Exhibit 10.2

 

ZST DIGITAL NETWORKS, INC.

 

NOTICE OF RESTRICTED SHARES GRANT

 

Grantee Name: Bo Zhong   Address: c/o ZST Digital Networks, Inc., ITC Kung Kuan,
No. 206 Tongbai Road, 3rd Floor, No.2 Building, Zhengzhou City, Henan Province,
China 450007

 

You have been granted Restricted Shares subject to the terms and conditions of
the attached Restricted Shares Grant Agreement, as follows:

 

Date of Grant: July 10, 2012     Vesting Commencement Date: July 10, 2012    
Exercise Price per Share: 0     Total Number of Shares Granted: 800,000    
Total Purchase Price: 0     Agreement Date July 10, 2012

 

Vesting Schedule:                                Three Hundred Thousand
(300,000) Restricted Shares shall vest immediately on the Date of Grant and the
remaining Five Hundred Thousand (500,000) shall vest in equal installments on a
quarterly basis over a five-year period as set forth in the following table.
Notwithstanding the foregoing, the Restricted Shares will become fully vested
upon a Change in Control.

 

 

 

 

Date of Vesting  Cumulative Amount Vested        9/30/2012   25,000        
12/31/2012   50,000         3/31/2013   75,000         6/30/2013   100,000    
    9/30/2013   125,000         12/31/2013   150,000         3/31/2014 
 175,000         6/30/2014   200,000         9/30/2014   225,000        
12/31/2014   250,000         3/31/2015   275,000         6/30/2015   300,000    
    9/30/2015   325,000         12/31/2015   350,000         3/31/2016 
 375,000         6/30/2016   400,000         9/30/2016   425,000        
12/31/2016   450,000         3/31/2017   475,000         6/30/2017   500,000 

 

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ZST DIGITAL NETWORKS, INC.

 

RESTRICTED SHARES GRANT AGREEMENT

 

This RESTRICTED SHARES GRANT AGREEMENT (this “Agreement”), dated as of the
Agreement Date specified on the Notice of Restricted Shares Grant is made by and
between ZST Digital Networks, Inc., a Delaware corporation (the “Company”), and
the grantee named in the Notice of Restricted Shares Grant (the “Grantee,” which
term as used herein shall be deemed to include any successor to Grantee by will
or by the laws of descent and distribution, unless the context shall otherwise
require).

 

BACKGROUND

 

Pursuant to the terms and conditions of that certain Employment Agreement
between the Company and Grantee, as amended on May 29, 2012 and July 10, 2012
(the “Amended Employment Agreement”), the Company has approved the issuance to
Grantee, effective as of the date set forth above, of an award of the number of
shares of common stock, par value $0.0001 per share of the Company (the
“Restricted Shares”) as is set forth in the attached Notice of Restricted Shares
Grant (which is expressly incorporated herein and made a part hereof, the
“Notice of Restricted Shares Grant”) at the purchase price per share of
Restricted Shares, if any, set forth in the attached Notice of Restricted Shares
Grant, upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the mutual premises and undertakings
hereinafter set forth, the parties agree as follows:

 

1.           Grant and Purchase of Restricted Shares. The Company hereby grants
to Grantee, and Grantee hereby accepts the number of Restricted Shares set forth
in the Notice of Restricted Shares Grant, subject to the payment by Grantee of
the total purchase price, if any, set forth in the Notice of Restricted Shares
Grant.

 

2.           Stockholder Rights.

 

(a)          Voting Rights. Until such time as all or any part of the Restricted
Shares are forfeited to the Company under this Agreement, if ever, Grantee (or
any successor in interest) has the rights of a stockholder, including voting
rights, with respect to the Restricted Shares subject, however, to the transfer
restrictions or any other restrictions set forth in this Agreement.

 

(b)          Dividends and Other Distributions. During the period during which
Restricted Shares are subject to forfeiture or restrictions on transfer pursuant
to this Agreement, Grantee holding Restricted Shares is entitled to all regular
cash dividends or other distributions paid with respect to all Restricted Shares
while they are so held. If any such dividends or distributions are paid in
shares of Company common stock, such shares will be subject to the same
restrictions on transferability and forfeitability as the Restricted Shares with
respect to which they were paid.

 

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3.           Vesting of Restricted Shares.

 

(a)          The Restricted Shares are restricted and subject to forfeiture
until vested. The Restricted Shares which have vested and are no longer subject
to forfeiture are referred to as “Vested Shares.” All Restricted Shares which
have not become Vested Shares are referred to as “Nonvested Shares.”

 

(b)          Restricted Shares will vest and become nonforfeitable in accordance
with the vesting schedule contained in the Notice of Restricted Shares Grant
except that 100% of Grantee’s Nonvested Shares will vest in full upon a Change
in Control.

 

(c)          Definitions. For purposes of this Agreement and the Notice of
Restricted Shares Grant, capitalized terms have the following meanings:

 

(i)          “Cause” has the meaning ascribed to such term or words of similar
import in Grantee’s written employment or service contract with the Company or
its subsidiaries and, in the absence of such agreement or definition, means
Grantee’s (i) conviction of, or plea of nolo contendere to, a felony or crime
involving moral turpitude; (ii) fraud on or misappropriation of any funds or
property of the Company or its subsidiaries, or any affiliate, customer or
vendor; (iii) personal dishonesty, incompetence, willful misconduct, willful
violation of any law, rule or regulation (other than minor traffic violations or
similar offenses), or breach of fiduciary duty which involves personal profit;
(iv) willful misconduct in connection with Grantee’s duties or willful failure
to perform Grantee’s responsibilities in the best interests of the Company or
its subsidiaries; (v) illegal use or distribution of drugs; (vi) violation of
any rule, regulation, procedure or policy of the Company or its subsidiaries; or
(vii) breach of any provision of any employment, non-disclosure,
non-competition, non-solicitation or other similar agreement executed by Grantee
for the benefit of the Company or its subsidiaries, all as determined by the
Board of Directors of the Company, which determination will be conclusive.

 

(ii)         “Change in Control” means the occurrence of any of the following
events:

 

1)          Any “person” (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the “Exchange Act”)) becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; provided however, that for purposes of this subsection 1) any
acquisition of securities directly from the Company shall not constitute a
Change in Control; or

 

2)          The consummation of the sale or disposition by the Company of all or
substantially all of the Company's assets;

 

3)          A change in the composition of the Board of Directors of the Company
(the “Board”) occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. “Incumbent Directors”
means directors who either (A) are members of the Board as of the date of this
Agreement, or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but will not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or

 

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4)          The consummation of a merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation.

 

For avoidance of doubt, a transaction will not constitute a Change in Control
if: (i) its sole purpose is the change the state of the Company’s incorporation,
or (ii) its sole purpose is to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s
securities immediately before such transaction.

 

(iii)        “Retirement” means Grantee’s retirement from Company employ at age
65 as determined in accordance with the policies of the Company or its
subsidiaries in good faith by the Board of Directors of the Company, which
determination will be final and binding on all parties concerned.

 

(d)          Nonvested Shares may not be sold, transferred, assigned, pledged,
or otherwise disposed of, directly or indirectly, whether by operation of law or
otherwise. The restrictions set forth in this Section will terminate upon a
Change in Control.

 

4.           Forfeiture of Nonvested Shares. Except as provided herein, if
Grantee's service with the Company ceases for any reason other than Grantee’s
(a) death, (b) Disability, (c) Retirement, or (d) termination by the Company
without Cause, any Nonvested Shares will be automatically forfeited to the
Company.

 

(a)          Legend. Each certificate representing Restricted Shares granted
pursuant to the Notice of Restricted Shares Grant may bear a legend
substantially as follows:

 

“The sale or other transfer of the shares represented by this certificate,
whether voluntary, involuntary or by operation of law, is subject to certain
restrictions on transfer as set forth in a Restricted Share Grant Agreement
dated july 10, 2012. transfer of these shares may be made only in compliance
with the provisions of said agreement, a copy of which may be obtained from the
company.”

 

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(b)          Escrow of Nonvested Shares. The Company has the right to retain the
certificates representing Nonvested Shares in the Company’s possession until
such time as all restrictions applicable to such shares have been satisfied.

 

(c)          Removal of Restrictions. Grantee is entitled to have the legend
removed from certificates representing Vested Shares.

 

5.           Recapitalizations, Exchanges, Mergers, Etc. The provisions of this
Agreement apply to the full extent set forth herein with respect to any and all
shares of capital stock of the Company or successor of the Company which may be
issued in respect of, in exchange for, or in substitution for the Restricted
Shares by reason of any stock dividend, split, reverse split, combination,
recapitalization, reclassification, merger, consolidation or otherwise which
does not terminate this Agreement. Except as otherwise provided herein, this
Agreement is not intended to confer upon any other person except the parties
hereto any rights or remedies hereunder.

 

6.           Grantee Representations.

 

Grantee represents to the Company the following:

 

(a)          Restrictions on Transfer. Grantee acknowledges that the Restricted
Shares to be issued to Grantee must be held indefinitely unless subsequently
registered and qualified under the Securities Act or unless an exemption from
registration and qualification is otherwise available. In addition, Grantee
understands that the certificate representing the Restricted Shares will be
imprinted with a legend which prohibits the transfer of such Restricted Shares
unless they are sold in a transaction in compliance with the Securities Act or
are registered and qualified or such registration and qualification are not
required in the opinion of counsel acceptable to the Company.

 

(b)          Relationship to the Company; Experience. Grantee either has a
preexisting business or personal relationship with the Company or any of its
officers, directors or controlling persons or, by reason of Grantee’s business
or financial experience or the business or financial experience of Grantee’s
personal representative(s), if any, who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent, directly or
indirectly, has the capacity to protect Grantee’s own interests in connection
with Grantee’s acquisition of the Restricted Shares to be issued to Grantee
hereunder. Grantee and/or Grantee’s personal representative(s) have such
knowledge and experience in financial, tax and business matters to enable
Grantee and/or them to utilize the information made available to Grantee and/or
them in connection with the acquisition of the Restricted Shares to evaluate the
merits and risks of the prospective investment and to make an informed
investment decision with respect thereto.

 

(c)          Grantee’s Liquidity. In reaching the decision to invest in the
Restricted Shares, Grantee has carefully evaluated Grantee’s financial resources
and investment position and the risks associated with this investment, and
Grantee acknowledges that Grantee is able to bear the economic risks of the
investment. Grantee (i) has adequate means of providing for Grantee’s current
needs and possible personal contingencies, (ii) has no need for liquidity in
Grantee’s investment, (iii) is able to bear the substantial economic risks of an
investment in the Restricted Shares for an indefinite period and (iv) at the
present time, can afford a complete loss of such investment. Grantee’s
commitment to investments which are not readily marketable is not
disproportionate to Grantee’s net worth and Grantee’s investment in the
Restricted Shares will not cause Grantee’s overall commitment to become
excessive.

 

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(d)          Access to Data. Grantee acknowledges that during the course of this
transaction and before deciding to acquire the Restricted Shares, Grantee has
been provided with financial and other written information about the Company.
Grantee has been given the opportunity by the Company to obtain any information
and ask questions concerning the Company, the Restricted Shares, and Grantee’s
investment that Grantee felt necessary; and to the extent Grantee availed
himself of that opportunity, Grantee has received satisfactory information and
answers concerning the business and financial condition of the Company in
response to all inquiries in respect thereof.

 

(e)          Risks. Grantee acknowledges and understands that (i) an investment
in the Company constitutes a high risk, (ii) the Restricted Shares are highly
speculative, and (iii) there can be no assurance as to what investment return,
if any, there may be. Grantee is aware that the Company may issue additional
securities in the future which could result in the dilution of Grantee’s
ownership interest in the Company.

 

(f)          Valid Agreement. This Agreement when executed and delivered by
Grantee will constitute a valid and legally binding obligation of Grantee which
is enforceable in accordance with its terms.

 

(g)          Residence. The address set forth on the Notice of Restricted Shares
Grant is Grantee’s current address and accurately sets forth Grantee’s place of
residence.

 

(h)          Tax Consequences. Grantee has reviewed with Grantee’s own tax
advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. Grantee is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. Grantee understands that Grantee (and not the
Company) is responsible for Grantee’s own tax liability that may arise as a
result of the transactions contemplated by this Agreement. Grantee understands
that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”),
taxes as ordinary income the difference between the purchase price for the
Restricted Shares and the fair market value of the Restricted Shares as of the
date any restrictions on the Restricted Shares lapse. Grantee understands that
Grantee may elect to be taxed at the time the Restricted Shares is purchased
rather than when and as the restrictions lapse by filing an election under
Section 83(b) of the Code with the Internal Revenue Service within 30 days from
the date of this Agreement.

 

GRANTEE ACKNOWLEDGES THAT IT IS GRANTEE’S SOLE RESPONSIBILITY AND NOT THE
COMPANY’S TO FILE TIMELY ANY ELECTION UNDER SECTION 83(b), EVEN IF GRANTEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON GRANTEE’S
BEHALF.

 

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7.           No Employment Contract Created. The issuance of the Restricted
Shares is not be construed as granting to Grantee any right with respect to
continuance of employment or any service with the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will Grantee's employment or terminate Grantee’s service at any time (whether
by dismissal, discharge or otherwise), with or without cause, is specifically
reserved, subject to any other written employment or other agreement to which
the Company and Grantee may be a party.

 

8.           Tax Withholding. The Company has the power and the right to deduct
or withhold, or require Grantee to remit to the Company, an amount sufficient to
satisfy Federal, state and local taxes (including the Grantee’s FICA obligation)
required by law to be withheld with respect to the grant and vesting of the
Restricted Shares.

 

9.           Interpretation. The Restricted Shares are being issued pursuant to
the terms of the Amended Employment Agreement and are to be interpreted in
accordance therewith. The Compensation Committee of the Board of Directors of
the Company (the “Compensation Committee”) will interpret and construe this
Agreement, and any action, decision, interpretation or determination made in
good faith by the Compensation Committee will be final and binding on the
Company and Grantee.

 

10.          Notices. All notices or other communications which are required or
permitted hereunder will be in writing and sufficient if (i) personally
delivered or sent by telecopy, (ii) sent by nationally-recognized overnight
courier or (iii) sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:

 

if to Grantee, to the address (or telecopy number) set forth on the Notice of
Restricted Shares Grant; and

 

if to the Company, to the attention of the Corporate Secretary of the Company at
the address set forth below:

 

ZST Digital Networks, Inc.

ITC Kung Kuan, No. 206 Tongbai Road,

3rd Floor, No.2 Building,

Zhengzhou City, Henan Province, China 450007

 

or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such
communication will be deemed to have been given (i) when delivered, if
personally delivered, or when telecopied, if telecopied, (ii) on the first
Business Day (as hereinafter defined) after dispatch, if sent by
nationally-recognized overnight courier and (iii) on the fifth Business Day
following the date on which the piece of mail containing such communication is
posted, if sent by mail. As used herein, “Business Day” means a day that is not
a Saturday, Sunday or a day on which banking institutions in the city to which
the notice or communication is to be sent are not required to be open.

 

11.          Specific Performance. Grantee expressly agrees that the Company
will be irreparably damaged if the provisions of this Agreement are not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by Grantee, the Company will, in
addition to all other remedies, be entitled to a temporary or permanent
injunction, without showing any actual damage, and/or decree for specific
performance, in accordance with the provisions hereof and thereof. The
Compensation Committee has the power to determine what constitutes a breach or
threatened breach of this Agreement. Any such determinations will be final and
conclusive and binding upon Grantee.

 

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12.         No Waiver. No waiver of any breach or condition of this Agreement
will be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.

 

13.         Grantee Undertaking. Grantee hereby agrees to take whatever
additional actions and execute whatever additional documents the Company may in
its reasonable judgment deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on Grantee
pursuant to the express provisions of this Agreement.

 

14.         Modification of Rights. The rights of Grantee are subject to
modification and termination in certain events as provided in this Agreement and
the Amended Employment Agreement.

 

15.         Governing Law. This Agreement is governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to its
conflict or choice of law principles that might otherwise refer construction or
interpretation of this Agreement to the substantive law of another jurisdiction.

 

16.         Counterparts; Facsimile Execution. This Agreement may be executed in
one or more counterparts, each of which will be deemed to be an original, but
all of which together will constitute one and the same instrument. Facsimile
execution and delivery of this Agreement is legal, valid and binding execution
and delivery for all purposes.

 

17.         Entire Agreement. This Agreement (including the Notice of Restricted
Shares Grant) and the Amended Employment Agreement constitute the entire
agreement between the parties with respect to the subject matter hereof, and
supersede all previously written or oral negotiations, commitments,
representations and agreements with respect thereto.

 

18.         Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
will not affect any other provisions of this Agreement, and this Agreement will
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.

 

19.         WAIVER OF JURY TRIAL. THE GRANTEE HEREBY EXPRESSLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Restricted Share Grant
Agreement as of the date first written above.

 

  ZST DIGITAL NETWORKS, INC.         By: /s/ Henry Ngan   Name: Henry Ngan  
Title: Chief Financial Officer         GRANTEE:       /s/ Bo Zhong   Name: Bo
Zhong