1
EXHIBIT 10.21
NON-QUALIFIED STOCK OPTION AGREEMENT -- NON-PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of March 15,
1999 ("Grant Date"), is between Digital Entertainment Network, Inc., a Delaware
corporation (the "Company"), and Xxxxx Xxxxxx, an employee, director, officer or
consultant of the Company or any Affiliate (the "Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to promote the overall financial objectives of the Company and its
stockholders by motivating Participant to achieve long-term growth in
stockholder equity in the Company and by retaining the association of
Participant, who is instrumental in achieving this growth; and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Certain Definitions.
For purposes of this Agreement, the following terms are defined as set
forth below:
"Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company, including, without limitation, any member of any affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"Beneficiary" means the person, persons, trust or trusts which have
been designated by Participant in his most recent written beneficiary
designation filed with the Committee to receive the benefits under this
Agreement upon Participant's death or to which Options are to be transferred, to
the extent permitted hereunder. If, upon Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
"Board" means the Board of Directors of the Company.
"Cause" shall mean, for purposes of whether and when Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
Participant and
-1-
2
the Company or an Affiliate for "cause" as defined in such agreement or
arrangement, or in the event that there is no such agreement or arrangement or
the agreement or arrangement does not define "cause"or a substantially
equivalent term, then Cause shall mean (a) any act or failure to act deemed to
constitute cause under the Company's established practices, policies or
guidelines applicable to the Participant or (b) the Participant's act or failure
to act which constitute gross misconduct with respect to the Company or an
Affiliate in any material respect, including, without limitation, an act or
failure to act of a criminal nature, the result of which is detrimental to the
interests of the Company or an Affiliate, or conduct, or the omission of
conduct, which constitutes a material breach of a duty the Participant owes to
the Company or an Affiliate.
"Change in Control" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, an employee benefit plan
(or related trust) sponsored or maintained by the Company, or the stockholders
of the Company on the Grant Date), including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of stock representing more than thirty-five percent (35%) of
the combined voting power of the Company's then outstanding securities; (b)(i)
the stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board immediately prior to such 24-month
period, together with any persons who were first elected as directors (other
than as a result of any settlement of a proxy or consent solicitation contest or
any action taken to avoid such contest) during such 24-month period by or upon
the recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board at the time of such election, cease to constitute a majority of the
Board.
"Change in Control Price" means the higher of (a) the highest reported
sales price of a share of Common Stock in any transaction reported on the
principal exchange on which such shares are listed or on NASDAQ during the
60-day period prior to and including the date of a Change in Control (if then
traded) or (b) if the Change in Control is the result of a tender or exchange
offer, merger, consolidation, liquidation or sale of all or substantially all of
the assets or Common Stock of the Company (in each case a "Corporate
Transaction"), the highest price per share of Common stock paid in such
Corporate Transaction. To the extent that the consideration paid in any such
Corporate Transaction consists of all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash consideration
shall be determined in the sole discretion of the Committee.
"Code" means the Internal Revenue Code of 1986, as amended, Treasury
Regulations (including proposed regulations) thereunder and any subsequent
Internal Revenue Code.
-2-
3
"Committee" means the Compensation Committee of the Board. Any
references in this Agreement to the Committee shall refer to the Board, if no
Committee is appointed.
"Disability" means the inability of Participant to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Committee on the basis of such
medical evidence as the Committee deems warranted under the circumstances.
Notwithstanding the foregoing, a Disability shall not qualify under this
Agreement if it is the result of (i) a wilfully self-inflicted injury or
wilfully self-induced sickness; or (ii) an injury or disease contracted,
suffered, or incurred while participating in a criminal offense. The
determination of Disability for purposes of this Agreement shall not be
construed to be an admission of disability for any other purpose.
"Fair Market Value" means, as applied to a specified date, the fair
market value per share of Common Stock on such date as determined in good faith
by the Committee in the following manner: (i) if shares of Common Stock are then
listed on any national or regional stock exchange, including, without limitation
on the NASDAQ Stock Market, Fair Market Value shall be the mean between the high
and low sales price on the date in question, or if there are no reported sales
on such date, on the last preceding date on which sales were reported, (ii) if
shares of Common Stock are not so listed, then Fair Market Value shall be the
mean between the bid and ask prices quoted by a market maker or other recognized
specialist in the Common Stock at the close of the date in question, or (iii) in
the absence of either of the foregoing, Fair Market Value shall be determined by
the Committee in its absolute discretion after giving consideration to book
value, the earning history and the prospects of the Company in light of market
conditions generally. The Committee may rely upon an appraisal by a reputable
third party to determine Fair Market Value. The Fair Market Value determined
hereunder shall be final, binding and conclusive on all parties.
"Representative" means (a) the person or entity acting as the executor
or administrator of Participant's estate pursuant to the last will and testament
of Participant or pursuant to the laws of the jurisdiction in which Participant
had his primary residence at the date of his death; (b) the person or entity
acting as the guardian or temporary guardian of Participant; (c) the person or
entity which is the Beneficiary of Participant upon or following Participant's
death; or (d) any person to whom an Option has been permissibly transferred;
provided, that only one of the foregoing shall be the Representative at any
point in time as determined under applicable law and recognized by the
Committee.
"Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if Participant is covered by such a plan, or if the
Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
4
"Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in Participant's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliate.
2. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and not in lieu of salary or any other
compensation for services, the right and option (the "Option") to
purchase 75,843 shares of the common stock, par value $.01 per share
(the "Common Stock"), of the Company ("Option Shares") on the terms and
conditions herein set forth. Participant shall have all the rights and
obligations as provided for in this Agreement.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $10 per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $758,430.
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period"). The termination of the
Option Period shall result in the termination and cancellation of the
Option. In no event shall the Option be exercisable for any period
greater than the Option Period.
(d) Subject to Sections 2(e) and 2(f) below, unvested Option
Shares shall be forfeited at Termination of Employment for any reason.
The percentage of Option Shares which are vested and which will not be
forfeited at Termination of Employment shall be determined in
accordance with the following schedule:
Cumulative Number of
Date Option Shares Vested
---- --------------------
On Grant Date 7,584
July 2, 2000 30,337
July 2, 2001 53,090
June 30, 2002 75,843
======
Total Number of Option Shares 75,843
-4-
5
(e) Notwithstanding the foregoing Section 2(d), (i) all Option
Shares shall be 100% vested upon a Change in Control, and (ii) all
Option Shares that would have otherwise been vested at the end of the
employment term shall immediately become vested and exercisable in the
event that Participant's employment is terminated under his or her
respective employment agreement with the Company or an Affiliate, as
applicable, pursuant to a termination without cause provision or as a
result of a material uncured breach thereof by the Company or an
Affiliate, as applicable.
(f) Any portion of the Option which is not vested, pursuant to
Section 2(d) or 2(e), as of a Participant's Termination of Employment
shall be canceled simultaneously with the date of such Termination of
Employment.
(g) The Option granted hereunder is designated as a
non-qualified stock option.
(h) The Company shall not be required to issue any fractional
Option Shares.
3. Termination of Option.
(a) If Participant incurs a Termination of Employment due to
death, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for a
period of one hundred eighty (180) days following the date of the
appointment of a Representative or until the expiration of the Option
Period, whichever period is shorter.
(b) If Participant incurs a Termination of Employment due to a
Disability, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for the
period of one hundred eighty (180) days immediately following the date
of such Termination of Employment or until the expiration of the Option
Period, whichever period is shorter, and Participant's death at any
time following such Termination of Employment due to Disability shall
not affect the foregoing.
(c) If Participant's Termination of Employment is voluntary on
the part of the Participant (including due to Retirement) or is
involuntary on the part of Participant (but is not due to death or
Disability), any unexercised portion of the Option shall immediately
terminate, except that the Option, to the extent then exercisable, may
be exercised for a period of sixty (60) days immediately following the
date of such Termination of Employment or until the expiration of the
Option Period, whichever period is shorter.
4. Exercise. The Option shall be exercisable during the Participant's lifetime
only by the Participant (or his or her guardian or legal representative), and
after the Participant's death only by the Representative. The Option may only be
exercised by the delivery to the Company of a properly completed written notice,
in form satisfactory to the Committee, which notice shall specify the number of
Option Shares to be purchased and the aggregate Option Price for such shares,
together with payment in
6
full of such aggregate Option Price. Payment shall only be made:
(a) in cash or by check;
(b) with the prior written approval of the Committee, by the
delivery to the Company of a valid and enforceable stock certificate
(or certificates) representing shares of Common Stock held by the
Participant, which is endorsed in blank or accompanied by an executed
stock power (or powers) and guaranteed in a manner acceptable to the
Committee;
(c) with the prior approval of the Committee, by a loan
extended by the Company;
(d) with the prior approval of the Committee, by authorizing
the Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the Option having a total Fair Market Value
on the date of delivery equal to the Option Price;
(e) with the prior approval of the Committee, by the delivery
of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise; or
(f) with the prior approval of the Committee, in any
combination of (a), (b), (c), (d) or (e).
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance with
all the preceding provisions of this Paragraph 4, and, for all purposes of this
Agreement, the date of the exercise of the Option shall be the date upon which
there is compliance with all such requirements.
5. Payment of Withholding Taxes. If the Company is obligated to withhold an
amount on account of any tax imposed as a result of the exercise of the Option,
the Participant shall be required to pay such amount to the Company.
6. Requirements of Law; Registration and Transfer Requirements. The Company
shall not be required to sell or issue any shares under the Option if the
issuance of such shares shall constitute a violation of any provision of any law
or regulation of any governmental authority applicable to the Company. This
Option and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted.
7. Adjustments/Change in Control. In the event of a Change in Control, the
Participant shall have such rights, and the Committee shall take such actions,
as are
7
specified in this Agreement. Participant shall have the right, by giving notice
during the 60-day period from and after a Change in Control of the Company, to
elect to surrender all or part of the Option to the Company and to receive cash,
within 30 days of such notice, in an amount equal to the amount by which the
"Change in Control Price" per share of Common Stock on the date of such election
shall exceed the amount which Participant must pay to exercise the Option per
share of Common Stock under the Option (the "Spread) multiplied by the number of
shares of Common Stock granted under the Option as to which the right granted
hereby shall have been exercised.
8. Nontransferability. Subject to the last sentence of this Section 8, a
Participant may at any time make a transfer of shares of Common Stock received
pursuant to the exercise of an Option to his parents, spouse or descendants, to
any trust for the benefit of the foregoing or to a partnership the interests of
which are for the foregoing or to a custodian under a uniform gifts to minors
act or similar statute for the benefit of any of the Participant's descendants.
An Option and any interest in the Option may not otherwise be sold, assigned,
conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner
without the prior written consent of the Company, and any such attempted sale,
assignment, conveyance, gift, pledge, hypothecation or transfer other than as
permitted herein shall be null and void; provided, however, after consummation
of the Company's initial public offering of Common Stock that results in the
Common Stock being listed on a national securities exchange, including without
limitation the Nasdaq Stock Market, and subject to the last sentence of this
Section 8, shares of Common Stock for which the Option was exercised may be
transferred without the consent of Company, subject to applicable securities
laws, rules and regulations. Notwithstanding anything to the contrary in this
Agreement, Participant may not transfer any shares of Common Stock (or any
interest therein) received pursuant to the exercise of the Option until a period
of one year has elapsed from the date of exercise of the Option.
9. Interpretation. The interpretation and construction by the Committee of this
Agreement and the Option, and such rules and regulations as may be adopted by
the Committee for the purpose of administering this Agreement, shall be final
and binding upon the Participant.
10. Stockholder Rights. Until the Option shall have been duly exercised to
purchase such Option Shares and such shares have been officially recorded as
issued on the Company's official stockholder records, no person or entity shall
be entitled to vote, receive distributions or dividends or be deemed for any
purpose the holder of any Option Shares, and adjustments for dividends or
otherwise shall be made only if the record date therefor is subsequent to the
date such shares are recorded and after the date of exercise and without
duplication of any adjustment.
11. Employment Rights. No provision of this Agreement or of the Option granted
hereunder shall give the Participant any right to continue in the employ of the
Company or any of its Affiliates, create any inference as to the length of
employment of the
8
Participant, affect the right of the Company or its Affiliates to terminate the
employment of the Participant, with or without cause, or give the Participant
any right to participate in any employee welfare or benefit plan or other
program of the Company or any of its Affiliates.
12. Disclosure Rights. The Company shall have no duty or obligation to
affirmatively disclose to the Participant or a Representative, and the
Participant or Representative shall have no right to be advised of, any material
information regarding the Company or an Affiliate at any time prior to, upon or
in connection with the exercise of an Option.
13. Changes in Company's Capital Structure. The existence of the Option shall
not affect in any way the right or authority of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the Company's capital structure or its business, or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Common Stock or
the rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
14. Investment Representation and Agreement. If, in the opinion of counsel for
the Company, a particular representation is required under the Securities Act of
1933 or any other applicable federal or state law, or any regulation or rule of
any governmental agency, the Company may require such representations as the
Company reasonably may determine to be necessary.
15. Governing Law. This Agreement and the Option granted hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California (other than its laws respecting choice of law).
16. Entire Agreement. This Agreement constitutes the entire obligation of the
parties hereto with respect to the subject matter hereof and shall supersede any
prior expressions of intent or understanding with respect to this transaction.
17. Amendment. Any amendment to this Agreement shall be in writing and signed by
the Company and the Participant.
18. Waiver; Cumulative Rights. The failure or delay of either party to require
performance by the other party of any provision hereof shall not affect its
right to require performance of such provision unless and until such performance
has been waived in writing. Each and every right hereunder is cumulative and may
be exercised in part or in whole from time to time.
19. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be an original, but both of which shall constitute but one and the
same instrument.
20. Notices. Any notice which either party hereto may be required or permitted
to give the other shall be in writing and may be delivered personally or by
mail, postage prepaid, addressed to the Secretary of the Company, at its then
corporate
9
headquarters, and to the Participant at her address as shown on the Company's
records, or to such other address as the Participant, by notice to the Company,
may designate in writing from time to time.
21. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
22. Severability. If any provision of this Agreement shall for any reason by
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereof, and this Agreement shall be construed as
if such invalid or unenforceable provision were omitted.
23. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon each successor and assign of the Company. All obligations imposed
on the Participant or a Representative, and all rights granted to the Company
hereunder, shall be binding upon the Participant's or the Representative's
heirs, legal representatives and successors.
24. Tax Consequences. The Participant agrees to undertake to determine and be
responsible for any and all tax consequences to himself with respect to the
Option.
25. Anti-Dilution. If the outstanding shares of Common Stock are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company through reorganization, recapitalization,
reclassification, stock dividend (but only on the Common Stock), stock split,
reverse stock split or other similar transaction, or if any increase or decrease
occurs in the number of outstanding shares of Common Stock without the receipt
by the Company of consideration therefor, then an appropriate and proportional
adjustment shall be made, as appropriate, to: (i) the number and kind of shares
of Common Stock covered by the Option, and/or (ii) the exercise price per share
of Common Stock covered by the Option granted hereunder; provided, however, that
the Committee may limit such adjustment so as to maintain the deductibility
under Section 162(m) of the Code and that any fractional shares resulting from
such adjustment shall be eliminated by rounding to the next lower whole number
of shares with appropriate payment for such fractional shares as shall be
reasonably determined by the Committee. The granting of stock options, stock
purchase rights, phantom stock or similar awards or bonuses to employees,
officers, directors or consultants of the Company or any Affiliate, or of any
company performing services to the Company or any Affiliate, shall not be deemed
to have been effected "without the receipt of consideration" for the purposes of
this Section 25.
10
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set her hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ XXXX X. XXXXX
Name: Xxxx X. Xxxxx
Title:
PARTICIPANT:
/s/ XXXXX XXXXXX
Xxxxx Xxxxxx
