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EXHIBIT
10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated
Employment Agreement (this “ Agreement ”) is
entered into as of October 5, 2007 between Digital Music
Group, Inc., a Delaware corporation (“DMGI”), and Greg
Scholl, a resident of New York (the “ Executive
”), but this Agreement shall only became effective, and is
contingent upon, the consummation of the merger (the “
Merger ”) contemplated by that certain Agreement and
Plan of Merger, dated the date hereof, among Orchard Enterprises,
Inc., a New York corporation (“ Orchard ”), DMGI
and DMGI New York Inc., a wholly-owned subsidiary of DMGI (the
“ Effective Date ”).
Introduction
On July 10, 2007, the
Executive and DMGI entered into that certain Employment Agreement
(the “Old Agreement”) pursuant to which the Executive
was to become the President and Chief Executive Officer of DMGI
subject to and upon the completion of the Merger. The parties now
wish to modify certain of the terms of the Old Agreement and amend
and restate the Old Agreement in its entirety in accordance with
the terms of this Agreement.
Agreement
In consideration of the
promises and the terms and conditions set forth in this Agreement,
the parties agree as follows:
1. Position and
Duties . During the term of this Agreement, DMGI will
employ Executive, and Executive will serve DMGI as its President
and Chief Executive Officer. As such, Executive shall have such
responsibilities, duties and authority as reasonably accorded to
and expected of a President and Chief Executive Officer. The
responsibilities, duties and authority of Executive will include,
among other things, managing and growing the business of DMGI and
its subsidiaries and managing and directing all aspects of the
business customary for a Chief Executive Officer. In addition,
Executive shall be appointed to the Board of Directors of DMGI at
the Effective Date and will serve as a Director of DMGI, consistent
with the terms and conditions of all Directors, and shall have such
responsibilities, duties and authority as reasonably accorded to
and expected of such. Subject to the terms of Sections 7.5 and 8.4
hereof, additional or different duties, titles or positions may
from time to time be assigned to or taken from Executive by the
Board of Directors of DMGI; provided, however, that any such
changes are consistent and compatible with Executive’s
position as President & Chief Executive Officer of DMGI.
Executive will report directly to the Chairman of the Executive
Committee of the Board of Directors, the Board of Directors or its
designee committee(s).
2. Performance of
Duties . Executive will be based at and perform his duties
under this Agreement primarily at the New York, NY offices of DMGI.
Executive hereby represents and warrants that he is free to enter
into and fully perform this Agreement and the agreements referred
to herein without breach of any agreement or contract to which he
is a party or by which he is bound. Executive hereby further
represents and warrants that he has provided DMGI with copies of
any employment, confidentiality, non-competition or
non-solicitation agreements currently binding upon him.
3. Exclusive
Service . Executive shall devote his full time and efforts
(from a business perspective) exclusively to this employment and
apply all his skills, effort and experience to the performance of
his duties and advancing DMGI’s interests. Executive shall
not be engaged in any other business activity pursued for salary,
fees, profit, gain or other pecuniary advantage if such activity
interferes with Executive’s duties and responsibilities
hereunder. Executive will not engage in any professional consulting
activity nor serve on any corporate
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boards except with the prior written
approval of DMGI’s Board of Directors, and Executive will
otherwise refrain from engaging in any activities inconsistent or
in conflict with the performance of his duties hereunder. However,
the foregoing limitations shall not be construed as prohibiting
Executive from making personal investments in a passive form or
manner that will not require his services in the operation or
affairs of the companies or enterprises in which such investments
are made or from engaging in charitable, civic or community
activities that do not interfere with his duties to
DMGI.
4. Compliance with
Policies . DMGI has established policies, procedures and
practices, and Executive will comply with and be bound by all such
policies, procedures and practices from time to time in effect
during Executive’s employment to the extent DMGI has informed
Executive thereof. Executive will be employed in a position of
leadership within DMGI and will be expected to faithfully adhere
to, execute and fulfill all corporate policies established by DMGI,
now and in the future, in addition to establishing systems for
monitoring compliance with such policies by other officers,
employees and directors, particularly DMGI’s Code of Business
Conduct.
5. Confidential or
Proprietary Information and Inventions .
5.1 Company
Information . Executive agrees at all times during the term
of his employment and thereafter, to hold in strictest confidence
and not to use, except for the benefit of DMGI, or to disclose to
any person, firm or corporation (except within the scope of his
employment) without written authorization of the Chairman of the
Board of Directors of DMGI, any Confidential Information of DMGI.
Executive understands that “ Confidential Information
” means any DMGI financial or operating information, contents
of music libraries, data bases, technical data, trade secrets or
know-how, including, but not limited to, research, product plans,
products and processes, services, customer lists, channel partner
lists, target acquisition lists and customers, channel partners and
target acquisitions (including, but not limited to, customers,
channel partners and target acquisitions of DMGI on whom Executive
called or with whom Executive became acquainted during the term of
his employment), market data, software, inventions, music
processing techniques, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing,
financial reports or other business information disclosed to
Executive by DMGI or prepared by Executive during his employment by
DMGI, either directly or indirectly, in writing, orally, by
drawings, or by observation of documents, technology or equipment.
DMGI and Executive acknowledge that Confidential Information does
not include any of the foregoing items which have become publicly
known and made generally available through no wrongful act of
Executive’s or of others who were under confidentiality
obligations as to the item or items involved.
5.2 Third Party
Information . Executive recognizes that DMGI has received
and in the future will receive from third parties (including, but
not limited to, vendors, customers, channel partners and
acquisition targets) their confidential or proprietary information
subject to a duty on DMGI’s part to maintain the
confidentiality of such information and to use it only for certain
limited purposes. Executive agrees to hold all such confidential or
proprietary information in the strictest confidence and not to
disclose it to any person, firm or corporation or to use it except
as necessary in carrying out his work for DMGI consistent with
DMGI’s agreement with such third party.
5.3 No Prior
Inventions . Executive represents that, as of the Effective
Date of this Agreement, other than musical composition and sound
recording copyrights, he has no inventions, original works of
authorship, developments, improvements or trade secrets which were
made by him prior to his employment with DMGI, which relate to
DMGI’s business, operations, digitization processes, music
library or research and development.
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5.4 Future
Inventions . DMGI shall own all right, title and interest
(including patent rights, copyrights, trade secret rights, mask
work rights, sui generis database rights and all other
intellectual and industrial property rights of any sort) to any and
all inventions (whether or not patentable), works of authorship,
mask works, designs, know-how, ideas and information made or
conceived or reduced to practice, in the whole or in part, by
Executive during the term of his employment with DMGI to and only
to the fullest extent allowed by applicable law; provided ,
however , the foregoing shall only apply to any of the
foregoing that are directly related to the business of DMGI
(collectively referred to herein as “ Inventions
“). Executive agrees that he will promptly make full written
disclosure to DMGI, will hold in trust for the sole right and
benefit of DMGI, and hereby assign to DMGI or its designee, all his
right, title, and interest in and to any and all Inventions. To the
extent allowed by law, this section includes all right of
paternity, integrity, disclosure and withdrawal and any other
rights that may be known as or referred to as “moral
rights” or the like. To the extent Executive retains any such
moral rights under applicable law, Executive hereby ratifies and
consents to any action that may be taken with respect to such moral
rights by or authorized by DMGI and agrees not to assert any moral
rights with respect thereto. Executive will confirm any such
ratifications, consents and agreements from time to time as
requested by DMGI.
5.5 Maintenance of
Records . Executive agrees to keep and maintain adequate
and current written records of all Inventions made by him (solely
or jointly with others) during the term of his employment with
DMGI. The records will be in the form of notes, sketches, drawings
and any other format that may be specified by DMGI. The records
will be available to and remain the sole property of DMGI at all
times.
5.6 Patent and
Copyright Registrations . Executive agrees to assist DMGI,
or its designee, at DMGI’s expense, in every proper way to
secure DMGI’s rights in any Inventions and any copyrights,
patents, mask work rights or other intellectual property rights
relating thereto in any and all countries, including the disclosure
to DMGI of all pertinent information and data with respect thereto,
the execution of all applications, specifications, oaths,
assignments and all other instruments which DMGI shall reasonably
deem necessary in order to apply for and obtain such rights and in
order to assign and convey to DMGI, its successors, assigns and
nominees the sole and exclusive rights, title and interest in and
to such Inventions, and any copyrights, patents, mask work rights
or other intellectual property rights relating thereto. Executive
further agrees that his obligation to execute or cause to be
executed, when it is in his power to do so, any such instrument or
papers shall continue after the termination of this Agreement. If
DMGI is unable because of his mental or physical incapacity or for
any other reason to secure his signature to apply for or to pursue
any application for any United States or foreign patents or
copyright registrations covering Inventions or original works of
authorship assigned to DMGI as above, then Executive hereby
irrevocably designates and appoints DMGI and its duly authorized
officers and agents as his agent and attorney in fact, to act for
and in his behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further
the processing and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if
executed by Executive.
6. Compensation and
Benefits .
6.1 Base Salary
. Beginning on the Effective Date, DMGI shall pay Executive a base
salary of Two-hundred and fifty thousand dollars ($250,000) per
year, adjusted as provided herein (the “ Base Salary
”), payable as earned in accordance with DMGI’s
customary payroll practice. On at least an annual basis, the
Compensation Committee of the Board of Directors will review
Executive’s performance and make an increase to the then
current Base Salary as it deems warranted by individual and
corporate performance, market conditions and other factors. For
2008, such increase in Base Salary will not be less than 10% of
such Base Salary. No reductions will be made to Executive’s
Base Salary unless it is part of a company-wide
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expense reduction plan authorized by the
Board of Directors of DMGI, applying ratably to the base salaries
of all senior executives and to the fees earned by Directors;
provided , however , that in no event may
Executive’s Base Salary be reduced by more than fifteen
percent (15%) at any one time or in the aggregate over any
twenty-four (24) month period without his consent.
6.2 Additional
Benefits . Executive will be eligible to participate in
DMGI’s employee benefit plans of general application to
DMGI’s senior executives in effect from time to time, as
amended, including without limitation, those plans covering pension
and profit sharing, executive perquisites, stock purchases, and
those plans covering life, health, and dental insurance in
accordance with the rules established for individual participation
in any such plan and applicable law. Once Executive is eligible for
health and dental insurance coverage hereunder, Executive’s
spouse and dependents shall also be eligible for such coverage in
accordance with the terms of DMGI’s policies and plans and
the contracts with third party providers. In addition, beginning on
the Effective Date, Executive will receive such other benefits,
including vacation, holidays and sick leave, as DMGI generally
provides to its senior executives.
6.3 Incentive Bonus
Plan . For 2008 and all subsequent years during the Term,
subject to the terms of DMGI’s management incentive bonus
plan, as amended from time to time (the “ Bonus Plan
”), Executive will be eligible to earn cash bonuses on an
annual basis up to his Base Salary, payable as determined under the
Bonus Plan, but not until such time as the Compensation Committee
of the Board of Directors of DMGI determines the targets,
milestones, performance objectives and measurement criteria to be
met each fiscal year and approves the payment of specific cash
bonuses after the end of each fiscal year based upon the objective
calculations and discretionary judgments as called for in the Bonus
Plan. For 2007, Executive shall be entitled to receive a
discretionary cash bonus in an amount and in accordance with the
parameters set forth on Schedule A attached
hereto.
6.4 Expenses .
Executive shall prepare and submit timely expense reports and DMGI
will reimburse Executive for all reasonable and necessary travel
and other expenses incurred by Executive in connection with
DMGI’s business, provided that such expenses are in
accordance with DMGI’s applicable expense reporting and
reimbursement policy and are properly documented and accounted for
in accordance with the requirements of the Internal Revenue
Service.
6.5 Vacation .
Executive will be entitled to paid vacation as set forth in
DMGI’s policies and/or employee manual (as they may be
applicable to DMGI’s executive officers and key employees),
as approved by the Board of Directors.
6.6 Equity Incentive
Awards . At the Effective Date, Executive will receive
options to purchase 100,000 shares of DMGI’s Common Stock
(“Common Stock”) and 100,000 restricted shares of
Common Stock, with such options and shares being granted and
awarded pursuant to and under the terms and conditions of
DMGI’s Amended and Restated 2005 Stock Plan (the “
DMGI Stock Plan ”). Such stock options and shares of
restricted Common Stock shall vest quarterly in six (6) equal
installments such that they will be fully vested eighteen
(18) months from the Effective Date. The stock options will
expire on the seventh anniversary of the Effective Date.
7. Term and
Termination . This Agreement will commence on the Effective
Date and will continue until the earlier of three (3) years
after the Effective Date or when terminated pursuant to any one of
the following:
7.1 Death . The
death of Executive shall immediately terminate this
Agreement.
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7.2 Disability
. If, as a result of incapacity due to physical or mental illness
or injury, Executive shall have been absent from his full-time
duties hereunder or unable to materially fulfill his full-time
duties hereunder for three (3) consecutive months, then thirty
(30) days after receiving written notice (which notice may
occur on or after the end of such three (3) month period),
DMGI may terminate Executive’s employment hereunder provided
Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may initiate
termination of his employment under this Section 7.2 if his
health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or
mental health, provided that Executive shall have furnished DMGI
with a written statement from a qualified doctor to such effect and
provided, further, that, at DMGI’s request made within ten
(10) days from the date of receipt of such written statement,
Executive shall submit on a timely basis to an examination by a
qualified doctor selected by DMGI who is acceptable to Executive or
Executive’s doctor (such acceptability will not be
unreasonably withheld) and such doctor shall have concurred with
the conclusion of Executive’s doctor.
7.3 For Cause .
DMGI may terminate Executive’s employment under this
Agreement for “cause,” which shall be defined herein as
follows: (a) Executive’s material and irreparable breach
of this Agreement; (b) Executive’s gross negligence or
willful insubordination in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of
written notice from DMGI of the need to cure) of any of
Executive’s assigned duties and responsibilities hereunder;
(c) Executive’s willful dishonesty, fraud,
misrepresentation or misconduct with respect to the business and
affairs of DMGI which adversely affects the operations, reputation
or business prospe
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