolo contendere to, a felony or a crime involving moral turpitude
(other than minor traffic violations); or (iii) Optionee materially breaches his
obligations under the Employment Agreement, including failure to perform his job
duties satisfactorily or failure to follow the Company’s policies or any
directive of the Company, if such failure or refusal is not cured by Optionee
within ten (10) days after receiving written notice of such from the Company; or
(iv) Optionee’s willful or gross misconduct in connection with his employment
duties.
D. Code
shall mean the Internal Revenue Code of 1986, as amended.
E. Common
Stock shall mean the Company’s common stock, $0.0001 par value per
share.
F. Company
shall mean ZST Digital Networks, Inc., a Delaware corporation, and any successor
corporation to all or substantially all of the assets or voting stock of ZST
Digital Networks, Inc.
G. Employee
shall mean an individual who is in the employ of the Company (or any Parent or
Subsidiary), subject to the control and direction of the employer entity as to
both the work to be performed and the manner and method of
performance.
H. Employment
Agreement shall mean that certain employment agreement dated October 8,
2009 by and between the Company and Optionee.
I. Exercise
Date shall mean the date on which the option shall have been exercised in
accordance with Paragraph 9 of the Agreement.
J. Exercise
Price shall have the meaning set forth in Paragraph 1 of the
Agreement
K. Expiration
Date shall have the meaning set forth in Paragraph 2 of the Agreement,
unless sooner terminated in accordance with Paragraph 5.
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L. Fair
Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If
the Common Stock is at the time listed on any Stock Exchange, then the Fair
Market Value shall be the closing selling price per share of Common Stock on the
date in question on the Stock Exchange determined by the Board to be the primary
market for the Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange and published in The Wall Street
Journal. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If
the Common Stock is at the time not listed on any Stock Exchange, then the Fair
Market Value shall be determined by the Board after taking into account such
factors as the Board shall deem appropriate.
M. Good
Reason shall mean any of the following, without Optionee’s written
consent: (a) upon a material breach or default of any term of the Employment
Agreement by the Company, or (b) any material reduction in the Optionee’s
duties, position, authority or responsibilities with the Company relative to the
duties, position, authority or responsibilities in effect immediately prior to
such reduction; provided that the Company has not cured or remedied such Good
Reason within fifteen (15) days after written notice of the Good Reason from the
Optionee.
X. Xxxxx
Date shall.have the meaning set forth in Paragraph 1 of the
Agreement
O. 1934
Act shall mean the Securities Exchange Act of 1934, as
amended.
P. Non-Statutory
Option shall mean an option not intended to satisfy the requirements of
Code Section 422.
Q. Option
Shares shall have the meaning set forth in Paragraph 1 of the
Agreement.
R. Optionee shall mean Xxxx Xxxx,
M.D.
S. Parent
shall mean any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each corporation in the unbroken
chain (other than the Company) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
T. Purchase
Agreement shall mean the stock purchase agreement in substantially the
form of Exhibit A to this Agreement.
U. Service
shall mean the Optionee’s performance of services for the Company (or any Parent
or Subsidiary) in the capacity of an Employee, a non-employee member of the
board of directors or an independent consultant.
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V. Stock
Exchange shall mean the NYSE Amex, New York Stock Exchange, Nasdaq Global
Market, Nasdaq Capital Market or the OTC Bulletin Board.
W. Subsidiary
shall mean any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, provided each corporation (other than
the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. Vesting
Schedule shall have the meaning set forth in Paragraph 4 of the
Agreement.
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Exhibit
A
Form
of Stock Purchase Agreement
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