Exhibit 10.3

 

EMPLOYEE MATTERS AGREEMENT

 

This EMPLOYEE MATTERS AGREEMENT (including all Schedules hereto, this
“Agreement”), dated as of February 6, 2014, is entered into by and between
Digital Generation, Inc., a Delaware corporation (“DG”), and Sizmek Inc., a
Delaware corporation (“SpinCo”) (each a “Party” and collectively, the
“Parties”). Capitalized terms used herein shall have the meanings ascribed to
them in Article I.

 

RECITALS

 

WHEREAS, DG has entered into that Agreement and Plan of Merger dated as of
August 12, 2013, by and among Extreme Reach, Inc., a Delaware corporation
(“Buyer”), Dawn Blackhawk Acquisition Corp., a Delaware corporation
(“Acquisition Sub”), and DG (the “Merger Agreement”), pursuant to which
Acquisition Sub will merge with and into DG (the “Merger”) with DG surviving the
Merger, subject to the terms and conditions set forth in the Merger Agreement;

 

WHEREAS, DG’s operations are divided into two reporting segments for purposes of
reporting its financial condition and results of operations, notably its Online
Business and its Television Business;

 

WHEREAS, Buyer and Acquisition Sub desire to acquire from DG, and DG desires to
transfer to Buyer and Acquisition Sub, only the Television Business under the
terms and conditions of the Merger Agreement as more fully described in this
Agreement, that certain Separation and Redemption Agreement, dated as of the
date hereof, by and between DG and SpinCo (the “Separation and Redemption
Agreement”) and the other Ancillary Agreements;

 

WHEREAS, following the separation of the Online Business (which will be conveyed
to and vest in SpinCo) and the Television Business (which will remain with DG
and its Subsidiaries that are not being conveyed to SpinCo) in accordance with
the Separation and Redemption Agreement (the “Separation”), and as a condition
to the Merger, immediately prior to the Effective Time, each share of common
stock of DG then issued and outstanding will be partially redeemed (the
“Redemption”) by conversion into the right to receive one (1) share of common
stock of SpinCo;

 

WHEREAS, the Parties desire to enter into this Agreement to allocate between
them assets, liabilities and responsibilities with respect to certain employee
compensation, benefit plans, programs and arrangements, and certain employment
matters; and

 

WHEREAS, DG and SpinCo intend in the Separation and Redemption Agreement, this
Agreement and the other Ancillary Agreements to set forth the principal
corporate and commercial arrangements between the Parties with respect to the
Separation and the Redemption.

 

NOW, THEREFORE, in consideration (the sufficiency and receipt of which is hereby
acknowledged) of the foregoing and the terms, conditions, covenants and
provisions of this Agreement, DG and SpinCo mutually covenant and agree as
follows:

 

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ARTICLE I

 

DEFINITIONS

 

Capitalized terms used in this Agreement (other than the formal names of Plans)
and not otherwise defined in this Article I or elsewhere in this Agreement shall
have the respective meanings assigned to them in the Separation and Redemption
Agreement.

 

Wherever used in this Agreement, the following terms shall have the meanings
indicated below or as such term may be defined elsewhere in this Agreement,
unless a different meaning is plainly required by the context.  The singular
shall include the plural, unless the context indicates otherwise.

 

1.1          401(k) Plan.  “401(k) Plan” means the DG, Inc. 401(k) Plan, and the
associated trust (including all predecessor plans and trusts that have been
merged into the 401(k) Plan), which is intended to be qualified under Code
Section 401(a) and exempt from taxation under Code Section 501(a).

 

1.2          COBRA.  “COBRA” means the continuation coverage requirements for
“group health plans” under Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended from time to time, and as codified in
Code Section 4980B and ERISA Sections 601 through 608, and to the extent
applicable, also includes any similar applicable state laws providing
continuation of coverage benefits.

 

1.3          Code.  “Code” means the Internal Revenue Code of 1986, as amended.

 

1.4          Companies.  “Companies” means DG, SpinCo, the Other Subsidiaries
and the SpinCo Subsidiaries.

 

1.5          Continuing DG Contractor.  “Continuing DG Contractor” means any
Contractor of DG or any of the Other Subsidiaries, including those Contractors
listed on Schedule I, other than a SpinCo Contractor or the Retained DG
Individuals.

 

1.6          Continuing DG Employee.  “Continuing DG Employee” means any
Employee of DG or any of the Other Subsidiaries, including those Employees
listed on Schedule I, other than a SpinCo Employee or the Retained DG
Individuals.

 

1.7          Contractor.  “Contractor” means any individual actively providing
services to the Companies as an independent contractor or other individual
service provider other than a member of the Board of Directors of any of the
Companies.

 

1.8          DG Option.  “DG Option” shall mean an outstanding option to
purchase shares of DG common stock under any of the DG Option Plans.

 

1.9          DG Option Plans.  “DG Option Plans” shall mean DG’s 2011 Incentive
Award Plan, Amended and Restated 2006 Long-Term Stock Incentive Plan, Amended
and Restated 1995 Director Option Plan, 1992 Stock Option Plan, the Viewpoint
1995 Stock Option Plan, the

 

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Viewpoint 2006 Equity Incentive Plan and the MediaMind Technologies Inc. 2007
Stock Option and Incentive Plan.

 

1.10        Effective Time.  “Effective Time” has the meaning ascribed in the
Merger Agreement.

 

1.11        Employee.  “Employee” shall mean an active employee or an employee
on vacation or on approved leave of absence (including maternity, paternity,
family, sick leave, salary continuation, qualified military service under the
Uniformed Services Employment and Reemployment Rights Act of 1994, and leave
under the Family Medical Leave Act and other approved leaves).

 

1.12        ERISA.  “ERISA” means the Employee Retirement Income Security Act of
1974, as amended from time to time.

 

1.13        Exchange Date.  “Exchange Date” means the date that is two Business
Days prior to the Redemption Date.

 

1.14        FSA Plans.  “FSA Plans” means the flexible spending plans offered by
the Companies that cover or are offered to Employees of the Companies, other
than any Retained International Plans.

 

1.15        Health Plans.  “Health Plans” means the medical, HMO, vision, dental
Plans and any similar Plans maintained for the benefit of Employees of the
Companies and their eligible spouses and dependents, other than any Retained
International Plans.

 

1.16        International Online Employee.   “International Online Employee”
means those Continuing DG Employees engaged in the Online Business listed on
Schedule VI attached hereto, whose employment with DG or an Other Subsidiary
will continue following the Effective Time pursuant to the Transition Services
Agreement.

 

1.17        International TV Employee.  “International TV Employee” means those
SpinCo Employees engaged in the Television Business listed on Schedule VII
attached hereto, whose employment with SpinCo or any of the SpinCo Subsidiaries
will continue following the Effective Time pursuant to the Transition Services
Agreement.

 

1.18        Liabilities.  “Liabilities” means all debts, liabilities,
guarantees, assurances, commitments and obligations, whether fixed, contingent
or absolute, asserted or unasserted, matured or unmatured, liquidated or
unliquidated, accrued or not accrued, known or unknown, due or to become due,
whenever or however arising (including, without limitation, whether arising out
of any contract or tort based on negligence or strict liability) and whether or
not the same would be required by generally accepted accounting principles to be
reflected in financial statements or disclosed in the notes thereto.

 

1.19        SpinCo Contractor.  “SpinCo Contractor” means any current or former
Contractor of SpinCo or any of the SpinCo Subsidiaries (other than any former
Contractor of SpinCo who is a Continuing DG Employee or a Continuing DG
Contractor).  Schedule II attached hereto sets forth each current SpinCo
Contractor.

 

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1.20        SpinCo Employee.  “SpinCo Employee” means any Transferred DG
Employee and any current or former Employee of SpinCo or any of the SpinCo
Subsidiaries (other than any former Employee of SpinCo who is a Continuing DG
Employee or a Continuing DG Contractor).  Schedule II attached hereto sets forth
each current Employee of SpinCo or a SpinCo Subsidiary.

 

1.21        SpinCo Subsidiaries.  “SpinCo Subsidiaries” means those Subsidiaries
of SpinCo and its Subsidiaries as listed in the Disclosure Schedules to the
Merger Agreement.

 

1.22        Non-U.S. Plan.  “Non-U.S. Plan” means any Plan covering a Continuing
DG Employee or a Continuing DG Contractor on a non-U.S. payroll immediately
prior to the Transition Date.

 

1.23        Online Business.  “Online Business” has the meaning ascribed in the
Merger Agreement.

 

1.24        Other Subsidiaries.  “Other Subsidiaries” means the Subsidiaries of
DG other than SpinCo and the SpinCo Subsidiaries.

 

1.25        Other Welfare Plans.  “Other Welfare Plans” means the employee
welfare benefit plans offered by the Companies that cover or are offered to
Employees of the Companies (and, as applicable, their dependents), including
without limitation, long-term and short-term disability plans and life insurance
plans, other than the Retained International Plans.

 

1.26        Participating Company.  “Participating Company” means, with respect
to a Plan, any Person (other than an individual) that has been approved for
participation in, has accepted participation in, and/or which is participating
in, or the Employees of which participate in or are covered by, such Plan.

 

1.27        Plan.  “Plan” means any “employee benefit plan” as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (whether or not subject to ERISA) and any other plan, predecessor
plan, policy, program, practice, agreement, contract, trust, insurance policy,
understanding or arrangement (whether written or oral) providing compensation or
other benefits to any current or former director, Employee, or Contractor (or to
any dependent, domestic partner, or beneficiary thereof) of the Companies or any
of their affiliates, subsidiaries, or controlled group members (as defined in
Section 414(b), (c), (m) or (o) of the Code) (collectively, the “DG ERISA
Affiliates”), which is or has been maintained, sponsored, or contributed to by
any of the Companies or a DG ERISA Affiliate prior to the Effective Time.

 

1.28        Restricted Stock Unit.  “Restricted Stock Unit” means an outstanding
restricted stock unit related to DG common stock granted pursuant to any DG
Option Plan.

 

1.29        Retained DG Agreements.  “Retained DG Agreements” means those
agreements set forth on Schedule III attached hereto.

 

1.30        Retained DG Individuals.  “Retained DG Individuals” means the
Employees and Contractor of DG set forth on Schedule IV attached hereto.

 

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1.31        Retained International Plans.  “Retained International Plans” means
the benefits provided pursuant to Sunlife Financial Policy No. 70238, which
includes extended health care, dental care, long-term disability, life
insurance, accidental death and dismemberment, and any Non-U.S. Plan that will
not be terminated immediately prior to the Transition Date pursuant to the
provisions of Section 2.4 and will instead be retained from and after the
Transition Date by DG, an Other Subsidiary or one of their Affiliates.

 

1.32        Television Business.  “Television Business” has the meaning ascribed
in the Merger Agreement

 

1.33        Transferred DG Contractor.  “Transferred DG Contractor” means the
current Contractors of DG and the Other Subsidiaries set forth on Schedule V
attached hereto, other than any such Contractors who cease to provide services
to DG or any of the Other Subsidiaries prior to the Transition Date, and any
other Contractors of DG and the Other Subsidiaries that DG and SpinCo may
mutually agree (subject to the written approval of the Buyer, which shall not be
unreasonably withheld) shall transfer from DG or one of the Other Subsidiaries
to SpinCo or a SpinCo Subsidiary in connection with the Separation.

 

1.34        Transferred DG Employee.  “Transferred DG Employee” means the
current Employees of DG and the Other Subsidiaries set forth on Schedule V
attached hereto, other than any such Employees who cease to be employed by DG or
any of the Other Subsidiaries prior to the Transition Date, any individuals
hired as Employees by the Companies after the date hereof to work in the Online
Business and any other Employees of DG and the Other Subsidiaries that DG and
SpinCo may mutually agree (subject to the written approval of the Buyer, which
shall not be unreasonably withheld) shall transfer employment from DG or one of
the Other Subsidiaries to SpinCo or a SpinCo Subsidiary in connection with the
Separation.

 

1.35        Transition Date.  “Transition Date” means, except as may otherwise
be agreed between SpinCo and DG, 12:01 a.m. Eastern Time on the Redemption Date;
provided, however, that, on the Transition Date prior to the Effective Time,
SpinCo agrees to pay all Employees and Contractors of the Companies all amounts
to which they are entitled under the terms of their existing employment or
consulting arrangements with DG, SpinCo or any subsidiary and under the terms of
this Agreement through 11:59 p.m. Central Time on the Redemption Date.

 

1.36        U.S. Finance Employee.  “U.S. Finance Employee” means those
Transferred DG Employees listed on Schedule VIII attached hereto, whose
employment with SpinCo or a SpinCo Subsidiary will continue following the
Effective Time pursuant to the Transition Services Agreement.

 

ARTICLE II

 

GENERAL PRINCIPLES

 

2.1          Liabilities

 

(a)           Except as otherwise specified in this Agreement or as mutually
agreed upon by DG and SpinCo from time to time (subject to the written approval
of the Buyer), effective as of the Transition Date, SpinCo hereby assumes and
agrees to pay, perform, fulfill

 

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and discharge, in accordance with their respective terms (i) all Liabilities of
the Companies relating to, arising out of, or resulting from the employment of
current or former Employees (including without limitation the Retained DG
Individuals, any payments or liabilities related to the termination of, or
payments to, the Retained DG Individuals pursuant to Section 6.2), and the
service relationship of current or former directors or Contractors, with the
Companies, in each case, prior to the Effective Time, (ii) all Liabilities of
SpinCo and the SpinCo Subsidiaries relating to, arising out of, or resulting
from the employment of SpinCo Employees, and the service relationship of SpinCo
Contractors, with SpinCo and the SpinCo Subsidiaries, in each case, from and
after the Transition Date, and (iii) all Liabilities of the Companies relating
to, arising out of, or resulting from the Plans, in each case, prior to the
Effective Time.

 

(b)           Except as specified otherwise in this Agreement or as mutually
agreed upon by DG and SpinCo from time to time (subject to the written approval
of the Buyer), effective as of the Effective Time, DG hereby assumes and agrees
to pay, perform, fulfill and discharge, in accordance with their respective
terms (i) all Liabilities of DG and the Other Subsidiaries relating to, arising
out of, or resulting from employment of Continuing DG Employees, and the service
relationship of Continuing DG Contractors, with DG and the Other Subsidiaries
from and after the Effective Time, and (ii) all Liabilities of DG and the Other
Subsidiaries relating to, arising out of, or resulting from any Retained
International Plan, in each case, to the extent such Liabilities arise from and
after the Effective Time.

 

2.2          SpinCo Under No Obligation to Maintain Plans.  Except as specified
otherwise in this Agreement or as otherwise mutually agreed to by DG and SpinCo,
nothing in this Agreement shall preclude SpinCo or any of the SpinCo
Subsidiaries, at any time after the Transition Date, from amending, merging,
modifying, terminating, eliminating, reducing, or otherwise altering in any
respect any Plan, any benefit under any Plan or any trust, insurance policy or
funding vehicle related to any Plan, or any employment or other service
arrangement with SpinCo Employees or SpinCo Contractors (to the extent permitted
by Law), in each case other than the Retained International Plans.

 

2.3          Termination of Participating Company Status.  Except as may
otherwise be agreed upon by SpinCo and DG (subject to the written approval of
the Buyer, which shall not be unreasonably withheld), DG and the Other DG
Subsidiaries shall remain Participating Companies in all Plans until immediately
prior to the Transition Date.  Except as may otherwise be provided in this
Agreement or agreed upon by SpinCo and DG (subject to the written approval of
the Buyer, which shall not be unreasonably withheld), as of immediately prior to
the Transition Date, DG and the Other Subsidiaries shall each automatically, and
without further action on the part of DG or the Other Subsidiaries, withdraw
from and cease to be Participating Companies in, all Plans that will be retained
by or transferred to SpinCo or the SpinCo Subsidiaries as provided elsewhere in
this Agreement.

 

2.4          Retained International Plans.  Subject to Section 2.1(a), DG and
SpinCo each intend that the matters, issues or Liabilities relating to, arising
out of, or resulting from Non-U.S. Plans and non-U.S.-related employment matters
be handled in a manner that is in compliance with the requirements of applicable
local Laws.  In furtherance of the foregoing, and without limiting the effect of
Section 2.1(a), to the extent that the transfer of any Non-U.S. Plan in the
manner contemplated by this Agreement to SpinCo or the SpinCo Subsidiaries would
be

 

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prohibited under applicable Laws (any such Non-U.S. Plan, a “Mandatory Non-U.S.
Plan”), DG, an Other Subsidiary or one of their Affiliates will retain such
Mandatory Non-U.S. Plan from and after the Transition Date.  To the extent
permitted by applicable Law, upon Buyer’s reasonable request, DG will terminate
or cause to be terminated any Mandatory Non-U.S. Plan effective as of not later
than the Effective Time.  For the avoidance of doubt, SpinCo will indemnify DG
for (a) all Liabilities incurred by DG or the Other Subsidiaries following the
Effective Time as a result of the participation of any SpinCo Employee in the
Mandatory Non-U.S. Plans, or (b) Liabilities accrued prior to the Effective Time
related to the participation of any Continuing DG Employee or Retained DG
Individual in the Mandatory Non-U.S. Plans prior to the Effective Time.  Subject
to the foregoing provisions of this Section, after the Effective Time, DG and
the Other Subsidiaries shall be responsible for the administration of the
Retained International Plans.

 

2.5          Transition Services Agreement.  Subject to the Transition Services
Agreement, the Parties’ rights, obligations and Liabilities following the
Effective Time with respect to the International Online Employees, the
International TV Employees and the U.S. Finance Employees shall be governed
exclusively by this Agreement.

 

ARTICLE III

 

DEFINED CONTRIBUTION PLAN

 

3.1          401(k) Plan

 

(a)           Assumption of 401(k) Plan by SpinCo.  Effective immediately prior
to the Transition Date, SpinCo shall assume sponsorship of the 401(k) Plan, and
DG hereby consents thereto, and SpinCo shall assume all obligations of DG
thereunder, including, without limitation, as sponsor, named fiduciary, and plan
administrator.  DG and the Other Subsidiaries shall withdraw as Participating
Companies in the 401(k) Plan effective as of immediately prior to the Transition
Date.  SpinCo shall take, or cause to be taken, all action necessary to assume
sponsorship of the 401(k) Plan, including amending the 401(k) Plan document and
summary plan description, notifying 401(k) Plan participants, and notifying
service providers to the 401(k) Plan.  Effective immediately prior to the
Transition Date, the fiduciaries and plan administrator previously serving with
respect to the 401(k) Plan shall be relieved of their respective
responsibilities and duties to the extent such individuals are Continuing DG
Employees, and SpinCo shall appoint, or cause to be appointed, replacement
fiduciaries and a plan administrator (each as defined in Section 3(21) and 3(16)
of ERISA, respectively) with respect to the 401(k) Plan.  Except as provided
above, DG shall be responsible for all 401(k) Plan obligations, including the
administration thereof, prior to the Transition Date.  From and after the
Transition Date, SpinCo and its appointees shall retain sole responsibility for
all Liabilities under the 401(k) Plan, subject to the terms of the 401(k) Plan
(including, without limitation, SpinCo’s right to amend and/or terminate the
401(k) Plan), and DG and the Other Subsidiaries shall have no obligation with
respect thereto.

 

(b)           Vesting of Continuing DG Employee Accounts.  Effective as of
immediately prior to the Transition Date, the accounts of all Continuing DG
Employees and Retained DG Individuals under the 401(k) Plan shall, to the extent
then unvested, become vested

 

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in full.  DG and SpinCo shall take all actions reasonably necessary to effect
such vesting of the Continuing DG Employees’ and Retained DG Individuals’
accounts and to notify affected Continuing DG Employees and Retained DG
Individuals of this action.

 

(c)           Distributions.  If, following the Transition Date, any Continuing
DG Employee elects a distribution of benefits from the 401(k) Plan, DG will use
commercially reasonable efforts to cause any tax-qualified defined contribution
plan, in which such Continuing DG Employee is eligible to participate as of the
date of such distribution, to accept, if requested by the applicable Continuing
DG Employee, a direct rollover of the portion of a Continuing DG Employee’s
distribution which constitutes an eligible rollover distribution.

 

(d)           Cooperation.  Upon request by either Party, each Party agrees to
cooperate with the other Party and to provide all eligible compensation and/or
other data as necessary for either Party to determine employer contributions,
contribution amounts, loan repayments, and any other information reasonably
necessary for the administration of matters pertaining to the 401(k) Plan.

 

ARTICLE IV

 

HEALTH AND WELFARE PLANS

 

4.1          Health Plans

 

(a)           Transition of Health Plans.  Effective as of the Transition Date,
SpinCo and the SpinCo Subsidiaries shall assume sponsorship of the Health Plans,
and DG hereby consents thereto.  SpinCo and the SpinCo Subsidiaries shall
thereafter be solely responsible for (i) all Liabilities with respect to the
Health Plans, whether incurred before or after the Transition Date; and (ii) the
administration of the Health Plans, including, without limitation, the payment
of all employer-related costs in establishing and maintaining the Health Plans,
and for the collection and remittance of employee premiums.

 

(b)           Claims; Run-out Liability.  From and after the Transition Date,
SpinCo shall in good faith administer all claims incurred under the Health Plans
before the Transition Date and any determination made or settlements entered
into by SpinCo with respect to such claims shall be final and binding.

 

(c)           No Status Change.  The transfer or other movement of employment
between DG and SpinCo or any of their respective Subsidiaries at any time before
or upon the Transition Date shall neither constitute nor be treated as a “status
change” or termination of employment under the Health Plans.

 

(d)           COBRA.  SpinCo shall be solely responsible for compliance with the
health care continuation coverage requirements of COBRA with respect to
Employees and qualified beneficiaries (as such term is defined under COBRA) of
the Companies whose “qualifying event” (as such term is defined under COBRA)
occurs prior to the Effective Time, and for Retained DG Individuals and
Transferred DG Employees whose “qualifying event” occurs as of or following the
Effective Time and DG and the Other Subsidiaries shall be solely responsible for
compliance with the health care continuation coverage requirements of COBRA

 

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with respect to Continuing DG Employees and qualified beneficiaries whose
“qualifying event” occurs as of or following the Effective Time.

 

4.2          Other Welfare Plans

 

(a)           Transition of Other Welfare Plans.  Effective as of the Transition
Date, SpinCo and the SpinCo Subsidiaries shall assume sponsorship of the Other
Welfare Plans, and DG hereby consents thereto.  SpinCo and the SpinCo
Subsidiaries shall thereafter be solely responsible for (i) all Liabilities with
respect to the Other Welfare Plans, whether incurred before or after the
Transition Date; and (ii) the administration of the Other Welfare Plans,
including, without limitation, the payment of all employer-related costs in
establishing and maintaining the Other Welfare Plans, and for the collection and
remittance of Employee premiums.

 

(b)           Claims; Run-out Liability.  From and after the Transition Date,
SpinCo shall in good faith administer all claims incurred under the Other
Welfare Plans before the Transition Date and any determination made or
settlements entered into by SpinCo with respect to such claims shall be final
and binding.

 

4.3          Leave Employees.  The Parties shall use commercially reasonable
efforts to provide that any Continuing DG Employees that, as of the Transition
Date, are on leave from active employment (“Leave Employees”) will be eligible
to receive benefits under long-term and/or short-term disability plans and other
health and welfare plans maintained by DG or an Affiliate of DG (determined as
of immediately following the Effective Time) on substantially the same basis as
such Employee was receiving benefits under the corresponding Other Welfare Plans
as of immediately prior to the Transition Date, without regard to any
actively-in-service or similar requirements.  In the event the Parties are not
able to provide for such coverage of the Leave Employees under such DG plans,
then notwithstanding any provision of this Agreement to the contrary, the
Parties shall reasonably cooperate and take such action as is reasonably
necessary to cause any such Leave Employee to continue to receive or be entitled
to receive benefits under the applicable Other Welfare Plans, provided that
SpinCo and the SpinCo Subsidiaries and DG shall negotiate in good faith to
determine the amount (if any) of, and financial responsibility for, any
out-of-pocket costs with respect to such coverage or the employment or
termination of employment of any such Leave Employees.

 

4.4          Flexible Spending Account Plan.  Effective as of the Transition
Date, SpinCo and the SpinCo Subsidiaries shall assume sponsorship of the FSA
Plans, and DG hereby consents thereto.  SpinCo and the SpinCo Subsidiaries shall
thereafter be solely responsible for all Liabilities with respect to the FSA
Plans, whether incurred before or after the Transition Date.  In the event the
Transition Date occurs after the beginning of the flexible spending account plan
year (as determined under the FSA Plans), then as soon as practicable following
the Transition Date, SpinCo shall cause any Excess FSA Balance (as hereinafter
defined) held as of the Transition Date in the FSA Plan accounts of the
Continuing DG Employees who are participating in the FSA Plans (hereafter, the
“DG FSA Participants”) to be transferred to flexible spending accounts
established for those DG FSA Participants under a flexible spending account plan
maintained by DG or an Affiliate of DG (determined as of immediately following
the Effective Time).  For purposes of this Section 4.4, with respect to each DG
FSA Participant, the term “Excess FSA Balance” shall mean the excess, if any, of
the aggregate accumulated

 

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contributions made by such DG FSA Participant to his or her account under the
FSA Plans prior to the Transition Date during the year in which the Transition
Date occurs over the aggregate reimbursement payouts made for such year from
such DG FSA Participant’s account under the FSA Plans.  If, for any DG FSA
Participant, the aggregate reimbursement payouts from the flexible spending
reimbursement account of such DG FSA Participant under the FSA Plans during the
portion of the flexible spending account plan year ending on the Transition Date
exceeds the aggregate contributions made by such DG FSA Participant to his or
her account under the FSA Plans for such portion of the flexible spending
account plan year, DG shall cause an amount of cash equal to such excess to be
transferred to SpinCo as soon as reasonably practicable following the Transition
Date.

 

ARTICLE V

 

ADMINISTRATIVE PROVISIONS

 

5.1          Information.  Subject to applicable Laws of confidentiality and
data protection, (a) DG and SpinCo shall share, or cause to be shared, all
participant information that is necessary or appropriate for the efficient and
accurate administration of each of the Plans during the respective periods
applicable to such Plans, and (b) DG and SpinCo and their respective authorized
agents shall be given reasonable and timely access to, and may make copies of,
all information relating to the subjects of this Agreement in the custody of the
other Party or its agents, to the extent necessary or appropriate for such
administration.  Upon the Transition Date, all data and information relating to
the employment of and benefits for SpinCo Employees, including personnel and
medical records, and the service relationship of SpinCo Contractors, subject in
each case to obtaining any consents required by applicable Law, shall become the
property of SpinCo and/or the SpinCo Subsidiary employing or retaining such
Employee or Contractor.

 

5.2          Third Party Consents.  If any provision of this Agreement is
dependent on the consent of any third party and such consent is withheld, the
Parties shall use their commercially reasonable efforts to implement the
applicable provisions of this Agreement.  If any such provision cannot be
implemented due to the failure to obtain a third party consent, the Parties
shall negotiate in good faith to implement such provision in a mutually
satisfactory manner.

 

5.3          Regulatory Matters.  DG and SpinCo shall in a timely manner make
such applications to regulatory agencies, including the Internal Revenue Service
and the Department of Labor, as may be necessary or appropriate.  The Parties
shall reasonably cooperate with and provide assistance to one another (and cause
their respective subsidiaries to do the same) with respect to any such
applications, including applications for determination letters or private letter
rulings from the Internal Revenue Service or advisory opinions from the
Department of Labor.

 

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ARTICLE VI

 

EMPLOYMENT-RELATED MATTERS

 

6.1          Employment

 

(a)           Non-Transferring Employees. The Parties intend with respect to
each current SpinCo Employee or SpinCo Contractor to provide for the continuity
of employment or service of each such SpinCo Employee or SpinCo Contractor with
SpinCo or the applicable SpinCo Subsidiary through and following the Transition
Date and, subject to applicable Law, nothing in the Separation and Redemption
Agreement, this Agreement or any other Ancillary Agreement is intended to
provide for a termination of employment or service of any such SpinCo Employee
for any purpose.  The Parties intend with respect to each current Continuing DG
Employee and Continuing DG Contractor to provide for the continuity of
employment or service of each such Continuing DG Employee or Continuing DG
Contractor with DG or the applicable Other Subsidiary through and, for such
period of time as determined by DG, following the Transition Date and, subject
to applicable Law, nothing in the Separation and Redemption Agreement, this
Agreement or any other Ancillary Agreement is intended to provide for a
termination of employment or service of any such Continuing DG Employee or
Continuing DG Contractor for any purpose.

 

(b)           Transferred DG Employees. The Parties agree that, effective as of
no later than the Transition Date, each Transferred DG Employee will cease to be
employed by DG or any Other Subsidiary and each Transferred DG Employee shall
commence employment with SpinCo or a SpinCo Subsidiary.  Effective as of the
Transition Date, DG shall terminate (or have assumed by SpinCo or a SpinCo
Subsidiary) all employment rights and relationships of all of its Television
Business Employees who reside or perform services in Israel.

 

(c)           Transferred DG Contractors.  The Parties agree that, effective as
of no later than the Transition Date, DG or an Other Subsidiary will assign to
SpinCo or a SpinCo Subsidiary and SpinCo or such SpinCo Subsidiary shall assume
the engagements of the Transferred DG Contractors.

 

6.2          Retained DG Individuals.  Prior to the Effective Time (but not more
than 30 days prior to the Effective Time), DG’s Board of Directors or a duly
authorized committee or officer  thereof shall, without any further action on
the part of any Retained DG Individual, take all actions necessary to cause the
termination of the employment or service of the Retained DG Individuals by DG
and the termination and liquidation of the Retained DG Agreements effective
immediately following the Closing.  The payment to such Retained DG Individuals
of all amounts due to them under the Retained DG Agreements as a result of such
terminations shall be paid in cash, in a lump sum, at the Effective Time and,
for the avoidance of doubt, shall be a liability of SpinCo.  Such terminations
will be treated as terminations without “Cause” (as defined in the Retained DG
Agreements).

 

6.3          Paid Leave.  On the Transition Date prior to the Effective Time, DG
shall pay to each Continuing DG Employee and each Retained DG Individual all
accrued but unpaid vacation, paid time off or other leave benefits.

 

6.4          Incentive and Commission Payments.  On the Transition Date prior to
the Effective Time, to the extent not otherwise provided for herein, DG shall
pay (a) to each Continuing DG Employee or Continuing DG Contractor all awards,
payments and commissions earned but unpaid as of such time (regardless of
whether such awards, payments or commissions were scheduled to be paid at a
later date) under each short-term incentive, long-term incentive,

 

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bonus, commission and similar plan or arrangement sponsored or maintained by DG
and, subject to any required consents (which the Parties agree to use
commercially reasonable efforts to obtain), terminate all such plans or
arrangements, and (b) to each Continuing DG Employee who has a right to
participate in an annual or quarterly cash incentive bonus plan with a specified
target award (whether specifically termed a “target” award or otherwise), a
prorated portion, based on the number of days elapsed for the year or quarter,
as applicable, in which the Transition Date occurs, of the annual or quarterly
cash incentive bonus payable pursuant to the applicable plan for the year or
quarter during which the Transition Date occurs based on actual performance
attained as determined by DG in good faith applying the parameters DG would
normally apply in determining such individual’s bonus under such plan.  Nothing
in this Section 6.4 shall require DG to pay any amount to any Continuing DG
Employee or Continuing DG Contractor whose entitlement to an award, bonus or
payment is purely in the discretion of the Companies or who does not have a
specified target award.

 

6.5          Employment and Severance Agreements; Contractors.  Subject to
obtaining any required consents (which the Parties agree to use commercially
reasonable efforts to obtain), and except as otherwise agreed by DG and SpinCo,
effective as of no later than the Transition Date, DG shall assign or cause to
be assigned any and all employment and severance agreements and similar
contracts relating to employment or independent contractor services between DG
or any Other Subsidiary, on the one hand, and any SpinCo Employee or SpinCo
Contractor, on the other, to SpinCo or a SpinCo Subsidiary designated by SpinCo,
and SpinCo or such SpinCo Subsidiary shall assume all Liabilities thereunder. 
Subject to Section 6.4 of this Agreement and Section 6.1(d) of the Merger
Agreement, for the avoidance of doubt, DG or an Other Subsidiary shall assume
all Liabilities from and after the Effective Time under all employment
agreements and contracts with independent contractors between DG or any Other
Subsidiary, on the one hand, and any Continuing DG Employee or Continuing DG
Contractor, on the other.

 

6.6          No Right To Employment; No Third-Party Beneficiaries; No Plan
Amendment.  No provision of this Agreement shall be construed to create any
right or accelerate any entitlement to any compensation or benefit whatsoever on
the part of any current or former Employee or Contractor or other former,
present or future employee or other service provider of the Companies under any
Plan or otherwise.   No provision of this Agreement shall be construed to create
any right in any Person to continued employment or service with any of the
Companies or any other Person for any period, which employment or service may be
terminated by any of the Companies or any other Person at any time for any
reason or no reason, subject to applicable Law and the terms of any applicable
agreements.  No provision of this Agreement shall be construed to require the
Companies or any other Person to continue to maintain any Plan or provide any
benefit and no provision of this Agreement shall be construed as an amendment to
any Plan.  No current or former Employee or Contractor of any of the Companies
and no Plan shall be deemed a third party beneficiary under this Agreement and
no current or former Employee or Contractor of any of the Companies or Plan is
entitled to rely on any provision of this Agreement for any purpose.  The
Parties to this Agreement assume no Liability to any third party because of any
such reliance.

 

6.7          Beneficiary Coverage.  References herein to a benefit with respect
to a current or former Employee shall include, where applicable, benefits with
respect to any eligible

 

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dependents, domestic partners, and beneficiaries of such Employee under the same
employee benefit policy, Plan, arrangement, program, practice or agreement.

 

ARTICLE VII

 

EQUITY AWARDS

 

7.1          Treatment of Options.  Subject to the satisfaction or waiver of the
conditions set forth in Article VII of the Merger Agreement and in accordance
with Section 3.3 of the Merger Agreement, each DG Option, whether vested or
unvested, shall by action of DG’s Board of Directors or a duly authorized
committee thereof, and without any action on the part of any holder of any DG
Option, become fully vested and be exchanged for shares of DG common stock on a
net exercise basis on the Exchange Date.  As of the Separation, there shall be
no DG Options outstanding.

 

7.2          Treatment of Restricted Stock Units.  Subject to the satisfaction
or waiver of the conditions set forth in Article VII of the Merger Agreement and
in accordance with Section 3.3 of the Merger Agreement, each Restricted Stock
Unit, whether vested or unvested, shall by action of DG’s Board of Directors or
a duly authorized committee thereof and without any further action on the part
of any holder of any Restricted Stock Unit, become fully vested and be converted
into a share of DG common stock on the Exchange Date.  As of the Separation,
there shall be no Restricted Stock Units outstanding.  Prior to the Exchange
Date (but in no event more than 30 days prior to the Effective Time), DG’s Board
of Directors or a duly authorized committee thereof shall, without any further
action on the part of any Retained DG Individual, take all actions necessary to
cause the termination and liquidation of the award agreements evidencing the
Restricted Stock Units held by such Retained DG Individuals effective on the
Exchange Date, subject to the consummation of the Merger.

 

7.3          Necessary Action.  Prior to the Transition Date, DG shall take any
and all actions reasonably necessary to effectuate the provisions of this
Article VII, including, without limitation, providing holders of DG Options and
Restricted Stock Units with notice of exchange on a net exercise basis of DG
Options for DG common stock and the conversion of their Restricted Stock Units
as provided herein.

 

7.4          Employee Stock Purchase Plan.  Effective no later than immediately
prior to the Effective Time, DG shall terminate the Digital Generation, Inc.
Employee Stock Purchase Plan pursuant to the terms of that Plan.

 

ARTICLE VIII

 

MISCELLANEOUS

 

8.1          Agreement Subject to the Redemption.  If the Redemption does not
occur for any reason, then all actions and events that are, under this
Agreement, to be taken or occur effective as of such event or otherwise in
connection with such event, shall not be taken or occur except to the extent
specifically agreed by SpinCo and DG in a separate writing.  As a result, all
actions and events that would, under this Agreement, have to be taken in
connection with the

 

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Redemption, shall not be taken or occur except to the extent specifically agreed
by SpinCo and DG in a separate writing.

 

8.2          Governing Law; Dispute Resolution.  This Agreement shall be
governed by and construed and interpreted in accordance with the Laws of the
State of Delaware, irrespective of the choice of laws principles of the State of
Delaware as to all matters, including matters of validity, construction, effect,
enforceability, performance and remedies, to the extent not preempted by ERISA. 
This Agreement shall be subject to Article IX and Section 12.15 of the
Separation and Redemption Agreement.

 

8.3          Fiduciary Matters.  DG and SpinCo each acknowledge that actions
contemplated to be taken pursuant to this Agreement may be subject to fiduciary
duties or standards of conduct under ERISA or other applicable Law, and that no
Party shall be deemed to be in violation of this Agreement if such Party fails
to comply with any provisions hereof based upon such Party’s good faith
determination that to do so would violate such an applicable fiduciary duty or
standard.

 

8.4          Amendment; Waivers; Time for Performance.  Subject to Section 9.12
of the Merger Agreement, no change or amendment will be made to this Agreement,
except with the prior written consent of SpinCo and DG by an instrument in
writing signed by authorized individuals on behalf of each of the Parties to
this Agreement.  Except as otherwise provided in this Agreement, the failure by
any Party to comply with any obligation, covenant, agreement or condition under
this Agreement may be waived by the Party entitled to the benefit thereof only
by a written instrument signed by the Party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.  The failure of any Party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any Party
thereafter to enforce each and every such provision.  No waiver of any breach of
such provisions shall be held to be a waiver of any other or subsequent breach. 
No failure or delay on the part of either Party hereto in the exercise of any
right hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise or waiver of any such right preclude
other or further exercise thereof or of any other right.  Nothing in this
Agreement is intended to preclude SpinCo and DG by mutual agreement from taking
any of the actions specified in this Agreement at any time prior to the time or
times specified herein and to the extent any such actions are taken prior to the
time or times specified herein, this Agreement shall be deemed amended to the
extent necessary to reflect such actions.

 

8.5          Binding Effect; Assignment.  This Agreement shall inure to the
benefit of and be binding upon the Parties hereto and their respective legal
representatives and successors in interest, and, except as expressly provided
herein, nothing in this Agreement, express or implied, is intended to confer
upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.  Neither party may assign this Agreement or any
rights or obligations hereunder, without the prior written consent of the other
party, and any such assignment not in compliance with the foregoing shall be
void; provided, that notwithstanding the foregoing, without the consent of the
other Party hereto, any Party may assign (including by

 

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way of a pledge) to its lenders or other financing sources any or all of its
rights hereunder as collateral security to the extent permitted by applicable
law (which assignment shall not relieve such assigning party of its obligations
hereunder).  Any permitted assignee shall agree to perform the obligations of
the assignor of this Agreement, and this Agreement shall inure to the benefit of
and be binding upon any permitted assignee.

 

8.6          Severability.  If any term or other provision of this Agreement is
determined by a nonappealable decision by a court, administrative agency or
arbitrator to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to either Party.  Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the Parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the fullest extent possible.

 

8.7          Interpretations.  The headings contained in this Agreement or in
any Schedule attached hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.  When a
reference is made in this Agreement to an Article, Section or Schedule, such
reference shall be to an Article or Section of, or a Schedule to, this
Agreement, unless otherwise indicated.

 

8.8          Counterparts.  This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but all of which shall constitute one
and the same agreement.

 

8.9          Notices.  All notices and other communications among the Parties
shall be in writing and shall be deemed to have been duly given (a) when
delivered in person, (b) when delivered after posting in the United States mail
having been sent registered or certified mail return receipt requested, postage
prepaid, (c) when delivered by FedEx or other nationally recognized overnight
delivery service, or (d) when delivered by facsimile (in the case of this clause
(d) solely if receipt is confirmed), addressed as follows:

 

DG (prior to the Effective Time)

 

Digital Generation, Inc.

750 West John Carpenter Freeway, Suite 700

Irving, Texas 75039

Attention: Chief Financial Officer

Facsimile:  (972) 581-2100

 

with a copy to (which copy shall not be deemed to be notice to DG):

 

15

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Latham & Watkins LLP

555 Eleventh Street, N.W., Suite 1000

Washington, D.C. 20004-1304

Attention:  William P. O’Neill

Facsimile:  (202) 637-2201

 

DG (on or after the Effective Time)

 

Digital Generation, Inc.

c/o Extreme Reach, Inc.
75 2nd Avenue

Needham, MA  02494
Attention: John Roland, Chief Executive Officer
Facsimile: (877) 484-8836

 

with a copy to (which copy shall not be deemed to be notice to DG):

 

Pierce Atwood LLP

100 Summer Street, Suite 2250

Boston, MA  02110
Attention: Timothy C. Maguire, Esq.
Facsimile:  (617) 824-2020

 

SpinCo

 

Sizmek Inc.

750 West John Carpenter Freeway, Suite 700

Irving, Texas 75039

Attention: Chief Financial Officer

Facsimile:  (972) 581-2100

 

with a copy to (which copy shall not be deemed to be notice to SpinCo):

 

Latham & Watkins LLP

555 Eleventh Street, N.W., Suite 1000

Washington, D.C. 20004-1304

Attention:  William P. O’Neill

Facsimile:  (202) 637-2201

 

8.10        Limitation of Liability.  IN NO EVENT SHALL SPINCO OR ANY SPINCO
SUBSIDIARY BE LIABLE TO DG OR ANY OTHER SUBSIDIARY FOR, AND IN NO EVENT SHALL DG
OR ANY OTHER SUBSIDIARY BE LIABLE TO SPINCO OR ANY SPINCO SUBSIDIARY FOR, ANY
SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES, LOST PROFITS
OR DIMINUTION IN VALUE, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING

 

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NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

8.11        Entire Agreement.  The Separation and Redemption Agreement, the
Transition Services Agreement, the Merger Agreement, this Agreement, the other
Ancillary Agreements and the exhibits and schedules referenced or attached
hereto and thereto, constitute the entire agreement between the Parties with
respect to the subject matter hereof and thereof and shall supersede all prior
written and oral and all contemporaneous oral agreements and understandings with
respect to the subject matter hereof and thereof.

 

8.12        Remedies Cumulative.  All rights and remedies existing under this
Agreement or the exhibits or schedules attached hereto are cumulative to, and
not exclusive of, any rights or remedies otherwise available.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have signed this Employee Matters Agreement
effective as of the date first set forth above.

 

DIGITAL GENERATION, INC.

 

SIZMEK INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Craig Holmes

 

By:

/s/ Neil Nguyen

Name:

Craig Holmes

 

Name:

Neil Nguyen

Title:

Chief Financial Officer

 

Title:

President and Chief Executive Officer

 

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