EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 23rd day of December, 2010, by and between Cinedigm Digital Cinema Corp., a Delaware Corporation, 55 Madison Avenue, Suite 300, Morristown, New Jersey 07960 (the "Company"), and Christopher J. McGurk, having an address at 9100 Wilshire Blvd., 400W, Beverly Hills, CA 90212 (the "Employee").
WITNESSETH:
WHEREAS
, the Company desires to employ the services of the Employee and the Employee desires to be employed by the Company upon the terms and conditions set forth below;
NOW, THEREFORE
, in consideration of the mutual covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereby agree as follows:
1.
Employment
.
(a) The Company agrees to employ the Employee, and the Employee agrees to be employed by the Company, for the period stated in paragraph 3 hereof and upon the other terms and conditions herein provided.
(b) The Employee affirms and represents that he is under no obligation to any current or former employer or other party that is in any way inconsistent with, or that imposes material restrictions upon, the Employee’s employment by the Company or the Employee's responsibilities or undertakings under this Agreement.
2.
Position and Responsibilities
.
The Employee shall serve as Chief Executive Officer (“CEO”) and Chairman of the Board of Directors of the Company (the “Board”). The Employee’s principal place of employment will be located in metropolitan Los Angeles, California. The Employee shall be responsible for such duties as are commensurate with his office and as may from time to time be reasonably assigned to the Employee by the Board. Employee shall report directly to the Board of Directors of the Company. Except as otherwise provided herein, the Employee will devote his substantial full business time throughout the Term to the services required of him hereunder. The Employee will render his business services to the Company during the Term and will use his best efforts, judgment and energy to improve and advance the operations, programs, services and interests of the Company in a manner consistent with the duties of his position. Notwithstanding the foregoing, as long as it does not materially interfere with the Employee’s employment hereunder, the Employee may participate in educational, welfare, social, religious and civic organizations. The Employee may serve on additional boards of directors, other than those he currently holds at BRE Properties, Inc. and that certain entertainment content and distribution company currently called Activate
Media (as a non-executive chairman), only with the approval of the Compensation Committee of the Board (“Committee”), which approval shall not be unreasonably withheld or delayed.
3.
Term
.
Except as otherwise provided for herein, the term of this Agreement (the “Term”) shall be from January 3, 2011 (the “Effective Date”) and shall end on March 31, 2014. The parties agree to provide written notice to each other no later than six (6) months before the expiration of the Term regarding whether or not each would like to negotiate a renewal of this Agreement. Upon the expiration of the Term, this Agreement, except for the provisions that survive pursuant to this paragraph 3 and paragraph 8, will have no further force or effect.
In the event the Employee remains employed by the Company after the Term expires and the parties have not executed a successor written agreement, the Employee’s employment will be at-will. In such event, the Employee, for the duration of his at-will employment, will be entitled to receive the Base Salary and participate in the bonus and benefit programs in effect at the expiration of the Term.
4.
Compensation, Reimbursement of Expenses
.
(a)
Salary
.
For all services rendered by the Employee in any capacity during his employment under this Agreement, including, without limitation, service as an executive, officer, director, or member of any committee of the Company or of any subsidiary, affiliate, or division thereof, the Company shall pay the Employee, in accordance with the Company’s normal payroll practices, a salary (“Base Salary”) at the rate of $600,000 per year commencing with the Effective Date, subject to annual reviews and increases in the sole discretion of the Committee.
(b)
Bonus
. Employee shall be eligible to participate in the Company’s Management Annual Incentive Plan or any amended or successor plan thereto (“MAIP”). For each of the fiscal years ending March 31, 2012 through March 31, 2014, the target bonus shall be $450,000 (“Target Bonus”). The Employee’s bonuses shall be based on Company performance with goals to be established annually by the Committee, with consultation of Employee, provided that the ultimate decision shall be made by the Committee. Bonuses shall be paid at the same time bonuses are paid to other executives of the Company, but no later than August 31
st
following the fiscal year for which the bonus is earned, and shall be subject to the terms of the MAIP.
On March 31, 2011, the Employee shall be paid a minimum bonus of $112,500, with such amount to be determined by the Committee, payable in shares of the Company’s Class A Common Stock, par value $0.001 per share (the “Common Stock”), pursuant to the terms of the MAIP and/or the Company’s Second Amended and Restated 2000 Equity Incentive Plan, as amended (the “EIP”), subject to required withholdings of an amount sufficient to satisfy tax withholding obligations.
(c)
Reimbursement of Expenses
.
In accordance with Company policies then in effect, the Company shall pay directly, or reimburse the Employee for, reasonable travel,
entertainment and other business-related expenses incurred by the Employee in the performance of his duties under this Agreement.
(d)
Stock Option Grant
. Employee shall be granted 4,500,000 stock options (the “Options”) either under the EIP or on a standalone basis with terms at least as advantageous to Employee as those under the EIP, or a combination thereof. The Options will be non-statutory options. The grant will represent a three-year grant. 1,500,000 of the Options (“First Tranche”) shall have an exercise price equal to the lesser of $1.50 per share or the 20-day trailing average closing price of the Common Stock preceding the date of this Agreement; 2,500,000 of the Options (“Second Tranche”) shall have an exercise price of $3.00 per share, and the remaining 500,000 Options (“Third Tranche”) shall have an exercise price of $5.00 per share;
provided, however,
that in no event shall the exercise price per share of any tranche be less than the last closing price of the Common Stock on the day preceding the date of this Agreement. The Options will have a term of 10 years. The Options shall vest on the earliest to occur of the Vesting Date, as defined below, the death of the Employee, or a Change in Control (as defined in the EIP), provided the Employee remains an employee of the Company through the relevant date. For purposes of the preceding sentence, the Vesting Date shall be:
(i) the first anniversary of the Grant Date, with respect to one-third of the Options in each of the First Tranche, the Second Tranche and the Third Tranche;
(ii) the second anniversary of the Grant Date, with respect to one half of the remaining Options in each of the First Tranche, the Second Tranche and the Third Tranche; and
(iii) the third anniversary of the Grant Date, with respect to the remaining Options in each of the First Tranche, the Second Tranche and the Third Tranche.
In the event of Employee’s termination of employment, other than due to death or Disability, vested Options may be exercised after termination but in no event later than 90 days after termination (and in no event later than the expiration of the Options). In the event of Employee’s termination due to his death or Disability, vested Options may be exercised after termination but in no event later than 180 days after death or Disability (and in no event later than the expiration of the Options).
The terms set forth in this paragraph 4(d) and all other terms governing the Options shall be set forth in a separate Stock Option Agreement between the Company and the Employee.
5.
Participation in Benefit Plans; Office Support
.
The Employee will be eligible to participate in all benefit plans and programs that the Company provides to its senior executives in line with the Company's current practices, but shall be eligible to participate in all medical, dental, vision, disability, life insurance and paid time off plans that the Company provides to any senior executive of the Company, all in accordance with the terms and conditions of such benefit plans and programs as they may be modified by the Company from time to time.
The Company will provide the Employee with office and clerical support appropriate to his position, including a private office, an administrative assistant and parking privileges. Notwithstanding the foregoing, the Employee will not be entitled to any automobile allowance.
6.
Termination
.
(a) The Company shall have the right to terminate this Agreement and the Employee’s employment prior to the expiration of the Term only for “Cause” (as defined below). The Company shall have no obligations to the Employee for any period subsequent to the effective date of any termination of this Agreement pursuant to this paragraph 6(a), except any and all obligations provided by law and the payment of Base Salary (pursuant to paragraph 4(a)) up to and including the termination date, bonus earned and approved by the Committee (pursuant to paragraph 4(b)), reimbursement of expenses incurred prior to the termination date (pursuant to paragraph 4(c)), and benefits accrued prior to the termination date (pursuant to paragraph 5).
(b) If, prior to the end of the Term, the Company terminates this Agreement and the Employee's employment for any reason other than for Cause or if the Employee resigns for Good Reason (as defined below), the Employee shall be entitled to receive the amounts payable under paragraph 6(a), plus the amount of his Base Salary that would have been paid for the remainder of the Term (collectively referred to herein as “Severance”). Subject to paragraph 6(f) below, the Severance shall be paid in equal monthly installments, as of the first of each month, beginning with the month following sixty (60) days after such termination provided that the first of such payments would include any amounts that would have been payable absent the 60-day delay in commencement date, and such payments shall continue for the duration of the Term (which payment period is referred to herein as the “Severance Period”). During the Severance Period, the Employee shall have a duty to seek other employment, but shall not be required to accept
any position other than a position (i) as a senior executive officer with the same general responsibilities that the Employee possessed at the Company at the time of commencement of this Agreement, and (ii) with a company equal or larger in earnings and tangible net worth than the Company at the time of the Employee's termination. The Employee may, however, accept any full-time position at any level and at any salary with any entity, profit or non-profit, and the Employee, by accepting such employment, shall be conclusively deemed to have fulfilled his duty to seek employment under this paragraph 6(b). The Company shall be entitled to reduce the amounts paid under this paragraph 6(b) by the amounts paid to the Employee in the same period by such other entity.
(c) If, prior to the end of the Term, the Company terminates this Agreement and the Employee’s employment for any reason other than for Cause or if the Employee resigns for Good Reason, in each event within two years after a Change in Control (as defined in the EIP), in lieu of the amount payable under paragraph 6(b), Employee will receive a lump sum payment equal to the sum of his then Base Salary and Target Bonus amount, multiplied by the greater of (i) two, or (ii) a fraction, the numerator of which is the number of months remaining in the Term, and the denominator of which is twelve; provided, however, that such payment shall be limited to an amount which would not result in an “excess parachute payment” as that term is defined in Internal Revenue Code section 280G. Subject to paragraph 6(f) below, payment of
the amount due under this paragraph 6(c) shall be made as soon as practicable after the termination occurs.
(d) For purposes of this Agreement, “Cause” means any of the following: (i) the Employee’s conviction of or plea of nolo contendere to a felony or other crime involving moral turpitude,
(ii)
the Employee’s material breach of a material provision of this Agreement that is not corrected within thirty (30) days following written notice of such breach sent by the Company to the Employee,
(iii) the Employee’s
willful misconduct in the performance of his material duties under this Agreement,
(iv) the
Employee’s performance of his material duties in a manner that is grossly negligent, and
(v) the Employee’s failure to attempt to fully comply with any lawful directive of the Board which is not corrected within
thirty (30) days following written notice of such breach sent by the Company to the Employee. Whether or not “Cause” exists shall be determined solely by the Company in its reasonable, good faith discretion.
(e) For purposes of this Agreement, “Good Reason” means, without the Employee's written consent, (i) a material and substantially adverse reduction in title or job responsibilities compared with title or job responsibilities on the Effective Date, but shall not include a change of title and position during the Term to only Chief Executive Officer, (ii) any requirement that the Employee relocate to a work location more than 50 miles from the metropolitan Los Angeles area; or (iii) any material breach of the Agreement by the Company. Notwithstanding the foregoing, Good Reason will be deemed to exist only in the event that: (x) the Employee gives written notice to the Company of his claim of Good Reason and the specific grounds for his claim within ninety (90) days following the occurrence of the event upon which his claim rests, (y) the Company fails to cure such breach within thirty days (30) of receiving such notice (“Cure Period”), and (z) the Employee gives written notice to the Company to terminate his employment within fifteen (15) days following the Cure Period.
(f) Notwithstanding the foregoing, if Employee is a “specified employee” (as such term is defined in Section 409A) and the provisions of Treasury Regulation 1.409A-3(i)(2) apply because payments due under this Agreement constitute deferred compensation for purposes of Code Section 409A, payments under this paragraph 6 shall in no event be made prior to six months after the Participant’s separation from service (the “Suspension Period”). All payments suspended during the Suspension Period will be paid in a lump sum and the normal payment schedule will resume at the end of the Suspension Period. Each of the affected payments under this paragraph (f) shall be a separate payment for purposes of Section 409A of the Code.
(g) Notwithstanding any other provision of this Agreement to the contrary, the Employee
shall not be entitled to Severance or Change in Control payments under this paragraph 6 unless (i) the Employee materially complies with the restrictive covenants by which he is bound (whether pursuant to this Agreement or otherwise), including, but not limited to, any non-competition agreement, non-solicitation agreement, confidentiality agreement or invention assignment agreement signed by the Employee, and (ii) the Employee executes, delivers and does not revoke a commercially reasonable general release in form and substance acceptable to both the Company and Employee no later than sixty (60) days following the effective date of termination of employment.
7.
Death or Disability
.
Upon the death or Disability (as defined below) of the Employee prior to the end of the Term, this Agreement shall terminate and no further payments shall be made other than those provided for by law and the payment of Base Salary (pursuant to paragraph 4(a)) up to and including the termination date, bonus earned and approved by the Committee (pursuant to paragraph 4(b)), reimbursement of expenses incurred prior to such termination (pursuant to paragraph 4(c)), and benefits (pursuant to paragraph 5) accrued prior to the date of such death or Disability but not yet paid. For purposes of this paragraph 7, Disability shall mean any physical or mental incapacity that is documented by qualified medical experts and that results in the Employee’s inability to perform his essential material duties and responsibilities for the Company, with reasonable accommodation, for a period of ninety (90) days in any consecutive twelve (12) month period, all as determined in the good faith judgment of the Board.
8.
Restrictive Covenants
.
The Employee hereby covenants, agrees and acknowledges as follows:
(a)
Confidential Information.
In the course of his employment by the Company, the Employee will receive and/or be in possession of confidential information of the Company and its parent, subsidiaries, affiliates and divisions, including, but not limited to, information relating to: (i) operational procedures, financial statements or other financial information, contract proposals, business plans, training and operations methods and manuals, personnel records, and management systems policies or procedures; (ii) information pertaining to future plans and developments; and (iii) other tangible and intangible property that is used in the operations of the Company but not made public. The information and trade secrets relating to the business of the Company described in this paragraph 8(a) are hereinafter referred to collectively as the “Confidential Information,” provided that the term Confidential Information will not include any information: (x) that is or becomes generally publicly available (other than as a result of violation of this Agreement by the Employee or someone under his control or direction or (y) that the Employee receives on a non-confidential basis from a source (other than the Company or its representatives) that is not known by him to be bound by an obligation of secrecy or confidentiality to the Company.
(b)
Non-Disclosure.
The Employee agrees that he will not, without the prior written consent of the Company, during the period of his employment or at any time thereafter, disclose or make use of any such Confidential Information, except as may be required by law (and, in such case, he will immediately notify the Company of such disclosure request) or in the course of his employment hereunder. The Employee agrees that all tangible materials containing Confidential Information, whether created by the Employee or others, that comes into his custody or possession during his employment, will be and are the exclusive property of the Company.
(c)
Return of Confidential Information and Property.
Upon termination of the Employee’s employment for any reason whatsoever, he will immediately surrender to the Company all Confidential Information and property of the Company in his possession, custody or control in whatever form maintained (including, without limitation, computer discs and other
electronic media), including all copies thereof. Employee shall be allowed to make and keep a copy of all personal information, including, but not limited to, personal information contained in his contacts directory.
(d)
Non-Competition.
The Employee agrees that, while employed by the Company and for one year after the cessation of his employment with the Company for any reason other than a termination pursuant to paragraph 6(b) or 6(c), he will not become employed by or otherwise engage in or carry on, whether directly or indirectly as a principal, agent, consultant, partner or otherwise, any business with any person, partnership, business, corporation, company or other entity (or any affiliate, subsidiary, parent or division thereof) that is in direct competition with the Company.
(e)
Non-Solicitation/No-Hiring.
The Employee agrees that, while employed by the Company and for the greater of one year after the cessation of his employment with the Company for any reason or the period during which the Employee receives Severance or Change in Control payments, he will not (i) solicit or induce or attempt to solicit or induce any employee, director or consultant to terminate his or her employment or other engagement with the Company or (ii) employ or retain (or in any way assist, participate in or arrange for the employment or retention of) any person who is employed or retained by the Company or any of its parents, subsidiaries, affiliates and divisions or who was employed or retained by the Company or any of its parents, subsidiaries, affiliates and divisions both within the six (6) month period immediately preceding the Employee’s contemplated employment or retention of such person and on the date the Employee’s employment with the Company ended.
(f)
Injunctive Relief and Other Remedies.
The Employee acknowledges that the foregoing confidentiality, non-competition and non-solicitation/no-hiring provisions are reasonable and necessary for the protection of the Company and its parent, subsidiaries, affiliates and divisions, and that they will be materially and irrevocably damaged if these provisions are not specifically enforced. Accordingly, the Employee agrees that, in addition to any other relief or remedies available to the Company and its parent, subsidiaries, affiliates and divisions, the Company will be entitled to seek an appropriate injunctive or other equitable remedy for the purposes of restraining Employee from any actual or threatened breach of those provisions, and no bond or security will be required in connection therewith. If any of the foregoing confidentiality, non-competition and no-solicitation/no-hiring provisions are deemed invalid or unenforceable, these provisions will be deemed modified and limited to the extent necessary to make them valid and enforceable.
9.
Tax Withholding
.
The Company shall withhold from any benefits payable under this Agreement all federal, state, local or other taxes as shall be required pursuant to any law or governmental regulation or ruling.
10.
Effect of Prior Agreements
.
This Agreement contains the entire understanding between the parties hereto and supersedes any and all prior agreements between the Company and the Employee.
11.
Notices.
All notices that are required or may be given pursuant to the terms of this Agreement will be in writing and will be sufficient in all respects if given in writing and (i) delivered personally, (ii) mailed by certified or registered mail, return receipt requested and postage prepaid, or (iii) sent via a responsible overnight courier, to the parties at their respective addresses set forth above, or to such other address or addresses as either party will have designated in writing to the other party hereto. The date of the giving of such notices delivered personally or by carrier will be the date of their delivery and the date of giving of such notices by certified or registered mail will be the date five days after the posting of the mail.
12.
General Provisions
.
(a)
Nonassignability
.
Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or his beneficiaries or legal representatives without the Company's prior written consent, which shall not be unreasonably withheld or delayed; provided, however, that nothing in this paragraph 12(a) shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder following his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or persons entitled thereto.
(b)
No Attachment
.
Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect.
(c)
Binding Agreement
.
This Agreement shall be binding upon, and inure to the benefit of, the Employee and the Company and their respective permitted successors and assigns.
(d)
Compliance with 409A.
Notwithstanding any other provision of this Agreement, it is intended that the provisions of this Agreement satisfy the provisions of Section 409A of the Internal Revenue Code and this Agreement shall be interpreted and administered, as necessary, to comply with such provisions.
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13.
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Modification and Waiver
.
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(a)
Amendment of Agreement
.
This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto and approved by a majority of the members of the Board who were not nominated by the Employee.
(b)
Waiver
.
No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
14.
Severability
.
If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.
15.
Headings
.
The headings of paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.
16.
Governing Law
.
This Agreement will be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect to the choice of law principles thereof to the extent that the application of the laws of another jurisdiction would be required thereby. In addition, any legal suit, action or proceeding arising out of or relating to this Agreement will be instituted exclusively in Superior Court of the State of New Jersey or in the United States District Court for the District of New Jersey, and each party waives any objection to the venue of any such suit, action or proceeding and the right to assert that any such forum is not a convenient forum, and irrevocably consents to the jurisdiction of the Superior Court of the State of New Jersey or the United States District Court for the District of New Jersey in any such suit, action or proceeding.
17.
Survival of Provisions
.
Neither the termination of this Agreement, nor of the Employee's employment hereunder, will terminate or affect in any manner any provision of this Agreement that is intended by its terms to survive such termination, including without limitation, the provisions of paragraph 8
hereof.
18.
Authority to Enter this Agreement
.
Both the Company and the Employee represent that they have the authority to enter into this Agreement and neither party is subject to any restriction or limitation that would prevent them from performing their duties and obligations hereunder.
19.
Indemnification
.
The Company shall indemnify the Employee in the event the Employee is a party, or is threatened to be made a party, to any threatened, pending or contemplated action, suit, or proceeding (other than an action by or in the right of the Company) by reason of the fact that the Employee is an officer or director of the Company against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Employee in connection with such action, suit, or proceeding if the Employee acted in good faith and in a manner the Employee reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe the Employee’s conduct was unlawful.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has signed this Agreement, all as of the day and year first above written.
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Cinedigm Digital Cinema Corp.
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By:
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/s/ Gary S. Loffredo
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Name: Gary S. Loffredo
Title: SVP - General Counsel
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Christopher J. McGurk
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/s/ Christopher J. McGurk
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Name: Christopher J. McGurk
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EXHIBIT 10.3
STOCK OPTION AGREEMENT
as of December 23, 2010
The parties to this Non-Statutory Stock Option Agreement (this “Agreement”) are Cinedigm Digital Cinema Corp. (the “Company”), a Delaware corporation, and Christopher J. McGurk (the “Optionee”), an employee of the Company.
The Company desires to have the Optionee serve as an employee
of the Company and to provide the Optionee with an incentive to put forth maximum effort for the success of the business.
This Agreement sets forth the terms and conditions applicable to options to purchase shares of the Class A Common Stock of the Company, par value $0.001 per share (the “Common Stock”), granted to the Optionee as of the date first above written (the “Grant Date”).
Accordingly, intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
Definitions
The following definitions shall apply for purposes of this Agreement:
1.1 “
Board
” shall mean the Board of Directors of the Company.
1.2 A “
Change in Control
” of the Company shall be deemed to occur upon any of the following events:
(a) the acquisition in one or more transactions by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than any beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of beneficial ownership of in excess of fifty percent (50%) of the then-outstanding Company Voting Securities (as defined below) (on a fully diluted basis); provided, however, that the term “Change in Control” shall not include any such acquisition by any entity with respect to which, following such acquisition, more than 50% of the then-outstanding shares of voting stock of such entity is then beneficially owned, directly or indirectly, by individuals and entities who were beneficial owners of the then-outstanding Company Voting Securities (and/or options, warrants or other rights to acquire Company Voting Securities) immediately prior to such acquisition in substantially the same proportion as their ownership immediately prior to such acquisition of the then-outstanding Company Voting Securities (and/or options, warrants or other rights to acquire Company Voting Securities); or
(b) the consummation of a Merger unless, following such Merger, stock possessing at least fifty percent (50%) of the total combined voting power of the issued and outstanding shares of all classes of Company Voting Securities of the corporation resulting from such Merger is beneficially owned, directly or indirectly, by individuals and entities who were beneficial owners of the then-outstanding Company Voting Securities immediately prior to such Merger in substantially the same proportion as their ownership immediately prior to such Merger; or
(c) individuals who are members of the Board as of the Grant Date (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that any individual becoming a director subsequent to the date of this Agreement whose appointment to the Board or nomination for election by the Company was approved by a vote of at least a majority of the Incumbent Directors then in office (unless such appointment or election was at the request of an unrelated third party who has taken steps reasonably calculated to result in a Change in Control as described in paragraphs (a) or (b) of this Section 1.2 and who has indicated publicly an intent to seek control of the Company) shall be treated from the date of his appointment or election as an Incumbent Director; or
(d) consummation of a complete liquidation or dissolution of the Company.
For purposes of this Section 1.1, “Company Voting Securities” shall mean the combined voting power of all outstanding classes of common stock of the Company and all other outstanding securities of the Company entitled to vote generally in the election of directors of the Company.
1.3 “
Committee
” shall mean the Compensation Committee of the Board or such other Committee appointed by the Board for the purpose of administering this Option comprised solely of two or more members of the Board who qualify as “non-employee” directors within the meaning of Rule 16b-3 under the Exchange Act, as “outside” directors within the meaning of § 162(m) of the Code, and as “independent” directors within the meaning of NASDAQ Rule 4200(b)(15).
1.4 “
Exchange Act
” shall mean the Securities Exchange Act of 1934, as amended.
1.5 “
Market Price
” shall mean the closing price of Common Stock as reported on the Nasdaq Global Market or such other primary market or exchange on which the Common Stock may, from time to time, trade, on the date for which a Market Price is to be determined under this Agreement.
1.6 “
Merger
” shall mean any merger, reorganization, consolidation, share exchange, transfer of assets or other transaction having similar effect involving the Company.
ARTICLE II
Grant of Options
2.1 Subject to the terms and conditions of this Agreement, the Company hereby grants to the Optionee as of the Grant Date, the right and option to purchase from the Company up to, but not exceeding in the aggregate, 4,500,000 shares of Common Stock, at the option prices listed in Section 2.2 (the “Options”), and for the period beginning on the Grant Date and ending on December 23, 2020 (the “Option Term”). The Options are non-statutory stock options.
2.2 The Options shall be granted in three tranches as follows: 1,500,000 of the Options (“First Tranche”) shall have an exercise price of $1.50 per share; 2,500,000 of the Options (“Second Tranche”) shall have an exercise price of $3.00 per share; and the remaining 500,000 Options (“Third Tranche”) shall have an exercise price of $5.00 per share.
2.3 The Options shall be subject to the terms and conditions of this Agreement.
ARTICLE III
Vesting, Exercise and Tax Withholding
3.1 (a) Unless sooner terminated pursuant to this Agreement, the Options granted to the Optionee hereunder shall vest as described in this Section 3.1 and Section 3.2. On and after the date Options have vested, they may be exercised at any time and from time to time during the Option Term, subject to earlier termination in accordance with Article IV. Upon the termination of any of the Options pursuant to Article IV, the Options so terminated shall cease to be exercisable and the Optionee shall have no further rights under this Agreement with respect to the Options so terminated.
(b) The Options shall vest on the earliest to occur of the Vesting Date, as defined below, the death of the Optionee, or a Change in Control, provided the Optionee remains an employee of the Company through the relevant date. For purposes of the preceding sentence, the Vesting Date shall be:
(i) the first anniversary of the Grant Date, with respect to one-third of the Options in each of the First Tranche, the Second Tranche and the Third Tranche;
(ii) the second anniversary of the Grant Date, with respect to one half of the remaining Options in each of the First Tranche, the Second Tranche and the Third Tranche;and
(iii) the third anniversary of the Grant Date, with respect to the remaining Options in each of the First Tranche, the Second Tranche and the Third Tranche.
3.2 The Company, in its sole discretion, shall have the right (but shall not in any case be obligated), exercisable at any time after the Grant Date, to vest the Options, in whole or in part, prior to the time the Options would otherwise vest under the terms of this Agreement.
3.3 (a) Vested Options shall be exercised by the Optionee by delivering to the Company a Notice in the form set forth as Exhibit A hereto, along with payment of the exercise price (in one of the forms set forth in subparagraph (b) hereof) as well as payment of the applicable withholding taxes (as described in Section 3.4).
(b) The exercise price for the Option shall be paid by the Optionee within ten (10) business days after the date of exercise, and may be paid:
(i) in cash;
(ii) in whole shares of Common Stock of the Company owned by the Optionee prior to exercising the Option;
(iii) by having the Company withhold shares that otherwise would be delivered to the Optionee pursuant to the exercise of the Option in an amount equaling in value the exercise price;
(iv) in a combination of either cash and delivery of shares, or cash and withholding of shares; or
(v) by whatever other means the Committee may deem appropriate, other than by a loan by the Company to the Optionee.
3.4 The Company shall notify the Optionee of the amount of withholding tax or other tax, if any, that must be paid under federal and, where applicable, state and local law in connection with the exercise of the Options or the sale of shares of Common Stock subject to the Options. The Optionee shall meet his withholding requirement (i) by direct payment to the Company in cash of the amount of any taxes required to be withheld with respect to such exercise, or (ii) by delivering to the Company other shares of Common Stock of the Company owned by the Optionee prior to exercising the Option; (iii)by making a payment to the Company consisting of a combination of cash and such shares of Common Stock; or (iv) if the exerciser is the Optionee, by having the Company withhold shares that otherwise would be delivered to the Optionee pursuant to the exercise of the Option for which the tax is being withheld, provided that withholding by such method shall be limited to the minimum required applicable tax withholding. Such an election shall be made in such manner as may be prescribed by the Committee and the Committee shall have the right, in its discretion, to disapprove such election. Any such election must be made prior to the date to be used to determine the tax to be withheld and shall be irrevocable. The value of any share of Common Stock to be withheld by the Company or delivered to the Company pursuant to this Section 3.4 shall be the Market Price on the date used to determine the amount of tax to be withheld.
ARTICLE IV
Termination of Employment
4.1 In the event of the termination of employment of the Optionee by the Optionee or the Company for any reason whatsoever other than death or permanent disability (as defined in Section 4.2), any Options that were vested prior to the date of such termination (and which were not previously exercised), together with any other Options designated in writing by the Committee, shall terminate on the earliest of (i) ninety (90) days after the date of such termination, or (ii) the last day of the Option Term. Any Options that were not vested prior to the date of such termination and do not become vested pursuant to the immediately preceding sentence shall terminate as of the date of such termination and shall not be exercisable at any time thereafter.
4.2 In the event of the termination of the employment of the Optionee by reason of death or permanent disability, any Options that are vested (and which were not previously exercised), together with any other Options designated in writing by the Committee, shall terminate on the earliest of (i) one hundred eighty (180) days after the date of such termination, or (ii) the last day of the Option Term. Any Options that were not vested prior to the date of such termination and do not become vested pursuant to the immediately preceding sentence shall terminate as of the date of such termination and shall not be exercisable at any time thereafter. As used in this Agreement, the term “permanent disability” means the Optionee being deemed to have suffered a disability that makes the Optionee eligible for immediate benefits under any long-term disability plan of the Company, as in effect from time to time.
4.3 In the event of termination of employment, the Company, in its sole discretion, shall have the right (but shall not in any case be obligated), exercisable on or at any time after the Grant Date, to permit an Option to be exercised, in whole or in part, after the dates described in Sections 4.1 and 4.2, but not after the expiration of the Option Term.
4.4 In the event of a Change in Control, all Options outstanding on the date of such Change in Control that have not previously vested or terminated under the terms of this Agreement shall become immediately and fully exercisable. Notwithstanding the foregoing, unless otherwise determined by the Board, no change in control of the Company shall be deemed to have occurred for purposes of determining a Participant's rights under this Agreement if (i) the Optionee is a member of a group that first announces a proposal which, if successful, would result in a Change in Control, which proposal (including any modifications thereof) is ultimately successful, or (ii) the Optionee acquires a two percent or more equity interest in the entity that ultimately acquires the Company pursuant to the transaction described in clause (i) of this Section 4.4. In the case of termination by the Optionee or the Company of the Optionee’s employment within two (2) years after a Change in Control, unless such termination of employment is for cause, the Options shall remain exercisable during a three-year period commencing on the effective date of termination.
ARTICLE V
Miscellaneous
5.1 The number and kind of shares subject to outstanding Options and the option price for such shares shall be appropriately adjusted to reflect any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other change in capitalization with a similar substantive effect upon the Options. The Company shall have the power and sole discretion to determine the amount of the adjustment to be made in each case.
5.2 In the event of a Merger in which the Company is not the surviving corporation or pursuant to which a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, or converted into, or otherwise become shares of another corporation or other consideration, the Committee shall have the sole discretion to determine that (i) the surviving, continuing, successor or purchasing corporation, as the case may be (the “Acquiring Corporation”), will either assume the Company's rights and obligations under this Option Agreement or substitute awards in respect of the Acquiring Corporation's stock for outstanding Options or (ii) the outstanding Options shall be cancelled in exchange for such consideration as the Committee shall approve (based on the value of the consideration received in the Merger by holders of the same class of shares that are subject to outstanding Options).
5.3 After any Merger in which the Company shall be a surviving corporation, the Company may grant substituted options, replacing old options granted under a plan of another party to the Merger whose shares or stock subject to the old Options may no longer be issued following the Merger. The foregoing adjustments and manner of application of the foregoing provisions shall be determined by the Company in its sole discretion. Any such adjustments may provide for the elimination of any fractional shares which might otherwise become subject to any Options.
5.4 Nothing contained in this Agreement shall be deemed to confer upon the Optionee, in his capacity as a holder of Options, any right to prevent or to approve or vote upon any of the corporate actions described in this Article V. The existence of the Options granted hereunder shall not affect in any way the right or the power of the Company or its shareholders 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 stocks 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.
5.5 Whenever the term “the Optionee” is used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, or the person or persons to whom Options may be transferred by will or by the laws of descent and distribution, the term “the Optionee” shall be deemed to include such person or persons.
5.6 The Options granted hereunder are not transferable by the Optionee otherwise than by will or the laws of descent and distribution and are exercisable during the Optionee’s lifetime only by him or her. No assignment or transfer of the Options granted hereunder, or of the rights represented thereby, whether voluntary or involuntary, by the operation of law or otherwise (except by will or the laws of descent and distribution), shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon any such assignment or transfer the Options shall terminate and become of no further effect.
5.7 The Optionee shall not be deemed for any purpose to be a shareholder of the Company in respect of any shares as to which the Options shall not have been exercised as herein provided.
5.8 Nothing in this Agreement shall confer upon the Optionee any right to continue in the employ of the Company or shall affect the right of the Company to terminate the employment of the Optionee, with or without cause.
5.9 Nothing in this Agreement or otherwise shall obligate the Company to vest any of the Options, to permit the Options to be exercised other than in accordance with the terms hereof or to grant any waivers of the terms of this Agreement, regardless of what actions the Company, the Board or the Committee may take or waivers the Company, the Board or the Committee may grant under the terms of or with respect to any options now or hereafter granted to any other person or any other options granted to the Optionee.
5.10 Notwithstanding any other provision hereof, the Optionee shall not exercise the Options granted hereunder, and the Company shall not be obligated to issue any shares to the Optionee hereunder, if the exercise thereof or the issuance (or such purchase) of such shares would constitute a violation by the Optionee or the Company of any provision of any law or regulation of any governmental authority. Any determination in this connection by the Company shall be final and binding. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as the same shall be in effect from time to time) or to take any other affirmative action in order to cause the exercise of the Options or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority.
5.11 No amounts of income or other benefits received by the Optionee pursuant to this Agreement shall be considered compensation for purposes of any pension or retirement plan, insurance plan or any other employee benefit plan of the Company unless otherwise provided in such plan.
5.12 Every notice or other communication relating to this Agreement shall be in writing and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided; provided, however, that unless and until some other address be so designated, all notices or communications by the Optionee to the Company shall be mailed or delivered to the Company at its office at 55 Madison Avenue, Morristown, New Jersey 07960 and all notices
or communications by the Company to Optionee may be given to the Optionee personally or may be mailed to him or her.
5.13 This Agreement shall be governed by the laws of the State of Delaware applicable to agreements made and performed wholly within the State of Delaware (regardless of the laws that might otherwise govern under applicable conflicts of laws principles).
5.14 As used in this Agreement, unless the context otherwise requires (i) references to “Articles” or “Sections” are to articles or sections of this Agreement, (ii) “hereof”, “herein”, “hereunder” and comparable terms refer to this Agreement in its entirety and not to any particular part of this Agreement, (iii) references to any gender include references to all genders, (iv) “including” means including without limitation, and (v) headings of the various articles and sections are for convenience of reference only.
5.15 The Optionee agrees and acknowledges that he or she shall be obligated to cooperate with the Company and the underwriters in connection with any public offering of the Company’s securities and any transactions relating thereto and shall execute and deliver such agreements and documents, including without limitation, a lock-up agreement, as may be requested by the Company or the underwriters. The Optionee’s obligations under this Section 5.15 shall apply to any shares of Common Stock issued to him as well as to any and all other securities of the Company or its successor for which such Common Stock may be exchanged or into which such Common Stock may be converted.
5.16 This Agreement sets forth a complete understanding between the parties with respect to its subject matter and supersedes all prior and contemporaneous agreements and understandings with respect thereto. Except as expressly set forth in this Agreement, the Company makes no representations, warranties or covenants to the Optionee with respect to this Agreement or its subject matter, including with respect to (i) the current or future value of the shares subject to the Options and (ii) whether the option price is equal to, less than or greater than the fair market value of a share of Common Stock. Any modification, amendment or waiver to this Agreement will be effective only if it is in writing signed by the Company and the Optionee. The failure of any party to enforce at any time any provision of this Agreement shall not be construed to be a waiver of that or any other provision of this Agreement.
5.17 This Option shall be administered and interpreted solely by the Committee or its delegated agent. The interpretations and decisions of the Committee with regard to this Option shall be final and conclusive and binding upon the Optionee.
5.18 In the event of the Optionee’s death while the Options remain exercisable, the Options may be exercised by the Optionee’s beneficiary as designated on file with the Company, or, in the absence of such a beneficiary designation (or if the beneficiary has pre-deceased the Optionee), by will or the laws of descent and distribution (in which case the Company without liability to any other person, may rely on the directions of the executor or administrator of the Optionee’s estate with respect to the disposition or exercise of such options).
5.19 The Committee may require, upon exercise, payment or delivery pursuant to the Option, that the Optionee certify in a manner acceptable to the Company that he or she is in compliance with the terms and conditions of this Agreement.
5.20 It is the intent that this Agreement comply in all respects with Rule 16b-3 under the Exchange Act and any related regulations. If any provision of this Agreement is later found not to be in compliance with such Rule and regulations, the provisions shall be deemed null and void. This grants and exercises of the Option under this Agreement shall be executed in accordance with the requirements of Section 16 of the Exchange Act and regulations promulgated thereunder.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
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CINEDIGM DIGITAL CINEMA CORP.
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By:_
/s/ Gary S. Loffredo
______________________________
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Name: Gary S. Loffredo
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Title: SVP - General Counsel
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OPTIONEE:
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/s/ Christopher J. McGurk
____________________________
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Christopher J. McGurk
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EXHIBIT A
EXERCISE OF STOCK OPTION
Pursuant to the provisions of the Stock Option Agreement entered into as of December __, 2010 between Cinedigm Digital Cinema Corp. (the “Company”) and Christopher J. McGurk, Optionee (the “Agreement”), I hereby exercise the Stock Option granted under the terms of the Agreement to the extent of _____ shares of the Common Stock of the Company (the “Shares”). I deliver to the Company herewith the following in payment for the Shares:
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Method of Payment
(check one of the following):
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o
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I have enclosed $_________________ in full payment for the option shares and any applicable withholding.
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OR
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I have enclosed stock certificate no(s) _____________ together with stock powers endorsed to the Company, representing ____________ shares of the Company’s Common Stock.
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OR
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I have given irrevocable instructions to a broker to deliver prompt payment of the exercise price for the option shares and any applicable withholding.
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OR
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A combination of the above methods or other form of payment approved by the Committee (describe):
______________________________________________________________________________________________________________________
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Date:
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Optionee
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Social Security Number
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