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EXHIBIT 10.17
Digital Entertainment Network, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
As of October 27, 1998
▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇. #▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Gentlemen:
Reference is made to: (i) the DEN Executive Employment Agreement, dated
as of July 2, 1998 (the "▇▇▇▇▇▇ Employment Agreement"), between Digital
Entertainment Network, Inc. ("DEN") and ▇▇▇▇▇ ▇▇▇▇▇▇, (ii) Subscription and
Stockholder's Agreement, dated as of August 27, 1998, between DEN and ▇▇▇▇▇
▇▇▇▇▇▇ (the "Stockholder's Agreement"), (iii) that certain letter agreement,
dated as of August 5, 1998 (the "Winter Letter Agreement"), among DEN, ▇▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇ and (iv) the DEN Executive Employment Agreement,
dated as of August 31, 1998 (the "▇▇▇▇▇ Employment Agreement", and together with
the ▇▇▇▇▇▇ Employment Agreement, the Stockholder's Agreement and the Winter
Letter Agreement, the "Executive Employment Agreements"), between DEN and ▇▇▇▇
▇▇▇▇▇.
This letter is to confirm our mutual understanding of the
treatment of certain events that were not anticipated at the time the
above-referenced agreements were entered into and as to which such agreements
may be ambiguous. Information set forth in this letter agreement with respect to
share prices and share amounts has been reflected on a pre-split basis.
1. Conversion of Certain Notes.
(a) The parties hereto acknowledge that (i) ▇▇▇▇
▇▇▇▇▇▇▇-▇▇▇▇▇▇, as Trustee of the ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Revocable Trust U/A/D 7/28/97
(together with ▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇ individually, "▇▇▇▇▇▇▇-▇▇▇▇▇▇"), currently
holds the following two convertible notes made by DEN: (a) 8% Convertible Note
due December 31, 1999 in the principal amount of $3,444,818.92, which is
initially convertible into shares of DEN's common stock ("Common Stock") at a
price of $2.25 per share (the "$2.25 ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Note"), and (b) 8%
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Convertible Note due December 31, 1999, in the principal amount advanced from
time to time, not to exceed $2,131,475.22, which is initially convertible into
Common Stock at a price of $20 per share (the "$20.00 ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Note", and
together with the $2.25 ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Note, the "▇▇▇▇▇▇▇-▇▇▇▇▇▇ Notes"), and
(ii) ▇▇▇▇ ▇▇▇▇▇▇▇▇, as Trustee of the ▇▇▇▇▇▇▇▇ Revocable Trust U/A/D 7/28/97
(together with ▇▇▇▇ ▇▇▇▇▇▇▇▇ individually, "▇▇▇▇▇▇▇▇"), currently holds the
following two convertible notes made by DEN: (a) 8% Convertible Note due
December 31, 1999 in the principal amount of $484,945.38, which is initially
convertible into shares of Common Stock at a price of $2.25 per share (the
"$2.25 ▇▇▇▇▇▇▇▇ Note"), and (b) 8% Convertible Note due December 31, 1999 in the
principal amount advanced from time to time, not to exceed $65,527.51, which is
initially convertible into Common Stock at a price of $20 per share, but
pursuant to which DEN will not be making any borrowings (the $20 ▇▇▇▇▇▇▇▇ Note",
and together with the $2.25 ▇▇▇▇▇▇▇▇ Note, the "▇▇▇▇▇▇▇▇ Notes"). The
▇▇▇▇▇▇▇-▇▇▇▇▇▇ Notes and the ▇▇▇▇▇▇▇▇ Notes are hereinafter collectively
referred to as the "Notes."
(b) The parties hereto agree that the decrease in
proportionate ownership resulting from the conversion of any or all of the Notes
will be protected solely by the issuance to Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇ of
the warrants described below (the "Warrants") to purchase Common Stock. Each of
Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇ (collectively, the "Executives") shall be
granted two Warrants with respect to the ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Notes and one Warrant
with respect to the ▇▇▇▇▇▇▇▇ Notes, all as more particularly set forth below.
The Warrants to be issued to each of Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇ with
respect to the $2.25 ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Note shall be initially exercisable at $2.25
per share, shall be exercisable upon the first to occur of (i) conversion of
such Note and (ii) seven years from the date hereof, and shall initially be
exercisable for 67,270, 42,044 and 12,613 shares, respectively. The Warrants to
be issued to each of Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇ with respect to the $2.25
▇▇▇▇▇▇▇▇ Note shall be initially exercisable at $2.25 per share, shall be
exercisable upon the first to occur of (i) conversion of such Note and (ii)
seven years from the date hereof, and shall initially be exercisable for 9,470,
5,919 and 1,776 shares, respectively. The Warrants to be issued to each of
Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇ with respect to the $20 ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Note
shall be initially exercisable at $20 per share, shall be exercisable upon the
first to occur of (i) conversion of such Note and (ii) seven years from the date
hereof, and shall initially be exercisable for 4,612, 2,883 and 865 shares,
respectively. No warrants shall be issued to any of Messrs. ▇▇▇▇▇▇, Winter and
▇▇▇▇▇ with respect to the $20 ▇▇▇▇▇▇▇▇ Note. The form of Warrants is attached
hereto as Exhibit A.
(c) DEN and each of Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇ agree
that, upon the issuance of the Warrants to such executives, the anti-dilution
protection granted to such executives pursuant to the Executive Employment
Agreements shall be satisfied in full and such executives shall have no rights
thereunder with respect to the issuance or conversion of the Notes.
(d) The issuance of the Warrants are subject to the
requirement that, in connection with DEN's IPO (as hereinafter defined), each of
Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇, as applicable, shall enter into such lock-up
agreement as may be required by DEN's underwriters; provided, that such lock-up
agreement shall (i) only contain terms and conditions
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as may be required by such underwriters and (ii) be substantially similar in
length of duration and all other material respects as the lock-up agreements
that other senior executives and affiliates of DEN enter into in connection with
the IPO (each, a "Lock-Up Agreement").
2. Certain Other Anti-dilution Protection.
(a) Notwithstanding anything to the contrary in the Executive
Employment Agreements, the parties hereto agree that subject to Section 2(b),
any decrease in proportionate percentage ownership in DEN's Common Stock held by
Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇ resulting from the issuance by DEN of shares of
Common Stock, or securities exchangeable or exercisable for, or convertible
into, Common Stock (collectively with the Common Stock, "Common Stock
Equivalents") to employees, directors or consultants shall be addressed solely
as follows: as of the end of each fiscal quarter of DEN commencing as of
December 31, 1998, Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇ shall be granted options
("Catch-Up Options") exercisable for 4.0%, 2.5% and 0.75%, respectively, of the
aggregate number of shares of Common Stock underlying the Common Stock
Equivalents issued in such fiscal quarter. The Catch-Up Options shall (i) vest
10% on execution of a stock option agreement in substantially the form attached
hereto as Exhibit B, with the balance vesting, subject to continued employment
with DEN, in four equal installments on each of the first four anniversaries of
the grant; provided, however, that if such Executive's employment is terminated
for any reason other than voluntary termination by the applicable Executive
(other than as a result of a material and uncured breach (after giving effect to
applicable notice and cure periods) by DEN of the applicable Executive
Employment Agreement), expiration of the applicable employment agreement, death,
"disability" or "cause" (as such terms are defined in the applicable Executive
Employment Agreement), such Executive's Catch-Up Options shall automatically
become fully vested and shall remain exercisable for the periods specified in
the applicable stock option agreement, (ii) have per share exercise prices equal
to the fair market value of one share of DEN's Common Stock (as determined in
good faith by DEN's Board of Directors) on the date of grant of such Catch-Up
Options, (iii) be non-qualified stock options and (iv) shall be issued pursuant
and subject to the terms and conditions of DEN's Amended and Restated 1998
Incentive Compensation Plan (or any successor incentive compensation plan),
including without limitation the requirements that a stock option agreement in
substantially the form attached hereto as Exhibit B and the Lock-Up Agreement be
entered into. The parties hereto agree that Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇'▇
and DEN's respective rights and obligations with respect to the issuance of
Catch-Up Options shall terminate upon the consummation by DEN of a sale of its
Common Stock in an underwritten public offering registered under the Securities
Act of 1933, as amended, resulting in the listing of DEN's Common Stock on a
nationally recognized stock exchange, including, without limitation, the NASDAQ
Stock Market (an "IPO").
(b) Notwithstanding anything to the contrary set forth in this
Agreement or the Executive Employment Agreements, the parties hereto agree that,
in the event that DEN issues Common Stock Equivalents, none of Messrs. ▇▇▇▇▇▇,
Winter and ▇▇▇▇▇ shall have any anti-dilution protection and/or percentage
protection with respect to such issuances so long as (i) such issuances are in
lieu of cash compensation to the recipient thereof for services rendered to DEN
or any affiliated company; provided, that such arrangements are either
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pursuant to written agreements or the terms of which are otherwise generally
known to Messrs. ▇▇▇▇▇▇, Winter and ▇▇▇▇▇, (ii) the amount of such cash
compensation is reasonable in comparison to cash compensation paid or payable to
similarly situated employees, officers or consultants, as the case may be, and
(iii) the current fair value of such Common Stock Equivalents on the date of
grant does not exceed the intended gross amount of such cash compensation.
(c) Notwithstanding anything to the contrary in this Agreement
or in any of the Executive Employment Agreements, and for the sake of clarity,
the parties hereto acknowledge and agree that no "Catch-Up Options" or other
types of equity grants shall be issuable to any of the Executives as a result of
the issuance of similar Catch-Up Options or other "Catch-Up" equity securities
(including, without limitation, the Warrants) to any of the other Executives.
Also for the sake of clarity, the parties hereto acknowledge and agree that the
anti-dilution/percentage protection set forth in this Section 2 amends and
restates in its entirety the anti-dilution/percentage protection set forth in
the Executive Employment Agreements.
Please indicate your agreement with the foregoing by signing below
where indicated.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇
____________________________________
Name: ▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇
Title: Chairman of the Board
AGREED AND ACCEPTED:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
______________________________
▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
______________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇
______________________________
▇▇▇▇ ▇▇▇▇▇
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EXHIBIT A
FORM OF WARRANT
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE
ACT OR THE RULES AND REGULATIONS THEREUNDER.
Original Issue: [date]
DIGITAL ENTERTAINMENT NETWORK, INC.
WARRANT TO PURCHASE COMMON STOCK
($0.01 Par Value)
This is to certify that, for value received, [ ] or its registered
assigns (the "Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from DIGITAL ENTERTAINMENT NETWORK, INC., a Delaware corporation
(the "Company"), at the exercise price equal to $[ ] per share, at any time
after the Exercise Date (as hereinafter defined) through ten years from the date
hereof (the "Expiration Date"), up to [ ] ([ ]) shares of the common stock of
the Company, $0.01 par value per share (the "Common Stock"), and the Holder
shall be governed and bound by all of the covenants, terms and conditions
contained herein. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for a share of Common Stock
may be adjusted from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise and as adjusted from time to time are
hereinafter sometimes referred to as "Warrant Shares," and the exercise price
for a share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price". The Exercise
Date is the first to occur of (i) the date that certain 8% Convertible Note due
December 31, 1999 made by the Company in favor of [ ] in the principal amount of
$[ ] (the "Note") is converted into shares of Common Stock of the Company and
(ii) seven years from the date hereof.
1. Exercise of Warrant.
This Warrant may be exercised in whole or in part at any time or from
time to time after the Exercise Date until the Expiration Date, by presentation
and surrender hereof to the Company at its office at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, with the purchase form annexed hereto duly executed
and accompanied by payment of the Exercise Price for the number of shares of
Common Stock specified in such form. Payment of the Exercise Price may be made
by Holder,
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among other things, authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Warrant having a total
fair market value (as determined in good faith by the Board of Directors of the
Company) on the date of exercise equal to the Exercise Price or by a promissory
note in form and substance satisfactory to the Board of Directors of Company
(including appropriate security). If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt
by the Company of this Warrant at its office in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder. The
covenants and agreements of the Company under this Warrant shall, as applicable,
survive the exercise hereof.
2. Reservation of Shares, Fractional Shares.
(a) The Company hereby agrees that at all times it shall reserve for
issue and delivery upon exercise of this Warrant such number of shares of its
Common Stock as shall be required for issue and delivery upon exercise of this
Warrant. To the extent that such reserved shares are not sufficient for purposes
of this Warrant, the Company agrees to use its best efforts to ensure that such
reserved shares be available.
(b) No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. With respect to any fraction
of a share called for upon exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the then current market
value of a share of Common Stock, determined as follows:
(i) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
the current value shall be the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of
exercise of this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges the current value shall be the mean of the last
reported bid and ask prices reported by the NASDAQ SmallCap Market or
the National Quotation Bureau, Inc., on the last business day prior to
the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not so reported,
the current value shall be an amount, not less than book value,
determined in such reasonable manner as may be prescribed by the Board
of Directors of the Company.
3. Exchange, Assignment, or Loss of Warrant. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder, upon
presentation and surrender hereof to the Company for other Warrants of different
denominations entitling the Holder hereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder.
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Any such exchange shall be made by surrender of this Warrant to the Company or
at the office of its agent, if any, with the assignment form annexed duly
executed. Subject to compliance with the provisions of applicable law, the
Company, without charge to the Holder, shall execute and deliver a new Warrant
in the name of any assignee named in such instrument or assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
4. Rights of the Holder. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company. No
provision of this Warrant, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
warrant purchase price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company. The rights
of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
5. Adjustments. If, pursuant to Section 4 of the Note, the
"Conversion Price" (as defined in the Note) is adjusted, then corresponding and
equitable adjustments shall be made to both the Exercise Price of the Warrant
and the number of Warrant Shares issuable upon exercise of the Warrant.
6. Restriction on Transferability.
(a) This Warrant and the Warrant Shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), or the securities laws
of any state. By acceptance hereof, the Holder covenants, agrees and represents
that:
(i) This Warrant has been acquired for, and such Warrant Shares,
if acquired upon the exercise of this Warrant, shall be acquired for,
investment and may not be sold, offered for sale, pledged, hypothecated
or otherwise transferred, in the absence of an effective registration
statement for such securities under the Act or an opinion of counsel
for the Company to the effect that registration is not required under
the Act, and the Holder has the capacity to protect its interests in
connection with the purchase of this Warrant.
(ii) The Holder has had the opportunity to ask questions and
receive answers from the Company about the Company's business and the
purchase by Holder of these securities, and Holder has been given the
opportunity to make any inquiries that Holder
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may desire of any personnel of the Company concerning the proposed
operation of the Company and has been furnished with all of the
information he has requested. No advertisement has been used in
connection with the offer or sale of this Warrant to the Holder.
(iii) The Holder will not offer, sell, transfer, mortgage, assign
or otherwise dispose of this Warrant or the Warrant Shares except
pursuant to a registration statement under the Act and qualification
under applicable state securities laws or pursuant to an opinion of
counsel satisfactory to the Company that such registration and
qualification are not required, and that the transaction (if it
involves a sale in the over-the-counter market or on a securities
exchange) does not violate any provision of the Act. The Holder
understands that a stop-transfer order will be placed on the books of
the Company respecting this Warrant and any certificates representing
the Warrant Shares and that this Warrant and any such certificates
shall bear a restrictive legend and a stop transfer order shall be
placed with the transfer agent prohibiting any such transfer until such
time as the securities represented by such certificates shall have been
registered under the Act or shall have been transferred in accordance
with an opinion of counsel for the Company that such registration is
not required; and
(iv) The Holder understands that it must hold the Warrant Shares
indefinitely unless they are registered under the Act or an exemption
from registration becomes available.
(b) Each certificate for the Warrant Shares shall bear a legend in
substantially the following form:
"The securities represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be sold, offered for sale,
pledged, hypothecated or otherwise transferred except pursuant to a
registration statement under the Act or an exemption from registration
under the Act or the rules and regulations thereunder."
(c) Without limitation of any other provision of this Warrant, no
transfer of this Warrant and/or the underlying Warrant Shares shall be effective
unless and until the transferee agrees in a written instrument satisfactory in
form and substance to the Company that it agrees to be bound by all of the
provisions of this Warrant.
7. Registration on the Books of the Company. The Company shall keep,
or cause to be kept, at its office at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, a register in which the Company shall register this Warrant (the "Warrant
Registry"). No transfer of this Warrant shall be valid unless made at such
office and noted on the Warrant Registry upon satisfaction of all conditions for
transfer. When presented for transfer or payment, this Warrant shall be
accompanied by a written instrument or instruments of transfer or surrender, in
form satisfactory to the Company, duly executed by the registered Holder or by
his duly authorized attorney. The Company may deem and treat the registered
Holder hereof as the absolute owner of this Warrant for all purposes, and the
Company shall not be affected by any notice to the contrary.
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8. Governing Law. This Warrant has been executed and delivered in
the State of California and shall be construed in accordance with the laws of
the State of California (without reference to conflicts of laws principles).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:_____________________________________
Name:________________________________
Title:_______________________________
Agreed to and Accepted:
[ ]
By:________________________________
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EXERCISE FORM
To:
Dated:
The undersigned, pursuant to the provisions set forth in the attached
warrant, hereby agrees to subscribe for the purchase of _________ shares of
Common Stock represented by this warrant and makes payment herewith in full
therefor at the price per share provided by this warrant.
Print Name_____________________________
Signature______________________________
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ASSIGNMENT FORM
FOR VALUE RECEIVED __________________________________________ hereby
sells, assigns and transfers unto
Name __________________________________________________________________________
(Please typewrite or print in block letters)
Address _______________________________________________________________________
the right to purchase Common Stock, represented by this warrant, to the extent
of __________________ shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint ___________________________ attorney,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Signature_______________________________
Date: ________________, 19__
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
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EXHIBIT B
FORM OF
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of
__________________ ("Grant Date"), is between Digital Entertainment Network,
Inc., a Delaware corporation (the "Company"), and _______________, 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 carry out the purposes of the Digital Entertainment Network, Inc.
Amended and Restated 1998 Incentive Compensation Plan (the "Plan"); 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. Definitions.
Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to them in the Plan.
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 _____ shares of 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 $__ per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $_________.
(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. During the Option Period, the Option
shall be
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exercisable in accordance with the determination of the Committee, but
in no event later than the earlier of (i) the date the Option is vested
or (ii) immediately prior to a Change in Control.
(d) Subject to Sections 2(e) and 2(f) below, unvested options
shall be forfeited at Termination of Employment for any reason. The
percentage of Options which are vested and which will not be forfeited
at Termination of Employment (unless such termination is for Cause)
shall be determined in accordance with the following schedule:
Cumulative Number of
Date Option Shares Vested
----------------------------------------------------------------------------
On Grant Date [10%]
First Anniversary
of Grant Date [32.5%]
Second Anniversary
of Grant Date [55%]
Third Anniversary
of Grant Date [77.5%]
Fourth Anniversary
of Grant Date [100.0%]
========
Total Number of Option Shares [100%]
(e) Notwithstanding the foregoing Section 2(d), all Options
shall be 100% vested upon a Change in Control.
(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; provided, however, if Participant's Termination of
Employment is due to any reason other than voluntary termination by
Participant (other than as a result of a material and uncured breach
(after giving effect to applicable notice and cure periods) by Company
of his employment agreement with Company), expiration of his employment
agreement with the Company, death, Disability or Cause, the Option
shall automatically become fully vested upon the date of such
termination.
(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.
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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 or with Cause), 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 thirty (30) days
immediately following the date of such Termination of Employment or
until the expiration of the Option Period, whichever period is shorter.
(d) If Participant's Termination of Employment is for Cause,
any unexercised portion of the Option shall terminate immediately,
without any exercise thereof. The death or Disability of Participant
after a Termination of Employment otherwise provided herein shall not
extend the time permitted to exercise the Option.
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 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;
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(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, as
provided in the Plan.
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, as is
provided for in the Plan.
7. Adjustments/Change in Control. In the event of a Change in Control or
other corporate restructuring provided for in the Plan, the Participant shall
have such rights, and the Committee shall take such actions, as provided in the
Plan.
8. Nontransferability. 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,
shares of Common Stock for which the
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Option was exercised may be transferred without the consent of Company, subject
to applicable securities laws, rules and regulations.
9. Plan. Notwithstanding any other provision of this Agreement, the Option
is granted pursuant to the Plan, as shall be adopted by the Company, and is
subject to all the terms and conditions of the Plan, as the same may be amended
from time to time; provided, however, that no provision of the Plan shall
deprive the Participant, without the Participant's consent, of the Option or of
any of Participant's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement and the Option, and
such rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan, 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 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 (other than the Plan) 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.
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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, together with the Plan, constitute
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 headquarters, and to the Participant at his 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.
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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 his hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:_____________________________________
Name:
Title:
PARTICIPANT:
________________________________________
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