EXHIBIT 10.16
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as
of January 8, 1997, by and between Video City, Inc., a Delaware corporation
(formerly known as Prism Entertainment Corporation) (the "Company"), and ▇▇▇▇▇
▇▇▇▇▇▇▇ ("Optionee") with reference to the following facts:
A. Optionee is an officer of the Company.
B. The Company is willing to grant to Optionee an option to acquire
shares of the common stock of the Company, subject to the terms and conditions
set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Grant and Vesting of Option. The Company hereby grants to
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Optionee on the date hereof ("Grant Date") an option (the "Option") to purchase
up to 175,000 shares ("Shares") of the Company's common stock at the exercise
price (the "Exercise Price") of Ten Cents ($0.10) per share. Optionee's right
to purchase the Shares subject to the Option shall be fully vested on the date
hereof.
2. Exercise of Option. The Option shall be exercisable only
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during the Option Period (as hereafter defined), and during such Option Period,
the exercisability of the Option shall be subject to the limitations set forth
below. The "Option Period" shall mean the period commencing on the Grant Date
and, except as provided in Section 5, terminating 10 years from the Grant Date.
Notwithstanding the foregoing, the Company may at any time, in its sole
discretion, extend the Option Period. The exercise of the Option shall be
subject to the following terms and conditions:
(a) The Option may be exercised only as to all or any portion of
the Shares for which no prior exercise has been made;
(b) The Option may be exercised only as to a whole number of
Shares and no fractional shares shall be issued upon any exercise of the Option;
(c) The Company shall have received written notice from Optionee
advising the Company of the irrevocable exercise of the Option ("Exercise
Notice") specifying the whole number of Shares then being purchased (the
"Purchased Shares"); and
(d) Subject to Section 3, the Company shall have received
payment in full in same day funds of the Exercise Price for the Purchased
Shares, together with all applicable federal, state, local and foreign
withholding taxes.
3. Cashless Exercise and Gross-Up.
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(a) In lieu of making the payment for the Purchased Shares set
forth in Section 2(d), Optionee may elect, upon the exercise of all or part of
the Option, to receive that number of Shares equal to (i) the whole number of
Shares designated in the Exercise Notice, less (ii) that number of Shares equal
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to the fraction, the numerator of which is the aggregate exercise price for the
portion of the Option exercised, and the denominator of which is the Fair Market
Value (as defined below) per share of the common stock of the Company at the
time of the exercise of the Option.
Example: Optionee delivers an Exercise Notice specifying 100,000
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as the number of Shares then being purchased. The aggregate
exercise price for such 100,000 shares is equal to $10,000 ($.10
x 100,000). The Fair Market Value of each Share at such time is
$.20. Without making any payment at all to the Company, Optionee
would receive 50,000 Shares.
$10,000/$.20 = 50,000.
(b) Upon the exercise from time to time of all or any part of
the Option, the Company shall grant to Optionee an additional option
(individually, an "Additional Option," and collectively, the "Additional
Options") to purchase, at an exercise price of Two Dollars ($2.00) per share,
that number of Shares equal to the fraction, the numerator of which is 17,500,
and the denominator of which is the Fair Market Value per share of the common
stock of the Company at that time, less Two Dollars ($2.00), but in no event
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shall the number of shares exceed 7,500. The Additional Options shall be deemed
to be a part of the Option and accordingly shall be subject to all of the terms
and conditions of this Agreement applicable to the Option; provided, that, upon
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the exercise of an Additional Option, Optionee shall not be granted a new
Additional Option pursuant to this Section 3(b).
(c) For purposes of this Agreement, "Fair Market Value" of a
Share on any date, if the common stock of the Company is then listed on a
national securities exchange or traded on the NASDAQ National Market, shall be
equal to the closing sale price of a Share at the close of trading on the last
trading day prior to the date of exercise or, if such common stock is not then
listed on a national securities exchange or such system on such date, but is
otherwise publicly traded, the mean between the high bid and low asked prices on
the last trading day prior to the date of exercise. In the absence of any
trading market, the fair market value of a Share on such date shall
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be determined in good faith by the mutual agreement of the Company and Optionee.
If the Company and Optionee are unable to agree as to the Fair Market Value,
such question of valuation shall be submitted to arbitration.
4. Delivery of Certificate(s). As soon as practicable after
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satisfaction of the conditions set forth in Sections 2 or 3, as applicable, the
Company shall deliver to Optionee at the principal office of the Company, or at
such other place as may be mutually acceptable to the Company and Optionee, a
certificate or certificates for the Purchased Shares; provided, however, that
the time of such delivery may be postponed by the Company for such period as may
be required for it with reasonable diligence to comply with applicable
registration or exemption requirements under the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended,
any applicable listing requirements of any national securities exchange, and
requirements under any other law or regulation applicable to the issuance or
transfer of the Purchased Shares.
5. Term of Option. This Agreement and the Option Period shall
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expire automatically, without notice or demand, upon the occurrence of any event
described in Section 6(c) hereof.
6. Adjustments Upon Recapitalization. The number of Shares
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purchasable upon exercise of the Option and the Exercise Price shall be subject
to adjustment from time to time as set forth below:
(a) In the event of any stock dividend or distribution (other
than cash), stock split, reverse stock split or reclassification with respect to
or affecting the shares of the Company of the same class of stock as the Shares
subject to the Option (or any other shares, or other securities or other
property at the time receivable upon exercise of the Option hereunder),
appropriate adjustments shall be made in the number of Shares, nature of Shares
and price of the Shares, other securities or other property receivable upon
exercise of the Option hereunder such that, upon exercise of the Option,
Optionee shall be entitled to receive the same proportional interest in the
shares or other securities or other property following such stock dividend or
distribution, stock split, reverse stock split or reclassification as Optionee
would have been entitled to receive had Optionee exercised the Option
immediately prior to such event.
(b) In the event of any reorganization of the Company (or any
other corporation or entity the shares or other securities or ownership
interests of which are at the time deliverable upon exercise of the Option
hereunder) other than as described in Section 6(a) hereof, or in the event that
the Company (or any such other corporation or entity) shall consolidate with or
merge into any other corporation or entity pursuant to a transaction in which
the Company shall be deemed to be the "surviving entity" pursuant to Section
6(g) hereof, then and in each such case (a "Reorganization"), Optionee, upon
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the exercise of the Option hereunder at any time after the consummation of such
Reorganization, shall be entitled to receive the shares or other securities or
other non-cash consideration to which Optionee would have been entitled had
Optionee exercised the Option hereunder immediately prior to any such
Reorganization.
(c) If the Company (i) is dissolved or liquidated, or is a party
to a merger or consolidation in which the Company is not the "surviving entity"
(as defined in Section 6(g) hereof), or (ii) sells all or substantially all of
its assets to any other person or entity, or (iii) effects a firmly underwritten
initial public offering of its common stock pursuant to an effective
registration statement under the Securities Act, resulting in gross aggregate
proceeds, before deducting underwriting discounts and expenses, of at least
$5,000,000 payable to the Company and/or to the Company's shareholders, then the
Option and this Agreement shall terminate on the effective date of any such
dissolution, liquidation, sale, merger, consolidation or public offering
("Termination Date"); provided, however, Optionee shall have the right,
exercisable within 30 days prior to the Termination Date, and conditioned upon
the occurrence of any such dissolution, liquidation, sale, merger, consolidation
or public offering, to exercise all or any part of the Option in the manner set
forth in Sections 2 or 3. In the event that any such dissolution, liquidation,
sale, merger, consolidation or public offering does not occur, Optionee may
elect for (i) the Company to promptly refund to Optionee all sums paid to the
Company by Optionee during such 30-day period pursuant to Section 2(d), or (ii)
in the case where Optionee has received Shares pursuant to Section 3(a), the
Optionee shall return to the Company all Shares so received and Optionee shall
continue to have an Option as to the Shares so returned, in each case, in
seeking to exercise the Option prior to the Termination Date.
(d) To the extent that the adjustments in Sections 6(a) or
6(b) relate to stock or securities of the Company, the Board of Directors of the
Company or a committee thereof (the "Board") excluding the vote of Optionee, if
Optionee is then a director of the Company, may issue a statement of the effect
of such adjustment on the Option and any such statement shall be deemed an
addendum to this Agreement and shall be final and binding upon Optionee.
(e) The grant of the Option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets or to engage in any public offering of its stock.
Nothing set forth in this Agreement shall operate or be deemed to limit or
restrict in any manner the Company's right to sell or issue, or to require any
adjustment as a result of any sale or issuance by the Company of, its common
stock (or any other security) to any person or at any price, including, without
limitation, any sale or issuance at a price per share which is less than that
effectively payable by Optionee hereunder.
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(f) The determination as to which party to a Reorganization is
the "surviving entity" shall be made by the Board excluding the vote of
Optionee, if Optionee is then a director of the Company, on the basis of the
relative equity interests of the shareholders in the corporation or other entity
existing after the Reorganization, as follows: If, following any Reorganization,
the holders of the outstanding voting securities of the Company prior to the
Reorganization own equity interests possessing more than 50%, in the aggregate,
of the voting power of the corporation or other entity existing after the
Reorganization, then, for purposes of this Agreement, the Company shall be
deemed to be the surviving entity. In all other cases, the Company shall not be
deemed to be the surviving entity.
7. Compliance with Securities Laws. Optionee, by acceptance
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hereof, represents and warrants to the Company and agrees that the Option and
the Shares to be issued upon exercise of the Option are being acquired by
Optionee for Optionee's own account, for investment purposes only, not with a
view to or for sale in connection with any distribution and not in response to
any published advertisement, and that Optionee shall not offer, sell or
otherwise dispose of any Shares to be issued upon exercise of the Option except
under circumstances which will not result in a violation of any federal or state
securities laws. All Shares issued upon exercise of the Option (unless
registered under the Securities Act) shall bear a legend in substantially the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
RESTRICTED SECURITIES AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD OR
TRANSFERRED UNLESS SO REGISTERED OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE.
As a condition to any exercise of the Option, Optionee shall make such
additional representations as the Company may request.
8. No Shareholder or Employment Rights. The Option granted
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hereunder shall not be construed to give Optionee any rights as a shareholder of
the Company (including, without limitation, any right to vote or any right to
receive dividends, other distributions or information), nor shall it be
construed so as to confer upon Optionee any right to continue in the employ of
the Company.
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9. General Provisions.
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(a) Further Assurances. Optionee shall promptly take all
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actions and execute all documents reasonably requested by the Company to
effectuate the terms and intent of this Agreement.
(b) Notice. All notices and other communications required
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or permitted under this Agreement shall be in writing, served personally on, or
mailed by certified or registered United States mail, return receipt requested,
to, the party to be charged with receipt thereof at the address set forth below.
In the case of personal service, delivery shall be deemed complete on the date
of actual delivery. In the case of service by certified or registered mail,
service shall be deemed complete at the earlier of (i) the expiration of the 4th
business day after the date of mailing or (ii) the date of delivery as shown by
the return receipt.
If to the Company: Video City, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to Optionee: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Either party may change said party's address for purposes of this Section by
giving to the other party, in the manner provided herein, a written notice of
such change.
(c) Character of Option. The Option is not intended to
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qualify as an "incentive stock option" as that term is defined in Section 422A
of the Internal Revenue Code of 1986, as amended.
(d) Severability. All Sections, clauses thereof and
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covenants contained in this Agreement are severable, and in the event any of
them shall be held to be invalid by any court, this Agreement shall be
interpreted as if such invalid Sections, clauses or covenants were not contained
herein.
(e) Successors. Except to the extent specifically limited by the
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terms and provisions of this Agreement, this Agreement shall be binding upon and
shall inure to the benefit of the parties to this Agreement and their respective
successors, assigns, heirs and personal representatives.
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(f) Choice of Law. This Agreement shall be governed by and
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construed in accordance with the laws of the State of California applicable to
contracts made in, and to be performed within, that State.
(g) Attorneys' Fees. If any legal action or other proceeding is
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brought for the enforcement of this Agreement, or because of any dispute,
breach, default or misrepresentation in connection with this Agreement, the
successful or prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs it incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.
(h) Interpretation. This Agreement constitutes the complete
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agreement among the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings and
representations, written or oral, with respect thereto.
(i) Captions. Titles, captions and section headings contained in
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this Agreement are inserted only as a matter of convenience and for reference,
and in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provision hereof.
(j) Counterparts. This Agreement may be executed in one or more
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counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Stock Option
Agreement effective as of the date first set forth above.
VIDEO CITY, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇,
Chief Executive Officer
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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