Exhibit D(3)
EMPLOYMENT AGREEMENT
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THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
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as of December 24, 1999, between VMM Merger Corp., a Delaware corporation (the
"Company") and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("Executive"). As of the Effective Date (as
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defined below), this Agreement shall amend, restate and replace that certain
Employment Agreement, dated as of April 11, 1999, as the same may have been
amended or modified from time to time, by and between VDI MultiMedia, a
California corporation ("VDI") and Executive. This Agreement shall become
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effective (the "Effective Date") only upon the consummation of the transactions
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contemplated by that certain Agreement and Plan of Merger dated as of the date
hereof (the "Merger Agreement"), by and among the Company, VDI and VDI
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MultiMedia, Inc., a Delaware corporation (the "Surviving Corporation"), and this
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Agreement shall terminate on a co-terminous basis upon the termination or
expiration of the Merger Agreement. In connection with the transactions
contemplated by the Merger Agreement, (i) VDI shall merge with and into the
Surviving Corporation and (ii) the Company shall merge with and into the
Surviving Corporation.
In addition, on or about the Effective Date, the Company and Executive
shall become parties to certain executive stock and/or option arrangements in
accordance with the terms and conditions of the attached Equity Term Sheet and
such other terms and conditions negotiated by the parties in good faith (the
"Executive Stock Agreements") pursuant to which, among other matters, the
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Company shall grant certain stock options to Executive. The Company and
Executive are also parties to that certain Non-Compete Agreement dated as of the
date hereof (the "Non-Compete Agreement"). Effective as of the closing of the
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transactions contemplated by the Merger Agreement, Executive, the Surviving
Corporation, R. ▇▇▇▇ ▇▇▇▇▇▇▇▇ and the escrow agent named therein shall enter
into that certain Escrow Agreement dated as of the closing date of the
transactions under the Merger Agreement (the "Escrow Agreement").
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In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
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hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning and ending as provided in
paragraph 4 hereof (the "Employment Period").
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2. Position and Duties.
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(a) During the Employment Period, Executive shall serve as the
President and Chief Executive Officer of the Company and shall have the normal
duties, responsibilities and authority of the President and Chief Executive
Officer, subject to the overall direction and authority of the Company's board
of directors (the "Board").
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(b) Executive shall report only to the Board, and Executive shall
devote his best efforts and his full business time and attention to the business
and affairs of the Company and its
Subsidiaries; provided that nothing in this paragraph 2(b) shall prohibit
Executive from devoting, on average, not more than 20 hours per month to the
continued operation of ▇▇▇▇▇▇ Venture Capital Fund, LLC.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
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corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company or
its successors, directly or through one or more Subsidiaries.
(d) With respect to all regular elections of directors during the
Employment Period, the Company shall nominate, and use its best efforts to
elect, Executive to serve as a member of the Board. Upon the termination of the
Employment Period, Executive shall resign as a director of the Company and its
Subsidiaries, as the case may be.
3. Base Salary and Benefits.
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(a) During the Employment Period, Executive's base salary shall be
$350,000 per annum and shall be subject to review by the Board for purposes of
its potential increase on an annual basis (the "Base Salary"), which salary
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shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary withholding. In
addition, during the Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit programs for which senior
executive employees of the Company and its Subsidiaries are generally eligible.
(b) Executive shall be entitled to four weeks of paid vacation per
calendar year during the Employment Period.
(c) During the Employment Period, to the extent Executive is
insurable, the Company shall pay the premium for a term life insurance policy in
the amount of $3 million for Executive, the beneficiaries of such policy to be
designated by Executive.
(d) During the Employment Period, the Company shall pay 50% of the
dues and fees related to Executive's membership in the Calabassas Country Club,
or its equivalent.
(e) During the Employment Period, the Company shall provide Executive
with a leased automobile of his choice at a cost not to exceed $1,000 per month.
(f) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(g) In addition to the Base Salary, Executive will be eligible for an
annual bonus based upon specific bonus targets established in Exhibit A. The
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attainment of such EBITDA levels
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will not include any expenses related to any advisory or management fees paid or
payable to ▇▇▇▇ Capital, Inc. or any of its designees or affiliates or to any
other shareholder. To the extent significant corporate events occur (including,
without limitation, acquisitions, divestitures and capital investments that
impact the EBITDA levels upon which the Board determined such bonus targets),
the Board may reasonably modify such bonus targets to reflect the pro forma
effect of such corporate events. The calendar year 2000 annual bonuses
identified in Exhibit A shall be pro rated based upon a 360-day year and for the
actual number of days elapsed from the Effective Date through December 31, 2000.
(h) If an excise tax under Section 4999 of the Internal Revenue Code
of 1986, as amended, is assessed against Executive solely as a result of (i.e.,
disregarding any payments made to Executive, or acceleration of any of
Executive's other rights, by any person or entity other than the Company) any
payments made to Executive by the Company or acceleration of rights granted by
the Company to Executive with respect to his Rollover Options, the Deferred
Compensation Amount or the New Stock Option Program (as each such term is
defined in the attached Equity Term Sheet), and no such excise tax would have
been assessed but for (i.e., disregarding any payments made to Executive, or
acceleration of any of Executive's other rights, by any person or entity other
than the Company) such payments and acceleration of rights by the Company, then
the Company shall pay Executive such amounts, within 10 days after notice from
Executive of such assessment, such that Executive shall have, after payment of
all taxes, interest and penalties, the same amount of funds as if such
assessment had not been made. This obligation shall survive until the applicable
statute of limitations has expired.
4. Term.
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(a) The Employment Period shall commence as of the Effective Date and
shall terminate as of December 31, 2003; provided, that the Employment Period
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(including, without limitation, any extensions of the Employment Period pursuant
to the provisions below or otherwise) (i) shall terminate upon Executive's
resignation without Good Reason (as defined below), death or Disability (as
defined below), (ii) may be terminated by the Company at any time for Cause (as
defined below) or without Cause and (iii) shall terminate upon Executive's
resignation for Good Reason; provided further, that the Employment Period shall
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automatically renew for successive periods of one (1) year each, unless either
party delivers written notice to the other of its intention not to renew the
Employment Period for such successive one (1) year period at least 90 days prior
to the commencement of any such renewal period.
(b) Subject to the other terms and conditions of this Section 4(b),
if the Employment Period is terminated by the Company without Cause or if
Executive shall terminate the Employment Period for Good Reason during the term
of this Agreement, Executive shall be entitled to receive (y) the Base Salary
which Executive would have otherwise been entitled to receive had he not been
terminated without Cause or resigned for Good Reason and (z) the bonus described
in Section 3(g) above for the calendar year in which such termination occurs if
Executive would have otherwise been entitled to receive such bonus had he not
been terminated; provided that if such termination occurs prior to the last day
of the calendar year in respect of which such bonus is awarded, then such bonus
shall be prorated based upon the number of days elapsed prior to
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Executive's date of termination. Any such amounts payable under this Section
4(b) will be payable at such times as such amounts would have been payable had
Executive not been terminated. Notwithstanding anything in this Agreement to the
contrary, the Company shall have no obligation to pay any amounts payable under
this Section 4(b) during such times as Executive is in material breach of
paragraph 5, 6, or 7 hereof or any provision of the Executive Stock Agreements
or the Non-Compete Agreement. As a condition to the Company's obligations (if
any) to make payments pursuant to this paragraph 4(b), Executive will execute
and deliver a general release in form and substance reasonably satisfactory to
the Company.
(c) If the Employment Period is terminated by the Company for Cause
or is terminated pursuant to clause (a)(i) above, Executive shall be entitled to
receive his Base Salary through the date of termination.
(d) Except as otherwise provided in Section 4(b) or in this Section
4(d), all of Executive's rights to fringe benefits and bonuses hereunder (if
any) which accrue or become payable after the termination of the Employment
Period shall cease upon such termination. The Company may offset any amounts
Executive owes it or its Subsidiaries against any amounts it owes Executive
hereunder. After the termination of the Employment Period, Executive will also
be entitled to receive health benefits coverage for his dependents and himself
(in accordance with the terms and conditions of this Section 4(d)) under health
plan(s) or arrangement(s) made available by the Company to its employees from
time to time. Such health benefits coverage shall be paid for by the Company to
the same extent as if Executive were still employed by the Company. The health
benefits provided under this Section 4(d) shall continue until the earlier of
(i) the expiration of two years following the date of termination of Executive's
employment and (ii) the date Executive becomes covered under any other group
health plan not maintained by the Company which plan waives any pre-existing
condition of Executive and his dependents.
(e) For purposes of this Agreement, "Disability" (i) shall mean any
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physical or mental incapacitation which results in Executive's inability to
perform his duties and responsibilities for the Company for a total of 90 days
during any twelve-month period, as determined by the Board in its good faith
judgment and (ii) shall be deemed to have occurred on the 90th day of such
inability to perform.
(f) For purposes of this Agreement, "Cause" shall mean (i) the
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conviction of a felony, or any willful act or omission involving dishonesty or
fraud with respect to the Company or any of its Subsidiaries or any of their
customers or suppliers, (ii) substantial and repeated failure, after delivery of
written notice from the Board to Executive and a 10 day period to effect a cure,
to perform duties as reasonably directed by the Board, (iii) gross negligence or
willful misconduct with respect to the Company or any of its Subsidiaries, after
delivery of written notice from the Board to Executive and a 10 day period to
effect a cure or (iv) any other material breach of this Agreement, the Executive
Stock Agreements or the Non-Compete Agreement, after delivery of written notice
from the Board to Executive and a 10 day period to effect a cure.
(g) For purposes of this Agreement, "Good Reason" shall mean the
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occurrence, without Executive's consent, of any of the following: (i) unless
corrected within 10 days after
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delivery by Executive of written notice to the Board of Executive's objection
thereto, the assignment to Executive of any significant duties materially
inconsistent with Executive's status as a senior executive officer of the
Company or a substantial adverse alteration in the nature or status of
Executive's responsibilities for the Company, (ii) a reduction by the Company in
Executive's Base Salary in effect from time to time pursuant to this Agreement,
(iii) the Board requires Executive to relocate from the Los Angeles area or (iv)
any other material breach of this Agreement or the Executive Stock Agreements by
the Company, after delivery of written notice by Executive to the Board and a 10
day period to effect a cure.
5. Confidential Information. Executive acknowledges that the
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information, observations and data (including, without limitation, trade
secrets, know-how, research and product plans, customer lists, software,
inventions, processes, formulas, technology, designs, drawings, specifications,
marketing and advertising materials, distribution and sales methods and systems,
sales and profit figures and other technical and business information)
concerning the business or affairs of the Company or any of its Subsidiaries
disclosed or otherwise revealed to him, or discovered or otherwise obtained by
him, directly or indirectly, while employed by the Company and its Subsidiaries
or while serving as a director of the Company and its Subsidiaries
("Confidential Information") are the property of the Company or such Subsidiary.
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Therefore, Executive agrees that, during the Employment Period and for a period
of five years thereafter, he shall not disclose to any unauthorized person or
use for his own purposes any Confidential Information without the prior written
consent of the Board. The confidentiality and non-disclosure obligations of this
Section 5 shall not apply if, and to the extent that: (i) the Confidential
Information was known to the receiving party prior to its receipt from
Executive, other than by the fault of Executive, (ii) the Confidential
Information is or becomes part of the public domain, other than by the fault of
Executive, (iii) the Confidential Information is rightfully disclosed to the
receiving party by a third party that is legally free to disclose such
Confidential Information or (iv) the Confidential Information is disclosed
pursuant to subpoena or other compulsory legal process, or in connection with
proceedings to enforce any rights under this Agreement. Executive shall deliver
to the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Confidential Information, Work Product (as defined below) or the
business of the Company or any Subsidiary which he may then possess or have
under his control.
6. Inventions and Patents. Executive acknowledges that all
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inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
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such Subsidiary. Executive shall reasonably disclose (as promptly as
practicable) such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Solicitation; Noncompete.
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(a) Each of the parties hereto acknowledges and agrees that VDI is,
among other things, engaged in the business of providing post production
services (as defined in this Agreement) for video, audio, streamed video or
streamed audio or digitized video or digitized audio or any combination of the
foregoing, which business is conducted (including production, promotional and
marketing activities and sales activities) throughout the United States.
Executive possesses extensive knowledge and proprietary information with respect
to VDI and its Subsidiaries, which, if disclosed or made available to VDI's or
its successors' competitors, would have a material adverse effect on VDI and its
successors, and Executive has been responsible for the creation of goodwill
inherent in VDI and its Subsidiaries. In connection with the transactions
contemplated by the Merger Agreement, (i) Executive will sell or otherwise
dispose of all of his shares of capital stock of VDI within the meaning of
Section 16601 of the California Business and Professions Code and (ii) Executive
will receive substantial amounts of consideration in connection with the
transactions contemplated by the Merger Agreement.
(b) In light of Executive's ownership of outstanding shares of
capital stock of VDI and Executive's contributions to the growth and development
of VDI and its Subsidiaries, including the creation of goodwill, Confidential
Information and Work Product of VDI and its Subsidiaries, in order to induce the
Company to execute and deliver the Merger Agreement, Executive shall execute and
deliver this Agreement for the purpose of preserving for the Company's, its
successors' and their respective Subsidiaries' benefit the goodwill,
Confidential Information, Work Product, proprietary rights and going concern
value of the Company, its successors and their respective Subsidiaries, and to
protect the Company's, its successors' and their respective Subsidiaries'
business opportunities. The covenants contained in this Section 7 are integral
to the transactions contemplated by the Merger Agreement (including the sale or
disposition of the capital stock of VDI (within the meaning of Section 16601 of
the California Business and Professions Code) owned by Executive) and the
Company would not enter into and deliver the Merger Agreement absent Executive's
execution and delivery of this Agreement and the Company would not consummate
the transactions contemplated by the Merger Agreement unless this Agreement is
in full force and effect and valid, binding and enforceable against Executive as
of the closing of the mergers contemplated by the Merger Agreement.
(c) In order to protect the value of the capital stock of VDI
acquired by the Company's stockholders pursuant to the Merger Agreement
(including the goodwill, Confidential Information and Work Product of VDI, its
successors and their respective Subsidiaries), Executive agrees that during the
Employment Period and, as long as the Company is making payments to Executive
(whether required pursuant to Section 4(b) or otherwise elected to be made by
the Company) of not less than Executive's Base Salary during any such month, on
a month to month basis thereafter for a period not to exceed twenty-four months
(the "Noncompete Period"), he shall not, directly or indirectly, either for
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himself or for any other person, partnership, corporation, company or other
entity, own, manage, control, participate in, consult with, render services for,
or in any other manner engage in any business or enterprise which manufactures,
designs, produces, renders or sells products or services anywhere in the
Restricted Territory (as defined below) which compete with (including products
or services manufactured, produced or rendered by an entity for its own internal
use) the products or services of VDI, its successors or any of their respective
Subsidiaries (or any products or services VDI, its successors or any of their
respective Subsidiaries
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are then currently actively in process of developing or planning for),
including, without limitation, the business of providing post production
services (whether for internal use or for sale to third parties) for video,
audio, streamed video or streamed audio or digitized video or digitized audio or
any combination of the foregoing ("Media Content"). Executive agrees that the
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aforementioned covenant is reasonable with respect to its duration, geographical
area and scope. In particular, Executive acknowledges and agrees that VDI
currently conducts its business on a nationwide scale throughout the United
States and that the geographic scope of this restriction is necessary to protect
the goodwill and Confidential Information being sold. Neither the provision of
employment services to the Company, its successors or their respective
Subsidiaries pursuant to this Agreement nor the ownership of any securities of
the Surviving Corporation, its successors or their respective Subsidiaries shall
be deemed a violation of this Section 7(c). Notwithstanding the foregoing, after
the termination of the Employment Period, Executive shall be entitled to engage
in the activities described on the attached Exhibit A without violation of
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Section 7 of this Agreement (subject to the other obligations of Executive under
this Agreement).
For purposes of this Agreement,
(i) "post production services" shall include the duplication,
distribution, editing, mastering, storage or manipulation of
Media Content, whether physical or electronic, used in
broadcasting, television (including HDTV services), film,
advertising or the Internet (including on behalf of customers
involved in the sale or distribution of original or third party
content) and any other services provided by the Company with
respect to such Media Content, however, "post production
services" shall not include the primary production of (i.e.,
the initial creation of) or the purchase of original television
or film programming to the extent not involving post-production
services.
(ii) "Restricted Territory" shall mean the entire United States
including all of the counties located in the state of
California, including, but not limited to, the counties listed
on the attached Schedule I.
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(ii) "participate" includes any direct or indirect interest in any
enterprise, whether as an officer, director, employee, partner,
sole proprietor, agent, representative, independent contractor,
executive, franchisor, franchisee, creditor, owner or
otherwise; provided that the foregoing activities shall not
include the passive ownership (i.e., Executive does not
directly or indirectly participate in the business or
management of the applicable entity) of (i) less than 2% of the
stock of a publicly-held corporation whose stock is traded on a
national securities exchange and which is not primarily engaged
in a business of providing products or services which are
similar to or compete with the products and services of VDI,
its successors or any of their respective Subsidiaries (or any
products or services VDI, its successors or any of their
respective Subsidiaries are then in process of developing) or
(ii) with respect to any investments owned by Executive as of
the date of this
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Agreement, less than 2% of the stock of a publicly-held
corporation whose stock is traded on a national securities
exchange.
(d) During the Noncompete Period, Executive shall not directly or
indirectly through another person or entity (i) induce or attempt to induce any
employee of the Company or any Subsidiary to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, (ii) hire any person who was
an employee of the Company or any Subsidiary at any time during the Employment
Period, (iii) induce or attempt to induce any customer (including, without
limitation, any subsidiaries, divisions or affiliates thereof), supplier,
licensee, licensor, franchisee or other business relation of the Company or any
Subsidiary to cease doing business with the Company or such Subsidiary, or in
any way interfere with the relationship between any such customer (including,
without limitation, any subsidiaries, divisions or affiliates thereof),
supplier, licensee, licensor, franchisee or business relation and the Company or
any Subsidiary (including, without limitation, making any negative statements or
communications about the Company or its Subsidiaries) or (iv) service, engage in
business with or provide products or services to any customer (including,
without limitation, any subsidiaries, divisions or affiliates thereof) of the
Company or any Subsidiary with respect to post production services or any other
products or services then provided or rendered by the Company or any of its
Subsidiaries or which the Company or any of its Subsidiaries is then in process
of developing.
(e) Executive acknowledges that, in connection with the
consummation of the transactions contemplated by the Merger Agreement, he will
sell or otherwise dispose of (within the meaning of Section 16601 of the
California Business and Professions Code) all of his shares of capital stock of
VDI owned beneficially or of record by him, and that the Company would not
consummate the transactions contemplated by the Merger Agreement unless this
Agreement shall be in full force and effect and be a binding and enforceable
contract of Executive. Executive also acknowledges that, in the course of
serving as a director of VDI, its successors and their respective Subsidiaries
and during his employment as a senior executive officer of VDI, its successors
and their respective Subsidiaries, he has become and will continue to become
familiar with the Confidential Information and Work Product of VDI, its
successors and their respective Subsidiaries. Executive further acknowledges
that the scope of the business of VDI, its successors and their respective
Subsidiaries is independent of location (such that it is not practical to limit
the restrictions contained in this Section 7 to only certain specified counties,
cities or parts thereof) and that, therefore, as a senior executive officer and
director of VDI, its successors and their respective Subsidiaries, Executive has
had and will continue to have direct or indirect responsibility, oversight or
duties with respect to all of the businesses of VDI, its successors and their
respective Subsidiaries and its and their employees, vendors, customers, clients
and other business relations, and that, accordingly, the geographical
restriction contained in this Section 7 is reasonable in all respects and
necessary to protect the goodwill and Confidential Information and Work Product
of VDI, its successors and their respective Subsidiaries and that, without such
protection, VDI's, its successors' and their respective Subsidiaries' customer
and client relations and competitive advantage would be materially adversely
effected. It is specifically recognized by Executive that the Company would not
have entered into the Merger Agreement or engaged in the transactions
contemplated thereby without the restrictions contained in this Section 7.
Executive further acknowledges that the restrictions contained in this
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Section 7 do not impose an undue hardship on him due to the fact that (i) he has
general business skills which may be used in industries other than that in which
each of VDI, its successors and their respective Subsidiaries conduct their
business and do not deprive Executive of his livelihood and (ii) in connection
with the transactions contemplated by the Merger Agreement, Executive has
received substantial amounts of consideration which will enable Executive to
conduct business in businesses other than that in which each of VDI, its
successors and their respective Subsidiaries conduct their business. Executive
agrees that the covenants made in Section 7(c) and Section 7(d) shall be
construed as agreements independent of any other provision(s) of this Agreement
and shall survive any order of a court of competent jurisdiction terminating any
other provision(s) of this Agreement.
8. Enforcement. If, at the time of enforcement of paragraph 5, 6 or
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7 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area. Because
Executive's services are unique and because Executive has access to Confidential
Information and Work Product, the parties hereto agree that money damages would
not be an adequate remedy for any breach of this Agreement. Therefore, in the
event a breach or threatened breach of this Agreement, the Company or its
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof. In addition, in the event of an
alleged breach or violation by Executive of paragraph 7, the Noncompete Period
shall be tolled until such breach or violation has been duly cured. Executive
agrees that the restrictions contained in paragraph 7 are reasonable.
9. Security for Obligations; No Limitation of Liability. In order
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to secure (i) Executive's faithful performance and observation of his
obligations under paragraphs 5, 6 and 7 of this Agreement, (ii) Executive's
faithful performance and observation of his obligations under the Non-Compete
Agreement and (iii) the faithful performance and observation by R. ▇▇▇▇ ▇▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇▇") of his obligations under that certain Non-Compete Agreement dated
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as of the date hereof, by and between ▇▇▇▇▇▇▇▇ and the Company (the "▇▇▇▇▇▇▇▇
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Non-Compete"), effective as of the closing of the merger transactions under the
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Merger Agreement, the Surviving Corporation, Executive, ▇▇▇▇▇▇▇▇ and the escrow
agent named therein shall enter into and deliver the Escrow Agreement, which
shall provide for the payment of the Escrow Fund (as defined in the Escrow
Agreement) to the Surviving Corporation upon the terms and conditions specified
in the Escrow Agreement. Each of the parties hereto expressly acknowledges and
agrees (i) that nothing in this Agreement shall be interpreted to limit the
liability of Executive or ▇▇▇▇▇▇▇▇ for any breaches of this Agreement, the Non-
Compete Agreement or the ▇▇▇▇▇▇▇▇ Non-Compete, including, but not limited to,
the ability of the Company or its successors to obtain injunctive relief against
Executive or ▇▇▇▇▇▇▇▇ under this Agreement, the Non-Compete Agreement or the
▇▇▇▇▇▇▇▇ Non-Compete; and (ii) that the Escrow Fund is not intended, and shall
not be construed to be, liquidated damages to the Company or its successors for
any breaches by Executive or ▇▇▇▇▇▇▇▇ of this Agreement, the Non-Compete
Agreement or the ▇▇▇▇▇▇▇▇ Non-Compete.
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10. Other Businesses. As long as Executive is employed by the
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Company or any of its Subsidiaries, Executive agrees that he will not, except
with the express written consent of the Board and except as provided in Section
2(b) hereof with respect to ▇▇▇▇▇▇ Venture Capital Fund, LLC, become engaged in,
or render services for, any business other than the business of the Company or
any of its Subsidiaries.
11. Executive's Representations. Executive hereby represents and
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warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity (other than the
employment agreement described in the recitals to this agreement) and (iii) upon
the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that he
has consulted with independent legal counsel regarding his rights and
obligations under this Agreement and that he fully understands the terms and
conditions contained herein.
12. Survival. Paragraphs 5, 6 and 7 shall survive and continue in
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full force in accordance with their terms notwithstanding any termination of the
Employment Period.
13. Notices. Any notice provided for in this Agreement shall be in
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writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
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▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With copies to:
--------------
Irell & ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Notices to the Company:
----------------------
VMM Merger Corp.
c/o Bain Capital, Inc.
Two ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇
- 10 -
▇▇▇▇▇▇▇▇ ▇▇▇▇
With copies to:
--------------
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or received.
14. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein. In the event
that any ruling of any court or governmental authority calls into question the
validity of any portion of this Agreement, the parties hereto shall consult with
each other concerning such matters and shall negotiate in good faith a
modification to this Agreement which would obviate any such questions as to
validity while preserving, to the extent possible, the intent of the parties and
the economic and other benefits of this Agreement and the portion thereof whose
validity is called into question.
15. Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
16. No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
17. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
18. Successors and Assigns. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
- 11 -
19. Choice of Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California, without giving effect to any choice
of law or conflict of law rules or provisions (whether of the State of
California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California. Each of the parties
hereto maintains substantial contacts with the State of California, and a
significant portion of the parties' employment relationship shall be carried out
in the State of California. Each party agrees that the covenant providing for
California law to govern this Agreement is a material inducement to each party
to enter into this Agreement, and each party relied on such covenant to enter
into this Agreement.
20. Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
21. References to the Company. From and after the effectiveness of
-------------------------
the transactions contemplated by the Merger Agreement, all references to the
Company shall be deemed to be references to the Surviving Corporation.
22. Expenses. As of the Effective Date, the Company agrees to pay
--------
all reasonable attorneys fees incurred by Executive in connection with the
creation, execution and delivery of this Agreement and the Executive Stock
Agreements; provided, that the Company's obligations pursuant to this Section 22
shall not exceed $35,000 in the aggregate.
23. Dispute Resolution.
------------------
(a) Notwithstanding any provision to the contrary in this Agreement,
the provisions of this Section 23 shall not apply to any dispute, claim or
controversy involving any of the covenants set forth in Section 5, 6 or 7 of
this Agreement. Any dispute, claim or controversy arising out of any of the
covenants set forth in Section 5, 6 or 7 of this Agreement shall be adjudicated
in any court of competent jurisdiction.
(b) Each of the parties hereto agrees that they will attempt to
settle any dispute, claim or controversy arising out of this Agreement through
good faith negotiations in the spirit of mutual cooperation.
(c) Any dispute, claim or controversy that cannot be resolved by the
parties through good faith negotiations within 30 days of the notification to
the other party of the commencement of the dispute resolution procedures of this
Section 23 will then, upon the written request of any party hereto, be resolved
by binding arbitration conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association by a sole arbitrator. Such
arbitrator shall be mutually agreeable to the parties. If the parties cannot
mutually agree upon the
- 12 -
selection of an arbitrator, the arbitrator shall be selected in accordance with
the then effective Commercial Arbitration Rules of the American Arbitration
Association. To the extent not governed by such rules, such arbitrator shall be
directed by the parties to set a schedule for determination of such dispute,
claim or controversy that is reasonable under the circumstances. Such arbitrator
shall be directed by the parties to determine the dispute in accordance with
this Agreement and the substantive rules of law (but not the rules of procedure
or evidence) that would be applied by a federal court required to apply the
internal law (and not the law of conflicts) of the State of California. The
arbitration will be conducted in Los Angeles, California. Judgment upon the
award rendered by the arbitrator may be entered by any court having
jurisdiction.
(d) Nothing contained in this Section 23 shall prevent any party
hereto from resorting to judicial process if injunctive or other equitable
relief from a court is necessary to prevent injury to such party or its
affiliates. The use of arbitration procedures will not be construed under the
doctrine of laches, waiver or estoppel to affect adversely the rights of any
party to assert any claim or defense.
* * * * *
- 13 -
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
VMM MERGER CORP.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
Its:
--------------------------
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
- 14 -
EXHIBIT A
---------
1. Warehouse based storage and non-electronic distribution for non-media
companies, such as Wal-Mart, of pre-existing, pre-packaged physical
products (as opposed to electronic) for which neither Executive nor any of
its Affiliates has provided or will provide any post production services.
2. Sales of pre-existing, pre-packaged physical products (as opposed to
electronic) for which neither Executive nor any of its Affiliates has
provided or will provide any post production services or services (other
than post production services) over the Internet that are not related to
Media Content.
3. Document (other than documents containing or referencing any Media Content
(other than minor amounts of graphics or still photographs incident to the
content of such documents)) storage and distribution (via Internet, server
based or via satellite).
4. Database management excluding databases or data consisting of or derived
from Media Content.
5. Content licensing and marketing for exhibition through resale/re-licensing
arrangements, including the purchasing original television or film
programming not requiring future post production services; provided,
however that Executive may purchase original television or film programming
which may require future post production services so long as Executive
gives Merger Sub a right of first refusal (that is a right to make the
first offer to provide such services and to match any competing offer made
any another supplier for the applicable service) to provide such post
production services to Executive with respect to such programming.
- 15 -
SCHEDULE I
----------
Alameda Orange
Alpine Placer
▇▇▇▇▇▇ Plumas
Butte Riverside
Calaveras Sacramento
Colusa San ▇▇▇▇▇▇
Contra Costa San Bernardino
Del Norte San Diego
El Dorado San Francisco
Fresno San ▇▇▇▇▇▇▇
▇▇▇▇▇ San ▇▇▇▇ Obispo
Humboldt San Mateo
Imperial Santa ▇▇▇▇▇▇▇
Inyo Santa ▇▇▇▇▇
▇▇▇▇ Santa ▇▇▇▇
Kings Shasta
Lake Sierra
Lassen Siskiyou
Los Angeles ▇▇▇▇▇▇
▇▇▇▇▇▇ Sonoma
Marin Stanislaus
Mariposa ▇▇▇▇▇▇
Mendocino Tehama
Merced Trinity
Modoc Tulare
Mono Tuolumne
Monterey Ventura
Napa Yolo
Nevada Yuba
- 16 -
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ - EQUITY TERM SHEET
-----------------------------------
--------------------------------------------------------------------------------------------------
Existing Equity in VDI MultiMedia 44,044 shares of common stock owned
179,000 options @ $4.56/1/
250,000 options @ $8.31/2/
100,000 options @ $10.00/3/
150,000 options @ $15.00 (out of the money
-- to be canceled at no cost to the Company)
--------------------------------------------------------------------------------------------------
Rollover Notwithstanding anything contained in the
Employment Agreement or the Non-Compete
Agreement to the contrary, all shares of
owned common stock and all in the money
stock options will be rolled over into the
stock and options, respectively, of the
recapitalized Company at per share values
equal to the Merger Consideration and the
Intrinsic Value, respectively (each as defined
below). "Merger Consideration" means the
per share price payable pursuant to the
Merger Agreement. "Intrinsic Value" means
the Embedded Value (as defined below) less
the Deferred Compensation Amount (as
defined in the paragraph entitled "Deferred
Compensation") per share. "Embedded
Value" means the per share price equal to the
Merger Consideration less the applicable
exercise price per share.
--------------------------------------------------------------------------------------------------
---------------------------
/1/Vesting in 3 equal tranches on 2/19/00, 2/19/01 and 2/19/02
/2/Vesting in 3 equal tranches on 7/29/00, 7/29/01 and 7/29/02
/3/Vesting in 3 equal tranches on 2/19/00, 2/19/01 and 2/19/02
--------------------------------------------------------------------------------------------------
Invested Equity of the Recapitalized The invested equity (i.e., before any dilution
Company: for financing sources), including the
management rollover of stock and options, is
assumed to be $70 million (subject to change
at ▇▇▇▇'▇ discretion), split among Class L
Common stock and Class A Common stock
as follows:
# shares Dollars
-------- -------
Class L 2mm $63mm
Class A 18mm $7mm
The following splits imply per share prices
for the Class L Common and Class A
Common of $31.50 and $0.39 per share,
respectively (as so adjusted for any overall
change in the aggregate invested equity
account of the recapitalized Company,
hereafter referred to as the "Deal Prices").
Shares of common stock will be rolled over
proportionately into shares of Class L
Common and Class A Common.
--------------------------------------------------------------------------------------------------
Treatment of Rollover Stock Options: The existing stock options to be rolled over
(the "Rollover Options") will be rolled over
into new stock options with an aggregate in
the money value equal to the aggregate
Intrinsic Value. The Rollover Options will be
split proportionately between options for
Class L Common and Class A Common,
respectively (10% for shares of Class L
Common (representing 90% of the Intrinsic
Value) and 90% for shares of Class A
Common (representing 10% of the Intrinsic
Value), at exercise prices equal to 25% of the
respective Class L Common and Class A
Common Deal Prices.
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2
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Upon the consummation of the transactions
contemplated by the Merger Agreement (the
"Transactions"), the vesting of the Rollover
Options shall be accelerated (starting with
options vesting on 7/29/02 and working back
chronologically in time) to vest on such date
up to the point (and not in excess thereof) at
which approximately $100,000 (to establish
an adequate cushion) of additional value
(including any other parachute payments to
Executive paid directly by the Company in
connection with such change in control as
reasonably agreed by Company and
Executive) would trigger an excise tax under
the provisions of Section 4999 of the Internal
Revenue Code (the "4999 Limitation"). All
of the Rollover Options, the vesting of which
has not been accelerated upon the
consummation of the Transactions because of
the 4999 Limitation, shall continue to vest in
accordance with their original vesting
schedule (subject to further accelerated
vesting upon (i) any subsequent change in
control or (ii) Executive's termination without
Cause or Executive's termination for Good
Reason).
--------------------------------------------------------------------------------------------------
3
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Deferred Compensation "Deferred Compensation Amount" means the
aggregate amount of the exercise prices on
the Rollover Options, which exercise prices
will be equal to 25% of the respective Class L
Common and Class A Common Deal Prices.
The Deferred Compensation Amount will be
an unfunded liability of the Company. Such
amount shall be payable in full at the earlier
of (a) 10 years, (b) consummation of an IPO,
(c) consummation of a change of control, (d)
10 days prior to expiration of exercisability of
any Rollover Options and (e) 60 days after
termination of employment. Except for any
vesting required to comply with the 4999
Limitation (which vesting shall be identical to
the related options), the amount of the
deferred compensation obligation shall be
fully vested with no forfeiture provision.
--------------------------------------------------------------------------------------------------
4
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New Stock Option Program: The following non-qualified stock option
program (all exercisable for 10 years) will be
made available to the Company management
team (all amounts indicated are before any
pro rata dilution for equity granted to
financing sources):
Tranche I stock options exercisable for Class
A Common for 5% of the Company on a fully
diluted basis as of the closing, exercisable at
the Class A Deal Price, 25% of which will
vest at the end of year 1 and the balance of
which will vest monthly in years 2, 3 and 4.
Tranche II stock options exercisable for Class
A Common for 2.5% of the Company on a
fully diluted basis as of the closing,
exercisable at the Class A Deal Price, which
will vest in 10 years, and will be subject to
accelerated vesting upon ▇▇▇▇'▇ achievement
of a 3.5 times return on its invested capital,
after giving effect to the new options.
Tranche III stock options exercisable for
Class A Common for 2.5% of the Company
on a fully diluted basis as of the closing,
exercisable at the Class A Deal Price, which
will vest in 10 years, and will be subject to
accelerated vesting upon ▇▇▇▇'▇ achievement
of a 4.5 times return on its invested capital,
after giving effect to the new options.
One third (33.33%) of each of the foregoing
tranches of options will be granted to
Executive.
Vesting of all of Executive's new options
shall be accelerated upon a change in control.
In addition, if Executive is terminated without
Cause or if Executive resigns for Good
Reason, the three tranches of options will be
subject to accelerated vesting as follows:
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5
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Tranche I: 50% of all unvested options will
immediately vest upon any such termination
and all remaining unvested options will vest
if, within 365 days from the termination date,
the Company or its stockholders enter into a
binding agreement with respect to a
transaction (and such transaction is in fact
consummated) in which ▇▇▇▇ has achieved a
3.5 times return on its invested capital, after
giving effect to the new options.
Tranche II: all unvested options will
immediately vest if, within 365 days from the
termination date, the Company or its
stockholders enter into a binding agreement
with respect to a transaction (and such
transaction is in fact consummated) in which
▇▇▇▇ has achieved a 3.5 times return on its
invested capital, after giving effect to the new
options.
Tranche III: all unvested options will
immediately vest if, within 365 days from the
termination date, the Company or its
stockholders enter into a binding agreement
with respect to a transaction (and such
transaction is in fact consummated) in which
▇▇▇▇ has achieved a 4.5 times return on its
invested capital, after giving effect to the new
options.
--------------------------------------------------------------------------------------------------
6
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After Executive's termination, Executive shall
have a period of 90 days (or, in connection
with any accelerated vesting of any options
upon the consummation of a transaction as
described in the three preceding paragraphs,
upon the consummation of any such
transaction, so long as Executive is permitted
to exercise such options simultaneously with
the consummation of such transaction) to
exercise any vested and previously
unexercised stock options. Except as
provided in the immediately preceding
sentence with respect to options which may
be accelerated upon the consummation of a
transaction, upon termination, any unvested
options shall be canceled.
--------------------------------------------------------------------------------------------------
Section 280G With respect to the grants to be made to
Executive, the ▇▇▇▇ investor group will, upon
the making of such grants by the Company,
approve such grants to Executive in
accordance with Code Section 280G(b)(5),
such that the provisions of Code Section
280G may not apply to such options.
Executive shall take all necessary actions in
connection with such approval.
--------------------------------------------------------------------------------------------------
Put Rights; Call Rights on the Rollover Executive shall have no put rights with
Equity: respect to any portion of his equity (either the
rollover equity or the new options). In
addition, Executive's rollover equity shall not
be subject to any call by the Company or the
▇▇▇▇ investor group.
--------------------------------------------------------------------------------------------------
7
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Call Rights on the New Equity: In the event of Executive's termination
without Cause or termination for Good
Reason, the Company and the ▇▇▇▇ investor
group shall have call rights (exercisable
within 90 days of Executive's termination) on
up to 50% of any vested options and up to
50% of any stock issued in connection with
the new option program, at the fair market
value thereof (taking into account any unpaid
exercise price with respect to the value of
unexercised options). In the event of
Executive's cessation of employment for any
other reason, the Company and the ▇▇▇▇
investor group shall have call rights
(exercisable within 90 days of Executive's
termination) on up to 100% of any vested
options and up to 100% of any stock issued in
connection with the new option program, at
the fair market value thereof (less any unpaid
exercise price with respect to unexercised
options). Fair market value shall be
determined jointly by Executive and the
Company's board of directors, or if such
parties cannot agree, fair market value shall
be determined by a mutually agreeable
business appraiser.
--------------------------------------------------------------------------------------------------
8
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Pre-IPO Liquidity Executive shall have customary tag along
rights on any private sale by the ▇▇▇▇ investor
group (subject to customary exceptions for
transfers to affiliates, etc.) prior to an IPO or a
sale of the Company (irrespective of whether
Executive is still an employee of the
Company). ▇▇▇▇ will provide a side letter or
sign off on the tag along provisions of the
definitive agreement to evidence such tag
along rights. Except as set forth above and in
the immediately following paragraph,
Executive will agree to be bound by ▇▇▇▇'▇
customary transfer restrictions limiting
Executive's ability to transfer any of his
equity in the Company (subject to customary
exceptions for family planning, etc.).
Subject to a right of first refusal in favor of
the Company and the ▇▇▇▇ investors, as long
as Executive is still employed by the
Company (or if Executive was terminated
without Cause or resigned for Good Reason),
commencing on the fifth anniversary and the
sixth anniversary of the closing under the
Merger Agreement, Executive shall be
entitled to sell capital stock of the Company
with a fair market value not to exceed $1
million in each such year.
--------------------------------------------------------------------------------------------------
9
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Post-IPO Liquidity The Company will use best efforts to register
for resale Executive's rollover equity and new
equity on Form S-8. To the extent the
Company is unable to register such equity for
resale on Form S-8 and Executive is unable to
sell such equity pursuant to Rule 144,
commencing 180 days after the Company's
initial public offering, the Company will
provide Executive with up to two demand
registrations to sell such equity. In addition,
Executive will have customary piggyback
registration rights, pro rata with the other
holders of the Company's registrable
securities.
Executive will be bound by a customary
holdback agreement, in which no sale of any
of Executive's equity shall be permitted
during the seven day period prior to and the
180 day period beginning on the effective
date of any underwritten public offering,
except as part of such offering.
--------------------------------------------------------------------------------------------------
Drag Along Rights All of the Company's capital stock and
options issued or granted to Executive will be
subject to ▇▇▇▇'▇ customary drag along
agreement upon any sale of the Company.
--------------------------------------------------------------------------------------------------
10
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Executive Exclusivity; Board Appointment Prior to the closing of the Transactions, ▇▇▇▇
will provide Executive a side letter
confirming that Executive will operate all
▇▇▇▇-controlled (i.e., in which ▇▇▇▇ and its
affiliates own 50% or more of the voting
common stock) businesses in the "post-
production field" (to be defined by mutual
agreement, but which, in concept, shall be
limited to the Company's current competitors
and those entities which the Company
currently contemplates competing with).
The ▇▇▇▇ side letter will also confirm the
agreement of the ▇▇▇▇ investor group to
appoint Executive to the Company's board of
directors, so long as Executive is an employee
of the Company or its subsidiaries. The
Company will not take a tax deduction with
respect to payments made by any
shareholders to ▇▇▇▇▇ on the Effective Date.
--------------------------------------------------------------------------------------------------
11