1
EXHIBIT 4.1
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (the "Agreement") is made as of
November 13, 1998, by and among Xx. Xxxx Xxxxx Xxxxx ("Holder"), Xx. Xxxxx X.
Xxxx ("Dr. Zwan") and Digital Lightwave, Inc. (the "Company").
WHEREAS Holder and Dr. Zwan have entered into a Settlement
Agreement with respect to certain litigations that Holder has brought against
Dr. Zwan and the Company and others, and a Mutual General Release; and
WHEREAS Dr. Zwan has agreed as part of the Settlement Agreement to
xxxxx Xxxxxx the option set forth in this Agreement;
NOW, THEREFORE, in consideration of the convenants and agreements
set forth in this Agreement, the Settlement Agreement and the Mutual General
Release, Holder, Dr. Zwan and the Company agree as follows.
1. GRANT OF OPTION. Dr. Zwan grants to Holder as of the Grant
Date (as defined in the second paragraph of this Section 1), subject to the
terms and provisions set forth hereinafter, the right and option to purchase two
million (2,000,000) shares of the common stock of the Company (the "Common
Stock"), which Common Stock has a par value of $.0001 and is the only class of
common stock outstanding as of the date of execution of this Agreement, at the
purchase price of
2
One Dollar ($1.00) per share (the option hereby granted being hereinafter
referred to as the "Option" and the shares of Common Stock purchased upon
exercise of the Option being referred to herein as the "Option Shares"). The
Option shall be a non-qualified option and shall not be an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended.
The Option shall not be considered granted or become exercisable
unless and until Holder delivers to Dr. Zwan and the Company a fully executed
counterpart hereof. Thereafter, the Option shall be exercisable in accordance
with Sections 2 and 3 hereof. The date on which Holder delivers a fully
executed counterpart of this Agreement to Dr. Zwan is referred to herein as the
"Grant Date".
2. EXERCISE OF OPTION. Holder may exercise the Option, at any
time and from time to time, on or before October 20, 2008, in whole or in part.
Except as otherwise provided in the notice provisions of Sections 7 and 8 of
this Agreement, in the event that Holder wishes to exercise the Option in whole
or in part, Holder shall send a written notice to Dr. Zwan specifying a date not
less than thirty (30) days nor more than one hundred twenty (120) days from the
date such notice is mailed for the closing of such purchase; provided, however,
that Dr. Zwan shall not be obligated to close such purchase during any Blackout
Period previously established by the Company or any time during the months of
November and
3
December in any year.
3. PAYMENT AND DELIVERY OF CERTIFICATE. At any closing
pursuant to this Agreement, Holder shall make payment to Dr. Zwan of the
aggregate price for the Option Shares that he is purchasing by certified or bank
check payable to Dr. Zwan or by wire transfer of immediately-available federal
funds to a bank and account designated by Dr. Zwan, and Dr. Zwan shall deliver
to Holder a duly-executed certificate representing the Option Shares that
Holder has purchased containing no restrictive legend other than as contemplated
by Section 5(h) of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF DR. ZWAN AND THE COMPANY.
(a) Dr. Zwan represents and warrants to Holder that as of the
date of this Agreement and again as of the date of any closing pursuant to this
Agreement:
(i) Dr. Zwan has power and authority to enter into and
perform all of his obligations under this Agreement, and this Agreement
constitutes a legal, valid and binding obligation of Dr. Zwan enforceable
against him in accordance with its terms;
(ii) The execution, delivery and performance of this
Agreement by Dr. Zwan in his individual capacity will not require the consent of
any other person or constitute a violation of, conflict with or result in a
default under any (A) agreement to which Dr. Zwan is a party or by which Dr.
Zwan is bound; or (B) judgment, decree, order, statute, rule
4
or governmental regulation applicable to Dr. Zwan;
(iii) The Option Shares are owned beneficially and of record
by Dr. Zwan, are fully paid and non-assessable and are free and clear of all
adverse claims, liens, encumbrances and security interests (except for the
transfer restrictions set forth in this Agreement or as set forth on the legend
on the certificate representing such shares of Common Stock to which Section
5(h) of this Agreement refers);
(iv) Upon purchase of the Option Shares, such Option Shares
will be fully-paid and non-assessable and Holder will receive good and
marketable title to the Option Shares, free of all adverse claims, liens,
encumbrances and security interests, other than such of the foregoing as may
have been created by or through Holder or as set forth on the legend on the
certificate representing the Option Shares as permitted by Section 5(h) of this
Agreement.
(b) The Company represents and warrants to Holder that as
of the date of this Agreement and again as of the date of any closing pursuant
to this Agreement:
(i) The Company has power and authority to enter into and
perform all of its obligations under this Agreement and this Agreement
constitutes a legal, valid and binding obligation of the Company enforceable
against it in accordance with its terms;
(ii) The execution, delivery and performance of this
Agreement by the Company will not require the consent of
5
any other person or constitute a violation of, conflict with or result in a
default under any (A) agreement to which the Company is a party or by which the
Company is bound; or (B) judgment, decree, order, statute, rule or governmental
regulation applicable to the Company.
5. REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder represents
and warrants to Dr. Zwan and the Company that as of the date of this Agreement
and again as of the date of any closing pursuant to this Agreement:
(a) Holder has power and authority to enter into and
perform all of his obligations under this Agreement and this Agreement
constitutes a legal, valid and binding obligation of Holder enforceable against
him in accordance with its terms;
(b) The execution, delivery and performance of this
Agreement by Holder will not require the consent of any other person or
constitute a violation of, conflict with or result in a default under any (i)
agreement to which Holder is a party or by which Holder is bound; or (ii)
judgment, decree, order, statute, rule or governmental regulation applicable to
Holder;
(c) Holder will not offer to sell or otherwise dispose of
any Option Shares in violation of the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "1933 Act") or any other applicable
federal or state securities laws;
6
(d) Holder understands that (i) the Option and the Option
Shares have not been, and, except as provided for in this Agreement, will not
be, registered under the 1933 Act on the ground that the grant and the sale
provided for in this Agreement are exempt under the 1933 Act and regulations
issued thereunder; (ii) the reliance of Dr. Zwan on such exemption is predicated
on the representations of Holder set forth in this Agreement; and (iii) the
Option Shares may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act or an exemption therefrom;
(e) Holder has such knowledge and experience in financial
and business matters and with respect to investments in securities as to be
capable of evaluating the merits and risks of ownership of the Common Stock and
he is able to bear the risk of such investment for an indefinite period and to
afford a complete loss thereof;
(f) Holder is familiar with the business of the Company
and, in formulating a decision to enter into this Agreement, Holder has relied
solely upon an independent investigation of the Company's business and upon
consultations with his legal and financial advisers with respect to this
Agreement and the nature of his investment, and in entering into this Agreement
no reliance was placed upon any representations or warranties other than those
contained herein;
(g) Upon exercise of the Option, Holder will
7
purchase the Option Shares for investment only and not with a view to
distribution in violation of applicable securities laws;
(h) Holder acknowledges that the certificate evidencing the
Option Shares purchased by him will bear the following legend: THE SHARES OF
COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM;
(i) Holder is aware that the Option and the Option Shares
have not been approved or disapproved by the Securities and Exchange Commission
or any state securities agency; and
(j) Holder is an "accredited investor" as such term is
defined under Rule 501 of Regulation D under the 1933 Act.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of
any change in the number or classification of shares of outstanding Common
Stock, the kind and number of securities subject to the Option shall be adjusted
in the same manner as that for all other shareholders and the purchase price per
share shall be adjusted correspondingly. The existence of the Option granted
hereunder shall not affect in any way the right or power of the Board or the
stockholders of the Company to
8
make or authorize any adjustment, recapitalization, reorganization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities having any priority or preference with respect to or affecting
Common Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding, without
prejudice to the right of Holder set forth above in this Section 6.
7. REGISTRATION RIGHTS. (a) If the Company at any time
proposes to sell any shares of Common Stock pursuant to an offering of
securities registered under the 1933 Act (other than a registration on (i) Form
S-4 or S-8 under the 1933 Act or (ii) any successor form) and such registered
offering would include Common Stock to be sold by Dr. Zwan, the Company shall
give reasonable written notice thereof (the "Public Offering Notice") to Holder.
If a Public Offering Notice is given, then, no later than ten (10) days after
the receipt of the Public Offering Notice, Holder may exercise the Option (the
closing of which shall take place as soon as practicable) and present a request
(the "Request") to the Company specifying the number of Option Shares intended
to be sold or disposed of by Holder and describing the method of disposition
thereof (if the offering described in the Public Offering Notice is to be
9
underwritten, the Holder shall be required to make his offering through the same
underwriters and to sign the underwriting agreement). The Company will, at its
expense (excluding commissions and a pro rata share of expenses payable to
underwriters and the fees of any counsel or other advisors engaged by Holder),
use its best efforts to cause the registration under the 1933 Act of the shares
stated in Holder's Request or, if less, the Share for Share Number of Holder's
Option Shares, for disposition in accordance with the intended method of
disposition as stated in Holder's Request (except as provided above), and to
cause such registration to become effective under the 1933 Act and such
disposition to be qualified or exempt from qualification under "blue sky" laws
of such states as Holder may reasonably request. However, the Company (i) may
at any time delay, abandon or withdraw any such registration or registration
statement (in which case it shall not be required to register any of Holder's
shares otherwise required to be included in such registration) and (ii) shall
not be required to register Holder's Option Shares pursuant to this Section 7 in
connection with any proposed registration to the extent that, in the opinion of
the managing underwriter, the inclusion of such Holder's Option Shares would
adversely affect the offering. As used in this Section 7, the term "Share for
Share" shall mean the number of shares of Common Stock being offered by Dr. Zwan
that are to be registered. Notwithstanding any of the foregoing, if
10
Holder has Option Shares available for registration and has presented a Request,
Dr. Zwan shall not register more shares of Common Stock than the number of
shares of Common Stock for which Holder has the opportunity to register.
(b) If any registration of Common Stock shall be in
connection with an underwritten public offering, and if Holder is participating
in such offering, Holder agrees not to effect any public sale or distribution,
including any sale pursuant to Rule 144, or any successor provision, under the
1933 Act, of any shares of Common Stock and not to effect any such public sale
or distribution of any other equity security of the Company or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (in each case, other than as part of such underwritten public offering)
during the seven days prior to, and during the 180-day period (or such lesser
period agreed to by the Company, Dr. Zwan and Holder with any underwriters for
such registration of Common Stock) which begins on, the effective date of such
registration statement (except as part of such registration).
(c) Holder agrees that, upon receipt of any notice from the
Company of the happening of any event that causes the Company to supplement,
amend or withdraw the prospectus included in any registration statement relating
to an offering of Common Stock in which Holder is participating, Holder shall
discontinue disposition of Common Stock pursuant
11
to the registration statement covering such Common Stock until Holder's receipt
of copies of a supplemented or amended prospectus from the Company, and, if so
directed by the Company, Holder shall deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in Holder's
possession, of the unsupplemented, unamended or withdrawn prospectus.
8. ACQUISITION OR SALE OF THE COMPANY. In the event that any
person or entity (including without limitation a "group" as contemplated by
Section 13(d) (3) of the Securities Exchange Act of 1934, as amended (the "1934
Act") but excluding the Company, its affiliates, any employee benefit plan
maintained by the Company, or an underwriter temporarily holding securities
pursuant to an offering of such securities), other than Dr. Zwan, proposes to
obtain beneficial ownership (as determined pursuant to Regulation 13d-3 under
the 0000 Xxx) of ninety percent (90%) or more (based on voting power) of the
Company's outstanding capital stock (such transaction a "Proposed Sale"), the
Company shall give notice thereof (the "Sale Notice") to Holder describing the
terms of the proposed sale in reasonable detail, including the identity of the
proposed purchasers and the number of shares to be sold. Holder shall then have
the right to exercise the Option and the closing shall take place within ten
(10) days following the receipt of the Sale Notice. If Holder elects not to
exercise the Option, the Option shall
12
expire and be of no further force or effect upon consummation of the Proposed
Sale identified in the Sale Notice. If Holder exercises the Option in
accordance with the provisions above, Holder shall sell all the Option Shares
held by Holder and such Option Shares shall be purchased, simultaneously with,
and conditioned upon, the closing of the Proposed Sale, at the price (whether in
cash or other consideration) per share of Common Stock and on the other terms of
the Proposed Sale.
9. MISCELLANEOUS.
(a) NON-ASSIGNABILITY. The rights and obligations of the Holder
under this Agreement shall not be transferable or assignable, other than by will
or the laws of descent and distribution, and the Option shall be exercisable,
during Holder's lifetime, only by him or, during periods of legal disability, by
his legal representative. The Option shall not be subject to execution,
attachment or similar process. Notwithstanding the foregoing, the Option shall
not be assigned by Holder without the written consent of Zwan, other than to HBH
Assets, Ltd., an Ohio limited liability company controlled by Holder. In the
event that Holder shall cease to own at least seventy-five percent (75%) of HBH
Assets, Ltd., the Option automatically shall revert to Holder. If Holder
assigns the Option, the Option shall remain subject to the terms and conditions
of this Agreement. This Agreement shall be binding upon and shall inure to the
benefit of the legal representatives, heirs, successors and assigns of the
13
Holder.
(b) AMENDMENTS. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written instrument executed by each of Holder, Dr. Zwan and the Company.
(c) NOTICES. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be given
(and shall be deemed to have been duly received if so given) by delivery, by
facsimile or by mail (registered or certified mail, postage pre-paid, return
receipt requested) to the respective parties as follows:
If to Dr. Zwan: c/o Digital Lightwave, Inc., Attention Xxxxx X.
Xxxx, Fifth Floor, 000 Xxxxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxx 00000, Facsimile:
(000) 000-0000;
If to Holder: H. Xxxxx Xxxxx, c/o Law Office of Xxxx X. Xxxxx Co.,
L.P.A., Xxxxx 000, 000 Xxxx Xxxxx Xxxxxx, Xxxxxxxx, Xxxx 00000.
If to the Company: c/o Digital Lightwave, Inc., Attention Xxxxx X.
Xxxx, Fifth Floor, 000 Xxxxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxx 00000, Facsimile:
(000) 000-0000; or to such other address as a party may have furnished to the
others in writing in accordance with this Agreement, except that notices of
change of address shall be effective only upon receipt.
(d) GOVERNING LAW. This Agreement shall be
14
governed by and construed in accordance with the substantive law of the State of
Ohio without giving effect to the principles of conflict of laws of the State of
Ohio.
(e) COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(f) EFFECT OF HEADINGS. The section headings in this
Agreement are for convenience only and shall not affect the construction of the
language of this Agreement.
(g) RIGHTS OF HOLDER IN STOCK. Neither Holder, nor his
successor in interest, shall have any of the rights of a shareholder of the
Company with respect to the shares for which the Option is exercised until after
any closing pursuant to the Agreement.
(h) CONTRA PROFERENTEM INAPPLICABLE. The general rule that
ambiguities are to be construed against the drafter shall not apply to this
Agreement. In the event that any language in this Agreement is found or claimed
to be ambiguous, each party shall have the same opportunity to present evidence
as to the actual intent of the parties with respect to any such ambiguous
language without any inference or presumption being drawn against the drafter.
(i) SUCCESSORS OF THE COMPANY. This Agreement shall be
binding upon and shall inure to the benefit of any successor of the Company.
15
(j) Zwan shall, for the term of this Agreement, at all
times own, control and keep available for exercise of the option contemplated by
this Agreement, at least 2,000,000 shares of Common Stock, free and clear of all
encumbrances.
IN WITNESS OF this Agreement, Holder, Dr. Zwan and, after having
been duly authorized, the Company have signed this Agreement on the lines below.
/s/ Xxxx Xxxxx Xxxxx
-----------------------------------------------
XXXX XXXXX XXXXX
Sworn to before me and subscribed in my presence on November 13,
1998.
/s/ Xxxx X. Xxxx
-----------------------------------------------
Notary Public
Attorney-at-Law
Lifetime Commission
/s/ Xxxxx X. Xxxx
-----------------------------------------------
XXXXX X. XXXX
Sworn to before me and subscribed in my presence on November 13,
1998.
/s/Xxxx X. Xxxx
-----------------------------------------------
Notary Public
Attorney-at-Law
Lifetime Commission
DIGITAL LIGHTWAVE, INC.
By /s/ Xxxxx X. Xxxx
-----------------------------------------------
16
Its Chief Executive Officer
-----------------------------------------
Sworn to before me and subscribed in my presence on November 13,
1998.
/s/ Xxxx X. Xxxx
-----------------------------------------------
Notary Public
Attorney-at-Law
Lifetime Commission
