Mr. John
V. Madison
24 Pocomo Road
Nantucket, MA 02554
The purpose of
this letter agreement is to confirm our mutual understanding of the
terms of your employment by Entertainment Distribution Company, LLC
(the “Company" ) to serve as the Executive Vice
President, Business Development, Sales & Marketing of the
Company.
The terms of your
employment are set forth below. For purposes of this letter
agreement, the “Effective Date” is the first day of
your employment by the Company, which shall be January 2,
2006.
(a) You
agree, that beginning on the Effective Date, you will serve as the
Senior Vice President, Business Development, Sales & Marketing
of the Company, and you will perform those duties and exercise
those powers commensurate with your office as may be reasonably
requested of you by Jim Caparro, the President & CEO of the
Company, or the Board of Directors of the Company (the
“Board" ). You will also: (1) devote
substantially all of your business time, attention, and abilities
to the Company’s business and (2) faithfully serve the
Company and use your best efforts to promote the interests of the
Company.
2.
Term and Termination .
(a) The
initial term of your employment under this letter agreement will be
for a period of three (3) years, commencing as of the
Effective Date (the “Initial Term”), subject to early
termination as set forth herein. The term of your employment may be
renewed only upon terms mutually agreed upon in writing by the
Company and you (a “Renewal term”). The Initial term or
any Renewal Term is each sometimes referred to in this letter
agreement as a “Term" .
(b) Notwithstanding
the provisions of Paragraph 2(a) above, your employment under this
letter agreement may be terminated prior to the expiration of the
Term as follows:
(1) The
Company may terminate your employment hereunder for
“Cause;”
(2) The
Company may terminate your employment hereunder upon your
“Disability;”
(3) You
may terminate your employment hereunder immediately for “Good
Reason” or without “Good Reason” on
30 days’ prior written notice;
(4) Your
employment hereunder shall terminate automatically upon your
death;
(5) The
Company may terminate your employment hereunder at any time without
“Cause” on 30 days’ prior written
notice.
(6) In
addition to any other amounts expressly provided hereunder, you
shall be paid all amounts and benefits accrued and owed to you
prior to and through the effective date of any termination of your
employment hereunder.
3.
Compensation and Benefits.
(a) The
Company will pay to you an initial salary of $400,000 per annum
(which as increased from time to time, is referred to as the
“Base Salary" ). The Base Salary will be payable in
accordance with the Company’s normal payroll practices. The
Base Salary shall be reviewed annually.
(b) You
will be eligible to participate in an annual Bonus Plan of the
Company for each calendar year of your employment with the Company.
Such Bonus Plan will be subject to revision by Company management
and the Board for each subsequent calendar year.
(c) The
Company shall provide you with an automobile allowance in the
amount of $750 per month.
(d) You
may take four (4) weeks of vacation in each calendar year
during the Term at such times as shall be mutually convenient to
you and the Company. Your vacation will be prorated for each
partial calendar year during the Term.
(e) You
may participate in all retirement plans, life, medical/dental
insurance plans and disability insurance plans of the Company, to
the extent that you qualify under the eligibility requirements of
each plan or program.
(f) On
the Effective Date, subject to your execution and delivery to the
Company of a Joinder Agreement in the form attached as
Exhibit 1 hereto in which you agree to be bound by all of the
terms and conditions of the Limited Liability Company Agreement of
the Company (a true and correct copy of which is appended to the
Joinder Agreement attached as Exhibit 1, and which is
hereinafter referred to as the “LLC Agreement" ), you
will receive Profits Interests, allocated among Tier One, Tier Two
and Tier Three, all as described in the LLC Agreement.
1 On the Effective Date, you shall become vested
with respect to one-third of each of your Tier One, Tier Two and
Tier Three Profits Interests. Provided that you are still employed
by the Company under this letter agreement at such time, you shall
become vested with respect to an additional one-third of each of
your Tier One, Tier Two and Tier Three Profits Interests on the
first anniversary of the Effective Date. Provided that you are
still employed by the Company
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Representing
5.0% of the Company ’ s total Profits Interests as specified in the
LLC Agreement (representing the right to receive 1.5% of the
distributions by the Company beyond certain thresholds, all as
described in the LLC Agreement).
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under this
letter agreement at such time, you shall become vested with respect
to the final one-third of each of your Tier One, Tier Two and Tier
Three Profits Interests on the second anniversary of the Effective
Date. Notwithstanding the foregoing, you shall become fully vested
in all of such entire Profits Interests upon (1) a Change of
Control of the Company, (2) your death, (3) the
termination of your employment hereunder because of your
Disability, (4) the termination of your employment hereunder
by the Company without Cause or (5) the termination of your
employment hereunder by you for Good Reason. Upon the termination
of your employment under this letter agreement (other than after a
Change of Control or on account of the reasons specified in clauses
(2) through (5) above), any portion of your Profits
Interests that has not previously vested shall be deemed cancelled
and of no further force or effect.
(g) The
Company agrees that it and its affiliates will conduct
“Seller Restricted Activities” (as such term is defined
in the Asset Purchase Agreement dated May 9, 2005 between the
Company and UMG Manufacturing & Logistics, Inc. and Universal
Music & Video Distribution Corp.) only through the Company and
its subsidiaries or other entities in which you are granted Profits
Interests equivalent to the Profits Interest granted to you
hereunder and under the LLC Agreement.
(h) In
the event that your employment is terminated by the Company without
Cause or by you for Good Reason (a “Triggering
Termination”) within the first 24 months of your Initial
Term, the Company will, in full settlement and satisfaction of all
claims for Base Salary or Bonus compensation hereunder, pay you
(1) your then-current Base Salary at the time of such
Triggering Termination for a period of 12 months (2) a
prorated amount of your bonus payable under the Bonus Plan for the
then-current fiscal year. Such total amount payable to you as set
forth in this subsection (h) (1) or (2) above will be
paid in equal bi-weekly installments over the 12-month period after
termination. In the event that a Triggering Termination occurs at
any time after the first 24 months of your Initial Term and
prior to the expiration of the Initial Term, the Company will, in
full settlement and satisfaction of all claims for Base Salary or
Bonus compensation hereunder, pay you (A) your then-current
Base Salary at the time of such Triggering Termination through the
end of the Initial term (B) a prorated amount of your bonus
payable under the Bonus Plan for the then-current fiscal year. Such
total amount payable to you as set forth in this subsection (h)
(A) or (B) above will be paid in equal bi-weekly
installments over the period remaining in the Initial Term after
termination. Except as specifically set forth in this
Section 3 (h) above, or any future payments due under the
LLC Agreement for any Profits Interests that are fully vested and
nonforfeitable at the time of termination, the Company shall have
no other or further obligation to pay any severance or other
post-termination to Employee, including, without limitation, in the
event that your employment is terminated by the Company for Cause
or by you without Good Reason.
In addition, upon
the occurrence of a Triggering Termination, the Company will
provide medical benefits to you (and your dependents) for twelve
(12) months from the date of the Triggering Termination, or
until the end of your Initial Term, whichever ends soonest, at the
same level of coverage as such benefits are provided to active
employees of the Company. Your right to continue medical coverage
required under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (COBRA) shall begin at the expiration of the 12-month
period described in subsection (h) (1) above in the case of a
Triggering Termination within the first 24 months of your
Initial Term, or shall begin at the expiration of the Initial Term
in the case of a
3
Triggering
Termination after the first 24 months of your Initial Term and
prior to the expiration of the Initial Term. Termination of your
employment for Disability shall not qualify you for benefits under
this Paragraph 3(h). As used in this letter agreement, the
following terms shall have the following meanings:
“Cause” means the occurrence of any of the
following:
(1) your
resignation, except for Good Reason, from the Company;
(2) acts
of dishonesty or fraud on your part;
(3) your
conviction of a felony involving moral turpitude or the entry of a
plea of nolo contendere for such a felony; or
(4) a
material failure to perform your duties or a material violation of
your responsibilities or other agreements as set forth herein,
including the failure on your part to commence your full-time
employment with the Company on or before January 2,
2006.
“Change of Control” means any one of the
following: (i) a merger, consolidation, security exchange,
issuance or sale of “Units,” or other reorganization of
or involving the Company pursuant to which either (a) the
“Members,” determined immediately prior to such
transaction is effected, collectively have beneficial ownership of
less than 51% of the total outstanding “Units”
(determined on a fully diluted basis) of the Company, or comparable
equity securities of the surviving entity if the Company is not the
surviving entity, immediately following such transaction or
(b) the “Members” owning “Class A
Units,” determined immediately prior to such transaction is
effected, collectively have beneficial ownership of less than 51%
of the total outstanding “Class A Units”
(determined on a fully diluted basis) of the Company, or comparable
equity securities of the surviving entity if the Company is not the
surviving entity, immediately following such transaction,
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions), of all or
substantially all of the assets of the Company, (iii) the
“Members” or Board’s approval of any plan or
proposal for the liquidation or dissolution of the Company, or
(iv) the Company’s submission or becoming subject to any
bankruptcy proceeding, the appointment of a trustee, custodian or
conservator or any other similar voluntary or involuntary
creditors’ right proceeding; provided , however
, that notwithstanding the foregoing, in no event shall any of the
following transactions be deemed to have effected a Change of
Control: (1) any transac
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