STOCK OPTION
AGREEMENT
THIS STOCK OPTION AGREEMENT (this
“Agreement”), made this 10 th day of
April 3, 2007, by and between Digital Lifestyles Group,
Inc ., a Delaware corporation (the “Company”) and
L.E. Smith , an individual residing in Crossville, Tennessee
(“Optionee”).
W I T N E S S E T
H:
WHEREAS, pursuant to an Employment
Agreement, dated as of even date herewith, by and between the
Company and Optionee (the “Employment Agreement”), the
Company desires to afford Optionee the opportunity to acquire the
Company’s common stock, $0.03 par value per share
(“Common Stock”), so that Optionee may have a direct
proprietary interest in the Company’s success; and
WHEREAS, the Compensation Committee
of the Board of Directors of the Company (the
“Committee”) has approved the grant of the stock option
contemplated hereunder.
NOW, THEREFORE, in consideration of
the covenants and agreements herein contained, the parties hereto
hereby agree as follows:
1. Grant of Option. Subject to
the term and conditions set forth herein, the Company hereby grants
to Optionee, during the period commencing on the date of this
Agreement and ending on the close of business on the day of the
third (3 rd ) anniversary of the date hereof (the
“Termination Date”), the right and option (the right to
purchase any one share of Common Stock hereunder being an
“Option”) to purchase from the Company, at a price of
$0.20 per share (the “Option Price”), an
aggregate of 3,000,000 shares of Common Stock (the
“Option Shares”), as of the Effective Date (as defined
in the Employment Agreement).
2. Limitation on Exercise of
Option. Subject to the terms and conditions set forth herein, the
Option will vest and become exercisable as to 8.333% of the Option
Shares subject to the Options on and after the first monthly
anniversary of the Effective Date and as to any additional 8.333%
of such shares on each monthly anniversary thereafter until the
Option is 100% vested; provided, that, Optionee is still employed
by the Company on such anniversary dates. Notwithstanding the
foregoing, upon a Change in Control (as defined in the
Company’s 2004 Stock Incentive Option), the unvested portion
of the Option shall become automatically vested and exercisable;
provided, that, Optionee is employed by the Company on the date of
such Change in Control.
3. Termination of Employment.
Any unvested Options held by Optionee upon termination of
employment for any reason shall terminate and cease to be
exercisable and any vested Options shall remain exercisable and
outstanding for 180 days following such termination (but in no
event beyond the term of the Option), and shall thereafter
terminate. Nothing in this Agreement shall confer upon Optionee any
right or obligation to continue in the employ of the Company or
limit in any way the right of the Company or Optionee to terminate
Optionee’s employment at any time and for any reason (or no
reason).
4. Method of Exercising
Option.
(a) Options, to the extent
vested and exercisable, may be exercised, in whole or in part, by
giving written notice of exercise to the Company in such form as
may be approved by the Company which shall specify, among other
items, the number of shares of Common Stock to be purchased, any
restrictions imposed on the Option Shares, and any representations,
warranties and agreements regarding Optionee’s investment
intent and access to information as may be required by the Company
to comply with applicable law. Such notice shall be accompanied by
the payment in full of the Option Price. Such payment shall be made
in cash or by check.
(b) At the time of exercise,
Optionee shall pay to the Company such amount as the Company deems
necessary to satisfy its obligation to withhold Federal, state or
local income or other taxes incurred by reason of the exercise of
Options granted hereunder, if any. Such payment shall be made in
cash or by check.
5. Issuance of Shares. Except as
otherwise provided in this Agreement, as promptly as practicable
after receipt of such written notification of exercise and full
payment of the Option Price and any required income tax
withholding, the Company shall issue or transfer to Optionee the
number of Option Shares with respect to which Options have been so
exercised, and shall deliver to Optionee a certificate or
certificates therefor, registered in Optionee’s name.
6. Representations and
Warranties of Optionee. Optionee represents and warrants to the
Company that:
(a) Optionee has received a copy
of, and has read and understands, the terms of this Agreement, and
agrees to be bound by its terms and conditions. Optionee
acknowledges that there may be adverse tax consequences upon the
exercise of the Options or disposition of the shares of Common
Stock once exercised, and that Optionee should consult a tax
adviser prior to such time.
(b) Optionee has had access to
all information regarding the Company and its present and
prospective business, assets, liabilities and financial condition
that Optionee reasonably considers important in making the decision
to purchase the Common Stock, and Optionee has had ample
opportunity to ask questions of the Company’s representatives
concerning such matters and this investment.
(c) Optionee is fully aware of:
(i) the highly speculative nature of the investment in the
Common Stock; (ii) the financial hazards involved;
(iii) the lack of liquidity of the Common Stock and the
restrictions on transferability of the Common Stock (e.g., that
Optionee may not be able to sell or dispose of the Common Stock or
use them as collateral for loans); (iv) the qualifications and
backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Common Stock. Optionee is capable
of evaluating the merits and risks of this investment, has the
ability to protect Optionee’s own interests in this
transaction and is financially capable of bearing a total loss of
this investment.
(e) At no time was Optionee
presented with or solicited by any publicly issued or circulated
newspaper, mail, radio, television or other form of general
advertising or solicitation in connection with the offer, sale and
purchase of t
